Thor Industries, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended July 31, 2011. Amounts below are in millions of dollars unless stated otherwise. The filing also reports fourth-quarter results; “2011 Q4” is not the annual reporting period.
Business context and reporting period
Thor manufactures towable and motorized recreation vehicles (RVs), small and mid-size buses, and ambulances. FY2011 results include Heartland from its September 16, 2010 acquisition and SJC, acquired in March 2010. Heartland remained an independently managed operation. RVs generated 85% of FY2011 sales; buses generated 15%.
Key financial metrics
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Net sales | $2,755.5 | $2,276.6 | +21.0% |
| Gross profit / margin | $333.1 / 12.1% | $307.1 / 13.5% | Margin down 1.4 percentage points |
| Income before taxes | $152.6 | $171.4 | -10.9% |
| Net income | $106.3 | $110.1 | -3.4% |
| Diluted EPS | $1.92 | $2.07 | -7.2% |
| Operating cash flow | $114.8 | $100.7 | +$14.2 |
| Cash and cash equivalents at year-end | $215.4 | $247.8 | -$32.3 |
| Working capital at year-end | $345.2 | $345.0 | Approximately unchanged |
The company reported no long-term debt. FY2011 capital expenditures were $33.7 million; management expected approximately $15 million in FY2012. Dividends paid in FY2011 were $0.40 per share. The company reported $2.8 billion in total assets and $836.3 million in stockholders’ equity at year-end.
FY2011 fourth quarter: Sales were $770.5 million, gross profit $100.4 million, net income $36.9 million, and diluted EPS $0.66. In FY2010 Q4, those figures were $663.8 million, $94.8 million, $40.6 million, and $0.77, respectively.
Material changes versus prior year
- Sales increased 21.0%, with Heartland contributing $365.4 million of the $479.0 million increase. Excluding the acquisition’s contribution, the reported sales growth was substantially lower.
- Towable RV sales rose 27.0% to $1,977.4 million; shipments increased 16.4%. Towable gross margin fell to 13.4% from 15.2%, as discounting, product mix, and input costs weighed on margins.
- Motorized RV sales rose 24.3% to $363.0 million, principally on 25.4% higher unit shipments. Segment margin was broadly stable, with pretax margin at 3.5% versus 3.6%.
- Bus sales declined 3.0% to $415.1 million despite 3.7% higher unit shipments; lower average selling prices and higher warranty, labor, and overhead costs reduced bus gross margin to 8.2% from 10.4%.
- Consolidated SG&A increased 22.7% to $180.9 million. Corporate costs included higher acquisition and SEC-resolution professional fees, among other increases.
- Backlog at July 31, 2011 was $431.6 million, down 11.7% from $488.7 million. RV backlog was $227.4 million (-13.0%) and bus backlog $204.2 million (-10.2%).
Outlook, risks, contingencies, and unusual items
- Outlook: Thor did not provide numerical company guidance. RVIA forecast calendar-year wholesale RV shipments up 2.1% in 2011 and down 2.1% in 2012. Management said retail demand would be important after dealer restocking, and cited consumer confidence, unemployment, fuel prices, and credit access as constraints. Management expected FY2012 capital expenditures of about $15 million.
- Buses: Management reported that stimulus funding was ending, municipal budgets and ridership were pressured, and bus order input had softened at some operations. About 58% of FY2011 bus sales came from state and local transportation authorities, often with federal funding.
- Costs and supply: Steel, aluminum, thermoplastic, and other input costs rose; Thor raised selling prices in most segments in February 2011 but warned that margins could be pressured if costs rise faster than prices. Chassis supply was adequate at filing, but concentration among suppliers presents interruption risk.
- Acquisition and impairments: Heartland consideration was approximately $190.1 million—$99.6 million cash and $90.5 million in Thor shares. FY2011 included $3.5 million of non-cash trademark impairments and $10.3 million of intangible amortization. Goodwill was $244.5 million, including $93.6 million recorded for Heartland.
- Fire insurance proceeds: Gains on involuntary conversion were $9.4 million in FY2011 and $7.6 million in FY2010, related to the 2010 fire at a bus facility and insurance recoveries. The rebuilt facility was substantially operational by September 2010.
- Legal matters: Approximately 550 FEMA formaldehyde-related cases remained pending against Thor. The company disputed the allegations and said it could not reasonably estimate a potential loss range beyond amounts accrued. A separate Damon motorhome personal-injury case was scheduled for trial in 2012.
- Dealer and financing exposure: FreedomRoads accounted for 14% of RV sales and 12% of consolidated sales; one dealer accounted for 17% of bus sales. Thor had $791.9 million of standby repurchase obligations to dealer floor-plan lenders, with a $3.5 million reserve. Thor also had approximately $30 million of notes receivable from individuals controlling FreedomRoads; the company considered them collectible, but identified credit risk.
- SEC matter: A settlement was approved in May 2011, including a $1.0 million civil penalty that had previously been provided for. An independent consultant completed its review and did not recommend material control improvements in the specified areas. Management and the external auditor concluded internal control over financial reporting was effective as of July 31, 2011.
- Subsequent event: Thor repurchased 1.0 million shares from the estate of its former chairman for $20.0 million in August 2011.
Most important facts for investors to verify
- How much of sales and earnings growth reflects Heartland’s contribution, and whether acquired operations deliver expected returns.
- Whether RV demand, pricing, dealer financing, and input-cost trends support recovery in segment margins.
- Bus backlog conversion and the effect of reduced public-sector funding on orders and profitability.
- Exposure under dealer repurchase agreements, concentration in major dealers and floor-plan lenders, and collectability of related-party notes.
- Potential financial impact of the FEMA litigation and adequacy of product-liability and warranty reserves.
- Cash use following the Heartland acquisition, planned capital spending, dividends, and the subsequent $20 million share repurchase.