(Mark One)
For the quarterly period ended November 29, 2003
OR
For the transition period from _________________________________ to _______________________________
Commission file number 1-6403
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code: (641) 585-3535
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.
There were 16,942,123 shares of $.50 par value common stock outstanding on December 29, 2003.
PART I Financial InformationItem 1.
See Unaudited Condensed Notes to Consolidated Financial Statements.
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NOTE 1: Basis of Presentation
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NOTE 2: Discontinued Operations
NOTE 3: New Accounting Pronouncements
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NOTE 4: Inventories
NOTE 5: Warranties
NOTE 6: Contingent Liabilities and Commitments
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NOTE 7: Supplemental Cash Flow Disclosure
NOTE 8: Dividend Declared
NOTE 9: Repurchase of Related Party Stock
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NOTE 10: Income Per Share
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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, availability and price of fuel, a significant increase in interest rates, a slowdown in the economy, availability of chassis, slower than anticipated sales of new or existing products, new product introductions by competitors, and other factors which may be disclosed throughout this report. Any forecasts and projections in this report are “forward looking statements,” and are based on management’s current expectations of the Company’s near-term results, based on current information available pertaining to the Company, including the aforementioned risk factors; actual results could differ materially. The Company undertakes no obligation to publicly update or revise any forward looking statements whether as a result of new information, future events or otherwise, except as required by law or the rules of the New York Stock Exchange.
In preparing the consolidated financial statements, we follow accounting principles generally accepted in the United States of America, which in many cases requires us to make assumptions, estimates and judgments that affect the amounts reported. Many of these policies are straightforward. There are, however, some policies that are critical because they are important in determining the financial condition and results of operations. These policies are described below and involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related income statement, asset and or liability amounts.
Revenue. The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements” (SAB 101), as amended by SAB 101A and 101B. Revenue for manufacturing operations is generally recorded when all of the following conditions have been met:
Sales are generally made to dealers who finance their purchases under floor plan financing arrangements with banks or finance companies.
Repurchase Commitments. Companies in the recreation vehicle industry enter into repurchase agreements with lending institutions which have provided wholesale floor plan financing to dealers. These agreements provide that, in the event of default by the dealer on the agreement to pay the lending institution, the Company will repurchase the financed merchandise. The agreements also 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. These repurchase obligations generally expire upon the earlier to occur of (i) the dealer’s sale of the financed unit or (ii) one year from the date of the original invoice. The Company’s ultimate contingent obligation under these repurchase agreements is reduced by the proceeds received upon the resale of any repurchased unit. The gross repurchase obligation will vary depending on the season and the level of dealer inventories. Past losses under these agreements have not been significant and lender repurchase obligations have been funded out of working capital. The Company records an estimated expense and loss reserve in each accounting period based upon its extensive history and experience of its repurchase agreements with the lenders of the Company’s dealers.
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Warranty. The Company offers to its customers a variety of warranties on its products ranging from one to three years in length. Estimated costs related to product warranty are accrued at the time of sale and included in cost of sales. Estimated costs are based upon past warranty claims and unit sales history and adjusted as required to reflect actual costs incurred, as information becomes available. A significant increase in dealership labor rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize.
Other. The Company has reserves for other loss exposures, such as litigation, taxes, product liability, worker’s compensation, employee medical claims, inventory and accounts receivable. The Company also has loss exposure on loan guarantees. 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 November 29, 2003 Compared to Thirteen Weeks Ended November 30, 2002
Net revenues for the 13 weeks ended November 29, 2003 were $254,933,000, an increase of $21,586,000, or 9.3 percent from the 13-week period ended November 30, 2002. Motor home unit deliveries (Class A and C) during the first quarter of fiscal 2004 were 2,962 units, an increase of 37 units, or 1.3 percent, compared to the first quarter of fiscal 2003. When comparing the two quarters, the increase in revenue percentage was more than the increase in unit percentage as the Company’s average unit selling price increased due to a larger mix of diesel products and product enhancements.
Gross profit, as a percent of net revenues, was 15.5 percent for the 13 weeks ended November 29, 2003 compared to 15.0 percent for the 13 weeks ended November 30, 2002. The Company’s higher gross profit percentage was due primarily to production volume increases and a favorable mix of delivered products during the first quarter of fiscal 2004.
Selling expenses were $4,561,000, or 1.8 percent of net revenues during the first quarter of fiscal 2004 compared to $4,687,000, or 2.0 percent of net revenues during the first quarter of fiscal 2003. Lower advertising costs were the primary cause of the reductions in dollars and percentage.
General and administrative expenses were $5,738,000, or 2.3 percent of net revenues during the 13 weeks ended November 29, 2003 compared to $5,104,000, or 2.2 percent of net revenues during the 13 weeks ended November 30, 2002. The increases in dollars and percentage were caused primarily by a charitable contribution and an increase in product liability costs during the first quarter of fiscal 2004.
The Company had net financial income of $303,000 for the first quarter of fiscal 2004 compared to net financial income of $275,000 for the comparable quarter of fiscal 2003. The increase in financial income when comparing the two periods was due to higher average cash balances available for investing during the first quarter of fiscal 2004 offset partially by lower interest rates during that same period.
The effective income tax rate increased to 38.7 percent during the 13 weeks ended November 29, 2003 from 37.9 percent during the 13 weeks ended November 30, 2002. The increase in the effective tax rate was caused primarily by increased state taxes during the first quarter of fiscal 2004.
During fiscal 2003, the Company sold its dealer financing receivables in Winnebago Acceptance Corporation (WAC). With the sale of its WAC receivables, the Company has discontinued dealer financing operations of the WAC subsidiary. Therefore, WAC’s operations were accounted for as discontinued operations in the accompanying consolidated financial statements. Income from discontinued operations (net of taxes) for the 13 weeks ended November 30, 2002 was $400,000 or $.02 per diluted share.
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For the first quarter of fiscal 2004, the Company had net income of $18,067,000, or $1.01 per diluted share compared to the first quarter of fiscal 2003‘s net income of $16,278,000, or $.85 per diluted share. Net income and earnings per diluted share increased by 11.0 percent and 18.8 percent, respectively, when comparing the first quarter of fiscal 2004 to the first quarter of fiscal 2003. The difference in percentages when comparing net income to net earnings per share was primarily due to a lower number of outstanding shares of the Company’s common stock during the 13 weeks ended November 29, 2003 due to the Company’s repurchase of shares during fiscal 2004 and 2003. (See Note 10 of the Unaudited Condensed Notes to Consolidated Financial Statements).
LIQUIDITY AND FINANCIAL CONDITION
The Company generally meets its working capital, capital equipment and other cash requirements with funds generated from operations.
At November 29, 2003, working capital was $123,565,000, a decrease of $41,326,000 from the amount at August 30, 2003. The Company’s principal uses of cash during the 13 weeks ended November 29, 2003 were $63,979,000 for the HCP purchase of shares of the Company’s Common Stock (See Note 9), $2,047,000 for the purchase of property and equipment, and $1,823,000 for the payment of cash dividends. The Company’s sources and uses of cash during the 13 weeks ended November 29, 2003 are set forth in the unaudited consolidated condensed statement of cash flows for that period.
Estimated demands at November 29, 2003 on the company’s liquid assets for the remainder of fiscal 2004 include capital expenditures of approximately $7,800,000 and approximately $5,082,000 for the payment of cash dividends. On March 19, 2003, the Board of Directors authorized the purchase of outstanding shares of the Company’s common stock, depending on market conditions, for an aggregate purchase price of up to $20 million. As of November 29, 2003 (disregarding the HCP purchase, See Note 9), 345,899 shares had been repurchased under this authorization for an aggregate consideration of approximately $9,700,000.
Management currently expects its cash on hand and funds from operations to be sufficient to cover both short-term and long-term operating requirements.
COMPANY OUTLOOK
Demographics are in favor of the Company as its target market of consumers age 50 and older is expected to increase for the next 30 years. In addition to growth to the target market due to the aging of the baby boom generation, a study conducted by the University of Michigan for the RV industry shows that the age of people interested in purchasing RVs is also expanding to include younger buyers under 35 years of age as well as older buyers over age 75 who are staying healthy and active much later in life. This study also shows an increased interest in owning RVs by a larger percentage of all U.S. households.
Unaudited order backlog for the Company is as follows:
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 an accurate measure of future sales.
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Item 3. Quantitative And Qualitative Disclosures About Market Risk
As of November 29, 2003, the Company had an investment portfolio of short-term investments, which are classified as cash and cash equivalents of $56,889,000, of which $54,719,000 are fixed income investments that are subject to interest rate risk and a 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.
Item 4. Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, on the effectiveness of our disclosure controls and procedures as required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.
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INDEPENDENT ACCOUNTANTS’ REPORT
To the Board of Directors ofWinnebago Industries, Inc.Forest City, Iowa
We have reviewed the accompanying condensed consolidated balance sheet of Winnebago Industries, Inc. and subsidiaries (the Company) as of November 29, 2003, and the related condensed consolidated statements of income and cash flows for the 13-week period ended November 29, 2003 and the 13-week period ended November 30, 2002, respectively. These financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America (generally accepted auditing standards), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of August 30, 2003, 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 November 21, 2003, 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 30, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLPDeloitte & Touche LLPMinneapolis, MinnesotaDecember 30, 2003
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PART II Other Information
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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.
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