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| WGO > SEC Filings for WGO > Form 10-K on 23-Oct-2012 | All Recent SEC Filings |
23-Oct-2012
Annual Report
• Industry Outlook
• Company Outlook
• Results of Operations
• Analysis of Financial Condition, Liquidity and Capital Resources
• Contractual Obligations and Commercial Commitments
• Critical Accounting Policies
• New Accounting Pronouncements
Our MD&A should be read in conjunction with the Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
Executive Overview
Winnebago Industries, Inc. is a leading US manufacturer of RVs with a proud
history of manufacturing RV products for more than 50 years. We produce all of
our motor homes in vertically integrated manufacturing facilities in Iowa and we
produce all travel trailer and fifth wheels ("towables") in Indiana. We
distribute our products primarily through independent dealers throughout the US
and Canada, who then retail the products to the end consumer.
Our retail unit market share, as reported by Stat Surveys, is as follows:
Through August 31 Calendar Year
US Retail Motorized: 2012 2011 2011 2010 2009
Class A gas 22.9 % 22.3 % 22.2 % 23.7 % 22.9 %
Class A diesel 20.0 % 17.2 % 17.6 % 15.2 % 11.4 %
Total Class A 21.7 % 20.1 % 20.2 % 19.5 % 16.6 %
Class C 17.5 % 16.6 % 17.5 % 17.9 % 22.7 %
Total Class A and C 19.7 % 18.5 % 19.0 % 18.8 % 19.1 %
Class B 16.0 % 4.7 % 7.7 % 15.6 % 18.1 %
Through July 31 Calendar Year
Canadian Retail Motorized: 2012 2011 2011 2010 2009
Class A gas 14.6 % 16.3 % 16.5 % 14.9 % 13.8 %
Class A diesel 16.0 % 19.3 % 18.0 % 9.9 % 7.0 %
Total Class A 15.1 % 17.5 % 17.1 % 12.6 % 10.0 %
Class C 13.1 % 17.0 % 15.9 % 13.8 % 9.5 %
Total Class A and C 14.0 % 17.2 % 16.5 % 13.2 % 9.8 %
Class B 11.5 % 3.0 % 7.1 % 4.8 % 2.3 %
Through July 31 Calendar Year
US Retail Towables: 2012 2011 2011
Travel trailer 0.8 % 0.6 % 0.6 %
Fifth wheel 1.0 % 0.4 % 0.5 %
Total towables 0.8 % 0.6 % 0.6 %
Through July 31 Calendar Year
Canadian Retail Towables: 2012 2011 2011
Travel trailer 0.4 % 0.3 % 0.4 %
Fifth wheel 1.0 % 0.5 % 0.5 %
Total towables 0.5 % 0.3 % 0.4 %
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Presented in fiscal quarters, certain key metrics are shown below:
Class A, B & C Motor Homes Travel Trailers & Fifth Wheels
As of Quarter End As of Quarter End
Wholesale Retail Dealer Order Wholesale Retail Dealer Order
(In units) Deliveries Registrations Inventory Backlog Deliveries Registrations Inventory Backlog
Q1 1,115 1,093 2,066 698 - - - -
Q2 909 796 2,179 957 85 100 905 151
Q3 1,283 1,394 2,068 642 326 203 1,028 164
Q4 1,088 1,198 1,958 681 358 420 966 293
Fiscal 2011 4,395 4,481 769 723
Q1 1,040 1,053 1,945 618 435 255 1,146 460
Q2 1,001 872 2,074 1,004 562 332 1,376 417
Q3 1,280 1,414 1,940 1,237 646 652 1,370 505
Q4 1,321 1,334 1,927 1,473 695 700 1,365 411
Fiscal 2012 4,642 4,673 2,338 1,939
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Highlights of Fiscal 2012:
Revenues were higher for Fiscal 2012 as compared to Fiscal 2011 with increased
motor home and towable deliveries and
increased average selling prices for all RV products due to the mix of higher
priced products delivered. Operating income for Fiscal 2012 was lower as
compared to the prior period most notably due to increased inflationary
pressures and higher discounts incurred during the first half of Fiscal 2012 and
the fact that Fiscal 2011 results included a $3.5 million pre-tax benefit from
the results of an annual physical inventory of work-in-process, due to lower
actual inventory scrap and production loss. Quarterly results for the past two
fiscal years are illustrated as follows:
Operating
Revenues Gross Profit Gross Margin Income (Loss) Operating Margin
(In thousands) 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
Q1 $ 131,837 $ 123,711 $ 8,496 $ 11,199 6.4 % 9.1 % $ 627 $ 4,925 0.5 % 4.0 %
Q2 131,600 106,593 6,846 11,324 5.2 % 10.6 % (1,164 ) 4,050 (0.9 )% 3.8 %
Q3 155,709 135,568 12,071 8,703 7.8 % 6.4 % 3,527 538 2.3 % 0.4 %
Q4 162,533 130,546 16,267 8,528 10.0 % 6.5 % 6,536 1,766 4.0 % 1.4 %
Total $ 581,679 $ 496,418 $ 43,680 $ 39,754 7.5 % 8.0 % $ 9,526 $ 11,279 1.6 % 2.3 %
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Overall business started off weak in the first two quarters of Fiscal 2012, similar to the last two quarters of Fiscal 2011. As a result, our first quarter operating margin was negatively impacted by lower plant utilization due to shortened work weeks and our second quarter was negatively impacted by a higher level of discounts and sales incentives incurred. However, we saw marked improvement in motor home product demand in the second half of Fiscal 2012, through increased sales orders and retail registration activity, thus we began to increase our weekly production rate in the third and fourth quarters in response. The growth in motor home unit shipments of 5.6% in Fiscal 2012 occurred primarily as a result of increased deliveries in our fourth fiscal quarter. This overall growth is supported by increased retail demand experienced in Fiscal 2012.
For Fiscal 2012, Towables generated operating loss of $744,000 compared to an operating loss of $1.5 million in Fiscal 2011. Notably, we encountered operational challenges with this subsidiary in the fourth quarter of 2012 after reporting its first operationally profitable quarter for the third fiscal quarter. We are working to correct the operational headwinds through personnel and process changes and still believe this subsidiary can provide significant growth opportunity in future years.
Industry Outlook
Key statistics for the motor home industry are as follows:
US and Canada Industry Class A, B & C Motor Homes
Wholesale Shipments(1) Retail Registrations(2)
Calendar Year Calendar Year
Increase Increase
(In units) 2011 2010 (Decrease) Change 2011 2010 (Decrease) Change
Q1 6,900 5,700 1,200 21.1 % 5,100 5,000 100 2.0 %
Q2 7,800 7,800 - - % 8,200 8,400 (200 ) (2.4 )%
Q3 5,300 6,200 (900 ) (14.5 )% 6,100 6,100 - - %
Q4 4,800 5,500 (700 ) (12.7 )% 4,600 4,600 - - %
Total 24,800 25,200 (400 ) (1.6 )% 24,000 24,100 (100 ) (0.4 )%
Increase Increase
(In units) 2012 2011 (Decrease) Change 2012 2011 (Decrease) Change
Q1 6,900 6,900 - - % 5,700 5,100 600 11.8 %
Q2 7,600 7,800 (200 ) (2.6 )% 8,100 8,200 (100 ) (1.2 )%
July 2,000 1,700 300 17.6 % 2,500 2,100 400 19.0 %
August 2,500 1,900 600 31.6 % 1,900 (4 ) 2,000
September 1,900 (3) 1,700 200 11.8 % (5 ) 2,000
Q3 6,400 (3) 5,300 1,100 20.8 % (5 ) 6,100
Q4 5,100 (3) 4,800 300 6.3 % (5 ) 4,600
Total 26,000 (3) 24,800 1,200 4.8 % 24,000
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(1) Class A, B and C wholesale shipments as reported by RVIA, rounded to the nearest hundred.
(2) Class A, B and C retail registrations as reported by Stat Surveys for the US and Canada combined, rounded to the nearest hundred.
(3) Monthly and quarterly 2012 Class A, B and C wholesale shipments for September and the third and fourth calendar quarters are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the RoadSigns RV Fall 2012 Industry Forecast Issue. The revised RVIA annual 2012 wholesale shipment forecast is 25,100 and the annual forecast for 2013 is 25,500.
(4) U.S. retail registrations for Class A, B and C for August, 2012. Canadian retail registrations are not yet available.
(5) Stat Surveys has not issued a projection for 2012 retail demand for this period.
The size of the motorized retail market for each of the past three calendar years has been less than half of what the industry norms had been prior to the recession that began in December 2007.
Key statistics for the towable industry are as follows:
US and Canada Travel Trailer & Fifth Wheel Industry
Wholesale Shipments(1) Retail Registrations(2)
Calendar Year Calendar Year
Increase
(In units) 2011 2010 (Decrease) Change 2011 2010 Increase Change
Q1 54,200 49,300 4,900 9.9 % 33,400 31,100 2,300 7.4 %
Q2 66,000 62,300 3,700 5.9 % 75,000 69,400 5,600 8.1 %
Q3 47,500 48,600 (1,100 ) (2.3 )% 59,400 57,200 2,200 3.8 %
Q4 45,200 39,000 6,200 15.9 % 29,500 28,300 1,200 4.2 %
Total 212,900 199,200 13,700 6.9 % 197,300 186,000 11,300 6.1 %
(In units) 2012 2011 Increase Change 2012 2011 Increase Change
Q1 60,400 54,200 6,200 11.4 % 38,600 33,400 5,200 15.6 %
Q2 71,100 66,000 5,100 7.7 % 79,000 75,000 4,000 5.3 %
July 19,600 15,100 4,500 29.8 % 22,900 22,500 400 1.8 %
August 21,000 18,100 2,900 16.0 % (4 ) 20,900
September 16,500 (3 ) 14,300 2,200 15.4 % (4 ) 16,000
Q3 57,100 (3 ) 47,500 9,600 20.2 % (4 ) 59,400
Q4 48,200 (3 ) 45,200 3,000 6.6 % (4 ) 29,500
Total 236,800 (3 ) 212,900 23,900 11.2 % 197,300
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(1) Towable wholesale shipments as reported by RVIA, rounded to the nearest hundred.
(2) Towable retail registrations as reported by Stat Surveys for the US and Canada combined, rounded to the nearest hundred.
(3) Monthly and quarterly 2012 towable wholesale shipments for September and the third and fourth calendar quarters are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the RoadSigns RV Fall 2012 Industry Forecast Issue. The revised annual 2012 wholesale shipment forecast is 234,700 and the annual forecast for 2013 is 238,400.
(4) Statistical Surveys has not issued a projection for 2012 retail demand for this period.
The towable retail market has not been as negatively impacted in recent years as the motorized market. The size of the towable market was nearly nine times larger than the motorized market on a unit basis in Calendar 2011. This is primarily due to the fact that average price of a towable unit is considerably less than a motor home.
Company Outlook
Based on our profitable operating results in Fiscal 2012 and Fiscal 2011, we
believe that we have demonstrated our ability to maintain our liquidity, cover
operations costs, recover fixed assets, and maintain physical capacity at
present levels. Now that we have entered into the towable market, we have the
potential to grow revenues and earnings in a market significantly larger than
the motorized market.
As evidenced in the table below, our sales order backlog at the end of Fiscal
2012 significantly increased as compared to the end of Fiscal 2011. It has also
increased sequentially from the end of our Fiscal 2012 third quarter, as
previously illustrated. We believe the increase is a result of the positive
dealer response to our new 2013 model year products introduced in late spring
and increased retail registration activity of our products this past summer. As
a result of the improved demand, we ramped up production throughout the fourth
quarter of Fiscal 2012. We will continue to increase production during Fiscal
2013 to meet the growing demand for our products, while managing constraints as
they present themselves in relation to labor and component parts.
We believe that the level of our dealer inventory at the end of Fiscal 2012 is lower than what it should be given the improved retail demand and increased sales order backlog of our product.
Our unit order backlog was as follows:
As Of
Increase %
(In units) August 25, 2012 August 27, 2011 (Decrease) Change
Class A gas 642 43.6 % 230 33.8 % 412 179.1 %
Class A diesel 333 22.6 % 177 26.0 % 156 88.1 %
Total Class A 975 66.2 % 407 59.8 % 568 139.6 %
Class B 118 8.0 % 71 10.4 % 47 66.2 %
Class C 380 25.8 % 203 29.8 % 177 87.2 %
Total motor home
backlog(1) 1,473 100.0 % 681 100.0 % 792 116.3 %
Travel trailer 306 74.5 % 187 63.8 % 119 63.6 %
Fifth wheel 105 25.5 % 106 36.2 % (1 ) (0.9 )%
Total towable backlog(1) 411 100.0 % 293 100.0 % 118 40.3 %
Approximate backlog revenue in
thousands
Motor home $ 163,725 $ 74,704 $ 89,021 119.2 %
Towable $ 8,776 $ 6,669 $ 2,107 31.6 %
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(1) We include in our backlog all accepted purchase orders from dealers to be shipped within the next six months. Orders in backlog can be canceled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.
Impact of Inflation
Materials cost is the primary component in the cost of our products.
Historically, the impact of inflation on our operations has not been
significantly detrimental, as we have usually been able to adjust our prices to
reflect the inflationary impact on the cost of manufacturing our products. While
we have historically been able to pass on these increased costs, in the event we
are unable to continue to do so due to market conditions, future increases in
manufacturing costs could have a material adverse effect on our results of
operations.
Results of Operations
Fiscal 2012 Compared to Fiscal 2011
The following is an analysis of changes in key items included in the statements
of operations for the fiscal year ended August 25, 2012 compared to the fiscal
year ended August 27, 2011:
Year Ended
(In thousands, except
percent and per share August 25, % of August 27, % of Increase %
data) 2012 Revenues(1) 2011 Revenues(1) (Decrease) Change
Net revenues $ 581,679 100.0 % $ 496,418 100.0 % $ 85,261 17.8 %
Cost of goods sold 537,999 92.5 % 456,664 92.0 % 81,335 17.8 %
Gross profit 43,680 7.5 % 39,754 8.0 % 3,926 9.9 %
Selling 16,837 2.9 % 14,251 2.9 % 2,586 18.1 %
General and
administrative 17,267 3.0 % 14,263 3.0 % 3,004 21.1 %
Assets held for sale
impairment and (gain),
net 50 - % (39 ) - % 89 NMF
Operating expenses 34,154 5.9 % 28,475 5.7 % 5,679 19.9 %
Operating income 9,526 1.6 % 11,279 2.3 % (1,753 ) - %
Non-operating income 581 0.1 % 658 0.1 % (77 ) (11.7 )%
Income before income
taxes 10,107 1.7 % 11,937 2.4 % (1,830 ) (15.3 )%
(Benefit) provision
for taxes (34,865 ) (6.0 )% 94 - % (34,959 ) NMF
Net income $ 44,972 7.7 % $ 11,843 2.4 % $ 33,129 279.7 %
Diluted income per
share $ 1.54 $ 0.41 $ 1.13 275.6 %
Diluted average shares
outstanding 29,207 29,148
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(1) Percentages may not add due to rounding differences. Unit deliveries and ASP, net of discounts, consisted of the following:
Year Ended
August 25, Product August 27, Product Increase %
(In units) 2012 Mix % (1) 2011 Mix % (1) (Decrease) Change
Motor homes:
Class A gas 1,648 35.5 % 1,518 34.5 % 130 8.6 %
Class A diesel 931 20.1 % 918 20.9 % 13 1.4 %
Total Class A 2,579 55.6 % 2,436 55.4 % 143 5.9 %
Class B (2) 319 6.9 % 103 2.3 % 216 209.7 %
Class C 1,744 37.6 % 1,856 42.2 % (112 ) (6.0 )%
Total motor home deliveries 4,642 100.0 % 4,395 100.0 % 247 5.6 %
ASP (in thousands) $ 105 $ 102 $ 4 3.4 %
Towables:
Travel trailer 1,372 58.7 % 575 74.8 % 797 397.9 %
Fifth wheel 966 41.3 % 194 25.2 % 772 138.6 %
Total towable deliveries 2,338 100.0 % 769 100.0 % 1,569 204.0 %
ASP (in thousands) $ 24 $ 21 $ 3 12.6 %
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(1) Percentages may not add due to rounding differences.
(2) Increase in Class B deliveries in Fiscal 2012 is due to the fact that we did
not produce this product during model year 2011 but resumed
production for model year 2012 in the last quarter of Fiscal 2011.
Net revenues consisted of the following:
Year Ended
Increase %
(In thousands) August 25, 2012 August 27, 2011 (Decrease) Change
Motor homes (1) $ 483,532 83.1 % $ 443,232 89.3 % $ 40,300 9.1 %
Towables (2) 56,784 9.8 % 16,712 3.4 % 40,072 100.0 %
Motor home parts and services 12,661 2.2 % 13,105 2.6 % (444 ) (3.4 )%
Other manufactured products 28,702 4.9 % 23,369 4.7 % 5,333 22.8 %
Total net revenues $ 581,679 100.0 % $ 496,418 100.0 % $ 85,261 17.2 %
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(1) Motor home unit revenue less discounts, sales promotions and incentives, and accrued loss on repurchase adjustments.
(2) Includes towable units and parts.
The increase in motor home net revenues of $40.3 million or 9.1% was attributed to both an increase in motor home ASP of 3.4% and a 5.6% increase in unit deliveries when compared to Fiscal 2011. The increase in motor home ASP was primarily a result of more higher-priced Class A diesel units sold in Fiscal 2012.
Towables revenues were $56.8 million in Fiscal 2012. SunnyBrook, which was acquired in the second quarter of Fiscal 2011, had revenues of $16.7 million in Fiscal 2011.
Cost of goods sold was $538.0 million, or 92.5% of net revenues for Fiscal 2012
compared to $456.7 million, or 92.0% of net revenues for Fiscal 2011 due to the
following:
• Total variable costs (materials, direct labor, variable overhead, delivery
expense and warranty), as a percent of net revenues, increased to 85.3% this
year from 84.0% last year which was due to inflationary commodity pressures
experienced in the first half of the fiscal year that were not passed on.
Also impacting our variable costs were the following two significant items:
? In Fiscal 2011, our variable costs were positively impacted by a $3.5 million favorable inventory adjustment as a result of the annual physical inventory. This adjustment in the aggregate favorably impacted our material, labor, variable overhead and fixed overhead costs by 0.7% as a percentage of net revenues in Fiscal 2011.
? Our variable costs were favorably impacted by $613,000, or 0.1%, of net revenues for Fiscal 2012 due to a LIFO inventory gain as a result of deflation, as compared to LIFO inventory expense of $2.1 million, or 0.4%, of net revenues for Fiscal 2011.
• Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 7.1% of net revenues compared to 8.0% for Fiscal 2011. With similar spending levels, the difference was due primarily to increased revenues in Fiscal 2012.
• All factors considered, gross profit decreased from 8.0% to 7.5% of net revenues.
Selling expenses increased $2.6 million, or 18.1%, in Fiscal 2012. The expense
increase was primarily due to selling expenses associated with Towables and
increases in advertising expenses. As a percent of net revenues, selling
expenses were 2.9% in both Fiscal 2012 and Fiscal 2011.
General and administrative expenses increased $3.0 million, or 21.1%, in Fiscal
2012. This increase was due primarily to increases of $2.1 million in incentives
and increases in Towable operating expenses, partially offset by a reduction of
legal expenses. As a percent of net revenues, general and administrative
expenses were 3.0% and 2.9% in Fiscal 2012 and Fiscal 2011, respectively.
During Fiscal 2011 we realized a gain of $644,000 on the sale of an idled
assembly facility (CCMF) and recorded an impairment of $605,000 on our Hampton
facility, both assets held for sale. In the fourth quarter of Fiscal 2012 we
recorded an additional impairment of $50,000 on the Hampton facility. See Note
6.
Non-operating income decreased $77,000 or 11.7%, in Fiscal 2012. This difference
is primarily due to lower investment income. We also received proceeds from COLI
policies in both Fiscal 2012 and Fiscal 2011. See Note 13.
The overall effective income tax rate for this year was a benefit of (345.0)%
compared to an expense of 0.8% last year. The following table breaks down the
two aforementioned tax rates:
Year Ended
August 25, 2012 August 27, 2011
Effective Effective
(In thousands) Amount Rate Amount Rate
Tax expense on current operations $ 2,914 28.8 % $ 2,597 21.7 %
Valuation allowance decrease (37,681 ) (372.8 )% (2,013 ) (16.8 )%
Uncertain tax positions settlements and
adjustments (159 ) (1.6 )% (490 ) (4.1 )%
Amended tax returns 61 0.6 % - - %
Total (benefit) provision for taxes $ (34,865 ) (345.0 )% $ 94 0.8 %
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Tax expense on current operations
The primary reason for the increase in the overall effective tax expense rate on
current operations is lower income tax credits and an increase in state taxes
for this year compared to last year. Significant permanent deductions are income
. . .
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