WINNEBAGO INDUSTRIES, INC. 1997 ANNUAL REPORT
[LOGO] WINNEBAGO
INDUSTRIES
CORPORATE PROFILE
Winnebago Industries, Inc., headquartered in Forest City, Iowa, is a leading
United States manufacturer of motor homes, self-contained recreation vehicles
used primarily in leisure travel and outdoor recreation activities. Motor home
sales by the Company represented more than 87 percent of its revenues in each of
the past five fiscal years. These vehicles are sold through dealer organizations
primarily under the Winnebago(R), Itasca(R), Vectra(R), Rialta(R) and Luxor(R)
brand names. The Company markets its recreation vehicles on a wholesale basis to
a broadly diversified dealer organization located throughout the United States,
and to a limited extent, in Canada and other foreign countries. As of August 30,
1997, the motor home dealer organization in the United States and Canada
included approximately 340 dealers. In addition, the Company's subsidiary,
Winnebago Acceptance Corporation, provides floor plan financing of dealer
inventories of the Company's products.
The Company was incorporated under the laws of the state of Iowa on February 12,
1958, and adopted its present name on February 28, 1961.
TABLE OF CONTENTS
Report to Shareholders..........................................................................2
Operations Review...............................................................................5
Net Revenues by Major Product Class.............................................................9
Interim Financial Information...................................................................9
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................................10
Consolidated Balance Sheets....................................................................14
Consolidated Statements of Operations..........................................................16
Consolidated Statements of Cash Flows..........................................................17
Consolidated Statements of Changes in Stockholders' Equity.....................................18
Notes to Consolidated Financial Statements.....................................................19
Independent Auditors' Report...................................................................30
Selected Financial Data........................................................................31
Shareholder Information........................................................................32
Directors and Officers..........................................................Inside Back Cover
ABOUT THE COVER
Winnebago Industries started from scratch and utilized a great deal of new
technology when designing the all-new 1998 Winnebago Chieftain. No longer do you
have to sacrifice storage in order to reap the benefits of increased living
space in a slideout motor home.
MOTOR HOME PRODUCT CLASSIFICATION
[GRAPHIC OMITTED] CLASS A MOTOR HOMES
These are conventional motor homes constructed directly
on medium-duty truck chassis which include the engine and
drivetrain components. The living area and driver's
compartment are designed and produced by Winnebago
Industries, Inc. Class A motor homes from Winnebago
Industries include: Winnebago Brave(R), Adventurer(R) and
Chieftain(R); Itasca Sunrise(R), Suncruiser(R) and
Sunflyer(R); Vectra Grand Tour(R) and Luxor(R).
[GRAPHIC OMITTED] CLASS B VAN CAMPERS
These are panel-type trucks to which any two of the
following conveniences are added; sleeping, kitchen and
toilet facilities, also 110-volt electrical hook-up,
fresh water storage, city water hook-up and a top
extension to provide more head room. Winnebago Industries
converts the EuroVan Camper, which is distributed by
Volkswagen of America and Volkswagen of Canada.
[GRAPHIC OMITTED] CLASS C MOTOR HOMES (MINI)
These are mini motor homes built on van-type chassis onto
which Winnebago Industries constructs a living area with
access to the driver's compartment. Class C motor homes
from Winnebago Industries include: Winnebago Minnie(R)
and Minnie Winnie(R); Itasca Spirit(R) and Sundancer(R);
and the Rialta(R).
WINNEBAGO INDUSTRIES
MOTOR HOME FAMILY TREE
Winnebago Industries manufactures five brands of Class A & C motor homes.
Listed below are the brand names and model designations
of the Company's 1998 product line.
- ----------------- ----------------- ----------------- ----------------- -----------------
[GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED]
WINNEBAGO [LOGO] ITASCA [LOGO] RIALTA [LOGO] VECTRA [LOGO] LUXOR [LOGO]
- ----------------- ----------------- ----------------- ----------------- -----------------
- Minnie - Spirit - Vectra Grand
- Minnie Winnie - Sundancer Tour
- Brave - Sunrise
- Adventurer - Suncruiser
- Chieftain - Sunflyer
1
TO OUR SHAREHOLDERS
A YEAR OF TRANSITION
If there is one word that best describes fiscal 1997 for Winnebago
Industries, Inc., it is "transition." We focused our attention and resources in
fiscal 1997 on our core business of motor home manufacturing. Following the loss
of our founder and former Chairman John K. Hanson, Winnebago Industries
continued on its path to refocus on its core business of building quality,
value-driven recreation vehicle (RV) products.
This transition within the Company resulted in divestiture of businesses
and corporate assets in fiscal 1997 that have not contributed to the Company's
growth within the RV industry. During fiscal 1997, the Company sold its 80
percent owned subsidiary, Cycle-Sat, Inc., as well as Outdoor America (a Temple,
Texas mall), Totem Vending Services and a corporate airplane. We also
reevaluated our international sales strategies and sold our wholly owned
subsidiary, Winnebago Industries Europe, GmbH (WIE).
[PHOTO] PRESIDENT AND CHIEF OPERATING OFFICER BRUCE D. HERTZKE (LEFT) AND
CHAIRMAN AND CHIEF EXECUTIVE OFFICER FRED G. DOHRMANN
FINANCIAL RESULTS
Revenues for fiscal 1997 were $438.1 million, compared to revenues of
$484.8 million for the previous fiscal year. Net income for fiscal 1997 was
$23.0 million, or 91 cents per share, compared to $12.4 million, or 49 cents per
share, for the same period last year. Included in fiscal 1997 net income is a
$16.5 million net gain, or 65 cents per share, from the sale of our 80 percent
interest in Cycle-Sat, Inc.
Operating results for fiscal 1997 were negatively impacted by soft market
conditions for the Company's motor homes in the last half of the year, causing
the Company to increase promotional programs to stimulate wholesale and retail
activity. Also impacting operating results for the year was a loss of $7.7
million from the operations and August 1997 sale of WIE. A tax credit of
approximately $3.7 million was realized in the fourth quarter as a result of the
closing of WIE.
PRODUCTS
Significant product development in fiscal 1997 led to over half of all our
1998 model lineup featuring either brand new or significantly redesigned
products. Realizing weakness in some of our 1997 Class A product offerings, we
concentrated on developing new Class A products that will meet the growing
market demand for widebody and slideout room floorplans. In addition, we have
continued to build on three years of consistent market share growth in the Class
C market with the development of some very exciting products for this market
segment. (Please see page five for an overview of Winnebago Industries' exciting
new 1998 product offerings.)
[PHOTO] 1998 WINNEBAGO ADVENTURER 35WP
2
NEW PRODUCT DEVELOPMENT PROCESS
The Company's product development team, under the leadership of Ron
Buckmeier, vice president of product development, has implemented a process to
develop new products and maximize manufacturing efficiencies. Taking a cue from
the auto industry, we've created a cross-functional approach for the design and
manufacture of our motor homes.
This approach encourages individual departments to broaden their scope
beyond their respective areas of responsibility in developing new products or
processes. In addition to the goal of faster introduction of new designs and
models, we've realized a broader level of responsibility and accountability
throughout the entire organization. For example, we are now in a position where
those employees responsible for the final-stage development of our products have
a better understanding of the market-driven factors behind those products; by
the same token, employees who previously focused on only the early stages of
development now have a clearer understanding of their impact on the entire
production process.
The new system also streamlines the production process, allowing us to work
closely together as a team.
Although the team is less than a year old, we're very proud of the impact
it had on our 1998 products. Next year, the product development team's impact
will be felt 100 percent throughout the entire product line.
INTERNATIONAL
As discussed previously, a transition was also seen in our international
operations with the sale of our wholly owned subsidiary and European
distributor, WIE. In August 1997 we sold WIE, and awarded distribution rights to
sell our products within Germany, The Netherlands, Belgium, Luxembourg and
Austria. All international sales (except Canadian) now operate under the same
distributorship philosophy with eight distributors now marketing our products
within 10 foreign countries.
Winnebago Industries will continue to produce motor home models compatible
for the foreign markets and will continue to search out new market opportunities
for global expansion.
OEM
Winnebago Industries generated $29.0 million in revenue in fiscal 1997 from
the sale of original equipment manufacturing (OEM) components to a wide array of
outside companies. In comparison, we had OEM revenues of $28.3 million in fiscal
1996. The sale of OEM components allows the Company to maximize use of the
Company's production capacity, while affording us the added benefit of low cost
component parts which helps in keeping our motor home prices as competitive as
possible.
The Creative Aluminum Products Company (CAPCO), which produces aluminum
extrusions for Winnebago Industries as well as for a variety of outside
companies, is our largest OEM facility, accounting for nearly 90 percent of
Winnebago Industries current OEM business.
OEM revenues are also generated from the sale of thermoformed and rotocast
plastics and fiberglass components.
QUALITY
A motto the Company emulates is, "Quality is a Journey -- Not a
Destination." Although we are extremely pleased with the results of our quality
control efforts, we will never be completely satisfied and will continue to look
for ways to make our products better. The Company has now embarked on a higher
level of quality, implementing more preventative measures in the production
process, coupled with additional employee training. We believe that Winnebago
Industries is the most technologically advanced manufacturer in the RV industry,
providing employees the tools necessary to do their jobs better, resulting in
top quality motor homes.
[PHOTO] 1997 RIALTA 22RC
3
We're proud of the quality work our employees produce and of their
commitment to the Company. (For more information about our quality programs,
please see the Excellence in Quality section on page seven.)
OUTLOOK
Although industry projections suggest shipments will be somewhat stagnant
in calendar 1998, Winnebago Industries is set to increase market share due to
the positive impact of our new 1998 products in the marketplace. The long-term
outlook for motor home sales continues to appear very favorable. Future growth
over the next decade will be enhanced by the "baby boom" population segment's
emergence into the RV market's prime buying age of 50 plus. According to a 1993
University of Michigan study, RV ownership will continue to grow in popularity
for years to come. Overall, one of every four respondents to the survey stated
intentions to purchase an RV in the future. Demographics of this market segment
have shown that they have more time and discretionary income to enjoy leisure
travel and outdoor recreation than ever before, which indicates that prospects
for the industry will remain favorable over the next 20 years. Winnebago
Industries supports the "Go RVing Coalition" which has been formed by various RV
industry entities to work toward RV market expansion, particularly to the "baby
boom" market.
In addition to our traditional market, we are exploring ways to benefit
from the licensing of our Winnebago brand name in product categories that might
benefit from the use of this highly recognized name. To take advantage of the
equity in the name, we've retained the services of one of the country's best
licensing firms to explore marketing the Winnebago name in categories from
bicycles to park model homes. Licensing provides additional revenue, keeps motor
home prices as competitive as possible and creates added exposure and awareness
of the brand name.
We're also looking ahead at the possibility of enlarging Winnebago
Industries through expansions or acquisitions in the RV area. A Corporate
Development Committee of our Board of Directors has been created to review all
future plans for expansion or acquisition.
Winnebago Industries is an extremely financially stable company. Our land,
buildings, and equipment are all paid for and there is no long-term debt. We
have an enviable cash balance, providing the Company with the opportunity of
future growth. Winnebago Industries will continue to focus resources, financial
and otherwise, on building quality RVs; increasing motor home market share; and
expanding profitability. We believe our renewed focus on what we do best -- the
manufacture of quality RVs -- will accomplish these goals.
/s/ Fred G. Dohrmann
Fred G. Dohrmann
Chairman and
Chief Executive Officer
/s/ Bruce D. Hertzke
Bruce D. Hertzke
President and
Chief Operating Officer
November 10, 1997
[PHOTO] 1998 ITASCA SUNFLYER 33WB
4
OPERATIONS REVIEW
NEW PRODUCTS
Winnebago Industries is making the largest introduction of new and
redesigned motor homes in the Company's history. Over one half of all the motor
home products for the Company's 1998 model lineup are either brand new or have
major modifications.
[PHOTO] 1998 ITASCA SUNFLYER 33WB
CHIEFTAIN AND SUNFLYER INTRODUCED.
Leading the 1998 product introductions are the new Winnebago Chieftain and
Itasca Sunflyer product lines. Winnebago Industries started from scratch and
utilized a great deal of new technology when designing the all-new Chieftain and
Sunflyer models. No longer do RVers have to sacrifice storage in order to reap
the benefits of increased living space in a slideout motor home. Most Chieftain
and Sunflyer models include a new galley and couch slideout with the new
StoreMore(TM) Slideout System. This system provides spacious interior and
exterior storage that extends with the slide for ease of access. The Chieftain
and Sunflyer also feature a new Powerline Energy Management System(TM). When
utilizing 30 amp service, this fully automatic system has the ability to run two
roof air conditioners at the same time by monitoring the usage of 120 volt
electrical power and redistributing the power as needed. The Chieftain and
Sunflyer models range in length from approximately 33 to 36 feet.
BRAVE AND SUNRISE REDESIGNED. The Winnebago Brave and Itasca Sunrise were
completely redesigned for 1998. Three distinct product lines are now offered in
this series: the entry-level Brave SE and Sunrise SE, the upgraded Brave DL and
Sunrise DL and full-basement Brave and Sunrise models, each featuring widebody
design with spacious exterior storage compartments. All of the various Brave and
Sunrise models range from approximately 26 to 35 feet in length.
ADVENTURER AND SUNCRUISER REDESIGNED. The top selling Winnebago Adventurer
and Itasca Suncruiser were also redesigned for 1998. Ranging in length from
approximately 30 to 37 feet, many of these widebody, basement style motor homes
also utilize the new StoreMore(TM) Slideout System. Designed for full-time use,
the Adventurer and Suncruiser feature Home Comfort Design, with high-line
fabrics, stain-resistant carpets and beautiful interior furnishings in a variety
of very functional floorplans.
VECTRA GRAND TOUR. The Vectra Grand Tour line continues to be an excellent
value in mid-range, widebody, bus-style motor homes and has four models
available ranging from approximately 34 to 36 feet in length. The 35WQ pusher
model has a 275 hp Cummins diesel engine with an optional 300 hp Caterpillar
engine available.
LUXOR. The top-of-the-line Luxor model is an excellent value in diesel
pusher motor homes and is available in two beautiful 37-foot floorplans, the
37WQ and 37WP, each featuring lavish interior decor with spacious custom-made
cabinets and hand-laid ceramic tile floors in the galley. The 1998 Luxor was
recently featured by Andy Pargh, the "Gadget Guru" on NBC's "Today" show as an
example of a deluxe high line motor home.
CONTINUED CLASS C GROWTH. Winnebago Industries has experienced continued
growth in Class C market share, showing consistent retail market share growth
for the past three years. The Company's retail market share for all Class C
products was 19.9 percent in August 1996, the last report available from
Statistical Surveys, Inc., an independent RV reporting firm. This compares to
10.1 percent in August 1994, an increase of 97 percent.
MINNIE AND SPIRIT. Winnebago Industries Class C offerings have also been
redesigned for 1998 to initiate even more future growth. The Winnebago Minnie
and Itasca Spirit units are an excellent entry-level
5
value and now feature new widebody and slideout models. Available in models
ranging from approximately 22 to 31 feet in length, the Minnie and Spirit
include new 31 foot models featuring the new StoreMore(TM) Slideout System that
provides an additional 110 cubic feet of livable space inside.
MINNIE WINNIE AND SUNDANCER. The Winnebago Minnie Winnie and Itasca
Sundancer lines now feature four widebody, basement models for 1998, including
the new 31WS with a unique rear slideout system. When camped, the rear wall of
the innovative 31WS slides out with the bed to provide a comfortable full size
bedroom with a queen size walk-around bed and wardrobe. With the expanding
bedroom, the 31WS is able to provide additional lounge and galley features
previously only available in Class A products.
[PHOTO] 1998 WINNEBAGO MINNIE WINNIE 31WS-DL
RIALTA. The Rialta is a unique Class C product that offers fuel efficiency,
great front-wheel-drive maneuverability and multi-purpose usability. Available
in three floorplans, the Rialta is an easy-to-drive 22-feet in length and is
available with full motor home amenities. The VR6 engine that was designed into
the Rialta last year provided the product with additional power, as well as
stimulated sales in 1997. The Rialta product line has been refreshed for 1998
and the Company expects to see continued market improvement. The Rialta was
featured for several weeks last spring as the official motor home of the "RV
Roadtrip" segment on ABC's "Good Morning America."
EUROVAN CAMPER. The EuroVan Camper project has also been very successful.
Winnebago Industries converts the camper portion of this Class B motor home
which is marketed through a select group of Volkswagen of America and Volkswagen
of Canada dealers. Currently, it is a leader in Class B sales in the United
States.
COMMERCIAL VEHICLES. In fiscal 1997, the Company separated responsibilities
for its Specialty and Commercial Vehicles. Winnebago Specialty Vehicles are
typically a modification of an existing motor home or commercial vehicle to meet
the specific requirements of persons with a wide range of disabilities or those
with special business applications. Commercial Vehicles are designed from the
ground up from an empty motor home shell for a wide variety of uses such as
mobile police and fire command centers, dental offices, educational training
centers, hair salons, etc. Net revenues from Commercial Vehicles and Specialty
Vehicles increased 16 percent in fiscal 1997 versus 1996.
MARKETING OPPORTUNITIES
[PHOTO] COMMERCIAL VEHICLE - POLICE AND FIRE COMMAND CENTER
MOTORSPORTS. Winnebago Industries is striving to reach other niche markets
such as motorsports through its various marketing programs. The Company and its
dealers participate in 23 national NHRA drag events and several NASCAR Winston
Cup events each year. Providing additional exposure, Winnebago Industries
products are the official motor homes of several race tracks, including the
Texas Motor Speedway and the Phoenix International Raceway. The Company's
products are also the official motor homes of the Nashville Network's "TNN
Motorsports,"
6
providing additional exposure on "Southern Outdoors," "Winston Cup Racing" and
"NHRA Racing" television programs.
YOUNG MARKET. In an attempt to attract a younger, first-time buyer,
Winnebago Industries provides the Winnebago Minnie motor home that appears on
MTV's "Road Rules" television program. While the demographics of viewers for
this weekly television series are not typical of those of our traditional motor
home buyer, the use of the motor home helps portray the image to a younger
audience that motor homes are great fun for family travel and people of all
ages.
WINNEBAGO INDUSTRIES WEBSITE. The Company's website
(http://www.winnebagoind.com) has been expanded to provide extensive product and
company information to consumers on the internet. Due to the popularity of
computers, Winnebago Industries has increased the number of models offering
areas for computers and/or computer work stations with outlets for power and
telephone modems.
SERVICE
[PHOTO] PERSONNEL FOR WINNEBAGO INDUSTRIES' DEALERS ARE REGULARLY BROUGHT
INHOUSE FOR INTENSIVE SALES AND SERVICE TRAINING.
Winnebago Industries has what it believes to be the most comprehensive
service programs in the RV industry, providing the Company with an important
market advantage when selling our motor homes.
WARRANTY. With the purchase of any new Winnebago, Itasca, Vectra or Luxor
motor home, Winnebago Industries offers a comprehensive 12-month/15,000-mile
warranty, a 3-year/36,000-mile warranty on sidewalls and slideout room
assemblies, and a 10-year fiberglass roof warranty. The Rialta has a
2-year/24,000 mile warranty.
TOLL-FREE HOTLINE. Experienced service advisors respond to inquiries from
prospective customers, answer questions pertaining to Winnebago Industries
produced vehicles and work with the owners and dealership personnel to expedite
repairs.
PREFERRED CARE. Every owner of a new Winnebago Industries motor home
receives a free one-year membership in the Company's Preferred Care Program that
provides 24-hour customer assistance and emergency road service including jump
starts, fuel delivery, lockout assistance and tire changing.
TRIP SAVER. Winnebago Industries now offers a new parts program, making the
Company's outstanding service and warranty programs even better. The "Trip
Saver" program is designed to get customers back on the road quicker. Trip saver
provides 24-hour air shipment of qualified in-stock parts during the new
vehicle's warranty period.
COMPUTERIZED NETWORK. Winnebago Industries dealers have many other market
advantages such as access to a computerized network for filing warranty claims
and parts ordering, the most extensive service literature in the RV industry,
hands-on sales and service training, microfiche parts catalog and parts shipping
advantages.
EXCELLENCE IN QUALITY
The Company believes its employees are critical to the total quality process.
Employee suggestions are solicited for improvements in the Company's products
and processes that result in cost and time savings. Since the employee cost
savings suggestion program was initiated six years ago, 1,850 ideas have been
implemented, resulting in annual cost savings of more than $3 million.
This cost savings program is designed to help the Company to control costs
and thereby improve financial performance. It also helps us to build high
quality products that represent the greatest value for the dollar to our
customers.
7
"QUALITY IS A JOURNEY -- NOT A DESTINATION." Although we are extremely
pleased with the results of our quality efforts, we will never be completely
satisfied and will continue to look for ways to make our products better. The
Company has now embarked on a higher level of quality, implementing more
preventative measures in the production process, coupled with additional
employee training.
LEADER IN TECHNOLOGY. The drive for excellence in quality has led the
Company to become an industry leader in technology. The high level of technology
at Winnebago Industries provides employees with the tools necessary to do their
jobs better and to maximize quality and efficiency. The Company's investment in
advanced technology is on-going to assure our customers of top-quality products
in the future.
For example, a fixtureless sidewall frame process was implemented during
fiscal 1997. This process allows us to utilize the pre-routed paths to place
aluminum tubes that are then welded into the sidewall. The frame is actually
welded in position within the sidewall during the assembly line process, not
only improving the quality fit, but also eliminating the need for the
complicated, high-maintenance weld fixture previously used.
The Company has completed the process of converting spray adhesive
application equipment used in the production of motor home sidewalls to a new
roll-coating process. In addition to an improvement in adhesive effectiveness,
this effectively eliminated this area as a major volatile organic compound
source. The change in process also enabled the Company to convert to a new
polystyrene insulation material that can be reprocessed into plastic feedstock
instead of being discarded in a local landfill. A densifier, that works much
like a hay baler, now collects and processes all polystyrene scrap.
These new technologies translate into better quality due to improved
accuracy, fit and finish; faster processes and an improved environment.
QUALITY AWARD. This quality emphasis has resulted in Winnebago Industries
fully meeting Ford Motor Company's 1997 requirements for the Ford Motor Home and
Transit Bus - Qualified Vehicle Modifier Program.
[LOGO] WINNEBAGO INDUSTRIES CIRCLE OF EXCELLENCE SINCE 1986
CUSTOMER SATISFACTION. The Company also made a strong commitment to
customer satisfaction through the implementation of several programs such as a
Customer Satisfaction Index (CSI) program. Our CSI program includes two separate
customer surveys. One focuses on the sales and delivery process, while the
second deals with service after the sale. This information helps us to identify
quality issues and create solutions. CSI is also a critical segment of our
"Circle of Excellence" dealer recognition program.
Winnebago Industries' management met recently with the Company's dealers in
Las Vegas for a very successful national dealer meeting. The 1998 products were
well received by dealers and since the meeting in August, motor home orders have
remained well ahead when compared to the same period last year.
[PHOTO] WINNEBAGO BRAVE DL 31DQ
DEALER SATISFACTION. The Company's dealers also awarded Winnebago
Industries their seal of approval with excellent results on the 1996 Dealer
Satisfaction Index (DSI). Conducted by the Recreation Vehicle Dealers
Association, the DSI ranking showed Winnebago Industries moved up to be ranked
second overall among all RV manufacturers, trailing the leader by only 1.18
percentage points. Winnebago Industries' score shows an 11 percent increase in
overall dealer satisfaction, to 80 percent and was the only manufacturer to have
improvement in nearly every category. The Company ranked as the leader in
aftermarket and sales support quality. Winnebago Industries aftermarket scores,
which include service, training, parts, warranty, etc. showed a satisfaction
rating of 85 percent, a full ten points higher than the next closest
manufacturer. This reaffirms Winnebago Industries' core belief that taking care
of the customer after the sale is key to growth in the industry.
8
NET REVENUES BY MAJOR PRODUCT CLASS
Fiscal year ended (1)
August 30, August 31, August 26, August 27, August 28,
(dollars in thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
Motor homes (Class A & C) $381,191 $432,212 $402,435 $385,319 $326,861
87.0% 89.2% 87.5% 88.9% 89.4%
Other recreation vehicle revenues (2) 19,771 17,166 19,513 21,903 17,655
4.5% 3.5% 4.2% 5.1% 4.8%
Other manufactured products revenues (3) 35,750 34,020 36,961 25,184 20,344
8.2% 7.0% 8.0% 5.8% 5.6%
-------------------------------------------------------------------------
Total manufactured products revenues 436,712 483,398 458,909 432,406 364,860
99.7% 99.7% 99.7% 99.8% 99.8%
Finance revenues (4) 1,420 1,406 1,220 831 595
.3% .3% .3% .2% .2%
-------------------------------------------------------------------------
Total net revenues $438,132 $484,804 $460,129 $433,237 $365,455
100.0% 100.0% 100.0% 100.0% 100.0%
(1) The fiscal year ended August 31, 1996 contained 53 weeks; all other fiscal
years in the table contained 52 weeks. All years are appropriately restated to
exclude the Company's discontinued Cycle-Sat subsidiary's revenues from
satellite courier and tape duplication services and discontinued NIE
subsidiary's revenues from contract assembly of a variety of electronic
products.
(2) Primarily EuroVan Campers, recreation vehicle related parts, recreation
vehicle service revenue and van conversions.
(3) Primarily sales of extruded aluminum, commercial vehicles and component
products for other manufacturers.
(4) WAC revenues from dealer financing.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Quarter ended
FISCAL 1997 November 30, 1996 March 1, 1997 May 31, 1997 August 30, 1997
- -------------------------------------------- ---------------------- -------------------- ----------------- ------------------
Net revenues from continuing
operations $113,892 $105,702 $117,226 $101,312
Operating income (loss) from
continuing operations 3,856 (3,330) 5,514 (892)
Income (loss) from continuing
operations 2,706 (3,674) 3,720 3,824
Net income (loss) 19,178 (3,674) 3,720 3,824
Income (loss) per common share:
Continuing operations .11 (.15) .15 .15
Discontinued operations .65 -- -- --
Net income (loss) .76 (.15) .15 .15
Quarter ended
FISCAL 1996 December 2, 1995 March 2, 1996 June 1, 1996 August 31, 1996
- -------------------------------------------- ---------------------- -------------------- ----------------- ------------------
Net revenues from continuing
operations $113,735 $106,161 $144,363 $120,545
Operating income from continuing
operations 3,967 2,873 7,445 6,424
Income from continuing operations 2,672 2,198 5,394 4,160
Net income 2,990 2,238 5,411 1,746
Income (loss) per common share:
Continuing operations .11 .09 .21 .16
Discontinued operations .01 -- -- (.09)
Net income .12 .09 .21 .07
The Company recorded a net gain on the sale of the Cycle-Sat subsidiary of
$16,472,000 during the first quarter of fiscal 1997. The Company recorded a tax
credit of approximately $3,700,000 during the fourth quarter of fiscal 1997 due
to the closing of WIE.
The information presented in this annual report differs from that in certain of
the filed 10-Q's, for fiscal 1996, due to required restatements to reflect the
Company's Cycle-Sat and electronic component assembly segments as discontinued
operations.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The primary use of recreation vehicles (RVs) for leisure travel and outdoor
recreation has historically led to a peak retail selling season concentrated in
the spring and summer months. The Company's sales of RVs are generally
influenced by this pattern in retail sales, but can also be affected by the
level of dealer inventory. The Company has generally manufactured RVs during the
entire year, both for immediate delivery and for inventory to satisfy the peak
selling season.
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
Net revenues for manufactured products were $436,712,000 for fiscal 1997, a
decrease of $46,686,000, or 9.7 percent, from fiscal 1996. Motor home shipments
(Class A and C) during fiscal 1997 were 7,558 units, a decrease of 1,192 units,
or 13.6 percent, compared to fiscal 1996. Fiscal 1997 revenues for manufactured
products were negatively impacted by the performance of the Company's Class A
motor home products in the marketplace. The Company's Class A motor home product
shipments decreased by 18.0 percent during fiscal 1997 when compared to fiscal
1996 whereas the Recreation Vehicle Industry Association (RVIA) factory shipment
numbers for the comparable period showed an increase of 8.2 percent. The
Company, recognizing its weakness in the Class A market, has concentrated on
intensive product development and will bring to the market the most extensive
new product lineup in its history. Over one half of the Company's 1998 products
feature new or significantly redesigned models, with the most revolutionary new
product offerings being in the Class A motor home series. Management believes
that long-term prospects remain bright as the Company continues to develop
products to meet the increasing demands of the "baby boom" market segment.
Early indications are that the Company's 1998 products are being received well
in the marketplace and the initial orders through October 1997, for the
Company's 1998 products are currently running ahead of orders received for the
same period last year.
Cost of manufactured products, as a percent of manufactured product revenues,
was 88.3 percent for fiscal 1997 compared to 86.3 percent for fiscal 1996. This
increase can be attributed primarily to reduced sales volume in Class A motor
homes and an increase in sales discounts offered during fiscal 1997.
Selling and delivery expenses increased by $1,841,000 to $27,131,000 comparing
fiscal 1997 to fiscal 1996 and increased as a percentage of net revenues to 6.2
percent from 5.2 percent. The increase in dollars and percentage were due to
increases in product promotional expenses.
General and administrative expenses decreased by $1,261,000 to $20,313,000
comparing fiscal 1997 to fiscal 1996 but increased in fiscal 1997, as a
percentage of net revenues, to 4.6 percent from 4.5 percent in fiscal 1996. The
decrease in dollars was caused primarily by a decrease in the Company's product
liability costs and by a reduction in the Company's overall compensation and
bonus expenses during fiscal 1997. The increase in percentage was attributed
primarily to the reduced sales volume.
For fiscal 1997, the Company had net financial income of $1,844,000, due to
investment income from higher cash balances maintained by the Company, a result
of the Cycle-Sat sale, compared to net financial income of $354,000 during
fiscal 1996. During fiscal 1997, the Company recorded $2,258,000 of net interest
and dividend income, $137,000 of realized and unrealized gains in its trading
securities portfolio, and losses of $551,000 in foreign currency transactions,
relating to transactions by the Company with Winnebago Industries
10
Europe, GmbH (WIE) and by WIE with dealers located in foreign countries other
than Germany. During fiscal 1996, the Company recorded $930,000 of net interest
and dividend income, $350,000 of realized and unrealized losses in its trading
securities portfolio, and losses of $226,000 in foreign currency transactions,
relating to the Company's investment in European operations caused by the
weakening of the U.S. dollar against European currencies.
For fiscal 1997, the Company had income from continuing operations before taxes
of $6,992,000 compared to $21,063,000 for fiscal 1996. The tax loss from the
closing and sale of the Company's European subsidiary, WIE, resulted in a tax
credit of approximately $3,700,000 . The tax credit reduced the effective tax
rate on continuing operations to 5.9 percent for the year.
During fiscal 1997, the Company completed the sale of its 80% owned subsidiary,
Cycle-Sat, Inc., for approximately $57,000,000 which resulted in an after-tax
gain of $16,472,000 or $.65 per common share (See Note 2 to the Company's 1997
Consolidated Financial Statements).
For fiscal 1997, the Company had net income of $23,048,000, or $.91 per share,
compared to fiscal 1996's net income of $12,385,000, or $.49 per share.
FISCAL 1996 COMPARED TO FISCAL 1995
Net revenues for manufactured products were $483,398,000 for fiscal 1996, an
increase of $24,489,000, or 5.3 percent, from fiscal 1995. Motor home shipments
(Class A and C) during fiscal 1996 were 8,750 units, a decrease of 96 units, or
1.1 percent, compared to fiscal 1995. Even though fiscal 1996 unit sales were
down, fiscal 1996 showed an increase in revenues, when compared to fiscal 1995,
due to a product mix change more heavily weighed to more expensive units with a
slideout feature.
Finance revenues were $1,406,000 for fiscal 1996 an increase of $186,000, or
15.2 percent from fiscal 1995. The increase can be attributed to an increase in
the average dealer receivable balances during fiscal 1996 when compared to
fiscal 1995.
Cost of manufactured products, as a percent of manufactured product revenues,
was 86.3 percent for fiscal 1996 compared to 86.7 percent for fiscal 1995. This
decrease can be attributed primarily to the shift in product mix to higher
margin slideout units, offset partially by a decrease in motor home production
volume.
Selling and delivery expenses were fairly stable in fiscal 1996 as compared to
fiscal 1995 but decreased in fiscal 1996, as a percentage of net revenues, to
5.2 percent from 5.5 percent in fiscal 1995, primarily due to increased 1996
revenue.
General and administrative expenses increased by $2,623,000 to $21,574,000
comparing fiscal 1996 to fiscal 1995 and increased as a percentage of net
revenues to 4.5 percent from 4.1 percent. The increase in dollars was caused
primarily by increases in the Company's employee bonus programs and an increase
in provisions for legal expenses.
For fiscal 1996, the Company had net financial income of $354,000 compared to
net financial income of $2,114,000 during fiscal 1995. During fiscal 1996, the
Company recorded $930,000 of net interest and dividend income, $350,000 of
realized and unrealized losses in its trading securities portfolio, and losses
of $226,000 in foreign currency transactions, relating to the Company's
investment in European operations caused by the weakening of the U.S. dollar
against European currencies. During fiscal 1995, the Company recorded $1,213,000
of foreign currency transaction gains, $559,000 of net interest and dividend
income and $342,000 of realized and unrealized gains in its trading securities
portfolio.
For fiscal 1996, the Company had income from continuing operations before taxes
of $21,063,000 compared to $20,006,000 for fiscal 1995. During fiscal 1995, the
Company recorded a credit for income taxes of $7,912,000, the result of
reductions of the Company's deferred tax asset valuation allowance.
During fiscal 1996, the Company reported losses from discontinued operations of
$2,039,000 which related to discontinued operations of the Cycle-Sat subsidiary
and to a
11
loss on the disposal of the electronic component assembly segment. During fiscal
1995, the Company reported a loss in discontinued operations related to the
Cycle-Sat subsidiary of $162,000.
For fiscal 1996, the Company had net income of $12,385,000, or $.49 per share,
compared to fiscal 1995's net income of $27,756,000, or $1.10 per share.
ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY AND RESOURCES
The Company meets its working capital, capital equipment requirements and cash
requirements of subsidiaries with funds generated internally and funds from
agreements with financial institutions.
At August 30, 1997, working capital was $99,935,000, an increase of $37,780,000
from the amount at August 31, 1996. Cash provided by operations was $5,215,000,
$17,258,000 and $25,404,000 during fiscal years ended August 30, 1997, August
31, 1996 and August 26, 1995, respectively. Operating cash flows were lower in
fiscal 1997, due primarily to a decrease in net income for the fiscal year. Cash
flows provided by investing activities was $46,678,000 in fiscal 1997 compared
to cash used by investing activities of $14,950,000 in fiscal 1996 and
$15,031,000 in fiscal 1995. Cash provided by investing activities for fiscal
1997 was up significantly due to the proceeds the Company received from the sale
of the Cycle-Sat subsidiary. Cash flows used by investing activities primarily
include investments in dealer receivable, long-term notes receivable and capital
expenditures. Capital expenditures were $4,438,000 in fiscal 1997, $10,463,000
in fiscal 1996 and $9,348,000 in fiscal 1995. Net cash used by financing
activities was $20,560,000 in fiscal 1997, $10,019,000 in fiscal 1996 and
$2,712,000 in fiscal 1995. The change in cash used by financing activities was
due primarily to the payment of long-term debt of the Cycle-Sat subsidiary
during fiscal 1997. (See Consolidated Statements of Cash Flows.)
The Company's sources of liquidity consisted principally of cash and cash
equivalents in the amount of $32,130,000 at August 30, 1997 compared to cash and
marketable securities of $5,113,000 at August 31, 1996.
The Company also has available a line of credit for $30,000,000, (or 75 percent
of eligible inventory, whichever is less) through a financing and security
agreement with NationsCredit Corporation. There were no outstanding borrowings
under the line of credit at August 30, 1997. (See Note 7 to the Company's 1997
Consolidated Financial Statements.)
Principal expected demands at August 30, 1997 on the Company's liquid assets for
fiscal 1998 include approximately $4,250,000 of capital expenditures (primarily
equipment replacements) and payments of cash dividends.
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
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
" was issued in March 1995 and was adopted by the Company in fiscal 1997. The
impact on the Company of adopting this statement was immaterial.
Earnings per Share
SFAS No. 128, "Earnings per Share," was issued in February 1997 and will be
adopted by the Company in the second quarter of fiscal 1998. The adoption of
SFAS No. 128 is not expected to have a significant impact on the calculation of
earnings per share.
Comprehensive Income
SFAS No 130, "Reporting Comprehensive Income" was issued in June 1997 and must
be adopted by the Company no later than fiscal 1999. The statement requires
companies to disclose comprehensive income and its components in their general
purpose financial statements.
12
Segment Disclosures
SFAS No. 131, "Disclosures about Segments of and Enterprise and Related
Information" was issued in June 1997 and must be adopted by the Company no later
than fiscal 1999. The statement establishes standards which redefine how
operating segments are determined and requires public companies to report
financial and descriptive information about reportable operating segments.
The Company has not completed the process of evaluating the effect of SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about
Segments of and Enterprise and Related Information" but does not believe the new
accounting pronouncements will significantly affect the Company's financial
condition or operating results.
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 demand from customers, effects of
competition, the general state of the economy, interest rates, consumer
confidence, changes in the product or customer mix or revenues and in the level
of operating expenses and other factors which may be disclosed throughout this
Annual 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.
IMPACT OF INFLATION
Historically, the impact of inflation on the Company's operations has not been
significantly detrimental, as the Company has usually been able to adjust its
prices to reflect the inflationary impact on the cost of manufacturing its
products.
13
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) August 30, 1997 August 31, 1996
- ------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 32,130 $ 797
Marketable securities -- 4,316
Receivables, less allowance for doubtful accounts
($1,429 and $702 respectively) 31,322 30,029
Dealer financing receivables, less allowance for
doubtful accounts ($155 and $197, respectively) 13,336 11,491
Inventories 53,584 63,103
Prepaid expenses 5,872 3,253
Deferred income taxes 4,917 6,343
Current assets of discontinued operations -- 7,285
--------------------------------------------
Total current assets 141,161 126,617
--------------------------------------------
PROPERTY AND EQUIPMENT, at cost
Land 1,167 1,501
Buildings 42,455 43,952
Machinery and equipment 66,142 67,456
Transportation equipment 5,004 7,878
--------------------------------------------
114,768 120,787
Less accumulated depreciation 81,175 80,858
--------------------------------------------
Total property and equipment, net 33,593 39,929
--------------------------------------------
LONG-TERM NOTES RECEIVABLE, less allowances
($1,465 and $797, respectively) 5,692 3,918
--------------------------------------------
INVESTMENT IN LIFE INSURANCE 17,641 16,821
--------------------------------------------
DEFERRED INCOME TAXES, NET 14,900 14,548
--------------------------------------------
OTHER ASSETS 488 3,906
--------------------------------------------
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS -- 14,857
--------------------------------------------
TOTAL ASSETS $213,475 $220,596
--------------------------------------------
See notes to consolidated financial statements.
14
(dollars in thousands) August 30, 1997 August 31, 1996
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 695 $ 1,866
Accounts payable, trade 20,471 20,232
Current liabilities of discontinued operations -- 17,532
Provision for loss on disposal of electronic
component assembly segment -- 4,074
Accrued expenses:
Insurance 2,687 2,947
Product warranties 3,329 3,489
Vacation liability 3,012 3,116
Promotional 2,508 2,193
Other 8,524 9,013
--------------------------------------------
Total current liabilities 41,226 64,462
--------------------------------------------
LONG-TERM DEBT -- 1,692
--------------------------------------------
POSTRETIREMENT HEALTH CARE AND DEFERRED
COMPENSATION BENEFITS 48,367 46,937
--------------------------------------------
MINORITY INTEREST IN DISCONTINUED OPERATIONS -- 2,194
--------------------------------------------
CONTINGENT LIABILITIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Capital stock common, par value $.50; authorized
60,000,000 shares 12,927 12,920
Additional paid-in capital 23,109 23,723
Reinvested earnings 92,179 74,221
--------------------------------------------
128,215 110,864
Less treasury stock, at cost 4,333 5,553
--------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 123,882 105,311
--------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $213,475 $220,596
--------------------------------------------
15
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
August 30, August 31, August 26,
(dollars in thousands, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Continuing Operations
Revenues
Manufactured products $436,712 $483,398 $458,909
Finance 1,420 1,406 1,220
-----------------------------------------------------------
Total net revenues 438,132 484,804 460,129
-----------------------------------------------------------
Costs and expenses
Cost of manufactured products 385,540 417,231 397,870
Selling and delivery 27,131 25,290 25,416
General and administrative 20,313 21,574 18,951
-----------------------------------------------------------
Total costs and expenses 432,984 464,095 442,237
-----------------------------------------------------------
Operating income 5,148 20,709 17,892
Financial income 1,844 354 2,114
-----------------------------------------------------------
Income from continuing operations before
income taxes 6,992 21,063 20,006
Provision (credit) for taxes 416 6,639 (7,912)
-----------------------------------------------------------
Income from continuing operations 6,576 14,424 27,918
Discontinued operations
Income (loss) from operations of
discontinued Cycle-Sat subsidiary (less
applicable income tax provisions and (credits)
of $261, and ($88), respectively) -- 593 (162)
Gain on sale of Cycle-Sat subsidiary (less
applicable income tax provision of
$13,339) 16,472 -- --
Loss from the disposal of discontinued
operations (less applicable income tax
credits of $1,157) -- (2,632) --
-----------------------------------------------------------
Net income $23,048 $12,385 $ 27,756
-----------------------------------------------------------
Income (loss) per share:
Income from continuing operations $ .26 $ .57 $ 1.11
Discontinued operations .65 (.08) (.01)
-----------------------------------------------------------
Net income $ .91 $ .49 $ 1.10
-----------------------------------------------------------
Weighted average number of shares of
stock (in thousands) 25,435 25,349 25,286
See notes to consolidated financial statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
August 30, August 31, August 26,
(dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 23,048 $12,385 $27,756
Adjustments to reconcile net income to net
cash from operating activities:
Pre-tax gain on sale of Cycle-Sat subsidiary (29,811) -- --
Depreciation and amortization 6,468 9,700 8,863
Loss on disposal of property, leases and other assets 577 503 959
Provision (credit) for doubtful receivables 1,238 (637) 202
Realized and unrealized (gains) and losses on
trading securities, net (137) 350 (342)
Purchases of trading securities -- (10,789) (4,373)
Proceeds from sale of trading securities 4,453 8,267 5,872
Provision for loss on disposal of electronic component
assembly segment (4,074) 4,074 --
Change in assets and liabilities:
(Increase) decrease in receivables and other assets (4,027) 1,462 (166)
Decrease (increase) in inventories 9,519 (10,023) 2,289
(Decrease) increase in accounts payable and accrued
expenses (2,349) 459 (3,541)
Increase (decrease) in deferred income taxes 1,074 (560) (14,030)
Increase in postretirement benefits 1,430 1,845 1,832
Other (2,194) 222 83
--------------------------------------------------
Net cash provided by operating activities 5,215 17,258 25,404
--------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of Cycle-Sat subsidiary 57,000 -- --
Payments to minority shareholder from sale of Cycle-Sat (7,160) -- --
Purchases of property and equipment (4,438) (10,463) (9,348)
Proceeds from sale of property and equipment 4,498 591 499
Investments in dealer receivables (38,228) (41,003) (35,899)
Collections of dealer receivables 36,543 38,915 35,072
Investments in long-term notes receivable and
other assets (4,131) (3,883) (3,077)
Proceeds from long-term notes receivable
and other assets 2,889 893 2,656
Cash paid for acquisition of TFI -- -- (4,934)
Other (295) -- --
--------------------------------------------------
Net cash provided (used) by investing activities 46,678 (14,950) (15,031)
--------------------------------------------------
Cash flows from financing activities and capital
transactions:
Payment of long-term debt of discontinued operations (13,220) -- --
Net proceeds from notes payable -- 215 1,700
Payments of cash dividends (5,090) (7,604) (7,586)
Payments of long-term debt and capital leases (2,863) (4,596) (2,494)
Proceeds from issuance of long-term debt -- 1,884 5,100
Proceeds from issuance of common and treasury
stock 613 82 568
--------------------------------------------------
Net cash used by financing activities and
capital transactions (20,560) (10,019) (2,712)
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 31,333 (7,711) 7,661
Cash and cash equivalents at beginning of year 797 8,508 847
--------------------------------------------------
Cash and cash equivalents at end of year $32,130 $ 797 $ 8,508
--------------------------------------------------
See notes to consolidated financial statements.
17
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Common Shares Additional Treasury Stock
-------------------- Paid-In Reinvested -----------------------
(amounts in thousands except per share data) Number Amount Capital Earnings Number Amount
- ---------------------------------------------------------------------------------------------------------------------------
Balance, August 27, 1994 25,822 $12,911 $24,175 $49,270 583 $6,646
Proceeds from the sale of
common stock to employees 7 4 (517) -- (95) (1,081)
Cash dividends on common stock -
$.30 per share -- -- -- (7,586) -- --
Net income -- -- -- 27,756 -- --
------------------------------------------------------------------------------
Balance, August 26, 1995 25,829 12,915 23,658 69,440 488 5,565
Proceeds from the sale of
common stock to employees 11 5 65 -- (1) (12)
Cash dividends on common stock -
$.30 per share -- -- -- (7,604) -- --
Net income -- -- -- 12,385 -- --
------------------------------------------------------------------------------
Balance, August 31, 1996 25,840 12,920 23,723 74,221 487 5,553
Proceeds from the sale of
common stock to employees 14 7 (614) -- (107) (1,220)
Cash dividends on common stock -
$.20 per share -- -- -- (5,090) -- --
Net income -- -- -- 23,048 -- --
------------------------------------------------------------------------------
Balance, August 30, 1997 25,854 $12,927 $23,109 $92,179 380 $4,333
------------------------------------------------------------------------------
See notes to consolidated financial statements.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
In fiscal 1997, the Company's continuing operations were conducted predominantly
in two industry segments: the manufacture and sale of recreation vehicles and
other manufactured products, and floor plan financing for selected Winnebago,
Itasca, Vectra, Rialta and Luxor dealers. The recreation vehicle market is
highly competitive, both as to price and quality of the product. The Company
believes its principal marketing advantages are the quality of its products, its
dealer organization, its warranty and service capability and its marketing
techniques. The Company also believes that its prices are competitive with the
competitions' units of comparable size and quality.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
parent company and subsidiary companies. All material intercompany balances and
transactions with subsidiaries have been eliminated.
For all fiscal years presented, the Consolidated Financial Statements reflect
the Company's Cycle-Sat and electronic component assembly segments as
discontinued operations.
STATEMENT OF CASH FLOWS. For purposes of these statements, cash equivalents
primarily consisted of commercial paper, tax exempt money market preferreds and
variable rate auction preferred stock with an original maturity of three months
or less. For cash equivalents, the carrying amount is a reasonable estimate of
fair value.
FISCAL PERIOD. The Company follows a 52/53 week fiscal year period. The
financial statements for fiscal 1997 and 1995 are based on a 52 week period,
fiscal 1996 is on a 53 week basis.
MARKETABLE SECURITIES
At August 31, 1996, marketable securities were primarily comprised of common
stocks and mutual funds. These investments are categorized as trading and, in
accordance with SFAS No. 115, are stated at fair value based on quoted market
prices. Unrealized gains and losses are included in earnings as a component of
financial income and expense. Net realized gains and losses on security
transactions are determined on the specific identification basis.
REVENUE RECOGNITION. Sales are recorded by the Company when products are shipped
to independent dealers. Interest income from dealer floor plan receivables are
recorded on the accrual basis in accordance with the terms of the loan
agreements.
INVENTORIES. Inventories are valued at the lower of cost or market, with cost
being determined by using the last-in, first-out (LIFO) method and market
defined as net realizable value.
PROPERTY AND EQUIPMENT. Depreciation of property and equipment is computed using
the straight-line method on the cost of the assets, less allowance for salvage
value where appropriate, at rates based upon their estimated service lives.
Accelerated depreciation methods are used for tax purposes whenever permitted.
Management periodically reviews the carrying values of long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. In performing the review for
recoverability, management estimates the undiscounted future cash flows expected
to result from the use of the asset and its eventual disposition.
PROVISION FOR WARRANTY CLAIMS. Estimated warranty costs are provided at the time
of sale of the warranted products.
INCOME TAXES. The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes". This Statement requires recognition of deferred
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement
19
and tax basis of assets and liabilities using enacted tax rates in effect for
the years in which the differences are expected to reverse.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. Allowance for doubtful accounts are based on
previous loss experience. Additional amounts are provided through charges to
income as management believes necessary after evaluation of receivables and
current economic conditions. Amounts which are considered to be uncollectible
are charged off and recoveries of amounts previously charged off are credited to
the allowance upon recovery.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS. Marketable securities are
carried at fair value. All other financial instruments are carried at amounts
believed to approximate fair value.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS. Certain prior year information has been reclassified to
conform to the current year presentation.
NOTE 2: DISCONTINUED OPERATIONS - SALE OF CYCLE-SAT SUBSIDIARY
The Company owned an 80% interest in Cycle-Sat, Inc. (Cycle-Sat), a
telecommunications service firm that was a leading distributor of television and
radio commercials using satellite, fiber optic and digital technologies. On
August 5, 1996 (the measurement date), the Company adopted a formal plan to sell
its Cycle-Sat subsidiary. Accordingly, Cycle-Sat is accounted for as a
discontinued operation in the accompanying consolidated financial statements.
Cycle-Sat revenues were $30,327,000 and $24,628,000 for the fiscal years ended
1996 and 1995, respectively. The net assets of Cycle-Sat included in the
accompanying consolidated balance sheet as of August 31, 1996 consisted of the
following:
Aug. 31,
(dollars in thousands) 1996
- -----------------------------------------------------
Receivables $ 5,707
Other current assets 1,578
-----------
Current assets of
discontinued operations $ 7,285
-----------
Property and equipment $ 4,858
Intangible and other assets 9,999
-----------
Long-term assets of
discontinued operations $14,857
-----------
Current maturities of
long-term debt $10,134
Notes payable 4,215
Accounts payable and
other current liabilities 3,183
-----------
Current liabilities of
discontinued operations $17,532
-----------
Minority interest in
discontinued operations $ 2,194
-----------
On November 19, 1996, the Company sold all of the assets of its Cycle-Sat, Inc.
subsidiary to Vyvx, Inc., a subsidiary of The Williams Companies, Inc., Tulsa,
Oklahoma for approximately $57 million. Vyvx, Inc., is a leading provider of
integrated satellite and fiberoptic video transmission services. The transaction
resulted in an after-tax gain of $16.5 million or $.65 per common share.
NOTE 3: DISCONTINUED OPERATIONS - DISPOSAL OF ELECTRONIC COMPONENT ASSEMBLY
SEGMENT
In August 1993, the Company agreed to sell certain assets and liabilities of its
electronic component assembly business, North Iowa Electronics, Inc. (NIE) to an
unaffiliated third party (the buyer) for $100,000 in cash and a $1.6 million
promissory note. The transaction was accounted for as a transfer of net assets
with recognition of the gain ($285,000) deferred due to uncertainty surrounding
the buyer's ability to generate sufficient cash flows to retire the note.
During fiscal 1995, the Company guaranteed certain debt obligations of the buyer
totaling $4,500,000. The buyer experienced significant financial difficulties
and the Company decided, during fiscal 1996, to make no
20
further financial accommodations and to exit ongoing involvement with this
business.
In the fourth quarter of fiscal 1996, the Company provided $4,074,000 for the
anticipated loss related to the net cost of resolution of this matter. Cash in
an amount approximating the amount provided was paid related to the guarantee to
fully resolve this matter during fiscal 1997.
NOTE 4: DEALER FINANCING RECEIVABLES
Dealer floor plan receivables are collateralized by recreation vehicles and are
due upon the dealer's sale of the vehicle, with the entire balance generally due
at the end of one year. At August 30, 1997, the Company had certain
concentration of credit risks whereby $12,094,000 of dealer financing
receivables were due from one dealer.
NOTE 5: INVENTORIES
Inventories consist of the following:
Aug. 30, Aug. 31,
(dollars in thousands) 1997 1996
- -----------------------------------------------------
Finished goods $ 27,577 $ 28,228
Work in process 13,842 13,915
Raw materials 29,907 37,537
-------------------------
71,326 79,680
LIFO reserve 17,742 16,577
-------------------------
$ 53,584 $ 63,103
The above value of inventories, before reduction for the LIFO reserve,
approximates replacement cost at the respective dates.
21
NOTE 6: LONG-TERM NOTES RECEIVABLE
Long-term notes receivable of $5,692,000 and $3,918,000 at August 30, 1997 and
August 31, 1996, respectively, are primarily collateralized by dealer
inventories and real estate. The notes had weighted average interest rates of
8.7 percent per annum and 8.5 percent per annum at August 30, 1997 and August
31, 1996, respectively, and have various maturity dates ranging through August
2002.
NOTE 7: NOTES PAYABLE
Short-term lines of credit and related borrowings outstanding at fiscal year-end
are as follows:
Available
Credit Lines Outstanding Interest Rate
------------------ ------------------ --------------------
Aug. 30, Aug. 31, Aug. 30, Aug. 31, Aug. 30, Aug. 31,
(dollars in thousands) 1997 1996 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------
Notes payable:
Continuing operations $30,000 $30,000 $ -- $ -- 9.0% 8.75%
Discontinued operations -- 4,215 -- 4,215 -- 7.2%
Maximum Average Weighted Average Interest
Outstanding Outstanding Rate During Year*
----------------------------- ----------------------------- -----------------------------
(dollars in thousands) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Notes payable:
Continuing operations $ -- $ -- $ 2,000 $ -- $ -- $ 58 $ -- -- 9.6%
Discontinued operations -- 4,500 4,000 -- 4,274 2,711 -- 7.4% 8.5%
*Based on the approximate average aggregate amount outstanding during the year
and the interest rate.
Since March 1992, the Company has had a financing and security agreement with
Nations Credit Corporation (NationsCredit). 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 for 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 August 30, 1997, the Company was in compliance
with these covenants. There were no outstanding borrowings under the line of
credit during 1997 or 1996.
22
NOTE 8: LONG-TERM DEBT
Outstanding August 30, 1997 Outstanding August 31, 1996
------------------------------ -------------------------------------------
Current Long Interest Current Long Interest
(dollars in thousands) Maturities Term Rate Maturities Term Rate
- ----------------------------------------------------------------------------------------------------------------------
Long-term borrowings, continuing
operations $ 695 -- 7.5% $ 1,866 $ 1,692 5.5-7.95%
Long-term obligations, discontinued
operations -- -- -- 10,134 -- 8.0-15.15%
During fiscal 1994, the Company and Winnebago RV, Inc. entered into a $2,001,000
financing agreement with 1st Source Bank for the purchase of a 1990 King Air 350
airplane. Terms of the agreement called for 35 monthly installment payments
beginning August 28, 1994, and a 36th payment to pay off the remaining principal
and interest balance under the agreement. Borrowing under the agreement was
secured by the airplane. The amount outstanding under the agreement was paid in
full during the first quarter of fiscal 1997. The outstanding balance under this
agreement at August 31, 1996 was $1,709,000, with an interest rate of 7.95
percent per annum.
During fiscal year 1993, the Company and Winnebago Industries Europe, GmbH
(WIE), a wholly owned subsidiary of the Company, entered into a financing
arrangement with Volksbank Saarbrucken-St. Ingebert eG to finance the
acquisition and renovation of a new facility in Kirkel, Saarland, Germany. The
financing arrangement included four loans with interest rates ranging from 5.5
percent to 8.75 percent per annum. As of August 30, 1997 only one of the loans
was outstanding which had an interest rate of 7.5 percent per annum. Borrowings
under this agreement at August 30, 1997 were $695,000. The loan was guaranteed
by the Company and was secured by real estate and improvements to the new
facility. The Company sold the facility in August 1997. Subsequent to fiscal
1997 year end, the Company paid all amounts outstanding under this agreement.
In fiscal 1995, Cycle-Sat entered into a series of long-term borrowings
aggregating $10,025,000 to finance the acquisition of a majority of the assets
of the TFI division of MPO Videotronics. The interest rates on these borrowings
ranged from 8.0 percent per annum to 8.2 percent per annum as of August 31,
1996. The outstanding balance of these obligations as of August 31, 1996
aggregated $8,893,000. The Company repaid these obligations during fiscal 1997
in conjunction with the sale of Cycle-Sat discussed in Note 2.
NOTE 9: EMPLOYEE RETIREMENT PLANS
The Company has a qualified profit sharing and contributory 401(k) plan and a
stock bonus retirement plan for eligible employees. The plans provide for
contributions by the Company in such amounts as the Board of Directors may
determine. Contributions to the plans in cash for fiscal years 1997, 1996 and
1995 were $1,933,000, $2,099,000, and $2,106,000, respectively.
The Company also has a nonqualified deferred compensation program which permits
key employees to annually elect (via individual contracts) to defer a portion of
their compensation until their retirement. The retirement benefit to be provided
is fixed based upon the amount of compensation deferred and the age of the
individual at the time of the contracted deferral. An individual generally vests
at the later of age 55 and five years of service since the deferral was made.
For deferrals prior to December 1992, vesting occurs at the later of age 55 and
five years of service from first deferral or 20 years of service. Deferred
compensation expense was $1,558,000, $1,556,000, and $1,629,000 in fiscal 1997,
1996 and 1995, respectively. Total deferred compensation liabilities were
$21,164,000, and $21,025,000 at August 30, 1997 and August 31, 1996,
respectively.
To assist in funding the deferred compensation liability, the Company has
invested in corporate-owned life insurance policies. The cash surrender value of
these policies (net of borrowings of $10,335,000 and
23
$10,499,000, at August 30, 1997 and August 31, 1996, respectively) are presented
as assets of the Company in the accompanying balance sheets.
The Company has adopted a Directors' Deferred Compensation Plan which permits
non-employee directors to receive their fees and retainers as members of the
Board of Directors and committees of the Board in a form other than as direct
payments.
The Company provides certain health care and other benefits for retired
employees who have fulfilled eligibility requirements at age 55 with 15 years of
continuous service. Retirees are required to pay a monthly premium for medical
coverage based on years of service at retirement and then current age. The
Company's postretirement health care plan currently is not funded. The status of
the plan is as follows:
Accumulated postretirement benefit obligation at August 30, 1997 and August 31,
1996:
Aug. 30, Aug. 31,
(dollars in thousands) 1997 1996
- --------------------------------------------------
Retirees $ 2,239 $ 2,042
Fully eligible active plan
participants 3,578 2,852
Other active plan
participants 13,738 10,005
-------------------
19,555 14,899
Unrecognized prior
service cost 509 558
Unrecognized net gain 7,139 10,455
-------------------
Accrued postretirement
benefit liability
recognized in financial
statements $27,203 $25,912
-------------------
Net postretirement benefit expense for the fiscal years ended August 30, 1997,
August 31, 1996 and August 26, 1995 consisted of the following components:
Aug. 30, Aug. 31, Aug. 26,
(dollars in thousands) 1997 1996 1995
- ----------------------- ---------- --------- ----------
Service cost-
benefits earned
during the year $ 876 $ 947 $1,047
Interest cost on
accumulated
postretirement
obligation 1,153 1,133 1,171
Net amortization
and deferral (490) (416) (379)
---------- --------- ----------
$1,539 $1,664 $1,839
---------- --------- ----------
The average assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation as of August 30, 1997 was 8.39
percent, decreasing each successive year until it reaches 5.25 percent in 2017
after which it remains constant.
A one-percentage point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation as of
August 30, 1997 by approximately $4,841,000. The effect of this change on the
net postretirement health care cost for fiscal 1997 would be to increase it by
approximately $547,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.0 percent at August 30, 1997 and 7.5 percent at August 31,
1996. During fiscal 1996, the Company revised certain provisions of its
postretirement health care plan to offer different medical plan options and
revised the monthly contribution rate for retirees. The impact of these
revisions resulted in a decrease in the accumulated postretirement benefit
obligation of approximately $5,695,000 and a decrease in the previously
estimated net postretirement benefit expense for fiscal year 1996 of
approximately $1,249,000. The unrecognized net gain as of August 31, 1996 is
being amortized over the average remaining service period of active plan
participants, estimated to be 18 years. The unrecognized prior service cost as
of August 31, 1996 is being amortized over the average remaining years to full
eligibility for benefits of active plan participants, estimated to be 12 years.
NOTE 10: 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. Most dealers are financing on a
"floor plan" basis under which a bank or finance company lends the dealer all,
or substantially all, of the purchase price, collateralized by a lien upon, or
title to, the merchandise purchased. Upon request of a lending institution
financing a dealer's purchases of the Company's products, and after completion
of a credit investigation of the dealer involved, the Company will execute a
24
repurchase agreement. These agreements provide that, in the event of default by
the dealer on his agreement to pay the lending institution, the Company will
repurchase the financed merchandise. The agreements provide that the Company's
liability will not exceed 100 percent of the dealer invoice and provide for
periodic liability reductions based on the time since the date of the original
invoice. The Company's contingent liability on all repurchase agreements was
approxi-mately $115,637,000 and $129,135,000 at August 30, 1997 and August 31,
1996, respectively. The Company's losses under repurchase agreements were
approximately $344,000, $202,000 and $212,000 during fiscal years 1997, 1996 and
1995, respectively.
Included in these contingent liabilities are certain dealer receivables subject
to full recourse to the Company with NationsCredit and Green Tree Financial.
Contingent liabilities under these recourse agreements were $24,868,000 and
$33,216,000 at August 30, 1997 and August 31, 1996, respectively. The Company's
losses under these recourse agreements were approximately $965,000, $85,000 and
$11,000 during fiscal years 1997, 1996 and 1995, respectively.
The Company self-insures for a portion of product liability claims.
Self-insurance retention liability varies annually based on market conditions
and ranges from $2,500,000 to $5,000,000 per occurrence and $8,000,000 to
$10,000,000 in aggregate per policy year (fiscal 1989 to fiscal 1997).
Liabilities in excess of these amounts are the responsibility of the insurer.
The Company is involved in various legal proceedings which are ordinary routine
litigation incident 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.
NOTE 11: INCOME TAXES
The components of the provision (credit) for income taxes are as follows:
Year Ended
(dollars in August 30, August 31, August 26,
thousands) 1997 1996 1995
- ---------------- ------------ ------------ ------------
Continuing
operations
Current $1,288 $ 5,707 $ 5,599
Deferred (872) 932 (13,511)
- ---------------- ------------ ------------ ------------
416 6,639 (7,912)
- ---------------- ------------ ------------ ------------
Discontinued
operations
Current $11,393 596 431
Deferred 1,946 (1,492) (519)
- ---------------- ------------ ------------ ------------
13,339 (896) (88)
- ---------------- ------------ ------------ ------------
Total
provision
(credit) $13,755 $ 5,743 $ (8,000)
- ---------------- ------------ ------------ ------------
25
The following is a reconciliation of the U.S. statutory tax rate to the
effective income tax rates (benefit) provided:
Year ended
August 30, 1997 August 31, 1996 August 26, 1995
- -------------------------------------------------------------------------------
U.S. federal statutory rate 35.0% 35.0% 35.0%
Cash surrender value (0.9) (2.0) (1.5)
Life insurance premiums 0.3 1.9 .8
Tax credits (1.1) (2.2) (2.0)
Effect of change in valuation allowance -- -- (77.9)
Net loss (income) of WIE not
included in consolidated return 7.3 (1.4) 1.7
Loss on sale of WIE (9.9) -- --
State taxes, net of federal benefit 1.0 -- --
Foreign sales corporation commissions 0.7 -- --
Other 5.0 0.4 3.4
--------------------------------------
Total 37.4% 31.7% (40.5)%
--------------------------------------
--------------------------------------
Whereof:
Continuing operations 5.9% 31.5% (39.5)%
Discontinued operations 44.7% (30.5)% (35.2)%
--------------------------------------
The tax effect of significant items comprising the Company's net deferred tax
assets are as follows:
August 30, August 31,
1997 1996
--------------------------------------------
(dollars in thousands) Assets Liabilities Total Total
- ----------------------------------------------------------------------------------
CURRENT
Miscellaneous reserves $ 2,223 $ (105) $ 2,118 $ 3,597
Non-deductible warranty reserves 1,140 -- 1,140 1,198
Bad debt reserves 718 -- 718 516
Self-insurance reserve 941 -- 941 1,032
-------- -------- -------- --------
Subtotal 5,022 (105) 4,917 6,343
-------- -------- -------- --------
NONCURRENT
Postretirement health care benefits 9,521 -- 9,521 9,069
Deferred compensation 7,857 -- 7,857 7,825
Accelerated depreciation (2,478) (2,478) (2,402)
Other -- -- -- 56
-------- -------- -------- --------
Subtotal 17,378 (2,478) 14,900 14,548
-------- -------- -------- --------
Total $ 22,400 $ (2,583) $ 19,817 $ 20,891
-------- -------- -------- --------
In the second and fourth quarters of fiscal 1995, the Company recognized tax
benefits of $6,000,000 and $2,000,000, respectively, due to a continued trend of
earnings which increased the likelihood that the Company would realize its gross
deferred tax assets in the future, thus eliminating the need for the valuation
allowance.
In the fourth quarter of fiscal 1997, the Company recognized a tax benefit of
approximately $3,700,000 due to the sale and closing of WIE.
26
NOTE 12: FINANCIAL INCOME AND EXPENSE
The following is a reconciliation of financial income (expense):
Year ended
(dollars in thousands) August 30, 1997 August 31, 1996 August 26, 1995
- ----------------------------------------------------------------------------------------------
Net realized (losses) gains on sale of
trading securities ................. $ (995) $ 218 $ 101
Net unrealized gains (losses) on trading
securities ......................... 1,132 (568) 241
(Losses) gains on foreign currency
transactions ....................... (551) (226) 1,213
Interest income from investments and
receivables ........................ 2,534 1,546 1,310
Dividend income ........................ 398 141 184
Interest expense ....................... (674) (757) (935)
------- ------- -------
$ 1,844 $ 354 $ 2,114
------- ------- -------
NOTE 13: DIVIDEND DECLARED
On October 16, 1997, the Board of Directors declared a cash dividend of $.10 per
common share payable January 5, 1998, to shareholders of record on December 5,
1997.
NOTE 14: STOCK OPTION PLANS
The Company's 1987 stock option plans allow the granting of non-qualified and
incentive stock options to key employees at prices not less than 100 percent of
fair market value, determined by the mean of the high and low prices, on the
date of grant. The plans are administered by a committee appointed by the
Company's Board of Directors who are not employees of the Company or any of its
subsidiaries. The Committee may determine at the time of granting whether each
option granted will be a non-qualified or incentive stock option. The term of
each option shall expire and all rights to purchase shares thereunder shall
cease ten years after the date such option is granted or on such date prior
thereto as may be fixed by the Committee. No option shall permit the purchase of
any shares thereunder during the first year after the date such option is
granted. The Committee may, at its discretion, limit the number of shares
purchaseable in any year thereafter to the extent it considers appropriate with
respect to a particular individual to whom an option is granted.
A summary of stock option activity for fiscal years 1997, 1996 and 1995 is as
follows::
1997 1996 1995
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Price Exercise Price Exercise Price Exercise
Shares per share Price/Sh Shares per share Price/Sh Shares per share Price/Sh
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning
of year 746,000 $4 - $12 $6.56 764,000 $4 - $12 $6.02 900,500 $4-$18 $7.11
Options granted 242,000 7 - 8 7.68 -- -- -- 10,000 10 10.00
Options exercised (107,000) 4 - 6 4.87 (1,000) 6 5.69 (94,833) 4 - 9 5.35
Options canceled (231,500) 8 - 12 10.40 (17,000) 9 - 12 10.03 (51,667) 9 - 18 15.97
--------------------------------------------------------------------------------------------
Outstanding at end of year 649,500 $4 - $10 $6.53 746,000 $4 - $12 $6.56 764,000 $4 - $12 $6.02
--------------------------------------------------------------------------------------------
27
The following table summarizes information about stock options outstanding at
August 30, 1997:
Number Weighted
Range of Number Weighted Exercisable Average
Exercise Outstanding Average Remaining Weighted Average At Aug. 30, Exercise
Prices at August 30, 1997 Contractual Life Exercise Price 1997 Price
- ------------------ ---------------------- ------------------------ --------------------- --------------- ---------------
$4.31 - $5.69 337,500 3 $5.14 337,500 $5.14
7.19 - 7.75 227,000 9 7.68 -- --
8.88 - 10.00 85,000 2 9.03 85,000 9.03
---------------------- ------------------------ --------------------- --------------- ---------------
649,500 6 $6.53 422,500 $5.92
In 1997, the Company adopted SFAS No. 123, "Accounting for Stock Based
Compensation." The Company has elected to continue following the accounting
guidance of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" for measurement and recognition of stock-based transactions
with employees. No compensation cost has been recognized for options issued
under the Stock Option Plans because the exercise price of all options granted
was not less than 100 percent of fair market value of the common stock on the
date of grant. Had compensation cost for the stock options issued been
determined based on the fair value at the grant date, consistent with provisions
of SFAS No. 123, the Company's 1997 net income and earnings per share would have
been changed to the pro forma amounts indicated below:
(dollars in thousands, except per share data)
1997
Net earnings ------------
As reported $23,048
Pro forma 22,884
Earnings per share
As reported $ .91
Pro-forma .90
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
Dividend yield 3.19%
Risk free interest rate 6.64%
Expected life 9 years
Expected volatility 29.27%
Estimated fair value of
options granted per share $2.40 - $2.58
There were no options granted during fiscal 1996.
The Company's Board of Directors has adopted and is recommending that the
shareholders approve the 1997 Stock Option Plan during the Company's annual
meeting on December 17, 1997. The plan provides additional incentives to those
officers, employees, directors, advisors and consultants of the Company whose
substantial contributions are essential to the continued growth and success of
the Company's business. The plan allows the granting of non-qualified and
incentive stock options as well as stock appreciation rights. The plan will be
administered by the Board or by a committee appointed by the Company's Board of
Directors. The purchase prices for these shares shall not be less than 85
percent of the fair market value of a share at the time of option granting for
non-qualified stock options or less than 100 percent for incentive stock
options. The term of each option would expire and all rights to purchase shares
thereunder would cease ten years after the date such option is granted or on
such date prior thereto as may be fixed by the Committee. Options granted under
this plan would become exercisable six months after the date the option is
granted. Options granted under this plan in August 1997, subject to shareholder
approval, were 207,000 shares at an exercise price of $8.5625. This option grant
has not been included in the summary stock option tables shown above.
28
NOTE 15: SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the year for:
Year ended
(dollars in thousands) August 30, 1997 August 31, 1996 August 26, 1995
- -------------------------------------------------------------------------------
Interest $ 656 $2,000 $1,911
Income taxes 16,426 5,085 6,989
NOTE 16: BUSINESS SEGMENT INFORMATION
The Company defines its operations into two business segments: Recreation
Vehicles and Other Manufactured Products, which includes all data relative to
the manufacturing and selling of its recreational and other manufactured
products; and Financing, which relates to the WAC subsidiary operation.
Identifiable assets are those assets used in the operations of each industry
segment. General Corporate assets consist of cash and cash equivalents,
marketable securities, deferred income taxes and other corporate assets. General
Corporate income and expenses include administrative costs. Inter-segment sales
and expenses are not significant.
For the years ended August 30, 1997, August 31, 1996 and August 26, 1995, the
Company's segment information is as follows:
Recreation
Vehicles
and Other
Manufactured General
(dollars in thousands) Products Financing Corporate Total
- ------------------------------------------------------------------------------------------------
1997
Net revenues from continuing operations $436,712 $ 1,420 $ -- $438,132
Operating income (loss) from continuing operations 6,976 736 (2,564) 5,148
Identifiable assets 136,810 16,912 59,753 213,475
Depreciation and amortization 5,797 9 662 6,468
Capital expenditures 3,982 35 421 4,438
Summary information for WIE is as follows: Net revenues - $9,655. Operating loss
- - $(6,376). The Company sold WIE during August 1997. As a result of the sale,
the Company recorded a capital loss for tax purposes resulting in a tax credit
of approximately $3,700,000 due to this loss. These amounts are included in the
Recreation Vehicles and Other Manufactured Products segment above.
1996
Net revenues from continuing operations $483,398 $ 1,406 $ -- $484,804
Operating income (loss) from continuing operations 23,169 1,518 (3,978) 20,709
Identifiable assets 154,238 15,250 51,108 220,596
Depreciation and amortization 5,790 7 3,903 9,700
Capital expenditures 6,754 -- 3,709 10,463
Summary information for WIE is as follows: Net revenues - $13,773. Operating
loss - $(238). Identifiable assets - $10,388. These amounts are included in the
Recreation Vehicles and Other Manufactured Products segment above.
1995
Net revenues from continuing operations $458,909 $ 1,220 $ -- $460,129
Operating income (loss) from continuing operations 19,053 989 (2,150) 17,892
Identifiable assets 135,036 12,690 63,904 211,630
Depreciation and amortization 5,292 12 3,559 8,863
Capital expenditures 7,977 16 1,355 9,348
Summary information for WIE is as follows: Net revenues - $8,834. Operating loss
- - $(1,209). Identifiable assets - $9,426. These amounts are included in the
Recreation Vehicles and Other Manufactured Products segment above.
29
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
WINNEBAGO INDUSTRIES, INC.
FOREST CITY, IOWA
We have audited the consolidated balance sheets of Winnebago Industries, Inc.,
and subsidiaries (the Company) as of August 30, 1997 and August 31, 1996 and the
related statements of operations, cash flows and changes in stockholders' equity
for each of the three years in the period ended August 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Winnebago Industries, Inc. and
subsidiaries at August 30, 1997 and August 31, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
August 30, 1997 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
October 21, 1997
30
SELECTED FINANCIAL DATA(1)
August 30, August 31, August 26, August 27, August 28,
(dollars in thousands, except per share data) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Revenues
Manufactured products $ 436,712 $ 483,398 $ 458,909 $ 432,406 $ 364,860
Finance 1,420 1,406 1,220 831 595
Total net revenues 438,132 484,804 460,129 433,237 365,455
Income before taxes 6,992 21,063 20,006 15,264 10,513
Provision (credit) for income taxes 416 6,639 (7,912) (1,312) (1,087)
Income from continuing operations 6,576 14,424 27,918 16,576 11,600
(Loss) income from discontinued operations -- (2,039) (162) 869 (2,322)
Gain on sale of Cycle-Sat subsidiary 16,472 -- -- -- --
Cumulative effect of accounting change -- -- -- (20,420) --
Net income (loss) 23,048 12,385 27,756 (2,975) 9,278
Per share data:
Income from continuing operations .26 .57 1.11 .66 .46
(Loss) income from discontinued
operations -- (.08) (.01) .03 (.09)
Gain on sale of Cycle-Sat subsidiary .65 -- -- -- --
Cumulative effect of accounting change -- -- -- (.81) --
Net income (loss) $ .91 $ .49 $ 1.10 $ (.12) $ .37
Cash dividends per share $ .20 $ .30 $ .30 $ -- $ --
Weighted average number of shares of
common stock outstanding (in
thousands) 25,435 25,349 25,286 25,187 25,042
BALANCE SHEET
Total assets $ 213,475 $ 220,596 $ 211,630 $ 181,748 $ 155,227
Stockholders' equity 123,882 105,311 100,448 79,710 81,693
Working capital 99,935 62,155 69,694 58,523 44,633
Long-term debt of continuing operations $ -- $ 1,692 $ 3,810 $ 2,693 $ 633
Current ratio 3.4 to 1 2.0 to 1 2.4 to 1 2.1 to 1 1.9 to 1
UNIT SALES:
Class A 4,834 5,893 5,993 6,820 6,095
Class C 2,724 2,857 2,853 1,862 1,998
Total Motor Homes 7,558 8,750 8,846 8,682 8,093
Class B Conversions (EuroVan Campers) 1,205 857 1,014 376 --
(1) Restated to reflect Cycle-Sat and NIE as discontinued operations
31
SHAREHOLDER INFORMATION
PUBLICATIONS
A notice of Annual Meeting of Shareholders and Proxy Statement is furnished to
shareholders in advance of the annual meeting.
Copies of the Company's quarterly financial news releases and the annual report
on Form 10-K (without exhibits), required to be filed by the Company with the
Securities and Exchange Commission, may be obtained without charge from the
corporate offices as follows:
Public Relations Department
Winnebago Industries, Inc.
P.O. Box 152
605 West Crystal Lake Road
Forest City, Iowa 50436
Telephone: (515) 582-0152
Fax: (515) 582-6966
E-mail: pr@winnebagoind.com
This annual report as well as corporate news releases may Minneapolis, Minnesota
55402-1844 also be viewed online in the financial section of Winnebago
Industries' website: http://www.winnebagoind.com
Shareholder Account Assistance
Registration and Transfer Agent to contact for address changes, account
certificates and stock holdings:
Norwest Bank Minnesota, N.A.
P.O. Box 64854
St. Paul, Minnesota 55164-0854
or
161 North Concord Exchange
South St. Paul, Minnesota 55075-1139
Telephone: (800) 468-9716 or (612) 450-4064
ANNUAL MEETING
The Annual Meeting of shareholders will be held on
Wednesday, December 17, 1997 at 7:30 p.m. (CST) in
Friendship Hall, Highway 69 South, Forest City, Iowa.
AUDITOR
Deloitte & Touche LLP
400 One Financial Plaza
120 South Sixth Street
COMMON STOCK DATA
The Company's common stock is listed on the New York, Chicago and Pacific Stock
Exchanges.
Ticker symbol: WGO
Shareholders of record as of October 13, 1997: 11,746
Shares outstanding at year-end: 25,854,461
Below are the New York Stock Exchange high, low and closing prices of Winnebago
Industries, Inc. stock for each quarter of fiscal 1997 and fiscal 1996.
FISCAL 1997 High Low Close FISCAL 1996 High Low Close
- ----------------------------------------------------------------------------------------------------------------
First Quarter $ 8.500 $ 7.000 $ 7.500 First Quarter $ 8.500 $ 7.375 $ 7.625
Second Quarter 7.875 6.875 7.125 Second Quarter 8.375 6.750 8.000
Third Quarter 7.375 6.250 6.875 Third Quarter 10.375 7.750 10.250
Fourth Quarter 9.625 6.625 8.375 Fourth Quarter 10.250 7.625 8.125
CASH DIVIDENDS PER SHARE
FISCAL 1997 FISCAL 1996
- --------------------------------------------------------------------
Amount Date Paid Amount Date Paid
- ------ --------- ------ ---------
$ .10 January 6, 1997 $ .10 December 4, 1995
.10 July 7, 1997 .10 April 8, 1996
.10 June 17, 1996
32
DIRECTORS AND OFFICERS
DIRECTORS
Fred G. Dohrmann
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER,
WINNEBAGO INDUSTRIES, INC.
Gerald E. Boman
FORMER SENIOR VICE PRESIDENT,
WINNEBAGO INDUSTRIES, INC.
Jerry N. Currie
PRESIDENT & CHIEF EXECUTIVE OFFICER
CURRIES COMPANY AND GRAHAM MANUFACTURING
John V. Hanson
FORMER PRESIDENT AND DEPUTY CHAIRMAN OF THE BOARD,
WINNEBAGO INDUSTRIES, INC.
Bruce D. Hertzke
PRESIDENT AND CHIEF OPERATING OFFICER
WINNEBAGO INDUSTRIES, INC.
Gerald C. Kitch
EXECUTIVE VICE PRESIDENT
PENTAIR, INC.
Richard C. Scott
VICE PRESIDENT, UNIVERSITY DEVELOPMENT
BAYLOR UNIVERSITY
Joseph M. Shuster
CHAIRMAN, TELTECH
Frederick M. Zimmerman
PROFESSOR OF MANUFACTURING SYSTEMS ENGINEERING,
THE UNIVERSITY OF ST. THOMAS
Francis L. Zrostlik
PRESIDENT, STELLAR INDUSTRIES
Luise V. Hanson
DIRECTOR EMERITUS
OFFICERS
Fred G. Dohrmann
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Bruce D. Hertzke
PRESIDENT AND CHIEF OPERATING OFFICER
Edwin F. Barker
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
Raymond M. Beebe
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Ronald D. Buckmeier
VICE PRESIDENT, PRODUCT DEVELOPMENT
Brian J. Hrubes
CONTROLLER
James P. Jaskoviak
VICE PRESIDENT, SALES AND MARKETING
Robert J. Olson
VICE PRESIDENT, MANUFACTURING
Joseph L. Soczek, Jr.
TREASURER
[PHOTO] WINNEBAGO INDUSTRIES' OFFICERS: (SEATED LEFT TO RIGHT) EDWIN F. BARKER,
FRED G. DOHRMANN AND BRUCE D. HERTZKE (STANDING LEFT TO RIGHT) JAMES P.
JASKOVIAK, ROBERT J. OLSON, RAYMOND M. BEEBE, JOSEPH L. SOCZEK, JR., BRIAN J.
HRUBES AND RONALD D. BUCKMEIER.
WINNEBAGO INDUSTRIES, INC.
P.O. BOX 152
FOREST CITY, IOWA 50436
Bulk Rate
U.S. Postage
PAID
Minneapolis, MN
Permit No. 43