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WGO > SEC Filings for WGO > Form 10-Q on 3-Jan-2014All Recent SEC Filings

Show all filings for WINNEBAGO INDUSTRIES INC

Form 10-Q for WINNEBAGO INDUSTRIES INC


3-Jan-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This management's discussion should be read in conjunction with the Condensed Unaudited Financial Statements contained in this Form 10-Q as well as the Management's Discussion and Analysis and Risk Factors included in our Annual Report on Form 10K for the fiscal year ended August 31, 2013.

Forward-Looking Information

Certain of the matters discussed in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. A number of factors could cause actual results to differ materially from these statements, including, but not limited to, increases in interest rates, availability of credit, low consumer confidence, significant increase in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions, integration of operations relating to mergers and acquisitions activities and other factors which may be disclosed throughout this report. Although we believe that the expectations reflected in the "forward-looking statements" are reasonable, we cannot guarantee future results, or levels of activity, performance or achievements. Undue reliance should not be placed on these "forward-looking statements," which speak only as of the date of this report. We undertake 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 NYSE.

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 motorhomes in vertically integrated manufacturing facilities in Iowa and we produce all of our travel trailer and fifth wheels in Indiana. We distribute our products primarily through independent dealers throughout the US and Canada, who then retail the products to the end consumer.


Table of Contents

Our retail unit market share, as reported by Stat Surveys based on state records, is illustrated below. Note that this data is subject to adjustment and is continuously updated.

                               Through October 31        Calendar Year
US Retail Motorized:            2013        2012       2012   2011   2010
Class A gas                      22.5 %      23.6 %   24.2 % 22.2 % 23.7 %
Class A diesel                   17.9 %      19.4 %   19.4 % 17.6 % 15.2 %
Total Class A                    20.7 %      21.8 %   22.2 % 20.2 % 19.5 %
Class C                          16.9 %      17.8 %   18.3 % 17.4 % 17.9 %
Total Class A and C              19.0 %      20.0 %   20.5 % 19.0 % 18.8 %

Class B                          17.6 %      17.1 %   17.6 %  7.9 % 15.6 %

                               Through October 31        Calendar Year
Canadian Retail Motorized:      2013        2012       2012   2011   2010
Class A gas                      13.5 %      15.2 %   15.3 % 16.5 % 14.9 %
Class A diesel                   14.8 %      16.7 %   17.3 % 18.0 %  9.9 %
Total Class A                    14.0 %      15.8 %   16.1 % 17.1 % 12.6 %
Class C                          11.7 %      14.6 %   14.9 % 15.9 % 13.8 %
Total Class A and C              12.7 %      15.2 %   15.5 % 16.5 % 13.2 %

Class B                          20.1 %      12.1 %   12.7 %  7.1 %  4.8 %


                                        US                                          Canadian
                    Through October 31        Calendar Year        Through October 31        Calendar Year
Retail Towables:      2013       2012         2012      2011         2013       2012         2012      2011
Travel trailer         1.0 %       0.8 %       0.8 %      0.6 %       0.9 %       0.6 %       0.6 %      0.5 %
Fifth wheel            0.8 %       1.1 %       1.1 %      0.5 %       1.4 %       1.6 %       1.5 %      0.6 %
Total towables         0.9 %       0.9 %       0.9 %      0.6 %       1.0 %       0.8 %       0.9 %      0.5 %

Presented in fiscal quarters, certain key metrics are shown below:

                                  Class A, B & C Motorhomes                             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
Q2 2012                  1,001                 872       2,074     1,004            562             332         1,376       417
Q3 2012                  1,280               1,414       1,940     1,237            646             652         1,370       505
Q4 2012                  1,321               1,334       1,927     1,473            695             700         1,365       411
Q1 2013                  1,534               1,416       2,045     2,118            557             367         1,555       687
Rolling 12 months        5,136               5,036                                2,460           2,051
Dec 2011-Nov 2012

Q2 2013                  1,419               1,072       2,392     2,752            548             328         1,775       381
Q3 2013                  1,978               1,736       2,634     2,846            713             846         1,642       443
Q4 2013                  1,890               1,870       2,654     3,409            717             748         1,611       221
Q1 2014                  2,005               1,524       3,135     3,534            484             504         1,591       151
Rolling 12 months        7,292               6,202                                2,462           2,426
Dec 2012-Nov 2013


Table of Contents

Industry Outlook
Key statistics for the motorhome industry are as follows:
                             US and Canada Industry Class A, B & C Motorhomes
                     Wholesale Shipments(1)                     Retail Registrations(2)
                          Calendar Year                              Calendar Year
                                (Decrease)
(In units)   2012         2011    Increase   Change        2012        2011  Increase  Change
Q1          6,869        6,888         (19 )   (0.3 )%    5,706       5,114       592    11.6 %
Q2          7,707        7,868        (161 )   (2.0 )%    8,206       8,140        66     0.8 %
Q3          6,678        5,267       1,411     26.8  %    6,916       6,102       814    13.3 %
Q4          6,944        4,807       2,137     44.5  %    4,922       4,623       299     6.5 %
Total      28,198       24,830       3,368     13.6  %   25,750      23,979     1,771     7.4 %

(In units)   2013         2012    Increase   Change        2013        2012  Increase  Change
Q1          8,500        6,869       1,631     23.7  %    7,137       5,706     1,431    25.1 %
Q2         10,972        7,707       3,265     42.4  %   10,890       8,206     2,684    32.7 %
Q3          9,469        6,678       2,791     41.8  %    9,052       6,916     2,136    30.9 %
October     3,454        2,506         948     37.8  %    2,558       1,910       648    33.9 %
November    3,037        2,295         742     32.3  %           (4)  1,636
December    3,104  (3)   2,143         961     44.8  %           (4)  1,376
Q4          9,595  (3)   6,944       2,651     38.2  %           (4)  4,922
Total      38,536  (3)  28,198      10,338     36.7  %               25,750

(1) Class A, B and C wholesale shipments as reported by RVIA.

(2) Class A, B and C retail registrations as reported by Stat Surveys for the US and Canada combined.

(3) Monthly and quarterly 2013 Class A, B and C wholesale shipments 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 Winter 2013 Industry Forecast Issue. The revised RVIA annual 2013 and 2014 wholesale shipment forecast is 38,100 and 41,900 respectively.

(4) Stat Surveys has not issued a projection for retail demand for this period.

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
(In units)    2012         2011  Increase  Change        2012         2011  Increase  Change
Q1          60,402       54,132     6,270    11.6 %    39,093       33,698     5,395    16.0 %
Q2          71,095       65,987     5,108     7.7 %    83,990       79,155     4,835     6.1 %
Q3          56,601       47,547     9,054    19.0 %    67,344       63,014     4,330     6.9 %
Q4          54,782       45,266     9,516    21.0 %    32,469       30,044     2,425     8.1 %
Total      242,880      212,932    29,948    14.1 %   222,896      205,911    16,985     8.2 %

(In units)    2013         2012  Increase  Change        2013         2012  Increase  Change
Q1          66,745       60,402     6,343    10.5 %    42,852       39,093     3,759     9.6 %
Q2          79,935       71,095     8,840    12.4 %    94,526       83,990    10,536    12.5 %
Q3          61,251       56,601     4,650     8.2 %    79,321       67,344    11,977    17.8 %
October     24,383       21,374     3,009    14.1 %    16,871       14,812     2,059    13.9 %
November    17,932       17,480       452     2.6 %            (4)  10,083
December    18,448  (3)  15,928     2,520    15.8 %            (4)   7,574
Q4          60,763  (3)  54,782     5,981    10.9 %            (4)  32,469
Total      268,694  (3) 242,880    25,814    10.6 %                222,896

(1) Towable wholesale shipments as reported by RVIA.

(2) Towable retail registrations as reported by Stat Surveys for the US and Canada combined.

(3) Monthly and quarterly 2013 towable wholesale shipments 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 Winter 2013 Industry Forecast Issue. The revised RVIA annual 2013 and 2014 wholesale shipment forecast is 263,900 and 279,100 respectively.

(4) Stat Surveys has not issued a projection for retail demand for this period.


Table of Contents

Company Outlook
Our motorized dealer backlog is an indicator of demand for our product in the current marketplace. We have experienced positive growth in this measure for eight consecutive fiscal quarters. We believe the increase is a result of the overall growth of the RV industry coupled with positive dealer response and increased retail registration activity of our products.

As a result of the improved demand, we have been increasing our production rates and recently leased an additional production facility. In addition to the increased production capacity, we also expect to have increased access to Class A gas chassis late in our second fiscal quarter. Recently the availability of these chassis has been limited.

Another positive outcome of the increased demand is an improved sales incentive environment. Coupled with the operating leverage within our business model, we are able to achieve stronger operating margins. During the first quarter of Fiscal 2014 we achieved operating margins of 7.2%, an increase of 2.1% when compared to the first quarter of Fiscal 2013.

Our motorized sales order backlog of 3,534 as of November 30, 2013 represents orders to be shipped in the next two quarters.

We believe that the level of our dealer inventory at the end of the first quarter of Fiscal 2014 is aligned with current market conditions 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)                        November 30, 2013           December 1, 2012        (Decrease)    Change
Class A gas                          1,382       39.1 %           884       41.7 %          498       56.3  %
Class A diesel                         521       14.7 %           389       18.4 %          132       33.9  %
Total Class A                        1,903       53.8 %         1,273       60.1 %          630       49.5  %
Class B                                317        9.0 %           111        5.2 %          206      185.6  %
Class C                              1,314       37.2 %           734       34.7 %          580       79.0  %
Total motorhome backlog(1)           3,534      100.0 %         2,118      100.0 %        1,416       66.9  %

Travel trailer                         117       77.5 %           557       81.1 %         (440 )    (79.0 )%
Fifth wheel                             34       22.5 %           130       18.9 %          (96 )    (73.8 )%
Total towable backlog(1)               151      100.0 %           687      100.0 %         (536 )    (78.0 )%

Approximate backlog revenue in thousands Motorhome $ 340,703 $ 226,457 $ 114,246 50.4 % Towable $ 3,401 $ 14,049 $ (10,648 ) (75.8 )%

(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 cancelled or postponed at the option of the purchaser and, therefore, backlog may not necessarily be an accurate measure of future sales.


Table of Contents

Results of Operations
Current Quarter Compared to the Comparable Quarter Last Year
The following is an analysis of changes in key items included in the statements
of operations:
                                                               Quarter Ended
(In thousands, except
percent                     November 30,       % of         December 1,       % of         Increase        %
and per share data)             2013       Revenues(1)         2012       Revenues(1)     (Decrease)     Change
Net revenues              $      222,670        100.0 %   $     193,554        100.0 %   $    29,116      15.0  %
Cost of goods sold               196,708         88.3 %         172,807         89.3 %        23,901      13.8  %
Gross profit                      25,962         11.7 %          20,747         10.7 %         5,215      25.1  %

Selling                            4,333          1.9 %           4,961          2.6 %          (628 )   (12.7 )%
General and
administrative                     5,623          2.5 %           5,812          3.0 %          (189 )    (3.3 )%
Loss on sale of asset
held for sale                          -            - %              28            - %           (28 )  (100.0 )%
Operating expenses                 9,956          4.5 %          10,801          5.6 %          (845 )    (7.8 )%

Operating income                  16,006          7.2 %           9,946          5.1 %         6,060      60.9  %
Non-operating income                  91            - %             614          0.3 %          (523 )   (85.2 )%
Income before income
taxes                             16,097          7.2 %          10,560          5.5 %         5,537      52.4  %
Provision for taxes                4,951          2.2 %           3,169          1.6 %         1,782      56.2  %
Net income                $       11,146          5.0 %   $       7,391          3.8 %   $     3,755      50.8  %

Diluted income per
share                     $         0.40                  $        0.26                  $      0.14      53.8  %
Diluted average shares
outstanding                       27,971                         28,361                         (390 )    (1.4 )%

(1) Percentages may not add due to rounding differences. Unit deliveries and ASP, net of discounts, consisted of the following:

                                                               Quarter Ended
                              November 30,    Product       December 1,    Product       Increase        %
(In units)                        2013       Mix % (1)         2012       Mix % (1)     (Decrease)     Change
Motorhomes:
Class A gas                            710       35.4 %             620       40.4 %            90      14.5  %
Class A diesel                         397       19.8 %             345       22.5 %            52      15.1  %
Total Class A                        1,107       55.2 %             965       62.9 %           142      14.7  %
Class B                                102        5.1 %              90        5.9 %            12      13.3  %
Class C                                796       39.7 %             479       31.2 %           317      66.2  %
Total motorhome deliveries           2,005      100.0 %           1,534      100.0 %           471      30.7  %

ASP (in thousands)           $       100.5                $       111.9                $     (11.5 )   (10.2 )%

Towables:
Travel trailer                         407       84.1 %             408       73.2 %            (1 )    (0.2 )%
Fifth wheel                             77       15.9 %             149       26.8 %           (72 )   (48.3 )%
Total towable deliveries               484      100.0 %             557      100.0 %           (73 )   (13.1 )%

ASP (in thousands)           $        21.6                $        21.4                $       0.2       1.2  %

(1) Percentages may not add due to rounding differences.


Table of Contents

Net revenues consisted of the following:

                                                       Quarter Ended
                                 November 30,         December 1,         Increase       %
(In thousands)                       2013                 2012           (Decrease)    Change
Motorhomes (1)                $ 204,385   91.8 %   $ 173,828   89.8 %   $    30,557    17.6  %
Towables (2)                     10,531    4.7 %      12,071    6.2 %        (1,540 ) (12.8 )%
Other manufactured products       7,754    3.5 %       7,655    4.0 %            99     1.3  %
Total net revenues            $ 222,670  100.0 %   $ 193,554  100.0 %   $    29,116    15.0  %

(1) Motorhome unit revenue less discounts, sales promotions and incentives, and accrued loss on repurchase adjustments.

(2) Includes towable units and parts.

Motorhome net revenues increased $30.6 million or 17.6% in the first quarter of Fiscal 2014. The increase was attributed primarily to a 30.7% increase in unit deliveries driven by higher dealer and retail consumer demand, partially offset by a decrease in motorhome ASP of 10.2% as compared to the first quarter of Fiscal 2013. The decrease in ASP was primarily due to a shift in class A diesel product to lower price points, a higher percent of Class C unit sales and a lower percent of class A gas unit sales in the first quarter of Fiscal 2014.

The decrease in Towables revenues of $1.5 million or 12.8% was attributed to a 13.1% decrease in unit deliveries with ASPs comparable to the first quarter of Fiscal 2013.

One contributing factor to the increase in unit deliveries during the quarter relates to revised shipping terms with our dealers. Effective in the first quarter of Fiscal 2014, we entered into revised dealer agreements to change our shipping terms so that title and risk of loss passes to our dealers upon acceptance of the unit by an independent transportation company for delivery which is standard industry practice. As a result of this term change, an additional $21.4 million of revenue was recognized in the quarter, which represented units in possession of the transportation company in-transit to the dealer. In Fiscal 2013, such revenues would have been recognized in the second fiscal quarter. Conversely, due to our 52/53 week fiscal year convention, the first quarter of Fiscal 2013 had an extra week in the quarter as compared to the first quarter of Fiscal 2014 resulting in an additional $13.8 million of revenue recognized in the prior year first quarter. The net effect of these two timing items resulted in a positive impact of $7.6 million when comparing the first quarter of Fiscal 2014 to the first quarter of Fiscal 2013.

Cost of goods sold was $196.7 million, or 88.3% of net revenues for the first quarter of Fiscal 2014 compared to $172.8 million, or 89.3% of net revenues for the first quarter of Fiscal 2013 due to the following:
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, decreased to 83.2% this year from 83.7%.

Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 5.2% of net revenues compared to 5.6% for Fiscal 2013. This difference was primarily due to significantly higher production levels in Fiscal 2014 which resulted in higher absorption of fixed overhead costs.

All factors considered, gross profit increased from 10.7% to 11.7% of net revenues.

Selling expenses decreased to 1.9% from 2.6% of net revenues in the first quarter of Fiscal 2014 compared to Fiscal 2013, respectively. Selling expenses decreased $628,000, or 12.7%, in the first quarter of Fiscal 2014 compared to the same period in Fiscal 2013. The expense decrease was primarily due to advertising expenses associated with timing of the Louisville show which occurred in the first quarter of Fiscal 2013 and will occur in the second quarter of Fiscal 2014.
General and administrative expenses were 2.5% and 3.0% of net revenues in the first quarter of Fiscal 2014 and Fiscal 2013, respectively. General and administrative expenses decreased $189,000, or 3.3% in the first quarter of Fiscal 2014 compared to the same period in Fiscal 2013. This decrease was due primarily to a decrease in legal expenses of $527,000, partially offset by increased stock compensation expense of $209,000 in Fiscal 2014.
Non-operating income decreased $523,000 or 85.2%, in the first quarter of Fiscal 2014 compared to the same period in Fiscal 2013. This difference is primarily due to proceeds from COLI policies in Fiscal 2013.
The overall effective income tax provision rate for the first quarter of Fiscal 2014 was 30.8% compared to the tax provision rate of 30.0% for the first quarter of Fiscal 2013. The increase in tax rate for the first quarter of Fiscal 2014 is primarily a result of the increased level of pretax book income earned during the quarter and a reduced level (in comparison to book income) of benefits recorded for tax free and dividend income as well as uncertain tax positions during the quarter.
Net income and diluted income per share were $11.1 million and $0.40 per share, respectively, for the first quarter of Fiscal 2014. In the first quarter of Fiscal 2013, net income was $7.4 million and diluted income was $0.26 per share.


Table of Contents

Analysis of Financial Condition, Liquidity and Resources Cash and cash equivalents decreased $14.5 million during the first three months of Fiscal 2014 and totaled $49.7 million as of November 30, 2013. Significant liquidity events that occurred during the first three months of Fiscal 2014 were:
Increase in receivables and prepaid assets of $13.9 million

Generation of net income of $11.1 million

Increases in inventories of $10.4 million

Stock repurchases of approximately $5.6 million partially offset by $2.1 million of proceeds from the exercise of stock options

On October 31, 2012, we entered into the Credit Agreement with GECC. The Credit Agreement provides for an initial $35.0 million revolving credit facility based on our eligible inventory and expires on October 31, 2015 unless terminated earlier in accordance with its terms. There is no termination fee associated with the Credit Agreement.
The Credit Agreement contains no financial covenant restrictions for borrowings where we have excess borrowing availability under the facility of greater than $5.0 million. The Credit Agreement requires us to comply with a fixed charge ratio if excess borrowing availability under the facility is less than $5.0 million. In addition, the Credit Agreement also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable terms at the time of the expansion. See Note 6 to the financial statements. We filed a Registration Statement on Form S-3, which was declared effective by the SEC on May 9, 2013. Subject to market conditions, we have the ability to offer and sell up to $35 million of our common stock in one or more offerings pursuant to the Registration Statement. The Registration Statement will be available for use for three years from its effective date. We currently have no plans to offer and sell the common stock registered under the Registration Statement; however, it does provide another potential source of liquidity in addition to the alternatives already in place.
Working capital at November 30, 2013 and August 31, 2013 was $164.8 million and $153.5 million, respectively, an increase of $11.3 million. We currently expect cash on hand, funds generated from operations and the availability under a credit facility to be sufficient to cover both short-term and long-term operating requirements. We anticipate capital expenditures during the balance of Fiscal 2014 of approximately $10.2 million, primarily for manufacturing equipment and facilities and IT upgrades.
We made share repurchases of $5.6 million in the first three months of Fiscal 2014. If we believe the common stock is trading at attractive levels and reflects a prudent use of our capital, we may purchase additional shares in the remainder of Fiscal 2014. See Part II, Item 2 of this Form 10-Q. Operating Activities
Cash used in operating activities was $11.9 million for the three months ended November 30, 2013 compared to $10.3 million for the three months ended December 1, 2012. In Fiscal 2014 the combination of net income of $11.1 million and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided $13.5 million of operating cash. Changes in assets and liabilities (primarily increases in inventory and receivables) used $25.4 million of operating cash. In the first three months of Fiscal 2013, the combination of net income of $7.4 million and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided $8.9 million of operating cash. Changes in assets and liabilities (primarily an increase in inventories) used $19.2 million of operating cash.
Investing Activities . . .

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