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 May 25, 2024
| 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 June 13, 2024, there were 28,954,999 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 May 25, 2024
Table of Contents
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Winnebago Industries, Inc.
Consolidated Statements of Income
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (in millions, except per share data) | May 25, 2024 | May 27, 2023 | May 25, 2024 | May 27, 2023 | |||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general, and administrative expenses | |||||||||||||||||||||||
| Amortization | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Loss on note repurchase | |||||||||||||||||||||||
| 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) | May 25, 2024 | 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 | |||||||||||
| Deferred income tax assets, net | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Income taxes payable | |||||||||||
| Current maturities of long-term debt, net | |||||||||||
| 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)
| Nine Months Ended | |||||||||||
| (in millions) | May 25, 2024 | May 27, 2023 | |||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Last in, first-out ("LIFO") expense | ( | ||||||||||
| Stock-based compensation | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Loss on note repurchase | |||||||||||
| Contingent consideration fair value adjustment | |||||||||||
| Payments of earnout liability above acquisition-date fair value | ( | ( | |||||||||
| 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 provided by operating activities | |||||||||||
| Investing activities | |||||||||||
| Purchases of property, plant, and equipment | ( | ( | |||||||||
| Acquisition of business, net of cash acquired | ( | ||||||||||
| Proceeds from the sale 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 for convertible note bond hedge | ( | ||||||||||
| Proceeds from issuance of convertible note warrant | |||||||||||
| Proceeds from partial unwind of convertible note bond hedge | |||||||||||
| Payments for partial unwind of convertible note warrant | ( | ||||||||||
| Payments of cash dividends | ( | ( | |||||||||
| Payments for repurchases of common stock | ( | ( | |||||||||
| Payments of debt issuance costs | ( | ||||||||||
| Payments of earnout liability up to acquisition-date fair value | ( | ( | |||||||||
| Other, net | |||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase (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, net | $ | $ | |||||||||
| Interest paid | |||||||||||
| Non-cash investing and financing activities | |||||||||||
| Capital expenditures in accounts payable | $ | $ | |||||||||
| Dividends declared not yet paid | |||||||||||
| Increase in lease assets in exchange for lease liabilities: | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
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 May 25, 2024 | ||||||||||||||||||||||||||
| (in millions, except per share data) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Shareholders' Equity | ||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||
Balances at February 24, 2024 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||
| Issuance of stock for employee benefit and stock-based awards, net | — | — | ( | — | — | — | ||||||||||||||||||||
| Repurchase of common stock | — | — | ( | — | — | ( | ( | ( | ||||||||||||||||||
Common stock dividends; $ | — | — | — | ( | — | — | — | ( | ||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
Balances at May 25, 2024 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Three Months Ended May 27, 2023 | ||||||||||||||||||||||||||
| (in millions, except per share data) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Shareholders' Equity | ||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||
Balances at February 25, 2023 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||
| Issuance of stock for employee benefit and stock-based awards, net | — | — | ( | — | — | — | — | ( | ||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||
Common stock dividends; $ | — | — | — | ( | — | — | — | ( | ||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
Balances at May 27, 2023 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
7
| Nine Months Ended May 25, 2024 | ||||||||||||||||||||||||||
| (in millions, except per share data) | 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 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Partial repurchase of convertible notes | — | — | ( | — | — | — | — | ( | ||||||||||||||||||
| Partial unwind of convertible note bond hedge | — | — | — | — | — | — | ||||||||||||||||||||
| Partial unwind of convertible note warrant | — | — | ( | — | — | — | — | ( | ||||||||||||||||||
Convertible note bond hedge purchase, net of tax of $ | — | — | ( | — | — | — | — | ( | ||||||||||||||||||
| Issuance of convertible note warrant | — | — | — | — | — | — | ||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||
| Issuance of stock for employee benefit and stock-based awards, net | — | — | ( | — | — | |||||||||||||||||||||
| Repurchase of common stock | — | — | ( | — | — | ( | ( | ( | ||||||||||||||||||
Common stock dividends; $ | — | — | — | ( | — | — | — | ( | ||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
| Balances at May 25, 2024 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Nine Months Ended May 27, 2023 | ||||||||||||||||||||||||||
| (in millions, except per share data) | 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 | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||
Common stock dividends; $ | — | — | — | ( | — | — | — | ( | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
| Balances at May 27, 2023 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
8
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.
Recently Issued Accounting Pronouncements
In March 2024, the SEC adopted a final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. The new rule will require disclosure of greenhouse gas emissions, including Scope 1 and Scope 2 emissions; climate-related risks, governance, and oversight; and the financial impacts of severe weather events and other natural conditions, subject to certain materiality thresholds. These disclosures are required to be phased in to our annual reporting beginning in Fiscal 2026. However, in April 2024, the SEC stayed the implementation of this rule pending the outcome of legal challenges. We continue to monitor developments and evaluate the impact of adoption on our Consolidated Financial Statements and related disclosures.
In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires expanded disclosures primarily related to the effective tax rate reconciliation and income taxes paid. The new guidance is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of the standard on our consolidated financial statements and related disclosures.
In November 2023, the 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.
9
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.
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, change in fair value of note receivable, contingent consideration fair value adjustment, loss on note repurchase, and non-operating income or loss.
10
Financial information by reportable segment is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (in millions) | May 25, 2024 | May 27, 2023 | May 25, 2024 | May 27, 2023 | |||||||||||||||||||
| 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 | $ | $ | $ | $ | |||||||||||||||||||
| (in millions) | May 25, 2024 | August 26, 2023 | |||||||||
| Assets | |||||||||||
| Towable RV | $ | $ | |||||||||
| Motorhome RV | |||||||||||
| Marine | |||||||||||
| Corporate / All Other | |||||||||||
| Consolidated | $ | $ | |||||||||
11
Reconciliation of net income to consolidated Adjusted EBITDA is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (in millions) | May 25, 2024 | May 27, 2023 | May 25, 2024 | May 27, 2023 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Depreciation | |||||||||||||||||||||||
| Amortization | |||||||||||||||||||||||
| EBITDA | |||||||||||||||||||||||
| Acquisition-related costs | |||||||||||||||||||||||
| Change in fair value of note receivable | |||||||||||||||||||||||
| Contingent consideration fair value adjustment | |||||||||||||||||||||||
| Loss on note repurchase | |||||||||||||||||||||||
| Non-operating loss | |||||||||||||||||||||||
| 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.
12
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) | May 25, 2024 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets that fund deferred compensation | |||||||||||||||||||||||
| Domestic equity funds | $ | $ | $ | $ | |||||||||||||||||||
| International equity funds | |||||||||||||||||||||||
| Total assets 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, which is classified as Level 3. In the third quarter of Fiscal 2024, we paid $20.5 million to settle the remaining earnout obligations associated with calendar year 2023. Comparatively, in the third quarter of Fiscal 2023, we paid $22.0 million to settle earnout obligations associated with calendar year 2022. 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 | Nine Months Ended | ||||||||||||||||||||||
| (in millions) | May 25, 2024 | May 27, 2023 | May 25, 2024 | May 27, 2023 | |||||||||||||||||||
| Beginning fair value - contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
| Fair value adjustments | |||||||||||||||||||||||
| Settlements | ( | ( | ( | ( | |||||||||||||||||||
| Other | |||||||||||||||||||||||
| Ending fair value - contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
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
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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.
Our debt obligations are recorded at amortized cost but measured at fair value for disclosure purposes. The fair value of our 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 debt.
Note 5. Inventories
Inventories consist of the following:
| (in millions) | May 25, 2024 | 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) | May 25, 2024 | August 26, 2023 | |||||||||
| LIFO basis | $ | $ | |||||||||
| FIFO basis | |||||||||||
| Total | $ | $ | |||||||||
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) | May 25, 2024 | 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 | $ | $ | |||||||||
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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 May 25, 2024 and August 26, 2023(1) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(1) There was no activity in the nine months ended May 25, 2024.
Other intangible assets, net of accumulated amortization, consist of the following:
| May 25, 2024 | |||||||||||||||||
| (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 May 25, 2024 was approximately six years .
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 | $ | ||||
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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 | Nine Months Ended | ||||||||||||||||||||||
| (in millions) | May 25, 2024 | May 27, 2023 | May 25, 2024 | May 27, 2023 | |||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | |||||||||||||||||||
Business acquisition(1) | |||||||||||||||||||||||
| Provision | |||||||||||||||||||||||
| Claims paid | ( | ( | ( | ( | |||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||
(1) Refer to Note 2 in the Notes to Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for more information on the acquisition of Lithionics on April 28, 2023.
Note 9. Debt
The following table summarizes our outstanding debt:
| (in millions) | May 25, 2024 | August 26, 2023 | |||||||||
| ABL Credit Facility | $ | $ | |||||||||
| Senior Secured Notes | |||||||||||
| 2030 Convertible Notes | |||||||||||
| 2025 Convertible Notes | |||||||||||
| Total debt, gross | |||||||||||
| Unamortized debt issuance costs, net | ( | ( | |||||||||
| Current maturities of long-term debt, 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 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.
Senior Secured Notes
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
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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.
2030 Convertible Notes
On January 23, 2024, we issued $350.0 million in aggregate principal amount of 3.25 % unsecured convertible senior notes due 2030 (“2030 Convertible Notes”). The net proceeds from the issuance of the 2030 Convertible Notes, after deducting the initial purchasers' transaction fees and offering expenses payable by us, were approximately $339.8 million. The 2030 Convertible Notes bear interest at the annual rate of 3.25 %, payable on January 15 and July 15 of each year, beginning on July 15, 2024, and will mature on January 15, 2030, unless earlier repurchased, redeemed, or converted in accordance with their terms prior to such date.
The 2030 Convertible Notes may be converted at any time on or after July 15, 2029, until the close of business on the second scheduled trading day immediately preceding their maturity date. Upon conversion, we will settle the principal amount of the 2030 Convertible Notes in cash, and any conversion premium in excess of the principal amount in cash, or a combination of cash and shares of common stock, at our election.
The initial conversion rate of the 2030 Convertible Notes was 11.3724 shares of common stock per $1,000 principal amount of 2030 Convertible Notes, which is equal to an initial conversion price of approximately $87.93 per share. The conversion rate is subject to adjustment upon the occurrence of events specified in the Indenture to the 2030 Convertible Notes but will not be adjusted for accrued and unpaid interest on any 2030 Convertible Note being converted. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture to the 2030 Convertible Notes) during the make-whole fundamental change conversion period (as defined in the Indenture to the 2030 Convertible Notes), we will, in certain circumstances, increase the conversion rate by the number of additional shares described in the Indenture to the 2030 Convertible Notes for a holder that elects to convert such holder’s 2030 Convertible Notes in connection with such make-whole fundamental change. As of May 25, 2024, there have been no changes to the initial conversion rate.
Prior to the close of business on the business day immediately preceding July 15, 2029, the 2030 Convertible Notes will be convertible only under the following circumstances:
1.during any calendar quarter commencing after the calendar quarter ended on March 31, 2024 (and only during such calendar quarter), if the last reported sale price per share 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 five consecutive business day period immediately after any five consecutive trading day period (the "measurement period to the 2030 Convertible Notes") in which the trading price per $1,000 principal amount of 2030 Convertible Notes for each trading day of the measurement period to the 2030 Convertible Notes was less than 98 % of the product of the last reported sale price per share of the common stock and the conversion rate for the 2030 Convertible Notes on each such trading day;
3.upon the occurrence of certain specified corporate events set forth in the Indenture to the 2030 Convertible Notes; or
4.if we call such 2030 Convertible Notes for redemption (as described below).
The 2030 Convertible Notes will be redeemable, in whole or in part (subject to certain limitations), for cash at our option at any time, and from time to time, on or after January 15, 2028 and on or before the 40 th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of our common stock exceeds 130 % of the conversion price for a specified period of time (as defined in the indenture to the 2030 Convertible Notes). The redemption price will be equal to the principal amount of the 2030 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
On January 18, 2024 and January 19, 2024, in connection with the offering of the 2030 Convertible Notes, we entered into privately negotiated convertible note hedge transactions (collectively, the “2030 Hedge Transactions”) that cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlie the 2030 Convertible Notes, and are expected generally to reduce the potential dilution and/or offset any cash payments we are required to make in excess of the principal amount due, as the case may be, upon conversion of the 2030 Convertible Notes in the event that the market price of our common stock is greater than the strike price of the 2030 Hedge Transactions, which was initially $87.93 per share (subject to
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adjustment under the terms of the 2030 Hedge Transactions), corresponding to the initial conversion price of the 2030 Convertible Notes.
On January 18, 2024 and January 19, 2024, we also entered into privately negotiated warrant transactions (collectively, the “2030 Warrant Transactions” and, together with the 2030 Hedge Transactions, the “2030 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 2030 Convertible Notes, subject to customary anti-dilution adjustments. The initial strike price of the 2030 warrants is $135.28 per share (subject to adjustment under the terms of the 2030 Warrant Transactions), which is approximately 100 % above the last reported sale price of our common stock on January 18, 2024. The 2030 Warrant Transactions could have a dilutive effect to our stockholders to the extent that the market price per share of our common stock, as measured under the terms of the 2030 Warrant Transactions, exceeds the applicable strike price of the warrants.
The 2030 Hedge Transactions and the 2030 Warrant Transactions are separate transactions, in each case, are not part of the terms of the 2030 Convertible Notes and will not affect any holder’s rights under the 2030 Convertible Notes. Holders of the 2030 Convertible Notes will not have any rights with respect to the 2030 Call Spread Transactions.
Accounting Treatment of the 2030 Convertible Notes and Related 2030 Hedge Transactions and 2030 Warrant Transactions
The 2030 Convertible Notes are accounted for as a single liability measured at amortized cost. Interest expense, representing the amortization of the $10.2 million of debt issuance costs as well as the contractual interest expense are amortized using an effective interest rate of 3.8 % over the term of the 2030 Convertible Notes. We recorded $3.3 million and $4.4 million of interest expense during the three and nine months ended May 25, 2024, respectively.
The net after-tax cost incurred in connection with the 2030 Call Spread Transactions was $20.6 million. These transactions are classified as equity and are not remeasured each reporting period.
2025 Convertible Notes
On November 1, 2019, we issued $300.0 million in aggregate principal amount of 1.5 % unsecured convertible senior notes due 2025 (“2025 Convertible Notes”). The net proceeds from the issuance of the 2025 Convertible Notes, after deducting the initial purchasers' transaction fees and offering expense payable by us, were approximately $290.2 million. The 2025 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 2025 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 2025 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 2025 Convertible Notes. The 2025 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 2025 Convertible Notes may be adjusted in certain circumstances, including in connection with a conversion of the 2025 Convertible Notes made following certain fundamental changes and under other circumstances set forth in the indenture to the 2025 Convertible Notes. As of May 25, 2024, the conversion rate was 15.9923 shares of common stock per $1,000 principal amount of 2025 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 May 25, 2024 is due to cash dividends that have been declared following the issuance of the 2025 Convertible Notes.
It is our current intent to settle all conversions of the 2025 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 2025 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 five consecutive business day period after any five consecutive trading day period (the "measurement period to the 2025 Convertible Notes") in which the trading price per $1,000 principal amount of 2025 Convertible Notes for each trading day of the measurement period to the 2025 Convertible Notes was less than 98 % of the product of the last reported sale price of the common stock and the conversion rate for the 2025 Convertible Notes on each such trading day; or
3.upon the occurrence of certain specified corporate events set forth in the indenture for the 2025 Convertible Notes.
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We may not redeem the 2025 Convertible Notes at our option prior to the maturity date, and no sinking fund is provided for the 2025 Convertible Notes.
On October 29, 2019 and October 30, 2019, in connection with the offering of the 2025 Convertible Notes, we entered into privately negotiated convertible note hedge transactions (collectively, the “2025 Hedge Transactions”) that cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlie the 2025 Convertible Notes.
On October 29, 2019 and October 30, 2019, we also entered into privately negotiated warrant transactions (collectively, the “2025 Warrant Transactions” and, together with the 2025 Hedge Transactions, the “2025 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 2025 Convertible Notes, subject to customary anti-dilution adjustments.
The 2025 Hedge Transactions and the 2025 Warrant Transactions are separate transactions, in each case, and are not part of the terms of the 2025 Convertible Notes and will not affect any holder’s rights under the 2025 Convertible Notes. Holders of the 2025 Convertible Notes will not have any rights with respect to the 2025 Call Spread Transactions.
On January 18, 2024, we entered into separate, privately negotiated transactions (the "2025 Convertible Note Repurchases") with certain holders of the 2025 Convertible Notes to repurchase $240.7 million aggregate principal amount of the 2025 Convertible Notes using $293.8 million of the net proceeds received from the 2030 Convertible Notes. In connection with the 2025 Convertible Note Repurchases, we recorded a loss on note repurchase of $32.7 million in the accompanying Consolidated Statements of Income for the nine months ended May 25, 2024. The loss on note repurchase represents the difference between the fair value of consideration transferred to the holders of the repurchased 2025 Convertible Notes and the conversion value of 2025 Convertible Notes repurchased pursuant to the original conversion terms. Concurrently with the 2025 Convertible Note Repurchases, we entered into agreements to terminate a proportionate amount of the 2025 Call Spread Transactions, which resulted in net proceeds of $30.5 million recorded as equity in the accompanying Consolidated Balance Sheets.
Accounting Treatment of the 2025 Convertible Notes and Related 2025 Hedge Transactions and 2025 Warrant Transactions
The 2025 Convertible Notes are accounted for as a single liability measured at amortized cost. Interest expense, representing the amortization of the remaining debt issuance costs as well as the contractual interest expense are amortized using an effective interest rate of 2.1 % over the term of the 2025 Convertible Notes. We recorded $0.3 million and $1.6 million of interest expense during the three months ended May 25, 2024 and May 27, 2023, respectively; and we recorded $3.0 million and $4.7 million of interest expense during the nine months ended May 25, 2024 and May 27, 2023, respectively.
The 2025 Call Spread Transactions are classified as equity and are not remeasured each reporting period.
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Fair Value and Future Maturities
The fair value of outstanding debt obligations, gross is as follows:
| (in millions) | May 25, 2024 | August 26, 2023 | |||||||||
| ABL Credit Facility | $ | $ | |||||||||
| Senior Secured Notes | |||||||||||
| 2030 Convertible Notes | |||||||||||
| 2025 Convertible Notes | |||||||||||
| Total debt, gross | $ | $ | |||||||||
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 | |||||
| Thereafter | |||||
| Total | $ | ||||
We were in compliance with all of our financial debt covenants as of May 25, 2024.
Note 10. Employee and Retiree Benefits
Deferred compensation liabilities are as follows:
| (in millions) | May 25, 2024 | 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.
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
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total contingent liability on all of our repurchase agreements was approximately $1,924.5 million and $1,816.7 million at May 25, 2024 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 $1.3
There was no material activity related to repurchase agreements during the nine months ended May 25, 2024 and May 27, 2023.
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 | Nine Months Ended | ||||||||||||||||||||||
| (in millions) | May 25, 2024 | May 27, 2023 | May 25, 2024 | May 27, 2023 | |||||||||||||||||||
| 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.
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.
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Concentration of Risk
No single dealer organization accounted for more than 10% of net revenue for the nine months ended May 25, 2024 or May 27, 2023.
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”). 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 $3.4 million and $1.7 million for the three months ended May 25, 2024 and May 27, 2023, respectively; and $11.5 million and $8.2 million for the nine months ended May 25, 2024 and May 27, 2023, 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 18.4 % and 21.4 % for the three months ended May 25, 2024 and May 27, 2023, respectively, and 34.5 % and 23.4 % for the nine months ended May 25, 2024 and May 27, 2023, respectively. The decrease in tax rate for the three months ended May 25, 2024 compared to the three months ended May 27, 2023 was driven primarily by an increase in research and development ("R&D") credits year-over-year and a favorable reserve release in the current year over decreased income. The increase in tax rate for the nine months ended May 25, 2024 compared to the nine months ended May 27, 2023 was driven primarily by the impact of the non-deductible loss on note repurchase during the second quarter of Fiscal 2024.
As of May 25, 2024, $3.1 million of U.S. federal income taxes payable was included in income taxes payable 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 May 25, 2024, our U.S. Federal returns from Fiscal 2020 to present are subject to review by the Internal Revenue Service. With limited exceptions, U.S. state returns from Fiscal 2020 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 2020 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 | Nine Months Ended | ||||||||||||||||||||||
| (in millions, except per share data) | May 25, 2024 | May 27, 2023 | May 25, 2024 | May 27, 2023 | |||||||||||||||||||
| 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.
23
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 nine months 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 stable inventory levels and ordering patterns. 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 the three and nine months ended May 25, 2024 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, change in fair value of note receivable, contingent consideration fair value adjustment, loss on note repurchase, 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
24
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 May 25, 2024 Compared to Three Months Ended May 27, 2023
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 May 25, 2024 compared to the three months ended May 27, 2023:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | May 25, 2024 | % of Revenues(1) | May 27, 2023 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 786.0 | 100.0 | % | $ | 900.8 | 100.0 | % | $ | (114.8) | (12.7) | % | |||||||||||||||||||||||
| Cost of goods sold | 667.8 | 85.0 | % | 749.4 | 83.2 | % | (81.5) | (10.9) | % | ||||||||||||||||||||||||||
| Gross profit | 118.2 | 15.0 | % | 151.4 | 16.8 | % | (33.3) | (22.0) | % | ||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 69.1 | 8.8 | % | 66.5 | 7.4 | % | 2.5 | 3.7 | % | ||||||||||||||||||||||||||
| Amortization | 5.6 | 0.7 | % | 4.4 | 0.5 | % | 1.2 | 27.0 | % | ||||||||||||||||||||||||||
| Total operating expenses | 74.7 | 9.5 | % | 70.9 | 7.9 | % | 3.7 | 5.2 | % | ||||||||||||||||||||||||||
| Operating income | 43.5 | 5.5 | % | 80.5 | 8.9 | % | (37.0) | (46.0) | % | ||||||||||||||||||||||||||
| Interest expense, net | 5.8 | 0.7 | % | 5.2 | 0.6 | % | 0.7 | 13.1 | % | ||||||||||||||||||||||||||
| Non-operating loss | 2.2 | 0.3 | % | 0.2 | — | % | 2.0 | 883.6 | % | ||||||||||||||||||||||||||
| Income before income taxes | 35.5 | 4.5 | % | 75.1 | 8.3 | % | (39.6) | (52.8) | % | ||||||||||||||||||||||||||
| Provision for income taxes | 6.5 | 0.8 | % | 16.0 | 1.8 | % | (9.5) | (59.3) | % | ||||||||||||||||||||||||||
| Net income | $ | 29.0 | 3.7 | % | $ | 59.1 | 6.6 | % | $ | (30.1) | (51.0) | % | |||||||||||||||||||||||
| Diluted earnings per share | $ | 0.96 | $ | 1.71 | $ | (0.75) | (43.9) | % | |||||||||||||||||||||||||||
| Diluted weighted average shares outstanding | 30.4 | 35.4 | (5.0) | (14.1) | % | ||||||||||||||||||||||||||||||
(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 product mix and lower volume related to market conditions.
Gross profit as a percentage of revenue decreased primarily due to deleverage, operational efficiency challenges, and higher warranty expense due to a favorable prior year trend, partially offset by cost containment efforts.
Operating expenses increased primarily due to strategic investments and increased amortization related to Lithionics intangible assets.
The change in our effective tax rate was primarily driven by an increase in R&D credits year-over-year and a favorable reserve release in the current year over decreased income.
25
Non-GAAP Reconciliation
The following table reconciles net income to consolidated EBITDA and Adjusted EBITDA for the three months ended May 25, 2024 and May 27, 2023:
| Three Months Ended | |||||||||||
| (in millions) | May 25, 2024 | May 27, 2023 | |||||||||
| Net income | $ | 29.0 | $ | 59.1 | |||||||
| Interest expense, net | 5.8 | 5.2 | |||||||||
| Provision for income taxes | 6.5 | 16.0 | |||||||||
| Depreciation | 8.9 | 7.6 | |||||||||
| Amortization | 5.6 | 4.4 | |||||||||
| EBITDA | 55.8 | 92.3 | |||||||||
| Acquisition-related costs | — | 3.9 | |||||||||
| Non-operating loss | 2.2 | 0.2 | |||||||||
| Adjusted EBITDA | $ | 58.0 | $ | 96.4 | |||||||
Reportable Segment Performance Summary
Towable RV
The following is an analysis of key changes in our Towable RV segment for the three months ended May 25, 2024 compared to the three months ended May 27, 2023:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| (in millions, except ASP and units) | May 25, 2024 | % of Revenues(1) | May 27, 2023 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 386.3 | $ | 384.1 | $ | 2.2 | 0.6 | % | |||||||||||||||||||||||||||
| Adjusted EBITDA | 41.9 | 10.9 | % | 53.8 | 14.0 | % | (11.8) | (22.0) | % | ||||||||||||||||||||||||||
Average Selling Price ("ASP")(2) | $ | 41,638 | $ | 44,070 | $ | (2,432) | (5.5) | % | |||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| Unit deliveries | May 25, 2024 | Product Mix(3) | May 27, 2023 | Product Mix(3) | Unit Change | % Change | |||||||||||||||||||||||||||||
| Travel trailer | 6,120 | 66.1 | % | 6,376 | 73.2 | % | (256) | (4.0) | % | ||||||||||||||||||||||||||
| Fifth wheel | 3,143 | 33.9 | % | 2,339 | 26.8 | % | 804 | 34.4 | % | ||||||||||||||||||||||||||
| Total Towable RV | 9,263 | 100.0 | % | 8,715 | 100.0 | % | 548 | 6.3 | % | ||||||||||||||||||||||||||
(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.
Net revenues increased primarily due to an increase in unit volume, partially offset by a reduction in average selling price per unit related to product mix.
Adjusted EBITDA margin decreased primarily due to operational efficiency challenges and higher warranty expense due to a favorable prior year trend, partially offset by lower discounts and allowances.
26
Motorhome RV
The following is an analysis of key changes in our Motorhome RV segment for the three months ended May 25, 2024 compared to the three months ended May 27, 2023:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| (in millions, except ASP and units) | May 25, 2024 | % of Revenues(1) | May 27, 2023 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 299.0 | $ | 374.4 | $ | (75.3) | (20.1) | % | |||||||||||||||||||||||||||
| Adjusted EBITDA | 13.4 | 4.5 | % | 26.8 | 7.2 | % | (13.5) | (50.2) | % | ||||||||||||||||||||||||||
ASP(2) | $ | 183,568 | $ | 177,612 | $ | 5,956 | 3.4 | % | |||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| Unit deliveries | May 25, 2024 | Product Mix(3) | May 27, 2023 | Product Mix(3) | Unit Change | % Change | |||||||||||||||||||||||||||||
| Class A | 417 | 24.8 | % | 524 | 24.6 | % | (107) | (20.4) | % | ||||||||||||||||||||||||||
| Class B | 476 | 28.3 | % | 1,018 | 47.8 | % | (542) | (53.2) | % | ||||||||||||||||||||||||||
| Class C | 787 | 46.8 | % | 589 | 27.6 | % | 198 | 33.6 | % | ||||||||||||||||||||||||||
| Total Motorhome RV | 1,680 | 100.0 | % | 2,131 | 100.0 | % | (451) | (21.2) | % | ||||||||||||||||||||||||||
(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.
Net revenues decreased primarily due to a decline in unit volume related to market conditions and higher levels of discounts and allowances, partially offset by price increases related to higher motorized chassis costs.
Adjusted EBITDA margin decreased primarily due to deleverage and operational efficiency challenges, partially offset by cost containment efforts.
Marine
The following is an analysis of key changes in our Marine segment for the three months ended May 25, 2024 compared to the three months ended May 27, 2023:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| (in millions, except ASP and units) | May 25, 2024 | % of Revenues(1) | May 27, 2023 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 87.9 | $ | 129.0 | $ | (41.1) | (31.8) | % | |||||||||||||||||||||||||||
| Adjusted EBITDA | 8.5 | 9.7 | % | 17.3 | 13.4 | % | (8.8) | (50.9) | % | ||||||||||||||||||||||||||
ASP(2) | $ | 78,595 | $ | 81,492 | $ | (2,897) | (3.6) | % | |||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| Unit deliveries | May 25, 2024 | May 27, 2023 | Unit Change | % Change | |||||||||||||||||||||||||||||||
| Boats | 1,127 | 1,586 | (459) | (28.9) | % | ||||||||||||||||||||||||||||||
(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.
Net revenues decreased primarily due to a decline in unit volume related to market conditions and product mix.
Adjusted EBITDA margin decreased due to deleverage, partially offset by cost containment efforts.
27
Results of Operations - Nine Months Ended May 25, 2024 Compared to the Nine Months Ended May 27, 2023
Consolidated Performance Summary
The following is an analysis of changes in key items included in the Consolidated Statements of Income for the nine months ended May 25, 2024 compared to the nine months ended May 27, 2023:
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | May 25, 2024 | % of Revenues(1) | May 27, 2023 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 2,252.6 | 100.0 | % | $ | 2,719.7 | 100.0 | % | $ | (467.2) | (17.2) | % | |||||||||||||||||||||||
| Cost of goods sold | 1,913.3 | 84.9 | % | 2,261.1 | 83.1 | % | (347.8) | (15.4) | % | ||||||||||||||||||||||||||
| Gross profit | 339.3 | 15.1 | % | 458.6 | 16.9 | % | (119.3) | (26.0) | % | ||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 204.4 | 9.1 | % | 203.4 | 7.5 | % | 0.9 | 0.5 | % | ||||||||||||||||||||||||||
| Amortization | 16.9 | 0.7 | % | 12.0 | 0.4 | % | 4.8 | 40.0 | % | ||||||||||||||||||||||||||
| Total operating expenses | 221.3 | 9.8 | % | 215.4 | 7.9 | % | 5.8 | 2.7 | % | ||||||||||||||||||||||||||
| Operating income | 118.0 | 5.2 | % | 243.2 | 8.9 | % | (125.1) | (51.4) | % | ||||||||||||||||||||||||||
| Interest expense, net | 15.2 | 0.7 | % | 16.4 | 0.6 | % | (1.1) | (6.6) | % | ||||||||||||||||||||||||||
| Loss on note repurchase | 32.7 | 1.5 | % | — | — | % | 32.7 | NM | |||||||||||||||||||||||||||
| Non-operating loss | 5.8 | 0.3 | % | 2.3 | 0.1 | % | 3.5 | 158.0 | % | ||||||||||||||||||||||||||
| Income before income taxes | 64.3 | 2.9 | % | 224.5 | 8.3 | % | (160.3) | (71.4) | % | ||||||||||||||||||||||||||
| Provision for income taxes | 22.2 | 1.0 | % | 52.4 | 1.9 | % | (30.3) | (57.7) | % | ||||||||||||||||||||||||||
| Net income | $ | 42.1 | 1.9 | % | $ | 172.1 | 6.3 | % | $ | (130.0) | (75.5) | % | |||||||||||||||||||||||
| Diluted earnings per share | $ | 1.40 | $ | 4.95 | $ | (3.55) | (71.7) | % | |||||||||||||||||||||||||||
| Diluted weighted average shares outstanding | 30.6 | 35.5 | (4.9) | (13.8) | % | ||||||||||||||||||||||||||||||
(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.
NM: Not meaningful.
Net revenues decreased primarily due to product mix and lower volume related to market conditions.
Gross profit as a percentage of revenue decreased primarily due to deleverage, higher warranty expense due to a favorable prior year trend and operational efficiency challenges, partially offset by cost containment efforts.
Operating expenses increased primarily due to increased amortization related to Lithionics intangible assets and strategic investments, partially offset by lower incentive-based compensation.
Interest expense, net decreased primarily due to higher interest income on short-term investments as a result of increased interest rates.
The loss on note repurchase recorded in the nine months ended May 25, 2024 is related to the refinancing of the 2025 Convertible Notes. Refer to 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 further information.
Our effective tax rate increased primarily due to the impact of the non-deductible loss on note repurchase.
28
Non-GAAP Reconciliation
The following table reconciles net income to consolidated EBITDA and Adjusted EBITDA for the nine months ended May 25, 2024 and May 27, 2023:
| Nine Months Ended | |||||||||||
| (in millions) | May 25, 2024 | May 27, 2023 | |||||||||
| Net income | $ | 42.1 | $ | 172.1 | |||||||
| Interest expense, net | 15.2 | 16.4 | |||||||||
| Provision for income taxes | 22.2 | 52.4 | |||||||||
| Depreciation | 25.5 | 20.9 | |||||||||
| Amortization | 16.9 | 12.0 | |||||||||
| EBITDA | 121.9 | 273.8 | |||||||||
| Acquisition-related costs | 1.5 | 5.6 | |||||||||
| Change in fair value of note receivable | 3.0 | — | |||||||||
| Contingent consideration fair value adjustment | 1.1 | 2.0 | |||||||||
| Loss on note repurchase | 32.7 | — | |||||||||
| Non-operating loss | 1.7 | 0.4 | |||||||||
| Adjusted EBITDA | $ | 161.9 | $ | 281.8 | |||||||
29
Reportable Segment Performance Summary
Towable RV
The following is an analysis of key changes in our Towable RV segment for the nine months ended May 25, 2024 compared to the nine months ended May 27, 2023:
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| (in millions, except ASP and units) | May 25, 2024 | % of Revenues(1) | May 27, 2023 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 1,001.8 | $ | 1,073.9 | $ | (72.1) | (6.7) | % | |||||||||||||||||||||||||||
| Adjusted EBITDA | 101.8 | 10.2 | % | 129.4 | 12.0 | % | (27.5) | (21.3) | % | ||||||||||||||||||||||||||
ASP(2) | $ | 41,841 | $ | 46,018 | $ | (4,177) | (9.1) | % | |||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| Unit deliveries | May 25, 2024 | Product Mix(3) | May 27, 2023 | Product Mix(3) | Unit Change | % Change | |||||||||||||||||||||||||||||
| Travel trailer | 15,987 | 67.0 | % | 16,049 | 68.8 | % | (62) | (0.4) | % | ||||||||||||||||||||||||||
| Fifth wheel | 7,869 | 33.0 | % | 7,293 | 31.2 | % | 576 | 7.9 | % | ||||||||||||||||||||||||||
| Total Towable RV | 23,856 | 100.0 | % | 23,342 | 100.0 | % | 514 | 2.2 | % | ||||||||||||||||||||||||||
| May 25, 2024 | May 27, 2023 | $ Change(1) | % Change(1) | ||||||||||||||||||||||||||||||||
Backlog(4) | |||||||||||||||||||||||||||||||||||
| Units | 4,734 | 5,297 | (563) | (10.6) | % | ||||||||||||||||||||||||||||||
| Dollars | $ | 153.1 | $ | 236.0 | $ | (82.9) | (35.1) | % | |||||||||||||||||||||||||||
| Dealer Inventory | |||||||||||||||||||||||||||||||||||
| Units | 18,110 | 20,218 | (2,108) | (10.4) | % | ||||||||||||||||||||||||||||||
(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) 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 an increase in unit volume.
Adjusted EBITDA margin decreased primarily due to deleverage and higher warranty expense due to a favorable prior year trend, partially offset by lower discounts and allowances.
Backlog decreased due to current market conditions and a cautious dealer network.
30
Motorhome RV
The following is an analysis of key changes in our Motorhome RV segment for the nine months ended May 25, 2024 compared to the nine months ended May 27, 2023:
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| (in millions, except ASP and units) | May 25, 2024 | % of Revenues(1) | May 27, 2023 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 971.8 | $ | 1,242.4 | $ | (270.6) | (21.8) | % | |||||||||||||||||||||||||||
| Adjusted EBITDA | 60.7 | 6.2 | % | 119.6 | 9.6 | % | (59.0) | (49.3) | % | ||||||||||||||||||||||||||
ASP(2) | $ | 189,356 | $ | 182,326 | $ | 7,030 | 3.9 | % | |||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| Unit deliveries | May 25, 2024 | Product Mix(3) | May 27, 2023 | Product Mix(3) | Unit Change | % Change | |||||||||||||||||||||||||||||
| Class A | 1,269 | 24.3 | % | 1,734 | 25.5 | % | (465) | (26.8) | % | ||||||||||||||||||||||||||
| Class B | 1,815 | 34.8 | % | 3,233 | 47.5 | % | (1,418) | (43.9) | % | ||||||||||||||||||||||||||
| Class C | 2,128 | 40.8 | % | 1,837 | 27.0 | % | 291 | 15.8 | % | ||||||||||||||||||||||||||
| Total Motorhome RV | 5,212 | 100.0 | % | 6,804 | 100.0 | % | (1,592) | (23.4) | % | ||||||||||||||||||||||||||
| May 25, 2024 | May 27, 2023 | $ Change(1) | % Change(1) | ||||||||||||||||||||||||||||||||
Backlog(4) | |||||||||||||||||||||||||||||||||||
| Units | 1,596 | 4,595 | (2,999) | (65.3) | % | ||||||||||||||||||||||||||||||
| Dollars | $ | 354.9 | $ | 800.4 | $ | (445.5) | (55.7) | % | |||||||||||||||||||||||||||
| Dealer Inventory | |||||||||||||||||||||||||||||||||||
| Units | 4,386 | 4,544 | (158) | (3.5) | % | ||||||||||||||||||||||||||||||
(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, partially offset by price increases related to higher motorized chassis cost.
Adjusted EBITDA margin decreased due to deleverage, higher discounts and allowances, higher warranty expense and operational efficiency challenges, partially offset by cost containment efforts.
Backlog decreased due to current 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 nine months ended May 25, 2024 compared to the nine months ended May 27, 2023:
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| (in millions, except ASP and units) | May 25, 2024 | % of Revenues(1) | May 27, 2023 | % of Revenues(1) | $ Change(1) | % Change(1) | |||||||||||||||||||||||||||||
| Net revenues | $ | 245.0 | $ | 373.3 | $ | (128.3) | (34.4) | % | |||||||||||||||||||||||||||
| Adjusted EBITDA | 20.1 | 8.2 | % | 50.2 | 13.5 | % | (30.2) | (60.0) | % | ||||||||||||||||||||||||||
ASP(2) | $ | 80,819 | $ | 82,582 | $ | (1,763) | (2.1) | % | |||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| Unit deliveries | May 25, 2024 | May 27, 2023 | Unit Change | % Change | |||||||||||||||||||||||||||||||
| Boats | 3,107 | 4,552 | (1,445) | (31.7) | % | ||||||||||||||||||||||||||||||
| May 25, 2024 | May 27, 2023 | $ Change(1) | % Change(1) | ||||||||||||||||||||||||||||||||
Backlog(3) | |||||||||||||||||||||||||||||||||||
| Units | 642 | 1,348 | (706) | (52.4) | % | ||||||||||||||||||||||||||||||
| Dollars | $ | 62.0 | $ | 146.3 | $ | (84.3) | (57.6) | % | |||||||||||||||||||||||||||
Dealer Inventory(4) | |||||||||||||||||||||||||||||||||||
| Units | 3,400 | 4,109 | (709) | (17.3) | % | ||||||||||||||||||||||||||||||
(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 product mix.
Adjusted EBITDA margin decreased due to deleverage and operational efficiency challenges, partially offset by lower incentive-based compensation.
Backlog decreased primarily driven by a cautious dealer network.
Analysis of Financial Condition, Liquidity, and Resources
Cash Flows
The following table summarizes our cash flows from operations:
| Nine Months Ended | |||||||||||
| (in millions) | May 25, 2024 | May 27, 2023 | |||||||||
| Total cash provided by (used in): | |||||||||||
| Operating activities | $ | 103.2 | $ | 156.4 | |||||||
| Investing activities | (36.4) | (154.4) | |||||||||
| Financing activities | (58.6) | (58.3) | |||||||||
| Net decrease in cash and cash equivalents | $ | 8.2 | $ | (56.3) | |||||||
Operating Activities
During the nine months ended May 25, 2024, net cash provided by operating activities was $103.2 million compared to net cash provided by operating activities of $156.4 million in the same period last year. The decrease in operating cash flow is primarily driven by lower profitability adjusted for non-cash items and an increase in accounts receivable due to timing of invoicing and
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collections, partially offset by favorable changes in accounts payable due to lower purchasing requirements and timing of payments.
Investing Activities
Cash used in investing activities decreased primarily due to our acquisition of Lithionics during the third quarter of Fiscal 2023 and elevated capital expenditures in the first nine months of Fiscal 2023 to support operational expansion and organic growth.
Financing Activities
Cash used in financing activities increased primarily due to higher share repurchases compared to prior year, partially offset by $39.1 million of net cash proceeds related to the debt refinancing.
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 May 25, 2024, we had no borrowings against the ABL Credit Facility.
As of May 25, 2024, we had $318.1 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 2030 Convertible Notes, the 2025 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 May 25, 2024 and August 26, 2023 was $581.9 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 nine months ended May 25, 2024, we repurchased approximately 989,000 shares of our own common stock at a cost of $60.0 million under this authorization, and approximately 74,000 shares at a cost of $4.3 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 May 25, 2024, we have $240.0 million remaining on our Board approved repurchase authorization.
On May 15, 2024, our Board of Directors approved a quarterly cash dividend of $0.31 per share payable on June 26, 2024, to common stockholders of record at the close of business on June 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.
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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.
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 2025 Convertible Notes, 2030 Convertible Notes 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 May 25, 2024.
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.
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Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the third 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 third quarter of Fiscal 2024 are as follows:
| Period | Total Number of Shares Purchased(1,2) | Average Price Paid per Share | Total 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) | |||||||||||||||||||
| 2/25/24 - 3/30/24 | 357 | $ | 72.01 | — | $ | 260.0 | |||||||||||||||||
| 3/31/24 - 4/27/24 | — | — | — | 260.0 | |||||||||||||||||||
| 4/28/24 - 5/25/24 | 319,166 | 62.84 | 318,275 | 240.0 | |||||||||||||||||||
| Total | 319,523 | $ | 62.85 | 318,275 | $ | 240.0 | |||||||||||||||||
(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 quarter ended May 25, 2024, 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: | June 20, 2024 | By: | /s/ Michael J. Happe | |||||||||||
Michael J. Happe | ||||||||||||||
| Chief Executive Officer, President | ||||||||||||||
| (Principal Executive Officer) | ||||||||||||||
| Date: | June 20, 2024 | By: | /s/ Bryan L. Hughes | |||||||||||
| Bryan L. Hughes | ||||||||||||||
| Chief Financial Officer and Senior Vice President | ||||||||||||||
| (Principal Financial and Accounting Officer) | ||||||||||||||
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