SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ___ _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 2, 2002 ------------------------------------------------- OR ___ ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _______________________ Commission file number 1-6403 ------ WINNEBAGO INDUSTRIES, INC. (Exact name of registrant as specified in its charter) IOWA 42-0803978 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. Box 152, Forest City, Iowa 50436 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (641) 585-3535 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___. There were 18,764,093 shares of $.50 par value common stock outstanding on April 11, 2002.
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO REPORT ON FORM 10-Q Page Number ----------- PART I. FINANCIAL INFORMATION: Consolidated Balance Sheets (Interim period information unaudited) 1 & 2 Unaudited Consolidated Statements of Income 3 Unaudited Consolidated Condensed Statements of Cash Flows 4 Unaudited Condensed Notes to Consolidated Financial Statements 5 - 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 Independent Accountants' Report 13 PART II. OTHER INFORMATION 14 - 16
Part I Financial Information Item 1. WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> Dollars in thousands MARCH 2, AUGUST 25, ASSETS 2002 2001 - ------------------------------------------------------ ------------ ------------ (Unaudited) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 134,477 $ 102,280 Receivables, less allowance for doubtful accounts ($353 and $244, respectively) 21,763 21,571 Dealer financing receivables, less allowance for doubtful accounts ($112 and $117, respectively) 38,180 40,263 Inventories 83,131 79,815 Prepaid expenses 3,675 3,604 Prepaid taxes 4,500 - - - Deferred income taxes 6,723 6,723 ------------ ------------ Total current assets 292,449 254,256 ------------ ------------ PROPERTY AND EQUIPMENT, at cost Land 1,018 1,029 Buildings 46,180 45,992 Machinery and equipment 84,103 82,182 Transportation equipment 5,634 5,482 ------------ ------------ 136,935 134,685 Less accumulated depreciation 90,875 88,149 ------------ ------------ Total property and equipment, net 46,060 46,536 ------------ ------------ INVESTMENT IN LIFE INSURANCE 23,136 22,223 ------------ ------------ DEFERRED INCOME TAXES, NET 21,495 21,495 ------------ ------------ OTHER ASSETS 8,329 7,412 ------------ ------------ TOTAL ASSETS $ 391,469 $ 351,922 ============ ============ </TABLE> See Unaudited Condensed Notes to Consolidated Financial Statements. 1
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> Dollars in thousands MARCH 2, AUGUST 25, LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001 - ------------------------------------------------------- ------------ ------------ (Unaudited) <S> <C> <C> CURRENT LIABILITIES Accounts payable, trade $ 44,694 $ 40,678 Income tax payable 12,149 4,938 Accrued expenses: Insurance 5,686 4,567 Product warranties 7,763 8,072 Accrued compensation 13,711 13,730 Promotional 7,011 3,181 Other 5,013 4,842 ------------ ------------ Total current liabilities 96,027 80,008 ------------ ------------ POSTRETIREMENT HEALTH CARE AND DEFERRED COMPENSATION BENEFITS 67,284 64,450 ------------ ------------ STOCKHOLDERS' EQUITY Capital stock, common, par value $.50; authorized 60,000,000 shares: issued 25,888,000 and 25,886,000 shares, respectively 12,944 12,943 Additional paid-in capital 25,714 22,261 Reinvested earnings 252,223 234,139 ------------ ------------ 290,881 269,343 Less treasury stock, at cost 62,723 61,879 ------------ ------------ Total stockholders' equity 228,158 207,464 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 391,469 $ 351,922 ============ ============ </TABLE> See Unaudited Condensed Notes to Consolidated Financial Statements. 2
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME ================================================================================ <TABLE> <CAPTION> IN THOUSANDS EXCEPT PER SHARE DATA TWENTY-SEVEN TWENTY-SIX THIRTEEN WEEKS ENDED WEEKS ENDED WEEKS ENDED --------------------------- ------------ ------------ MARCH 2, FEBRUARY 24, MARCH 2, FEBRUARY 24, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net revenues $ 184,169 $ 142,531 $ 363,282 $ 306,698 Cost of goods sold 160,117 125,529 313,687 267,449 ------------ ------------ ------------ ------------ Gross profit 24,052 17,002 49,595 39,249 ------------ ------------ ------------ ------------ Operating expenses: Selling 5,607 5,306 11,735 11,409 General and administrative 5,031 3,146 9,135 5,910 ------------ ------------ ------------ ------------ Total operating expenses 10,638 8,452 20,870 17,319 ------------ ------------ ------------ ------------ Operating income 13,414 8,550 28,725 21,930 Financial income 912 901 1,804 1,872 ------------ ------------ ------------ ------------ Income before income taxes 14,326 9,451 30,529 23,802 Provision for taxes 4,878 3,267 10,371 8,022 ------------ ------------ ------------ ------------ Income before cumulative effect of a change in accounting principle 9,448 6,184 20,158 15,780 Cumulative effect of change in principle, net of taxes - - - - - - - - - (1,050) ------------ ------------ ------------ ------------ Net income $ 9,448 $ 6,184 $ 20,158 $ 14,730 ============ ============ ============ ============ Earnings per share - basic (Note 8): - ------------------------------------ Income before cumulative effect of change in accounting principle $ .46 $ .30 $ .97 $ .76 Cumulative effect of change in accounting principle - - - - - - - - - (.05) ------------ ------------ ------------ ------------ Income per share $ .46 $ .30 $ .97 $ .71 ============ ============ ============ ============ Earnings per share - diluted (Note 8): - -------------------------------------- Income before cumulative effect of a change in accounting principle $ .45 $ .30 $ .95 $ .75 Cumulative effect of change in accounting principle - - - - - - - - - (.05) ------------ ------------ ------------ ------------ Income per share $ .45 $ .30 $ .95 $ .70 ============ ============ ============ ============ Weighted average shares of common stock outstanding: Basic 20,760 20,576 20,715 20,839 ============ ============ ============ ============ Diluted 21,215 20,882 21,157 21,082 ============ ============ ============ ============ </TABLE> See Unaudited Condensed Notes to Consolidated Financial Statements. 3
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> TWENTY-SEVEN TWENTY-SIX Dollars in thousands WEEKS ENDED WEEKS ENDED ------------ ------------ MARCH 2, FEBRUARY 24, 2002 2001 ------------ ------------ <S> <C> <C> Cash flows from operating activities: Net income as shown on the statements of income $ 20,158 $ 14,730 (page 3) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,961 3,636 Tax benefit of stock options 3,008 - - - Other 86 106 Change in assets and liabilities: (Increase) decrease in receivable and other assets (374) 14,099 Increase in inventories (3,316) (3,453) Increase (decrease) in accounts payable and accrued expenses 8,808 (7,470) Increase in income taxes payable 5,719 3,536 Increase in postretirement benefits 3,238 3,862 ------------ ------------ Net cash provided by operating activities 41,288 29,046 ------------ ------------ Cash flows used by investing activities: Purchases of property and equipment (3,666) (4,795) Investments in dealer receivables (52,795) (52,392) Collections of dealer receivables 54,887 47,220 Other (2,037) (2,481) ------------ ------------ Net cash used by investing activities (3,611) (12,448) ------------ ------------ Cash flows used by financing activities and capital transactions: Payments for purchase of common stock (4,078) (9,300) Payment of cash dividends (2,075) (2,062) Proceeds from issuance of common and treasury stock 673 1,355 ------------ ------------ Net cash used by financing activities and capital transactions (5,480) (10,007) ------------ ------------ Net increase in cash and cash equivalents 32,197 6,591 Cash and cash equivalents - beginning of period 102,280 51,443 ------------ ------------ Cash and cash equivalents - end of period $ 134,477 $ 58,034 ============ ============ </TABLE> See Unaudited Condensed Notes to Consolidated Financial Statements. 4
WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position as of March 2, 2002, the consolidated results of operations for the 27 and 13 weeks ended March 2, 2002 and the 26 and 13 weeks ended February 24, 2001, and the consolidated cash flows for the 27 weeks ended March 2, 2002 and the 26 weeks ended February 24, 2001. The statement of income for the 27 weeks ended March 2, 2002, is not necessarily indicative of the results to be expected for the full year. The balance sheet data as of August 25, 2001 was derived from audited financial statements, but does not include all disclosures contained in the Company's Annual Report to Shareholders for the year ended August 25, 2001. These interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto appearing in the Company's Annual Report to Shareholders for the year ended August 25, 2001. NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS On August 27, 2000, the Company adopted the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin (SAB) No. 101 - REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which the SEC staff issued in December 1999. SAB No. 101 sets forth the SEC staff's views concerning revenue recognition. As a result of SAB No. 101 the Company began recording revenue upon receipt of products by Winnebago Industries' dealers rather than upon shipment by the Company. This change required an adjustment to income in the Company's first quarter 2001 results, which reflects the cumulative effect on the prior year's results due to the application of SAB No. 101. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Tangible Assets." SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. The Company expects to adopt these statements on September 1, 2002, the first quarter of the Company's fiscal 2003. Management does not believe that either SFAS No. 141 or 142 will have a material impact on the Company's consolidated financial statements. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 required entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. Also, in September 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," it retains many of the fundamental provisions of that statement. The Company is required to adopt SFAS Nos. 143 and 144 in fiscal 2003. The Company is reviewing the impact of SFAS Nos. 143 and 144, and does not believe adoption of either of these new standards will have a material affect on the Company's financial statements. 5
NOTE 3: INVENTORIES Inventories are valued at the lower of cost or market, with cost being determined under the last-in, first-out (LIFO) method and market defined as net realizable value. Inventories are composed of the following (dollars in thousands): March 2, August 25, 2002 2001 ------------ ------------ Finished goods ......... $ 33,234 $ 36,930 Work in process ........ 23,921 21,725 Raw materials .......... 49,752 44,232 ------------ ------------ 106,907 102,887 LIFO reserve ........... (23,776) (23,072) ------------ ------------ $ 83,131 $ 79,815 ============ ============ NOTE 4: LINE OF CREDIT On October 19, 2000, the Company entered into an unsecured Credit Agreement with Wells Fargo Bank Iowa, National Association, as amended. The Credit Agreement provided the Company with a line of credit of $20,000,000. The Company did not renew this agreement when it expired on January 31, 2002. NOTE 5: CONTINGENT LIABILITIES AND COMMITMENTS It is customary practice for manufacturers in the recreation vehicle industry to enter into repurchase agreements with lending institutions which have provided wholesale floorplan financing to dealers. The Company's agreements provide for the repurchase of its products from the financing institution in the event of repossession upon a dealer's default. The Company was contingently liable for approximately $242,910,000 and $216,784,000 under repurchase agreements with lending institutions as of March 2, 2002 and August 25, 2001, respectively. Included in these contingent liabilities as of March 2, 2002 and August 25, 2001 are approximately $517,000 and $3,276,000, respectively, of certain dealer receivables subject to recourse agreements with Bank of America Specialty Group and Conseco Finance Servicing Group. During the second quarter of fiscal 2002, the Company guaranteed certain interest bearing debt obligations of an unaffiliated vendor to a bank totaling an amount of up to but not to exceed $700,000 and agreed to pledge a $500,000 certificate of deposit to said bank. Mr. John V. Hanson, a director of the Company, is also a director of the bank and its parent and owns approximately 33.3 percent of record and beneficially of the parent's outstanding stock. Mary Jo Boman, the wife of Gerald E. Boman, a director of the Company, is a director of the bank and its parent and owns approximately 33.3 percent of record and beneficially of the parent's outstanding stock. The Company believes that this obligation will be repaid and has therefore provided no reserve for this contingency at March 2, 2002. In February 2002, the Company entered into a repurchase agreement with Transamerica Commercial Finance Corporation, Canada (Transamerica). The agreement provides for the repurchase by the Company from Transamerica of rental units upon default by one of the Company's Canadian dealers under a financing agreement with Transamerica. As of March 2, 2002, there have been no rental transactions between Transamerica and such dealer. 6
NOTE 6: SUPPLEMENTAL CASH FLOW DISCLOSURE For the periods indicated, the Company paid cash for the following (dollars in thousands): Twenty-Seven Twenty-Six Weeks Ended Weeks Ended ------------ ------------ March 2, February 24, 2002 2001 ------------ ------------ Interest $ - - - $ - - - Income taxes 4,500 3,000 NOTE 7: REPURCHASE OF OUTSTANDING STOCK On March 14, 2001, the Board of Directors authorized the repurchase of outstanding shares of the Company's common stock for an aggregate purchase price of up to $15,000,000. As of March 2, 2002, 218,000 shares had been repurchased for an aggregate consideration of approximately $4,491,000 under this authorization. On April 5, 2002, pursuant to an authorization of the Board of Directors, the Company repurchased 2,100,000 shares of common stock from Hanson Capital Partners, LLC ("HCP"). HCP is a Delaware limited liability company whose members are the Luise V. Hanson Qualified Terminable Interest Property Marital Deduction Trust (the "QTIP Trust"), which has a 34.9 percent membership interest in HCP, and the Luise V. Hanson Revocable Trust, dated September 22, 1984 (the "Revocable Trust"), which has a 65.1 percent membership interest in HCP. John V. Hanson, a director of the Company, Mary Jo Boman, the wife of Gerald E. Boman, a director of the Company, Paul D. Hanson and Bessemer Trust Company, N.A. act as co-trustees under the QTIP Trust. Mrs. Luise V. Hanson is trustee of the Revocable Trust. As a result of the foregoing, Mrs. Hanson is a controlling person of the Company. Mrs. Hanson is the mother of John V. Hanson, Mary Joan Boman and Paul D. Hanson and the mother-in-law of Gerald E. Boman. The shares were repurchased for an aggregate purchase price of $77,700,000 ($37 per share). The Company utilized its cash on hand to pay the purchase price of the stock. NOTE 8: INCOME PER SHARE The following table reflects the calculation of basic and diluted earnings per share for the 13 and 27 weeks ended March 2, 2002 and the 13 and 26 weeks ended February 24, 2001 (in thousands except per share data): <TABLE> <CAPTION> TWENTY-SEVEN TWENTY-SIX THIRTEEN WEEKS ENDED WEEKS ENDED WEEKS ENDED ---------------------------- ------------ ------------ MARCH 2, FEBRUARY 24, MARCH 2, FEBRUARY 24, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> EARNINGS PER SHARE - BASIC: --------------------------- Net income $ 9,448 $ 6,184 $ 20,158 $ 14,730 ------------ ------------ ------------ ------------ Weighted average shares outstanding 20,760 20,576 20,715 20,839 ------------ ------------ ------------ ------------ Earnings per share - basic $ .46 $ .30 $ .97 $ .71 ------------ ------------ ------------ ------------ EARNINGS PER SHARE - ASSUMING DILUTION: --------------------------------------- Net income $ 9,448 $ 6,184 $ 20,158 $ 14,730 ------------ ------------ ------------ ------------ Weighted average shares outstanding 20,760 20,576 20,715 20,839 Dilutive impact of options outstanding 455 306 442 243 ------------ ------------ ------------ ------------ Weighted average shares & potential dilutive shares outstanding 21,215 20,882 21,157 21,082 ------------ ------------ ------------ ------------ Earnings per share - assuming dilution $ .45 $ .30 $ .95 $ .70 ------------ ------------ ------------ ------------ </TABLE> There were options to purchase 166,800 shares of common stock outstanding at a price of $18.50 and 14,000 shares of common stock at a price of $19.71875 per share during the 13 weeks ended February 24, 2001. These options were not included in the computation of diluted earnings per share because the option's exercise price was greater than the average market price of the common stock. 7
NOTE 9: BUSINESS SEGMENT INFORMATION The Company defines its operations into two business segments: Recreational vehicles and other manufactured products, and dealer financing. Recreation vehicles and other manufactured products includes all data relating to the manufacturing and selling of the Company's Class A, B and C motor home products as well as sales of component products for other manufacturers and recreation vehicle related parts and service revenue. Dealer financing includes floorplan, used and rental unit financing for a limited number of the Company's dealers. Management focuses on operating income as a segment's measure of profit or loss when evaluating a segment's financial performance. Operating income is before interest expense, interest income, and income taxes. A variety of balance sheet ratios are used by management to measure the business. Maximizing the return from each segment's assets excluding cash and cash equivalents is the primary focus. Identifiable assets are those assets used in the operations of each industry segment. General corporate assets consist of cash and cash equivalents, deferred income taxes and other corporate assets not related to the two business segments. General corporate income and expenses include administrative costs. Inter-segment sales and expenses are not significant. For the 27 weeks ended March 2, 2002 and the 26 weeks ended February 24, 2001, the Company's segment information is as follows: <TABLE> <CAPTION> RECREATION VEHICLES & OTHER MANUFACTURED DEALER GENERAL (DOLLARS IN THOUSANDS) PRODUCTS FINANCING CORPORATE TOTAL ----------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 27 Weeks Ended March 2, 2002 Net revenues $ 361,634 $ 1,648 $ - - - $ 363,282 Operating income 27,752 630 343 28,725 Identifiable assets 182,137 38,483 170,849 391,469 26 Weeks Ended February 24, 2001 Net revenues $ 304,458 $ 2,240 $ - - - $ 306,698 Operating income 20,162 658 1,110 21,930 Identifiable assets 182,192 38,750 90,201 311,143 </TABLE> Certain prior year information has been reclassified to conform to the current year presentation. 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING INFORMATION Certain of the matters discussed in this report are "forward looking statements," as defined in the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties, including, but not limited to, reactions to actual or threatened terrorist attacks, the availability and price of fuel, a significant increase in interest rates, a slowdown in the economy, availability of chassis, slower than anticipated sales of new or existing products, new products introduced by competitors, collections of dealer receivables and other factors which may be disclosed throughout this report. Any forecasts and projections in this report are "forward looking statements," and are based on management's current expectations of the Company's near-term results, based on current information available pertaining to the Company, including the aforementioned risk factors; actual results could differ materially. CRITICAL ACCOUNTING POLICIES In preparing the consolidated financial statements, we follow accounting principles generally accepted in the United States of America, which in many cases require us to make assumptions, estimates and judgments that affect the amounts reported. Many of these policies are straightforward. There are, however, a few policies that are critical because they are important in determining the financial condition and results of operations and they can be difficult to apply. These policies were selected because they involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related income statement, asset and/or liability amounts. The Company had reserves for numerous loss exposures, such as product liability, litigation and accounts receivable. The Company also has loss exposure on loan guarantees and repurchase agreements (see Note 5 of Unaudited Condensed Notes to Consolidated Financial Statements). Establishing loss reserves for these matters requires the use of estimates and judgment in regards to risk exposure and ultimate liability. The Company estimates losses under the programs using consistent and appropriate methods; however, changes in assumptions could materially affect the Company's recorded liabilities for loss. RESULTS OF OPERATIONS Thirteen Weeks Ended March 2, 2002 Compared to Thirteen Weeks Ended February 24, 2001 Net revenues for recreation vehicle and other manufactured products for the 13 weeks ended March 2, 2002 were $183,465,000, an increase of $42,145,000, or 29.8 percent from the 13-week period ended February 24, 2001. Motor home unit sales (Class A and C) were 2,448, an increase of 644 units, or 35.7 percent, during the second quarter of fiscal 2002 compared to the second quarter of fiscal 2001. The percentage increase in net revenue dollars in the second quarter of fiscal 2002 was lower than the percentage increase in motor home unit sales for that period as a result of the excellent acceptance of the Company's new lower priced 2002 motor homes in the Class A and Class C segments. The Company believes that lower interest rates and more favorable general economic conditions contributed to the improvement in revenues. Net revenues for dealer financing of Winnebago Acceptance Corporation (WAC) were $704,000 for the 13 weeks ended March 2, 2002; a decrease of $507,000 or 41.9 percent from the 13-week period ended February 24, 2001. A significant reduction in interest rates and to a much lesser extent, a reduction in average borrowings contributed to the decrease when comparing the two quarters. Gross profit, as a percent of net revenues, was 13.1 percent for the 13 weeks ended March 2, 2002 compared to 11.9 percent for the 13 weeks ended February 24, 2001. The Company's gross profit was higher due primarily to increased volumes of motor home production and shipments. 9
Selling expenses were $5,607,000 or 3.0 percent of net revenues during the second quarter of fiscal 2002 compared to $5,306,000 or 3.7 percent of net revenues during the second quarter of fiscal 2001. The increase in dollars when comparing the two quarters resulted from primarily larger advertising expenses during the second quarter of fiscal 2002. Increased sales volume was the primary cause of the reduction in percentage during the second quarter of fiscal 2002. General and administrative expenses were $5,031,000 or 2.7 percent of net revenues during the 13 weeks ended March 2, 2002 compared to $3,146,000 or 2.2 percent of net revenues during the 13 weeks ended February 24, 2001. The increases in dollars and percentage when comparing the two quarters were primarily due to increases in employee incentive programs and to a lesser extent increased legal reserves. The Company had net financial income of $912,000 for the second quarter of fiscal 2002 compared to net financial income of $901,000 for the comparable quarter of fiscal 2001. During the 13 weeks ended March 2, 2002, the Company recorded $918,000 of net interest income and losses of $6,000 in foreign currency transactions. During the 13 weeks ended February 24, 2001, the Company recorded $917,000 of net interest income and losses of $16,000 in foreign currency transactions. When comparing the two quarters, the average available cash for investing during the second quarter of fiscal 2002 was approximately twice as much as was available during the second quarter of fiscal 2001. However, the average rate the Company earned on its permitted investments, under the Company's investment policy, was approximately 50 percent of the average rate earned during the second quarter of fiscal 2001. The effective income tax rate decreased to 34.0 percent during the second quarter of fiscal 2002 from 34.6 percent during the second quarter of fiscal 2001. For the second quarter of fiscal 2002, the Company had net income of $9,448,000, or $.45 per diluted share compared to the second quarter of fiscal 2001's net income of $6,184,000, or $.30 per diluted share. Net income and earnings per diluted share increased by 52.8 percent and 50.0 percent, respectively, when comparing the second quarter of fiscal 2002 to the second quarter of fiscal 2001. Twenty-Seven Weeks Ended March 2, 2002 Compared to Twenty-Six Weeks Ended February 24, 2001 Net revenues for manufactured products for the 27 weeks ended March 2, 2002 were $361,634,000, an increase of $57,176,000, or 18.8 percent from the 26-week period ended February 24, 2001. Motor home unit sales (Class A and C) were 4,765 units, an increase of 764 units, or 19.1 percent during the 27 weeks ended March 2, 2002 when compared to the 26 weeks ended February 24, 2001. The Company feels the increases and growth were the result of the excellent acceptance of its new products and the continued reduction of interest rates. Net revenues for dealer financing of WAC were $1,648,000 for the 27 weeks ended March 2, 2002; a decrease of $591,000 or 26.4 percent from the 26-week period ended February 24, 2001. Decreased revenues for dealer financing reflect a decrease of interest rates partially offset by higher average borrowings when comparing the 27 weeks ended March 2, 2002 to the 26 weeks ended February 24, 2001. Gross profit, as a percent of net revenue, was 13.7 percent for the 27 weeks ended March 2, 2002 compared to 12.8 percent for the 26 weeks ended February 24, 2001. The Company's higher margins were due primarily to increased volumes of motor home production and shipments. Selling expenses were $11,735,000, or 3.2 percent of net revenues during the 27 weeks ended March 2, 2002 compared to $11,409,000, or 3.7 percent of net revenues during the 26 weeks ended February 24, 2001. The increase in selling expense dollars when comparing the two periods consisted primarily of higher advertising expenses during the fiscal 2002 period. Increased sales volume was the primary cause of the reduction in percentage during the fiscal 2002 period. General and administrative expenses were $9,135,000 or 2.5 percent of net revenues during the 27 weeks ended March 2, 2002 compared to $5,910,000, or 1.9 of net revenues during the 26 weeks ended February 24, 2001. 10
The increases in dollars and percentage when comparing the two periods were primarily due to increases in employee incentive programs and to a lesser extent increased legal reserves. The Company had net financial income of $1,804,000 for the 27 weeks ended March 2, 2002 compared to net financial income of $1,872,000 for the 26 weeks ended February 24, 2001. During the fiscal 2002 period, the Company recorded $1,826,000 of net interest income and losses of $22,000 in foreign currency transactions. During the fiscal 2001 period, the Company recorded $1,869,000 of net interest income and gains of $3,000 in foreign currency transactions. When comparing the two periods, the average available cash for investing during fiscal 2002 was approximately twice as much as was available during fiscal 2001. However, the average rate the Company earned on its permitted investments, under the Company's investment policy, was approximately 50 percent of the average rate earned during the fiscal 2001 period. The effective income tax rate increased to 34.0 percent during the 27 weeks ended March 2, 2002 from 33.7 percent during the 26 weeks ended February 24, 2001. The primary reason for the increase was due to higher provisions for state income taxes during the 27 weeks ended March 2, 2002. At the start of fiscal 2001, the Company elected to adopt SAB No. 101 issued by the SEC in December 1999. SAB No. 101 set forth the views of the SEC staff concerning revenue recognition. As a result of SAB No. 101, the Company began recording revenue upon receipt of products by the Company's dealers rather than upon shipment by the Company. Adoption of SAB No. 101 during the 26 weeks ended February 24, 2001 resulted in a negative adjustment to the Company's income of $1,050,000, or $.05 per diluted share. For the 27 weeks ended March 2, 2002, the Company had net income of $20,158,000, or $.95 per diluted share compared to the 26 weeks ended February 24, 2001's net income of $14,730,000, or $.70 per diluted share. Net income and earnings per diluted share increased by 36.9 percent and 35.7 percent, respectively, when comparing the fiscal 2002 period to the fiscal 2001 period. LIQUIDITY AND FINANCIAL CONDITION The Company generally meets its working capital, capital equipment and cash requirements with funds generated from operations. As of March 2, 2002, working capital was $196,422,000, an increase of $22,174,000 from the amount at August 25, 2001. The Company's principal uses of cash during the 27 weeks ended March 2, 2002 were $4,078,000 for the purchase of shares of the Company's Common Stock, $3,666,000 for the purchase of property and equipment and $2,075,000 for the payment of cash dividends. The Company's sources and uses of cash during the 27 weeks ended March 2, 2002 are set forth in the unaudited consolidated condensed statement of cash flows for that period. Principal known demands at March 2, 2002 on the Company's liquid assets for the remainder of fiscal 2002 include capital expenditures of approximately $14,000,000 and the payment of cash dividends. Management currently expects its cash on hand and funds from operations to be sufficient to cover both short-term and long-term operating requirements. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of March 2, 2002, the Company has an investment portfolio of fixed income securities, which are classified as cash and cash equivalents of $134,477,000. These securities, like all fixed income investments, are subject to interest rate risk and will decline in value if market interest rates increase. However, the Company has the ability to hold its fixed income investments until maturity (which approximates 45 days) and, therefore, the Company would not expect to recognize an adverse impact in income or cash flows in such an event. As of March 2, 2002, the Company has dealer-financing receivables in the amount of $38,180,000. Interest rates charged on these receivables vary based on the prime rate. 11
COMPANY OUTLOOK Studies show that the Company's prime target market of people 50 years of age and older will continue to increase by over 4 million a year through the year 2030. Order backlog for the Company's Class A and Class C motor homes was approximately 3,200 orders at March 2, 2002, an increase of 106.5 percent over sales order backlog of approximately 1,550 orders at February 24, 2001. The Company includes in its backlog all accepted purchase orders from dealers shippable within the next six months. Orders in backlog can be canceled or postponed at the option of the purchaser at any time without penalty and, therefore, backlog may not necessarily be a measure of future sales. 12
INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors of Winnebago Industries, Inc. Forest City, Iowa We have reviewed the accompanying condensed consolidated balance sheet of Winnebago Industries, Inc. and subsidiaries (the Company) as of March 2, 2002, and the related condensed consolidated statements of income and cash flows for the 13-week and 27-week periods ended March 2, 2002 and 13-week and 26-week periods ended February 24, 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America (generally accepted auditing standards), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of August 25, 2001, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated October 3, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 25, 2001 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Deloitte & Touche LLP Minneapolis, Minnesota April 8, 2002 13
Part II Other Information Item 4 Submission of Matters to a Vote of Security Holders (a) The annual meeting of shareholders was held January 15, 2002. (b) The breakdown of votes for the election of three directors was as follows*: Votes Cast For Authority Withheld -------------- ------------------ Gerald E. Boman (2005) 19,479,389 36,142 Jerry N. Currie (2005) 19,495,995 19,537 Frederick M. Zimmerman (2005) 19,495,459 20,072 * There were no broker non-votes. ( ) Represents year of Annual Meeting that individual's term will expire. Item 6 Exhibits and Reports on Form 8-K (a) Exhibits - See Exhibit Index on page 16. (b) The Company did not file any reports on Form 8-K during the period covered by this report. 14
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WINNEBAGO INDUSTRIES, INC. ---------------------------------------- (Registrant) Date April 11, 2002 /s/ Bruce D. Hertzke ---------------------- ---------------------------------------- Bruce D. Hertzke Chairman of the Board, Chief Executive Officer, and President (Principal Executive Officer) Date April 11, 2002 /s/ Edwin F. Barker ---------------------- ---------------------------------------- Edwin F. Barker Vice President - Chief Financial Officer (Principal Financial Officer) 15
EXHIBIT INDEX 3b. Amended Bylaws of the Registrant. 4b. Letter of Intent dated March 1, 2002 among Winnebago Industries, Inc., Forest City Economic Development, and CDI, LLC. 10v. Agreement dated March 13, 2002 between Winnebago Industries, Inc. and Bruce D. Hertzke. 16