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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended August 29, 2020; or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________________ to _______________________
Commission File Number 001-06403
WGO-20200829_G1.JPG
WINNEBAGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0802678
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 152 Forest City Iowa 50436
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (641) 585‑3535

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.50 par value per share WGO New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer     Accelerated Filer    Non-accelerated filer Smaller Reporting Company Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
Aggregate market value of the common stock held by non-affiliates of the registrant: $1,670,376,429 (32,190,720 shares at the closing price on the New York Stock Exchange of $51.89 on February 28, 2020).
Common stock outstanding on October 16, 2020: 33,758,021 shares.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to the registrant's 2020 Annual Meeting of Shareholders, scheduled to be held December 15, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.



Winnebago Industries, Inc.
Fiscal 2020 Form 10-K
Table of Contents

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8

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WINNEBAGO INDUSTRIES, INC.
FORM 10-K
Report for the Fiscal Year Ended August 29, 2020

Safe Harbor Statement Under the Private Securities Litigation Reform Act

Certain of the matters discussed in this Annual Report on Form 10-K are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), which involve risks and uncertainties. With the exception of historical information, the matters discussed in this Annual Report on Form 10-K are forward-looking statements and may be identified by the use of words such as "anticipate," "assume," "believe," "estimate," "expect," "guidance," "intend," "outlook," "plan," "project," and other words and terms of similar meaning. Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, new strategies, the competitive environment, and other events. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in such forward-looking statements. Readers should review Item 1A, Risk Factors, in this Annual Report on Form 10-K for the fiscal year ended August 29, 2020, for a description of important factors that could cause our actual results to differ materially from those contemplated by the forward-looking statements made in this Annual Report on Form 10-K. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: competition and new product introductions by competitors, our ability to attract and retain qualified personnel, increases in market compensation rates, business or production disruptions, sales order cancellations, risk related to the terms of our credit agreement, stock price volatility and share dilution, disruptions or unanticipated costs from facility expansions, availability of labor, a slowdown in the economy, low consumer confidence, the effect of global tensions, increases in interest rates, availability of credit, availability of financing for RV and marine dealers, impairment of goodwill, risk related to cyclicality and seasonality of our business, slower than anticipated sales of new or existing products, integration of operations relating to merger and acquisition activities generally, our acquisition of Newmar, the possibility that the Newmar acquisition may not perform as expected or may not result in earnings growth, difficulties and expenses related to integrating Newmar into our business, increased focus of management attention and resources on the acquisition of Newmar, risks related to our convertible and senior secured notes, including our ability to satisfy our obligations under these notes, risks related to our convertible note hedge and warrant transactions, inadequate liquidity or capital resources, inventory and distribution channel management, our ability to innovate, our reliance on large dealer organizations, significant increase in repurchase obligations, availability and price of fuel, availability of chassis and other key component parts, increased material and component costs, exposure to warranty claims, ability to protect our intellectual property, exposure to product liability claims, dependence on information systems and web applications, any unexpected expenses related to the implementation of our ERP system, the duration and scope of the coronavirus (“COVID-19”) pandemic, actions governments, businesses, and individuals take in response to the COVID-19 pandemic, including mandatory business closures and restrictions of onsite commercial interactions; the impact of the pandemic and actions taken in response to the pandemic on regional economies and economic activity; the pace of recovery when the COVID-19 pandemic subsides; and general economic uncertainty in key markets and a worsening of domestic economic conditions or low levels of economic growth, risk related to data security, governmental regulation, including for climate change, risk related to anti-takeover provisions applicable to us, cyber-attacks and other factors which may be disclosed throughout this Annual Report on Form 10-K. 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 New York Stock Exchange. We advise you, however, to consult any further disclosures made on related subjects in future quarterly reports on Form 10-Q and current reports on Form 8-K that are filed or furnished with the U.S. Securities and Exchange Commission ("SEC").

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PART I
Item 1. Business.

General

The "Company," "Winnebago Industries," "we," "our," and "us" are used interchangeably to refer to Winnebago Industries, Inc. and its wholly-owned subsidiaries, as appropriate in the context.

Winnebago Industries, Inc. is a leading North American manufacturer with a diversified portfolio of recreation vehicles ("RV"s) and marine products used primarily in leisure travel and outdoor recreation activities. We produce our Towable units in Indiana; our Motorhome units in Iowa and Indiana; and our marine products in Florida. We distribute our RV and marine products primarily through independent dealers throughout the U.S. and Canada, who then retail the products to the end consumer. We also distribute our marine products internationally through independent dealers, who then retail the products to the end consumer.

Available Information

Our website, located at www.winnebagoind.com, provides additional information about us. On our website, you can obtain, free of charge, this and prior year Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all of our other filings with the SEC. Our recent press releases are also available on our website. Our website also contains important information regarding our corporate governance practices. Information contained on our website is not incorporated into this Annual Report on Form 10-K.

Principal Products

We have six operating segments: 1) Grand Design towables, 2) Winnebago towables, 3) Winnebago motorhomes, 4) Newmar motorhomes, 5) Chris-Craft marine, and 6) Winnebago specialty vehicles. We evaluate performance based on each operating segment's Adjusted EBITDA, as defined within Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K, which excludes certain corporate administration expenses and non-operating income and expense.

Our two reportable segments include: 1) Towable (comprised of products which are not motorized and are generally towed by another vehicle as well as other related manufactured products and services), which is an aggregation of the Winnebago towables and Grand Design towables operating segments, and 2) Motorhome (comprised of products that include a motorized chassis as well as other related manufactured products and services), which is an aggregation of the Winnebago motorhomes and Newmar motorhomes operating segments.

The Corporate / All Other category includes the Chris-Craft marine and Winnebago specialty vehicles operating segments as well as expenses related to certain corporate administration expenses for the oversight of the enterprise. These expenses include items such as corporate leadership and administration costs.

Towable

A towable is a non-motorized vehicle that is designed to be towed by automobiles, pickup trucks, SUVs, or vans and is used as temporary living quarters for recreational travel. The Recreation Vehicle Industry Association ("RVIA") classifies towables in four types: conventional travel trailers, fifth wheels, folding camper trailers, and truck campers. We manufacture and sell conventional travel trailers and fifth wheels under the Winnebago and Grand Design brand names, which are defined as follows:

Type Description Winnebago product offerings Grand Design product offerings
Travel trailer Towed by means of a hitch attached to the frame of the vehicle Minnie, Micro Minnie, Hike, Voyage, and Spyder Transcend, Imagine, and Reflection
Fifth wheel Constructed with a raised forward section that is connected to the vehicle with a special fifth wheel hitch Voyage and Spyder Momentum, Reflection, and Solitude

Our travel trailer and fifth wheel towables are sold by dealers in the retail market with manufacturer's suggested retail prices ranging from approximately $20,000 to $100,000, depending on size and model, plus optional equipment and delivery charges.
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Unit sales of our towables for the last three fiscal years were as follows:
2020 2019 2018
Travel trailer 23,184  61.2  % 22,458  61.0  % 22,360  61.1  %
Fifth wheel 14,706  38.8  % 14,371  39.0  % 14,229  38.9  %
Total towables 37,890  100.0  % 36,829  100.0  % 36,589  100.0  %

Motorhome

A motorhome is a self-propelled mobile dwelling used primarily as temporary living quarters during vacation and camping trips, or to support active and mobile lifestyles. The RVIA classifies motorhomes into three types, all of which we manufacture and sell under the Winnebago and Newmar brand names, which are defined as follows:
Type Description Winnebago product offerings Newmar product offerings
Class A Built on a heavy truck chassis in both diesel and gas models with the ability to tow a small vehicle Gas: Adventurer, Intent, Vista, and Sunstar Gas: Bay Star, Bay Star Sport, and Canyon Star
Diesel: Horizon and Forza Diesel: Canyon Star, King Aire, Dutch Star, Essex, Kountry Star, London Aire, Mountain Aire, New Aire, and Ventana
Class B Built by adding taller roof and amenities to existing van, which allows for easy maneuvering Boldt, Revel, Travato, Era, and Solis N/A
Class C Built on a medium truck chassis in both diesel and gas models with similar features and amenities to Class A models Gas: Outlook, Spirit, and Minnie Winnie Diesel: Superstar and Supreme Aire
Diesel: View, Navion, Vita, Porto, and Fuse
Accessibility Enhanced Class A vehicle with a wheelchair lift to allow individuals with physical handicaps access to the motorhome Gas: Adventurer AE, Intent AE N/A
Diesel: Forza AE

Our Class A, B and C motorhomes are sold by dealers in the retail market with manufacturer's suggested retail prices ranging from approximately $90,000 to $1,300,000, depending on size and model, plus optional equipment and delivery charges. Our motorhomes range in length from 21 to 45 feet.

Unit sales of our motorhomes for the last three fiscal years were as follows:
2020 2019 2018
Class A 2,493  30.8  % 1,582  20.8  % 2,997  31.4  %
Class B 3,351  41.3  % 2,784  36.7  % 2,012  21.1  %
Class C 2,261  27.9  % 3,225  42.5  % 4,539  47.5  %
Total motorhomes 8,105  100.0  % 7,591  100.0  % 9,548  100.0  %

Motorhome parts and service activities represent revenues generated by service work we perform for retail customers at our Forest City, Iowa and Nappanee, Indiana facilities as well as revenues from the sale of unit parts. Our competitive strategy is to provide proprietary manufactured parts through our dealer network, which we believe increases customer satisfaction and the value of our motorhomes.

Chris-Craft

On June 4, 2018, we acquired 100% of the ownership interests of Chris-Craft USA, Inc. ("Chris-Craft"), a privately-owned company based in Sarasota, Florida. As a result of this acquisition, we manufacture and sell premium quality boats in the recreational powerboat industry through an established global network of independent authorized dealers.

Winnebago Specialty Vehicles

We also manufacture other specialty commercial vehicles primarily custom designed for the buyer's specific needs and requirements, such as law enforcement command centers, mobile medical clinics, and mobile office space. These specialty commercial vehicles are manufactured in Forest City, Iowa and sold through our dealer network. In addition, we also provide commercial vehicles as bare shells to third-party upfitters for conversion at their facilities.

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Production

We generally produce towables and motorhomes made to order for dealers. We have some ability to increase our capacity by scheduling overtime and/or hiring additional production employees or to decrease our capacity through the use of shortened work weeks and/or reducing head count. We have long been known as an industry leader in innovation as each year we introduce new or redesigned products. These changes generally include new floor plans, features, functionality, and sizes as well as design and decor modifications. Most of our raw materials such as steel, aluminum, fiberglass, and wood products are obtainable from numerous sources.

Our towables are produced at two assembly campuses located in Middlebury, IN. The majority of components are comprised of frames, appliances, and furniture, and are purchased from suppliers. In Fiscal 2020, we had one supplier that accounted for more than 10% of our Towable raw material purchases.

Our motorhomes are produced in the states of Iowa and Indiana at five different campuses. Our motorhome business utilizes vertically integrated supply streams, with the principal exceptions being chassis, engines, generators, and appliances that we purchase from reputable manufacturers. Certain parts, especially motorhome chassis, are available from a small group of suppliers. In Fiscal 2020, we had one supplier that accounted for more than 10% of our motorhome raw material purchases.

Backlog

We strive to balance timely order fulfillment to our dealers with the lead times suppliers require to efficiently source materials and manage costs. Production facility constraints at peak periods also lead to fluctuations in backlog orders which we manage closely. The approximate revenue of our Towable backlog was $747.9 million and $234.3 million as of August 29, 2020 and August 31, 2019, respectively. The approximate revenue of our Motorhome backlog was $1,051.4 million and $165.4 million as of August 29, 2020 and August 31, 2019, respectively. A more detailed description of our Motorhome and Towable order backlog is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.

Distribution and Financing

We market our products on a wholesale basis to a diversified independent dealer network located throughout the U.S. and, to a limited extent, in Canada, Africa, Asia, Europe, Australia, and South America. Foreign sales were 10% or less of Net revenues during each of the past three fiscal years.
As of August 29, 2020, our RV and marine dealer network in the U.S. and Canada included 642 physical dealer locations, many of which carry more than one of our brands. None of our dealer organizations accounted for more than 10% of our Net revenues for Fiscal 2020, 2019, and 2018.

We have sales and service agreements with dealers which are subject to annual review. Many of the dealers are also engaged in other areas of business, including the sale of automobiles, trailers, or boats, and most dealers carry one or more competitive lines of RVs. We continue to place high emphasis on the capability of our dealers to provide complete service for our products. Dealers are obligated to provide full service for owners of our products or, in lieu thereof, to secure such service from other authorized providers.

We advertise and promote our products through national trade magazines, the distribution of product brochures, the Go RVing national advertising campaign sponsored by RVIA, our websites, social media, direct-mail advertising campaigns, various national promotional opportunities, and on a local basis through trade shows, television, radio, and newspapers, primarily in connection with area dealers.

Sales to dealers are made primarily on cash terms. Most dealers 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 merchandise purchased. As is customary in our industries, we typically enter into a repurchase agreement with a lending institution financing a dealer's purchase of our product upon the lending institution's request and after completion of a credit check of the dealer involved. Our repurchase agreements provide that, for up to 18 months after an RV unit is financed and up to 24 months after a marine unit is financed, in the event of default by the dealer on the agreement to pay the lending institution and repossession of the unit(s) by the lending institution, we will repurchase the financed merchandise from the lender at the amount then due, which is often less than dealer invoice. Our maximum exposure for repurchases varies significantly from time to time, depending upon the level of dealer inventory, general economic conditions, demand for our products, dealer location, and access to and the cost of financing. See Note 12, Contingent Liabilities and Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
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Competition

The RV and marine markets are highly competitive with many other manufacturers selling products which compete directly with our products. Some of our competitors are much larger than us, most notably in the towable RV market, which may provide these competitors additional purchasing power. The competition in our industry is based upon design, price, quality, features, and service of the products. We believe our principal competitive advantages are our brand strength, product differentiation, product quality, and our service after the sale. We also believe that our products have historically commanded a price premium as a result of these competitive advantages.

Seasonality

The primary use of RVs and marine products for leisure travel and outdoor recreation has historically led to a peak retail selling season concentrated in the spring and summer months and lower sales during winter months. Our sales are generally influenced by this pattern in retail sales, but sales can also be affected by the level of dealer inventory. As a result, our RV sales are historically lowest during our second fiscal quarter, which ends in February.

Governmental Regulations

We are subject to a variety of federal, state, local, and, to a limited extent, international laws and regulations, including the federal Motor Vehicle Act ("MVA"), under which the National Highway Traffic Safety Administration ("NHTSA") may require manufacturers to recall RVs that contain safety-related defects, and numerous state consumer protection laws and regulations relating to the operation of motor vehicles, including so-called "Lemon Laws." The Boat Safety Act of 1971 has similar safety-related recall requirements for marine units. In addition, marine units sold in the U.S. and Europe must meet the certification standards of the U.S. Coast Guard and the European Community, respectively.

We are also subject to regulations established by the Occupational Safety and Health Administration ("OSHA"). Our facilities are periodically inspected by federal and state agencies, such as OSHA. We are a member of RVIA, a voluntary association of RV manufacturers which promulgates RV safety standards. We place an RVIA seal on each of our RVs to certify that the RVIA standards have been met. We believe that our products and facilities comply in all material respects with the applicable vehicle safety, consumer protection, RVIA, and OSHA regulations and standards.

Our operations are subject to a variety of federal and state environmental laws and regulations relating to the use, generation, storage, treatment, emission, labeling, and disposal of hazardous materials and wastes, and noise pollution. We believe that we are currently in compliance with applicable environmental laws and regulations in all material aspects.

Trademarks

We have several domestic and foreign trademark registrations and pending applications associated with our products which include: Winnebago, 24 W 7 (logo), +Lounger, Adventurer, Affinity, Airlie, Aspect, Bay Star, Bay Star Sport, Benchmark, Brave, Boldt, Bound by the W, Cambria, Canyon Star, CC (logo), Chris Craft, Chris-Craft (logo), Comfort Drive, Comfort Drive Steering (logo), Commander, Corsair, Cottesloe, Country Coach, Destination, Dutch Star, Dynomax, Eco-Hot, Ekko, Ellipse, eMLU, Era, Essex, Forza, Fresco, Fuse, Glide & Dine, GoWinnebago, Grand Design, Grand Design Recreational Vehicles, Grand Design RV, Horizon, Imagine, InLounge, Inspire, Instinct, Intable, Intent, Intrigue, Itasca, Itasca (logo), Journey, King Aire, Kountry Aire (logo), Kountry Star, Lancer, Latitude, London Aire, Maxum Chassis, Maxum II, Micro Minnie, Minnie, Minnie Drop, Minnie Winnie, MLU, Momentum, Mountain Aire, Navion, New Aire, Newmar, Outlook, Paseo, Porto, Pure3 Energy Management System, Reflection, Rest Easy, Revel, Roamer, Scorpion, Silhouette, Sightseer, SOLIS, Solitude, Spirit, Star Foundation, Star Foundation (logo), Suncruiser, Sunova, Sunstar, Supershell, Superstar, Supreme Aire, The Most Recognized Name in Motorhomes, Thermo-Panel, Transcend, Transcend Xplor, Travato, Trend, True Trax, Ventana, Ventana LE, Via, View, Vista, Vita, Viva!, Voyage, W, Flying W (logo), Winnebago (logo), Winnebago Ind (logo), Winnebago Connect (logo), Winnebago Minnie, Winnebago Touring Coach, Winnebago Towables (logo), WinnebagoLife, WinnebagoLife (logo), Winnie Drop, WIT Club, Yuma, and Design of motor home front end (trade dress).

We believe that our trademarks and trade names are significant assets to our business, and we have in the past and will in the future vigorously protect them against infringement by third parties. We are not dependent upon any patents or technology licenses of others for the conduct of our business.           

Human Resources

At the end of Fiscal 2020, 2019, and 2018, we employed approximately 5,505, 4,500, and 4,700 persons, respectively. None of our employees are covered under a collective bargaining agreement. We believe our relations with our employees are good.

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Item 1A. Risk Factors.

Described below are certain risks that we believe apply to our business and the industry in which we operate. The following risk factors should be considered carefully in addition to the other information contained in this Annual Report on Form 10-K. The risks and uncertainties highlighted represent the most significant risk factors that we believe may adversely affect our business, financial condition, results of operations, cash flows, liquidity or access to sources of financing, and, consequently, the market value of our common stock. The risks and uncertainties discussed in this report are not exclusive and other risk factors that we may consider immaterial or do not anticipate may emerge as significant risks and uncertainties.

The COVID-19 pandemic may have a material negative impact on our business, financial condition, results of operations and cash flows.

Our business and financial results are expected to be negatively impacted by the COVID-19 pandemic. The severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and hard to predict. In Fiscal 2020, COVID-19 significantly impacted economic activity and markets around the world. The COVID-19 pandemic negatively impacted our business in numerous ways, including but not limited to those outlined below, and we expect these impacts to continue into Fiscal 2021 and beyond:
The COVID-19 pandemic has caused a global economic slowdown that may last for an extended duration, and it is possible that it could cause a global recession.
Due to the impacts of the COVID-19 pandemic, we have experienced and could continue to experience reductions in customer demand for certain products. During the third quarter of Fiscal 2020, we experienced reductions in customer demand due to a decrease in consumer spending attributable to the COVID-19 pandemic.
The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, certain elements of our business (including certain elements of our operations, supply chains and distribution systems), including required, preventive and precautionary measures that we, our communities and governments are taking. These impacts include requiring employees to work from home or not go into their offices, limiting the number of employees attending meetings and using digital options when available, reducing the number of people in our sites at any one time, reducing employee travel and adopting other employee safety measures. These measures may also impact our ability to meet production demands or requests depending on employee attendance or ability to continue to work.
If the COVID-19 pandemic continues and economic conditions worsen, we expect to experience additional adverse impacts on our operational and commercial activities, customer orders and our collections of accounts receivable, which may be material. The impact on future operational and commercial activities, customer orders, and collections remains uncertain even if economic conditions begin to improve.
Government or regulatory responses to the COVID-19 pandemic have and may continue to negatively impact our business. In Fiscal 2020, mandatory shelter-in-place or other restrictions on operations have temporarily disrupted our ability to manufacture or distribute our products in some markets and our dealers' ability to retail our products in certain markets. Continuation or expansion of these disruptions could materially adversely impact our operations and results. In addition to existing travel restrictions, jurisdictions may continue to close borders, impose prolonged quarantines and further restrict travel and business activity, which could significantly impact our ability to support our operations and customers and the ability of our employees to get to their workplaces to produce products and services, or significantly hinder our products from being sold to the end customer.
The impacts of the COVID-19 pandemic may limit our ability to reduce our overall operating costs. We expect increased costs relating to our efforts to mitigate the impact of the COVID-19 pandemic through enhanced sanitization procedures and social-distancing measures we have enacted and will likely continue to enact at our locations in an effort to protect our employees’ health and well-being.
The COVID-19 pandemic has not materially disrupted our supply chain at this time, however, the full impact of the outbreak on our supply chain could result in future disruptions. Should disruptions or our failure to effectively respond to them occur, it may increase product or distribution costs or cause delays in delivering or an inability to deliver products to our customers.
The COVID-19 pandemic has increased volatility and pricing, and has disrupted the capital markets and commercial paper markets. With the ongoing pandemic, volatility is likely to continue. We might not be able to continue to access preferred sources of liquidity when we would like and our borrowing costs could increase.
The COVID-19 pandemic has caused increased difficulty in determining the fair value of the Company’s goodwill and other assets for accounting purposes given the level of judgment and estimation that is inherently higher in the current environment considering the uncertainty created by the COVID-19 pandemic, which could result in estimates and assumptions made in valuing goodwill and other Company assets proving to be inaccurate in the future.
We may not be able to predict or respond to all impacts of the COVID-19 pandemic on a timely basis to prevent near- or long-term adverse impacts to our results. Due to the speed with which the COVID-19 situation continues to develop, the breadth of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration and ultimate impact; therefore, any negative impact on our business, financial condition (including without limitation our liquidity), results of operations and cash flows cannot be reasonably estimated at this time, but the COVID-19 pandemic could lead to extended disruption of economic activity and the impact on our business, financial condition, results of operations and cash flows could be material.

The ultimate impact of these disruptions also depends on events beyond our knowledge or control, including the duration and severity of the COVID-19 pandemic and actions taken by parties other than us to respond to them. The foregoing and other impacts of the COVID-19 pandemic could have the effect of heightening many of the other risks described in this Annual Report, and any of these impacts could materially adversely affect our business, financial condition, results of operations and cash flows.
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The industry in which we operate is highly competitive. Failure to compete effectively against competitors could negatively impact our business and operating results.

The markets for RVs and marine products are very competitive. Competitive factors in the industry include price, design, value, quality, service, brand awareness, and reputation. There can be no assurance that existing or new competitors will not develop products that are superior to our products or that achieve better consumer acceptance, thereby adversely affecting our market share, sales volume, and profit margins. Some of our competitors are much larger than we are, and this size advantage provides these competitors with more financial resources and access to capital, additional purchasing power, and greater leverage with the dealer networks. In addition, competition could increase if new companies enter the market, existing competitors consolidate their operations, or if existing competitors expand their product lines or intensify efforts within existing product lines. Our current products, products under development, and our ability to develop new and improved products may be insufficient to enable us to compete effectively with our competitors. These competitive pressures may have a material adverse effect on our results of operations.

If we fail to identify, attract, and retain appropriately qualified employees, including employees in key positions, our operations and profitability may be harmed. Changes in market compensation rates may adversely affect our profitability.

Our ability to meet our strategic objectives and otherwise grow our business will depend to a significant extent on the continued contributions of our leadership team. Our future success will also depend in large part on our ability to identify, attract, and retain other highly qualified managerial, technical, sales and marketing, operations, and customer service personnel. Competition for these individuals in our manufacturing markets is intense and supply is limited. Since we operate in a competitive labor market, there is a risk that market increases in compensation could have an adverse effect on our business. We may not succeed in identifying, attracting, or retaining qualified personnel on a cost-effective basis. The loss or interruption of services of any of our key personnel, inability to identify, attract, or retain qualified personnel in the future, delays in hiring qualified personnel, or any employee work slowdowns, strikes, or similar actions could make it difficult for us to conduct and manage our business and meet key objectives, which could harm our business, financial condition, and operating results.

Our operations are primarily centered in northern IA and northern IN. Any disruption at these sites could adversely affect our business and operating results.

We currently manufacture most of our products in northern IA and northern IN. These facilities may be affected by natural or man-made disasters and other external events. In the event that one of our manufacturing facilities was affected by a disaster or other event, we could be forced to shift production to one of our other manufacturing facilities or to cease operations. Although we maintain insurance for damage to our property and disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses. Any disruption in our manufacturing capacity could have an adverse impact on our ability to produce sufficient inventory of our products or may require us to incur additional expenses in order to produce sufficient inventory, and therefore, may adversely affect our net sales and operating results. Any disruption or delay at our manufacturing facilities could impair our ability to meet the demands of our customers, and our customers may cancel orders or purchase products from our competitors, which could adversely affect our business and operating results.

The terms of our notes and other debt instruments could adversely affect our operating flexibility and pose risks of default.

We incurred substantial indebtedness to finance the acquisitions of Grand Design and Newmar Corporation ("Newmar"). Our ABL credit facility and senior secured notes are secured by substantially all of our assets, including cash, inventory, accounts receivable, and certain machinery and equipment. We also issued unsecured convertible notes to finance the acquisition of Newmar. If a default of payment occurs, the lenders in our ABL facility or holders of our senior secured and convertible notes may elect to declare all of their respective outstanding debt, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. Under such circumstances, we may not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed on our ability to incur additional debt and to take other corporate actions might significantly impair our ability to obtain other financing.

Borrowing availability under the ABL credit facility is limited to the lesser of the facility total and the calculated borrowing base, which is based on stipulated loan percentages applied to our eligible trade accounts receivable and eligible inventories. Should the borrowing base decline, our ability to borrow to fund future operations and business transactions could be limited.

In addition, the senior secured notes contain certain occurrence based covenants that could restrict our ability to undertake certain types of transactions. If we enter into a transaction that falls under the occurrence based covenants, we will calculate the ratios and covenant buckets we have available to us to ensure we are in compliance. Likewise, the indenture related to the convertible notes issued to help finance the acquisition of Newmar includes certain limited covenants that could impact our ability to operate our business.

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In addition, our indebtedness could:
Make us more vulnerable to general adverse economic, regulatory, and industry conditions;
Limit our flexibility in planning for, or reacting to, changes and opportunities in the markets in which we compete;
Place us at a competitive disadvantage compared to our competitors that have less debt or could require us to dedicate a substantial portion of our cash flow to service our debt; and
Restrict us from making strategic acquisitions or exploiting other business opportunities.

Various factors, including share dilution, changes to credit terms, and our ability to meet financial performance expectations, could result in a decline in our stock price.

Our stock price may fluctuate based on many factors. Our acquisition of Grand Design, for example, provided important strategic positioning and earnings growth potential, but to partially finance the transaction we issued $124.1 million worth of common stock to the owners of Grand Design and registered these shares for resale after the transaction closed. Similarly, we issued 2.0 million shares of our common stock to the owners of Newmar. In connection with our acquisition of Newmar, we also issued $300.0 million in aggregate principal amount of 1.50% convertible senior notes due 2025. We will settle conversions of the convertible notes by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, based on the applicable conversion rate(s). Any future stock issuance by us or liquidation of stock holding by the former owners of Grand Design or the former owners of Newmar may cause dilution of earnings per share or put selling pressure on our share price. Changing credit agreements may also impact stock price. In general, analysts' expectations and our ability to meet those expectations quarterly may cause stock price fluctuations. If we fail to meet expectations related to future growth, profitability, debt repayment, dividends, share issuance or repurchase, or other market expectations, our stock price may decline significantly.

We could be impacted by the potential adverse effects of union activities.

Although none of our employees are currently represented by a labor union, unionization could result in higher employee costs and increased risk of work stoppages. We are, directly or indirectly, dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition, or operating results. If a work stoppage occurs, it could delay the manufacture and sale of our products and have a material adverse effect on our business, prospects, operating results, or financial condition.

Our business may be sensitive to economic conditions, including those that impact consumer spending.

Companies within the RV and marine industries are subject to volatility in operating results due primarily to general economic conditions because the purchase of a RV or marine product is often viewed as a consumer discretionary purchase. Demand for discretionary goods in general can fluctuate with recessionary conditions, slow or negative economic growth rates, negative consumer confidence, reduced consumer spending levels resulting from tax increases or other factors, prolonged high unemployment rates, higher commodity and component costs, fuel prices, inflationary or deflationary pressures, reduced credit availability or unfavorable credit terms for dealers and end-user customers, higher short-term interest rates, and general economic and political conditions and expectations. Specific factors affecting the RV and marine industries include:

Overall consumer confidence and the level of discretionary consumer spending;
Employment trends;
The adverse impact of global tensions on consumer spending and travel-related activities; and
The adverse impact on margins due to increases in raw material costs, which we are unable to pass on to customers without negatively affecting sales.

An impairment in the carrying value of goodwill and trade names could negatively impact our consolidated results of operations.

Goodwill and indefinite-lived intangible assets, such as our trade names, are recorded at fair value at the time of acquisition and are not amortized but are reviewed for impairment at least annually or more frequently if impairment indicators arise. Our determination of whether goodwill impairment has occurred is based on a comparison of each of our reporting units’ fair value with its carrying value. Significant and unanticipated changes in circumstances, such as significant and long-term adverse changes in business climate, unanticipated competition, and/or changes in technology or markets, could require a provision for impairment in a future period that could negatively impact our results of operations.

Credit market deterioration and volatility may restrict the ability of our dealers and retail customers to finance the purchase of our products.

Our business is affected by the availability and terms of the financing to dealers. Generally, RV and marine dealers finance their purchases of inventory with financing provided by lending institutions. One financial flooring institution held 33.0% of our total financed dealer inventory dollars that were outstanding at August 29, 2020. In the event that this lending institution limits or discontinues dealer financing, we could experience a material adverse effect on our results of operations.

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Our business is also affected by the availability and terms of financing to retail purchasers. Retail buyers purchasing one of our products may elect to finance their purchase through the dealership or a financial institution of their choice. Substantial increases in interest rates or decreases in the general availability of credit for our dealers or for the retail purchaser may have an adverse impact upon our business and results of operations.

Our business is both cyclical and seasonal and is subject to fluctuations in sales and net income.

The RV and marine industries have been characterized by cycles of growth and contraction in consumer demand, reflecting prevailing economic and demographic conditions, which affect disposable income for leisure-time activities. Consequently, the results for any prior period may not be indicative of results for any future period.

Seasonal factors, over which we have no control, also have an effect on the demand for our products. Demand in the RV and marine industries generally declines over the winter season, while sales are generally highest during the spring and summer months. Also, unusually severe weather conditions in some markets may impact demand.

Failure to effectively manage strategic acquisitions and alliances, joint ventures, or partnerships could have a negative impact on our business.

One of our growth strategies is to drive growth through targeted acquisitions and alliances, stronger customer relations, and new joint ventures and partnerships that contribute profitable growth while supplementing our existing brands and product portfolio. Our ability to grow through acquisitions depends, in part, on the availability of suitable candidates at acceptable prices, terms, and conditions, our ability to compete effectively for acquisition candidates, and the availability of capital and personnel to complete such acquisitions and run the acquired business effectively. Any acquisition, alliance, joint venture, or partnership could impair our business, financial condition, reputation, and operating results. The benefits of an acquisition, including the Newmar Acquisition, or new alliance, joint venture, or partnership may take more time than expected to develop or integrate into our operations, and we cannot guarantee that previous or future acquisitions, alliances, joint ventures, or partnerships will, in fact, produce any benefits. Such acquisitions, alliances, joint ventures, and partnerships may involve a number of risks, including:

Diversion of management’s attention;
Disruption to our existing operations and plans;
Inability to effectively manage our expanded operations;
Difficulties or delays in integrating and assimilating information and financial systems, operations, and products of an acquired business or other business venture or in realizing projected efficiencies, growth prospects, cost savings, and synergies;
Inability to successfully integrate or develop a distribution channel for acquired product lines;
Potential loss of key employees, customers, distributors, or dealers of the acquired businesses or adverse effects on existing business relationships with suppliers, customers, distributors, and dealers;
Adverse impact on overall profitability, if our expanded operations do not achieve the financial results projected in our valuation model;
Inaccurate assessment of additional post-acquisition or business venture investments, undisclosed, contingent or other liabilities or problems, unanticipated costs associated with an acquisition or other business venture, and an inability to recover or manage such liabilities and costs; and
Incorrect estimates made in the accounting for acquisitions, occurrence of non-recurring charges, and write-off of significant amounts of goodwill or other assets that could adversely affect our operating results.

If we are unable to properly forecast future demand of our products, our production levels may not meet demands, which could negatively impact our operating results.

Our ability to manage our inventory levels to meet our customer's demand for our products is important for our business. For example, certain dealers are focused on the rental market which spikes over the summer vacation period while other dealers are focused on direct sales to the consumer at various price points. Our production levels and inventory management are based on demand estimates six to twelve months forward taking into account supply lead times, production capacity, timing of shipments, and dealer inventory levels. If we overestimate or underestimate demand for any of our products during a given season, we may not maintain appropriate inventory levels, which could negatively impact our net sales or working capital, hinder our ability to meet customer demand, or cause us to incur excess and obsolete inventory charges.

Unanticipated changes to our distribution channel customers' inventory levels could negatively impact our operating results.

We sell many of our products through distribution channels and are subject to risks relating to their inventory management decisions and operational and sourcing practices. Our distribution channel customers carry inventories of our products as part of their ongoing operations and adjust those inventories based on their assessments of future needs. Such adjustments may impact our inventory management and working capital goals as well as operating results. If the inventory levels of our distribution channel customers are higher than they desire, they may postpone product purchases from us, which could cause our sales to be lower
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than the end-user demand for our products and negatively impact our inventory management and working capital goals as well as our operating results.

If we are unable to continue to enhance existing products and develop and market new or enhanced products that respond to customer needs and preferences, we may experience a decrease in demand for our products and our business could suffer.

One of our growth strategies is to develop innovative, customer-valued products to generate revenue growth. We may not be able to compete as effectively with our competitors, and ultimately satisfy the needs and preferences of our customers, unless we can continue to enhance existing products and develop new innovative products for the markets in which we compete. Product development requires significant financial, technological, and other resources. Product improvements and new product introductions also require significant research, planning, design, development, engineering, and testing at the technological, product, and manufacturing process levels, and we may not be able to timely develop and introduce product improvements or new products. Our competitors' new products may beat our products to market, be higher quality or more reliable, be more effective with more features and/or less expensive than our products, obtain better market acceptance, or render our products obsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs, and research and development.

The loss of a large dealer organization could have a significant impact on our business.

While none of our dealer organizations accounted for more than 10% of our Net revenues for Fiscal 2020, 2019, and 2018, the loss of a major dealer or multiple dealers could have a significant adverse effect on our business. In addition, deterioration in the liquidity or creditworthiness of a major dealer or multiple dealers could negatively impact our sales and could trigger repurchase obligations under our repurchase agreements.

If we are obligated to repurchase a substantially larger number of our products in the future than estimated due to dealer default, these purchases could result in adverse effects on our results of operations, financial condition, and cash flows.

In accordance with customary practice in our industries, upon request we enter into formal repurchase agreements with lending institutions financing a dealer's purchase of our products. In these repurchase agreements we agree, in the event of a default by an independent dealer in its obligation to a lender and repossession of the unit(s) by the lending institution, to repurchase units at declining prices over the term of the agreements, which can last up to 24 months. The difference between the gross repurchase price and the price at which the repurchased product can then be resold, which is typically at a discount to the gross repurchase price, represents a potential expense to us. In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary terminations. If we are obligated to repurchase a substantially larger number of units in the future than we estimate, this would increase our costs and could have a material adverse effect on our results of operations, financial condition, and cash flows.

For some of the components used in production, we depend on a small group of suppliers and the loss of any of these suppliers could affect our ability to obtain components timely or at competitive prices, which would decrease our results of operations, financial condition, and cash flows.

Most of our RV and marine components are readily available from numerous sources. However, a few of our components are produced by a small group of suppliers. In the case of Motorhome chassis, Mercedes-Benz (USA and Canada), Freightliner Custom Chassis, and Chrysler of Forest City Inc. are our major suppliers. Our relationship with our chassis suppliers is similar to our other supplier relationships in that no specific contractual commitments are engaged in by either party. This means that we do not have minimum purchase requirements, and our chassis suppliers do not have minimum supply requirements. Our chassis suppliers also supply to our competitors. Historically, chassis suppliers resort to an industry-wide allocation system during periods when supply is restricted. These allocations have been based on the volume of chassis previously purchased, which could mean our larger competitors could receive more chassis in a time of scarcity. Sales of motorhomes rely on chassis supply and are affected by shortages from time to time. Decisions by our suppliers to decrease production, production delays or work stoppages by the employees of such suppliers, or price increases could have a material adverse effect on our ability to produce motorhomes and ultimately, on our results of operations, financial condition, and cash flows. In Fiscal 2020, none of our manufacturers individually accounted for more than 10% of our consolidated raw material purchases.

Increases in raw material, commodity, and transportation costs and shortages of certain raw materials could negatively impact our business.

We purchase raw materials such as steel, aluminum, and other commodities, and components, such as chassis, refrigerators, and televisions, for use in our products. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, copper, lead, rubber, and others that are integrated into our end products. Our profitability is affected by significant fluctuations in the prices of the raw materials and the components and parts we use in our products. Additionally, the current political landscape has introduced significant uncertainty with respect to future trade regulations and existing international trade agreements. The U.S. has initiated tariffs on certain foreign goods, including raw materials, commodities, and products
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manufactured outside the U.S. that are used in our manufacturing processes, which has increased our cost of goods sold. In response, certain foreign governments have imposed tariffs on certain U.S. goods, and are considering imposing additional tariffs on other U.S. goods, including goods that we sell internationally. The tariffs imposed to date and the possibility of additional retaliatory trade actions stemming from these tariffs could continue to increase our cost of goods sold, both directly and as a result of price increases implemented by domestic suppliers, which we may not be able to pass on to our customers. The impact from these tariffs could also result in decreased demand for our products. All of these could materially and adversely affect our results of operations and financial condition.

In addition, increases in other costs of doing business may also adversely affect our profit margins and businesses. For example, an increase in fuel costs may result in an increase in our transportation costs, which also could adversely affect our operating results and businesses. Historically, we have mitigated cost increases, in part, by collaborating with suppliers, reviewing alternative sourcing options, substituting materials, engaging in internal cost reduction efforts, and increasing prices on some of our products, all as appropriate. However, we may not be able to fully offset such increased costs in the future. Further, if our price increases are not accepted by our customers and the market, our net sales, profit margins, earnings, and market share could be adversely affected.

Significant product repair and/or replacement costs due to product warranty claims and product recalls could have a material adverse impact on our results of operations, financial condition, and cash flows.

We receive warranty claims from our dealers in the ordinary course of our business. Although we maintain reserves for such claims, which to date have been adequate, there can be no assurance that warranty expense levels will remain at current levels or that such reserves will continue to be adequate. A significant increase in warranty claims exceeding our current warranty expense levels could have a material adverse effect on our results of operations, financial condition, and cash flows.

In addition to the costs associated with the contractual warranty coverage provided on our products, we also occasionally incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions. Although we estimate and reserve for the cost of these service actions, there can be no assurance that expense levels will remain at current levels or such reserves will continue to be adequate.

Our continued success is dependent on positive perceptions of our brands which, if impaired, could adversely affect our results of operations or financial condition.

We believe that one of the strengths of our business is our brands, which are widely known around the world. We vigorously defend our brands and our other intellectual property rights against third parties on a global basis. We have, from time to time, had to bring claims against third parties to protect or prevent unauthorized use of our brand. If we are unable to protect and defend our brands or other intellectual property, it could have a material adverse effect on our results of operations or financial condition.

If the frequency and size of product liability and other claims against us increase, our reputation and business may be harmed.

We are subject, in the ordinary course of business, to litigation including a variety of warranty, "Lemon Law," and product liability claims typical in the RV and marine industries. Although we have an insurance policy with a $50.0 million limit covering product liability, we are self-insured for the first $1.0 million of product liability claims on a per occurrence basis, with a $2.0 million aggregate per policy year. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us, which may have a material adverse effect on our results of operations and financial condition. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premium that we are required to pay for insurance to rise significantly. Product liability claims may also cause us to pay punitive damages, not all of which are covered by our insurance. In addition, if product liability claims rise to a level of frequency or size that are significantly higher than similar claims made against our competitors, our reputation and business may be harmed.

We may be subject to information technology system failures, network disruptions, and breaches in data security that could adversely affect our business. In addition, the benefits of our new enterprise resource planning system may not be realized, or we may incur unanticipated costs or delays, which may result in decreased sales, increased overhead costs, excess or obsolete inventory, and product shortages, causing our business, reputation, financial condition, and operating results to suffer.

We rely on our information systems and web applications to support our business operations, including but not limited to procurement, supply chain, manufacturing, distribution, warranty administration, invoicing, and collection of payments. We use information systems to report and audit our operational results. Additionally, we rely upon information systems in our sales, marketing, human resources, and communication efforts. Due to our reliance on our information systems, our business processes may be negatively impacted in the event of substantial disruption of service. Further, misuse, leakage, or falsification of information could result in a violation of privacy laws and damage our reputation which could, in turn, have a negative impact on our results.

In addition to our general reliance on information systems, we began implementation of a new enterprise resource planning system at the end of Fiscal 2015. Though we perform planning and testing to reduce risks associated with such a complex, enterprise-wide
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systems change, failure to meet requirements of the business could disrupt our business and harm our reputation, which may result in decreased sales, increased overhead costs, excess or obsolete inventory, and product shortages, causing our business, reputation, financial condition, and operating results to suffer.

Failure to prevent or effectively respond to a breach of the security or privacy of our customers', clients', or suppliers' confidential information could expose us to substantial costs and reputational damage, as well as litigation and enforcement actions.

We have security systems in place with the intent of maintaining the physical security of our facilities and protecting our customers', clients', and suppliers' confidential information and information related to identifiable individuals against unauthorized access through our information systems or by other electronic transmission or through the misdirection, theft, or loss of physical media. These include, for example, the appropriate encryption of information. Despite such efforts, we are subject to breach of security systems which may result in unauthorized access to our facilities or the information we are trying to protect. Because the technologies used to obtain unauthorized access are constantly changing and becoming increasingly more sophisticated and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement sufficient preventative measures. If unauthorized parties gain physical access to one of our facilities or electronic access to our information systems or such information is misdirected, lost, or stolen during transmission or transport, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers and clients that we have not performed our contractual obligations, litigation by affected parties, and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business.

We are subject to certain government regulations that could have a material adverse impact on our business.

We are subject to numerous federal, state, and local regulations and the following summarizes some, but not all, of the laws and regulations that apply to us.

Federal Motor Vehicle Safety Standards govern the design, manufacture and sale of our RV products, which standards are promulgated by the NHTSA.  NHTSA requires manufacturers to recall and repair vehicles which are non-compliant with a Federal Motor Vehicle Safety Standard or contain safety defects. In addition, the U.S. Coast Guard maintains certification standards for the manufacture of our marine products, and the safety of recreational boats in the U.S. is subject to federal regulation under the Boat Safety Act of 1971, which requires boat manufacturers to recall products for replacement of parts or components that have demonstrated defects affecting safety. Any major recalls of our products, voluntary or involuntary, could have a material adverse effect on our results of operations, financial condition, and cash flows.  While we believe we are in compliance with the foregoing laws and regulations as they currently exist, amendments to any of these regulations or the implementation of new regulations could significantly increase the cost of testing, manufacturing, purchasing, operating, or selling our products and could have a material adverse effect on our results of operations, financial condition, and cash flows.  In addition, our failure to comply with present or future regulations could result in federal fines being imposed on us, potential civil and criminal liability, suspension of sales or production, or cessation of operations.

We are also subject to federal and numerous state consumer protection and unfair trade practice laws and regulations relating to the sale, transportation, and marketing of motor vehicles, including so-called "Lemon Laws." Federal and state laws and regulations also impose upon vehicle operators various restrictions on the weight, length, and width of motor vehicles, including motorhomes that may be operated in certain jurisdictions or on certain roadways. Certain jurisdictions also prohibit the sale of vehicles exceeding length restrictions.

Failure to comply with the New York Stock Exchange and SEC laws or regulations could also have an adverse impact on our business. Additionally, amendments to these regulations and the implementation of new regulations could increase the cost of our operations and therefore could have an adverse impact on our business.

Finally, federal and state authorities also have various environmental control standards relating to air, water, noise pollution, and hazardous waste generation and disposal that affect us and our operations. Failure by us to comply with present or future laws and regulations could result in fines being imposed on us, potential civil and criminal liability, suspension of production or operations, alterations to the manufacturing process, or costly cleanup or capital expenditures, any or all of which could have a material adverse effect on our results of operations.

Changing climate-related regulations may require us to incur additional costs in order to be in compliance.

There is growing concern from members of the scientific community and the general public that an increase in global average temperatures due to emissions of greenhouse gases ("GHG") and other human activities have or will cause significant changes in weather patterns and increase the frequency and severity of natural disasters. We are currently subject to rules limiting emissions and other climate related rules and regulations in certain jurisdictions where we operate. In addition, we may become subject to additional legislation and regulation regarding climate change, and compliance with any new rules could be difficult and costly. Concerned parties, such as legislators, regulators, and non-governmental organizations, are considering ways to reduce GHG emissions. Foreign, federal, state, and local regulatory and legislative bodies have proposed various legislative and regulatory
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measures relating to climate change, regulating GHG emissions, and energy policies. If such legislation is enacted, we could incur increased energy, environmental, and other costs and capital expenditures to comply with the limitations. Climate change regulation combined with public sentiment could result in reduced demand for our products, higher fuel prices, or carbon taxes, all of which could materially adversely affect our business. Due to uncertainty in the regulatory and legislative processes, as well as the scope of such requirements and initiatives, we cannot currently determine the effect such legislation and regulation may have on our products and operations.

Certain provisions that we are subject to may reduce the ability of a third-party to acquire us, even if beneficial to shareholders.

Provisions of our articles of incorporation, by-laws, the Iowa Business Corporation Act, and provisions in our credit agreements and certain of our compensation programs that we may enter into from time to time could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial by our shareholders. The combination of these provisions effectively inhibits a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.

Risks Related to the Newmar Acquisition.

We may experience difficulties in integrating the operations of Newmar into our business and in realizing the expected benefits of the Newmar Acquisition.

The success of the Newmar Acquisition, completed in the first quarter of Fiscal 2020, will depend in part on our ability to realize the anticipated business opportunities from combining the operations of Newmar with our business in an efficient and effective manner. The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures, and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the Newmar Acquisition, and could harm our financial performance. We cannot assure you that the Newmar business will perform as expected, that integration or other one-time costs will not be greater than expected, that we will not incur unforeseen obligations or liabilities, or that the rate of return from the acquisition will justify our investment. We also incurred significant costs in connection with the Newmar Acquisition, the substantial majority of which are non-recurring expenses. In addition, we expect to incur additional costs in the integration of Newmar's business and may not achieve cost synergies and other benefits sufficient to offset the incremental costs of the Newmar Acquisition. If we are unable to successfully or timely integrate the operations of Newmar with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies, and other anticipated benefits resulting from the Newmar Acquisition, and our business, results of operations, and financial condition could be materially and adversely affected.

The Newmar Acquisition also involves risks associated with acquisitions and integrating acquired assets into existing operations which could have a material adverse effect on our business, financial condition, results of operations, and cash flows, including, among others:

failure to implement our business plan for the combined business;
unanticipated issues in integrating equipment, logistics, information, communications, and other systems;
possible inconsistencies in standards, controls, contracts, procedures, and policies;
impacts of change in control provisions in contracts and agreements;
failure to retain key customers and suppliers;
unanticipated changes in applicable laws and regulations;
failure to recruit and retain key employees to operate the combined business;
increased competition within the industries in which Newmar operates;
difficulties in managing the expanded operations of a significantly larger and more complex combined company;
inherent operating risks in the business;
unanticipated issues, expenses, and liabilities;
additional reporting requirements pursuant to applicable rules and regulations;
additional requirements relating to internal control over financial reporting;
diversion of our senior management’s attention from the management of daily operations to the integration of the assets acquired in the acquisition of Newmar;
significant unknown and contingent liabilities we incur for which we have limited or no contractual remedies or insurance coverage;
the assets to be acquired failing to perform as well as we anticipate; and
unexpected costs, delays, and challenges arising from integrating the assets acquired in the Newmar Acquisition into our existing operations.

Even if we successfully integrate the assets acquired in the Newmar Acquisition into our operations, it may not be possible to realize the full benefits we anticipate or we may not realize these benefits within the expected time frame. If we fail to realize the benefits we anticipate from the Newmar Acquisition, our business, results of operations, and financial condition may be adversely affected.
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Newmar may have liabilities that are not known, probable, or estimable at this time.

Following the acquisition of Newmar, Newmar became our subsidiary and it will remain subject to all of its liabilities. There could be unasserted claims or assessments that we failed or were unable to discover or identify in the course of performing due diligence investigations of Newmar. In addition, there may be liabilities that are neither probable nor estimable at this time that may become probable or estimable in the future. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial results.

Additionally, Newmar is subject to various rules, regulations, laws, and other legal requirements, enforced by governments or other public authorities. Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by any of Newmar’s directors, officers, employees, or agents could have a significant impact on Newmar’s business and reputation and could subject Newmar to fines and penalties and criminal, civil, and administrative legal sanctions, resulting in reduced revenues and profits.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal manufacturing, maintenance, and service operations are conducted in multi-building complexes owned or leased by us. The following sets forth our material facilities as of August 29, 2020:
Location Facility Type/Use Reportable Segment # of
Buildings
Owned or
Leased
Square
Footage
Charles City, IA Manufacturing Motorhome Owned 161,000 
Forest City, IA Manufacturing, warehouse, maintenance, service, and office Motorhome 36  Owned 2,007,000 
Lake Mills, IA Manufacturing Motorhome Owned 99,000 
Waverly, IA Manufacturing Motorhome Owned 33,000 
Junction City, OR Manufacturing, service, and office Motorhome 10  Owned 305,000 
Nappanee, IN Manufacturing and office Motorhome 19  Owned 811,000 
Nappanee, IN Service center Motorhome Leased 166,000 
Middlebury, IN Manufacturing and office Towable Owned 449,000 
Middlebury, IN Manufacturing, service, and office Towable 10  Leased 1,105,000 
Bristol, IN Manufacturing and maintenance Towable Leased 50,000 
Sarasota, FL Manufacturing, warehouse, and office Corporate / All Other Owned 147,000 
Eden Prairie, MN Office Corporate / All Other Leased 30,000 
92  5,363,000 
Refer to Note 10, Leases, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information on our leases.

Most of our buildings are of steel or steel and concrete construction and are protected from fire with high-pressure sprinkler systems, dust collector systems, automatic fire doors, and alarm systems. We believe that our facilities and equipment are well maintained and suitable for the purposes for which they are intended.

Under our senior secured notes and Credit Agreement, we have encumbered substantially all of our real property for the benefit of the lenders under our credit facilities. For additional information, see Note 9, Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Item 3. Legal Proceedings.

For a description of our legal proceedings, see Note 12, Contingent Liabilities and Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Item 4. Mine Safety Disclosures.

Not Applicable.

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Information about our Executive Officers
Name Office (Year First Elected an Officer) Age
Michael J. Happe President and Chief Executive Officer (2016) 49
Ashis N. Bhattacharya Senior Vice President, Business Development, Advanced Technology, and Enterprise Marketing (2016) 58
Stacy L. Bogart Senior Vice President, General Counsel, Secretary and Corporate Responsibility; President - Winnebago Industries Foundation (2018) 57
Huw Bower President, Winnebago Outdoors (2020) 46
Donald J. Clark President of Grand Design RV (2016) 60
Brian D. Hazelton Senior Vice President, Winnebago-branded RV Business (2016) 55
Bryan L. Hughes Chief Financial Officer; Senior Vice President, Finance, IT and Strategic Planning (2017) 51
Matthew L. Miller President of Newmar Corporation (2019) 50
Christopher D. West Senior Vice President, Enterprise Operations (2016) 48
Bret A. Woodson Senior Vice President, Human Resources and Corporate Relations (2015) 50

Officers are elected annually by the Board of Directors and hold office until their successors are chosen and qualify or until their death or resignation. There are no family relationships between or among any of the Executive Officers or Directors of the Company.

Mr. Happe joined Winnebago Industries in January 2016 as President and Chief Executive Officer. Prior to joining Winnebago, he had been employed by The Toro Company, a provider of outdoor maintenance and beautification products, from 1997 to 2016. He served as Executive Officer and Group Vice President of Toro's Residential and Contractor businesses from March 2012 to December 2015. From August 2010 to March 2012, he served as Vice President, Residential and Landscape Contractor Businesses. Prior to that, he held a series of senior leadership positions throughout his career across a variety of Toro's domestic and international divisions.

Mr. Bhattacharya joined Winnebago Industries in May 2016 as Vice President, Strategic Planning and Development. He became Vice President, Business Development, Specialty Vehicles, and Advanced Technology in 2019 and Senior Vice President, Business Development, Advanced Technology, and Enterprise Marketing in October 2020. Prior to joining Winnebago, Mr. Bhattacharya served at Honeywell International, Inc., a software industrial company, as Vice President, Strategy, Alliances & Internet of Things for the Sensing and Productivity Solutions division from 2010 to 2016. Prior to that, he was employed with Moog, Motorola, and Bain & Company in a variety of roles.

Ms. Stacy Bogart joined Winnebago Industries in January 2018 as Vice President, General Counsel and Secretary and was appointed Senior Vice President, General Counsel, Secretary and Corporate Responsibility and President - Winnebago Industries Foundation in October 2020. Prior to joining Winnebago Industries, Ms. Bogart was Senior Vice President, General Counsel and Compliance Officer, Corporate Secretary at Polaris Industries Inc., a manufacturer and marketer of powersports products, where she joined in November 2009. Previously, Ms. Bogart was General Counsel of Liberty Diversified International; Assistant General Counsel and Assistant Secretary at The Toro Company; and a Senior Attorney for Honeywell International, Inc.

Mr. Bower joined Winnebago Industries in October 2020 as President, Winnebago Outdoors. Prior to joining Winnebago Industries, he was President of the Boat Group at Brunswick Corporation, a developer and manufacturer of marine/boating products from April 2016 to September 2020. Mr. Bower has over 15 years of general management and executive experience in the marine industry.

Mr. Clark, President of Grand Design RV, became an officer of Winnebago Industries in November 2016 in accordance with terms of the Grand Design acquisition. He co-founded Grand Design RV, LLC in 2012 and built the team at Grand Design RV. Mr. Clark has over 30 years of successful RV industry experience.

Mr. Hazelton joined Winnebago Industries in August 2016 as Vice President and General Manager, Motorhome Business and was appointed Senior Vice President, Winnebago-branded RV Business in October 2020. He previously was CEO of Schwing America, Inc., a manufacturer of concrete pumps and truck mixers, from 2009 to 2016. Prior to his employment with Schwing, he worked for Terex Corporation and Detroit Diesel Corporation in various executive roles.

Mr. Hughes joined Winnebago Industries in April 2017 and was appointed Vice President, Chief Financial Officer of the Company in May 2017 and Senior Vice President, Finance, IT, and Strategic Planning and Chief Financial Officer in October 2020. Mr. Hughes joined Winnebago Industries from Ecolab, Inc., a water technologies and services company, where he served as Senior Vice President and Corporate Controller from 2014 to 2017, as Vice President of Finance from 2008 to 2014 and in various management positions from 1996 to 2008. Prior to his employment with Ecolab, Inc., he worked for Ernst & Young, a public accounting firm.

Mr. Miller, President of Newmar Corporation, became an officer of Winnebago Industries in November 2019 in connection with the Newmar acquisition. He has been with Newmar Corporation since 1992, including as its President since 2006, and recently served
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as the Chairman of the RV Technical Institute Board of Directors. He is also on the RVDA/RVIA Certification Governing Board and is the Former Chair of the Standards and Strategic Planning Committee. In 2012, he served as a chairman on the Nominating Committee.

Mr. West joined Winnebago Industries in September 2016 as Vice President, Operations and was appointed Senior Vice President, Enterprise Operations in October 2020. He previously was Vice President of Global Supply Chain for Joy Global, a worldwide equipment manufacturer, from 2014 to 2016, and Operations Director from 2012 to 2014. Mr. West served as Director of Manufacturing for AGCO Corporation, an agricultural equipment manufacturer, from 2008 to 2012 and as Director of Operations and in other management positions for the Nordam Group, a manufacturer of aircraft interiors, from 1999 to 2009.

Mr. Woodson joined Winnebago Industries in January 2015 as Vice President, Administration and was appointed Senior Vice President, Human Resources and Corporate Relations in October 2020. Prior to joining Winnebago, Mr. Woodson was Vice President of Human Resources at Corbion N.V., a food and biochemicals company, from 2007 to 2014 and Director, Human Resources at Sara Lee Corporation from 1999 to 2007. Mr. Woodson has over 24 years of business and human resources experience.

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PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Market Information

Our common stock is listed on the New York Stock Exchange with the ticker symbol of WGO.

Holders

Shareholders of record as of October 16, 2020: 2,296.

Dividends Paid Per Share

On August 19, 2020, our Board of Directors declared a quarterly cash dividend of $0.12 per share, totaling $4.0 million, paid on September 30, 2020 to common stockholders of record at the close of business on September 16, 2020. The Board currently intends to continue to pay quarterly cash dividends payments in the future; however, declaration of future dividends, if any, will be based on several factors including our financial performance, outlook, and liquidity.

Our outstanding notes, as further described in Note 9, Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, contains restrictions that may limit our ability to pay dividends.   

Issuer Purchases of Equity Securities

Our ABL credit facility contains restrictions that may limit our ability to make distributions or payments with respect to purchases of our common stock without consent of the lenders, except for limited purchases of our common stock from employees, in the event of a significant reduction in our EBITDA or in the event of a significant borrowing on our ABL credit facility. Our senior secured notes also contain covenants that may limit our ability to make distributions or payments with respect to purchases of our common stock. See additional information on our ABL in Note 9, Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

On October 18, 2017, our Board of Directors authorized a share repurchase program in the amount of $70.0 million. There is no time restriction on the authorization. During Fiscal 2020, 45,000 shares of our common stock at a cost of $1.8 million were repurchased to satisfy tax obligations on employee equity awards as they vested. We continually evaluate if share repurchases reflect a prudent use of our capital and, subject to compliance with our ABL credit facility and outstanding senior secured notes, we may purchase shares in the future. At August 29, 2020, we have $59.9 million remaining on our board repurchase authorization.

Purchases of our common stock during each fiscal month of the fourth quarter of Fiscal 2020 were:
Total Number of Shares Purchased(1)
Average Price Paid per Share
Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2)(3)
05/31/20 - 07/04/20 962  $ 62.86  —  $ 59,862,000 
07/05/20 - 08/01/20 —  $ —  —  $ 59,862,000 
08/02/20 - 08/29/20 —  $ —  —  $ 59,862,000 
Total 962  $ 62.86  —  $ 59,862,000 
(1)    Shares not purchased as part of a publicly announced program were repurchased from employees who vested in Company shares and elected to pay their payroll tax via the value of shares delivered as opposed to cash.
(2)    Pursuant to a $70.0 million share repurchase program authorized by our Board of Directors on October 18, 2017. There is no time restriction on the authorization.
(3)    Adjustment in dollar amount remaining available for repurchase from prior quarter reflects correction in counting share repurchases against authorization.

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Equity Compensation Plan Information

The following table provides information as of August 29, 2020 with respect to shares of our common stock that may be issued under our existing equity compensation plans:
(a) (b) (c)

Plan Category
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted Average
Exercise Price of
Outstanding Options,
 Warrants and Rights(1)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in (a))
Equity compensation plans
approved by shareholders - 2004 Plan
6,500
(2)
$
Equity compensation plans
approved by shareholders - 2014 Plan
491,475
(3)
$ 34.42
Equity compensation plans
approved by shareholders - 2019 Plan
285,725
(4)
$ 47.93 4,040,289
(5)
Equity compensation plans approved by shareholders - ESPP
(6)
$ 33,357
(7)
Equity compensation plans not
 approved by shareholders(8)
36,871
(9)
$
(10)
Total 820,571 4,073,646
(1)    This number represents the weighted average exercise price of outstanding stock options only. Restricted share awards do not have an exercise price so weighted average is not applicable.
(2)    This number represents unvested share awards granted under the 2004 Incentive Compensation Plan ("2004 Plan"). No new grants may be made under the 2004 Plan.
(3)    This number represents stock options and unvested stock awards granted under the 2014 Omnibus Equity, Performance Award, and Incentive Compensation Plan, as amended ("2014 Plan"). The 2014 Plan replaced the 2004 Plan effective January 1, 2014.
(4)    This number represents stock options and unvested stock awards granted under the Winnebago Industries, Inc. 2019 Omnibus Incentive Plan ("2019 Plan"), which replaced the 2014 Plan effective on December 11, 2018.
(5)    This number represents shares available for grant of awards under the 2019 Plan as of August 29, 2020.
(6)    This number represents unvested stock awards granted under the Winnebago Industries, Inc. Employee Stock Purchase Plan ("ESPP").
(7)    This number represents shares available for issuance under the ESPP as of August 29, 2020.
(8)    Our sole equity compensation plan not previously submitted to our shareholders for approval is the Directors' Deferred Compensation Plan, as amended ("Directors' Plan"). The Board of Directors may terminate the Directors' Plan at any time. If not terminated earlier, the Directors' Plan will automatically terminate on June 30, 2023. For a description of the key provisions of the Directors' Plan, see the information in our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held December 15, 2020 under the caption "Director Compensation," which information is incorporated by reference herein.
(9)    Represents shares of common stock issued to a trust which underlie stock units, payable on a one-for-one basis, credited to stock unit accounts as of August 29, 2020 under the Directors' Plan.
(10)    The table does not reflect a specific number of stock units which may be distributed pursuant to the Directors' Plan. The Directors' Plan does not limit the number of stock units issuable thereunder. The number of stock units to be distributed pursuant to the Directors' Plan will be based on the amount of the director's compensation deferred and the per share price of our common stock at the time of deferral.

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Performance Graph

The following graph compares our five-year cumulative total shareholder return (including reinvestment of dividends) with the cumulative total return on the Standard & Poor's 500 Index and a peer group. The peer group companies consisting of Thor Industries, Inc., Polaris Industries, Inc., and Brunswick Corporation were selected by us as they also manufacture recreation products. It is assumed in the graph that $100 was invested in our common stock, in the Standard & Poor's 500 Index and in the stocks of the peer group companies on August 29, 2015 and that all dividends received within a quarter were reinvested in that quarter. In accordance with the guidelines of the SEC, the shareholder return for each entity in the peer group index has been weighted on the basis of market capitalization as of each annual measurement date set forth in the graph.

WGO-20200829_G2.JPG
Base Period
Company/Index August 29,
2015
August 27,
2016
August 26,
2017
August 25,
2018
August 31,
2019
August 29,
2020
Winnebago Industries, Inc. 100.00  119.38  174.86  190.51  165.70  305.29 
S&P 500 Index 100.00  111.47  128.18  153.74  159.79  195.25 
Peer Group 100.00  91.05  106.35  117.82  80.60  122.13 
Source: Zacks Investment Research, Inc.

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Item 6. Selected Financial Data.
(in thousands, except per share data)
Fiscal Year
2020(1)
2019 2018
2017(2)
2016
Consolidated Statements of Income Data:
Net revenues $ 2,355,533  $ 1,985,674  $ 2,016,829  $ 1,547,119  $ 975,226 
Net income 61,442  111,798  102,357  71,330  45,496 
Income per common share:
Basic 1.85  3.55  3.24  2.33  1.69 
Diluted 1.84  3.52  3.22  2.32  1.68 
Dividends paid per common share 0.45  0.43  0.40  0.40  0.40 
Year End Data:
Total assets 1,713,700  1,104,231  1,051,805  902,512  390,718 
Total non-current liabilities 585,844  274,275  313,175  293,680  29,410 
Note: All fiscal years presented included 52 weeks except for Fiscal 2019, which included 53 weeks.

(1) Includes Newmar operations from the date of its acquisition on November 8, 2019.
(2) Includes Grand Design operations from the date of its acquisition on November 8, 2016.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in six sections:

Overview
Results of Operations
Analysis of Financial Condition, Liquidity, and Capital Resources
Contractual Obligations and Commercial Commitments
Critical Accounting Estimates
New Accounting Pronouncements

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Overview

Winnebago Industries, Inc. is one of the leading North American manufacturers with a diversified portfolio of recreation vehicles ("RV"s) and marine products used primarily in leisure travel and outdoor recreation activities. We produce our motorhome units in Iowa and Indiana; our towable units in Indiana; and our marine units in Florida. We distribute our RV and marine products primarily through independent dealers throughout the U.S. and Canada, who then retail the products to the end consumer. We also distribute our marine products internationally through independent dealers, who then retail the products to the end consumer.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines and “shelter-in-place” orders, travel restrictions, business curtailments, limits on gatherings, and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures designed to counteract the economic impacts of the COVID-19 pandemic.

Health and safety
From the earliest signs of the outbreak, we have taken proactive measures to protect the health and safety of our employees, customers, and suppliers. We have enacted rigorous safety measures in our sites, including employee training and self-monitoring for symptoms of the COVID-19 virus, the taking of all employee temperatures upon reporting to work, implementing social distancing protocols, implementing working from home arrangements for those employees that do not need to be physically present, suspending travel, extensively and frequently disinfecting our workspaces, and providing or accommodating the wearing of masks to those employees who must be physically present in their workplace. In the event an employee contracts the virus and is tested positive, we have mandated quarantining and have instructed employees not to return to work until such time that they have been cleared to do so, in accordance with recommendations by the Center for Disease Control and Prevention (CDC). We expect to continue to practice these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business, and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, and suppliers.

Operations
Our manufacturing operations were affected by the COVID-19 pandemic during the third quarter of Fiscal 2020. Generally, any government mandated measures providing for business shutdowns exclude certain essential businesses and services, including businesses that manufacture and sell products that were considered essential to daily lives or otherwise operate in essential or critical sectors. While some of our facilities were considered essential by local governments, particularly in Indiana where all of our facilities are located for the Towable segment, during the third quarter we experienced temporary, partial or full factory closures at our facilities in a concerted effort to lower the probability of coronavirus exposure to key stakeholders, to sanitize the facilities and address employee well-being. During the latter half of the third quarter, the facilities we temporarily, partially or fully closed began to reopen on a staggered schedule to effectively monitor the impact and make changes as necessary. While governmental measures may be modified or extended, we expect that our manufacturing facilities will remain operational.

Supply
Our production has not experienced material impacts or interruptions that are specific to our supply chain as a result of the COVID-19 pandemic. However, some of our suppliers have faced difficulties maintaining operations in light of shelter-in-place mandates or shortages that they are experiencing with their suppliers on key materials or subassemblies. Additionally, restrictions or disruptions of transportation did not result in higher costs or delays for the year ended August 29, 2020. We are actively monitoring the costs and timing of raw materials and other inputs to our supply chain.

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Demand
The COVID-19 pandemic has significantly increased economic and demand volatility and uncertainty. Our dealer networks were significantly impacted during the COVID-19 pandemic and a majority of our dealers temporarily closed during the third quarter of Fiscal 2020. However, beginning in May, our dealers began to reopen, with dealer re-openings accelerating in June. The majority of our dealers had resumed full operations and services as of the end of Fiscal 2020. During the third quarter of Fiscal 2020, we experienced reductions in customer demand due to a decrease in consumer spending attributable to the COVID-19 pandemic. However, in the fourth quarter of Fiscal 2020, we experienced higher consumer demand due to an increase in consumers wishing to travel safely and social distance, and do so through the utilization of an RV. At year end Fiscal 2020, backlog levels were higher than the same period of Fiscal 2019 due to the impacts of closing our plants and the increase in demand in the last quarter of Fiscal 2020. Despite the increase in demand, consumer buying activity may still decline if there are additional shut downs within our dealer networks. The current COVID-19 pandemic has caused a global economic slowdown, and the possibility of a global recession. In the event of a recession, demand for our products would decline and our business and results of operations would be adversely affected.

Cost mitigation actions
We began to see lower demand in most of our businesses in late March 2020, and we took steps across our organization to align costs with lower sales volumes. These steps include employee furloughs and layoffs, salary reductions ranging from 10% to 25%, and delaying, reducing or eliminating purchased services and restricting travel. Additionally, we are proactively managing our working capital and reduced our discretionary capital spending for 2020 but did not defer strategic ongoing initiatives. We also continue to monitor government economic stabilization efforts and will participate in certain legislative provisions, such as deferring estimated tax payments and utilizing job retention subsidies.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may take additional actions based on their requirements and recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of the COVID-19 pandemic on our financial condition, results of operations or cash flows in the future. In addition, see Part I—Item 1A, “Risk Factors,” included herein for updates to our risk factors regarding risks associated with the COVID-19 pandemic, as well as Note 1 Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for further impacts regarding the ongoing COVID-19 pandemic.

Non-GAAP Reconciliation

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"), as well as certain adjusted or non-GAAP financial measures such as EBITDA and Adjusted EBITDA. EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation and amortization expense, and other adjustments made in order to present comparable results from period to period. These non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, have been provided as information supplemental and in addition to the financial measures presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein. The non-GAAP financial measures presented may differ from similar measures used by other companies.

Refer to the Results of Operations-Fiscal 2020 Compared to Fiscal 2019 and the Results of Operations-Fiscal 2019 Compared to Fiscal 2018 for a detailed reconciliation of items that impacted EBITDA and Adjusted EBITDA. We have included this non-GAAP performance measure as a comparable measure to illustrate the effect of non-recurring transactions occurring during the year and improve comparability of our results from period to period. We believe Adjusted EBITDA provides meaningful supplemental information about our operating performance because this measure excludes amounts that we do not consider part of our core operating results when assessing our performance. Examples of items excluded from Adjusted EBITDA include acquisition-related costs, restructuring expenses, and non-operating income.

Management uses these non-GAAP financial measures (a) to evaluate our historical and prospective financial performance and trends as well as our performance relative to competitors and peers; (b) to measure operational profitability on a consistent basis; (c) in presentations to the members of our board of directors to enable our board of directors to have the same measurement basis of operating performance as is used by management in its assessments of performance and in forecasting and budgeting for our company; (d) to evaluate potential acquisitions; and (e) to ensure compliance with restricted activities under the terms of our ABL credit facility and outstanding notes, as further described in Note 9, Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. We believe these non-GAAP financial measures are frequently used by securities analysts, investors, and other interested parties to evaluate companies in our industry.

Business Combinations

On November 8, 2019, we completed the acquisition of Newmar Corporation, Dutch Real Estate Corp, New-Way Transport, and New-Serv (collectively "Newmar") for total consideration of $357.0 million, which consisted of $264.4 million in cash, and 2.0 million
24

shares of Winnebago common stock that were valued at $92.6 million ($46.29 per share discounted at 7.0% due to lack of marketability because of one year lock-up restrictions). The cash portion of the purchase price of the acquisition and certain transaction expenses were funded through the private placement of $300.0 million in aggregate principal amount of 1.50% convertible senior notes due 2025 ("Convertible Notes") (as further described in Note 9, Long-Term Debt of the Notes to the Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K), and cash on hand. Newmar is a leading manufacturer of Class A and Super C motorized recreation vehicles that are sold through an established network of independent authorized dealers throughout North America.

On June 4, 2018, we acquired 100% of the ownership interests of Chris-Craft, a privately-owned company based in Sarasota, FL. Chris-Craft manufactures and sells premium quality boats in the recreational powerboat industry through an established global network of independent authorized dealers.

Reportable Segments

We have six operating segments: 1) Grand Design towables, 2) Winnebago towables, 3) Winnebago motorhomes, 4) Newmar motorhomes, 5) Chris-Craft marine, and 6) Winnebago specialty vehicles. We evaluate performance based on each operating segment's Adjusted EBITDA, as defined above, which excludes certain corporate administration expenses and non-operating income and expense.

Our two reportable segments include: 1) Towable (comprised of products which are not motorized and are generally towed by another vehicle as well as other related manufactured products and services), which is an aggregation of the Winnebago towables and Grand Design towables operating segments, and 2) Motorhome (comprised of products that include a motorized chassis as well as other related manufactured products and services), which is an aggregation of the Winnebago motorhomes and Newmar motorhomes operating segments.

The Corporate / All Other category includes the Winnebago specialty vehicles and Chris-Craft marine operating segments as well as expenses related to certain corporate administration expenses for the oversight of the enterprise. These expenses include items such as corporate leadership and administration costs.

Industry Trends

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 the Recreation Vehicle Industry Association ("RVIA")
Retail unit registrations: consumer purchases of RVs from dealers, which is reported by Stat Surveys

We track RV Industry conditions using these key statistics to monitor trends and evaluate and understand our performance relative to the overall industry. The following is an analysis of changes in these key statistics for the rolling 12 months through August as of 2020 and 2019:
US and Canada Industry
Wholesale Unit Shipments per RVIA Retail Unit Registrations per Stat Surveys
Rolling 12 Months through August Rolling 12 Months through August
2020 2019 Unit Change % Change 2020 2019 Unit Change % Change
Towable(1)
338,602  355,598  (16,996) (4.8) % 408,179  399,900  8,279  2.1  %
Motorhome(2)
38,680  48,605  (9,925) (20.4) % 49,112  52,936  (3,824) (7.2) %
Combined 377,282  404,203  (26,921) (6.7) % 457,291  452,836  4,455  1.0  %
(1)Towable: Fifth wheel and travel trailer products.
(2)Motorhome: Class A, B and C products.

The rolling twelve months shipments for 2020 and 2019 reflect a contraction in shipments as dealers rationalized inventory in the first six months of our fiscal year 2020, followed by a continued reduction in dealer inventory in the back half of our fiscal year 2020 due to constrained production activities during the COVID-19 pandemic amidst a strong recovery in retail sales. The rolling twelve months retail information for 2020 and 2019 illustrates that retail sales, while down year-over-year, remain at healthy levels relative to the industry's historical retail levels. We believe retail demand is the key driver to continued growth in the industry.

The most recent RVIA wholesale shipment forecasts for calendar year 2021, as noted in the table below, indicate that industry shipments are most likely expected to experience growth in 2021. The retail activity is anticipated to remain at healthy levels, and wholesale shipments are expected to reflect a rebound associated with dealers rebuilding their inventories.
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Calendar Year
Wholesale Unit Shipment Forecast per RVIA(1)
2021
Forecast
2020
Actual
Unit Change % Change
Aggressive 519,900  401,500  118,400  29.5  %
Most likely 507,200  401,500  105,700  26.3  %
Conservative 494,400  401,500  92,900  23.1  %
(1)Prepared by ITR Economics for RVIA and reported in the Roadsigns RV Fall 2020 Industry Forecast Issue.

Market Share

Our retail unit market share, as reported by Stat Surveys based on state records, is illustrated below. Market share is calculated by taking our brands total unit sales divided by the total units sold in the motorized and travel trailer and fifth wheels market. The data is used to analyze growth and profitability of our products and brands year over year, as well as how we compare to our competitors. Note that this data is subject to adjustment and is continuously updated.
Rolling 12 Months through August Calendar Year
US and Canada 2020 2019 2019 2018 2017
Travel trailer and fifth wheels 10.1  % 8.8  % 9.3  % 7.8  % 6.1  %
Motorhome A, B, C 20.2  % 15.3  % 16.1  % 15.6  % 16.3  %
Total market share 11.2  % 9.5  % 10.1  % 8.7  % 7.4  %

Facility Expansion

Due to the rapid growth in our Towable segment, we had implemented facility expansion projects in our Grand Design towables and Winnebago towables operating segments. The Grand Design towables expansion project consisted of three new production facilities--two were completed in Fiscal 2018 and one was completed during the second quarter of Fiscal 2020. The facility expansion in the Winnebago towables division was completed in the third quarter of Fiscal 2019.

Enterprise Resource Planning System

In the second quarter of Fiscal 2015, our Board of Directors approved the strategic initiative of implementing an enterprise resource planning ("ERP") system to replace our legacy business applications. The new ERP platform will provide better support for our changing business needs and plans for future growth. Our initial cost estimates have grown for additional needs of the business, such as the opportunity to integrate the ERP system with additional manufacturing systems. The project includes software, external implementation assistance, and increased internal staffing directly related to this initiative. We anticipate that approximately 40% of the cost will be expensed in the period incurred and 60% will be capitalized and depreciated over its useful life.

The following table illustrates the cumulative project costs:
(in thousands) 2020 2019 2018 2017 2016 2015 Cumulative Investment
Capitalized $ 3,891  $ 3,875  $ 5,941  $ 1,881  $ 7,798  $ 3,291  $ 26,677  58.8  %
Expensed 1,788  3,709  2,107  2,601  5,930  2,528  18,663  41.2  %
Total $ 5,679  $ 7,584  $ 8,048  $ 4,482  $ 13,728  $ 5,819  $ 45,340  100.0  %

Restructuring

During the third quarter of Fiscal 2020, the Company completed a reduction in force intended to improve operational efficiencies and to align with the Company's long-term strategic plan, which resulted in headcount reductions in the Motorhome segment. As a result, we recognized $1.5 million of restructuring charges during the twelve months ended August 29, 2020. These charges include termination benefits.

On February 4, 2019, we announced our intent to move our Motorhome diesel production from Junction City, OR to Forest City, IA to enable more effective product development and improve our cost structure. These charges include termination benefits, asset-related expenses, facility closure costs, headcount reductions, and other related costs. Employee-related costs were primarily paid in Fiscal 2019.

These restructuring activities resulted in pretax charges of $1.7 million and $1.9 million in Fiscal 2020 and Fiscal 2019, respectively. We expect additional expenses of approximately $0.4 million in Fiscal 2021, primarily related to closed facility costs.
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We expect these expenses to be fully offset by the corresponding savings generated by the projects, which were primarily completed in Fiscal 2020 and Fiscal 2019, and the full benefit of these actions is expected in Fiscal 2021.


Results of Operations - Fiscal 2020 Compared to Fiscal 2019

Consolidated Performance Summary

The following is an analysis of changes in key items included in the statements of operations for the fiscal year ended August 29, 2020 compared to the fiscal year ended August 31, 2019:
(in thousands, except percent and per share data) 2020
% of Revenues(1)
2019
% of Revenues(1)
$ Change % Change
Net revenues $ 2,355,533  100.0  % $ 1,985,674  100.0  % $ 369,859  18.6  %
Cost of goods sold 2,042,605  86.7  % 1,678,477  84.5  % 364,128  21.7  %
Gross profit 312,928  13.3  % 307,197  15.5  % 5,731  1.9  %
Selling, general, and administrative expenses ("SG&A") 177,061  7.5  % 142,295  7.2  % 34,766  24.4  %
Amortization of intangible assets 22,104  0.9  % 9,635  0.5  % 12,469  129.4  %
Total operating expenses 199,165  8.5  % 151,930  7.7  % 47,235  31.1  %
Operating income 113,763  4.8  % 155,267  7.8  % (41,504) (26.7) %
Interest expense 37,461  1.6  % 17,939  0.9  % 19,522  108.8  %
Non-operating income (974) —  % (1,581) (0.1) % (607) (38.4) %
Income before income taxes 77,276  3.3  % 138,909  7.0  % (61,633) (44.4) %
Provision for income taxes 15,834  0.7  % 27,111  1.4  % (11,277) (41.6) %
Net income $ 61,442  2.6  % $ 111,798  5.6  % $ (50,356) (45.0) %
Diluted income per share $ 1.84  $ 3.52  $ (1.68) (47.7) %
Diluted average shares outstanding 33,454  31,721  1,733  5.5  %
(1)    Percentages may not add due to rounding differences.

Net revenues increased in Fiscal 2020 compared to Fiscal 2019 primarily due to the Newmar acquisition and an organic volume growth in the Towable segment, which was partially offset by lower third quarter Fiscal 2020 volume as a result of the COVID-19 pandemic.

Gross profit as a percentage of revenue decreased in Fiscal 2020 compared to Fiscal 2019 primarily due to the impact of lower volume in the third quarter of Fiscal 2020 as a result of the COVID-19 pandemic, resulting deleverage when considering fixed expenses within cost of goods sold, an unfavorable change in mix as a result of our acquisition of Newmar, and Newmar purchase accounting impacts (i.e. inventory step-up).

Operating expenses increased in Fiscal 2020 compared to Fiscal 2019 due to our acquisition-related costs and incremental amortization related to the purchase accounting and normal operating expenses of Newmar.

Interest expense increased in Fiscal 2020 compared to Fiscal 2019 due to the additional interest expense related to the Convertible Notes issued in connection with the acquisition of Newmar and debt issuance costs written off due to the termination of our Term Loan (as defined above).

Non-operating income decreased in Fiscal 2020 compared to Fiscal 2019 due to lower net proceeds received from company-owned life insurance policies.

The effective tax rate increased to 20.5% in Fiscal 2020 compared to 19.5% in Fiscal 2019 primarily due to the favorable impact in the prior year of research and development credits, partially offset by the impact of consistent credits on a lower pretax income in Fiscal 2020.

Net income and diluted income per share decreased in Fiscal 2020 compared to Fiscal 2019 primarily due to reduced profitability from the impact of the COVID-19 pandemic in the third quarter of Fiscal 2020, incremental interest expense due to our convertible debt, acquisition-related costs and incremental amortization due to our Newmar acquisition. Diluted income per share was further impacted by the share consideration issued in the Newmar acquisition.

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Non-GAAP Reconciliation

The following table reconciles net income to consolidated EBITDA and Adjusted EBITDA for Fiscal 2020 and 2019:
(in thousands) 2020 2019
Net income $ 61,442  $ 111,798 
Interest expense 37,461  17,939 
Provision for income taxes 15,834  27,111 
Depreciation 15,997  13,682 
Amortization of intangible assets 22,104  9,635 
EBITDA 152,838  180,165 
Acquisition-related fair-value inventory step-up 4,810  — 
Acquisition-related costs 9,761  — 
Restructuring(1)
1,640  1,068 
Non-operating income (974) (1,581)
Adjusted EBITDA $ 168,075  $ 179,652 
(1)    Balance excludes depreciation expense classified as restructuring as the balance is already included in the EBITDA calculation.

Reportable Segment Performance Summary

Towable

The following is an analysis of key changes in our Towable segment for Fiscal 2020 and 2019:
(in thousands, except ASP) 2020 % of Revenues 2019 % of Revenues $ Change % Change
Net revenues $ 1,227,567  $ 1,197,327  $ 30,240  2.5  %
Adjusted EBITDA 148,276  12.1  % 163,677  13.7  % (15,401) (9.4) %
Average Selling Price ("ASP")(1)
32,607  32,811  (204) (0.6) %
Unit deliveries 2020
Product Mix(2)
2019
Product Mix(2)
Unit Change % Change
Travel trailer 23,184  61.2  % 22,458  61.0  % 726  3.2  %
Fifth wheel 14,706  38.8  % 14,371  39.0  % 335  2.3  %
Total Towable 37,890  100.0  % 36,829  100.0  % 1,061  2.9  %
($ in thousands) August 29, 2020 August 31, 2019 Change % Change
Backlog(3)
Units 24,903  7,225  17,678  244.7  %
Dollars
$ 747,925  $ 234,339  $ 513,586  219.2  %
Dealer Inventory
Units 10,528  15,658  (5,130) (32.8) %
(1)    ASP excludes off-invoice dealer incentives.
(2)    Percentages may not add due to rounding differences.
(3)    We include in our backlog all accepted orders from dealers which generally have been requested 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.

Net revenues increased in Fiscal 2020 compared to Fiscal 2019 due to increased organic volume growth, partially offset by lower third quarter results due to the COVID-19 pandemic and related suspension of manufacturing operations, disruptions across the dealer network, supply chain, and end consumers.

ASP decreased in Fiscal 2020 compared to Fiscal 2019 due to change in product mix.

Adjusted EBITDA decreased in Fiscal 2020 compared to Fiscal 2019 primarily due to reduced profitability resulting from the COVID-19 pandemic during our third quarter of Fiscal 2020.
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Unit deliveries increased in Fiscal 2020 compared to Fiscal 2019 representing an increase in organic volume growth. Our Towable segment market share increased from 8.8% to 10.1% when comparing retail registrations during the twelve-month trailing periods ended August 2019 and August 2020. Shipments grew faster than the industry as a result of strength of brand.

We have seen an increase in the backlog volumes as of August 29, 2020 compared to August 31, 2019 as a result of a strong retail demand following the imposition of shelter in place mandates in response to the COVID-19 pandemic, as well as an increase in demand for our products reflected in our increase in market share.

Motorhome

The following is an analysis of key changes in our Motorhome segment for Fiscal 2020 and 2019:
(in thousands, except ASP) 2020 % of Revenues
2019(4)(4)
% of Revenues $ Change % Change
Net revenues $ 1,056,794  $ 706,927  $ 349,867  49.5  %
Adjusted EBITDA 32,949  3.1  % 27,455  3.9  % 5,494  20.0  %
ASP(1)
130,098  93,549  36,549  39.1  %
Unit deliveries 2020
Product Mix(2)
2019(4)
Product Mix(2)
Unit Change % Change
Class A 2,493  30.8  % 1,582  20.8  % 911  57.6  %
Class B 3,351  41.3  % 2,784  36.7  % 567  20.4  %
Class C 2,261  27.9  % 3,225  42.5  % (964) (29.9) %
Total Motorhome 8,105  100.0  % 7,591  100.0  % 514  6.8  %
($ in thousands) August 29, 2020
August 31, 2019(4)
Change % Change
Backlog(3)
Units 8,463  1,808  6,655  368.1  %
Dollars
$ 1,051,415  $ 165,373  $ 886,042  535.8  %
Dealer Inventory
Units 2,761  3,891  (1,130) (29.0) %
(1)    ASP excludes off-invoice dealer incentives.
(2)    Percentages may not add due to rounding differences.
(3)    We include in our backlog all accepted orders from dealers which generally have been requested 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.
(4) Balances at August 31, 2019 exclude Newmar as the company was not acquired until Fiscal 2020.

Net revenues and unit deliveries increased in Fiscal 2020 compared to Fiscal 2019 primarily due to the Newmar acquisition, as well as strong growth in Class B shipments partially offset by lower third quarter results due to the COVID-19 pandemic and related suspension of manufacturing operations and disruptions across the dealer network, supply chain, and end consumers.

Average selling price increased in Fiscal 2020 compared to Fiscal 2019 primarily due to the Newmar acquisition, as Newmar primarily sells Class A products, which saw a significant increase in units sold compared to Fiscal 2019.

Adjusted EBITDA increased in Fiscal 2020 compared to Fiscal 2019 primarily due to the Newmar acquisition, partially offset by reduced profitability resulting from the COVID-19 pandemic.

We have seen an increase in the volume and dollar value of backlog as of August 29, 2020 compared to August 31, 2019 primarily due to the production interruptions and shelter-in-place mandates in response to the COVID-19 pandemic, paired with an increase in retail demand due to the perceived safety of RV travel and reduction in commercial air travel and cruises. These have resulted in historically low dealer inventory levels. The addition of the Newmar acquisition also contributed to the increase in backlog.
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Results of Operations - Fiscal 2019 Compared to Fiscal 2018

Consolidated Performance Summary

The following is an analysis of changes in key items included in the statements of operations for the fiscal year ended August 31, 2019 compared to the fiscal year ended August 25, 2018:
(in thousands, except percent and per share data) 2019
% of Revenues(1)
2018
% of Revenues(1)
$ Change % Change
Net revenues $ 1,985,674  100.0  % $ 2,016,829  100.0  % $ (31,155) (1.5) %
Cost of goods sold 1,678,477  84.5  % 1,716,993  85.1  % (38,516) (2.2) %
Gross profit 307,197  15.5  % 299,836  14.9  % 7,361  2.5  %
SG&A 142,295  7.2  % 130,116  6.5  % 12,179  9.4  %
Amortization of intangible assets 9,635  0.5  % 9,328  0.5  % 307  3.3  %
Total operating expenses 151,930  7.7  % 139,444  6.9  % 12,486  9.0  %
Operating income 155,267  7.8  % 160,392  8.0  % (5,125) (3.2) %
Interest expense 17,939  0.9  % 18,246  0.9  % (307) (1.7) %
Non-operating income (1,581) (0.1) % (494) —  % 1,087  220.0  %
Income before income taxes 138,909  7.0  % 142,640  7.1  % (3,731) (2.6) %
Provision for income taxes 27,111  1.4  % 40,283  2.0  % (13,172) (32.7) %
Net income $ 111,798  5.6  % $ 102,357  5.1  % $ 9,441  9.2  %
Diluted income per share $ 3.52  $ 3.22  $ 0.30  9.3  %
Diluted average shares outstanding 31,721  31,814  (93) (0.3) %
(1)    Percentages may not add due to rounding differences.

Consolidated net revenues decreased in Fiscal 2019 compared to Fiscal 2018 primarily due to a decrease in our Motorhome segment sales, which was partially offset by an increase in our Towable segment sales and the acquisition of Chris-Craft in the fourth quarter of Fiscal 2018.

Gross profit as a percentage of revenue increased in Fiscal 2019 compared to Fiscal 2018 due to a favorable mix and pricing that were partially offset by higher allowances and higher cost inputs.

Operating expenses increased in Fiscal 2019 compared to Fiscal 2018 due to the addition of the Chris-Craft business and investments in our business, partially offset by a reduction in variable compensation.
Interest expense decreased in Fiscal 2019 compared to Fiscal 2018 due to the unamortized debt issuance costs expensed in Fiscal 2018 related to our voluntary prepayment on our Term Loan and the amendment to our Credit Agreement (as defined below) during the second quarter of Fiscal 2018, which resulted in a decrease to the interest rate spread by 1.0% on the Term Loan and 0.25% on the ABL.
Non-operating income increased in Fiscal 2019 compared to Fiscal 2018 due to net proceeds received from company-owned life insurance policies.
The overall effective income tax rate decreased to 19.5% in Fiscal 2019 compared to 28.2% in Fiscal 2018 primarily due to the enactment of the Tax Cuts and Jobs Act (the "Tax Act") on December 22, 2017 and $3.6 million in net favorable discrete items, primarily attributable to R&D-related tax credits, realized in Fiscal 2019. The reduction related to the enactment of the Tax Act is primarily attributable to the reduction in the Federal statutory tax rate to 21% being applied to the entirety of Fiscal 2019 earnings whereas Fiscal 2018 utilized a blended rate of 25.9%.
Net income and diluted income per share increased in Fiscal 2019 compared to Fiscal 2018 primarily due to a lower effective tax rate and increased Towable segment sales, partially offset by a decrease in our Motorhome segment profitability.


30

Non-GAAP Reconciliation

The following table reconciles net income to consolidated EBITDA and Adjusted EBITDA for Fiscal 2019 and 2018:
(in thousands) 2019 2018
Net income $ 111,798  $ 102,357 
Interest expense 17,939  18,246 
Provision for income taxes 27,111  40,283 
Depreciation 13,682  9,849 
Amortization of intangible assets 9,635  9,328 
EBITDA 180,165  180,063 
Acquisition-related costs —  2,177 
Restructuring(1)
1,068  — 
Non-operating income (1,581) (494)
Adjusted EBITDA $ 179,652  $ 181,746 
(1) Balance excludes depreciation expense classified as restructuring as the balance is already included in the EBITDA calculation.

Reportable Segment Performance Summary

Towable

The following is an analysis of key changes in our Towable segment for Fiscal 2019 and 2018:
(in thousands, except ASP) 2019 % of Revenues 2018 % of Revenues $ Change % Change
Net revenues $ 1,197,327  $ 1,127,723  $ 69,604  6.2  %
Adjusted EBITDA 163,677  13.7  % 157,010  13.9  % 6,667  4.2  %
ASP(1)
32,811  30,941  1,870  6.0  %
Unit deliveries 2019
Product Mix(2)
2018
Product Mix(2)
Unit Change % Change
Travel trailer 22,458  61.0  % 22,360  61.1  % 98  0.4  %
Fifth wheel 14,371  39.0  % 14,229  38.9  % 142