ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless
|
otherwise indicated, all dollar amounts are presented in thousands except per share data.
|
Forward Looking Statements
This report includes certain statements that are
forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, 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 are made based on managements current expectations and beliefs regarding future and anticipated developments and their effects upon Thor, and inherently involve uncertainties and risks. These forward
looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ from our expectations. Factors which could cause materially different results include, among others, raw material and commodity
price fluctuations, raw material or chassis supply restrictions, the level of warranty claims incurred, legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers, the
costs of compliance with governmental regulation, legal and compliance issues including those that may arise in conjunction with recent transactions, lower consumer confidence and the level of discretionary consumer spending, interest rate
fluctuations, the potential impact of interest rate fluctuations on the general economy and specifically on our dealers and consumers, restrictive lending practices, management changes, the success of new and existing products and services, consumer
preferences, the pace of obtaining and producing at new production facilities, the pace of acquisitions and the successful closing and financial impact thereof, the potential loss of existing customers of acquisitions, the integration of new
acquisitions, our ability to retain key management personnel of acquired companies, a shortage of necessary personnel for production, the loss or reduction of sales to key dealers, the availability of delivery personnel, asset impairment charges,
cost structure changes, competition, the impact of potential losses under repurchase agreements, the potential impact of the strength of the U.S. dollar on international demand, general economic, market and political conditions, changes to
investment and capital allocation strategies or other facets of our strategic plan, and the other risks and uncertainties discussed more fully in ITEM 1A of our Annual Report on Form
10-K
for the year
ended July 31, 2017.
We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking
statements contained in this report or to reflect any change in our expectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.
Executive Overview
We were founded
in 1980 and have grown to be the largest manufacturer of RVs in North America. According to Statistical Surveys, Inc. (Stat Surveys), for the calendar year ended December 31, 2017, Thors combined U.S. and Canadian market share
was approximately 50.4% for travel trailers and fifth wheels combined and approximately 39.1% for motorhomes. Our business model includes decentralized operating units, and our RV products are sold to independent,
non-franchise
dealers who, in turn, retail those products. Our growth has been achieved both organically and by acquisition, and our strategy is designed to increase our profitability by driving innovation,
servicing our customers, manufacturing quality products, improving the efficiencies of our facilities and making strategic growth acquisitions.
Recent Events
On December 22, 2017, the Tax
Cuts and Jobs Act (the Tax Act), was signed into law. The Tax Act includes numerous changes to tax laws impacting business, the most significant being a permanent reduction in the federal corporate income tax rate from 35.0% to 21.0%.
The rate reduction took effect on January 1, 2018. As the Companys 2018 fiscal year ends on July 31, 2018, the Companys estimated federal corporate income tax rate for fiscal year 2018 will be prorated to a blended 26.9% rate,
based on the applicable tax rates before and after the Tax Act and the number of days in the fiscal year to which the two different rates applied. As a result of other Tax Act changes, the Companys income tax rate for fiscal year 2019 will be
negatively impacted by the repeal of the domestic production activities (Code Section 199) deduction and limitations on the deductibility of executive compensation.
14
As a result of the reduction of the federal corporate income tax rate, the Company was required to
perform a revaluation of its net deferred tax assets. Based on currently available information, the Company has performed a preliminary analysis of the impact of the Tax Act as of the enactment date and has recorded a
non-recurring,
non-cash
reduction of its net deferred tax assets due to the reduced federal income tax rate, and a corresponding charge to income tax expense, of
approximately $34,000 in the three months ended January 31, 2018. The Companys revaluation of its net deferred tax assets, with respect to the reduced federal income tax rate and the potential impact of limitations on the deductibility of
executive compensation, among other items, are subject to further refinement, review and clarification under the new law as additional information becomes available. In addition to the benefit of a lower income tax rate in the three months ended
January 31, 2018, an income tax benefit of $12,535 was also recorded in the three months ended January 31, 2018 to reflect the benefit of applying the lower federal tax rate to the results of operations for the first quarter of fiscal
2018.
The reduction in the statutory US federal income tax rate is expected to positively impact the Companys fiscal 2018 and
future US
after-tax
earnings. The Company currently estimates an overall effective income tax rate between 27.0% and 29.0% for the remainder of fiscal year 2018, before consideration of any discrete tax items,
as compared to an effective income tax rate of 32.7% for fiscal 2017. For fiscal 2019, after considering the lower federal income tax rate of 21.0%, an estimated blended state income tax rate, the elimination of the Code Section 199 deduction
and the limitations on the deductibility of executive compensation, the Company currently estimates an overall effective income tax rate between 23.0% and 25.0%, before consideration of any discrete tax items.
While the Tax Act is expected to generate additional cash flow in the future, our main priorities for the use of current and future available cash
generated from operations will continue to focus on funding our growth, both organically and through acquisitions, maintaining and growing our regular dividends over time, and reducing indebtedness. Strategic share repurchases or special
dividends, as determined by the Companys Board, will also continue to be considered. As a component of funding our growth, we anticipate making additional investments in our workforce through a variety of initiatives, including enhanced
employee training and development programs and other initiatives that will be introduced in fiscal 2018 and fiscal 2019 and targeted to the varying needs of our individual operating entities.
On February 15, 2018, the
Company announced the formation of a joint venture with Tourism Holdings Limited (
thl
) called TH2. The Company and
thl
each have a 50% ownership position in TH2 and equal representation on the board of
directors of TH2. The Company contributed cash totaling approximately $47,000 to TH2 in early March 2018 while
thl
contributed various assets with a fair value of approximately $47,000. The Companys investment in TH2
was funded entirely from cash on hand. In accordance with the operating agreement, TH2s future capital needs, which are not expected to be material to the Company, will be funded proportionally by
thl
and the Company. The
Companys investment in TH2 will be accounted for under the equity method of accounting.
TH2 was formed to own, improve and sell
innovative and comprehensive digital platforms throughout the world. TH2 will offer a variety of products focused on enhancing the enjoyment, safety, connectivity and convenience of RV ownership and use.
Industry Outlook
The Company
monitors industry conditions in the RV market through the use of monthly wholesale shipment data as reported by the Recreation Vehicle Industry Association (RVIA), which is typically issued on a
one-month
lag and represents manufacturers RV production and delivery to dealers. In addition, we also monitor monthly retail sales trends as reported by Stat Surveys, whose data is typically issued on a
month-and-a-half
lag. The Company believes that monthly RV retail sales data is important as consumer purchases impact future
dealer orders and ultimately our production.
In correlation with current retail demand, RV dealer inventory of Thor products as of
January 31, 2018 increased 25.5% to approximately 155,650 units, compared to approximately 124,000 units as of January 31, 2017. We believe our dealer inventory levels are appropriate for seasonal consumer demand.
Thors RV backlog as of January 31, 2018 increased $708,013, or 33.9%, to $2,798,357 compared to $2,090,344 as of January 31, 2017.
15
Industry Wholesale Statistics
Key wholesale statistics for the RV industry, as reported by RVIA for the periods indicated, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada Wholesale Unit
Shipments
|
|
|
|
Calendar Year
|
|
|
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
|
|
|
Change
|
|
Towable Units
|
|
|
441,961
|
|
|
|
375,950
|
|
|
|
66,011
|
|
|
|
17.6
|
|
Motorized Units
|
|
|
62,638
|
|
|
|
54,741
|
|
|
|
7,897
|
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
504,599
|
|
|
|
430,691
|
|
|
|
73,908
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RVIA releases calendar year unit shipment forecasts periodically throughout the calendar year, updating their prior
forecast by factoring actual year-to-date wholesale and retail unit shipments and current economic indicators into their new forecast. We expect the next RVIA forecast for calendar year 2018 will be published in March 2018 and will take into
consideration the current wholesale and retail shipment trends, such as the 8,238 unit or 11.7% increase in retail registrations for the three months ended December 31, 2017 vs. the comparable prior-year period as reported by Stat Surveys.
Industry Retail Statistics
We believe that retail demand is the key to continued growth in the RV industry, and that annual RV industry wholesale shipments will generally be
in line with annual retail sales going forward.
Key retail statistics for the RV industry, as reported by Stat Surveys for the periods
indicated, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada Retail Unit
Registrations
|
|
|
|
Calendar Year
|
|
|
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
|
|
|
Change
|
|
Towable Units
|
|
|
408,309
|
|
|
|
365,773
|
|
|
|
42,536
|
|
|
|
11.6
|
|
Motorized Units
|
|
|
56,963
|
|
|
|
50,281
|
|
|
|
6,682
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
465,272
|
|
|
|
416,054
|
|
|
|
49,218
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Data reported by Stat Surveys is based on official state records. This information is subject to
adjustment and is continuously updated.
Company Wholesale Statistics
The Companys wholesale RV shipments, for the calendar years ended December 31, 2017 and 2016 to correspond to the industry wholesale
periods noted above, were as follows (includes Jayco results from the June 30, 2016 date of acquisition forward):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada Wholesale Unit
Shipments
|
|
|
|
Calendar Year
|
|
|
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
|
|
|
Change
|
|
Towable Units
|
|
|
232,231
|
|
|
|
164,015
|
|
|
|
68,216
|
|
|
|
41.6
|
|
Motorized Units
|
|
|
26,029
|
|
|
|
17,827
|
|
|
|
8,202
|
|
|
|
46.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
258,260
|
|
|
|
181,842
|
|
|
|
76,418
|
|
|
|
42.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Company Retail Statistics
Retail statistics of the Companys RV products, as reported by Stat Surveys, for the calendar years ended December 31, 2017 and 2016 to correspond to the industry retail periods noted above (and adjusted
to include Jaycos results from the June 30, 2016 date of acquisition forward) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada Retail Unit
Registrations
|
|
|
|
Calendar Year
|
|
|
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
|
|
|
Change
|
|
Towable Units
|
|
|
200,931
|
|
|
|
150,566
|
|
|
|
50,365
|
|
|
|
33.5
|
|
Motorized Units
|
|
|
22,283
|
|
|
|
15,986
|
|
|
|
6,297
|
|
|
|
39.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
223,214
|
|
|
|
166,552
|
|
|
|
56,662
|
|
|
|
34.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our outlook for future growth in retail sales is dependent upon various economic conditions faced by consumers such
as the rate of unemployment, the level of consumer confidence, the growth in disposable income of consumers, changes in interest rates, credit availability, the health of the housing market and changes in tax rates and fuel prices. With continued
stability or improvement in consumer confidence, availability of retail and wholesale credit, low interest rates and the absence of negative economic factors, we would expect to see continued growth in the RV industry.
A positive future outlook for the RV segment is supported by favorable demographics, as more people reach the age brackets that historically have
accounted for the bulk of retail RV sales. The number of consumers between the ages of 55 and 74 will total 79 million by 2025, 15% higher than in 2015 according to the RVIA. In addition, in recent years the industry has benefited
from growing retail sales to younger consumers with new product offerings targeted to younger, more active families, as they place a higher value on family outdoor recreation than any prior generation. Based on a study from the Pew Research Center,
the Millennial generation, defined as those between the ages of 18 and 34, consisted of more than 75 million people in 2015. In general, these consumers are more technologically savvy, but still value active outdoor experiences
shared with family and friends, making them strong potential customers for our industry in the decades to come. Based on the Kampgrounds of America (KOA) 2017 North American Camping Report, their millennial group comprised 31% of the total
population in the most recent census, yet accounted for 38% of the total campers in 2016, which increased from 34% of the total campers in 2015. Younger RV consumers are generally attracted to lower and moderately-priced travel trailers, as
affordability is a key driver at this stage in their lives.
As the first generation of the internet age, Millennials are generally more
comfortable gathering information online, and are therefore generally more knowledgeable about products and competitive pricing than any prior generation. This generation is camping more as they view camping as an opportunity to spend time with
family and friends as well as a way to reduce stress, escape the pressures of everyday life, be more active and lead a healthier lifestyle. In addition to younger age demographics, there are opportunities to expand sales to a more ethnically diverse
customer base. In our efforts to connect with RV consumers of all generations, beginning in the first quarter of fiscal 2017 we launched a new consumer-facing website designed to inspire consumers to explore the RV lifestyle. The new website
includes video and interactive features to help consumers determine the type of RV which may suit their specific camping needs, while providing video footage that can be utilized by dealers to market our products. In the second quarter of fiscal
2018, we launched a targeted campaign towards Millennials, and have begun exploring related marketing opportunities. We will continue to consider additional marketing opportunities to younger and more diverse consumers over the remainder of the
year. We anticipate our recent formation of the joint venture TH2, as discussed in Note 15 to the Condensed Consolidated Financial Statements, will further enhance the RV value proposition and ownership experience for this younger, more technically
savvy customer group.
Economic or industry-wide factors affecting our RV business include the costs of commodities and the labor used
in the manufacture of our products. Material and labor costs are the primary factors determining our cost of products sold, and any future increases in raw material or labor costs would impact our profit margins negatively if we were unable to raise
the selling prices for our products by corresponding amounts. Historically, we have been able to pass along those cost increases to customers.
We have not experienced any recent unusual cost increases or supply constraints from our chassis suppliers. The recreational vehicle industry has, from time to time, experienced shortages of chassis for various
reasons, including component shortages, production delays and work stoppages at the chassis manufacturers. These shortages have had a negative impact on our sales and earnings in the past. We believe that the current supply of chassis used in
our motorized RV production is adequate for current production levels, and that available inventory would compensate for short-term changes in supply schedules if they occur.
17
Three Months Ended January 31, 2018 Compared to the Three Months Ended January 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
2018
|
|
|
|
|
|
Three Months Ended
January 31,
2017
|
|
|
|
|
|
Change
Amount
|
|
|
%
Change
|
|
NET SALES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
$
|
1,373,118
|
|
|
|
|
|
|
$
|
1,082,249
|
|
|
|
|
|
|
$
|
290,869
|
|
|
|
26.9
|
|
Motorized
|
|
|
559,909
|
|
|
|
|
|
|
|
474,972
|
|
|
|
|
|
|
|
84,937
|
|
|
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recreational vehicles
|
|
|
1,933,027
|
|
|
|
|
|
|
|
1,557,221
|
|
|
|
|
|
|
|
375,806
|
|
|
|
24.1
|
|
Other
|
|
|
68,013
|
|
|
|
|
|
|
|
53,891
|
|
|
|
|
|
|
|
14,122
|
|
|
|
26.2
|
|
Intercompany eliminations
|
|
|
(29,480
|
)
|
|
|
|
|
|
|
(22,587
|
)
|
|
|
|
|
|
|
(6,893
|
)
|
|
|
(30.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,971,560
|
|
|
|
|
|
|
$
|
1,588,525
|
|
|
|
|
|
|
$
|
383,035
|
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# OF UNITS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
|
55,346
|
|
|
|
|
|
|
|
45,754
|
|
|
|
|
|
|
|
9,592
|
|
|
|
21.0
|
|
Motorized
|
|
|
6,735
|
|
|
|
|
|
|
|
5,831
|
|
|
|
|
|
|
|
904
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
62,081
|
|
|
|
|
|
|
|
51,585
|
|
|
|
|
|
|
|
10,496
|
|
|
|
20.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT:
|
|
|
|
|
% of
Segment
Net
Sales
|
|
|
|
|
|
% of
Segment
Net
Sales
|
|
|
Change
Amount
|
|
|
%
Change
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
$
|
198,305
|
|
|
|
14.4
|
|
|
$
|
151,767
|
|
|
|
14.0
|
|
|
$
|
46,538
|
|
|
|
30.7
|
|
Motorized
|
|
|
62,961
|
|
|
|
11.2
|
|
|
|
50,288
|
|
|
|
10.6
|
|
|
|
12,673
|
|
|
|
25.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recreational vehicles
|
|
|
261,266
|
|
|
|
13.5
|
|
|
|
202,055
|
|
|
|
13.0
|
|
|
|
59,211
|
|
|
|
29.3
|
|
Other, net
|
|
|
9,062
|
|
|
|
13.3
|
|
|
|
9,647
|
|
|
|
17.9
|
|
|
|
(585
|
)
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
270,328
|
|
|
|
13.7
|
|
|
$
|
211,702
|
|
|
|
13.3
|
|
|
$
|
58,626
|
|
|
|
27.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
|
|
|
|
|
|
|
|
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
$
|
70,367
|
|
|
|
5.1
|
|
|
$
|
61,155
|
|
|
|
5.7
|
|
|
$
|
9,212
|
|
|
|
15.1
|
|
Motorized
|
|
|
24,309
|
|
|
|
4.3
|
|
|
|
20,868
|
|
|
|
4.4
|
|
|
|
3,441
|
|
|
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recreational vehicles
|
|
|
94,676
|
|
|
|
4.9
|
|
|
|
82,023
|
|
|
|
5.3
|
|
|
|
12,653
|
|
|
|
15.4
|
|
Other
|
|
|
2,239
|
|
|
|
3.3
|
|
|
|
2,272
|
|
|
|
4.2
|
|
|
|
(33
|
)
|
|
|
(1.5
|
)
|
Corporate
|
|
|
20,173
|
|
|
|
|
|
|
|
12,674
|
|
|
|
|
|
|
|
7,499
|
|
|
|
59.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
117,088
|
|
|
|
5.9
|
|
|
$
|
96,969
|
|
|
|
6.1
|
|
|
$
|
20,119
|
|
|
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES:
|
|
|
|
|
|
|
|
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
$
|
116,728
|
|
|
|
8.5
|
|
|
$
|
78,000
|
|
|
|
7.2
|
|
|
$
|
38,728
|
|
|
|
49.7
|
|
Motorized
|
|
|
37,538
|
|
|
|
6.7
|
|
|
|
28,488
|
|
|
|
6.0
|
|
|
|
9,050
|
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recreational vehicles
|
|
|
154,266
|
|
|
|
8.0
|
|
|
|
106,488
|
|
|
|
6.8
|
|
|
|
47,778
|
|
|
|
44.9
|
|
Other, net
|
|
|
5,290
|
|
|
|
7.8
|
|
|
|
5,696
|
|
|
|
10.6
|
|
|
|
(406
|
)
|
|
|
(7.1
|
)
|
Corporate
|
|
|
(18,491
|
)
|
|
|
|
|
|
|
(13,819
|
)
|
|
|
|
|
|
|
(4,672
|
)
|
|
|
(33.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
141,065
|
|
|
|
7.2
|
|
|
$
|
98,365
|
|
|
|
6.2
|
|
|
$
|
42,700
|
|
|
|
43.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ORDER BACKLOG:
|
|
As of
January 31, 2018
|
|
|
As of
January 31, 2017
|
|
|
Change
Amount
|
|
|
%
Change
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
$
|
1,816,520
|
|
|
$
|
1,323,451
|
|
|
$
|
493,069
|
|
|
|
37.3
|
|
Motorized
|
|
|
981,837
|
|
|
|
766,893
|
|
|
|
214,944
|
|
|
|
28.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,798,357
|
|
|
$
|
2,090,344
|
|
|
$
|
708,013
|
|
|
|
33.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
CONSOLIDATED
Consolidated net sales for the three months ended January 31, 2018 increased $383,035, or 24.1%, compared to the three months ended January 31, 2017. Consolidated gross profit for the three months ended
January 31, 2018 increased $58,626, or 27.7%, compared to the three months ended January 31, 2017. Consolidated gross profit was 13.7% of consolidated net sales for the three months ended January 31, 2018 and 13.3% for the three
months ended January 31, 2017.
Selling, general and administrative expenses for the three months ended January 31, 2018
increased $20,119, or 20.7%, compared to the three months ended January 31, 2017. Amortization of intangible assets expense for the three months ended January 31, 2018 decreased $1,483, or 9.7%, compared to the three months ended
January 31, 2017, primarily due to lower dealer network amortization as compared to the prior-year period. Income before income taxes for the three months ended January 31, 2018 was $141,065, as compared to $98,365 for the three months
ended January 31, 2017, an increase of $42,700, or 43.4%.
Additional information concerning the changes in net sales, gross
profit, selling, general and administrative expenses and income before income taxes are addressed in the segment reporting that follows.
Corporate costs included in selling, general and administrative expenses increased $7,499 to $20,173 for the three months ended January 31,
2018 compared to $12,674 for the three months ended January 31, 2017. The increase is due in part to an increase in compensation costs, as incentive compensation increased $761 in correlation with the increase in income before income taxes
compared to the prior year, and stock-based compensation increased $1,259. The stock-based compensation increase is due to increasing income before income taxes over the past three years, as most stock awards vest ratably over a three-year period.
Deferred compensation expense also increased $1,419, which relates to the equal and offsetting increase in other income noted below due to the increase in the related deferred compensation plan assets. Legal and professional fees, including costs
related to sales and marketing initiatives and the joint venture discussed in Note 15 to the Condensed Consolidated Financial Statements, increased $2,541.
Corporate interest and other income and expense was $1,682 of net income for the three months ended January 31, 2018 compared to $1,145 of net expense for the three months ended January 31, 2017. This
favorable change of $2,827 is partially due to interest expense and fees of $1,202 incurred in the current-year period related to the revolving credit facility, as compared to $2,325 in the prior-year period, a decrease of $1,123 primarily as a
result of the lower outstanding debt balance. In addition, the change in the fair value of the Companys deferred compensation plan assets due to market fluctuations and investment income resulted in $2,460 of net income in the current-year
period as compared to net income of $1,041 in the prior-year period, an increase of $1,419.
The overall effective income tax rate for
the three months ended January 31, 2018 was 43.5% compared with 34.1% for the three months ended January 31, 2017. The primary reason for the increase in the effective income tax rate was the impact of the Tax Cuts and Jobs Act (the
Tax Act) that was signed into law on December 22, 2017. Under the Tax Act, the federal corporate income tax rate has been reduced from 35.0% to 21.0% starting January 1, 2018, which results in the use of an estimated blended
federal corporate income tax rate of 26.9% for the Companys 2018 fiscal year. As a result of the Tax Act, the Company was also required to revalue its net deferred tax assets to reflect the impact of the lower tax rates. This revaluation
caused a
non-recurring,
non-cash
reduction of the Companys net deferred tax assets, and a corresponding charge to income tax expense, of approximately $34,000.
This charge was partially offset by the benefits of both the lower federal income tax rate for the three months ended January 31, 2018 and a tax benefit of $12,535 recorded in the three months ended January 31, 2018 from applying the lower
federal income tax rate for fiscal 2018 to the results of operations for the first quarter of fiscal 2018.
19
Segment Reporting
TOWABLE RECREATIONAL VEHICLES
Analysis of the change in net sales for the three months
ended January 31, 2018 compared to the three months ended January 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
January 31, 2018
|
|
|
% of
Segment
Net Sales
|
|
|
Three Months
Ended
January 31, 2017
|
|
|
% of
Segment
Net Sales
|
|
|
Change
Amount
|
|
|
%
Change
|
|
NET SALES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel Trailers and Other
|
|
$
|
829,318
|
|
|
|
60.4
|
|
|
$
|
653,524
|
|
|
|
60.4
|
|
|
$
|
175,794
|
|
|
|
26.9
|
|
Fifth Wheels
|
|
|
543,800
|
|
|
|
39.6
|
|
|
|
428,725
|
|
|
|
39.6
|
|
|
|
115,075
|
|
|
|
26.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Towables
|
|
$
|
1,373,118
|
|
|
|
100.0
|
|
|
$
|
1,082,249
|
|
|
|
100.0
|
|
|
$
|
290,869
|
|
|
|
26.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
January 31, 2018
|
|
|
% of
Segment
Shipments
|
|
|
Three Months
Ended
January 31, 2017
|
|
|
% of
Segment
Shipments
|
|
|
Change
Amount
|
|
|
%
Change
|
|
# OF UNITS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel Trailers and Other
|
|
|
42,979
|
|
|
|
77.7
|
|
|
|
35,730
|
|
|
|
78.1
|
|
|
|
7,249
|
|
|
|
20.3
|
|
Fifth Wheels
|
|
|
12,367
|
|
|
|
22.3
|
|
|
|
10,024
|
|
|
|
21.9
|
|
|
|
2,343
|
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Towables
|
|
|
55,346
|
|
|
|
100.0
|
|
|
|
45,754
|
|
|
|
100.0
|
|
|
|
9,592
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Change in Product Mix and Price on Net Sales:
|
|
%
Increase
|
|
Towables
|
|
|
|
|
Travel Trailers and Other
|
|
|
6.6
|
|
Fifth Wheels
|
|
|
3.4
|
|
Total Towables
|
|
|
5.9
|
|
The increase in total towables net sales of 26.9% compared to the prior-year quarter resulted from a 21.0% increase
in unit shipments and a 5.9% increase in the overall net price per unit due to the impact of changes in product mix and price. According to statistics published by RVIA, for the three months ended January 31, 2018, combined travel trailer and
fifth wheel wholesale unit shipments increased 19.1% compared to the same period last year.
The increases in the overall net price per
unit within the travel trailer and other product lines of 6.6% and the fifth wheel product lines of 3.4% were both primarily due to changes in product mix and selective net price increases since the prior-year quarter.
Cost of products sold increased $244,331 to $1,174,813, or 85.6% of towables net sales, for the three months ended January 31, 2018 compared
to $930,482, or 86.0% of towables net sales, for the three months ended January 31, 2017. The changes in material, labor,
freight-out
and warranty costs comprised $232,286 of the $244,331 increase in cost
of products sold. Material, labor,
freight-out
and warranty costs as a combined percentage of towables net sales increased slightly to 79.5% for the three months ended January 31, 2018 compared to 79.4%
for the three months ended January 31, 2017. This increase in percentage was primarily the result of an increase in the labor cost percentage, due to the continued competitive RV labor market, and an increase in the warranty cost percentage,
which was partially due to offering extended coverage on certain structural components of certain products since the prior-year period. These increases in percentage were mostly offset by a decrease in the material cost percentage to net sales, due
to selective net price increase and operating efficiencies attained since the prior-year period, primarily by Jayco. Total manufacturing overhead increased $12,045 with the increase in sales, but decreased as a percentage of towables net sales from
6.6% to 6.1%, as the increased production resulted in better absorption of fixed overhead costs.
Towables gross profit increased
$46,538 to $198,305, or 14.4% of towables net sales, for the three months ended January 31, 2018 compared to $151,767, or 14.0% of towables net sales, for the three months ended January 31, 2017. The increase in gross profit is primarily
due to the 21.0% increase in unit sales volume noted above, while the increase in gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
20
Selling, general and administrative expenses were $70,367, or 5.1% of towables net sales, for the
three months ended January 31, 2018 compared to $61,155, or 5.7% of towables net sales, for the three months ended January 31, 2017. The primary reason for the $9,212 increase was increased towables net sales and towables income before
income taxes, which caused related commissions, bonuses and other compensation to increase by $8,864. Sales-related travel, advertising and promotional costs also increased $1,041 in correlation with the sales increase. These increases were
partially offset by a reduction of $1,562 in legal, professional and related settlement costs primarily due to a reduction in the estimated costs to satisfy certain outstanding legal liability and product recall costs. The overall selling, general
and administrative expense as a percentage of towables net sales decreased by 0.6% due to the significant increase in towables net sales.
Towables income before income taxes was $116,728, or 8.5% of towables net sales, for the three months ended January 31, 2018 compared to
$78,000, or 7.2% of towables net sales, for the three months ended January 31, 2017. The primary reasons for the increase in percentage were the decreases in both the cost of products sold and selling, general and administrative expense
percentages to sales noted above.
MOTORIZED RECREATIONAL VEHICLES
Analysis of the change in net sales for the three months ended January 31, 2018 compared to the three months ended January 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
January 31,
2018
|
|
|
% of
Segment
Net Sales
|
|
|
Three Months
Ended
January 31,
2017
|
|
|
% of
Segment
Net Sales
|
|
|
Change
Amount
|
|
|
%
Change
|
|
NET SALES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
257,092
|
|
|
|
45.9
|
|
|
$
|
223,818
|
|
|
|
47.1
|
|
|
$
|
33,274
|
|
|
|
14.9
|
|
Class C
|
|
|
278,853
|
|
|
|
49.8
|
|
|
|
233,197
|
|
|
|
49.1
|
|
|
|
45,656
|
|
|
|
19.6
|
|
Class B
|
|
|
23,964
|
|
|
|
4.3
|
|
|
|
17,957
|
|
|
|
3.8
|
|
|
|
6,007
|
|
|
|
33.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Motorized
|
|
$
|
559,909
|
|
|
|
100.0
|
|
|
$
|
474,972
|
|
|
|
100.0
|
|
|
$
|
84,937
|
|
|
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended
January 31, 2018
|
|
|
% of
Segment
Shipments
|
|
|
Three Months
Ended
January 31,
2017
|
|
|
% of
Segment
Shipments
|
|
|
Change
Amount
|
|
|
%
Change
|
|
# OF UNITS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
2,364
|
|
|
|
35.1
|
|
|
|
2,059
|
|
|
|
35.3
|
|
|
|
305
|
|
|
|
14.8
|
|
Class C
|
|
|
4,191
|
|
|
|
62.2
|
|
|
|
3,631
|
|
|
|
62.3
|
|
|
|
560
|
|
|
|
15.4
|
|
Class B
|
|
|
180
|
|
|
|
2.7
|
|
|
|
141
|
|
|
|
2.4
|
|
|
|
39
|
|
|
|
27.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Motorized
|
|
|
6,735
|
|
|
|
100.0
|
|
|
|
5,831
|
|
|
|
100.0
|
|
|
|
904
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Change in Product Mix and Price on Net Sales:
|
|
%
Increase
|
|
Motorized
|
|
|
|
|
Class A
|
|
|
0.1
|
|
Class C
|
|
|
4.2
|
|
Class B
|
|
|
5.8
|
|
Total Motorized
|
|
|
2.4
|
|
The increase in total motorized net sales of 17.9% compared to the prior-year period resulted from a 15.5% increase
in unit shipments and a 2.4% increase in the overall net price per unit due to the impact of changes in product mix and price. According to statistics published by RVIA, for the three months ended January 31, 2018, combined motorhome wholesale
unit shipments increased 15.8% compared to the same period last year.
The increases in the overall net price per unit within the
Class A product line of 0.1% and the Class C product line of 4.2% were primarily due to the net impact of product mix changes and selective net price increases. The increase in the overall net price per unit within the Class B product
line of 5.8% is primarily due to the introduction of a new, higher-priced model since the prior-year period, and more option content per unit in the current-year period.
21
Cost of products sold increased $72,264 to $496,948, or 88.8% of motorized net sales, for the three
months ended January 31, 2018 compared to $424,684, or 89.4% of motorized net sales, for the three months ended January 31, 2017. The changes in material, labor,
freight-out
and warranty costs
comprised $69,738 of the $72,264 increase due to increased sales volume. Material, labor,
freight-out
and warranty costs as a combined percentage of motorized net sales decreased to 84.6% for the three months
ended January 31, 2018 compared to 85.0% for the three months ended January 31, 2017. This decrease in percentage was primarily the result of a decrease in the material cost percentage, which was partially due to operating efficiencies
attained in the past year, primarily at Jayco, but this decrease was partially offset by an increase in labor costs associated with increasing employment levels and the continued competitive RV labor market. Total manufacturing overhead increased
$2,526 with the volume increase, but decreased as a percentage of motorized net sales from 4.4% to 4.2%, as the increase in production resulted in better absorption of fixed overhead costs.
Motorized gross profit increased $12,673 to $62,961, or 11.2% of motorized net sales, for the three months ended January 31, 2018 compared to
$50,288, or 10.6% of motorized net sales, for the three months ended January 31, 2017. The $12,673 increase in gross profit was due primarily to the 15.5% increase in unit sales volume noted above, and the increase as a percentage of motorized
net sales is due to the decrease in the cost of products sold percentage noted above.
Selling, general and administrative expenses were
$24,309, or 4.3% of motorized net sales, for the three months ended January 31, 2018 compared to $20,868, or 4.4% of motorized net sales, for the three months ended January 31, 2017. The $3,441 increase was partially due to increased
motorized net sales and motorized income before income taxes, which caused related commissions, bonuses and other compensation to increase by $2,509. In addition, legal, professional and related settlement costs increased $462, primarily due to
estimated product liability settlement costs. Sales-related travel, advertising and promotional costs also increased $254 in connection with the sales increase.
Motorized income before income taxes was $37,538, or 6.7% of motorized net sales, for the three months ended January 31, 2018 compared to $28,488, or 6.0% of motorized net sales, for the three months ended
January 31, 2017. The primary reason for this increase in percentage was the impact of the decrease in the cost of products sold percentage as noted above.
22
Six Months Ended January 31, 2018 Compared to the Six Months Ended January 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
January 31,
2018
|
|
|
|
|
|
Six Months Ended
January 31,
2017
|
|
|
|
|
|
Change
Amount
|
|
|
%
Change
|
|
NET SALES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
$
|
2,991,619
|
|
|
|
|
|
|
$
|
2,293,122
|
|
|
|
|
|
|
$
|
698,497
|
|
|
|
30.5
|
|
Motorized
|
|
|
1,126,520
|
|
|
|
|
|
|
|
936,426
|
|
|
|
|
|
|
|
190,094
|
|
|
|
20.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recreational vehicles
|
|
|
4,118,139
|
|
|
|
|
|
|
|
3,229,548
|
|
|
|
|
|
|
|
888,591
|
|
|
|
27.5
|
|
Other
|
|
|
150,932
|
|
|
|
|
|
|
|
112,887
|
|
|
|
|
|
|
|
38,045
|
|
|
|
33.7
|
|
Intercompany eliminations
|
|
|
(65,843
|
)
|
|
|
|
|
|
|
(45,379
|
)
|
|
|
|
|
|
|
(20,464
|
)
|
|
|
(45.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,203,228
|
|
|
|
|
|
|
$
|
3,297,056
|
|
|
|
|
|
|
$
|
906,172
|
|
|
|
27.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# OF UNITS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
|
121,441
|
|
|
|
|
|
|
|
96,928
|
|
|
|
|
|
|
|
24,513
|
|
|
|
25.3
|
|
Motorized
|
|
|
13,578
|
|
|
|
|
|
|
|
11,250
|
|
|
|
|
|
|
|
2,328
|
|
|
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
135,019
|
|
|
|
|
|
|
|
108,178
|
|
|
|
|
|
|
|
26,841
|
|
|
|
24.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT:
|
|
|
|
|
% of
Segment
Net
Sales
|
|
|
|
|
|
% of
Segment
Net
Sales
|
|
|
Change
Amount
|
|
|
%
Change
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
$
|
455,018
|
|
|
|
15.2
|
|
|
$
|
326,745
|
|
|
|
14.2
|
|
|
$
|
128,273
|
|
|
|
39.3
|
|
Motorized
|
|
|
126,864
|
|
|
|
11.3
|
|
|
|
101,725
|
|
|
|
10.9
|
|
|
|
25,139
|
|
|
|
24.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recreational vehicles
|
|
|
581,882
|
|
|
|
14.1
|
|
|
|
428,470
|
|
|
|
13.3
|
|
|
|
153,412
|
|
|
|
35.8
|
|
Other, net
|
|
|
21,631
|
|
|
|
14.3
|
|
|
|
19,984
|
|
|
|
17.7
|
|
|
|
1,647
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
603,513
|
|
|
|
14.4
|
|
|
$
|
448,454
|
|
|
|
13.6
|
|
|
$
|
155,059
|
|
|
|
34.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
|
|
|
|
|
|
|
|
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
$
|
157,127
|
|
|
|
5.3
|
|
|
$
|
128,743
|
|
|
|
5.6
|
|
|
$
|
28,384
|
|
|
|
22.0
|
|
Motorized
|
|
|
51,017
|
|
|
|
4.5
|
|
|
|
42,182
|
|
|
|
4.5
|
|
|
|
8,835
|
|
|
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recreational vehicles
|
|
|
208,144
|
|
|
|
5.1
|
|
|
|
170,925
|
|
|
|
5.3
|
|
|
|
37,219
|
|
|
|
21.8
|
|
Other
|
|
|
4,808
|
|
|
|
3.2
|
|
|
|
4,592
|
|
|
|
4.1
|
|
|
|
216
|
|
|
|
4.7
|
|
Corporate
|
|
|
38,399
|
|
|
|
|
|
|
|
23,762
|
|
|
|
|
|
|
|
14,637
|
|
|
|
61.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
251,351
|
|
|
|
6.0
|
|
|
$
|
199,279
|
|
|
|
6.0
|
|
|
$
|
52,072
|
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES:
|
|
|
|
|
|
|
|
|
|
Recreational vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
$
|
275,579
|
|
|
|
9.2
|
|
|
$
|
172,173
|
|
|
|
7.5
|
|
|
$
|
103,406
|
|
|
|
60.1
|
|
Motorized
|
|
|
75,124
|
|
|
|
6.7
|
|
|
|
57,411
|
|
|
|
6.1
|
|
|
|
17,713
|
|
|
|
30.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recreational vehicles
|
|
|
350,703
|
|
|
|
8.5
|
|
|
|
229,584
|
|
|
|
7.1
|
|
|
|
121,119
|
|
|
|
52.8
|
|
Other, net
|
|
|
13,773
|
|
|
|
9.1
|
|
|
|
12,074
|
|
|
|
10.7
|
|
|
|
1,699
|
|
|
|
14.1
|
|
Corporate
|
|
|
(36,320
|
)
|
|
|
|
|
|
|
(27,493
|
)
|
|
|
|
|
|
|
(8,827
|
)
|
|
|
(32.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
328,156
|
|
|
|
7.8
|
|
|
$
|
214,165
|
|
|
|
6.5
|
|
|
$
|
113,991
|
|
|
|
53.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
CONSOLIDATED
Consolidated net sales for the six months ended January 31, 2018 increased $906,172, or 27.5%, compared to the six months ended January 31, 2017. Consolidated gross profit for the six months ended
January 31, 2018 increased $155,059, or 34.6%, compared to the six months ended January 31, 2017. Consolidated gross profit was 14.4% of consolidated net sales for the six months ended January 31, 2018 and 13.6% for the six months
ended January 31, 2017.
Selling, general and administrative expenses for the six months ended January 31, 2018 increased
$52,072, or 26.1%, compared to the six months ended January 31, 2017. Amortization of intangible assets expense for the six months ended January 31, 2018 decreased $6,140, or 18.3%, compared to the six months ended January 31, 2017,
primarily due to backlog amortization in the prior-year period related to the Jayco acquisition and lower dealer network amortization as compared to the prior-year period. Income before income taxes for the six months ended January 31, 2018 was
$328,156, as compared to $214,165 for the six months ended January 31, 2017, an increase of $113,991, or 53.2%.
Additional
information concerning the changes in net sales, gross profit, selling, general and administrative expenses, amortization of intangible assets expense and income before income taxes are addressed in the segment reporting that follows.
Corporate costs included in selling, general and administrative expenses increased $14,637 to $38,399 for the six months ended January 31,
2018 compared to $23,762 for the six months ended January 31, 2017. The increase is due in part to an increase in compensation costs, as incentive compensation increased $2,265 in correlation with the increase in income before income taxes
compared to the prior year, and stock-based compensation increased $2,839. The stock-based compensation increase is due to increasing income before income taxes over the past three years, as most stock awards vest ratably over a three-year period.
Deferred compensation expense also increased $2,949, which relates to the equal and offsetting increase in other income noted below due to the increase in the related deferred compensation plan assets. Legal and professional fees, including costs
related to sales and marketing initiatives and the joint venture discussed in Note 15 to the Condensed Consolidated Financial Statements, increased $3,928.
Corporate interest and other income and expense was $2,079 of net income for the six months ended January 31, 2018 compared to $3,731 of net expense for the six months ended January 31, 2017. This
favorable change of $5,810 is partially due to interest expense and fees of $2,459 incurred in the current-year period related to the revolving credit facility, as compared to $4,723 in the prior-year period, a decrease of $2,264 primarily as a
result of the lower outstanding debt balance. In addition, the change in the fair value of the Companys deferred compensation plan assets due to market fluctuations and investment income resulted in $3,734 of net income in the current-year
period as compared to net income of $785 in the prior-year period, an increase of $2,949.
The overall effective income tax rate for the
six months ended January 31, 2018 was 36.6% compared with 33.0% for the six months ended January 31, 2017. The primary reason for the increase in the effective income tax rate was the impact of the Tax Cuts and Jobs Act (the Tax
Act) that was signed into law on December 22, 2017. Under the Tax Act, the federal corporate income tax rate was reduced from 35.0% to 21.0% starting January 1, 2018, which results in the use of an estimated blended federal corporate
income tax rate of 26.9% for the Companys 2018 fiscal year. In addition, the Company was also required to revalue its net deferred tax assets to reflect the impact of the lower tax rates. This revaluation caused a
non-recurring,
non-cash
reduction of the Companys net deferred tax assets, and a corresponding charge to income tax expense, of approximately $34,000 in the second
quarter of fiscal 2018. This charge was partially offset by the lower tax expense reflected in the
six-month
period ended January 31, 2018 due to the decrease in our federal corporate income tax rate to
26.9% for fiscal 2018 as a result of the Tax Act.
24
Segment Reporting
TOWABLE RECREATIONAL VEHICLES
Analysis of the change in net sales for the six months
ended January 31, 2018 compared to the six months ended January 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
January 31, 2018
|
|
|
% of
Segment
Net Sales
|
|
|
Six Months
Ended
January 31, 2017
|
|
|
% of
Segment
Net Sales
|
|
|
Change
Amount
|
|
|
%
Change
|
|
NET SALES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel Trailers and Other
|
|
$
|
1,822,922
|
|
|
|
60.9
|
|
|
$
|
1,376,873
|
|
|
|
60.0
|
|
|
$
|
446,049
|
|
|
|
32.4
|
|
Fifth Wheels
|
|
|
1,168,697
|
|
|
|
39.1
|
|
|
|
916,249
|
|
|
|
40.0
|
|
|
|
252,448
|
|
|
|
27.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Towables
|
|
$
|
2,991,619
|
|
|
|
100.0
|
|
|
$
|
2,293,122
|
|
|
|
100.0
|
|
|
$
|
698,497
|
|
|
|
30.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
January 31, 2018
|
|
|
% of
Segment
Shipments
|
|
|
Six Months
Ended
January 31, 2017
|
|
|
% of
Segment
Shipments
|
|
|
Change
Amount
|
|
|
%
Change
|
|
# OF UNITS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel Trailers and Other
|
|
|
94,647
|
|
|
|
77.9
|
|
|
|
75,374
|
|
|
|
77.8
|
|
|
|
19,273
|
|
|
|
25.6
|
|
Fifth Wheels
|
|
|
26,794
|
|
|
|
22.1
|
|
|
|
21,554
|
|
|
|
22.2
|
|
|
|
5,240
|
|
|
|
24.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Towables
|
|
|
121,441
|
|
|
|
100.0
|
|
|
|
96,928
|
|
|
|
100.0
|
|
|
|
24,513
|
|
|
|
25.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Change in Product Mix and Price on Net Sales:
|
|
%
Increase
|
|
Towables
|
|
|
|
|
Travel Trailers and Other
|
|
|
6.8
|
|
Fifth Wheels
|
|
|
3.3
|
|
Total Towables
|
|
|
5.2
|
|
The increase in total towables net sales of 30.5% compared to the prior-year period resulted from a 25.3% increase
in unit shipments and a 5.2% increase in the overall net price per unit due to the impact of changes in product mix and price. According to statistics published by RVIA, for the six months ended January 31, 2018, combined travel trailer and
fifth wheel wholesale unit shipments increased 24.4% compared to the same period last year.
The increases in the overall net price per
unit within the travel trailer and other product lines of 6.8% and the fifth wheel product lines of 3.3% were both primarily due to changes in product mix and selective net price increases since the prior-year period.
Cost of products sold increased $570,224 to $2,536,601, or 84.8% of towables net sales, for the six months ended January 31, 2018 compared to
$1,966,377, or 85.8% of towables net sales, for the six months ended January 31, 2017. The changes in material, labor,
freight-out
and warranty costs comprised $541,280 of the $570,224 increase in cost of
products sold. Material, labor,
freight-out
and warranty costs as a combined percentage of towables net sales decreased to 79.2% for the six months ended January 31, 2018 compared to 79.7% for the six
months ended January 31, 2017. This decrease in percentage was primarily the result of a decrease in the material cost percentage to net sales, due to selective net price increases and operating efficiencies attained since the prior-year
period, primarily by Jayco. This decrease was partially offset by an increase in the labor cost percentage due to the continued competitive RV labor market. Total manufacturing overhead increased $28,944 with the increase in sales, but decreased as
a percentage of towables net sales from 6.1% to 5.6%, as the increased production resulted in better absorption of fixed overhead costs.
Towables gross profit increased $128,273 to $455,018, or 15.2% of towables net sales, for the six months ended January 31, 2018 compared to
$326,745, or 14.2% of towables net sales, for the six months ended January 31, 2017. The increase in gross profit is primarily due to the 25.3% increase in unit sales volume noted above, while the increase in gross profit percentage is due to
the decrease in the cost of products sold percentage noted above.
25
Selling, general and administrative expenses were $157,127, or 5.3% of towables net sales, for the six
months ended January 31, 2018 compared to $128,743, or 5.6% of towables net sales, for the six months ended January 31, 2017. The primary reason for the $28,384 increase was increased towables net sales and towables income before income
taxes, which caused related commissions, bonuses and other compensation to increase by $22,938. Legal, professional and related settlement costs increased $1,989, primarily due to estimated costs related to an industry-wide recall of certain
vendor-supplied components and estimated product liability settlement costs. In addition, sales-related travel, advertising and promotional costs also increased $2,111 in correlation with the sales increase. In spite of these increased amounts, the
overall selling, general and administrative expense percentage of towables net sales decreased by 0.3% due to the significant increase in towables net sales.
Towables income before income taxes was $275,579, or 9.2% of towables net sales, for the six months ended January 31, 2018 compared to $172,173, or 7.5% of towables net sales, for the six months ended
January 31, 2017. The primary reasons for the increase in percentage were the decreases in both the cost of products sold and selling, general and administrative expense percentages to sales noted above. In addition, the towables amortization
cost percentage decreased by 0.5%, primarily due to
non-recurring
backlog amortization in the prior-year period related to the Jayco acquisition.
MOTORIZED RECREATIONAL VEHICLES
Analysis of the change in net sales for the six months
ended January 31, 2018 compared to the six months ended January 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months
Ended
January 31, 2018
|
|
|
% of
Segment
Net Sales
|
|
|
Six
Months
Ended
January 31, 2017
|
|
|
% of
Segment
Net Sales
|
|
|
Change
Amount
|
|
|
%
Change
|
|
NET SALES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
509,515
|
|
|
|
45.2
|
|
|
$
|
463,932
|
|
|
|
49.5
|
|
|
$
|
45,583
|
|
|
|
9.8
|
|
Class C
|
|
|
565,519
|
|
|
|
50.2
|
|
|
|
433,092
|
|
|
|
46.3
|
|
|
|
132,427
|
|
|
|
30.6
|
|
Class B
|
|
|
51,486
|
|
|
|
4.6
|
|
|
|
39,402
|
|
|
|
4.2
|
|
|
|
12,084
|
|
|
|
30.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Motorized
|
|
$
|
1,126,520
|
|
|
|
100.0
|
|
|
$
|
936,426
|
|
|
|
100.0
|
|
|
$
|
190,094
|
|
|
|
20.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
January 31, 2018
|
|
|
% of
Segment
Shipments
|
|
|
Six Months
Ended
January 31, 2017
|
|
|
% of
Segment
Shipments
|
|
|
Change
Amount
|
|
|
%
Change
|
|
# OF UNITS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
4,631
|
|
|
|
34.1
|
|
|
|
4,248
|
|
|
|
37.8
|
|
|
|
383
|
|
|
|
9.0
|
|
Class C
|
|
|
8,555
|
|
|
|
63.0
|
|
|
|
6,690
|
|
|
|
59.5
|
|
|
|
1,865
|
|
|
|
27.9
|
|
Class B
|
|
|
392
|
|
|
|
2.9
|
|
|
|
312
|
|
|
|
2.7
|
|
|
|
80
|
|
|
|
25.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Motorized
|
|
|
13,578
|
|
|
|
100.0
|
|
|
|
11,250
|
|
|
|
100.0
|
|
|
|
2,328
|
|
|
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Change in Product Mix and Price on Net Sales:
|
|
%
Increase
(Decrease)
|
|
Motorized
|
|
|
|
|
Class A
|
|
|
0.8
|
|
Class C
|
|
|
2.7
|
|
Class B
|
|
|
5.1
|
|
Total Motorized
|
|
|
(0.4
|
)
|
The increase in total motorized net sales of 20.3% compared to the prior-year period resulted from a 20.7% increase
in unit shipments and a 0.4% decrease in the overall net price per unit due to the impact of changes in product mix and price. The 0.4% decrease in the overall motorized net price per unit, in spite of increases within the individual Class A, B
and C product lines, is primarily due to a higher concentration of the more moderately-priced Class C units, as compared to Class A units, in the current-year period as compared to the prior-year period. According to statistics published
by RVIA, for the six months ended January 31, 2018, combined motorhome wholesale unit shipments increased 16.1% compared to the same period last year.
26
The modest increases in the overall net price per unit within the Class A product line of 0.8%
and the Class C product line of 2.7% were primarily due to the net impact of product mix changes and selective net price increases. The increase in the overall net price per unit within the Class B product line of 5.1% is primarily due to
the introduction of a new, higher-priced model since the prior-year period, and more option content per unit in the current-year period.
Cost of products sold increased $164,955 to $999,656, or 88.7% of motorized net sales, for the six months ended January 31, 2018 compared to
$834,701, or 89.1% of motorized net sales, for the six months ended January 31, 2017. The changes in material, labor,
freight-out
and warranty costs comprised $158,958 of the $164,955 increase due to
increased sales volume. Material, labor,
freight-out
and warranty costs as a combined percentage of motorized net sales was 84.7% for the
six-month
period ended
January 31, 2018 and 84.9% for the
six-month
period ended January 31, 2017. The primary reason for this decrease in percentage was a decrease in the material cost percentage, which was partially due
to operating efficiencies attained in the past year, primarily at Jayco, and purchase accounting charges related to Jayco included in the prior-year period. This decrease was partially offset by an increase in labor costs associated with increasing
employment levels and the continued competitive RV labor market. Total manufacturing overhead increased $5,997 with the volume increase, but decreased as a percentage of motorized net sales from 4.2% to 4.0%, as the increase in production resulted
in better absorption of fixed overhead costs.
Motorized gross profit increased $25,139 to $126,864, or 11.3% of motorized net sales, for
the six months ended January 31, 2018 compared to $101,725, or 10.9% of motorized net sales, for the six months ended January 31, 2017. The $25,139 increase in gross profit was due primarily to the 20.7% increase in unit sales volume noted
above, and the increase as a percentage of motorized net sales is due to the decrease in the cost of products sold percentage noted above.
Selling, general and administrative expenses were $51,017, or 4.5% of motorized net sales, for the six months ended January 31, 2018 compared
to $42,182, or 4.5% of motorized net sales, for the six months ended January 31, 2017. The $8,835 increase was partially due to increased motorized net sales and motorized income before income taxes, which caused related commissions, bonuses
and other compensation to increase by $4,730. In addition, legal, professional and related settlement costs increased $2,757, primarily due to estimated product liability settlement costs and estimated costs related to an industry-wide recall of
certain vendor-supplied components. Sales related travel, advertising and promotional costs also increased $804 in connection with the sales increase.
Motorized income before income taxes was $75,124, or 6.7% of motorized net sales, for the six months ended January 31, 2018 compared to $57,411, or 6.1% of motorized net sales, for the six months ended
January 31, 2017. The primary reason for this increase in percentage was the impact of the decrease in the cost of products sold percentage noted above. In addition, the motorized income before income taxes percentage increased due to a gain of
$1,506 on the sale of certain motorized buildings and equipment during the six months ended January 31, 2018.
Financial Condition and
Liquidity
As of January 31, 2018, we had $109,775 in cash and cash equivalents compared to $223,258 on July 31, 2017.
The components of this $113,483 decrease in cash and cash equivalents are described in more detail below, but the decrease was primarily attributable to capital expenditures of $63,003, principal payments on long-term debt of $65,000 and $38,994
paid for dividends, partially offset by cash provided by operations of $56,845.
Working capital at January 31, 2018 was $517,085
compared to $399,121 at July 31, 2017, with the increase primarily attributable to increases in accounts receivable and inventory due to the increases in sales, backlog and production lines. Capital expenditures of $63,003 for the six months
ended January 31, 2018 were made primarily for land and production building additions and improvements, as well as 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 continuing operations, along with funds available under the revolving asset-based credit facility, will be sufficient to fund expected
future operational requirements for the foreseeable future. We have historically relied on internally generated cash flows from operations to finance substantially all our growth, however, we obtained a revolving asset-based credit facility to
partially fund the fiscal 2016 acquisition of Jayco as discussed in Notes 2 and 11 to the Condensed Consolidated Financial Statements.
27
While the Tax Act enacted in December 2017 is expected to generate additional cash flow in the future,
our main priorities for the use of current and future available cash generated from operations will continue to focus on funding our growth, both organically and through acquisitions, maintaining and growing our regular dividends over time, and
reducing indebtedness. Strategic share repurchases or special dividends, as determined by the Companys Board, will also continue to be considered. As a component of funding our growth, we anticipate making additional investments in our
workforce through a variety of initiatives, including enhanced employee training and development programs and other initiatives that will be introduced in fiscal 2018 and fiscal 2019 and targeted to the varying needs of our individual operating
entities.
In regard to growing our business, we anticipate capital expenditures during the remainder of fiscal 2018 of approximately
$110,000, primarily for the continued expansion of our facilities and replacing and upgrading machinery, equipment and other assets to be used in the ordinary course of business.
These expenditures are in addition to the approximately $47,000 cash investment in the joint venture as discussed in Note 15 to the Condensed
Financial Statements. In regard to reducing indebtedness, absent an alternative to strategically employ funds available under the credit facility, we expect to pay off the current remaining indebtedness of $80,000 in its entirety by the end of
fiscal 2018. We may also consider additional strategic growth acquisitions that complement or expand our ongoing operations.
The
Companys Board currently intends to continue regular quarterly cash dividend payments in the future. As is customary under asset-based lines of credit, certain actions, including our ability to pay dividends, are subject to the satisfaction of
certain payment conditions prior to payment. The conditions for the payments of dividends include a minimum level of adjusted excess cash availability and a fixed charge coverage ratio test, both as defined in the credit agreement. The declaration
of future dividends and the establishment of the per share amounts, record dates and payment dates for any such future dividends are subject to the determination of the Board, and will be dependent upon future earnings, cash flows and other factors.
Future purchases of the Companys common stock or special cash dividends may occur based upon market and business conditions and
excess cash availability, subject to potential customary limits and restrictions pursuant to the credit facility, applicable legal limitations and determination by the Board.
Operating Activities
Net cash provided by operating activities for the six months ended
January 31, 2018 was $56,845 as compared to net cash provided by operating activities of $52,816 for the six months ended January 31, 2017.
For the six months ended January 31, 2018, net income adjusted for
non-cash
items (primarily depreciation, amortization of intangibles, deferred income tax provision and
stock-based compensation) provided $285,477 of operating cash. The change in net working capital used $228,632 of operating cash during that period, primarily as a result of a larger than usual seasonal increase in accounts receivable due to both
the timing of shipments and the increase in sales. Inventory also increased in conjunction with the increases in backlog and production facilities and lines, and required income tax payments exceeded the income tax provision during the period as
well. These increases were partially offset by increases in accounts payable and accrued liabilities.
For the six months ended
January 31, 2017, net income adjusted for
non-cash
items (primarily depreciation, amortization of intangibles, deferred income tax provision and stock-based compensation) provided $194,056 of operating
cash. The changes in working capital used $141,240 of operating cash during that period, primarily due to seasonal increases in accounts receivable and inventory in correlation with the increases in sales, backlog and production lines. In addition,
required income tax payments exceeded income tax provisions during the period.
Investing Activities
Net cash used in investing activities for the six months ended January 31, 2018 was $58,491, primarily due to capital expenditures of $63,003,
partially offset by proceeds received on the disposition of property, plant and equipment of $3,552.
Net cash used in investing
activities for the six months ended January 31, 2017 was $53,622, primarily due to capital expenditures of $50,924 and a final purchase price adjustment payment of $5,039 related to the fiscal 2016 acquisition of Jayco, partially offset by
proceeds received on the dispositions of property, plant and equipment of $4,554.
28
Financing Activities
Net cash used in financing activities for the six months ended January 31, 2018 was $111,837, primarily for principal payments on the revolving credit facility totaling $65,000 and regular quarterly cash
dividend payments of $0.37 per share for each of the first two quarters of fiscal 2018 totaling $38,994.
Net cash used in financing
activities for the six months ended January 31, 2017 was $74,441, primarily for principal payments on the revolving credit facility totaling $35,000 and regular quarterly cash dividend payments of $0.33 per share for each of the first two
quarters of fiscal 2017 totaling $34,704.
The Company increased its previous regular quarterly dividend of $0.33 per share to $0.37 per
share in October 2017. In October 2016, the Company increased its previous regular quarterly dividend of $0.30 per share to $0.33 per share.
Accounting Pronouncements
Reference
is made to Note 1 of our Condensed Consolidated Financial Statements contained in this report for a summary of recently issued accounting pronouncements, which summary is hereby incorporated by reference.