WINNEBAGO INDUSTRIES INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended May 28, 2016
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _________________ to _________________
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Commission File Number:
001-06403
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WINNEBAGO INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
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Iowa
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42-0802678
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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P. O. Box 152, Forest City, Iowa
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50436
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(Address of principal executive offices)
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(Zip Code)
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(641) 585-3535
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(Registrant's telephone number, including area code)
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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. Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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Smaller Reporting Company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
The number of shares of common stock, par value $0.50 per share, outstanding
June 21, 2016
was
26,893,756
.
Winnebago Industries, Inc.
Table of Contents
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A
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Item 2.
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Item 6.
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Glossary
The following terms and abbreviations appear in the text of this report and are defined as follows:
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AOCI
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Accumulated Other Comprehensive Income (Loss)
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Amended Credit Agreement
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Credit Agreement dated as of May 28, 2014 by and between Winnebago Industries, Inc. and Winnebago of Indiana, LLC, as Borrowers, and Wells Fargo Capital Finance, as Agent
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ASC
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Accounting Standards Codification
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ASP
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Average Sales Price
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ASU
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Accounting Standards Update
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EPS
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Earnings Per Share
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ERP
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Enterprise Resource Planning
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FASB
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Financial Accounting Standards Board
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FIFO
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First In, First Out
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GAAP
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Generally Accepted Accounting Principles
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IRS
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Internal Revenue Service
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IT
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Information Technology
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Knott
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Knott Investment Pty Ltd, et. al.
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LIFO
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Last In, First Out
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NMF
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Non-Meaningful Figure
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NYSE
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New York Stock Exchange
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OCI
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Other Comprehensive Income
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RV
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Recreation Vehicle
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RVIA
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Recreation Vehicle Industry Association
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SEC
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U.S. Securities and Exchange Commission
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SERP
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Supplemental Executive Retirement Plan
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Stat Surveys
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Statistical Surveys, Inc.
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Towables
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Winnebago of Indiana, LLC, a wholly-owned subsidiary of Winnebago Industries, Inc.
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US
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United States of America
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XBRL
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eXtensible Business Reporting Language
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YTD
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Year to Date
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1
Winnebago Industries, Inc.
(Unaudited)
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Three Months Ended
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Nine Months Ended
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|||||||||||||||
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(In thousands, except per share data)
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May 28,
2016 |
May 30,
2015 |
May 28,
2016 |
May 30,
2015 |
||||||||||||
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Net revenues
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$
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272,077
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$
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266,510
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$
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711,972
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$
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725,456
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Cost of goods sold
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241,820
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238,327
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631,191
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648,629
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Gross profit
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30,257
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28,183
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80,781
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76,827
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Operating expenses:
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Selling
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4,770
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5,150
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14,714
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14,703
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General and administrative
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4,894
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6,453
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19,212
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19,154
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Impairment of fixed assets
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—
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462
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—
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462
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Total operating expenses
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9,664
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12,065
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33,926
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34,319
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Operating income
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20,593
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16,118
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46,855
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42,508
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Non-operating income
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77
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—
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194
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35
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Income before income taxes
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20,670
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16,118
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47,049
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42,543
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Provision for taxes
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6,232
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4,616
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14,699
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13,050
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Net income
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$
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14,438
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$
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11,502
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$
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32,350
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$
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29,493
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Income per common share:
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Basic
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$
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0.54
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$
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0.43
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$
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1.20
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$
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1.09
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Diluted
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$
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0.53
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$
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0.43
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$
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1.20
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$
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1.09
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Weighted average common shares outstanding:
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Basic
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26,892
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26,932
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26,935
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26,942
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Diluted
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27,004
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27,030
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27,029
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27,042
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Dividends paid per common share
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$
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0.10
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$
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0.09
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$
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0.30
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$
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0.27
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Net income
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$
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14,438
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$
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11,502
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$
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32,350
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$
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29,493
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Other comprehensive (loss) income:
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Amortization of prior service credit
(net of tax of $765, $556, $2,182 and $1,554)
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(1,243
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)
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(903
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)
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(3,545
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)
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(2,525
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)
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Amortization of net actuarial loss
(net of tax of $160, $154, $462 and $412)
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260
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249
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751
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668
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Plan amendment
(net of tax of $0, $0, $10,895 and $581)
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—
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—
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17,701
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944
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Total other comprehensive (loss) income
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(983
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)
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(654
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)
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14,907
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(913
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)
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Comprehensive income
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$
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13,455
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$
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10,848
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$
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47,257
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$
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28,580
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See notes to consolidated financial statements.
2
Winnebago Industries, Inc.
(Unaudited)
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(In thousands, except per share data)
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May 28,
2016 |
August 29,
2015 |
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Assets
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Current assets:
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Cash and cash equivalents
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$
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71,253
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$
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70,239
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Receivables, less allowance for doubtful accounts ($147 and $120)
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65,474
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66,936
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Inventories
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130,136
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112,165
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Prepaid expenses and other assets
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6,670
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6,882
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Deferred income taxes
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—
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9,995
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Total current assets
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273,533
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266,217
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Property, plant and equipment, net
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52,799
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37,250
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Investment in life insurance
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26,739
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26,172
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Deferred income taxes
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17,946
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21,994
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Other assets
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9,020
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10,541
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Total assets
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$
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380,037
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$
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362,174
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Liabilities and Shareholders' Equity
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Current liabilities:
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Accounts payable
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$
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47,748
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$
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33,158
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Income taxes payable
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—
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2,314
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Accrued expenses:
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Accrued compensation
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16,500
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18,346
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Product warranties
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11,911
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11,254
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Self-insurance
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6,536
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6,242
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Accrued loss on repurchases
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1,126
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1,329
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Promotional
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3,594
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3,149
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Other
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5,383
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5,818
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Total current liabilities
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92,798
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81,610
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Non-current liabilities:
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Unrecognized tax benefits
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2,333
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2,511
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Postretirement health care and deferred compensation benefits
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25,988
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57,090
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Total non-current liabilities
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28,321
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59,601
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Shareholders' equity:
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Capital stock common, par value $0.50;
authorized 60,000 shares, issued 51,776 shares
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25,888
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25,888
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Additional paid-in capital
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32,173
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32,018
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Retained earnings
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610,118
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585,941
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Accumulated other comprehensive income (loss)
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12,633
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(2,274
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)
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Treasury stock, at cost (24,883 and 24,825 shares)
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(421,894
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)
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(420,610
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)
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Total shareholders' equity
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258,918
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220,963
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Total liabilities and shareholders' equity
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$
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380,037
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$
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362,174
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See notes to consolidated financial statements.
3
Winnebago Industries, Inc.
(Unaudited)
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Nine Months Ended
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(In thousands)
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May 28,
2016 |
May 30,
2015 |
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Operating activities:
|
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Net income
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$
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32,350
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$
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29,493
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Adjustments to reconcile net income to net cash used in
operating activities:
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Depreciation and amortization
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4,243
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3,284
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LIFO expense
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1,280
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1,041
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Asset impairment
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—
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462
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Stock-based compensation
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1,818
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1,739
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Deferred income taxes
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2,717
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2,793
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Postretirement benefit income and deferred compensation expense
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(3,053
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)
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(587
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)
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Provision for doubtful accounts
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37
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—
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Loss (gain) on disposal of property
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10
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(20
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)
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Gain on life insurance
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(118
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)
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—
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Increase in cash surrender value of life insurance policies
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(609
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)
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(657
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)
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Change in assets and liabilities:
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Inventories
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(19,251
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)
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(10,768
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)
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Receivables, prepaid and other assets
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1,905
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3,581
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Investment in operating leases, net of repurchase obligations
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—
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(72
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)
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Income taxes and unrecognized tax benefits
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(766
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)
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(2,375
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)
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Accounts payable and accrued expenses
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14,345
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(6,308
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)
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Postretirement and deferred compensation benefits
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(3,167
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)
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(3,049
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)
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Net cash provided by operating activities
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31,741
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18,557
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Investing activities:
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Purchases of property, plant and equipment
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(19,928
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)
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(14,174
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)
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Proceeds from the sale of property
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21
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43
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Proceeds from life insurance
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295
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—
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Other
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76
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435
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Net cash used in investing activities
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(19,536
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)
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(13,696
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)
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Financing activities:
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Payments for purchases of common stock
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(3,058
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)
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(6,166
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)
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Payments of cash dividends
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(8,173
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)
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(7,324
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)
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Borrowings on loans
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—
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22,000
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Repayments of loans
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—
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(22,000
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)
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Other
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40
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40
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Net cash used in financing activities
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(11,191
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)
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(13,450
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)
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Net increase (decrease) in cash and cash equivalents
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1,014
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(8,589
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)
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Cash and cash equivalents at beginning of period
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70,239
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|
57,804
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Cash and cash equivalents at end of period
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$
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71,253
|
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$
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49,215
|
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Supplement cash flow disclosure:
|
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Income taxes paid, net
|
$
|
13,137
|
|
$
|
12,361
|
|
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Interest paid
|
$
|
—
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|
$
|
10
|
|
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Non-cash transactions:
|
|||||||
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Capital expenditures in accounts payable
|
$
|
397
|
|
$
|
—
|
|
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See notes to consolidated financial statements.
4
Winnebago Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1
:
Basis of Presentation
The "Company," "we," "our" and "us" are used interchangeably to refer to Winnebago Industries, Inc. and its wholly-owned subsidiary, Winnebago of Indiana, LLC, as appropriate in the context.
We were incorporated under the laws of the state of Iowa on February 12, 1958 and adopted our present name on February 28, 1961. Our executive offices are located at 605 West Crystal Lake Road in Forest City, Iowa. Our telephone number is (641) 585-3535; our website is www.winnebagoind.com. Our common stock trades on the NYSE under the symbol “WGO.”
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly our consolidated financial position as of
May 28, 2016
and the consolidated results of income and comprehensive income and consolidated cash flows for the first
nine months
of
Fiscal 2016
and
2015
. The consolidated statement of income and comprehensive income for the first
nine months
of
Fiscal 2016
is not necessarily indicative of the results to be expected for the full year. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended
August 29, 2015
.
Fiscal Period
We follow a 52-/53-week fiscal year, ending the last Saturday in August. Both Fiscal 2016 and Fiscal 2015 are 52-week years.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which specifies how and when to recognize revenue as well as providing informative, relevant disclosures. In August 2015, the FASB deferred the effective date of this standard by one year, which would become effective for fiscal years beginning after December 15, 2017 (our Fiscal 2019). We are currently evaluating the impact on our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330),
which requires inventory measured using any method other than last-in, first-out (“LIFO”) or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Under this ASU, subsequent measurement of inventory using the LIFO and retail inventory method is unchanged. ASU 2015-11 will become effective prospectively for fiscal years beginning after December 15, 2016 (our Fiscal 2018). We are currently evaluating the impact on our consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16,
Business Combinations (Topic 805),
to simplify the accounting for measurement-period adjustments in a business combination. Under the new standard, an acquirer must recognize adjustments to provisional amounts in a business combination in the reporting period in which the adjustment amounts are determined, rather than retrospectively adjusting the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill as under current guidance. ASU 2015-16 is effective for fiscal years, and the interim periods within those years, beginning after December 15, 2015 (our Fiscal 2017). This new standard will be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. We are currently evaluating the impact of this ASU on our consolidated financial statements, which will be dependent on future acquisitions.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740)
, to simplify the presentation of deferred income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet. During the first quarter of Fiscal 2016, we elected to prospectively adopt ASU 2015-17, thus reclassifying current deferred tax assets to noncurrent on the accompanying consolidated balance sheet. The prior reporting period was not retrospectively adjusted. The adoption of this guidance had no impact on our consolidated statements of income and comprehensive income.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting (Topic 718)
, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for the related income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016 (our Fiscal 2018), including interim periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
5
Note 2
:
Concentration Risk
One of our dealer organizations accounted for
17.6%
and
17.0%
of our consolidated net revenues for the first
nine months
of
Fiscal 2016
and
Fiscal 2015
, respectively. A second dealer organization accounted for
13.8%
and
18.1%
of our consolidated net revenues for the first
nine months
of
Fiscal 2016
and
Fiscal 2015
, respectively. The loss of either or both of these dealer organizations could have a significant adverse effect on our business. In addition, deterioration in the liquidity or creditworthiness of these dealers could negatively impact our sales and could trigger repurchase obligations under our repurchase agreements.
Note 3
:
Investments and Fair Value Measurements
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
We account for fair value measurements in accordance with ASC 820,
Fair Value Measurements and Disclosures,
which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurement. The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
The following tables set forth by level within the fair value hierarchy our financial assets that were accounted for at fair value on a recurring basis at
May 28, 2016
and
August 29, 2015
according to the valuation techniques we used to determine their fair values:
|
Fair Value Measurements
Using Inputs Considered As
|
||||||||||||||||
|
(In thousands)
|
Fair Value at
May 28, 2016 |
Level 1 Quoted Prices in Active Markets for Identical Assets
|
Level 2 Significant Other
Observable Inputs
|
Level 3 Significant
Unobservable Inputs
|
||||||||||||
|
Cash equivalents
|
$
|
53,168
|
|
$
|
53,168
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Assets that fund deferred compensation:
|
||||||||||||||||
|
Domestic equity funds
|
3,857
|
|
3,788
|
|
69
|
|
—
|
|
||||||||
|
International equity funds
|
284
|
|
231
|
|
53
|
|
—
|
|
||||||||
|
Fixed income funds
|
255
|
|
223
|
|
32
|
|
—
|
|
||||||||
|
Total assets at fair value
|
$
|
57,564
|
|
$
|
57,410
|
|
$
|
154
|
|
$
|
—
|
|
||||
|
Fair Value Measurements
Using Inputs Considered As
|
||||||||||||||||
|
(In thousands)
|
Fair Value at
August 29, 2015 |
Level 1 Quoted Prices in Active Markets for Identical Assets
|
Level 2 Significant Other
Observable Inputs
|
Level 3 Significant
Unobservable Inputs
|
||||||||||||
|
Cash equivalents
|
$
|
63,107
|
|
$
|
63,107
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Assets that fund deferred compensation:
|
||||||||||||||||
|
Domestic equity funds
|
4,937
|
|
4,894
|
|
43
|
|
—
|
|
||||||||
|
International equity funds
|
493
|
|
477
|
|
16
|
|
—
|
|
||||||||
|
Fixed income funds
|
284
|
|
251
|
|
33
|
|
—
|
|
||||||||
|
Total assets at fair value
|
$
|
68,821
|
|
$
|
68,729
|
|
$
|
92
|
|
$
|
—
|
|
||||
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash Equivalents
The carrying value of cash equivalents approximates fair value as original maturities are less than three months. Our cash equivalents are comprised of money market funds traded in an active market with no restrictions and are included in cash and cash equivalents on the accompanying consolidated balance sheets.
Assets that Fund Deferred Compensation
Our assets that fund deferred compensation are marketable equity securities measured at fair value using quoted market prices and primarily consist of equity-based mutual funds. The majority of which are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. These securities fund the Executive share option plan and the Executive deferred compensation plan (see
Note 7
). The assets related to these deferred compensation plans that will expire
6
within a year are included in prepaid expenses and other assets in the accompanying consolidated balance sheets; the remaining noncurrent assets are included in other assets.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Our non-financial assets, which include goodwill and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, we must evaluate the non-financial asset for impairment. If an impairment did occur, the asset is required to be recorded at the estimated fair value. During the first
nine months
of
Fiscal 2016
, no impairments were recorded for non-financial assets.
Note 4
:
Inventories
Inventories consist of the following:
|
(In thousands)
|
May 28,
2016 |
August 29,
2015 |
||||||
|
Finished goods
|
$
|
17,875
|
|
$
|
12,179
|
|
||
|
Work-in-process
|
74,918
|
|
66,602
|
|
||||
|
Raw materials
|
71,167
|
|
65,928
|
|
||||
|
Total
|
163,960
|
|
144,709
|
|
||||
|
LIFO reserve
|
(33,824
|
)
|
(32,544
|
)
|
||||
|
Total inventories
|
$
|
130,136
|
|
$
|
112,165
|
|
||
The above value of inventories, before reduction for the LIFO reserve, approximates replacement cost at the respective dates. Of the
$164.0 million
and
$144.7 million
inventory at
May 28, 2016
and
August 29, 2015
, respectively,
$153.5 million
and
$136.3 million
is valued on a LIFO basis; the remaining inventories of
$10.4 million
and
$8.4 million
at
May 28, 2016
and
August 29, 2015
, respectively, are valued on a FIFO basis.
Note 5
:
Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and consists of the following:
|
(In thousands)
|
May 28,
2016 |
August 29,
2015 |
||||||
|
Land
|
$
|
3,864
|
|
$
|
1,874
|
|
||
|
Buildings and building improvements
|
61,860
|
|
53,388
|
|
||||
|
Machinery and equipment
|
97,761
|
|
94,034
|
|
||||
|
Software
|
13,303
|
|
8,033
|
|
||||
|
Transportation
|
8,976
|
|
8,913
|
|
||||
|
Total property, plant and equipment, gross
|
185,764
|
|
166,242
|
|
||||
|
Less accumulated depreciation
|
(132,965
|
)
|
(128,992
|
)
|
||||
|
Total property, plant and equipment, net
|
$
|
52,799
|
|
$
|
37,250
|
|
||
On November 30, 2015 we purchased land and buildings from Country Coach in Junction City, OR for approximately
$5.7 million
. On January 6, 2016 we purchased adjacent property in Junction City, OR for approximately
$4.0 million
. These properties are being used for expansion of our West Coast motorhome manufacturing and service operations.
Note 6
:
Warranty
We provide our motorhome customers a comprehensive
12
-month/
15,000
-mile warranty on our Class A, B and C motorhomes, and a
3
-year/
36,000
-mile structural warranty on Class A and C sidewalls and floors. We provide a comprehensive
12
-month warranty on all towable products. We have voluntarily agreed to pay certain warranty-type costs to help protect the reputation of our products and the goodwill of our customers. Warranty expense is affected by dealership labor rates, the cost of parts and the frequency of claims. Estimated costs related to product warranty are accrued at the time of sale and are based upon past warranty claims and unit sales history and adjusted as required to reflect actual costs incurred, as information becomes available.
7
Changes in our product warranty liability are as follows:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
(In thousands)
|
May 28,
2016 |
May 30,
2015 |
May 28,
2016 |
May 30,
2015 |
||||||||||||
|
Balance at beginning of period
|
$
|
11,727
|
|
$
|
9,856
|
|
$
|
11,254
|
|
$
|
9,501
|
|
||||
|
Provision
|
4,844
|
|
3,233
|
|
12,311
|
|
8,079
|
|
||||||||
|
Claims paid
|
(4,660
|
)
|
(3,284
|
)
|
(11,654
|
)
|
(7,775
|
)
|
||||||||
|
Balance at end of period
|
$
|
11,911
|
|
$
|
9,805
|
|
$
|
11,911
|
|
$
|
9,805
|
|
||||
Note 7
:
Employee and Retiree Benefits
Postretirement health care and deferred compensation benefits are as follows:
|
(In thousands)
|
May 28,
2016 |
August 29,
2015 |
||||||
|
Postretirement health care benefit cost
|
$
|
5,556
|
|
$
|
34,535
|
|
||
|
Non-qualified deferred compensation
|
18,360
|
|
19,508
|
|
||||
|
Executive share option plan liability
|
3,593
|
|
4,788
|
|
||||
|
SERP benefit liability
|
2,497
|
|
2,649
|
|
||||
|
Executive deferred compensation
|
371
|
|
299
|
|
||||
|
Officer stock-based compensation
|
204
|
|
242
|
|
||||
|
Total postretirement health care and deferred compensation benefits
|
30,581
|
|
62,021
|
|
||||
|
Less current portion
|
(4,593
|
)
|
(4,931
|
)
|
||||
|
Long-term postretirement health care and deferred compensation benefits
|
$
|
25,988
|
|
$
|
57,090
|
|
||
Postretirement Health Care Benefits
We provide certain health care and other benefits for retired employees hired before April 1, 2001, who have fulfilled eligibility requirements at age
55
with
15
years of continuous service. We use a September 1 measurement date for this plan and our postretirement health care plan currently is not funded.
In Fiscal 2005, through a plan amendment, we established dollar caps on the amount that we will pay for postretirement health care benefits per retiree on an annual basis so that we were not exposed to continued medical inflation. Retirees are required to pay a monthly premium in excess of the employer dollar caps for medical coverage based on years of service and age at retirement.
Each year from 2012 to 2015, the employer established dollar caps were reduced by
10%
through plan amendments. On September 28, 2015, we announced a plan amendment to our postretirement health care benefits. On January 1, 2016, postretirement health care benefits were discontinued for retirees age
65
and over. We will fund up to a
$700,000
health reimbursement account in calendar 2016 to assist retirees over age
65
with medical expenses. The plan amendment also includes a
10%
reduction in employer paid premiums for retirees under age
65
. As a result of these amendments, our liability for postretirement health care was reduced as presented in the following table.
|
Date
|
Event
|
Dollar Cap
Reduction
|
Liability
Reduction
(In thousands)
|
Amortization
Period
(1)
|
||||
|
Fiscal 2005
|
Established employer dollar caps
|
$
|
40,414
|
|
11.5
|
years
|
||
|
January 2012
|
Reduced employer dollar caps
|
10%
|
4,598
|
|
7.8
|
years
|
||
|
January 2013
|
Reduced employer dollar caps
|
10%
|
4,289
|
|
7.5
|
years
|
||
|
January 2014
|
Reduced employer dollar caps
|
10%
|
3,580
|
|
7.3
|
years
|
||
|
January 2015
|
Reduced employer dollar caps
|
10%
|
3,960
|
|
7.1
|
years
|
||
|
January 2016
(2)
|
Reduced employer dollar caps for retirees under age 65; discontinued retiree benefits for retirees age 65 and over
|
10%
|
28,596
|
|
6.9
|
years
|
||
(1)
Plan amendments are amortized on a straight-line basis over the expected remaining service period of active plan participants.
(2)
In accordance with ASC 715, the effects of the plan amendment are accounted for at the date the amendment is adopted and the date the amendment has been communicated to plan participants. The effective date for this plan amendment was September 28, 2015.
8
Net periodic postretirement benefit income consisted of the following components:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
(In thousands)
|
May 28,
2016 |
May 30,
2015 |
May 28,
2016 |
May 30,
2015 |
||||||||||||
|
Interest cost
|
$
|
58
|
|
$
|
348
|
|
$
|
269
|
|
$
|
1,034
|
|
||||
|
Service cost
|
23
|
|
107
|
|
86
|
|
320
|
|
||||||||
|
Amortization of prior service benefit
|
(2,008
|
)
|
(1,459
|
)
|
(5,728
|
)
|
(4,079
|
)
|
||||||||
|
Amortization of net actuarial loss
|
415
|
|
399
|
|
1,197
|
|
1,066
|
|
||||||||
|
Net periodic postretirement benefit income
|
$
|
(1,512
|
)
|
$
|
(605
|
)
|
$
|
(4,176
|
)
|
$
|
(1,659
|
)
|
||||
|
Payments for postretirement health care
|
$
|
232
|
|
$
|
231
|
|
$
|
738
|
|
$
|
707
|
|
||||
Note 8
:
Shareholders' Equity
Stock-Based Compensation
We have a 2014 Omnibus Equity, Performance Award, and Incentive Compensation Plan (as amended, the "Plan") in place as approved by shareholders, which allows us to grant or issue non-qualified stock options, incentive stock options, share awards and other equity compensation to key employees and to non-employee directors.
On October 13, 2015 and October 15, 2014 the Human Resources Committee of the Board of Directors granted an aggregate of
204,200
and
99,600
shares, respectively, of restricted common stock to our key employees and non-employee directors under the Plan. The Human Resources Committee of the Board of Directors granted Michael J. Happe incentive stock options of
10,000
shares and restricted stock awards of
10,000
shares in January 2016, fulfilling terms of his employment contract. The value of the restricted stock award is determined using the intrinsic value method which, in this case, is based on the number of shares granted and the closing price of our common stock on the date of grant.
Stock-based compensation expense was
$553,000
and
$391,000
during the
third
quarters of
Fiscal 2016
and
2015
, respectively. Stock-based compensation expense was
$1.8 million
and
$1.7 million
during the first nine months of Fiscal 2016 and 2015, respectively. Of the
$1.8 million
expense recognized in
Fiscal 2016
,
$1.1 million
related to the October 13, 2015 grant of
204,200
shares. The remainder is related to the amortization of previously granted restricted stock awards, non-employee director stock units issued in lieu of director fees and the CEO stock grants. Compensation expense is recognized over the requisite service period of the award.
Dividends
On
March 16, 2016
, the Board of Directors declared a quarterly cash dividend of
$0.10
per share of common stock, which was paid on
April 27, 2016
to shareholders of record at the close of business on
April 13, 2016
.
On
June 15, 2016
, the Board of Directors declared a quarterly cash dividend of
$0.10
per share of common stock, payable on
July 27, 2016
to shareholders of record at the close of business on
July 13, 2016
.
Note 9
:
Contingent Liabilities and Commitments
Repurchase Commitments
Generally, manufacturers in the RV industry enter into repurchase agreements with lending institutions which have provided wholesale floorplan financing to dealers. Most dealers' RVs are financed on a "floorplan" basis under which a bank or finance company lends the dealer all, or substantially all, of the purchase price, collateralized by a security interest in the recreation vehicles purchased.
Our repurchase agreements provide that, in the event of default by the dealer on the agreement to pay the lending institution, we will repurchase the financed merchandise. The terms of these agreements, which generally can last up to
18
months, provide that our liability will be the lesser of remaining principal owed by the dealer to the lending institution, or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our total contingent liability on all repurchase agreements was approximately
$419.0 million
and
$386.0 million
at
May 28, 2016
and
August 29, 2015
, respectively.
In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary relationship terminations. Although laws vary from state to state, some states have laws in place that require manufacturers of recreation vehicles to repurchase current inventory if a dealership exits the business. Incremental repurchase exposure beyond existing repurchase agreements, related to dealer inventory in states that we have had historical experience of repurchasing inventory, totaled
$7.3 million
and
$7.2 million
at
May 28, 2016
and
August 29, 2015
, respectively.
Our risk of loss related to our repurchase commitments is significantly reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous dealers and lenders although two dealer organizations account for approximately
31%
of our revenues. The aggregate contingent liability related to our repurchase agreements represents all
9
financed dealer inventory at the period reporting date subject to a repurchase agreement, net of the greater of periodic reductions per the agreement or dealer principal payments. Based on the repurchase exposure as previously described, we established an associated loss reserve. Our accrued losses on repurchases were
$1.1 million
as of
May 28, 2016
and
$1.3 million
as of
August 29, 2015
. Repurchase risk is affected by the credit worthiness of our dealer network and we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to establish the loss reserve for repurchase commitments.
A summary of repurchase activity is as follows:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
(In thousands)
|
May 28,
2016 |
May 30,
2015 |
May 28,
2016 |
May 30,
2015 |
||||||||||||
|
Inventory repurchased
|
$
|
445
|
|
$
|
—
|
|
$
|
445
|
|
$
|
7,325
|
|
||||
|
Cash collected on resold inventory
|
$
|
—
|
|
$
|
—
|
|
$
|
36
|
|
$
|
6,309
|
|
||||
|
(Gain) loss realized on resold inventory
|
$
|
—
|
|
$
|
—
|
|
$
|
(1
|
)
|
$
|
1,033
|
|
||||
Litigation
We are involved in various legal proceedings which are ordinary litigation incidental to our business, some of which are covered in whole or in part by insurance. While we believe the ultimate disposition of litigation will not have material adverse effect on our financial position, results of operations or liquidity, there exists the possibility that such litigation may have an impact on our results for a particular reporting period in which litigation effects become probable and reasonably estimable. Though we do not believe there is a reasonable likelihood that there will be a material change related to these matters, litigation is subject to inherent uncertainties and management’s view of these matters may change in the future.
For the past several years we have been involved in litigation in Australia seeking to recover from Knott for damages arising from Knott using our name on RVs without our approval. On December 2, 2015, the Federal Court of Australia, New South Wales District Registry, General Division, entered judgment in our favor and against Knott for damages arising out of its use of the Winnebago name. Damages awarded were
1.0%
of the total sales of Winnebago branded recreation vehicles from October 14, 2004, through October 17, 2013, plus interest. We previously disclosed that the amount of that award was likely to exceed
$5.0 million
, plus attorneys’ fees. Knott appealed that ruling. On May 26, 2016, in exchange for immediate payment to Winnebago of
$2.75 million
, Winnebago and Knott executed a global settlement pursuant to which Knott will cease all use of the Winnebago name and logos, all appeals and oppositions are terminated, and all proceedings between the parties have been settled. Winnebago’s trademarks in Australia will proceed to registration without further opposition from Knott. The settlement of
$2.75 million
was recorded within general and administrative expense in the third quarter of Fiscal 2016.
Note 10
:
Income Taxes
We account for income taxes under ASC 740,
Income Taxes
. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.
We file tax returns in the US federal jurisdiction, as well as various international and state jurisdictions. Although certain years are no longer subject to examination by the IRS and various state taxing authorities, net operating loss carryforwards generated in those years may still be adjusted upon examination by the IRS or state taxing authorities if they have been or will be used in a future period. As of
May 28, 2016
, our federal returns from Fiscal 2012 to present continue to be subject to review by the IRS. Currently, our Fiscal 2014 Federal Return is being reviewed. With few exceptions, the state returns from Fiscal 2009 to present continue to be subject to review by the state taxing jurisdictions. A number of years may elapse before an uncertain tax position is audited and finally resolved, and it is often very difficult to predict the outcome of such audits.
As of
May 28, 2016
, our unrecognized tax benefits were
$2.3 million
including accrued interest and penalties of
$793,000
. If we were to prevail on all unrecognized tax benefits recorded,
$1.7 million
of the
$2.3 million
would benefit the overall effective tax rate. It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits as tax expense. We do not believe that there will be a significant change in the total amount of unrecognized tax benefits within the next twelve months.
10
Note 11
:
Earnings Per Share
The following table reflects the calculation of basic and diluted net income per share:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
(In thousands, except per share data)
|
May 28,
2016 |
May 30,
2015 |
May 28,
2016 |
May 30,
2015 |
||||||||||||
|
Income per share - basic
|
||||||||||||||||
|
Net income
|
$
|
14,438
|
|
$
|
11,502
|
|
$
|
32,350
|
|
$
|
29,493
|
|
||||
|
Weighted average shares outstanding
|
26,892
|
|
26,932
|
|
26,935
|
|
26,942
|
|
||||||||
|
Net income per share - basic
|
$
|
0.54
|
|
$
|
0.43
|
|
$
|
1.20
|
|
$
|
1.09
|
|
||||
|
Income per share - assuming dilution
|
||||||||||||||||
|
Net income
|
$
|
14,438
|
|
$
|
11,502
|
|
$
|
32,350
|
|
$
|
29,493
|
|
||||
|
Weighted average shares outstanding
|
26,892
|
|
26,932
|
|
26,935
|
|
26,942
|
|
||||||||
|
Dilutive impact of awards and options outstanding
|
112
|
|
98
|
|
94
|
|
100
|
|
||||||||
|
Weighted average shares and potential dilutive shares outstanding
|
27,004
|
|
27,030
|
|
27,029
|
|
27,042
|
|
||||||||
|
Net income per share - assuming dilution
|
$
|
0.53
|
|
$
|
0.43
|
|
$
|
1.20
|
|
$
|
1.09
|
|
||||
The computation of weighted average shares and potential dilutive shares outstanding excludes options to purchase
10,000
and
175,434
shares of common stock for the
third
quarter of
Fiscal 2016
and
Fiscal 2015
, respectively, and options to purchase
40,616
and
232,902
shares of common stock for the nine months of
Fiscal 2016
and
Fiscal 2015
, respectively. These amounts were not included in the computation of diluted income per share because they are considered anti-dilutive under the treasury stock method per ASC 260,
Earnings Per Share
.
Note 12
:
Comprehensive Income (Loss)
Changes in defined benefit pension items in AOCI, net of tax, were:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
(In thousands)
|
May 28, 2016
|
May 30, 2015
|
May 28, 2016
|
May 30, 2015
|
||||||||||||
|
Balance at beginning of period
|
$
|
13,616
|
|
$
|
(2,067
|
)
|
$
|
(2,274
|
)
|
$
|
(1,808
|
)
|
||||
|
OCI before reclassifications
|
—
|
|
—
|
|
17,701
|
|
944
|
|
||||||||
|
Amounts reclassified from AOCI
|
(983
|
)
|
(654
|
)
|
(2,794
|
)
|
(1,857
|
)
|
||||||||
|
Net current-period OCI
|
(983
|
)
|
(654
|
)
|
14,907
|
|
(913
|
)
|
||||||||
|
Balance at end of period
|
$
|
12,633
|
|
$
|
(2,721
|
)
|
$
|
12,633
|
|
$
|
(2,721
|
)
|
||||
Reclassifications out of AOCI in net periodic benefit costs, net of tax, were:
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||
|
(In thousands)
|
Location on Consolidated Statements
of Income and Comprehensive Income
|
May 28,
2016 |
May 30,
2015 |
May 28,
2016 |
May 30,
2015 |
|||||||||||||
|
Amortization of prior service credit
|
Operating expenses
|
$
|
(1,243
|
)
|
$
|
(903
|
)
|
$
|
(3,545
|
)
|
$
|
(2,525
|
)
|
|||||
|
Amortization of net actuarial loss
|
Operating expenses
|
260
|
|
249
|
|
751
|
|
668
|
|
|||||||||
|
Total reclassifications
|
$
|
(983
|
)
|
$
|
(654
|
)
|
$
|
(2,794
|
)
|
$
|
(1,857
|
)
|
||||||
Note 13
:
Subsequent Event
On
June 15, 2016
our Board of Directors declared a cash dividend of
$0.10
per share as noted in
Note 8
.
11
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
This management's discussion should be read in conjunction with the Unaudited Consolidated Financial Statements contained in this Form 10-Q as well as the Management's Discussion and Analysis and Risk Factors included in our Annual Report on Form 10‑K for the fiscal year ended
August 29, 2015
and in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Forward-Looking Information
Certain of the matters discussed in this Quarterly Report on Form 10-Q 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, which involve risks and uncertainties. A number of factors could cause actual results to differ materially from these statements, including, but not limited to: increases in interest rates, availability of credit, low consumer confidence, availability of labor, significant increase in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions, integration of operations relating to mergers and acquisitions activities, business interruptions, any unexpected expenses related to ERP and other factors which may be disclosed throughout this report. Although we believe that the expectations reflected in the “forward-looking statements” are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Undue reliance should not be placed on these “forward-looking statements,” which speak only as of the date of this report. We undertake no obligation to publicly update or revise any “forward-looking statements” whether as a result of new information, future events or otherwise, except as required by law or the rules of the NYSE.
Executive Overview
Winnebago Industries, Inc. is a leading US manufacturer of RVs with a proud history of manufacturing RV products for more than 50 years. We currently produce all of our motorhomes in vertically integrated manufacturing facilities in Iowa and we produce all travel trailer and fifth wheel trailers in Indiana. We are in the process of expanding some motorhome manufacturing to Junction City, Oregon. We distribute our products primarily through independent dealers throughout the US and Canada, who then retail the products to the end consumer.
Our retail unit market share, as reported by Stat Surveys based on state records, is illustrated below. Note that this data is subject to adjustment and is continuously updated.
|
Rolling 12 Months
Through April
|
Calendar Year
|
|||||||||||
|
US and Canada
|
2016
|
2015
|
2015
|
2014
|
2013
|
|||||||
|
Motorized A, B, C
|
19.5
|
%
|
20.9
|
%
|
20.4
|
%
|
20.7
|
%
|
18.6
|
%
|
||
|
Travel trailer and fifth wheels
|
1.0
|
%
|
0.8
|
%
|
0.9
|
%
|
0.8
|
%
|
1.0
|
%
|
||
Industry Outlook
Key reported statistics for the North American RV industry are as follows:
|
•
|
Wholesale unit shipments: RV product delivered to the dealers, which is reported monthly by RVIA
|
|
•
|
Retail unit registrations: consumer purchases of RVs from the dealer, which is reported monthly by Stat Surveys
|
We track RV industry conditions using these key statistics to monitor trends and evaluate and understand our performance to the overall industry. The rolling twelve months shipment and retail information for 2016 and 2015 as noted below illustrates that the RV industry continues to grow both at the wholesale and retail level. We believe that retail demand is the key driver to continued growth in the RV industry and that annual RV shipments will generally be in line with retail registrations in the future.
|
US and Canada Industry
|
|||||||||||||||||
|
Wholesale Unit Shipments per RVIA
|
Retail Unit Registrations per Stat Surveys
|
||||||||||||||||
|
Rolling 12 Months through April
|
Rolling 12 Months through April
|
||||||||||||||||
|
2016
|
|
2015
|
|
Unit Change
|
% Change
|
2016
|
|
2015
|
|
Unit Change
|
% Change
|
||||||
|
Towable
(1)
|
324,552
|
|
309,539
|
|
15,013
|
|
4.9
|
%
|
325,322
|
|
293,828
|
|
31,494
|
|
10.7
|
%
|
|
|
Motorized
(2)
|
49,943
|
|
45,156
|
|
4,787
|
|
10.6
|
%
|
45,624
|
|
41,014
|
|
4,610
|
|
11.2
|
%
|
|
|
Combined
|
374,495
|
|
354,695
|
|
19,800
|
|
5.6
|
%
|
370,946
|
|
334,842
|
|
36,104
|
|
10.8
|
%
|
|
|
(1)
|
Towable: Fifth wheel and travel trailer products
|
|
(2)
|
Motorized: Class A, B and C products
|
The most recent towable and motorized RVIA wholesale shipment forecasts for calendar year 2016 and 2017 as noted in the table below illustrates continued projected growth of the industry. The outlook for future growth in RV sales is based on continued
12
modest gains in job and disposable income prospects as well as low inflation, and takes into account the impact of slowly rising interest rates, a strong U.S. dollar and continued weakness in energy production and prices.
|
Calendar Year
|
|||||||||
|
Wholesale Unit Shipment Forecast per RVIA
(1)
|
2017
|
|
2016
|
|
Unit Change
|
% Change
|
|||
|
Towable
|
341,200
|
|
334,200
|
|
7,000
|
|
2.1
|
%
|
|
|
Motorized
|
52,500
|
|
50,900
|
|
1,600
|
|
3.1
|
%
|
|
|
Combined
|
393,700
|
|
385,100
|
|
8,600
|
|
2.2
|
%
|
|
|
(1)
|
Prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Summer 2016 Industry Forecast Issue.
|
Company Outlook
In the first calendar quarter of 2016 the RV industry continued to experience growth in both wholesale and retail volumes. This sustained growth has been consistent for several years in the motorized and towable segments. We have been able to capitalize on the industry growth to varying degrees with our towable and motorized products while making technology and other investments that we believe will support our growth.
In the first nine months of Fiscal 2016 we achieved strong results in our towables division, where our shipments grew much faster than the industry as a result of greater penetration of our new products and further expansion of our distribution base. We believe we can continue to achieve growth in excess of the overall towables market projections for the remainder of Fiscal 2016.
In the motorized business, however, we did not achieve unit growth commensurate with the industry. While we had a strong fiscal third quarter where our deliveries grew by
12.4%
, fiscal year to date our deliveries have grown at a slower rate than the industry as a whole as we are still facing manufacturing capacity challenges and losing retail market share in select product categories. Our overall motorized market share has moved from 20.9% to 19.5% when comparing shipments during the twelve month trailing periods ended April 2015 to April 2016.
In part, the motorized market share decline has been influenced by limited production capacity within our North Iowa facilities. In recent quarters, we have begun to make investments in unlocking further capacity via improved operational processes and adding new facilities. While these investments have not been fully realized to date, we have taken near term actions to maximize the profitability of the motorized product with improved mix, cost containment efforts and pricing initiatives.
As a result of the actions taken within our motorized and towable products, we have seen similar changes to the backlog volumes at the end of our fiscal third quarter.
Towable backlog grew
130.2%
on a unit basis, which is driven by the expansion of our distribution base and the new products that were mentioned earlier.
The motorized unit backlog decreased by
33.6%
on a unit basis when compared to the third quarter of Fiscal 2015. Several factors contributed as follows:
|
•
|
In prior years, we have hosted a dealer event in our fiscal third quarter that historically would generate substantial motorized sales orders. This year, we elected to reallocate some of these marketing dollars to other programs which occur later in the year and thus we believe these programs will generate sales orders in future quarters.
|
|
•
|
Another factor was related to the timing of when certain rental units were delivered. In the third quarter of Fiscal 2015, a portion of our rental business was still in the backlog count as the units were delivered in the fourth quarter of Fiscal 2015. This year, all of our rental volume was delivered in the third quarter.
|
|
•
|
Lastly, we have begun to see some modest improvement from the operational improvement efforts that started in January. In the quarter, these operational improvements allowed us to more quickly deliver motorized units to our dealer network and thus further reduced the backlog. We believe it is critical to timely satisfy dealer demand and we will continue to work on reducing product throughput time.
|
13
|
As Of
|
|||||||||||||
|
Backlog
(1)
|
May 28, 2016
|
May 30, 2015
|
(Decrease)
Increase
|
%
Change
|
|||||||||
|
Motorhomes (in units)
|
1,513
|
|
2,279
|
|
(766
|
)
|
(33.6
|
)%
|
|||||
|
Motorhomes (approximate revenues in thousands)
|
134,495
|
|
$
|
196,915
|
|
$
|
(62,420
|
)
|
(31.7
|
)%
|
|||
|
Towables (in units)
|
412
|
|
179
|
|
233
|
|
130.2
|
%
|
|||||
|
Towables (approximate revenues in thousands)
|
$
|
8,058
|
|
$
|
4,512
|
|
$
|
3,546
|
|
78.6
|
%
|
||
(1)
We include in our backlog all accepted purchase orders from dealers to be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.
A key metric used to evaluate motorized dealer inventory levels is the retail turn rate (12 month retail volume/current dealer inventory). At the end of the third quarter of Fiscal 2016 the retail turn rate was 2.0 turns for motorized product. Historically turn rates above 2.0 have been an indication of a balanced dealer inventory, thus we believe motorized dealer inventory levels are in alignment with retail demand.
In order to generate sales growth, we are expanding our Towables distribution base and thus our dealer inventory has increased. As shown below, dealer inventory for Towables increased
29.3%
in the last year. Based upon the strong sales growth already demonstrated and based upon the age of the dealer inventory, we believe that dealer inventory for towable products is reasonable.
|
As Of
|
||||||||||
|
Unit Dealer Inventory
|
May 28,
2016 |
May 30,
2015 |
Increase
|
%
Change
|
||||||
|
Motorhomes
|
4,585
|
|
4,501
|
|
84
|
|
1.9
|
%
|
||
|
Towables
|
2,358
|
|
1,823
|
|
535
|
|
29.3
|
%
|
||
ERP
In the second quarter of Fiscal 2015 the Board of Directors approved the strategic initiative of implementing an ERP system to replace our legacy business applications. During the first nine months of Fiscal 2016, the system went “live” for Finance, the Towables operation and the human resources/payroll areas. The next phase of implementation will involve enabling ERP functionality across the manufacturing and operations of the motorhome business. As we gain more experience and expertise with the new ERP toolset and access to data that the new ERP platform affords, we will continue to identify, and in some cases quantify, optimization opportunities in our supply chain, engineering, manufacturing and other business areas. There have been no material changes to the expected cost of implementation or timing from the disclosures made in the first quarter of Fiscal 2016. We still plan that this project will be completed in Fiscal 2017. The following table illustrates the project costs to date and total anticipated spending:
|
Fiscal
|
Fiscal 2016
|
Cumulative
|
Total Planned
|
||||||||||||||||||||||
|
(In thousands)
|
2015
|
Q1
|
Q2
|
Q3
|
Investment to Date
|
Investment
|
|||||||||||||||||||
|
Capitalized
|
$
|
3,291
|
|
$
|
1,412
|
|
$
|
1,798
|
|
$
|
1,898
|
|
$
|
8,399
|
|
(1)
|
54
|
%
|
$
|
15,000
|
|
||||
|
Expensed
|
2,528
|
|
1,363
|
|
1,432
|
|
1,742
|
|
7,065
|
|
46
|
%
|
10,000
|
|
|||||||||||
|
Total
|
$
|
5,819
|
|
$
|
2,775
|
|
$
|
3,230
|
|
$
|
3,640
|
|
$
|
15,464
|
|
100
|
%
|
$
|
25,000
|
|
|||||
(1)
During the
first nine months
of Fiscal 2016, we placed in service
$5.7 million
of our cumulative capitalized investment. These capitalized investments are
amortized over a 10-year life.
14
Results of Operations
Current Quarter Compared to the Comparable Quarter Last Year
The following is an analysis of changes in key items included in the statements of operations:
|
Three Months Ended
|
||||||||||||||||||
|
(In thousands, except percent
and per share data)
|
May 28,
2016 |
% of
Revenues
(1)
|
May 30,
2015 |
% of
Revenues
(1)
|
Increase
(Decrease)
|
%
Change
|
||||||||||||
|
Net revenues
|
$
|
272,077
|
|
100.0
|
%
|
$
|
266,510
|
|
100.0
|
%
|
$
|
5,567
|
|
2.1
|
%
|
|||
|
Cost of goods sold
|
241,820
|
|
88.9
|
%
|
238,327
|
|
89.4
|
%
|
3,493
|
|
1.5
|
%
|
||||||
|
Gross profit
|
30,257
|
|
11.1
|
%
|
28,183
|
|
10.6
|
%
|
2,074
|
|
7.4
|
%
|
||||||
|
Selling
|
4,770
|
|
1.8
|
%
|
5,150
|
|
1.9
|
%
|
(380
|
)
|
(7.4
|
)%
|
||||||
|
General and administrative
|
4,894
|
|
1.8
|
%
|
6,453
|
|
2.4
|
%
|
(1,559
|
)
|
(24.2
|
)%
|
||||||
|
Impairment of fixed asset
|
—
|
|
—
|
%
|
462
|
|
0.2
|
%
|
(462
|
)
|
(100.0
|
)%
|
||||||
|
Operating expenses
|
9,664
|
|
3.6
|
%
|
12,065
|
|
4.5
|
%
|
(2,401
|
)
|
(19.9
|
)%
|
||||||
|
Operating income
|
20,593
|
|
7.6
|
%
|
16,118
|
|
6.0
|
%
|
4,475
|
|
27.8
|
%
|
||||||
|
Non-operating income
|
77
|
|
—
|
%
|
—
|
|
—
|
%
|
77
|
|
100.0
|
%
|
||||||
|
Income before income taxes
|
20,670
|
|
7.6
|
%
|
16,118
|
|
6.0
|
%
|
4,552
|
|
28.2
|
%
|
||||||
|
Provision for taxes
|
6,232
|
|
2.3
|
%
|
4,616
|
|
1.7
|
%
|
1,616
|
|
35.0
|
%
|
||||||
|
Net income
|
$
|
14,438
|
|
5.3
|
%
|
$
|
11,502
|
|
4.3
|
%
|
$
|
2,936
|
|
25.5
|
%
|
|||
|
Diluted income per share
|
$
|
0.53
|
|
$
|
0.43
|
|
$
|
0.10
|
|
23.3
|
%
|
|||||||
|
Diluted average shares outstanding
|
27,004
|
|
27,030
|
|
(26
|
)
|
(0.1
|
)%
|
||||||||||
(1)
Percentages may not add due to rounding differences.
Motorhome unit deliveries and ASP, net of discounts, consisted of the following:
|
Three Months Ended
|
||||||||||||||||||
|
May 28,
2016 |
Product
Mix %
(1)
|
May 30,
2015 |
Product
Mix %
(1)
|
(Decrease)
Increase
|
%
Change
|
|||||||||||||
|
Class A
|
654
|
|
22.4
|
%
|
886
|
|
34.1
|
%
|
(232
|
)
|
(26.2
|
)%
|
||||||
|
Class B
|
334
|
|
11.5
|
%
|
270
|
|
10.4
|
%
|
64
|
|
23.7
|
%
|
||||||
|
Class C
|
1,929
|
|
66.1
|
%
|
1,440
|
|
55.5
|
%
|
489
|
|
34.0
|
%
|
||||||
|
Total motorhome deliveries
|
2,917
|
|
100.0
|
%
|
2,596
|
|
100.0
|
%
|
321
|
|
12.4
|
%
|
||||||
|
ASP:
|
||||||||||||||||||
|
Motorhome ASP
|
$
|
83,758
|
|
$
|
91,007
|
|
$
|
(7,249
|
)
|
(8.0
|
)%
|
|||||||
(1)
Percentages may not add due to rounding differences.
Towables unit deliveries and ASP, net of discounts, consisted of the following:
|
Three Months Ended
|
||||||||||||||||||
|
May 28,
2016 |
Product
Mix %
(1)
|
May 30,
2015 |
Product
Mix %
(1)
|
Increase
(Decrease)
|
%
Change
|
|||||||||||||
|
Travel trailer
|
1,042
|
|
86.5
|
%
|
598
|
|
80.6
|
%
|
444
|
|
74.2
|
%
|
||||||
|
Fifth wheel
|
163
|
|
13.5
|
%
|
144
|
|
19.4
|
%
|
19
|
|
13.2
|
%
|
||||||
|
Total towable deliveries
|
1,205
|
|
100.0
|
%
|
742
|
|
100.0
|
%
|
463
|
|
62.4
|
%
|
||||||
|
Towables ASP
|
$
|
21,177
|
|
$
|
26,909
|
|
$
|
(5,732
|
)
|
(21.3
|
)%
|
|||||||
(1)
Percentages may not add due to rounding differences.
15
Net revenues consisted of the following:
|
Three Months Ended
|
||||||||||||||||||
|
(In thousands)
|
May 28,
2016 |
May 30,
2015 |
Increase
(Decrease) |
%
Change
|
||||||||||||||
|
Motorhomes
(1)
|
$
|
245,785
|
|
90.3
|
%
|
$
|
237,548
|
|
89.1
|
%
|
$
|
8,237
|
|
3.5
|
%
|
|||
|
Towables
(2)
|
25,394
|
|
9.3
|
%
|
19,902
|
|
7.5
|
%
|
5,492
|
|
27.6
|
%
|
||||||
|
Other manufactured products
|
898
|
|
0.3
|
%
|
9,060
|
|
3.4
|
%
|
(8,162
|
)
|
(90.1
|
)%
|
||||||
|
Total net revenues
|
$
|
272,077
|
|
100.0
|
%
|
$
|
266,510
|
|
100.0
|
%
|
$
|
5,567
|
|
2.1
|
%
|
|||
|
(1)
|
Includes
motorhome units, parts and services.
|
|
(2)
|
Includes towable units and parts.
|
Motorhome net revenues increased
$8.2 million
or
3.5%
in the
third quarter
of
Fiscal 2016
, attributed primarily to a
12.4%
increase
in unit deliveries, most notably in our Class C rental products. The
8.0%
decrease in ASP was a result of both an increase in the lower priced rental units as well as a decrease in our high-end Class A products.
The
increase
in Towables revenues of
$5.5 million
or
27.6%
was attributed to a
62.4%
increase
in unit deliveries partially offset by
a decrease
in ASP of
21.3%
as compared to the
third quarter
of
Fiscal 2015
. The decrease in ASP was primarily a result of a shift to lower priced towable products.
Revenues from other manufactured products decreased by
$8.2 million
as we have exited sales to outside aluminum customers to maximize our labor resources.
Cost of goods sold was
$241.8 million
, or
88.9%
of net revenues for the
third quarter
of
Fiscal 2016
compared to
$238.3 million
, or
89.4%
of net revenues for the same period a year ago due to the following:
|
•
|
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, decreased from
84.1%
to
83.5%
, primarily due to our strategic sourcing initiative resulting in lower raw material costs and favorable product mix in part due to our decision to exit other manufactured products markets, partially offset by higher warranty expense.
|
|
•
|
Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs increased slightly from
5.3%
to
5.4%
of net revenues.
|
|
•
|
All factors considered, gross profit
increased
from
10.6%
to
11.1%
of net revenues.
|
Selling expenses were
$4.8 million
and
$5.2 million
, or
1.8%
and
1.9%
of net revenues in the
third quarter
of
Fiscal 2016
and
Fiscal 2015
, respectively. The decrease in the
third quarter
of
Fiscal 2016
was primarily due to reduced advertising and product promotion expenses as compared to the prior year.
General and administrative expenses were
$4.9 million
and
$6.5 million
, or
1.8%
and
2.4%
of net revenues in the
third quarter
of
Fiscal 2016
and
Fiscal 2015
, respectively. Decreases in the
third quarter
of
Fiscal 2016
were primarily related to the favorable legal settlement of
$2.75 million
discussed in Note 9 and increased amortization of postretirement health care prior service benefit due to the plan amendment discussed in
Note 7
. These expense decreases were partially offset by increased ERP expenses of $1.1 million in Fiscal 2016.
During the third quarter of Fiscal 2015 we recorded an asset impairment of $462,000 when we offered the corporate plane for sale.
The overall effective income tax rate for the
third quarter
of
Fiscal 2016
was
30.2%
compared to the effective tax rate of
28.6%
for the same period in
Fiscal 2015
. The increase in effective rate is due to the reduction in the amount of the Domestic Production Activities Deduction applicable in Fiscal 2016 as compared Fiscal 2015. This increase was partially offset in the third quarter of 2016 by a favorable retroactive tax credit. Our effective tax rate is expected to be higher in future quarters without the benefit of this retroactive credit.
Net income and diluted income per share were
$14.4 million
and
$0.53
per share, respectively, for the
third quarter
of
Fiscal 2016
. In the
third quarter
of
Fiscal 2015
, net income was
$11.5 million
and diluted income was
$0.43
per share.
16
Nine Months
of
Fiscal 2016
Compared to the Comparable
Nine Months
of
Fiscal 2015
The following is an analysis of changes in key items included in the statements of operations:
|
Nine Months Ended
|
||||||||||||||||||
|
(In thousands, except percent
and per share data)
|
May 28,
2016 |
% of
Revenues
(1)
|
May 30,
2015 |
% of
Revenues
(1)
|
(Decrease)
Increase
|
%
Change
|
||||||||||||
|
Net revenues
|
$
|
711,972
|
|
100.0
|
%
|
$
|
725,456
|
|
100.0
|
%
|
$
|
(13,484
|
)
|
(1.9
|
)%
|
|||
|
Cost of goods sold
|
631,191
|
|
88.7
|
%
|
648,629
|
|
89.4
|
%
|
(17,438
|
)
|
(2.7
|
)%
|
||||||
|
Gross profit
|
80,781
|
|
11.3
|
%
|
76,827
|
|
10.6
|
%
|
3,954
|
|
5.1
|
%
|
||||||
|
Selling
|
14,714
|
|
2.1
|
%
|
14,703
|
|
2.0
|
%
|
11
|
|
0.1
|
%
|
||||||
|
General and administrative
|
19,212
|
|
2.7
|
%
|
19,154
|
|
2.6
|
%
|
58
|
|
0.3
|
%
|
||||||
|
Impairment of fixed assets
|
—
|
|
—
|
%
|
462
|
|
0.1
|
%
|
(462
|
)
|
(100.0
|
)%
|
||||||
|
Operating expenses
|
33,926
|
|
4.8
|
%
|
34,319
|
|
4.7
|
%
|
(393
|
)
|
(1.1
|
)%
|
||||||
|
Operating income
|
46,855
|
|
6.6
|
%
|
42,508
|
|
5.9
|
%
|
4,347
|
|
10.2
|
%
|
||||||
|
Non-operating income
|
194
|
|
—
|
%
|
35
|
|
—
|
%
|
159
|
|
454.3
|
%
|
||||||
|
Income before income taxes
|
47,049
|
|
6.6
|
%
|
42,543
|
|
5.9
|
%
|
4,506
|
|
10.6
|
%
|
||||||
|
Provision for taxes
|
14,699
|
|
2.1
|
%
|
13,050
|
|
1.8
|
%
|
1,649
|
|
12.6
|
%
|
||||||
|
Net income
|
$
|
32,350
|
|
4.5
|
%
|
$
|
29,493
|
|
4.1
|
%
|
$
|
2,857
|
|
9.7
|
%
|
|||
|
Diluted income per share
|
$
|
1.20
|
|
$
|
1.09
|
|
$
|
0.11
|
|
10.1
|
%
|
|||||||
|
Diluted average shares outstanding
|
27,029
|
|
27,042
|
|
(13
|
)
|
—
|
%
|
||||||||||
(1)
Percentages may not add due to rounding differences.
Unit deliveries and ASP, net of discounts, consisted of the following:
|
Nine Months Ended
|
||||||||||||||||||
|
May 28,
2016 |
Product
Mix %
(1)
|
May 30,
2015 |
Product
Mix %
(1)
|
(Decrease)
Increase
|
%
Change
|
|||||||||||||
|
Class A
|
2,241
|
|
32.6
|
%
|
2,623
|
|
39.0
|
%
|
(382
|
)
|
(14.6
|
)%
|
||||||
|
Class B
|
831
|
|
12.1
|
%
|
735
|
|
10.9
|
%
|
96
|
|
13.1
|
%
|
||||||
|
Class C
|
3,799
|
|
55.3
|
%
|
3,373
|
|
50.1
|
%
|
426
|
|
12.6
|
%
|
||||||
|
Total motorhome deliveries
|
6,871
|
|
100.0
|
%
|
6,731
|
|
100.0
|
%
|
140
|
|
2.1
|
%
|
||||||
|
Motorhome ASP
|
$
|
92,384
|
|
$
|
96,086
|
|
$
|
(3,702
|
)
|
(3.9
|
)%
|
|||||||
(1)
Percentages may not add due to rounding differences.
Towables unit deliveries and ASP, net of discounts, consisted of the following:
|
Nine Months Ended
|
||||||||||||||||||
|
May 28,
2016 |
Product
Mix %
(1)
|
May 30,
2015 |
Product
Mix %
(1)
|
Increase
(Decrease)
|
%
Change
|
|||||||||||||
|
Travel trailer
|
2,562
|
|
86.1
|
%
|
1,567
|
|
82.8
|
%
|
995
|
|
63.5
|
%
|
||||||
|
Fifth wheel
|
413
|
|
13.9
|
%
|
326
|
|
17.2
|
%
|
87
|
|
26.7
|
%
|
||||||
|
Total towable deliveries
|
2,975
|
|
100.0
|
%
|
1,893
|
|
100.0
|
%
|
1,082
|
|
57.2
|
%
|
||||||
|
Towables ASP
|
$
|
21,173
|
|
$
|
26,007
|
|
$
|
(4,834
|
)
|
(18.6
|
)%
|
|||||||
(1)
Percentages may not add due to rounding differences.
17
Net revenues consisted of the following:
|
Nine Months Ended
|
||||||||||||||||||
|
(In thousands)
|
May 28,
2016 |
May 30,
2015 |
(Decrease)
Increase
|
%
Change
|
||||||||||||||
|
Motorhomes
(1)
|
$
|
639,984
|
|
89.9
|
%
|
$
|
652,919
|
|
90.0
|
%
|
$
|
(12,935
|
)
|
(2.0
|
)%
|
|||
|
Towables
(2)
|
62,811
|
|
8.8
|
%
|
48,859
|
|
6.7
|
%
|
13,952
|
|
28.6
|
%
|
||||||
|
Other manufactured products
|
9,177
|
|
1.3
|
%
|
23,678
|
|
3.3
|
%
|
(14,501
|
)
|
(61.2
|
)%
|
||||||
|
Total net revenues
|
$
|
711,972
|
|
100.0
|
%
|
$
|
725,456
|
|
100.0
|
%
|
|
$
|
(13,484
|
)
|
(1.9
|
)%
|
||
|
(1)
|
Includes
motorhome units, parts and services.
|
|
(2)
|
Includes towable units and parts.
|
The
decrease
in motorhome net revenues of
$12.9 million
or
2.0%
was attributed primarily to
a decrease
of
3.9%
in ASP partially offset by a
2.1%
increase
in unit deliveries in the first
nine months
of
Fiscal 2016
as compared to the first
nine months
of
Fiscal 2015
.
Towables revenues increased
28.6%
, and were
$62.8 million
in the first
nine months
of
Fiscal 2016
, compared to
$48.9 million
in the first
nine months
of
Fiscal 2015
. The
increase
in revenues was a result of a
57.2%
increase
in unit deliveries, partially offset by a
18.6%
decrease in ASP.
Revenues from other manufactured products decreased by
$14.5 million
as we have exited sales outside aluminum customers to maximize our labor resources.
Cost of goods sold was
$631.2 million
, or
88.7%
of net revenues for the first
nine months
of
Fiscal 2016
compared to
$648.6 million
, or
89.4%
of net revenues for the first
nine months
of
Fiscal 2015
due to the following:
|
•
|
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, decreased to
83.3%
in
Fiscal 2016
compared to
84.1%
in
Fiscal 2015
primarily due to improved pricing, favorable product mix in part due to our decision to exit other manufactured products markets and cost savings related to our strategic sourcing project, partially offset by higher warranty expense.
|
|
•
|
Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs were flat at
5.3%
of net revenues
in
both
Fiscal 2016
and
Fiscal 2015
.
|
|
•
|
All factors considered, gross profit
increased
to
11.3%
from
10.6%
of net revenues.
|
Selling expenses were flat at
$14.7 million
in the first
nine months
of
Fiscal 2016
and
Fiscal 2015
, and were
2.1%
of net revenues
in
Fiscal 2016
compared to
2.0%
in
Fiscal 2015
.
General and administrative expenses were
2.7%
and
2.6%
of net revenues in the first
nine months
of
Fiscal 2016
and
Fiscal 2015
, respectively. General and administrative expenses
increased
$58,000
, or
0.3%
in the first
nine months
of
Fiscal 2016
compared to the same period in
Fiscal 2015
. The legal settlement previously discussed and increased amortization of postretirement health care prior service benefit due to the plan amendment decreased expenses and were offset by increases in ERP and wage related expenses.
As described above, during the third quarter of Fiscal 2015 we recorded an asset impairment of $462,000 when we offered the corporate plane for sale.
The overall effective income tax rate for the first
nine months
of
Fiscal 2016
was
31.2%
compared to the effective income tax rate of
30.7%
for the first
nine months
of
Fiscal 2015
. The increase in effective rate is due to the reduction in the amount of the Domestic Production Activities Deduction applicable in Fiscal 2016 as compared Fiscal 2015. This increase was partially offset in the first nine months of Fiscal 2016 by a favorable retroactive tax credit. Our effective tax rate is expected to be higher in future periods without the benefit of this retroactive tax credit.
Net income and diluted income per share were
$32.4 million
and
$1.20
per share, respectively, for the first
nine months
of
Fiscal 2016
. In the first
nine months
of
Fiscal 2015
, net income was
$29.5 million
and diluted net income was
$1.09
per share.
Other Balance Sheet Changes
In the first quarter of
Fiscal 2016
we reduced our postretirement health care liability with a plan amendment. This resulted in a
$28.6 million
reduction in the postretirement health care liability, a $10.9 million decrease in our deferred tax assets and a
$17.7 million
increase in AOCI.
18
Analysis of Financial Condition, Liquidity and Resources
Cash and cash equivalents increased $
1.0 million
during the first
nine months
of
Fiscal 2016
and totaled
$71.3 million
as of
May 28, 2016
. Significant liquidity events that occurred during the first
nine months
of
Fiscal 2016
were:
|
•
|
Generation of net income of
$32.4 million
|
|
•
|
Purchases of property and equipment of
$19.9 million
|
|
•
|
Increase in inventory of
$19.3 million
|
|
•
|
Dividend payments of
$8.2 million
|
We have the ability to borrow $35.0 million through our Amended Credit Agreement with Wells Fargo Capital Finance, a revolving credit facility based on our eligible inventory and certain receivables. In addition, the Amended Credit Agreement also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable terms at the time of the expansion. We are in compliance with all material terms in the Amended Credit Agreement and have no outstanding borrowings at
May 28, 2016
.
We filed a Registration Statement on Form S-3, which was declared effective by the SEC on April 25, 2016. Subject to market conditions, we have the ability to offer and sell up to $35.0 million of our common stock in one or more offerings pursuant to the Registration Statement. The Registration Statement will be available for use for three years from its effective date. We currently have no plans to offer and sell the common stock registered under the Registration Statement; however, it does provide another potential source of liquidity to raise capital if we need it, in addition to the alternatives already in place.
Working capital at
May 28, 2016
and
August 29, 2015
was
$180.7 million
and
$184.6 million
, respectively, a decrease of
$3.9 million
. We currently expect cash on hand, cash collected on receivables, funds generated from operations and the availability under the Amended Credit Agreement to be sufficient to cover both short-term and long-term operating requirements for the next 12 months. We anticipate capital expenditures in the fourth quarter of
Fiscal 2016
to be approximately $4 - $6 million as we continue to invest in our ERP system and West Coast capacity expansion investments.
We made share repurchases of
$3.1 million
in the first
nine months
of
Fiscal 2016
. If we believe the common stock is trading at attractive levels and reflects a prudent use of our capital, subject to compliance with the Amended Credit Agreement, we may purchase additional shares in the remainder of
Fiscal 2016
. At
May 28, 2016
we have
$4.0 million
remaining on our board repurchase authorization. See Part II, Item 2 of this Form 10-Q.
Operating Activities
Cash provided by operating activities was
$31.7 million
for the
nine months
ended
May 28, 2016
compared to
$18.6 million
for the
nine months
ended
May 30, 2015
. In
Fiscal 2016
the combination of net income of
$32.4 million
and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided
$38.7 million
of operating cash. Changes in assets and liabilities (primarily an increase in inventories) used
$6.9 million
of operating cash in the first
nine months
ended
May 28, 2016
. In the
nine months
ended
May 30, 2015
, the combination of net income of
$29.5 million
and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided
$37.5 million
of operating cash. Changes in assets and liabilities (primarily an increase in inventories and a decrease in accrued expenses) used
$19.0 million
of operating cash.
Investing Activities
Cash used in investing activities of
$19.5 million
for the
nine months
ended
May 28, 2016
was due primarily to capital expenditures of
$19.9 million
. Approximately
$9.7 million
was invested in property in Oregon that we intend to use to expand motorhome manufacturing and approximately $8.4 million was invested in ERP. In the
nine months
ended
May 30, 2015
, cash used in investing activities of
$13.7 million
was due primarily to capital expenditures of
$14.2 million
.
Financing Activities
Cash used in financing activities of
$11.2 million
for the
nine months
ended
May 28, 2016
was primarily due to
$8.2 million
for the payment of dividends and
$3.1 million
in repurchases of our stock. Cash used in financing activities of
$13.5 million
for the
nine months
ended
May 30, 2015
was primarily due to
$6.2 million
for repurchases of our stock and
$7.3 million
for payments of dividends.
Significant Accounting Policies
We describe our significant accounting policies in Note 1,
Summary of Significant Accounting Policies
, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended
August 29, 2015
. We discuss our critical accounting estimates in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations
, in our Annual Report on Form 10-K for the fiscal year ended
August 29, 2015
. We refer to these disclosures for a detailed explanation of our significant accounting policies and critical accounting estimates. There has been no significant change in our significant accounting policies or critical accounting estimates since the end of
Fiscal 2015
.
19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
None
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures", as such term is defined under Securities Exchange Act of 1934, as amended ("Exchange Act") Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures and believes such controls and procedures are effective at the reasonable assurance level.
We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Report (the "Evaluation Date"). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the Evaluation Date.
Changes in Internal Control Over Financial Reporting
As reported in the November 28, 2015 Form 10-Q, we had a change in our internal control over financial reporting that occurred as a result of our implementation of a new ERP system that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During the first nine months of Fiscal 2016, our new ERP system replaced our legacy system for our Finance area, the Towables operation and the human resources/payroll areas. Our new ERP system is intended to provide us with enhanced transactional processing and management tools compared to our legacy system. The new system was subject to extensive testing and data reconciliation during implementation.
Item 1.
Legal Proceedings
We are involved in various legal proceedings which are ordinary litigation incidental to our business, some of which are covered in whole or in part by insurance. While we believe the ultimate disposition of litigation will not have material adverse effect on our financial position, results of operations or liquidity, there exists the possibility that such litigation may have an impact on our results for a particular reporting period in which litigation effects become probable and reasonably estimable. Though we do not believe there is a reasonable likelihood that there will be a material change related to these matters, litigation is subject to inherent uncertainties and management’s view of these matters may change in the future.
For the past several years we have been involved in litigation in Australia seeking to recover from Knott for damages arising from Knott using our name on RVs without our approval. On December 2, 2015, the Federal Court of Australia, New South Wales District Registry, General Division, entered judgment in our favor and against Knott for damages arising out of its use of the Winnebago name. Damages awarded were
1.0%
of the total sales of Winnebago branded recreation vehicles from October 14, 2004, through October 17, 2013, plus interest. We previously disclosed that the amount of that award was likely to exceed
$5.0 million
, plus attorneys’ fees. Knott appealed that ruling. On May 26, 2016, in exchange for immediate payment to Winnebago of
$2.75 million
, Winnebago and Knott executed a global settlement pursuant to which Knott will cease all use of the Winnebago name and logos, all appeals and oppositions are terminated, and all proceedings between the parties have been settled. Winnebago’s trademarks in Australia will proceed to registration without further opposition from Knott. The settlement of $2.75 million was recorded within general and administrative expense in the third quarter of Fiscal 2016.
Item 1A.
Risk Factors
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10‑K for the fiscal year ended
August 29, 2015
.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On December 19, 2007, the Board of Directors authorized the repurchase of outstanding shares of our common stock, depending on market conditions, for an aggregate consideration of up to $60 million. There is no time restriction on this authorization. During the
third quarter
of
Fiscal 2016
,
182
shares were repurchased under the authorization, at an aggregate cost of $3,926. All of these shares were repurchased from employees who vested in Winnebago Industries shares during the
third quarter
of
Fiscal 2016
and
20
elected to pay their payroll tax via shares as opposed to cash. As of
May 28, 2016
, there was approximately
$4.0 million
remaining under this authorization.
Purchases of our common stock during each fiscal month of the
third quarter
of
Fiscal 2016
were:
|
Period
|
Total Number
of Shares
Purchased
|
Average Price
Paid per Share
|
Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
|
Approximate Dollar Value
of Shares That May Yet Be
Purchased Under the
Plans or Programs
|
||||||||||
|
02/28/15 - 04/02/16
|
—
|
|
$
|
—
|
|
—
|
|
$
|
4,009,000
|
|
||||
|
04/03/16 - 04/30/16
|
182
|
|
$
|
21.57
|
|
182
|
|
$
|
4,005,000
|
|
||||
|
05/01/16 - 05/28/16
|
—
|
|
$
|
—
|
|
—
|
|
$
|
4,005,000
|
|
||||
|
Total
|
182
|
|
$
|
21.57
|
|
182
|
|
$
|
4,005,000
|
|
||||
Our Amended Credit Agreement contains covenants that limit our ability to pay certain cash dividends or repurchase our stock without impacting financial ratio covenants.
|
3.2
|
Amended By-Laws of the Registrant previously filed with the Registrant's Current Report on Forms 8-K dated March 29, 2016 and June 16, 2016 (Commission File Number 001-06403) and incorporated by reference herein.
|
|
31.1
|
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated
June 22, 2016
.
|
|
31.2
|
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated
June 22, 2016
.
|
|
32.1
|
Certification by the Chief Executive Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
June 22, 2016
.
|
|
32.2
|
Certification by the Chief Financial Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
June 22, 2016
.
|
|
101.INS*
|
XBRL Instance Document
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF*
|
XBRL Taxonomy Extension Definitions Linkbase Document
|
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
*Attached as Exhibit 101 to this report are the following financial statements from our Quarterly Report on Form 10-Q for the quarter ended
May 28, 2016
formatted in XBRL: (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Operations and Comprehensive Income, (iii) the Unaudited Consolidated Statement of Cash Flows, and (iv) related notes to these financial statements. Such exhibits are deemed furnished and not filed pursuant to Rule 406T of Regulation S-T.
21
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.
|
WINNEBAGO INDUSTRIES, INC.
|
||||
|
Date:
|
June 22, 2016
|
By
|
/s/ Michael J. Happe
|
|
|
Michael J. Happe
|
||||
|
Chief Executive Officer, President
|
||||
|
(Principal Executive Officer)
|
||||
|
Date:
|
June 22, 2016
|
By
|
/s/ Sarah N. Nielsen
|
|
|
Sarah N. Nielsen
|
||||
|
Vice President, Chief Financial Officer
|
||||
|
(Principal Financial and Accounting Officer)
|
||||
22
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Condensed Consolidated Financial StatementsNote 1: Basis Of PresentationNote 2: Concentration RiskNote 3: Investments and Fair Value MeasurementsNote 4: InventoriesNote 5: Property, Plant and EquipmentNote 6: WarrantyNote 7: Employee and Retiree BenefitsNote 8: Shareholders' EquityNote 9: Contingent Liabilities and CommitmentsNote 10: Income TaxesNote 11: Earnings Per ShareNote 12: Comprehensive Income (loss)Note 13: Subsequent EventItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits