\n The following\n unaudited pro forma information represents the Company’s\n results of operations as if the fiscal 2016 acquisition of Jayco\n had occurred at the beginning of fiscal 2015:
\n\n
\n| \n | \n | \n | \n | \n |
| \n | \n | Fiscal Year Ended \n July 31, 2016 | \n \n | |
| \n Net sales \n | \n \n | $ | \n6,176,686 | \n\n |
| \n Net income \n | \n \n | $ | \n284,394 | \n\n |
| \n Basic earnings per common\n share \n | \n \n | $ | \n5.42 | \n\n |
| \n Diluted earnings per common\n share \n | \n \n | $ | \n5.41 | \n\n |
2.\n ACQUISITIONS
\nJayco,\n Inc.
\n\n On June 30,\n 2016, the Company closed on a Stock Purchase Agreement\n (“Jayco SPA”) for the acquisition of all the issued and\n outstanding capital stock of towable and motorized recreational\n vehicle manufacturer Jayco, Corp. (“Jayco”) for initial\n cash consideration of $576,060, subject to adjustment. This\n acquisition was funded from the Company’s cash on hand and\n $360,000 from an asset-based revolving credit facility as more\n fully described in Note 12 to the Consolidated Financial\n Statements. The final purchase price adjustment of $5,039, included\n in accounts payable as of July 31, 2016, was based on the\n final determination of net assets as of the June 30, 2016\n closing date and was paid during the first quarter of fiscal 2017.\n Jayco operates in the same manner as the Company’s other\n recreational vehicle subsidiaries, and its towables operations are\n aggregated within the Company’s towable recreational vehicle\n reportable segment and its motorized operations are aggregated\n within the Company’s motorized recreational vehicle\n reportable segment. The Company purchased Jayco to complement its\n existing towable and motorized RV product offerings and dealer\n base.
\n\n
\n\n The following\n table summarizes the final fair values assigned to the Jayco net\n assets acquired, which are based on internal and independent\n external valuations:
\n\n
\n| \n | \n | \n | \n | \n |
| \n Cash \n | \n \n | $ | \n18,409 | \n\n |
| \n Other current\n assets \n | \n \n | \n | 258,158 | \n\n |
| \n Property, plant and\n equipment \n | \n \n | \n | 80,824 | \n\n |
| \n Dealer network \n | \n \n | \n | 261,100 | \n\n |
| \n Trademarks \n | \n \n | \n | 92,800 | \n\n |
| \n Backlog \n | \n \n | \n | 12,400 | \n\n |
| \n Goodwill \n | \n \n | \n | 74,184 | \n\n |
| \n Current liabilities \n | \n \n | \n | (216,776 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n |
| \n Total fair value of net assets\n acquired \n | \n \n | \n | 581,099 | \n\n |
| \n Less cash acquired \n | \n \n | \n | (18,409 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n |
| \n Total cash consideration for\n acquisition, less cash acquired \n | \n \n | $ | \n562,690 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n |
\n On the acquisition\n date, amortizable intangible assets had a weighted-average useful\n life of 19.3 years. The dealer network was valued based on the\n Discounted Cash Flow Method and is amortized on an accelerated\n basis over 20 years. The trademarks were valued on the Relief from\n Royalty Method and are amortized on a straight-line basis over 20\n years. Backlog was valued based on the Discounted Cash Flow Method\n and is amortized on a straight-line basis over 3 months. Goodwill\n is deductible for tax purposes.
\n\n The following\n unaudited pro forma information represents the Company’s\n results of operations as if the fiscal 2016 acquisition of Jayco\n had occurred at the beginning of fiscal 2015:
\n\n
\n| \n | \n | \n | \n | \n |
| \n | \n | Fiscal Year Ended \n July 31, 2016 | \n \n | |
| \n Net sales \n | \n \n | $ | \n6,176,686 | \n\n |
| \n Net income \n | \n \n | $ | \n284,394 | \n\n |
| \n Basic earnings per common\n share \n | \n \n | $ | \n5.42 | \n\n |
| \n Diluted earnings per common\n share \n | \n \n | $ | \n5.41 | \n\n |
16. EMPLOYEE\n BENEFIT PLANS
\n\n Substantially all\n non-highly compensated\n employees are eligible to participate in a 401(k) plan. The Company\n may make discretionary contributions to the 401(k) plan according\n to a matching formula determined by each operating subsidiary.\n Total expense for the plan was $2,689 in fiscal 2018, $1,797 in\n fiscal 2017 and $917 in fiscal 2016.
\n\n The Company has\n established a deferred compensation plan for highly compensated\n employees who are not eligible to participate in a 401(k) plan.\n This plan allows participants to defer a portion of their\n compensation and to direct the Company to invest the funds in\n mutual fund investments held by the Company. Participant benefits\n are limited to the value of the investments held on their behalf.\n Investments held by the Company are accounted for at fair value and\n reported as Other long-term assets, and the equal and offsetting\n obligation to the participants is reported as Other long-term\n liabilities in the Consolidated Balance Sheets. Changes in the fair\n value of the plan assets and the related deferred liability are\n both recorded through the Consolidated Statements of Income and\n Comprehensive Income. The Company does not make contributions to\n the plan. The balance of investments held in this plan, and the\n equal and offsetting long-term liability to the participants, was\n $43,316 at July 31, 2018 and $28,095 at July 31,\n 2017.
\n9. CONCENTRATION\n OF RISK
\n\n One dealer,\n FreedomRoads, LLC, accounted for 20% of the Company’s\n consolidated net sales in fiscal 2018, fiscal 2017 and fiscal 2016.\n This dealer also accounted for 26% of the Company’s\n consolidated trade accounts receivable at July 31, 2018 and\n 30% at July 31, 2017. The loss of this dealer could have a\n significant effect on the Company’s business and the results\n of its operations.
\n\n Cash and\n Cash Equivalents – Interest-bearing deposits and\n other investments with maturities of three months or less when\n purchased are considered cash equivalents. At July 31, 2018\n and 2017, cash and cash equivalents of $254,701 and $211,408,\n respectively, were held by one financial institution.
\n14. CONTINGENT\n LIABILITIES AND COMMITMENTS
\n\n The Company is\n contingently liable under terms of repurchase agreements with\n financial institutions providing inventory financing for certain\n dealers of certain of its RV products. These arrangements, which\n are customary in the RV industry, provide for the repurchase of\n products sold to dealers in the event of default by the dealer on\n their agreement to pay the financial institution. The repurchase\n price is generally determined by the original sales price of the\n product and pre-defined\n curtailment arrangements. The Company typically resells the\n repurchased product at a discount from its repurchase price. The\n risk of loss from these agreements is spread over numerous dealers.\n In addition to the guarantee under these repurchase agreements, the\n Company may also be required to repurchase inventory relative to\n dealer terminations in certain states in accordance with state laws\n or regulatory requirements. The repurchase activity related to\n dealer terminations in certain states has historically been\n insignificant in relation to our repurchase obligation with\n financial institutions.
\n\n The Company’s\n total commercial commitments under standby repurchase obligations\n on dealer inventory financing as of July 31, 2018 and\n July 31, 2017 were $2,748,465 and $2,200,544, respectively.\n The commitment term is generally up to eighteen months.
\n\n The Company\n accounts for the guarantee under repurchase agreements of\n dealers’ financing by deferring a portion of the related\n product sale that represents the estimated fair value of the\n guarantee at inception. The estimated fair value takes into account\n an estimate of the losses that may be incurred upon resale of any\n repurchases. This estimate is based on recent historical experience\n supplemented by the Company’s assessment of current economic\n and other conditions affecting its dealers. This deferred amount is\n included in the repurchase and guarantee reserve balances of $7,400\n and $6,345 as of July 31, 2018 and July 31, 2017,\n respectively, which are included in Other current liabilities in\n the Consolidated Balance Sheets.
\n\n Losses incurred\n related to repurchase agreements that were settled in the past\n three fiscal years were not material. Based on current market\n conditions, the Company believes that any future losses under these\n agreements will not have a significant effect on the\n Company’s consolidated financial position, results of\n operations or cash flows.
\nLegal Matters
\n\n The Company is\n involved in certain litigation arising out of its operations in the\n normal course of its business, most of which is based upon state\n “lemon laws”, warranty claims and vehicle accidents\n (for which the Company carries insurance above a specified\n self-insured retention or deductible amount). The outcomes of legal\n proceedings and claims brought against the Company are subject to\n significant uncertainty. There is significant judgment\n required in assessing both the probability of an adverse outcome\n and the determination as to whether an exposure can be reasonably\n estimated. In management’s opinion, the ultimate\n disposition of any current legal proceedings or claims against\n the Company will not have a material effect on the Company’s\n financial condition, operating results or cash flows. Litigation\n is, however, inherently uncertain and an adverse outcome from such\n litigation could have a material effect on the operating results of\n a particular reporting period.
\n\n Principles\n of Consolidation – The accompanying Consolidated\n Financial Statements include the accounts of Thor Industries, Inc.\n and its subsidiaries. The Company consolidates all majority-owned\n subsidiaries, and all intercompany balances and transactions are\n eliminated upon consolidation.
\n3. DISCONTINUED\n OPERATIONS
\n\n On July 31,\n 2013, the Company entered into a Stock Purchase Agreement and sold\n its bus business to Allied Specialty Vehicles, Inc. The sale closed\n on October 20, 2013. The Company’s bus business, which\n manufactured and sold transit and shuttle buses, included the\n operations of Champion Bus Inc., General Coach America, Inc.,\n Goshen Coach, Inc., ElDorado National (California), Inc. and\n ElDorado National (Kansas), Inc. This divestiture allowed the\n Company to focus on the strategic development and growth of its\n core recreational vehicle business.
\n\n The results of\n operations for the bus business have been reported as loss from\n discontinued operations, net of income taxes, in the Consolidated\n Statements of Income and Comprehensive Income for fiscal\n 2016.
\n10. INVESTMENTS\n AND FAIR VALUE MEASUREMENTS
\n\n The Company\n assesses the inputs used to measure the fair value of certain\n assets and liabilities using a three level hierarchy, as prescribed\n in ASC 820, “Fair Value Measurements and Disclosures.”\n Level 1 inputs include quoted prices in active markets for\n identical assets or liabilities and are the most observable.\n Level 2 inputs include inputs other than Level 1 that are\n either directly or indirectly observable, such as quoted market\n prices for similar but not identical assets or liabilities, quoted\n prices in inactive markets or other inputs that can be corroborated\n by observable market data. Level 3 inputs are not observable,\n are supported by little or no market activity and include\n management’s judgments about the assumptions market\n participants would use in pricing the asset or\n liability.
\n\n
\n\n The financial\n assets that were accounted for at fair value on a recurring basis\n at July 31, 2018 and July 31, 2017, all using\n Level 1 inputs, are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, 2018 | \n\n | \n | July 31, 2017 | \n\n | ||
| \n Cash equivalents \n | \n \n | $ | \n230,319 | \n\n | \n | $ | \n176,663 | \n\n |
| \n Deferred compensation plan\n assets \n | \n \n | $ | \n43,316 | \n\n | \n | $ | \n28,095 | \n\n |
\n Cash equivalents\n represent investments in government and other money market funds\n traded in an active market, and are reported as a component of Cash\n and cash equivalents in the Consolidated Balance Sheets.
\n\n Deferred\n compensation plan assets represent investments in securities\n (primarily mutual funds) traded in an active market held for the\n benefit of certain employees of the Company as part of a deferred\n compensation plan. Deferred compensation plan asset balances are\n recorded as components of Other long-term assets in the\n Consolidated Balance Sheets. An equal and offsetting liability is\n also recorded in regards to the deferred compensation plan as a\n component of Other long-term liabilities in the Consolidated\n Balance Sheets. Changes in the fair value of the plan assets and\n the related liability are reflected in Other income, net and\n Selling, general and administrative expenses, respectively, in the\n Consolidated Statements of Income and Comprehensive\n Income.
\n\n The financial\n assets that were accounted for at fair value on a recurring basis\n at July 31, 2018 and July 31, 2017, all using\n Level 1 inputs, are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, 2018 | \n\n | \n | July 31, 2017 | \n\n | ||
| \n Cash equivalents \n | \n \n | $ | \n230,319 | \n\n | \n | $ | \n176,663 | \n\n |
| \n Deferred compensation plan\n assets \n | \n \n | $ | \n43,316 | \n\n | \n | $ | \n28,095 | \n\n |
\n Earnings Per\n Share – Basic earnings per common share\n (“EPS”) is computed by dividing net income by the\n weighted-average number of common shares outstanding. Diluted EPS\n is computed by dividing net income by the weighted-average number\n of common shares outstanding assuming dilution. The difference\n between basic EPS and diluted EPS is the result of restricted stock\n units and unvested restricted stock as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Weighted-average shares\n outstanding for basic earnings per share \n | \n \n | \n | 52,674,161 | \n\n | \n | \n | 52,562,723 | \n\n | \n | \n | 52,458,789 | \n\n |
| \n Unvested restricted stock and\n restricted stock units \n | \n \n | \n | 179,199 | \n\n | \n | \n | 195,719 | \n\n | \n | \n | 131,727 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Weighted-average shares\n outstanding assuming dilution \n | \n \n | \n | 52,853,360 | \n\n | \n | \n | 52,758,442 | \n\n | \n | \n | 52,590,516 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n The Company\n excludes restricted stock units and unvested restricted stock that\n have an antidilutive effect from its calculation of\n weighted-average shares outstanding assuming dilution, but had none\n at July 31, 2018, 2017 or 2016.
\n\n 8. EQUITY INVESTMENT
\nOn February 15, 2018, the Company announced the formation\n of a joint venture with Tourism Holdings Limited\n (“thl”) called TH2connect,\n LLC (“TH2”). The Company\n and thl each have\n a 50% ownership position in TH2 and equal representation on the\n board of directors of TH2. The Company contributed cash totaling\n $46,902 to TH2 in early March 2018\n while thl contributed\n various assets with the same approximate fair value. The\n Company’s investment in TH2 was funded entirely from cash on\n hand. In accordance with the operating agreement, TH2’s\n future capital needs, which are not expected to be material to the\n Company, will be funded proportionally\n by thl and the\n Company, and an additional $3,500 was contributed to TH2 by both\n Thor and thl in\n June 2018.
\nThe Company’s investment in TH2 is accounted for under\n the equity method of accounting. The Company’s share of the\n losses of this investment, which are included in Other income\n (expense), net in the Consolidated Statements of Income and\n Comprehensive Income, was $1,939 in fiscal 2018. The results of\n this joint venture are recorded on a one-month lag basis,\n and the fiscal 2018 total reflects the results of operations for\n the four months ended June 30, 2018 since the formation of the\n joint venture.
\nTH2 was formed to own, improve and sell innovative and\n comprehensive digital applications through a platform designed for\n the global RV industry. TH2 will offer a variety of products\n focused on enhancing the enjoyment, safety, connectivity and\n convenience of RV ownership and use.
\n \n \n7. INTANGIBLE\n ASSETS, GOODWILL AND LONG-LIVED ASSETS
\n\n The components of\n amortizable intangible assets are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | \n | \n | \n | \n | \n | July 31, 2018 | \n\n | \n | July 31, 2017 | \n\n | |||||||||||
| \n | \n | Weighted-Average \n Remaining \n Life in\n Years \n at\n July 31, 2018 | \n \n | \n | \n | \n | Cost | \n\n | \n | Accumulated \n Amortization | \n \n | \n | Cost | \n\n | \n | Accumulated \n Amortization | \n \n | |||||
| \n Dealer networks/customer\n relationships \n | \n \n | 16 | \n\n | \n | \n | \n | \n | $ | \n404,960 | \n\n | \n | $ | \n147,077 | \n\n | \n | $ | \n404,960 | \n\n | \n | $ | \n101,795 | \n\n |
| \n Trademarks \n | \n \n | 17 | \n\n | \n | \n | \n | \n | \n | 146,117 | \n\n | \n | \n | 24,364 | \n\n | \n | \n | 147,617 | \n\n | \n | \n | 17,570 | \n\n |
| \n Design technology and other\n intangibles \n | \n \n | 7 | \n\n | \n | \n | \n | \n | \n | 18,200 | \n\n | \n | \n | 9,555 | \n\n | \n | \n | 19,300 | \n\n | \n | \n | 9,203 | \n\n |
| \n Non-compete agreements \n | \n \n | 1 | \n\n | \n | \n | \n | \n | \n | 450 | \n\n | \n | \n | 383 | \n\n | \n | \n | 450 | \n\n | \n | \n | 293 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total amortizable intangible\n assets \n | \n \n | \n | \n | \n | \n | \n | \n | $ | \n569,727 | \n\n | \n | $ | \n181,379 | \n\n | \n | $ | \n572,327 | \n\n | \n | $ | \n128,861 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n The dealer\n networks and customer relationships are being amortized on an\n accelerated basis. Trademarks, design technology and other\n intangibles and non-compete agreements are amortized\n on a straight-line basis.
\n\n Estimated\n amortization expense for future years is as follows:
\n\n
\n| \n | \n | \n | \n | \n |
| \n For the fiscal year ending\n July 31, 2019 \n | \n \n | $ | \n50,043 | \n\n |
| \n For the fiscal year ending\n July 31, 2020 \n | \n \n | \n | 46,194 | \n\n |
| \n For the fiscal year ending\n July 31, 2021 \n | \n \n | \n | 42,860 | \n\n |
| \n For the fiscal year ending\n July 31, 2022 \n | \n \n | \n | 37,753 | \n\n |
| \n For the fiscal year ending\n July 31, 2023 \n | \n \n | \n | 30,291 | \n\n |
| \n For the fiscal year ending\n July 31, 2024 and thereafter \n | \n \n | \n | 181,207 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | $ | \n388,348 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n |
\n During the second\n quarter of fiscal 2016, the Company determined that sufficient\n evidence existed to warrant an interim goodwill impairment analysis\n for one of its reporting units. As a result of this analysis, the\n Company recorded a pre-tax, non-cash goodwill impairment charge of\n $9,113 in the second quarter of fiscal 2016 related to this\n reporting unit within the towables reportable segment. For the\n purpose of this goodwill test, the fair value of the reporting unit\n was determined by employing a discounted cash flow model, which\n utilized Level 3 inputs as defined by ASC 820 and discussed in\n Note 10 to the Consolidated Financial Statements. The $9,113\n charge represents the full impairment of the goodwill related to\n this reporting unit.
\n\n The\n Company’s reporting units are generally the same as its\n operating segments, which are identified in Note 4 to the\n Consolidated Financial Statements. Fair values are determined\n by a discounted cash flow model. These estimates are subject\n to significant management judgment, including the determination of\n many factors such as sales growth rates, gross margin patterns,\n cost growth rates, terminal value assumptions and discount rates,\n and therefore largely represent Level 3 inputs as defined by\n ASC 820 and discussed in Note 10 to the Consolidated\n Financial Statements. Changes in these estimates can have a\n significant impact on the determination of cash flows and fair\n value and could potentially result in future material\n impairments.
\n\n The Company\n completed its annual impairment review as of May 31, 2018, and\n no impairment was identified.
\n\n
\n\n Changes in the\n carrying amount of goodwill by reportable segment as of\n July 31, 2018 and 2017 are summarized as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Towables | \n\n | \n | Motorized | \n\n | \n | Other | \n\n | \n | Total | \n\n | ||||
| \n Net balance as of\n July 31, 2016 \n | \n \n | $ | \n334,822 | \n\n | \n | $ | \n– | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n377,693 | \n\n |
| \n | \n | \n | \n | \n | ||||||||||||
| \n Fiscal year 2017\n activity: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n No activity \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n Net balance as of\n July 31, 2017 \n | \n \n | $ | \n334,822 | \n\n | \n | $ | \n– | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n377,693 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | \n | ||||||||||||
| \n Fiscal year 2018\n activity: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n No activity \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Net balance as of\n July 31, 2018 \n | \n \n | $ | \n334,822 | \n\n | \n | $ | \n– | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n377,693 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | ||||||||||||||||
| \n \n The components of\n the net balance as of July 31, 2018 are summarized as\n follows: \n\n | \n \n \n \n | \n |||||||||||||||
| \n | \n | \n | \n | \n | ||||||||||||
| \n | \n | Towables | \n\n | \n | Motorized | \n\n | \n | Other | \n\n | \n | Total | \n\n | ||||
| \n Goodwill \n | \n \n | $ | \n343,935 | \n\n | \n | $ | \n17,252 | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n404,058 | \n\n |
| \n Accumulated impairment\n charges \n | \n \n | \n | (9,113 | \n) | \n\n | \n | (17,252 | \n) | \n\n | \n | – | \n\n | \n | \n | (26,365 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Net balance as of\n July 31, 2018 \n | \n \n | $ | \n334,822 | \n\n | \n | $ | \n– | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n377,693 | \n
13. INCOME\n TAXES
\n\n The components of\n the provision (benefit) for income taxes from continuing operations\n are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||||||
| Income Taxes: | \n\n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Federal \n | \n \n | $ | \n166,402 | \n\n | \n | $ | \n200,370 | \n\n | \n | $ | \n126,846 | \n\n |
| \n State and local \n | \n \n | \n | 21,025 | \n\n | \n | \n | 20,941 | \n\n | \n | \n | 12,716 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total current\n expense \n | \n \n | \n | 187,427 | \n\n | \n | \n | 221,311 | \n\n | \n | \n | 139,562 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Federal \n | \n \n | \n | 17,820 | \n\n | \n | \n | (37,033 | \n) | \n\n | \n | (13,079 | \n) | \n
| \n State and local \n | \n \n | \n | (2,369 | \n) | \n\n | \n | (2,146 | \n) | \n\n | \n | (1,192 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total deferred expense\n (benefit) \n | \n \n | \n | 15,451 | \n\n | \n | \n | (39,179 | \n) | \n\n | \n | (14,271 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Total income tax\n expense \n | \n \n | $ | \n202,878 | \n\n | \n | $ | \n182,132 | \n\n | \n | $ | \n125,291 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n The Tax Cuts and\n Jobs Act (the “Tax Act”) was signed into law on\n December 22, 2017. Under the Tax Act, the federal corporate\n income tax rate has been reduced from 35.0% to 21.0% starting\n January 1, 2018, which results in the use of a blended federal\n corporate income tax rate of 26.9% for the Company’s 2018\n fiscal year. Other significant changes to corporate taxation most\n relevant to the Company include accelerated expensing for certain\n business assets, the repeal of the domestic production deduction,\n additional limitations on the deductibility of interest expense and\n expanded limitations on the deductibility of executive\n compensation.
\n\n The SEC staff\n issued SAB 118, which provides guidance on accounting for the tax\n effects of the Tax Act for which the accounting under ASC 740 is\n incomplete. The rules allow for a measurement period of up to one\n year after the enactment date of the Tax Act to finalize the\n recording of the related tax impacts. To the extent that a\n company’s accounting for certain income tax effects of the\n Tax Act is incomplete but it is able to determine a reasonable\n estimate, it must record a provisional estimate in the financial\n statements. Accordingly, as of July 31, 2018 we have not\n completed our accounting for the tax effects of the Tax Act. For\n the fiscal year ended July 31, 2018, the Company has recorded\n a provisional amount of $34,000 of additional deferred income tax\n expense related to the re-measurement of our net deferred tax\n assets using its best estimates based on reasonable and supportable\n assumptions and information as of the reporting date. The Company\n recorded a provisional amount of $2,000 in the fourth quarter of\n fiscal 2018 of additional income tax expense as a result of recent\n guidance from the Internal Revenue Service related to limitations\n on the deductibility of executive compensation as provided under\n the Tax Act. The Company is still analyzing the impacts of the Tax\n Act which could potentially affect the measurement of the deferred\n tax balances.
\n\n While the\n effective date of most of the provisions of the Tax Act do not\n apply until fiscal 2019, the Company will continue its assessment\n of the impact of the Tax Act on the business throughout the one\n year measurement period as provided by SAB 118. The amounts\n recorded as of July 31, 2018 are subject to adjustment as\n further guidance becomes available, additional facts become known\n or estimation approaches are refined.
\n\n
\n\n The differences\n between income taxes at the federal statutory rate and the actual\n income taxes are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Provision at federal statutory\n rate \n | \n \n | $ | \n170,095 | \n\n | \n | $ | \n194,735 | \n\n | \n | $ | \n134,160 | \n\n |
| \n State and local income taxes,\n net of federal benefit \n | \n \n | \n | 14,255 | \n\n | \n | \n | 11,021 | \n\n | \n | \n | 6,599 | \n\n |
| \n Federal income tax credits and\n incentives \n | \n \n | \n | (3,518) | \n\n | \n | \n | (3,228) | \n\n | \n | \n | (4,194) | \n\n |
| \n Domestic production activities\n deduction \n | \n \n | \n | (16,175) | \n\n | \n | \n | (19,527) | \n\n | \n | \n | (12,609) | \n\n |
| \n Change in uncertain tax\n positions \n | \n \n | \n | 396 | \n\n | \n | \n | 375 | \n\n | \n | \n | 611 | \n\n |
| \n Effect of U.S. federal tax\n reform \n | \n \n | \n | 38,620 | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n Other \n | \n \n | \n | (795) | \n\n | \n | \n | (1,244) | \n\n | \n | \n | 724 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total income tax\n expense \n | \n \n | $ | \n202,878 | \n\n | \n | $ | \n182,132 | \n\n | \n | $ | \n125,291 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Under Internal\n Revenue Code Section 15(a), companies are required to\n calculate their federal statutory tax rate by using a blended rate\n based on the date of enactment of the Tax Act. The federal blended\n rate for the Company is 26.9% for fiscal 2018.
\n\n A summary of\n deferred income taxes is as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | ||
| \n Deferred income tax asset\n (liability): \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n Inventory basis \n | \n \n | $ | \n922 | \n\n | \n | $ | \n1,460 | \n\n |
| \n Employee benefits \n | \n \n | \n | 3,427 | \n\n | \n | \n | 6,471 | \n\n |
| \n Self-Insurance\n Reserves \n | \n \n | \n | 6,368 | \n\n | \n | \n | 9,940 | \n\n |
| \n Accrued product\n warranties \n | \n \n | \n | 62,332 | \n\n | \n | \n | 73,393 | \n\n |
| \n Accrued incentives \n | \n \n | \n | 5,235 | \n\n | \n | \n | 6,175 | \n\n |
| \n Sales returns and\n allowances \n | \n \n | \n | 1,741 | \n\n | \n | \n | 2,340 | \n\n |
| \n Accrued expenses \n | \n \n | \n | 1,905 | \n\n | \n | \n | 3,399 | \n\n |
| \n Property, plant and\n equipment \n | \n \n | \n | (9,060) | \n\n | \n | \n | (8,151) | \n\n |
| \n Deferred\n compensation \n | \n \n | \n | 12,864 | \n\n | \n | \n | 14,556 | \n\n |
| \n Intangibles \n | \n \n | \n | (9,151) | \n\n | \n | \n | (17,184) | \n\n |
| \n Unrecognized tax\n benefits \n | \n \n | \n | 2,581 | \n\n | \n | \n | 3,925 | \n\n |
| \n Other \n | \n \n | \n | (720) | \n\n | \n | \n | (3,355) | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Deferred income tax asset,\n net \n | \n \n | $ | \n78,444 | \n\n | \n | $ | \n92,969 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n As of\n July 31, 2018, the Company has $996 of state tax credit carry\n forwards that expire from fiscal 2027-2028 of which the Company\n expects to realize prior to expiration. In addition, the Company\n has $9,141 of gross state tax Net Operating Loss\n (“NOL”) carry forwards that expire from fiscal\n 2019-2038 that the Company does not expect to realize and therefore\n has been fully reserved. The deferred tax asset of $525 associated\n with the state tax NOL carry forwards and the related equal and\n offsetting valuation allowance are not reflected in the table\n above.
\nUnrecognized Tax\n Benefits
\n\n The benefits of\n tax positions reflected on income tax returns but whose outcome\n remains uncertain are only recognized for financial accounting\n purposes if they meet minimum recognition thresholds. The total\n amount of unrecognized tax benefits that, if recognized, would have\n impacted the Company’s effective tax rate were $10,491 for\n fiscal 2018, $8,477 for fiscal 2017 and $8,886 for fiscal\n 2016.
\n\n
\n\n Changes in the\n unrecognized tax benefit during fiscal years 2018, 2017 and 2016\n were as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Beginning balance \n | \n \n | $ | \n12,671 | \n\n | \n | $ | \n13,269 | \n\n | \n | $ | \n13,156 | \n\n |
| \n Tax positions related to prior\n years: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Additions \n | \n \n | \n | 353 | \n\n | \n | \n | 75 | \n\n | \n | \n | 1,546 | \n\n |
| \n Reductions \n | \n \n | \n | (2,203) | \n\n | \n | \n | (1,510) | \n\n | \n | \n | (920) | \n\n |
| \n Tax positions related to\n current year: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Additions \n | \n \n | \n | 3,629 | \n\n | \n | \n | 3,853 | \n\n | \n | \n | 3,123 | \n\n |
| \n Settlements \n | \n \n | \n | (192) | \n\n | \n | \n | (1,450) | \n\n | \n | \n | (956) | \n\n |
| \n Lapses in statute of\n limitations \n | \n \n | \n | (1,254) | \n\n | \n | \n | (1,566) | \n\n | \n | \n | (2,680) | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Ending balance \n | \n \n | $ | \n13,004 | \n\n | \n | $ | \n12,671 | \n\n | \n | $ | \n13,269 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n It is the\n Company’s policy to recognize interest and penalties accrued\n relative to unrecognized tax benefits in income tax expense. The\n total amount of liabilities accrued for interest and penalties\n related to unrecognized tax benefits as of July 31, 2018 and\n 2017 were $1,290 and $1,209, respectively. The total amount of\n interest and penalties expense (benefit) recognized in the\n Consolidated Statements of Income and Comprehensive Income for the\n fiscal years ended July 31, 2018, 2017 and 2016 were $203,\n $(218) and $(231), respectively.
\n\n The total\n unrecognized tax benefits above, along with the related accrued\n interest and penalties, are reported within the liability section\n of the Consolidated Balance Sheets. A portion of the unrecognized\n tax benefits is classified as short-term and is included in the\n “Income and other taxes” line of the Consolidated\n Balance Sheets, while the remainder is classified as a long-term\n liability.
\n\n The components of\n total unrecognized tax benefits are summarized as\n follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | ||
| \n Unrecognized tax\n benefits \n | \n \n | $ | \n13,004 | \n\n | \n | $ | \n12,671 | \n\n |
| \n Reduction to unrecognized tax\n benefits for tax credit carry forward \n | \n \n | \n | (955) | \n\n | \n | \n | (1,882) | \n\n |
| \n Accrued interest and\n penalties \n | \n \n | \n | 1,290 | \n\n | \n | \n | 1,209 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total unrecognized tax\n benefits \n | \n \n | $ | \n13,339 | \n\n | \n | $ | \n11,998 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | ||||||
| \n Short-term, included in\n “Income and other taxes” \n | \n \n | $ | \n893 | \n\n | \n | $ | \n1,735 | \n\n |
| \n Long-term \n | \n \n | \n | 12,446 | \n\n | \n | \n | 10,263 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total unrecognized tax\n benefits \n | \n \n | $ | \n13,339 | \n\n | \n | $ | \n11,998 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n The Company\n anticipates a decrease of approximately $2,300 in unrecognized tax\n benefits and $450 in interest during fiscal 2019 from expected\n settlements or payments of uncertain tax positions and lapses of\n the applicable statutes of limitations. Actual results may differ\n from these estimates.
\n\n Generally, fiscal\n years 2015-2017 remain open for federal income tax purposes and\n fiscal years 2013-2017 remain open for state and Canadian income\n tax purposes. The Company and its subsidiaries file a consolidated\n U.S. federal income tax return and multiple state income tax\n returns. The Company recently completed an exam by the state of\n Indiana for the years ended July 31, 2013 through 2015. A\n formal protest has been submitted in response to the exam. The\n Company believes it has adequately reserved for its exposure to\n additional payments for uncertain tax positions related to its\n State of Indiana income tax returns in its liability for\n unrecognized tax benefits.
\n\n Fair Value\n of Financial Instruments – The carrying amount of\n cash equivalents, accounts receivable, notes receivable and\n accounts payable approximate fair value because of the relatively\n short maturity of these financial instruments. The carrying value\n of the Company’s long-term debt approximates fair value as\n the entire balance is subject to variable market interest rates\n that the Company believes approximate market rates for a similarly\n situated Company. The fair value of debt is largely estimated using\n level 2 inputs as defined by ASC 820 and discussed in Note\n 10 to the Consolidated Financial Statements
\n\n Intangible\n Assets – Intangible assets consist of goodwill,\n trademarks, dealer networks/customer relationships, design\n technology assets and non-compete agreements. Trademarks are\n amortized on a straight-line basis over 15 to 25 years. Dealer\n networks/customer relationships are amortized on an accelerated\n basis over 12 to 20 years, and design technology assets and\n non-compete agreements are\n amortized using the straight-line method over 2 to 15 years.\n Backlog is amortized using a straight-line basis method over\n periods up to 3 months. Goodwill is not amortized but is tested at\n least annually for impairment. Goodwill is reviewed for impairment\n by applying a fair-value based test on an annual basis, or more\n frequently if events or circumstances indicate a potential\n impairment.
\n\n Long-lived\n Assets – Property, plant and equipment and\n identifiable intangibles that are amortized are reviewed for\n impairment whenever events or changes in circumstances indicate\n that the carrying amount of an asset may not be recoverable from\n future cash flows. If the carrying value of a long-lived asset is\n impaired, an impairment charge is recorded for the amount by which\n the carrying value of the long-lived asset exceeds its fair\n value.
\n\n Income\n Taxes – The objectives of accounting for\n income taxes are to recognize the amount of taxes payable or\n refundable for the current year and deferred tax liabilities and\n assets for the future tax consequences of events that have been\n recognized in our financial statements or tax returns. Judgment is\n required in assessing the future tax consequences of events that\n have been recognized in our financial statements or tax returns.\n Fluctuations in the actual outcome of these tax consequences could\n materially impact our financial position or results of\n operations.
\n\n The Company\n recognizes liabilities for uncertain tax positions based on a\n two-step process. The\n first step is to evaluate the tax position for recognition by\n determining if the weight of available evidence indicates that it\n is more likely than not that the position will be sustained on\n audit, including resolution of related appeals or litigation\n processes, if any. The second step requires the Company to estimate\n and measure the tax benefit as the largest amount that is more than\n 50% likely to be realized upon ultimate settlement. It is\n inherently difficult and subjective to estimate such amounts, as\n the Company has to determine the probability of various possible\n outcomes. The Company reevaluates these uncertain tax positions on\n a quarterly basis. This evaluation is based on factors including,\n but not limited to, changes in facts or circumstances, changes in\n tax law, effectively settled issues under audit, voluntary\n settlements and new audit activity. Such a change in recognition or\n measurement would result in the recognition of a tax benefit or an\n additional charge to the tax provision.
\n\n Significant\n judgment is required in determining the Company’s provision\n for income taxes, the Company’s deferred tax assets and\n liabilities and the valuation allowance recorded against the\n Company’s deferred tax assets, if any. Valuation allowances\n must be considered due to the uncertainty of realizing deferred tax\n assets. The Company assesses whether valuation allowances should be\n established against our deferred tax assets on a tax jurisdictional\n basis based on the consideration of all available evidence,\n including cumulative income over recent periods, using a more\n likely than not standard. The valuation allowance activity during\n the year was not material.
\n15. LEASES
\n\n The Company has\n operating leases principally for land, buildings and equipment and\n also leases certain real estate and transportation equipment under\n various capital leases expiring between 2018 and 2028. Future\n minimum rental payments required under capital and operating leases\n as of July 31, 2018 are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Capital Leases | \n\n | \n | Operating Leases | \n\n | ||
| \n For the fiscal year ending\n July 31, 2019 \n | \n \n | $ | \n977 | \n\n | \n | $ | \n2,301 | \n\n |
| \n For the fiscal year ending\n July 31, 2020 \n | \n \n | \n | 974 | \n\n | \n | \n | 1,544 | \n\n |
| \n For the fiscal year ending\n July 31, 2021 \n | \n \n | \n | 993 | \n\n | \n | \n | 1,259 | \n\n |
| \n For the fiscal year ending\n July 31, 2022 \n | \n \n | \n | 1,015 | \n\n | \n | \n | 1,046 | \n\n |
| \n For the fiscal year ending\n July 31, 2023 \n | \n \n | \n | 1,037 | \n\n | \n | \n | 1,011 | \n\n |
| \n For the fiscal year ending\n July 31, 2024 and thereafter \n | \n \n | \n | 4,098 | \n\n | \n | \n | 6,723 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total minimum lease\n payments \n | \n \n | \n | 9,094 | \n\n | \n | $ | \n13,884 | \n\n |
| \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n |
| \n Less amount representing\n interest \n | \n \n | \n | (2,999 | \n) | \n\n | \n | \n | \n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
| \n Present value of net minimum\n capital lease payments \n | \n \n | \n | 6,095 | \n\n | \n | \n | \n | \n |
| \n Less current\n portion \n | \n \n | \n | (410 | \n) | \n\n | \n | \n | \n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
| \n Long-term capital lease\n obligations \n | \n \n | $ | \n5,685 | \n\n | \n | \n | \n | \n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
\n The current\n portion of capital lease obligations are included in Other current\n liabilities and the long-term capital lease obligations are\n included in Other long-term liabilities, respectively, in the\n Consolidated Balance Sheets.
\n\n Rent expense for\n the fiscal years ended July 31, 2018, 2017 and 2016 was\n $3,804, $3,560 and $3,757, respectively.
\n5. INVENTORIES
\n\n Major\n classifications of inventories are:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | ||
| \n Finished products –\n RV \n | \n \n | $ | \n44,998 | \n\n | \n | $ | \n24,904 | \n\n |
| \n Finished products –\n Other \n | \n \n | \n | 35,320 | \n\n | \n | \n | 27,862 | \n\n |
| \n Work in process \n | \n \n | \n | 124,703 | \n\n | \n | \n | 117,319 | \n\n |
| \n Raw materials \n | \n \n | \n | 258,429 | \n\n | \n | \n | 214,518 | \n\n |
| \n Chassis \n | \n \n | \n | 116,308 | \n\n | \n | \n | 109,555 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Subtotal \n | \n \n | \n | 579,758 | \n\n | \n | \n | 494,158 | \n\n |
| \n Excess of FIFO costs over LIFO\n costs \n | \n \n | \n | (41,849 | \n) | \n\n | \n | (33,670 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total inventories \n | \n \n | $ | \n537,909 | \n\n | \n | $ | \n460,488 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Of the $579,758\n and $494,158 of inventory at July 31, 2018 and 2017, $305,990\n and $284,897, respectively, was valued on the last-in, first-out (LIFO) basis, and $273,768\n and $209,261, respectively, was valued on the first-in, first-out (FIFO) method.
\n\n The\n Company’s reserves for inventory obsolescence were $5,273 at\n July 31, 2018 and $5,240 at July 31, 2017.
\n\n Inventories – Certain inventories are\n stated at the lower of cost or net realizable value, determined on\n the last-in, first-out (“LIFO”) basis\n with the remainder being valued on a first-in, first-out (“FIFO”) basis.\n Manufacturing costs include materials, labor, freight-in and manufacturing overhead.\n Unallocated overhead and abnormal costs are expensed as\n incurred.
\n12. LONG-TERM\n DEBT
\n\n The Company has a\n five-year credit agreement, which was entered into on June 30,\n 2016 and matures on June 30, 2021. The agreement provides for\n a $500,000 asset-based revolving credit facility and a $100,000\n expansion option, subject to certain conditions. There were no\n borrowings outstanding on this facility at July 31, 2018 and\n $145,000 of borrowings outstanding at July 31, 2017.\n Borrowings are subject to a variable pricing structure which can\n result in increases or decreases to the interest rate. Under the\n terms of the credit agreement, the Company can elect to borrow\n funds under two different structures. The first option is a\n variable interest rate based upon the prime rate plus a pricing\n spread (“Base Rate”). The second option is a variable\n interest rate based upon the London Interbank Offered Rate plus a\n pricing spread (“LIBOR Rate”). Depending on the\n Company’s borrowing availability as a percentage of the\n revolving credit commitment, pricing spreads can range from 1.25%\n to 1.75% in the case of loans bearing interest at the LIBOR Rate,\n and from 0.25% to 0.75% for loans bearing interest at the Base\n Rate.
\n\n As of July 31,\n 2017, all of the $145,000 in outstanding borrowings were loans\n bearing interest at the LIBOR Rate, and the borrowing spread on\n those loans was 1.50%, resulting in a total rate of approximately\n 2.72%. The revolving credit facility, which is secured by\n substantially all of the Company’s tangible and intangible\n assets excluding real property, contains customary limits and\n restrictions concerning investments, sales of assets, liens on\n assets, stock repurchases and dividend and other payments depending\n on adjusted excess cash availability as defined in the agreement\n and summarized below. The terms of the facility permit prepayment\n without penalty at any time, subject to customary breakage costs\n relative to the LIBOR-based loans.
\n\n Borrowing\n availability under the credit agreement is limited to the lesser of\n the facility total and the monthly calculated borrowing base, which\n is based on stipulated loan percentages applied to specified assets\n of the Company. The credit agreement has no financial covenant\n restrictions for borrowings as long as the Company has adjusted\n excess availability under the facility that exceeds 10% of the\n lesser of the line commitment or the borrowing base total, with a\n floor of $40,000. As of July 31, 2018, the available and\n unused credit line under the revolver was $495,657, and the Company\n was in compliance with the financial covenant in the credit\n agreement.
\n\n In fiscal 2018,\n total LIBOR Rate and Base Rate interest expense on the facility was\n $1,939 and the weighted-average interest rate on borrowings from\n the facility was 2.82%. In fiscal 2017, total LIBOR Rate and Base\n Rate interest expense on the facility was $7,002 and the\n weighted-average interest rate on borrowings from the facility was\n 2.34%. The Company incurred fees to secure the facility of $7,850\n in fiscal 2016, and those fees are being amortized ratably over the\n five-year term of the agreement, or a shorter period if the credit\n agreement period is shortened for any reason. The Company recorded\n charges related to the amortization of these fees, which are\n reflected in interest expense, of $1,570 in both fiscal 2018 and\n fiscal 2017 and $131 in fiscal 2016. The unamortized balances of\n these facility fees were $4,579 at July 31, 2018 and $6,149 at\n July 31, 2017 and are included in Other long-term assets in\n the Consolidated Balance Sheets.
\n\n The carrying value\n of the Company’s long-term debt at July 31, 2017\n approximated fair value as the entire balance was subject to\n variable market interest rates that the Company believed were\n market rates for a similarly situated Company. The fair value of\n debt is largely estimated using level 2 inputs as defined by ASC\n 820 and discussed in Note 10 to the Consolidated Financial\n Statements.
\nAccounting\n Pronouncements
\n\n In January 2017,\n the Financial Accounting Standards Board (“FASB”)\n issued Accounting Standards Update (“ASU”) No. 2017-04,\n “Intangibles-Goodwill and Other (Topic 350): Simplifying the\n Test for Goodwill Impairment,” which eliminates the\n requirement to calculate the implied fair value of goodwill to\n measure a goodwill impairment charge (referred to as Step 2 in the\n goodwill impairment test). Instead, if the carrying amount of\n a reporting unit exceeds its fair value, an impairment charge equal\n to that excess shall be recognized, not to exceed the amount of\n goodwill allocated to the reporting unit. This ASU is effective for\n annual and any interim impairment tests for periods beginning after\n December 15, 2019, with early adoption permitted after\n January 1, 2017. This ASU is effective for the Company in\n its fiscal year 2021 beginning on August 1, 2020. The\n Company is currently evaluating the impact of this ASU on its\n consolidated financial statements, which will depend on the\n outcomes of future goodwill impairment tests.
\n\n In February 2016,\n the FASB issued ASU No. 2016-02, “Leases (Topic\n 842),” with further clarifications and improvements included\n in ASU No. 2018-10,\n “Codification Improvements to Topic 842, Leases,” and\n ASU 2018-11, “Leases\n (Topic 842) Targeted Improvements,” each issued in July 2018,\n all of which provides guidance on the recognition, measurement,\n presentation, and disclosure of leases. ASU No. 2016-02 requires the\n recognition of lease assets and lease liabilities by lessees for\n all leases with terms greater than 12 months. The principal\n difference from current guidance is that the lease assets and lease\n liabilities arising from operating leases will be recognized on the\n Consolidated Balance Sheet. This ASU is effective for fiscal years,\n and interim periods within those years, beginning after\n December 15, 2018. Early adoption is permitted. This ASU is\n effective for the Company in its fiscal year 2020 beginning on\n August 1, 2019. The Company is currently evaluating the\n impact that implementing this ASU will have on its financial\n statements.
\n\n In May 2014, the\n FASB issued ASU No. 2014-09, “Revenue from\n Contracts with Customers (Topic 606),” which outlines a\n single comprehensive model for entities to use in accounting for\n revenue arising from contracts with customers. This ASU will\n supersede most current revenue recognition guidance. Under this\n ASU, entities are required to identify the contract with a\n customer, identify the separate performance obligations in the\n contract, determine the transaction price, allocate the transaction\n price to the separate performance obligations in the contract and\n recognize the appropriate amount of revenue when (or as) the entity\n satisfies each performance obligation. This ASU will also require\n additional qualitative and quantitative disclosures about contracts\n with customers, significant judgments made in applying the revenue\n guidance, and assets recognized from the costs to obtain or fulfill\n a contract. ASU No. 2014-09 is effective for\n fiscal years, and the interim periods within those years, beginning\n after December 15, 2017. This ASU is effective for the Company\n in its fiscal year 2019 beginning on August 1, 2018. In\n applying this ASU, entities have the option of using either a full\n retrospective transition or a modified retrospective approach with\n the cumulative effect recognized as of the date of adoption. The\n Company will adopt this ASU on August 1, 2018 using the\n modified retrospective approach. As a result of the adoption, the\n Company expects an immaterial net, after-tax cumulative effect adjustment\n to reduce Retained Earnings as of August 1, 2018. This\n adjustment is a result of a change in the accounting for certain\n sales incentives, which are currently recorded as a reduction of\n revenue at the later of the time products are sold or the date the\n incentive is offered. Under this ASU, these incentives will need to\n be estimated and recorded at the time of sale, which is primarily\n upon shipment to customers. The Company is in the process of\n evaluating the impact upon adoption of this ASU to internal\n controls, business processes and financial statement disclosures,\n none of which are expected to be material
\n\n Property, plant\n and equipment is stated at cost, net of accumulated depreciation,\n and consists of the following:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | ||
| \n Land \n | \n \n | $ | \n57,413 | \n\n | \n | $ | \n48,812 | \n\n |
| \n Buildings and\n improvements \n | \n \n | \n | 468,824 | \n\n | \n | \n | 380,139 | \n\n |
| \n Machinery and\n equipment \n | \n \n | \n | 197,294 | \n\n | \n | \n | 161,724 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total cost \n | \n \n | \n | 723,531 | \n\n | \n | \n | 590,675 | \n\n |
| \n Less accumulated\n depreciation \n | \n \n | \n | (201,477 | \n) | \n\n | \n | (165,437 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Net property, plant and\n equipment \n | \n \n | $ | \n522,054 | \n\n | \n | $ | \n425,238 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Repurchase\n Agreements – The Company is contingently\n liable under terms of repurchase agreements with financial\n institutions providing inventory financing for certain dealers of\n certain of its RV products. These arrangements, which are customary\n in the RV industry, provide for the repurchase of products sold to\n dealers in the event of default by the dealer on their agreement to\n pay the financial institution. The risk of loss from these\n agreements is spread over numerous dealers. In addition to the\n guarantee under these repurchase agreements, we may also be\n required to repurchase inventory relative to dealer terminations in\n certain states in accordance with state laws or regulatory\n requirements. The repurchase price is generally determined by the\n original sales price of the product and pre-defined curtailment arrangements\n and the Company typically resells the repurchased product at a\n discount from its repurchase price. The Company accounts for the\n guarantee under its repurchase agreements with our dealers’\n financing institutions by estimating and deferring a portion of the\n related product sale that represents the estimated fair value of\n the repurchase obligation. The estimated fair value takes into\n account our estimate of the loss we will incur upon resale of any\n repurchases. This estimate is based on recent historical experience\n supplemented by management’s assessment of current economic\n and other conditions affecting our dealers. This deferred amount is\n included in our repurchase and guarantee reserve which is included\n in Other current liabilities in the Consolidated Balance\n Sheets.
\n\n Revenue\n Recognition – Revenues from the sale of recreational\n vehicles are recorded primarily when all of the following\n conditions have been met:
\n\n
\n| 1) | \n\n An order for a product has been received from a\n dealer; \n | \n
\n
\n| 2) | \n\n Written or oral approval for payment has been received from the\n dealer’s flooring institution, if applicable; \n | \n
\n
\n| 3) | \n\n A common carrier signs the delivery ticket accepting\n responsibility for the product as agent for the dealer;\n and \n | \n
\n
\n| 4) | \n\n The product is removed from our property for delivery to the\n dealer who placed the order. \n | \n
\n These conditions\n are generally met when title passes, which is when vehicles are\n shipped to dealers in accordance with shipping terms, which are\n primarily FOB shipping point. Most sales are made to dealers\n financing their purchases under flooring arrangements with banks or\n finance companies. Certain shipments are sold to customers on\n credit or cash on delivery (“COD”) terms. The Company\n recognizes revenue on credit sales upon shipment and COD sales upon\n payment and delivery. Products are not sold on consignment, dealers\n do not have the right to return products and dealers are typically\n responsible for interest costs to floor plan lenders.
\n\n At the time of\n revenue recognition, amounts billed to dealers for delivery of\n product are recognized as revenue and the corresponding delivery\n expense charged to costs of products sold.
\n\n Revenues from the\n sale of extruded aluminum components are recognized when\n title to products and the risk of loss are transferred to the\n customer.
\n11. PRODUCT\n WARRANTY
\n\n The Company\n generally provides retail customers of its products with a\n one-year or two-year warranty covering defects in\n material or workmanship, with longer warranties on certain\n structural components. The Company records a liability based on its\n best estimate of the amounts necessary to settle future and\n existing claims on products sold as of the balance sheet date.\n Factors used in estimating the warranty liability include a history\n of units sold, existing dealer inventory, average cost incurred and\n a profile of the distribution of warranty expenditures over the\n warranty period. Management believes that the warranty liabilities\n are appropriate. However, actual claims incurred could differ from\n estimates, requiring adjustments to the liabilities. Warranty\n liabilities are reviewed and adjusted as necessary on at least a\n quarterly basis.
\n\n Changes in our\n product warranty liabilities are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Beginning balance \n | \n \n | $ | \n216,781 | \n\n | \n | $ | \n201,840 | \n\n | \n | $ | \n108,206 | \n\n |
| \n Provision \n | \n \n | \n | 259,845 | \n\n | \n | \n | 195,799 | \n\n | \n | \n | 114,119 | \n\n |
| \n Payments \n | \n \n | \n | (211,698 | \n) | \n\n | \n | (180,858 | \n) | \n\n | \n | (110,092 | \n) | \n
| \n Acquisitions \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | 89,607 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Ending balance \n | \n \n | $ | \n264,928 | \n\n | \n | $ | \n216,781 | \n\n | \n | $ | \n201,840 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Depreciation – Property, plant and\n equipment are recorded at cost and depreciated using the\n straight-line method over the estimated useful lives of the assets\n as follows:
\nBuildings and improvements – 10 to 39 years
\nMachinery and equipment – 3 to 10 years
\n\n Depreciation\n expense is recorded in cost of products sold except for $5,035,\n $5,710 and $3,812 in fiscal 2018, 2017 and 2016, respectively,\n which relates primarily to office buildings and office equipment\n and is recorded in selling, general and administrative\n expenses.
\n\n Allowance\n for Doubtful Accounts – The allowance for doubtful\n accounts represents management’s estimate of probable credit\n losses in existing accounts receivable, as determined from a review\n of past due balances and other specific account information. The\n allowance for doubtful accounts activity during fiscal 2018, 2017\n and 2016, and the balances at July 31, 2018 and July 31,\n 2017, were not material.
\n6. PROPERTY,\n PLANT AND EQUIPMENT
\n\n Property, plant\n and equipment is stated at cost, net of accumulated depreciation,\n and consists of the following:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | ||
| \n Land \n | \n \n | $ | \n57,413 | \n\n | \n | $ | \n48,812 | \n\n |
| \n Buildings and\n improvements \n | \n \n | \n | 468,824 | \n\n | \n | \n | 380,139 | \n\n |
| \n Machinery and\n equipment \n | \n \n | \n | 197,294 | \n\n | \n | \n | 161,724 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total cost \n | \n \n | \n | 723,531 | \n\n | \n | \n | 590,675 | \n\n |
| \n Less accumulated\n depreciation \n | \n \n | \n | (201,477 | \n) | \n\n | \n | (165,437 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Net property, plant and\n equipment \n | \n \n | $ | \n522,054 | \n\n | \n | $ | \n425,238 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Property, plant\n and equipment at both July 31, 2018 and July 31, 2017\n includes buildings and improvements acquired under capital leases\n of $6,527, and includes related amortization included in\n accumulated depreciation of $1,768 and $1,224,\n respectively.
\n\n A summary of\n deferred income taxes is as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | ||
| \n Deferred income tax asset\n (liability): \n | \n \n | \n | \n | \n | \n | \n | \n | \n |
| \n Inventory basis \n | \n \n | $ | \n922 | \n\n | \n | $ | \n1,460 | \n\n |
| \n Employee benefits \n | \n \n | \n | 3,427 | \n\n | \n | \n | 6,471 | \n\n |
| \n Self-Insurance\n Reserves \n | \n \n | \n | 6,368 | \n\n | \n | \n | 9,940 | \n\n |
| \n Accrued product\n warranties \n | \n \n | \n | 62,332 | \n\n | \n | \n | 73,393 | \n\n |
| \n Accrued incentives \n | \n \n | \n | 5,235 | \n\n | \n | \n | 6,175 | \n\n |
| \n Sales returns and\n allowances \n | \n \n | \n | 1,741 | \n\n | \n | \n | 2,340 | \n\n |
| \n Accrued expenses \n | \n \n | \n | 1,905 | \n\n | \n | \n | 3,399 | \n\n |
| \n Property, plant and\n equipment \n | \n \n | \n | (9,060) | \n\n | \n | \n | (8,151) | \n\n |
| \n Deferred\n compensation \n | \n \n | \n | 12,864 | \n\n | \n | \n | 14,556 | \n\n |
| \n Intangibles \n | \n \n | \n | (9,151) | \n\n | \n | \n | (17,184) | \n\n |
| \n Unrecognized tax\n benefits \n | \n \n | \n | 2,581 | \n\n | \n | \n | 3,925 | \n\n |
| \n Other \n | \n \n | \n | (720) | \n\n | \n | \n | (3,355) | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Deferred income tax asset,\n net \n | \n \n | $ | \n78,444 | \n\n | \n | $ | \n92,969 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Estimated\n amortization expense for future years is as follows:
\n\n
\n| \n | \n | \n | \n | \n |
| \n For the fiscal year ending\n July 31, 2019 \n | \n \n | $ | \n50,043 | \n\n |
| \n For the fiscal year ending\n July 31, 2020 \n | \n \n | \n | 46,194 | \n\n |
| \n For the fiscal year ending\n July 31, 2021 \n | \n \n | \n | 42,860 | \n\n |
| \n For the fiscal year ending\n July 31, 2022 \n | \n \n | \n | 37,753 | \n\n |
| \n For the fiscal year ending\n July 31, 2023 \n | \n \n | \n | 30,291 | \n\n |
| \n For the fiscal year ending\n July 31, 2024 and thereafter \n | \n \n | \n | 181,207 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | $ | \n388,348 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n |
\n Changes in the\n carrying amount of goodwill by reportable segment as of\n July 31, 2018 and 2017 are summarized as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Towables | \n\n | \n | Motorized | \n\n | \n | Other | \n\n | \n | Total | \n\n | ||||
| \n Net balance as of\n July 31, 2016 \n | \n \n | $ | \n334,822 | \n\n | \n | $ | \n– | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n377,693 | \n\n |
| \n | \n | \n | \n | \n | ||||||||||||
| \n Fiscal year 2017\n activity: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n No activity \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n Net balance as of\n July 31, 2017 \n | \n \n | $ | \n334,822 | \n\n | \n | $ | \n– | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n377,693 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | \n | ||||||||||||
| \n Fiscal year 2018\n activity: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n No activity \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Net balance as of\n July 31, 2018 \n | \n \n | $ | \n334,822 | \n\n | \n | $ | \n– | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n377,693 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | ||||||||||||||||
| \n \n The components of\n the net balance as of July 31, 2018 are summarized as\n follows: \n\n | \n \n \n \n | \n |||||||||||||||
| \n | \n | \n | \n | \n | ||||||||||||
| \n | \n | Towables | \n\n | \n | Motorized | \n\n | \n | Other | \n\n | \n | Total | \n\n | ||||
| \n Goodwill \n | \n \n | $ | \n343,935 | \n\n | \n | $ | \n17,252 | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n404,058 | \n\n |
| \n Accumulated impairment\n charges \n | \n \n | \n | (9,113 | \n) | \n\n | \n | (17,252 | \n) | \n\n | \n | – | \n\n | \n | \n | (26,365 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Net balance as of\n July 31, 2018 \n | \n \n | $ | \n334,822 | \n\n | \n | $ | \n– | \n\n | \n | $ | \n42,871 | \n\n | \n | $ | \n377,693 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Major\n classifications of inventories are:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | ||
| \n Finished products –\n RV \n | \n \n | $ | \n44,998 | \n\n | \n | $ | \n24,904 | \n\n |
| \n Finished products –\n Other \n | \n \n | \n | 35,320 | \n\n | \n | \n | 27,862 | \n\n |
| \n Work in process \n | \n \n | \n | 124,703 | \n\n | \n | \n | 117,319 | \n\n |
| \n Raw materials \n | \n \n | \n | 258,429 | \n\n | \n | \n | 214,518 | \n\n |
| \n Chassis \n | \n \n | \n | 116,308 | \n\n | \n | \n | 109,555 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Subtotal \n | \n \n | \n | 579,758 | \n\n | \n | \n | 494,158 | \n\n |
| \n Excess of FIFO costs over LIFO\n costs \n | \n \n | \n | (41,849 | \n) | \n\n | \n | (33,670 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total inventories \n | \n \n | $ | \n537,909 | \n\n | \n | $ | \n460,488 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n The difference\n between basic EPS and diluted EPS is the result of restricted stock\n units and unvested restricted stock as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Weighted-average shares\n outstanding for basic earnings per share \n | \n \n | \n | 52,674,161 | \n\n | \n | \n | 52,562,723 | \n\n | \n | \n | 52,458,789 | \n\n |
| \n Unvested restricted stock and\n restricted stock units \n | \n \n | \n | 179,199 | \n\n | \n | \n | 195,719 | \n\n | \n | \n | 131,727 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Weighted-average shares\n outstanding assuming dilution \n | \n \n | \n | 52,853,360 | \n\n | \n | \n | 52,758,442 | \n\n | \n | \n | 52,590,516 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Stock-Based\n Compensation – The Company records compensation\n expense based on the fair value of stock-based awards, primarily\n restricted stock units, on a straight-line basis over the requisite\n service period, which is generally three years. Stock-based\n compensation expense is recorded net of estimated forfeitures,\n which is based on historical forfeiture rates over the vesting\n period of employee awards.
\n\n The components of\n the provision (benefit) for income taxes from continuing operations\n are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||||||
| Income Taxes: | \n\n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Federal \n | \n \n | $ | \n166,402 | \n\n | \n | $ | \n200,370 | \n\n | \n | $ | \n126,846 | \n\n |
| \n State and local \n | \n \n | \n | 21,025 | \n\n | \n | \n | 20,941 | \n\n | \n | \n | 12,716 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total current\n expense \n | \n \n | \n | 187,427 | \n\n | \n | \n | 221,311 | \n\n | \n | \n | 139,562 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Federal \n | \n \n | \n | 17,820 | \n\n | \n | \n | (37,033 | \n) | \n\n | \n | (13,079 | \n) | \n
| \n State and local \n | \n \n | \n | (2,369 | \n) | \n\n | \n | (2,146 | \n) | \n\n | \n | (1,192 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total deferred expense\n (benefit) \n | \n \n | \n | 15,451 | \n\n | \n | \n | (39,179 | \n) | \n\n | \n | (14,271 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Total income tax\n expense \n | \n \n | $ | \n202,878 | \n\n | \n | $ | \n182,132 | \n\n | \n | $ | \n125,291 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Changes in our\n product warranty liabilities are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Beginning balance \n | \n \n | $ | \n216,781 | \n\n | \n | $ | \n201,840 | \n\n | \n | $ | \n108,206 | \n\n |
| \n Provision \n | \n \n | \n | 259,845 | \n\n | \n | \n | 195,799 | \n\n | \n | \n | 114,119 | \n\n |
| \n Payments \n | \n \n | \n | (211,698 | \n) | \n\n | \n | (180,858 | \n) | \n\n | \n | (110,092 | \n) | \n
| \n Acquisitions \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | 89,607 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Ending balance \n | \n \n | $ | \n264,928 | \n\n | \n | $ | \n216,781 | \n\n | \n | $ | \n201,840 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n The components of\n amortizable intangible assets are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | \n | \n | \n | \n | \n | July 31, 2018 | \n\n | \n | July 31, 2017 | \n\n | |||||||||||
| \n | \n | Weighted-Average \n Remaining \n Life in\n Years \n at\n July 31, 2018 | \n \n | \n | \n | \n | Cost | \n\n | \n | Accumulated \n Amortization | \n \n | \n | Cost | \n\n | \n | Accumulated \n Amortization | \n \n | |||||
| \n Dealer networks/customer\n relationships \n | \n \n | 16 | \n\n | \n | \n | \n | \n | $ | \n404,960 | \n\n | \n | $ | \n147,077 | \n\n | \n | $ | \n404,960 | \n\n | \n | $ | \n101,795 | \n\n |
| \n Trademarks \n | \n \n | 17 | \n\n | \n | \n | \n | \n | \n | 146,117 | \n\n | \n | \n | 24,364 | \n\n | \n | \n | 147,617 | \n\n | \n | \n | 17,570 | \n\n |
| \n Design technology and other\n intangibles \n | \n \n | 7 | \n\n | \n | \n | \n | \n | \n | 18,200 | \n\n | \n | \n | 9,555 | \n\n | \n | \n | 19,300 | \n\n | \n | \n | 9,203 | \n\n |
| \n Non-compete agreements \n | \n \n | 1 | \n\n | \n | \n | \n | \n | \n | 450 | \n\n | \n | \n | 383 | \n\n | \n | \n | 450 | \n\n | \n | \n | 293 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total amortizable intangible\n assets \n | \n \n | \n | \n | \n | \n | \n | \n | $ | \n569,727 | \n\n | \n | $ | \n181,379 | \n\n | \n | $ | \n572,327 | \n\n | \n | $ | \n128,861 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Changes in the\n unrecognized tax benefit during fiscal years 2018, 2017 and 2016\n were as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Beginning balance \n | \n \n | $ | \n12,671 | \n\n | \n | $ | \n13,269 | \n\n | \n | $ | \n13,156 | \n\n |
| \n Tax positions related to prior\n years: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Additions \n | \n \n | \n | 353 | \n\n | \n | \n | 75 | \n\n | \n | \n | 1,546 | \n\n |
| \n Reductions \n | \n \n | \n | (2,203) | \n\n | \n | \n | (1,510) | \n\n | \n | \n | (920) | \n\n |
| \n Tax positions related to\n current year: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Additions \n | \n \n | \n | 3,629 | \n\n | \n | \n | 3,853 | \n\n | \n | \n | 3,123 | \n\n |
| \n Settlements \n | \n \n | \n | (192) | \n\n | \n | \n | (1,450) | \n\n | \n | \n | (956) | \n\n |
| \n Lapses in statute of\n limitations \n | \n \n | \n | (1,254) | \n\n | \n | \n | (1,566) | \n\n | \n | \n | (2,680) | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Ending balance \n | \n \n | $ | \n13,004 | \n\n | \n | $ | \n12,671 | \n\n | \n | $ | \n13,269 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
4. BUSINESS\n SEGMENTS
\n\n The Company has\n two reportable segments: (1) towable recreational vehicles and\n (2) motorized recreational vehicles. The towables recreational\n vehicle reportable segment consists of the following operating\n segments that have been aggregated: Airstream (towable), Heartland\n (including Bison, CRV and DRV), Jayco (including Jayco towable,\n Starcraft and Highland Ridge), Keystone (including CrossRoads and\n Dutchmen), and KZ (including Venture RV). The motorized\n recreational vehicle reportable segment consists of the following\n operating segments that have been aggregated: Airstream\n (motorized), Jayco (including Jayco motorized and Entegra Coach)\n and Thor Motor Coach.
\n\n The operations of\n the Company’s Postle subsidiary are included in\n “Other,” which is a non-reportable segment. Net sales\n included in Other mainly relate to the sale of aluminum extrusions\n and specialized component products. Intercompany eliminations\n adjust for Postle sales to the Company’s towables and\n motorized segments, which are consummated at established transfer\n prices generally consistent with the selling prices of extrusion\n components to third party customers.
\n\n All manufacturing\n is conducted in the United States. Total assets include those\n assets used in the operation of each reportable and non-reportable segment, and the\n Corporate assets consist primarily of cash and cash equivalents and\n deferred income tax assets.
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Net sales: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n6,008,700 | \n\n | \n | $ | \n5,127,491 | \n\n | \n | $ | \n3,338,659 | \n\n |
| \n Motorized \n | \n \n | \n | 2,146,315 | \n\n | \n | \n | 1,971,466 | \n\n | \n | \n | 1,094,250 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 8,155,015 | \n\n | \n | \n | 7,098,957 | \n\n | \n | \n | 4,432,909 | \n\n |
| \n Other \n | \n \n | \n | 305,947 | \n\n | \n | \n | 253,557 | \n\n | \n | \n | 218,673 | \n\n |
| \n Intercompany\n eliminations \n | \n \n | \n | (132,053 | \n) | \n\n | \n | (105,562 | \n) | \n\n | \n | (69,470 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n8,328,909 | \n\n | \n | $ | \n7,246,952 | \n\n | \n | $ | \n4,582,112 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Income (loss) from\n continuing operations before income taxes: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n532,657 | \n\n | \n | $ | \n458,915 | \n\n | \n | $ | \n321,874 | \n\n |
| \n Motorized \n | \n \n | \n | 134,785 | \n\n | \n | \n | 125,323 | \n\n | \n | \n | 88,523 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 667,442 | \n\n | \n | \n | 584,238 | \n\n | \n | \n | 410,397 | \n\n |
| \n Other \n | \n \n | \n | 32,973 | \n\n | \n | \n | 28,909 | \n\n | \n | \n | 18,547 | \n\n |
| \n Intercompany\n eliminations \n | \n \n | \n | (306 | \n) | \n\n | \n | (195 | \n) | \n\n | \n | (23 | \n) | \n
| \n Corporate \n | \n \n | \n | (67,080 | \n) | \n\n | \n | (56,566 | \n) | \n\n | \n | (45,608 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n633,029 | \n\n | \n | $ | \n556,386 | \n\n | \n | $ | \n383,313 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Total\n assets: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n1,654,361 | \n\n | \n | $ | \n1,535,029 | \n\n | \n | $ | \n1,425,168 | \n\n |
| \n Motorized \n | \n \n | \n | 492,830 | \n\n | \n | \n | 500,761 | \n\n | \n | \n | 476,973 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 2,147,191 | \n\n | \n | \n | 2,035,790 | \n\n | \n | \n | 1,902,141 | \n\n |
| \n Other, net \n | \n \n | \n | 167,965 | \n\n | \n | \n | 156,996 | \n\n | \n | \n | 156,822 | \n\n |
| \n Corporate \n | \n \n | \n | 463,509 | \n\n | \n | \n | 365,145 | \n\n | \n | \n | 266,501 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n2,778,665 | \n\n | \n | $ | \n2,557,931 | \n\n | \n | $ | \n2,325,464 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Depreciation and\n amortization expense: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n68,964 | \n\n | \n | $ | \n75,568 | \n\n | \n | $ | \n36,054 | \n\n |
| \n Motorized \n | \n \n | \n | 11,800 | \n\n | \n | \n | 9,393 | \n\n | \n | \n | 2,994 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 80,764 | \n\n | \n | \n | 84,961 | \n\n | \n | \n | 39,048 | \n\n |
| \n Other \n | \n \n | \n | 10,861 | \n\n | \n | \n | 11,967 | \n\n | \n | \n | 12,352 | \n\n |
| \n Corporate \n | \n \n | \n | 1,598 | \n\n | \n | \n | 1,330 | \n\n | \n | \n | 1,175 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n93,223 | \n\n | \n | $ | \n98,258 | \n\n | \n | $ | \n52,575 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Capital\n acquisitions: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n85,304 | \n\n | \n | $ | \n72,801 | \n\n | \n | $ | \n37,489 | \n\n |
| \n Motorized \n | \n \n | \n | 34,660 | \n\n | \n | \n | 41,677 | \n\n | \n | \n | 11,191 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 119,964 | \n\n | \n | \n | 114,478 | \n\n | \n | \n | 48,680 | \n\n |
| \n Other \n | \n \n | \n | 8,440 | \n\n | \n | \n | 1,157 | \n\n | \n | \n | 2,799 | \n\n |
| \n Corporate \n | \n \n | \n | 8,902 | \n\n | \n | \n | 2,120 | \n\n | \n | \n | 2,495 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n137,306 | \n\n | \n | $ | \n117,755 | \n\n | \n | $ | \n53,974 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Export sales,\n predominantly to Canada, were $788,894, $628,176 and $368,426 in\n fiscal 2018, 2017 and 2016, respectively, and accounted for 9.5%,\n 8.7% and 8.0% of the Company’s consolidated net sales for\n those respective years.
\n1. SUMMARY OF SIGNIFICANT\n ACCOUNTING POLICIES
\n\n Nature of\n Operations – Thor Industries, Inc. was founded in\n 1980 and, through its subsidiaries, primarily manufactures a wide\n range of recreational vehicles at various manufacturing facilities\n primarily in Indiana and Ohio, with additional facilities in Oregon\n and Idaho. These products are sold to independent dealers primarily\n throughout the United States and Canada. Unless the context\n otherwise requires or indicates, all references to\n “Thor”, the “Company”, “we”,\n “our” and “us” refer to Thor Industries,\n Inc. and its subsidiaries.
\n\n The\n Company’s ongoing business activities are primarily comprised\n of two distinct operations, which include the design, manufacture\n and sale of towable recreational vehicles and motorized\n recreational vehicles. Accordingly, the Company has presented\n segmented financial information for these two segments in Note\n 4 to the Consolidated Financial Statements. See Note 3\n to the Consolidated Financial Statements for a description of the\n Company’s former bus operations which were sold as of\n October 20, 2013. Accordingly, the accompanying financial\n statements (including footnote disclosures unless otherwise\n indicated) reflect these operations as discontinued operations\n apart from the Company’s continuing operations.
\n\n Principles\n of Consolidation – The accompanying Consolidated\n Financial Statements include the accounts of Thor Industries, Inc.\n and its subsidiaries. The Company consolidates all majority-owned\n subsidiaries, and all intercompany balances and transactions are\n eliminated upon consolidation.
\n\n Estimates – The preparation of financial\n statements in conformity with accounting principles generally\n accepted in the U.S. requires management to make estimates and\n assumptions that affect the reported amounts of assets and\n liabilities at the date of the financial statements and the\n reported amount of revenues and expenses during the reporting\n period. Key estimates include reserves for inventory, incurred but\n not reported medical claims, warranty claims, recalls,\n workers’ compensation claims, vehicle repurchases, uncertain\n tax positions, product and non-product litigation and assumptions\n made in asset impairment assessments. The Company bases its\n estimates on historical experience and on various other assumptions\n believed to be reasonable under the circumstances. The Company\n believes that such estimates are made using consistent and\n appropriate methods. Actual results could differ from these\n estimates.
\n\n Cash and\n Cash Equivalents – Interest-bearing deposits and\n other investments with maturities of three months or less when\n purchased are considered cash equivalents. At July 31, 2018\n and 2017, cash and cash equivalents of $254,701 and $211,408,\n respectively, were held by one financial institution.
\n\n Fair Value\n of Financial Instruments – The carrying amount of\n cash equivalents, accounts receivable, notes receivable and\n accounts payable approximate fair value because of the relatively\n short maturity of these financial instruments. The carrying value\n of the Company’s long-term debt approximates fair value as\n the entire balance is subject to variable market interest rates\n that the Company believes approximate market rates for a similarly\n situated Company. The fair value of debt is largely estimated using\n level 2 inputs as defined by ASC 820 and discussed in Note\n 10 to the Consolidated Financial Statements.
\n\n Inventories – Certain inventories are\n stated at the lower of cost or net realizable value, determined on\n the last-in, first-out (“LIFO”) basis\n with the remainder being valued on a first-in, first-out (“FIFO”) basis.\n Manufacturing costs include materials, labor, freight-in and manufacturing overhead.\n Unallocated overhead and abnormal costs are expensed as\n incurred.
\n\n Depreciation – Property, plant and\n equipment are recorded at cost and depreciated using the\n straight-line method over the estimated useful lives of the assets\n as follows:
\nBuildings and improvements – 10 to 39 years
\nMachinery and equipment – 3 to 10 years
\n\n Depreciation\n expense is recorded in cost of products sold except for $5,035,\n $5,710 and $3,812 in fiscal 2018, 2017 and 2016, respectively,\n which relates primarily to office buildings and office equipment\n and is recorded in selling, general and administrative\n expenses.
\n\n Intangible\n Assets – Intangible assets consist of goodwill,\n trademarks, dealer networks/customer relationships, design\n technology assets and non-compete agreements. Trademarks are\n amortized on a straight-line basis over 15 to 25 years. Dealer\n networks/customer relationships are amortized on an accelerated\n basis over 12 to 20 years, and design technology assets and\n non-compete agreements are\n amortized using the straight-line method over 2 to 15 years.\n Backlog is amortized using a straight-line basis method over\n periods up to 3 months. Goodwill is not amortized but is tested at\n least annually for impairment. Goodwill is reviewed for impairment\n by applying a fair-value based test on an annual basis, or more\n frequently if events or circumstances indicate a potential\n impairment.
\n\n
\n\n Long-lived\n Assets – Property, plant and equipment and\n identifiable intangibles that are amortized are reviewed for\n impairment whenever events or changes in circumstances indicate\n that the carrying amount of an asset may not be recoverable from\n future cash flows. If the carrying value of a long-lived asset is\n impaired, an impairment charge is recorded for the amount by which\n the carrying value of the long-lived asset exceeds its fair\n value.
\n\n Product\n Warranties – Estimated warranty costs are provided at\n the time of sale of the related products. Warranty reserves are\n reviewed and adjusted as necessary on at least a quarterly\n basis.
\n\n Allowance\n for Doubtful Accounts – The allowance for doubtful\n accounts represents management’s estimate of probable credit\n losses in existing accounts receivable, as determined from a review\n of past due balances and other specific account information. The\n allowance for doubtful accounts activity during fiscal 2018, 2017\n and 2016, and the balances at July 31, 2018 and July 31,\n 2017, were not material.
\n\n Insurance\n Reserves – Generally, the Company is self-insured for\n workers’ compensation, products liability and group medical\n insurance. Under these plans, liabilities are recognized for claims\n incurred, including those incurred but not reported. The liability\n for workers’ compensation claims is determined by the Company\n with the assistance of a third party administrator and actuary\n using various state statutes and historical claims experience.\n Group medical reserves are estimated using historical claims\n experience. The Company has a self-insured retention\n (“SIR”) for products liability and personal injury\n matters ranging from $500 to $7,500 per occurrence, depending on\n the product type and when the occurrence took place. Generally, any\n occurrence (as defined by our insurance policies) after\n March 31, 2015 is subject to the $500 SIR, while matters\n occurring after March 31, 2014 and through March 31, 2015\n are subject to a $1,000 SIR. The Company has established a\n liability on our balance sheet for product liability and personal\n injury occurrences based on historical data, known cases and\n actuarial information. Currently, the Company maintains excess\n liability insurance aggregating $50,000 with outside insurance\n carriers to minimize our risks related to catastrophic claims in\n excess of our self-insured positions for products liability and\n personal injury matters.
\n\n Revenue\n Recognition – Revenues from the sale of recreational\n vehicles are recorded primarily when all of the following\n conditions have been met:
\n\n
\n| 1) | \n\n An order for a product has been received from a\n dealer; \n | \n
\n
\n| 2) | \n\n Written or oral approval for payment has been received from the\n dealer’s flooring institution, if applicable; \n | \n
\n
\n| 3) | \n\n A common carrier signs the delivery ticket accepting\n responsibility for the product as agent for the dealer;\n and \n | \n
\n
\n| 4) | \n\n The product is removed from our property for delivery to the\n dealer who placed the order. \n | \n
\n These conditions\n are generally met when title passes, which is when vehicles are\n shipped to dealers in accordance with shipping terms, which are\n primarily FOB shipping point. Most sales are made to dealers\n financing their purchases under flooring arrangements with banks or\n finance companies. Certain shipments are sold to customers on\n credit or cash on delivery (“COD”) terms. The Company\n recognizes revenue on credit sales upon shipment and COD sales upon\n payment and delivery. Products are not sold on consignment, dealers\n do not have the right to return products and dealers are typically\n responsible for interest costs to floor plan lenders.
\n\n At the time of\n revenue recognition, amounts billed to dealers for delivery of\n product are recognized as revenue and the corresponding delivery\n expense charged to costs of products sold.
\n\n Revenues from the\n sale of extruded aluminum components are recognized when\n title to products and the risk of loss are transferred to the\n customer.
\n\n Dealer\n Volume Rebates, Sales Incentives and Advertising Costs\n – Estimated costs related to dealer volume rebates and sales\n incentives are accrued as a reduction of revenue at the later of\n the time products are sold or the date the rebate or incentive is\n offered. Advertising costs, which consist primarily of tradeshows,\n are expensed as incurred, and were $26,874, $24,997 and $14,472 in\n fiscal 2018, 2017 and 2016, respectively.
\n\n Repurchase\n Agreements – The Company is contingently\n liable under terms of repurchase agreements with financial\n institutions providing inventory financing for certain dealers of\n certain of its RV products. These arrangements, which are customary\n in the RV industry, provide for the repurchase of products sold to\n dealers in the event of default by the dealer on their agreement to\n pay the financial institution. The risk of loss from these\n agreements is spread over numerous dealers. In addition to the\n guarantee under these repurchase agreements, we may also be\n required to repurchase inventory relative to dealer terminations in\n certain states in accordance with state laws or regulatory\n requirements. The repurchase price is generally determined by the\n original sales price of the product and pre-defined curtailment arrangements\n and the Company typically resells the repurchased product at a\n discount from its repurchase price. The Company accounts for the\n guarantee under its repurchase agreements with our dealers’\n financing institutions by estimating and deferring a portion of the\n related product sale that represents the estimated fair value of\n the repurchase obligation. The estimated fair value takes into\n account our estimate of the loss we will incur upon resale of any\n repurchases. This estimate is based on recent historical experience\n supplemented by management’s assessment of current economic\n and other conditions affecting our dealers. This deferred amount is\n included in our repurchase and guarantee reserve which is included\n in Other current liabilities in the Consolidated Balance\n Sheets.
\n\n Income\n Taxes – The objectives of accounting for\n income taxes are to recognize the amount of taxes payable or\n refundable for the current year and deferred tax liabilities and\n assets for the future tax consequences of events that have been\n recognized in our financial statements or tax returns. Judgment is\n required in assessing the future tax consequences of events that\n have been recognized in our financial statements or tax returns.\n Fluctuations in the actual outcome of these tax consequences could\n materially impact our financial position or results of\n operations.
\n\n The Company\n recognizes liabilities for uncertain tax positions based on a\n two-step process. The\n first step is to evaluate the tax position for recognition by\n determining if the weight of available evidence indicates that it\n is more likely than not that the position will be sustained on\n audit, including resolution of related appeals or litigation\n processes, if any. The second step requires the Company to estimate\n and measure the tax benefit as the largest amount that is more than\n 50% likely to be realized upon ultimate settlement. It is\n inherently difficult and subjective to estimate such amounts, as\n the Company has to determine the probability of various possible\n outcomes. The Company reevaluates these uncertain tax positions on\n a quarterly basis. This evaluation is based on factors including,\n but not limited to, changes in facts or circumstances, changes in\n tax law, effectively settled issues under audit, voluntary\n settlements and new audit activity. Such a change in recognition or\n measurement would result in the recognition of a tax benefit or an\n additional charge to the tax provision.
\n\n Significant\n judgment is required in determining the Company’s provision\n for income taxes, the Company’s deferred tax assets and\n liabilities and the valuation allowance recorded against the\n Company’s deferred tax assets, if any. Valuation allowances\n must be considered due to the uncertainty of realizing deferred tax\n assets. The Company assesses whether valuation allowances should be\n established against our deferred tax assets on a tax jurisdictional\n basis based on the consideration of all available evidence,\n including cumulative income over recent periods, using a more\n likely than not standard. The valuation allowance activity during\n the year was not material.
\n\n Stock-Based\n Compensation – The Company records compensation\n expense based on the fair value of stock-based awards, primarily\n restricted stock units, on a straight-line basis over the requisite\n service period, which is generally three years. Stock-based\n compensation expense is recorded net of estimated forfeitures,\n which is based on historical forfeiture rates over the vesting\n period of employee awards.
\n\n Earnings Per\n Share – Basic earnings per common share\n (“EPS”) is computed by dividing net income by the\n weighted-average number of common shares outstanding. Diluted EPS\n is computed by dividing net income by the weighted-average number\n of common shares outstanding assuming dilution. The difference\n between basic EPS and diluted EPS is the result of restricted stock\n units and unvested restricted stock as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Weighted-average shares\n outstanding for basic earnings per share \n | \n \n | \n | 52,674,161 | \n\n | \n | \n | 52,562,723 | \n\n | \n | \n | 52,458,789 | \n\n |
| \n Unvested restricted stock and\n restricted stock units \n | \n \n | \n | 179,199 | \n\n | \n | \n | 195,719 | \n\n | \n | \n | 131,727 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Weighted-average shares\n outstanding assuming dilution \n | \n \n | \n | 52,853,360 | \n\n | \n | \n | 52,758,442 | \n\n | \n | \n | 52,590,516 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n The Company\n excludes restricted stock units and unvested restricted stock that\n have an antidilutive effect from its calculation of\n weighted-average shares outstanding assuming dilution, but had none\n at July 31, 2018, 2017 or 2016.
\n\n
\nAccounting\n Pronouncements
\n\n In January 2017,\n the Financial Accounting Standards Board (“FASB”)\n issued Accounting Standards Update (“ASU”) No. 2017-04,\n “Intangibles-Goodwill and Other (Topic 350): Simplifying the\n Test for Goodwill Impairment,” which eliminates the\n requirement to calculate the implied fair value of goodwill to\n measure a goodwill impairment charge (referred to as Step 2 in the\n goodwill impairment test). Instead, if the carrying amount of\n a reporting unit exceeds its fair value, an impairment charge equal\n to that excess shall be recognized, not to exceed the amount of\n goodwill allocated to the reporting unit. This ASU is effective for\n annual and any interim impairment tests for periods beginning after\n December 15, 2019, with early adoption permitted after\n January 1, 2017. This ASU is effective for the Company in\n its fiscal year 2021 beginning on August 1, 2020. The\n Company is currently evaluating the impact of this ASU on its\n consolidated financial statements, which will depend on the\n outcomes of future goodwill impairment tests.
\n\n In February 2016,\n the FASB issued ASU No. 2016-02, “Leases (Topic\n 842),” with further clarifications and improvements included\n in ASU No. 2018-10,\n “Codification Improvements to Topic 842, Leases,” and\n ASU 2018-11, “Leases\n (Topic 842) Targeted Improvements,” each issued in July 2018,\n all of which provides guidance on the recognition, measurement,\n presentation, and disclosure of leases. ASU No. 2016-02 requires the\n recognition of lease assets and lease liabilities by lessees for\n all leases with terms greater than 12 months. The principal\n difference from current guidance is that the lease assets and lease\n liabilities arising from operating leases will be recognized on the\n Consolidated Balance Sheet. This ASU is effective for fiscal years,\n and interim periods within those years, beginning after\n December 15, 2018. Early adoption is permitted. This ASU is\n effective for the Company in its fiscal year 2020 beginning on\n August 1, 2019. The Company is currently evaluating the\n impact that implementing this ASU will have on its financial\n statements.
\n\n In May 2014, the\n FASB issued ASU No. 2014-09, “Revenue from\n Contracts with Customers (Topic 606),” which outlines a\n single comprehensive model for entities to use in accounting for\n revenue arising from contracts with customers. This ASU will\n supersede most current revenue recognition guidance. Under this\n ASU, entities are required to identify the contract with a\n customer, identify the separate performance obligations in the\n contract, determine the transaction price, allocate the transaction\n price to the separate performance obligations in the contract and\n recognize the appropriate amount of revenue when (or as) the entity\n satisfies each performance obligation. This ASU will also require\n additional qualitative and quantitative disclosures about contracts\n with customers, significant judgments made in applying the revenue\n guidance, and assets recognized from the costs to obtain or fulfill\n a contract. ASU No. 2014-09 is effective for\n fiscal years, and the interim periods within those years, beginning\n after December 15, 2017. This ASU is effective for the Company\n in its fiscal year 2019 beginning on August 1, 2018. In\n applying this ASU, entities have the option of using either a full\n retrospective transition or a modified retrospective approach with\n the cumulative effect recognized as of the date of adoption. The\n Company will adopt this ASU on August 1, 2018 using the\n modified retrospective approach. As a result of the adoption, the\n Company expects an immaterial net, after-tax cumulative effect adjustment\n to reduce Retained Earnings as of August 1, 2018. This\n adjustment is a result of a change in the accounting for certain\n sales incentives, which are currently recorded as a reduction of\n revenue at the later of the time products are sold or the date the\n incentive is offered. Under this ASU, these incentives will need to\n be estimated and recorded at the time of sale, which is primarily\n upon shipment to customers. The Company is in the process of\n evaluating the impact upon adoption of this ASU to internal\n controls, business processes and financial statement disclosures,\n none of which are expected to be material.
\n\n Product\n Warranties – Estimated warranty costs are provided at\n the time of sale of the related products. Warranty reserves are\n reviewed and adjusted as necessary on at least a quarterly\n basis.
\n\n 18. SUBSEQUENT EVENT
\nOn September 18, 2018, the Company and the shareholders of\n Erwin Hymer Group SE (“Erwin Hymer Group”) announced\n that they entered into a definitive agreement for the Company to\n acquire Erwin Hymer Group. In accordance with the agreement,\n consideration to be paid to the sellers at closing will consist of\n approximately EUR 1.7 billion cash ($2.0 billion at\n current exchange rate) and equity consisting of approximately\n 2.3 million shares of the Company. The Company will also\n assume responsibility for the debt of the Erwin Hymer Group of\n approximately EUR 300 million ($350 million at current\n exchange rate).
\nThe Erwin Hymer Group is headquartered in Bad Waldsee, Germany\n and is the largest RV manufacturer in Europe, by revenue. The\n transaction is subject to customary closing conditions, including\n regulatory approvals. The transaction is expected to close\n near the end of calendar year 2018.
\nThe Company plans to finance the acquisition primarily through\n debt financing. In connection with the planned acquisition, the\n Company has obtained financing commitments for a 5 year,\n $750 million asset-based credit facility and a 7 year,\n $2.3 billion term loan.
\n \n \n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Net sales: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n6,008,700 | \n\n | \n | $ | \n5,127,491 | \n\n | \n | $ | \n3,338,659 | \n\n |
| \n Motorized \n | \n \n | \n | 2,146,315 | \n\n | \n | \n | 1,971,466 | \n\n | \n | \n | 1,094,250 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 8,155,015 | \n\n | \n | \n | 7,098,957 | \n\n | \n | \n | 4,432,909 | \n\n |
| \n Other \n | \n \n | \n | 305,947 | \n\n | \n | \n | 253,557 | \n\n | \n | \n | 218,673 | \n\n |
| \n Intercompany\n eliminations \n | \n \n | \n | (132,053 | \n) | \n\n | \n | (105,562 | \n) | \n\n | \n | (69,470 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n8,328,909 | \n\n | \n | $ | \n7,246,952 | \n\n | \n | $ | \n4,582,112 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Income (loss) from\n continuing operations before income taxes: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n532,657 | \n\n | \n | $ | \n458,915 | \n\n | \n | $ | \n321,874 | \n\n |
| \n Motorized \n | \n \n | \n | 134,785 | \n\n | \n | \n | 125,323 | \n\n | \n | \n | 88,523 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 667,442 | \n\n | \n | \n | 584,238 | \n\n | \n | \n | 410,397 | \n\n |
| \n Other \n | \n \n | \n | 32,973 | \n\n | \n | \n | 28,909 | \n\n | \n | \n | 18,547 | \n\n |
| \n Intercompany\n eliminations \n | \n \n | \n | (306 | \n) | \n\n | \n | (195 | \n) | \n\n | \n | (23 | \n) | \n
| \n Corporate \n | \n \n | \n | (67,080 | \n) | \n\n | \n | (56,566 | \n) | \n\n | \n | (45,608 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n633,029 | \n\n | \n | $ | \n556,386 | \n\n | \n | $ | \n383,313 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Total\n assets: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n1,654,361 | \n\n | \n | $ | \n1,535,029 | \n\n | \n | $ | \n1,425,168 | \n\n |
| \n Motorized \n | \n \n | \n | 492,830 | \n\n | \n | \n | 500,761 | \n\n | \n | \n | 476,973 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 2,147,191 | \n\n | \n | \n | 2,035,790 | \n\n | \n | \n | 1,902,141 | \n\n |
| \n Other, net \n | \n \n | \n | 167,965 | \n\n | \n | \n | 156,996 | \n\n | \n | \n | 156,822 | \n\n |
| \n Corporate \n | \n \n | \n | 463,509 | \n\n | \n | \n | 365,145 | \n\n | \n | \n | 266,501 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n2,778,665 | \n\n | \n | $ | \n2,557,931 | \n\n | \n | $ | \n2,325,464 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Depreciation and\n amortization expense: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n68,964 | \n\n | \n | $ | \n75,568 | \n\n | \n | $ | \n36,054 | \n\n |
| \n Motorized \n | \n \n | \n | 11,800 | \n\n | \n | \n | 9,393 | \n\n | \n | \n | 2,994 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 80,764 | \n\n | \n | \n | 84,961 | \n\n | \n | \n | 39,048 | \n\n |
| \n Other \n | \n \n | \n | 10,861 | \n\n | \n | \n | 11,967 | \n\n | \n | \n | 12,352 | \n\n |
| \n Corporate \n | \n \n | \n | 1,598 | \n\n | \n | \n | 1,330 | \n\n | \n | \n | 1,175 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n93,223 | \n\n | \n | $ | \n98,258 | \n\n | \n | $ | \n52,575 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | \n | |||||||||
| \n Capital\n acquisitions: \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Recreational\n vehicles \n | \n \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n Towables \n | \n \n | $ | \n85,304 | \n\n | \n | $ | \n72,801 | \n\n | \n | $ | \n37,489 | \n\n |
| \n Motorized \n | \n \n | \n | 34,660 | \n\n | \n | \n | 41,677 | \n\n | \n | \n | 11,191 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total recreational\n vehicles \n | \n \n | \n | 119,964 | \n\n | \n | \n | 114,478 | \n\n | \n | \n | 48,680 | \n\n |
| \n Other \n | \n \n | \n | 8,440 | \n\n | \n | \n | 1,157 | \n\n | \n | \n | 2,799 | \n\n |
| \n Corporate \n | \n \n | \n | 8,902 | \n\n | \n | \n | 2,120 | \n\n | \n | \n | 2,495 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total \n | \n \n | $ | \n137,306 | \n\n | \n | $ | \n117,755 | \n\n | \n | $ | \n53,974 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
17. STOCKHOLDERS’ EQUITY
\nStock-Based\n Compensation
\n\n The Board approved\n the Thor Industries, Inc. 2016 Equity and Incentive Plan (the\n “2016 Equity and Incentive Plan”) on October 11,\n 2016 and the 2010 Equity Incentive Plan (the “2010 Equity\n Incentive Plan”) on October 25, 2010. These plans were\n subsequently approved by shareholders at the 2016 and 2010 annual\n meetings, respectively. The maximum number of shares issuable under\n each of the 2016 Equity and Incentive Plan and the 2010 Equity and\n Incentive Plan is 2,000,000. As of July 31, 2018, the\n remaining shares available to be granted under the 2016 Equity and\n Incentive Plan are 1,669,452 and under the 2010 Equity Incentive\n Plan are 1,211,385. Awards may be in the form of options (incentive\n stock options and non-statutory stock options),\n restricted stock, restricted stock units, performance compensation\n awards and stock appreciation rights.
\n\n Restricted\n Stock Awards – A summary of restricted stock award\n activity under the 2010 Equity and Incentive Plan for fiscal 2018,\n 2017 and 2016 is as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||||||||||||||
| \n | \n | Shares | \n\n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | \n | Shares | \n\n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | \n | Shares | \n\n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | ||||||
| \n Nonvested, beginning of\n year \n | \n \n | \n | 1,899 | \n\n | \n | $ | \n32.36 | \n\n | \n | \n | 5,806 | \n\n | \n | $ | \n31.36 | \n\n | \n | \n | 9,713 | \n\n | \n | $ | \n31.16 | \n\n |
| \n Granted \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n Vested \n | \n \n | \n | (1,899) | \n\n | \n | \n | 32.36 | \n\n | \n | \n | (3,907) | \n\n | \n | \n | 30.87 | \n\n | \n | \n | (3,907) | \n\n | \n | \n | 30.87 | \n\n |
| \n Forfeited \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
| \n Nonvested, end of\n year \n | \n \n | \n | – | \n\n | \n | $ | \n– | \n\n | \n | \n | 1,899 | \n\n | \n | $ | \n32.36 | \n\n | \n | \n | 5,806 | \n\n | \n | $ | \n31.36 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
\n In fiscal 2018,\n 2017 and 2016, the Company recorded expense for restricted stock\n awards under this Plan of $0, $101 and $115, respectively. At\n July 31, 2018, there were no unrecognized future compensation\n costs related to restricted stock. This restricted stock vested\n evenly over 5 years from the date of grant.
\n\n During fiscal\n 2013, the Compensation and Development Committee of the Board (the\n “Committee”) approved a program to award restricted\n stock units (the “RSU program”) to certain employees at\n the operating subsidiary and corporate levels. In December\n 2016, the stockholders of the Company approved a new equity\n compensation plan that allows the RSU program to continue in\n subsequent years on similar terms, but now includes a\n double-trigger change in control provision. The double-trigger\n provision, which is applicable to awards granted in fiscal 2017 and\n subsequent years, stipulates that immediate vesting of an\n outstanding grant would occur only upon the occurrence of both a\n change in control, as defined by the plan, and a corresponding\n change in employment status.
\n\n Under the RSU\n program, since 2012 the Committee has approved awards each October\n related to the financial performance of the most recently completed\n fiscal year. The awarded employee restricted stock units vest, and\n shares of common stock are issued, in equal installments on the\n first, second and third anniversaries of the date of grant. In\n addition, concurrent with the timing of the employee awards, the\n Nominating and Governance Committee of the Board has awarded\n restricted stock units to Board members that will vest, and shares\n of common stock will be issued, on the first anniversary of the\n date of the grant.
\n\n The fair value of\n the employee and Board member restricted stock units is determined\n using the Company’s stock price on the date of grant. Total\n expense recognized in fiscal 2018, 2017 and 2016 for these\n restricted stock unit awards was $17,000, $12,399 and $9,272\n respectively.
\n\n Restricted\n Stock Units – A summary of restricted stock unit activity\n during fiscal 2018, 2017 and 2016 is included below:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||||||||||||||
| \n | \n | Restricted Stock \n Units | \n \n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | \n | Restricted Stock \n Units | \n \n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | \n | Restricted Stock \n Units | \n \n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | ||||||
| \n Nonvested, beginning of\n year \n | \n \n | \n | 332,576 | \n\n | \n | $ | \n69.41 | \n\n | \n | \n | 325,136 | \n\n | \n | $ | \n53.95 | \n\n | \n | \n | 280,353 | \n\n | \n | $ | \n50.55 | \n\n |
| \n Granted \n | \n \n | \n | 171,340 | \n\n | \n | \n | 124.84 | \n\n | \n | \n | 166,567 | \n\n | \n | \n | 84.85 | \n\n | \n | \n | 181,872 | \n\n | \n | \n | 55.37 | \n\n |
| \n Vested \n | \n \n | \n | (168,714) | \n\n | \n | \n | 64.01 | \n\n | \n | \n | (157,315) | \n\n | \n | \n | 53.87 | \n\n | \n | \n | (133,758) | \n\n | \n | \n | 48.73 | \n\n |
| \n Forfeited \n | \n \n | \n | (6,771) | \n\n | \n | \n | 93.46 | \n\n | \n | \n | (1,812) | \n\n | \n | \n | 64.03 | \n\n | \n | \n | (3,331) | \n\n | \n | \n | 54.18 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
| \n Nonvested, end of\n year \n | \n \n | \n | 328,431 | \n\n | \n | $ | \n101.97 | \n\n | \n | \n | 332,576 | \n\n | \n | $ | \n69.41 | \n\n | \n | \n | 325,136 | \n\n | \n | $ | \n53.95 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
\n At July 31,\n 2018 there was $21,993 of total unrecognized compensation costs\n related to restricted stock unit awards that is expected to be\n recognized over a weighted-average period of 2.23 years.
\n\n The Company\n recognized a tax benefit related to total stock-based compensation\n expense of $4,930, $4,625 and $3,473 in fiscal 2018, 2017 and 2016,\n respectively.
\nShare Repurchase\n Program
\n\n On June 19,\n 2018, the Company’s Board of Directors authorized Company\n management to utilize up to $250,000 to purchase shares of the\n Company’s common stock through June 19, 2020.
\n\n Under the share\n repurchase plan, the Company is authorized to repurchase, from\n time-to-time, outstanding\n shares of its common stock in the open market or in privately\n negotiated transactions. The timing and amount of share repurchases\n will be determined by the Company’s management team based\n upon its evaluation of market conditions and other factors. The\n share repurchase plan may be suspended, modified or discontinued at\n any time, and the Company has no obligation to repurchase any\n amount of its common stock under the plan.
\n\n Estimates – The preparation of financial\n statements in conformity with accounting principles generally\n accepted in the U.S. requires management to make estimates and\n assumptions that affect the reported amounts of assets and\n liabilities at the date of the financial statements and the\n reported amount of revenues and expenses during the reporting\n period. Key estimates include reserves for inventory, incurred but\n not reported medical claims, warranty claims, recalls,\n workers’ compensation claims, vehicle repurchases, uncertain\n tax positions, product and non-product litigation and assumptions\n made in asset impairment assessments. The Company bases its\n estimates on historical experience and on various other assumptions\n believed to be reasonable under the circumstances. The Company\n believes that such estimates are made using consistent and\n appropriate methods. Actual results could differ from these\n estimates.
\n\n Future minimum\n rental payments required under capital and operating leases as of\n July 31, 2018 are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | Capital Leases | \n\n | \n | Operating Leases | \n\n | ||
| \n For the fiscal year ending\n July 31, 2019 \n | \n \n | $ | \n977 | \n\n | \n | $ | \n2,301 | \n\n |
| \n For the fiscal year ending\n July 31, 2020 \n | \n \n | \n | 974 | \n\n | \n | \n | 1,544 | \n\n |
| \n For the fiscal year ending\n July 31, 2021 \n | \n \n | \n | 993 | \n\n | \n | \n | 1,259 | \n\n |
| \n For the fiscal year ending\n July 31, 2022 \n | \n \n | \n | 1,015 | \n\n | \n | \n | 1,046 | \n\n |
| \n For the fiscal year ending\n July 31, 2023 \n | \n \n | \n | 1,037 | \n\n | \n | \n | 1,011 | \n\n |
| \n For the fiscal year ending\n July 31, 2024 and thereafter \n | \n \n | \n | 4,098 | \n\n | \n | \n | 6,723 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total minimum lease\n payments \n | \n \n | \n | 9,094 | \n\n | \n | $ | \n13,884 | \n\n |
| \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n |
| \n Less amount representing\n interest \n | \n \n | \n | (2,999 | \n) | \n\n | \n | \n | \n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
| \n Present value of net minimum\n capital lease payments \n | \n \n | \n | 6,095 | \n\n | \n | \n | \n | \n |
| \n Less current\n portion \n | \n \n | \n | (410 | \n) | \n\n | \n | \n | \n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
| \n Long-term capital lease\n obligations \n | \n \n | $ | \n5,685 | \n\n | \n | \n | \n | \n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
\n Nature of\n Operations – Thor Industries, Inc. was founded in\n 1980 and, through its subsidiaries, primarily manufactures a wide\n range of recreational vehicles at various manufacturing facilities\n primarily in Indiana and Ohio, with additional facilities in Oregon\n and Idaho. These products are sold to independent dealers primarily\n throughout the United States and Canada. Unless the context\n otherwise requires or indicates, all references to\n “Thor”, the “Company”, “we”,\n “our” and “us” refer to Thor Industries,\n Inc. and its subsidiaries.
\n\n The\n Company’s ongoing business activities are primarily comprised\n of two distinct operations, which include the design, manufacture\n and sale of towable recreational vehicles and motorized\n recreational vehicles. Accordingly, the Company has presented\n segmented financial information for these two segments in Note\n 4 to the Consolidated Financial Statements. See Note 3\n to the Consolidated Financial Statements for a description of the\n Company’s former bus operations which were sold as of\n October 20, 2013. Accordingly, the accompanying financial\n statements (including footnote disclosures unless otherwise\n indicated) reflect these operations as discontinued operations\n apart from the Company’s continuing operations.
\n\n Dealer\n Volume Rebates, Sales Incentives and Advertising Costs\n – Estimated costs related to dealer volume rebates and sales\n incentives are accrued as a reduction of revenue at the later of\n the time products are sold or the date the rebate or incentive is\n offered. Advertising costs, which consist primarily of tradeshows,\n are expensed as incurred, and were $26,874, $24,997 and $14,472 in\n fiscal 2018, 2017 and 2016, respectively.
\n\n The components of\n total unrecognized tax benefits are summarized as\n follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | ||
| \n Unrecognized tax\n benefits \n | \n \n | $ | \n13,004 | \n\n | \n | $ | \n12,671 | \n\n |
| \n Reduction to unrecognized tax\n benefits for tax credit carry forward \n | \n \n | \n | (955) | \n\n | \n | \n | (1,882) | \n\n |
| \n Accrued interest and\n penalties \n | \n \n | \n | 1,290 | \n\n | \n | \n | 1,209 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total unrecognized tax\n benefits \n | \n \n | $ | \n13,339 | \n\n | \n | $ | \n11,998 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n | \n | \n | ||||||
| \n Short-term, included in\n “Income and other taxes” \n | \n \n | $ | \n893 | \n\n | \n | $ | \n1,735 | \n\n |
| \n Long-term \n | \n \n | \n | 12,446 | \n\n | \n | \n | 10,263 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total unrecognized tax\n benefits \n | \n \n | $ | \n13,339 | \n\n | \n | $ | \n11,998 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n Insurance\n Reserves – Generally, the Company is self-insured for\n workers’ compensation, products liability and group medical\n insurance. Under these plans, liabilities are recognized for claims\n incurred, including those incurred but not reported. The liability\n for workers’ compensation claims is determined by the Company\n with the assistance of a third party administrator and actuary\n using various state statutes and historical claims experience.\n Group medical reserves are estimated using historical claims\n experience. The Company has a self-insured retention\n (“SIR”) for products liability and personal injury\n matters ranging from $500 to $7,500 per occurrence, depending on\n the product type and when the occurrence took place. Generally, any\n occurrence (as defined by our insurance policies) after\n March 31, 2015 is subject to the $500 SIR, while matters\n occurring after March 31, 2014 and through March 31, 2015\n are subject to a $1,000 SIR. The Company has established a\n liability on our balance sheet for product liability and personal\n injury occurrences based on historical data, known cases and\n actuarial information. Currently, the Company maintains excess\n liability insurance aggregating $50,000 with outside insurance\n carriers to minimize our risks related to catastrophic claims in\n excess of our self-insured positions for products liability and\n personal injury matters.
\n\n The differences\n between income taxes at the federal statutory rate and the actual\n income taxes are as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | July 31, | \n\n | |||||||||
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||
| \n Provision at federal statutory\n rate \n | \n \n | $ | \n170,095 | \n\n | \n | $ | \n194,735 | \n\n | \n | $ | \n134,160 | \n\n |
| \n State and local income taxes,\n net of federal benefit \n | \n \n | \n | 14,255 | \n\n | \n | \n | 11,021 | \n\n | \n | \n | 6,599 | \n\n |
| \n Federal income tax credits and\n incentives \n | \n \n | \n | (3,518) | \n\n | \n | \n | (3,228) | \n\n | \n | \n | (4,194) | \n\n |
| \n Domestic production activities\n deduction \n | \n \n | \n | (16,175) | \n\n | \n | \n | (19,527) | \n\n | \n | \n | (12,609) | \n\n |
| \n Change in uncertain tax\n positions \n | \n \n | \n | 396 | \n\n | \n | \n | 375 | \n\n | \n | \n | 611 | \n\n |
| \n Effect of U.S. federal tax\n reform \n | \n \n | \n | 38,620 | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n Other \n | \n \n | \n | (795) | \n\n | \n | \n | (1,244) | \n\n | \n | \n | 724 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
| \n Total income tax\n expense \n | \n \n | $ | \n202,878 | \n\n | \n | $ | \n182,132 | \n\n | \n | $ | \n125,291 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n | \n | \n \n | \n \n \n | \n \n |
\n The following\n table summarizes the final fair values assigned to the Jayco net\n assets acquired, which are based on internal and independent\n external valuations:
\n\n
\n| \n | \n | \n | \n | \n |
| \n Cash \n | \n \n | $ | \n18,409 | \n\n |
| \n Other current\n assets \n | \n \n | \n | 258,158 | \n\n |
| \n Property, plant and\n equipment \n | \n \n | \n | 80,824 | \n\n |
| \n Dealer network \n | \n \n | \n | 261,100 | \n\n |
| \n Trademarks \n | \n \n | \n | 92,800 | \n\n |
| \n Backlog \n | \n \n | \n | 12,400 | \n\n |
| \n Goodwill \n | \n \n | \n | 74,184 | \n\n |
| \n Current liabilities \n | \n \n | \n | (216,776 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n |
| \n Total fair value of net assets\n acquired \n | \n \n | \n | 581,099 | \n\n |
| \n Less cash acquired \n | \n \n | \n | (18,409 | \n) | \n
| \n | \n | \n \n | \n \n \n | \n \n |
| \n Total cash consideration for\n acquisition, less cash acquired \n | \n \n | $ | \n562,690 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n |
\n A summary of\n restricted stock unit activity during fiscal 2018, 2017 and 2016 is\n included below:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||||||||||||||
| \n | \n | Restricted Stock \n Units | \n \n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | \n | Restricted Stock \n Units | \n \n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | \n | Restricted Stock \n Units | \n \n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | ||||||
| \n Nonvested, beginning of\n year \n | \n \n | \n | 332,576 | \n\n | \n | $ | \n69.41 | \n\n | \n | \n | 325,136 | \n\n | \n | $ | \n53.95 | \n\n | \n | \n | 280,353 | \n\n | \n | $ | \n50.55 | \n\n |
| \n Granted \n | \n \n | \n | 171,340 | \n\n | \n | \n | 124.84 | \n\n | \n | \n | 166,567 | \n\n | \n | \n | 84.85 | \n\n | \n | \n | 181,872 | \n\n | \n | \n | 55.37 | \n\n |
| \n Vested \n | \n \n | \n | (168,714) | \n\n | \n | \n | 64.01 | \n\n | \n | \n | (157,315) | \n\n | \n | \n | 53.87 | \n\n | \n | \n | (133,758) | \n\n | \n | \n | 48.73 | \n\n |
| \n Forfeited \n | \n \n | \n | (6,771) | \n\n | \n | \n | 93.46 | \n\n | \n | \n | (1,812) | \n\n | \n | \n | 64.03 | \n\n | \n | \n | (3,331) | \n\n | \n | \n | 54.18 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
| \n Nonvested, end of\n year \n | \n \n | \n | 328,431 | \n\n | \n | $ | \n101.97 | \n\n | \n | \n | 332,576 | \n\n | \n | $ | \n69.41 | \n\n | \n | \n | 325,136 | \n\n | \n | $ | \n53.95 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
\n A summary of\n restricted stock award activity under the 2010 Equity and Incentive\n Plan for fiscal 2018, 2017 and 2016 is as follows:
\n\n
\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n |
| \n | \n | 2018 | \n\n | \n | 2017 | \n\n | \n | 2016 | \n\n | |||||||||||||||
| \n | \n | Shares | \n\n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | \n | Shares | \n\n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | \n | Shares | \n\n | \n | Weighted- \n Average Grant \n Date Fair Value | \n \n | ||||||
| \n Nonvested, beginning of\n year \n | \n \n | \n | 1,899 | \n\n | \n | $ | \n32.36 | \n\n | \n | \n | 5,806 | \n\n | \n | $ | \n31.36 | \n\n | \n | \n | 9,713 | \n\n | \n | $ | \n31.16 | \n\n |
| \n Granted \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n Vested \n | \n \n | \n | (1,899) | \n\n | \n | \n | 32.36 | \n\n | \n | \n | (3,907) | \n\n | \n | \n | 30.87 | \n\n | \n | \n | (3,907) | \n\n | \n | \n | 30.87 | \n\n |
| \n Forfeited \n | \n \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n | \n | \n | – | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |
| \n Nonvested, end of\n year \n | \n \n | \n | – | \n\n | \n | $ | \n– | \n\n | \n | \n | 1,899 | \n\n | \n | $ | \n32.36 | \n\n | \n | \n | 5,806 | \n\n | \n | $ | \n31.36 | \n\n |
| \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n | \n | \n \n | \n \n \n | \n \n | \n | \n | \n | \n |