SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
THOR INDUSTRIES, INC.
Registrant’s telephone number, including area code: (937) 596-6849
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesþ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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PART I — Financial Information
See notes to consolidated financial statements
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THOR INDUSTRIES, INC. AND SUBSIDIARIESSTATEMENTS OF CONSOLIDATED INCOMEFOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2005 AND 2004
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THOR INDUSTRIES, INC. AND SUBSIDIARIESSTATEMENTS OF CONSOLIDATED CASH FLOWSFOR THE NINE MONTHS ENDED APRIL 30, 2005 AND 2004
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has three reportable segments: Recreation Vehicles — Towable and Motorized, and Buses.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company purchased and retired 323,200 shares of treasury stock in the first quarter of fiscal 2005 at an average cost of $26.27 per share. This retirement resulted in a reduction of $32,320 in common stock and $458,345 in additional paid-in-capital and $7,999,600 in retained earnings. In addition, the Company purchased 256,000 shares of Thor common stock in April 2005 at a cost of $7,031,014 to be held as Treasury shares. Of the 256,000 shares, 90,000 shares at a cost of $2,430,495 did not settle until May, and therefore, are recorded in accounts payable. The average cost per share was $27.46.
The Company classifies its debt and equity securities as trading or available-for-sale. Trading securities are bought and held principally for the purpose of selling them in the near term. All securities not classified as trading are classified as available-for-sale. During the second quarter of fiscal 2004, the Company decided to begin actively trading its equity securitiespreviously classified as available-for-sale securities.
Trading and available-for-sale investments are recorded at fair market value. Unrealized holding gains and losses on trading investments are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale investments are excluded from earnings and are reported as a separate component of accumulated other comprehensive income, net of income taxes until realized. Realized gains and losses from the sale of available-for-sale investments are determined on a specific-identification basis. Dividend and interest income are recognized when earned.
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The Company also holds certain corporate investments that are classified as tradinginvestments and reported as Investments — short term.
On September 2, 2003, we acquired 100% of the common stock of Damon Corporation (“Damon”). Damon is engaged in the business of manufacturing Class A motorhomes and park models. The cash price of the acquisition was $29,618,354, which was paid from internal funds. Immediately after the closing, the Company paid off a $12,972,498 bank debt assumed in connection with the acquisition.
The following table summarizes the allocation of the fair values of the assets acquired and liabilities assumed at the date of acquisition:
The purchase price allocation includes $640,000 of non-compete agreements, which will be amortized over seven to ten years, $10,302,290 of goodwill and $3,600,000 for trademarks that are not subject to amortization. The Company has made an election under Section 338 of the Internal Revenue Code allowing it to deduct non-compete, goodwill and trademarks for tax purposes.
The primary reasons for the acquisition include Damon’s future earnings potential, its fit with our existing operations, its market share, and its cash flow. The results of operations for Damon are included in Thor’s operating results beginning September 3, 2003.
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On November 1, 2004, we completed our acquisition of the stock of DS Corp. dba CrossRoads RV, an Indiana corporation (“CrossRoads”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 28, 2004, by and among our company, Thor Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of our company (“Acquisition Subsidiary”), CrossRoads and the securityholders of CrossRoads. CrossRoads is engaged in the business of manufacturing towable recreation vehicles. Under the terms of the Merger Agreement, Acquisition Subsidiary merged with and into CrossRoads, and CrossRoads continued as the surviving corporation (the “Merger”). In addition, as part of the Merger, certain members of management of CrossRoads entered into non-competition agreements with our company.
The purchase price paid by us for the acquisition of the stock of CrossRoads was $28,021,951, which was payable in cash and was funded from our cash on hand.
The components of other intangible assets are as follows:
Non-compete agreements are amortized on a straight-line basis.
Estimated Amortization Expense:
The change in the carrying amount of goodwill and trademarks for the period ended April 30, 2005.
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As of April 30, 2005, Goodwill and Trademarks by segments totaled as follows:
Thor provides customers of our products with a warranty covering defects in material or workmanship for periods generally ranging from one to two years, with longer warranties on certain structural components. We record a liability based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Factors we use in estimating the warranty liability include a history of units sold, existing dealer inventory, average cost incurred and a profile of the distribution of warranty expenditures over the warranty period. A significant increase in dealer shop rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize. Management believes that the warranty reserve is adequate; however, actual claims incurred could differ from estimates, requiring adjustments to the reserves. Warranty reserves are reviewed and adjusted as necessary on a quarterly basis.
In the second quarter of 2004, the Company declared a two-for-one common stock split that was distributed to shareholders of record as of January 5, 2004. All share and per share amounts have been retroactively adjusted for the effect of the common stock split.
Our principal commercial commitments at April 30, 2005 are summarized in the following chart:
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The Company records repurchase and guarantee reserves based on prior experience and known current events. The combined repurchase and recourse reserve balances are approximately $1,204,000 and $546,000 as of April 30, 2005 and July 31, 2004, respectively.
$1,033,000 of the losses due to repurchase for the nine months ended April 30, 2005, was a repurchase from a single dealer. The sales value of units repurchased from that dealer was $5,463,000.
In December 2002, The Financial Accounting Standards Board “(FASB)” issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” This Statement amends the disclosure requirements of Statement 123, “Accounting for Stock-Based Compensation,” to require disclosure in interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results.
As an alternative to accounting for stock-based compensation under APB No. 25, SFAS No. 123, establishes a fair-value method of accounting for employee stock options. The Company used the Black-Scholes option pricing model to estimate the grant date fair value of its option grants. The fair value is recognized over the option vesting period which is three years. Had compensation cost for these grants been determined in accordance with SFAS No. 123, the Company’s net income and earnings per common share would have been:
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The assumptions used in determining the fair value of options granted during the nine months of fiscal 2005 are as follows:
In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 151 (“SFAS 151”), Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. SFAS 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe the adoption of SFAS 151 will have a material impact on our financial statements.
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment (“SFAS 123R”). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the consolidated financial statements based on their fair values. This standard is effective for the Company August 1, 2005 and the Company may elect to use either the modified-prospective or modified-retrospective transition method. Under the modified prospective method, awards that are granted, modified, or settled after the date of adoption should be measured and accounted for in accordance with SFAS 123R. Unvested equity-classified awards that were granted prior to the effective date should continue to be accounted for in accordance with SFAS 123 except that amounts must be recognized in the income statement. Under the modified retrospective approach, the previously reported amounts are restated (either to the beginning of the year of adoption or for all periods presented) to reflect the SFAS 123 amounts in the income statement. We are currently evaluating the impact of this standard and its transition alternatives, which may impact the Company’s results of operations in the first quarter of fiscal 2006 and thereafter.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
We were founded in 1980 and have grown to be the largest manufacturer of Recreation Vehicles (“RV’s”) and small and midsize buses in North America. Our position in the travel trailer and fifth wheel segment of the industry (towables), with the acquisition of CrossRoads RV, gives us an approximate 31% market share. In the motorized segment of the industry we have an approximate 11% market share. Our market share in small and mid-size buses is approximately 29%. We have recently entered the 40-foot bus market with a new facility in Southern California designed for that product as well as our existing 30-foot and 35-foot buses.
Our growth has been internal and by acquisition. Our strategy has been to increase our profitability in North America in the recreation vehicle industry and in the bus business by improving our facilities, product innovation, opportunistic acquisitions and manufacturing quality products. We have not entered unrelated businesses and have no plans to do so in the future.
We rely on internally generated cash flows from operations to finance our growth although we may borrow to make an acquisition if we believe the incremental cash flows will provide for rapid payback. We have invested significant capital to modernize our plant facilities and have expended approximately $54 million for that purpose in the past two fiscal years.
Our business model includes decentralized operating units and we compensate operating management based upon profitability of the unit which they manage. Our corporate staff provides financial management, centralized purchasing services, insurance, legal and human resources, risk management, and internal audit functions. Senior corporate management interacts regularly with operating management to assure that corporate objectives are understood clearly and are monitored appropriately.
Our RV products are sold to dealers who, in turn, retail those products. Our buses are sold through dealers to municipalities and private purchasers such as rental car companies and hotels. We do not directly finance dealers but do provide repurchase agreements in order to facilitate the dealers obtaining floor plan financing. We have a joint venture, Thor Credit, operated by E-Trade, which provides retail credit to ultimate purchasers of any recreation vehicle purchased from a Thor dealer. This retail credit on recreation vehicles is not limited to Thor product only.
For management and reporting purposes, we segment our business into Recreation Vehicles — Towables and Motorized — and Buses.
Trends and Business Outlook
The most important determinant of demand for Recreation Vehicles is demographics. The baby boomer population is now reaching retirement age and retirees are a large market for our products. The baby boomer population in the United States is expected to grow 48% by 2010, or five times as fast as the expected 9% growth in the total United States population. We believe a primary indicator of the strength of the recreation vehicle industry is retail RV sales, which we closely monitor to determine industry trends.
Government entities are primary users of our buses. Demand in this segment is subject to fluctuations in government spending on transit. In addition, hotel and rental car companies are also major users of our small and mid-size buses and therefore airline travel is an important indicator for this market. The majority of our buses have a 5-year useful life, so that many of the buses we sold in 1999 and 2000 will need to be replaced.
Fuel price fluctuations have not historically influenced our sales materially and we do not anticipate that modest increases in interest rates will have a significant negative effect on such sales. Retail sales in the recreation vehicle industry have been strong due to low inflation, favorable interest rates, population trends and concerns about the safety of international travel.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Economic or industry-wide factors affecting our recreation vehicle business include raw material costs of commodities used in the manufacture of our product. Material cost is the primary factor determining our cost of goods sold. During fiscal 2005, we increased product prices on our RV segments approximately 1.5% to offset increased raw material costs. Price increases for buses were less than 1% due to continued soft market conditions and competitive pressures. Additional increases in raw material costs would impact our profit margins if we were unable to raise prices for our products by corresponding amounts without negatively affecting sales.
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CONSOLIDATED
($ in 000)
Net sales and gross profit for the third quarter of fiscal 2005 were up 12.9% and 4.3% respectively compared to the third quarter of fiscal 2004. Income before income taxes for the third quarter of fiscal 2005 was down 3% compared to the third quarter of fiscal 2004. Selling, general and administrative expenses for the third quarter of fiscal 2005 increased 15.4% compared to the third quarter of fiscal 2004. The specifics on changes in net sales, gross profit, general and administrative expense and income before income taxes will be addressed in the segment reporting.
Corporate costs in selling, general and administrative were $3,345 for the third quarter of fiscal 2005 compared to $4,016 in fiscal 2004. This $671 reduction is primarily the result of lower legal costs and insurance claims in fiscal 2005 of approximately $1,440 offset by increased costs of Sarbanes-Oxley compliance of approximately $462.
Net sales and income before income taxes for the third quarter of fiscal 2005 included net sales and income before income taxes of $29,721 and $2,913 respectively, for CrossRoads RV acquired November 1, 2004. The overall effective tax rate for the third quarter of fiscal 2005 was 36.8% compared to 39.0% for fiscal 2004. The primary reason for the lower effective tax rate in the third quarter of 2005 is lower state tax rates and increased extra-territorial income tax exclusion on related foreign sales increases.
Segment Reporting
RECREATION VEHICLES
Analysis of Percentage Change in Net Sales Versus Prior Year
TOWABLE RECREATION VEHICLES
The increase in towables net sales resulted from a combination of an increase in both average price per unit and unit shipments and our acquisition of CrossRoads RV. The increase in units sold of approximately 12.1% would be a 5.2% increase excluding CrossRoads. The overall industry increase in towables on a comparable basis was 7.6%. Increases in the average price per unit resulted from the combination of price increases and product mix.
Towables gross profit percentage decreased to 14.6% of net sales for fiscal 2005 from 16.3% of net sales for fiscal 2004. The primary factors for the 1.7% reduced gross margin in 2005 were a $3.7 million decline in gross margin at our Thor California operation and a $1.4 million recall provision at our Keystone operation. Selling, general and administrative expenses increased to 5.8% of net sales for fiscal 2005 from 5.5% of net sales for fiscal 2004. The primary factor for the increase in fiscal 2005 as a percentage of sales were various sales promotion expenses due to competitive sales pressure.
Towables income before income taxes decreased to 8.9% of net sales for fiscal 2005 from 10.8% of net sales for fiscal 2004. The primary factors for this reduction were 1.7% reduction in gross margin as mentioned earlier and the increase in selling general and administrative expense as noted above.
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MOTORIZED RECREATION VEHICLES
The decrease in motorized net sales resulted primarily from reduced unit sales. The decrease in units sold of approximately 17.5% is in line with the overall market decrease in motorhomes of 15.1%. Increases in the average price per unit resulted from the combination of price increases and product mix.
Motorized gross profit percentage decreased to 9.5% of net sales from 10.3% of net sales for fiscal 2004. The primary factor for the reduced gross margin in 2005 was lower unit sales.
Motorized income before income taxes decreased to 4.5% of net sales for fiscal 2005 from 6.0% of net sales for fiscal 2004. The reduction was due primarily to reduced unit sales.
BUSES
The increase in buses net sales resulted from a combination of an increase in both average price per unit and unit shipments. The unit sales increases are indicative of an expected replacement cycle on our buses the majority of which have a 5 year useful life. In addition, replacement of many older buses were delayed due to decline in the travel industry subsequent to the 9/11 terrorist attacks.
Buses gross profit percentage increased to 8.6% of net sales for fiscal 2005 from 8.0% of net sales for fiscal 2004 due to leveraging of fixed production costs due to a 27.9% volume increase and lower warranty costs.
Buses income before income taxes increased to 4.0% of net sales for fiscal 2005 from 2.7% for fiscal 2004. The primary reason for the increase is due to increased gross margins as explained above.
Nine Months Ended April 30, 2005 vs.
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Net sales, gross profit and income before income taxes for the nine months of fiscal 2005 were up 21.5%, 20.5% and 17.3% respectively compared to the nine months of fiscal 2004. Selling, general and administrative expenses for the nine months of fiscal 2005 increased 22.1% compared to the nine months of fiscal 2004. The specifics on changes in net sales, gross profit, selling, general and administrative expense and income before income taxes will be addressed in the segment reporting.
Corporate costs in selling, general and administrative were $8,297 for the nine months of fiscal 2005 compared to $9,533 fiscal 2004. This $1,236 reduction is primarily the result of lower legal costs and insurance claims in fiscal 2005 of $3,182 offset by increased costs of Sarbanes-Oxley compliance of approximately $1,277.
Other income for the nine months of fiscal 2005, compared to fiscal 2004, was lower due to a gain on sale of equity securities of $1,801 recorded in the second quarter of fiscal 2004.
Net sales and income before income taxes for the nine months of fiscal 2005 included net sales and income before income taxes of $44,156 and $3,736 respectively, for CrossRoads RV acquired November 1, 2004. The overall effective tax rate for the nine months of fiscal 2005 was 37.2% compared to 38.5% for fiscal 2004. The primary reason for the lower effective tax rate for fiscal 2005 is lower state tax rates and increased extra-territorial income tax exclusion on related foreign sales increases.
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The increase in towables net sales resulted from a combination of an increase in both average price per unit and unit shipments and our acquisition of CrossRoads RV. The increase in units sold of approximately 17.9% would be 13.8% excluding CrossRoads. The overall industry increase in towables on a comparable basis was 12.2%. Increases in the average price per unit resulted from the combination of price increases and product mix.
Towables gross profit percentage decreased to 15.1% of net sales for fiscal 2005 from 15.3% of net sales for fiscal 2004. The primary factors for the .2% reduced gross margin in 2005 were a $3.3 million decline in gross margins at our Thor California operations and a $1.4 million recall provision at our Keystone operation.
Towables income before income taxes decreased to 9.3% of net sales for fiscal 2005 from 9.5% for fiscal 2004. The primary factors for the reductions were reductions in gross margins as noted above.
The increase in motorized net sales resulted from an increase in the average price per unit. Increases in the average price per unit resulted from the combination of price increases and product mix.
The decrease in units sold of approximately .6% is significantly better than the overall industry decrease on a comparable basis of 5.5%.
Motorized gross profit percentage decreased to 9.7% of net sales from 10.2% of net sales for fiscal 2004. The primary factor for the reduced gross margin in 2005 was lower unit sales. Selling, general and administrative expenses increased to 5.2% of net sales for fiscal 2005 from 4.5% of net sales for fiscal 2004. The primary factors for the increases in fiscal 2005 as a percentage of sales were repurchase costs of $1,716,000.
Motorized income before income taxes decreased to 4.6% of net sales for fiscal 2005 compared to 5.6% of net sales for fiscal 2004. This reduction was due primarily to lower gross margins as noted above on individual unit sales and higher selling, general and administrative costs due primarily to a large repurchase in 2005.
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Buses gross profit percentage decreased to 8.5% for fiscal 2005 from 9.5% for fiscal 2004 due to continuing discounts offered to achieve bus contracts in a very competitive market place, primarily in the first six months of fiscal 2005.
Buses income before income taxes decreased to 2.9% of net sales for fiscal 2005 from 4.7% for fiscal 2004. The primary reason for the decrease is due to reduced gross margins as noted above.
ORDER BACKLOG
Overall backlog is down 24.2% as of April 30, 2005 compared to April 30, 2004. Towable backlog is down 45.4%. The decline in the towable recreation vehicle backlog is due to increased production capacity built in the last approximately 12 months which resulted in enabling us to ship more products in the first 6 months of this fiscal year. Motorized backlog is down 8.6%, primarily due to softening in the overall motorized market. Bus backlog increased 16.0% from prior year due to large orders received at our Champion Bus operation of approximately $18.9 million.
Financial Condition and Liquidity
$ (in 000)
As of April 30, 2005, we had $127,527 in cash, cash equivalents and short-term investments, compared to $199,166 on July 31, 2004. The decrease in cash equivalents is related to $38,568 in capital expenditures, the $28,022 acquisition of CrossRoads, seasonal increases in inventory and receivables, and the purchase of 489,200 shares of the Company’s stock for $13,091. We classify our debt and equity securities as trading or available-for-sale securities. The former are carried on our consolidated balance sheets as “Cash and cash equivalents” or “Investments – short term”.
Trading securities, principally investment grade securities composed of asset-based notes, mortgage-backed notes and corporate bonds, are generally bought and held for sale in the near term. All other securities are classified as available-for-sale. In each case, securities are carried at fair market value. Unrealized gains and losses on trading securities are included in earnings. Unrealized gains and losses on investments classified as available-for-sale, net of related tax effect, are not included in earnings, but appear as a component of “Accumulated other comprehensive income” on our consolidated balance sheets until the gain or loss is realized upon the disposition of the investment or if a decline in the fair market value is determined to be other than temporary.
Due to the relative short-term maturity (average 3 months) of our trading securities, we do not believe that a change in the interest rates will have a significant impact on our financial position or results of future operations.
Working capital at April 30, 2005 was $270,413 compared to $256,198 on July 31, 2004. We have no long-term debt. We currently have a $30,000 revolving line of credit which bears interest at negotiated rates below prime and expires on November 30, 2005. There were no borrowings on this line of credit at April 30, 2005. The loan agreement executed in connection with the line of credit contains certain covenants, including restrictions on additional indebtedness, and requires us to maintain certain financial ratios. We believe that internally generated funds and the line of credit will be sufficient to meet our current needs and any additional capital requirements. Capital expenditures of approximately $38,568 for the nine months ended April 30, 2005 were primarily for planned purchases of leased buildings of approximately $10,500 and planned capacity expansions of approximately $28,068 in our RV companies.
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The Company anticipates additional capital expenditures in fiscal 2005 of approximately $11,997. These expenditures will be made primarily to expand our RV companies and for replacement of machinery and equipment to be used in the ordinary course of business.
Critical Accounting Principles
The consolidated financial statements of Thor are prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We believe that of our accounting policies, the following may involve a higher degree of judgments, estimates, and complexity:
Impairment of Goodwill, Trademarks and Long-Lived Assets
We at least annually review the carrying value of goodwill and trademarks with indefinite useful lives. Long-lived assets, identifiable intangibles that are amortized, goodwill and trademarks with indefinite useful lives are also reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable from undiscounted future cash flows. This review is performed using estimates of future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Management believes that the estimates of future cash flows and fair values are reasonable; however, changes in estimates of such cash flows and fair values could affect the evaluations.
Insurance Reserves
Generally, we are self-insured for workers’ compensation and group medical insurance. Under these plans, liabilities are recognized for claims incurred, including those incurred but not reported, and changes in the reserves. At the time a workers’ compensation claim is filed, a liability is estimated to settle the claim. The liability for workers’ compensation claims is determined by a third party administrator using various state statutes and reserve requirements. Group medical reserves are funded through a Trust and are estimated using historical claims’ experience. We have a self-insured retention for products liability and personal injury matters of $5,000,000 per occurrence. We have established a reserve on our balance sheet for such occurrences based on historical data and actuarial information. We maintain excess liability insurance aggregating $10,000,000 with outside insurance carriers to minimize our risks related to catastrophic claims in excess of all our self-insured positions. Any material change in the aforementioned factors could have an adverse impact on our operating results.
Warranty
We provide customers of our products with a warranty covering defects in material or workmanship for periods generally ranging from one to two years, with longer warranties on certain structural components. We record a liability based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Factors we use in estimating the warranty liability include a history of units sold, existing dealer inventory, average cost incurred and a profile of the distribution of warranty expenditures over the warranty period. A significant increase in dealer shop rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize. Management believes that the warranty reserve is adequate; however, actual claims incurred could differ from estimates, requiring adjustments to the reserves. Warranty reserves are reviewed and adjusted as necessary on a quarterly basis.
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Forward Looking Statements
This report includes certain statements that are “forward looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve uncertainties and risks. There can be no assurance that actual results will not differ from the Company’s expectations. Factors which could cause materially different results include, among others, fuel availability, interest rate increases, increased material costs, the success of new product introductions, the pace of acquisitions and cost structure improvements, competition and general economic conditions. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any change in expectation of the Company after the date hereof or any change in events, conditions or circumstances on which any statement is based except as required by law.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign currency related to its operations in Canada. However, because of the size of Canadian operations, a hypothetical 10% change in the Canadian dollar as compared to the U.S. dollar would not have a significant impact on the Company’s financial position or results of operations. The Company is also exposed to market risks related to interest rates because of its investments in corporate debt securities. A hypothetical 10% change in interest rates would not have a significant impact on the Company’s financial position or results of operations.
ITEM 4. Controls and Procedures
As of the end of the period covered by this report, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedure, as required by Exchange Act Rule 13a-15. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
There have been no changes in the Company’s internal control over financial reporting during the quarter ended April 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — Other Information
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6.Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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