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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 8–K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 30, 2019
Thor Industries, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware(State or Other Jurisdiction of Incorporation)
1-9235(Commission File Number)
93-0768752(IRS Employer Identification No.)
601 East Beardsley Avenue,
Elkhart, Indiana(Address of Principal Executive Offices)
46514-3305(Zip Code)
Registrant’s telephone number, including area code: (574) 970-7460
N/A
(Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registeredCommon Stock (Par value $.10 Per Share) THO New York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Actof 1934. 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 financialaccounting standards pursuant to Section 13(a) of the Exchange Act. ¨
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Item 2.02 Results of Operations and Financial Condition
On September 30, 2019, Thor Industries, Inc. (the “Company”) issued a press release announcing certain financial results for the fourth quarter and full year ended July31, 2019. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein. The Company also posted an updated investor slidepresentation and a list of investor questions and answers to the “Investors” section of its website. A copy of the Company’s slide presentation and investor questions and answersare attached hereto as Exhibit 99.2 and 99.3, respectively, and are incorporated by reference herein. Item 7.01 Regulation FD Disclosure
The slide presentation attached hereto as Exhibit 99.2, and incorporated by reference herein, also provides updated information on industry wholesale shipments andretail market share. The Company also posted an updated list of investor questions and answers to the “Investors” section of its website. A copy of the Company’s investorquestions and answers is attached hereto as Exhibit 99.3 and is incorporated by reference herein.
In accordance with general instruction B.2 to Form 8-K, the information set forth in Items 2.02 and 7.01 of this Form 8-K (including Exhibits 99.1, 99.2, and 99.3)shall be deemed “furnished” and not “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, andshall not be incorporated by reference into any filing thereunder or under the Securities Act of 1933, as amended. Item 9.01 Financial Statements and Exhibits (d) Exhibits Exhibit Number Description 99.1 Copy of press release, dated September 30, 2019, issued by the Company. 99.2 Copy of investor slide presentation, posted on the Company’s website on September 30, 2019. 99.3 Copy of investor questions and answers posted on the Company’s website on September 30, 2019.
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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 hereunto
duly authorized. Thor Industries, Inc. Date: September 30, 2019 By: /s/ Colleen Zuhl Name: Colleen Zuhl Title: Senior Vice President and Chief Financial Officer
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Exhibit 99.1
Thor Announces Financial Results For Fourth Quarter And Fiscal Year 2019
To date, the Company has paid down over $480 million of its acquisition financing debt
- Net sales for the fourth quarter increased 23.3% to $2.31 billion, including $719.5 million in net sales from Erwin Hymer Group ("EHG"), which was acquired on February 1,2019.
- Gross margin for the fourth quarter improved 140 basis points over the prior year, to 14.4%, reflecting favorable product mix, labor and warranty cost percentageimprovements.
- Net cash provided by operating activities for fiscal 2019 was $508.0 million as compared to net cash provided by operating activities of $466.5 million for fiscal 2018. To date,the Company has paid more than $480 million of principal on the debt incurred to finance the EHG acquisition.
ELKHART, Ind., Sept. 30, 2019 /PRNewswire/ -- Thor Industries, Inc. (NYSE: THO) today announced results for the fourth quarter and fiscal year ended July 31, 2019.
"We are encouraged by the improvement in the North American RV Towables segment in the fourth quarter, as we saw our flexible business model and the benefits of ourvariable cost structure drive improvement in margins for the quarter," said Bob Martin, Thor President and CEO. "Fiscal 2019 was a year of significant accomplishments amidchallenging industry conditions. We completed the largest acquisition in our Company's and the RV industry's history, while managing through the overhang of inventoryamong our independent dealers. As we look ahead to fiscal 2020, we see many reasons for optimism as we leverage the global growth opportunities of EHG. Our confidencewas reinforced at the recent Düsseldorf Caravan Salon in late August, the Hershey RV show in mid-September and our Open House event held last week. Each of theseimportant events were well attended and reflected the current optimistic sentiment of our independent dealers and consumers."
Fourth Quarter Highlights Fourth-quarter net sales were $2.31 billion, an increase of $437.5 million, or 23.3%, from the fourth quarter of fiscal 2018, as the inclusion of $719.5 million in net sales fromthe European RV segment was partially offset by a 17.6% decrease in North American Towable RV sales and an 8.1% decrease in North American Motorized RV sales.
Overall gross profit margin was 14.4% in the quarter, compared to 13.0% in the prior-year period, primarily reflecting favorable product mix and improvements in material,labor, and warranty cost percentages in the North American towable segment, the Company's largest segment.
Net income attributable to Thor and diluted earnings per share for the fourth quarter were $92.1 million and $1.67, respectively.
The Company's fourth-quarter financial results were impacted by certain acquisition-related items as noted below.
Transaction-related Impacts to Fiscal 2019 Fourth-Quarter Results:Acquisition-related Costs: During the fourth quarter, Thor incurred expenses related to the acquisition of EHG, primarily related to professional services, of $2.4million, which impacted EPS by $0.03 per diluted share.Ongoing Incremental Costs: During the quarter, the Company also incurred other ongoing expenses related to the acquisition of EHG, including EHG intangibleasset amortization expense of $12.8 million and interest expense on debt incurred to finance the acquisition of EHG of $30.7 million. Combined, these two itemsfurther impacted EPS by $0.57 per diluted share.Tax Restructuring: During the fourth quarter, the Company incurred a €2.7 million expense for real estate transfer taxes associated with creating a tax-efficientfinancing structure at EHG, which will provide future tax benefits for the Company.
The North American independent dealer inventory rationalization continued during the fiscal fourth quarter, as North American industry wholesale shipments declined at afaster rate than retail registrations. As a result, Thor's North American independent dealer inventory levels decreased by 25.3% to approximately 103,400 units as of July 31,2019, compared to approximately 138,500 units as of July 31, 2018. Thor's North American independent dealer inventory at the end of fiscal 2019 was at its lowest point sincethe first quarter of fiscal 2017, and management believes dealer ordering will start to align with consumer demand by the end of calendar 2019.
European dealer inventory is also going through a rationalization, though inventories were not as high as in North America. We believe independent dealer inventory levels ofEHG products in Europe, while somewhat elevated in certain locations, are now generally appropriate for seasonal consumer demand in Europe and are expected to be at anormalized level in 2020.
Fiscal Year 2019 Highlights Fiscal year 2019 net sales of $7.86 billion include the net sales of EHG since the date of acquisition on February 1, 2019. Net income attributable to Thor and diluted earningsper share for full-year fiscal 2019 were $133.3 million and $2.47, respectively.
Fiscal year 2019 results include EHG acquisition-related costs of $114.9 million and the impact of the step-up in assigned value of acquired inventory, which was subsequentlysold during the fiscal third quarter and which increased cost of goods sold by approximately $61.4 million. In aggregate, these acquisition-related costs reduced EPS by $2.71per diluted share. In addition, ongoing amortization expense of $25.6 million, and interest expense of $66.1 million, were incurred as a result of the EHG acquisition, which alsoimpacted fiscal 2019 results by $1.22 per diluted share.
Net cash provided by operating activities for fiscal year 2019 was $508.0 million vs. $466.5 million in fiscal 2018, despite a reduction in sales, as the Company focused onworking capital management.
The Company's overall effective tax rate for fiscal 2019 was 28.3% compared with 32.0% for fiscal 2018. The primary drivers of the change in the overall effective tax ratebetween comparable periods relate to U.S. tax reform and the EHG acquisition.
SEGMENT RESULTS:
North American Towable RVs
North American Towable RV sales were $1.16 billion for the fourth quarter, compared to fourth-quarter sales of $1.41 billion in the prior-year period. This decrease wasdriven primarily by lower unit volume compared with the fourth-quarter of last year, and was partially offset by a shift in product mix toward higher-priced units. For the
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full-year fiscal 2019, North American Towable RV sales were $4.56 billion, down 24.1% from the record $6.01 billion in the prior year.North American Towable RV gross profit margin increased 260 basis points to 16.0% in the fiscal fourth quarter compared to the prior-year quarter, driven primarily bydecreased material, labor and warranty costs as a percent of sales. For fiscal 2019, North American Towable RV gross profit margin was 13.5%, a decrease of 120 basispoints from fiscal 2018, primarily as a result of an increased fixed overhead percentage resulting from reduced sales as well as the impact of higher relative salesdiscounts and promotions compared with the unusually low levels in the prior fiscal year.Fourth quarter 2019 North American Towable RV income before tax was $109.9 million, compared to $109.2 million in the fourth quarter last year. North AmericanTowable RV income before tax was $322.2 million for the full-year fiscal 2019, down 39.5% from $532.7 million in fiscal 2018.North American Towable RV backlog decreased $73.8 million, or 9.6%, to $693.2 million, compared to $767.0 million at the end of fiscal 2018, reflecting independentdealers continuing to rationalize inventory levels. The Company believes the current towable RV backlog is more closely aligned with retail demand and continuingtrends toward smaller, but more frequent, dealer order patterns.
North American Motorized RVs
North American Motorized RV sales were $387.4 million for the fourth quarter compared to sales of $421.3 million in the prior-year period. The decrease in motorizedsales was driven primarily by lower unit sales, as well as a mix shift toward lower-priced Class C motorhomes. For the full-year fiscal 2019, North American MotorizedRV sales were $1.65 billion, down 23.2% from $2.15 billion in fiscal 2018.North American Motorized RV gross profit margin was down by 50 basis points to 9.6% in the fiscal 2019 fourth quarter compared to the prior-year quarter, primarilydue to reduced unit sales levels and the resulting increased fixed overhead percentage for the quarter. North American Motorized RV gross profit margin was 10.0% forfiscal 2019, down 90 basis points from the prior year, due primarily to the same factors.North American Motorized RV income before tax for the fourth quarter was $16.8 million, compared to $20.8 million last year, driven primarily by the lower unit saleslevels and the corresponding decrease in gross profit. North American Motorized RV income before tax for fiscal 2019 was $80.9 million, down 40.0% from $134.8million in the prior year, primarily due to lower net sales, decreased gross profit and higher SG&A costs as a percent of net sales.North American Motorized RV backlog decreased $175.2 million to $458.8 million from $634.1 million a year earlier, reflecting independent dealers continuing torationalize inventory levels. The Company believes the current motorized RV backlog is reflective of a continuing return to a normalized level and the shift in dealerorder patterns to smaller and more frequent orders.
European RVs
European RV sales were $719.5 million for the fourth quarter of fiscal 2019. European RV sales were $1.49 billion for fiscal 2019, reflecting six months of results ofEHG, which was acquired on February 1, 2019.European RV gross profit was $96.1 million, or 13.4% of segment net sales, in the fiscal fourth quarter. European RV gross profit for fiscal 2019 was $150.0 million, or10.1% of segment net sales. Fiscal 2019 segment gross profit was negatively impacted by purchase accounting adjustments related to the step-up in the assigned value ofacquired inventory, which was subsequently sold during the fiscal third quarter, of approximately $61.4 million, or 4.1% of segment net sales for the fiscal year.European RV income before tax was $25.0 million for the fourth quarter of fiscal 2019, including amortization expense related to acquired intangible assets of $12.8million. European RV loss before tax for fiscal 2019 was $5.9 million, which includes both the impact of $61.4 million related to the step-up in assigned value ofacquired inventory that was subsequently sold during the fiscal third quarter and amortization expense related to acquired intangible assets of $25.6 million.European RV backlog was $852.7 million as of July 31, 2019, reflecting current levels of demand within the European market.
"Consolidated net cash provided by operating activities during fiscal 2019 has grown to approximately $508 million compared to $467 million for the same period in fiscal2018. We utilized our strong cash flow to make considerable progress in reducing the debt incurred to execute the EHG acquisition and have paid approximately $480 millionon the acquisition-related debt to date. For fiscal 2020, our focus will remain on working capital management, improving net cash provided by operating activities and reducingour net debt level," said Colleen Zuhl, Thor's Senior Vice President and Chief Financial Officer.
EHG Integration Update Bob Martin commented, "Our expansion into the European RV market represents a first step in our long-term goal of growing our business beyond North America andcapitalizing on global growth opportunities. Our integration plan is proceeding, and we have made measurable progress in a number of areas. We are developing a culture ofcollaboration among our companies at the same time as we integrate EHG into the Thor family of companies. This collaboration will focus on near-term opportunities to adoptglobal best practices in purchasing to capture cost efficiencies, and sharing best practices in R&D and product development among our companies. As Colleen noted, workingcapital management has already led to an increase in net cash provided by operating activities, which totaled more than $500 million in fiscal 2019, which we have used to fundpayments on the acquisition-related debt. Additionally, we have created an international product transfer team that is responsible for the planning and implementation of themanufacturing, sales and distribution of EHG products in North America. We showed a select number of European-model EHG products at our Open House event held lastweek, and the response was overwhelmingly positive."
The top priority for Thor's management team during fiscal 2020 is the continued integration of EHG, and the further improvement of the Company's balance sheet. In thecoming years, the integration efforts will also focus on applying some of the advanced production technology in use at EHG to more of Thor's U.S. subsidiary operations inorder to improve product quality and drive down warranty costs.
Bob Martin noted, "Looking ahead, we see many opportunities to capture value from the EHG acquisition through effective integration, prudent cost management and theintroduction of EHG products to the North American market. We believe we are nearing the conclusion of the North American independent dealer inventory rationalizationprocess, resulting in normalized dealer inventory levels by the end of this calendar year. We see positive factors supporting our outlook for fiscal year 2020. North Americandealer inventory levels are 25% lower than the unusually high levels at the end of last year, and nearly 6% lower than they were two years ago. Dealers remain confident, andmany of the dealers I speak with continue to invest in growing their businesses for the long term. We have great opportunities to grow our global business with the acquisition ofEHG. For fiscal 2020, we expect to see strong top-line growth with the addition of a full year of net sales from EHG, but since the dealer inventory adjustment may continuethrough the first half of our fiscal year, our outlook is for a flat to modest decline in the North American markets in the near-term, barring a significant macroeconomic change.We look forward to updating our investors in December on our fiscal first-quarter financial results, and on the progress and milestones of the integration of EHG."
Supplemental Earnings Release Materials Thor has provided a comprehensive question and answer document, as well as a PowerPoint presentation, relating to its quarterly results and other topics. To view thesematerials, go to http://ir.thorindustries.com.
About Thor Industries, Inc. Thor is the sole owner of operating subsidiaries that, combined, represent the world's largest manufacturer of recreational vehicles. For more information on the Company andits products, please go to www.thorindustries.com.
Forward Looking Statements This release includes certain statements that are "forward looking" statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A ofthe 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
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management's current expectations and beliefs regarding future and anticipated developments and their effects upon Thor, and inherently involve uncertainties and risks. Theseforward looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ materially from our expectations. Factors whichcould cause materially different results include, among others, raw material and commodity price fluctuations; raw material, commodity or chassis supply restrictions; theimpact of tariffs on material or other input costs; the level and magnitude of warranty claims incurred; legislative, regulatory and tax law and/or policy developments includingtheir potential impact on our dealers and their retail customers or on our suppliers; the costs of compliance with governmental regulation; legal and compliance issues includingthose that may arise in conjunction with recently completed transactions; lower consumer confidence and the level of discretionary consumer spending; interest rate fluctuations;the potential impact of interest rate fluctuations on the general economy and specifically on our dealers and consumers; restrictive lending practices; management changes; thesuccess of new and existing products and services; consumer preferences; the ability to efficiently utilize production facilities; the pace of acquisitions and the successfulclosing, integration and financial impact thereof; the potential loss of existing customers of acquisitions; our ability to retain key management personnel of acquired companies;a shortage of necessary personnel for production; the loss or reduction of sales to key dealers; disruption of the delivery of units to dealers; increasing costs for freight andtransportation; asset impairment charges; cost structure changes; competition; the impact of potential losses under repurchase or financed receivable agreements; the potentialimpact of the strength of the U.S. dollar on international demand for products priced in U.S. dollars; general economic, market and political conditions; the impact of changingemissions standards in the various jurisdictions in which our products are sold; and changes to investment and capital allocation strategies or other facets of our strategic plan.Additional risks and uncertainties surrounding the acquisition of EHG include risks regarding the potential benefits of the acquisition and the anticipated operating valuecreation, the integration of the business, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and EHG's business. These andother risks and uncertainties are discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2019.
We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this release or to reflect any change in ourexpectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.or to reflect any change in ourexpectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.
THOR INDUSTRIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND FISCAL YEARS ENDED JULY 31, 2019 AND 2018($000's except share and per share data)
Three Months Ended July 31, (Unaudited) Fiscal Years Ended July 31,
2019 % Net
Sales (1) 2018 % Net
Sales (1) 2019 % Net
Sales (1) 2018 % Net
Sales (1)
Net sales $ 2,311,623 $ 1,874,111 $ 7,864,758 $ 8,328,909
Gross profit $ 331,812 14.4% $ 244,408 13.0% $ 973,094 12.4% $ 1,164,666 14.0%
Selling, general andadministrative expenses 171,299 7.4% 106,644 5.7% 536,044 6.8% 477,444 5.7%
Amortization of intangible assets 25,262 1.1% 13,882 0.7% 75,638 1.0% 55,118 0.7%
Acquisition-related costs 2,355 0.1% — —% 114,866 1.5% — —%
Interest income (expense), net (28,232) (1.2)% (132) —% (60,032) (0.8)% (3,039) —%
Other income (expense), net 5,089 0.2% 598 —% (1,848) —% 3,964 —%
Income before income taxes 109,753 4.7% 124,348 6.6% 184,666 2.3% 633,029 7.6%
Income taxes 17,262 0.7% 36,143 1.9% 52,201 0.7% 202,878 2.4%
Net income 92,491 4.0% 88,205 4.7% 132,465 1.7% 430,151 5.2%
Less: net income (loss)attributable to non-controllinginterests 436 —% — —% (810) —% — —%
Net income attributable to ThorIndustries, Inc. $ 92,055 4.0% $ 88,205 4.7% $ 133,275 1.7% $ 430,151 5.2%
Earnings per common share Basic $ 1.67 $ 1.67 $ 2.47 $ 8.17 Diluted $ 1.67 $ 1.67 $ 2.47 $ 8.14
Weighted-avg. common sharesoutstanding - basic 55,063,473 52,695,365 53,905,667 52,674,161Weighted-avg. common sharesoutstanding - diluted 55,211,141 52,881,088 54,026,686 52,853,360
(1) Percentages may not add due to rounding differences
SUMMARY CONDENSED CONSOLIDATED BALANCE SHEETS ($000)
July 31, 2019 July 31, 2018 July 31, 2019 July 31, 2018Cash and equivalents $ 451,262 $ 275,249 Current liabilities $ 1,448,325 $ 769,330Accounts receivable, net 716,227 487,235 Long-term debt 1,885,253 —Inventories, net 827,988 537,909 Other long-term liabilities 231,640 71,594
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Prepaid expenses and other 41,880 11,281 Stockholders' equity 2,095,228 1,937,741 Total current assets 2,037,357 1,311,674Property, plant & equipment, net 1,092,471 522,054Goodwill 1,358,032 377,693Amortizable intangible assets, net 970,811 388,348Deferred income taxes and other, net 201,775 178,896Total $ 5,660,446 $ 2,778,665 $ 5,660,446 $ 2,778,665
Contact Investor Relations: Mark Trinske, Vice President of Investor Relations [email protected] (574) 970-7912
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Exhibit 99.2
www.thorindustries.com FOURTH QUARTER AND FULL - YEAR 2019 RESULTS
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2 Forward Looking Statements This presentation includes certain statements that are “forward looking” statements within the meaning of the U . S . Private Securities Litigation Reform Act of 1995 , Section 27 A of the Securities Act of 1933 , as amended, and Section 21 E 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, raw material and commodity price fluctuations ; raw material, commodity or chassis supply restrictions ; the impact of tariffs on material or other input costs ; the level and magnitude of warranty claims incurred ; legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers or on our suppliers ; the costs of compliance with governmental regulation ; 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 ; interest rate fluctuations ; the potential impact of interest rate fluctuations on the general economy and specifically on our dealers and consumers ; restrictive lending practices ; management changes ; the success of new and existing products and services ; consumer preferences ; the ability to efficiently utilize production facilities ; the pace of acquisitions and the successful closing, integration and financial impact thereof ; the potential loss of existing customers of acquisitions ; our ability to retain key management personnel of acquired companies ; a shortage of necessary personnel for production ; the loss or reduction of sales to key dealers ; disruption of the delivery of units to dealers ; increasing costs for freight and transportation ; asset impairment charges ; cost structure changes ; competition ; the impact of potential losses under repurchase or financed receivable agreements ; the potential impact of the strength of the U . S . dollaron international demand for products priced in U . S . dollars ; general economic, market and political conditions ; the impact of changing emissions standards in the various jurisdictions in which our products are sold ; and changes to investment and capital allocation strategies or other facets of our strategic plan . Additional risks and uncertainties surrounding the acquisition of EHG include risks regarding the potential benefits of the acquisition and the anticipated operating value creation, the integration of the business, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and EHG's business . These and other risks and uncertainties are discussed more fully in Item 1 A of our Annual Report on Form 10 - K for the year ended July 31 , 2019 . We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this presentation 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 .
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3 $7.86 bn net sales $ 1.65 bn $ 4.56 bn $ 0.16 bn $ 1.49 bn > $480 mm reduction of acquisition - related debt to date (1) Includes FY 19 impact of $ 61 . 4 mm step - up in assigned value of acquired inventory, that was subsequently sold during the fiscal third quarter, to fair value less cost to sell, or 0 . 8 % of consolidated net sales . (2) In addition to the item impacting gross margin, fiscal 2019 results also include $ 114 . 9 mm of acquisition - related costs, which in aggregate impact diluted EPS by $ 2 . 71 per share . In addition, ongoing amortization expense of $ 25 . 6 m m , and interest expense of $ 66 . 1 m m , were incurred as a result of the EHG acquisition, which also impacted fiscal 2019 results by $ 1 . 22 per diluted share . $130.2 mm capital expenditures $508.0 mm cash generated from operations $2.47 diluted EPS (2) 12.4% gross margin (1) ~19% year - over - year reduction in Thor's North American manufacturing inventory levels Financial Highlights Fiscal Year 2019
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4 Improved Margins Highlight Fourth Quarter of FY19 Improved margins are primarily reflecting favorable product mix and improvements in material, labor and warranty cost percentages in the North American towable segment, our largest segment 23.3% Increase in Net Sales Net sales increased 23 . 3 % to $ 2 . 31 billion in the fourth quarter, including the $ 719 . 5 million addition of EHG sales 140 bps Improvement in Gross Margin Gross margin improved to 14 . 4 % in the fourth quarter of fiscal 2019 from 13 . 0 % in the prior - year period
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5 FY19 – Strong Operating Cash Generated Strong Operating Cash in FY19 Used to Pay Over $480 Million on Acquisition - Related Debt ABL Availability Availability under the ABL is approximately $ 589 million as of September 30 , 2019 Acquisition - Related Debt Term Loan Progress Based on our prepayments of the U.S. dollar - denominated tranche of the Term Loan to date, no future quarterly payments are required for the U.S. tranche of the Term Loan Including payments made subsequent to the end of the fiscal year, the Company has paid over $ 480 million of principal on the debt incurred to finance the Erwin Hymer Group (EHG) acquisition * Future uses and payments on ABL will be reflective of cash management actions
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6 Inventory Rationalization Continues Expected to be Completed by the End of Calendar 2019 During FY19, Thor was able to strategically manage down its inventory levels to improve its working capital North American Independent Dealer Inventory of Thor Products 103,400 138,500 109,700 94,500 • As of July 31 , 2019 , the level of North American independent dealer inventory of Thor products decreased 25 . 3 % compared to the prior year, and is nearly 6 . 0 % lower than two years ago, marking the significant progress made to reduce independent dealer inventory levels • We expect that North American independent dealer inventory levels will be rationalized by the end of this calendar year • Management has been focused on improving the balance sheet through inventory management, among other actions • Thor's North American inventory decreased to $ 435 . 4 million at July 31 , 2019 from $ 537 . 9 million at July 31 , 2018 • Thor's European inventory has decreased approximately $ 200 . 5 million, or 33 . 8 % , since the acquisition of EHG on February 1 , 2019 Thor Inventory Levels (25.3)% * * European balance as of February 1, 2019 acquisition date.
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7 Fourth Quarter 2019 North American Towable Segment $1.16 bn in Net Sales Net sales of travel trailers and fifth wheels decreased by 19 . 6 % and 14 . 6 % , respectively, as a result of the ongoing independent dealer inventory rationalization 16.0% Gross Margin Gross margin increased 260 basis points, driven primarily by decreased material, labor and warranty costs as a percent of sales Improvement in the North American RV Towables segment in the fourth quarter demonstrated the advantage of our flexible business model and the benefits of our highly variable cost structure Towables on Top Thor continues to lead the North American towable retail market with a 46 . 3 % share for the six months ended June 30 , 2019 , down from its 48 . 5 % share for the same period in 2018 ( 1 ) $693.2 mm in Backlog North American Towable backlog decreased 9 . 6 % year - over - year due to North American independent dealers returning to a more typical seasonal order pattern (1) Source: Statistical Surveys (www.statisticalsurveys.com)
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8 $387.4 mm in Net Sales Net sales of Class C increased by 18 . 9 % , while net sales of Class A decreased by 27 . 4 % , as a result of the ongoing independent dealer inventory rationalization Fourth Quarter 2019 North American Motorized Segment 9.6% in Gross Margin Gross margin was down 50 basis points in the fiscal fourth quarter as a result of reduced unit sales resulting in increased fixed overhead percentage $458.8 mm Backlog North American Motorized backlog decreased 27 . 6 % year - over - year reflecting independent dealers continuing to rebalance inventory levels #1 in North America Thor maintained the top spot in the North American motorized market with a 36 . 5 % share for the six months ended June 30 , 2019 , down from its 40 . 0 % share for the same period in 2018 , as the Company focused on margin management as well as dealer lot space ( 1 ) (1) Source: Statistical Surveys (www.statisticalsurveys.com)
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9 $719.5 mm in Net Sales European RV segment represents the results of the recently - acquired Erwin Hymer Group (EHG) Fourth Quarter 2019 European Segment $96.1 mm in Gross Profit Gross profit of $ 96 . 1 million, or 13 . 4 % of net sales $852.7 mm in Backlog EHG's backlog is reflective of current levels of demand within the European market $ 88.0 mm $ 106.9 mm $ 71.4 mm $ 453.2 mm Strong European Market Position For the six months ended June 30 , 2019 , EHG's European market share, based on unit retail sales, was approximately 25 . 5 % for motorcaravans and campervans combined and approximately 21 . 6 % for caravans as compared to 26 . 5 % and 21 . 8 % as of June 30 , 2018 , respectively ( 1 ) (1) Based on data from the European Caravan Federation (ECF), 2018 and 2019 calendar YTD through June; European retail registration data available at www.CIVD.de
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10 NORTH AMERICAN TOWABLE NORTH AMERICAN MOTORIZED EUROPEAN OTHER :
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11 Calendar Year YTD June 2017 2018 2018 2019 Industry Retail Registrations (1) 471,100 units 487,893 units 269,576 units 244,809 units +13.2% +3.6% +7.8% (9.2)% Industry Wholesale Shipments (2) 504,599 units 483,672 units 271,588 units 216,581 units +17.2% (4.1)% +5.9% (20.3)% RV Industry Overview — North America Seasonal Shipment Patterns RV Industry Demand Consumer Confidence vs. RV Retail Registrations (1) Source: Statistical Surveys, Inc., U.S. and Canada (2) Source: Recreation Vehicle Industry Association (3) Source: The Conference Board, Consumer Confidence Survey ® Note: 2019 represented above includes the trailing twelve months of registrations ended June We believe that retail demand is the key to continued growth in the North American RV industry, and that annual North American RV industry wholesale shipments will generally be at parity with retail sales once dealer inventory levels are at normalized levels, which we anticipate will occur by the end of calendar 2019
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12 RV Industry Overview — North America RV Wholesale Market Trends (Units 000's) Towable RV Wholesale Market Trends (Units 000's) YTD Shipments (Units) June 2019 June 2018 Unit Change % Change 216,581 271,588 (55,007) (20.3)% YTD Shipments (Units) June 2019 June 2018 Unit Change % Change 191,094 238,502 (47,408) (19.9)% Motorized RV Wholesale Market Trends (Units 000's) YTD Shipments (Units) June 2019 June 2018 Unit Change % Change 25,487 33,086 (7,599) (23.0)% Historical Data: Recreation Vehicle Industry Association (RVIA) (e) Calendar years 2019 and 2020 represent most recent RVIA estimate as of Fall RV Roadsigns, published in August 2019 5 - year CAGR: 8.5% 5 - year CAGR: 8.5% 5 - year CAGR: 8.5%
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13 RV Industry Overview — Europe (1) Source: European Caravan Federation (ECF), 2019 calendar YTD through June; European retail registration data available at www .CI VD.de (2) Source: Statistical Surveys (www.statisticalsurveys.com) Country Caravans Motorcaravans Total YTD June 30, % YTD June 30, % YTD June 30, % 2019 2018 Change 2019 2018 Change 2019 2018 Change Germany 17,125 15,521 10.3 % 35,370 30,997 14.1 % 52,495 46,518 12.8 % U.K. 10,094 10,304 (2.0 )% 9,037 8,552 5.7 % 19,131 18,856 1.5 % France 4,140 4,276 (3.2 )% 15,683 15,668 0.1 % 19,823 19,944 (0.6 )% Spain 1,520 1,116 36.2 % 3,762 2,918 28.9 % 5,282 4,034 30.9 % Netherland s 4,472 4,435 0.8 % 1,477 1,478 (0.1 )% 5,949 5,913 0.6 % Italy 507 500 1.4 % 4,156 4,257 (2.4 )% 4,663 4,757 (2.0 )% Belgium 837 814 2.8 % 3,235 2,921 10.7 % 4,072 3,735 9.0 % Switzerland 1,002 1,049 (4.5 )% 3,543 2,968 19.4 % 4,545 4,017 13.1 % Sweden 1,962 2,095 (6.3 )% 2,296 6,374 (64.0 )% 4,258 8,469 (49.7 )% All Others 5,422 5,330 1.7 % 6,226 6,376 (2.4 )% 11,648 11,706 (0.5 )% Total 47,081 45,440 3.6 % 84,785 82,509 2.8 % 131,866 127,949 3.1 % European Industry Unit Registrations by Country (1) • 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, typically issued on a one - to - two month lag, is continually updated and is often impacted by delays in reporting by various countries • Year - to - date comparisons of registrations would not necessarily be indicative of the results expected for a full year • Industry wholesale shipment data for the European RV market is not available Second Quarter Registrations Comparison of New Vehicle Registrations by Continent (Units 000's) (1) (2)
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www.thorindustries.com CONTACT: Investor Relations Mark Trinske Vice President of Investor Relations [email protected] (574) 970 - 7912
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Exhibit 99.3
601 East Beardsley Avenue, Elkhart, Indiana 46514-3305
Fourth Quarter 2019 Investor Questions & Answers
Published September 30, 2019
Forward Looking Statements
Reference is made to the forward looking statements disclosure provided at the end of this document.
Executive Overview
▪ Net sales for the fourth quarter increased 23.3% to $2.31 billion, including $719.5 million in net sales from Erwin Hymer Group ("EHG"), which was acquired onFebruary 1, 2019.
▪ Gross margin for the fourth quarter improved 140 basis points over the prior year, to 14.4%, reflecting favorable product mix, labor and warranty cost percentage
improvements.
• Net cash provided by operating activities for fiscal 2019 was $508.0 million as compared to net cash provided by operating activities of $466.5 million for fiscal 2018.To date, the Company has paid more than $480 million of principal on the debt incurred to finance the EHG acquisition.
Planning assumptions reflect:
▪ Positive long-term RV industry fundamentals in both North America and Europe. This assumption is supported by favorable demographics, consistently strongconsumer confidence rates, generally favorable employment and wage trends, adequate availability of credit at historically low rates and a healthy housing market.
▪ Near-term and long-term optimism from independent dealers in both North America and Europe. Independent dealer optimism remains high, in both the near-
and long-term as demand continues to be driven by favorable demographic and lifestyle growth trends, including the ongoing strength of baby-boomer customers, aswell as first-time and younger buyers. Many dealers, particularly larger dealers in North America, continue to invest heavily in their businesses with new or expandedlocations, added service facilities and other amenities to serve RV consumers.
▪ Wholesale Conditions in North America. We believe we are near the conclusion of the wholesale inventory imbalance and expect a return to a more direct
relationship between retail and wholesale sales by the end of this calendar year. Since this inventory rationalization may continue through the first half of our fiscalyear, our outlook is for a flat to modest decline in the North American markets in the near term, barring a significant macroeconomic change.
▪ Wholesale Conditions in Europe. In Europe, we believe our independent dealer inventory levels of EHG products, while elevated in certain locations, are progressing
towards more normalized levels. Seasonal consumer demand in Europe typically aligns with the seasonal patterns experienced in the North American market.
▪ Effective tax rate. The Company’s overall effective tax rate for fiscal 2019 was 28.3% compared with 32.0% for fiscal 2018. The Company currently estimates itsoverall effective income tax rate in the mid-20% range going forward, before consideration of any discrete tax items. The actual effective tax rate will be dependentupon on the mix of foreign and domestic pretax earnings and the impact of foreign currency exchange rates.
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Quick Reference to Contents A. Consolidated Financial Highlights 3 B. Summary of Key Quarterly Segment Data – North American Towable RVs 5 C. Summary of Key Quarterly Segment Data – North American Motorized RVs 6 D. Summary of Key Quarterly Segment Data – European RVs 7 E. Fourth Quarter and Fiscal Year 2019 a. Fourth Quarter Operating Results 8 b. Market and Competition 10 c. EHG Integration 11 d. Financial Questions 12 F. Forward Looking Statements 13
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Consolidated Financial Highlights – 4Q FY19
4Q data is for the quarters ended July 31, 2019 and 2018;
+23.3% +140 basis points (11.7)%
No Change (17.8)% (25.3)%
(1.) Fourth-quarter 2019 results include acquisition-related costs of $2.4 million, which impacted diluted EPS by $0.03 per share. During the quarter, the Company alsoincurred other ongoing expenses related to the acquisition of EHG, including EHG intangible asset amortization expense of $12.8 million and interest expense on debtincurred to finance the acquisition of EHG of $30.7 million. Combined, these two items further impacted EPS by $0.57 per diluted share.
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Consolidated Financial Highlights – Fiscal 2019
FY data is as of or for the applicable fiscal year ended July 31; debt is as of dates shown
(5.6)% (160) basis points (70.8)%
(1) FY19 includes impact of $61.4 million step-up in assigned value of acquired inventory, that was subsequently sold during the fiscal third quarter of FY19, to fair value less
cost to sell, or 0.8% of consolidated sales(2) In addition to the item impacting gross margin, fiscal 2019 results also include $114.9 million of acquisition-related costs, which in aggregate impact diluted EPS by $2.71
per share. In addition, ongoing amortization expense of $25.6 million, and interest expense of $66.1 million, were incurred as a result of the EHG acquisition, which alsoimpacted fiscal 2019 results by $1.22 per diluted share.
(3) The Company has paid down over $480 million in principal on the EHG acquisition-related debt.(4) Future uses and payments on ABL will be reflective of cash management actions
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Three Months Ended
July 31, 2019 Three Months Ended
July 31, 2018 %
Change NET SALES: North American Towables
Travel Trailers and Other $ 679,017 $ 844,753 (19.6)%Fifth Wheels 481,517 564,114 (14.6)%
Total North American Towables $ 1,160,534 $ 1,408,867 (17.6)%
Three Months Ended
July 31, 2019 Three Months Ended
July 31, 2018 %
Change # OF UNITS: North American Towables
Travel Trailers and Other 31,765 41,899 (24.2)%Fifth Wheels 10,104 12,859 (21.4)%
Total North American Towables 41,869 54,758 (23.5)%
ORDER BACKLOG: As of
July 31, 2019 As of
July 31, 2018 %
Change North American Towables $ 693,156 $ 766,965 (9.6)%
Summary of Key Quarterly Segment Data – North American Towable RVs
Six Months Ended June 30, MARKET SHARE SUMMARY (a) 2019 2018 U.S. Market 45.7% 47.8%Canadian Market 50.9% 53.4%Combined North American Market 46.3% 48.5%
(a) Source: Statistical Surveys, Inc. YTD June 30, 2019 vs. YTD June 30, 2018
Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment and is continuously updated, and is oftenimpacted by delays in reporting by various states or provinces.
Thor Unit Shipments versus Industry According to statistics published by the Recreational Vehicle Industry Association ("RVIA"), for the three months ended July 31, 2019, combined industry travel trailer and fifthwheel wholesale unit shipments decreased 15.5% compared to the same period last year. Comparisons of Company shipments to industry shipments on a quarterly basis wouldnot necessarily be indicative of the results expected for a full fiscal year. According to statistics published by Stat Surveys for the six-month periods ended June 30, 2019 and 2018, our North American market share for travel trailers and fifth wheelscombined was 47.4% and 49.6%, respectively. In an effort to balance market wholesale needs with maintaining or growing our gross margin levels, our subsidiaries were generally more proactive than certain of ourcompetitors in reducing production levels when industry demand began to soften in late fiscal 2018. We expect to remain disciplined in future production levels to avoidunhealthy discounting pressures.
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Three Months Ended
July 31, 2019 Three Months Ended
July 31, 2018 %
Change NET SALES: North American Motorized
Class A $ 158,487 $ 218,271 (27.4)%Class C 214,651 180,554 18.9%Class B 14,260 22,511 (36.7)%
Total North American Motorized $ 387,398 $ 421,336 (8.1)%
Three Months Ended
July 31, 2019 Three Months Ended
July 31, 2018 %
Change # OF UNITS: North American Motorized
Class A 1,225 1,652 (25.8)%Class C 3,022 2,651 14.0%Class B 103 158 (34.8)%
Total North American Motorized 4,350 4,461 (2.5)%
ORDER BACKLOG: As of
July 31, 2019 As of
July 31, 2018 %
Change North American Motorized $ 458,847 $ 634,092 (27.6)%
Summary of Key Quarterly Segment Data – North American Motorized RVs
Six Months Ended June 30, MARKET SHARE SUMMARY (a) 2019 2018 U.S. Market 36.5% 40.2%Canadian Market 36.8% 38.0%Combined North American Market 36.5% 40.0%
(a) Source: Statistical Surveys, Inc. YTD June 30, 2019 vs. YTD June 30, 2018
Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment and is continuously updated, and is oftenimpacted by delays in reporting by various states or provinces.
Thor Unit Shipments versus Industry According to statistics published by RVIA, industry wholesale unit shipments decreased of 14.9% for the three months ended July 31, 2019. Comparisons of Companyshipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year. According to statistics published by Stat Surveys for the six-month periods ended June 30, 2019 and 2018, our North American market share for motorhomes was 36.5% and40.0%, respectively. We anticipated a slight downtick in market share as we pursued a disciplined approach to production in an effort to balance market wholesale needs with margin levels. Oursubsidiaries were generally more proactive than certain of our competitors in reducing production levels when industry demand began to soften in late fiscal 2018, and weexpect to maintain disciplined production levels to avoid unhealthy discounting pressures in the future. Our Class B market has been impacted by the lack of availability of certain chassis in the quantity we could utilize. In addition, our Class B product, the Airstream Interstate, isfocused on the high end of the market, which has not grown as fast as the mid-priced segment. To establish a position in the mid-priced segment, Thor Motor Coach has recentlyintroduced two new products, the Sequence and Tellaro Class B motorhome brands, with a variety of innovative floorplans targeting the heart of the Class B market. In Class C,while we saw a shift in some rental business as one of our rental customers moved to diversify their supply base, both net sales and unit volumes were up for the three monthsended July 31, 2019.
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Summary of Key Quarterly Segment Data – European RVs
Three Months Ended
July 31, 2019 % of Segment
Net Sales NET SALES: European
Motorcaravan $ 453,191 63.0%Campervan 106,863 14.9%Caravan 71,403 9.9%Other 88,012 12.2%
Total European $ 719,469 100.0%
Three Months Ended
July 31, 2019 % of Segment Net
Sales # OF UNITS: European
Motorcaravan 8,172 53.0%Campervan 3,572 23.2%Caravan 3,667 23.8%
Total European 15,411 100.0%
ORDER BACKLOG: As of
July 31, 2019 European $ 852,675
MARKET SHARE SUMMARY (a) Six Months Ended
June 30, 2019 Motorcaravan and Campervan (1) 25.5%Caravan 21.6%
(a) Source: European Caravan Federation (ECF), YTD June 30, 2019 Note: Data from the ECF is subject to adjustment and is continuously updated, and is often impacted by delays in reporting by various countries (some countries, including theUnited Kingdom, do not report OEM-specific data and are thus excluded from the market share calculation). (1) - The ECF reports motorcaravans and campervans together.
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Fourth Quarter Operating Results
1. Thor reported an increase in consolidated sales of $437.5 million for the fourth quarter of fiscal 2019 versus the prior year. What factors drove the salesgrowth?
a. The increase in sales for the fourth quarter was a result of the addition of the revenues of the Erwin Hymer Group, which was acquired at the beginning of the
fiscal third quarter. That acquisition, which comprises the European Recreational Vehicles segment, generated revenues of $719.5 million in the quarter. Theincrease from the European segment was partially offset by a decrease in sales in the North American Towables and North American Motorized segments.
2. Thor's fourth quarter gross margin increased by 140 basis points on a year-over-year basis. What were the main factors causing this improvement?
a. Our improvement of 140 basis points in consolidated gross margin was primarily the result of the North American Towables segment, which saw gross
margins increase by 260 basis points, from 13.4% in the fourth quarter of 2018 to 16.0% in the fourth quarter of 2019. The improvement was the product ofseveral key operating initiatives which drove the reductions in material, labor and warranty costs as a percentage of sales.
3. Thor reported a decline in income before income taxes on an increase in sales for the fourth quarter of fiscal 2019. What caused this result?
a. The decrease in income before income taxes of $14.6 million was primarily due to EHG intangible asset amortization expense of $12.8 million, new interestexpense on debt incurred to finance the acquisition of EHG of $30.7 million and acquisition-related costs of $2.4 million. Absent these costs, income beforeincome taxes would have increased commensurate with the sales increase.
4. What was Thor's adjusted EBITDA for the fourth quarter?
a. Although we do not generally disclose non-GAAP numbers, we recognize that many of the users of our financial statements find adjusted EBITDA useful.Below are some items within our financial statements that might be helpful in considering this question. (Fourth quarter figures can be calculated by takingthe difference between the full year results reported in our annual 10-K filing less the reported year to date results from our third quarter 10-Q):
Three Months Ended
July 31, 2019 Fiscal Year Ended
July 31, 2019 Income before Income Taxes (1) $109.8 million $184.7 million Depreciation & Amortization (2) $51.3 million $148.8 million Net Interest Expense (1) $28.2 million $60.0 million Acquisition Related Costs (1) $2.4 million $114.9 million Inventory Step-Up impact on Gross Profit (3) — $61.4 million RSU expense (4) $4.8 million $18.9 million Change in LIFO reserve (5) $(.4) million $3.7 million $196.1 million $592.4 million As a % of Consolidated Sales 8.5% 7.5%
(1) From the Income Statement (2) From the Business Segments footnote (3) From the Acquisitions footnote(4) From the Stockholders' Equity footnote (5) From the Inventories footnote
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5. Can you please comment on the current economic climate in the U.S., the ongoing trade war between the U.S. and China, and the impact of the combination
of these factors that you are seeing on your business?
a. The tariff situation with China is evolving on a daily basis, but we have been flexible and proactive in our responses. As primarily assemblers rather thanmanufacturers, the majority of our purchases are component parts rather than raw commodities. Raw commodities were some of the first areas affected by thetariffs. As the higher cost of raw materials flowed through to fabricated components and other items we purchase for use in our RVs, we have responded in avariety of ways depending on the situation. We have sourced lower-cost substitute components, obtained alternative supply sources from countries notimpacted by tariffs, adjusted the contents of our units and in some cases, adjusted pricing to reflect the higher input costs. From a broader economic impact,the U.S. domestic consumer and broader economy have remained resilient during this time, with historically low unemployment, raising wage rates, anavailability of both wholesale and consumer credit, and strong consumer confidence. All these factors give us confidence regarding future RV sales.
6. How has your variable cost structure benefited your results for the quarter and year? Are you taking any additional actions to reduce costs and improve
profitability?
a. We maintain a very flexible operating model and a variable cost structure that allow us to respond to changing market conditions. With our flexible operatingmodel, and much of our cost base being variable, the majority of our costs will increase or decrease in tandem with sales increases or decreases, which helpsmaintain a certain level of consistency in our margins. Regarding our flexible operating structure, as we shift to increase or reduce production we generallyexperience a lag of a quarter or two between implementing the changes and when we see the benefit of those changes. The fourth quarter results illustrated thebenefits of these structures, among other initiatives, as we were able to achieve an increase in the gross margin percentage in North American towables despitethe decrease in net sales compared to the prior year.
As for additional cost and profitability improvement initiatives, we continuously look for and implement action items that reduce costs, improve quality,enhance employee satisfaction and retention and increase efficiencies in each of our operations. Each of our operating entities focus on operational excellenceand seek to realize improved performance through the implementation of specific action plans tailored for their plants while also leveraging and sharing bestin class processes across operating companies. We have also implemented a post-merger integration process that is identifying numerous areas of opportunity for further efficiencies and cost savingsbetween Thor and EHG, and across all of our companies. Those efforts include, among others, initiatives related to:
1. Sourcing is under the direction of our new VP of Global Sourcing which will generate cost savings on top of the favorable pricing our individualsubsidiaries have already secured
2. Leveraging our global scale in areas such as insurance spend3. Sharing of best practices in production process as well as back office processes4. Research & Development with the sharing of key technologies on both products and processes
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Market and Competition
1. What is the current state of dealer inventory? Do you still expect the inventory rebalancing process to be completed by the end of calendar 2019?
a. The North American independent dealer inventory rebalancing continued during the fiscal fourth quarter, as North American industry wholesale shipmentsdeclined at a faster rate than retail registrations. As a result, Thor’s North American independent dealer inventory levels decreased by 25.3% to approximately103,400 units as of July 31, 2019 compared to 138,500 units as of July 31, 2018. Thor’s North American independent dealer inventory at the end of fiscal2019 was at its lowest point since the first quarter of fiscal 2017, and management believes dealer ordering will start to align with consumer demand by theend of calendar 2019. Barring a significant macroeconomic impact, we foresee flat to modest decline in the North American RV markets in the near term.
European dealer inventory is also going through a rebalancing, though inventories were not as high as in North America. We believe independent dealerinventory levels of EHG products in Europe, while somewhat elevated in certain locations, are now generally appropriate for seasonal consumer demand inEurope and are expected to be at a normalized level in 2020.
2. What metrics do you monitor to gauge the health of the industry and what is your outlook for the economy in the coming year for North America? ForEurope?
a. In both North America and Europe, the indicators we look at include retail sales, employment rates, disposable income, access to credit, gasoline prices,
consumer confidence and interest rates, all of which generally continue to be positive, with some pockets of uncertainty in certain markets such as in the UKdue to Brexit. We also obtain frequent dealer feedback regarding current retail conditions. The present outlook is for a slight rebound of European GDPgrowth over the course of this year with continued robustness of domestic demand. Uncertainty will be reduced as clarity emerges about Brexit and tradepolicies. Our outlook calls for a return to a rationale market in the North America industry as the wholesale inventory issues dissipates. In a more macro sense,our outlook remains consistent with what we have seen to date in both North America and Europe. We will continue to monitor the key indicators referencedabove but do not, at this time, see any negative trajectories that would lead us to alter our outlook. For fiscal 2020, we expect to see strong top-line growthwith the addition of a full year of net sales from EHG, but since the dealer inventory adjustment may continue through the first half of our fiscal year, ouroutlook is flat to modest decline in the North American markets, barring a significant, negative macro change. Our long term outlook for both the NorthAmerican and European markets is positive.
3. How did the Elkhart Open House go last week? Can you comment on attendance or order trends? What about the Dusseldorf Caravan Salon, and the
Hershey show? Can you provide any color on how those shows went?
a. Overall, the recent shows have been a success. Attendance at Düsseldorf was in excess of 250,000 people and our sales were up solidly. Overall attendance atHershey was impacted by poor weather, but even so, sales were up. At Open House, attendance was up, and dealers were enthusiastic about the outlook for2020. Our new TMC Class B products, the Sequence and the Tellaro, were very well received and dealers were excited to see Thor broaden our offerings inthe growing Class B space. Also, we received very positive feedback on the European-models of both Hymer and Niesmann + Bischoff products that webrought over to show our North American dealers as a sampling of the EHG products that we are considering bringing to the North American market.
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4. How do you differentiate yourselves from the competition in Europe and North America?
a. In addition to having an extremely qualified and dedicated workforce and an equally dedicated dealer base throughout North America, Europe and beyond, we
differentiate ourselves with our stable of many of the most well-known RV brands in both North America and Europe in our industry. We also differentiateourselves through the production of new technologies and new features or floorplans that benefit RV consumers and which originate from the Thor family ofbrands, now including the EHG Group. EHG recently showcased their strong, innovative culture with the introduction of a new concept vehicle, the VisionVenture, which combines innovative engineering and new material in a collaborative effort between EHG and BASF. The introduction of this concept van,Vision Venture, was made at the Duesseldorf exposition which took place August 31 to September 8, 2019. A video show casing the concept vehicle can beviewed at https://www.youtube.com/watch?v=gLoCHhPPC_Q
EHG Integration
1. Is EHG performing as expected?
a. To date, EHG’s performance has met expectations. The great upside potential we saw in this transaction from the onset of the acquisition process continue to
crystalize and more opportunities continue to arise. The results of the European segment for fiscal 2019, since closing on February 1, 2019, have beenimpacted by purchase accounting effects. Specifically, European RV gross margin for fiscal 2019 was negatively impacted by purchase accountingadjustments related to the step-up in the assigned value of acquired inventory, which was subsequently sold during the third quarter, of approximately $61.4million or 4.1% of segment net sales for the fiscal year.
As we enter into the new fiscal year, EHG has the positive momentum from a very successful Düsseldorf show and the strong reception by dealers of thenewly introduced products. We are well aligned together on the path forward, particularly around the synergy and value creation opportunities.
2. What are the synergies you expect from the integration of EHG? How would you quantify them and when do you expect to achieve them?
a. The synergies from the integration of EHG as the focal point of Thor’s global span are factored into our overall strategic goals laid out in the executivesummary above. Our integration plan is proceeding, and we have made measurable progress in a number of areas. Working capital has been one early focusarea, and a success. Collectively, net cash provided by operations for fiscal 2019 totaled more than $500 million. In part, this cash flow was generated bysharing best practices with EHG related to inventory management. We are also well on the path of adopting other global best practices, including in supplychain management and R&D. Additionally, we have created an international product transfer team that is responsible for the planning and implementation ofthe manufacturing, sales and distribution of EHG products in North America. Over the coming years, we will focus on applying some of the advancedproduction technologies currently in use at EHG to more of our US based subsidiaries.
3. What is your plan to bring EHG products to the North American market? Are there opportunities to bring some of your North American products to the
European Market?
a. We have created an international product transfer team to target the manufacture and distribution of EHG products in the North American market. We recentlyshowed a number of EHG products at the Elkhart Dealer Open House that we believe have the greatest potential to rapidly grow in the North Americanmarket and received valuable and favorable feedback from our dealer body. Eventually, this group will also identify opportunities to bring appropriate NorthAmerican products to the European market, though this effort will require additional time and effort due to the significant differences in size and weightrequirements between the two markets.
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4. EHG's SG&A costs are higher than North America, why? Is there an opportunity to lower EHG's costs?
a. In part, the increase is due to a heavier focus on marketing and innovation. We intend to leverage that spend to the greatest extent possible to avoid
duplication of efforts across Thor. There are also certain opportunities to lower EHG’s SG&A costs over time, similar with what we have experienced withpast acquisitions.
Financial Questions
1. What are your cash priorities?
a. Our main short-term priorities for the use of current and future available cash generated from operations are reducing our indebtedness and paying regulardividends. Our long-term priorities also include funding our growth both organically and, over time, through acquisitions, and maintaining and growing ourregular dividends over time. We will also consider strategic and opportunistic repurchase of shares under our share repurchase program, and special dividendsas determined by the Board of Directors.
2. How quickly do you plan to repay the debt? Are you focused on repaying the higher-rate debt first?
a. Our desire is to pay down the debt as quickly as possible, and as we outlined in our long-term strategic priorities, our goal is to fully repay the EHG
acquisition-related debt by fiscal 2025. As we look to make payments on the debt, yes, when possible we have and will focus on the higher rate, U.S. dollardenominated debt first.
3. What level of capital expenditures do you anticipate in fiscal 2020 and what are the main capex projects that will be taken on?
a. We anticipate capital expenditures of $135 million during fiscal 2020. Approximately half of those expenditures will be in North America and half in Europe.
The North American expenditures will include the completion of the new Airstream towables facility. The remainder of the expenditures will be utilized forreplacing and upgrading machinery, equipment and other assets throughout our facilities to be used in the ordinary course of business. It is important to notethat our capital expenditures generally are very flexible and can be modified with short notice depending on market conditions.
4. With your share price currently depressed, why don't you buy back stock before paying down the debt?
a. We have maintained a conservative stance when it comes to debt throughout our history. From a practical standpoint, despite the attractive valuation of our
shares currently, we place greater value on the freedom and flexibility that lowering our outstanding debt balance will provide.
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Forward Looking Statements This document includes certain statements that are “forward looking” statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27Aof 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 onmanagement’s current expectations and beliefs regarding future and anticipated developments and their effects upon Thor, and inherently involve uncertainties and risks. Theseforward looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ materially from our expectations. Factors whichcould cause materially different results include, among others, raw material and commodity price fluctuations; raw material, commodity or chassis supply restrictions; theimpact of tariffs on material or other input costs; the level and magnitude of warranty claims incurred; legislative, regulatory and tax law and/or policy developments includingtheir potential impact on our dealers and their retail customers or on our suppliers; the costs of compliance with governmental regulation; legal and compliance issues includingthose that may arise in conjunction with recently completed transactions; lower consumer confidence and the level of discretionary consumer spending; interest rate fluctuations;the potential impact of interest rate fluctuations on the general economy and specifically on our dealers and consumers; restrictive lending practices; management changes; thesuccess of new and existing products and services; consumer preferences; the ability to efficiently utilize production facilities; the pace of acquisitions and the successfulclosing, integration and financial impact thereof; the potential loss of existing customers of acquisitions; our ability to retain key management personnel of acquired companies;a shortage of necessary personnel for production; the loss or reduction of sales to key dealers; disruption of the delivery of units to dealers; increasing costs for freight andtransportation; asset impairment charges; cost structure changes; competition; the impact of potential losses under repurchase or financed receivable agreements; the potentialimpact of the strength of the U.S. dollar on international demand for products priced in U.S. dollars; general economic, market and political conditions; the impact of changingemissions standards in the various jurisdictions in which our products are sold; and changes to investment and capital allocation strategies or other facets of our strategic plan.Additional risks and uncertainties surrounding the acquisition of EHG include risks regarding the potential benefits of the acquisition and the anticipated operating valuecreation, the integration of the business, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and EHG's business. These andother risks and uncertainties are discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2019. We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this document or to reflect any change in ourexpectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.
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