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ORDER BACKLOG:
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As of
April 30, 2019
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As of
April 30, 2018
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Change
Amount
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%
Change
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Recreational vehicles
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North American Towables
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$
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896,024
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$
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1,304,836
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$
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(408,812
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)
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(31.3
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)
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North American Motorized
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513,703
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698,313
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(184,610
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)
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(26.4
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)
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Total North America
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1,409,727
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2,003,149
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(593,422
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)
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(29.6
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)
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European
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687,418
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687,418
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n/a
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Total
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$
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2,097,145
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$
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2,003,149
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$
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93,996
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4.7
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CONSOLIDATED
Consolidated net sales for the three months ended April 30, 2019 increased $255,013, or 11.3%, compared to the three months ended April 30, 2018. This increase is attributable to EHGs net sales of
$767,509, partially offset by a decrease in net sales from North America of $510,180, or 23.1%, compared to the three months ended April 30, 2018. Consolidated gross profit for the three months ended April 30, 2019 decreased $24,315, or
7.7%, compared to the three months ended April 30, 2018. EHGs gross profit for the period of $53,981, which includes the impact of $61,418 related to the
step-up
in purchase accounting for certain
acquired inventory that was subsequently sold during the period, was offset by the decrease of $76,559, or 25.2%, in total North American gross profit compared to the prior-year quarter. Consolidated gross profit was 11.7% of consolidated net sales
for the three months ended April 30, 2019 and 14.1% for the three months ended April 30, 2018, with the change impacted by the addition of EHGs gross profit percentage of 7.0%.
Selling, general and administrative expenses for the three months ended April 30, 2019 increased $57,534, or 48.2%, compared to the three
months ended April 30, 2018, with EHG accounting for $67,761 of the $57,534 increase. Amortization of intangible assets expense for the three months ended April 30, 2019 increased $11,377 compared to the three months ended April 30,
2018, primarily due to incremental amortization expense of $12,784 due to the acquisition of EHG, partially offset by lower dealer network amortization as compared to the prior-year period. Acquisition-related costs totaled $13,363 for the three
months ended April 30, 2019. Income before income taxes for the three months ended April 30, 2019 was $41,523, as compared to $180,525 for the three months ended April 30, 2018, a decrease of $139,002, or 77.0%.
Additional information concerning the changes in net sales, gross profit, selling, general and administrative expenses, acquisition-related costs
and income before income taxes are addressed below and in the segment reporting that follows.
Corporate costs included in selling,
general and administrative expenses increased $7,531 to $19,898 for the three months ended April 30, 2019 compared to $12,367 for the three months ended April 30, 2018, an increase of 60.9%. This increase includes an increase in deferred
compensation expense of $4,909, which relates to the equal and offsetting increase in other income related to the deferred compensation plan assets as noted below. Legal, professional and marketing costs also increased by $1,674. Costs related to
the workers compensation and product liability reserves carried at Corporate also increased $669. These increases were partially offset by a decrease of $1,183 in incentive compensation in correlation with the decrease in income before income
taxes compared to the prior year.
Acquisition-related costs were $13,363 for the three months ended April 30, 2019 and consist of
costs related to the acquisition of EHG. This total includes costs of $16,293, consisting primarily of bank fees, professional and advisory integration fees, and the
write-off
of the remaining unamortized debt
fees of $3,794 related to the Companys previous asset-based facility that was terminated on February 1, 2019 in conjunction with the new financing obtained with the EHG acquisition. These costs were partially offset by a gain of $2,930
from the change in the fair value of the foreign currency forward contract on February 1, 2019 as discussed in Note 5 to the Condensed Consolidated Financial Statements.
Corporate interest and other income and expense was $31,037 of net expense for the three months ended April 30, 2019 compared to $2,741 of net expense for the three months ended April 30, 2018. This
increase in net expense of $28,296 is primarily due to an increase in interest expense and fees of $30,910 resulting from the new debt facilities related to the EHG acquisition, and also an increase of $1,886 in the operating losses recorded related
to the TH2 joint venture. These increases were partially offset by the change in the fair value of the Companys deferred compensation plan assets due to market fluctuations and investment income resulting in net income of $3,362 in the
current-year period as compared to net expense of $1,547 in the prior-year period, a net increase in income of $4,909.
The overall
effective income tax rate for the three months ended April 30, 2019 was 24.3% compared with 25.9% for the three months ended April 30, 2018. The income tax rate for the three months ended April 30, 2019 was favorably impacted by
certain foreign rate differences as a result of the EHG acquisition. The effective income tax rates for both three-month periods were impacted by the reduction in the U.S. federal corporate income tax rate along with the other tax impacts as a
result of the enactment of the Tax Cuts and Jobs Act. The foreign currency forward contract, as noted in Note 5 to the Condensed Consolidated Financial Statements, resulted in a gain for the three months ended April 30, 2019 upon closing of the
EHG acquisition. Under federal income tax law, the gain is not taxable and the benefit is reflected in the income tax rate for the three months ended April 30, 2019.
30