ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS
Thor Industries, Inc. (the "Company"), founded in 1980, produces and sells a wide range of recreation vehicles and small and mid-size buses in the United States and Canada.
The Company's principal operating subsidiaries are Airstream, Inc. ("Airstream"); Dutchmen Manufacturing, Inc. ("Dutchmen"); Four Winds International, Inc. ("Four Winds"); Thor America, Inc. ("Thor America"); Komfort Corp. ("Komfort"); Thor Indiana, Inc. ("Thor Indiana"); Aero Manufacturing, Inc. ("Aero"); Citair, Inc. ("Citair"); Thor California, Inc. ("Thor California"); ElDorado National Kansas, Inc. ("ElDorado Kansas"); ElDorado National California, Inc. ("ElDorado California") and Champion Bus, Inc. ("Champion").
During fiscal 1998 the Company shut down its losing bus operation in Brown City, Michigan and sold its Thor West operations to that company's management. The selling price of certain assets and liabilities of Thor West was $1,011,954. As part of the transaction, Thor agreed to guarantee $750,000 of debt of the acquirer and assumed a $750,000 unsecured subordinated note. The note has a three year term and bears interest at 10%. This sale was made on no less favorable terms than if it had been sold to an unaffiliated third party.
On December 31, 1997 the Company sold its Henschen Axle manufacturing operation for approximately $2.9 million cash. On February 9, 1998 the Company purchased for $9.7 million cash substantially all the assets of Champion Motor Coach (now Champion Bus), a builder of small and mid-size buses.
The Company, a Delaware corporation, is the successor to a corporation of the same name which was incorporated in Nevada on July 29, 1980. Its principal executive office is located at 419 West Pike Street, Jackson Center, Ohio 45334, and its telephone number is (937) 596-6849.
RECREATION VEHICLES
AIRSTREAM
Airstream manufactures and sells premium and medium-high priced travel trailers and motorhomes under the trade names "Airstream Classic," and "Land Yacht". Airstream Classic vehicles are distinguished by their rounded shape and bright aluminum finish and, in management's judgment, constitute the most recognized product in the industry. Airstream, responding to the demands of the market for a lighter, lower-cost product, also manufactures and sells the Airstream "Safari" and "Bambi" travel trailers.
DUTCHMEN
Dutchmen manufactures and sells conventional travel trailers and fifth wheels under the trade names "Dutchmen" and "Four Winds." It has become one of the largest-selling brands in the United States due to its reputation for a quality product sold at a lower price.
AERO
Aero manufactures and sells lightweight, European-styled travel trailers and fifth wheels designed for towing behind cars, mini vans, sport utility vehicles and trucks. The Company manufactures folding camping trailers, which it sells under the "Dutchmen" and "Skamper" trade names.
FOUR WINDS
Four Winds manufactures and sells conventional Class C and Class A motorhomes. Its products are sold under the "Four Winds," "Hurricane," "Infinity," "WindSport," "Dutchmen" and "Chateau" trade names.
THOR AMERICA
Thor America (formerly Thor Pennsylvania) manufactures and sells moderately priced travel trailers and fifth wheels under the trade names "Citation" and "Chateau."
THOR INDIANA
Thor Indiana manufactures and sells laminated fifth wheels and travel trailers under the brand names "Signature" and "Fifth Avenue."
ITEM 1. BUSINESS (CONTINUED) CITAIR
Citair is one of the largest Canadian producers of moderately-priced travel trailers, fifth wheels, Class C motorhomes and truck campers. It operates under the name "General Coach" and sells under the trade names "Citation" and "Corsair."
KOMFORT
Komfort manufactures and sells travel trailers and fifth wheels and sells primarily in the western United States and western Canada.
THOR CALIFORNIA
Thor California manufactures and sells conventional travel trailers and fifth wheels under the brand names "Wanderer" and "Tahoe" primarily in the western United States.
BUSES
ELDORADO NATIONAL
ElDorado National is a manufacturer of small and mid-size buses for transit, airport car rental and hotel/motel shuttles, paramedical transit for hospitals and nursing homes, tour and charter operations, and other uses.
The Company builds buses under model names such as "Aerolite," "AeroElite," "Aerotech," "Escort," "MST," "Transmark," and "EZ Rider." Its plants are located in Salina, KS and Chino, CA.
CHAMPION BUS
On February 9, 1998 the Company purchased substantially all of the assets of Champion Motor Coach, Inc. from Champion Enterprises, Inc. Champion Motor Coach is now called Champion Bus, Inc. Champion builds small and mid-size buses under model names such as "Challenger," "Contender," "SoLo," "CTS," "Crusader," and "Defender".
Management believes that Thor Bus (ElDorado National and Champion) is the largest manufacturer of small and mid-size commercial buses in North America.
PRODUCT LINE SALES SEGMENT
The table below sets forth the contribution of each of the Company's product lines to net sales in each of the last three years.
Further information concerning business segments is included in Note M of the Notes to the Consolidated Financial Statements.
RECREATION VEHICLES:
The Company manufactures and sells a wide variety of RVs throughout the United States and Canada, as well as related parts and accessories.
RV classifications are based upon standards established by the Recreation Vehicle Industry Association ("RVIA"). The principal types of RVs produced by the Company include conventional travel trailers, fifth wheels, fold-down camping trailers, Class A and Class C motorhomes.
ITEM 1. BUSINESS (CONTINUED)
Travel trailers are non-motorized vehicles which are designed to be towed by passenger automobiles, pickup trucks or vans. Travel trailers provide comfortable, self-contained living facilities for short periods of time. The Company produces "conventional," "fifth wheel" and "fold-down" travel trailers. Conventional and fold-down camping trailers are towed by means of a frame hitch attached to the towing vehicle. Fifth wheel trailers, designed to be towed by pickup trucks, are constructed with a raised forward section that is attached to the bed area of the pickup truck.
A motorhome is a self-powered vehicle built on a motor vehicle chassis. The interior typically includes a driver's area, kitchen, bathroom, and dining and sleeping areas. Motorhomes are self-contained with their own lighting, heating, cooking, refrigeration, sewage holding and water storage facilities, so that they can be lived in without being attached to utilities.
Class A motorhomes, constructed on medium-duty truck chassis, are supplied complete with engine and drive train components by motor vehicle manufacturers such as Workhorse Custom Chassis, Spartan, Ford or Freightliner. The living area and driver's compartment are designed, manufactured, and installed by the Company. Conventional Class C motorhomes are built on a Ford and General Motors small truck or van chassis which includes an engine, drive train components, and a finished cab section. The Company constructs a living area which has access to the driver's compartment and attaches it to the cab. Although they are not designed for permanent or semi-permanent living, RVs do provide comfortable living facilities for short periods of time.
Management believes its products are competitive, both in terms of price and quality, with those of its competitors in each category of the RV market.
PRODUCTION. In order to minimize finished inventory, the Company's RVs generally are produced to order. The Company's facilities are designed to provide efficient assembly line manufacturing of its products. The Company believes that its production facilities are sufficient for its current production levels. Capacity increases can be achieved at relatively low cost, largely by increasing the number of production employees, adding additional shifts, or acquiring additional facilities.
The Company purchases in finished form many of the components used in the production of RVs. The principal raw materials used in the manufacturing processes for motorhomes and travel trailers are aluminum, lumber, plywood, plastic, fiberglass, and steel purchased from numerous suppliers.The Company believes that, except for chassis, substitute sources for raw materials and components are available with no material impact on the Company's operations. The Company is able to obtain the benefit of volume price discounts for many of its purchases of raw materials and components by centralized purchasing.
The relationship between Thor and its chassis suppliers is similar to all buyer/vendor relationships and no special contractual commitment is engaged in by either party. Historically Ford and General Motors resort to an allocation basis industry wide during restriction of supply. These allocations would be based on previously purchased chassis volumes. Sales of motor homes and small buses rely on these chassis and would be affected accordingly.
Generally, all of the Company's operating subsidiaries introduce new or improved lines or models of RVs each year. Changes typically include new sizes and floorplans, different decors or design features, and engineering improvements.
SEASONALITY. Since RVs are used primarily by vacationers and campers, the Company's sales of its RVs are seasonal and, in most geographical areas, tend to be significantly lower during the winter months than in other periods. As a result, sales of RVs historically are lowest during the Company's second fiscal quarter, which ends January 31.
MARKETING AND DISTRIBUTION. The Company markets its RVs through independent dealers located throughout the U.S. and Canada. Each of the Company's RV subsidiaries maintains its own dealer
ITEM 1. BUSINESS (CONTINUED)
organization, with few dealers carrying more than one product line offered by the Company. Presently there are approximately 800 dealers carrying the Company's products in the U.S. and Canada. The Company believes that close working relationships between its management personnel and the many independent dealers provide the Company with valuable information on customer preferences and the quality and marketability of the Company's products. Additionally, by maintaining substantially separate dealer networks for each of its subsidiaries, the Company's products are more likely to be competing against competitor's products in similar price ranges rather than the Company's other products.
Each of the Company's operating subsidiaries has an independent sales force to call on its dealers. The Company's most important sales promotions occur at the major RV shows for dealers which take place throughout the year at different locations across the country. The Company benefits from the RV awareness advertising and major marketing programs geared towards first-time buyers sponsored by RVIA in national print media and television. The Company engages in a limited amount of consumer-oriented advertising for its RVs, primarily through industry magazines, the distribution of product brochures, and direct mail advertising campaigns.
In its selection of dealers, the Company emphasizes the individual dealer's financial strength to maintain a sufficient inventory of the Company's products, as well as its reputation, experience, and ability to provide service. Many of the Company's dealers carry one or more competitor's line of RVs. Each operating company has sales agreements with its dealers and these agreements are subject to annual review. No single dealer accounted for more than 5% of the Company's consolidated net sales of RVs during the year.
Substantially all of the Company's sales to dealers are made on terms requiring cash on delivery or within 10 days thereafter. The Company generally does not finance dealer purchases. Most dealers are financed on a "floorplan" basis by a bank or finance company which lends the dealer all or substantially all of the wholesale purchase price and retains a security interest in the vehicles purchased. As is customary in the RV industry, upon the request of a lending institution financing a dealer's purchase of the Company's products and after completion of a credit investigation of the dealer involved, the Company will execute a repurchase agreement. Repurchase agreements provide that, for up to 12 months after a unit is financed and in the event of default by the dealer, the Company will repurchase the unit repossessed by the financing institution for the amount then due, which is usually less than 100% of dealer's cost. The risk of loss under repurchase agreements is spread over numerous dealers and is further reduced by the high resale value of the units which the Company would be required to repurchase. In the Company's experience, losses under repurchase agreements have not been significant and management believes any future losses under the agreements would not have a material adverse effect on the Company.
During fiscal 1999 the losses incurred due to repurchase were approximately $682,000.
Thor entered the retail recreation vehicle financing business in March, 1994. Thor Credit Corporation is a captive finance company owned by Thor Industries and Deutsche Financial Services, a major national financial institution engaged in recreation vehicle financing.
In March 1996, Thor and Cruise America, Inc. formed a joint venture, CAT Joint Venture LLC, to make short-term rentals of motorized vehicles to the public.
BACKLOGS. As of July 31, 1999, the backlog for recreation vehicle orders was approximately $105,084,000.
WARRANTIES. The Company currently provides retail purchasers of its RVs with a standard limited warranty for one year against defects in materials and workmanship, and two years on certain major components separately warranted by the suppliers. Certain components, such as the chassis and engines of the Company's motorhomes, are warranted by their manufacturers for periods specified by those manufacturers. The Company's subsidiaries also offer at least a two-year structural warranty.
ITEM 1. BUSINESS (CONTINUED)
BUSES:
The Company's line of small and mid-size buses are sold under the names ElDorado National and Champion Bus. ElDorado National's trade names include "Aerolite," "AeroElite," "Aerotech," "Escort FE," "Escort RE," "Transmark," "MST" and "EZ Rider." Champion's trade names include "Challenger," "Contender," "CTS," "Crusader," "Defender," and "SoLo." The Company's line of mid-size buses consists of airport shuttle buses, intra- and inter-urban mass transportation buses, and buses for tourist uses.
PRODUCTION. The Company's production facilities in Salina, Kansas; Chino, California; and Imlay City, Michigan, are designed to provide efficient assembly line manufacturing of its bus products. The vehicles are produced according to specific orders which are normally obtained by dealers.
Some of the chassis, all of the engines and auxiliary units, and some of the seating and other components used in the production of buses are purchased in finished form. The Chino, California, facility assembles chassis for its rear engine buses from industry standard components and assembles the buses directly on the chassis.
The principal raw materials used in the manufacturing of buses are fiberglass, steel, aluminum, plywood, and plastic. Most of the raw materials and components needed are purchased from numerous suppliers. The Company purchases most of its bus chassis from Ford and General Motors and most of its engines from Cummins. The Company believes that, except for chassis, raw materials and components could be purchased from other sources, if necessary, with no material impact on the Company's operations.
MARKETING AND DISTRIBUTION. The Company markets its product line through a network of 65 independent dealers in the United States and Canada. The Company selects dealers using criteria similar to those used in selecting RV dealers. During fiscal 1999, only one dealer, Creative Bus Sales Inc. of Fountain Valley, California at 11% accounted for more than 10% of the Company's net bus revenue. The Company also sells its buses directly to certain national accounts such as major rental car companies, hotel chains, and transit authorities.
Terms of sale are typically cash on delivery or through national floorplan financing institutions. Sales to some state transportation agencies and other government agencies may be on longer terms. During fiscal 1999 there were no losses due to repurchase of buses.
BACKLOG. As of July 31, 1999 the backlog for bus orders was approximately $131,927,000.
WARRANTIES. The Company currently provides purchasers of its buses with a limited warranty for one year or 12,000 miles against defects in materials and workmanship, excluding only certain specified components which are warranted separately by suppliers. The Company provides a five-year or 75,000 mile warranty on the Company-assembled body structure of its "Aerotech" buses. Chassis and engines are warranted for one year or 12,000 miles by their manufacturers.
REGULATION
The Company is subject to the provisions of the National Traffic and Motor Vehicle Safety Act and the safety standards for bus, RVs, and components, which have been promulgated thereunder by the Department of Transportation. Because of its sales in Canada, the Company is also governed by similar laws and regulations issued by the Canadian Government.
The Company is a member of RVIA, a voluntary association of RV manufacturers which promulgates RV safety standards. The Company places an RVIA seal on each of its RVs to certify that such standards have been met.
Both federal and state authorities have various environmental control standards relating to air, water, and noise pollution which affect the business and operation of the Company. For example, these standards, which are generally applicable to all companies, control the Company's choice of paints, discharge of air compressor waste water, and noise emitted by factories. The Company relies upon certifications obtained by chassis manufacturers with respect to compliance by the Company's vehicles with all applicable emission control standards.
The Company is also subject to the regulations promulgated by the Occupational Safety and Health Administration ("OSHA"). The Company's plants are periodically inspected by federal agencies
ITEM 1. BUSINESS (CONTINUED)
concerned with health and safety in the work place, and by RVIA, to ensure that the Company's products comply with applicable governmental and industry standards.
The Company believes that its products and facilities comply in all material respects with applicable vehicle safety, environmental, RVIA, and OSHA regulations.
COMPETITION
The RV industry is characterized by relative ease of entry, although the codes, standards, and safety requirements introduced in recent years are a deterrent to new competitors. The need to develop an effective dealer network also acts as a barrier to entry. The RV market is intensely competitive with a number of other manufacturers selling products which compete directly with those of the Company. Competition in the industry is based upon price, design, value, quality, and service. The Company believes that the quality, design, and price of its products and the warranty coverage and service it provides is such that its products compete favorably for retail purchasers. The Company estimates that it is the second largest RV manufacturer.
The Company estimates that it has a 34% market share of the U.S. and Canadian small and mid-size bus market. Other competitors offer lines of buses which compete with all of the Company's products. Price, quality, and delivery are the primary competitive factors. As with its RVs, the Company believes that the quality, design, and price of its products, the warranty coverage and service it provides, and the loyalty of its customers is such that its products compare favorably with similarly priced products of its competitors.
TRADE NAMES AND PATENTS
The Company has registered United States and Canadian trade names or licenses under the trade names of others, covering the principal trade names and model lines under which its products are marketed. The Company is not dependent upon any patents or technology licenses in the conduct of its business.
EMPLOYEE RELATIONS
At July 31, 1999, the Company had approximately 3,087 employees in the United States and 263 in Canada. Of these 3,350 employees, 367 are salaried. Citair's and Thor America's approximately 384 hourly employees are currently represented by certified labor organizations. Citair's and Thor America's current labor agreements covering their operations expire at various times between September 2000 and October, 2003. The Company's employees at other facilities are not represented by certified labor organizations. The Company believes it maintains a good working relationship with its employees.
RESEARCH AND DEVELOPMENT
During the fiscal years 1999, 1998 and 1997, the Company spent approximately $545,000, $847,000 and $768,000 respectively, on research and development activities.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Canadian sales from operations in Canada and export sales to Canada from United States operations amounted to approximately 3.5% and 5.2%, respectively, of the Company's total net sales to unaffiliated customers in fiscal year 1999.
FORWARD LOOKING STATEMENTS
This annual report includes "forward looking statements" that 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, competitive and general economic conditions, and the other risks set forth in the Company's filings with the Securities and Exchange Commission.
ITEM 2.
ITEM 2. PROPERTIES
The Company owns or leases approximately 2,136,000 square feet of plant and office space. Management believes that the Company's present facilities, consisting primarily of steel clad, steel or wood frame, or
PROPERTIES (CONTINUED)
masonry construction, and the machinery and equipment contained therein, are well maintained and in good condition. The Company believes that it would be able to obtain replacement premises at acceptable costs for its leased premises should its leases not be renewed. The following table describes the location, number and size of the Company's facilities as of July 31, 1999.
(1) Airstream locations are occupied under net subleases which expire in 2002. (2) This location is occupied under a ten-year net lease with the right of first refusal if a sale is proposed by lessor. The lease expires in 2001 with an option to renew for two consecutive five-year terms. Sublet through term of lease as part of Thor West divestment. (3) This location is occupied under a net lease which expires in 1999. (4) This location is occupied under a net lease which expires in 1999 with a 1-year renewal option. (5) This location is occupied under a net lease which is on a month to month basis. (6) This location is occupied under a net lease which expires in 2002. (7) This location is occupied under a net lease which expires in 2005 with an option to extend for 5 years. (8) This location is occupied under a net lease which expires in 2005 with an option to extend for 5 years. (9) This location is occupied under a net lease which expires in 2008 with an option to extend for 5 years (10) This location is occupied under a net lease which is on month to month basis with 60 day notice. (11) This location is occupied under a net lease which expires in 2001. (12) This location is occupied under a net lease which expires in 1999 with annual renewal option on year to year basis.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain litigation arising out of its operations in the normal course of business. The Company believes that no such litigation will have a material adverse effect on the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters submitted.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) MARKET INFORMATION
The Company's Common Stock is traded on the New York Stock Exchange. Set forth below is the range of high and low prices for the common stock for each quarter during the Company's two most recent fiscal years, as quoted in the New York Stock Exchange Monthly Market Statistics and Trading Reports.
(B) HOLDERS
As of October 15, 1999, the number of holders of record of the Company's common stock was 214.
(C) DIVIDENDS
The Company paid quarterly dividends of $.02 a share during 1999. The Company paid quarterly dividends of $.03 ($.02 after adjustment for stock split) a share during its quarter ended October 31, 1997 and January 31, 1998. A 3-for-2 common stock split was declared effective April 6, 1998 and in the April 30, 1998 and July 31, 1998 quarters a $.02 a share dividend was paid. Any payment of cash dividends in the future will be at the discretion of the Company's Board of Directors and will depend upon the financial condition, capital requirements, and earnings of the Company, as well as other factors which the Board of Directors may deem relevant.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales in fiscal 1999 totaled $805,805,904 versus $715,600,390 in fiscal 1998. Net income in fiscal 1999 totaled $30,766,195 versus $19,395,228 in 1998. Basic earnings per common share were $2.53 in 1999 versus $1.59 in 1998. The consolidated statements of income for the years ended July 31, 1999, 1998 and 1997 shown as a percentage of sales are:
1999 VS. 1998
Net sales totaled $805,805,904 up 12.6% from $715,600,390 in the same period last year. Income before income taxes was $52,435,679, up 58.7% from $33,050,894 last year. Of this $19,384,785 increase in income before income taxes, $4,459,874 represents increase in income of Champion Bus, Inc. acquired February 9, 1998, $5,810,116 represents reduced losses of Thor West in 1999 of $2,539,292 versus $8,349,408 in 1998 and $1,836,883 represents reduced losses of ElDorado National Michigan in 1999 of $35,014 versus $1,871,897 in 1998. Included in 1998 income is a gain on the sale of Henschen Industrial of $1,269,000. In general the Company did not materially adjust its sales prices in fiscal 1999.
Recreation vehicle revenues of $588,936,150 were 7.6% higher than last years $547,484,994. Recreation vehicle revenues were 73% of total Company revenue compared to 77% last year. Recreation vehicle revenues were up primarily due to increased unit sales. Bus revenues of $216,869,754 were 29% higher than last years $168,115,396. Bus revenues were 27% of total Company revenue compared to 23% last year. Bus revenues included sales of $55,990,999 of Champion Bus, Inc. versus $25,809,948 in 1998 and sales of $1,458,418 in 1999 versus $8,851,486 in 1998 of ElDorado National Michigan, which was shut down effective 7/31/98. Manufacturing gross profit increased as a percentage of sales from 11.5% in 1998 to 13.0% in 1999 due primarily to higher volumes, the ElDorado National Michigan and Thor West losses last year. Selling, general and administrative expense and amortization of intangibles increased to $53,338,397, 6.6% of sales, from $47,505,569, 6.6% of sales, primarily due to increased income related compensation and selling expenses related to increased volume.
Interest income increased by $1,314,102 primarily due to investment of cash. Interest expense decreased by $131,713. The combined income tax rate was 41.3% in both the current and prior year.
1998 VS. 1997
Net sales totaled $715,600,390 up 14.6% from $624,435,108 in the same period in 1997. Net income increased to $19,395,228, compared to $16,422,767 in 1997. Included in the net income for fiscal 1998 was a pre-tax gain on the sale of Airstream, Inc.'s Henschen operation of $1,269,000 and the pre-tax loss on the divestment of Thor West of $3,990,000. The cumulative effect of these disposals reduced basic earnings per share by approximately $.15 per share. In general, the Company did not adjust its sales prices materially in fiscal 1998.
Recreation vehicle revenues of $547,484,994 were 13% higher than $485,010,470 in 1997. Recreation vehicle revenues were 77% of total Company revenue compared to 78% in 1997. Bus revenues of $168,115,396 were 21% higher than 1997 revenues of $139,424,638. Bus revenues were 23% of total Company revenue compared to 22% in 1997. Manufacturing gross profit increased as a percentage of sales from 10.5% in 1997 to 11.5% in 1998. As a percentage of sales, selling, general and administrative cost increased due primarily to increased income related compensation and selling expenses related to increased volume.
Interest income decreased by $2,725 and interest expense decreased by $387,984.
The combined income tax rate was 41.3% compared to 40.6% in 1997. The net loss on divestment of a subsidiary increased the combined tax rate in 1998 by approximately .6% due to the write-off of $2,139,000 of non-deductible goodwill.
LIQUIDITY
On July 31, 1999, Thor had $68,865,635 in cash and cash equivalents, compared to $43,531,805 on July 31, 1998. Working capital on July 31, 1999, was $123,094,097 compared to $99,139,080 on July 31, 1998. Inventory valued at current cost on July 31, 1999, exceeded LIFO inventory by $3,661,235. The Company has no long term debt.
The Company currently has a $30,000,000 revolving line of credit. There were no borrowings on the line at July 31, 1999. The loan agreement contains certain covenants, including restrictions on additional indebtedness, and the Company must maintain certain financial ratios. The line of credit bears interest at negotiated rates below prime and expires on November 30, 1999.
During fiscal 1999 Thor purchased 133,000 shares of its common stock, increasing treasury stock by $2,910,501.
The Company believes that internally generated funds and the revolving credit agreement already in place will be sufficient to meet current needs and anticipated capital requirements. Capital expenditures of $7,448,325 were primarily for expansion of the Company's Dutchmen, Four Winds and Thor California manufacturing facilities. Additional funds to complete these expansions will be approximately $2,900,000. The Company anticipates additional capital expenditures in 2000 of approximately $5,400,000 primarily to expand its Komfort and Thor California RV operations and its bus operations in total.
Amortization of intangibles decreased from $1,904,394 for the year ended July 31, 1998 to $1,474,838 for the year ended July 31, 1999 because certain intangibles became fully amortized.
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions in operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities.
The Company has initiated formal communications with all of its significant suppliers and large customers to determine the extent to which the Company is vulnerable to those third parties' failure to remedy their own Year 2000 issue. The Company's total Year 2000 project costs include the estimated costs and time associated with the impact of third party's Year 2000 issues on the Company, and are based on presently available information. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. The Company believes it has no exposure to contingencies related to the Year 2000 issue for the products it has sold.
The Company has completed its critical Year 2000 projects. The total cost of the Year 2000 project is estimated at $343,000, substantially all of which was to purchase revised software and hardware, and was funded through operating cash flows.
The Company believes that manual systems could serve as backup for any systems used internally. The Company also plans to store on spreadsheets or have manual documents on all data necessary to run its day to day operations on an interim basis during the initial month of year 2000.
ACCOUNTING PRONOUNCEMENTS
The following Statements of Financial Accounting Standards (SFAS) were issued by the Financial Accounting Standards Board. The impact of adopting these statements has not been determined.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998. The statement requires derivatives to be recorded on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in fair value of the derivatives are recorded depending upon whether the instruments meet the criterion for hedge accounting. This statement is effective for fiscal years beginning after June 15, 2000.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA QUARTERLY FINANCIAL DATA
(1) Net income in the fourth quarter was increased by $535,000 in 1999 and decreased by $2,249,000 in 1998 due to adjustments to physical inventory, warranty reserves, management incentives and a $2,766,000 net loss for the divestment of Thor West.
ITEM 9
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors and Executive Officers of the Registrant is included in the definitive Proxy Statement, dated on or about October 29, 1999, filed with the Commission pursuant to Regulation 14A, which portion of said Proxy Statement is hereby incorporated by reference.
ITEM 11.
ITEM 11. MANAGEMENT REMUNERATION
The information required in response to this Item is contained under the caption EXECUTIVE OFFICERS in the definitive Proxy Statement, dated on or about October 29, 1999, filed with the Commission pursuant to Regulation 14A, which portion of said Proxy Statement is hereby incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this Item is contained under the caption ELECTION OF DIRECTORS for Security Ownership of Management and under the caption OWNERSHIP OF COMMON STOCK for principal shareholders, of the definitive Proxy Statement, dated on or about October 29, 1999, filed with the Commission pursuant to Regulation 14A, which portion of said Proxy Statement is hereby incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this Item is contained under the caption CERTAIN RELATIONS AND TRANSACTIONS WITH MANAGEMENT in the definitive Proxy Statement, dated on or about October 29, 1999, filed with the Commission pursuant to Regulation 14A, which portion of said Proxy Statement is hereby incorporated by reference.
PART IV
ITEM 14.
ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K
*Incorporated by reference.
EXHIBITS (CONTINUED)
(21) SUBSIDIARIES OF THE REGISTRANT The subsidiaries of the Registrant, excluding those which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of July 31, 1999, are: Airstream, Inc. (a Nevada corporation) Thor America, Inc. (a Pennsylvania corporation) Citair, Inc. (a Pennsylvania corporation) Citair does business in Canada under the name "General Coach." Dutchmen Manufacturing, Inc. (a Delaware corporation) Aero Manufacturing, Inc. (a Delaware corporation) Thor Indiana, Inc. (a Delaware corporation) Four Winds International, Inc. (a Delaware corporation) Thor California, Inc. (a Delaware corporation) Komfort Corp. (a Delaware corporation) ElDorado National California, Inc. (a California corporation) ElDorado National Kansas, Inc. (a Kansas corporation) Champion Bus, Inc. (a Delaware corporation)
(27) FINANCIAL DATA SCHEDULES (1) Financial data schedule for year ended July 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THOR INDUSTRIES, INC.
(Signed) /S/ Wade F.B. Thompson ---------------------------------------- Wade F. B. Thompson Chairman, President, and Chief Executive Officer
Date 10/27/99 --------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
(Signed) /S/ Peter B. Orthwein (Signed) /S/ Walter L. Bennett --------------------------- ------------------------------------- Peter B. Orthwein Walter L. Bennett Vice Chairman, Treasurer Chief Financial Officer (Director) (Principal Financial Officer & Principal Accounting Officer)
Date 10/27/99 Date 10/27/99 ------------------------------- -----------------------------------------
(Signed) /S/ Wade F.B. Thompson (Signed) /S/ Alan Siegel --------------------------- ------------------------------------- Wade F. B. Thompson Alan Siegel Chairman, President, and Chief Executive Director Officer (Principal Executive Officer and Director)
Date 10/27/99 Date 10/27/99 ------------------------------- -----------------------------------------
(Signed) /S/ William C. Tomson --------------------------- William C. Tomson Director
Date 10/27/99 -------------------------------
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS--THOR INDUSTRIES, INC. We have audited the accompanying consolidated balance sheets of Thor Industries, Inc., and subsidiaries (the "Company") as of July 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended July 31, 1999. Our audits also included the financial statement schedule listed in the index of item 14(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis-statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP Dayton, Ohio October 1, 1999
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial statements include the accounts of Thor Industries, Inc. and its wholly-owned domestic and foreign subsidiaries. Investments in two unconsolidated 50% owned companies are accounted for by the equity method. All intercompany balances and transactions are eliminated in consolidation.
CASH AND CASH EQUIVALENTS--Interest-bearing deposits and other investments with maturities of three months or less when purchased are considered cash equivalents.
INVENTORIES--Inventories are stated at the lower of cost or market, determined principally by the last-in, first-out (LIFO) basis.
DEPRECIATION--Property, Plant and Equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows: Buildings and improvements--ten to thirty-nine years Machinery and equipment--three to ten years
OTHER ASSETS--Other assets are amortized using the straight-line method over the estimated lives of the assets as follows:
Goodwill--twenty or thirty years Noncompete agreements--five or ten years Trademarks--ten or twenty years
The Company periodically reviews long-term assets for impairment.
PRODUCT WARRANTIES--Estimated warranty costs are provided at the time of sale of the warranted products.
REVENUE RECOGNITION--Revenues from the sale of recreation vehicles and buses are recognized when title passes to dealers, distributors, or contract buyers.
ESTIMATES--The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION--Assets and liabilities of Canadian operations reported in the consolidated balance sheets have been translated at current exchange rates. Revenues and expenses reported in the consolidated statements of income have been translated at the average exchange rate for the year. Transaction gains and losses are not significant.
STOCK OPTIONS--The Company measures cost for stock options issued to employees using the method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
EARNINGS PER SHARE--Earnings per share is computed by dividing net income by the following:
COMPREHENSIVE INCOME--Effective July 31, 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". The Company's difference between net earnings and comprehensive earnings relates to the changes in foreign currency translation adjustment.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998. The statement requires derivatives to be recorded on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in fair value of the derivatives are recorded depending upon whether the instruments meet the criterion for hedge accounting. This statement is effective for fiscal years beginning after June 15, 2000.
RE-CLASSIFICATIONS--Certain reclassifications have been made in the 1998 and 1997 consolidated financial statements to conform to the presentation used in 1999.
B. INVENTORIES - --------------------------------------------------------------------------------
Major classifications of inventories are:
C. LINE OF CREDIT - -------------------------------------------------------------------------------- The Company has a $30,000,000 unsecured revolving line of credit. There was no outstanding balance at July 31, 1999 and 1998. The loan agreement contains certain covenants and the Company must maintain certain financial ratios. The line of credit bears interest below the prime rate (6.0% at July 31, 1999) and expires on November 30, 1999.
D. INCOME TAXES - --------------------------------------------------------------------------------
The differences between income taxes at the federal statutory rate and the actual income taxes are as follows:
Income before income taxes includes foreign income of $2,158,651in 1999, $1,878,422 in 1998 and $603,473 in 1997.
E. LEASES - -------------------------------------------------------------------------------- The Company has operating leases principally for land, buildings and equipment. Minimum future rental payments required under these operating leases are $ 8,443,345, which includes the following amounts due in each of the next five years ending July 31: $1,846,402 in 2000; $1,572,655 in 2001; $1,232,560 in 2002; $874,948 in 2003; $861,072 in 2004 and $2,055,708 thereafter. Rent expense was $2,220,929 in 1999, $2,616,539 in 1998 and $2,541,033 in 1997.
F. PROFIT SHARING PLANS - -------------------------------------------------------------------------------- The Company has six 401(k) plans for full-time employees at six subsidiaries and a 401(k) plan for domestic union employees at another subsidiary. Contributions to the union negotiated 401(k) plan are based on hours worked; contributions to one non-union plan are at the discretion of the Board of Directors. There are no Company contributions to the five remaining non-union 401(k) plans. Total expense for these plans was $219,942 in 1999, $164,217 in 1998 and $148,646 in 1997.
G. CONTINGENT LIABILITIES - -------------------------------------------------------------------------------- It is customary practice for companies in the recreation vehicle industry to enter into agreements with financing institutions to provide financing to their dealers. Generally, the agreements provide for the repurchase of products from the financing institution in the event of a dealer's default. Although the total contingent liability approximated $193,923,000 at July 31, 1999, the risk of loss under the agreements is spread over numerous dealers and is further reduced by the resale value of the units which the Company would be required to repurchase. Losses under these agreements have not been significant in the periods presented in the accompanying consolidated financial statements, and management believes any future losses under the agreements will not have a significant effect on consolidated financial position or results of operations.
The Company obtains certain vehicle chassis from automobile manufacturers under converter pool agreements. The agreements generally provide that the manufacturer will supply chassis at the Company's various production facilities under the terms and conditions as set forth in the agreement. The manufacturer does not transfer the certificate of origin to the Company and, accordingly, the Company accounts for the chassis as consigned, unrecorded inventory. Typically, chassis are converted and delivered to customers within 90 days of delivery. If the chassis is not converted within 90 days of delivery to the Company, the Company purchases the chassis, and at that time the Company records the inventory. At July 31, 1999, chassis on hand accounted for as consigned, unrecorded inventory was approximately $7,314,000.
H. STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- Officers and key employees have been granted stock options under the 1988 Incentive Stock Option Plan. No further options may be granted under this plan.
The Company applies APB Opinion No. 25 and related Interpretations in accounting for the plan. Accordingly, no compensation cost has been recognized for the stock option plan.
A summary of option transactions under the Incentive Stock Option Plan is as follows:
The assumptions used in determining the fair value of options granted during 1997 are as follows: Expected volatility 25.52%; Expected life of grant 6 years; Risk-free interest rate 6.27%; Expected dividend rate 0.50%
The following summarizes information about stock options outstanding at July 31, 1999.
Had compensation cost for the Company's grants been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net income and earnings per common share would have been as follows:
On September 29, 1997, the Board of Directors approved a stock award plan which allows for the granting of up to 150,000 shares of restricted stock to selected executives. Restrictions expire 50% after 5 years following the date of issue, and the balance after six years. As of July 31, 1999, the Company issued 13,175 shares of restricted stock under the plan and 136,825 shares remain outstanding. Compensation cost related to the plan which is being amortized over the restriction period was $47,748 and $17,921 in 1999 and 1998, respectively.
I. RESEARCH AND DEVELOPMENT - -------------------------------------------------------------------------------- Research and development expenses were approximately $545,000 in 1999, $847,000 in 1998, and $768,000 in 1997.
J. JOINT VENTURES - -------------------------------------------------------------------------------- In March 1996, the Company and Cruise America, Inc. formed a joint venture, CAT Joint Venture LLC, to rent recreation vehicles to the public. The Company's total investment of $2,306,263 includes a subordinated note receivable of $1,910,000 due in 2000. In March 1994, the Company and a financial services company formed a joint venture, Thor Credit Corporation, to finance the sales of recreation vehicles to consumer buyers. The Company's total investment of $1,112,838 includes a note receivable of $350,000. These investments are accounted for using the equity method.
K. ACQUISITION - -------------------------------------------------------------------------------- On February 9, 1998, the Company purchased certain assets and liabilities of Champion Motor Coach, Inc. (now Champion Bus, Inc.). The cash price of the acquisition was approximately $9,671,000 which was paid from internal funds. The revenues and operating results of the entity are reflected in the consolidated statements of income of Thor Industries from time of acquisition forward.
L. DIVESTMENT OF SUBSIDIARIES - -------------------------------------------------------------------------------- The Company sold its Thor West operations in December 1998. A loss of $3,990,000 was recognized as of July 31, 1998. An additional loss of $1,812,526 was recognized during 1999. Thor West's net sales and loss before income taxes included in the consolidated statements of income was, for fiscal 1998, $29,156,641 and $4,359,408, respectively, and, for fiscal 1999, $4,050,351 and $726,766, respectively. As part of the transaction the Company agreed to guarantee $750,000 of debt of the acquirer. On December 31, 1997, the Company sold for $2,934,973 certain assets and liabilities of Henschen Corp., a division of Airstream, Inc. The transaction resulted in a one time pre-tax gain of approximately $1,269,000.
M. BUSINESS SEGMENTS - -------------------------------------------------------------------------------- The Company operates in principally two industries - recreation vehicles and small and midsize buses. Manufacturing and sales are conducted in the United States and, to a much lesser extent, in Canada. Operating income is total revenue less cost of sales and operating expenses. Identifiable assets are those assets used in the operation of each industry segment. Corporate assets primarily consist of cash, deferred income tax assets, the cash value of Company-owned life insurance, and investments accounted for under the equity method.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JULY 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
(1) Includes write-off of intangibles of Thor West of $2,139,530.