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EX-31.1 - CERTIFICATION BY THE CEO PURSUANT TO SECTION 302 - WINNEBAGO INDUSTRIES INCwgo2015q1exh311.htm
EX-31.2 - CERTIFICATION BY THE CFO PURSUANT TO SECTION 302 - WINNEBAGO INDUSTRIES INCwgo2015q1exh312.htm
EX-32.1 - CERTIFICATION BY THE CEO PURSUANT TO SECTION 906 - WINNEBAGO INDUSTRIES INCwgo2015q1exh321.htm
EX-32.2 - CERTIFICATION BY THE CFO PURSUANT TO SECTION 906 - WINNEBAGO INDUSTRIES INCwgo2015q1exh322.htm
10-Q - PRINTABLE PDF OF FORM 10-Q AND EXHIBITS FOR PERIOD ENDING NOVEMBER 29, 2014 - WINNEBAGO INDUSTRIES INCwgo2015q110qexh.pdf
EXCEL - IDEA: XBRL DOCUMENT - WINNEBAGO INDUSTRIES INCFinancial_Report.xls

 

UNITED STATES
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 November 29, 2014
 
 
or
 
 
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from _________________ to _________________
 
 
 
 
 
Commission File Number: 001-06403
 


WINNEBAGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Iowa
 
 
42-0802678
(State or other jurisdiction of incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
 
 
 
 
P. O. Box 152, Forest City, Iowa
 
 
50436
(Address of principal executive offices)
 
 
(Zip Code)
 
 
 
 
 
 
 
(641) 585-3535
 
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer  x
 
 Non-accelerated filer o
 
 Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of common stock, par value $0.50 per share, outstanding December 29, 2014 was 26,920,456.

 



Winnebago Industries, Inc.
Table of Contents

 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A
Item 2.
Item 6.
 
 
 




Glossary


The following terms and abbreviations appear in the text of this report and are defined as follows:
AOCI
Accumulated Other Comprehensive Income (Loss)
Amended Credit Agreement
Credit Agreement dated as of May 28, 2014 by and between Winnebago Industries, Inc. and Winnebago of Indiana, LLC, as Borrowers, and General Electric Capital Corporation, as Agent
Apollo
Apollo Motorhome Holidays, LLC
ASC
Accounting Standards Codification
ASP
Average Sales Price
ASU
Accounting Standards Update
Credit Agreement
Credit Agreement dated as of October 31, 2012 by and between Winnebago Industries, Inc. and Winnebago of Indiana, LLC, as Borrowers, and General Electric Capital Corporation, as Agent (was amended May 28, 2014)
FASB
Financial Accounting Standards Board
FIFO
First In, First Out
GAAP
Generally Accepted Accounting Principles
GECC
General Electric Capital Corporation
IRS
Internal Revenue Service
IT
Information Technology
LIBOR
London Interbank Offered Rate
LIFO
Last In, First Out
NMF
Non-Meaningful Figure
NYSE
New York Stock Exchange
OCI
Other Comprehensive Income
RV
Recreation Vehicle
RVIA
Recreation Vehicle Industry Association
SEC
U.S. Securities and Exchange Commission
SERP
Supplemental Executive Retirement Plan
Stat Surveys
Statistical Surveys, Inc.
Towables
Winnebago of Indiana, LLC, a wholly-owned subsidiary of Winnebago Industries, Inc.
US
United States of America
XBRL
eXtensible Business Reporting Language
YTD
Year To Date



1


PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Winnebago Industries, Inc.
Consolidated Statements of Income and Comprehensive Income
(Unaudited)

 
 
Three Months Ended
(In thousands, except per share data)
 
November 29,
2014
 
November 30,
2013
Net revenues
 
$
224,403

 
$
222,670

Cost of goods sold
 
200,017

 
196,708

Gross profit
 
24,386

 
25,962

Operating expenses:
 
 
 
 
Selling
 
4,707

 
4,333

General and administrative
 
5,237

 
5,623

Total operating expenses
 
9,944

 
9,956

Operating income
 
14,442

 
16,006

Non-operating income
 
7

 
91

Income before income taxes
 
14,449

 
16,097

Provision for taxes
 
4,554

 
4,951

Net income
 
$
9,895

 
$
11,146

 
 
 
 
 
Income per common share:
 
 
 
 
Basic
 
$
0.37

 
$
0.40

Diluted
 
$
0.37

 
$
0.40

 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
Basic
 
26,969

 
27,851

Diluted
 
27,078

 
27,971

 
 
 
 
 
Net income
 
$
9,895

 
$
11,146

Other comprehensive (loss) income:
 
 
 
 
Amortization of prior service credit
  (net of tax of $492 and $482)
 
(800
)
 
(800
)
Amortization of net actuarial loss
  (net of tax of $122 and $99)
 
199

 
164

Unrealized appreciation of investments
  (net of tax of $0 and $91)
 

 
151

Total other comprehensive loss
 
(601
)
 
(485
)
Comprehensive income
 
$
9,294

 
$
10,661


See notes to consolidated financial statements.



2


Winnebago Industries, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data)
November 29,
2014
 
August 30,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
27,803

 
$
57,804

Receivables, less allowance for doubtful accounts ($124 and $127)
62,801

 
69,699

Inventories
150,753

 
112,848

Net investment in operating leases
9,951

 
15,978

Prepaid expenses and other assets
6,520

 
5,718

Income taxes receivable and prepaid
5

 
5

Deferred income taxes
9,796

 
9,641

Total current assets
267,629

 
271,693

Property, plant and equipment, net
26,295

 
25,135

Investment in life insurance
25,303

 
25,126

Deferred income taxes
24,091

 
24,029

Goodwill
1,228

 
1,228

Other assets
10,021

 
11,091

Total assets
$
354,567

 
$
358,302

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
40,298

 
$
33,111

Income taxes payable
4,471

 
2,927

Accrued expenses:
 
 
 
Accrued compensation
14,659

 
20,763

Operating lease repurchase obligations
10,177

 
16,050

Product warranties
9,090

 
9,501

Self-insurance
5,108

 
4,941

Accrued loss on repurchases
1,121

 
2,212

Promotional
3,991

 
3,205

Other
5,379

 
7,009

Total current liabilities
94,294

 
99,719

Long-term liabilities:
 
 
 
Unrecognized tax benefits
2,905

 
3,024

Postretirement health care and deferred compensations benefits
61,637

 
62,811

Total long-term liabilities
64,542

 
65,835

Contingent liabilities and commitments


 


Stockholders' equity:
 
 
 
Capital stock common, par value $0.50;
   authorized 60,000 shares, issued 51,776 shares
25,888

 
25,888

Additional paid-in capital
31,484

 
31,672

Retained earnings
561,949

 
554,496

Accumulated other comprehensive income
(2,409
)
 
(1,808
)
Treasury stock, at cost (24,865 and 24,727 shares)
(421,181
)
 
(417,500
)
Total stockholders' equity
195,731

 
192,748

Total liabilities and stockholders' equity
$
354,567

 
$
358,302


See notes to consolidated financial statements.

3


Winnebago Industries, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
(In thousands)
November 29,
2014
 
November 30,
2013
Operating activities:
 
 
 
Net income
$
9,895

 
$
11,146

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
1,061

 
984

LIFO expense
380

 
431

Stock-based compensation
901

 
952

Deferred income taxes including valuation allowance
(447
)
 
366

Postretirement benefit income and deferred compensation expense
(154
)
 
(139
)
Benefit for doubtful accounts
(4
)
 

(Gain) loss on disposal of property
(17
)
 
8

Increase in cash surrender value of life insurance policies
(187
)
 
(286
)
Change in assets and liabilities:
 
 
 
Inventories
(38,285
)
 
(10,368
)
Receivables, prepaid and other assets
6,841

 
(13,928
)
Investment in operating leases, net of repurchase obligations
154

 

Income taxes and unrecognized tax benefits
1,794

 
4,584

Accounts payable and accrued expenses
(632
)
 
(4,675
)
Postretirement and deferred compensation benefits
(922
)
 
(970
)
Net cash used in operating activities
(19,622
)
 
(11,895
)
 
 
 
 
Investing activities:
 
 
 
Proceeds from the sale of investments, at par

 
2,350

Purchases of property and equipment
(2,310
)
 
(1,693
)
Proceeds from the sale of property
17

 
1

Other
293

 
153

Net cash (used in) provided by investing activities
(2,000
)
 
811

 
 
 
 
Financing activities:
 
 
 
Payments for purchases of common stock
(5,950
)
 
(5,561
)
Payments of cash dividends
(2,442
)
 

Proceeds from exercise of stock options

 
2,080

Other
13

 
25

Net cash used in financing activities
(8,379
)
 
(3,456
)
 
 
 
 
Net decrease in cash and cash equivalents
(30,001
)
 
(14,540
)
Cash and cash equivalents at beginning of period
57,804

 
64,277

Cash and cash equivalents at end of period
$
27,803

 
$
49,737

 
 
 
 
Supplement cash flow disclosure:
 
 
 
Income taxes paid, net of refunds
$
3,207

 
$


See notes to consolidated financial statements.

4


Winnebago Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)


Note 1: Basis of Presentation
The "Company," "we," "our" and "us" are used interchangeably to refer to Winnebago Industries, Inc. and its wholly-owned subsidiary, Winnebago of Indiana, LLC, as appropriate in the context.

We were incorporated under the laws of the state of Iowa on February 12, 1958 and adopted our present name on February 28, 1961. Our executive offices are located at 605 West Crystal Lake Road in Forest City, Iowa. Our telephone number is (641) 585-3535; our website is www.winnebagoind.com. Our common stock trades on the NYSE under the symbol “WGO.”

In our opinion, the accompanying condensed unaudited consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly our consolidated financial position as of November 29, 2014 and the consolidated results of income and comprehensive income and consolidated cash flows for the first three months of Fiscal 2015 and 2014. The consolidated statement of operations and comprehensive income for the first three months of Fiscal 2015 is not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet data as of August 30, 2014 was derived from audited financial statements, but does not include all of the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended August 30, 2014.

Fiscal Period
We follow a 52-/53-week fiscal year, ending the last Saturday in August. Both Fiscal 2015 and Fiscal 2014 are 52-week years.

New Accounting Pronouncements
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740), which clarifies the presentation requirements of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists at the reporting date. ASU 2013-11 became effective for fiscal years beginning after December 15, 2013 (our Fiscal 2015). We adopted this guidance in Fiscal 2015 which resulted in no significant impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which specifies how and when to recognize revenue as well as providing informative, relevant disclosures. ASU 2014-09 will become effective for fiscal years beginning after December 15, 2016 (our Fiscal 2018). We are currently evaluating the impact on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Going Concern (Subtopic 205-40), which provides guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and related footnote disclosures. ASU 2014-15 will become effective for years ending after December 15, 2016 (our Fiscal 2017). We are currently evaluating the impact of ASU 2014-15 on our consolidated financial statements.

Note 2: Concentration Risk

One of our dealer organizations accounted for 19.0% and 11.2% of our consolidated net revenue for the first three months of Fiscal 2015 and Fiscal 2014, respectively. A second dealer organization accounted for 18.0% and 19.8% of our consolidated net revenue for the first three months of Fiscal 2015 and Fiscal 2014, respectively. The loss of either or both of these dealer organizations could have a significant adverse effect on our business. In addition, deterioration in the liquidity or creditworthiness of these dealers could negatively impact our sales and could trigger repurchase obligations under our repurchase agreements.

Note 3: Investments and Fair Value Measurements
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
We account for fair value measurements in accordance with ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurement. The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

Cash Equivalents
The carrying value of cash equivalents approximates fair value as original maturities are less than three months. Our cash equivalents are comprised of money market funds traded in an active market with no restrictions.


5


The following tables set forth by level within the fair value hierarchy our financial assets that were accounted for at fair value on a recurring basis at November 29, 2014 and August 30, 2014 according to the valuation techniques we used to determine their fair values:
 
 
 
 
Fair Value Measurements
Using Inputs Considered As
(In thousands)
 
Fair Value at
November 29,
2014
 
Level 1 Quoted Prices in Active Markets for Identical Assets
 
Level 2 Significant Other
Observable Inputs
 
Level 3 Significant
Unobservable Inputs
Assets that fund deferred compensation:
 
 
 
 
 
 
 
 
  Domestic equity funds
 
$
5,422

 
$
5,422

 
$

 
$

  International equity funds
 
609

 
609

 

 

  Fixed income funds
 
245

 
245

 

 

Total assets at fair value
 
$
6,276

 
$
6,276

 
$

 
$


 
 
 
 
Fair Value Measurements
Using Inputs Considered As
(In thousands)
 
Fair Value at
August 30,
2014
 
Level 1 Quoted Prices in Active Markets for Identical Assets
 
Level 2 Significant Other
Observable Inputs
 
Level 3 Significant
Unobservable Inputs
Assets that fund deferred compensation:
 
 
 
 
 
 
 
 
  Domestic equity funds
 
$
5,465

 
$
5,465

 
$

 
$

  International equity funds
 
716

 
716

 

 

  Fixed income funds
 
242

 
242

 

 

Total assets at fair value
 
$
6,423

 
$
6,423

 
$

 
$


The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3):
 
 
Three Months Ended
(In thousands)
 
November 29,
2014
 
November 30,
2013
Balance at beginning of period
 
$

 
$
2,108

Transfer to Level 2
 

 

Net change included in other comprehensive income
 

 
242

Sales
 

 
(2,350
)
Balance at end of period
 
$

 
$

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
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. They are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. These securities fund the Executive Share Option Plan (see Note 9), a deferred compensation program, and are presented as other assets in the accompanying balance sheets.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Our non-financial assets, which include goodwill and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, we must evaluate the non-financial asset for impairment. If an impairment did occur, the asset is required to be recorded at the estimated fair value. During the first three months of Fiscal 2015, no impairments were recorded for non-financial assets.


6


Note 4: Inventories
Inventories consist of the following:
(In thousands)
 
November 29,
2014
 
August 30,
2014
Finished goods
 
$
25,372

 
$
28,029

Work-in-process
 
80,819

 
49,919

Raw materials
 
76,242

 
66,200

Total
 
182,433

 
144,148

LIFO reserve
 
(31,680
)
 
(31,300
)
Total inventories
 
$
150,753

 
$
112,848

The above value of inventories, before reduction for the LIFO reserve, approximates replacement cost. Of the $182.4 million and $144.1 million inventory at November 29, 2014 and August 30, 2014, respectively, $171.6 million and $137.7 million is valued on a LIFO basis. Towables inventory of $10.8 million and $6.4 million at November 29, 2014 and August 30, 2014, respectively, is valued on a FIFO basis.

Note 5: Net Investment in Operating Leases and Operating Lease Repurchase Obligation

During the third quarter of Fiscal 2014 we delivered 520 RV rental units to Apollo, a US RV rental company. Under the terms of a sales agreement with Apollo, all units were paid for upon delivery. To secure an order of this magnitude, we contractually agreed to repurchase up to 343 of the units at specified prices after one season of rental use (by no later than December 31, 2014) provided certain conditions are met. On December 29, 2014 the repurchase timing was extended from December 31, 2014 to February 28, 2015. The original cost of these units is being depreciated down to the estimated net realizable value of the rental units during the time frame that the units are in rental use. During the first quarter of Fiscal 2015, we were released of repurchase obligation for 124 units as Apollo sold the units in the market place. As units subject to repurchase are sold, we remove the remaining net investment in operating lease as well as the operating lease repurchase obligation. As a result, the remaining units subject to repurchase are accounted for as operating leases and lease repurchase obligations on the balance sheet of $10.0 million and $10.2 million, respectively, at November 29, 2014.

Estimated net lease revenue is being recorded ratably over the rental period that Apollo holds the units based upon the difference between the proceeds received and the estimated repurchase obligation less the estimated depreciation expense of the unit. If we are required to repurchase units from Apollo, we will record a gain or loss for the difference, if any, between the estimated residual value of the unit and the actual resale value as a component of net lease revenue. We recorded net lease revenue of $626,000 and $714,000 during Fiscal 2014 and the first quarter of Fiscal 2015, respectively.

Note 6: Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and consists of the following:
(In thousands)
 
November 29,
2014
 
August 30,
2014
Land
 
$
738

 
$
738

Buildings and building improvements
 
47,654

 
47,273

Machinery and equipment
 
90,674

 
90,101

Software
 
4,420

 
4,356

Transportation
 
9,265

 
9,098

Total property, plant and equipment, gross
 
152,751

 
151,566

Less accumulated depreciation
 
(126,456
)
 
(126,431
)
Total property, plant and equipment, net
 
$
26,295

 
$
25,135


Note 7: Credit Facilities
On October 31, 2012, we entered into the Credit Agreement with GECC. The Credit Agreement provides for an initial $35.0 million revolving credit facility based on the Company's eligible inventory and was to expire on October 31, 2015, unless terminated earlier in accordance with its terms. There is no termination fee associated with the Credit Agreement.

The Credit Agreement contains no financial covenant restrictions for borrowings where we have excess borrowing availability under the facility of greater than $5.0 million. The Credit Agreement requires us to comply with a fixed charge ratio if excess borrowing availability under the facility is less than $5.0 million. In addition the Credit Agreement also includes a framework to expand the

7


size of the facility up to $50.0 million, based on mutually agreeable terms at the time of the expansion. The initial unused line fee associated with the Credit Agreement is 0.5% per annum and has the ability to be lowered based upon facility usage.

The Credit Agreement contains typical affirmative representations and covenants for a credit agreement of this size and nature. Additionally, the Credit Agreement contains negative covenants limiting our ability, among other things, to incur debt, grant liens, make acquisitions, make certain investments, pay certain dividends and distributions, engage in mergers, consolidations or acquisitions and sell certain assets. Obligations under the Credit Agreement are secured by a security interest in all of our accounts and other receivables, chattel paper, documents, deposit accounts, instruments, equipment, inventory, investment property, leasehold interest, cash and cash equivalents, letter-of-credit rights, most real property and fixtures and certain other business assets.

On May 28, 2014, we amended this Credit Agreement (the "Amended Credit Agreement"). The Amended Credit Agreement extends the term of the credit facility from October 31, 2015 to May 28, 2019.  In addition, interest on loans made under the Amended Credit Facility will be based on LIBOR plus a margin of 2.0%.  The amendment also revised and added definitions of several terms including an expanded Restricted Payment Basket that now permits up to $15.0 million purchases of company stock and cash dividends to be excluded from the Fixed Charge ratio annually.  In addition, the definition of Eligible Accounts was expanded to permit certain receivables to be included in the Borrowing Base.  The Amended Credit Agreement also permits us to engage in certain sale lease buyback transactions in the ordinary course of business subject to certain restrictions and increases our ability to incur capital lease obligations.

As of the date of this report, we are in compliance with all material terms of the Amended Credit Agreement, and no borrowings have been made thereunder.

Note 8: Warranty

We provide our motorhome customers a comprehensive 12-month/15,000-mile warranty on our Class A, B and C motorhomes, and a 3-year/36,000-mile structural warranty on Class A and C sidewalls and floors. We provide a comprehensive 12-month warranty on all towable products. We have also incurred costs for certain warranty-type expenses which occurred after the normal warranty period. We have voluntarily agreed to pay such costs to help protect the reputation of our products and the goodwill of our customers. Estimated costs related to product warranty are accrued at the time of sale and are based upon past warranty claims and unit sales history and adjusted as required to reflect actual costs incurred, as information becomes available. A significant increase in dealership labor rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize.

Changes in our product warranty liability are as follows:
 
 
Three Months Ended
(In thousands)
 
November 29,
2014
 
November 30,
2013
Balance at beginning of period
 
$
9,501

 
$
8,443

Provision
 
2,577

 
2,770

Claims paid
 
(2,988
)
 
(2,868
)
Balance at end of period
 
$
9,090

 
$
8,345



8


Note 9: Employee and Retiree Benefits
Postretirement health care and deferred compensation benefits are as follows:
(In thousands)
 
November 29,
2014
 
August 30,
2014
Postretirement health care benefit cost
 
$
37,142

 
$
36,930

Non-qualified deferred compensation
 
20,672

 
21,014

Executive share option plan liability
 
5,517

 
5,628

SERP benefit liability
 
2,999

 
2,974

Executive deferred compensation
 
289

 
213

Officer stock-based compensation
 
314

 
627

Total postretirement health care and deferred compensation benefits
 
66,933

 
67,386

Less current portion (1)
 
(5,296
)
 
(4,575
)
Long-term postretirement health care and deferred compensation benefits
 
$
61,637

 
$
62,811

(1) The current portions of these benefits are presented on the consolidated balance sheets in accrued compensation with the exception of postretirement health care which is included in other accrued expenses.
Postretirement Health Care Benefits
We provide certain health care and other benefits for retired employees hired before April 1, 2001, who have fulfilled eligibility requirements at age 55 with 15 years of continuous service. We use a September 1 measurement date for this plan and our postretirement health care plan currently is not funded. Changes in the postretirement benefit plan include:
In Fiscal 2005, we established dollar caps on the amount that we will pay for postretirement health care benefits per retiree on an annual basis so that we were not exposed to continued medical inflation. Retirees are required to pay a monthly premium in excess of the employer dollar caps for medical coverage based on years of service and age at retirement.
In January 2012 the employer-established dollar caps were reduced by 10%, which reduced our liability for postretirement health care by $4.6 million and is being amortized as prior service credit over 7.8 years.
In January 2013 the employer-established dollar caps were further reduced by 10%, which reduced our liability for postretirement health care by approximately $4.3 million and is being amortized as prior service credit over 7.5 years.
In January 2014 the employer-established dollar caps were further reduced by 10%, which reduced our liability for postretirement health care by approximately $3.6 million and is being amortized as prior service credit over 7.3 years.
In October 2014 our Board of Directors approved an additional reduction in the employer dollar caps to be effective in January 2015 whereby the employer-established dollar caps for postretirement health care benefits per eligible employee will be reduced by 10% which is estimated to reduce our liability for postretirement health care by approximately $2.1 million and will be amortized as prior service credit over 7.1 years.

Net periodic postretirement benefit income consisted of the following components:
 
 
Three Months Ended
(In thousands)
 
November 29,
2014
 
November 30,
2013
Interest cost
 
$
353

 
$
395

Service cost
 
110

 
101

Amortization of prior service benefit
 
(1,291
)
 
(1,281
)
Amortization of net actuarial loss
 
316

 
260

Net periodic postretirement benefit income
 
$
(512
)
 
$
(525
)
 
 
 
 
 
Payments for postretirement health care
 
$
251

 
$
273

 
Note 10: Stockholders' Equity
Stock-Based Compensation
We have a 2014 Omnibus Equity, Performance Award, and Incentive Compensation Plan (as amended, the "Plan") approved by shareholders in place which allows us to grant or issue non-qualified stock options, incentive stock options, share awards and other equity compensation to key employees and to non-employee directors.
On October 15, 2014 and October 16, 2013 the Human Resources Committee of the Board of Directors granted an aggregate of 99,600 and 84,200 shares, respectively, of restricted common stock to our key employees and non-employee directors under the Plan. The value of the restricted stock award is determined using the intrinsic value method which, in this case, is based on the number of shares granted and the closing price of our common stock on the date of grant.

9


Stock-based compensation expense was $901,000 and $952,000 during the first quarters of Fiscal 2015 and 2014, respectively. Of the $901,000 in Fiscal 2015, $629,000 related to the October 15, 2014 grant of 99,600 shares. The remainder is related to the amortization of previously granted restricted stock awards, as well as non-employee director stock units issued in lieu of director fees. Compensation expense is recognized over the requisite service period of the award or over a period ending with the employee's eligible retirement date, if earlier.
Dividends
On October 15, 2014, the Board of Directors declared a quarterly cash dividend of $0.09 per share of common stock, which was paid on November 26, 2014 to shareholders of record at the close of business on November 12, 2014.

On December 17, 2014, the Board of Directors declared a quarterly cash dividend of $0.09 per share of common stock, payable on February 4, 2015 to shareholders of record at the close of business on January 21, 2015.

Note 11: Contingent Liabilities and Commitments
Repurchase Commitments
Generally, manufacturers in the RV industry enter into repurchase agreements with lending institutions which have provided wholesale floorplan financing to dealers. Most dealers' RVs are financed on a "floorplan" basis under which a bank or finance company lends the dealer all, or substantially all, of the purchase price, collateralized by a security interest in the recreation vehicles purchased.
Our repurchase agreements provide that, in the event of default by the dealer on the agreement to pay the lending institution, we will repurchase the financed merchandise. The terms of these agreements, which generally can last up to 18 months, provide that our liability will be the lesser of remaining principal owed by the dealer or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our contingent liability on these repurchase agreements was approximately $386.9 million and $363.8 million at November 29, 2014 and August 30, 2014, respectively.
In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary relationship terminations. Although laws vary from state to state, some states have laws in place that require manufacturers of recreation vehicles to repurchase current inventory if a dealership exits the business. Incremental repurchase exposure beyond existing repurchase agreements, related to dealer inventory in states that we have had historical experience of repurchasing inventory, totaled $5.8 million and $6.8 million at November 29, 2014 and August 30, 2014, respectively.
Our risk of loss related to our repurchase commitments is significantly reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous dealers and lenders. The aggregate contingent liability related to our repurchase agreements represents all financed dealer inventory at the period reporting date subject to a repurchase agreement, net of the greater of periodic reductions per the agreement or dealer principal payments. Based on the repurchase exposure as previously described, we established an associated loss reserve. Our accrued losses on repurchases were $1.1 million as of November 29, 2014 and $2.2 million as of August 30, 2014.
A summary of repurchase activity is as follows:
 
 
Three Months Ended
(Dollars in thousands)
 
November 29,
2014
 
November 30,
2013
Inventory repurchased:
 
 
 
 
Units
 
54

 
14

Dollars
 
$
7,266

 
$
325

Inventory resold:
 
 
 
 
Units
 
1

 
14

Cash collected
 
$
20

 
$
257

Loss recognized
 
$
12

 
$
68

Units in ending inventory
 
53

 


The majority of units in ending inventory at November 29, 2014 are attributed to a single dealership. Notification to repurchase the units was received in mid November. It is our intention that these units will be resold during the second quarter of Fiscal 2015. A specific reserve was established for these units and has been netted against the inventory valuation.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our loss reserve for repurchase commitments. A hypothetical change of a 10% increase or decrease in our significant repurchase commitment assumptions at November 29, 2014 would have affected net income by approximately $271,000.

10


  
Litigation
We are involved in various legal proceedings which are ordinary litigation incidental to our business, some of which are covered in whole or in part by insurance. We believe while the final resolution of any such litigation may have an impact on our results for a particular reporting period, the ultimate disposition of such litigation will not have any material adverse effect on our financial position, results of operations or liquidity.
Note 12: Income Taxes
We account for income taxes under ASC 740, Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.

We file tax returns in the US federal jurisdiction, as well as various international and state jurisdictions. Although certain years are no longer subject to examinations by the IRS and various state taxing authorities, net operating loss carryforwards generated in those years may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a future period. As of November 29, 2014, our federal returns from Fiscal 2011 to present continue to be subject to review by the IRS. With few exceptions, the state returns from Fiscal 2009 to present continue to be subject to review by the taxing jurisdictions. A number of years may elapse before an uncertain tax position is audited and finally resolved, and it is often very difficult to predict the outcome of such audits.

As of November 29, 2014, our unrecognized tax benefits were $2.9 million including accrued interest and penalties of $1.2 million. If we were to prevail on all unrecognized tax benefits recorded, $2.0 million of the $2.9 million would benefit the overall effective tax rate. It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits as tax expense. It is reasonably possible that the amount of unrecognized tax benefits with respect to our other unrecognized tax positions will increase or decrease during the next twelve months; however, an estimate of the amount or range of the change cannot be made at this time.

Note 13: Earnings Per Share
The following table reflects the calculation of basic and diluted income per share:
 
 
Three Months Ended
(In thousands, except per share data)
 
November 29,
2014
 
November 30,
2013
Income per share - basic
 
 
 
 
Net income
 
$
9,895

 
$
11,146

Weighted average shares outstanding
 
26,969

 
27,851

Net income per share - basic
 
$
0.37

 
$
0.40

 
 
 
 
 
Income per share - assuming dilution
 
 
 
 
Net income
 
$
9,895

 
$
11,146

Weighted average shares outstanding
 
26,969

 
27,851

Dilutive impact of awards and options outstanding
 
109

 
120

Weighted average shares and potential dilutive shares outstanding
 
27,078

 
27,971

Net income per share - assuming dilution
 
$
0.37

 
$
0.40


At the end of the first quarters of Fiscal 2015 and Fiscal 2014, there were options outstanding to purchase 212,154 shares and 364,042 shares, respectively, of common stock at an average price of $29.17 and $32.36, respectively, which were not included in the computation of diluted income per share because they are considered anti-dilutive under the treasury stock method per ASC 260, Earnings Per Share.


11


Note 14: Comprehensive Income

Changes in AOCI by component, net of tax, were:
 
 
Three Months Ended
 
 
November 29, 2014
 
November 30, 2013
(In thousands)
 
Defined
Benefit
Pension
Items
Unrealized
Gains and Losses on
Available-
for-Sale Securities
Total
 
Defined
Benefit
Pension
Items
Unrealized
Gains and Losses on
Available-
for-Sale Securities
Total
Balance at beginning of period
 
$
(1,808
)
$

$
(1,808
)
 
$
1,000

$
(151
)
$
849

 
 
 
 
 
 
 
 
 
OCI before reclassifications
 



 

151

151

Amounts reclassified from AOCI
 
(601
)

(601
)
 
(636
)

(636
)
Net current-period OCI
 
(601
)

(601
)
 
(636
)
151

(485
)
 
 
 
 
 
 
 
 
 
Balance at end of period
 
$
(2,409
)
$

$
(2,409
)
 
$
364

$

$
364


Reclassifications out of AOCI in net periodic benefit costs, net of tax, were:
 
 
 
 
Three Months Ended
(In thousands)
 
Location on Consolidated Statements
of Operations and Comprehensive Income
 
November 29,
2014
 
November 30,
2013
Amortization of prior service credit
 
Operating expenses
 
$
(800
)
 
$
(800
)
Amortization of net actuarial loss
 
Operating expenses
 
199

 
164

Total reclassifications
 
 
 
$
(601
)
 
$
(636
)

Note 15: Subsequent Event

We evaluated all events or transactions occurring between the balance sheet date for the quarterly period ended November 29, 2014 and the date of issuance of the financial statements that would require recognition or disclosure in the financial statements. There were no material subsequent events except as noted in Note 5 and Note 10.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This management's discussion should be read in conjunction with the Condensed Unaudited Financial Statements contained in this Form 10-Q as well as the Management's Discussion and Analysis and Risk Factors included in our Annual Report on Form 10‑K for the fiscal year ended August 30, 2014 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Forward-Looking Information

Certain of the matters discussed in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. A number of factors could cause actual results to differ materially from these statements, including, but not limited to: increases in interest rates, availability of credit, low consumer confidence, availability of labor, significant increase in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions, integration of operations relating to mergers and acquisitions activities, and other factors which may be disclosed throughout this report. Although we believe that the expectations reflected in the “forward-looking statements” are reasonable, we cannot guarantee future results, or levels of activity, performance or achievements. Undue reliance should not be placed on these “forward-looking statements,” which speak only as of the date of this report. We undertake no obligation to publicly update or revise any “forward-looking statements” whether as a result of new information, future events or otherwise, except as required by law or the rules of the NYSE.

Executive Overview
Winnebago Industries, Inc. is a leading US manufacturer of RVs with a proud history of manufacturing RV products for more than 50 years. We produce all of our motorhomes in vertically integrated manufacturing facilities in Iowa and we produce all travel trailer and fifth wheel trailers in Indiana. We distribute our products primarily through independent dealers throughout the US and Canada, who then retail the products to the end consumer.

12


Our retail unit market share, as reported by Stat Surveys based on state records, is illustrated below. Note that this data is subject to adjustment and is continuously updated.
 
Through October 31
 
Calendar Year
US and Canada
2014
2013
 
2013
2012
2011
Motorized A, B, C
20.8
%
18.3
%
 
18.6
%
19.8
%
18.1
%
Travel trailer and fifth wheels
0.8
%
1.0
%
 
1.0
%
0.9
%
0.6
%

Through the first nine months of the calendar year, we increased our North American motorhome retail market share by 250 basis points, as our retail registrations grew double the rate of the RV industry (29.6% versus 14.1%). The most notable growth occurred in the Class C segment which was fueled in part by our partnership with a large rental dealer. We also experienced strong retail growth in our Class B and Class A diesel segments due to new products introduced in those categories.

Presented in fiscal quarters, certain key metrics are shown below:
 
 
Class A, B & C Motorhomes
 
Travel Trailers & Fifth Wheels
 
 
 
 
As of Quarter End
 
 
 
As of Quarter End
 
 
Wholesale
Retail
Dealer
Order
 
Wholesale
Retail
Dealer
Order
(In units)
 
Deliveries
Registrations
Inventory
Backlog
 
Deliveries
Registrations
Inventory
Backlog
Q2 2013
 
1,419

1,072

2,392

2,752

 
548

328

1,775

381

Q3 2013
 
1,978

1,736

2,634

2,846

 
713

846

1,642

443

Q4 2013
 
1,890

1,870

2,654

3,380

 
717

748

1,611

221

Q1 2014
 
2,005

1,524

3,135

3,534

 
484

504

1,591

151

Rolling 12 months
 
7,292

6,202

 
 
 
2,462

2,426

 
 
Dec 2012-Nov 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q2 2014
 
2,055

1,283

3,907

2,900

 
575

394

1,772

206

Q3 2014 (1)
 
2,331

2,783

3,798

2,357

 
727

724

1,775

303

Q4 2014
 
2,364

2,183

3,979

1,899

 
723

777

1,721

163

Q1 2015
 
2,031

1,818

4,192

2,122

 
546

585

1,682

154

Rolling 12 months
 
8,781

8,067

 


 
2,571

2,480

 
 
Dec 2013-Nov 2014
 
 
 




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unit change
 
1,489

1,865

1,057

(1,412
)
 
109

54

91

3

Percentage change
 
20.4
%
30.1
%
33.7
%
(40.0
)%
 
4.4
%
2.2
%
5.7
%
2.0
%
(1) An additional 343 units were delivered but not included in Q3 2014 motorhome wholesale deliveries as presented in the table above as the units are subject to repurchase option. These units were included as retail registrations, not in dealer inventory, as the units were immediately placed into rental service once delivered. See Note 5 to the financial statements.


13


Industry Outlook
Key statistics for the motorhome industry are as follows:
 
US and Canada Industry Class A, B & C Motorhomes
 
Wholesale Shipments(1)
 
Retail Registrations(2)
 
Calendar Year
 
Calendar Year
(In units)
2013

 
2012

Increase

Change

 
2013

 
2012

Increase

Change

Q1
8,500

 
6,869

1,631

23.7
%
 
7,147

 
5,706

1,441

25.3
%
Q2
10,972

 
7,707

3,265

42.4
%
 
10,909

 
8,206

2,703

32.9
%
Q3
9,469

 
6,678

2,791

41.8
%
 
9,125

 
6,916

2,209

31.9
%
Q4
9,391

 
6,944

2,447

35.2
%
 
6,281

 
4,922

1,359

27.6
%
Total
38,332

 
28,198

10,134

35.9
%
 
33,462

 
25,750

7,712

29.9
%
 
2014

 
2013

Increase

Change

 
2014

 
2013

Increase

Change

Q1
11,125

 
8,500

2,625

30.9
%
 
8,075

 
7,147

928

13.0
%
Q2
12,203

 
10,972

1,231

11.2
%
 
12,488

 
10,909

1,579

14.5
%
Q3
10,704

 
9,469

1,235

13.0
%
 
10,572

 
9,125

1,447

15.9
%
October
3,915

 
3,454

461

13.3
%
 
2,936

 
2,688

248

9.2
%
November
3,119

 
3,037

82

2.7
%
 
 
(4)
2,040

 
 
December
3,854

(3) 
2,900

954

32.9
%
 
 
(4)
1,553

 
 
Q4
10,888

(3) 
9,391

1,497

15.9
%
 
 
(4)
6,281

 
 
Total
44,920

(3) 
38,332

6,588

17.2
%
 

(4)
33,462




 
 
 
 
 
 
 
 
 
 
 
 
YTD (5)
41,066

 
35,432

5,634

15.9
%
 
34,071

 
29,869

4,202

14.1
%
(1) 
Class A, B and C wholesale shipments as reported by RVIA.
(2) 
Class A, B and C retail registrations as reported by Stat Surveys for the US and Canada combined.
(3) 
Monthly and quarterly 2014 Class A, B and C wholesale shipments are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Winter 2014 Industry Forecast Issue. The revised RVIA annual 2014 wholesale shipment forecast is 45,300 and the annual forecast for 2015 is 46,200.
(4) 
Stat Surveys has not issued a projection for 2014 retail demand for this period.
(5) 
YTD wholesale shipments include January through November; YTD retail registrations include January through October.
    
Key statistics for the towable industry are as follows:
 
US and Canada Travel Trailer & Fifth Wheel Industry
 
Wholesale Shipments(1)
 
Retail Registrations(2)
 
Calendar Year
 
Calendar Year
(In units)
2013

 
2012

Increase

Change

 
2013

 
2012

Increase

Change

Q1
66,745

 
60,402

6,343

10.5
%
 
42,987

 
39,093

3,894

10.0
%
Q2
79,935

 
71,095

8,840

12.4
%
 
94,716

 
83,990

10,726

12.8
%
Q3
61,251

 
56,601

4,650

8.2
%
 
79,802

 
67,344

12,458

18.5
%
Q4
60,104

 
54,782

5,322

9.7
%
 
37,054

 
32,469

4,585

14.1
%
Total
268,035

 
242,880

25,155

10.4
%
 
254,559

 
222,896

31,663

14.2
%
 
2014

 
2013

Increase

Change

 
2014

 
2013

Increase

Change

Q1
75,458

 
66,745

8,713

13.1
%
 
45,939

 
42,987

2,952

6.9
%
Q2
85,648

 
79,935

5,713

7.1
%
 
99,263

 
94,716

4,547

4.8
%
Q3
65,543

 
61,251

4,292

7.0
%
 
86,100

 
79,802

6,298

7.9
%
October
27,372

 
24,383

2,989

12.3
%
 
18,547

 
17,400

1,147

6.6
%
November
22,228

 
17,932

4,296

24.0
%
 
 
(4)
11,567

 
 
December
20,460

(3)
17,789

2,671

15.0
%
 
 
(4)
8,087

 
 
Q4
70,060

(3)
60,104

9,956

16.6
%
 
 
(4)
37,054

 
 
Total
296,709

(3)
268,035

28,674

10.7
%
 


 
254,559




 
 
 
 
 
 
 
 
 
 
 
 
YTD (5)
276,249

 
250,246

26,003

10.4
%
 
249,849

 
234,905

14,944

6.4
%
(1) 
Towable wholesale shipments as reported by RVIA.
(2) 
Towable retail registrations as reported by Stat Surveys for the US and Canada combined.

14


(3) 
Monthly and quarterly 2014 towable wholesale shipments are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Winter 2014 Industry Forecast Issue. The revised RVIA annual 2014 wholesale shipment forecast is 288,700 and the annual forecast for 2015 is 301,000.
(4) 
Stat Surveys has not issued a projection for retail demand for this period.
(5) 
YTD wholesale shipments include January through November; YTD retail registrations include January through October.

Company Outlook
Our motorized dealer backlog is an indicator of demand for our product in the current marketplace. We believe that the decrease in our backlog (as noted in the table below) is a result of more timely delivery through increased production rates and improved chassis supply. We continued to increase our production rates during the first fiscal quarter of Fiscal 2015. In Fiscal 2014 we leased an additional production facility to facilitate the increased production rate and to reach an additional labor market.

Our motorized sales order backlog of 2,122 as of November 29, 2014 represents orders to be shipped in the next two quarters:
 
As Of
(In units)
November 29, 2014
 
November 30, 2013
 
(Decrease)
Increase
%
Change
Class A gas
429

20.2
%
 
1,382

39.1
%
 
(953
)
(69.0
)%
Class A diesel
303

14.3
%
 
521

14.7
%
 
(218
)
(41.8
)%
Total Class A
732

34.5
%
 
1,903

53.8
%
 
(1,171
)
(61.5
)%
Class B
340

16.0
%
 
317

9.0
%
 
23

7.3
 %
Class C
1,050

49.5
%
 
1,314

37.2
%
 
(264
)
(20.1
)%
Total motorhome backlog(1)
2,122

100.0
%
 
3,534

100.0
%
 
(1,412
)
(40.0
)%
 
 
 
 
 
 
 
 
 
Travel trailer
94

61.0
%
 
117

77.5
%
 
(23
)
(19.7
)%
Fifth wheel
60

39.0
%
 
34

22.5
%
 
26

76.5
 %
Total towable backlog(1)
154

100.0
%
 
151

100.0
%
 
3

2.0
 %
 
 
 
 
 
 
 
 
 
Approximate backlog revenue in thousands
 
 
 
 
 
 
 
Motorhome
$
201,373

 
 
$
340,703

 
 
$
(139,330
)
(40.9
)%
Towable
$
4,837

 
 
$
3,401

 
 
$
1,436

42.2
 %
(1) 
Percentages may not add due to rounding differences.
(2) 
Our backlog includes all accepted purchase orders from dealers to be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the purchaser and, therefore, backlog may not necessarily be an accurate measure of future sales.

Our unit dealer inventory was as follows:
 
November 29,
2014
November 30,
2013
 
Increase
%
Change
Motorhomes
4,192

3,135

 
1,057

33.7
%
Towables
1,682

1,591

 
91

5.7
%

We believe that the increased level of our motorized dealer inventory at the end of the first quarter of Fiscal 2015 is aligned with current market conditions given the improved retail demand and the strong sales order backlog of our product. We have introduced a number of new products in the past year (Class A gas: Brave, Tribute; Class B: Travato; Class C: Trend, Viva; Class A diesel: Forza, Solei), many of these products were delivered to the dealers during Fiscal 2014 for their initial stocking. We believe that these innovative products will generate additional retail demand in the coming quarters. We have also expanded our points of distribution for these new product offerings in the past year as our dealer physical locations have increased as well as our product line points of distribution at these locations, which is another factor contributing to our dealer inventory growth.

The recreation vehicle industry has, from time to time, experienced shortages of chassis due to various causes such as component shortages and/or production delays due to quality issues at the chassis manufacturers. In the first half of Fiscal 2014 we experienced shortages of certain motorized RV chassis which negatively affected our sales and earnings. Conditions improved during the second half of Fiscal 2014 with Ford’s improved Class A chassis supply and resolution of their Class A chassis quality issues which had caused a supply constraint.  We continue to closely monitor our chassis suppliers and work with them to minimize impact to our production.

Our motorized production facilities are located in sparsely populated areas of Iowa. In addition, the unemployment rate in these areas are currently low. These factors limit our ability to increase motorized production volumes at a more rapid pace. As we are able increase the production rate, we have also incurred incremental operating expenses associated with overtime and workers compensation expense.


15


Results of Operations
Current Quarter Compared to the Comparable Quarter Last Year
The following is an analysis of changes in key items included in the statements of operations:
 
 
Three Months Ended
(In thousands, except percent
and per share data)
 
November 29,
2014
% of
Revenues(1)
 
November 30,
2013
% of
Revenues(1)
 
Increase
(Decrease)
%
Change
Net revenues
 
$
224,403

100.0
%
 
$
222,670

100.0
%
 
$
1,733

0.8
 %
Cost of goods sold
 
200,017

89.1
%
 
196,708

88.3
%
 
3,309

1.7
 %
Gross profit
 
24,386

10.9
%
 
25,962

11.7
%
 
(1,576
)
(6.1
)%
 
 
 
 
 
 
 
 
 
 
Selling
 
4,707

2.1
%
 
4,333

1.9
%
 
374

8.6
 %
General and administrative
 
5,237

2.3
%
 
5,623

2.5
%
 
(386
)
(6.9
)%
Operating expenses
 
9,944

4.4
%
 
9,956

4.5
%
 
(12
)
(0.1
)%
 
 
 
 
 
 
 
 
 
 
Operating income
 
14,442

6.4
%
 
16,006

7.2
%
 
(1,564
)
(9.8
)%
Non-operating income
 
7

%
 
91

%
 
(84
)
(92.3
)%
Income before income taxes
 
14,449

6.4
%
 
16,097

7.2
%
 
(1,648
)
(10.2
)%
Provision for taxes
 
4,554

2.0
%
 
4,951

2.2
%
 
(397
)
(8.0
)%
Net income
 
$
9,895

4.4
%
 
$
11,146

5.0
%
 
$
(1,251
)
(11.2
)%
 
 
 
 
 
 
 
 
 
 
Diluted income per share
 
$
0.37

 
 
$
0.40

 
 
$
(0.03
)
(7.5
)%
Diluted average shares outstanding
 
27,078

 
 
27,971

 
 
(893
)
(3.2
)%
(1) Percentages may not add due to rounding differences.
Unit deliveries and ASP, net of discounts, consisted of the following:
 
 
Three Months Ended
(In units)
 
November 29,
2014
Product
Mix % (1)
 
November 30,
2013
Product
Mix % (1)
 
(Decrease)
Increase
%
Change
Motorhomes:
 
 
 
 
 
 
 
 
 
Class A gas
 
615

30.3
%
 
710

35.4
%
 
(95
)
(13.4
)%
Class A diesel
 
312

15.4
%
 
397

19.8
%
 
(85
)
(21.4
)%
Total Class A
 
927

45.6
%
 
1,107

55.2
%
 
(180
)
(16.3
)%
Class B
 
188

9.3
%
 
102

5.1
%
 
86

84.3
 %
Class C
 
916

45.1
%
 
796

39.7
%
 
120

15.1
 %
Total motorhome deliveries
 
2,031

100.0
%
 
2,005

100.0
%
 
26

1.3
 %
ASP (in thousands)
 
$
98.3

 
 
$
100.5

 
 
$
(2.2
)
(2.2
)%
 
 
 
 
 
 
 
 
 
 
Towables:
 
 
 
 
 
 
 
 
 
Travel trailer
 
461

84.4
%
 
407

84.1
%
 
54

13.3
 %
Fifth wheel
 
85

15.6
%
 
77

15.9
%
 
8

10.4
 %
Total towable deliveries
 
546

100.0
%
 
484

100.0
%
 
62

12.8
 %
ASP (in thousands)
 
$
25.1

 
 
$
21.6

 
 
$
3.4

15.8
 %
(1) Percentages may not add due to rounding differences.


16


Net revenues consisted of the following:
 
 
Three Months Ended
(In thousands)
 
November 29,
2014
 
November 30,
2013
 
(Decrease)
Increase
%
Change
Motorhomes (1)
 
$
203,042

90.5
%
 
$
204,385

91.8
%
 
$
(1,343
)
(0.7
)%
Towables (2)
 
13,606

6.1
%
 
10,531

4.7
%
 
3,075

29.2
 %
Other manufactured products
 
7,755

3.5
%
 
7,754

3.5
%
 
1

 %
Total net revenues
 
$
224,403

100.0
%
 
$
222,670

100.0
%
 
$
1,733

0.8
 %
(1) 
Includes motorhome units, parts and services, and net motorhome lease revenue.
(2) 
Includes towable units and parts.

Motorhome net revenues decreased $1.3 million or 0.7% in the first quarter of Fiscal 2015. The decrease was attributed primarily to a decrease in motorhome ASP of 2.2% partially offset by a 1.3% increase in unit deliveries driven by higher dealer and retail consumer demand as compared to the same period a year ago. The decrease in ASP was primarily due to a shift in class A diesel product to lower price points and a higher percent of Class B and C unit sales in the first quarter of Fiscal 2015.

The increase in Towables revenues of $3.1 million or 29.2% was attributed to an increase in ASP of 15.8% and a 12.8% increase in unit deliveries as compared to the first quarter of Fiscal 2014.

Cost of goods sold was $200.0 million, or 89.1% of net revenues for the first quarter of Fiscal 2015 compared to $196.7 million, or 88.3% of net revenues for the same period a year ago due to the following:
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, increased to 83.9% compared to 83.2%. The increase is primarily due to higher labor-related expenses in Fiscal 2015, notably workers' compensation.
Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs were flat at 5.2% of net revenues in both periods.
All factors considered, gross profit decreased to 10.9% from 11.7% of net revenues.
Selling expenses were $4.7 million and $4.3 million, or 2.1% and 1.9% of net revenues in the first quarter of Fiscal 2015 and Fiscal 2014, respectively. Increases in the first quarter of Fiscal 2015 included wage-related expenses and advertising expenses as compared to the prior year.
General and administrative expenses were $5.2 million and $5.6 million, or 2.3% and 2.5% of net revenues in the first quarter of Fiscal 2015 and Fiscal 2014, respectively. The decrease in the first quarter of Fiscal 2015 was primarily related to reductions in wage-related expenses and was partially offset by an increase in legal expenses.
The overall effective income tax rate for the first quarter of Fiscal 2015 was 31.5% compared to the effective tax rate of 30.8% for the same period in Fiscal 2014. The increase in tax rate for the first quarter of Fiscal 2015 is primarily a result of the increased estimated state taxes, lower tax-free income and tax credits. The legislation for various applicable tax credits expired on December 31, 2013; therefore we are unable to project any future tax credits within the effective tax rate for this fiscal year.
Net income and diluted income per share were $9.9 million and $0.37 per share, respectively, for the first quarter of Fiscal 2015. In the first quarter of Fiscal 2014, net income was $11.1 million and diluted income was $0.40 per share. The impact of stock repurchases in the last twelve months on diluted net income per share was an increase of $0.01 for the first quarter of Fiscal 2015. See Part II, Item 2.

Analysis of Financial Condition, Liquidity and Resources
Cash and cash equivalents decreased $30.0 million during the first three months of Fiscal 2015 and totaled $27.8 million as of November 29, 2014. Significant liquidity events that occurred during the first three months of Fiscal 2015 were:
Increase in inventory of $38.3 million
Generation of net income of $9.9 million
Decrease in receivables and prepaid assets of $6.8 million
Stock repurchases of $6.0 million
Dividend payment of $2.4 million

As noted in Note 7, through our Amended Credit Agreement with GECC, we have the ability to borrow $35.0 million through a revolving credit facility based on our eligible inventory and certain receivables. In addition, the Amended Credit Agreement also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable terms at the time of the expansion.

17


We filed a Registration Statement on Form S-3, which was declared effective by the SEC on May 9, 2013. Subject to market conditions, we have the ability to offer and sell up to $35.0 million of our common stock in one or more offerings pursuant to the Registration Statement. The Registration Statement will be available for use for three years from its effective date. We currently have no plans to offer and sell the common stock registered under the Registration Statement; however, it does provide another potential source of liquidity in addition to the alternatives already in place.
Working capital at November 29, 2014 and August 30, 2014 was $173.3 million and $172.0 million, respectively, an decrease of $1.4 million. We currently expect cash on hand, cash collected on receivables, funds generated from operations and the availability under a credit facility to be sufficient to cover both short-term and long-term operating requirements for Fiscal 2015. We anticipate capital expenditures in Fiscal 2015 of approximately $15 - $20 million, primarily for manufacturing equipment and facilities and IT upgrades.
We made share repurchases of $6.0 million in the first three months of Fiscal 2015. If we believe the common stock is trading at attractive levels and reflects a prudent use of our capital, we may purchase additional shares in the remainder of Fiscal 2015. At November 29, 2014 we have $7.6 million remaining on our board repurchase authorization. See Part II, Item 2 of this Form 10-Q.
Operating Activities
Cash used by operating activities was $19.6 million for the three months ended November 29, 2014 compared to $11.9 million for the three months ended November 30, 2013 due primarily to increasing inventory levels. In Fiscal 2015 the combination of net income of $9.9 million and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided $11.4 million of operating cash. Changes in assets and liabilities (primarily an increase in receivables partially offset by an decrease in receivables) used $31.1 million of operating cash. In the first three months of Fiscal 2014, the combination of net income of $11.1 million and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided $13.5 million of operating cash. Changes in assets and liabilities (primarily increases in receivables and inventories) used $25.4 million of operating cash.
Investing Activities
Cash used in investing activities of $2.0 million for the three months ended November 29, 2014 was due primarily to capital spending of $2.3 million. In the three months ended November 30, 2013, cash provided in investing activities of $811,000 was due primarily to proceeds from the sale of investments of $2.4 million, partially offset by capital spending of $1.7 million.
Financing Activities
Cash used in financing activities of $8.4 million for the three months ended November 29, 2014 was primarily due to $6.0 million in repurchases of our stock and $2.4 million for the payment of dividends. Cash used in financing activities of $3.5 million for the three months ended November 30, 2013 was primarily due to repurchases of our stock of $5.6 million partially offset by proceeds from the exercise of stock options of $2.1 million.
 
Significant Accounting Policies

We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended August 30, 2014. We discuss our critical accounting estimates in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended August 30, 2014. We refer to these disclosures for a detailed explanation of our significant accounting policies and critical accounting estimates. There has been no significant change in our significant accounting policies or critical accounting estimates since the end of Fiscal 2014.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk

None

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures", as such term is defined under Securities Exchange Act of 1934, as amended ("Exchange Act") Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's disclosure control objectives.


18


We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Report (the "Evaluation Date"). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the Evaluation Date.

Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II OTHER INFORMATION

Item 1. Legal Proceedings
We are involved in various legal proceedings which are ordinary litigation incidental to our business, some of which are covered in whole or in part by insurance. We believe, while the final resolution of any such litigation may have an impact on our results for a particular reporting period, the ultimate disposition of such litigation will not have any material adverse effect on our financial position, results of operations or liquidity.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10‑K for the fiscal year ended August 30, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 19, 2007, the Board of Directors authorized the repurchase of outstanding shares of our common stock, depending on market conditions, for an aggregate consideration of up to $60 million. There is no time restriction on this authorization. During the first quarter of Fiscal 2015, 272,254 shares were repurchased under the authorization, at an aggregate cost of $6.0 million. Of these shares, approximately 62,000 were repurchased from employees who vested in Winnebago Industries shares during the first quarter of Fiscal 2015 and elected to pay their payroll tax via shares as opposed to cash. As of November 29, 2014, there was approximately $7.6 million remaining under this authorization.
Purchases of our common stock during each fiscal month of the first quarter of Fiscal 2015 were:
Period
Total Number
of Shares
Purchased
Average Price
Paid per Share
Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar Value
of Shares That May Yet Be
Purchased Under the
Plans or Programs
08/31/14 - 10/04/14
60,000

 
$
22.38

 
60,000

 
$
12,240,000

 
10/05/14 - 11/01/14
211,689

 
$
21.70

 
211,689

 
$
7,646,000

 
11/02/14 - 11/29/14
565

 
$