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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
___
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2003
-------------------------------------------------
OR
___
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number 1-6403
------
WINNEBAGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
IOWA 42-0802678
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 152, Forest City, Iowa 50436
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (641) 585-3535
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes _X_ No ___.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___.
There were 18,158,208 shares of $.50 par value common stock outstanding on
July 11, 2003.
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO REPORT ON FORM 10-Q
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Item I. Unaudited Consolidated Balance Sheets 1 - 2
Unaudited Consolidated Statements of Income 3
Unaudited Condensed Consolidated Statements of
Cash Flows 4
Unaudited Notes to Condensed Consolidated
Financial Statements 5 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Item 4. Controls and Procedures 14
Independent Accountants' Report 15
PART II. OTHER INFORMATION 16 - 20
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Part I Financial Information
Item 1.
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
Dollars in thousands
MAY 31, AUGUST 31,
ASSETS 2003 2002
- ---------------------------------------- -------- --------
CURRENT ASSETS
Cash and cash equivalents $ 92,747 $ 42,225
Receivables, less allowance for doubtful
accounts ($337 and $120, respectively) 24,898 28,375
Inventories 115,084 113,654
Prepaid expenses 3,698 4,314
Deferred income taxes 8,221 6,907
Assets of discontinued operations 624 38,121
-------- --------
Total current assets 245,272 233,596
-------- --------
PROPERTY AND EQUIPMENT, at cost
Land 999 972
Buildings 54,863 47,953
Machinery and equipment 95,266 86,744
Transportation equipment 9,102 5,641
-------- --------
160,230 141,310
Less accumulated depreciation 96,351 92,383
-------- --------
Total property and equipment, net 63,879 48,927
-------- --------
INVESTMENT IN LIFE INSURANCE 22,371 23,474
-------- --------
DEFERRED INCOME TAXES, NET 23,626 22,438
-------- --------
OTHER ASSETS 11,731 8,642
-------- --------
TOTAL ASSETS $366,879 $337,077
======== ========
See Unaudited Condensed Notes to Consolidated Financial Statements.
1
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
Dollars in thousands
MAY 31, AUGUST 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2002
- ------------------------------------------------- -------- --------
CURRENT LIABILITIES
Accounts payable, trade $ 48,132 $ 44,230
Income tax payable 827 2,610
Accrued expenses
Accrued compensation 14,229 18,673
Promotional 11,291 4,499
Product warranties 9,723 8,151
Insurance 6,106 5,967
Other 4,775 4,471
-------- --------
Total current liabilities 95,083 88,601
-------- --------
POSTRETIREMENT HEALTH CARE AND DEFERRED
COMPENSATION BENEFITS 72,835 68,661
-------- --------
STOCKHOLDERS' EQUITY
Capital stock, common, par value $.50; authorized
60,000,000 shares: issued 25,888,000 shares 12,944 12,944
Additional paid-in capital 26,219 25,740
Reinvested earnings 320,885 284,856
-------- --------
360,048 323,540
Less treasury stock, at cost 161,087 143,725
-------- --------
Total stockholders' equity 198,961 179,815
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $366,879 $337,077
======== ========
See Unaudited Condensed Notes to Consolidated Financial Statements.
2
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
================================================================================
IN THOUSANDS, EXCEPT PER SHARE DATA
THIRTY-NINE FORTY
WEEKS WEEKS
THIRTEEN WEEKS ENDED ENDED ENDED
-------------------- -------- --------
MAY 31, JUNE 1, MAY 31, JUNE 1,
2003 2002 2003 2002
-------- -------- -------- --------
Net revenues $200,211 $245,912 $619,516 $605,121
Cost of manufactured products 177,065 209,381 534,930 523,068
-------- -------- -------- --------
Gross profit 23,146 36,531 84,586 82,053
-------- -------- -------- --------
Operating expenses
Selling 4,652 4,257 13,407 13,567
General and administrative 4,251 5,689 12,287 14,796
-------- -------- -------- --------
Total operating expenses 8,903 9,946 25,694 28,363
-------- -------- -------- --------
Operating income 14,243 26,585 58,892 53,690
Financial income 306 623 1,001 2,641
-------- -------- -------- --------
Income before income taxes 14,549 27,208 59,893 56,331
Provision for taxes 5,554 9,523 23,129 19,402
-------- -------- -------- --------
Income from continuing operations 8,995 17,685 36,764 36,929
Income from discontinued operations (net of taxes) 334 409 1,152 1,323
-------- -------- -------- --------
Net income $ 9,329 $ 18,094 $ 37,916 $ 38,252
======== ======== ======== ========
Income per share - basic (Note 11)
- ----------------------------------
From continuing operations $ .49 $ .91 $ 1.98 $ 1.82
From discontinued operations .02 .02 .06 .06
-------- -------- -------- --------
Net income $ .51 $ .93 $ 2.04 $ 1.88
======== ======== ======== ========
Income per share - diluted (Note 11)
- ------------------------------------
From continuing operations $ .48 $ .88 $ 1.94 $ 1.78
From discontinued operations .02 .02 .06 .06
-------- -------- -------- --------
Net income $ .50 $ .90 $ 2.00 $ 1.84
======== ======== ======== ========
Weighted average shares of common stock
outstanding
Basic 18,257 19,552 18,586 20,337
======== ======== ======== ========
Diluted 18,549 19,995 18,925 20,779
======== ======== ======== ========
See Unaudited Condensed Notes to Consolidated Financial Statements.
3
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-NINE FORTY
Dollars in thousands WEEKS ENDED WEEKS ENDED
MAY 31, JUNE 1,
2003 2002
--------- ---------
Cash flows from operating activities
Net income as shown on the statements of income $ 37,916 $ 38,252
Income from discontinued operations (1,152) (1,323)
--------- ---------
Income from continuing operations 36,764 36,929
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 6,395 5,906
Tax benefit of stock options 955 3,292
Other 205 165
Change in assets and liabilities
Decrease (increase) in receivable and other assets 3,994 (1,911)
Increase in inventories (1,430) (16,561)
Increase in deferred income taxes (2,502) (1,537)
Increase in accounts payable and accrued expenses 8,265 17,355
(Increase) decrease in income taxes payable (1,783) 6,431
Increase in postretirement benefits 3,680 4,075
--------- ---------
Net cash provided by continuing activities 54,543 54,144
Net cash provided by discontinued operations 234 301
--------- ---------
Net cash provided by operating activities 54,777 54,445
--------- ---------
Cash flows provided by (used in) investing activities
Purchases of property and equipment (21,539) (5,418)
Other (1,414) (2,099)
--------- ---------
Net cash used in continuing operations (22,953) (7,517)
Net cash provided by discontinued operations 38,423 2,529
--------- ---------
Net cash provided by (used in) investing activities 15,470 (4,988)
--------- ---------
Cash flows used in financing activities and capital transactions
Payments for purchase of common stock (20,221) (81,778)
Payment of cash dividends (1,887) (2,075)
Proceeds from issuance of common and treasury stock 2,383 4,317
--------- ---------
Net cash used in financing activities and
capital transactions (19,725) (79,536)
--------- ---------
Net increase (decrease) in cash and cash equivalents 50,522 (30,079)
Cash and cash equivalents - beginning of period 42,225 102,280
--------- ---------
Cash and cash equivalents - end of period $ 92,747 $ 72,201
========= =========
See Unaudited Condensed Notes to Consolidated Financial Statements.
4
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of
normal recurring accruals, necessary to present fairly the consolidated
financial position as of May 31, 2003, the consolidated results of
operations for the 13 and 39 weeks ended May 31, 2003 and the 13 and 40
weeks ended June 1, 2002, and the consolidated cash flows for the 39 weeks
ended May 31, 2003 and the 40 weeks ended June 1, 2002. The statement of
income for the 39 weeks ended May 31, 2003, is not necessarily indicative
of the results to be expected for the full year. The balance sheet data as
of August 31, 2002 was derived from audited financial statements, but does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
interim consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto appearing in the
Company's Annual Report to Shareholders for the year ended August 31, 2002.
Certain prior year balances have been reclassified to conform to the
current year presentation. These reclassifications had no impact on
previously reported net income or shareholders' equity.
NOTE 2: STOCK-BASED COMPENSATION
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 123,
ACCOUTING FOR STOCK-BASED COMPENSATION, the Company applies the recognition
and measurement of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, to its stock options and other
stock-based compensation plans.
In accordance with APB Opinion No. 25, compensation costs for stock options
is recognized in income based on the excess, if any, of the quoted market
price of the stock at the grant date of the award or other measurement date
over the amount an employee must pay to acquire the stock. The exercise
price for stock options granted to employees equaled the fair market value
of our common stock at the date of grant, thereby resulting in no
recognition of compensation expense.
5
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation.
Thirty-Nine Forty
Weeks Ended Weeks Ended
---------- ----------
May 31, June 1,
2003 2002
---------- ----------
In thousands, except per-share amounts
--------------------------------------
Net income
Net income - as reported $ 37,916 $ 38,252
Less estimated stock-based employee compensation
determined under fair value based method, net of tax (2,240) (1,790)
---------- ----------
Net income - proforma $ 35,676 $ 36,462
========== ==========
Earnings per common share
Basic - as reported $ 2.04 $ 1.88
Less estimated stock-based employee compensation
determined under fair value based method, net of tax (.12) (.09)
---------- ----------
Basic - proforma $ 1.92 $ 1.79
========== ==========
Diluted - as reported $ 2.00 $ 1.84
Less estimated stock-based employee compensation
determined under fair value based method, net of tax (.11) (.09)
---------- ----------
Diluted - proforma $ 1.89 $ 1.75
========== ==========
Weighted average common shares outstanding
Basic 18,586 20,337
========== ==========
Diluted 18,925 20,779
========== ==========
The Company estimated the fair values using the Black-Scholes
option-pricing model, modified for dividends and using the following
assumptions:
2003 2002
-------- --------
Risk-free rate 2.30% 4.37%
Expected dividend yield .83% .87%
Expected stock price volatility 49.90% 55.82%
Expected option term 4 years 4 years
Fair value per option $ 13.75 $ 10.08
The fair value of options is amortized to expense over a five-year
option-vesting period in determining the proforma impact.
NOTE 3: DISCONTINUED OPERATIONS - SALE OF WINNEBAGO ACCEPTANCE
CORPORATION'S DEALER FINANCING RECEIVABLES
On April 24, 2003 the Company sold the majority of its dealer financing
receivables in Winnebago Acceptance Corporation (WAC) to GE Commerical
Distribution Finance Corporation for approximately $34 million and recorded
no gain or loss as the receivables were sold at book value. As WAC has no
further involvement in these assets or operations, WAC's operations will be
accounted for as a sale of receivables and as a discontinued operation in
the accompanying consolidated financial statements. The only component of
assets of discontinued operations in the accompanying consolidated balance
sheets is dealer receivables.
6
Thirty-Nine Forty
Thirteen Weeks Ended Weeks Ended Weeks Ended
-------------------------- ---------- ----------
May 31, June 1, May 31, June 1,
Winnebago Acceptance Corporation 2003 2002 2003 2002
---------- ---------- ---------- ----------
Net revenues $ 428,000 $ 724,000 $1,940,000 $2,372,000
---------- ---------- ---------- ----------
Income before income taxes(1) $ 512,000 $ 628,000 $1,771,000 $2,034,000
---------- ---------- ---------- ----------
Net income $ 334,000 $ 409,000 $1,152,000 $1,323,000
========== ========== ========== ==========
Income per share - basic $ .02 $ .02 $ .06 $ .06
---------- ---------- ---------- ----------
Income per share - diluted $ .02 $ .02 $ .06 $ .06
---------- ---------- ---------- ----------
Weighted average common shares outstanding
Basic 18,257 19,552 18,586 20,337
========== ========== ========== ==========
Diluted 18,549 19,995 18,925 20,779
========== ========== ========== ==========
(1) When the receivables in WAC were sold, the need for a bad debt reserve of
$106,000 was no longer required. Therefore, the reserve was reversed
providing a reduction to WAC in general and administrative expenses causing
income before taxes for the 13 weeks ended May 31, 2003 to be larger than
WAC's net revenues for the same period.
NOTE 4: NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. This standard revises
the accounting for certain exit costs and disposal activities currently set
forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The principal change of the new
statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred versus the
date of commitment to an exit plan. This statement is effective for exit
and disposal activities initiated after December 31, 2002. The Company does
not believe adoption of this standard will significantly affect the
Company's financial condition or operating results.
In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies
the requirements for a guarantor's accounting for and disclosure of certain
guarantees issued and outstanding. The initial recognition and initial
measurement provisions of FIN 45 are applicable to guarantees issued or
modified after December 31, 2002. The disclosure requirements of FIN 45 are
effective for financial statements of interim or annual periods ending
after December 15, 2002. The adoption of FIN 45 did not have an impact on
the consolidated results of operations, financial position, or cash flows.
See Note 6 of Unaudited Condensed Notes to Consolidated Financial
Statements for expanded warranty disclosure requirements of this new
standard.
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION - TRANSITION AND DISCLOSURE - AN AMENDMENT OF FASB STATEMENT
NO. 123. SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The Company will continue to account for stock-based
compensation in accordance with APB Opinion No. 25. The Company adopted the
disclosure-only provisions of SFAS No. 148 on May 31, 2003 (as disclosed in
Note 2 of Unaudited Condensed Notes to Consolidated Financial Statements).
The adoption of the standard did not have an effect on the Company's
consolidated financial position, results of operations or cash flows.
7
NOTE 5: INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined under the last-in, first-out (LIFO) method and market defined as
net realizable value.
Inventories are composed of the following (dollars in thousands):
May 31, August 31,
2003 2002
----------- -----------
Finished goods........... $ 51,172 $ 48,037
Work in process.......... 35,041 26,995
Raw materials............ 53,805 62,194
------------ -----------
140,018 137,226
LIFO reserve............. (24,934) (23,572)
------------ -----------
$ 115,084 $ 113,654
============ ===========
NOTE 6: WARRANTIES
Estimated warranty costs are provided at the time of sale of the warranted
products. Estimates of future warranty costs are based on prior experience
and known current events. The changes in the provision for warranty reserve
for the 39 weeks ended May 31, 2003, are as follows (dollars in thousands):
Balance as of August 31, 2002 $ 8,151
Product warranty provision 10,208
Payments (8,636)
-----------
Balance at May 31, 2003 $ 9,723
===========
NOTE 7: CONTINGENT LIABILITIES AND COMMITMENTS
It is customary practice for companies in the recreation vehicle industry
to enter into repurchase agreements with lending institutions which have
provided wholesale floor plan financing to dealers. The Company's
agreements provide for the repurchase of its products from the financing
institution in the event of repossession upon a dealer's default. The
Company was contingently liable for approximately $280,020,000 and
$206,155,000 under repurchase agreements with lending institutions as of
May 31, 2003 and August 31, 2002, respectively. These repurchase
obligations expire upon the earlier to occur of (i) the dealer's sale of
the financed unit or (ii) one year from the date of the original invoice.
The Company's losses under these repurchase agreements were approximately
$66,000 during the 39 weeks ended May 31, 2003. Included in these
contingent liabilities as of May 31, 2003 and August 31, 2002 are
approximately $993,000 and $1,049,000, respectively, of certain dealer
receivables subject to recourse agreements with Bank of America Specialty
Group. The Company did not incur any actual losses under these recourse
agreements during the 39 weeks ended May 31, 2003.
The Company has also entered into a repurchase agreement with a lending
institution that covers approximately $2,734,000 and $1,698,000 of
repurchase liability as of May 31, 2003 and August 31, 2002, respectively.
This repurchase obligation has a term of two years from the date of the
original invoice. The Company did not incur any actual losses under this
repurchase agreement during the 39 weeks ended May 31, 2003.
The Company records repurchase and recourse reserves based on prior
experience and known current events. The combined repurchase and recourse
reserve balances are approximately $264,000 and $392,000 as of May 31, 2003
and August 31, 2002, respectively.
8
NOTE 8: SUPPLEMENTAL CASH FLOW DISCLOSURE
For the periods indicated, the Company paid cash for the following (dollars
in thousands):
Thirty-Nine Forty
Weeks Ended Weeks Ended
----------- -----------
May 31, June 1,
2003 2002
----------- -----------
Interest $ - - - $ 246
Income taxes 26,907 11,717
NOTE 9: DIVIDEND DECLARED
On March 19, 2003 the Board of Directors declared a cash dividend of $.10
per common share payable July 7, 2003 to shareholders of record on June
6, 2003.
NOTE 10: REPURCHASE OF OUTSTANDING STOCK
On June 19, 2002, the Board of Directors authorized the repurchase of
outstanding shares of the Company's common stock, depending on market
conditions, for an aggregate purchase price of up to $15,000,000. As of
May 31, 2003, 450,200 shares (330,300 shares during fiscal 2003) had been
repurchased for an aggregate consideration of approximately $14,814,000
($10,521,000 during fiscal 2003) under this authorization. At May 31,
2003, $186,000 remained under this authorization.
On March 19, 2003, the Board of Directors authorized the repurchase of
outstanding shares of the Company's common stock, depending on market
conditions, for an aggregate price of up to $20 million. As of May 31,
2003, 345,899 shares had been repurchased for an aggregate consideration
of approximately $9,700,000 under this authorization.
NOTE 11: INCOME PER SHARE
The following table reflects the calculation of basic and diluted
earnings per share for the 13 and 39 weeks ended May 31, 2003 and the 13
and 40 weeks ended June 1, 2002.
Thirty-Nine Forty
Weeks Weeks
Thirteen Weeks Ended Ended Ended
-------------------- ------- -------
In thousands except per share data May 31, June 1, May 31, June 1,
2003 2002 2003 2002
------- ------- ------- -------
Earnings per share - basic
--------------------------
Income from continuing operations $ 8,995 $17,685 $36,764 $36,929
Income from discontinued operations
(net of taxes) 334 409 1,152 1,323
------- ------- ------- -------
Net income $ 9,329 $18,094 $37,916 $38,252
------- ------- ------- -------
Weighted average shares outstanding 18,257 19,552 18,586 20,337
------- ------- ------- -------
Earnings per share - basic $ .51 $ .93 $ 2.04 $ 1.88
------- ------- ------- -------
Earnings per share - assuming dilution
--------------------------------------
Income from continuing operations $ 8,995 $17,685 $36,764 $36,929
Income from discontinued operations
(net of taxes) 334 409 1,152 1,323
------- ------- ------- -------
Net income $ 9,329 $18,094 $37,916 $38,252
------- ------- ------- -------
Weighted average shares outstanding 18,257 19,552 18,586 20,337
Dilutive impact of options outstanding 292 443 339 442
------- ------- ------- -------
Weighted average shares & potential
dilutive shares outstanding 18,549 19,995 18,925 20,779
------- ------- ------- -------
Earnings per share - assuming dilution $ .50 $ .90 $ 2.00 $ 1.84
------- ------- ------- -------
9
There were options outstanding to purchase 14,000 shares of common stock at
a price of $39.475 per share, 184,800 shares of common stock at a price of
$36.50 per share and 14,000 shares of common stock at a price of $37.685
per share during the 13 weeks ended May 31, 2003. These options were not
included in the computation of diluted earnings per share during the 13
weeks ended May 31, 2003 because the options' exercise price was greater
than the average market price of the common stock.
For the 13 weeks ended June 1, 2002, all options were included in the
computation of diluted earnings per share because no options' exercise
price was greater than the average market price of the common stock.
NOTE 12: BUSINESS SEGMENT INFORMATION
Due to the sale of WAC's dealer financing receivables on April 24, 2003
(see Note 3 of Unaudited Condensed Notes to Consolidated Financial
Statements), the Company disposed of its Dealer Financing segment. As a
result, Winnebago Industries now operates in one principal business segment
- Recreation Vehicles and Other Manufactured Products. Recreation Vehicles
and Other Manufactured Products include all data relative to the
manufacturing and selling of the Company's Class A, B and C motor home
products as well as sales of component products for other manufacturers and
Recreation Vehicle related parts and service revenue. These product lines
have similar economic characteristics and are similar in the nature of
products, manufacturing processes, customer characteristics and
distribution methods.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING INFORMATION
Certain of the matters discussed in this report may be "forward looking
statements" as defined in the Private Securities Litigation Reform Act of 1995,
which involve risks and uncertainties, including, but not limited to reactions
to actual or threatened terrorist attacks, the availability and price of fuel, a
significant increase in interest rates, a slowdown in the economy, availability
of chassis, sales order cancellations, slower than anticipated sales of new or
existing products, new products introduced by competitors and other factors
which may be disclosed throughout this report. Any forecasts and projections in
this report are "forward looking statements," and are based on management's
current expectations of the Company's near-term results, based on current
information available pertaining to the Company, including the aforementioned
risk factors; actual results could differ materially. The Company undertakes no
obligation to publicly update or revise any forward looking statements whether
as a result of new information, future events or otherwise, except as required
by law or the rules of the New York Stock Exchange.
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements, the Company follows
accounting principles generally accepted in the United States of America, which
in many cases require us to make assumptions, estimates and judgments that
affect the amounts reported. There are some policies that are especially
critical because they are important in determining the financial condition and
results of operations. These policies are described below and involve additional
management judgment due to the sensitivity of the methods, assumptions and
estimates necessary in determining the related income statement, asset and/or
liability amounts.
The Company offers to its customers a variety of warranties on its products
ranging from 1 to 10 years in length. Estimated costs related to product
warranty are accrued at the time of sale and included in cost of sales.
Estimated costs are based upon past warranty claims and unit sales history and
adjusted as required to reflect actual costs incurred, as information becomes
available (see Note 6 of Unaudited Condensed Notes to Consolidated Financial
Statements).
The Company has reserves for other loss exposures such as product liability,
litigation and accounts receivable. The Company also has loss exposure on loan
guarantees and repurchase agreements (see Note 7 of Unaudited Condensed Notes to
Consolidated Financial Statements). Establishing loss reserves for these matters
requires the use of estimates and judgments in regards to risk exposure and
ultimate liability. The Company estimates losses using consistent and
appropriate methods; however, changes in assumptions could materially affect the
Company's recorded liabilities for loss. Reference is also made to the
description of the Company's critical accounting policies included in the
Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2002.
RESULTS OF OPERATIONS
Thirteen Weeks Ended May 31, 2003 Compared to Thirteen Weeks Ended June 1, 2002
- -------------------------------------------------------------------------------
Net revenues for the 13 weeks ended May 31, 2003 were $200,211,000, a decrease
of $45,701,000, or 18.6 percent from the 13-week period ended June 1, 2002.
Motor home unit sales (Class A and C) were 2,601 units, a decrease of 754 units,
or 22.5 percent, during the third quarter of fiscal 2003 compared to the third
quarter of fiscal 2002. When comparing the two quarters, the decrease in revenue
percentage was less than the decrease in unit percentage as the Company's
average unit selling price increased, due to product enhancements. The overall
decrease was caused primarily by lower sales volume.
11
Gross profit, as a percent of net revenues, was 11.6 percent for the 13 weeks
ended May 31, 2003 compared to 14.9 percent for the 13 weeks ended June 1, 2002.
The Company's lower gross profits were due primarily to considerably lower
volume, the Company's factories operating on four-day work weeks for the first
six weeks of the 2003 third quarter, increases in sales discounts and allowances
and start-up costs of the new production facility in Charles City, Iowa.
Selling expenses were $4,652,000 or 2.3 percent of net revenues during the third
quarter of fiscal 2003 compared to $4,257,000 or 1.7 percent of net revenues
during the third quarter of fiscal 2002. The increases in dollars and percentage
were caused primarily by higher advertising costs.
General and administrative expenses were $4,251,000 or 2.1 percent of net
revenues during the 13 weeks ended May 31, 2003 compared to $5,689,000 or 2.3
percent of net revenues during the 13 weeks ended June 1, 2002. The decreases in
dollars and percentage were caused primarily by decreases in employee incentive
programs.
The Company had net financial income of $306,000 for the third quarter of fiscal
2003 compared to net financial income of $623,000 for the comparable quarter of
fiscal 2002. The decrease in financial income when comparing the two periods was
due to lower cash balances available for investing and to lower interest rates
during the period ended May 31, 2003.
The effective income tax rate increased to 38.2 percent during the third quarter
of fiscal 2003 from 35.0 percent during the third quarter of fiscal 2002. The
increase in the effective tax rate was caused primarily by losses in Winnebago
Health Care Management Company which are likely not deductible for tax purposes
due to a change in the Company's tax planning and increased state taxes during
the third quarter of fiscal 2003.
During the third quarter of fiscal 2003, the Company sold a majority of the
Company's dealer financing receivables in Winnebago Acceptance Corporation (WAC)
to GE Commercial Distribution Finance Corporation. Due to this sale the Company
is treating all current year and previous year activity of WAC as discontinued
operations for comparative purposes. Income from discontinued operations (net of
taxes) for the third quarter of fiscal 2003 was $334,000 or $.02 per diluted
share, compared to income of $409,000 or $.02 per diluted share, for the third
quarter of fiscal 2002.
For the third quarter of fiscal 2003, the Company had net income of $9,329,000,
or $.50 per diluted share compared to the third quarter of fiscal 2002's net
income of $18,094,000, or $.90 per diluted share. Net income and earnings per
diluted share decreased by 48.4 percent and 44.4 percent, respectively, when
comparing the third quarter of fiscal 2003 to the third quarter of fiscal 2002.
The difference in percentages when comparing net income to net earnings per
share was primarily due to a lower number of outstanding shares of the Company's
common stock during the 13 weeks ended May 31, 2003 due to the Company's
repurchase of shares during fiscal 2003 and 2002. (See Note 11 of the Unaudited
Condensed Notes to Consolidated Financial Statements).
Thirty-Nine Weeks Ended May 31, 2003 Compared to Forty Weeks Ended June 1, 2002
- -------------------------------------------------------------------------------
Net revenues for the 39 weeks ended May 31, 2003 were $619,516,000, an increase
of $14,395,000, or 2.4 percent from the 40-week period ended June 1, 2002. Motor
home unit sales (Class A and C) were 7,785 units, a decrease of 335 units, or
4.1 percent, during fiscal year-to-date 2003 compared to fiscal year-to-date
2002. When comparing the two periods, revenues increased notwithstanding the
decrease in unit sales because the Company's average unit selling price
increased, due to product enhancements and the Company experienced a favorable
mix of products during the 39 weeks ended May 31, 2003.
Gross profit, as a percent of net revenues, was 13.7 percent for the 39 weeks
ended May 31, 2003 compared to 13.6 percent for the 40 weeks ended June 1, 2002.
Selling expenses were $13,407,000 or 2.2 percent of net revenues during the 39
weeks ended May 31, 2003 compared to $13,567,000 or 2.2 percent of net revenues
during the 40 weeks ended June 1, 2002. The decrease in dollars was caused
primarily by lower sales representative incentive payments offset partially by
higher advertising costs.
12
General and administrative expenses were $12,287,000 or 2.0 percent of net
revenues during the 39 weeks ended May 31, 2003 compared to $14,796,000 or 2.4
percent of net revenues during the 40 weeks ended June 1, 2002. The decreases in
dollars and percentage were caused primarily by decreases in employee incentive
programs and a reduction in the Company's product liability expense.
The Company had net financial income of $1,001,000 for the 39 weeks ended May
31, 2003 compared to net financial income of $2,641,000 for the 40 weeks ended
June 1, 2002. The decrease in financial income when comparing the two periods
was due to lower cash balances available for investing and to lower interest
rates during the period ended May 31, 2003.
The effective income tax rate increased to 38.6 percent during the 39 weeks
ended May 31, 2003 from 34.4 percent during the 40 weeks ended June 1, 2002. The
increase in the effective tax rate was caused primarily by losses in the
Winnebago Health Care Management Company which are likely not deductible for tax
purposes due to a change in the Company's tax planning, increased state taxes
and a reduction of tax-exempt financial income during the 39 weeks ended May 31,
2003.
On April 25, 2003, the Company sold a majority of the Company's dealer financing
receivables in the Winnebago Acceptance Corporation (WAC) to GE Commercial
Distribution Finance Corporation. Due to this sale the Company is treating all
current year and previous year activity of WAC as discontinued operations for
comparative purposes. Income from discontinued operations (net of taxes) for the
39 weeks ended May 31, 2003 was $1,152,000 or $.06 per diluted share, compared
to an income of $1,323,000 or $.06 per diluted share, for the 40 weeks ended
June 1, 2002.
For the 39 weeks ended May 31, 2003, the Company had net income of $37,916,000,
or 2.00 per diluted share compared to the 40 weeks ended June 1, 2002's net
income of $38,252,000, or $1.84 per diluted share. Net income decreased by .9
percent and earnings per diluted share increased by 8.7 percent when comparing
the 39 weeks ended May 31, 2003 to the 40 weeks ended June 1, 2002. The
difference in percentages when comparing net income to net earnings per share
was primarily due to a lower number of outstanding shares of the Company's
common stock during the 39-week period ended May 31, 2003 due to the Company's
repurchase of shares during fiscal 2003 and 2002. (See Note 11 of the Unaudited
Condensed Notes to Consolidated Financial Statements).
LIQUIDITY AND FINANCIAL CONDITION
The Company generally meets its working capital, capital equipment and other
cash requirements with funds generated from operations.
At May 31, 2003, working capital was $150,189,000, an increase of $5,194,000
from the amount at August 31, 2002. The Company's principal uses of cash during
the 39 weeks ended May 31, 2003 were $21,539,000 for the purchase of property
and equipment, $20,221,000 for the purchase of shares of the Company's Common
Stock and $1,887,000 for the payment of cash dividends. The Company's sources
and uses of cash during the 39 weeks ended May 31, 2003 are set forth in the
unaudited consolidated condensed statement of cash flows for that period.
Principal known demands at May 31, 2003 on the Company's liquid assets for the
remainder of fiscal 2003 include capital expenditures of approximately
$5,000,000 and approximately $1,815,000 for the payment of cash dividends. On
March 19, 2003, the Board of Directors authorized the purchase of outstanding
shares of the Company's common stock, depending on market conditions, for an
aggregate purchase price of up to $20 million. As of May 31, 2003, 345,899
shares had been repurchased for an aggregate consideration of approximately
$9,700,000 under this authorization.
Management currently expects its cash on hand and funds from operations to be
sufficient to cover both short-term and long-term operating requirements.
13
COMPANY OUTLOOK
Long-term demographics are favorable to the Company, as the target market of
U.S. consumers' age 50 and older is anticipated to nearly double within the next
30 years. A recent Consumer Demographic Profile Study completed by the
University of Michigan also found that long-term prospects should be favorably
impacted due to the increased popularity of RVs, the growth in our prime target
audience of people over the age of 50 and broadening age range of people who are
buying the Company's motor homes. Order backlog for the Company's Class A and
Class C motor homes was 1,419 orders on May 31, 2003 compared to 2,689 orders on
June 1, 2002. The Company includes in its backlog all accepted purchase orders
from dealers shippable within the next six months. Orders in backlog can be
canceled or postponed at the option of the purchaser at any time without penalty
and, therefore, backlog may not necessarily be a measure of future sales.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of May 31, 2003, the Company has an investment portfolio of fixed income
securities, which are classified as cash and cash equivalents of $92,747,000, of
which $87,948,000 are fixed income investments that are subject to interest rate
risk.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-14(c) and 15d-14 (c) under the Securities Exchange Act of 1934). Based
on their evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures are, to the
best of their knowledge, effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. Subsequent to
the date of their evaluation, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
14
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Winnebago Industries, Inc.
Forest City, Iowa
We have reviewed the accompanying condensed consolidated balance sheet of
Winnebago Industries, Inc. and subsidiaries (the Company) as of May 31, 2003,
and the related condensed consolidated statements of income and cash flows for
the 13-week and 39-week periods ended May 31, 2003 and the 13-week and 40-week
periods ended June 1, 2002, respectively. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America
(generally accepted auditing standards), the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of August 31, 2002,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated October 4, 2002, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of August 31, 2002 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
June 11, 2003
15
PART II Other Information
Item 1. Legal Proceedings
Reference is made to the comments in the Form 10-K for the fiscal year
ended August 31, 2002 with respect to the purported class action captioned
Sanft, et al vs. Winnebago Industries, Inc., et al which was filed in the
United States District Court, Northern District of Iowa, Central Division,
on August 30, 2001. The Plaintiffs filed a Motion for Class Certification
on January 31, 2003 and the Company filed a Resistance thereto. Chief Judge
Mark W. Bennett, U.S. District Court, Northern District of Iowa, entered a
Memorandum Opinion and Order regarding Plaintiffs' Motion for Class
Certification on May 7, 2003 in which he denied the Plaintiffs' Motion for
Class Certification because the Plaintiff Sanft failed to demonstrate that
the proposed class met the numerosity requirements of Federal Rule of Civil
Procedure 23(a)(1). The Plaintiffs thereafter on May 12, 2003 filed a
Motion for Amendment of Order Denying Class Certification in which they in
effect request that Judge Bennett reconsider his decision to deny class
certification. The Company filed a Resistance to Motion for Amendment of
Order Denying Class Certification on May 29, 2003 and the parties are
currently awaiting Judge Bennett's decision thereon.
The Company is also involved in various other legal proceedings which are
ordinary routine litigation to its business, many of which are covered in
whole or in part by insurance. While it is impossible to estimate with
certainty the ultimate legal and financial liability with respect to this
litigation, management is of the opinion that while the final resolution of
any such litigation may have an impact on the Company's consolidated
results for a particular reporting period, the ultimate disposition of such
litigation will not have any material adverse effect on the Company's
financial position, results of operations or liquidity.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index on page 18.
(b) 8-K filings during quarter ended May 31, 2003.
On March 18, 2003 the Company filed a report on Form 8-K relating to a
press release issued by the Company to announce its second quarter and
26 week earnings.
On April 28, 2003 the Company filed a report on Form 8-K relating to a
press release issued by the Company to report the sale of the majority
of the Company's dealer financing receivables in WAC to GE Commerical
Distribution Finance Corporation.
16
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Bruce D. Hertzke, Chief Executive Officer of Winnebago Industries, Inc.,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Winnebago
Industries, Inc. (the "Registrant");
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this Quarterly Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's Board of Directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: July 11, 2003
---------------------
By:
----------------------------
Bruce D. Hertzke
Chief Executive Officer
17
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Edwin F. Barker, Chief Financial Officer of Winnebago Industries, Inc.,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Winnebago
Industries, Inc. (the "Registrant");
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this Quarterly Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's Board of Directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: July 11, 2003
---------------------
By:
----------------------------
Edwin F. Barker
Chief Financial Officer
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINNEBAGO INDUSTRIES, INC.
-----------------------------------------------
(Registrant)
Date: July 11, 2003
--------------------- -----------------------------------------------
Bruce D. Hertzke
Chairman of the Board, Chief Executive Officer,
and President
(Principal Executive Officer)
Date: July 11, 2003
--------------------- -----------------------------------------------
Edwin F. Barker
Senior Vice President - Chief Financial Officer
(Principal Financial Officer)
19
EXHIBIT INDEX
10w. Two Subordination Agreements both dated April 24, 2003 between Winnebago
Acceptance Corporation and GE Commercial Distribution Finance Corporation.
99. 906 certification.
20