Notes to Consolidated Financial Statements
(Unaudited)
(Dollars and shares in thousands, unless otherwise noted)
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Winnebago Industries, Inc. and its wholly owned subsidiaries. Significant intercompany account balances and transactions have been eliminated.
The use of the terms "Winnebago Industries," "Winnebago", and "the Company" in this Quarterly Report on Form 10-Q, unless the context otherwise requires, refers to Winnebago Industries, Inc. and its wholly owned subsidiaries.
The interim unaudited consolidated financial statements included herein are prepared pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The information furnished in these consolidated financial statements includes normal recurring adjustments, unless noted otherwise in the Notes to Financial Statements, and reflects all adjustments that are, in management’s opinion, necessary for a fair presentation of such financial statements. The consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations.
The consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020 filed with the SEC. Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year.
Fiscal Period
The Company has a 5-4-4 quarterly accounting cycle with the fiscal year ending on the last Saturday in August. Fiscal 2021 ending on August 28, 2021 will consist of 52 weeks. Fiscal 2020 ended on August 29, 2020 consisted of 52 weeks.
Cash and Cash Equivalents
Cash and cash equivalents represent cash, demand deposits and highly liquid investments with original maturities of three months or less that are not legally restricted. Cash equivalents are recorded at cost, which approximates fair value. Accounts at each banking institution are insured by the Federal Deposit Insurance Corporation up to $250,000, while the remaining balances are uninsured.
Subsequent Events
In preparing the accompanying unaudited consolidated financial statements, the Company evaluated subsequent events for potential recognition and disclosure through the date of this filing noting no material subsequent events.
CARES Act
The Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law on March 27, 2020 to help alleviate the impact of the COVID-19 pandemic in the U.S. The Company is taking advantage of the employer payroll tax deferral offered by the CARES Act, which allows the Company to defer the payment of employer payroll taxes for the period from March 27, 2020 to December 31, 2020. The deferred employer payroll tax liability as of May 29, 2021 was $16,223 and will be payable in equal installments in December 2021 and December 2022. The Company also took advantage of a tax credit granted to companies under the CARES Act who continued to pay their employees when operations were fully or partially suspended. The refundable tax credit available through the end of the third quarter of Fiscal 2020 reflected in cost of goods sold on the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) was approximately $3,999. The entire amount is expected to be received by the end of calendar year 2021. As of May 29, 2021, $3,202 remains outstanding within other current assets on the Consolidated Balance Sheets.
Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Codification ("ASC") Topic 326, Financial Instruments—Credit Losses, which changes the accounting for credit losses on instruments measured at amortized costs, such as accounts receivables and deposits by adding an impairment model that is based on expected losses rather than incurred losses. An entity will recognize as an allowance its estimate of expected credit losses, which is believed to result in more timely recognition of such losses as the standard eliminates the probable initial recognition threshold. The Company adopted the new standard using the modified retrospective approach, which involves recognizing the cumulative effect of initial adoption of Topic 326 as an adjustment to its opening retained earnings as of August 30, 2020. As a result, the Company did not adjust comparative period financial information for periods before the effective date. No incremental allowance for credit losses has been recognized during the nine months ended May 29, 2021 as a result of the adoption. The adoption of this standard did not have a material impact on the Company’s
financial condition, results of operations or disclosures.
Recently Issued Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) which reduces the number of models used to account for convertible instruments, amends diluted earnings per share ("EPS") calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. Certain disclosure requirements were also added to increase transparency and decision-usefulness regarding a convertible instrument's terms and features. Additionally, the if-converted method for including convertible instruments must be used in diluted EPS as opposed to the treasury stock method. The new guidance is effective for annual reporting periods beginning after December 15, 2021, which is the Company's Fiscal 2023. Early adoption is permitted using either a modified retrospective or full retrospective approach. The Company expects to adopt the new guidance in the first quarter of Fiscal 2023 and has not yet evaluated the impact the adoption of this guidance will have on its financial condition, results of operations or disclosures; however, the new guidance is expected to change the Company's diluted EPS reporting.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting, which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this guidance apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. This guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The guidance can be applied immediately through December 31, 2022. The Company will adopt this standard when LIBOR is discontinued and does not expect a material impact to its financial condition, results of operations or disclosures based on the current debt portfolio and capital structure.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions to Topic 740's general principles, improves consistent application and simplifies its application. The standard is effective for annual reporting periods beginning after December 15, 2020, which is the Company's Fiscal 2022, including interim periods within those annual reporting periods. The Company expects to adopt the new guidance in the first quarter of Fiscal 2022, and does not expect a material impact to its financial condition, results of operations or disclosures.
Note 2. Business Segments
The Company has 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. Financial performance is evaluated based on each operating segment's Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined below, which excludes certain corporate administration expenses and non-operating income and expense.
The Company's two reportable segments are: Towable (an aggregation of the Grand Design towables and the Winnebago towables operating segments) and Motorhome (an aggregation of the Winnebago motorhomes and Newmar motorhomes operating segments). Towable is comprised of non-motorized products that are generally towed by another vehicle, along with other related manufactured products and services. Motorhome is comprised of products that include a motorized chassis, along with other related manufactured products and services.
The Corporate / All Other category includes the Chris-Craft marine and Winnebago specialty vehicles operating segments as well as certain corporate administration expenses related to the oversight of the enterprise, such as corporate leadership and administration costs.
Identifiable assets of the reportable segments exclude general corporate assets, which principally consist of cash and cash equivalents and certain deferred tax balances. The general corporate assets are included in the Corporate / All Other category.
The Company's Chief Executive Officer (the Chief Operating Decision Maker ("CODM")) regularly reviews consolidated financial results in their entirety and operating segment financial information through Adjusted EBITDA, and has ultimate responsibility for enterprise decisions. The Company's CODM is responsible for allocating resources and assessing performance of the consolidated enterprise, reportable segments and operating segments. Management of each operating segment has responsibility for operating decisions, allocating resources and assessing performance within their respective operating segment. Both reportable segments and all operating segments follow the same accounting policies in Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020.
The Company monitors and evaluates operating performance of its reportable segments based on Adjusted EBITDA. The Company believes disclosing Adjusted EBITDA is useful to securities analysts, investors and other interested parties when evaluating companies in the industry. 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 pretax adjustments made in order to present comparable results from period to period. Examples of items excluded from Adjusted EBITDA include acquisition-related fair-value inventory step-up, acquisition-related costs, restructuring expenses, gain or loss on sale of property and equipment, and non-operating income (loss).
Financial information by reportable segment is as follows:
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Three Months Ended
|
|
Nine Months Ended
|
(in thousands)
|
May 29,
2021
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|
May 30,
2020
|
|
May 29,
2021
|
|
May 30,
2020
|
Net Revenues
|
|
|
|
|
|
|
|
Towable
|
$
|
555,749
|
|
|
$
|
188,898
|
|
|
$
|
1,449,934
|
|
|
$
|
813,611
|
|
Motorhome
|
385,257
|
|
|
203,590
|
|
|
1,090,221
|
|
|
755,023
|
|
Corporate / All Other
|
19,731
|
|
|
9,970
|
|
|
53,599
|
|
|
49,092
|
|
Consolidated
|
$
|
960,737
|
|
|
$
|
402,458
|
|
|
$
|
2,593,754
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|
$
|
1,617,726
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Adjusted EBITDA
|
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Towable
|
$
|
80,130
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|
|
$
|
16,451
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|
|
$
|
205,639
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|
|
$
|
86,982
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Motorhome
|
37,467
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|
(10,789)
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|
118,779
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|
13,488
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Corporate / All Other
|
(7,823)
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|
(1,588)
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|
(17,386)
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|
|
(8,919)
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Consolidated
|
$
|
109,774
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|
|
$
|
4,074
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|
|
$
|
307,032
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|
|
$
|
91,551
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|
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Capital Expenditures
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Towable
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$
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4,639
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|
$
|
2,296
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|
|
$
|
11,490
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|
|
$
|
11,962
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|
Motorhome
|
2,976
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|
|
5,768
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|
|
10,247
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|
|
13,348
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Corporate / All Other
|
1,061
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|
|
1,492
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|
|
1,859
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|
|
3,272
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|
Consolidated
|
$
|
8,676
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|
|
$
|
9,556
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|
|
$
|
23,596
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|
|
$
|
28,582
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|
|
|
|
|
|
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(in thousands)
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|
|
May 29,
2021
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|
August 29,
2020
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Assets
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Towable
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$
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745,249
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$
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718,253
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Motorhome
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|
|
|
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721,603
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|
|
600,304
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Corporate / All Other
|
|
|
|
|
512,918
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|
|
395,143
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Consolidated
|
|
|
|
|
$
|
1,979,770
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|
|
$
|
1,713,700
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|
Reconciliation of net income to consolidated Adjusted EBITDA is as follows:
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Three Months Ended
|
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Nine Months Ended
|
(in thousands)
|
May 29, 2021
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May 30, 2020
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May 29, 2021
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May 30, 2020
|
Net income (loss)
|
$
|
71,295
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|
|
$
|
(12,353)
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|
|
$
|
197,786
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|
|
$
|
18,983
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Interest expense
|
10,229
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|
|
8,440
|
|
|
30,222
|
|
|
23,140
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|
Provision (benefit) for income taxes
|
21,005
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|
|
(4,186)
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|
|
59,728
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|
|
3,702
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Depreciation
|
4,917
|
|
|
4,134
|
|
|
13,476
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|
|
11,854
|
|
Amortization
|
3,590
|
|
|
6,926
|
|
|
10,771
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|
|
18,514
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|
EBITDA
|
111,036
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|
|
2,961
|
|
|
311,983
|
|
|
76,193
|
|
Acquisition-related fair-value inventory step-up
|
—
|
|
|
—
|
|
|
—
|
|
|
4,810
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|
Acquisition-related costs
|
—
|
|
|
(189)
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|
|
—
|
|
|
9,761
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|
Restructuring expenses
|
19
|
|
|
1,376
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|
|
112
|
|
|
1,247
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|
Gain on sale of property, plant and equipment
|
(1,188)
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|
|
—
|
|
|
(4,753)
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|
|
—
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|
Non-operating income
|
(93)
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|
|
(74)
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|
|
(310)
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|
|
(460)
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|
Adjusted EBITDA
|
$
|
109,774
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|
|
$
|
4,074
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|
|
$
|
307,032
|
|
|
$
|
91,551
|
|
Note 3. Investments and Fair Value Measurements
In determining the fair value of financial assets and liabilities, the Company utilizes market data or other assumptions that it believes market participants would use in pricing the asset or liability in the principal or most advantageous market and adjusts for non-performance and/or other risks associated with the Company as well as counterparties, as appropriate. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:
Level 1 — Unadjusted quoted prices which are available in active markets for identical assets or liabilities accessible at the measurement date.
Level 2 — Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 — Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis are as follows:
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Fair Value at
|
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Fair Value Hierarchy
|
(in thousands)
|
May 29,
2021
|
|
Level 1
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Level 2
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Level 3
|
Assets that fund deferred compensation
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Domestic equity funds
|
$
|
917
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|
|
$
|
917
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|
|
$
|
—
|
|
|
$
|
—
|
|
International equity funds
|
39
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|
|
39
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|
|
—
|
|
|
—
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|
Fixed income funds
|
46
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|
|
46
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|
|
—
|
|
|
—
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|
Total assets at fair value
|
$
|
1,002
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|
|
$
|
1,002
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Fair Value Hierarchy
|
(in thousands)
|
August 29,
2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets that fund deferred compensation
|
|
|
|
|
|
|
|
Domestic equity funds
|
$
|
626
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|
|
$
|
626
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|
|
$
|
—
|
|
|
$
|
—
|
|
International equity funds
|
34
|
|
|
34
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|
|
—
|
|
|
—
|
|
Fixed income funds
|
50
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|
|
50
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|
|
—
|
|
|
—
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|
Total assets at fair value
|
$
|
710
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|
|
$
|
710
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|
|
$
|
—
|
|
|
$
|
—
|
|
Assets that Fund Deferred Compensation
The Company's assets that fund deferred compensation are marketable equity securities measured at fair value using quoted market prices and primarily consist of equity-based mutual funds. These securities, used to fund the Executive Share Option Plan and the Executive Deferred Compensation Plan, are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. Refer to Note 11 of the Notes to the Consolidated Financial Statements included in Item 8 of Part II of the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020 for additional information regarding these plans.
The proportion of the assets that will fund options which expire within a year are included in prepaid expenses and other assets on the Consolidated Balance Sheets. The remaining assets are classified as non-current and included in other assets on the Consolidated Balance Sheets.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain financial instruments are measured at fair value on a nonrecurring basis. These assets primarily include goodwill, intangible assets, property, plant and equipment, and right-of-use lease assets. These assets were originally recognized at amounts equal to the fair value determined at date of acquisition or purchase. If certain triggering events occur, or if an annual impairment test is required, the Company will evaluate the non-financial asset for impairment. If an impairment has occurred, the asset is will be written down to its current estimated fair value. No impairments were recorded for non-financial assets in the three or nine months ended May 29, 2021 or May 30, 2020.
Assets and Liabilities Not Measured at Fair Value
Certain financial instruments are not measured at fair value but are recorded at carrying amounts approximating fair value based on their short-term nature. These financial instruments include cash and cash equivalents, receivables, accounts payable, other payables, and long-term debt. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. See Note 8 for information about the fair value of the Company's long-term debt.
Note 4. Inventories
Inventories consist of the following:
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|
(in thousands)
|
May 29,
2021
|
|
August 29,
2020
|
Finished goods
|
$
|
19,638
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|
|
$
|
17,141
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|
Work-in-process
|
182,316
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|
|
86,651
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|
Raw materials
|
169,218
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|
|
114,982
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|
Total
|
371,172
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|
|
218,774
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|
Less: Last-in, first-out ("LIFO") reserve
|
38,154
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|
|
35,833
|
|
Inventories, net
|
$
|
333,018
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|
|
$
|
182,941
|
|
Inventory valuation methods consist of the following:
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|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
May 29,
2021
|
|
August 29,
2020
|
LIFO basis
|
$
|
147,836
|
|
|
$
|
88,675
|
|
First-in, first-out basis
|
223,336
|
|
|
130,099
|
|
Total
|
$
|
371,172
|
|
|
$
|
218,774
|
|
The above inventory value, before reduction for the LIFO reserve, approximates replacement cost at the respective dates.
Note 5. Property, Plant, and Equipment
Property, plant, and equipment is stated at cost, net of accumulated depreciation, and consists of the following:
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|
|
|
|
|
|
|
|
|
|
(in thousands)
|
May 29,
2021
|
|
August 29,
2020
|
Land
|
$
|
9,111
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|
|
$
|
11,101
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|
Buildings and building improvements
|
147,679
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|
|
144,565
|
|
Machinery and equipment
|
120,557
|
|
|
117,370
|
|
Software
|
33,644
|
|
|
28,456
|
|
Transportation
|
4,974
|
|
|
4,913
|
|
Construction in progress
|
22,158
|
|
|
20,778
|
|
Property, plant, and equipment, gross
|
338,123
|
|
|
327,183
|
|
Less: Accumulated depreciation
|
160,545
|
|
|
152,238
|
|
Property, plant, and equipment, net
|
$
|
177,578
|
|
|
$
|
174,945
|
|
Depreciation expense was $4,917 and $4,134 for the three months ended May 29, 2021 and May 30, 2020, respectively, and $13,476 and $11,854 for the nine months ended May 29, 2021 and May 30, 2020, respectively.
Note 6. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by segment, with no accumulated impairment losses, for the nine months ended May 29, 2021 and May 30, 2020 are as follows:
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Towable
|
|
Motorhome
|
|
Corporate / All Other
|
|
Total
|
Balances at August 31, 2019
|
$
|
244,684
|
|
|
$
|
—
|
|
|
$
|
30,247
|
|
|
$
|
274,931
|
|
Acquisition of Newmar(1)
|
—
|
|
|
73,127
|
|
|
—
|
|
|
73,127
|
|
Balances at May 30, 2020
|
$
|
244,684
|
|
|
$
|
73,127
|
|
|
$
|
30,247
|
|
|
$
|
348,058
|
|
|
|
|
|
|
|
|
|
Balances at August 29, 2020 and May 29, 2021(2)
|
$
|
244,684
|
|
|
$
|
73,127
|
|
|
$
|
30,247
|
|
|
$
|
348,058
|
|
(1) The change in Motorhome activity is related to the acquisition of Newmar Corporation, Dutch Real Estate Corp., New-Way Transport and New-Serv (collectively "Newmar") that occurred on November 8, 2019. See Note 2 to the Consolidated Financial Statements included in Item 8 of Part II of the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020 for additional acquisition information.
(2) There was no activity in the nine months ended May 29, 2021.
Other intangible assets, net of accumulated amortization, consist of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2021
|
($ in thousands)
|
Weighted Average Life-Years
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Trade names
|
Indefinite
|
|
$
|
275,250
|
|
|
$
|
—
|
|
|
$
|
275,250
|
|
Dealer networks
|
12.1
|
|
159,581
|
|
|
$
|
42,360
|
|
|
117,221
|
|
Backlog
|
0.5
|
|
28,327
|
|
|
28,327
|
|
|
—
|
|
Non-compete agreements
|
4.3
|
|
6,647
|
|
|
5,121
|
|
|
1,526
|
|
Other intangible assets
|
|
|
$
|
469,805
|
|
|
$
|
75,808
|
|
|
$
|
393,997
|
|
|
|
|
|
|
|
|
|
|
August 29, 2020
|
($ in thousands)
|
Weighted Average Life-Years
|
|
Cost
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Trade names
|
Indefinite
|
|
$
|
275,250
|
|
|
$
|
—
|
|
|
$
|
275,250
|
|
Dealer networks
|
12.2
|
|
159,581
|
|
|
32,487
|
|
|
127,094
|
|
Backlog
|
0.5
|
|
28,327
|
|
|
28,327
|
|
|
—
|
|
Non-compete agreements
|
4.1
|
|
6,647
|
|
|
4,223
|
|
|
2,424
|
|
Other intangible assets
|
|
|
$
|
469,805
|
|
|
$
|
65,037
|
|
|
$
|
404,768
|
|
The weighted average remaining amortization period for intangible assets as of May 29, 2021 was approximately 9 years.
Estimated future amortization expense related to finite-lived intangible assets is as follows:
|
|
|
|
|
|
(in thousands)
|
Amount
|
Remainder of Fiscal 2021
|
$
|
3,590
|
|
Fiscal 2022
|
13,719
|
|
Fiscal 2023
|
13,526
|
|
Fiscal 2024
|
13,424
|
|
Fiscal 2025
|
13,219
|
|
Fiscal 2026
|
13,165
|
|
Thereafter
|
48,104
|
|
Total amortization expense remaining
|
$
|
118,747
|
|
Note 7. Product Warranties
The Company provides certain service and warranty on its products. From time to time, the Company also voluntarily incurs costs for certain warranty-type expenses occurring after the normal warranty period expires to help protect the reputation of the Company's products and the goodwill of the Company's customers. Estimated costs related to product warranty are accrued at the time of sale and are based upon historical warranty and service claims experience. Adjustments are made to accruals as claim data and cost experience becomes available.
In addition to the costs associated with the contractual warranty coverage provided on products, the Company also occasionally incurs costs as a result of additional service actions not covered by warranties, including product recalls and customer satisfaction actions. Although the Company estimates and reserves for the cost of these service actions when probable and estimable, there can be no assurance that expense levels will remain at current levels or such reserves will continue to be adequate.
Changes in the product warranty liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands)
|
May 29,
2021
|
|
May 30,
2020
|
|
May 29,
2021
|
|
May 30,
2020
|
Balance at beginning of period
|
$
|
76,040
|
|
|
$
|
60,211
|
|
|
$
|
64,031
|
|
|
$
|
44,436
|
|
Business acquisition(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
15,147
|
|
Provision
|
23,056
|
|
|
13,227
|
|
|
64,986
|
|
|
44,274
|
|
Claims paid
|
(17,034)
|
|
|
(12,773)
|
|
|
(46,955)
|
|
|
(43,192)
|
|
Balance at end of period
|
$
|
82,062
|
|
|
$
|
60,665
|
|
|
$
|
82,062
|
|
|
$
|
60,665
|
|
(1) Relates to the acquisition of Newmar on November 8, 2019. See Note 2 to the Consolidated Financial Statements in Item 8 of Part II of the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020 for additional acquisition information.
Note 8. Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
May 29,
2021
|
|
August 29,
2020
|
ABL Credit Facility
|
$
|
—
|
|
|
$
|
—
|
|
Senior Secured Notes
|
300,000
|
|
|
300,000
|
|
Convertible Notes
|
300,000
|
|
|
300,000
|
|
Long-term debt, gross
|
600,000
|
|
|
600,000
|
|
Convertible Notes unamortized interest discount
|
(63,922)
|
|
|
(74,294)
|
|
Debt issuance costs, net
|
(11,628)
|
|
|
(13,076)
|
|
Long-term debt, net
|
$
|
524,450
|
|
|
$
|
512,630
|
|
Credit Agreements
On July 8, 2020, the Company closed its private offering (the “Senior Secured Notes Offering”) of $300,000 aggregate principal amount of 6.25% Senior Secured Notes due 2028 (the “Senior Secured Notes”). The Senior Secured Notes were issued in accordance with an Indenture dated as of July 8, 2020 (the “Indenture”). The Senior Secured Notes will mature on July 15, 2028 unless earlier redeemed or repurchased. Interest on the Senior Secured Notes accrues starting July 8, 2020 and is payable semi-annually in arrears on January 15 and July 15 of each year, which began on January 15, 2021. The Senior Secured Notes and the related guarantees are secured by (i) a first-priority lien on substantially all of the Company’s and the subsidiary guarantor parties' existing and future assets (other than certain collateral under the Company’s ABL facility) and (ii) a second-priority lien on the Company’s present and future receivables, inventory and other related assets and proceeds that secure the ABL facility on a first-priority basis.
The Indenture limits certain abilities of the Company and its subsidiaries (subject to certain exceptions and qualifications) to incur additional debt and provide additional guarantees; make restricted payments; create or permit certain liens; make certain asset sales; use the proceeds from the sale of assets and subsidiary stock; create or permit restrictions on the ability of the Company’s restricted subsidiaries to pay dividends or make other inter-company distributions; engage in certain transactions with affiliates; designate subsidiaries as unrestricted subsidiaries; and consolidate, merge or transfer all or substantially all of the Company’s assets and the assets of its restricted subsidiaries.
Debt issuance costs incurred and capitalized are amortized on a straight-line basis over the term of the associated debt agreement. If early principal payments are made on the Senior Secured Notes, a proportional amount of the unamortized debt issuance costs is expensed. As part of the Senior Secured Notes Offering, the Company capitalized $7,493 in debt issuance costs that will be amortized over the eight-year term of the agreement.
On November 8, 2016, the Company entered into an asset-based revolving credit agreement ("ABL") and a loan agreement ("Term Loan") with JPMorgan Chase Bank, N.A. ("JPMorgan Chase"), as administrative agent and certain lenders from time to time party thereto. The remaining principal balance of the Term Loan as of July 8, 2020 was $249,750, which was repaid with the proceeds from the Senior Secured Notes, and debt issuance costs of $4,650 were written off upon repayment. In addition, the interest rate swaps with a liability position of $600 used to hedge the Term Loan interest rates were settled early in July 2020 in conjunction with the Term Loan repayment.
Under the ABL, the Company has a $192,500 credit facility that matures on October 22, 2024 (subject to certain factors which may accelerate the maturity date) on a revolving basis, subject to availability under a borrowing base consisting of eligible accounts receivable and eligible inventory. The ABL is available for issuance of letters of credit to a specified limit of $19,250. The Company
pays a commitment fee of 0.25% on the average daily amount of the facility available, but unused. The Company can elect to base the interest rate on various rates plus specific spreads depending on the amount of borrowings outstanding. If drawn, the Company would pay interest on ABL borrowings at a floating rate based upon LIBOR plus a spread of between 1.25% and 1.75%, depending on the usage of the facility during the most recent quarter. Based on current usage, the Company would pay LIBOR plus 1.25%.
Convertible Notes
On November 1, 2019, the Company issued $300,000 in aggregate principal amount of 1.5% unsecured convertible senior notes due 2025 (“Convertible Notes”). The net proceeds from the issuance of the Convertible Notes, after deducting the initial purchasers' transaction fees and offering expense payable by the Company, were approximately $290,223. The Convertible Notes bear interest at the annual rate of 1.5%, payable on April 1 and October 1 of each year, beginning on April 1, 2020, and will mature on April 1, 2025, unless earlier converted or repurchased by the Company.
The Convertible Notes will be convertible into cash, shares of the Company's common stock or a combination thereof, at the election of the Company, at an initial conversion rate of 15.6906 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $63.73 per share, as adjusted pursuant to the terms of the indenture governing the Convertible Notes. The Convertible Notes may be converted at any time on or after October 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date.
The conversion rate of the Convertible Notes may be adjusted in certain circumstances, including in connection with a conversion of the Convertible Notes made following certain fundamental changes and under other circumstances set forth in the indenture. It is the Company's current intent to settle all conversions of the Convertible Notes through settlement of cash. The Company’s ability to cash settle may be limited depending on the stock price at the time of conversion.
Prior to the close of business on the business day immediately preceding October 1, 2024, the Convertible Notes will be convertible only under the following circumstances:
1.during any fiscal quarter commencing after December 31, 2019 if the closing sale price of the common stock is more than 130% of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
2.during the five consecutive business day period after any five consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate for the Convertible Notes on each such trading day; or
3.upon the occurrence of certain specified corporate events set forth in the indenture.
The Company may not redeem the Convertible Notes at its option prior to the maturity date, and no sinking fund is provided for the Convertible Notes.
On October 29, 2019 and October 30, 2019, in connection with the offering of the Convertible Notes, the Company entered into privately negotiated convertible note hedge transactions (collectively, the “Hedge Transactions”) that cover, subject to customary anti-dilution adjustments, the number of shares of the Company's common stock that initially underlie the Convertible Notes, and are expected generally to reduce the potential dilution and/or offset any cash payments the Company is required to make in excess of the principal amount due, as the case may be, upon conversion of the Convertible Notes in the event that the market price of the Company's common stock is greater than the strike price of the Hedge Transactions, which was initially $63.73 per share (subject to adjustment under the terms of the Hedge Transactions), corresponding to the initial conversion price of the Convertible Notes.
On October 29, 2019 and October 30, 2019, the Company also entered into privately negotiated warrant transactions (collectively, the “Warrant Transactions” and, together with the Hedge Transactions, the “Call Spread Transactions”), whereby the Company sold warrants at a higher strike price relating to the same number of shares of the Company's common stock that initially underlie the Convertible Notes, subject to customary anti-dilution adjustments. The initial strike price of the warrants is $96.20 per share (subject to adjustment under the terms of the Warrant Transactions), which is 100% above the last reported sale price of the Company's common stock on October 29, 2019. The Warrant Transactions could have a dilutive effect to the Company's shareholders to the extent that the market price per share of the Company's common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.
The Company used $28,590 of the net proceeds from the issuance of the Convertible Notes to pay the cost of the Call Spread Transactions.
The Hedge Transactions and the Warrant Transactions are separate transactions, in each case, and are not part of the terms of the Convertible Notes and will not affect any holder’s rights under the Convertible Notes. Holders of the Convertible Notes will not have any rights with respect to the Call Spread Transactions.
Accounting Treatment of the Convertible Notes and Related Hedge Transactions and Warrant Transactions
The Call Spread Transactions were classified as equity. The Company bifurcated the proceeds from the offering of the Convertible Notes between liability and equity components. On the date of issuance, the liability and equity components were calculated to be approximately $214,979 and $85,021, respectively. The initial $214,979 liability component was determined based on the fair value of similar debt instruments excluding the conversion feature assuming a hypothetical interest rate of 8%. The initial $85,021 ($64,106 net of tax) equity component represents the difference between the fair value of the initial $214,979 in debt and the $300,000 of gross proceeds. The related initial debt discount of $85,021 is being amortized over the life of the Convertible Notes as non-cash interest expense using the effective interest method.
In connection with the above-noted transactions, the Company incurred approximately $9,777 of offering-related costs. These offering fees were allocated to the liability and equity components in proportion to the allocation of proceeds and accounted for as debt and equity issuance costs, respectively. The Company allocated $7,006 of debt issuance costs to the liability component, which were capitalized as deferred financing costs within long-term debt on the Consolidated Balance Sheets. These costs are being amortized as interest expense over the term of the debt using the effective interest method. The remaining $2,771 of transaction costs allocated to the equity component were recorded as a reduction of the equity component.
Fair Value and Future Maturities
As of May 29, 2021 and August 29, 2020, the fair value of long-term debt, gross, was $729,954 and $674,709, respectively.
Aggregate contractual maturities of debt in future fiscal years are as follows:
|
|
|
|
|
|
(in thousands)
|
Amount
|
Remainder of Fiscal 2021
|
$
|
—
|
|
Fiscal 2022
|
—
|
|
Fiscal 2023
|
—
|
|
Fiscal 2024
|
—
|
|
Fiscal 2025
|
300,000
|
|
Fiscal 2026
|
—
|
|
Thereafter
|
300,000
|
|
Total Senior Secured Notes and Convertible Notes
|
$
|
600,000
|
|
Note 9. Employee and Retiree Benefits
Deferred compensation liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
May 29,
2021
|
|
August 29,
2020
|
Non-qualified deferred compensation
|
$
|
10,157
|
|
|
$
|
11,460
|
|
Supplemental executive retirement plan
|
1,601
|
|
|
1,838
|
|
Executive deferred compensation plan
|
1,004
|
|
|
710
|
|
Deferred compensation benefits
|
12,762
|
|
|
14,008
|
|
Less current portion(1)
|
2,842
|
|
|
2,878
|
|
Deferred compensation benefits, net of current portion
|
$
|
9,920
|
|
|
$
|
11,130
|
|
(1) Included in accrued compensation on the Consolidated Balance Sheets.
Note 10. Contingent Liabilities and Commitments
Repurchase Commitments
Generally, manufacturers in the same industries as the Company enter into repurchase agreements with lending institutions which have provided wholesale floorplan financing to dealers. 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 units purchased.
The Company's repurchase agreements generally provide that, in the event of default by the dealer on the agreement to pay the lending institution, the Company will repurchase the financed merchandise. The terms of these agreements, which generally can last up to 24 months, provide that the Company's liability will be the lesser of remaining principal owed by the dealer to the lending institution, or dealer invoice less periodic reductions based on the time since the date of the original invoice. The Company's liability
cannot exceed 100% of the dealer invoice. In certain instances, the Company also repurchases inventory from dealers due to state law or regulatory requirements that govern voluntary or involuntary relationship terminations. Although laws vary from state to state, some states have laws in place that require manufacturers of recreational vehicles or boats to repurchase current inventory if a dealership exits the business. The total contingent liability on all repurchase agreements of the Company was approximately $739,966 and $798,906 at May 29, 2021 and August 29, 2020, respectively.
Repurchased sales are not recorded as a revenue transaction, rather the net difference between the original repurchase price and the resale price is recorded against the loss reserve, which is a deduction from gross revenue. The Company's loss reserve for repurchase commitments contains uncertainties because the calculation requires management to make assumptions and apply judgment regarding a number of factors. The Company's risk of loss related to these repurchase commitments is significantly reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous dealers and lenders. The aggregate contingent liability related to the Company's repurchase agreements represents all financed dealer inventory at the period-end reporting date subject to a repurchase agreement, net of the greater of periodic reductions per the agreement or dealer principal payments. Based on these repurchase agreements and the Company's historical loss experience, an associated loss reserve is established which is included in accrued expenses: other on the Consolidated Balance Sheets. The Company's repurchase accrual was $989 and $980 at May 29, 2021 and August 29, 2020, respectively. Repurchase risk is affected by the credit worthiness of the Company's dealer network. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to establish the loss reserve for repurchase commitments.
There was no material activity related to repurchase agreements during the nine months ended May 29, 2021 and May 30, 2020.
Litigation
The Company is involved in various legal proceedings which are considered ordinary and routine litigation incidental to the business, some of which are covered in whole or in part by insurance. While the Company believes the ultimate disposition of litigation will not have a material adverse effect on the Company's financial position, results of operations or liquidity, the possibility exists that such litigation may have an impact on the Company's results for a particular reporting period in which litigation effects become probable and reasonably estimable. Though the Company does not believe there is a reasonable likelihood that there will be a material change related to these matters, litigation is subject to inherent uncertainties and the Company's view of these matters may change in the future.
Note 11. Revenue
All operating revenue is generated from contracts with customers. The Company's primary revenue source is generated through the sale of manufactured non-motorized towable units, motorized units and marine units to the Company's independent dealer network (the Company's customers). The following table disaggregates revenue by reportable segment and product category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands)
|
May 29,
2021
|
|
May 30,
2020
|
|
May 29,
2021
|
|
May 30,
2020
|
Net Revenues
|
|
|
|
|
|
|
|
Towable
|
|
|
|
|
|
|
|
Fifth Wheel
|
$
|
284,432
|
|
|
$
|
107,364
|
|
|
$
|
751,822
|
|
|
$
|
459,301
|
|
Travel Trailer
|
264,450
|
|
|
77,974
|
|
|
680,088
|
|
|
342,331
|
|
Other(1)
|
6,867
|
|
|
3,560
|
|
|
18,024
|
|
|
11,979
|
|
Total Towable
|
555,749
|
|
|
188,898
|
|
|
1,449,934
|
|
|
813,611
|
|
Motorhome
|
|
|
|
|
|
|
|
Class A
|
172,437
|
|
|
92,280
|
|
|
464,347
|
|
|
337,629
|
|
Class B
|
135,705
|
|
|
65,000
|
|
|
382,162
|
|
|
232,349
|
|
Class C
|
67,386
|
|
|
39,268
|
|
|
215,935
|
|
|
161,801
|
|
Other(1)
|
9,729
|
|
|
7,042
|
|
|
27,777
|
|
|
23,244
|
|
Total Motorhome
|
385,257
|
|
|
203,590
|
|
|
1,090,221
|
|
|
755,023
|
|
Corporate / All Other
|
|
|
|
|
|
|
|
Other(2)
|
19,731
|
|
|
9,970
|
|
|
53,599
|
|
|
49,092
|
|
Total Corporate / All Other
|
19,731
|
|
|
9,970
|
|
|
53,599
|
|
|
49,092
|
|
Consolidated Net Revenues
|
$
|
960,737
|
|
|
$
|
402,458
|
|
|
$
|
2,593,754
|
|
|
$
|
1,617,726
|
|
(1) Relates to parts, accessories, and services.
(2) Relates to marine units, specialty vehicle units, parts, accessories, and services.
The Company does not have material contract assets or liabilities. Allowances for uncollectible receivables are established based on historical collection trends, write-off history, consideration of current conditions and expectations for future economic conditions.
Concentration of Risk
No single dealer organization accounted for more than 10% of net revenue for the three or nine months ended May 29, 2021 or May 30, 2020.
Note 12. Stock-Based Compensation
On December 11, 2018, the Company's shareholders approved the Winnebago Industries, Inc. 2019 Omnibus Incentive Plan ("2019 Plan") as detailed in the Company's Proxy Statement for the 2018 Annual Meeting of Shareholders. The 2019 Plan allows the Company to grant or issue non-qualified stock options, incentive stock options, restricted share units, and other equity compensation to key employees and to non-employee directors. The 2019 Plan replaces the 2014 Omnibus Equity, Performance Award, and Incentive Compensation Plan (as amended, the "2014 Plan"). The number of shares of the Company's Common Stock that may be awarded and issued under the 2019 Plan is 4,100 shares, plus the shares subject to any awards outstanding under the 2014 Plan and the Company's predecessor plan, the 2004 Incentive Compensation Plan (the “2004 Plan”), on December 11, 2018 that subsequently expire, are forfeited or canceled, or are settled for cash. Until such time, awards under the 2014 Plan and the 2004 Plan, respectively, that are outstanding on December 11, 2018 will continue to be subject to the terms of the 2014 Plan or 2004 Plan, as applicable. Shares remaining available for future awards under the 2014 Plan were not carried over into the 2019 Plan.
Stock-based compensation expense was $4,738 and $(308) during the three months ended May 29, 2021 and May 30, 2020, respectively, and $11,719 and $3,332 during the nine months ended May 29, 2021 and May 30, 2020, respectively. Compensation expense is recognized over the requisite service or performance period of the award.
Note 13. Restructuring
In Fiscal 2020, the Company's Class A diesel production included in the Motorhome reportable segment was moved from Junction City, OR to Forest City, IA. In November 2020, a portion of the property in Junction City, OR was sold for net proceeds of $7,731 with a resulting gain of $3,565. In May 2021, the rest of the property in Junction City, OR was sold for net proceeds of $4,692 with a resulting gain of $1,188. The gain on both sales is included within selling, general, and administrative expenses on the Consolidated Statements of Income (Loss) for Fiscal 2021. Total restructuring expenses related to the relocation for the nine months ended May 29, 2021 were immaterial to the Consolidated Financial Statements. The Company does not expect additional restructuring charges during the remainder of Fiscal 2021.
Note 14. Income Taxes
The Company's effective tax rate was 22.8% and 25.3% for the three months ended May 29, 2021 and May 30, 2020, respectively, and 23.2% and 16.3% for the nine months ended May 29, 2021 and May 30, 2020, respectively. The decrease in tax rate for the three months ended May 29, 2021 compared to the three months ended May 30, 2020 was primarily due to a favorable tax adjustment in the third quarter of Fiscal 2020 driven by a change in projected annual performance over a pretax loss resulting in a higher calculated effective tax rate. The increase in tax rate for the nine months ended May 29, 2021 compared to the nine months ended May 30, 2020 was driven primarily by the impact of consistent tax credits year-over-year over an increased year to date pretax income in the current year.
The Company files a U.S. Federal tax return, as well as returns in various international and state jurisdictions. As of May 29, 2021, the Company's Federal returns from Fiscal 2017 to present are subject to review by the Internal Revenue Service. With limited exceptions, state returns from Fiscal 2016 to present continue to be subject to review by state taxing jurisdictions. The Company is currently under review by certain U.S. state tax authorities for Fiscal 2016 through Fiscal 2019. The Company believes it has adequately reserved for its exposure to potential additional payments for uncertain tax positions in its liability for unrecognized tax benefits.
Note 15. Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands, except per share data)
|
May 29,
2021
|
|
May 30,
2020
|
|
May 29,
2021
|
|
May 30,
2020
|
Net income (loss)
|
$
|
71,295
|
|
|
$
|
(12,353)
|
|
|
$
|
197,786
|
|
|
$
|
18,983
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
33,552
|
|
|
33,625
|
|
|
33,565
|
|
|
33,102
|
|
Dilutive impact of stock compensation awards
|
384
|
|
|
—
|
|
|
302
|
|
|
187
|
|
Dilutive impact of convertible notes
|
836
|
|
|
—
|
|
|
76
|
|
|
—
|
|
Weighted average diluted common shares outstanding
|
34,772
|
|
|
33,625
|
|
|
33,943
|
|
|
33,289
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities excluded from weighted average diluted common shares outstanding
|
1
|
|
|
123
|
|
|
46
|
|
|
104
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
$
|
2.12
|
|
|
$
|
(0.37)
|
|
|
$
|
5.89
|
|
|
$
|
0.57
|
|
Diluted earnings (loss) per common share
|
$
|
2.05
|
|
|
$
|
(0.37)
|
|
|
$
|
5.83
|
|
|
$
|
0.57
|
|
Under the treasury stock method, shares associated with certain anti-dilutive securities have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead to a net reduction in common shares outstanding or anti-dilution.
Note 16. Accumulated Other Comprehensive Income (Loss)
Changes in Accumulated Other Comprehensive Income ("AOCI") by component, net of tax, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
May 29, 2021
|
|
May 30, 2020
|
(in thousands)
|
Defined Benefit Pension Items
|
|
Total
|
|
Defined Benefit Pension Items
|
|
Interest Rate Swap
|
|
Total
|
Balance at beginning of period
|
$
|
(509)
|
|
|
$
|
(509)
|
|
|
$
|
(543)
|
|
|
$
|
—
|
|
|
$
|
(543)
|
|
Other comprehensive income (loss) ("OCI") before reclassifications
|
—
|
|
|
—
|
|
|
—
|
|
|
(432)
|
|
|
(432)
|
|
Amounts reclassified from AOCI
|
9
|
|
|
9
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Net current-period OCI
|
9
|
|
|
9
|
|
|
8
|
|
|
(432)
|
|
|
(424)
|
|
Balance at end of period
|
$
|
(500)
|
|
|
$
|
(500)
|
|
|
$
|
(535)
|
|
|
$
|
(432)
|
|
|
$
|
(967)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
May 29, 2021
|
|
May 30, 2020
|
(in thousands)
|
Defined Benefit Pension Items
|
|
Total
|
|
Defined Benefit Pension Items
|
|
Interest Rate Swap
|
|
Total
|
Balance at beginning of period
|
$
|
(526)
|
|
|
$
|
(526)
|
|
|
$
|
(559)
|
|
|
$
|
68
|
|
|
$
|
(491)
|
|
OCI before reclassifications
|
—
|
|
|
—
|
|
|
—
|
|
|
(500)
|
|
|
(500)
|
|
Amounts reclassified from AOCI
|
26
|
|
|
26
|
|
|
24
|
|
|
—
|
|
|
24
|
|
Net current-period OCI
|
26
|
|
|
26
|
|
|
24
|
|
|
(500)
|
|
|
(476)
|
|
Balance at end of period
|
$
|
(500)
|
|
|
$
|
(500)
|
|
|
$
|
(535)
|
|
|
$
|
(432)
|
|
|
$
|
(967)
|
|
Reclassifications out of AOCI, net of tax, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands)
|
Location on Consolidated Statements
of Income and Comprehensive Income
|
May 29,
2021
|
|
May 30,
2020
|
|
May 29,
2021
|
|
May 30,
2020
|
Amortization of net actuarial loss
|
SG&A
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
26
|
|
|
$
|
24
|
|