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 March 1, 2003
-------------------------------------------------
OR
- ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 1-6403
WINNEBAGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
IOWA 42-0802678
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 152, Forest City, Iowa 50436 (Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (641) 585-3535
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes __X__ No ___.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ___.
There were 18,129,274 shares of $.50 par value common stock outstanding on April
11, 2003.
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO REPORT ON FORM 10-Q
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Item I. Unaudited Condensed Consolidated Balance Sheets 1 - 2
Unaudited Condensed Consolidated Statements of Income 3
Unaudited Condensed Consolidated Statements of Cash Flows 4
Unaudited Notes to Condensed Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9 - 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
Independent Accountants' Report 13
PART II. OTHER INFORMATION 14 - 18
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
PART I Financial Information
Item 1.
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands
MARCH 1, AUGUST 31,
ASSETS 2003 2002
- ------------------------------------------------------------ -------------------- -------------------
CURRENT ASSETS
Cash and cash equivalents $ 39,507 $ 42,225
Receivables, less allowance for doubtful
accounts ($274 and $120, respectively) 17,887 28,616
Dealer financing receivables, less allowance
for doubtful accounts ($109 and $96, respectively) 42,941 37,880
Inventories 127,405 113,654
Prepaid expenses 4,526 4,314
Deferred income taxes 7,801 6,907
-------------------- -------------------
Total current assets 240,067 233,596
-------------------- -------------------
PROPERTY AND EQUIPMENT, at cost
Land 1,005 972
Buildings 54,174 47,953
Machinery and equipment 92,595 86,744
Transportation equipment 8,959 5,641
-------------------- -------------------
156,733 141,310
Less accumulated depreciation 94,379 92,383
-------------------- -------------------
Total property and equipment, net 62,354 48,927
-------------------- -------------------
INVESTMENT IN LIFE INSURANCE 23,344 23,602
-------------------- -------------------
DEFERRED INCOME TAXES, NET 22,956 22,438
-------------------- -------------------
OTHER ASSETS 9,484 8,514
-------------------- -------------------
TOTAL ASSETS $ 358,205 $ 337,077
==================== ===================
See Unaudited Notes to Condensed Consolidated Financial Statements.
1
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands
MARCH 1, AUGUST 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2002
- ----------------------------------------------------------------------------------------- --------------------
CURRENT LIABILITIES
Accounts payable, trade $ 42,437 $ 44,230
Income tax payable 4,347 2,610
Accrued expenses
Insurance 5,728 5,967
Product warranties 9,370 8,151
Accrued compensation 13,209 18,673
Promotional 8,477 4,499
Other 5,166 4,471
------------------ --------------------
Total current liabilities 88,734 88,601
------------------ --------------------
POSTRETIREMENT HEALTH CARE AND DEFERRED
COMPENSATION BENEFITS 70,489 68,661
------------------ --------------------
STOCKHOLDERS' EQUITY
Capital stock, common, par value $.50; authorized
60,000,000 shares: issued 25,888,000 shares 12,944 12,944
Additional paid-in capital 26,201 25,740
Reinvested earnings 311,556 284,856
------------------ --------------------
350,701 323,540
Less treasury stock, at cost 151,719 143,725
------------------ --------------------
Total stockholders' equity 198,982 179,815
------------------ --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 358,205 $ 337,077
=================== ====================
See Unaudited Notes to Condensed Consolidated Financial Statements.
2
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
================================================================================
In thousands except per share data
TWENTY-SIX TWENTY-SEVEN
THIRTEEN WEEKS ENDED WEEKS ENDED WEEKS ENDED
------------------------------------- -------------------- --------------------
MARCH 1, MARCH 2, MARCH 1, MARCH 2,
2003 2002 2003 2002
------------------ ----------------- -------------------- --------------------
Net revenues $ 186,728 $ 183,055 $ 420,817 $ 360,857
Cost of goods sold 159,590 160,117 357,865 313,687
------------------ ----------------- -------------------- --------------------
Gross profit 27,138 22,938 62,952 47,170
------------------ ----------------- -------------------- --------------------
Operating expenses
Selling 4,068 4,493 8,755 9,310
General and administrative 2,950 5,031 8,087 9,135
------------------ ----------------- -------------------- --------------------
Total operating expenses 7,018 9,524 16,842 18,445
------------------ ----------------- -------------------- --------------------
Operating income 20,120 13,314 46,110 28,725
Financial income 312 912 493 1,804
------------------ ----------------- -------------------- --------------------
Pre-tax income 20,432 14,326 46,603 30,529
Provision for taxes 8,123 4,878 18,016 10,371
------------------ ----------------- -------------------- --------------------
Net income $ 12,309 $ 9,448 $ 28,587 $ 20,158
================== ================= ==================== ====================
Income per share-basic (Note 9) $ .66 $ .46 $ 1.52 $ .97
================== ================= ==================== ====================
Income per share-diluted (Note 9) $ .64 $ .45 $ 1.50 $ .95
================== ================= ==================== ====================
Weighted average shares of
common stock outstanding
Basic 18,775 20,760 18,750 20,715
================== ================= ==================== ====================
Diluted 19,112 21,215 19,113 21,157
================== ================= ==================== ====================
See Unaudited Notes to Condensed Consolidated Financial Statements.
================================================================================
3
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN THIRTEEN TWENTY-SIX TWENTY-SEVEN
Dollars in thousands WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
MARCH 1, MARCH 2, MARCH 1, MARCH 2,
2003 2002 2003 2002
-----------------------------------------------------------------
Cash flows from operating activities
Net income as shown on the statements of income $ 12,309 $ 9,448 $ 28,587 $ 20,158
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 2,056 1,913 4,017 3,961
Tax benefit of stock options 317 1,329 867 3,008
Other 194 141 144 86
Change in assets and liabilities
Decrease (increase) in receivable and other assets 4,519 (9,258) 10,474 (374)
Increase in inventories (22,546) (1,654) (13,751) (3,316)
Increase in deferred income taxes (100) - - - (1,412) - - -
(Decrease) increase in accounts payable and accrued expenses 7,256 22,565 (1,604) 8,808
Increase in income taxes payable (8,858) 1,963 1,737 5,719
Increase in postretirement benefits 775 1,413 2,343 3,238
----------------------------------------------------------------
Net cash provided by operating activities (4,078) 27,860 31,402 41,288
----------------------------------------------------------------
Cash flows used by investing activities
Purchases of property and equipment (10,200) (1,995) (17,559) (3,666)
Investments in dealer receivables (32,050) (35,837) (59,346) (52,795)
Collections of dealer receivables 32,147 33,157 54,272 54,887
Other (203) (1,094) (1,200) (2,037)
----------------------------------------------------------------
Net cash used by investing activities (10,306) (5,769) (23,833) (3,611)
----------------------------------------------------------------
Cash flows used by financing activities and capital transactions
Payments for purchase of common stock (10,521) - - - (10,521) (4,078)
Payment of cash dividends (1,887) (2,075) (1,887) (2,075)
Proceeds from issuance of common and treasury stock 215 (1,033) 2,121 673
----------------------------------------------------------------
Net cash used by financing activities and
capital transactions (12,193) (3,108) (10,287) (5,480)
----------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (26,577) 18,983 (2,718) 32,197
Cash and cash equivalents - beginning of period 66,084 115,494 42,225 102,280
----------------------------------------------------------------
Cash and cash equivalents - end of period $ 39,507 $ 134,477 $ 39,507 $ 134,477
================================================================
See Unaudited Notes to Condensed Consolidated Financial Statements.
4
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of
normal recurring accruals, necessary to present fairly the consolidated
financial position as of March 1, 2003, the consolidated results of
operations for the 26 and 13 weeks ended March 1, 2003 and the 27 and 13
weeks ended March 2, 2002, and the consolidated cash flows for the 26 weeks
ended March 1, 2003 and the 27 weeks ended March 2, 2002. The statement of
income for the 26 weeks ended March 1, 2003, is not necessarily indicative
of the results to be expected for the full year. The balance sheet data as
of August 31, 2002 was derived from audited financial statements, but does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
interim consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto appearing in the
Company's Annual Report to Shareholders for the year ended August 31, 2002.
Certain prior year balances have been reclassified to conform to the
current year presentation. These reclassifications had no impact on
previously reported net income or shareholders' equity.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Emerging Issues Task Force (EITF) Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer or a Reseller
of the Vendor's Products, at the beginning of the third quarter of fiscal
2002. This guidance was effective for periods beginning after December 5,
2001. EITF No. 01-9 requires that certain payments to customers for
cooperative advertising and certain sales incentive offers that were
historically classified in selling expense be shown as a reduction in net
revenues. The adoption of this new accounting policy had no impact on
previously reported operating income, net income, or earnings per share.
In July 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. This standard reviews
the accounting for certain exit costs and disposal activities currently set
forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The principal change of the new
statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred versus the
date of commitment to an exit plan. This statement is effective for exit
and disposal activities initiated after December 31, 2002. The Company does
not believe adoption of this standard will significantly affect the
Company's financial condition or operating results.
In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies
the requirements for a guarantor's accounting for and disclosure of certain
guarantees issued and outstanding. The initial recognition and initial
measurement provisions of FIN 45 are applicable to guarantees issued or
modified after December 31, 2002. The disclosure requirements of FIN 45 are
effective for financial statements of interim or annual periods ending
after December 15, 2002. The adoption of FIN 45 did not have an impact on
the consolidated results of operations, financial position, or cash flows.
See Note 4 for expanded warranty disclosure requirements of this new
standard.
In December 2002, the FASB issued SFAS N0. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION - TRANSITION AND DISCLOSURE - AN AMENDMENT OF FASB STATEMENT
NO. 123. SFAS N0. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation
5
and the effect of the method used on reported results. The Company will
continue to account for stock-based compensation in accordance with APB
Opinion No. 25. As such, the Company does not expect this standard will
have a material impact on the consolidated financial position or results of
operations. The Company will adopt the disclosure-only provisions of SFAS
No. 148 in the third quarter of 2003.
NOTE 3: INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined under the last-in, first-out (LIFO) method and market defined as
net realizable value.
Inventories are composed of the following (dollars in thousands):
March 1, August 31,
2003 2002
-------------------- --------------------
Finished goods................ $ 59,105 $ 48,037
Work in process............... 30,886 26,995
Raw materials................. 61,673 62,194
------------------ -----------------
151,664 137,226
LIFO reserve.................. (24,259) (23,572)
------------------ -----------------
$ 127,405 $ 113,654
================== =================
NOTE 4: WARRANTIES
Estimated warranty costs are provided at the time of sale of the warranted
products. Estimates of future warranty costs are based on prior experience
and known current events. The changes in the provision for warranty reserve
for the 26 weeks ended March 1, 2003, are as follows (dollars in
thousands):
Balance as of August 31, 2002 $ 8,151
Product warranty provision 6,723
Payments (5,504)
------------------
Balance at March 1, 2003 $ 9,370
==================
NOTE 5: CONTINGENT LIABILITIES AND COMMITMENTS
It is customary practice for companies in the recreation vehicle industry
to enter into repurchase agreements with lending institutions which have
provided wholesale floor plan financing to dealers. The Company's
agreements provide for the repurchase of its products from the financing
institution in the event of repossession upon a dealer's default. The
Company was contingently liable for approximately $275,355,000 and
$206,155,000 under repurchase agreements with lending institutions as of
March 1, 2003 and August 31, 2002, respectively. These repurchase
obligations have a term of one year from the date of the original invoice.
The Company's losses under these repurchase agreements were approximately
$39,000 during the 26 weeks ended March 1, 2003. Included in these
contingent liabilities as of March 1, 2003 and August 31, 2002 are
approximately $531,000 and $1,049,000, respectively, of certain dealer
receivables subject to recourse agreements with Bank of America Specialty
Group. The Company did not incur any actual losses under these recourse
agreements during the 26 weeks ended March 1, 2003.
The Company has also entered into a repurchase agreement with a lending
institution that covers approximately $1,564,000 and $1,698,000 of
repurchase liability as of March 1, 2003 and August 31, 2002, respectively.
This repurchase obligation has a term of two years from the date of the
original invoice. The Company did not incur any actual losses under these
repurchase agreements during the 26 weeks ended March 1, 2003.
The Company records repurchase and recourse reserves based on prior
experience and known current events. The combined repurchase and recourse
reserve balances are approximately $392,000 and $333,000 as of March 1,
2003 and August 31, 2002, respectively.
6
NOTE 6: SUPPLEMENTAL CASH FLOW DISCLOSURE
For the periods indicated, the Company paid cash for the following (dollars
in thousands):
Twenty-Six Weeks Twenty-Seven
Ended Weeks Ended
March 1, March 2,
2003 2002
------------------ --------------------
Interest $ - - - $ - - -
Income taxes 16,707 4,500
NOTE 7: DIVIDEND DECLARED
On March 19, 2003 the Board of Directors declared a cash dividend of $.10
per common share payable July 7, 2003 to shareholders of record on June
6, 2003.
NOTE 8: REPURCHASE OF OUTSTANDING STOCK
On June 19, 2002, the Board of Directors authorized the repurchase of
outstanding shares of the Company's common stock, depending on market
conditions, for an aggregate purchase price of up to $15,000,000. As of
March 1, 2003, 450,200 shares had been repurchased for an aggregate
consideration of approximately $14,814,000 under this authorization. On
March 19, 2003, the Board of Directors authorized the purchase of
outstanding shares of the Company's common stock for an aggregate price
of up to $20 million.
NOTE 9: INCOME PER SHARE
The following table reflects the calculation of basic and diluted
earnings per share for the 13 and 26 weeks ended March 1, 2003 and the 13
and 27 weeks ended March 2, 2002.
Twenty-Six Twenty-Seven
Thirteen Weeks Ended Weeks Ended Weeks Ended
---------------- -------------- ----------------- ------------------
In thousands except per share data March 1, March 2, 2002 March 1, March 2,
2003 2003 2002
---------------- -------------- ----------------- ------------------
Earnings per share - basic
--------------------------
Net income $ 12,309 $ 9,448 $ 28,587 $ 20,158
---------------- -------------- ----------------- ------------------
Weighted average shares outstanding 18,775 20,760 18,750 20,715
---------------- -------------- ----------------- ------------------
Earnings per share - basic $ .66 $ .46 $ 1.52 $ .97
---------------- -------------- ----------------- ------------------
Earnings per share - assuming dilution
--------------------------------------
Net income $ 12,309 $ 9,448 $ 28,587 $ 20,158
---------------- -------------- ----------------- ------------------
Weighted average shares outstanding 18,775 20,760 18,750 20,715
Dilutive impact of options outstanding 337 455 363 442
---------------- -------------- ----------------- ------------------
Weighted average shares & potential
dilutive shares outstanding 19,112 21,215 19,113 21,157
---------------- -------------- ----------------- ------------------
Earnings per share - assuming dilution $ .64 $ .45 $ 1.50 $ .95
---------------- -------------- ----------------- ------------------
There were options to purchase 14,000 shares of common stock outstanding at
a price of $39.475 per share during the 13 weeks ended March 1, 2003. These
options were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market
price of the common stock.
7
NOTE 10: BUSINESS SEGMENT INFORMATION
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 relating 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, used 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 for recreational vehicles and other
manufactured products is before interest expense, interest income, and
income taxes. Operating income for dealer financing includes interest
income and interest expense, but is before income taxes. A variety of
balance sheet ratios are used by management to measure the business
segments. 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 includes interest income and administrative and
miscellaneous costs. Inter segment sales and expenses are not significant.
For the 26 weeks ended March 1, 2003 and the 27 weeks ended March 2, 2002,
the Company's segment information is as follows:
Recreation
Vehicles & Other
Manufactured Dealer General
(dollars in thousands) Products Financing Corporate Total
----------------------------------------------------------------------------------------------------------
26 Weeks Ended March 1, 2003
Net revenues $ 419,305 $ 1,512 $ - - - $ 420,817
Operating income 45,383 559 168 46,110
Identifiable assets 236,605 43,193 78,407 358,205
27 Weeks Ended March 2, 2002
Net revenues $ 359,209 $ 1,648 $ - - - $ 360,857
Operating income 27,752 630 343 28,725
Identifiable assets 182,137 38,483 170,849 391,469
Certain prior year information has been reclassified to conform to current
year presentation.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION
Certain of the matters discussed in this report 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 the war with
Iraq, reactions to actual or threatened terrorist attacks, availability and
price of fuel, a significant increase in interest rates, a slowdown in the
economy, availability of chassis, slower than anticipated sales of new or
existing products, new product introductions by competitors, collections of
dealer financing receivables and other factors which may be disclosed throughout
this report. Any forecasts and projections in this report are "forward looking
statements," and are based on management's current expectations of the Company's
near-term results, based on current information available pertaining to the
Company, including the aforementioned risk factors; actual results could differ
materially. The Company undertakes no obligation to publicly update or revise
any forward looking statements whether as a result of new information, future
events or otherwise, except as required by law or the rules of the New York
Stock Exchange.
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements, we follow accounting
principles generally accepted in the United States of America, which in many
cases requires us to make assumptions, estimates and judgments that affect the
amounts reported. There are some policies that are especially critical because
they are important in determining the financial condition and results of
operations. These policies are described below and involve additional management
judgment due to the sensitivity of the methods, assumptions and estimates
necessary in determining the related income statement, asset and/or liability
amounts.
The Company offers to its customers a variety of warranties on its products
ranging from 1 to 10 years in length. Estimated costs related to product
warranty are accrued at the time of sale and included in cost of sales.
Estimated costs are based upon past warranty claims and unit sales history and
are adjusted as required to reflect actual costs incurred, as information
becomes available (see Note 4 of Unaudited Notes to Condensed Consolidated
Financial Statements).
The Company has reserves for other loss exposures such as product liability,
litigation and accounts receivable. The Company also has loss exposure on loan
guarantees and repurchase agreements (see Note 5 of Unaudited Notes to Condensed
Consolidated Financial Statements). Establishing loss reserves for these matters
requires the use of estimates and judgments in regards to risk exposure and
ultimate liability. The Company estimates losses using consistent and
appropriate methods; however, changes in assumptions could materially affect the
Company's recorded liabilities for loss. Reference is also made to the
description of the Company's critical accounting policies included in the
Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2002.
RESULTS OF OPERATIONS
Thirteen Weeks Ended March 1, 2003 Compared to Thirteen Weeks Ended
- --------------------------------------------------------------------
March 2, 2002
- -------------
Net revenues for recreation vehicle and other manufactured products for the 13
weeks ended March 1, 2003 were $185,958,000, an increase of $3,606,000, or 2.0
percent from the 13-week period ended March 2, 2002. Motor home unit sales
(Class A and C) were 2,259 units, a decrease of 189 units, or 7.7 percent,
during the second quarter of fiscal 2003 compared to the second quarter of
fiscal 2002. When comparing the two quarters, the Company, as a percentage of
the total unit sales, sold more higher-priced slideout featured units during the
second quarter of fiscal 2003 than during the second quarter of fiscal 2002. The
introduction of the Company's Vista and Sunstar Class C motor homes during the
second quarter of fiscal 2002 contributed to the difference in number of unit
shipments.
Net revenues for dealer financing of Winnebago Acceptance Corporation (WAC) were
$770,000 for the 13 weeks ended March 1, 2003; an increase of $67,000 or 9.5
percent from the 13-week period ended March 2, 2002. Increased revenues for
dealer financing reflect higher average outstanding dealer receivable balances
partially offset by a decrease in interest rates.
9
Gross profit, as a percent of net revenues, was 14.5 percent for the 13 weeks
ended March 1, 2003 compared to 12.5 percent for the 13 weeks ended March 2,
2002. The Company's higher margins were due primarily to an improved mix of
products and a favorable physical inventory adjustment which were partially
offset by the start-up costs of the new production facility in Charles City,
Iowa.
Selling expenses were $4,068,000 or 2.2 percent of net revenues during the
second quarter of fiscal 2003 compared to $4,493,000 or 2.5 percent of net
revenues during the second quarter of fiscal 2002. The decreases in dollars and
percentage were caused primarily by reductions in advertising expenses during
the second quarter of fiscal 2003.
General and administrative expenses were $2,950,000 or 1.6 percent of net
revenues during the 13 weeks ended March 1, 2003 compared to $5,031,000 or 2.7
percent of new revenues during the 13 weeks ended March 2, 2002. The decreases
in dollars and percentage were caused primarily by lower stock-based incentive
compensation expense, decreases in management incentive programs and a reduction
in the Company's product liability expense.
The Company had net financial income of $312,000 for the second quarter of
fiscal 2003 compared to net financial income of $912,000 for the comparable
quarter of fiscal 2002. The decrease in interest income when comparing the two
periods was due primarily to lower cash balances available for investing,
principally as a result of Company stock buybacks during the past 12 months and,
to a lesser degree, lower interest rates during the period ended March 1, 2003.
The effective income tax rate increased to 39.8 percent during the second
quarter of fiscal 2003 from 34.0 percent during the second quarter of fiscal
2002. The increase in the effective tax rate was caused primarily by losses in
the Winnebago Health Care Management Company which are likely not deductible for
tax purposes due to a change in the Company's tax planning and a reduction of
tax-free financial income during the second quarter of fiscal 2003.
For the second quarter of fiscal 2003, the Company had net income of
$12,309,000, or $.64 per diluted share compared to the second quarter of fiscal
2002's net income of $9,448,000, or $.45 per diluted share. Net income and
earnings per diluted share increased by 30.3 percent and 42.2 percent,
respectively, when comparing the second quarter of fiscal 2003 to the second
quarter of fiscal 2002. The differences in percentages when comparing net income
to net earnings per share were primarily due to a lower number of outstanding
shares of the Company's common stock during the 13 weeks ended March 1, 2003 due
to the Company's repurchase of shares during fiscal 2003 and 2002. (See Note 9
of the Unaudited Notes to Condensed Consolidated Financial Statements.)
Twenty-Six Weeks Ended March 1, 2003 Compared to Twenty-Seven Weeks Ended
- -------------------------------------------------------------------------
March 2, 2002
- -------------
Net revenues for recreation vehicle and other manufactured products for the 26
weeks ended March 1, 2003 were $419,305,000, an increase of $60,096,000, or 16.7
percent from the 27-week period ended March 2, 2002. Motor home unit sales
(Class A and C) were 5,184 units, an increase of 419 units, or 8.8 percent,
during the first half of fiscal 2003 compared to the first half of fiscal 2002.
The percentage increase in net revenues for the 26 weeks ended March 1, 2003 was
greater than the percentage increase in motor home unit sales for that period as
a result of the Company's sales of more units, as a percentage of the total unit
sales, with the higher-priced slideout feature during the period.
Net revenues for dealer financing of WAC were $1,512,000 for the 26 weeks ended
March 1, 2003, a decrease of $136,000 or 8.3 percent from the 27-week period
ended March 2, 2002. Decreased revenues for dealer financing reflect a
significant decrease in interest rates partially offset by higher average
outstanding dealer receivable balances when comparing the two periods.
Gross profit, as a percent of net revenues, was 15.0 percent for the 26 weeks
ended March 1, 2003 compared to 13.1 percent for the 27 weeks ended March 2,
2002. The Company's higher margins were due primarily to increased volume of
motor home production, increased deliveries to the Company's dealers, an
improved mix of products and a favorable physical inventory adjustment which
were partially offset by the start-up costs of the new production facility in
Charles City, Iowa.
10
Selling expenses were $8,755,000 or 2.1 percent of net revenues during the 26
weeks ended March 2, 2002 compared to $9,310,000 or 2.6 percent of net revenues
during the 27 weeks ended March 2, 2002. The decreases in dollars and percentage
were caused primarily by reductions in advertising expenses during the first
half of fiscal 2003.
General and administrative expenses were $8,087,000 or 1.9 percent of net
revenues during the 26 weeks ended March 1, 2003 compared to $9,135,000 or 2.5
percent of net revenues during the 27 weeks ended March 2, 2002. The decreases
in dollars and percentage when comparing the two periods were caused primarily
by lower stock-based incentive compensation expense, decreases in management
incentive programs and a reduction in the Company's product liability expense.
The Company had net financial income of $493,000 for the 26 weeks ended March 1,
2003 compared to net financial income of $1,804,000 for the 27 weeks ended March
2, 2002. The decrease in interest income when comparing the two periods was due
primarily to lower cash balances available for investing, principally as a
result of Company stock buybacks during the past 12 months and, to a lesser
degree, lower interest rates during the period ended March 1, 2003.
The effective income tax rate increased to 38.7 percent during the 26 weeks
ended March 2, 2003 from 34.0 percent during the 27 weeks ended March 2, 2002.
The increase in the effective tax rate was caused primarily by losses in the
Winnebago Health Care Management Company which are likely not deductible for tax
purposes due to a change in the Company's tax planning and a reduction of
tax-free financial income during the first half of fiscal 2003.
For the first half of fiscal 2003, the Company had net income of $28,587,000, or
$1.50 per diluted share compared to the first half of fiscal 2002's net income
of $20,158,000, or $.95 per diluted share. Net income and earnings per diluted
share increased by 41.8 percent and 57.9 percent, respectively, when comparing
the first half of fiscal 2003 to the first half of fiscal 2002. The differences
in percentages when comparing net income to net earnings per share were
primarily due to a lower number of outstanding shares of the Company's common
stock during the 26 weeks ended March 1, 2003 due to the Company's repurchase of
shares during fiscal 2003 and 2002. (See Note 9 of the Unaudited Notes to
Condensed Consolidated Financial Statements.)
LIQUIDITY AND FINANCIAL CONDITION
The Company generally meets its working capital, capital equipment and cash
requirements with funds generated from operations.
At March 1, 2003, working capital was $151,333,000, an increase of $6,338,000
from the amount at August 31, 2002. The Company's principal uses of cash during
the 26 weeks ended March 1, 2003 were $17,559,000 for the purchase of property
and equipment, $10,521,000 for the purchase of shares of the Company's Common
Stock and $1,887,000 for the payment of cash dividends. The Company's sources
and uses of cash during the 26 weeks ended March 1, 2003 are set forth in the
unaudited consolidated condensed statement of cash flows for that period.
Principal known demands at March 1, 2003 on the Company's liquid assets for the
remainder of fiscal 2003 include capital expenditures of approximately
$7,800,000 and the payment of cash dividends. Also, on March 19, 2003, the Board
of Directors authorized the purchase of outstanding shares of the Company's
common stock, depending on market conditions, for an aggregate purchase price of
up to $20 million.
Management currently expects its cash on hand and funds from operations to be
sufficient to cover both short-term and long-term operating requirements.
COMPANY OUTLOOK
Due to the lowest consumer confidence levels in recent history in the United
States (U.S.) caused mainly by uncertainties related to the war with Iraq, it
appears that the RV market has recently slowed. On April 10, 2003, Bruce D.
Hertzke, the Company's CEO, commented in an interview with Bloomberg TV that as
a result of the aforementioned factors impacting RV market conditions, the
Company does not expect to meet current analysts' earnings estimates for the
remainder of fiscal 2003.
11
However, long-term demographics are favorable to the Company, as the target
market of U.S. consumers' age 50 and older is anticipated to nearly double
within the next 30 years. A recent Consumer Demographic Profile Study completed
by the University of Michigan also found the age of people interested in
purchasing recreation vehicles is expanding to include younger buyers as well as
older buyers. Order backlog for the Company's Class A and Class C motor homes
was 1,890 orders on March 1, 2003 compared to 3,206 orders on March 2, 2002. The
Company includes in its backlog all accepted purchase orders from dealers
shippable within the next six months. Orders in backlog can be canceled or
postponed at the option of the purchaser at any time without penalty and,
therefore, backlog may not necessarily be a measure of future sales.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 1, 2003, the Company has an investment portfolio of fixed income
securities, which are classified as cash and cash equivalents of $39,507,000, of
which $33,333,000 are fixed income investments that are subject to interest rate
risk.
As of March 1, 2003, the Company had dealer-financing receivables in the amount
of $42,941,000. Interest rate charges on these receivables vary based on the
prime rate.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-14(c) and 15d-14 (c) under the Securities Exchange Act of 1934). Based
on their evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures are, to the
best of their knowledge, effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. Subsequent to
the date of their evaluation, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
12
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Winnebago Industries, Inc.
Forest City, Iowa
We have reviewed the accompanying condensed consolidated balance sheet of
Winnebago Industries, Inc. and subsidiaries (the Company) as of March 1, 2003,
and the related condensed consolidated statements of income and cash flows for
the 13-week and 26-week periods ended March 1, 2003 and the 13-week and 27-week
periods ended March 2, 2002, respectively. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America
(generally accepted auditing standards), the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of August 31, 2002,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated October 4, 2002, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of August 31, 2002 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 17, 2003
(March 19, 2003 as to Note 7 and 8)
13
PART II Other Information
Item 1. Legal Proceedings
Reference is made to the comments in the Form 10-K for the fiscal
year ended August 31, 2002 with respect to the purported class action
captioned Sanft, et al vs. Winnebago Industries, Inc., et al which
was filed in the United States District Court, Northern District of
Iowa, Central Division on August 30, 2001. Since the Form 10-Q for
the quarter ending November 30, 2002 was filed, the Plantiffs filed a
Motion for Class Certification on January 31, 2003. The Company has
filed a Resistance to Motion for Class Certification and oral
arguments on such Motion and Resistance are scheduled to be held on
April 22, 2003. We would anticipate a ruling on the Motion for Class
Certification within a few weeks thereafter.
The Company is also involved in various other legal proceedings which
are ordinary routine litigation to its business, many of which are
covered in whole or in part by insurance. While it is impossible to
estimate with certainty the ultimate legal and financial liability
with respect to this litigation, management is of the opinion that
while the final resolution of any such litigation may have an impact
on the Company's consolidated results for a particular reporting
period, the ultimate disposition of such litigation will not have any
material adverse effect on the Company's financial position, results
of operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held January 14, 2003.
(b) The breakdown of votes for the election of three directors was as
follows*
Votes Cast For Authority Withheld
-------------- ------------------
John V. Hanson (2006) 17,413,727 175,056
Bruce D. Hertzke (2006) 15,480,170 2,108,613
Gerald C. Kitch (2006) 17,511,374 77,409
*There were no broker non-votes.
( ) represents year of Annual Meeting that individual's term will expire.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index on page 18.
(b) The Company did not file any reports on Form 8-K during the
period covered by this report.
14
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Bruce D. Hertzke, Chief Executive Officer of Winnebago Industries, Inc.,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Winnebago
Industries, Inc. (the "Registrant");
2. Based on my knowledge, this Quarterly Report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other
financial information included in this Quarterly Report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of,
and for, the periods presented in this Quarterly Report;
4. The Registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the Registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this Quarterly Report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this Quarterly Report (the
"Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's
auditors and the audit committee of Registrant's Board of
Directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involved
management or other employees who have a significant role
in the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated
in this Quarterly Report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: April 11, 2003
-------------------------------
By: /s/ Bruce D. Hertzke
-------------------------------------
Bruce D. Hertzke
Chief Executive Officer
15
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Edwin F. Barker, Chief Financial Officer of Winnebago Industries, Inc.,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Winnebago
Industries, Inc. ("the Registrant");
2. Based on my knowledge, this Quarterly Report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other
financial information included in this Quarterly Report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of,
and for, the periods presented in this Quarterly Report
4. The Registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the Registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this Quarterly Report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this Quarterly Report (the
"Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's
auditors and the audit committee of Registrant's Board of
Directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated
in this Quarterly Report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: April 11, 2003
-------------------------------
By: /s/ Edwin F. Barker
-------------------------------------
Edwin F. Barker
Chief Financial Officer
16
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 April 11, 2003 /s/ Bruce D. Hertzke
------------------------------ ------------------------------------------------------------
Bruce D. Hertzke
Chairman of the Board, Chief Executive Officer,
and President
(Principal Executive Officer)
Date April 11, 2003 /s/ Edwin F. Barker
------------------------------ ------------------------------------------------------------
Edwin F. Barker
Senior Vice President - Chief Financial Officer
(Principal Financial Officer)
17
EXHIBIT INDEX
10i. Amendment No. 1 to Winnebago Industries, Inc. Rights Plan Agreement
dated January 13, 2003 (Amendment allows FMR Corp., its affiliates and
Associates, to be the Beneficial Owner of up to 20% of the Company's
outstanding stock with the Winnebago Industries, Inc. Rights Plan
Agreement prior to such Amendment providing that the ownership of 15%
or more of the Company's outstanding stock except by a "Hanson Family
Member" was a "triggering event" establishing the holder of such
ownership as an Acquiring Person under the terms of such Plan).
10v. Executive Change of Control Agreement dated March 13, 2003 between
Winnebago Industries, Inc. and Roger W. Martin.
99. 906 certification.