Notes to Consolidated Financial Statements
(All amounts are in thousands, except share and per share data, unless otherwise designated)
Note 1. Basis of Presentation
Nature of Operations
Winnebago Industries, Inc. is one of the leading North American manufacturers of recreation vehicles ("RV"s) and marine products with a diversified portfolio used primarily in leisure travel and outdoor recreational 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. Other products manufactured by the Company consist primarily of original equipment manufacturing parts for other manufacturers and commercial vehicles.
Consolidation
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," "the Company," "we," "our," and "us" in this Annual Report on Form 10-K, unless the context otherwise requires, refer to Winnebago Industries, Inc. and its wholly-owned subsidiaries.
Fiscal Period
We have a 5-4-4 quarterly accounting cycle with the fiscal year ending on the last Saturday in August. Fiscal 2021 is a 52-week year, Fiscal 2020 was a 52-week year, and 2019 was a 53-week year. The extra (53rd) week in Fiscal 2019 was recognized in our fourth quarter.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting years. Actual results could differ from those estimates.
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.
Receivables
Receivables consist principally of amounts due from our dealer network for RVs and boats sold.
We record an allowance using a model to reduce receivables by the expected credit loss and consider factors such as financial condition of the dealer, specific collection issues and current economic conditions. If there is a deterioration of a dealer's financial condition, if we become aware of additional information related to credit worthiness or if future actual default rates on receivables differ from those currently anticipated, we may adjust the allowance for doubtful accounts, which would affect earnings in the period the adjustments are made.
Inventories
Generally, inventories are stated at the lower of cost or net realizable value determined under the First-in, First-out basis ("FIFO"), except for the Company's Winnebago Motorhome operating segment which is determined using the Last-in, First-out ("LIFO") basis. Manufacturing cost includes materials, labor, and overhead. Unallocated overhead and abnormal costs are expensed as incurred.
Property and Equipment
Depreciation of property and equipment is computed using the straight-line method on the cost of the assets, less allowance for salvage value where appropriate, at rates based upon their estimated service lives as follows:
|
|
|
|
|
|
Asset Class
|
Asset Life
|
Buildings
|
20-40 years
|
Machinery and equipment
|
3-10 years
|
Software
|
5-10 years
|
Transportation equipment
|
3-6 years
|
Goodwill and Indefinite-Lived Intangible Assets
Goodwill
Goodwill is tested for impairment at least annually, during the fourth quarter and whenever events occur or circumstances change that would indicate the carrying value may not be recoverable. Impairment testing for goodwill is performed at a reporting unit level and all goodwill is assigned to a reporting unit. Our reporting units are the same as the operating segments as defined in Note 3.
We have the option to first assess qualitative factors to determine whether the fair value of a reporting unit is “more likely than not” less than its carrying value. If it is more likely than not that an impairment has occurred, we then perform the quantitative goodwill impairment test. If we perform the quantitative test, the carrying value of the reporting unit is compared to an estimate of the reporting unit’s fair value to identify impairment. The estimate of the reporting unit’s fair value is determined by an income approach weighting a discounted cash flow model and a market approach using current industry information that involve significant unobservable inputs (Level 3 inputs). In determining the estimated future cash flow, we consider and apply certain estimates and judgments, including current and projected future levels of income based on management plans, business trends, prospects, market and economic conditions, and market-participant considerations. If the quantitative assessment of goodwill impairment fails, an impairment loss equal to the amount that a reporting unit's carrying value exceeds its fair value will be recognized.
During the fourth quarter of Fiscal 2021, we completed the annual impairment analysis. We elected to rely on a qualitative assessment for the Grand Design reporting unit and performed a quantitative analysis for the Chris-Craft and Newmar reporting units resulting in the fair value exceeding the carrying value. No impairment was indicated for the years ended August 28, 2021. August 29, 2020, or August 31, 2019.
Trade names
We have indefinite-lived intangible assets for trade names related to Newmar within the Motorhome segment, Grand Design within the Towable segment, and Chris-Craft within the Corporate / All Other category. Annually in the fourth quarter, or if conditions indicate an interim review is necessary, we assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. We utilized the relief from the royalty method, which required significant judgment, if a quantitative analysis is required to determine the fair value of the trade name. Actual results may differ from assumed and estimated amounts utilized in the analysis. If we conclude an impairment exists, the asset's carrying value will be written down to its fair value.
During the fourth quarter of Fiscal 2021, we completed the annual impairment analysis. No impairment was indicated for the years ended August 28, 2021. August 29, 2020, or August 31, 2019.
Long-Lived Assets
Long-lived assets, which include property, plant and equipment, definite-lived intangible assets subject to amortization, primarily the dealer network, and right-of-use assets are assessed for impairment whenever events or changes in circumstances such as asset utilization, physical change, legal factors or other matters indicate the carrying value of those assets may not be recoverable from future undiscounted cash flows. The impairment test involves comparing the carrying amount of the asset to the forecasted undiscounted future cash flows generated by that asset. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. In the event the carrying amount of the asset exceeds the undiscounted future cash flows generated by that asset and the carrying amount is not considered recoverable, an impairment exists. An impairment loss is measured as the excess of the asset’s carrying amount over its fair value and is recognized in the statement of income in the period that the impairment occurs. The reasonableness of the useful lives of the asset and other long-lived assets is regularly evaluated.
No impairment loss of any long-lived asset was identified for the years ended August 28, 2021, August 29, 2020, or August 31, 2019.
Self-Insurance
Generally, we self-insure a portion of product liability claims, workers' compensation, and health insurance. Under these plans, liabilities are recognized for claims incurred, including those incurred but not reported. We use third party administrators and actuaries who use historical claims experience and various state statutes to assist in the determination of the accrued liability balance. We have a $50.0 million insurance policy that includes a self-insured retention for product liability of $1.0 million per occurrence and $2.0 million in aggregate per policy year. Our self-insured health insurance policy includes an individual retention of $0.3 million per occurrence and an aggregate retention of 125% of expected annual claims. We maintain excess liability insurance with outside insurance carriers to minimize the risks related to catastrophic claims in excess of self-insured positions for product liability, health insurance, and personal injury matters. Any material change in the aforementioned factors could have an adverse impact on operating results. Balances are included within self-insurance (accrued expenses) on our Consolidated Balance Sheets.
Income Taxes
In preparing these financial statements, we are required to estimate the income taxes in each of the jurisdictions in which we operate. This process involves estimating the current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included on the Consolidated Balance Sheets. We then assess the likelihood that the deferred tax assets will be realized based on future taxable income and, to the extent that recovery is not likely, a valuation allowance is established. To the extent we establish a valuation allowance or change this allowance in a period, an expense or a benefit is included within the tax provision on the Consolidated Statements of Income and Comprehensive Income.
Legal
Litigation expense, including estimated defense costs, is recorded when probable and reasonably estimable.
Revenue Recognition
Our primary source of revenue is generated through the sale of non-motorized towable units, motorized units, and marine units to our independent dealer network (customers). Unit revenue is recognized at a point-in-time when the performance obligation is satisfied and control of the promised goods or services is transferred to the customer, which generally occurs when the unit is shipped to or picked-up from the manufacturing facilities by the customer. Control refers to the ability of the customer to direct the use of, and obtain substantially all of, the remaining benefits from the goods or services. We recognize revenue based on an amount that reflects the transaction price consideration that we expect to receive in exchange for those goods or services. Our transaction price consideration is fixed, unless otherwise disclosed as variable consideration. The amount of consideration received and recorded to revenue can vary with changes in marketing incentives and discounts offered to customers. These marketing incentives and discounts are considered variable consideration. We adjust the estimate of revenue at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. Our payment terms are typically before or on delivery, and do not include a significant financing component.
Net revenue includes shipping and handling charges billed directly to customers, and we also generate income through the sale of certain parts and services, acting as the principal in these arrangements. We have made an accounting policy election to account for any shipping and handling costs that occur after the transfer of control as a fulfillment cost that is accrued when control is transferred. We also have made an accounting policy election to exclude from revenue sales and usage-based taxes collected.
Our contracts include some incidental items that are immaterial in the context of the contract. We have made an accounting policy election to not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. Warranty obligations associated with the sale of a unit are assurance-type warranties that are a guarantee of the unit’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract. Contract costs incurred related to the sale of manufactured units are expensed at the point-in-time when the related revenue is recognized.
The revenue standard requirements are applied to a portfolio of contracts (or performance obligations) with similar characteristics for transactions where it is expected that the effects on the financial statements of applying the revenue recognition guidance to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio.
Refer to Note 13 for additional information.
Advertising
Advertising costs, which consist primarily of literature and trade shows, were $11,634, $12,540, and $8,284 in Fiscal 2021, 2020, and 2019, respectively. Advertising costs are included in selling, general, and administrative expenses and are expensed as incurred on the Consolidated Statements of Income and Comprehensive Income.
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. We are taking advantage of the employer payroll tax deferral offered by the CARES Act, which allows us 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 was $16,223 and $7,828 as of August 28, 2021 and August 29, 2020, respectively, and will be payable in equal installments in December 2021 and December 2022. We 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 our third quarter of Fiscal 2020, and the balance as of August 29, 2020, reflected in cost of goods sold on the Consolidated Statements of Income and Comprehensive Income was approximately $3,999. The entire amount is expected to be received by the end of calendar year 2021. As of August 28, 2021, $3,202 remains outstanding within other current assets on the Consolidated Balance Sheets.
Subsequent Events
We have evaluated events occurring between the end of the most recent fiscal year and the date the financial statements were issued. There were no material subsequent events except as disclosed in Note 14 and below:
On August 31, 2021, we completed our acquisition of all the equity interests of Barletta, a manufacturer of high-quality, premium pontoon boats. We acquired Barletta for a fixed purchase price of $255.0 million, subject to working capital and other adjustments, and contingent consideration subject to earnout provisions. The purchase price included an upfront payment at closing of $255.0 million funded with $230.0 million of cash on hand and $25.0 million in common stock issued to the sellers. The contingent consideration includes both a potential stock payout as well as potential cash payment based on achievement of certain financial performance metrics over the next few years. The maximum payout under the earnout is $50.0 million in cash and $15.0 million in common stock if all metrics are achieved. The final amount of shares to be issued for both the fixed purchase price and contingent consideration is subject to a weighted average share price calculation.
The acquisition of Barletta will result in a newly created Marine reportable segment beginning in the first quarter of our Fiscal 2022 that will include Barletta and the existing Chris-Craft operating segment.
On October 13, 2021, our Board of Directors authorized a new share repurchase program in the amount of $200.0 million with no time restriction on the authorization, which took effect immediately and replaced the prior program.
Recently Adopted Accounting Pronouncements
Accounting Standards Codification ("ASC") Topic 326, Financial Instruments—Credit Losses, was adopted in the first quarter of Fiscal 2021. The new standard 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. We 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 our opening retained earnings as of August 30, 2020. As a result, we did not adjust comparative period financial information for periods before the effective date. No incremental allowance for credit losses has been recognized in Fiscal 2021 as a result of the adoption. The adoption of this standard did not have a material impact on our 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 our Fiscal 2023. Early adoption is permitted using either a modified retrospective or full retrospective approach. We expect to adopt the new guidance in the first quarter of Fiscal 2023 and have not yet evaluated the impact the adoption of this guidance will have on our 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. We will adopt this standard when LIBOR is discontinued and do not expect a material impact to our 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 our Fiscal 2022, including interim periods within those annual reporting periods. We expect to adopt the new guidance in the first quarter of Fiscal 2022. We have evaluated the standard and there will not be a material impact to our financial condition, results of operations or disclosures.
Note 2. Business Combinations
Newmar Corporation
On November 8, 2019, pursuant to the terms of the Stock Purchase Agreement dated September 15, 2019 (the "Purchase Agreement"), Winnebago completed the acquisition of 100% of Newmar Corporation, Dutch Real Estate Corp., New-Way Transport, and New-Serv (collectively “Newmar”). 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.
The following table summarizes the total consideration paid for Newmar, which was subject to purchase price adjustments as stipulated in the Purchase Agreement:
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|
|
|
|
|
(in thousands, except for share data)
|
November 8, 2019
|
Cash
|
$
|
264,434
|
|
Winnebago Industries shares: 2,000,000 at $46.29
|
92,572
|
|
Total
|
$
|
357,006
|
|
The cash portion of the purchase price of the acquisition and certain transaction expenses were funded through the private placement of convertible senior notes (as further described in Note 9) and cash on hand. The stock consideration was discounted by 7.0% due to lack of marketability because of the one-year lock-up restrictions.
The total purchase price was allocated to the net tangible and intangible assets of Newmar acquired, based on their fair values at the date of the acquisition. We believe that the information provides a reasonable basis for estimating the fair values. During the third quarter of Fiscal 2020, we finalized the valuation and completed the purchase price allocation, which included purchase price adjustments of $3,316.
The following table summarizes the final fair values assigned to the Newmar net assets acquired and the determination of net assets:
|
|
|
|
|
|
|
November 8, 2019
|
Cash
|
$
|
3,469
|
|
Accounts receivable
|
37,147
|
|
Inventories
|
82,621
|
|
Prepaid expenses and other assets
|
9,830
|
|
Property, plant, and equipment
|
31,143
|
|
Goodwill
|
73,127
|
|
Other intangible assets
|
172,100
|
|
Total assets acquired
|
409,437
|
|
Accounts payable
|
14,023
|
|
Accrued compensation
|
4,306
|
|
Product warranties
|
15,147
|
|
Promotional
|
6,351
|
|
Other
|
11,636
|
|
Deferred tax liabilities
|
968
|
|
Total liabilities assumed
|
52,431
|
|
Total purchase price
|
$
|
357,006
|
|
The goodwill, recognized in our Motorhome segment, is primarily attributable to the value of the workforce, reputation of founders, customer and dealer growth opportunities, and expected synergies. Key areas of cost synergies include increased purchasing power for raw materials and supply chain consolidation. The full amount of goodwill is deductible for tax purposes.
The following table summarizes the other intangible assets acquired:
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|
|
|
|
|
|
|
|
|
|
|
|
November 8, 2019
|
|
Useful Life-Years
|
Trade name
|
$
|
98,000
|
|
|
Indefinite
|
Dealer network
|
64,000
|
|
|
12.0
|
Backlog
|
8,800
|
|
|
0.5
|
Non-compete agreements
|
1,300
|
|
|
5.0
|
The fair value of the trade name and dealer network were estimated using an income approach. Under the income approach, an intangible asset's fair value is equal to the present value of the future economic benefits to be derived from ownership of the asset,using the relief from royalty method. The relief from royalty method is based on the hypothetical royalty stream that would be received if we were to license the trade name and was based on expected revenues. The fair value of the dealer network was estimated using the cost to recreate/cost saving method. This method uses the replacement of the asset as an indicator of the fair value of the asset. The useful lives of the intangibles were determined considering the expected cash flows used to measure the fair value of the intangible assets adjusted for the entity-specific factors including legal, regulatory, contractual, competitive, economic or other factors that may limit the useful life of intangible assets. On the acquisition date, amortizable intangible assets had a weighted-average useful life of approximately 10.5 years.
The results of Newmar's operations have been included in our Consolidated Financial Statements from the close of the acquisition within the Motorhome segment. The following table provides net revenues and operating income from the Newmar operating segment included in our consolidated results following the November 8, 2019 closing date:
|
|
|
|
|
|
|
2020
|
Net revenues
|
$
|
388,383
|
|
Net income (loss)
|
(3,642)
|
|
The following unaudited pro forma information represents our results of operations as if the Fiscal 2020 acquisition of Newmar had occurred at the beginning of Fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Net revenues
|
$
|
2,508,792
|
|
|
$
|
2,645,914
|
|
Net income
|
72,609
|
|
|
101,692
|
|
Earnings per share - basic
|
$
|
2.16
|
|
|
$
|
3.03
|
|
Earnings per share - diluted
|
$
|
2.11
|
|
|
$
|
3.02
|
|
The unaudited pro forma data above includes the following significant non-recurring adjustments made to account for certain costs which would have changed if the acquisition of Newmar had occurred at the beginning of Fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Amortization of intangibles (1 year or less useful life)(1)
|
$
|
13,610
|
|
|
$
|
(13,610)
|
|
Increase in amortization of intangible assets(2)
|
(1,061)
|
|
|
(5,578)
|
|
Expenses related to business combination (transaction costs)(3)
|
9,761
|
|
|
(9,950)
|
|
Interest to reflect new debt structure(4)
|
(4,356)
|
|
|
(19,155)
|
|
Taxes related to the adjustments to the pro forma data and to the net income of Newmar(5)
|
(2,968)
|
|
|
2,686
|
|
(1) Includes amortization adjustments for the backlog intangible asset and the fair-value inventory adjustment.
(2) Includes amortization adjustments for the dealer network and non-compete intangible assets.
(3) Pro forma transaction costs include $652 incurred prior to the acquisition.
(4) Includes adjustments for cash and non-cash interest expense as well as deferred financing costs. Refer to Note 9 for additional information on our new debt structure as a result of the acquisition.
(5) Calculated using our U.S. federal statutory rate of 21.0%.
The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transaction actually taken place at the beginning of Fiscal 2019, and the unaudited pro forma information does not purport to be indicative of future financial operating results. The unaudited pro forma condensed consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisition.
Total transaction costs related to the Newmar acquisition were $10,413, of which $9,761 were expensed during Fiscal 2020 and $652 were expensed during the fourth quarter of Fiscal 2019. There were no transaction costs related to the acquisition of Newmar that were incurred during Fiscal 2021. Transaction costs are included in Selling, general, and administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income.
Note 3. Business Segments
We have identified 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.
Our 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. Our 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. The accounting policies of both reportable segments are the same as those described in Note 1.
We monitor and evaluate operating performance of our reportable segments based on Adjusted EBITDA. We believe disclosing Adjusted EBITDA is useful to securities analysts, investors and other interested parties when evaluating companies in our industries. 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 period over 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, plant and equipment, and non-operating income.
Financial information by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
Net Revenues
|
|
|
|
|
|
Towable
|
$
|
2,009,959
|
|
|
$
|
1,227,567
|
|
|
$
|
1,197,327
|
|
Motorhome
|
1,539,084
|
|
|
1,056,794
|
|
|
706,927
|
|
Corporate / All Other
|
80,804
|
|
|
71,172
|
|
|
81,420
|
|
Consolidated
|
$
|
3,629,847
|
|
|
$
|
2,355,533
|
|
|
$
|
1,985,674
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
Towable
|
$
|
289,007
|
|
|
$
|
148,276
|
|
|
$
|
163,677
|
|
Motorhome
|
169,205
|
|
|
32,949
|
|
|
27,455
|
|
Corporate / All Other
|
(22,145)
|
|
|
(13,150)
|
|
|
(11,480)
|
|
Consolidated
|
$
|
436,067
|
|
|
$
|
168,075
|
|
|
$
|
179,652
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
Towable
|
$
|
25,121
|
|
|
$
|
13,389
|
|
|
$
|
27,679
|
|
Motorhome
|
17,604
|
|
|
15,061
|
|
|
9,969
|
|
Corporate / All Other
|
2,166
|
|
|
3,927
|
|
|
3,210
|
|
Consolidated
|
$
|
44,891
|
|
|
$
|
32,377
|
|
|
$
|
40,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 2021
|
|
August 29, 2020
|
Total Assets
|
|
|
|
Towable
|
$
|
790,257
|
|
|
$
|
718,253
|
|
Motorhome
|
728,060
|
|
|
600,304
|
|
Corporate / All Other
|
544,250
|
|
|
395,143
|
|
Consolidated
|
$
|
2,062,567
|
|
|
$
|
1,713,700
|
|
Reconciliation of net income to consolidated Adjusted EBITDA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
Net income
|
$
|
281,871
|
|
|
$
|
61,442
|
|
|
$
|
111,798
|
|
Interest expense
|
40,365
|
|
|
37,461
|
|
|
17,939
|
|
Provision for income taxes
|
85,579
|
|
|
15,834
|
|
|
27,111
|
|
Depreciation
|
18,201
|
|
|
15,997
|
|
|
13,682
|
|
Amortization
|
14,361
|
|
|
22,104
|
|
|
9,635
|
|
EBITDA
|
440,377
|
|
|
152,838
|
|
|
180,165
|
|
Acquisition-related fair-value inventory step-up
|
—
|
|
|
4,810
|
|
|
—
|
|
Acquisition-related costs
|
725
|
|
|
9,761
|
|
|
—
|
|
Restructuring(1)
|
112
|
|
|
1,640
|
|
|
1,068
|
|
Gain on sale of property, plant and equipment
|
(4,753)
|
|
|
—
|
|
|
—
|
|
Non-operating income
|
(394)
|
|
|
(974)
|
|
|
(1,581)
|
|
Adjusted EBITDA
|
$
|
436,067
|
|
|
$
|
168,075
|
|
|
$
|
179,652
|
|
(1) Balance excludes depreciation expense classified as restructuring as the balance is already included in the EBITDA calculation.
Net revenues by geography are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
United States
|
$
|
3,410,588
|
|
|
$
|
2,225,028
|
|
|
$
|
1,836,472
|
|
International
|
219,259
|
|
|
130,505
|
|
|
149,202
|
|
Net revenues
|
$
|
3,629,847
|
|
|
$
|
2,355,533
|
|
|
$
|
1,985,674
|
|
Note 4. Derivatives, Investments, and Fair Value Measurements
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
In determining the fair value of financial assets and liabilities, we utilize market data or other assumptions that we believe 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Fair Value Hierarchy
|
|
August 28, 2021
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets that fund deferred compensation:
|
|
|
|
|
|
|
|
Domestic equity funds
|
$
|
940
|
|
|
$
|
940
|
|
|
$
|
—
|
|
|
$
|
—
|
|
International equity funds
|
41
|
|
|
41
|
|
|
—
|
|
|
—
|
|
Fixed income funds
|
46
|
|
|
46
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
$
|
1,027
|
|
|
$
|
1,027
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Fair Value Hierarchy
|
|
August 29, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets that fund deferred compensation:
|
|
|
|
|
|
|
|
Domestic equity funds
|
$
|
626
|
|
|
$
|
626
|
|
|
$
|
—
|
|
|
$
|
—
|
|
International equity funds
|
34
|
|
|
34
|
|
|
—
|
|
|
—
|
|
Fixed income funds
|
50
|
|
|
50
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
$
|
710
|
|
|
$
|
710
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Assets that Fund Deferred Compensation
Our assets that fund deferred compensation are marketable equity securities measured at fair value using quoted market prices and primarily consist of equity-based mutual funds. 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 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 are included in other long-term assets on the Consolidated Balance Sheets.
Interest Rate Swap Contract
On March 6, 2020, we entered into an interest rate swap agreement for an incremental notional amount of $25.0 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings. The interest rate swap had a fair value of zero at inception, was effective March 10, 2020 and had been designated as a cash flow hedge. The interest rate swap agreement, with a maturity date of March 4, 2025, converted our interest rate payments on $25.0 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate of 1.265%. In the fourth quarter of Fiscal 2020, we exited the swap contract prior to its expiration on March 4, 2025.
On March 2, 2020, we entered into an interest rate swap agreement for an incremental notional amount of $25.0 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings. The interest rate swap had a fair value of zero at inception, was effective March 4, 2020 and had been designated as a cash flow hedge. The interest rate swap agreement, with a
maturity date of March 4, 2025, converted our interest rate payments on $25.0 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate of 1.364%. In the fourth quarter of Fiscal 2020, we exited the swap contract prior to its expiration on March 4, 2025.
On January 23, 2017, we entered into an interest rate swap contract, which effectively fixed the interest rate on the $300.0 million loan agreement ("Term Loan") for a notional amount that reduced each December during the swap contract. In July 2020, the remaining payments of the Term Loan were paid in full using the proceeds from our Senior Secured Notes offering. In the first quarter of Fiscal 2020, we exited the swap contract prior to its expiration on December 8, 2020.
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, we will evaluate the non-financial asset for impairment. If an impairment has occurred, the asset will be written down to its current estimated fair value. No impairments were recorded for non-financial assets in Fiscal 2021, 2020, and 2019.
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 9 for information about the fair value of our long-term debt.
Note 5. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 2021
|
|
August 29, 2020
|
Finished goods
|
$
|
12,243
|
|
|
$
|
17,141
|
|
Work-in-process ("WIP")
|
184,611
|
|
|
86,651
|
|
Raw materials
|
183,583
|
|
|
114,982
|
|
Total
|
380,437
|
|
|
218,774
|
|
Less: Excess of FIFO over LIFO cost
|
38,964
|
|
|
35,833
|
|
Inventories, net
|
$
|
341,473
|
|
|
$
|
182,941
|
|
Inventory valuation methods consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 2021
|
|
August 29, 2020
|
LIFO basis
|
$
|
139,544
|
|
|
$
|
88,675
|
|
First-in, first-out basis
|
240,893
|
|
|
130,099
|
|
Total
|
$
|
380,437
|
|
|
$
|
218,774
|
|
The above value of inventories, before reduction for the LIFO reserve, approximates replacement cost at the respective dates.
In Fiscal 2020, a reduction of inventory quantities resulted in a liquidation of LIFO inventory layers (a "LIFO decrement"). A LIFO decrement results in the erosion of layers created in earlier years, and, therefore, a LIFO layer is not created for years that have decrements. We had a decrement of our LIFO inventory layers of $5,188 in Fiscal 2020. We did not have a decrement of our LIFO inventory layers in Fiscal 2021.
Note 6. Property, Plant, and Equipment
Property, plant, and equipment is stated at cost, net of accumulated depreciation and consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 2021
|
|
August 29, 2020
|
Land
|
$
|
9,111
|
|
|
$
|
11,101
|
|
Buildings and building improvements
|
147,629
|
|
|
144,565
|
|
Machinery and equipment
|
121,911
|
|
|
117,370
|
|
Software
|
36,815
|
|
|
28,456
|
|
Transportation
|
5,335
|
|
|
4,913
|
|
Construction in progress
|
31,137
|
|
|
20,778
|
|
Property, plant, and equipment, gross
|
351,938
|
|
|
327,183
|
|
Less: Accumulated depreciation
|
160,511
|
|
|
152,238
|
|
Property, plant, and equipment, net
|
$
|
191,427
|
|
|
$
|
174,945
|
|
Depreciation expense charged to operations was $18,201, $15,997, and $13,682 for Fiscal 2021, 2020, and 2019, respectively.
Note 7. Goodwill and Intangible Assets
The changes in carrying value of goodwill by reportable segment, with no accumulated impairment losses, for Fiscal 2021, 2020, and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towable
|
|
Motorhome
|
|
Corporate / All Other
|
|
Total
|
Balance, August 25, 2018
|
$
|
244,684
|
|
|
$
|
—
|
|
|
$
|
29,686
|
|
|
$
|
274,370
|
|
Chris-Craft purchase price adjustment
|
—
|
|
|
—
|
|
|
561
|
|
|
561
|
|
Balance, August 31, 2019
|
$
|
244,684
|
|
|
$
|
—
|
|
|
$
|
30,247
|
|
|
$
|
274,931
|
|
Acquisition of Newmar(1)
|
—
|
|
|
73,127
|
|
|
—
|
|
|
73,127
|
|
Balance, August 29, 2020 and August 28, 2021
|
$
|
244,684
|
|
|
$
|
73,127
|
|
|
$
|
30,247
|
|
|
$
|
348,058
|
|
(1) Refer to Note 2 for additional information on the acquisition of Newmar.
The valuation used to test goodwill for impairment is dependent upon a number of significant estimates and assumptions, including macroeconomic conditions, growth rates, competitive activities, cost containment, margin expansion and our business plans. We believe these estimates and assumptions are reasonable. However, future changes in the judgments, assumptions and estimates that are used in our goodwill impairment analysis, including discount and tax rates or future cash flow projections, could result in significantly different estimates of the fair values.
We have no accumulated impairment losses as of August 28, 2021. While the Chris-Craft reporting unit's fair value exceeded its respective carrying value, the fair value cushion was not substantial and could be impacted if projected operating results are not met or other significant assumptions referenced above change.
Other intangible assets, net of accumulated amortization, consist of the following
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 2021
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Trade names
|
$
|
275,250
|
|
|
|
275,250
|
|
Dealer networks
|
159,581
|
|
$
|
45,652
|
|
$
|
113,929
|
|
Backlog
|
28,327
|
|
28,327
|
|
—
|
|
Non-compete agreements
|
6,647
|
|
5,419
|
|
1,228
|
|
Other intangible assets
|
469,805
|
|
79,398
|
|
390,407
|
|
|
|
|
|
|
|
|
August 29, 2020
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Trade names
|
$
|
275,250
|
|
|
|
$
|
275,250
|
|
Dealer networks
|
159,581
|
|
$
|
32,487
|
|
127,094
|
|
Backlog
|
28,327
|
|
28,327
|
|
—
|
|
Non-compete agreements
|
6,647
|
|
4,223
|
|
2,424
|
|
Other intangible assets
|
469,805
|
|
65,037
|
|
404,768
|
|
The weighted average remaining amortization period for finite-lived intangible assets as of August 28, 2021 was approximately nine years.
Estimated future amortization expense related to finite-lived intangible assets is as follows:
|
|
|
|
|
|
|
Amortization
|
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
|
$
|
115,157
|
|
Note 8. Product Warranties
We provide certain service and warranty on our products. From time to time, we also voluntarily incur costs for certain warranty-type expenses occurring after the normal warranty period expires to help protect the reputation of our products and maintain the goodwill of our 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, we also occasionally incur costs as a result of additional service actions not covered by warranties, including product recalls and customer satisfaction actions. Although we estimate and reserve 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
Balance at beginning of year
|
$
|
64,031
|
|
|
$
|
44,436
|
|
|
$
|
40,498
|
|
Business acquisitions(1)
|
—
|
|
|
15,147
|
|
|
—
|
|
Provision
|
89,951
|
|
|
61,898
|
|
|
45,902
|
|
Claims paid
|
(62,760)
|
|
|
(57,450)
|
|
|
(41,964)
|
|
Balance at end of year
|
$
|
91,222
|
|
|
$
|
64,031
|
|
|
$
|
44,436
|
|
(1) Refer to Note 2 for additional information on the acquisition of Newmar.
Note 9. Long-Term Debt
On July 8, 2020, we closed our private offering (the “Senior Secured Notes Offering”) of $300.0 million 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 our existing and future assets (other than certain collateral under our ABL facility) and (ii) a second-priority lien on our 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 of our abilities (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 our 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 our assets and the assets of our 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, we capitalized $7,493 in debt issuance costs that will be amortized over the eight-year term of the agreement.
On November 8, 2016, we entered into an asset-based revolving credit agreement ("ABL Credit Facility") 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, we have a $192.5 million 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 $19.3 million. We pay a commitment fee of 0.25% on the average daily amount of the facility available, but unused. We can elect to base the interest rate on various rates plus specific spreads depending on the borrowing amount outstanding. If drawn, we 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, we would pay LIBOR plus 1.25%.
Convertible Notes
On November 1, 2019, we issued $300.0 million 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 us, 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 us.
The Convertible Notes will be convertible into cash, shares of our common stock or a combination thereof, at our election, at an initial conversion rate of 15.6906 shares of common stock per $1 thousand 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
our current intent to settle all conversions of the Convertible Notes through settlement of cash. Our ability to cash settle may be limited depending on our 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 calendar 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 thousand 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 Convertible Notes Indenture.
We may not redeem the Convertible Notes at our 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, we 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 our common stock that initially underlie the Convertible Notes, and are expected generally to reduce the potential dilution and/or offset any cash payments we are 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 our 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, we also entered into privately negotiated warrant transactions (collectively, the “Warrant Transactions” and, together with the Hedge Transactions, the “Call Spread Transactions”), whereby we sold warrants at a higher strike price relating to the same number of shares of our 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 our common stock on October 29, 2019. The Warrant Transactions could have a dilutive effect to our shareholders to the extent that the market price per share of our common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.
We 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. We 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 8.0%. 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 $300.0 million 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, we 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. We allocated $7,006 of debt issuance costs to the liability component, which were capitalized as deferred financing costs within long-term debt, net 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.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 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
|
(60,366)
|
|
|
(74,294)
|
|
Debt issuance cost, net
|
(11,075)
|
|
|
(13,076)
|
|
Long-term debt, net
|
528,559
|
|
|
512,630
|
|
As of August 28, 2021 and August 29, 2020, the fair value of long-term debt, gross, was $726,606 and $674,709, respectively. We are in compliance with all of our debt covenants as of August 28, 2021.
Aggregate contractual maturities of debt in future fiscal years are as follows:
|
|
|
|
|
|
|
Amount
|
Fiscal 2022
|
$
|
—
|
|
Fiscal 2023
|
—
|
|
Fiscal 2024
|
—
|
|
Fiscal 2025
|
300,000
|
|
Fiscal 2026
|
—
|
|
Thereafter
|
300,000
|
|
Total Long-term debt, gross
|
$
|
600,000
|
|
Note 10. Leases
Our leases primarily include operating leases for equipment and real estate, including office space and manufacturing space. Financing leases are primarily for real estate. For any lease with an initial term in excess of 12 months, the related lease assets and liabilities are recognized on the Consolidated Balance Sheets as either operating or finance leases at the inception of an agreement when it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components, and have elected to combine lease and non-lease components for all classes of assets. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. We recognize lease expense for these leases on a straight-line basis over the lease term. When the terms of multiple lease agreements are materially consistent, we have elected the portfolio approach for our asset and liability calculations.
Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. We generally use a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. The assumed lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised.
Some of our real estate operating leases require payment of real estate taxes, common area maintenance, and insurance. In addition, some of the leases are subject to annual changes in the consumer price index. These components comprise the majority of our variable lease cost and are excluded from the present value of the lease obligations. Fixed payments may contain predetermined fixed rent escalations. For operating leases, we recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.
The supplemental balance sheet information related to our leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
August 28, 2021
|
August 29, 2020
|
Assets
|
|
|
|
Operating leases
|
Operating lease assets
|
$
|
28,379
|
|
$
|
29,463
|
|
Finance leases
|
Other long-term assets
|
4,971
|
|
4,398
|
|
Total lease assets
|
|
$
|
33,350
|
|
$
|
33,861
|
|
|
|
|
|
Liabilities
|
|
|
|
Current: Operating leases
|
Accrued expenses: Other
|
$
|
2,596
|
|
$
|
2,660
|
|
Current: Finance leases
|
Accrued expenses: Other
|
700
|
|
539
|
|
Non-Current: Operating leases
|
Operating lease liabilities
|
26,745
|
|
27,048
|
|
Non-Current: Finance leases
|
Other long-term liabilities
|
5,313
|
|
4,868
|
|
Total lease liabilities
|
|
$
|
35,354
|
|
$
|
35,115
|
|
|
|
|
|
Operating lease costs incurred are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
Year Ended
|
|
Classification
|
August 28, 2021
|
August 29, 2020
|
Operating lease expense(1)
|
Costs of goods sold and SG&A
|
$
|
5,785
|
|
$
|
6,962
|
|
Finance lease cost:
|
|
|
|
Depreciation of lease assets
|
Costs of goods sold and SG&A
|
609
|
|
474
|
|
Interest on lease liabilities
|
Interest expense
|
327
|
|
289
|
|
Total lease cost
|
|
$
|
6,721
|
|
$
|
7,725
|
|
(1) Operating lease expense includes short-term leases and variable lease payments, which are immaterial.
Our future lease commitments as of August 28, 2021 included the following related party and non-related party leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases as of August 28, 2021
|
Financing Leases
|
|
Related Party Amount
|
Non-Related Party Amount
|
Total
|
Non-Related Party Amount
|
Fiscal 2022
|
$
|
900
|
|
$
|
1,162
|
|
$
|
2,062
|
|
$
|
1,051
|
|
Fiscal 2023
|
1,500
|
|
3,594
|
|
5,094
|
|
1,040
|
|
Fiscal 2024
|
1,800
|
|
3,187
|
|
4,987
|
|
1,013
|
|
Fiscal 2025
|
1,800
|
|
2,879
|
|
4,679
|
|
1,035
|
|
Fiscal 2026
|
1,800
|
|
2,782
|
|
4,582
|
|
1,056
|
|
Thereafter
|
6,000
|
|
11,214
|
|
17,214
|
|
2,243
|
|
Total future undiscounted lease payments
|
13,800
|
|
24,818
|
|
38,618
|
|
7,438
|
|
Less: Interest
|
3,216
|
|
6,061
|
|
9,277
|
|
1,425
|
|
Total reported lease liabilities
|
$
|
10,584
|
|
$
|
18,757
|
|
$
|
29,341
|
|
$
|
6,013
|
|
Additional information related to our leases is as follows:
|
|
|
|
|
|
|
|
|
|
August 28, 2021
|
August 29, 2020
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
Operating cash flows from operating leases
|
$
|
2,589
|
|
$
|
2,463
|
|
Operating cash flows from financing leases
|
327
|
|
289
|
|
Financing cash flows from financing leases
|
572
|
|
362
|
|
Lease assets obtained in exchange for new lease liabilities:
|
|
|
Operating leases
|
2,626
|
|
1,179
|
|
Finance leases (1)
|
1,210
|
|
5,664
|
|
|
|
|
|
August 28, 2021
|
August 29, 2020
|
Weighted average remaining lease term:
|
|
|
Operating leases
|
8.1
|
8.7
|
Finance leases
|
6.8
|
7.8
|
Weighted average discount rate:
|
|
|
Operating leases
|
6.2
|
%
|
6.2
|
%
|
Finance leases
|
6.3
|
%
|
6.2
|
%
|
(1) Lease assets as of August 29, 2020 are offset by a $965 unfavorable lease liability created by the acquisition of Newmar.
Note 11. Employee and Retiree Benefits
Deferred compensation benefits are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 2021
|
|
August 29, 2020
|
Non-qualified deferred compensation
|
$
|
9,731
|
|
|
$
|
11,460
|
|
Supplemental executive retirement plan
|
1,615
|
|
|
1,838
|
|
Executive deferred compensation plan
|
1,029
|
|
|
710
|
|
Total deferred compensation benefits
|
12,375
|
|
|
14,008
|
|
Less current portion(1)
|
2,825
|
|
|
2,878
|
|
Deferred compensation benefits, net of current portion
|
$
|
9,550
|
|
|
$
|
11,130
|
|
(1) Included in accrued compensation on the Consolidated Balance Sheets.
Deferred Compensation Benefits
Non-Qualified Deferred Compensation
We have a non-qualified deferred compensation program which permitted key employees to annually elect to defer a portion of their compensation until their retirement. The plan has been closed to any additional deferrals since January 2001. The retirement benefit to be provided is based upon the amount of compensation deferred and the age of the individual at the time of the contracted deferral. An individual generally vests at age 55 and 5 years of participation under the plan. For deferrals prior to December 1992, vesting occurs at the later of age 55 and 5 years of service from first deferral or 20 years of service. Deferred compensation expense was $795, $902, and $943 in Fiscal 2021, 2020, and 2019, respectively.
Supplemental Executive Retirement Plan ("SERP")
The primary purpose of this plan was to provide our officers and managers with supplemental retirement income for a period of 15 years after retirement. We have not offered this plan on a continuing basis to members of management since 1998. The plan was funded with individual whole life insurance policies (split dollar program) owned by the named insured officer or manager. We initially paid the life insurance premiums on the life of the individual, and the individual would receive life insurance and supplemental cash payments during the 15 years following retirement. In October 2008, the plan was amended as a result of changes in the tax and accounting regulations and rising administrative costs. Under the redesigned SERP, the underlying life insurance policies previously owned by the insured individual became company-owned life insurance ("COLI") by a release of all interests by the participant and assignment to Winnebago Industries as a prerequisite to participate in the SERP and transition from the Split Dollar Program. This program remains closed to new employee participation.
To assist in funding the deferred compensation and SERP liabilities, we have invested in COLI policies. The cash surrender value of these policies is presented in investment in life insurance in the Consolidated Balance Sheets and consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 2021
|
|
August 29, 2020
|
Cash value
|
$
|
66,544
|
|
|
$
|
64,214
|
|
Borrowings
|
(37,723)
|
|
|
(36,376)
|
|
Investment in life insurance
|
$
|
28,821
|
|
|
$
|
27,838
|
|
Executive Deferred Compensation Plan
In December 2006, we adopted the Winnebago Industries, Inc. Executive Deferred Compensation Plan (the "Executive Deferred Compensation Plan"). Under the Executive Deferred Compensation Plan, corporate officers and certain key employees may annually choose to defer up to 50% of their salary and up to 100% of their cash incentive awards. The assets are presented as other long-term assets in the Consolidated Balance Sheets. Such assets on August 28, 2021 and August 29, 2020 were $1,027 and $710, respectively.
Profit Sharing Plan
We have a qualified profit sharing and contributory 401(k) plan for eligible employees. The plan provides matching contributions made by Winnebago Industries and discretionary contributions as approved by the Board of Directors. Matching contributions to the plan for Fiscal 2021, 2020, and 2019 were $5,557, $3,367, and $2,894, respectively. A discretionary contribution of $6,122 was approved in Fiscal 2021, No discretionary contributions were approved for Fiscal 2020 or 2019.
Note 12. Contingent Liabilities and Commitments
Repurchase Commitments
Generally, manufacturers in the same industries as us 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.
Our repurchase agreements generally provide that, in the event of default by the dealer on the agreement to pay the lending institution, we will repurchase the financed merchandise. The terms of these agreements, which generally can last up to 24 months, provide that our liability will be the lesser of remaining principal owed by the dealer to the lending institution, or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our liability cannot exceed 100% of the dealer invoice. In certain instances, we also repurchase 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 was approximately $552,112 and $798,906 as of August 28, 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. Our loss reserve for repurchase commitments contains uncertainties because the calculation requires management to make assumptions and apply judgment regarding a number of factors. Our 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 our 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 our historical loss experience, an associated loss reserve is established which is included in accrued expenses: other on the Consolidated Balance Sheets. Our repurchase accrual was $923 and $980 as of August 28, 2021 and August 29, 2020, respectively. Repurchase risk is affected by the credit worthiness of our dealer network. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to establish the loss reserve for repurchase commitments.
A summary of the activity for repurchased units is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for units)
|
2021
|
|
2020
|
|
2019
|
Inventory repurchased:
|
|
|
|
|
|
Units
|
10
|
|
|
107
|
|
|
125
|
|
Dollars
|
$
|
349
|
|
|
$
|
2,592
|
|
|
$
|
5,535
|
|
Inventory resold:
|
|
|
|
|
|
Units
|
10
|
|
|
118
|
|
|
109
|
|
Cash collected
|
$
|
321
|
|
|
$
|
2,540
|
|
|
$
|
4,634
|
|
Loss recognized
|
$
|
29
|
|
|
$
|
252
|
|
|
$
|
556
|
|
Units in ending inventory
|
5
|
|
|
5
|
|
|
16
|
|
Litigation
We are 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 we believe the ultimate disposition of litigation will not have a material adverse effect on our financial position, results of operations or liquidity, the possibility exists that such litigation may have an impact on our results for a particular reporting period in which litigation effects become probable and reasonably estimable. Though we do not believe there is a reasonable likelihood that there will be a material change related to these matters, litigation is subject to inherent uncertainties and our view of these matters may change in the future.
Note 13. Revenue Recognition
All operating revenue is generated from contracts with customers. Our 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 (our customers). The following table disaggregates revenue by reportable segment and product category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
|
Net Revenues
|
|
|
|
|
|
Towable:
|
|
|
|
|
|
Fifth Wheel
|
$
|
1,024,355
|
|
|
$
|
690,452
|
|
|
|
Travel Trailer
|
959,716
|
|
|
519,282
|
|
|
|
Other(1)
|
25,888
|
|
|
17,833
|
|
|
|
Total Towable
|
2,009,959
|
|
|
1,227,567
|
|
|
|
Motorhome:
|
|
|
|
|
|
Class A
|
690,146
|
|
|
479,120
|
|
|
|
Class B
|
532,200
|
|
|
332,961
|
|
|
|
Class C
|
278,054
|
|
|
211,468
|
|
|
|
Other(1)
|
38,684
|
|
|
33,245
|
|
|
|
Total Motorhome
|
1,539,084
|
|
|
1,056,794
|
|
|
|
Corporate/ All Other(2)
|
80,804
|
|
|
71,172
|
|
|
|
Consolidated
|
$
|
3,629,847
|
|
|
$
|
2,355,533
|
|
|
|
(1) Relates to parts, accessories, and services.
(2) Relates to marine and specialty vehicle units, parts, accessories, and services.
We do not have material contract assets or liabilities.
Concentration of Risk
No single dealer organization accounted for more than 10% of net revenues for Fiscal 2021, 2020, and 2019.
Note 14. Stock-Based Compensation Plans
On December 11, 2018, our shareholders approved the Winnebago Industries, Inc. 2019 Omnibus Incentive Plan ("2019 Plan") as detailed in our Proxy Statement for the 2018 Annual Meeting of Shareholders. The 2019 Plan allows us 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 our common stock that may be awarded and issued under the 2019 Plan is
4.1 million shares, plus the shares subject to any awards outstanding under the 2014 Plan and our 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 were 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.
Our outstanding options have a 10-year term. Options issued to employees generally vest over a three-year period in equal annual installments on the annual anniversary dates following the grant date. Share awards generally vest based either upon continued employment ("time-based") or upon attainment of specified goals. Outstanding share awards that are not time-based vest at the end of a three-year incentive period based upon the achievement of company performance goals ("performance-based"). Generally, time-based share awards vest in the same manner as options, except for time-based share awards to directors which vest one year from the grant date.
Beginning with our annual grant of restricted stock units in October 2018, dividend equivalents are attached to restricted stock units equal to dividends payable on the same number of shares of our common stock during the applicable period. Dividend equivalents, settled in cash, accrue on restricted stock unit awards during the vesting period. No dividend equivalents are paid on any restricted stock units that are forfeited prior to the vesting date.
Our Employee Stock Purchase Plan ("ESPP") permits employees to purchase Winnebago Industries, Inc. common stock at a 15% discount from the market price at the end of semi-annual purchase periods and is compensatory. Employees are required to hold the common stock purchased for one-year. In Fiscal 2021 and 2020, 24,000 shares and 21,000 shares, respectively, were purchased through the ESPP. Plan participants had accumulated $385 and $274 as of August 28, 2021 and August 29, 2020, respectively, to purchase our common stock pursuant to this plan.
Compensation expense associated with share-based awards is recognized on a straight-line basis over the required service period and forfeitures are recorded when they occur. Total stock-based compensation expense for the past three fiscal years consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
Share awards:
|
|
|
|
|
|
Time-based
|
$
|
5,737
|
|
|
$
|
4,287
|
|
|
$
|
4,986
|
|
Performance-based
|
7,920
|
|
|
796
|
|
|
716
|
|
Stock options
|
1,019
|
|
|
990
|
|
|
925
|
|
Other(1)
|
671
|
|
|
402
|
|
|
431
|
|
Total stock-based compensation expense
|
$
|
15,347
|
|
|
$
|
6,475
|
|
|
$
|
7,058
|
|
(1) Includes stock-based compensation expense related to Board of Directors stock award expense and ESPP expense. Directors may elect to defer all or part of their annual retainer into a deferred compensation plan. The plan allows them to defer into either money units or stock units.
Restricted Stock Units - Time-Based
The fair value of time-based restricted stock units is determined based on the closing market price of our stock on the date of grant. A summary of the status of nonvested time-based restricted stock units at August 28, 2021, and changes during Fiscal 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares(1)
|
|
Weighted Average Fair Value
|
Outstanding at August 29, 2020
|
302,264
|
|
|
$
|
38.27
|
|
Granted
|
150,275
|
|
|
$
|
54.56
|
|
Vested
|
(92,942)
|
|
|
$
|
40.36
|
|
Forfeited/canceled
|
(28,778)
|
|
|
$
|
42.13
|
|
Outstanding at August 28, 2021
|
330,819
|
|
|
$
|
44.35
|
|
(1) Number of shares in the above table are shown in whole numbers.
As of August 28, 2021, there was $7,122 of unrecognized compensation expense related to nonvested time-based restricted stock units that are expected to be recognized over a weighted average period of 0.8 years. The total fair value of restricted stock units vested during Fiscal 2021, 2020, and 2019 was $5,210, $3,324, and $6,648, respectively.
On October 12, 2021, the Board of Directors granted 124,978 restricted stock units under the 2019 Plan valued at $9,447 to our key management group. The value of the restricted stock units, which is based on the closing price of our common stock on the date of grant, was $75.59. Estimated non-cash stock compensation expense based on this grant is expected to be approximately $3,149 for Fiscal 2022.
Restricted Stock Units - Performance-Based
The fair value of performance-based restricted stock units is determined based on the closing market price of our stock on the date of grant. A summary of the status of our nonvested performance-based restricted stock units at August 28, 2021, and changes during Fiscal 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares(1)
|
|
Weighted Average Fair Value
|
Outstanding at August 29, 2020
|
188,992
|
|
|
$
|
40.73
|
|
Granted
|
97,996
|
|
|
$
|
54.49
|
|
Vested
|
(26,515)
|
|
|
$
|
45.18
|
|
Forfeited/canceled
|
(32,722)
|
|
|
$
|
42.97
|
|
Outstanding at August 28, 2021
|
227,751
|
|
|
$
|
45.81
|
|
(1) Number of shares in the above table are shown in whole numbers.
As of August 28, 2021, there was $3,804 of unrecognized compensation expense related to nonvested performance-based restricted stock units that are expected to be recognized over a weighted average period of 1.0 year. The total fair value of performance-based restricted stock units vested during Fiscal 2021 and 2020 was $1,445 and $2,438. No performance-based restricted stock units vested during Fiscal 2019.
Stock Options
A summary of stock option activity for Fiscal 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options(1)
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value
|
Outstanding at August 29, 2020
|
292,444
|
|
|
$
|
36.96
|
|
|
|
|
|
Granted
|
54,836
|
|
|
$
|
54.49
|
|
|
|
|
|
Exercised
|
(22,607)
|
|
|
$
|
33.59
|
|
|
|
|
|
Forfeited/canceled
|
(6,770)
|
|
|
$
|
40.75
|
|
|
|
|
|
Outstanding at August 28, 2021
|
317,903
|
|
|
$
|
40.14
|
|
|
7.1
|
|
$
|
10,480
|
|
Vested and expected to vest at August 28, 2021
|
317,903
|
|
|
$
|
40.14
|
|
|
7.1
|
|
$
|
10,480
|
|
Exercisable at August 28, 2021
|
195,873
|
|
|
$
|
36.19
|
|
|
6.4
|
|
$
|
7,231
|
|
(1) Number of shares in the above table are shown in whole numbers.
As of August 28, 2021, there was $1,226 of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted average period of 0.8 years.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Assumptions(1)
|
2021
|
|
2020
|
|
2019
|
Expected dividend yield
|
0.8
|
%
|
|
0.9
|
%
|
|
1.3
|
%
|
Risk-free interest rate(2)
|
0.3
|
%
|
|
1.7
|
%
|
|
3.0
|
%
|
Expected life of stock options (in years)(3)
|
5
|
|
5
|
|
5
|
Expected stock price volatility(4)
|
48.6
|
%
|
|
41.2
|
%
|
|
39.1
|
%
|
Weighted average fair value of options granted
|
$
|
21.65
|
|
|
$
|
17.18
|
|
|
$
|
11.09
|
|
(1) Forfeitures are recorded when they occur.
(2) Based on U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options.
(3) Estimated based on historical experience.
(4) Based on historical experience over a term consistent with the expected life of the stock options.
Note 15. Restructuring
In Fiscal 2020, our Class A diesel production included in the Motorhome reportable segment, was moved from Junction City, OR to Forest City, IA. In Fiscal 2021, the property was sold for net proceeds of $12,423 with a resulting gain of $4,753. The gain on sale is included within selling, general, and administrative expenses on the Consolidated Statements of Income and Comprehensive Income for Fiscal 2021. Total restructuring expense related to the relocation for Fiscal 2021 was immaterial to the consolidated financial statements. We do not expect additional restructuring charges in Fiscal 2022.
Note 16. Income Taxes
Income tax expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
Current
|
|
|
|
|
|
Federal
|
$
|
71,579
|
|
|
$
|
14,318
|
|
|
$
|
16,433
|
|
State
|
16,179
|
|
|
2,806
|
|
|
3,138
|
|
Total
|
87,758
|
|
|
17,124
|
|
|
19,571
|
|
Deferred
|
|
|
|
|
|
Federal
|
737
|
|
|
(790)
|
|
|
6,395
|
|
State
|
(2,916)
|
|
|
(500)
|
|
|
1,145
|
|
Total
|
(2,179)
|
|
|
(1,290)
|
|
|
7,540
|
|
Provision for income taxes
|
$
|
85,579
|
|
|
$
|
15,834
|
|
|
$
|
27,111
|
|
A reconciliation of the U.S. statutory income tax rate to our effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
U.S. federal statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
State taxes, net of federal benefit
|
3.3
|
%
|
|
1.9
|
%
|
|
2.9
|
%
|
Income tax credits
|
(0.6)
|
%
|
|
(2.5)
|
%
|
|
(4.5)
|
%
|
Nondeductible compensation
|
0.5
|
%
|
|
0.9
|
%
|
|
—
|
%
|
Tax-free and dividend income
|
(0.1)
|
%
|
|
(0.6)
|
%
|
|
(0.5)
|
%
|
Uncertain tax position settlements and adjustments
|
(0.1)
|
%
|
|
0.1
|
%
|
|
0.9
|
%
|
Other items
|
(0.7)
|
%
|
|
(0.3)
|
%
|
|
(0.3)
|
%
|
Effective tax provision rate
|
23.3
|
%
|
|
20.5
|
%
|
|
19.5
|
%
|
Our effective tax rate increased to 23.3% in Fiscal 2021 compared to 20.5% in Fiscal 2020 primarily due to relatively consistent year-over-year tax credits on higher pre-tax income in Fiscal 2021.
The tax effects of temporary differences that give rise to deferred income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 2021
|
|
August 29, 2020
|
Warranty reserves
|
$
|
22,450
|
|
|
$
|
13,969
|
|
Deferred compensation
|
5,224
|
|
|
5,406
|
|
Self-insurance reserve
|
4,336
|
|
|
3,426
|
|
Stock-based compensation
|
4,607
|
|
|
2,865
|
|
Leases
|
8,422
|
|
|
8,638
|
|
Other(1)
|
7,170
|
|
|
6,191
|
|
Total deferred tax assets
|
52,209
|
|
|
40,495
|
|
Convertible notes
|
2,608
|
|
|
3,125
|
|
Intangibles
|
39,940
|
|
|
32,933
|
|
Depreciation
|
15,161
|
|
|
11,715
|
|
Leases
|
7,929
|
|
|
8,330
|
|
Total deferred tax liabilities
|
65,638
|
|
|
56,103
|
|
Total deferred income tax liabilities, net
|
$
|
13,429
|
|
|
$
|
15,608
|
|
(1) Other includes $400 and $500 related to state net operating losses as of August 28, 2021 and August 29, 2020, respectively. These net operating losses are subject to various expiration periods from 5 years to no expiration. We have evaluated all the positive and negative evidence and consider it more likely than not that these carryforwards can be realized before expiration.
Changes in the unrecognized tax benefits are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
Balance at beginning of year
|
$
|
5,830
|
|
|
$
|
2,822
|
|
|
$
|
1,220
|
|
Gross increases-tax positions in a prior year
|
—
|
|
|
2,486
|
|
|
1,173
|
|
Gross decreases-tax positions in a prior year
|
(872)
|
|
|
—
|
|
|
—
|
|
Gross increases-current year tax positions
|
579
|
|
|
522
|
|
|
429
|
|
Balance at end of year
|
5,537
|
|
|
5,830
|
|
|
2,822
|
|
Accrued interest and penalties
|
946
|
|
|
681
|
|
|
769
|
|
Total unrecognized tax benefits
|
$
|
6,483
|
|
|
$
|
6,511
|
|
|
$
|
3,591
|
|
The amount of unrecognized tax benefits is not expected to change materially within the next 12 months. If the remaining uncertain tax positions are ultimately resolved favorably, $2,600 of unrecognized tax benefits would have a favorable impact on our effective tax rate. It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense.
We file a U.S. Federal tax return, as well as returns in various international and state jurisdictions. Although certain years are no longer subject to examination by the Internal Revenue Service ("IRS") and various state taxing authorities, net operating loss carryforwards generated in those years may still be adjusted upon examination by the IRS or state taxing authorities. As of August 28, 2021, our federal returns from Fiscal 2018 to present are subject to review by the IRS. With limited exception, state returns from Fiscal 2017 to present continue to be subject to review by state taxing jurisdictions. Several years may lapse before an uncertain tax position is audited and finally resolved and it is difficult to predict the outcome of such audits.
Note 17. Earnings per Share
Basic and diluted earnings per share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
2021
|
|
2020
|
|
2019
|
Net income
|
$
|
281,871
|
|
|
$
|
61,442
|
|
|
$
|
111,798
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
33,528
|
|
|
33,236
|
|
|
31,536
|
|
Dilutive impact of stock compensation awards
|
375
|
|
|
218
|
|
|
185
|
|
Dilutive impact of convertible notes
|
153
|
|
|
—
|
|
|
—
|
|
Weighted average common shares outstanding, assuming dilution
|
34,056
|
|
|
33,454
|
|
|
31,721
|
|
|
|
|
|
|
|
Anti-dilutive securities excluded from weighted average diluted common shares outstanding
|
49
|
|
|
39
|
|
|
189
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
8.41
|
|
|
$
|
1.85
|
|
|
$
|
3.55
|
|
Diluted earnings per common share
|
$
|
8.28
|
|
|
$
|
1.84
|
|
|
$
|
3.52
|
|
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 18. Accumulated Other Comprehensive Loss
Changes in Accumulated Other Comprehensive Income ("AOCI") by component, net of tax, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Defined Benefit Pension Items
|
|
Total
|
|
Defined Benefit Pension Items
|
|
Interest Rate Swap
|
|
Total
|
Balance at beginning of year
|
$
|
(526)
|
|
|
$
|
(526)
|
|
|
$
|
(559)
|
|
|
$
|
68
|
|
|
$
|
(491)
|
|
OCI before reclassifications
|
—
|
|
|
—
|
|
|
—
|
|
|
(500)
|
|
|
(500)
|
|
Amounts reclassified from AOCI
|
35
|
|
|
35
|
|
|
33
|
|
|
432
|
|
|
465
|
|
Net current-year OCI
|
35
|
|
|
35
|
|
|
33
|
|
|
(68)
|
|
|
(35)
|
|
Balance at end of year
|
$
|
(491)
|
|
|
$
|
(491)
|
|
|
$
|
(526)
|
|
|
$
|
—
|
|
|
$
|
(526)
|
|
Reclassifications out of AOCI, net of tax, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location on Consolidated Statements of Income and Comprehensive Income
|
2021
|
|
2020
|
|
2019
|
Amortization of net actuarial loss
|
SG&A
|
$
|
35
|
|
|
$
|
33
|
|
|
$
|
32
|
|
Interest rate contract
|
Interest expense
|
—
|
|
|
432
|
|
|
—
|
|
Total reclassifications
|
|
$
|
35
|
|
|
$
|
465
|
|
|
$
|
32
|
|