UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | ||||||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended November 25, 2023
| 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: | |||||||||||
| (Exact name of registrant as specified in its charter) | ||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
| (Registrant's telephone number, including area code) | ||||||||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Smaller Reporting Company ☐ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of December 13, 2023, there were 29,237,891 shares of common stock, par value $0.50 per share, outstanding.
Winnebago Industries, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended November 25, 2023
Table of Contents
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Winnebago Industries, Inc.
Consolidated Statements of Income
(Unaudited)
| Three Months Ended | |||||||||||
| (in millions, except per share data) | November 25, 2023 | November 26, 2022 | |||||||||
| Net revenues | $ | $ | |||||||||
| Cost of goods sold | |||||||||||
| Gross profit | |||||||||||
| Selling, general, and administrative expenses | |||||||||||
| Amortization | |||||||||||
| Total operating expenses | |||||||||||
| Operating income | |||||||||||
| Interest expense, net | |||||||||||
| Non-operating loss | |||||||||||
| Income before income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | $ | $ | |||||||||
| Earnings per common share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted average common shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
3
Winnebago Industries, Inc.
Consolidated Balance Sheets
| (in millions, except per share data) | November 25, 2023 | August 26, 2023 | |||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Receivables, less allowance for credit losses ($ | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant, and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Investment in life insurance | |||||||||||
| Operating lease assets | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses: | |||||||||||
| Accrued compensation | |||||||||||
| Product warranties | |||||||||||
| Self-insurance | |||||||||||
| Promotional | |||||||||||
| Accrued interest and dividends | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Non-current liabilities | |||||||||||
| Long-term debt, net | |||||||||||
| Deferred income tax liabilities, net | |||||||||||
| Unrecognized tax benefits | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Deferred compensation benefits, net of current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Contingent liabilities and commitments (Note 11) | |||||||||||
| Shareholders' equity: | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Treasury stock, at cost: | ( | ( | |||||||||
| Total shareholders' equity | |||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
4
Winnebago Industries, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended | |||||||||||
| (in millions) | November 25, 2023 | November 26, 2022 | |||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Last in, first-out ("LIFO") expense | |||||||||||
| Stock-based compensation | |||||||||||
| Deferred income taxes | |||||||||||
| Contingent consideration fair value adjustment | |||||||||||
| Other, net | ( | ||||||||||
| Change in operating assets and liabilities, net of assets and liabilities acquired | |||||||||||
| Receivables, net | ( | ||||||||||
| Inventories, net | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Accounts payable | ( | ( | |||||||||
| Income taxes and unrecognized tax benefits | |||||||||||
| Accrued expenses and other liabilities | ( | ( | |||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Investing activities | |||||||||||
| Purchases of property, plant, and equipment | ( | ( | |||||||||
| Other, net | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing activities | |||||||||||
| Borrowings on long-term debt | |||||||||||
| Repayments on long-term debt | ( | ( | |||||||||
| Payments of cash dividends | ( | ( | |||||||||
| Payments for repurchases of common stock | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
5
| Supplemental Disclosures | |||||||||||
| Income taxes paid (received), net | $ | $ | ( | ||||||||
| Interest paid | |||||||||||
| Non-cash investing and financing activities | |||||||||||
| Capital expenditures in accounts payable | $ | $ | |||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
6
Winnebago Industries, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
| Three Months Ended November 25, 2023 | ||||||||||||||||||||||||||
| (in millions) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Shareholders' Equity | ||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||
Balances at August 26, 2023 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||
| Issuance of stock for employee benefit and stock-based awards, net | — | — | ( | — | — | |||||||||||||||||||||
| Repurchase of common stock | — | — | ( | — | — | ( | ( | ( | ||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
Balances at November 25, 2023 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Three Months Ended November 26, 2022 | ||||||||||||||||||||||||||
| (in millions) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Shareholders' Equity | ||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||
Balances at August 27, 2022 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| — | — | ( | — | — | — | ( | ||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||
| Issuance of stock for employee benefit and stock-based awards, net | — | — | ( | — | — | ( | ||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
Balances at November 26, 2022 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
7
Winnebago Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(All amounts are in millions, except share and per share data, unless otherwise designated)
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Winnebago Industries, Inc. and its wholly owned subsidiaries. Intercompany account balances and transactions have been eliminated in consolidation.
The use of the terms "Winnebago Industries," "Winnebago," "we," "our," and "us" in this Quarterly Report on Form 10-Q, unless the context otherwise requires, refers to Winnebago Industries, Inc. and its wholly owned subsidiaries.
The interim unaudited consolidated financial statements included herein are prepared pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The information furnished in these consolidated financial statements includes normal recurring adjustments, unless noted otherwise in the Notes to Consolidated Financial Statements, and reflects all adjustments that are, in management’s opinion, necessary for a fair presentation of such financial statements. The consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations.
The consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended August 26, 2023 filed with the SEC. Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year ending August 31, 2024.
Comprehensive Income
Subsequent Events
In preparing the accompanying unaudited consolidated financial statements, we have evaluated subsequent events for potential recognition and disclosure through the date of this filing noting no material subsequent events except as disclosed in Note 13.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which requires incremental disclosures about significant segment expenses regularly provided to the Chief Operating Decision Maker. The new guidance is effective for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are currently evaluating the impact of the standard on our consolidated financial statements and related disclosures.
Note 2. Business Combinations
Lithionics Battery, LLC
On April 28, 2023, we purchased 100 % of the equity interests of Lithionics Battery, LLC and Lithionics LLC (collectively, "Lithionics"), a premier lithium-ion battery solutions provider to the recreational equipment and specialty vehicle markets. Pro forma results of operations for this acquisition have not been presented as the impact on our consolidated financial statements was not material.
Total transaction costs related to the Lithionics acquisition of $3.1 million were expensed during the third quarter of Fiscal 2023. Transaction costs are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income.
Note 3. Business Segments
We have eight operating segments: 1) Grand Design towables, 2) Winnebago towables, 3) Winnebago motorhomes, 4) Newmar motorhomes, 5) Chris-Craft marine, 6) Barletta marine, 7) Winnebago specialty vehicles, and 8) Lithionics. Financial performance is evaluated based on each operating segment's Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined below, which excludes certain corporate administration expenses and non-operating income and expense.
8
Our three reportable segments are: Towable RV (an aggregation of the Grand Design towables and the Winnebago towables operating segments); Motorhome RV (an aggregation of the Winnebago motorhomes and Newmar motorhomes operating segments); and Marine (an aggregation of the Chris-Craft marine and Barletta marine operating segments). Towable RV is comprised of non-motorized RV products that are generally towed by another vehicle, along with other related manufactured products and services. Motorhome RV is comprised of products that include a motorhome chassis, along with other related manufactured products and services. Marine is comprised of products that include boats, along with other related manufactured products and services.
The Corporate / All Other category includes the Winnebago specialty vehicles and Lithionics operating segments as well as certain corporate administration expenses related to the oversight of the enterprise, such as corporate leadership and administration costs.
Identifiable assets of the reportable segments exclude general corporate assets, which principally consist of cash and cash equivalents and certain deferred tax balances. The general corporate assets are included in the Corporate / All Other category.
Our Chief Executive Officer (the Chief Operating Decision Maker ("CODM")) regularly reviews consolidated financial results in their entirety and operating segment financial information through Adjusted EBITDA and has ultimate responsibility for enterprise decisions. Our CODM is responsible for allocating resources and assessing performance of the consolidated enterprise, reportable segments and between operating segments. Management of each operating segment has responsibility for operating decisions, allocating resources and assessing performance within their respective operating segment. The accounting policies of all reportable segments are the same as those described in Note 1 in the Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023.
We monitor and evaluate operating performance of our reportable segments based on Adjusted EBITDA. We believe disclosing Adjusted EBITDA is useful to securities analysts, investors and other interested parties when evaluating companies in our industries. EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation and amortization expense, and other pretax adjustments made in order to present comparable results period over period. Examples of items excluded from Adjusted EBITDA include acquisition-related costs, contingent consideration fair value adjustment, and non-operating income or loss.
Financial information by reportable segment is as follows:
| Three Months Ended | |||||||||||
| (in millions) | November 25, 2023 | November 26, 2022 | |||||||||
| Net Revenues | |||||||||||
| Towable RV | $ | $ | |||||||||
| Motorhome RV | |||||||||||
| Marine | |||||||||||
| Corporate / All Other | |||||||||||
| Consolidated | $ | $ | |||||||||
| Adjusted EBITDA | |||||||||||
| Towable RV | $ | $ | |||||||||
| Motorhome RV | |||||||||||
| Marine | |||||||||||
| Corporate / All Other | ( | ( | |||||||||
| Consolidated | $ | $ | |||||||||
| Capital Expenditures | |||||||||||
| Towable RV | $ | $ | |||||||||
| Motorhome RV | |||||||||||
| Marine | |||||||||||
| Corporate / All Other | |||||||||||
| Consolidated | $ | $ | |||||||||
9
| (in millions) | November 25, 2023 | August 26, 2023 | |||||||||
| Assets | |||||||||||
| Towable RV | $ | $ | |||||||||
| Motorhome RV | |||||||||||
| Marine | |||||||||||
| Corporate / All Other | |||||||||||
| Consolidated | $ | $ | |||||||||
Reconciliation of net income to consolidated Adjusted EBITDA is as follows:
| Three Months Ended | |||||||||||
| (in millions) | November 25, 2023 | November 26, 2022 | |||||||||
| Net income | $ | $ | |||||||||
| Interest expense, net | |||||||||||
| Provision for income taxes | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| EBITDA | |||||||||||
| Acquisition-related costs | |||||||||||
| Contingent consideration fair value adjustment | |||||||||||
| Non-operating income | ( | ||||||||||
| Adjusted EBITDA | $ | $ | |||||||||
Note 4. Investments and Fair Value Measurements
In determining the fair value of financial assets and liabilities, we utilize market data or other assumptions that we believe market participants would use in pricing the asset or liability in the principal or most advantageous market and adjust for non-performance and/or other risks associated with us as well as counterparties, as appropriate. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:
Level 1 — Unadjusted quoted prices which are available in active markets for identical assets or liabilities accessible at the measurement date.
Level 2 — Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 — Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
10
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis are as follows:
| Fair Value at | Fair Value Hierarchy | ||||||||||||||||||||||
| (in millions) | November 25, 2023 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets that fund deferred compensation | |||||||||||||||||||||||
| Domestic equity funds | $ | $ | $ | $ | |||||||||||||||||||
| International equity funds | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Contingent consideration | |||||||||||||||||||||||
| Earnout liability | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Fair Value at | Fair Value Hierarchy | ||||||||||||||||||||||
| (in millions) | August 26, 2023 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets that fund deferred compensation | |||||||||||||||||||||||
| Domestic equity funds | $ | $ | $ | $ | |||||||||||||||||||
| International equity funds | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Contingent consideration | |||||||||||||||||||||||
| Earnout liability | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
Assets that Fund Deferred Compensation
Our assets that fund deferred compensation are marketable equity securities measured at fair value using quoted market prices and primarily consist of equity-based mutual funds. These securities, used to fund the Executive Deferred Compensation Plan, are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. Refer to Note 11 in the Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023 for additional information regarding these plans.
The proportion of the assets that will fund the deferred compensation payments within a year are included in prepaid expenses and other current assets on the Consolidated Balance Sheets. The remaining assets are classified as non-current and are included in other assets on the Consolidated Balance Sheets.
Contingent Consideration
Contingent consideration represents the earnout liability related to the Barletta acquisition and is valued using a probability-weighted scenario analysis of projected gross profit results and discounted at a risk-free rate. The contingent consideration is classified as Level 3. Actual gross profit results may differ significantly from those used in the estimate above, which may affect future payments. Changes in future payments will be reflected in future operating results as they occur. As of November 25, 2023 and August 26, 2023, the entire earnout liability was included in other current liabilities on the Consolidated Balance Sheets. Refer to Note 2 in the Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023 for additional information regarding the contingent consideration earnout provisions.
The following table provides a reconciliation of the beginning and ending balances of the contingent consideration:
| Three Months Ended | |||||||||||
| (in millions) | November 25, 2023 | November 26, 2022 | |||||||||
| Beginning fair value - contingent consideration | $ | $ | |||||||||
| Fair value adjustments | |||||||||||
| Ending fair value - contingent consideration | $ | $ | |||||||||
11
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain financial instruments are measured at fair value on a nonrecurring basis. These assets primarily include goodwill, intangible assets, property, plant and equipment, and right-of-use lease assets. These assets were originally recognized at amounts equal to the fair value determined at date of acquisition or purchase. If certain triggering events occur, or if an annual impairment test is required, we will evaluate the non-financial asset for impairment. If an impairment has occurred, the asset will be written down to its current estimated fair value. No
Assets and Liabilities Not Measured at Fair Value
Certain financial instruments are not measured at fair value but are recorded at carrying amounts approximating fair value based on their short-term nature. These financial instruments include cash and cash equivalents, receivables, accounts payable, and other payables. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy.
Long-term debt is recorded at amortized cost but measured at fair value for disclosure purposes. The fair value of our long-term debt was determined using current quoted prices in active markets for our publicly traded debt obligations, which is classified as Level 1 in the fair value hierarchy. See Note 9 in the Notes to Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for the fair value of our long-term debt.
Note 5. Inventories
Inventories consist of the following:
| (in millions) | November 25, 2023 | August 26, 2023 | |||||||||
| Finished goods | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Raw materials | |||||||||||
| Total | |||||||||||
| Less: Excess of First-in, first-out ("FIFO") over LIFO cost | |||||||||||
| Inventories, net | $ | $ | |||||||||
Inventory valuation methods consist of the following:
| (in millions) | November 25, 2023 | August 26, 2023 | |||||||||
| LIFO basis | $ | $ | |||||||||
| FIFO basis | |||||||||||
| Total | $ | $ | |||||||||
12
Note 6. Property, Plant, and Equipment
Property, plant, and equipment is stated at cost, net of accumulated depreciation, and consists of the following:
| (in millions) | November 25, 2023 | August 26, 2023 | |||||||||
| Land | $ | $ | |||||||||
| Buildings and building improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Software | |||||||||||
| Transportation | |||||||||||
| Construction in progress | |||||||||||
| Property, plant, and equipment, gross | |||||||||||
| Less: Accumulated depreciation | |||||||||||
| Property, plant, and equipment, net | $ | $ | |||||||||
Depreciation expense was $8.1 million and $6.6 million for the three months ended November 25, 2023 and November 26, 2022, respectively.
Note 7. Goodwill and Intangible Assets
The carrying amount of goodwill by reportable segment is as follows:
| (in millions) | Towable RV | Motorhome RV | Marine | Corporate / All Other | Total | ||||||||||||||||||||||||
Balances at November 25, 2023 and August 26, 2023 (1) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(1) There was no activity in the three months ended November 25, 2023.
Other intangible assets, net of accumulated amortization, consist of the following:
| November 25, 2023 | |||||||||||||||||
| (in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||
| Indefinite-lived trade names | $ | $ | — | $ | |||||||||||||
| Finite-lived trade name | |||||||||||||||||
| Dealer networks/customer relationships | |||||||||||||||||
| Backlog | |||||||||||||||||
| Developed technology | |||||||||||||||||
| Non-compete agreements | |||||||||||||||||
| Other intangible assets | $ | $ | $ | ||||||||||||||
| August 26, 2023 | |||||||||||||||||
| (in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||
| Indefinite-lived trade names | $ | $ | — | $ | |||||||||||||
| Finite-lived trade name | |||||||||||||||||
| Dealer networks/customer relationships | |||||||||||||||||
| Backlog | |||||||||||||||||
| Developed technology | |||||||||||||||||
| Non-compete agreements | |||||||||||||||||
| Other intangible assets | $ | $ | $ | ||||||||||||||
The weighted average remaining amortization period for intangible assets as of November 25, 2023 was approximately seven years .
13
Estimated future amortization expense related to finite-lived intangible assets is as follows:
| (in millions) | Amortization | ||||
Remainder of Fiscal 2024 | $ | ||||
| Fiscal 2025 | |||||
| Fiscal 2026 | |||||
| Fiscal 2027 | |||||
| Fiscal 2028 | |||||
| Fiscal 2029 | |||||
| Thereafter | |||||
| Total amortization expense remaining | $ | ||||
Note 8. Product Warranties
We provide certain service and warranty on our products. From time to time, we also voluntarily incur costs for certain warranty-type expenses occurring after the normal warranty period expires to help protect the reputation of our products and maintain the goodwill of our customers. Estimated costs related to product warranty are accrued at the time of sale and are based upon historical warranty and service claims experience. Adjustments are made to accruals as claim data and cost experience becomes available.
In addition to the costs associated with the contractual warranty coverage provided on products, we also occasionally incur costs as a result of additional service actions not covered by warranties, including product recalls and customer satisfaction actions. Although we estimate and reserve for the cost of these service actions when probable and estimable, there can be no assurance that expense levels will remain at current levels or such reserves will continue to be adequate.
Changes in the product warranty liability are as follows:
| Three Months Ended | |||||||||||
| (in millions) | November 25, 2023 | November 26, 2022 | |||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Provision | |||||||||||
| Claims paid | ( | ( | |||||||||
| Balance at end of period | $ | $ | |||||||||
Note 9. Long-Term Debt
Long-term debt consists of the following:
| (in millions) | November 25, 2023 | August 26, 2023 | |||||||||
| ABL Credit Facility | $ | $ | |||||||||
| Senior Secured Notes | |||||||||||
| Convertible Notes | |||||||||||
| Long-term debt, gross | |||||||||||
| Debt issuance costs, net | ( | ( | |||||||||
| Long-term debt, net | $ | $ | |||||||||
Credit Agreements
On July 15, 2022, we amended and restated our asset-backed revolving credit agreement ("ABL Credit Facility") to, among other things, increase the commitments available from $192.5 million to $350.0 million and extend the maturity date from October 22, 2024 to July 15, 2027 (subject to certain factors which may accelerate the maturity date). The $350.0 million credit facility is on a revolving basis, subject to availability under a borrowing base consisting of eligible accounts receivable and eligible inventory. The ABL Credit Facility is available for issuance of letters of credit to a specified limit of $35.0 million. We pay a commitment fee of 0.25 % based on the average daily amount of the facility available, but unused during the most recent quarter. We can elect to base the interest rate on various rates plus specific spreads depending on the borrowing amount outstanding. If drawn, interest on ABL Credit Facility borrowings is at a floating rate based upon our election, either term SOFR or REVSOFR30 (as defined in the ABL
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Credit Facility agreement), plus, in each case, a credit spread adjustment of 0.10 %, as well as an applicable spread between 1.25 % and 1.75 %, depending on the usage of the facility during the most recent quarter. Based on current usage, we would pay an applicable spread of 1.25 %. In connection with the amendment, we capitalized $1.2 million of issuance costs that are being amortized over the five-year term of the ABL Credit Facility.
On July 8, 2020, we closed our private offering (the “Senior Secured Notes Offering”) of $300.0 million aggregate principal amount of 6.25 % Senior Secured Notes due 2028 (the “Senior Secured Notes”). The Senior Secured Notes were issued in accordance with an Indenture dated as of July 8, 2020 (the “Indenture”). The Senior Secured Notes will mature on July 15, 2028 unless earlier redeemed or repurchased. Interest on the Senior Secured Notes accrues starting July 8, 2020 and is payable semi-annually in arrears on January 15 and July 15 of each year, which began on January 15, 2021.
Debt issuance costs incurred and capitalized are amortized on a straight-line basis over the term of the associated debt agreement. If early principal payments are made on the Senior Secured Notes, a proportional amount of the unamortized debt issuance costs is expensed. As part of the Senior Secured Notes Offering, we capitalized $7.5 million in debt issuance costs that are being amortized over the eight-year term of the agreement.
Refer to Note 9 in the Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023 for additional information regarding these credit agreements.
Convertible Notes
On November 1, 2019, we issued $300.0 million in aggregate principal amount of 1.5 % unsecured convertible senior notes due 2025 (“Convertible Notes”). The net proceeds from the issuance of the Convertible Notes, after deducting the initial purchasers' transaction fees and offering expense payable by us, were approximately $290.2 million. The Convertible Notes bear interest at the annual rate of 1.5 %, payable on April 1 and October 1 of each year, beginning on April 1, 2020, and will mature on April 1, 2025, unless earlier converted or repurchased by us.
The Convertible Notes will be convertible into cash, shares of our common stock or a combination thereof, at our election, at an initial conversion rate of 15.6906 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $63.73 per share, as adjusted pursuant to the terms of the indenture governing the Convertible Notes. The Convertible Notes may be converted at any time on or after October 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date.
The conversion rate of the Convertible Notes may be adjusted in certain circumstances, including in connection with a conversion of the Convertible Notes made following certain fundamental changes and under other circumstances set forth in the indenture. As of November 25, 2023, the conversion rate was 15.9923 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of approximately $62.53 . The difference between the initial conversion rate and the conversion rate as of November 25, 2023 is due to cash dividends that have been declared following the issuance of the Convertible Notes.
It is our current intent to settle all conversions of the Convertible Notes in cash. Our ability to cash settle may be limited depending on the stock price at the time of conversion.
Prior to the close of business on the business day immediately preceding October 1, 2024, the Convertible Notes will be convertible only under the following circumstances:
1.during any calendar quarter commencing after December 31, 2019 if the closing sale price of the common stock is more than 130 % of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
2.during the 5 consecutive business day period after any 5 consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the common stock and the conversion rate for the Convertible Notes on each such trading day; or
3.upon the occurrence of certain specified corporate events set forth in the indenture for the Convertible Notes.
We may not redeem the Convertible Notes at our option prior to the maturity date, and no sinking fund is provided for the Convertible Notes.
On October 29, 2019 and October 30, 2019, in connection with the offering of the Convertible Notes, we entered into privately negotiated convertible note hedge transactions (collectively, the “Hedge Transactions”) that cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlie the Convertible Notes.
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On October 29, 2019 and October 30, 2019, we also entered into privately negotiated warrant transactions (collectively, the “Warrant Transactions” and, together with the Hedge Transactions, the “Call Spread Transactions”), whereby we sold warrants at a higher strike price relating to the same number of shares of our common stock that initially underlie the Convertible Notes, subject to customary anti-dilution adjustments.
The Hedge Transactions and the Warrant Transactions are separate transactions, in each case, and are not part of the terms of the Convertible Notes and will not affect any holder’s rights under the Convertible Notes. Holders of the Convertible Notes will not have any rights with respect to the Call Spread Transactions.
Refer to Note 9 in the Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023 for additional information regarding the Convertible Notes and the Call Spread Transactions.
Accounting Treatment of the Convertible Notes and Related Hedge Transactions and Warrant Transactions
The Convertible Notes are accounted for as a single liability measured at amortized cost. Interest expense, representing the amortization of the $9.8 million of debt issuance costs as well as the contractual interest expense is amortized using an effective interest rate of 2.1 % over the term of the Convertible Notes. We recorded $1.6
The net cost incurred in connection with the Call Spread Transactions was $11.2 million. These transactions are classified as equity and are not remeasured each reporting period.
Fair Value and Future Maturities
As of November 25, 2023 and August 26, 2023, the fair value of long-term debt, gross, was $643.8 million and $640.2 million, respectively. The fair value of the Convertible Notes was $357.1 million and $349.0 million as of November 25, 2023 and August 26, 2023, respectively. We are in compliance with all of our financial debt covenants as of November 25, 2023.
Aggregate contractual maturities of debt in future fiscal years are as follows:
| (in millions) | Amount | ||||
Remainder of Fiscal 2024 | $ | ||||
| Fiscal 2025 | |||||
| Fiscal 2026 | |||||
| Fiscal 2027 | |||||
| Fiscal 2028 | |||||
| Fiscal 2029 | |||||
| Total Senior Secured Notes and Convertible Notes | $ | ||||
Note 10. Employee and Retiree Benefits
Deferred compensation liabilities are as follows:
| (in millions) | November 25, 2023 | August 26, 2023 | |||||||||
| Non-qualified deferred compensation | $ | $ | |||||||||
| Supplemental executive retirement plan | |||||||||||
| Executive deferred compensation plan | |||||||||||
| Total deferred compensation benefits | |||||||||||
Less: current portion(1) | |||||||||||
| Deferred compensation benefits, net of current portion | $ | $ | |||||||||
(1) Included in accrued compensation on the Consolidated Balance Sheets.
Note 11. Contingent Liabilities and Commitments
Repurchase Commitments
Generally, manufacturers in the same industries as us enter into repurchase agreements with lending institutions which have provided wholesale floorplan financing to dealers. Most dealers are financed on a "floorplan" basis under which a bank or finance company lends the dealer all, or substantially all, of the purchase price, collateralized by a security interest in the units purchased.
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Our repurchase agreements generally provide that, in the event of default by the dealer on the agreement to pay the lending institution, we will repurchase the financed merchandise. The terms of these agreements, which generally can last up to 24 months, provide that our liability will be the lesser of remaining principal owed by the dealer to the lending institution, or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our liability cannot exceed 100 % of the dealer invoice. In certain instances, we also repurchase inventory from dealers due to state law or regulatory requirements that govern voluntary or involuntary relationship terminations. Although laws vary from state to state, some states have laws in place that require manufacturers of recreational vehicles or boats to repurchase current inventory if a dealership exits the business. The total contingent liability on all of our repurchase agreements was approximately $1,857.3 million and $1,816.7 million at November 25, 2023 and August 26, 2023, respectively.
Our loss reserve for repurchase commitments contains uncertainties because the calculation requires management to make assumptions and apply judgment regarding a number of factors. Our risk of loss related to these repurchase commitments is significantly reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous dealers and lenders. The aggregate contingent liability related to our repurchase agreements represents all financed dealer inventory at the period-end reporting date subject to a repurchase agreement, net of the greater of periodic reductions per the agreement or dealer principal payments. Based on these repurchase agreements and our historical loss experience, an associated loss reserve is established, which is included in other current liabilities on the Consolidated Balance Sheets. Our repurchase accrual was $1.2 million and $1.3 million at November 25, 2023 and August 26, 2023, respectively. Repurchase risk is affected by the credit worthiness of our dealer network. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to establish the loss reserve for repurchase commitments.
There was no material activity related to repurchase agreements during the three months ended November 25, 2023 and November 26, 2022.
Litigation
Note 12. Revenue
All operating revenue is generated from contracts with customers. Our primary revenue source is generated through the sale of manufactured towable RV units, motorhome RV units and marine units to our independent dealer network (our customers). The following table disaggregates revenue by reportable segment and product category:
| Three Months Ended | |||||||||||
| (in millions) | November 25, 2023 | November 26, 2022 | |||||||||
| Net Revenues | |||||||||||
| Towable RV | |||||||||||
| Fifth Wheel | $ | $ | |||||||||
| Travel Trailer | |||||||||||
Other(1) | |||||||||||
| Total Towable RV | |||||||||||
| Motorhome RV | |||||||||||
| Class A | |||||||||||
| Class B | |||||||||||
Class C and Other (1) | |||||||||||
| Total Motorhome RV | |||||||||||
| Marine | |||||||||||
Corporate / All Other(2) | |||||||||||
| Consolidated Net Revenues | $ | $ | |||||||||
(1) Relates to parts, accessories, services, and other miscellaneous revenue.
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We do not have material contract assets or liabilities. Allowances for uncollectible receivables are established based on historical collection trends, write-off history, consideration of current conditions and expectations for future economic conditions.
Concentration of Risk
No single dealer organization accounted for more than 10% of net revenue for the three months ended November 25, 2023 or November 26, 2022.
Note 13. Stock-Based Compensation
On December 14, 2023, our shareholders approved the Amended and Restated 2019 Omnibus Incentive Plan (“Restated Plan”) as detailed in our Proxy Statement for the 2023 Annual Meeting of Shareholders. The Restated Plan continues to allow us to grant or issue non-qualified stock options, incentive stock options, share awards, and other equity compensation to key employees and to non-employee directors. The number of shares of our Common Stock that may be awarded and issued under the Restated Plan is 2.4 million, plus the shares still available under the 2019 Omnibus Incentive Plan (“2019 Plan”) and the shares subject to any awards outstanding under the 2014 Omnibus Equity, Performance Award, and Incentive Compensation Plan (“2014 Plan”). Until such time, however, awards under the 2014 Plan that are outstanding on December 14, 2023 will continue to be subject to the terms of the 2014 Plan, as applicable. Shares remaining available for future awards under the 2014 Plan were not carried over into the Restated Plan.
Stock-based compensation expense was $4.6 million and $3.0 million for the three months ended November 25, 2023 and November 26, 2022, respectively. Compensation expense is recognized over the requisite service or performance period of the award, unless accelerated by certain retirement eligibility provisions.
Note 14. Income Taxes
Our effective tax rate was 24.9 % and 24.5 % for the three months ended November 25, 2023 and November 26, 2022, respectively. The increase in tax rate for the three months ended November 25, 2023 compared to the three months ended November 26, 2022 was driven primarily by a net unfavorable impact of stock activity in the current year, partially offset by an increase in tax credits year-over-year over a lower pre-tax book income base.
As of November 25, 2023, $3.2 million of U.S. federal income taxes receivable was included in prepaid expenses and other current assets on the Consolidated Balance Sheets. Comparatively, as of August 26, 2023, $10.7 million of U.S. federal income taxes receivable was included in prepaid expenses and other current assets on the Consolidated Balance Sheets.
We file a U.S. Federal tax return, as well as returns in various international and state jurisdictions. As of November 25, 2023, our Federal returns from Fiscal 2020 to present are subject to review by the Internal Revenue Service. With limited exceptions, state returns from Fiscal 2019 to present continue to be subject to review by state taxing jurisdictions. We are currently under review by certain U.S. state tax authorities for Fiscal 2019 through Fiscal 2021. We believe we have adequately reserved for our exposure to potential additional payments for uncertain tax positions in our liability for unrecognized tax benefits.
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Note 15. Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
| Three Months Ended | |||||||||||
| (in millions, except per share data) | November 25, 2023 | November 26, 2022 | |||||||||
| Earnings per share - basic | |||||||||||
| Net income | $ | $ | |||||||||
| Weighted average common shares outstanding | |||||||||||
Basic earnings per common share(1) | $ | $ | |||||||||
| Earnings per share - diluted | |||||||||||
| Net income | $ | $ | |||||||||
| Interest expense on convertible notes, net of tax | |||||||||||
| Diluted net income | $ | $ | |||||||||
| Weighted average common shares outstanding | |||||||||||
| Dilutive impact of stock compensation awards | |||||||||||
| Dilutive impact of convertible notes | |||||||||||
| Weighted average common shares outstanding, assuming dilution | |||||||||||
| Anti-dilutive securities excluded from weighted average common shares outstanding, assuming dilution | |||||||||||
Diluted earnings per common share(1) | $ | $ | |||||||||
(1) Earnings per share amounts are calculated based on unrounded numbers and therefore may not recalculate using the rounded numbers provided.
The dilutive effect of stock compensation awards was determined using the treasury stock method while the dilutive impact of the Convertible Notes was determined using the if-converted method. Under the treasury stock method, shares associated with certain anti-dilutive securities have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead to a net reduction in common shares outstanding or anti-dilution. Under the if-converted method, the Convertible Notes are assumed to be converted into common stock at the beginning of the reporting period, and the resulting shares are included in the denominator of the calculation. In addition, interest charges, net of any income tax effects are added back to the numerator of the calculation.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The terms "Winnebago," "we," "us," and "our," unless the context otherwise requires, refer to Winnebago Industries, Inc. and its wholly-owned subsidiaries.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude.
Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended August 26, 2023 (including the information presented therein under Risk Factors), as well as our reports on Forms 10-Q and 8-K and other publicly available information. All amounts herein are unaudited. All amounts are in millions, except share and per share data, unless otherwise noted.
Overview
Winnebago Industries, Inc. is one of the leading North American manufacturers of recreation vehicles ("RVs") and marine products with a diversified portfolio used primarily in leisure travel and outdoor recreational activities. We also design and manufacture advanced battery solutions that deliver “house power,” supporting internal electrical features and appliances for a variety of outdoor products including RVs, boats, specialty and other low-speed vehicles, as well as other industrial applications. We produce our motorhome RV units in Iowa and Indiana; our towable RV units in Indiana; our marine units in Indiana and Florida; and our battery solutions in Florida. We distribute our RV and marine products primarily through independent dealers across the U.S. and Canada, who then retail the products to the end consumer. We also distribute our marine products internationally through independent dealers, who then retail the products to the end consumer. Our battery solutions are primarily sold to customers in the U.S.
Known Trends and Uncertainties
Our business continues to be challenged by macroeconomic conditions impacting retail consumers and our dealers, such as inflation and elevated interest rates. These factors have contributed to lower consumer spending and reduced short-term demand for large discretionary products such as RVs and marine products. In response, our dealers continue to exercise caution when managing stocking levels. In the first quarter of Fiscal 2024, these trends resulted in decreased sales due to declines in unit volume. We anticipate that as consumer demand stabilizes, dealers will exhibit a willingness to maintain inventory levels in the second half of Fiscal 2024, consistent with a one-for-one retail-to-wholesale ordering pattern. We continue to produce and ship in accordance with dealer demand as evidenced and requested by dealer orders.
Despite the current economic uncertainty, we believe in the long-term health of consumer demand for RV and marine products.
Non-GAAP Financial Measures
This MD&A includes financial information prepared in accordance with generally accepted accounting principles ("GAAP"), as well as certain adjusted or non-GAAP financial measures such as EBITDA and Adjusted EBITDA. EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation and amortization expense, and other pretax adjustments made in order to present comparable results from period to period.
These non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, have been provided as information supplemental and in addition to the financial measures presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein. The non-GAAP financial measures presented may differ from similar measures used by other companies.
Included in "Results of Operations" below for three months ended November 25, 2023 compared to the comparable prior year period is a reconciliation of EBITDA and Adjusted EBITDA from net income, the most directly comparable GAAP measure. We have included these non-GAAP performance measures as a comparable measure to illustrate the effect of non-recurring transactions that occurred during the reported periods and to improve comparability of our results from period to period. We believe Adjusted EBITDA provides meaningful supplemental information about our operating performance as this measure excludes amounts from net income that we do not consider part of our core operating results when assessing our performance. Examples of items excluded from Adjusted EBITDA include acquisition-related costs, contingent consideration fair value adjustment, and non-operating income or loss.
Management uses these non-GAAP financial measures (a) to evaluate our historical and prospective financial performance and trends as well as our performance relative to competitors and peers; (b) to measure operational profitability on a consistent basis; (c) in presentations to the members of our Board of Directors to enable our Board of Directors to have the same measurement basis of operating performance as used by management in their assessment of performance and in forecasting; (d) to evaluate
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potential acquisitions; and (e) to ensure compliance with covenants and restricted activities under the terms of our ABL Credit Facility and outstanding notes, as further described in Note 9 in the Notes to Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q. We believe these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in the industry.
Results of Operations - Three Months Ended November 25, 2023 Compared to Three Months Ended November 26, 2022
Consolidated Performance Summary
The following is an analysis of changes in key items included in the Consolidated Statements of Income for the three months ended November 25, 2023 compared to the three months ended November 26, 2022:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | November 25, 2023 | % of Revenues(1) | November 26, 2022 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 763.0 | 100.0 | % | $ | 952.2 | 100.0 | % | $ | (189.2) | (19.9) | % | |||||||||||||||||||||||
| Cost of goods sold | 647.2 | 84.8 | % | 791.8 | 83.2 | % | (144.6) | (18.3) | % | ||||||||||||||||||||||||||
| Gross profit | 115.8 | 15.2 | % | 160.4 | 16.8 | % | (44.6) | (27.8) | % | ||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 71.1 | 9.3 | % | 70.7 | 7.4 | % | 0.4 | 0.6 | % | ||||||||||||||||||||||||||
| Amortization | 5.6 | 0.7 | % | 3.8 | 0.4 | % | 1.8 | 47.6 | % | ||||||||||||||||||||||||||
| Total operating expenses | 76.7 | 10.1 | % | 74.5 | 7.8 | % | 2.2 | 3.0 | % | ||||||||||||||||||||||||||
| Operating income | 39.1 | 5.1 | % | 85.9 | 9.0 | % | (46.8) | (54.5) | % | ||||||||||||||||||||||||||
| Interest expense, net | 4.1 | 0.5 | % | 5.9 | 0.6 | % | (1.8) | (30.9) | % | ||||||||||||||||||||||||||
| Non-operating loss | 0.6 | 0.1 | % | 0.3 | — | % | 0.3 | 110.8 | % | ||||||||||||||||||||||||||
| Income before income taxes | 34.4 | 4.5 | % | 79.7 | 8.4 | % | (45.3) | (56.8) | % | ||||||||||||||||||||||||||
| Provision for income taxes | 8.6 | 1.1 | % | 19.5 | 2.0 | % | (10.9) | (56.0) | % | ||||||||||||||||||||||||||
| Net income | $ | 25.8 | 3.4 | % | $ | 60.2 | 6.3 | % | $ | (34.4) | (57.1) | % | |||||||||||||||||||||||
| Diluted earnings per share | $ | 0.78 | $ | 1.73 | $ | (0.95) | (54.9) | % | |||||||||||||||||||||||||||
| Diluted weighted average shares outstanding | 34.7 | 35.5 | (0.8) | (2.3) | % | ||||||||||||||||||||||||||||||
(1) Amounts are calculated based on unrounded numbers and therefore may not recalculate using the rounded numbers provided. In addition, percentages may not add in total due to rounding.
Net revenues decreased primarily due to lower unit sales related to market conditions, product mix, and higher discounts and allowances compared to prior year, partially offset by carryover price increases related to higher motorized chassis costs.
Gross profit as a percentage of revenue decreased primarily due to volume deleverage and higher discounts and allowances compared to prior year.
Operating expenses increased primarily due to increased amortization related to Lithionics intangible assets and strategic investments, partially offset by lower incentive and volume-based compensation related to performance.
Interest expense, net decreased primarily due to higher interest income on short-term investments as a result of increased interest rates.
Our effective tax rate increased primarily due to a net unfavorable impact of stock activity in the current year, partially offset by an increase in tax credits year-over-year over a lower pre-tax book income base.
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Non-GAAP Reconciliation
The following table reconciles net income to consolidated EBITDA and Adjusted EBITDA for the three months ended November 25, 2023 and November 26, 2022:
| Three Months Ended | |||||||||||
| (in millions) | November 25, 2023 | November 26, 2022 | |||||||||
| Net income | $ | 25.8 | $ | 60.2 | |||||||
| Interest expense, net | 4.1 | 5.9 | |||||||||
| Provision for income taxes | 8.6 | 19.5 | |||||||||
| Depreciation | 8.1 | 6.6 | |||||||||
| Amortization | 5.6 | 3.8 | |||||||||
| EBITDA | 52.2 | 96.0 | |||||||||
| Acquisition-related costs | 1.3 | 0.6 | |||||||||
| Contingent consideration fair value adjustment | 0.8 | 0.4 | |||||||||
| Non-operating income | (0.2) | — | |||||||||
| Adjusted EBITDA | $ | 54.1 | $ | 97.0 | |||||||
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Reportable Segment Performance Summary
Towable RV
The following is an analysis of key changes in our Towable RV segment for the three months ended November 25, 2023 compared to the three months ended November 26, 2022:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| (in millions, except ASP and units) | November 25, 2023 | % of Revenues(1) | November 26, 2022 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 330.8 | $ | 347.3 | $ | (16.5) | (4.8) | % | |||||||||||||||||||||||||||
| Adjusted EBITDA | 33.1 | 10.0 | % | 36.3 | 10.5 | % | (3.2) | (8.8) | % | ||||||||||||||||||||||||||
Average Selling Price ("ASP")(2) | $ | 42,072 | $ | 48,173 | $ | (6,101) | (12.7) | % | |||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| Unit deliveries | November 25, 2023 | Product Mix(3) | November 26, 2022 | Product Mix(3) | Unit Change | % Change | |||||||||||||||||||||||||||||
| Travel trailer | 5,381 | 68.6 | % | 4,650 | 64.7 | % | 731 | 15.7 | % | ||||||||||||||||||||||||||
| Fifth wheel | 2,465 | 31.4 | % | 2,541 | 35.3 | % | (76) | (3.0) | % | ||||||||||||||||||||||||||
| Total Towable RV | 7,846 | 100.0 | % | 7,191 | 100.0 | % | 655 | 9.1 | % | ||||||||||||||||||||||||||
| November 25, 2023 | November 26, 2022 | Change(1) | % Change(1) | ||||||||||||||||||||||||||||||||
Backlog(4) | |||||||||||||||||||||||||||||||||||
| Units | 5,290 | 10,441 | (5,151) | (49.3) | % | ||||||||||||||||||||||||||||||
| Dollars | $ | 199.8 | $ | 434.0 | $ | (234.3) | (54.0) | % | |||||||||||||||||||||||||||
| Dealer Inventory | |||||||||||||||||||||||||||||||||||
| Units | 16,667 | 20,576 | (3,909) | (19.0) | % | ||||||||||||||||||||||||||||||
(1) Amounts are calculated based on unrounded numbers and therefore may not recalculate using the rounded numbers provided.
(2) ASP excludes off-invoice dealer incentives.
(3) Percentages may not add due to rounding differences.
(4) Our backlog includes all accepted orders from dealers which generally have been requested to be shipped within the next six months. Orders in backlog generally can be cancelled or postponed at the option of the dealer at any time without penalty; therefore, backlog may not necessarily be an accurate measure of future sales.
Net revenues decreased primarily due to a reduction in average selling price per unit related to product mix and targeted price reductions, partially offset by unit volume growth.
Adjusted EBITDA margin decreased primarily due to deleverage and new product start-up costs.
Backlog decreased due to continued softness in market conditions and a cautious dealer network.
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Motorhome RV
The following is an analysis of key changes in our Motorhome RV segment for the three months ended November 25, 2023 compared to the three months ended November 26, 2022:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| (in millions, except ASP and units) | November 25, 2023 | % of Revenues(1) | November 26, 2022 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 334.4 | $ | 464.2 | $ | (129.8) | (28.0) | % | |||||||||||||||||||||||||||
| Adjusted EBITDA | 21.3 | 6.4 | % | 50.3 | 10.8 | % | (28.9) | (57.6) | % | ||||||||||||||||||||||||||
ASP(2) | $ | 195,120 | $ | 182,386 | $ | 12,734 | 7.0 | % | |||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| Unit deliveries | November 25, 2023 | Product Mix(3) | November 26, 2022 | Product Mix(3) | Unit Change | % Change | |||||||||||||||||||||||||||||
| Class A | 481 | 27.9 | % | 693 | 27.6 | % | (212) | (30.6) | % | ||||||||||||||||||||||||||
| Class B | 691 | 40.2 | % | 1,322 | 52.7 | % | (631) | (47.7) | % | ||||||||||||||||||||||||||
| Class C | 549 | 31.9 | % | 493 | 19.7 | % | 56 | 11.4 | % | ||||||||||||||||||||||||||
| Total Motorhome RV | 1,721 | 100.0 | % | 2,508 | 100.0 | % | (787) | (31.4) | % | ||||||||||||||||||||||||||
| November 25, 2023 | November 26, 2022 | Change(1) | % Change(1) | ||||||||||||||||||||||||||||||||
Backlog(4) | |||||||||||||||||||||||||||||||||||
| Units | 3,200 | 10,089 | (6,889) | (68.3) | % | ||||||||||||||||||||||||||||||
| Dollars | $ | 545.3 | $ | 1,596.0 | $ | (1,050.7) | (65.8) | % | |||||||||||||||||||||||||||
| Dealer Inventory | |||||||||||||||||||||||||||||||||||
| Units | 4,224 | 4,234 | (10) | (0.2) | % | ||||||||||||||||||||||||||||||
(1) Amounts are calculated based on unrounded numbers and therefore may not recalculate using the rounded numbers provided.
(2) ASP excludes off-invoice dealer incentives.
(3) Percentages may not add due to rounding differences.
(4) Our backlog includes all accepted orders from dealers which generally have been requested to be shipped within the next six months. Orders in backlog generally can be cancelled or postponed at the option of the dealer at any time without penalty; therefore, backlog may not necessarily be an accurate measure of future sales.
Net revenues decreased primarily due to a decline in unit volume related to market conditions and higher levels of discounts and allowances compared to prior year, partially offset by product mix and price increases related to higher motorized chassis costs.
Adjusted EBITDA margin decreased due to volume deleverage, higher discounts and allowances, and operational efficiency challenges.
Backlog decreased due to continued softness in market conditions and a cautious dealer network.
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Marine
The following is an analysis of key changes in our Marine segment for the three months ended November 25, 2023 compared to the three months ended November 26, 2022:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| (in millions, except ASP and units) | November 25, 2023 | % of Revenues(1) | November 26, 2022 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 87.3 | $ | 131.4 | $ | (44.0) | (33.5) | % | |||||||||||||||||||||||||||
| Adjusted EBITDA | 7.2 | 8.2 | % | 18.5 | 14.1 | % | (11.3) | (61.0) | % | ||||||||||||||||||||||||||
ASP(2) | $ | 81,113 | $ | 78,957 | $ | 2,156 | 2.7 | % | |||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| Unit deliveries | November 25, 2023 | November 26, 2022 | Unit Change | % Change | |||||||||||||||||||||||||||||||
| Boats | 1,118 | 1,700 | (582) | (34.2) | % | ||||||||||||||||||||||||||||||
| November 25, 2023 | November 26, 2022 | Change(1) | % Change(1) | ||||||||||||||||||||||||||||||||
Backlog(3) | |||||||||||||||||||||||||||||||||||
| Units | 1,897 | 3,633 | (1,736) | (47.8) | % | ||||||||||||||||||||||||||||||
| Dollars | $ | 140.4 | $ | 318.5 | $ | (178.1) | (55.9) | % | |||||||||||||||||||||||||||
Dealer Inventory(4) | |||||||||||||||||||||||||||||||||||
| Units | 3,767 | 3,182 | 585 | 18.4 | % | ||||||||||||||||||||||||||||||
(1) Amounts are calculated based on unrounded numbers and therefore may not recalculate using the rounded numbers provided.
(2) ASP excludes off-invoice dealer incentives.
(3) Our backlog includes all accepted orders from dealers which generally have been requested to be shipped within the next six months. Orders in backlog generally can be cancelled or postponed at the option of the dealer at any time without penalty; therefore, backlog may not necessarily be an accurate measure of future sales.
(4) Due to the nature of the Marine industry, this amount includes a higher proportion of retail sold units than our other segments.
Net revenues decreased primarily due to a decline in unit volume related to market conditions and higher discounts and allowances, partially offset by carryover price increases.
Adjusted EBITDA margin decreased due to volume deleverage and higher discounts and allowances compared to prior year.
Backlog decreased primarily driven by cautious dealer sentiment related to rising inventory levels.
Analysis of Financial Condition, Liquidity, and Resources
Cash Flows
The following table summarizes our cash flows from operations:
| Three Months Ended | |||||||||||
| (in millions) | November 25, 2023 | November 26, 2022 | |||||||||
| Total cash provided by (used in): | |||||||||||
| Operating activities | $ | (21.4) | $ | 29.9 | |||||||
| Investing activities | (14.7) | (27.1) | |||||||||
| Financing activities | (54.2) | (13.3) | |||||||||
| Net decrease in cash and cash equivalents | $ | (90.3) | $ | (10.5) | |||||||
Operating Activities
During the three months ended November 25, 2023, net cash used in operating activities was $21.4 million compared to net cash provided by operating activities of $29.9 million in the same period last year. The decrease in operating cash flow is primarily driven by changes in accounts receivable due to timing of invoicing/collections and lower profitability adjusted for non-cash items, partially offset by favorable changes in accounts payable due to timing of payments.
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Investing Activities
Cash used in investing activities decreased primarily due to elevated purchases in the first three months of Fiscal 2023 to support operational expansion and organic growth.
Financing Activities
Cash used in financing activities increased primarily due to $44.2 million of stock repurchases in the first three months of Fiscal 2024 compared to $4.5 million in the first three months of Fiscal 2023.
Debt and Capital
We maintain a $350.0 million asset-based revolving credit facility ("ABL Credit Facility") with a maturity date of July 15, 2027 subject to certain factors which may accelerate the maturity date. As of November 25, 2023, we had no borrowings against the ABL Credit Facility.
As of November 25, 2023, we had $219.6 million in cash and cash equivalents and $350.0 million in unused ABL Credit Facility. Our cash and cash equivalent balances consist of high quality, short-term money market instruments.
We believe cash flow from operations, existing lines of credit, and access to debt and capital markets will be sufficient to meet our current liquidity needs, and we have committed liquidity and cash reserves in excess of our anticipated funding requirements. We evaluate the financial stability of the counterparties for the Convertible Notes, the Senior Secured Notes, and the ABL Credit Facility, and will continue to monitor counterparty risk on an on-going basis.
Working Capital
Working capital at November 25, 2023 and August 26, 2023 was $587.3 million and $600.7 million, respectively. We currently expect cash on hand, funds generated from operations, and the borrowing available under our ABL Credit Facility to be sufficient to cover both short-term and long-term operating requirements.
Share Repurchases
We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors. Our long-term capital allocation strategy is to first fund operations and investments in growth, maintain a debt leverage ratio within our targeted zone, maintain reasonable liquidity, and then return excess cash over time to shareholders through dividends and share repurchases.
On August 17, 2022, our Board of Directors authorized a new share repurchase program in the amount of $350.0 million with no time restriction on the authorization, which took effect immediately and replaced the prior program. In the three months ended November 25, 2023, we repurchased approximately 671,000 shares of our own common stock at a cost of $40.0 million under this authorization, and approximately 73,000 shares at a cost of $4.2 million to satisfy tax obligations on employee equity awards vested. We continually evaluate if share repurchases reflect a prudent use of our capital and, subject to compliance with our ABL Credit Facility and Senior Secured Notes, we may purchase shares in the future. As of November 25, 2023, we have $260.0 million remaining on our Board approved repurchase authorization.
On December 15, 2023, our Board of Directors approved a quarterly cash dividend of $0.31 per share payable on January 26, 2024, to common stockholders of record at the close of business on January 12, 2024.
Contractual Obligations and Commercial Commitments
There have been no material changes in our contractual obligations since the end of Fiscal 2023. See our Annual Report on Form 10-K for the fiscal year ended August 26, 2023 for additional information regarding our contractual obligations and commercial commitments.
Critical Accounting Estimates
We describe our critical accounting policies in Note 1 in the Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023. We discuss our critical accounting estimates in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023. There have been no material changes to our critical accounting policies or critical accounting estimates since the end of Fiscal 2023.
Recently Issued Accounting Pronouncements
For a summary of recently issued applicable accounting pronouncements, see Note 1 in the Notes to Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
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Safe Harbor Statement Under the Private Securities Litigation Reform Act
Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as "anticipate," "assume," "believe," "estimate," "expect," "guidance," "intend," "outlook," "plan," "project," and other words and terms of similar meaning. Such statements reflect our current views and estimates with respect to future market conditions, company performance and financial results, operational investments, business prospects, new strategies, the competitive environment, and other events. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in such forward-looking statements. Readers should review Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023, and Item 1A of Part II of this Quarterly Report on Form 10-Q, for a description of important factors that could cause our actual results to differ materially from those contemplated by the forward-looking statements made in this Quarterly Report on Form 10-Q. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following:
•General economic uncertainty in key markets and a worsening of domestic and global economic conditions or low levels of economic growth.
•Availability of financing for RV and marine dealers.
•Competition and new product introductions by competitors.
•Ability to innovate and commercialize new products.
•Ability to manage our inventory to meet demand.
•Risk related to cyclicality and seasonality of our business.
•Risk related to independent dealers.
•Risk related to dealer consolidation or the loss of a significant dealer.
•Significant increase in repurchase obligations.
•Ability to retain relationships with our suppliers and obtain components.
•Business or production disruptions.
•Inadequate management of dealer inventory levels.
•Increased material and component costs, including availability and price of fuel and other raw materials.
•Ability to integrate mergers and acquisitions.
•Ability to attract and retain qualified personnel and changes in market compensation rates.
•Exposure to warranty claims.
•Ability to protect our information technology systems from data security, cyberattacks, and network disruption risks and the ability to successfully upgrade and evolve our information technology systems.
•Ability to retain brand reputation and related exposure to product liability claims.
•Governmental regulation, including for climate change.
•Increased attention to environmental, social, and governance ("ESG") matters, and our ability to meet our commitments.
•Impairment of goodwill and trade names.
•Risks related to our Convertible and Senior Secured Notes, including our ability to satisfy our obligations under these notes.
We caution that the foregoing list of important factors is not complete. Any forward-looking statements speak only as of the date they are made, and we assume no obligation to update any forward-looking statement that we may make.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The assets we maintain to fund deferred compensation have market risk, but we maintain a corresponding liability for these assets. The market risk is therefore borne by the participants in the deferred compensation program.
Interest rate risk
The ABL Credit Facility, which is our only floating rate debt instrument, remains undrawn as of November 25, 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this report (the "Evaluation Date"). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the Evaluation Date.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the first quarter of Fiscal 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our legal proceedings, see Note 11 in the Notes to Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended August 26, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Stock Repurchases
Purchases of our common stock during each fiscal month of the first quarter of Fiscal 2024 are as follows:
| Period | Total Number of Shares Purchased(1,2) | Average Price Paid per Share | Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1,2) | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(3) (in millions) | |||||||||||||||||||
| 8/27/23 - 9/30/23 | — | $ | — | — | $ | 300.0 | |||||||||||||||||
| 10/1/23 - 10/28/23 | 331,269 | 58.02 | 258,612 | 285.0 | |||||||||||||||||||
| 10/29/23 - 11/25/23 | 412,562 | 60.61 | 412,445 | 260.0 | |||||||||||||||||||
| Total | 743,831 | $ | 59.46 | 671,057 | $ | 260.0 | |||||||||||||||||
(1) Number of shares in the table are shown in whole numbers.
(2) Shares not purchased as part of a publicly announced program were repurchased from employees who vested in Company shares and elected to pay their payroll tax via the value of shares delivered as opposed to cash.
(3) Pursuant to a $350.0 million share repurchase program authorized by our Board of Directors on August 17, 2022. There is no time restriction on the authorization.
Our Senior Secured Notes, as defined in Note 9 in the Notes to Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, contain occurrence based restrictions that may limit our ability to make distributions or payments with respect to purchases of our common stock without consent of the lenders, except for limited purchases of our common stock from employees, in the event of a significant reduction in our EBITDA or in the event of a significant borrowing on our ABL Credit Facility.
Item 5. Other Information
During the three months ended November 25, 2023, no director or officer of the Company adopted terminated
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Item 6. Exhibits
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (furnished herewith). | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document (furnished herewith). | ||||
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document (furnished herewith). | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith). | ||||
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document (furnished herewith). | ||||
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document (furnished herewith). | ||||
104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) (furnished herewith). | ||||
* Management contract or compensation plan or arrangement.
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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. | ||||||||||||||
| Date: | December 20, 2023 | By: | /s/ Michael J. Happe | |||||||||||
Michael J. Happe | ||||||||||||||
| Chief Executive Officer, President | ||||||||||||||
| (Principal Executive Officer) | ||||||||||||||
| Date: | December 20, 2023 | By: | /s/ Bryan L. Hughes | |||||||||||
| Bryan L. Hughes | ||||||||||||||
| Chief Financial Officer and Senior Vice President | ||||||||||||||
| (Principal Financial and Accounting Officer) | ||||||||||||||
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