☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended April 30, 2022.
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ____ to ____.
COMMISSION FILE NUMBER 001-09235
THOR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
93-0768752
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
601 E. Beardsley Ave., Elkhart, IN
46514-3305
(Address of principal executive offices)
(Zip Code)
(574)970-7460
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class
Trading Symbol(s)
on which registered
Common stock (Par value $.10 Per Share)
THO
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☑No☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☑No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☑Accelerated filer ☐
Non-accelerated filer ☐Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐No☑
As of May 31, 2022, 54,531,138 shares of the registrant’s common stock, par value $0.10 per share, were outstanding.
PART I – FINANCIAL INFORMATION (Unless otherwise indicated, amounts in thousands except share and per share data.)
Common stock – par value of $.10 per share; authorized 250,000,000 shares; issued 66,059,403 and 65,651,570 shares, respectively
6,606
6,565
Additional paid-in capital
490,686
460,482
Retained earnings
3,555,766
2,770,401
Accumulated other comprehensive income (loss), net of tax
(142,609)
44,621
Less treasury shares of 11,528,265 and 10,285,329, respectively, at cost
(476,558)
(360,226)
Stockholders’ equity attributable to THOR Industries, Inc.
3,433,891
2,921,843
Non-controlling interests
7,292
26,263
Total stockholders’ equity
3,441,183
2,948,106
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
7,735,500
$
6,654,088
See Notes to the Condensed Consolidated Financial Statements.
2
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended April 30,
Nine Months Ended April 30,
2022
2021
2022
2021
Net sales
$
4,657,517
$
3,459,264
$
12,490,759
$
8,724,412
Cost of products sold
3,850,072
2,953,984
10,352,616
7,425,403
Gross profit
807,445
505,280
2,138,143
1,299,009
Selling, general and administrative expenses
281,676
231,834
845,009
619,786
Amortization of intangible assets
40,725
30,480
117,288
87,110
Interest income
570
142
854
662
Interest expense
22,859
26,808
68,370
75,248
Other income (expense), net
(348)
16,379
13,172
25,430
Income before income taxes
462,407
232,679
1,121,502
542,957
Income tax provision
116,389
49,960
265,046
113,409
Net income
346,018
182,719
856,456
429,548
Less: Net (loss) attributable to non-controlling interests
(2,033)
(592)
(405)
(44)
Net income attributable to THOR Industries, Inc.
$
348,051
$
183,311
$
856,861
$
429,592
Weighted-average common shares outstanding:
Basic
54,906,356
55,366,241
55,278,320
55,323,080
Diluted
55,068,783
55,723,378
55,507,023
55,615,107
Earnings per common share:
Basic
$
6.34
$
3.31
$
15.50
$
7.77
Diluted
$
6.32
$
3.29
$
15.44
$
7.72
Comprehensive income:
Net income
$
346,018
$
182,719
$
856,456
$
429,548
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment
(90,910)
(7,449)
(196,051)
33,691
Unrealized gain on derivatives, net of tax
3,620
2,929
8,104
8,612
Other (loss), net of tax
—
—
(372)
—
Total other comprehensive income (loss), net of tax
(87,290)
(4,520)
(188,319)
42,303
Total Comprehensive income
258,728
178,199
668,137
471,851
Less: Comprehensive income (loss) attributable to non-controlling interests
(2,417)
(647)
(1,494)
41
Comprehensive income attributable to THOR Industries, Inc.
$
261,145
$
178,846
$
669,631
$
471,810
See Notes to the Condensed Consolidated Financial Statements.
3
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended April 30,
2022
2021
Cash flows from operating activities:
Net income
$
856,456
$
429,548
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
95,206
82,533
Amortization of intangible assets
117,288
87,110
Amortization of debt issuance costs
8,457
12,825
Deferred income tax benefit
(18,830)
(4,499)
(Gain) loss on disposition of property, plant and equipment
833
(296)
Stock-based compensation expense
22,736
21,424
Changes in assets and liabilities:
Accounts receivable
(256,180)
(175,635)
Inventories, net
(338,852)
(632,506)
Prepaid income taxes, expenses and other
(4,578)
(28,280)
Accounts payable
78,897
341,535
Accrued liabilities
92,693
32,581
Long-term liabilities and other
(16,577)
8,733
Net cash provided by operating activities
637,549
175,073
Cash flows from investing activities:
Purchases of property, plant and equipment
(170,702)
(81,162)
Proceeds from dispositions of property, plant and equipment
823
1,742
Business acquisitions, net of cash acquired
(781,967)
(310,938)
Other
(20,000)
9,330
Net cash used in investing activities
(971,846)
(381,028)
Cash flows from financing activities:
Borrowings on revolving asset-based credit facilities
660,088
225,676
Payments on revolving asset-based credit facilities
(559,035)
(114,836)
Proceeds from issuance of senior unsecured notes
500,000
—
Payments on term-loan credit facilities
(124,565)
(59,700)
Payments on other debt
(7,842)
(9,711)
Payments of debt issuance costs
(8,445)
—
Regular cash dividends paid
(71,496)
(68,100)
Payments on finance lease obligations
(801)
(492)
Purchases of treasury shares
(98,321)
—
Payments related to vesting of stock-based awards
(18,011)
(8,317)
Short-term financial obligations and other, net
(21,120)
(7,323)
Net cash provided by (used in) financing activities
250,452
(42,803)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(32,882)
4,857
Net decrease in cash and cash equivalents and restricted cash
(116,727)
(243,901)
Cash and cash equivalents and restricted cash, beginning of period
448,706
541,363
Cash and cash equivalents and restricted cash, end of period
331,979
297,462
Less: restricted cash
2,682
2,900
Cash and cash equivalents, end of period
$
329,297
$
294,562
Supplemental cash flow information:
Income taxes paid
$
270,063
$
172,397
Interest paid
$
59,454
$
62,048
Non-cash investing and financing transactions:
Capital expenditures in accounts payable
$
7,914
$
3,497
See Notes to the Condensed Consolidated Financial Statements.
4
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2022 AND 2021 (UNAUDITED)
Three Months Ended April 30, 2022
Accumulated
Stockholders’
Additional
Other
Equity
Non-
Total
Common Stock
Paid-In
Retained
Comprehensive
Treasury Stock
Attributable
controlling
Stockholders’
Shares
Amount
Capital
Earnings
Income (Loss)
Shares
Amount
to THOR
Interests
Equity
Balance at February 1, 2022
66,059,403
$
6,606
$
479,946
$
3,231,378
$
(55,703)
11,029,159
$
(436,568)
$
3,225,659
$
27,925
$
3,253,584
Net income (loss)
—
—
—
348,051
—
—
—
348,051
(2,033)
346,018
Purchases of treasury shares
—
—
—
—
—
499,106
(39,990)
(39,990)
—
(39,990)
Restricted stock unit activity
—
—
(526)
—
—
—
—
(526)
—
(526)
Dividends $0.43 per common share
—
—
—
(23,663)
—
—
—
(23,663)
—
(23,663)
Stock-based compensation expense
—
—
9,750
—
—
—
—
9,750
—
9,750
Other comprehensive income (loss)
—
—
—
—
(86,906)
—
—
(86,906)
(384)
(87,290)
Dividend paid to non-controlling interest
—
—
—
—
—
—
—
—
(555)
(555)
Acquisitions
—
—
1,516
—
—
—
—
1,516
(17,661)
(16,145)
Balance at April 30, 2022
66,059,403
$
6,606
$
490,686
$
3,555,766
$
(142,609)
11,528,265
$
(476,558)
$
3,433,891
$
7,292
$
3,441,183
Nine Months Ended April 30, 2022
Accumulated
Stockholders’
Additional
Other
Equity
Non-
Total
Common Stock
Paid-In
Retained
Comprehensive
Treasury Stock
Attributable
controlling
Stockholders’
Shares
Amount
Capital
Earnings
Income (Loss)
Shares
Amount
to THOR
Interests
Equity
Balance at August 1, 2021
65,651,570
$
6,565
$
460,482
$
2,770,401
$
44,621
10,285,329
$
(360,226)
$
2,921,843
$
26,263
$
2,948,106
Net income (loss)
—
—
—
856,861
—
—
—
856,861
(405)
856,456
Purchases of treasury shares
—
—
—
—
—
1,090,067
(98,321)
(98,321)
—
(98,321)
Restricted stock unit activity
407,833
41
5,952
—
—
152,869
(18,011)
(12,018)
—
(12,018)
Dividends $1.29 per common share
—
—
—
(71,496)
—
—
—
(71,496)
—
(71,496)
Stock-based compensation expense
—
—
22,736
—
—
—
—
22,736
—
22,736
Other comprehensive income (loss)
—
—
—
—
(187,230)
—
—
(187,230)
(1,089)
(188,319)
Dividend paid to non-controlling interest
—
—
—
—
—
—
—
—
(555)
(555)
Acquisitions
—
—
1,516
—
—
—
—
1,516
(16,922)
(15,406)
Balance at April 30, 2022
66,059,403
$
6,606
$
490,686
$
3,555,766
$
(142,609)
11,528,265
$
(476,558)
$
3,433,891
$
7,292
$
3,441,183
See Notes to the Condensed Consolidated Financial Statements.
5
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2022 AND 2021 (UNAUDITED)
Three Months Ended April 30, 2021
Accumulated
Stockholders’
Additional
Other
Equity
Non-
Total
Common Stock
Paid-In
Retained
Comprehensive
Treasury Stock
Attributable
controlling
Stockholders’
Shares
Amount
Capital
Earnings
Income (Loss)
Shares
Amount
to THOR
Interests
Equity
Balance at February 1, 2021
65,651,570
$
6,565
$
448,010
$
2,402,211
$
73,676
10,285,329
$
(360,226)
$
2,570,236
$
26,475
$
2,596,711
Net income (loss)
—
—
—
183,311
—
—
—
183,311
(592)
182,719
Restricted stock unit activity
—
—
(2,049)
—
—
—
—
(2,049)
—
(2,049)
Dividends $0.41 per common share
—
—
—
(22,700)
—
—
—
(22,700)
—
(22,700)
Stock-based compensation expense
—
—
8,366
—
—
—
—
8,366
—
8,366
Other comprehensive income (loss)
—
—
—
—
(4,465)
—
—
(4,465)
(55)
(4,520)
Dividend paid to non-controlling interests
—
—
—
—
—
—
—
—
(605)
(605)
Balance at April 30, 2021
65,651,570
$
6,565
$
454,327
$
2,562,822
$
69,211
10,285,329
$
(360,226)
$
2,732,699
$
25,223
$
2,757,922
Nine Months Ended April 30, 2021
Accumulated
Stockholders’
Additional
Other
Equity
Non-
Total
Common Stock
Paid-In
Retained
Comprehensive
Treasury Stock
Attributable
controlling
Stockholders’
Shares
Amount
Capital
Earnings
Income (Loss)
Shares
Amount
to THOR
Interests
Equity
Balance at August 1, 2020
65,396,531
$
6,540
$
436,828
$
2,201,330
$
26,993
10,197,775
$
(351,909)
$
2,319,782
$
25,787
$
2,345,569
Net income (loss)
—
—
—
429,592
—
—
—
429,592
(44)
429,548
Restricted stock unit activity
255,039
25
(3,925)
—
—
87,554
(8,317)
(12,217)
—
(12,217)
Dividends $1.23 per common share
—
—
—
(68,100)
—
—
—
(68,100)
—
(68,100)
Stock-based compensation expense
—
—
21,424
—
—
—
—
21,424
—
21,424
Other comprehensive income (loss)
—
—
—
—
42,218
—
—
42,218
85
42,303
Dividend paid to non-controlling interests
—
—
—
—
—
—
—
—
(605)
(605)
Balance at April 30, 2021
65,651,570
$
6,565
$
454,327
$
2,562,822
$
69,211
10,285,329
$
(360,226)
$
2,732,699
$
25,223
$
2,757,922
See Notes to the Condensed Consolidated Financial Statements.
6
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(All U.S. Dollar, Euro and British Pound Sterling amounts presented in thousands except share and per share data or except as otherwise specified)
1. Nature of Operations and Accounting Policies
Nature of Operations
THOR Industries, Inc. was founded in 1980 and is the sole owner of operating subsidiaries (collectively, the “Company” or “THOR”), that, combined, represent the world's largest manufacturer of recreational vehicles (“RVs”). The Company manufactures a wide variety of RVs in the United States and Europe and sells those vehicles, as well as related parts and accessories, primarily to independent, non-franchise dealers throughout the United States, Canada and Europe. Unless the context requires or indicates otherwise, all references to “THOR,” the “Company,” “we,” “our” and “us” refer to THOR Industries, Inc. and its subsidiaries.
The July 31, 2021 amounts are derived from the annual audited financial statements of THOR. The interim financial statements are unaudited. In the opinion of management, all adjustments (which consist of normal, recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented have been made. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2021. Due to seasonality within the recreational vehicle industry, and the impact of the ongoing supply chain disruptions on our industry, among other factors, annualizing the results of operations for the nine months ended April 30, 2022 would not necessarily be indicative of the results expected for the full fiscal year.
2. Acquisitions
Airxcel
On September 1, 2021, the Company acquired Wichita, Kansas-based AirX Intermediate, Inc. (“Airxcel”). Airxcel manufactures a comprehensive line of high-quality component products which are sold primarily to original equipment RV manufacturers as well as consumers via aftermarket sales through dealers and retailers. Airxcel provides industry-leading products in recreational vehicle heating, cooling, ventilation, cooking, window coverings, sidewalls and roofing materials, among others. The initial cash consideration for the Airxcel acquisition was $750,000 in cash, subject to adjustments, and was funded through a combination of cash-on-hand and $625,000 of borrowings from the Company's asset-based credit facility (“ABL”). The total cash consideration to be paid was subject to the final determination of the actual acquired net working capital as of the close of business on September 1, 2021, which was finalized in the second quarter of fiscal 2022 and the true-up reduced the cash consideration to $745,279, net of cash acquired. In conjunction with the Airxcel acquisition, the Company expanded its existing ABL facility from $750,000 to $1,000,000, favorably amended certain terms of the agreement and extended the term of the ABL as discussed in Note 12 to the Condensed Consolidated Financial Statements. The interest rate provisions remain unchanged.
The Company acquired Airxcel as part of its long-term, strategic growth plan and the acquisition is expected to provide numerous benefits, including strengthening the RV supply chain, diversifying its revenue sources and expanding Airxcel’s supply chain business in North America and Europe. Airxcel operates as an independent operation in the same manner as the Company's other subsidiaries.
The results of Airxcel are included in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income since the September 1, 2021 acquisition date. Airxcel recorded net sales of $371,503, net of intercompany sales, and net income before income taxes, net of intercompany profit elimination, of $25,595 for the period from the date of acquisition through April 30, 2022. Net income before income taxes includes a charge of $6,791 related to the step-up in assigned value of acquired Airxcel inventory that was included in cost of products sold, and also includes $25,930 in amortization expense related to the acquired intangible assets.
7
From the acquisition date through April 30, 2022, the Company made immaterial measurement period adjustments to better reflect the facts and circumstances that existed at the acquisition date. The following table summarizes the estimated fair values of the Airxcel net assets acquired on the acquisition date. The Company is in the process of finalizing the fair value analysis, but this analysis has not been fully completed. The provisional amounts included below, related to deferred income tax liabilities and certain accrued expenses, remain subject to potential adjustment. The Company expects to finalize these values as soon as practical and no later than one year from the acquisition date.
Cash
$
23,404
Inventory
71,150
Other assets
62,657
Property, plant and equipment
40,518
Amortizable intangible assets:
Customer relationships
284,000
Trademarks
56,900
Design technology assets
60,600
Backlog
700
Goodwill
368,688
Current liabilities
(109,586)
Deferred income tax liabilities
(79,115)
Other liabilities
(10,494)
Non-controlling interest
(739)
Total fair value of net assets acquired
768,683
Less cash acquired
(23,404)
Total cash consideration for acquisition, less cash acquired
$
745,279
On the acquisition date, amortizable intangible assets had a weighted-average useful life of 18.3 years. The customer relationships were valued based on the Discounted Cash Flow Method and are being amortized on an accelerated basis over 20 years. The trademarks were valued on the Relief from Royalty Method and are being amortized on a straight-line basis over 20 years. The design technology assets were valued on the Relief from Royalty Method and are being amortized on a straight-line basis over 10 years. Backlog was valued based on the Discounted Cash Flow Method and was amortized on a straight-line basis over two months. The majority of the goodwill recognized as a result of this transaction is not deductible for tax purposes.
Tiffin Group
On December 18, 2020, the Company acquired luxury motorized recreational vehicle manufacturer Tiffin Motorhomes, Inc., including fifth wheel towable recreational vehicle manufacturer Vanleigh RV, and certain other associated operating and supply companies, which primarily supply component parts and services to Tiffin Motorhomes, Inc. and Vanleigh RV (collectively, the “Tiffin Group”). Tiffin Group, LLC, a wholly-owned subsidiary of the Company, owns the Tiffin Group. Tiffin Motorhomes, Inc. operates out of various locations in Alabama while Vanleigh RV operates out of Mississippi.
The cash consideration for the acquisition of the Tiffin Group was $288,238, net of cash acquired, and was funded through existing cash-on-hand as well as $165,000 in borrowings from the Company’s existing asset-based credit facility.
8
The following table summarizes the final fair values of the Tiffin Group net assets acquired on the acquisition date.
Cash
$
13,074
Inventory
116,441
Other assets
53,860
Property, plant and equipment
48,262
Amortizable intangible assets:
Dealer network
92,200
Trademarks
32,100
Non-compete agreements
1,400
Backlog
4,800
Goodwill
65,064
Current liabilities
(81,423)
Deferred income tax liabilities
(37,263)
Other liabilities
(7,203)
Total fair value of net assets acquired
301,312
Less cash acquired
(13,074)
Total cash consideration for acquisition, less cash acquired
$
288,238
On the acquisition date, amortizable intangible assets had a weighted-average useful life of 18.8 years. The dealer network was valued based on the Discounted Cash Flow Method and is being amortized on an accelerated basis over 18 to 20 years. The trademarks were valued on the Relief from Royalty Method and are being amortized on a straight-line basis over 20 years. Backlogs were valued based on the Discounted Cash Flow Method and were amortized on a straight-line basis over five to seven months. Generally, the goodwill recognized as a result of this transaction is not deductible for tax purposes.
The following unaudited pro forma information represents the Company’s results of operations as if the fiscal 2022 acquisition of Airxcel had occurred at the beginning of fiscal 2021 and the fiscal 2021 acquisition of the Tiffin Group had occurred at the beginning of fiscal 2020. These pro forma results may not be indicative of the actual results that would have occurred under the ownership and management of the Company.
Three Months Ended April 30,
2022
2021
Net sales
$
4,657,517
$
3,595,680
Net income attributable to THOR Industries, Inc.
$
348,051
$
190,564
Basic earnings per common share
$
6.34
$
3.44
Diluted earnings per common share
$
6.32
$
3.42
Nine Months Ended April 30,
2022
2021
Net sales
$
12,538,217
$
9,352,649
Net income attributable to THOR Industries, Inc.
$
863,674
$
457,147
Basic earnings per common share
$
15.62
$
8.26
Diluted earnings per common share
$
15.56
$
8.22
9
Togo Group
As discussed in Note 2 to the Company’s Consolidated Financial Statements included in the Fiscal 2021 Form 10-K, the Company held a 73.5% ownership interest in the Togo Group, which was rebranded as Roadpass Digital in November 2021. During the third quarter of fiscal 2022, the Company acquired the remaining interest in Togo Group for $16,144 in cash, and as a result holds a 100% ownership interest in Togo Group as of April 30, 2022.
3. Business Segments
The Company has three reportable segments, all related to recreational vehicles: (1) North American Towables, (2) North American Motorized and (3) European. The operations of the Company’s Postle, Roadpass Digital (formerly Togo Group) and Airxcel subsidiaries are included in Other. Net sales included in Other related primarily to the sale of component parts and aluminum extrusions. Intercompany eliminations adjust for Postle and Airxcel sales primarily to the Company’s North American Towables and North American Motorized segments, which are consummated at established transfer prices generally consistent with the selling prices of products to third parties.
The following tables reflect certain financial information by reportable segment:
Three Months Ended April 30,
Nine Months Ended April 30,
NET SALES:
2022
2021
2022
2021
Recreational vehicles
North American Towables
$
2,640,137
$
1,726,102
$
6,866,059
$
4,491,327
North American Motorized
1,053,045
775,393
2,954,879
1,846,243
Total North America
3,693,182
2,501,495
9,820,938
6,337,570
European
724,002
894,240
2,080,729
2,230,191
Total recreational vehicles
4,417,184
3,395,735
11,901,667
8,567,761
Other
383,170
106,960
935,146
262,381
Intercompany eliminations
(142,837)
(43,431)
(346,054)
(105,730)
Total
$
4,657,517
$
3,459,264
$
12,490,759
$
8,724,412
Three Months Ended April 30,
Nine Months Ended April 30,
INCOME (LOSS) BEFORE INCOME TAXES:
2022
2021
2022
2021
Recreational vehicles
North American Towables
$
326,697
$
167,693
$
868,874
$
456,752
North American Motorized
116,293
54,780
309,228
139,768
Total North America
442,990
222,473
1,178,102
596,520
European
20,559
43,993
12,248
48,703
Total recreational vehicles
463,549
266,466
1,190,350
645,223
Other, net
46,910
16,667
93,531
37,801
Corporate
(48,052)
(50,454)
(162,379)
(140,067)
Total
$
462,407
$
232,679
$
1,121,502
$
542,957
10
TOTAL ASSETS:
April 30, 2022
July 31, 2021
Recreational vehicles
North American Towables
$
2,268,957
$
1,870,577
North American Motorized
1,247,443
1,073,506
Total North America
3,516,400
2,944,083
European
2,565,984
2,975,821
Total recreational vehicles
6,082,384
5,919,904
Other
1,270,417
272,350
Corporate
382,699
461,834
Total
$
7,735,500
$
6,654,088
DEPRECIATION AND INTANGIBLE AMORTIZATION EXPENSE:
Three Months Ended April 30,
Nine Months Ended April 30,
2022
2021
2022
2021
Recreational vehicles
North American Towables
$
16,149
$
16,904
$
48,764
$
49,029
North American Motorized
7,388
7,008
21,517
16,112
Total North America
23,537
23,912
70,281
65,141
European
31,501
31,251
99,910
94,182
Total recreational vehicles
55,038
55,163
170,191
159,323
Other
16,177
3,108
41,014
9,058
Corporate
431
418
1,289
1,262
Total
$
71,646
$
58,689
$
212,494
$
169,643
Three Months Ended April 30,
Nine Months Ended April 30,
CAPITAL ACQUISITIONS:
2022
2021
2022
2021
Recreational vehicles
North American Towables
$
19,833
$
9,750
$
54,446
$
26,071
North American Motorized
9,885
6,716
25,205
12,191
Total North America
29,718
16,466
79,651
38,262
European
16,173
14,889
70,400
38,105
Total recreational vehicles
45,891
31,355
150,051
76,367
Other
9,272
1,427
21,452
4,087
Corporate
501
358
584
747
Total
$
55,664
$
33,140
$
172,087
$
81,201
11
4. Earnings Per Common Share
The following table reflects the weighted-average common shares used to compute basic and diluted earnings per common share as included on the Condensed Consolidated Statements of Income and Comprehensive Income:
Three Months Ended April 30,
Nine Months Ended April 30,
2022
2021
2022
2021
Weighted-average common shares outstanding for basic earnings per share
54,906,356
55,366,241
55,278,320
55,323,080
Unvested restricted and performance stock units
162,427
357,137
228,703
292,027
Weighted-average common shares outstanding assuming dilution
55,068,783
55,723,378
55,507,023
55,615,107
For the three months ended April 30, 2022 and 2021, the Company had 211,348 and 86,946 unvested restricted stock units and performance stock units outstanding, respectively, which were excluded from this calculation as their effect would be antidilutive. For the nine months ended April 30, 2022 and 2021, the Company had 159,077 and 81,557 unvested restricted stock units and performance stock units outstanding, respectively, which were excluded from this calculation as their effect would have been antidilutive.
5. Derivatives and Hedging
The fair value of our derivative instruments designated as cash flow hedges, and the associated notional amounts, presented on a pre-tax basis, were as follows:
April 30, 2022
July 31, 2021
Fair Value in
Fair Value in
Other Current
Other Current
Cash Flow Hedges
Notional
Liabilities
Notional
Liabilities
Foreign currency forward contracts
$
18,842
$
381
$
41,899
$
88
Interest rate swap agreements
326,300
482
482,138
11,420
Total derivative financial instruments
$
345,142
$
863
$
524,037
$
11,508
Foreign currency forward contracts outstanding at April 30, 2022 are used to exchange British Pounds Sterling (“GBP”) for Euro. The contracts have various maturity dates through July 29, 2022.
The Company entered into interest rate swaps to convert a portion of the Company’s long-term debt from floating-rate to fixed-rate debt, partially hedging the interest rate risk related to the Company’s U.S. dollar term loan tranche that matures in February 2026.
Net Investment Hedges
The foreign currency transaction gains and losses on the Euro-denominated portion of the term loan, which is designated and effective as a hedge of the Company’s net investment in its Euro-denominated functional currency subsidiaries, are included as a component of the foreign currency translation adjustment. Gains for the three months ended April 30, 2022, net of tax, were $23,189 and gains for the nine months ended April 30, 2022, net of tax, were $50,817. Gains for the three months ended April 30, 2021, net of tax, were $1,984 and losses for the nine months ended April 30, 2021, net of tax, were $8,969.
There were no amounts reclassified out of accumulated other comprehensive income (“AOCI”) pertaining to the net investment hedge during the three and nine-month periods ended April 30, 2022 and April 30, 2021, respectively.
12
Derivatives Not Designated as Hedging Instruments
The Company has certain other derivative instruments which have not been designated as hedges. These other derivative instruments had a notional amount totaling approximately $27,065 and a fair value of $1,138, which is included in Other current liabilities in the Condensed Consolidated Balance Sheet as of April 30, 2022. These other derivative instruments had a notional amount totaling approximately $32,466 and a fair value of $1,948, which is included in Other current liabilities in the Condensed Consolidated Balance Sheet as of July 31, 2021. For these derivative instruments, changes in fair value are recognized in earnings.
The total amounts presented in the Condensed Consolidated Statements of Income and Comprehensive Income due to changes in the fair value of the following derivative instruments are as follows:
Three Months Ended April 30,
2022
2021
Gain on Derivatives Designated as Cash Flow Hedges
Gain recognized in Other Comprehensive Income, net of tax
Foreign currency forward contracts
$
411
$
422
Interest rate swap agreements (1)
3,209
2,507
Total gain
$
3,620
$
2,929
(1) Other comprehensive income (loss), net of tax, before reclassification from AOCI was $1,888 and $154 for the three months ended April 30, 2022 and 2021, respectively.
Nine Months Ended April 30,
2022
2021
Gain (Loss) on Derivatives Designated as Cash Flow Hedges
Gain (Loss) recognized in Other Comprehensive Income, net of tax
Foreign currency forward contracts
$
(209)
$
356
Interest rate swap agreements (2)
8,313
8,256
Total gain (loss)
$
8,104
$
8,612
(2) Other comprehensive income (loss), net of tax, before reclassification from AOCI was $3,290 and $506 for the nine months ended April 30, 2022 and 2021, respectively.
Three Months Ended April 30,
2022
2021
Interest
Interest
Sales
Expense
Sales
Expense
Gain (Loss) Reclassified from AOCI, Net of Tax
Foreign currency forward contracts
$
(261)
$
—
$
(429)
$
—
Interest rate swap agreements
—
(1,321)
—
(2,353)
Gain (Loss) on Derivatives Not Designated as Hedging Instruments
Gain (loss) recognized in income, net of tax
Interest rate swap agreements
—
335
—
108
Total gain (loss)
$
(261)
$
(986)
$
(429)
$
(2,245)
13
Nine Months Ended April 30,
2022
2021
Interest
Interest
Sales
Expense
Sales
Expense
Gain (Loss) Reclassified from AOCI, Net of Tax
Foreign currency forward contracts
$
(545)
$
—
$
(422)
$
—
Interest rate swap agreements
—
(5,023)
—
(7,750)
Gain (Loss) on Derivatives Not Designated as Hedging Instruments
Gain (loss) recognized in income, net of tax
Interest rate swap agreements
—
424
—
62
Total gain (loss)
$
(545)
$
(4,599)
$
(422)
$
(7,688)
6. Inventories
Major classifications of inventories are as follows:
April 30, 2022
July 31, 2021
Finished goods – RV
$
126,512
$
114,843
Finished goods – other
117,190
57,810
Work in process
435,404
376,594
Raw materials
862,983
602,106
Chassis
300,730
292,921
Subtotal
1,842,819
1,444,274
Excess of FIFO costs over LIFO costs
(108,740)
(74,890)
Total inventories, net
$
1,734,079
$
1,369,384
Of the $1,842,819 and $1,444,274 of inventories at April 30, 2022 and July 31, 2021, $1,185,092 and $946,767, respectively, were valued on the first-in, first-out (“FIFO”) method, and $657,727 and $497,507, respectively, were valued on the last-in, first-out (“LIFO”) method.
7. Property, Plant and Equipment
Property, plant and equipment consists of the following:
April 30, 2022
July 31, 2021
Land
$
146,154
$
142,746
Buildings and improvements
898,111
837,065
Machinery and equipment
595,344
523,714
Rental vehicles
51,499
75,449
Lease right-of-use assets – operating
46,405
42,601
Lease right-of-use assets – finance
6,450
7,010
Total cost
1,743,963
1,628,585
Less accumulated depreciation
(510,056)
(443,454)
Property, plant and equipment, net
$
1,233,907
$
1,185,131
See Note 15 to the Condensed Consolidated Financial Statements for further information regarding the lease right-of-use assets.
14
8. Intangible Assets and Goodwill
The components of amortizable intangible assets are as follows:
April 30, 2022
July 31, 2021
Accumulated
Accumulated
Cost
Amortization
Cost
Amortization
Dealer networks/customer relationships
$
1,101,130
$
395,387
$
861,562
$
327,751
Trademarks
354,944
73,863
311,208
62,675
Design technology and other intangibles
259,390
75,823
215,956
62,237
Non-compete agreements
1,400
642
1,400
292
Total amortizable intangible assets
$
1,716,864
$
545,715
$
1,390,126
$
452,955
Estimated future amortization expense is as follows:
For the remainder of the fiscal year ending July 31, 2022
$
39,826
For the fiscal year ending July 31, 2023
142,346
For the fiscal year ending July 31, 2024
130,006
For the fiscal year ending July 31, 2025
117,898
For the fiscal year ending July 31, 2026
106,362
For the fiscal year ending July 31, 2027 and thereafter
634,711
$
1,171,149
Changes in the carrying amount of goodwill by reportable segment for the nine months ended April 30, 2022 are summarized as follows:
North American Towables
North American Motorized
European
Other
Total
Net balance as of August 1, 2021
$
344,975
$
53,875
$
1,041,697
$
122,708
$
1,563,255
Fiscal 2022 activity:
Goodwill acquired
—
—
—
389,838
389,838
Measurement period adjustments
—
—
—
134
134
Foreign currency translation
—
—
(118,354)
—
(118,354)
Net balance as of April 30, 2022
$
344,975
$
53,875
$
923,343
$
512,680
$
1,834,873
Changes in the carrying amount of goodwill by reportable segment for the nine months ended April 30, 2021 are summarized as follows:
North American Towables
North American Motorized
European
Other
Total
Net balance as of August 1, 2020
$
333,786
$
—
$
1,037,929
$
104,826
$
1,476,541
Fiscal 2021 activity:
Goodwill acquired
18,845
43,491
—
17,882
80,218
Measurement period adjustments
(7,656)
8,225
—
—
569
Foreign currency translation
—
—
20,500
—
20,500
Net balance as of April 30, 2021
$
344,975
$
51,716
$
1,058,429
$
122,708
$
1,577,828
15
9. Concentration of Risk
One dealer, FreedomRoads, LLC, accounted for 14% of the Company’s consolidated net sales for the three-month period ended April 30, 2022 and 13% of the Company’s consolidated net sales for the three-month period ended April 30, 2021, and accounted for 14% of the Company’s consolidated net sales for the nine-month period ended April 30, 2022 and 13% for the nine-month period ended April 30, 2021, respectively. Sales to this dealer are reported within both the North American Towables and North American Motorized segments. This dealer also accounted for 15% of the Company’s consolidated trade accounts receivable at both April 30, 2022 and July 31, 2021. The loss of this dealer could have a material effect on the Company’s business.
10. Fair Value Measurements
The financial assets and liabilities that are accounted for at fair value on a recurring basis at April 30, 2022 and July 31, 2021 are as follows:
Input Level
April 30, 2022
July 31, 2021
Deferred compensation plan mutual fund assets
Level 1
$
40,880
$
51,085
Foreign currency forward contract liability
Level 2
$
381
$
88
Interest rate swap liabilities
Level 2
$
1,620
$
13,369
Deferred compensation plan assets accounted for at fair value are investments in securities traded in an active market held for the benefit of certain employees of the Company as part of a deferred compensation plan. Additional plan investments in corporate-owned life insurance are recorded at their cash surrender value, not fair value, and therefore are not included above.
The fair value of foreign currency forward contracts is estimated by discounting the difference between the contractual forward price and the current available forward price for the residual maturity of the contract using observable market rates. The fair value of interest rate swaps is determined by discounting the estimated future cash flows based on the applicable observable yield curves.
11. Product Warranties
The Company generally provides retail customers of its products with a one-year or two-year warranty covering defects in material or workmanship, with longer warranties on certain structural components.
Changes in our product warranty liability during the indicated periods are as follows:
Three Months Ended April 30,
Nine Months Ended April 30,
2022
2021
2022
2021
Beginning balance
$
296,158
$
251,009
$
267,620
$
252,869
Provision
90,801
84,805
250,924
188,546
Payments
(74,496)
(73,767)
(212,532)
(191,706)
Acquisition
—
—
9,828
11,032
Foreign currency translation
(3,086)
(82)
(6,463)
1,224
Ending balance
$
309,377
$
261,965
$
309,377
$
261,965
16
12. Long-Term Debt
The components of long-term debt are as follows:
April 30, 2022
July 31, 2021
Term loan
$
1,347,392
$
1,540,013
Asset-based credit facility
100,000
—
Senior unsecured notes
500,000
—
Unsecured notes
26,350
29,728
Other debt
55,618
70,952
Gross long-term debt
2,029,360
1,640,693
Debt issuance costs, net of amortization
(34,773)
(33,461)
Total long-term debt, net of debt issuance costs
1,994,587
1,607,232
Less: current portion of long-term debt
(10,991)
(12,411)
Total long-term debt, net, less current portion
$
1,983,596
$
1,594,821
The Company is a party to a term loan (“term loan”) agreement, which consists of both a United States Dollar-denominated term loan tranche and a Euro-denominated term loan tranche, and a revolving asset-based credit facility (“ABL”). Subject to earlier termination, the term loan matures on February 1, 2026 and the ABL originally matured on February 1, 2024. In connection with the Airxcel acquisition discussed in Note 2 to the Condensed Consolidated Financial Statements, effective September 1, 2021, the Company expanded its existing ABL facility from $750,000 to $1,000,000, favorably amended certain terms of the ABL agreement and extended the maturity date of the ABL from February 1, 2024 to September 1, 2026, subject to a springing maturity at an earlier date if the maturity date of the Company’s term loan has not been extended or refinanced. The ABL interest rate provisions remain unchanged.
As of April 30, 2022, the entire outstanding U.S. term loan tranche balance of $836,900 was subject to a LIBOR-based rate totaling 3.813%. The interest rate on $326,300 of that balance, however, was fixed at 5.466% through an interest rate swap, dated March 18, 2019, by swapping the underlying one-month LIBOR rate for a fixed rate of 2.466%. As of July 31, 2021, the entire outstanding U.S. term loan tranche balance of $941,900 was subject to a LIBOR-based rate totaling 3.125%, but the interest rate on $482,138 of that balance was fixed at 5.466% through an interest rate swap, dated March 18, 2019, by swapping the underlying one-month LIBOR rate for a fixed rate of 2.466%. The total interest rate on the April 30, 2022 outstanding Euro term loan tranche balance of $510,492 was 3.000%, and the total interest rate on the July 31, 2021 outstanding Euro term loan tranche of $598,113 was also 3.000%.
As of April 30, 2022, the total weighted-average interest rate on the outstanding ABL borrowings of $100,000 was 1.702%. The Company may, generally at its option, repay any borrowings under the ABL, in whole or in part, at any time and from time to time, without penalty or premium.
On October 14, 2021, the Company issued an aggregate principal amount of $500,000 of 4.000% Senior Unsecured Notes due 2029 (“Senior Unsecured Notes”). The Senior Unsecured Notes will mature on October 15, 2029 unless redeemed or repurchased earlier. Net proceeds from the Senior Unsecured Notes, along with cash on hand, were used to repay $500,000 of borrowings outstanding on the Company’s ABL and for certain transaction costs. Interest on the Senior Unsecured Notes is payable in semi-annual installments on April 15 and October 15 of each year, and the first semi-annual interest payment was made on April 14, 2022. The Senior Unsecured Notes rank equally in right of payment with all of the Company’s existing and future senior indebtedness and senior to the Company’s future subordinated indebtedness, and effectively junior in right of payment to the Company’s existing and future secured indebtedness to the extent of the assets securing such indebtedness.
The Company must make mandatory prepayments of principal under the term loan agreement upon the occurrence of certain specified events, including certain asset sales, debt issuances and receipt of annual cash flows in excess of certain amounts. No such specified events occurred during the three or nine months ended April 30, 2022 or 2021.
17
Availability under the ABL agreement is subject to a borrowing base based on a percentage of applicable eligible receivables and eligible inventory. The ABL carries interest at an annual base rate plus 0.25% to 0.50%, or LIBOR plus 1.25% to 1.50%, based on adjusted excess availability as defined in the ABL agreement. This agreement also includes a 0.20% unused facility fee.
The unused availability under the ABL is generally available to the Company for general operating purposes and, based on April 30, 2022 eligible accounts receivable and inventory balances, net of amounts drawn, totaled approximately $870,000.
The unsecured notes of 25,000 Euro ($26,350) relate to long-term debt of our European segment. There are two series, 20,000 Euro ($21,080) with an interest rate of 1.945% maturing in March 2025, and 5,000 Euro ($5,270) with an interest rate of 2.534% maturing March 2028. Other debt relates primarily to real estate loans with varying maturity dates through September 2032 and interest rates ranging from 2.400% to 3.430%.
Total contractual gross debt maturities are as follows:
For the remainder of the fiscal year ending July 31, 2022
$
3,694
For the fiscal year ending July 31, 2023
10,809
For the fiscal year ending July 31, 2024
10,924
For the fiscal year ending July 31, 2025
31,888
For the fiscal year ending July 31, 2026
1,450,019
For the fiscal year ending July 31, 2027 and thereafter
522,026
$
2,029,360
For the three and nine months ended April 30, 2022, interest expense on the term loan, ABL, Senior Unsecured Notes and other debt facilities was $19,604 and $58,059, respectively. For the three and nine months ended April 30, 2021, interest expense on the term loan, ABL and other debt facilities was $18,361 and $59,612, respectively.
In fiscal 2019, the Company incurred fees to secure the term loan and ABL, and those amounts are being amortized ratably over the respective seven and five-year terms of those agreements. The Company also incurred and capitalized certain creditor fees related to the March 25, 2021 repricing of its term loan, to be amortized over the remaining life of the term loan, and certain creditor fees related to the September 1, 2021 expansion of the ABL, which are being amortized over the remaining life of the extended ABL. In addition, the Company incurred fees of $8,445 relative to the $500,000 Senior Unsecured Notes issued October 14, 2021 discussed above, and those debt issuance costs are being amortized over the eight-year term of those notes. The Company recorded total charges related to the amortization of these term loan, ABL and Unsecured Senior Note fees, which are classified as interest expense, of $2,889 and $8,457 for the three and nine months ended April 30, 2022, respectively. The total charges related to the amortization of these fees were $7,365 and $12,825 for the three and nine months ended April 30, 2021, respectively, which included $4,688 of accelerated amortization on certain fees related to the term loan debt repricing done in the three months ended April 30, 2021. The unamortized balance of all capitalized ABL facility fees was $6,747 at April 30, 2022 and $7,005 as of July 31, 2021 and is included in Other long-term assets in the Condensed Consolidated Balance Sheets.
The fair value of the Company’s term-loan debt at April 30, 2022 and July 31, 2021 was $1,330,550 and $1,551,141, respectively, and the fair value of the Company’s Senior Unsecured Notes at April 30, 2022 was $421,900. The fair values of the Company’s term-loan debt and Senior Unsecured Notes are primarily estimated using Level 2 inputs as defined by ASC 820, primarily based on quoted market prices. The fair value of other debt held by the Company approximates carrying value.
18
13. Provision for Income Taxes
The overall effective income tax rate for the three months ended April 30, 2022 was 25.2%, and the effective income tax rate for the nine months ended April 30, 2022 was 23.6%. These rates were both negatively impacted by certain tax provision adjustments that primarily resulted from changes in estimates while completing the prior year tax return during the three months ended April 30, 2022. The negative adjustments were partially offset by certain foreign income not subject to corporate income tax.
The overall effective income tax rate for the three months ended April 30, 2021 was 21.5%, and the effective income tax rate for the nine months ended April 30, 2021 was 20.9%. These rates were both favorably impacted by certain foreign tax rate differences which include certain interest income not subject to corporate income tax.
Within the next 12 months, the Company anticipates a decrease of approximately $8,800 in unrecognized tax benefits, and $1,500 in accrued interest related to unrecognized tax benefits recorded as of April 30, 2022, from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates.
The Company files income tax returns in the U.S. federal jurisdiction and in many U.S. state and foreign jurisdictions. For U.S. federal income tax purposes, fiscal years 2018 through 2021 remain open and could be subject to examination. In major state jurisdictions, fiscal years 2018 through 2021 generally remain open and could be subject to examination. In major foreign jurisdictions, fiscal years 2016 through 2020 remain open and subject to examination. The Company is currently under exam by certain U.S. state tax authorities for fiscal years 2018 through 2020 and by certain foreign jurisdictions for fiscal years 2016 through 2019. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions in its liability for unrecognized tax benefits.
14. Contingent Liabilities, Commitments and Legal Matters
The Company’s total commercial commitments under standby repurchase obligations on global dealer inventory financing were $4,215,062 and $1,821,012 as of April 30, 2022 and July 31, 2021, respectively. The commitment term is generally up to 18 months.
The Company accounts for the guarantee under repurchase agreements of dealers’ financing by deferring a portion of the related product sale that represents the estimated fair value of the guarantee at inception. This deferred amount is included in the repurchase and guarantee reserve balances of $11,317 and $6,023 as of April 30, 2022 and July 31, 2021, respectively, which is included in Other current liabilities in the Condensed Consolidated Balance Sheets.
Losses incurred related to repurchase agreements that were settled during the three and nine months ended April 30, 2022 and April 30, 2021 were not material. Based on current market conditions, the Company believes that any future losses under these agreements will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
The Company issued a product recall in the fourth quarter of fiscal 2021 related to certain purchased parts utilized in certain of our North American towable products. Based on developments during the second and third quarters of fiscal 2022, including our expectations regarding the extent of vendor reimbursement, we have revised our estimate of the cost of the recall, which resulted in favorable adjustments during the three months ended January 31, 2022 and April 30, 2022 to the amounts previously accrued. In addition, we accrued expenses during the second quarter of fiscal 2022 based on developments related to an ongoing investigation by certain German-based authorities regarding the adequacy of historical disclosures of vehicle weight in advertisements and other Company-provided literature in Germany. The Company is fully cooperating with the investigation. For the nine months ended April 30, 2022, the Company has recognized $32,125 of net expense as a component of selling, general and administrative costs related to these two matters, and the amounts recognized in the three months ended April 30, 2022 were not material.
19
The Company is also involved in certain litigation arising out of its operations in the normal course of its business, most of which is based upon state “lemon laws,” warranty claims and vehicle accidents (for which the Company carries insurance above a specified self-insured retention or deductible amount). The outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. There is significant judgment required in assessing both the probability of an adverse outcome and the determination as to whether an exposure can be reasonably estimated. Based on current conditions, and in management’s opinion, the ultimate disposition of any current legal proceedings or claims against the Company will not have a material effect on the Company’s consolidated financial condition, operating results or cash flows. Litigation is, however, inherently uncertain and an adverse outcome from such litigation could have a material effect on the operating results of a particular reporting period.
15. Leases
The Company has operating leases principally for land, buildings and equipment, and has various finance leases for certain land and buildings expiring through 2035.
Certain of the Company’s leases include options to extend or terminate the leases, and these options have been included in the relevant lease term to the extent that they are reasonably certain to be exercised.
The Company does not include significant restrictions or covenants in our lease agreements, and residual value guarantees are not generally included within our operating leases.
The components of lease costs for the three and nine-month periods ended April 30, 2022 and April 30, 2021 were as
follows:
Three Months Ended April 30,
Nine Months Ended April 30,
2022
2021
2022
2021
Operating lease cost
$
7,426
$
5,075
$
20,642
$
12,833
Finance lease cost
Amortization of right-of-use assets
186
164
559
475
Interest on lease liabilities
116
134
361
391
Total lease cost
$
7,728
$
5,373
$
21,562
$
13,699
Other information related to leases was as follows:
Nine Months Ended April 30,
Supplemental Cash Flows Information
2022
2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
20,632
$
12,767
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
$
18,050
$
9,842
Finance leases
$
—
$
4,000
20
Supplemental Balance Sheet Information
April 30, 2022
July 31, 2021
Operating leases:
Operating lease right-of-use assets
$
46,405
$
42,601
Operating lease liabilities:
Other current liabilities
$
9,700
$
8,944
Other long-term liabilities
36,993
33,923
Total operating lease liabilities
$
46,693
$
42,867
Finance leases:
Finance lease right-of-use assets
$
6,450
$
7,010
Finance lease liabilities:
Other current liabilities
$
1,176
$
1,081
Other long-term liabilities
3,798
4,694
Total finance lease liabilities
$
4,974
$
5,775
April 30, 2022
July 31, 2021
Weighted-average remaining lease term:
Operating leases
10.3 years
11.1 years
Finance leases
4.5 years
5.1 years
Weighted-average discount rate:
Operating leases
3.5
%
3.2
%
Finance leases
9.1
%
8.9
%
Future minimum rental payments required under operating and finance leases as of April 30, 2022 were as follows:
Operating Leases
Finance Leases
For the remainder of the fiscal year ending July 31, 2022
$
4,025
$
393
For the fiscal year ending July 31, 2023
13,764
1,578
For the fiscal year ending July 31, 2024
10,638
1,059
For the fiscal year ending July 31, 2025
7,477
1,083
For the fiscal year ending July 31, 2026
5,352
1,107
For the fiscal year ending July 31, 2027 and thereafter
22,549
954
Total future lease payments
63,805
6,174
Less: amount representing interest
(17,112)
(1,200)
Total reported lease liability
$
46,693
$
4,974
21
16. Stockholders’ Equity
Stock-based Compensation
Total stock-based compensation expense recognized in the three-month periods ended April 30, 2022 and April 30, 2021 for stock-based awards totaled $9,750 and $8,366, respectively. Total stock-based compensation expense recognized in the nine-month periods ended April 30, 2022 and April 30, 2021 for stock-based awards totaled $22,736 and $21,424, respectively.
Share Repurchase Program
On December 21, 2021, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to repurchase shares of the Company’s common stock through December 21, 2024.
Under the share repurchase program, the Company is authorized to repurchase, on a discretionary basis and from time-to-time, outstanding shares of its common stock in the open market, in privately negotiated transactions or by other means. The timing and amount of share repurchases will be determined at the discretion of the Company’s management team based upon the market price of the stock, management's evaluation of general market and economic conditions, cash availability and other factors. The share repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program.
Under this share repurchase program, during the three months ended April 30, 2022, the Company purchased 499,106 shares of its common stock, at various times in the open market, at a weighted-average price of $80.12 and held them as treasury shares at an aggregate purchase price of $39,990. For the nine months ended April 30, 2022, the Company purchased 1,090,067 shares of its common stock, at various times in the open market, at a weighted-average price of $90.20 and held them as treasury shares at an aggregate purchase price of $98,321. As of April 30, 2022, the remaining amount of the Company's common stock that may be repurchased under this program is $151,679.
22
17. Revenue Recognition
The table below disaggregates revenue to the level that the Company believes best depicts how the nature, amount, timing and uncertainty of the Company’s revenue and cash flows are affected by economic factors. Other RV-related revenues shown below in the European segment include sales related to accessories and services, new and used vehicle sales at owned dealerships and RV rentals. All material revenue streams are considered point-in-time. Other sales relate primarily to component part sales to RV original equipment manufacturers and aftermarket sales through dealers and retailers, as well as aluminum extruded components.
Three Months Ended April 30,
Nine Months Ended April 30,
NET SALES:
2022
2021
2022
2021
Recreational vehicles
North American Towables
Travel Trailers
$
1,655,846
$
1,060,058
$
4,316,049
$
2,729,317
Fifth Wheels
984,291
666,044
2,550,010
1,762,010
Total North American Towables
2,640,137
1,726,102
6,866,059
4,491,327
North American Motorized
Class A
474,674
323,547
1,314,067
704,230
Class C
335,444
342,425
1,057,015
912,124
Class B
242,927
109,421
583,797
229,889
Total North American Motorized
1,053,045
775,393
2,954,879
1,846,243
Total North America
3,693,182
2,501,495
9,820,938
6,337,570
European
Motorcaravan
389,914
489,702
1,057,039
1,227,182
Campervan
150,157
236,988
520,778
529,500
Caravan
114,772
84,074
266,605
210,923
Other RV-related
69,159
83,476
236,307
262,586
Total European
724,002
894,240
2,080,729
2,230,191
Total recreational vehicles
4,417,184
3,395,735
11,901,667
8,567,761
Other
383,170
106,960
935,146
262,381
Intercompany eliminations
(142,837)
(43,431)
(346,054)
(105,730)
Total
$
4,657,517
$
3,459,264
$
12,490,759
$
8,724,412
23
18. Accumulated Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) (“OCI”) and the changes in the Company’s accumulated other comprehensive income (loss) (“AOCI”) by component were as follows:
Three Months Ended April 30, 2022
Foreign Currency Translation Adjustment
Unrealized Gain (Loss) on Derivatives
Other
AOCI, net of tax, Attributable to THOR
Non-controlling Interests
Total AOCI
Balance at beginning of period, net of tax
$
(50,284)
$
(4,171)
$
(1,248)
$
(55,703)
$
(1,477)
$
(57,180)
OCI before reclassifications
(90,526)
2,680
—
(87,846)
(384)
(88,230)
Income taxes associated with OCI before reclassifications (1)
—
(642)
—
(642)
—
(642)
Amounts reclassified from AOCI
—
2,111
—
2,111
—
2,111
Income taxes associated with amounts reclassified from AOCI
—
(529)
—
(529)
—
(529)
OCI, net of tax for the fiscal period
(90,526)
3,620
—
(86,906)
(384)
(87,290)
Balance at end of period, net of tax
$
(140,810)
$
(551)
$
(1,248)
$
(142,609)
$
(1,861)
$
(144,470)
Three Months Ended April 30, 2021
Foreign Currency Translation Adjustment
Unrealized Gain (Loss) on Derivatives
Other
AOCI, net of tax, Attributable to THOR
Non-controlling Interests
Total AOCI
Balance at beginning of period, net of tax
$
87,512
$
(13,140)
$
(696)
$
73,676
$
(715)
$
72,961
OCI before reclassifications
(7,394)
193
—
(7,201)
(55)
(7,256)
Income taxes associated with OCI before reclassifications (1)
—
(46)
—
(46)
—
(46)
Amounts reclassified from AOCI
—
3,703
—
3,703
—
3,703
Income taxes associated with amounts reclassified from AOCI
—
(921)
—
(921)
—
(921)
OCI, net of tax for the fiscal period
(7,394)
2,929
—
(4,465)
(55)
(4,520)
Balance at end of period, net of tax
$
80,118
$
(10,211)
$
(696)
$
69,211
$
(770)
$
68,441
24
Nine Months Ended April 30, 2022
Foreign Currency Translation Adjustment
Unrealized Gain (Loss) on Derivatives
Other
AOCI, net of tax, Attributable to THOR
Non-controlling Interests
Total AOCI
Balance at beginning of period, net of tax
$
54,152
$
(8,655)
$
(876)
$
44,621
$
(772)
$
43,849
OCI before reclassifications
(194,962)
3,269
(372)
(192,065)
(1,089)
(193,154)
Income taxes associated with OCI before reclassifications (1)
—
(733)
—
(733)
—
(733)
Amounts reclassified from AOCI
—
7,375
—
7,375
—
7,375
Income taxes associated with amounts reclassified from AOCI
—
(1,807)
—
(1,807)
—
(1,807)
OCI, net of tax for the fiscal period
(194,962)
8,104
(372)
(187,230)
(1,089)
(188,319)
Balance at end of period, net of tax
$
(140,810)
$
(551)
$
(1,248)
$
(142,609)
$
(1,861)
$
(144,470)
Nine Months Ended April 30, 2021
Foreign Currency Translation Adjustment
Unrealized Gain (Loss) on Derivatives
Other
AOCI, net of tax, Attributable to THOR
Non-controlling Interests
Total AOCI
Balance at beginning of period, net of tax
$
46,512
$
(18,823)
$
(696)
$
26,993
$
(855)
$
26,138
OCI before reclassifications
33,606
573
—
34,179
85
34,264
Income taxes associated with OCI before reclassifications (1)
—
(133)
—
(133)
—
(133)
Amounts reclassified from AOCI
—
10,752
—
10,752
—
10,752
Income taxes associated with amounts reclassified from AOCI
—
(2,580)
—
(2,580)
—
(2,580)
OCI, net of tax for the fiscal period
33,606
8,612
—
42,218
85
42,303
Balance at end of period, net of tax
$
80,118
$
(10,211)
$
(696)
$
69,211
$
(770)
$
68,441
(1)We do not recognize deferred taxes for a majority of the foreign currency translation gains and losses because we do not anticipate reversal in the foreseeable future.
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, all U.S. Dollar, Euro and British Pound Sterling amounts are presented in thousands except share and 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 management’s 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 materially from our expectations. Factors which could cause materially different results include, among others:
•the impact of inflation on the cost of our products as well as on general consumer demand;
•the effect of raw material and commodity price fluctuations, and/or raw material, commodity or chassis supply constraints;
•the impact of war, military conflict, terrorism and/or cyber-attacks, including state-sponsored attacks;
•the impact of sudden or significant adverse changes in the cost and/or availability of energy or fuel, including those caused by geopolitical events, on our costs of operation, on raw material prices, on our independent dealers or on retail customers;
•the dependence on a small group of suppliers for certain components used in production, including chassis;
•interest rate fluctuations and their potential impact on the general economy and, specifically, on our profitability and on our independent dealers and consumers;
•the extent and impact from the continuation of the COVID-19 pandemic, along with the responses to contain the spread of the virus, or its variants, by various governmental entities or other actors, which may have negative effects on retail customer demand, our independent dealers, our supply chain, our labor force, our production or other aspects of our business;
•the ability to ramp production up or down quickly in response to rapid changes in demand while also managing costs and market share;
•the level and magnitude of warranty and recall claims incurred;
•the ability of our suppliers to financially support any defects in their products;
•legislative, regulatory and tax law and/or policy developments including their potential impact on our independent dealers, retail customers or on our suppliers;
•the costs of compliance with governmental regulation;
•the impact of an adverse outcome or conclusion related to current or future litigation or regulatory investigations;
•public perception of and the costs related to environmental, social and governance matters;
•legal and compliance issues including those that may arise in conjunction with recently completed transactions;
•lower consumer confidence and the level of discretionary consumer spending;
•the impact of exchange rate fluctuations;
•restrictive lending practices which could negatively impact our independent dealers and/or retail consumers;
•management changes;
•the success of new and existing products and services;
•the ability to maintain strong brands and develop innovative products that meet consumer demands;
•the ability to efficiently utilize existing production facilities;
•changes in consumer preferences;
26
•the risks associated with acquisitions, including: the pace and successful closing of an acquisition, the integration and financial impact thereof, the level of achievement of anticipated operating synergies from acquisitions, the potential for unknown or understated liabilities related to acquisitions, the potential loss of existing customers of acquisitions and our ability to retain key management personnel of acquired companies;
•a shortage of necessary personnel for production and increasing labor costs to attract production personnel in times of high demand;
•the loss or reduction of sales to key independent dealers;
•disruption of the delivery of units to independent dealers;
•increasing costs for freight and transportation;
•asset impairment charges;
•competition;
•the impact of potential losses under repurchase agreements;
•the potential impact of the strength of the U.S. dollar on international demand for products priced in U.S. dollars;
•general economic, market and political conditions in the various countries in which our products are produced and/or sold;
•the impact of changing emissions and other related climate change regulations in the various jurisdictions in which our products are produced, used and/or sold;
•changes to our investment and capital allocation strategies or other facets of our strategic plan; and
•changes in market liquidity conditions, credit ratings and other factors that may impact our access to future funding and the cost of debt.
These and other risks and uncertainties are discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2021.
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 become the largest manufacturer of recreational vehicles (“RVs”) in the world. We are also the largest manufacturer of RVs in North America, and one of the largest manufacturers of RVs in Europe. In North America, according to Statistical Surveys, Inc. (“Stat Surveys”), for the three months ended March 31, 2022, THOR’s combined U.S. and Canadian market share was approximately 40.8% for travel trailers and fifth wheels combined and approximately 50.2% for motorhomes. In Europe, according to the European Caravan Federation and based on unit registrations for Europe's original equipment manufacturer (“OEM”) reporting countries, our European market share for the three months ended March 31, 2022 was approximately 21.5% for motorcaravans and campervans combined and approximately 15.8% for caravans.
Our business model includes decentralized operating units, and our RV products are primarily sold to independent, non-franchise dealers who, in turn, retail those products. The Company also sells component parts to both RV and other original equipment manufacturers, including aluminum extruded components, and sells aftermarket component parts through dealers and retailers. Our growth has been achieved both organically and through 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.
27
Ongoing supply chain constraints, and labor shortages throughout the supply chain and within THOR, have impacted and continue to impact our business and our consolidated financial results and financial position. In addition, the impact of recent inflation on consumer confidence, which historically has been highly correlated with RV retail sales, and the impact of inflation on the availability of discretionary funds of our end consumers, combined with rising interest rates, may have a negative impact on future demand for our products. Furthermore, additional impacts could be incurred in future periods, including negative impacts to our results of operations, liquidity and financial position, as a direct or indirect result of the continuing COVID-19 pandemic. Should the rate of COVID-19 infections escalate, or the virus mutate into new, uncontrolled strains, those developments and the resulting impacts could exacerbate risks to our business, financial results and financial position. Refer also to the COVID-19 related risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended July 31, 2021.
Recent Events
Share Repurchase Program
On December 21, 2021, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to repurchase shares of the Company’s common stock through December 21, 2024.
Under the share repurchase program, the Company is authorized to repurchase, on a discretionary basis and from time-to-time, outstanding shares of its common stock in the open market, in privately negotiated transactions or by other means.
Under this share repurchase program, during the three months ended April 30, 2022, the Company purchased 499,106 shares of its common stock, at various times in the open market, at a weighted-average price of $80.12 and held them as treasury shares at an aggregate purchase price of $39,990. For the nine months ended April 30, 2022, the Company purchased 1,090,067 shares of its common stock, at various times in the open market, at a weighted-average price of $90.20 and held them as treasury shares at an aggregate purchase price of $98,321. As of April 30, 2022, the remaining amount of the Company’s common stock that may be repurchased under this program is $151,679.
Issuance of Senior Unsecured Notes
On October 14, 2021, the Company issued an aggregate principal amount of $500,000 of 4.000% Senior Unsecured Notes due 2029 (“Senior Unsecured Notes”). The Senior Unsecured Notes will mature on October 15, 2029 unless redeemed or repurchased earlier. Net proceeds from the Senior Unsecured Notes, along with cash-on-hand, were used to repay $500,000 of borrowings outstanding on the Company’s ABL and for certain transaction costs. Interest on the Senior Unsecured Notes is payable in semi-annual installments on April 15 and October 15 of each year, and the first semi-annual payment was made April 14, 2022. The Senior Unsecured Notes rank equally in right of payment with all of the Company’s existing and any future senior indebtedness and senior to the Company’s future subordinated indebtedness, if any, and effectively junior in right of payment to the Company’s existing and any future secured indebtedness to the extent of the assets securing such indebtedness.
Airxcel Acquisition
On September 1, 2021, the Company acquired Wichita, Kansas-based AirX Intermediate, Inc. (“Airxcel”). Airxcel manufactures a comprehensive line of high-quality products which they sell primarily to RV original equipment manufacturers as well as consumers via aftermarket sales through dealers and retailers. Airxcel provides industry-leading products in recreational vehicle heating, cooling, ventilation, cooking, window coverings, sidewalls and roofing materials, among others. The final cash consideration for the acquisition of Airxcel was $745,279, net of cash acquired, and was funded through a combination of cash-on-hand and $625,000 in borrowings from the Company’s ABL. In conjunction with the Airxcel acquisition, the Company expanded its existing ABL facility from $750,000 to $1,000,000, favorably amended certain terms of the ABL agreement and extended the term of the ABL as discussed in Note 12 to the Condensed Consolidated Financial Statements. The interest rate remains unchanged.
The Company acquired Airxcel as part of its long-term, strategic growth plan and the acquisition is expected to provide numerous benefits, including strengthening its supply chain, diversifying its revenue sources and expanding Airxcel’s supply chain business in North America and Europe. Airxcel operates as an independent operation in the same manner as the Company’s other subsidiaries.
28
North American RV Industry
The Company monitors industry conditions in the North American RV market using a number of resources including its own performance tracking and modeling. The Company also considers 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’ North American RV production and delivery to dealers. In addition, we monitor monthly North American 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 and net sales.
North American RV independent dealer inventory of our North American RV products as of April 30, 2022 increased 80.7% to approximately 135,500 units, compared to approximately 75,000 units as of April 30, 2021. As of April 30, 2022, North American dealer inventory levels have grown since the prior year, and have reached normalized levels for our towable products, but are still generally below historical stocking levels in relation to current consumer demand in our motorized product lines. THOR’s North American RV backlog as of April 30, 2022 increased $19,700, or 0.2%, to $10,999,715 compared to $10,980,015 as of April 30, 2021.
North American Industry Wholesale Statistics
Key wholesale statistics for the North American RV industry, as reported by RVIA for the periods indicated, are as follows:
U.S. and Canada Wholesale Unit Shipments
Calendar Quarter Ended March 31,
Increase
%
2022
2021
(Decrease)
Change
North American Towable Units
155,687
134,199
21,488
16.0
North American Motorized Units
15,779
14,308
1,471
10.3
Total
171,466
148,507
22,959
15.5
In June 2022, RVIA issued a revised estimate for calendar year 2022 wholesale unit shipments. In the RVIA’s most likely scenario, towable and motorized unit shipments are projected to increase to approximately 492,800 and 57,100, respectively, for an annual total of 549,900 units, a decrease of 8.4% from calendar year 2021 wholesale shipments. This RVIA calendar year 2022 most likely forecast could range from a lower estimate of approximately 537,800 total units to an upper estimate of approximately 561,900 units.
North American Industry Retail Statistics
We believe that retail demand is the long-term driver of wholesale demand in the North American RV industry. In addition, we believe that annual North American RV industry wholesale shipments in calendar years 2022 and 2023 may not follow typical seasonal patterns as dealers respond to consumer demand and their stocking levels between the categories of products they carry.
Key retail statistics for the North American RV industry, as reported by Stat Surveys for the periods indicated, are as follows:
U.S. and Canada Retail Unit Registrations
Calendar Quarter Ended March 31,
Increase
%
2022
2021
(Decrease)
Change
North American Towable Units
90,301
117,053
(26,752)
(22.9)
North American Motorized Units
12,534
13,290
(756)
(5.7)
Total
102,835
130,343
(27,508)
(21.1)
Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment, is continuously updated and is often impacted by delays in reporting by various states or provinces.
29
We believe that North American retail consumer demand has grown in recent periods due to an increasing interest in the RV lifestyle and the ability to connect with nature and has further accelerated since the onset of the COVID-19 pandemic. Many consumers recognize the perceived benefits offered by the RV lifestyle, which provides people with a personal space to maintain social distance in a safe manner, the ability to connect with loved ones and the potential to get away for short, frequent breaks or longer adventures. While near-term demand will be influenced by many factors, including consumer confidence and the level of consumer spending on discretionary products, we believe future retail demand will exceed historical, pre-pandemic levels.
Company North American Wholesale Statistics
The Company’s North American wholesale RV shipments, for the three months ended March 31, 2022 and 2021 to correspond to the North American industry wholesale periods noted above, were as follows:
U.S. and Canada Wholesale Unit Shipments
Calendar Quarter Ended March 31,
Increase
%
2022
2021
(Decrease)
Change
North American Towable Units
68,720
58,858
9,862
16.8
North American Motorized Units
8,311
6,990
1,321
18.9
Total
77,031
65,848
11,183
17.0
Company North American Retail Statistics
Retail statistics of the Company’s North American RV products, as reported by Stat Surveys, for the three months ended March 31, 2022 and 2021 to correspond to the North American industry retail periods noted above, were as follows:
U.S. and Canada Retail Unit Registrations
Calendar Quarter Ended March 31,
Increase
%
2022
2021
(Decrease)
Change
North American Towable Units
35,991
46,461
(10,470)
(22.5)
North American Motorized Units
6,296
6,427
(131)
(2.0)
Total
42,287
52,888
(10,601)
(20.0)
Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment, is continuously updated and is often impacted by delays in reporting by various states or provinces.
North American Outlook
The impact of current macroeconomic factors on our business – including inflation, rising interest rates, supply chain constraints and geopolitical events – is uncertain, and the extent to which the COVID-19 pandemic may continue to impact our business in future periods still remains uncertain and unpredictable. Nonetheless, our outlook for future growth in North American retail sales in the long term remains optimistic as there are many factors driving product demand that we believe will continue even after the pandemic ends. We believe consumers are likely to continue altering their future vacation and travel plans, opting for fewer vacations via air travel, cruise ships and hotels, and preferring vacations that RVs are uniquely positioned to provide, where they can continue practicing social distancing while also allowing them the ability to explore or unwind, often close to home. Minimal-contact vacation options like road trips and camping may prove ideal for people who want to limit pandemic-related risks involved with close personal interactions.
30
A positive outlook for the North American RV segment is also supported by surveys conducted by THOR, RVIA and others, which show that Americans love the freedom of the outdoors and the enrichment that comes with living an active lifestyle. RVs allow people to be in control of their travel experiences, going where they want, when they want and with the people they want. The RV units we design, produce and sell allow people to spend time outdoors pursuing their favorite activities, creating cherished moments and deeply connecting with family and friends. Based on the increasing value consumers place on these factors, we expect to see long-term growth in the North American RV industry. Historically, retail sales have been dependent upon various economic conditions faced by consumers, such as the rate of unemployment, the rate of inflation, the level of consumer confidence, the disposable income of consumers, changes in interest rates, credit availability, the health of the housing market, changes in tax rates and fuel availability and prices. In addition, we believe that the availability of camping and RV parking facilities will be an important factor in the future growth of the industry and view both the significant recent investments and the future committed investments by campground owners, states and the federal government in camping facilities and accessibility to state and federal parks and forests to be positive long-term factors.
Economic and industry-wide factors that have historically affected, and we believe will continue to affect, our operating results include the costs of commodities, the availability of critical supply components and labor costs incurred in the production 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 will impact our profit margins negatively if we are unable to offset those cost increases through a combination of product decontenting, material sourcing strategies, efficiency improvements or raising the selling prices for our products by corresponding amounts. Historically, we have generally been able to offset net cost increases over time.
We continue to be alerted by a number of our North American chassis suppliers that supply constraints of key components that they require for the manufacturing of chassis, particularly semiconductor chips, will limit their production of chassis, and hence, our production and sales of motorized RVs will also be negatively impacted. The North American RV industry has, from time to time in the past and continuing into the quarter ended April 30, 2022, experienced shortages of chassis for these and various other reasons, including component shortages, production delays and intermittent work stoppages at the chassis manufacturers. If these shortages continue for a prolonged period for any reason, it will have a negative impact on our production rates and hence on our sales and earnings.
The North American RV industry is also facing continuing cost increases, supply shortages and delivery delays of other, non-chassis, raw material components. While our supply chain has been resilient enough to support us during our recent growth in sales and production, these shortages and constraints have negatively impacted our ability to further ramp up production rates, primarily of our motorized products and motorized sales during the current fiscal year, and has caused an increase in work in process inventory as of April 30, 2022. We believe these shortages and delays will continue to limit our ability to ramp up production to meet existing demand and could have a negative impact on our results of operations. If shortages of chassis or other component parts were to become more significant or longer term in nature, our costs of such components and our production output could be adversely affected. Where possible, we continue to work closely with our suppliers on various supply chain strategies to minimize these constraints, and we continue to identify alternative suppliers. The geographic centrality of the North American RV industry in northern Indiana, where the majority of our facilities and many of our suppliers are located, could exacerbate supply chain and other COVID-19 related risks, should northern Indiana, or any of the other areas in which we, our suppliers or our customers operate, become disproportionately impacted by the pandemic or other factors.
European RV Industry
The Company monitors retail trends in the European RV market as reported by the European Caravan Federation (“ECF”), whose industry data is reported to the public quarterly and typically issued on a one-to-two-month lag. Additionally, on a monthly basis, the Company receives OEM-specific reports from most of the individual member countries that make up the ECF. As these reports are coming directly from the ECF member countries, timing and content vary, but typically the reports are issued on a one-to-two-month lag as well. While most countries provide OEM-specific information, the United Kingdom, which made up 23.2% and 7.6% of the European caravan and motorcaravan (including campervans) market for the three months ended March 31, 2022, respectively, does not provide OEM-specific information. Industry wholesale shipment data for the European RV market is not available.
31
Within Europe, over 90% of our sales are made to dealers within 10 different European countries. The market conditions, as well as the operating status of our independent dealers within each country, vary based on the various local economic conditions, the current impact of COVID-19 and the local responses and restrictions in place to manage the pandemic. It is inherently difficult to generalize about the operating conditions within the entire European region. However, independent RV dealer inventory levels of our European products are generally below historic levels in the various countries we serve. Within Germany, which accounts for approximately 60% of our European product sales, independent dealer inventory levels are currently below historical norms.
THOR’s European RV backlog as of April 30, 2022 decreased $465,981, or 13.9%, to $2,878,052 compared to $3,344,033 as of April 30, 2021, with the decrease primarily due to the decrease in the current foreign exchange rate compared to the prior-year period.
European Industry Retail Statistics
Key retail statistics for the European RV industry, as reported by the ECF for the periods indicated, are as follows:
European Unit Registrations
Motorcaravan and Campervan (2)
Caravan
Calendar Quarter Ended March 31,
%
Calendar Quarter Ended March 31,
%
2022
2021
Change
2022
2021
Change
OEM Reporting Countries (1)
34,807
38,356
(9.3)
12,648
12,556
0.7
Non-OEM Reporting Countries (1)
3,957
3,230
22.5
4,625
3,313
39.6
Total
38,764
41,586
(6.8)
17,273
15,869
8.8
(1)Industry retail registration statistics have been compiled from individual countries reporting of retail sales, and include the following countries: Germany, France, Sweden, Netherlands, Norway, Italy, Spain and others, collectively the “OEM Reporting Countries.” The “Non-OEM Reporting Countries” are primarily the United Kingdom and others.
(2)The ECF reports motorcaravans and campervans together.
Note: Data from the ECF is subject to adjustment, is continuously updated and is often impacted by delays in reporting by various countries. (The “Non-OEM Reporting Countries” either do not report OEM-specific data to the ECF or do not have it available for the entire time period covered.)
Company European Retail Statistics
European Unit Registrations (1)
Calendar Quarter Ended March 31,
Increase
%
2022
2021
(Decrease)
Change
Motorcaravan and Campervan
7,493
8,878
(1,385)
(15.6)
Caravan
1,994
2,035
(41)
(2.0)
Total OEM-Reporting Countries
9,487
10,913
(1,426)
(13.1)
(1)Company retail registration statistics have been compiled from individual countries reporting of retail sales, and include the following countries: Germany, France, Sweden, Netherlands, Norway, Italy, Spain and others, collectively the “OEM Reporting Countries.”
Note: Data from the ECF is subject to adjustment, is continuously updated and is often impacted by delays in reporting by various countries.
32
European Outlook
Our European operations offer a full lineup of leisure vehicles including caravans, urban campers, campervans and small-to-large motorcaravans. Our product offerings are not limited to vehicles only but also include accessories and services, including vehicle rentals. We address European retail customers through a sophisticated brand management approach based on consumer segmentation according to target group, core values and emotions. With the help of data-based and digital marketing, we intend to continue expanding our retail customer reach, in particular, to new and younger consumer segments.
The impact of current macroeconomic factors on our business – including increasing inflation and interest rates, supply chain constraints, and geopolitical events – is uncertain. In addition, although it’s impact is lessening, the extent to which the COVID-19 pandemic may impact our business in future periods remains uncertain and unpredictable. Our outlook for future growth in European RV retail sales depends upon the various economic and regulatory conditions in the respective countries in which we sell our products, and on our ability to manage through supply chain issues that have, and will continue to, limit the level to which we can increase output in the near term. End-customer demand for RVs depends strongly on consumer confidence. Factors such as the rate of unemployment, the rate of inflation, private consumption and investments, growth in disposable income of consumers, changes in interest rates, the health of the housing market, changes in tax rates and regulatory restrictions, and, most recently, travel safety considerations all influence retail sales. Our long-term outlook for future growth in European RV retail sales remains positive as more and more people discover RVs as a way to support their lifestyle in search of independence and individuality, as well as using the RV as a multi-purpose vehicle to escape urban life and explore outdoor activities and nature.
Prior to the pandemic, we and our independent European dealers marketed our European recreational vehicles through numerous RV fairs at the country and regional levels which occurred throughout the calendar year. These fairs have historically been well-attended events that allowed retail consumers the ability to see the newest products, features and designs and to talk with product experts in addition to being able to purchase or order an RV. Since the start of the pandemic, the protection of the health of our employees, customers and dealer-partners has been our top priority. As a result, we cancelled our participation in most European trade fairs and major events in calendar 2021 and currently plan on limited participation in calendar 2022. In place of the trade fairs, we have and will continue to strengthen and expand our digital activities in order to reach high potential target groups, generate leads and steer customers directly to dealerships. With over 1,000 active dealer-partners in Germany and throughout Europe, we believe our European brands have one of the strongest and most professionally structured dealer and service networks in Europe.
Economic or industry-wide factors affecting our European RV operating results include the availability and costs of commodities and component parts 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 these costs will impact our profit margins negatively if we are unable to offset those cost increases through a combination of product decontenting, material sourcing strategies, efficiency improvements or raising the selling prices for our products by corresponding amounts.
We continue to be alerted by a number of our European chassis suppliers that supply constraints of key components that they require for the manufacturing of chassis, including, but not limited to, semiconductor chips, will continue to limit their production of RV chassis. Exacerbating this situation is the fact that certain of the chassis we have historically utilized in the production of certain of our higher volume products require a higher number of semiconductors compared to other chassis. For the nine months ended April 30, 2022, we experienced delays in the receipt of, and significant reductions in the volume of, chassis from our European chassis suppliers, limiting our ability to further increase production. We expect these ongoing challenges to persist and, in particular, anticipate continued delays in receipt of chassis in Europe as well as significant reductions in the number of chassis to be received in fiscal 2022 and continuing into at least the first half of fiscal 2023 compared to our planned production rates. As a result, these limitations in the availability of chassis will inhibit our ability to consistently maintain our planned production levels, and will limit our ability to ramp up production and sales of certain products despite dealer demand for those products.
In Europe, we also continue to experience cost increases, supply shortages and delivery delays of other, non-chassis, raw material components which negatively impacted our ability to further ramp up production and sales in the current fiscal year and has caused an increase in our work in process inventory as of April 30, 2022. We believe these shortages and delays will continue to result in production delays or adjusted production rates in the near term, which will limit our ability to ramp up production and sales to meet existing demand and will have a negative impact on our European operating results.
33
Where possible, to minimize the future impact of these supply chain constraints, we have identified a second-source supplier base for certain component parts, however, the overall scope of supply chain constraints within Europe and the engineering requirements required with an alternate component part, particularly the chassis our various units are built upon, has limited the impact of these alternative suppliers on reducing our near-term supply constraints.
If shortages of chassis or other component parts were to become more significant or longer term in nature, or if other factors were to impact our suppliers’ ability to supply our needs for key components, our costs of such components and our production output would be adversely affected. In addition, if the adverse impact of COVID-19 on our vendors increases or is prolonged, the limited availability of key components, including chassis, will have a further negative impact on our production output during fiscal 2022. Uncertainties related to changing emission standards, such as the Euro 6d standard which became effective as of January 2020 for new models and became effective for certain vehicles starting January 2021 and certain other vehicles starting January 2022, may also impact the availability of chassis used in our production of certain European motorized RVs and could also impact consumer buying patterns.
In addition to material supply constraints, labor shortages may also impact our European operations. Currently, we are experiencing a shortage of available skilled workers due to near full employment rates in the European countries where we have manufacturing sites.
34
Three Months Ended April 30, 2022 Compared to the Three Months Ended April 30, 2021
NET SALES:
Three Months Ended April 30, 2022
Three Months Ended April 30, 2021
Change Amount
% Change
Recreational vehicles
North American Towables
$
2,640,137
$
1,726,102
$
914,035
53.0
North American Motorized
1,053,045
775,393
277,652
35.8
Total North America
3,693,182
2,501,495
1,191,687
47.6
European
724,002
894,240
(170,238)
(19.0)
Total recreational vehicles
4,417,184
3,395,735
1,021,449
30.1
Other
383,170
106,960
276,210
258.2
Intercompany eliminations
(142,837)
(43,431)
(99,406)
(228.9)
Total
$
4,657,517
$
3,459,264
$
1,198,253
34.6
# OF UNITS:
Recreational vehicles
North American Towables
69,550
60,147
9,403
15.6
North American Motorized
7,873
7,162
711
9.9
Total North America
77,423
67,309
10,114
15.0
European
16,001
18,288
(2,287)
(12.5)
Total
93,424
85,597
7,827
9.1
GROSS PROFIT:
% of Segment Net Sales
% of Segment Net Sales
Change Amount
% Change
Recreational vehicles
North American Towables
$
453,907
17.2
$
264,476
15.3
$
189,431
71.6
North American Motorized
173,904
16.5
96,288
12.4
77,616
80.6
Total North America
627,811
17.0
360,764
14.4
267,047
74.0
European
99,845
13.8
120,159
13.4
(20,314)
(16.9)
Total recreational vehicles
727,656
16.5
480,923
14.2
246,733
51.3
Other, net
79,789
20.8
24,357
22.8
55,432
227.6
Total
$
807,445
17.3
$
505,280
14.6
$
302,165
59.8
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreational vehicles
North American Towables
$
118,913
4.5
$
89,015
5.2
$
29,898
33.6
North American Motorized
54,800
5.2
38,391
5.0
16,409
42.7
Total North America
173,713
4.7
127,406
5.1
46,307
36.3
European
62,590
8.6
65,943
7.4
(3,353)
(5.1)
Total recreational vehicles
236,303
5.3
193,349
5.7
42,954
22.2
Other
22,537
5.9
6,876
6.4
15,661
227.8
Corporate
22,836
—
31,609
—
(8,773)
(27.8)
Total
$
281,676
6.0
$
231,834
6.7
$
49,842
21.5
35
INCOME (LOSS) BEFORE INCOME TAXES:
Three Months Ended April 30, 2022
% of Segment Net Sales
Three Months Ended April 30, 2021
% of Segment Net Sales
Change Amount
% Change
Recreational vehicles
North American Towables
$
326,697
12.4
$
167,693
9.7
$
159,004
94.8
North American Motorized
116,293
11.0
54,780
7.1
61,513
112.3
Total North America
442,990
12.0
222,473
8.9
220,517
99.1
European
20,559
2.8
43,993
4.9
(23,434)
(53.3)
Total recreational vehicles
463,549
10.5
266,466
7.8
197,083
74.0
Other, net
46,910
12.2
16,667
15.6
30,243
181.5
Corporate
(48,052)
—
(50,454)
—
2,402
4.8
Total
$
462,407
9.9
$
232,679
6.7
$
229,728
98.7
ORDER BACKLOG:
As of April 30, 2022
As of April 30, 2021
Change Amount
% Change
Recreational vehicles
North American Towables
$
6,899,675
$
7,429,729
$
(530,054)
(7.1)
North American Motorized
4,100,040
3,550,286
549,754
15.5
Total North America
10,999,715
10,980,015
19,700
0.2
European
2,878,052
3,344,033
(465,981)
(13.9)
Total
$
13,877,767
$
14,324,048
$
(446,281)
(3.1)
CONSOLIDATED
Consolidated net sales for the three months ended April 30, 2022 increased $1,198,253, or 34.6%, compared to the three months ended April 30, 2021. The increase in consolidated net sales is primarily due to the increase in product demand and acquisitions since the prior-year period, in addition to selling price increases to offset known and anticipated material cost increase since the prior-year period. The addition of Airxcel, acquired on September 1, 2021, accounted for $153,963 of the $1,198,253 increase in net sales, or 4.5% of the 34.6% increase. Approximately 15.5% of the Company’s net sales for the quarter ended April 30, 2022 were transacted in a currency other than the U.S. dollar. The Company’s most material exchange rate exposure is sales in Euros. The $1,198,253, or 34.6%, increase in consolidated net sales includes a decrease of $60,964 resulting from the change in currency exchange rates between the two periods. To determine this impact, net sales transacted in currencies other than U.S. dollars have been translated to U.S. dollars using the average exchange rates that were in effect during the comparative period.
Consolidated gross profit for the three months ended April 30, 2022 increased $302,165, or 59.8%, compared to the three months ended April 30, 2021. Consolidated gross profit was 17.3% of consolidated net sales for the three months ended April 30, 2022 and 14.6% for the three months ended April 30, 2021. The increases in consolidated gross profit and the consolidated gross profit percentage were both primarily due to the impact of the increase in net sales in the current-year period compared to the prior-year period and gross margin cost percentage improvements noted in the segment discussions below.
Selling, general and administrative expenses for the three months ended April 30, 2022 increased $49,842, or 21.5%, compared to the three months ended April 30, 2021, primarily due to the increase in net sales given the variable nature of certain selling, general and administrative costs.
Amortization of intangible assets expense for the three months ended April 30, 2022 increased $10,245 to $40,725 compared to $30,480 for the three months ended April 30, 2021, with the increase primarily due to additional amortization of $10,829 from the acquisition of Airxcel as discussed in Note 2 to the Condensed Consolidated Financial Statements.
Income before income taxes for the three months ended April 30, 2022 was $462,407, as compared to $232,679 for the three months ended April 30, 2021, an increase of $229,728, or 98.7%, primarily driven by the increase in net sales and the increase in the consolidated gross profit percentage noted above.
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The overall effective income tax rate for the three months ended April 30, 2022 was 25.2% compared with 21.5% for the three months ended April 30, 2021. The primary reason for the increase in the overall effective income tax rate was certain unfavorable tax provision adjustments that primarily resulted from changes in estimates while completing the prior year tax return during the three months ended April 30, 2022.
Additional information concerning the changes in net sales, gross profit, selling, general and administrative expenses and income before income taxes are addressed below and in the segment reporting that follows.
Corporate costs included in selling, general and administrative expenses decreased $8,773 to $22,836 for the three months ended April 30, 2022 compared to $31,609 for the three months ended April 30, 2021, a decrease of 27.8%. This decrease primarily relates to a decrease in deferred compensation of $14,084, which was effectively offset by the increase in other expense related to the deferred compensation plan assets noted below. Other changes include costs recorded at Corporate related to our standby repurchase obligation reserve increasing by $2,699 due to dealer inventory levels increasing in the current-year period while dealer inventory decreased in the prior-year period, and compensation-related costs increased by $2,506. In addition, charitable contributions increased $1,052.
Corporate interest, costs of products sold and other income and expense was $25,216 of net expense for the three months ended April 30, 2022 compared to $18,845 of net expense for the three months ended April 30, 2021. This increase in net expense of $6,371 included the change in the fair value of the Company’s deferred compensation plan assets, primarily due to market fluctuations, which resulted in an increase in other expense, net of $14,379 compared to the prior-year period. Research and development costs, which are related to product electrification and other Corporate-led innovation initiatives and are included in cost of products sold, also increased $1,084. These increases in expense were partially offset by a non-cash foreign currency gain of $6,770 related to certain Euro-denominated loans in the three months ended April 30, 2022 as compared to a nominal gain in the prior-year period, and a decrease in interest expense and fees on debt facilities of $2,857, primarily due to reduced interest rates.
37
Segment Reporting
NORTH AMERICAN TOWABLE RECREATIONAL VEHICLES
Analysis of the change in net sales for the three months ended April 30, 2022 compared to the three months ended April 30, 2021:
Three Months Ended April 30, 2022
% of Segment Net Sales
Three Months Ended April 30, 2021
% of Segment Net Sales
Change Amount
%
Change
NET SALES:
North American Towables
Travel Trailers
$
1,655,846
62.7
$
1,060,058
61.4
$
595,788
56.2
Fifth Wheels
984,291
37.3
666,044
38.6
318,247
47.8
Total North American Towables
$
2,640,137
100.0
$
1,726,102
100.0
$
914,035
53.0
Three Months Ended April 30, 2022
% of Segment Shipments
Three Months Ended April 30, 2021
% of Segment Shipments
Change Amount
%
Change
# OF UNITS:
North American Towables
Travel Trailers
55,660
80.0
47,143
78.4
8,517
18.1
Fifth Wheels
13,890
20.0
13,004
21.6
886
6.8
Total North American Towables
69,550
100.0
60,147
100.0
9,403
15.6
IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES:
%
Change
North American Towables
Travel Trailers
38.1
Fifth Wheels
41.0
Total North American Towables
37.4
The increase in total North American towables net sales of 53.0% compared to the prior-year quarter resulted from a 15.6% increase in unit shipments and a 37.4% 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 April 30, 2022, combined North American travel trailer and fifth wheel wholesale unit shipments increased 14.1% compared to the same period last year. According to the most recently published statistics from Stat Surveys, for the three months ended March 31, 2022 and 2021, our North American market share for travel trailers and fifth wheels combined was 40.8% and 40.6%, respectively. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The increase in the overall net price per unit within the travel trailer product line of 38.1% and the overall net price per unit within the fifth wheel product line of 41.0% were primarily due to the combination of reduced sales discounts, product mix changes and selective net selling price increases, primarily to offset known and anticipated material cost increases, compared to the prior-year quarter.
38
North American towables cost of products sold increased $724,604 to $2,186,230, or 82.8% of North American towables net sales, for the three months ended April 30, 2022 compared to $1,461,626, or 84.7% of North American towables net sales, for the three months ended April 30, 2021. The changes in material, labor, freight-out and warranty costs comprised $702,194 of the $724,604 increase in cost of products sold. Material, labor, freight-out and warranty costs as a combined percentage of North American towables net sales decreased to 78.2% for the three months ended April 30, 2022 compared to 78.9% for the three months ended April 30, 2021, primarily as a result of a decrease in the labor cost percentage, mainly due to increased volumes combined with a more efficient workforce compared to the prior-year period. The freight-out cost percentage also decreased due to a higher percentage of units being picked up by dealers in the current-year period as opposed to being delivered, and the warranty cost percentage also decreased. These reductions were partially offset by an increase in the material cost percentage compared to the prior-year period, as the continued benefits from reduced sales discounts and selling price increases since the prior-year period, which effectively increases net selling prices and correspondingly decreases the material cost percentage, were more than offset by continued material cost increases since the prior-year period. Total manufacturing overhead increased $22,410 with the increase in sales, but decreased as a percentage of North American towables net sales from 5.8% to 4.6% as the significantly increased net sales levels resulted in lower overhead costs per unit sold.
North American towables gross profit increased $189,431 to $453,907, or 17.2% of North American towables net sales, for the three months ended April 30, 2022 compared to $264,476, or 15.3% of North American towables net sales, for the three months ended April 30, 2021. The increase in gross profit was driven by the increase in net sales and the increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
North American towables selling, general and administrative expenses were $118,913, or 4.5% of North American towables net sales, for the three months ended April 30, 2022 compared to $89,015, or 5.2% of North American towables net sales, for the three months ended April 30, 2021. This $29,898 increase is primarily due to the impact of the increase in North American towables net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $29,245. The decrease in the overall selling, general and administrative expense percentage is primarily due to the increase in net sales.
North American towables income before income taxes was $326,697, or 12.4% of North American towables net sales, for the three months ended April 30, 2022 compared to $167,693, or 9.7% of North American towables net sales, for the three months ended April 30, 2021. The primary reason for the increase in North American towables income before income taxes was the increase in North American towables net sales, and 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 noted above.
39
NORTH AMERICAN MOTORIZED RECREATIONAL VEHICLES
Analysis of the change in net sales for the three months ended April 30, 2022 compared to the three months ended April 30, 2021:
Three Months Ended April 30, 2022
% of Segment Net Sales
Three Months Ended April 30, 2021
% of Segment Net Sales
Change Amount
%
Change
NET SALES:
North American Motorized
Class A
$
474,674
45.1
$
323,547
41.7
$
151,127
46.7
Class C
335,444
31.9
342,425
44.2
(6,981)
(2.0)
Class B
242,927
23.0
109,421
14.1
133,506
122.0
Total North American Motorized
$
1,053,045
100.0
$
775,393
100.0
$
277,652
35.8
Three Months Ended April 30, 2022
% of Segment Shipments
Three Months Ended April 30, 2021
% of Segment Shipments
Change Amount
%
Change
# OF UNITS:
North American Motorized
Class A
2,463
31.3
2,059
28.7
404
19.6
Class C
3,131
39.8
3,983
55.6
(852)
(21.4)
Class B
2,279
28.9
1,120
15.7
1,159
103.5
Total North American Motorized
7,873
100.0
7,162
100.0
711
9.9
IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES:
%
Change
North American Motorized
Class A
27.1
Class C
19.4
Class B
18.5
Total North American Motorized
25.9
The increase in total North American motorized net sales of 35.8% compared to the prior-year quarter resulted from a 9.9% increase in unit shipments and a 25.9% 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 April 30, 2022, combined North American motorhome wholesale unit shipments increased 7.4% compared to the same period last year. According to the most recently published statistics from Stat Surveys, for the three months ended March 31, 2022 and 2021, our North American market share for motorhomes was 50.2% and 48.4%, respectively. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The increase in the overall net price per unit within the Class A product line of 27.1% was primarily due to selective net selling price increases since the prior-year period to offset known and anticipated material and other input cost increases. The increase in the overall net price per unit within the Class C product line of 19.4% was primarily due to product mix change and selective net selling price increases since the prior-year period to offset rising material and other input costs. The increase in the overall net price per unit within the Class B product line of 18.5% is primarily due to product mix changes, including the recently introduced, higher-priced Tiffin Group Class B offerings, and selective net selling price increases since the prior-year period.
40
North American motorized cost of products sold increased $200,036 to $879,141, or 83.5% of North American motorized net sales, for the three months ended April 30, 2022 compared to $679,105, or 87.6% of North American motorized net sales, for the three months ended April 30, 2021. The changes in material, labor, freight-out and warranty costs comprised $189,335 of the $200,036 increase primarily due to the increased net sales volume. Material, labor, freight-out and warranty costs as a combined percentage of North American motorized net sales decreased to 78.6% for the three months ended April 30, 2022 compared to 82.3% for the three months ended April 30, 2021, with the decrease primarily due to a decrease in the material cost percentage. The improvement in the material cost percentage is primarily due to a reduction in sales discounts since the prior-year period, which effectively increases net selling prices and correspondingly decreases the material cost percentage, selective net selling price increases to cover known and anticipated material cost increases, and product mix changes. Total manufacturing overhead increased $10,701, primarily due to the net sales increase, but decreased as a percentage of North American motorized net sales from 5.3% to 4.9% as the significantly increased net sales levels resulted in lower overhead costs per unit sold.
North American motorized gross profit increased $77,616 to $173,904, or 16.5% of North American motorized net sales, for the three months ended April 30, 2022 compared to $96,288, or 12.4% of North American motorized net sales, for the three months ended April 30, 2021. The increase in gross profit was driven by the increase in net sales, and the increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
North American motorized selling, general and administrative expenses were $54,800, or 5.2% of North American motorized net sales, for the three months ended April 30, 2022 compared to $38,391, or 5.0% of North American motorized net sales, for the three months ended April 30, 2021. The primary reason for the $16,409 increase was the increase in North American motorized net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $15,770. The increase in the overall selling, general and administrative expense percentage is primarily due to the increase in the incentive and other compensation expense to net sales.
North American motorized income before income taxes was $116,293, or 11.0% of North American motorized net sales, for the three months ended April 30, 2022 compared to $54,780, or 7.1% of North American motorized net sales, for the three months ended April 30, 2021. The primary reason for the increase in North American motorized income before income taxes was the increase in North American motorized net sales, and the primary reason for the increase in percentage was the decrease in the cost of products sold percentage noted above.
41
EUROPEAN RECREATIONAL VEHICLES
Analysis of the change in net sales for the three months ended April 30, 2022 compared to the three months ended April 30, 2021:
Three Months Ended April 30, 2022
% of Segment Net Sales
Three Months Ended April 30, 2021
% of Segment Net Sales
Change Amount
%
Change
NET SALES:
European
Motorcaravan
$
389,914
53.9
$
489,702
54.8
$
(99,788)
(20.4)
Campervan
150,157
20.7
236,988
26.5
(86,831)
(36.6)
Caravan
114,772
15.9
84,074
9.4
30,698
36.5
Other
69,159
9.5
83,476
9.3
(14,317)
(17.2)
Total European
$
724,002
100.0
$
894,240
100.0
$
(170,238)
(19.0)
Three Months Ended April 30, 2022
% of Segment Shipments
Three Months Ended April 30, 2021
% of Segment Shipments
Change Amount
%
Change
# OF UNITS:
European
Motorcaravan
6,368
39.8
8,177
44.7
(1,809)
(22.1)
Campervan
4,171
26.1
6,306
34.5
(2,135)
(33.9)
Caravan
5,462
34.1
3,805
20.8
1,657
43.5
Total European
16,001
100.0
18,288
100.0
(2,287)
(12.5)
IMPACT OF CHANGES IN FOREIGN CURRENCY, PRODUCT MIX AND PRICE ON NET SALES:
Foreign Currency %
Mix and Price %
% Change
European
Motorcaravan
(6.8)
8.5
1.7
Campervan
(6.8)
4.1
(2.7)
Caravan
(6.8)
(0.2)
(7.0)
Total European
(6.8)
0.3
(6.5)
The decrease in total European recreational vehicle net sales of 19.0% compared to the prior-year quarter resulted from a 12.5% decrease in unit shipments and a 6.5% decrease in the overall net price per unit due to the total impact of changes in foreign currency, product mix and price. The overall decrease in net sales of $170,238, or 19.0%, is mainly due to the continued chassis constraints limiting motorized product shipments, COVID-related shutdowns and other production disruptions due to component part shortages during the current-year period, as well as the negative impact of the change in foreign exchange rates since the prior year period, which resulted in a decrease of $60,964, or 6.8% of the 19.0% overall decrease.
The overall net price per unit decrease of 6.5% includes the impact of foreign currency exchange rate changes, which accounts for a 6.8% decrease included in the overall 6.5% decrease, partially offset by an increase of 0.3% due to mix and price on a constant-currency basis.
42
The increase in the overall net price per unit within the Motorcaravan product line of 8.5% was due to the impact of product mix changes and net selling price increases. The increase in the overall net price per unit within the Campervan product line of 4.1% was primarily due to the net impact of product mix changes and net selling price increases. The decrease in the overall net price per unit due to product mix and price within the Caravan product line of 0.2% was primarily due to the impact of product mix changes.
European recreational vehicle cost of products sold decreased $149,924 to $624,157, or 86.2% of European recreational vehicle net sales, for the three months ended April 30, 2022 compared to $774,081, or 86.6% of European recreational vehicle net sales, for the three months ended April 30, 2021. The decrease in material, labor, freight-out and warranty costs comprised $139,196 of the $149,924 decrease primarily due to the decreased net sales volume. Material, labor, freight-out and warranty costs as a combined percentage of European recreational vehicle net sales decreased to 76.9% for the three months ended April 30, 2022 compared to 77.9% for the three months ended April 30, 2021, with the overall decrease primarily due to reductions in both the labor and warranty cost percentages. The material cost percentage was unchanged as the benefits of product mix changes and net selling price increases were offset by increasing material costs. Total manufacturing overhead decreased $10,728 with the decrease in net sales, and increased as a percentage of European recreational vehicle net sales from 8.7% to 9.3% as the lower net sales resulted in a higher percentage of fixed overhead costs in the current-year period.
European recreational vehicle gross profit decreased $20,314 to $99,845, or 13.8% of European recreational vehicle net sales, for the three months ended April 30, 2022 compared to $120,159, or 13.4% of European recreational vehicle net sales, for the three months ended April 30, 2021. The decrease in gross profit is due to the decrease in European recreational vehicle net sales and the increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
European recreational vehicle selling, general and administrative expenses were $62,590, or 8.6% of European recreational vehicle net sales, for the three months ended April 30, 2022 compared to $65,943, or 7.4% of European recreational vehicle net sales, for the three months ended April 30, 2021. The $3,353 decrease is primarily due to the impact of compensation and benefit costs decreasing by $2,747. Sales-related travel and promotional costs also decreased $889. These decreases were partially offset by an increase in license and tax-related costs, primarily due to a non-recurring favorable settlement on a non-income German tax structure fee in the prior-year period. The increase in the selling, general and administrative expense percentage is primarily due to the increase in the license and tax-related costs percentage and the lower net sales resulting in a higher percentage of fixed selling, general and administrative costs in the current-year period.
European recreational vehicle income before income taxes was $20,559, or 2.8% of European recreational vehicle net sales, for the three months ended April 30, 2022 compared to a net income of $43,993, or 4.9% of European recreational vehicle net sales, for the three months ended April 30, 2021. The decrease in percentage was primarily due to the increase in the selling, general and administrative expense percentage noted above, an increase in the amortization expense percentage of 0.6%, primarily due to the reduction in European recreational vehicle net sales, and a 0.6% increase in other expense as a percentage of European recreational vehicle net sales, primarily due to a non-recurring favorable legal settlement in the prior-year period.
43
Nine Months Ended April 30, 2022 Compared to the Nine Months Ended April 30, 2021
NET SALES:
Nine Months Ended April 30, 2022
Nine Months Ended April 30, 2021
Change Amount
% Change
Recreational vehicles
North American Towables
$
6,866,059
$
4,491,327
$
2,374,732
52.9
North American Motorized
2,954,879
1,846,243
1,108,636
60.0
Total North America
9,820,938
6,337,570
3,483,368
55.0
European
2,080,729
2,230,191
(149,462)
(6.7)
Total recreational vehicles
11,901,667
8,567,761
3,333,906
38.9
Other
935,146
262,381
672,765
256.4
Intercompany eliminations
(346,054)
(105,730)
(240,324)
(227.3)
Total
$
12,490,759
$
8,724,412
$
3,766,347
43.2
# OF UNITS:
Recreational vehicles
North American Towables
194,231
158,891
35,340
22.2
North American Motorized
22,589
17,916
4,673
26.1
Total North America
216,820
176,807
40,013
22.6
European
43,189
45,095
(1,906)
(4.2)
Total
260,009
221,902
38,107
17.2
GROSS PROFIT:
% of Segment Net Sales
% of Segment Net Sales
Change Amount
% Change
Recreational vehicles
North American Towables
$
1,239,162
18.0
$
711,980
15.9
$
527,182
74.0
North American Motorized
469,906
15.9
239,508
13.0
230,398
96.2
Total North America
1,709,068
17.4
951,488
15.0
757,580
79.6
European
257,418
12.4
287,177
12.9
(29,759)
(10.4)
Total recreational vehicles
1,966,486
16.5
1,238,665
14.5
727,821
58.8
Other, net
171,657
18.4
60,344
23.0
111,313
184.5
Total
$
2,138,143
17.1
$
1,299,009
14.9
$
839,134
64.6
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreational vehicles
North American Towables
$
345,778
5.0
$
232,549
5.2
$
113,229
48.7
North American Motorized
152,535
5.2
93,184
5.0
59,351
63.7
Total North America
498,313
5.1
325,733
5.1
172,580
53.0
European
193,170
9.3
192,673
8.6
497
0.3
Total recreational vehicles
691,483
5.8
518,406
6.1
173,077
33.4
Other
55,982
6.0
18,561
7.1
37,421
201.6
Corporate
97,544
—
82,819
—
14,725
17.8
Total
$
845,009
6.8
$
619,786
7.1
$
225,223
36.3
44
INCOME (LOSS) BEFORE INCOME TAXES:
Nine Months Ended April 30, 2022
% of Segment Net Sales
Nine Months Ended April 30, 2021
% of Segment Net Sales
Change Amount
% Change
Recreational vehicles
North American Towables
$
868,874
12.7
$
456,752
10.2
$
412,122
90.2
North American Motorized
309,228
10.5
139,768
7.6
169,460
121.2
Total North America
1,178,102
12.0
596,520
9.4
581,582
97.5
European
12,248
0.6
48,703
2.2
(36,455)
(74.9)
Total recreational vehicles
1,190,350
10.0
645,223
7.5
545,127
84.5
Other, net
93,531
10.0
37,801
14.4
55,730
147.4
Corporate
(162,379)
—
(140,067)
—
(22,312)
(15.9)
Total
$
1,121,502
9.0
$
542,957
6.2
$
578,545
106.6
CONSOLIDATED
Consolidated net sales for the nine months ended April 30, 2022 increased $3,766,347, or 43.2%, compared to the nine months ended April 30, 2021. The addition of the Tiffin Group, acquired on December 18, 2020, accounted for $427,391 of the $3,766,347 increase in net sales, or 4.9% of the 43.2% increase, as the current-year period includes nine months of Tiffin Group operations compared to three and one-half months in the prior-year period. The addition of Airxcel, acquired on September 1, 2021, accounted for $371,503 of the $3,766,347 increase in net sales, or 4.3% of the 43.2% increase. Approximately 16.7% of the Company’s net sales for the nine months ended April 30, 2022 were transacted in a currency other than the U.S. dollar. The Company’s most material exchange rate exposure is sales in Euros. The $3,766,347, or 43.2%, increase in consolidated net sales included a decrease of $109,621 from the change in currency exchange rates between the two periods. To determine this information, net sales transacted in currencies other than U.S. dollars have been translated to U.S. dollars using the average exchange rates that were in effect during the comparative period.
Consolidated gross profit for the nine months ended April 30, 2022 increased $839,134, or 64.6%, compared to the nine months ended April 30, 2021. Consolidated gross profit was 17.1% of consolidated net sales for the nine months ended April 30, 2022 and 14.9% for the nine months ended April 30, 2021. The increases in consolidated gross profit and the consolidated gross profit percentage were both primarily due to the impact of the increase in net sales in the current-year period compared to the prior-year period.
Selling, general and administrative expenses for the nine months ended April 30, 2022 increased $225,223, or 36.3%, compared to the nine months ended April 30, 2021, primarily due to the increase in net sales given the variable nature of certain selling, general and administrative costs.
Amortization of intangible assets expense for the nine months ended April 30, 2022 increased $30,178 to $117,288 compared to $87,110 for the nine months ended April 30, 2021, with the increase primarily due to additional amortization of $25,930 from the acquisition of Airxcel as discussed in Note 2 to the Condensed Consolidated Financial Statements.
Income before income taxes for the nine months ended April 30, 2022 was $1,121,502, as compared to $542,957 for the nine months ended April 30, 2021, an increase of $578,545, or 106.6%, primarily driven by the increase in net sales and improvement in gross margin noted above.
The overall effective income tax rate for the nine months ended April 30, 2022 was 23.6% compared with 20.9% for the nine months ended April 30, 2021. The primary reason for the increase in the overall effective income tax rate was certain unfavorable tax provision adjustments that primarily resulted from changes in estimates while completing the prior year tax return during the nine months ended April 30, 2022.
Additional information concerning the changes in net sales, gross profit, selling, general and administrative expenses and income before income taxes are addressed below and in the segment reporting that follows.
45
Corporate costs included in selling, general and administrative expenses increased $14,725 to $97,544 for the nine months ended April 30, 2022 compared to $82,819 for the nine months ended April 30, 2021, an increase of 17.8%. This increase primarily relates to expenses accrued by the Company during the three months ended January 31, 2022 related to the ongoing investigation of the Company’s advertising practices in Germany, as discussed in Note 14 to the Condensed Consolidated Financial Statements. Other changes include costs recorded at Corporate related to our standby repurchase obligation reserve increasing by $6,099 due to dealer inventory level increases in the current-year period significantly exceeding dealer inventory increases in the prior-year period, and compensation-related costs increasing by $5,560. Charitable contributions also increased by $2,710. These cost increases were partially offset by a decrease in deferred compensation of $23,043, which was effectively offset by the increase in other expense related to the deferred compensation plan assets noted below.
Corporate interest, cost of products sold and other income and expense was $64,835 of net expense for the nine months ended April 30, 2022 compared to $57,248 of net expense for the nine months ended April 30, 2021. This increase in net expense of $7,587 included the change in the fair value of the Company’s deferred compensation plan assets due primarily to market fluctuations, which resulted in a total increase in other expense, net of $23,400 compared to the prior-year period. Research and development costs, which are related to product electrification and other Corporate-led innovation initiatives and are included in cost of products sold, also increased $7,662. These increases in expense were partially offset by a non-cash foreign currency gain of $15,949 related to certain Euro-denominated loans in the nine months ended April 30, 2022 as compared to a nominal loss in the prior-year period, a decrease in interest expense and fees on the debt facilities of $5,352 due primarily to reduced interest rates, partially offset by increased average debt balances, compared to the prior-year period, and a $2,139 gain related to corporate-owned life insurance benefits.
46
Segment Reporting
NORTH AMERICAN TOWABLE RECREATIONAL VEHICLES
Analysis of the change in net sales for the nine months ended April 30, 2022 compared to the nine months ended April 30, 2021:
Nine Months Ended April 30, 2022
% of Segment Net Sales
Nine Months Ended April 30, 2021
% of Segment Net Sales
Change Amount
% Change
NET SALES:
North American Towables
Travel Trailers
$
4,316,049
62.9
$
2,729,317
60.8
$
1,586,732
58.1
Fifth Wheels
2,550,010
37.1
1,762,010
39.2
788,000
44.7
Total North American Towables
$
6,866,059
100.0
$
4,491,327
100.0
$
2,374,732
52.9
Nine Months Ended April 30, 2022
% of Segment Shipments
Nine Months Ended April 30, 2021
% of Segment Shipments
Change Amount
% Change
# OF UNITS:
North American Towables
Travel Trailers
155,896
80.3
123,566
77.8
32,330
26.2
Fifth Wheels
38,335
19.7
35,325
22.2
3,010
8.5
Total North American Towables
194,231
100.0
158,891
100.0
35,340
22.2
IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES:
% Change
North American Towables
Travel Trailers
31.9
Fifth Wheels
36.2
Total North American Towables
30.7
The increase in total North American towables net sales of 52.9% compared to the prior-year period resulted from a 22.2% increase in unit shipments and a 30.7% 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 nine months ended April 30, 2022, combined North American travel trailer and fifth wheel wholesale unit shipments increased 18.2% compared to the same period last year. According to statistics published by Stat Surveys, for the nine-month periods ended March 31, 2022 and 2021, our North American market share for travel trailers and fifth wheels combined was 41.3% and 41.1%, respectively. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The increase in the overall net price per unit within the travel trailer product line of 31.9% and the increase in the overall net price per unit within the fifth wheel product line of 36.2% were primarily due to the impacts of selective net price increases and product mix changes compared to the prior-year period.
47
North American towables cost of products sold increased $1,847,550 to $5,626,897, or 82.0% of North American towables net sales, for the nine months ended April 30, 2022 compared to $3,779,347, or 84.1% of North American towables net sales, for the nine months ended April 30, 2021. The changes in material, labor, freight-out and warranty costs comprised $1,774,449 of the $1,847,550 increase in cost of products sold. Material, labor, freight-out and warranty costs as a combined percentage of North American towables net sales decreased to 77.0% for the nine months ended April 30, 2022 compared to 78.1% for the nine months ended April 30, 2021, primarily as a result of a decrease in the labor cost percentage, mainly due to increased volumes combined with a more efficient workforce compared to the prior-year period. The freight-out cost percentage also decreased due to a higher percentage of units being picked up by dealers in the current-year period as opposed to being delivered. These reductions were partially offset by an increase in the material cost percentage compared to the prior-year period, as the continued benefit from reduced sales discounts since the prior-year period, which effectively increases net selling prices and correspondingly decreases the material cost percentage, was more than offset by increasing material costs since the prior-year period. Total manufacturing overhead increased $73,101 with the increase in net sales, but decreased as a percentage of North American towables net sales from 6.0% to 5.0%, as the increased net sales levels resulted in lower overhead cost per unit sold.
North American towables gross profit increased $527,182 to $1,239,162, or 18.0% of North American towables net sales, for the nine months ended April 30, 2022 compared to $711,980, or 15.9% of North American towables net sales, for the nine months ended April 30, 2021. The increase in the gross profit was driven by the increase in net sales, and the increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
North American towables selling, general and administrative expenses were $345,778, or 5.0% of North American towables net sales, for the nine months ended April 30, 2022 compared to $232,549, or 5.2% of North American towables net sales, for the nine months ended April 30, 2021. The primary reason for the $113,229 increase was the impact of the increase in North American towables net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $90,166, and sales-related travel and promotion costs also increased $5,319. The remaining increase is primarily due to an increase in product-related settlement costs, primarily due to collection uncertainty on amounts due from applicable vendor suppliers for costs related to a product recall related to certain purchased parts utilized in certain of our North American towable products, as discussed in Note 14 to the Condensed Consolidated Financial Statements. The decrease in the overall selling, general and administrative expense as a percentage of North American towable net sales is primarily due to the increase in net sales.
North American towables income before income taxes was $868,874, or 12.7% of North American towables net sales, for the nine months ended April 30, 2022 compared to $456,752, or 10.2% of North American towables net sales, for the nine months ended April 30, 2021. The primary reason for the increase in North American towables income before income taxes was the increase in North American towables net sales, and the primary reason for the increase in percentage was the decrease in the cost of products sold percentage noted above.
48
NORTH AMERICAN MOTORIZED RECREATIONAL VEHICLES
Analysis of the change in net sales for the nine months ended April 30, 2022 compared to the nine months ended April 30, 2021:
Nine Months Ended April 30, 2022
% of Segment Net Sales
Nine Months Ended April 30, 2021
% of Segment Net Sales
Change Amount
% Change
NET SALES:
North American Motorized
Class A
$
1,314,067
44.5
$
704,230
38.1
$
609,837
86.6
Class C
1,057,015
35.8
912,124
49.4
144,891
15.9
Class B
583,797
19.7
229,889
12.5
353,908
153.9
Total North American Motorized
$
2,954,879
100.0
$
1,846,243
100.0
$
1,108,636
60.0
Nine Months Ended April 30, 2022
% of Segment Shipments
Nine Months Ended April 30, 2021
% of Segment Shipments
Change Amount
% Change
# OF UNITS:
North American Motorized
Class A
6,689
29.6
4,727
26.4
1,962
41.5
Class C
10,268
45.5
10,928
61.0
(660)
(6.0)
Class B
5,632
24.9
2,261
12.6
3,371
149.1
Total North American Motorized
22,589
100.0
17,916
100.0
4,673
26.1
IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES:
% Change
North American Motorized
Class A
45.1
Class C
21.9
Class B
4.8
Total North American Motorized
33.9
The increase in total North American motorized net sales of 60.0% compared to the prior-year period resulted from a 26.1% increase in unit shipments and a 33.9% increase in the overall net price per unit due to the impact of changes in product mix and price. The addition of the Tiffin Group, acquired on December 18, 2020, accounted for $373,238 of the $1,108,636 increase or 20.2% of the 60.0% increase, as the current period includes nine months of Tiffin Group operations as compared to three and one-half months in the prior-year period. According to statistics published by RVIA, for the nine months ended April 30, 2022, combined North American motorhome wholesale unit shipments increased 11.3% compared to the same period last year. According to statistics published by Stat Surveys, for the nine-month periods ended March 31, 2022 and 2021, our North American market share for motorhomes was 48.7% and 41.9%, respectively, with 2.5% of the 6.8% increase attributable to the Tiffin Group. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The increase in the overall net price per unit within the Class A product line of 45.1% was primarily due to the net impact of the higher-priced Tiffin Group product lines and selective net price increases. The Tiffin Group Class A product lines are primarily in the higher-priced diesel units as opposed to the more moderately-priced gas units, which represented the majority of the Class A units sold in the prior-year period. The increase in the overall net price per unit within the Class C product line of 21.9% was primarily due to product mix changes and selective net selling price increases since the prior-year period to offset rising material and other input costs. The decrease in the overall net price per unit within the Class B product line of 4.8% is primarily due to product mix changes as a result of a much higher concentration of sales of lower-priced Class B products in the current-year period, including increased sales of previously existing lower-priced models and the introduction of several new lower-priced models, as compared to the prior-year period.
49
North American motorized cost of products sold increased $878,238 to $2,484,973, or 84.1% of North American motorized net sales, for the nine months ended April 30, 2022 compared to $1,606,735, or 87.0% of North American motorized net sales, for the nine months ended April 30, 2021. The changes in material, labor, freight-out and warranty costs comprised $820,714 of the $878,238 increase due to the increased sales volume. Material, labor, freight-out and warranty costs as a combined percentage of North American motorized net sales decreased to 79.0% for the nine months ended April 30, 2022 compared to 82.0% for the nine months ended April 30, 2021, with the decrease primarily due to a decrease in the material cost percentage, partially offset by modest increases in the labor and warranty cost percentages. The improvement in the material cost percentage is primarily due to a reduction in sales discounts since the prior-year period, which effectively increases net selling prices and correspondingly decreases the material cost percentage, selective net selling price increases to cover known and anticipated material cost increases, and product mix changes, primarily due to a higher concentration of Tiffin Group products compared to the prior-year period. Total manufacturing overhead increased $57,524 due to the net sales increase and related increased employee wages, benefits and health insurance costs, and increased slightly as a percentage of North American motorized net sales from 5.0% to 5.1%.
North American motorized gross profit increased $230,398 to $469,906, or 15.9% of North American motorized net sales, for the nine months ended April 30, 2022 compared to $239,508, or 13.0% of North American motorized net sales, for the nine months ended April 30, 2021. The increase in gross profit was due primarily to the increase in North American motorized net sales, and the increase in the gross profit percentage was due to the decrease in the cost of products sold percentage noted above.
North American motorized selling, general and administrative expenses were $152,535, or 5.2% of North American motorized net sales, for the nine months ended April 30, 2022 compared to $93,184, or 5.0% of North American motorized net sales, for the nine months ended April 30, 2021. The primary reason for the $59,351 increase was the increase in North American motorized net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $52,586. Sales-related travel and promotional costs also increased $3,327.
North American motorized income before income taxes was $309,228, or 10.5% of North American motorized net sales, for the nine months ended April 30, 2022 compared to $139,768, or 7.6% of North American motorized net sales, for the nine months ended April 30, 2021. The primary reason for the increase in North American motorized income before income taxes was the increase in North American motorized net sales. The primary reason for the increase in percentage was the decrease in the cost of products sold percentage noted above.
50
EUROPEAN RECREATIONAL VEHICLES
Analysis of the change in net sales for the nine months ended April 30, 2022 compared to the nine months ended April 30, 2021:
Nine Months Ended April 30, 2022
% of Segment Net Sales
Nine Months Ended April 30, 2021
% of Segment Net Sales
Change Amount
% Change
NET SALES:
European
Motorcaravan
$
1,057,039
50.8
$
1,227,182
55.0
$
(170,143)
(13.9)
Campervan
520,778
25.0
529,500
23.7
(8,722)
(1.6)
Caravan
266,605
12.8
210,923
9.5
55,682
26.4
Other
236,307
11.4
262,586
11.8
(26,279)
(10.0)
Total European
$
2,080,729
100.0
$
2,230,191
100.0
$
(149,462)
(6.7)
Nine Months Ended April 30, 2022
% of Segment Shipments
Nine Months Ended April 30, 2021
% of Segment Shipments
Change Amount
% Change
# OF UNITS:
European
Motorcaravan
17,430
40.4
20,586
45.7
(3,156)
(15.3)
Campervan
13,349
30.9
14,704
32.6
(1,355)
(9.2)
Caravan
12,410
28.7
9,805
21.7
2,605
26.6
Total European
43,189
100.0
45,095
100.0
(1,906)
(4.2)
IMPACT OF CHANGES IN FOREIGN CURRENCY, PRODUCT MIX AND PRICE ON NET SALES:
Foreign Currency %
Mix and Price %
% Change
European
Motorcaravan
(4.9)
6.3
1.4
Campervan
(4.9)
12.5
7.6
Caravan
(4.9)
4.7
(0.2)
Total European
(4.9)
2.4
(2.5)
The decrease in total European recreational vehicle net sales of 6.7% compared to the prior-year period resulted from a 4.2% decrease in unit shipments and a 2.5% decrease in the overall net price per unit due to the total impact of changes in foreign currency, product mix and price. The overall net sales decrease of $149,462 includes a decrease of $109,621, or 4.9% included in the 6.7% overall decrease, due to the impact of the reduction in the foreign exchange rates since the prior-year period. This overall sales decrease was driven by the negative impacts of the lack of chassis availability, COVID-related shutdowns and other production disruptions due to component part shortages during the current-year period.
The overall net price per unit decrease of 2.5% includes the impact of foreign currency exchange rate changes, which accounts for a 4.9% decrease, partially offset by an increase of 2.4% due to mix and price on a constant-currency basis.
The increase in the overall net price per unit due to product mix and price within the Motorcaravan product line of 6.3% was primarily due to product mix changes and net selling price increases since the prior-year period. The increase in the overall net price per unit due to product mix and price within the Campervan product line of 12.5% was primarily due to the net impact of product mix changes and net selling price increases. The increase in the overall net price per unit due to product mix and price within the Caravan product line of 4.7% was primarily due to the impact of product mix changes.
51
European recreational vehicle cost of products sold decreased $119,703 to $1,823,311, or 87.6% of European recreational vehicle net sales, for the nine months ended April 30, 2022 compared to $1,943,014, or 87.1% of European recreational vehicle net sales, for the nine months ended April 30, 2021. The changes in material, labor, freight-out and warranty costs comprised $122,758 of the $119,703 decrease primarily due to the decreased net sales volume. Material, labor, freight-out and warranty costs as a combined percentage of European recreational vehicle net sales was 77.5% for the nine months ended April 30, 2022 compared to 77.8% for the nine months ended April 30, 2021, which included a slight decrease in the material cost percentage offset partially by an increase in the labor percentage. Total manufacturing overhead increased $3,055 with the volume increase and increased as a percentage of European recreational vehicle net sales from 9.3% to 10.2% primarily due to increased indirect labor and manufacturing employee benefit costs.
European recreational vehicle gross profit decreased $29,759 to $257,418, or 12.4% of European recreational vehicle net sales, for the nine months ended April 30, 2022 compared to $287,177, or 12.9% of European recreational vehicle net sales, for the nine months ended April 30, 2021. The decrease in gross profit and gross profit percentage is due to the increase in the cost of products sold and the cost of products sold percentage noted above.
European recreational vehicle selling, general and administrative expenses were $193,170, or 9.3% of European recreational vehicle net sales, for the nine months ended April 30, 2022 compared to $192,673, or 8.6% of European recreational vehicle net sales, for the nine months ended April 30, 2021. The $497 increase included increases in license and tax expense of $2,445, primarily due to a non-recurring favorable settlement on a non-income German tax structure fee in the prior-year period, and an increase in miscellaneous expenses of $1,861, primarily due to a favorable legal reserve settlement in the prior-year period. These increases were mostly offset by compensation and benefit costs decreasing by $3,199. The increase in the overall selling, general and administrative expense as a percentage of European recreational vehicle net sales is primarily due to the decrease in net sales.
European recreational vehicle net income before income taxes was $12,248, or 0.6% of European recreational vehicle net sales, for the nine months ended April 30, 2022 compared to a net income before income taxes of $48,703, or 2.2% of European recreational vehicle net sales, for the nine months ended April 30, 2021. The primary reason for the decrease in income before income taxes was the decrease in European recreational vehicle net sales. The primary reasons for the decrease in percentage were the increases in both the cost of products sold and selling, general and administrative expense percentages noted above, as well as an increase in other expense as a percentage of European recreational vehicle net sales, primarily due to a non-recurring favorable settlement in the prior-year period.
Financial Condition and Liquidity
As of April 30, 2022, we had $329,297 in cash and cash equivalents, of which $245,877 was held in the U.S. and the equivalent of $83,420, predominantly in Euros, was held in Europe, compared to $445,852 on July 31, 2021, of which $282,220 was held in the U.S. and the equivalent of $163,632, predominantly in Euros, was held in Europe. Cash and cash equivalents held internationally may be subject to foreign withholding taxes if repatriated to the U.S. The components of this $116,555 decrease in cash and cash equivalents are described in more detail below.
Net working capital at April 30, 2022 was $1,386,857 compared to $1,008,738 at July 31, 2021. This increase is primarily attributable to the seasonal increases in inventory and accounts receivable, partially offset by the decrease in cash and cash equivalents noted above and an increase in accounts payable. Capital expenditures of $170,702 for the nine months ended April 30, 2022 were made primarily for 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, will be sufficient to fund expected operational requirements for the foreseeable future.
52
Our priorities for the use of current and future available cash generated from operations remain consistent with our history, and include reducing our indebtedness, maintaining and, over time, growing our dividend payments and funding our growth, both organically and opportunistically through acquisitions. We may also consider strategic and opportunistic repurchases of shares of THOR stock under the share repurchase program as discussed in Note 16 to the Condensed Consolidated Financial Statements, and special dividends based upon market and business conditions and excess cash availability, subject to customary limits and restrictions pursuant to our credit facilities, applicable legal limitations and determination by our Board of Directors (“Board”).
Subsequent to April 30, 2022, we made principal payments of $115,000 on our U.S. term loan tranche, and our outstanding balance is $721,900 as of June 3, 2022. In addition, we made principal payments of 24,000 Euro (approximately $25,500) on our Euro term loan tranche, and our outstanding balance is $493,943 as of June 3, 2022 using the applicable foreign exchange rate at June 3, 2022. The U.S. and Euro term loan tranches are discussed in more detail in Note 12 to the Condensed Consolidated Financial Statements.
We anticipate capital expenditures during the remainder of fiscal 2022 for the Company of approximately $100,000, primarily for certain building projects and replacing and upgrading machinery, equipment and other assets throughout our facilities to be used in the ordinary course of business.
The Company’s Board currently intends to continue regular quarterly cash dividend payments in the future. As is customary under credit facilities, certain actions, including our ability to pay dividends, are subject to the satisfaction of certain conditions prior to payment. The conditions for the payment of dividends under the existing debt facilities include a minimum level of adjusted excess cash availability and a fixed charge coverage ratio test, both as defined in the credit agreements. 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, in addition to compliance with any then-existing financing facilities.
Operating Activities
Net cash provided by operating activities for the nine months ended April 30, 2022 was $637,549 as compared to net cash used in operating activities of $175,073 for the nine months ended April 30, 2021.
For the nine months ended April 30, 2022, net income adjusted for non-cash items (primarily depreciation, amortization of intangibles and stock-based compensation) provided $1,082,146 of operating cash. The change in net working capital resulted in the use of $444,597 of operating cash during that period, primarily due to an increase in inventory, as production levels have increased due to continued heightened consumer demand, and ongoing supply constraints have caused work in process and other inventory categories to increase. In addition, there was a seasonal increase in accounts receivable. These increases were partially offset by an increase in accounts payable, primarily related to the inventory growth, and an increase in accrued liabilities.
For the nine months ended April 30, 2021, net income adjusted for non-cash items (primarily depreciation, amortization of intangibles and stock-based compensation) provided $628,645 of operating cash. The change in working capital resulted in the use of $453,572 of operating cash during that period, primarily due to an increase in inventory, as production levels increased due to the heightened dealer demand and an increase in production lines and capacity. In addition, work in process inventory was higher than normal at April 30, 2021 due to elevated material component shortages on otherwise substantially completed units. Accounts receivable also reflected a seasonal increase, and required income tax payments during the nine months ended April 30, 2021 exceeded the income tax provision for the period as well. These increases were partially offset by an increase in accounts payable primarily related to the inventory growth.
Investing Activities
Net cash used in investing activities for the nine months ended April 30, 2022 was $971,846, primarily due to $781,967 used in business acquisitions, primarily for the Airxcel acquisition discussed in Note 2 to the Condensed Consolidated Financial Statements, and capital expenditures of $170,702.
Net cash used in investing activities for the nine months ended April 30, 2021 was $381,028, primarily due to $310,938 used in business acquisitions and capital expenditures of $81,162.
53
Financing Activities
Net cash provided by financing activities for the nine months ended April 30, 2022 was $250,452, consisting primarily of borrowings of $660,088 on the revolving asset-based credit facilities, which included $625,000 borrowed in connection with the acquisition of Airxcel and $35,088 for temporary working capital needs, in addition to $500,000 in proceeds from the issuance of Senior Unsecured Notes in October 2021, which were then used as part of the $559,035 in payments on the ABL facility. Payments of $132,407 were also made on the term-loan credit facilities and other debt. Regular quarterly dividend payments of $0.43 per share for each of the first three quarters of fiscal 2022 were also made totaling $71,496, and $98,321 was used for treasury share repurchases.
Net cash used in financing activities for the nine months ended April 30, 2021 was $42,803, consisting primarily of borrowings of $225,676 on the revolving asset-based credit facilities, which included $165,000 borrowed in connection with the acquisition of the Tiffin Group and $60,676 for temporary working capital needs, partially offset by $184,247 in debt payments and regular quarterly dividend payments of $0.41 per share or each of the first three quarters of fiscal 2021 totaling $68,100.
The Company increased its previous regular quarterly dividend of $0.41 per share to $0.43 per share in October 2021. In October 2020, the Company increased its previous regular quarterly dividend of $0.40 per share to $0.41 per share.
Accounting Standards
None.
54
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates. The Company enters into various hedging transactions to mitigate certain of these risks in accordance with guidelines established by the Company’s management. The Company does not use financial instruments for trading or speculative purposes.
CURRENCY EXCHANGE RISK – The Company’s principal currency exposures mainly relate to the Euro and British Pound Sterling. The Company periodically uses foreign currency forward contracts to manage certain foreign exchange rate exposure related to anticipated sales transactions in Pounds Sterling with financial instruments whose maturity date, along with the realized gain or loss, occurs on or near the execution of the anticipated transaction.
The Company also holds $592,460 of debt denominated in Euros at April 30, 2022. A hypothetical 10% change in the Euro/U.S. Dollar exchange rate would change our April 30, 2022 debt balance by approximately $59,246.
INTEREST RATE RISK – The Company uses pay-fixed, receive-floating interest rate swaps to convert a portion of the Company’s long-term debt from floating to fixed-rate debt. As of April 30, 2022, the Company has $326,300 as notional amounts hedged in relation to the floating-to-fixed interest rate swap. The notional amounts hedged will decrease on a quarterly basis to zero by August 1, 2023.
Based on our interest rate exposure at April 30, 2022, assumed floating-rate debt levels throughout the next 12 months and the effects of our existing derivative instruments, a one-percentage-point increase in interest rates (approximately 18.2% of our weighted-average interest rate at April 30, 2022) would result in an estimated $9,944 pre-tax reduction in net earnings over a one-year period.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains “disclosure controls and procedures,” as such term is defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company has carried out an evaluation, as of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at attaining the level of reasonable assurance noted above.
During the quarter ended April 30, 2022, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
55
PART II – OTHER INFORMATION
(Unless otherwise indicated, amounts in thousands except share and per share data.)
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain litigation arising out of its operations in the normal course of its business, most of which is based upon state “lemon laws,” warranty claims and vehicle accidents (for which the Company carries insurance above a specified self-insured retention or deductible amount). The outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. There is significant judgment required in assessing both the probability of an adverse outcome and the determination as to whether an exposure can be reasonably estimated. In management’s opinion, the ultimate disposition of any current legal proceedings or claims against the Company will not have a material effect on the Company’s financial condition, operating results or cash flows. Litigation is, however, inherently uncertain and an adverse outcome from such litigation could have a material effect on the operating results of a particular reporting period.
ITEM 1A. RISK FACTORS
Although risks specific to the COVID-19 pandemic, including supply chain disruptions, are ongoing, and macro economic issues like general inflation, as well as certain geopolitical events, including military conflicts, have recently surfaced, at this point there have been no material changes in those risks or any others from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended July 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended April 30, 2022, the Company used $39,990 to repurchase shares of common stock under its repurchase program. The Company’s remaining authorization for common stock repurchases was $151,679 at April 30, 2022.
A summary of the Company’s share repurchases during the three months ended April 30, 2022 is set forth below:
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
2/1/22 – 2/28/22
—
$
—
—
$
191,669
3/1/22 – 3/31/22
—
$
—
—
$
191,669
4/1/22 – 4/30/22
499,106
$
80.12
499,106
$
151,679
499,106
499,106
(1)On December 21, 2021 the Company announced that the Board of Directors of the Company authorized Company management to utilize up to $250,000 to purchase shares of the Company’s common stock through December 21, 2024. Under the share repurchase program, the Company is authorized to acquire, from time-to-time, outstanding shares of its common stock in the open market or in privately negotiated transactions. The timing and amount of share repurchases will be determined by the Company’s management team based upon its evaluation of market conditions and other factors. The share repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program. During the nine months ended April 30, 2022, the Company purchased 1,090,067 shares of its common stock at an aggregate purchase price of $98,321.
XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document
Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101)
Attached as Exhibits 101 to this report are the following financial statements from the Company's Quarterly report on Form 10-Q for the quarter ended April 30, 2022 formatted in XBRL (“eXtensible Business Reporting Language”): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income and Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Changes in Stockholders' Equity and (v) related notes to these financial statements.
57
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
