Cost of products sold increased $156,065 to $1,912,207, or 89.1% of North American
motorized net sales, for fiscal 2018 compared to $1,756,142, or 89.1% of North American motorized net sales, for fiscal 2017. The changes in material, labor, freight-out and warranty costs comprised $150,762
of the $156,065 increase due to increased sales volume. Material, labor, freight-out and warranty costs as a combined percentage of motorized net sales was 84.9% for fiscal 2018 and 84.8% for fiscal 2017. The
primary reasons for this slight increase in percentage were increases in labor costs associated with increasing employment levels and the continued competitive RV labor market and an increase in the warranty cost percentage, but these increases were
mostly offset by a reduction in the material cost percentage due to operating efficiencies attained in the past year, primarily at Jayco, and selective net price increases.
Variable costs in manufacturing overhead increased $2,644 to $80,073, or 3.7% of North American motorized net sales, for fiscal 2018 compared to $77,429, or 3.9% of North American motorized net sales, for
fiscal 2017 as a result of the increase in net sales. Fixed costs in manufacturing overhead, which consist primarily of facility costs, property taxes and depreciation, increased $2,659 to $9,466 in fiscal 2018 from $6,807 in fiscal 2017 primarily
due to the increase in manufacturing facilities and production lines.
North American motorized gross profit increased $18,784 to
$234,108, or 10.9% of North American motorized net sales, for fiscal 2018 compared to $215,324, or 10.9% of North American motorized net sales, for fiscal 2017. The increase in gross profit was primarily due to the 5.1% increase in unit sales volume
noted above.
Selling, general and administrative expenses were $96,370 or 4.5% of North American motorized net sales, for fiscal
2018 compared to $86,009, or 4.4% of North American motorized net sales, for fiscal 2017. The $10,361 increase was partially due to increased North American motorized net sales and North American motorized income before income taxes, which caused
related commissions, bonuses and other compensation to increase by $3,285. In addition, legal, professional and related settlement costs increased $5,393, primarily due to product liability and legal settlement costs. Sales related travel,
advertising and promotional costs also increased $1,174 in connection with the sales increase.
North American motorized income
before income taxes was $134,785, or 6.3% of North American motorized net sales, for fiscal 2018 compared to $125,323, or 6.4% of motorized net sales, for fiscal 2017. The primary reason for this slight decrease in percentage was the impact of the
increase in the selling, general and administrative expense percentage noted above.
Financial Condition and Liquidity
As of July 31, 2019, we had $425,615 in cash and cash equivalents, of which $223,394 is held in the United States and the equivalent of
$202,221, predominantly in Euros, held in Europe, compared to $275,249 on July 31, 2018, which was all held in the United States. Cash and cash equivalents held internationally may be subject to foreign withholding taxes if repatriated to the
United States. The components of this $150,366 increase in cash and cash equivalents are described in more detail below, but the increase was primarily attributable to cash provided by operations of $508,019 and cash provided by financing activities
of $1,539,073 less cash used in investing activities of $1,865,503.
Working capital at July 31, 2019 was $589,032 compared
to $542,344 at July 31, 2018. This increase is primarily attributable to the impact of the acquisition of EHG. Capital expenditures of $130,224 for fiscal 2019 were made primarily for land and production building additions and improvements, and
replacing machinery and equipment used in the ordinary course of business.
We strive to maintain adequate cash balances to
ensure we have sufficient resources to respond to opportunities and changing business conditions. We believe our on-hand cash and cash equivalents, and funds generated from operations, along with funds
available under the revolving asset-based credit facility obtained in conjunction with the EHG acquisition as discussed in more detail in Notes 2 and 12 to the Consolidated Financial Statements, will be sufficient to fund expected future operational
requirements for the foreseeable future.
Our main short-term priorities for the use of current and future available cash
generated from operations are reducing our indebtedness and paying regular dividends. Our long-term priorities also include funding our growth both organically and, over time, through acquisition, and maintaining and growing our regular dividends
over time. We will also consider strategic and opportunistic repurchases of shares under the share repurchase program, as discussed in Note 17 to the Consolidated Financial Statements, and special dividends as determined by the Companys Board.
In regard to reducing indebtedness, subsequent to July 31, 2019 we made additional principal payments of $138,466 on the
U.S. term loan. The term loan is discussed in more detail in Notes 2 and 12 to the Consolidated Financial Statements. As of September 30, 2019, our outstanding balance on the U.S. term loan was $1,008,502 compared to $1,146,968 as of
July 31, 2019.
In regard to growing our business, we anticipate capital expenditures during fiscal 2020 for the Company of
approximately $135,000. Approximately half of those expenditures will be in North America and half in Europe, primarily for the completion of the new North American Airstream towables facility and replacing and upgrading machinery, equipment and
other assets throughout our facilities to be used in the ordinary course of business.
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