Instructions: Use the Thor Industries Case Document to fill in the highlighted cells for 2008. Thor and Winnebago use the LIFO inventory method and Skyline uses the FIFO method. Convert Thor and Winnebago's reported LIFO numbers to FIFO to fill in the chart. This will allow you to make comparisons with Skyline's reported FIFO numbers. Your notes provide all the formulas you need FIFO Gross Profit Margin (State it as a percentage without the % sign rounded to FIFO Inventory one decimal Turnover FIFO Days Inventory point, e.g., Round to one Held Round to one 1031 changed decimal point. . decimal point. to 10.3) LIFO Inventory Change in LIFO Reserve LIFO Inventory Turnover Round to one decimal point. (e.g., 17.31 changed LIFO Gross Profit to 17.3) Margin 12.2 5.8 n/a n/a FIFO Inventory Sales LIFO Reserve LIFO CGS Each cell worth 1/2 point Thor Winnebago Skyline FIFO CGS n/a n/a n/a n/a 13.3 7.6 What is the cummulative amount that Thor has saved from using LIFO? Assume the appropriate tax rate is 39%. Round to nearest $. Thor Industries Exhibit 2. Selected Historical Financial Statement Information 2008 2007 2006 2005 2004 $2,640,680 $2,856,308 $3,066,276 92,706 134,731 163,405 $2,558,141 119,143 $2,187,739 104,513 Income statement data: Net sales Net income Earnings per common share Basic Diluted Dividends declared per common share Dividends paid per common share Balance sheet data: Total assets 1.67 1.66 2.28 2.28 2.42 2.41 1.28 1.28 2.89 2.87 0.19 0.49 2.1 2.09 0.42 0.12 1.83 1.81 0.09 0.09 $996,562 $1,059,297 $1,004,725 $853,893 $762,163 Exhibit 3. Thor's 2008 Financial Statements Consolidated Balance Sheets, July 31, 2008 and 2007 (Amounts in thousands except share data) 2008 2007 $189,620 $171,889 174.575 136,866 9.489 152.582 39.363 527.920 171.596 5.799 168,980 12.689 705.528 21,090 135.167 71.965 228.222 74.992 153.230 3.269 21.795 134,352 64.572 220,719 63.477 157.242 2,671 126,403 158,128 1.093 13.900 12.619 312.143 $996, 562 165,663 1,906 13.900 12.387 193.856 $1.059.297 Assets Current assets: Cash and cash equivalents Investments short term Accounts receivable: Trade, less allowance for doubtful accounts $295 in 2008 and $122 in 2007 Other Inventories (Note D) Deferred income taxes and other Total current assets Property, plant and equipment: Land Buildings and improvements Machinery and equipment Total cost Less accumulated depreciation Net property, plant and equipment Investments - Joint ventures Other assets: Long term investments Goodwill Non-compete agreements - Net Trademarks Other Total other assets Total Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities: Compensation and related items Product warranties Taxes Promotions and rebates Product/property liability and related liabilities Other Total current liabilities Deferred income taxes and other liabilities Unrecognized tax benefits Total long term liabilities Contingent liabilities and commitments Stockholders' equity Preferred stack-authorized 1,000,000 shares; none outstanding Common stock-par value of $.10 a share; authorized, 250,000,000 shares; issued 57.317.263 shares at July 31, 2008 and 57.222.404 shares at July 31, 2007 Additional paid in capital Retained earnings Accumulated other comprehensive income Less treasury shares of 1.877.339 in 2008 and 1.441,600 in 2007, at cost Total stockholders equity Total $96,158 $123.433 24,845 61.743 26.050 10.781 12,560 16.279 248,416 19.118 29.332 48,450 39.242 64.310 17.991 11,697 11,691 8.835 277,199 15.767 15.767 5.732 93,683 675.928 (1,963) (73.684) 699.696 $996.562 5.722 90.247 727.729 2,756 (60.123) 766,331 $1.059.297 2006 $3.066,276 2.634,818 431,458 183.926 Consolidated Statements of Income for the Years Ended July 31, 2008, 2007 and 2006 (Amounts in thousands except per share data) 2008 2007 Net sales $2,640,680 $2,856,308 Cost of products sold 2.318.254 2./93.013 Gross profit 322,426 363.295 Selling, general and administrative expenses 177,068 177,697 Impairment of goodwill 7.535 Amortization of intangibles 813 935 Gain on sale of property 2.308 Interest income 11.511 11.376 Interest expense 1.315 774 Other income 1.595 Income before income taxes 152,407 196,860 Income taxes 59.701 62.129 Net income $92.706 $134.731 949 2.893 9,020 1,248 1.756 256,111 92.706 $163.405 Earnings per common share Basic Diluted 1.67 1.66 2.42 2.41 2.89 2.87 2006 $163,405 13,097 949 (4.094) 5 439 10 1,069 (255.491) 232,024 (50,108) (22,684) (2.120) 23.888 35.212 1.658 137.259 Consolidated Statements of Cash Flows for the Years Ended July 31, 2008, 2007 and 2006 (Amounts in thousands) 2008 2007 Cash flows from operating activities: Net income $92,706 $134.731 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 16,208 12.970 Amortization of intangibles 813 935 Goodwill impairment 7.535 Deferred income taxes (31.791) (1.324) (Gain) loss on disposition of property, plant and equipment (2.365) 82 Loss on sale of trading investments 104 Unrealized (gain) loss on trading investments Stock based compensation 356 610 Changes in assets and liabilities: Purchase of trading investments Proceeds from sale of trading investments 68.133 Accounts receivable 31,040 16.348 Inventories 16,398 14.189 Deferred taxes and other 382 (3.213) Accounts payable (27.615) (21.537) Accrued liabilities 10,595 7.410 Other 7.846 3.315 Net cash provided by operating activities 122,108 232,753 Cash flows from investing activities: Thor Industries (13.654) Proceeds from disposition of property plant and equipment 5,016 232 Purchase of available for sale investments (66,650 (295.765) Proceeds from sale of available for sale investments 108.675) (121.046 Net cash provided by (used in) investing activities 32,566 (188,141) Cash flows from financing activities: Cash dividends (127,278) (71.324) Purchase of common stock held as treasury shares (13.561) (1.630) Proceeds from issuance of common stock 3.090 3.111 Net cash (used in) financing activities (137.749) (698.430) Effect of exchange rate changes on cash 806 984 Net (decrease) increase in cash and cash equivalents 17.731 (24.247) Cash and cash equivalents, beginning of year 171,889 196,136 Cash and cash equivalents, end of year $189,620 $171,889 Supplemental cash flow information: Income taxes paid 73,076 62,121 Interest paid 1,315 774 Non-cash transactions: Capital expenditures in accounts payable 543 203 Cancellation of restricted stock 35 Deferred taxes, net 562 (30,166) 263 (29.903) (27.761) (51,462) 3.581 (75,645) 829 32.540 163.596 $196,136 82,817 1.248 842 42 Exhibit 4. Selected Footnotes from Thor Industries, Inc.'s 2008 Annual Report A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Thor Industries, Inc., and its wholly owned domestic and foreign subsidiaries (collectively, the "Company"). All intercompany balances and transactions are eliminated upon consolidation Gash and Cash Equivalents-Interest-bearing deposits and other investments with maturities of three months or less when purchased are considered cash equivalents. Cash and cash equivalents of $149,058 are held by one financial institution. The remaining $40,562 is held at various other financial institutions. Inventories-Inventories are stated at the lower of cost or market, determined principally by the last-in-first-out (LIFO) basis. Revenge Recognition-Revenues from the sale of recreation vehicles and buses are recognized when title passes, which is when shipped to dealers, distributors, or contract buyers in accordance with shipping terms, which are FOB shipping point. Revenues from the sale of recreation vehicles and buses are recorded when all of the following conditions have been met: 1. An order for a product has been received from a dealer: 2. Written or oral approval for payment has been received from the dealer's flooring institution; 3. A common carrier signs the delivery ticket accepting responsibility for the product as agent for the dealer, and 4. The product is removed from the Company's property for delivery to the dealer who placed the order. Certain shipments are sold to customers on credit or cash on delivery (COD) terms. The Company recognizes revenue on credit sales upon shipment and COD sales upon payment and delivery. Most sales are made by dealers financing their purchases under flooring arrangements with banks or finance companies. Products are not sold on consignment, dealers do not have the right to return products, and dealers are typically responsible for interest costs to floorplan lenders. On average, the Company receives payments from Hoorplan lenders on products sold to dealers within 15 days of the invoice date. D. INVENTORIES 2008 2007 Finished products $13,584 $12.326 51,162 52,102 Raw materials 79.356 87.245 Chassis 37.562 42.528 Subtotal 181,664 194,201 Less excess of FIFO costs over LIFO costs 29.082 25.221 Total inventories $152.582 $168.980 Allowance for Doubtful Accounts A summary of bad debt activity is as follows Year Ended Year Ended Year Ended 31-Jul-OZ 31-Jul-06 Beginning Balance $122 $105 $506 Charged to expense $311 $72 Write-offs net of recoveries/payments ($138) 1855) (8199) Ending Balance $295 $122 $105 Work in process 31 $98 Exhibit 5. Selected Financial Information for Winnebago Industries Inc. and Skyline Corporation Winnebago Industries, Inc. Year Ended August 30, August 25. August 26, (In thousands, except per share data) 2008 2007 2006 Net revenues $604.352 $ 870,152 $ 864.403 Cost of goods sold 569.580 770.955 259.502 Gross profit 34.772 99,197 104.901 Operating (loss) income 19.755) 54,886 63,098 Financial income 4.314 6.523 5.097 Net income $ 2.784 $ 41,564 $44.744 Current assets: Receivables, less allowance for doubtful accounts ($177 and $133. respectively) 9,426 30,285 Inventories 110,596 101,208 Total assets 305.455 366,510 Total stockholders' equity 173.924 208,354 Note 4: Inventories Inventories consist of the following Finished goods $41,716 $45,489 Work-in-process 31,187 41,417 Raw materials 75,010 47.002 147.913 133.913 LIFO reserve (37.317 (32.705) Total inventories $110.596 $101.208 Inventories are valued at the lower of cost or market, with cost being determined principally by using the LIFO method and market defined as net realizable value. Skyline Corporation and Subsidiary Companies May 31, 2008, 2007, and 2006 2008 2007 2006 Cash $10,557 $8.376 Accounts receivable, trade, less allowance for doubtful accounts of $100 18,244 22.760 Inventories 10,150 10.561 Total assets 196,999 214.940 Total shareholders' equity 166,218 177.815 Sales $301.765 $365.473 $508,543 Cost of sales 278.956 327.514 444.686 Gross profit 22,809 37.959 63,857 Operating (loss) earnings (13.961) (2.413) 17.914 Net (loss) earnings $15.556) $2.593 $14,292 Inventories are stated at the lower of cost or market. Cost is determined under the first-in-first-out method. Physical inventory counts are taken at the end of each reporting quarter. Exhibit 6. Selected Capital Market Information Thor's equity beta (from Value Line, January 29, 2009) Equity market risk premium (from Dimson, Marsh, and Staunton) Common stock price per share (November 3, 2008) Shares outstanding (July 31, 2008): Yield to maturity on 10-year Treasury Bonds, (November 1, 2009) Yield to maturity on Aaa Industrial Bonds (November 1, 2008) Yield to maturity on Aa Industrial Bonds (November 1, 2008) Yield to maturity on A Industrial Bonds (November 1, 2008) Yield to maturity on Baa Industrial Bonds (November 1, 2008) Value Line estimated sales, net income (in thousands), and EPS in 2009 1.00 5-6% per year $16.93 55.439.934 4.65% 5.30% 5.66% 5.83% 6.4396 $1.521.900 $17.100 $0.31 $1.965,000 $81,000 $1.55 Value Line estimated sales, net income in thousands), and EPS in 2010 Instructions: Use the Thor Industries Case Document to fill in the highlighted cells for 2008. Thor and Winnebago use the LIFO inventory method and Skyline uses the FIFO method. Convert Thor and Winnebago's reported LIFO numbers to FIFO to fill in the chart. This will allow you to make comparisons with Skyline's reported FIFO numbers. Your notes provide all the formulas you need FIFO Gross Profit Margin (State it as a percentage without the % sign rounded to FIFO Inventory one decimal Turnover FIFO Days Inventory point, e.g., Round to one Held Round to one 1031 changed decimal point. . decimal point. to 10.3) LIFO Inventory Change in LIFO Reserve LIFO Inventory Turnover Round to one decimal point. (e.g., 17.31 changed LIFO Gross Profit to 17.3) Margin 12.2 5.8 n/a n/a FIFO Inventory Sales LIFO Reserve LIFO CGS Each cell worth 1/2 point Thor Winnebago Skyline FIFO CGS n/a n/a n/a n/a 13.3 7.6 What is the cummulative amount that Thor has saved from using LIFO? Assume the appropriate tax rate is 39%. Round to nearest $. Thor Industries Exhibit 2. Selected Historical Financial Statement Information 2008 2007 2006 2005 2004 $2,640,680 $2,856,308 $3,066,276 92,706 134,731 163,405 $2,558,141 119,143 $2,187,739 104,513 Income statement data: Net sales Net income Earnings per common share Basic Diluted Dividends declared per common share Dividends paid per common share Balance sheet data: Total assets 1.67 1.66 2.28 2.28 2.42 2.41 1.28 1.28 2.89 2.87 0.19 0.49 2.1 2.09 0.42 0.12 1.83 1.81 0.09 0.09 $996,562 $1,059,297 $1,004,725 $853,893 $762,163 Exhibit 3. Thor's 2008 Financial Statements Consolidated Balance Sheets, July 31, 2008 and 2007 (Amounts in thousands except share data) 2008 2007 $189,620 $171,889 174.575 136,866 9.489 152.582 39.363 527.920 171.596 5.799 168,980 12.689 705.528 21,090 135.167 71.965 228.222 74.992 153.230 3.269 21.795 134,352 64.572 220,719 63.477 157.242 2,671 126,403 158,128 1.093 13.900 12.619 312.143 $996, 562 165,663 1,906 13.900 12.387 193.856 $1.059.297 Assets Current assets: Cash and cash equivalents Investments short term Accounts receivable: Trade, less allowance for doubtful accounts $295 in 2008 and $122 in 2007 Other Inventories (Note D) Deferred income taxes and other Total current assets Property, plant and equipment: Land Buildings and improvements Machinery and equipment Total cost Less accumulated depreciation Net property, plant and equipment Investments - Joint ventures Other assets: Long term investments Goodwill Non-compete agreements - Net Trademarks Other Total other assets Total Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities: Compensation and related items Product warranties Taxes Promotions and rebates Product/property liability and related liabilities Other Total current liabilities Deferred income taxes and other liabilities Unrecognized tax benefits Total long term liabilities Contingent liabilities and commitments Stockholders' equity Preferred stack-authorized 1,000,000 shares; none outstanding Common stock-par value of $.10 a share; authorized, 250,000,000 shares; issued 57.317.263 shares at July 31, 2008 and 57.222.404 shares at July 31, 2007 Additional paid in capital Retained earnings Accumulated other comprehensive income Less treasury shares of 1.877.339 in 2008 and 1.441,600 in 2007, at cost Total stockholders equity Total $96,158 $123.433 24,845 61.743 26.050 10.781 12,560 16.279 248,416 19.118 29.332 48,450 39.242 64.310 17.991 11,697 11,691 8.835 277,199 15.767 15.767 5.732 93,683 675.928 (1,963) (73.684) 699.696 $996.562 5.722 90.247 727.729 2,756 (60.123) 766,331 $1.059.297 2006 $3.066,276 2.634,818 431,458 183.926 Consolidated Statements of Income for the Years Ended July 31, 2008, 2007 and 2006 (Amounts in thousands except per share data) 2008 2007 Net sales $2,640,680 $2,856,308 Cost of products sold 2.318.254 2./93.013 Gross profit 322,426 363.295 Selling, general and administrative expenses 177,068 177,697 Impairment of goodwill 7.535 Amortization of intangibles 813 935 Gain on sale of property 2.308 Interest income 11.511 11.376 Interest expense 1.315 774 Other income 1.595 Income before income taxes 152,407 196,860 Income taxes 59.701 62.129 Net income $92.706 $134.731 949 2.893 9,020 1,248 1.756 256,111 92.706 $163.405 Earnings per common share Basic Diluted 1.67 1.66 2.42 2.41 2.89 2.87 2006 $163,405 13,097 949 (4.094) 5 439 10 1,069 (255.491) 232,024 (50,108) (22,684) (2.120) 23.888 35.212 1.658 137.259 Consolidated Statements of Cash Flows for the Years Ended July 31, 2008, 2007 and 2006 (Amounts in thousands) 2008 2007 Cash flows from operating activities: Net income $92,706 $134.731 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 16,208 12.970 Amortization of intangibles 813 935 Goodwill impairment 7.535 Deferred income taxes (31.791) (1.324) (Gain) loss on disposition of property, plant and equipment (2.365) 82 Loss on sale of trading investments 104 Unrealized (gain) loss on trading investments Stock based compensation 356 610 Changes in assets and liabilities: Purchase of trading investments Proceeds from sale of trading investments 68.133 Accounts receivable 31,040 16.348 Inventories 16,398 14.189 Deferred taxes and other 382 (3.213) Accounts payable (27.615) (21.537) Accrued liabilities 10,595 7.410 Other 7.846 3.315 Net cash provided by operating activities 122,108 232,753 Cash flows from investing activities: Thor Industries (13.654) Proceeds from disposition of property plant and equipment 5,016 232 Purchase of available for sale investments (66,650 (295.765) Proceeds from sale of available for sale investments 108.675) (121.046 Net cash provided by (used in) investing activities 32,566 (188,141) Cash flows from financing activities: Cash dividends (127,278) (71.324) Purchase of common stock held as treasury shares (13.561) (1.630) Proceeds from issuance of common stock 3.090 3.111 Net cash (used in) financing activities (137.749) (698.430) Effect of exchange rate changes on cash 806 984 Net (decrease) increase in cash and cash equivalents 17.731 (24.247) Cash and cash equivalents, beginning of year 171,889 196,136 Cash and cash equivalents, end of year $189,620 $171,889 Supplemental cash flow information: Income taxes paid 73,076 62,121 Interest paid 1,315 774 Non-cash transactions: Capital expenditures in accounts payable 543 203 Cancellation of restricted stock 35 Deferred taxes, net 562 (30,166) 263 (29.903) (27.761) (51,462) 3.581 (75,645) 829 32.540 163.596 $196,136 82,817 1.248 842 42 Exhibit 4. Selected Footnotes from Thor Industries, Inc.'s 2008 Annual Report A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Thor Industries, Inc., and its wholly owned domestic and foreign subsidiaries (collectively, the "Company"). All intercompany balances and transactions are eliminated upon consolidation Gash and Cash Equivalents-Interest-bearing deposits and other investments with maturities of three months or less when purchased are considered cash equivalents. Cash and cash equivalents of $149,058 are held by one financial institution. The remaining $40,562 is held at various other financial institutions. Inventories-Inventories are stated at the lower of cost or market, determined principally by the last-in-first-out (LIFO) basis. Revenge Recognition-Revenues from the sale of recreation vehicles and buses are recognized when title passes, which is when shipped to dealers, distributors, or contract buyers in accordance with shipping terms, which are FOB shipping point. Revenues from the sale of recreation vehicles and buses are recorded when all of the following conditions have been met: 1. An order for a product has been received from a dealer: 2. Written or oral approval for payment has been received from the dealer's flooring institution; 3. A common carrier signs the delivery ticket accepting responsibility for the product as agent for the dealer, and 4. The product is removed from the Company's property for delivery to the dealer who placed the order. Certain shipments are sold to customers on credit or cash on delivery (COD) terms. The Company recognizes revenue on credit sales upon shipment and COD sales upon payment and delivery. Most sales are made by dealers financing their purchases under flooring arrangements with banks or finance companies. Products are not sold on consignment, dealers do not have the right to return products, and dealers are typically responsible for interest costs to floorplan lenders. On average, the Company receives payments from Hoorplan lenders on products sold to dealers within 15 days of the invoice date. D. INVENTORIES 2008 2007 Finished products $13,584 $12.326 51,162 52,102 Raw materials 79.356 87.245 Chassis 37.562 42.528 Subtotal 181,664 194,201 Less excess of FIFO costs over LIFO costs 29.082 25.221 Total inventories $152.582 $168.980 Allowance for Doubtful Accounts A summary of bad debt activity is as follows Year Ended Year Ended Year Ended 31-Jul-OZ 31-Jul-06 Beginning Balance $122 $105 $506 Charged to expense $311 $72 Write-offs net of recoveries/payments ($138) 1855) (8199) Ending Balance $295 $122 $105 Work in process 31 $98 Exhibit 5. Selected Financial Information for Winnebago Industries Inc. and Skyline Corporation Winnebago Industries, Inc. Year Ended August 30, August 25. August 26, (In thousands, except per share data) 2008 2007 2006 Net revenues $604.352 $ 870,152 $ 864.403 Cost of goods sold 569.580 770.955 259.502 Gross profit 34.772 99,197 104.901 Operating (loss) income 19.755) 54,886 63,098 Financial income 4.314 6.523 5.097 Net income $ 2.784 $ 41,564 $44.744 Current assets: Receivables, less allowance for doubtful accounts ($177 and $133. respectively) 9,426 30,285 Inventories 110,596 101,208 Total assets 305.455 366,510 Total stockholders' equity 173.924 208,354 Note 4: Inventories Inventories consist of the following Finished goods $41,716 $45,489 Work-in-process 31,187 41,417 Raw materials 75,010 47.002 147.913 133.913 LIFO reserve (37.317 (32.705) Total inventories $110.596 $101.208 Inventories are valued at the lower of cost or market, with cost being determined principally by using the LIFO method and market defined as net realizable value. Skyline Corporation and Subsidiary Companies May 31, 2008, 2007, and 2006 2008 2007 2006 Cash $10,557 $8.376 Accounts receivable, trade, less allowance for doubtful accounts of $100 18,244 22.760 Inventories 10,150 10.561 Total assets 196,999 214.940 Total shareholders' equity 166,218 177.815 Sales $301.765 $365.473 $508,543 Cost of sales 278.956 327.514 444.686 Gross profit 22,809 37.959 63,857 Operating (loss) earnings (13.961) (2.413) 17.914 Net (loss) earnings $15.556) $2.593 $14,292 Inventories are stated at the lower of cost or market. Cost is determined under the first-in-first-out method. Physical inventory counts are taken at the end of each reporting quarter. Exhibit 6. Selected Capital Market Information Thor's equity beta (from Value Line, January 29, 2009) Equity market risk premium (from Dimson, Marsh, and Staunton) Common stock price per share (November 3, 2008) Shares outstanding (July 31, 2008): Yield to maturity on 10-year Treasury Bonds, (November 1, 2009) Yield to maturity on Aaa Industrial Bonds (November 1, 2008) Yield to maturity on Aa Industrial Bonds (November 1, 2008) Yield to maturity on A Industrial Bonds (November 1, 2008) Yield to maturity on Baa Industrial Bonds (November 1, 2008) Value Line estimated sales, net income (in thousands), and EPS in 2009 1.00 5-6% per year $16.93 55.439.934 4.65% 5.30% 5.66% 5.83% 6.4396 $1.521.900 $17.100 $0.31 $1.965,000 $81,000 $1.55 Value Line estimated sales, net income in thousands), and EPS in 2010