Thor Announces Results for First Quarter of Fiscal 2019

ELKHART, Ind.–(BUSINESS WIRE)–Thor Industries, Inc. (NYSE:THO) today announced first- quarter results
with net sales of $1.76 billion, down 21.3% from the record prior-year
first quarter, and income before taxes of $31.5 million, a decrease of
83.2%. Net income and diluted earnings per share for the first quarter
of fiscal 2019 were $14.0 million and $0.26, respectively. This compares
to net income and diluted earnings per share in the prior-year first
quarter of $128.4 million and $2.43, respectively.

First quarter fiscal 2019 financial results reflect the impact of
continued progress in balancing production and market demand and
transaction-related expenses related to the pending acquisition of EHG.

  • Balancing Production and Demand:
    The dealer inventory rationalization process is proceeding as
    expected. During the quarter, Thor increased its promotional efforts
    to assist dealers in reducing inventory to better reflect current
    retail demand levels. Thor continues to adjust production to match
    current wholesale demand while positioning the Company for long-term
    growth and shorter lead times with capacity expansions completed in
    fiscal 2018. Dealers have also remained disciplined with regard to
    inventory levels, which has resulted in the limited ability of
    manufacturers to pass along price increases.
  • Effects of Capacity Expansion:
    Following inventory constraints experienced in 2017, Thor
    strategically increased capacity in 2018 to alleviate the pressures of
    longer production lead times and meet expected long-term demand growth
    for the Company’s products. Since the completion of a number of these
    expansion projects, dealers have taken steps to reduce their
    inventory, resulting in the Company taking steps to balance production
    levels with current wholesale demand. Thor continues to review backlog
    for each product line in each production facility and adjust
    production levels accordingly.
  • Foreign Currency Forward Contract:
    On September 18, 2018, the Company entered into a foreign currency
    forward contract in the amount of €1.625 billion related to the cash
    portion of the purchase price of EHG. The contract does not qualify as
    a hedging instrument for accounting purposes, and therefore changes in
    fair value are reported in current period earnings. As a result of the
    change in the U.S. dollar-Euro exchange rate from the date of the
    establishment of the contract and the end of the fiscal first quarter
    on October 31, 2018, the Company recorded a non-cash, mark-to-market
    loss on the forward contract of approximately $42.6 million. The
    forward contract is a prudent way to stabilize the EHG acquisition
    price by locking in the exchange rate and mitigating the impact of
    exchange rate volatility on the ultimate U.S. dollar amount Thor will
    pay for the acquisition.
  • Transaction Costs: Thor
    incurred $14.5 million in costs related to the pending acquisition of
    EHG, comprised primarily of legal, professional and advisory fees
    related to financial due diligence and preliminary implementation
    costs, rating agency fees and regulatory review costs.

In aggregate, the acquisition-related costs for the foreign currency
forward contract and transaction costs totaled approximately $57.1
million, or $1.02 per diluted share, in the fiscal first quarter.

Our underlying markets remain healthy as consumer confidence is high,
unemployment is low, and there is ample access to credit for RV buyers,”
said Bob Martin, Thor President and CEO. “Our first quarter 2019
financial results reflect the return to normalized historical levels of
first-quarter revenue following the unprecedented record first quarter
of fiscal year 2018. As dealers continue to right-size inventory, we are
taking advantage of our flexible production and variable cost model to
align Company production with demand, and I continue to be optimistic
about Thor’s long-term growth potential and ability to generate value
for our shareholders, especially with the pending strategic acquisition
of EHG. Consumers are increasingly looking to spend time outdoors with
family and friends, which we believe will translate to demand for our

Net sales decreased 21.0% for the Towable segment, 23.9% for the
Motorized segment and 21.3% overall. Overall gross profit margins
declined to 11.8% in the quarter, compared to 14.9% in the prior-year
period, reflecting the impact of higher overall sales promotions and
increased costs primarily associated with warranty expenses. Material
costs also increased as a result of, directly or indirectly, the
implementation of tariffs on many commodities and components utilized in
the production of Thor’s products, as well as increased pricing from
some domestic suppliers in response to the tariffs. Net income in the
quarter was also adversely affected by an unusually high effective tax
rate. The Company’s first-quarter effective tax rate was 55.7% compared
to a tax rate of 31.4% in the prior year because the $42.6 million
non-cash, mark-to-market loss on the foreign currency forward contract
is not deductible for income tax purposes. The Company expects to return
to a more normalized effective tax rate of 23% to 25% in its fiscal
second half of 2019.

In an effort to continue balancing production to meet current levels of
dealer demand, the Company has taken a number of steps to adjust its
production levels, and benefit from its variable cost structure. Certain
subsidiaries intend to take extended plant shutdowns during the upcoming
holiday season which should result in reductions in finished goods
inventory. As a result, the Company expects that production will be
balanced with overall retail demand during the historically stronger
second half of the fiscal year.

Towable RVs

  • Towable RV sales were $1.28 billion for the first quarter, down 21.0%
    from $1.62 billion in the prior-year period. This decrease was driven
    primarily by lower unit volume and increased levels of discounting
    further reducing net sales, which was partially offset by a mix shift
    toward higher-priced units.
  • Towable gross profit margin fell to 12.0% in the fiscal first quarter.
    Gross profit was adversely impacted by increased material cost as a
    percent of sales, primarily due to increased discounting levels, as
    well as increased warranty costs, resulting in lower gross margins
  • Towable RV income before tax was $74.6 million, down 53.1% from $158.9
    million in the first quarter last year. This decrease was driven
    primarily by the lower sales, increased levels of discounting and the
    resulting decrease in gross profit.
  • Towable RV backlog decreased $1.44 billion, or 58.5%, to $1.02
    billion, compared to $2.46 billion at the end of the first quarter of
    fiscal 2018, reflecting the impact of capacity additions on improving
    delivery times, as well as dealer inventory levels that are generally
    sufficient for current levels of retail demand. The Company believes
    the current towable RV backlog represents a return to a normalized,
    pre-winter inventory level.

Motorized RVs

  • Motorized RV sales were $431.2 million for the first quarter, down
    23.9% from $566.6 million in the prior-year period. The decrease in
    motorized sales was driven primarily by lower unit sales, partially
    offset by a mix shift toward higher priced product.
  • Motorized gross profit margin fell to 10.3% in the fiscal first
    quarter as a result of reduced sales levels and increased warranty
    costs as a percent of sales for the quarter.
  • Motorized RV income before tax was $21.7 million, down 42.2% from
    $37.6 million last year, driven primarily by the decrease in gross
    margin as well as lower sales levels.
  • Motorized RV backlog decreased $383.5 million, or 34.1%, to $740.2
    million from $1.12 billion a year earlier, reflecting the impact of
    capacity additions on improving delivery times. The Company believes
    the current motorized RV backlog is continuing to return to a
    normalized, pre-winter level.

Erwin Hymer Group Acquisition

On September 18, Thor announced that it entered into a definitive
agreement to acquire EHG. The transaction is expected to be accretive to
earnings in fiscal 2019 before taking into account anticipated
efficiencies, purchase accounting adjustments and transaction-related

As noted earlier in this release, Thor incurred a number of
acquisition-related expenses within the first quarter which reduced
reported income by approximately $57.1 million, or $1.02 per share. The
Company expects to incur additional expenses relating to the
acquisition, including professional, legal and advisory fees related to
closing of the transaction as well as the integration and implementation
of enhanced controls consistent with SOX requirements and finalization
of regulatory review costs. Capitalized fees related to the existing
debt facility will also need to be fully expensed when the acquisition
closes and the existing debt facility is terminated. The Company
estimates these costs will range from approximately $30 million to $45
million for the remainder of fiscal 2019, exclusive of additional
changes in the value of the foreign currency forward contract, which
will continue to be marked to market, costs expected to be capitalized
in connection with the debt facilities and purchase price accounting
related charges. A large portion of these $30 million to $45 million of
costs will be recognized at or prior to the acquisition closing date.

As we work to complete our acquisition of EHG, we are mindful of
maintaining the strength of our balance sheet to support our long-term
strategic goals,” said Colleen Zuhl, Thor Senior Vice President and CFO.
We have shown our ability to responsibly manage leverage with our
acquisition of Jayco in 2016, and we intend to maintain that same
discipline as we look to reduce leverage resulting from the EHG
acquisition once it is completed, while balancing our need to support
strategic capital investments and return cash to our shareholders.”


Looking ahead, Thor’s management team and board remain focused on the
long term and are optimistic about global growth opportunities. The
combination of retail trends in the RV industry, an influx of new
consumers entering the industry and the consistent growth in demand for
outdoor experiences and products will provide the ideal environment for
Thor Industries to grow and maximize value for all stakeholders.

We remain confident in both the short and long-term fundamentals
driving the RV industry. The combination of strong economic indicators,
especially consumer confidence, an influx of new consumers entering the
RV industry, and the consistent growth in demand for outdoor experiences
and products provide the ideal environment for Thor Industries to grow
and maximize value for all stakeholders,” said Peter B. Orthwein, Thor
Executive Chairman.

We are also excited to soon be completing our purchase of EHG, which
will open new markets for us, and will make Thor Industries the largest
global RV manufacturer. Our Company and management team have
demonstrated that we have the ability to successfully integrate and
manage large acquisitions by relying on our operational excellence and
prudent financial management, and we are looking forward to working
together with the EHG team to expand our leadership worldwide,” added
Mr. Orthwein.

Supplemental Earnings Release Materials

Thor announced that it has provided a comprehensive question and answer
document, as well as a PowerPoint presentation, relating to its
quarterly results and other topics. To view these materials, go to

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 and its products, please go to

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 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; 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
anticipated timing of the closing of the acquisition, the potential
benefits of the proposed acquisition and the anticipated operating
synergies, the satisfaction of the conditions to closing the acquisition
in the anticipated timeframe or at all, 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 Part II,
Item 1A of our quarterly report on Form 10-Q for the period ended
October 31, 2018.

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 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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October 31, 2018

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