THOR INDUSTRIES INC - Quarter Report: 2019 January (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended January 31, 2019.

☐ 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)

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, 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 February 28, 2019, 55,063,473 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.)

ITEM 1. FINANCIAL STATEMENTS

THOR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

		January 31, 2019				July 31, 2018
ASSETS
Current assets:
Cash and cash equivalents		$	305,833			$	275,249
Accounts receivable, trade, net			325,783				467,488
Accounts receivable, other, net			18,999				19,747
Inventories, net			561,842				537,909
Prepaid income taxes, expenses and other			35,699				11,281
Total current assets			1,248,156				1,311,674
Property, plant and equipment, net			550,471				522,054
Other assets:
Goodwill			377,693				377,693
Amortizable intangible assets, net			363,231				388,348
Deferred income taxes, net			80,205				78,444
Equity investment in joint venture			48,264				48,463
Other			62,178				51,989
Total other assets			931,571				944,937
TOTAL ASSETS		$	2,730,198			$	2,778,665
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	219,881			$	286,974
Accrued liabilities:
Compensation and related items			59,183				97,122
Product warranties			257,869				264,928
Income and other taxes			16,285				19,345
Promotions and rebates			72,945				59,133
Product, property and related liabilities			13,092				17,815
Foreign currency forward contract liability			73,707				—
Other			37,681				24,013
Total current liabilities			750,643				769,330
Unrecognized tax benefits			10,562				12,446
Other liabilities			62,062				59,148
Total long-term liabilities			72,624				71,594
Contingent liabilities and commitments			—				—
Stockholders’ equity:
Preferred stock – authorized 1,000,000 shares; none outstanding			—				—
Common stock – par value of $.10 per share; authorized 250,000,000 shares; issued 62,933,415 and 62,765,824 shares, respectively			6,293				6,277
Additional paid-in capital			263,899				252,204
Retained earnings			1,984,885				2,022,988
Less treasury shares of 10,126,434 and 10,070,459, respectively, at cost			(348,146	)			(343,728	)
Total stockholders’ equity			1,906,931				1,937,741
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,730,198			$	2,778,665

See Notes to the Condensed Consolidated Financial Statements.

 

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THOR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2019 AND 2018 (UNAUDITED)

 

		Three Months Ended January 31,								Six Months Ended January 31,
		2019				2018				2019				2018
Net sales		$	1,290,576			$	1,971,560			$	3,046,552			$	4,203,228
Cost of products sold			1,148,980				1,701,232				2,697,700				3,599,715
Gross profit			141,596				270,328				348,852				603,513
Selling, general and administrative expenses			85,069				117,088				187,762				251,351
Amortization of intangible assets			12,526				13,796				25,117				27,354
Acquisition-related costs			42,059				—				99,148				—
Interest income			1,675				401				2,897				782
Interest expense			859				1,354				1,735				2,766
Other income (expense), net			(885	)			2,574				(4,597	)			5,332
Income before income taxes			1,873				141,065				33,390				328,156
Income taxes			7,290				61,313				24,854				119,998
Net and comprehensive income (loss)		$	(5,417	)		$	79,752			$	8,536			$	208,158
Weighted-average common shares outstanding:
Basic			52,806,981				52,694,680				52,766,739				52,653,303
Diluted			52,867,687				52,861,140				52,883,645				52,839,752
Earnings (loss) per common share:
Basic		$	(0.10	)		$	1.51			$	0.16			$	3.95
Diluted		$	(0.10	)		$	1.51			$	0.16			$	3.94
Regular dividends declared and paid per common share		$	0.39			$	0.37			$	0.78			$	0.74

See Notes to the Condensed Consolidated Financial Statements.

 

3

THOR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JANUARY 31, 2019 AND 2018 (UNAUDITED)

 

		Six Months Ended January 31,
		2019				2018
Cash flows from operating activities:
Net income		$	8,536			$	208,158
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			21,463				18,619
Amortization of intangibles			25,117				27,354
Amortization of debt issuance costs			785				785
Foreign currency forward contract loss			73,707				—
Deferred income tax provision (benefit)			(84)				23,312
Gain on disposition of property, plant and equipment			(29)				(1,482)
Stock-based compensation expense			9,486				8,731
Changes in assets and liabilities:
Accounts receivable			142,453				(138,930)
Inventories			(23,933)				(129,875)
Prepaid income taxes, expenses and other			(31,693)				(7,140)
Accounts payable			(62,208)				27,235
Accrued liabilities			(30,213)				11,283
Long-term liabilities and other			1,243				8,795
Net cash provided by operating activities			134,630				56,845
Cash flows from investing activities:
Purchases of property, plant and equipment			(54,802)				(63,003)
Proceeds from dispositions of property, plant and equipment			66				3,552
Equity investment in joint venture			(3,500)				—
Other			—				960
Net cash used in investing activities			(58,236)				(58,491)
Cash flows from financing activities:
Principal payments on revolving credit facility			—				(65,000)
Regular cash dividends paid			(41,189)				(38,994)
Principal payments on capital lease obligations			(203)				(186)
Payments related to vesting of stock-based awards			(4,418)				(7,657)
Net cash used in financing activities			(45,810	)			(111,837	)
Net increase (decrease) in cash and cash equivalents			30,584				(113,483)
Cash and cash equivalents, beginning of period			275,249				223,258
Cash and cash equivalents, end of period		$	305,833			$	109,775
Supplemental cash flow information:
Income taxes paid		$	57,728			$	137,169
Interest paid		$	1,055			$	2,114
Non-cash investing and financing transactions:
Capital expenditures in accounts payable		$	490			$	4,929

See Notes to the Condensed Consolidated Financial Statements.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(All dollar 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, through its subsidiaries (collectively, the “Company” or “Thor”), currently manufactures a wide range of recreational vehicles (“RVs”) at various manufacturing facilities located primarily in Indiana, with additional facilities in Ohio, Oregon, Idaho and Michigan. These products are sold to independent, non-franchise dealers primarily throughout the United States and Canada. As discussed in more detail in Note 17 to the Condensed Consolidated Financial Statements, on September 18, 2018, the Company entered into a definitive agreement to acquire the Erwin Hymer Group SE (“Erwin Hymer Group”), the largest RV manufacturer in Europe by revenue, and on February 1, 2019 the parties closed on this transaction. 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, 2018 amounts are derived from the annual audited financial statements. 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, 2018. Due to seasonality within the recreational vehicle industry, among other factors, annualizing the results of operations for the six months ended January 31, 2019 would not necessarily be indicative of the results expected for a full fiscal year.

Adoption of Revenue Recognition Accounting Standard

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

The Company adopted ASU No. 2014-09, and all the related amendments, as of August 1, 2018, using the modified retrospective method related to all contracts as of the date of adoption. The cumulative effect of the adoption was recognized as an increase to accrued promotions and rebates of $7,127, an increase of $1,677 in deferred income tax assets, net and a $5,450 decrease to retained earnings as of August 1, 2018 on the Condensed Consolidated Balance Sheet and as reflected in Note 14 to the Condensed Consolidated Financial Statements. As of and for the three and six-month periods ended January 31, 2019, accrued promotions and rebates increased $773 and $1,506, respectively, on a pre-tax basis and Net sales were reduced by the same amount as a result of the application of this new standard. The comparative financial statements for prior periods have not been adjusted.

The adoption impact is a result of a change in the accounting for certain sales incentives, which were historically recorded as a reduction of revenue at the later of the time products were sold or the date the incentive was offered. Upon adoption of ASU No. 2014-09, these incentives are now estimated and recorded at the time of sale, which is primarily upon shipment to customers. This new standard only changes the timing of when these sales incentives are recognized, and does not change the total amount of revenue recognized. The Company did not elect to separately evaluate contract modifications occurring before the adoption date. See Note 16 to the Condensed Consolidated Financial Statements for further discussion of the Company’s revenue recognition policies and practices.

Other Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (referred to as Step 2 in the goodwill impairment test). Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment charge equal to that excess shall be recognized, not to exceed the amount of goodwill allocated to the reporting unit. This ASU is effective for annual and any interim impairment tests for periods beginning after December 15, 2019, with early adoption permitted after January 1, 2017. This ASU is effective for the Company in its fiscal year 2021 beginning on August 1, 2020. The Company is currently evaluating the impact of this ASU on its consolidated financial statements, which will depend on the outcomes of future goodwill impairment tests.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which provides guidance on the recognition, measurement, presentation, and disclosure of leases. ASU No. 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases with terms greater than 12 months. The principal difference from current guidance is that the lease assets and lease liabilities arising from operating leases will be recognized on the Consolidated Balance Sheet. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. This ASU is effective for the Company in its fiscal year 2020 beginning on August 1, 2019. The Company is currently evaluating the impact that implementing this ASU will have on its consolidated financial statements.

 

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2.	Business Segments

The Company has two reportable segments, both related to recreational vehicles: (1) towables and (2) motorized. The towable recreational vehicle reportable segment consists of the following operating segments that have been aggregated: Airstream (towable), Heartland (including Bison, Cruiser RV and DRV), Jayco (including Jayco towable, Starcraft and Highland Ridge), Keystone (including CrossRoads and Dutchmen) and KZ (including Venture RV). The motorized recreational vehicle reportable segment consists of the following operating segments that have been aggregated: Airstream (motorized), Jayco (including Jayco motorized and Entegra Coach) and Thor Motor Coach.

The operations of the Company’s Postle subsidiary are included in “Other,” which is a non-reportable segment. Net sales included in Other mainly relate to the sale of aluminum extrusions and specialized component products. Intercompany eliminations adjust for Postle sales to the Company’s towable and motorized segments, which are consummated at established transfer prices generally consistent with the selling prices of extrusion components to third-party customers.

All manufacturing is currently conducted within the United States. Total assets include those assets used in the operation of each reportable and non-reportable segment, and the Corporate assets consist primarily of cash and cash equivalents, deferred income taxes, deferred compensation plan assets and certain Corporate real estate holdings primarily utilized by Thor operating subsidiaries.

 

		Three Months Ended January  31,								Six Months Ended January 31,
Net sales:		2019				2018				2019				2018
Recreational vehicles
Towables		$	881,564			$	1,373,118			$	2,160,662			$	2,991,619
Motorized			371,495				559,909				802,693				1,126,520
Total recreational vehicles			1,253,059				1,933,027				2,963,355				4,118,139
Other			55,114				68,013				128,962				150,932
Intercompany eliminations			(17,597	)			(29,480	)			(45,765	)			(65,843	)
Total		$	1,290,576			$	1,971,560			$	3,046,552			$	4,203,228
		Three Months Ended January  31,								Six Months Ended January 31,
Income (loss) before income taxes:		2019				2018				2019				2018
Recreational vehicles
Towables		$	34,060			$	116,728			$	108,610			$	275,579
Motorized			17,205				37,538				38,917				75,124
Total recreational vehicles			51,265				154,266				147,527				350,703
Other, net			5,950				5,290				11,860				13,773
Corporate			(55,342	)			(18,491	)			(125,997	)			(36,320	)
Total		$	1,873			$	141,065			$	33,390			$	328,156
Total assets:		January 31, 2019				July 31, 2018
Recreational vehicles
Towables		$	1,541,673			$	1,654,361
Motorized			474,717				492,830
Total recreational vehicles			2,016,390				2,147,191
Other, net			163,964				167,965
Corporate			549,844				463,509
Total		$	2,730,198			$	2,778,665

 

6

		Three Months Ended January  31,								Six Months Ended January 31,
Depreciation and intangible amortization expense:		2019				2018				2019				2018
Recreational vehicles
Towables		$	16,971			$	17,223			$	33,602			$	34,016
Motorized			3,443				2,909				6,879				5,637
Total recreational vehicles			20,414				20,132				40,481				39,653
Other			2,693				2,748				5,267				5,557
Corporate			415				395				832				763
Total		$	23,522			$	23,275			$	46,580			$	45,973
		Three Months Ended January 31,								Six Months Ended January 31,
Capital acquisitions:		2019				2018				2019				2018
Recreational vehicles
Towables		$	14,255			$	18,821			$	36,497			$	36,413
Motorized			2,809				1,754				10,228				14,069
Total recreational vehicles			17,064				20,575				46,725				50,482
Other			287				1,983				2,731				2,593
Corporate			425				7,016				461				8,591
Total		$	17,776			$	29,574			$	49,917			$	61,666

 

3.	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 January  31,								Six Months Ended January 31,
		2019				2018				2019				2018
Weighted-average shares outstanding for basic earnings per share			52,806,981				52,694,680				52,766,739				52,653,303
Unvested restricted stock units			60,706				166,460				116,906				186,449
Weighted-average shares outstanding assuming dilution			52,867,687				52,861,140				52,883,645				52,839,752

For the three months ended January 31, 2019 and 2018, the Company had 317,234 and 35,149 unvested restricted stock units outstanding, respectively, which were excluded from this calculation as their effect would be antidilutive. For the six months ended January 31, 2019 and 2018, the Company had 234,756 and 40,921 unvested restricted stock units outstanding, respectively, which were excluded from this calculation as their effect would be antidilutive.

 

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4.	Investments and Fair Value Measurements

The Company assesses the inputs used to measure the fair value of certain assets and liabilities using a three-level hierarchy as prescribed in ASC 820, “Fair Value Measurements and Disclosures,” and as discussed in Note 10 in the Notes to the Consolidated Financial Statements in our fiscal 2018 Form 10-K.

The financial assets that were accounted for at fair value on a recurring basis at January 31, 2019 and July 31, 2018 are as follows:

 

		Input Level		January 31, 2019				July 31, 2018
Cash equivalents		Level 1		$	148,023			$	230,319
Deferred compensation plan assets and liabilities		Level 1		$	46,744			$	43,316
Foreign currency forward contract liability		Level 2		$	73,707			$	—

Cash equivalents represent investments in government and other money market funds traded in an active market, and are reported as a component of Cash and cash equivalents in the Condensed Consolidated Balance Sheets.

Deferred compensation plan assets represent investments in securities (primarily mutual funds) traded in an active market held for the benefit of certain employees of the Company as part of a deferred compensation plan. Deferred compensation plan asset balances are recorded as a component of Other long-term assets in the Condensed Consolidated Balance Sheets. An equal and offsetting liability is also recorded in regards to the deferred compensation plan as a component of Other long-term liabilities in the Condensed Consolidated Balance Sheets. Changes in the fair value of the plan assets and the related liability are reflected in Other income, net and Selling, general and administrative expenses, respectively, in the Condensed Consolidated Statements of Income and Comprehensive Income.

See Note 15 to the Condensed Consolidated Financial Statements for a discussion of the foreign currency forward contract liability, including further information as to the inputs used to determine fair value.

 

5.	Inventories

Major classifications of inventories are as follows:

 

		January 31, 2019				July 31, 2018
Finished goods – RV		$	106,225			$	44,998
Finished goods – other			29,339				35,320
Work in process			118,361				124,703
Raw materials			245,197				258,429
Chassis			107,969				116,308
Subtotal			607,091				579,758
Excess of FIFO costs over LIFO costs			(45,249	)			(41,849	)
Total inventories, net		$	561,842			$	537,909

Of the $607,091 and $579,758 of inventories at January 31, 2019 and July 31, 2018, $327,097 and $305,990, respectively, was valued on the last-in, first-out (LIFO) basis, and $279,994 and $273,768, respectively, was valued on the first-in, first-out (FIFO) method.

 

8

6.	Property, Plant and Equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation, and consists of the following:

 

		January 31, 2019				July 31, 2018
Land		$	62,184			$	57,413
Buildings and improvements			499,252				468,824
Machinery and equipment			211,136				197,294
Total cost			772,572				723,531
Less accumulated depreciation			(222,101	)			(201,477	)
Property, plant and equipment, net		$	550,471			$	522,054

Property, plant and equipment at both January 31, 2019 and July 31, 2018 includes buildings and improvements under capital leases of $6,527 and related amortization included in accumulated depreciation of $2,040 and $1,768 at January 31, 2019 and July 31, 2018, respectively.

 

7.	Intangible Assets and Goodwill

The components of amortizable intangible assets are as follows:

 

		Weighted-Average
		Remaining				January 31, 2019								July 31, 2018
		Life in Years at January 31, 2019				Cost				Accumulated Amortization				Cost				Accumulated Amortization
Dealer networks/customer relationships			15			$	404,960			$	168,000			$	404,960			$	147,077
Trademarks			17				146,117				27,907				146,117				24,364
Design technology and other intangibles			7				18,200				10,161				18,200				9,555
Non-compete agreements			Less than 1				450				428				450				383
Total amortizable intangible assets						$	569,727			$	206,496			$	569,727			$	181,379

Estimated annual amortization expense is as follows:

 

For the fiscal year ending July 31, 2019		$	50,043
For the fiscal year ending July 31, 2020			46,194
For the fiscal year ending July 31, 2021			42,860
For the fiscal year ending July 31, 2022			37,753
For the fiscal year ending July 31, 2023			30,291
For the fiscal year ending July 31, 2024 and thereafter			181,207
		$	388,348

Of the recorded goodwill of $377,693 at both January 31, 2019 and July 31, 2018, $334,822 relates to the towable recreational vehicle reportable segment and $42,871 relates to the Other non-reportable segment.

 

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8.	Equity Investment

As discussed in the Company’s fiscal 2018 Form 10-K, in February 2018, the Company formed a joint venture with Tourism Holdings Limited (“thl”) called TH2connect, LLC (“TH2”).

The Company’s investment in TH2 is accounted for under the equity method of accounting. Additional investments were made in TH2 by both Thor and thl of $3,500 in the three and six-month periods ended January 2019. The Company’s share of the losses of this investment, which are included in its operating results for the three and six-month periods ended January 31, 2019, were $2,216 and $3,699, respectively, and are included in Other income (expense), net in the Condensed Consolidated Statements of Income and Comprehensive Income.

 

9.	Concentration of Risk

One dealer, FreedomRoads, LLC, accounted for 22% of the Company’s consolidated net sales for both of the six-month periods ended January 31, 2019 and January 31, 2018. Sales to this dealer are reported within both the towables and motorized segments. This dealer also accounted for 28% of the Company’s consolidated trade accounts receivable at January 31, 2019 and 26% at July 31, 2018. The loss of this dealer could have a material effect on the Company’s business.

 

10.	Product Warranties

As discussed in the Company’s fiscal 2018 Form 10-K, 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 liabilities during the indicated periods are as follows:

 

		Three Months Ended January 31,								Six Months Ended January 31,
		2019				2018				2019				2018
Beginning balance		$	271,749			$	231,999			$	264,928			$	216,781
Provision			45,080				63,209				114,847				127,042
Payments			(58,960	)			(51,898	)			(121,906	)			(100,513	)
Ending balance		$	257,869			$	243,310			$	257,869			$	243,310

 

11.	Long-Term Debt

The Company has a five-year credit agreement, which was entered into on June 30, 2016 and matures on June 30, 2021. See Note 12 in the Notes to the Consolidated Financial Statements in our fiscal 2018 Form 10-K for details regarding the credit agreement. There were no borrowings outstanding under this facility at January 31, 2019 or July 31, 2018, or at any time during the three and six-month periods ended January 31, 2019. As of January 31, 2019, the available and unused credit line under the revolver was $406,327, and the Company was in compliance with the financial covenant in the credit agreement.

The Company recorded charges related to the amortization of the fees incurred to obtain this facility, which are classified as interest expense, of $392 for the three-month periods ended January 31, 2019 and January 31, 2018, and $785 for the six-month periods ended January 31, 2019 and January 31, 2018. The unamortized balance of these facility fees was $3,794 at January 31, 2019 and $4,579 at July 31, 2018, and is included in Other long-term assets in the Condensed Consolidated Balance Sheets.

This debt facility was terminated on February 1, 2019 and replaced by the new financing obtained in connection with the acquisition of the Erwin Hymer Group as discussed in Note 17 to the Condensed Consolidated Financial Statements.

 

12.	Provision for Income Taxes

The overall effective income tax rate for the three months ended January 31, 2019 was 389.1%, and the effective income tax rate for the six months ended January 31, 2019 was 74.4%. The effective rates for the periods presented include the effect of the non-deductible foreign currency forward contract loss, as noted in Note 15 to the Condensed Consolidated Financial Statements, and the effects of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, which include, but are not limited to, a reduction in the US federal corporate income tax rate to 21.0%, the repeal of the domestic production deduction, and expanded limitations on the deductibility of executive compensation. The Company has now completed its accounting for the income tax effects of the Tax Cuts and Jobs Act. Under current federal income tax law, the foreign currency forward contract was characterized as a component of the acquisition of the Erwin Hymer Group discussed in Note 17 to the Condensed Consolidated Financial Statements. As a result, the foreign currency forward contract loss recognized for financial statement purposes is non-deductible for federal income tax purposes.

 

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Within the next 12 months, the Company anticipates a decrease of approximately $4,000 in unrecognized tax benefits, and $900 in accrued interest related to unrecognized tax benefits recorded as of January 31, 2019, from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates.

Generally, fiscal years 2015 through 2017 remain open for federal income tax purposes, and fiscal years 2013 through 2017 remain open for state and Canadian income tax purposes. The State of Indiana completed an exam of the Company for the fiscal years ended July 31, 2013 through 2015. A formal protest was submitted in response to the exam. The Company is also currently under exam by other state tax authorities for the fiscal years ended July 31, 2015 through 2017. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions related to its state income tax returns in its liability for unrecognized tax benefits.

 

13.	Contingent Liabilities, Commitments and Legal Matters

The Company’s total commercial commitments under standby repurchase obligations on dealer inventory financing, as discussed in Note 14 to the Consolidated Financial Statements in our fiscal 2018 Form 10-K, were $2,587,944 and $2,748,465 as of January 31, 2019 and July 31, 2018, respectively. The commitment term is generally up to eighteen months.

As discussed in the Company’s fiscal 2018 Form 10-K, 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 $7,124 and $7,400 as of January 31, 2019 and July 31, 2018, respectively, which are included in Other current liabilities in the Condensed Consolidated Balance Sheets.

Losses incurred related to repurchase agreements during the six-month periods ended January 31, 2019 and January 31, 2018 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 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, 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.

 

14.	Stockholders’ Equity

Stock-Based Compensation

Under the Company’s restricted stock unit (“RSU”) program, as discussed in Note 17 in the Notes to the Consolidated Financial Statements in our fiscal 2018 Form 10-K, RSU awards have been approved each October related to the financial performance of the most recently completed fiscal year since October 2012. The awarded employee restricted stock units vest, and shares of common stock are issued, in equal installments on the first, second and third anniversaries of the date of grant. In addition, concurrent with the timing of the employee awards, the Nominating and Governance Committee of the Board of Directors (“Board”) has awarded restricted stock units to Board members that will vest, and shares of common stock will be issued, on the first anniversary of the date of the grant.

Total expense recognized in the three-month periods ended January 31, 2019 and January 31, 2018 for these restricted stock unit awards and other stock-based compensation was $4,956 and $4,413, respectively. Total expense recognized in the six-month periods ended January 31, 2019 and January 31, 2018 for these restricted stock unit awards and other stock-based compensation was $9,486 and $8,731, respectively.

For the restricted stock units that vested during the six-month periods ended January 31, 2019 and January 31, 2018, portions of the vested shares awarded were withheld as treasury shares to cover the recipients’ estimated withholding taxes. Tax payments made by the Company related to these stock-based awards for the six months ended January 31, 2019 and January 31, 2018 totaled $4,418 and $7,657, respectively.

 

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Share Repurchase Program

As discussed in the Company’s 2018 Form 10-K, on June 19, 2018, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to purchase shares of the Company’s common stock through June 19, 2020. There were no repurchases under this program during the three or six-month periods ended January 31, 2019.

Retained Earnings

The components of the change in retained earnings are as follows:

 

Balance as of July 31, 2018		$	2,022,988
Cumulative effect of the adoption of ASU No. 2014-09, net of tax			(5,450	)
Net income			8,536
Dividends declared and paid			(41,189	)
Balance as of January 31, 2019		$	1,984,885

The cumulative effect of the change in accounting principle relates to the adoption of the new revenue recognition standard as discussed in Note 1 to the Condensed Consolidated Financial Statements.

The dividends declared and paid total of $41,189 represents the regular quarterly dividend of $0.39 per share for each of the first two quarters of fiscal 2019.

 

15.	Foreign Currency Forward Contract

As described in more detail in Note 17 to the Condensed Consolidated Financial Statements, on September 18, 2018, the Company entered into a definitive agreement to acquire the Erwin Hymer Group SE (“Erwin Hymer Group”), the largest RV manufacturer in Europe by revenue. The purchase price was to be paid with a combination of Thor common stock and approximately 1.7 billion Euro in cash, and therefore changes in the Euro/USD exchange rate between the September 18, 2018 agreement date and the closing date could cause the purchase price to fluctuate, affecting the Company’s cash flows.

In order to reduce its exposure to foreign currency exchange rate changes in relation to the acquisition of the Erwin Hymer Group, the Company entered into a deal-contingent, foreign currency forward contract on the agreement date in the amount of 1.625 billion Euro. Hedge accounting was not applied to this instrument, and therefore all changes in fair value during the period are reported in current period earnings.

The fair value of the foreign currency forward contract, using Level 2 inputs, was $73,707 as of January 31, 2019, and is included as a current liability in the Condensed Consolidated Balance Sheet. The Level 2 inputs used in determining fair value are based on information obtained from third-party sources and include the spot rate and market-forward points. The liability was settled in connection with the close of the Erwin Hymer Group acquisition on February 1, 2019. The Company recognized non-cash charges related to this contract of $31,152 and $73,707 during the three and six-month periods ended January 31, 2019, respectively, which are included in Acquisition-related costs in the Condensed Consolidated Statements of Income and Comprehensive Income.

 

16.	Revenue Recognition

Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied. The Company’s contracts have a single performance obligation of providing the promised goods (recreational vehicles and extruded aluminum components), which is satisfied when control of the goods is transferred to the customer. Dealers do not have a right of return. All warranties provided are assurance-type warranties.

For recreational vehicle sales, the Company recognizes revenue when all performance obligations have been satisfied and control of the product is transferred to the dealer in accordance with shipping terms, primarily FOB shipping point. For sales made to dealers financing their purchases under flooring arrangements with banks or finance companies, revenue is not recognized until written or oral financing approval has been received from the floorplan lender. The Company recognizes revenue on credit sales upon product shipment, and sales with cash-on-delivery terms upon receiving payment, at which points the criteria for establishing a contract have been fully satisfied.

 

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Revenue from the sale of extruded aluminum components is recognized when all performance obligations have been satisfied and control of the products is transferred to the customer, which is generally upon delivery to the customer’s location.

Revenue is measured as the amount of consideration to which the Company expects to be entitled in exchange for the Company’s products. The amount of revenue recognized includes adjustments for any variable consideration, such as sales discounts, sales allowances, promotions, rebates and other sales incentives which are included in the transaction price and allocated to each performance obligation based on the standalone selling price. The Company estimates variable consideration based on the expected value of total consideration to which customers are likely to be entitled to based primarily on historical experience and current market conditions. Included in the estimate is an assessment as to whether any variable consideration is constrained. Revenue estimates are adjusted at the earlier of a change in the expected value of consideration or when the consideration becomes fixed. During the three and six-month periods ended January 31, 2019, adjustments to revenue from performance obligations satisfied in prior periods, which relate primarily to changes in estimated variable consideration, were immaterial.

Amounts billed to customers related to shipping and handling activities are included in net sales. In adopting ASU No. 2014-09, the Company elected to account for shipping and handling costs as fulfillment activities, and these costs are included in cost of sales.

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. All revenue streams are considered point in time.

 

		Three Months Ended January 31,								Six Months Ended January 31,
		2019				2018				2019				2018
NET SALES:
Towables
Travel Trailers and Other		$	535,779			$	829,318			$	1,297,263			$	1,822,922
Fifth Wheels			345,785				543,800				863,399				1,168,697
Total Towables			881,564				1,373,118				2,160,662				2,991,619
Motorized
Class A			173,488				257,092				400,762				509,515
Class C			182,502				278,853				366,886				565,519
Class B			15,505				23,964				35,045				51,486
Total Motorized			371,495				559,909				802,693				1,126,520
Other, primarily aluminum extruded components			55,114				68,013				128,962				150,932
Intercompany eliminations			(17,597	)			(29,480	)			(45,765	)			(65,843	)
Total		$	1,290,576			$	1,971,560			$	3,046,552			$	4,203,228

Other Practical Expedients

We do not disclose information about the transaction price allocated to the remaining performance obligations at period end because our contracts generally have original expected durations of one year or less. In addition, we expense when incurred contract acquisition costs, primarily sales commissions, because the amortization period would be one year or less.

 

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17.	Subsequent Event—Erwin Hymer Group Acquisition

On September 18, 2018, the Company and the shareholders of Erwin Hymer Group SE (the “Erwin Hymer Group’) announced that they entered into a definitive agreement for the Company to acquire Erwin Hymer Group (“EHG”). EHG is headquartered in Bad Waldsee, Germany, and is the largest RV manufacturer in Europe, by revenue. The Company entered the definitive agreement with EHG to expand its operations into the growing European market with a long-standing European industry leader.

In accordance with the definitive agreement, consideration to be paid to the sellers at closing was to consist of approximately 1.7 billion Euro in cash and equity consisting of approximately 2.3 million shares of the Company. The Company will also assume responsibility for the debt of EHG.

On February 1, 2019, the parties closed on this transaction. In connection with the closing, the parties entered into an amendment to the purchase agreement to reflect the exclusion of EHG’s North American operations from the business operations acquired by the Company. As a result, the cash purchase price paid by the Company was reduced by 170 million Euro, and the debt obligations the Company otherwise assumed at closing were reduced by 180 million Euro.

At the closing, the Company paid cash consideration of approximately 1.5 billion Euro (approximately $1.7 billion at the exchange rate as of January 31, 2019) and issued 2,256,492 shares of the Company’s common stock to the sellers. The Company also assumed debt of EHG and its affiliates of approximately 315 million Euro (approximately $359 million at the exchange rate as of January 31, 2019), a portion of which was refinanced at closing. The cash consideration paid was funded through a combination of available cash on hand of approximately $95 million and debt financing.

The debt financing obtained in connection with the acquisition of EHG consists of two credit facility agreements, a 7 year, $2.1 billion term loan, and a 5 year, $750.0 million asset-based credit facility (ABL). The obligations of the Company under each facility are secured by liens on substantially all of the assets of the Company, and both agreements contain certain customary representations, warranties and covenants of the Company.

Subject to earlier termination, the term loan matures on February 1, 2026 and the ABL terminates on February 1, 2024. In connection with the closing of the transaction, the Company borrowed an aggregate amount of approximately $1.386 billion under a United States Dollar denominated term loan tranche, approximately 618 million Euro (approximately $704 million at the exchange rate as of January 31, 2019) under a Euro denominated term loan tranche, and $100 million under the ABL in order to provide funding for, among other things, the cash consideration paid to the EHG shareholders, the refinancing of specified existing EHG indebtedness, and to pay fees and expenses related to the transaction.

Under the term loan, both the U.S. and Euro term loan tranches require annual payments of 1.0% of the initial term loan balance, payable quarterly in 0.25% installments. The interest rate on the U.S. portion of the term loan will be at an annual base rate plus 2.75%, or LIBOR plus 3.75%, and the interest rate on the Euro portion will be at EURIBOR plus 4.0%, with interest on both tranches payable quarterly. In addition, 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. The Company may, at its option, prepay any borrowings under the term loan, in whole or in part, at any time without premium or penalty (except in certain circumstances). The Company may add one or more incremental term loan facilities to the term loan, subject to obtaining commitments from any participating lenders and certain other conditions. Ticking fees on the term loan, as defined in the financing commitments, were incurred for the period from December 4, 2018 through January 31, 2019 and totaled approximately $10.7 million.

Availability under the ABL agreement is subject to a borrowing base based on a percentage of applicable eligible receivables and eligible inventory. The ABL will carry interest at an annual base rate plus 0.25% to 0.75%, or LIBOR plus 1.25% to 1.75%, based on adjusted excess availability as defined in the ABL agreement, with the applicable base rate and LIBOR margins being stipulated at 0.25% and 1.25%, respectively, for the third quarter of fiscal 2019 per the ABL agreement. This agreement also includes a 0.25% unused facility fee. The Company may, generally at its option, pay any borrowings under the ABL, in whole or in part, at any time and from time to time, without premium or penalty.

The ABL also contains a financial covenant, which requires the Company to maintain a consolidated fixed-charge coverage ratio of 1.0X, provided that the covenant is only applicable when adjusted excess availability falls below a certain threshold. Up to $75.0 million of the ABL is available for the issuance of letters of credit, and up to $75.0 million is available for swingline loans. The Company may also increase commitments under the ABL by up to $150.0 million by obtaining additional commitments from lenders and adhering to certain other conditions. The unused availability under the ABL is generally available to the Company for general operating purposes.

 

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Costs incurred during the three months ended January 31, 2019 related specifically to this acquisition are included in Acquisition-related costs in the Condensed Consolidated Statements of Income and Comprehensive Income. These costs include the impact of the change in the fair value and likelihood of closing on the foreign currency forward contract of $31,152 discussed in Note 15 above, and $10,907 of other expenses, consisting primarily of ticking fees.

Costs incurred during the six months ended January 31, 2019 related specifically to this acquisition totaled $99,148 and include the change in the fair value of the foreign currency forward contract of $73,707 discussed in Note 15 above, and $25,441 of other expenses, consisting primarily of ticking fees and legal, professional and advisory fees related to financial due diligence and preliminary implementation costs, as well as regulatory review costs.

Due to the recent timing of the close of the acquisition, the Company has not yet allocated the purchase price to the fair value of the assets acquired and the liabilities assumed at the acquisition date.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated, all dollar 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, 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 or announced 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 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; and changes to investment and capital allocation strategies or other facets of our strategic plan. Additional risks and uncertainties surrounding the acquisition of Erwin Hymer Group SE (the “Erwin Hymer Group”) include risks regarding the potential benefits of the acquisition and the anticipated operating synergies, the integration of the business, changes in Euro-U.S. dollar exchange rates that could impact the mark-to-market value of outstanding derivative instruments, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and Erwin Hymer Group’s business. 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, 2018 and in this report.

We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this report or to reflect any change in our expectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.

Executive Overview

We were founded in 1980 and have grown to be the largest manufacturer of RVs in North America. According to Statistical Surveys, Inc. (“Stat Surveys”), for the calendar years ended December 31, 2018 and 2017, Thor’s combined U.S. and Canadian market share was approximately 49.8% and 50.4%, respectively, for travel trailers and fifth wheels combined and approximately 39.3% and 39.1%, respectively, for motorhomes. Our business model includes decentralized operating units, and our RV products are sold to independent, non-franchise dealers who, in turn, retail those products. Our growth has been achieved both organically and 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.

Recent Events

Erwin Hymer Group Acquisition

On September 18, 2018, the Company and the shareholders of Erwin Hymer Group announced that they entered into a definitive agreement for the Company to acquire Erwin Hymer Group (“EHG”). EHG is headquartered in Bad Waldsee, Germany, and is the largest RV manufacturer in Europe by revenue. The Company entered into the definitive agreement with EHG to expand its operations into the growing European market with a long-standing European industry leader.

On February 1, 2019, the parties closed on this transaction. In connection with the closing, the parties entered into an amendment to the purchase agreement to reflect the exclusion of EHG’s North American operations from the business operations acquired by the Company. As a result, the cash purchase price paid by the Company was reduced by 170 million Euro, and the debt obligations the Company otherwise assumed at closing were reduced by 180 million Euro.

 

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At the closing, the Company paid cash consideration of approximately 1.5 billion Euro (approximately $1.7 billion at the exchange rate as of January 31, 2019) and issued 2,256,492 shares of the Company’s common stock to the sellers. The Company also assumed debt of EHG and its affiliates of approximately 315 million Euro (approximately $359 million at the exchange rate as of January 31, 2019), a portion of which was refinanced at closing. The cash consideration paid was funded through a combination of available cash on hand of approximately $95 million and debt financing.

The debt financing obtained in connection with the acquisition of EHG consists of two credit facility agreements, a 7 year, $2.1 billion term loan, and a 5 year, $750.0 million asset-based credit facility (ABL). The obligations of the Company under each facility are secured by liens on substantially all of the assets of the Company, and both agreements contain certain customary representations, warranties and covenants of the Company.

Subject to earlier termination, the term loan matures on February 1, 2026 and the ABL terminates on February 1, 2024. In connection with the closing of the transaction, the Company borrowed an aggregate amount of approximately $1.386 billion under a United States Dollar denominated term loan, approximately 618 million Euro (approximately $704 million as of January 31, 2019) under a Euro denominated term loan, and $100 million under the ABL in order to provide funding for, among other things, the cash consideration paid to the EHG shareholders, the refinancing of specified existing EHG indebtedness, and to pay fees and expenses related to the transaction.

Under the term loan, both the U.S. and Euro term loan tranches require annual payments of 1.0% of the initial term loan balance, payable quarterly in 0.25% installments. The interest rate on the U.S. portion of the term loan will be at an annual base rate plus 2.75%, or LIBOR plus 3.75%, and the interest rate on the Euro portion will be at EURIBOR plus 4.0%, with interest on both tranches payable quarterly. Ticking fees on the term loan, as defined in the financing commitments, were incurred for the period from December 4, 2018 through January 31, 2019 and totaled approximately $10.7 million.

Availability under the ABL agreement is subject to a borrowing base based on a percentage of applicable eligible receivables and eligible inventory. The ABL will carry interest at an annual base rate plus 0.25% to 0.75%, or LIBOR plus 1.25% to 1.75%, based on adjusted excess availability as defined in the ABL agreement, with the applicable base rate and LIBOR margins being stipulated at 0.25% and 1.25%, respectively, for the third quarter of fiscal 2019 per the ABL agreement. The Company may, generally at its option, pay any borrowings under the ABL, in whole or in part, at any time and from time to time, without premium or penalty. The ABL also contains a financial covenant, which requires the Company to maintain a consolidated fixed-charge coverage ratio of 1.0X, provided that the covenant is only applicable when adjusted excess availability falls below a certain threshold. The unused availability under the ABL is generally available to the Company for general operating purposes.

All costs incurred in the three and six-month periods ended January 31, 2019 related to this acquisition, including the foreign currency forward contract loss and certain ticking fees, legal, advisory and other costs as discussed in Notes 15 and 17 to the Condensed Consolidated Financial Statements, are included in Acquisition-related costs in the Condensed Consolidated Statements of Income and Comprehensive Income.

Share Repurchase Program

On June 19, 2018, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to purchase shares of the Company’s common stock through June 19, 2020. There were no repurchases under this program during the three or six-month periods ended January 31, 2019.

Joint Venture

On February 15, 2018, the Company announced the formation of a joint venture with Tourism Holdings Limited (“thl”) called TH2connect, LLC (“TH2”). The Company and thl each have a 50% ownership position in TH2 and equal representation on the board of directors of TH2. The Company’s investment in TH2 is accounted for under the equity method of accounting.

Tax Reform

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. The Tax Act includes numerous changes to tax laws impacting business, the most significant being a permanent reduction in the federal corporate income tax rate from 35.0% to 21.0%. The rate reduction took effect on January 1, 2018. As a result of other Tax Act changes, the Company’s income tax rate for fiscal year 2019 will be impacted by, among other items, the repeal of the domestic production activities (“Code Section 199”) deduction and limitations on the deductibility of executive compensation.

 

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For the remainder of fiscal 2019, after considering the lower federal income tax rate of 21.0%, an estimated blended state income tax rate, the elimination of the Code Section 199 deduction and the limitations on the deductibility of executive compensation, the Company currently estimates an overall effective U.S. income tax rate between 23.0% and 25.0%, before consideration of any discrete tax items and the acquisition of the Erwin Hymer Group, as described in Note 17, which closed on February 1, 2019. The effective tax rate for the Erwin Hymer Group is preliminarily estimated to be generally consistent with the Company’s current estimated U.S. income tax rate, however, the Company will consider the tax impacts of the acquisition in its 2019 fiscal third quarter ending April 30, 2019.

Industry Outlook

The Company monitors industry conditions in the RV market through the use of monthly wholesale shipment data as reported by the Recreation Vehicle Industry Association (“RVIA”), which is typically issued on a one-month lag and represents manufacturers’ RV production and delivery to dealers. In addition, we monitor monthly retail sales trends as reported by Stat Surveys, whose data is typically issued on a month-and-a-half lag. The Company believes that monthly RV retail sales data is important as consumer purchases impact future dealer orders and ultimately our production.

RV dealer inventory of Thor products as of January 31, 2019 decreased 11.4% to approximately 137,900 units, compared to approximately 155,650 units as of January 31, 2018. We believe our dealer inventory levels are approaching appropriate levels for seasonal consumer demand and are progressing toward more normalized levels.

Thor’s RV backlog as of January 31, 2019 decreased $1,346,461, or 48.1%, to $1,451,896 compared to $2,798,357 as of January 31, 2018, with the decrease partially attributable to our capacity expansions since the prior year, which allows for quicker production and delivery of units to dealers, and the existing dealer inventory levels noted above.

Industry Wholesale Statistics

Key wholesale statistics for the RV industry, as reported by RVIA for the periods indicated, are as follows:

 

		U.S. and Canada Wholesale Unit Shipments
		Calendar Year								Increase (Decrease)				% Change
		2018				2017
Towable Units			426,087				441,961				(15,874	)			(3.6	)
Motorized Units			57,585				62,638				(5,053	)			(8.1	)
Total			483,672				504,599				(20,927	)			(4.1	)

According to their most recent forecast published in February 2019, RVIA has forecasted that 2019 calendar year shipments for towables and motorized units will ease back to approximately 407,900 and 52,200 units, respectively, for a total of 460,100 units, a decline of 4.9% from the 2018 calendar year shipments. RVIA noted that except for the past two calendar years, total RV shipments for 2019 are expected to be higher than in any prior year since 1973.

 

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