SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the quarterly period ended November 27, 1999
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OR
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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
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WINNEBAGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
IOWA 42-0803978
(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: (515) 582-3535
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 21,803,321 shares of $.50 par value common stock outstanding on
January 5, 2000.
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO REPORT ON FORM 10-Q
Page Number
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PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheets (Interim period information unaudited) 1 & 2
Unaudited Consolidated Statements of Income 3
Unaudited Consolidated Statements of Cash Flows 4
Unaudited Condensed Notes to Consolidated Financial Statements 5 & 6
Management's Discussion and Analysis of Financial Condition and Results 7 - 9
of Operations
PART II. OTHER INFORMATION 10 - 12
Part I Financial Information
Item 1.
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
NOVEMBER 27, AUGUST 28,
ASSETS 1999 1999
- ---------------------------------------------------- ------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 40,213 $ 48,160
Receivables, less allowance for doubtful
accounts ($1,022 and $960, respectively) 30,122 33,342
Dealer financing receivables, less allowance
for doubtful accounts ($91 and $73, respectively) 28,576 24,573
Inventories 86,094 87,031
Prepaid expenses 4,286 3,593
Deferred income taxes 6,982 6,982
------------ ------------
Total current assets 196,273 203,681
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Land 1,146 1,150
Buildings 41,946 41,136
Machinery and equipment 75,823 73,839
Transportation equipment 5,411 5,345
------------ ------------
124,326 121,470
Less accumulated depreciation 84,529 83,099
------------ ------------
Total property and equipment, net 39,797 38,371
------------ ------------
LONG-TERM NOTES RECEIVABLE,
less allowances for doubtful accounts
($257 and $262, respectively) 774 787
------------ ------------
INVESTMENT IN LIFE INSURANCE 20,108 19,749
------------ ------------
DEFERRED INCOME TAXES, NET 18,654 18,654
------------ ------------
OTHER ASSETS 6,196 4,647
------------ ------------
TOTAL ASSETS $ 281,802 $ 285,889
============ ============
See Unaudited Condensed Notes to Consolidated Financial Statements.
1
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
NOVEMBER 27, AUGUST 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1999
- ------------------------------------------------------- ------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable, trade $ 23,608 $ 38,604
Income tax payable 16,533 10,201
Accrued expenses:
Insurance 4,468 3,962
Product warranties 7,122 6,407
Accrued compensation 9,865 13,204
Promotional 3,620 2,629
Other 4,967 4,954
------------ ------------
Total current liabilities 70,183 79,961
------------ ------------
POSTRETIREMENT HEALTH CARE AND DEFERRED
COMPENSATION BENEFITS 58,514 56,544
------------ ------------
STOCKHOLDERS' EQUITY
Capital stock, common, par value $.50; authorized
60,000,000 shares: issued 25,876,000 and 25,874,000
shares, respectively 12,938 12,937
Additional paid-in capital 22,084 21,907
Reinvested earnings 163,855 151,482
------------ ------------
198,877 186,326
Less treasury stock, at cost 45,772 36,942
------------ ------------
Total stockholders' equity 153,105 149,384
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 281,802 $ 285,889
============ ============
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
THIRTEEN WEEKS ENDED
NOVEMBER 27, NOVEMBER 28,
1999 1998
------------ ------------
Net revenues $ 182,551 $ 157,664
Cost of goods sold 151,678 132,788
------------ ------------
Gross profit 30,873 24,876
------------ ------------
Operating expenses:
Selling and delivery 6,260 5,102
General and administrative 6,553 5,694
------------ ------------
Total operating expenses 12,813 10,796
------------ ------------
Operating income 18,060 14,080
Financial income 653 581
------------ ------------
Pre-tax income 18,713 14,661
Provision for taxes 6,332 5,012
------------ ------------
Net income $ 12,381 $ 9,649
============ ============
Earnings per common share (Note 7):
Basic $ .56 $ .43
Diluted .55 .43
============ ============
Weighted average common shares outstanding (Note 7):
Basic 22,114 22,224
Diluted 22,531 22,458
============ ============
See Unaudited Condensed Notes to Consolidated Financial Statements.
================================================================================
3
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands THIRTEEN WEEKS ENDED
NOVEMBER 27, NOVEMBER 28,
1999 1998
------------ ------------
Cash flows from operating activities:
Net income $ 12,381 $ 9,649
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,526 1,353
Other 81 274
Change in assets and liabilities:
Decrease (increase) in receivable and other assets 2,470 (5,192)
Decrease (increase) in inventories 937 (1,487)
Decrease in accounts payable and accrued expenses (16,110) (6,805)
Increase in income taxes payable 6,332 3,874
Increase in postretirement benefits 1,619 1,257
Other -- (238)
------------ ------------
Net cash provided by operating activities 9,236 2,685
------------ ------------
Cash flows used by investing activities:
Purchases of property and equipment (2,992) (1,969)
Investments in dealer receivables (28,971) (25,432)
Collections of dealer receivables 24,953 12,453
Other (1,513) 214
------------ ------------
Net cash used by investing activities (8,523) (14,734)
------------ ------------
Cash flows used by financing activities and capital transactions:
Payments for purchase of common stock (9,280) (8,141)
Payment of cash dividends (7) (7)
Other 627 278
------------ ------------
Net cash used by financing activities and
capital transactions (8,660) (7,870)
------------ ------------
Net decrease in cash and cash equivalents (7,947) (19,919)
Cash and cash equivalents - beginning of period 48,160 54,740
------------ ------------
Cash and cash equivalents - end of period $ 40,213 $ 34,821
============ ============
See Unaudited Condensed Notes to Consolidated Financial Statements.
4
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting of
normal recurring accruals, necessary to present fairly the consolidated
financial position as of November 27, 1999, the consolidated results of
operations and the consolidated cash flows for the 13 weeks ended November
27, 1999 and November 28, 1998. The results of operations for the 13 weeks
ended November 27, 1999, are not necessarily indicative of the results to
be expected for the full year. The balance sheet data as of August 28, 1999
was derived from audited financial statements, but does not include all
disclosures contained in the Company's Annual Report to Shareholders for
the year ended August 28, 1999. 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 28, 1999.
2. 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):
November 27, August 28,
1999 1999
------------ ------------
Finished goods $ 30,924 $ 25,622
Work in process 22,959 24,822
Raw materials 50,937 55,076
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104,820 105,520
LIFO reserve (18,726) (18,489)
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$ 86,094 $ 87,031
========= =========
3. Since March 1992, the Company has had a financing and security agreement
with Bank of America Specialty Group (formerly NationsBank Specialty
Lending Unit). Terms of the agreement limit borrowings to the lesser of
$30,000,000 or 75 percent of eligible inventory (fully manufactured
recreation vehicles and motor home chassis and related components).
Borrowings are secured by the Company's receivables and inventory.
Borrowings under the agreement bear interest at the prime rate, as defined
in the agreement, plus 50 basis points. The line of credit is available and
continues during successive one-year periods unless either party provides
at least 90-days' notice prior to the end of the one-year period to the
other party that they wish to terminate the line of credit. The agreement
also contains certain restrictive covenants including maintenance of
minimum net worth, working capital and current ratio. As of November 27,
1999, the Company was in compliance with these financial covenants. There
were no outstanding borrowings under the line of credit at November 27,
1999 or August 28, 1999.
4. 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 $187,318,000 and
$168,552,000 under repurchase agreements with lending institutions as of
November 27, 1999 and August 28, 1999, respectively. Included in these
contingent liabilities as of November 27, 1999 and August 28, 1999 are
approximately $12,183,000 and $7,480,000, respectively, of certain dealer
receivables subject to recourse agreements with Bank of America Specialty
Group (formerly NationsBank Specialty Lending Unit) and Conseco Finance
Servicing Group (formerly Green Tree Financial).
5. For the periods indicated, the Company paid cash for the following (dollars
in thousands):
THIRTEEN WEEKS ENDED
------------------------------
November 27, November 28,
1999 1998
------------ ------------
Interest $ -- $ 61
Income taxes -- 1,375
5
6. On June 17, 1999, the Board of Directors authorized the repurchase of
outstanding shares of the Company's common stock for an aggregate purchase
price of up to $15,000,000. As of November 27, 1999, 528,900 shares were
repurchased for an aggregate consideration of $9,280,000 under this
repurchase authorization.
7. The following table reflects the calculation of basic and diluted earnings
per share for the 13 weeks ended November 27, 1999 and November 28, 1998:
THIRTEEN WEEKS ENDED
----------------------------
NOVEMBER 27, NOVEMBER 28,
IN THOUSANDS EXCEPT PER SHARE DATA 1999 1998
------------ ------------
EARNINGS PER SHARE - BASIC:
---------------------------
Net income $ 12,381 $ 9,649
------------ ------------
Weighted average shares outstanding 22,114 22,224
------------ ------------
Earnings per share - basic $ .56 $ .43
------------ ------------
EARNINGS PER SHARE - ASSUMING DILUTION:
---------------------------------------
Net income $ 12,381 $ 9,649
------------ ------------
Weighted average shares outstanding 22,114 22,224
Dilutive impact of options outstanding 417 234
------------ ------------
Weighted average shares & potential
dilutive shares outstanding 22,531 22,458
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Earnings per share - assuming dilution $ .55 $ .43
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8. The Company defines its operations into two business segments: Recreational
vehicles and other manufactured products and dealer financing. Recreation
vehicles and other manufactured products includes 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. Dealer financing
includes floorplan and rental unit financing for a limited number of the
Company's dealers. Management focuses on operating income as a segment's
measure of profit or loss when evaluating a segment's financial
performance. Operating income is before interest expense, interest income,
and income taxes. A variety of balance sheet ratios are used by management
to measure the business. Maximizing the return from each segment's assets
excluding cash and cash equivalents is the primary focus. Identifiable
assets are those assets used in the operations of each industry segment.
General corporate assets consist of cash and cash equivalents, deferred
income taxes and other corporate assets not related to the two business
segments. General corporate income and expenses include administrative
costs. Inter-segment sales and expenses are not significant.
For the 13 weeks ended November 27, 1999 and November 28, 1998, the
Company's segment information is as follows:
RECREATION
VEHICLES & OTHER
MANUFACTURED DEALER GENERAL
(DOLLARS IN THOUSANDS) PRODUCTS FINANCING CORPORATE TOTAL
- -------------------------------------------------------------------------------
13 WEEKS ENDED NOVEMBER 27, 1999
Net revenues $181,681 $ 870 $ -- $182,551
Operating income (loss) 17,345 841 (126) 18,060
Identifiable assets 207,408 29,527 44,867 281,802
13 WEEKS ENDED NOVEMBER 28, 1998
Net revenues $157,083 $ 581 $ -- $157,664
Operating income 13,503 493 84 14,080
Identifiable assets 141,338 27,771 62,058 231,167
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks Ended November 27, 1999 Compared to Thirteen Weeks Ended November
28, 1998
Net revenues for the 13 weeks ended November 27, 1999 were $182,551,000 an
increase of $24,887,000, or 15.8 percent from the 13 week period ended November
28, 1998. Motor home shipments (Class A and C) were 2,625 units, an increase of
159 units, or 6.4 percent, during the first quarter of fiscal 2000 compared to
the first quarter of fiscal 1999. The percentage increase in net revenues in the
first quarter of fiscal 2000 was greater than the percentage increase in motor
home shipments for that period as a result of the Company's shipment of a
greater number of higher priced diesel-powered Class A vehicles during the first
quarter of fiscal 2000. Favorable demographic trends and high consumer
confidence levels have continued the upward momentum for the Company as well as
the recreation vehicle market in general. At both November 27, 1999 and November
28, 1998, the Company's order backlog of Class A and Class C motor homes was
approximately 2,700 orders. The Company includes in its backlog all accepted
purchase orders from dealers shippable within the next six months. Orders in
backlog can be canceled at the option of the purchaser at any time without
penalty and, therefore, backlog may not necessarily be a measure of future
sales.
Gross profit, as a percent of net revenues, was 16.9 percent for the 13 weeks
ended November 27, 1999 compared to 15.8 percent for the 13 weeks ended November
28, 1998. The Company's gross profit percentage increased as a result of a
favorable product mix change and higher volume of motor home production and
shipments during the first quarter of fiscal 2000.
Selling and delivery expenses were $6,260,000 or 3.4 percent of net revenues
during the first quarter of fiscal 2000 compared to $5,102,000 or 3.2 percent of
net revenues during the first quarter of fiscal 1999. The increase in dollars
can be attributed primarily to increases in the Company's direct mailing program
and brochure development. Also contributing to the change was an increase in the
Company's promotional expense during the first quarter of fiscal 2000.
General and administrative expenses were $6,553,000 or 3.6 percent of net
revenues during the 13 weeks ended November 27, 1999 compared to $5,694,000 or
3.6 percent of net revenues during the 13 weeks ended November 28, 1998. The
increase in dollars can be attributed primarily to increases in the Company's
employee incentive programs and corporate donations during the 13 weeks ended
November 27, 1999.
The Company had net financial income of $653,000 for the first quarter of fiscal
2000 compared to net financial income of $581,000 for the comparable quarter of
fiscal 1999. During the 13 weeks ended November 27, 1999, the Company recorded
$626,000 of net interest income and gains of $27,000 in foreign currency
transactions. During the 13 weeks ended November 28, 1998, the Company recorded
$651,000 of net interest income and losses of $70,000 in foreign currency
transactions.
For the first quarter of fiscal 2000, the Company had net income of $12,381,000,
or $.55 per diluted share, compared to the first quarter of fiscal 1999's net
income of $9,649,000, or $.43 per diluted share. Net income and earnings per
diluted share increased by 28.3 percent and 27.9 percent, respectively, when
comparing the first quarter of fiscal 2000 to the first quarter of fiscal 1999.
LIQUIDITY AND FINANCIAL CONDITION
The Company meets its working capital requirements, capital equipment
requirements and cash requirements of subsidiaries with funds generated
internally.
7
At November 27, 1999, working capital was $126,090,000, an increase of
$2,370,000 from the amount at August 28, 1999. The Company's principal uses of
cash during the 13 weeks ended November 27, 1999 were $28,971,000 of dealer
receivable investments and $9,280,000 for the purchase of shares of the
Company's Common Stock. The Company's principal sources of cash during the 13
weeks ended November 27, 1999 were income from operations and the collection of
$24,953,000 in dealer receivables. The Company's sources and uses of cash during
the 13 weeks ended November 27, 1999 are set forth in the unaudited consolidated
statement of cash flows for that period.
Principal known demands at November 27, 1999 on the Company's liquid assets for
the remainder of fiscal 2000 include approximately $16,700,000 of capital
expenditures and payments of cash dividends. On October 7, 1999, the Board of
Directors declared a cash dividend of $.10 per common share payable January 10,
2000, to shareholders of record on December 10, 1999.
Management currently expects its cash on hand, funds from operations and
borrowings available under existing credit facilities to be sufficient to cover
both short-term and long-term operating requirements.
ACCOUNTING CHANGES
Recognition of Derivative Instruments and Hedging Activities
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was
issued in June 1998 and must be adopted by the Company no later than fiscal
2001. This statement requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure these instruments at fair
value. The Company has not completed the process of evaluating the effect of
SFAS No. 133 on its financial statements.
FORWARD LOOKING INFORMATION
Except for the historical information contained herein, certain of the matters
discussed in this report are "forward looking statements" as defined in the
Private Securities Litigation Reform Act of 1995, which involve risks and
uncertainties, including, but not limited to availability of chassis, slower
than anticipated sales of new or existing products, a significant increase in
interest rates, a general slow down in the economy, or new product introductions
by competitors and other factors which may be disclosed throughout this Form
10-Q. 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.
YEAR 2000 (Y2K) COMPLIANCE
Introduction
The term "year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers as the year 2000 is approached and
reached. These problems generally arise from the fact that most computer
hardware and software have historically used only two digits to identify the
year in a date.
Y2K Background
The Company's overall goal is to be Y2K ready. "Y2K ready" means that critical
systems, devices, applications or business relationships have been evaluated and
are expected to be suitable for continued use into and beyond the Y2K, or
contingency plans are in place. The Company started its Y2K project in 1996.
Y2K Project
The Company's Y2K project is divided into four major steps: 1) Strategy for
compliance; 2) Inventory and assessment; 3) Remediation; and 4) System testing.
8
1. The Company decided to make the corrections for compliance by
programming rather than through file conversion.
2. Using its chosen method of correction, management determined that
approximately 25 percent of its current Information Systems
Department's available time would be required to complete the Y2K
project by mid-year 1998.
3. The Company's programs' corrections were completed in May 1998.
4. System testing was completed in September, 1999.
The Company's Plant Engineering and Maintenance Department was charged with the
assessment and remediation of any Y2K problems in its plant production equipment
and in any building infrastructure equipment. As of October 1999, plant
production equipment was reviewed and updated for Y2K compliance. Building
infrastructure equipment was reviewed and has been updated to Y2K compliance.
The Company's Purchasing and Information Systems Departments have contacted all
of the Company's major suppliers to determine their readiness for their
compliance with the Y2K issue.
The Company is not aware of any date sensitive chips in the component parts of
its products that could cause a problem with its products in the field when the
date January 1, 2000 is reached.
Costs
The total cost associated with the modifications has not exceeded $300,000 and
these costs have all been expensed.
Risks
The failure to correct a material Y2K problem could result in an interruption
in, or a failure of, certain normal business activities or operations. Such
failures could materially and adversely affect the Company's operations. Due to
the general uncertainty inherent in the Y2K problem, resulting in part from the
uncertainty of the Y2K readiness of the Company's third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of Y2K failures will have a material impact on the Company's
operations. The Company believes that, with the completion of its Y2K project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
As of January 5, 2000, the Company's computer systems and manufacturing
facilities have operated without any Y2K related problems and appear to be Y2K
compliant. The Company is not aware that any of its major third-party suppliers
have experienced significant Y2K compliance problems.
Contingency
The Company believes it has addressed all Y2K issues. Should a significant
problem occur, the Company will revert to standard manual procedures to continue
operation until the problem is corrected.
Readers are cautioned that forward-looking statements contained in the Y2K
update should be read in conjunction with the Company's disclosures under the
heading: "FORWARD LOOKING INFORMATION".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of November 27, 1999, the Company had an investment portfolio of fixed income
securities, which are classified as cash and cash equivalents of $40.2 million.
These securities, like all fixed income investments, are subject to interest
rate risk and will decline in value if market interest rates increase. However,
the Company has the ability to hold its fixed income investments until maturity,
and therefore, the Company would not expect to recognize an adverse impact in
income or cash flows in such an event.
As of November 27, 1999, the Company had dealer financing receivables in the
amount of $28.6 million. Interest rates charged on these receivables vary based
on the prime rate and are adjusted monthly.
9
Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index on page 12.
(b) The Company did not file any reports on Form 8-K during the
period covered by this report.
10
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 January 5, 2000 /s/ Bruce D. Hertzke
------------------ ----------------------------------------
Bruce D. Hertzke
Chairman of the Board, Chief Executive
Officer, and President
(Principal Executive Officer)
Date January 5, 2000 /s/ Edwin F. Barker
------------------ ----------------------------------------
Edwin F. Barker
Vice President - Chief Financial Officer
(Principal Financial Officer)
11
EXHIBIT INDEX
27. Financial Data Schedule.
12