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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): October 25, 1999
Thor Industries, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-9235 93-0768752
(State or Other
Jurisdiction of (IRS Employer Identification No.)
Incorporation) (Commission File Number)
419 W. Pike Street, Jackson Center, Ohio 45334-0629
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (937) 596-6849
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Item 5.
On October 18, 1999, the Securities and Exchange Commission issued Release
No. 42021 with respect to the Company entitled Order Instituting Public
Administrative Proceedings Pursuant to Section 21C of the Securities Exchange
Act of 1934, Making Findings, and Ordering Respondent to Cease and Desist (the
"Order"). The Order is attached as an exhibit hereto and is incorporated herein
by reference.
FINANCIAL STATEMENTS AND EXHIBITS.
Exhibits. The following exhibits are filed herewith in accordance with Item
601 of Regulation S-K:
Exhibit No. Description
99.1 Release No. 42021 with respect to the Company entitled
Order Instituting Public Administrative Proceedings
Pursuant to Section 21C of the Securities Exchange Act
of 1934, Making Findings, and Ordering Respondent to
Cease and Desist, dated October 18, 1999.
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 hereunto duly authorized.
Thor Industries, Inc.
(Registrant)
Date: October 25, 1999 /s/ Walter L. Bennett
Name: Walter L. Bennett
Title: Chief Financial
Officer
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UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 42021 / October 18, 1999
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1190 / October 18, 1999
ADMINISTRATIVE PROCEEDING
File No. 3-10077
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:ORDER INSTITUTING PUBLIC
In the Matter of ADMINISTRATIVE PROCEEDINGS
:PURSUANT TO SECTION 21C OF
THOR INDUSTRIES, INC. THE SECURITIES EXCHANGE ACT
:OF 1934, MAKING FINDINGS AND
ORDERING RESPONDENT TO CEASE
Respondent. :AND DESIST
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I.
The Securities and Exchange Commission ("Commission") deems it appropriate
to institute administrative proceedings against Thor Industries, Inc. ("Thor")
pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
II.
In anticipation of the institution of this administrative proceeding, Thor
has submitted an Offer of Settlement ("Offer"), which the Commission has
determined to accept. Solely for the purpose of this proceeding and any other
proceeding brought by or on behalf of the Commission or to which the Commission
is a party, and without admitting or denying the Commission's findings contained
herein, except that Thor admits the jurisdiction of the Commission over it and
over the subject matter of this proceeding, Thor consents to the entry of
findings and the imposition of the remedial sanction set forth below.
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III.
The Commission finds the following:
A. SUMMARY
Over a four year period, Thor failed to maintain accurate books and records
and an adequate internal accounting control system relating to one of its
subsidiaries, General Coach America, Inc. a/k/a ElDorado National (Michigan),
Inc. ("ElDorado"). The absence of adequate controls gave ElDorado's General
Manager and Controller, Bradley John Buchanan ("Buchanan"), the opportunity to
steal over $400,000 in cash over a four year period. In addition, Buchanan
falsified ElDorado's books and records by understating ElDorado's expenses to
conceal his theft and to give the appearance that ElDorado was operating at a
profit when it was not. As a result of these falsifications, Buchanan also
improperly obtained bonuses of $55,297. There were no adequate control
activities at ElDorado to prevent or detect Buchanan's theft and the
understatement of expenses.
As a result, Thor's periodic reports for fiscal 1996, 1997, and the first
two quarters of fiscal 1998, contained financial statements that overstated
Thor's net income by between 4 % to 19 %. The fiscal 1997 overstated financial
statements also were incorporated by reference into a Form S-8 registration
statement, which was filed with the Commission on December 3, 1997.
B. RESPONDENT
Thor Industries, Inc., a Delaware corporation headquartered in Jackson
Center, Ohio, is the second largest manufacturer of recreational vehicles in the
United States and Canada, and is the largest producer of small and mid-size
buses. Thor's common stock is registered with the Commission pursuant to Section
12(b) of the Exchange Act and is traded on the NYSE. As restated, for the six
month period ended January 31, 1998, Thor had pre-tax income of $14.9 million
and at January 31, 1998, it had assets of $172.7 million.\1\
ElDorado, a wholly-owned subsidiary of Thor, was located in Brown City,
Michigan during the relevant period.\2\ ElDorado manufactures and distributes
buses for airport shuttles, community transit systems, and other uses. As of
January 1998, ElDorado employed about 54 persons.\3\ As restated, for the six
month period ended January 31, 1998, ElDorado's pre-tax income was reduced from
$365,000 to a loss of ($995,000) and at January 31, 1998, its assets were
reduced from $8.9 million to $2.7 million.
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1 January 31, 1998, was the last periodic report filed before the
restatement. As reported, for the six-month period ended January 31, 1998, Thor
had pre-tax income of about $16.2 million and at January 31, 1998, it had assets
of $178.5 million.
2 ElDorado is now referred to as General Coach America, Inc. and its
operations have been moved to Imlay City, Michigan.
3 Only five were salaried employees.
2
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C. OTHER RELEVANT PERSON
Bradley John Buchanan, age 40, a Canadian citizen, resides in Sarnia,
Ontario. In January 1992, Buchanan became an accountant at ElDorado through its
Canadian predecessor, in April 1995, he became Financial and Operations
Controller of ElDorado, and in April 1997, he became its General Manager.\4\ He
is neither a Certified Public Accountant nor its Canadian equivalent. Buchanan
resigned from ElDorado on April 2, 1998, as a result of the facts described
herein.
D. Thor's Internal Controls were Inadequate to Detect Buchanan's Theft and
His Falsification of ElDorado's Books and Records
Thor experienced a period of rapid growth in recent years with only
limited upgrade, integration or revision of its internal accounting control
system. Thor operates generally through decentralized subsidiaries, each of
which has its own accounting system and control activities. Over the period of
the fraud, Thor did not have a policies and procedures manual for its accounting
personnel to follow and had few standardized or company-wide accounting policies
and procedures.
1. Thor Fails to Detect Buchanan's Theft of Corporate Assets
Buchanan was able to steal funds without detection largely because
ElDorado lacked adequate control activities. For example, it did not adequately
segregate Buchanan's financial duties. Buchanan had unfettered access over
ElDorado's financial recordkeeping and reporting and was charged with managing
its cash activity, including disbursing company funds. He had unlimited access
to ElDorado's bank accounts, with minimal oversight of his day-to-day
activities. Thor did not review ElDorado's policies and procedures to determine
the adequacy of its controls or adequately monitor its reported financial
results.
Buchanan began stealing ElDorado corporate assets in December 1993, and
continued to do so until March 1998. By the time his scheme was finally detected
in April 1998, Buchanan had misappropriated or otherwise improperly obtained at
least $500,000.\5\ Buchanan had signatory authority over ElDorado's two bank
accounts, and only his signature was needed for disbursements up to $5,000. For
disbursements over $5,000, the signature of a second employee also was required.
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4 Buchanan was previously employed as an accountant by ElDorado's
predecessor from July 1983 to January 1986.
5 Of the approximately $500,000 in stolen funds, $55,297 relates to
performance bonuses Buchanan received as a result of overstating ElDorado's
profits and $37,764 relates to undocumented amounts stolen by Buchanan.
3
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Buchanan misappropriated funds from ElDorado by: (i) writing checks payable
to himself ($105,316 in total); (ii) transferring funds by wire to himself or to
1109620 Ontario Inc., a private corporation that he owned and controlled
($262,055 in total); and (iii) directing the issuance of money orders payable to
himself or 1109620 Ontario Inc. ($48,469 in total). Buchanan used the funds to
pay personal expenses and the expenses of a business he owned.\6\ Buchanan
routinely wrote checks or directed the transfer of funds from ElDorado's bank
accounts in an amount of $4,950 to avoid the dual signature requirement.
2. Thor Fails to Detect ElDorado's False Books and Records
Beginning in November 1995, and continuing until March 1998, Buchanan made
false entries on the books and records he maintained for ElDorado, among other
reasons, to conceal his theft and give the appearance that the subsidiary was
operating at a profit when it was not.\7\ Buchanan's fictitious bookkeeping went
undetected in large part because his activities were not monitored sufficiently.
As part of his job responsibilities, Buchanan would, at the end of each
month, prepare and then send via facsimile to Thor corporate, a general ledger
of ElDorado's financial statement accounts for the period. Thor used the
information to calculate the net change in each account from the prior month,
which it used to generate. a monthly income statement and balance sheet for
ElDorado.\8\ The latter was used by Thor to prepare its monthly consolidated
financial statements.\9\
At month-end, prior to providing Thor the general ledger account balances,
Buchanan would generate a trial balance profit and loss statement based on
ElDorado's actual performance for that month. After he calculated ElDorado's
actual losses for the month, Buchanan would determine what he believed its
monthly profit "should be."\10\ He would then create illusory profits by: (i)
crediting, or decreasing, the actual expenses incurred during the month; and
(ii) debiting, or increasing, asset accounts, including accounts receivable,
inventory and/or cash.\11\ In
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6 For example, Buchanan used certain of the funds to finance the
operations of Pub Crawl Bar & Grill, a bar he owned, and to purchase a home.
7 Buchanan acknowledged that he also made false entries to the books and
records to generate bonuses for himself and discourage scrutiny by Thor
management and their auditors.
8 In Buchanan's words "you could have an account that might have a hundred
entire in it, but the change was $1,000 debit. But that's all they would post,
is the $1,000 debit of the trial balance."
9 These consolidated financial statements were included in Thor's periodic
filings with the Commission.
10 Buchanan determined this profit figure by excluding certain costs which
he deemed to be operating inefficiencies at ElDorado, namely high labor and
interest costs.
11 ElDorado's computer system, which was not integrated with Thor's,
permitted any of its employees, including Buchanan, to make entries to its
general ledger. There is no supporting documentation for the entries made by
Buchanan.
4
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later periods, Buchanan also reclassified certain of the assets he
previously had overstated as an additional measure to avoid detection.\12\
As the controller, Buchanan also was responsible for preparing and
providing to Thor on a regular basis a Daily Operating Report and a Controller's
Report, both of which contained financial and operating information about
ElDorado. Buchanan made the reports consistent with the fictitious general
ledgers he provided to Thor. Buchanan also prepared on a regular basis
fictitious bank reconciliations in order to conceal evidence of his
misappropriation. Those reconciliations were maintained at ElDorado, and were
not provided to or reviewed by Thor.
Thor lacked adequate procedures to determine whether the underlying
schedules and analyses supported the monthly summary financial figures Buchanan
provided to it. Thor completely deferred to Buchanan to accurately calculate,
record and report ElDorado's financial performance. In fact, ElDorado's books
and records wore not adequately reviewed or monitored by Thor and were not
audited by its independent auditors.\13\
3. Thor Restates its Financial Statements
The following table compares Thor's originally reported net income with
the net income that the company reported in its restated financial statements:
<TABLE>
<S> <C> <C> <C> <C>
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Net Income Overstatement
Quarter ended As Reported As Restated Amount Percentage
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October 31, 1995 $4,412,248 $4,220,700 $191,548 4.54
January 31, 1996 1,964,448 1,882,471 81,977 4.55
April 30, 1996 4,002,528 3,827,034 175,494 4.59
July 31, 1996 5,690,776 4,920,516 770,260 15.65
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16,070,000 14,850,721 1,219,279 8.21
October 31, 1996 5,115,155 4,790,047 325,108 6.79
January 31, 1997 2,019,141 1,691,704 327,437 19.35
April 30, 1997 4,610,001 4,357,824 252,177 5.79
July 31, 1997 6,087,736 5,583,192 504,544 9.04
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17,832,033 16,422,767 1,409,266 8.58
October 31, 1997 6,011,338 5,553,156 458,185 8.25
January 31, 1998 3,806,616 3,441,682 364,934 10.60
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$9,817,954 $8,994,838 $823,116 9.15
</TABLE>
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12 Buchanan believed that certain asset accounts that were inflated were
less likely to be detected.
13 Thor's subsidiaries were selected for audit on a rotation basis; those
subsidiaries selected for audit aggregated at least 70% of Thor's total assets,
which did not include ElDorado. As of January 31, 1998, ElDorado's reported
assets and income made up 5.1 % and 2.8 % of Thor's consolidated figures.
AltThor's Senior Vice President-Finance periodically questioned Buchanan when
accounts receivable or inventory levels seemed too high, Buchanan was able to
convince him that he had accurately reported the numbers. Thor never reviewed
underlying documents to confirm the accuracy of Buchanan's representations.
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4. Thor Violated the Record-Keeping and Internal Control Provisions of
the Exchange Act
Section 13(b)(2)(A) of the Exchange Act requires that reporting
companies make and keep books, records, and accounts which, in reasonable
detail, accurately and fairly reflect the issuer's transactions and dispositions
of assets. Section 13(b)(2)(B) of the Exchange Act requires reporting issuers to
devise and maintain a system of internal accounting controls sufficient to
provide reasonable assurances that its transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles (GAAP). Reporting companies that are enjoying rapid growth
must be especially mindful of these requirements and their responsibility to
make sure that their accounting systems and controls keep pace.
Due to the understatement of expenses and overstatement of assets, as
described above, Thor's books and records contained false and misleading entries
relating to cash, accounts receivable, inventory and expenses. Accordingly, Thor
violated Section 13(b)(2)(A). Further, Thor violated Section 13(b)(2)(B) by
failing to implement internal controls, such as segregation of duties, that
ensured that ElDorado reported accurate financial results. The absence of
adequate controls enabled Buchanan to steal corporate assets and conceal his
theft for several years.
IV.
Based on the foregoing, the Commission finds that Thor violated
Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.
V.
In view of the foregoing, the Commission finds that it is appropriate
to impose the relief agreed to in Thor's Offer. Accordingly, IT IS HEREBY
ORDERED, that Thor cease and desist from committing or causing any violation,
and any future violations, of Sections 13(b)(2)(A) and 13(b)(2)(B) of the
Exchange Act.
By the Commission.
/s/ Jonathan G. Katz
Jonathan G. Katz
Secretary
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SERVICE LIST
Rule 141 of the Commission's Rules of Practice provides that the
Secretary, or another duly authorized officer of the Commission, shall serve a
copy of the Order Instituting Public Administrative Proceedings Pursuant to
Section 21C of the Securities Exchange Act of 1934, Making Findings, and
Ordering Respondent to Cease and Desist ("Order") on each person named as a
party in the Order and their legal agent.
The attached Order has been sent to the following parties and other
persons entitled to notice:
Honorable Brenda P. Murray
Chief Administrative Law Judge
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-1106
James T. Coffman, Esq.
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0705
Thor Industries, Inc.
c/o Bruce S. Mendelsohn
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, NW, Suite 400
Washington, DC 20036
Bruce S. Mendelsohn (Counsel to Thor Industries, Inc.)
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, NW, Suite 400
Washington, DC 20036
