2013 Q3 10Q

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 10-Q
 

(Mark One)
 
 
 
 
x 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the quarterly period ended June 1, 2013
 
or
 
 
 
 
o
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: 001-06403
 
WINNEBAGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Iowa
 
 
42-0802678
(State or other jurisdiction of incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
 
 
 
 
P. O. Box 152, Forest City, Iowa
 
 
50436
(Address of principal executive offices)
 
 
(Zip Code)
 
 
 
 
 
 
 
(641) 585-3535
 
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer  x
 
 Non-accelerated filer o
 
 Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of common stock, par value $0.50 per share, outstanding June 27, 2013 was 27,922,110.
 



Winnebago Industries, Inc.
Table of Contents

 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 2.
Item 6.


Table of Contents

Glossary


The following terms and abbreviations appear in the text of this report and are defined as follows:
AOCI
Accumulated Other Comprehensive Income (Loss)
ARS
Auction Rate Securities
ASC
Accounting Standards Codification
ASP
Average Sales Price
ASU
Accounting Standards Update
COLI
Company Owned Life Insurance
Credit Agreement
Credit Agreement dated as of October 31, 2012 by and between Winnebago Industries, Inc. and Winnebago of Indiana, LLC, as Borrowers, and General Electric Capital Corporation, as Agent
DCF
Discounted Cash Flow
FASB
Financial Accounting Standards Board
FIFO
First In, First Out
GAAP
Generally Accepted Accounting Principles
GECC
General Electric Capital Corporation
IRS
Internal Revenue Service
LIBOR
London Interbank Offered Rate
LIFO
Last In, First Out
Loan Agreement
Loan and Security Agreement dated October 13, 2009 by and between Winnebago Industries, Inc. and Wells Fargo Bank, National Association, as successor to Burdale Capital Finance, Inc., as Agent
NMF
Non-Meaningful Figure
NYSE
New York Stock Exchange
RV
Recreation Vehicle
RVIA
Recreation Vehicle Industry Association
SEC
U.S. Securities and Exchange Commission
SERP
Supplemental Executive Retirement Plan
Stat Surveys
Statistical Surveys, Inc.
SunnyBrook
SunnyBrook RV, Inc.
Towables
Winnebago of Indiana, LLC, a wholly-owned subsidiary of Winnebago Industries, Inc.
US
United States of America
XBRL
eXtensible Business Reporting Language



1
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Winnebago Industries, Inc.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)

 
Quarter Ended
 
Nine Months Ended
(In thousands, except per share data)
June 1,
2013
 
May 26,
2012
 
June 1,
2013
 
May 26,
2012
Net revenues
$
218,199

 
$
155,709

 
$
588,919

 
$
419,146

Cost of goods sold
197,002

 
143,638

 
529,784

 
391,733

Gross profit
21,197

 
12,071

 
59,135

 
27,413

Operating expenses:
 
 
 
 
 
 
 
Selling
4,857

 
4,331

 
13,649

 
12,485

General and administrative
6,092

 
4,213

 
16,392

 
11,938

Loss on sale of asset held for sale
—

 
—

 
28

 
—

Total operating expenses
10,949

 
8,544

 
30,069

 
24,423

Operating income
10,248

 
3,527

 
29,066

 
2,990

Non-operating income
144

 
402

 
739

 
549

Income before income taxes
10,392

 
3,929

 
29,805

 
3,539

Provision (benefit) for taxes
2,731

 
(12
)
 
8,468

 
(525
)
Net income
$
7,661

 
$
3,941

 
$
21,337

 
$
4,064

 
 
 
 
 
 
 
 
Income per common share:
 
 
 
 
 
 
 
Basic
$
0.27

 
$
0.13

 
$
0.76

 
$
0.14

Diluted
$
0.27

 
$
0.13

 
$
0.76

 
$
0.14

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
27,987

 
29,225

 
28,128

 
29,171

Diluted
28,087

 
29,263

 
28,218

 
29,243

 
 
 
 
 
 
 
 
Net income
$
7,661

 
$
3,941

 
$
21,337

 
$
4,064

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Amortization of prior service credit
  (net of tax of $514, $(803), $1,430 and $0)
(853
)
 
(2,024
)
 
(2,373
)
 
(3,371
)
Amortization of net actuarial loss
  (net of tax of $(90), $(184), $206 and $0)
503

 
448

 
1,006

 
768

Plan amendment
  (net of tax of $0, $0, $1,613 and $0)
—

 
—

 
2,676

 
4,598

Unrealized appreciation (depreciation) of investments
  (net of tax of $(96), $212, $(63) and $202)
160

 
(351
)
 
104

 
(335
)
Total other comprehensive (loss) income
(190
)
 
(1,927
)
 
1,413

 
1,660

Comprehensive income
$
7,471

 
$
2,014

 
$
22,750

 
$
5,724


See notes to consolidated financial statements.



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Table of Contents

Winnebago Industries, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data)
June 1,
2013
 
August 25,
2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
42,422

 
$
62,683

Short-term investments
4,605

 
—

Receivables, less allowance for doubtful accounts ($234 and $175)
31,421

 
22,726

Inventories
112,951

 
87,094

Prepaid expenses and other assets
6,718

 
4,509

Income taxes receivable and prepaid
2,416

 
1,603

Deferred income taxes
10,515

 
8,453

Total current assets
211,048

 
187,068

Property, plant and equipment, net
20,158

 
19,978

Assets held for sale
—

 
550

Long-term investments
4,385

 
9,074

Investment in life insurance
24,826

 
23,127

Deferred income taxes
28,112

 
30,520

Goodwill
1,228

 
1,228

Amortizable intangible assets
577

 
641

Other assets
12,537

 
13,886

Total assets
$
302,871

 
$
286,072

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
28,398

 
$
24,920

Income taxes payable
—

 
348

Accrued expenses:
 
 
 
Accrued compensation
19,961

 
16,038

Product warranties
8,441

 
6,990

Self-insurance
4,868

 
4,137

Accrued loss on repurchases
1,250

 
627

Promotional
2,239

 
2,661

Other
4,329

 
5,297

Total current liabilities
69,486

 
61,018

Total long-term liabilities:
 
 
 
Unrecognized tax benefits
4,931

 
5,228

Postretirement health care and deferred compensations benefits
70,354

 
75,135

Total long-term liabilities
75,285

 
80,363

Contingent liabilities and commitments


 


Stockholders' equity:
 
 
 
Capital stock common, par value $0.50;
   authorized 60,000 shares, issued 51,776 shares
25,888

 
25,888

Additional paid-in capital
28,960

 
28,496

Retained earnings
498,827

 
477,490

Accumulated other comprehensive loss
(2,273
)
 
(3,686
)
Treasury stock, at cost (23,854 and 23,122 shares)
(393,302
)
 
(383,497
)
Total stockholders' equity
158,100

 
144,691

Total liabilities and stockholders' equity
$
302,871

 
$
286,072


See notes to consolidated financial statements.

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Winnebago Industries, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended
(In thousands)
June 1,
2013
 
May 26,
2012
Operating activities:
 
 
 
Net income
$
21,337

 
$
4,064

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
3,190

 
3,786

LIFO expense
438

 
844

Stock-based compensation
1,258

 
863

Deferred income taxes including valuation allowance
(1,243
)
 
(753
)
Postretirement benefit income and deferred compensation expense
259

 
510

Provision for doubtful accounts
62

 
28

(Gain) loss on disposal of property
(34
)
 
20

Gain on life insurance
(536
)
 
(281
)
Increase in cash surrender value of life insurance policies
(853
)
 
(523
)
Other
—

 
579

Change in assets and liabilities:
 
 
 
Inventories
(26,295
)
 
(1,283
)
Receivables, prepaid and other assets
(10,819
)
 
1,893

Income taxes and unrecognized tax benefits
(234
)
 
105

Accounts payable and accrued expenses
9,895

 
4,950

Postretirement and deferred compensation benefits
(3,359
)
 
(3,053
)
Net cash (used in) provided by operating activities
(6,934
)
 
11,749

 
 
 
 
Investing activities:
 
 
 
Proceeds from the sale of investments, at par
250

 
750

Proceeds from life insurance
1,004

 
1,404

Purchases of property and equipment
(3,322
)
 
(1,527
)
Proceeds from the sale of property
637

 
16

Repayments of COLI borrowings
(1,371
)
 
—

Other
692

 
(558
)
Net cash (used in) provided by investing activities
(2,110
)
 
85

 
 
 
 
Financing activities:
 
 
 
Payments for purchases of common stock
(11,123
)
 
(343
)
Other
(94
)
 
33

Net cash used in financing activities
(11,217
)
 
(310
)
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(20,261
)
 
11,524

Cash and cash equivalents at beginning of period
62,683

 
69,307

Cash and cash equivalents at end of period
$
42,422

 
$
80,831

 
 
 
 
Supplement cash flow disclosure:
 
 
 
Income taxes paid, net of refunds
$
9,946

 
$
115


See notes to consolidated financial statements.

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Winnebago Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Note 1: Basis of Presentation
The "Company," "we," "our" and "us" are used interchangeably to refer to Winnebago Industries, Inc. and its subsidiary, Winnebago of Indiana, LLC, as appropriate in the context.

We were incorporated under the laws of the state of Iowa on February 12, 1958 and adopted our present name on February 28, 1961. Our executive offices are located at 605 West Crystal Lake Road in Forest City, Iowa. Our telephone number is (641) 585-3535; our website is www.winnebagoind.com. Our common stock trades on the NYSE under the symbol “WGO”.

In our opinion, the accompanying condensed unaudited consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly our consolidated financial position as of June 1, 2013 and the consolidated results of operations and comprehensive income and consolidated cash flows for the first nine months of Fiscal 2013 and 2012. The consolidated statement of operations and comprehensive income for the first nine months of Fiscal 2013 is not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet data as of August 25, 2012 was derived from audited financial statements, but does not include all of the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended August 25, 2012.

Fiscal Period
We follow a 52-/53-week fiscal year, ending the last Saturday in August. Fiscal 2013 is a 53-week fiscal year; the first quarter ending December 1, 2012 was a 14-week quarter, and the nine months ending June 1, 2013 had 40 weeks. Fiscal 2012 was a 52‑week year; the first quarter ending November 26, 2011 was a 13-week quarter, and the nine months ending May 26, 2012 had 39 weeks.

New Accounting Pronouncements
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which revised the manner in which entities present comprehensive income in their financial statements. Specifically, the new guidance requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate but consecutive statements. While the new guidance changed the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011 (our Fiscal 2013). We adopted this guidance as of August 26, 2012, and have presented total comprehensive income in our Unaudited Consolidated Statements of Operations and Comprehensive Income.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which simplified the manner in which entities test goodwill for impairment. After assessment of certain qualitative factors, if it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount, entities must perform a quantitative analysis of the goodwill impairment test. Otherwise, the quantitative test becomes optional. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011 (our Fiscal 2013). We do not believe that the adoption of this ASU will have a significant impact on our consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which expands the presentation of changes in AOCI. The new guidance requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the net income statement or as a separate disclosure in the notes. ASU 2013-02 is effective for fiscal years beginning after December 15, 2012 (our Fiscal 2014). We do not believe that the adoption of this ASU will have a significant impact on our consolidated financial statements.

Note 2: Concentration Risk

One of our dealer organizations accounted for 26.9% and 26.1% of our consolidated net revenue for the first nine months of Fiscal 2013 and Fiscal 2012, respectively. A second dealer organization, accounted for 13.6% and 8.8% of our consolidated net revenue for the first nine months of Fiscal 2013 and Fiscal 2012, respectively. The loss of these dealer organizations could have a significant adverse effect on our business. In addition, deterioration in the liquidity or creditworthiness of these dealers could negatively impact our sales and could trigger repurchase obligations under our repurchase agreements.

Note 3: Fair Value Measurements
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
We account for fair value measurements in accordance with ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurement. The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value

5
Table of Contents

fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

Cash Equivalents
The carrying value of cash equivalents approximates fair value as original maturities are less than three months. Our cash equivalents are comprised of money market funds traded in an active market with no restrictions.

The following tables set forth by level within the fair value hierarchy our financial assets that were accounted for at fair value on a recurring basis at June 1, 2013 and August 25, 2012 according to the valuation techniques we used to determine their fair values:
 
 
Fair Value at
June 1,
2013
 
Fair Value Measurements
Using Inputs Considered As
(In thousands)
 
 
Level 1 Quoted Prices in Active Markets for Identical Assets
 
Level 2 Significant Other
Observable Inputs
 
Level 3 Significant
Unobservable Inputs
Short-term investments:
 
 
 
 
 
 
 
 
  Student loan ARS with pending redemption
 
$
4,605

 
$
—

 
$
4,605

 
$
—

Long-term investments:
 
 
 
 
 
 
 
 
  Student loan ARS
 
4,385

 
—

 
—

 
4,385

Assets that fund deferred compensation:
 
 
 
 
 
 
 
 
  Domestic equity funds
 
7,171

 
7,171

 
—

 
—

  International equity funds
 
805

 
805

 
—

 
—

  Fixed income funds
 
387

 
387

 
—

 
—

Total assets at fair value
 
$
17,353

 
$
8,363

 
$
4,605

 
$
4,385


 
 
Fair Value at
August 25,
2012
 
Fair Value Measurements
Using Inputs Considered As
(In thousands)
 
 
Level 1 Quoted Prices in Active Markets for Identical Assets
 
Level 2 Significant Other
Observable Inputs
 
Level 3 Significant
Unobservable Inputs
Long-term investments:
 
 
 
 
 
 
 
 
  Student loan ARS
 
$
9,074

 
$
—

 
$
—

 
$
9,074

Assets that fund deferred compensation:
 
 
 
 
 
 
 
 
  Domestic equity funds
 
7,924

 
7,924

 
—

 
—

  International equity funds
 
957

 
957

 
—

 
—

  Fixed income funds
 
487

 
487

 
—

 
—

Total assets at fair value
 
$
18,442

 
$
9,368

 
$
—

 
$
9,074


The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3):
 
 
Quarter Ended
 
Nine Months Ended
(In thousands)
 
June 1,
2013
 
May 26,
2012
 
June 1,
2013
 
May 26,
2012
Balance at beginning of period
 
$
8,735

 
$
9,903

 
$
9,074

 
$
10,627

Transfer to Level 2
 
(4,605
)
 
(250
)
 
(4,855
)
 
(500
)
Net change included in other comprehensive income
 
255

 
(562
)
 
166

 
(536
)
Sales
 
—

 
—

 
—

 
(500
)
Balance at end of period
 
$
4,385

 
$
9,091

 
$
4,385

 
$
9,091


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The following table presents quantitative information regarding unobservable inputs that were significant to the valuation of assets measured at fair value on a recurring basis at June 1, 2013 using Level 3 inputs:
 
 
 
 
 
 
 
 
Range
(In thousands)
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Low
 
High
Student loan ARS
 
$
4,385

 
DCF
 
Projected ARS yield
 
1.92%
 
2.03%
 
 
 
 
 
 
Discount for lack of marketability
 
2.94%
 
3.70%
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Long-Term and Short-Term Investments
Our long-term and short-term investments are comprised of ARS. Our long-term ARS investments are classified as Level 3, as quoted prices were unavailable due to events described in Note 4. Due to limited market information, we utilized a DCF model to derive an estimate of fair value for the ARS at June 1, 2013. The assumptions used in preparing the DCF model included estimates with respect to the amount and timing of future interest and principal payments, forward projections of the interest rate benchmarks, the probability of full repayment of the principal considering the credit quality and guarantees in place and the rate of return required by investors to own such securities given the current liquidity risk associated with ARS. All of our short-term ARS portfolio is classified as Level 2 as they are also in an inactive market, but inputs other than quoted prices were observable and used to value the securities.
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. They are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. These securities fund the Executive Share Option Plan (see Note 10), a deferred compensation program, and are presented as other assets in the accompanying balance sheets.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Our non-financial assets, which include goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, we must evaluate the non-financial asset for impairment. If an impairment did occur, the asset is required to be recorded at the estimated fair value. During the first nine months of Fiscal 2013, no impairments were recorded for non-financial assets.

Note 4: Investments
We own investments in marketable securities that have been designated as "available for sale" in accordance with ASC 320, Investments - Debt and Equity Securities. Available for sale securities are carried at fair value with the unrealized gains and losses reported in AOCI, a component of stockholders' equity.

At June 1, 2013, we held $9.4 million (par value) of tax-exempt ARS, which are variable-rate debt securities and have a long-term maturity with the interest rate being reset through Dutch auctions that are typically held every 7, 28 or 35 days. Prior to February 2008, these securities traded at par and are callable at par at the option of the issuer. Interest is typically paid at the end of each auction period or semiannually. The ARS we hold are rated AAA by Standard & Poor's Ratings Services and AAA to A by Fitch Ratings, and are collateralized by student loans guaranteed by the US Government under the Federal Family Education Loan Program. 

Since February 2008, most ARS auctions have failed and there is no assurance that future auctions for our ARS will succeed. As a result, our ability to liquidate our investment and fully recover the par value in the near term may be limited or nonexistent. We have no reason to believe that any of the underlying issuers of our ARS are presently at risk of default. We have continued to receive interest payments on the ARS in accordance with their terms. We believe we will ultimately be able to liquidate our ARS related investments without significant loss primarily due to the collateral securing the ARS, but also due to the partial redemptions we have received over the last five fiscal years at par value. However, redemption could take until final maturity of the ARS (up to 29 years) to realize the par value of our investments. On June 5, 2013 we received a partial redemption on one of our ARS holdings of $150,000 at par. In May 2013 we entered into an agreement to sell $4.5 million of our ARS holdings at 99% of par value; this sale was finalized on June 12, 2013. Due to these two events, we have classified $4.6 million as short-term investments at June 1, 2013. We believe the recovery period for the remaining portfolio of ARS investments is likely to be longer than 12 months and as a result, we have classified our $4.8 million (par value) of these investments as long-term as of June 1, 2013.

At June 1, 2013, there was insufficient observable ARS market information available to determine the fair value of our ARS investments. Therefore, we estimated fair value by incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions included credit quality, final stated maturities, estimates on the probability of the issue being called prior to final maturity, impact due to extended periods of maximum auction rates and broker quotes from independent evaluators. Based on this analysis, we recorded an unrealized temporary impairment of $409,000 in AOCI before tax considerations related to our ARS investments of $9.4 million (par value) at June 1, 2013.


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Note 5: Inventories
Inventories consist of the following:
(In thousands)
 
June 1,
2013
 
August 25,
2012
Finished goods
 
$
50,781

 
$
30,054

Work-in-process
 
48,300

 
45,240

Raw materials
 
45,332

 
42,824

Total
 
144,413

 
118,118

LIFO reserve
 
(31,462
)
 
(31,024
)
Total inventories
 
$
112,951

 
$
87,094

The above value of inventories, before reduction for the LIFO reserve, approximates replacement cost. Of the $144.4 million and $118.1 million inventory at June 1, 2013 and August 25, 2012, respectively, $137.2 million and $110.1 million is valued on a LIFO basis. Towables inventory of $7.2 million and $8.0 million at June 1, 2013 and August 25, 2012, respectively, is valued on a FIFO basis.

Note 6: Property, Plant and Equipment and Assets Held for Sale
Property, plant and equipment is stated at cost, net of accumulated depreciation and consists of the following:
(In thousands)
 
June 1,
2013
 
August 25,
2012
Land
 
$
757

 
$
757

Buildings and building improvements
 
50,428

 
49,641

Machinery and equipment
 
90,671

 
90,775

Transportation
 
8,864

 
8,858

Total property, plant and equipment, gross
 
150,720

 
150,031

Less accumulated depreciation
 
(130,562
)
 
(130,053
)
Total property, plant and equipment, net
 
$
20,158

 
$
19,978


Assets Held for Sale
During the first quarter of Fiscal 2013, an idled fiberglass facility in Hampton, Iowa classified as held for sale, was sold. The sale was finalized on August 30, 2012 and generated $550,000 in gross proceeds, selling costs of $28,000 and a loss of $28,000.

Note 7: Goodwill and Amortizable Intangible Assets

Goodwill and intangible assets are the result of the acquisition of SunnyBrook during Fiscal 2011. Goodwill of $1.2 million is not subject to amortization for financial statement purposes, but is amortizable for tax return purposes. Amortizable intangible assets are amortized on a straight-line basis. The weighted average remaining amortization period at June 1, 2013 is 7.3 years.

Goodwill is reviewed for impairment annually or whenever events or circumstances indicate a potential impairment. Intangible assets are also subject to impairment tests whenever events or circumstances indicate that the asset's carrying value may exceed its estimated fair value, at which time an impairment would be recorded.

Amortizable intangible assets consist of the following:
 
 
June 1, 2013
 
August 25, 2012
(In thousands)
 
Cost
 
Accumulated Amortization
 
Cost
 
Accumulated Amortization
Dealer network
 
$
534

 
$
129

 
$
534

 
$
88

Trademarks
 
196

 
47

 
196

 
32

Non-compete agreement
 
40

 
17

 
40

 
10

Total
 
$
770

 
$
193

 
$
770

 
$
130



8
Table of Contents

Estimated amortization expense of intangible assets for next five fiscal years is as follows:
(In thousands)
 
Amount
Year Ended:
2014
 
$
86

 
2015
 
77

 
2016
 
73

 
2017
 
73

 
2018
 
73


Note 8: Credit Facilities
On October 13, 2012, we terminated our Loan Agreement with Wells Fargo Bank, National Association in accordance with its terms. There was no termination fee associated with this agreement, and no borrowings had been made.
On October 31, 2012, we entered into the Credit Agreement with GECC. The Credit Agreement provides for an initial $35.0 million revolving credit facility based on the Company's eligible inventory and expires on October 31, 2015, unless terminated earlier in accordance with its terms. There is no termination fee associated with the Credit Agreement.
The Credit Agreement contains no financial covenant restrictions for borrowings where we have excess borrowing availability under the facility of greater than $5.0 million. The Credit Agreement requires us to comply with a fixed charge ratio if excess borrowing availability under the facility is less than $5.0 million or if we repurchase more than $25.0 million of company stock within the first twelve months of the date of the Credit Agreement. In addition the Credit Agreement also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable terms at the time of the expansion. Interest on loans made under the new facility will be based on LIBOR plus a margin of 3.0%. The initial unused line fee associated with the Credit Agreement is 0.5% per annum and has the ability to be lowered based upon facility usage.
The Credit Agreement contains typical affirmative representations and covenants for a credit agreement of this size and nature. Additionally, the Credit Agreement contains negative covenants limiting our ability, among other things, to incur debt, grant liens, make acquisitions, make certain investments, pay certain dividends and distributions, engage in mergers, consolidations or acquisitions and sell certain assets. Obligations under the Credit Agreement are secured by a security interest in all of our accounts and other receivables, chattel paper, documents, deposit accounts, instruments, equipment, inventory, investment property, leasehold interest, cash and cash equivalents, letter-of-credit rights, most real property and fixtures and certain other business assets.
As of the date of this report, we are in compliance with all terms of the Credit Agreement, and no borrowings have been made thereunder.
Note 9: Warranty

We provide our motorhome customers a comprehensive 12-month/15,000-mile warranty on our Class A, B and C motorhomes, and a 3-year/36,000-mile structural warranty on Class A and C sidewalls and floors. We provide a comprehensive 12-month warranty on all towable products. We have also incurred costs for certain warranty-type expenses which occurred after the normal warranty period. We have voluntarily agreed to pay such costs to help protect the reputation of our products and the goodwill of our customers. Estimated costs related to product warranty are accrued at the time of sale and are based upon past warranty claims and unit sales history and adjusted as required to reflect actual costs incurred, as information becomes available. A significant increase in dealership labor rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize. We also incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions. Estimated costs are accrued at the time the service action is implemented and are based upon past claim rate experiences and the estimated cost of the repairs.

Changes in our product warranty liability are as follows:
 
 
Quarter Ended
 
Nine Months Ended
(In thousands)
 
June 1,
2013
 
May 26,
2012
 
June 1,
2013
 
May 26,
2012
Balance at beginning of period
 
$
8,065

 
$
6,530

 
$
6,990

 
$
7,335

Provision
 
2,118

 
1,645

 
7,032

 
3,928

Claims paid
 
(1,742
)
 
(1,580
)
 
(5,581
)
 
(4,668
)
Balance at end of period
 
$
8,441

 
$
6,595

 
$
8,441

 
$
6,595



9
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Note 10: Employee and Retiree Benefits
Postretirement health care and deferred compensation benefits are as follows:
(In thousands)
 
June 1,
2013
 
August 25,
2012
Postretirement health care benefit cost
 
$
41,576

 
$
45,132

Non-qualified deferred compensation
 
22,687

 
23,630

Executive share option plan liability
 
7,135

 
7,798

SERP benefit liability
 
3,042

 
3,342

Executive deferred compensation
 
105

 
102

Officer stock-based compensation
 
450

 
—

Total postretirement health care and deferred compensation benefits
 
74,995

 
80,004

Less current portion
 
(4,641
)
 
(4,869
)
Long-term postretirement health care and deferred compensation benefits
 
$
70,354

 
$
75,135

Postretirement Health Care Benefits
We provide certain health care and other benefits for retired employees hired before April 1, 2001, who have fulfilled eligibility requirements at age 55 with 15 years of continuous service. We use a September 1 measurement date for this plan and our postretirement health care plan currently is not funded. Changes in the postretirement benefit plan include:
•
In Fiscal 2005, we established dollar caps on the amount that we will pay for postretirement health care benefits per retiree on an annual basis so that we were not exposed to continued medical inflation. Retirees are required to pay a monthly premium in excess of the employer dollar caps for medical coverage based on years of service and age at retirement.
•
In January 2012 the employer established dollar caps were reduced by 10%, which reduced our liability for postretirement health care by $4.6 million and is being amortized as prior service credit over 7.8 years.
•
In January 2013 the employer established dollar caps were further reduced by 10%, which reduced our liability for postretirement health care by approximately $4.3 million and is being amortized as prior service credit over 7.5 years.

Net periodic postretirement benefit income consisted of the following components:
 
 
Quarter Ended
 
Nine Months Ended
(In thousands)
 
June 1,
2013
 
May 26,
2012
 
June 1,
2013
 
May 26,
2012
Interest cost
 
$
373

 
$
453

 
$
1,136

 
$
1,397

Service cost
 
140

 
132

 
433

 
407

Amortization of prior service benefit
 
(1,366
)
 
(1,221
)
 
(3,803
)
 
(3,372
)
Amortization of net actuarial loss
 
407

 
263

 
1,195

 
766

Net periodic postretirement benefit income
 
$
(446
)
 
$
(373
)
 
$
(1,039
)
 
$
(802
)
 
 
 
 
 
 
 
 
 
Payments for postretirement health care
 
$
271

 
$
297

 
$
836

 
$
916

 
Note 11: Stock-Based Compensation Plans
We have a 2004 Incentive Compensation Plan approved by shareholders (as amended, the "Plan") in place which allows 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.
On October 10, 2012 the Board of Directors granted an aggregate of 155,600 shares of restricted common stock to our key employees and non-employee directors. The value of the restricted stock award is determined using the intrinsic value method which, in this case, is based on the number of shares granted and the closing price of our common stock on the date of grant.
Stock-based compensation expense was $262,000 and $114,000 during the third quarters of Fiscal 2013 and 2012, respectively. Stock-based compensation expense was $1,258,000 and $863,000 during the nine months of Fiscal 2013 and 2012, respectively. Of the $1,258,000 in Fiscal 2013, $852,000 related to the October 10, 2012 grant of 155,600 shares. The remainder is related to the amortization of previously granted restricted stock awards, as well as nonemployee director stock units issued in lieu of their fees. Compensation expense is recognized over the requisite service period of the award or over a period ending with the employee's eligible retirement date, if earlier.
Note 12: Contingent Liabilities and Commitments
Repurchase Commitments
Generally, manufacturers in the RV industry enter into repurchase agreements with lending institutions which have provided wholesale floorplan financing to dealers. Most dealers' RVs are financed on a "floorplan" basis under which a bank or finance

10
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company lends the dealer all, or substantially all, of the purchase price, collateralized by a security interest in the recreation vehicles purchased.
Our repurchase agreements 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 18 months, provide that our liability will be the lesser of remaining principal owed by the dealer or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our contingent liability on these repurchase agreements was approximately $244.9 million and $165.4 million at June 1, 2013 and August 25, 2012, respectively.
In certain instances, we also repurchase inventory from our 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 recreation vehicles to repurchase current inventory if a dealership exits the business. Incremental repurchase exposure beyond existing repurchase agreements, related to dealer inventory in states that we have had historical experience of repurchasing inventory, totaled $7.4 million and $5.0 million at June 1, 2013 and August 25, 2012, respectively.
Our risk of loss related to our 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 reporting date subject to a repurchase agreement, net of the greater of periodic reductions per the agreement or dealer principal payments. Based on the repurchase exposure as previously described, we established an associated loss reserve. Our accrued losses on repurchases were $1.3 million as of June 1, 2013 and $627,000 as of August 25, 2012.
A summary of repurchase activity is as follows:
 
 
Quarter Ended
 
Nine Months Ended
(Dollars in thousands)
 
June 1,
2013
 
May 26,
2012
 
June 1,
2013
 
May 26,
2012
Inventory repurchased:
 
 
 
 
 
 
 
 
Units
 
13

 
1

 
13

 
18

Dollars
 
$
260

 
$
16

 
$
260

 
$
1,264

Inventory resold:
 
 
 
 
 
 
 
 
Units
 
13

 
1

 
13

 
18

Cash collected
 
$
207

 
$
11

 
$
207

 
$
1,113

Loss recognized
 
$
53

 
$
5

 
$
53

 
$
151

Units in ending inventory
 
—

 
—

 
—

 
—


We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our loss reserve for repurchase commitments. A hypothetical change of a 10% increase or decrease in our significant repurchase commitment assumptions at June 1, 2013 would have affected net income by approximately $270,000.

Litigation
We are involved in various legal proceedings which are ordinary routine litigation incidental to our business, some of which are covered in whole or in part by insurance. We believe while the final resolution of any such litigation may have an impact on our results for a particular reporting period, the ultimate disposition of such litigation will not have any material adverse effect on our financial position, results of operations or liquidity.
Note 13: Income Taxes
We account for income taxes under ASC 740, Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.

Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. Valuation allowances arise due to uncertainty of realizing deferred tax assets. ASC 740 requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, using a “more-likely-than-not” standard. In making such assessments, significant weight is given to evidence that can be objectively verified. A company's current or previous losses are given more weight than its future outlook. Based on ASC 740 guidelines, as of June 1, 2013 and August 25, 2012, we have applied a valuation allowance of $1.8 million and $1.6 million, respectively, against our deferred tax assets. We will continue to assess the likelihood that our deferred tax assets will be realizable at each reporting period and our valuation allowance will be adjusted accordingly, which could materially impact our financial position and results of operations.

We file tax returns in the US federal jurisdiction, as well as various international and state jurisdictions. Although certain years are no longer subject to examinations by the IRS and various state taxing authorities, net operating loss carryforwards generated in

11
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those years may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a future period. Due to such carryback claims, our federal returns from Fiscal 2004 to present continue to be subject to review by the IRS. As such, the IRS is currently reviewing our Fiscal 2011 federal tax return. A number of years may elapse before an uncertain tax position is audited and finally resolved, and it is often very difficult to predict the outcome of such audits. Periodically, various state and local jurisdictions conduct audits, therefore, a variety of years are subject to state and local jurisdiction review.

As of June 1, 2013, our unrecognized tax benefits were $4.8 million, of which if realized $3.0 million could have a positive impact on the overall effective tax rate. It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits as tax expense. As of June 1, 2013, we had accrued $2.0 million in interest and penalties which are included in unrecognized tax benefits. We do not anticipate any significant changes in unrecognized tax benefits within the next twelve months. Actual results may differ materially from this estimate.

Note 14: Earnings Per Share
The following table reflects the calculation of basic and diluted income per share:
 
 
Quarter Ended
 
Nine Months Ended
(In thousands, except per share data)
 
June 1,
2013
 
May 26,
2012
 
June 1,
2013
 
May 26,
2012
Income per share - basic
 
 
 
 
 
 
 
 
Net income
 
$
7,661

 
$
3,941

 
$
21,337

 
$
4,064

Weighted average shares outstanding
 
27,987

 
29,225

 
28,128

 
29,171

Net income per share - basic
 
$
0.27

 
$
0.13

 
$
0.76

 
$
0.14

 
 
 
 
 
 
 
 
 
Income per share - assuming dilution
 
 
 
 
 
 
 
 
Net income
 
$
7,661

 
$
3,941

 
$
21,337

 
$
4,064

Weighted average shares outstanding
 
27,987

 
29,225

 
28,128

 
29,171

Dilutive impact of awards and options outstanding
 
100

 
38

 
90

 
72

Weighted average shares and potential dilutive shares outstanding
 
28,087

 
29,263

 
28,218

 
29,243

Net income per share - assuming dilution
 
$
0.27

 
$
0.13

 
$
0.76

 
$
0.14


At the end of the third quarters of Fiscal 2013 and Fiscal 2012, there were options outstanding to purchase 669,494 shares and 772,832 shares, respectively, of common stock at an average price of $29.83 and $29.02, respectively, which were not included in the computation of diluted income per share because they are considered anti-dilutive under the treasury stock method per ASC 260, Earnings Per Share.

Note 15: Subsequent Event

We evaluated all events or transactions occurring between the balance sheet date for the quarterly period ended June 1, 2013 and the date of issuance of the financial statements that would require recognition or disclosure in the financial statements. There were no material subsequent events, except as described in Note 4.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This management's discussion should be read in conjunction with the Financial Statements contained in this Form 10-Q as well as the Management's Discussion and Analysis and Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended August 25, 2012.

Forward-Looking Information

Certain of the matters discussed in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. A number of factors could cause actual results to differ materially from these statements, including, but not limited to, increases in interest rates, availability of credit, low consumer confidence, significant increase in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions, integration of operations relating to mergers and acquisitions activities and other factors which may be disclosed throughout this report. Although we believe that the expectations reflected in the “forward-looking statements” are reasonable, we cannot guarantee future results, or levels of activity, performance or achievements. Undue reliance should not be placed on these “forward-looking statements,” which speak only as of the date of this report. We undertake no obligation to publicly update or

12
Table of Contents

revise any “forward-looking statements” whether as a result of new information, future events or otherwise, except as required by law or the rules of the NYSE.

Executive Overview
Winnebago Industries, Inc. is a leading US manufacturer of RVs with a proud history of manufacturing RV products for more than 50 years. We produce all of our motorhomes in vertically integrated manufacturing facilities in Iowa and we produce all of our travel trailer and fifth wheels in Indiana. We distribute our products primarily through independent dealers throughout the US and Canada, who then retail the products to the end consumer.
Our retail unit market share, as reported by Stat Surveys based on state records, is illustrated below. Note that this data is subject to adjustment and is continuously updated.
 
 
Through April 30
 
Calendar Year
US Retail Motorized:
 
2013
2012
 
2012
2011
2010
Class A gas
 
23.2
%
22.2
%
 
24.2
%
22.2
%
23.7
%
Class A diesel
 
17.7
%
20.1
%
 
19.4
%
17.6
%
15.2
%
Total Class A
 
21.1
%
21.3
%
 
22.2
%
20.2
%
19.5
%
Class C
 
15.5
%
18.7
%
 
18.3
%
17.4
%
17.9
%
Total Class A and C
 
18.4
%
20.1
%
 
20.5
%
19.0
%
18.8
%
 
 
 
 
 
 
 
 
Class B
 
19.0
%
15.6
%
 
17.6
%
7.9
%
15.6
%
 
 
 
 
 
 
 
 
 
 
Through April 30
 
Calendar Year
Canadian Retail Motorized:
 
2013
2012
 
2012
2011
2010
Class A gas
 
12.0
%
14.1
%
 
15.3
%
16.5
%
14.9
%
Class A diesel
 
16.4
%
17.1
%
 
17.3
%
18.0
%
9.9
%
Total Class A
 
13.6
%
15.2
%
 
16.1
%
17.1
%
12.6
%
Class C
 
15.3
%
10.6
%
 
14.9
%
15.9
%
13.8
%
Total Class A and C
 
14.5
%
12.8
%
 
15.5
%
16.5
%
13.2
%
 
 
 
 
 
 
 
 
Class B
 
17.5
%
4.3
%
 
12.7
%
7.1
%
4.8
%
 
 
US
 
Canadian
 
 
Through April 30
 
Calendar Year
 
Through April 30
 
Calendar Year
Retail Towables:
 
2013
2012
 
2012
2011
 
2013
2012
 
2012
2011
Travel trailer
 
0.9
%
0.8
%
 
0.8
%
0.6
%
 
0.9
%
0.5
%
 
0.6
%
0.5
%
Fifth wheel
 
0.8
%
1.0
%
 
1.1
%
0.5
%
 
1.3
%
1.1
%
 
1.5
%
0.6
%
Total towables
 
0.9
%
0.9
%
 
0.9
%
0.6
%
 
1.0
%
0.6
%
 
0.9
%
0.5
%


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Presented in fiscal quarters, certain key metrics are shown below:
 
 
Class A, B & C Motorhomes
 
Travel Trailers & Fifth Wheels
 
 
 
 
As of Quarter End
 
 
 
As of Quarter End
 
 
Wholesale
Retail
Dealer
Order
 
Wholesale
Retail
Dealer
Order
(In units)
 
Deliveries
Registrations
Inventory
Backlog
 
Deliveries
Registrations
Inventory
Backlog
Q4 2011
 
1,088

1,198

1,958

681

 
358

420

966

293

Q1 2012
 
1,040

1,053

1,945

618

 
435

255

1,146

460

Q2 2012
 
1,001

872

2,074

1,004

 
562

332

1,376

417

Q3 2012
 
1,280

1,414

1,940

1,237

 
646

652

1,370

505

Rolling 12 months
 
4,409

4,537

 
 
 
2,001

1,659

 
 
June 2011-May 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q4 2012
 
1,321

1,334

1,927

1,473

 
695

700

1,365

411

Q1 2013
 
1,534

1,416

2,045

2,118

 
557

367

1,555

687

Q2 2013
 
1,419

1,072

2,392

2,752

 
548

328

1,775

381

Q3 2013
 
1,978

1,736

2,634

2,846

 
713

846

1,642

443

Rolling 12 months
 
6,252

5,558

 


 
2,513

2,241

 
 
June 2012-May 2013
 
 
 




 
 
 
 
 
Highlights of the first nine months of Fiscal 2013:
Motorized performance:
•
During the first three quarters of Fiscal 2013 motor home deliveries increased by approximately 48.5% as compared to the first three fiscal quarters of 2012. In addition retail demand for our motorized products grew 26.9% when comparing the first three fiscal quarters of 2013 to fiscal 2012. As a result, dealer inventory grew by 35.8% when comparing the same time periods. We view this as a reflection of our dealer network's confidence in our products and the overall industry as they prepare for the historically stronger summer selling season. Our belief of improving dealer confidence is further supported by the continued growth in our sales order backlog. Even as we delivered nearly 2,000 motor homes in the fiscal third quarter of 2013; our strongest unit volume quarter since the first fiscal quarter of 2008, our sales order backlog grew by approximately 3% on a consecutive fiscal quarter comparison.
•
The continuing strong demand for our motorized products has led to enhanced financial performance. The sales incentive environment has improved as compared to a year ago and the incremental volume has provided operating leverage in multiple areas. Motorized operating profit increased by over 900% when comparing the first three fiscal quarters of 2013 to the first three quarters of fiscal 2012.

Towables performance:
•
Towables generated an operating loss of $3.0 million in the first nine months of Fiscal 2013 compared to an operating loss of $115,000 in the first nine months of Fiscal 2012. The two most significant issues that negatively impacted Towables' operating performance during the first nine months of Fiscal 2013 were increased warranty expense due to escalating negative claim experience and unfavorable overhead variances due to lower production. Significant changes have been made throughout the first half of Fiscal 2013 in key management positions to address the recent performance problems. Notably, a new Towables President was named in January 2013 and leadership responsibilities of warranty and service were centralized to the Company's headquarters in Iowa to better leverage the Company's industry leading capabilities, processes and expertise of long time motorized resources. During February 2013, production was idled in one of the assembly plants where production issues had been pervasive and only a small core group of employees were retained to train and work in the other assembly plant that has not experienced similar issues. Production is expected to resume in this plant during the fourth quarter of Fiscal 2013.
•
During the third quarter much progress was made at Towables. New product was introduced and we believe was well received at our Dealer Day event held in late April as evidenced by the increase in sales order backlog of 16.3% on a consecutive fiscal quarter comparison. Retail registrations also grew as compared to the same quarter last year by 29.8%, reflecting the growing consumer demand of our Towable product. Positive cash flow was generated from operations in the quarter, primarily due to inventory reductions of $3.9 million.


14
Table of Contents

Industry Outlook
Key statistics for the motorhome industry are as follows:
 
US and Canada Industry Class A, B & C Motorhomes
 
Wholesale Shipments(1)
 
Retail Registrations(2)
 
Calendar Year
 
Calendar Year
 
 
 
 
(Decrease)

 
 
 
 
 
 
 
(In units)
2012

 
2011

Increase

Change

 
2012

 
2011

Increase

Change

Q1
6,869

 
6,888

(19
)
(0.3
)%
 
5,706

 
5,114

592

11.6
%
Q2
7,707

 
7,868

(161
)
(2.0
)%
 
8,206

 
8,140

66

0.8
%
Q3
6,678

 
5,267

1,411

26.8
 %
 
6,916

 
6,102

814

13.3
%
Q4
6,944

 
4,807

2,137

44.5
 %
 
4,922

 
4,623

299

6.5
%
Total
28,198

 
24,830

3,368

13.6
 %
 
25,750

 
23,979

1,771

7.4
%
 
 
 
 
 
 
 
 
 
 
 
 
(In units)
2013

 
2012

Increase

Change

 
2013

 
2012

Increase

Change

Q1
8,500

 
6,869

1,631

23.7
 %
 
7,050

 
5,706

1,344

23.6
%
April
3,780

 
2,552

1,228

48.1
 %
 
3,300

 
2,640

660

25.0
%
May
3,698

  
2,829

869

30.7
 %
 
 
(4)
2,883

 
 
June
3,089

(3) 
2,326

763

32.8
 %
 
 
(4)
2,683

 
 
Q2
10,567

(3) 
7,707

2,860

37.1
 %
 
 
(4)
8,206





Q3
8,000

(3) 
6,678

1,322

19.8
 %
 


(4)
6,916





Q4
7,501

(3) 
6,944

557

8.0
 %
 
 
(4)
4,922

 
 
Total
34,568

(3) 
28,198

6,370

22.6
 %
 


 
25,750




(1) 
Class A, B and C wholesale shipments as reported by RVIA.
(2) 
Class A, B and C retail registrations as reported by Stat Surveys for the US and Canada combined.
(3) 
Monthly and quarterly 2013 Class A, B and C wholesale shipments are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Summer 2013 Industry Forecast Issue. The RVIA annual 2013 wholesale shipment forecast was 33,500 (prior to actual April and May shipments being available). The RVIA 2014 wholesale shipment forecast is 35,600.
(4) 
Stat Surveys has not issued a projection for 2013 retail demand for this period.
    
Key statistics for the towable industry are as follows:
 
US and Canada Travel Trailer & Fifth Wheel Industry
 
Wholesale Shipments(1)
 
Retail Registrations(2)
 
Calendar Year
 
Calendar Year
(In units)
2012

 
2011

Increase

Change

 
2012

 
2011

Increase

Change

Q1
60,402

 
54,132

6,270

11.6
%
 
39,093

 
33,698

5,395

16.0
%
Q2
71,095

 
65,987

5,108

7.7
%
 
83,990

 
79,155

4,835

6.1
%
Q3
56,601

 
47,547

9,054

19.0
%
 
67,344

 
63,014

4,330

6.9
%
Q4
54,782

 
45,266

9,516

21.0
%
 
32,469

 
30,044

2,425

8.1
%
Total
242,880

 
212,932

29,948

14.1
%
 
222,896

 
205,911

16,985

8.2
%
 
 
 
 
 
 
 
 
 
 
 
 
(In units)
2013

 
2012

Increase

Change

 
2013

 
2012

Increase

Change

Q1
66,745

 
60,402

6,343

10.5
%
 
42,261

 
39,093

3,168

8.1
%
April
26,716

 
22,751

3,965

17.4
%
 
27,258

 
24,950

2,308

9.3
%
May
27,179

 
24,546

2,633

10.7
%
 
 
(4)
30,390

 
 
June
24,714

(3)
23,798

916

3.8
%
 
 
(4)
28,650

 
 
Q2
78,609

(3)
71,095

7,514

10.6
%
 
 
(4)
83,990





Q3
62,700

(3)
56,601

6,099

10.8
%
 
 
(4)
67,344





Q4
56,000

(3)
54,782

1,218

2.2
%
 
 
(4)
32,469

 
 
Total
264,054

(3)
242,880

21,174

8.7
%
 


 
222,896




(1) 
Towable wholesale shipments as reported by RVIA.
(2) 
Towable retail registrations as reported by Stat Surveys for the US and Canada combined.
(3) 
Monthly and quarterly 2013 towable wholesale shipments are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Summer 2013 Industry Forecast Issue. The RVIA annual 2013 wholesale shipment forecast was 261,500 (prior to actual April and May shipments being available). The RVIA 2014 wholesale shipment forecast is 271,100.
(4)
Stat Surveys has not issued a projection for 2013 retail demand for this period.


15
Table of Contents

Company Outlook
Based on our profitable operating results in recent years, we believe that we have demonstrated our ability to maintain our liquidity, cover operations costs, recover fixed assets, and maintain physical capacity at present levels. Now that we have entered into the towable market, we have the potential to grow revenues and earnings in a market significantly larger than the motorized market.

As evidenced in the following table, our motorhome sales order backlog at the end of the third quarter of Fiscal 2013 significantly increased as compared to the end of the third quarter of Fiscal 2012. It has also increased sequentially from the end of the second quarter of Fiscal 2013, as previously illustrated. We believe the increase is a result of the overall growth of the RV industry coupled with positive dealer response and increased retail registration activity of our products.

As a result of the improved demand, we have been increasing our production throughout the past nine months to meet the growing demand for our products while managing constraints as they present themselves in relation to labor and component parts. When measured as units produced per production day our production in the third quarter of Fiscal 2013 increased 47.5% compared to the units produced per production day in the same quarter last year.

Our motorized sales order backlog of 2,846 as of June 1, 2013 represents orders to be shipped in the next two quarters.

We believe that the level of our dealer inventory at the end of the third quarter of Fiscal 2013 is aligned with current market conditions given the improved retail demand and increased sales order backlog of our product.

Our unit order backlog was as follows:
 
As Of
(In units)
June 1, 2013
 
May 26, 2012
 
Increase
(Decrease)
%
Change
Class A gas
1,397

49.1
%
 
479

38.7
%
 
918

191.6
 %
Class A diesel
499

17.5
%
 
257

20.8
%
 
242

94.2
 %
Total Class A
1,896

66.6
%
 
736

59.5
%
 
1,160

157.6
 %
Class B
149

5.2
%
 
120

9.7
%
 
29

24.2
 %
Class C
801

28.1
%
 
381

30.8
%
 
420

110.2
 %
Total motorhome backlog(1)
2,846

100.0
%
 
1,237

100.0
%
 
1,609

130.1
 %
 
 
 
 
 
 
 
 
 
Travel trailer
359

81.0
%
 
301

59.6
%
 
58

19.3
 %
Fifth wheel
84

19.0
%
 
204

40.4
%
 
(120
)
(58.8
)%
Total towable backlog(1)
443

100.0
%
 
505

100.0
%
 
(62
)
(12.3
)%
 
 
 
 
 
 
 
 
 
Approximate backlog revenue in thousands
 
 
 
 
 
 
 
Motorhome
$
292,307

 
 
$
131,418

 
 
$
160,889

122.4
 %
Towable
$
9,562

 
 
$
12,487

 
 
$
(2,925
)
(23.4
)%
(1) 
We include in our backlog all accepted purchase orders from dealers to be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.


16
Table of Contents

Results of Operations
Current Quarter Compared to the Comparable Quarter Last Year
The following is an analysis of changes in key items included in the statements of operations:
 
 
Quarter Ended
(In thousands, except percent
and per share data)
 
June 1,
2013
% of
Revenues(1)
 
May 26,
2012
% of
Revenues(1)
 
Increase
(Decrease)
%
Change
Net revenues
 
$
218,199

100.0
%
 
$
155,709

100.0
 %
 
$
62,490

40.1
 %
Cost of goods sold
 
197,002

90.3
%
 
143,638

92.2
 %
 
53,364

37.2
 %
Gross profit
 
21,197

9.7
%
 
12,071

7.8
 %
 
9,126

75.6
 %
 
 
 
 
 
 
 
 
 
 
Selling
 
4,857

2.2
%
 
4,331

2.8
 %
 
526

12.1
 %
General and administrative
 
6,092

2.8
%
 
4,213

2.7
 %
 
1,879

44.6
 %
Operating expenses
 
10,949

5.0
%
 
8,544

5.5
 %
 
2,405

28.1
 %
 
 
 
 
 
 
 
 
 
 
Operating income
 
10,248

4.7
%
 
3,527

2.3
 %
 
6,721

190.6
 %
Non-operating income
 
144

0.1
%
 
402

0.3
 %
 
(258
)
(64.2
)%
Income before income taxes
 
10,392

4.8
%
 
3,929

2.5
 %
 
6,463

164.5
 %
Provision (benefit) for taxes
 
2,731

1.3
%
 
(12
)
—
 %
 
2,743

NMF

Net income
 
$
7,661

3.5
%
 
$
3,941

2.5
 %
 
$
3,720

94.4
 %
 
 
 
 
 
 
 
 
 
 
Diluted income per share
 
$
0.27

 
 
$
0.13

 
 
$
0.14

107.7
 %
Diluted average shares outstanding
 
28,087

 
 
29,263

 
 
(1,176
)
(4.0
)%
(1) Percentages may not add due to rounding differences.
Unit deliveries and ASP, net of discounts, consisted of the following:
 
 
Quarter Ended
(In units)
 
June 1,
2013
Product
Mix % (1)
 
May 26,
2012
Product
Mix % (1)
 
Increase
(Decrease)
%
Change
Motorhomes:
 
 
 
 
 
 
 
 
 
Class A gas
 
656

33.2
%
 
429

33.5
%
 
227

52.9
 %
Class A diesel
 
323

16.3
%
 
234

18.3
%
 
89

38.0
 %
Total Class A
 
979

49.5
%
 
663

51.8
%
 
316

47.7
 %
Class B
 
78

3.9
%
 
87

6.8
%
 
(9
)
(10.3
)%
Class C
 
921

46.6
%
 
530

41.4
%
 
391

73.8
 %
Total motorhome deliveries
 
1,978

100.0
%
 
1,280

100.0
%
 
698

54.5
 %
 
 
 
 
 
 
 
 
 
 
ASP (in thousands)
 
$
97.9

 
 
$
101.7

 
 
$
(3.7
)
(3.7
)%
 
 
 
 
 
 
 
 
 
 
Towables:
 
 
 
 
 
 
 
 
 
Travel trailer
 
587

82.3
%
 
357

55.3
%
 
230

64.4
 %
Fifth wheel
 
126

17.7
%
 
289

44.7
%
 
(163
)
(56.4
)%
Total towable deliveries
 
713

100.0
%
 
646

100.0
%
 
67

10.4
 %
 
 
 
 
 
 
 
 
 
 
ASP (in thousands)
 
$
21.5

 
 
$
25.1

 
 
$
(3.6
)
(14.5
)%
(1) Percentages may not add due to rounding differences.


17
Table of Contents

Net revenues consisted of the following:
 
 
Quarter Ended
(In thousands)
 
June 1,
2013
 
May 26,
2012
 
Increase
(Decrease)
%
Change
Motorhomes (1)
 
$
191,514

87.8
%
 
$
128,016

82.2
%
 
$
63,498

49.6
 %
Towables (2)
 
15,345

7.0
%
 
16,392

10.5
%
 
(1,047
)
(6.4
)%
Motorhome parts and services
 
3,282

1.5
%
 
2,909

1.9
%
 
373

12.8
 %
Other manufactured products
 
8,058

3.7
%
 
8,392

5.4
%
 
(334
)
(4.0
)%
Total net revenues
 
$
218,199

100.0
%
 
$
155,709

100.0
%
 
$
62,490

40.1
 %
(1) 
Motorhome unit revenue less discounts, sales promotions and incentives, and accrued loss on repurchase adjustments.
(2) 
Includes towable units and parts.

The increase in motorhome net revenues of $63.5 million or 49.6% was attributed primarily to a 54.5% increase in unit deliveries driven by higher dealer and retail consumer demand, partially offset by a decrease in motorhome ASP of 3.7% as compared to the third quarter of Fiscal 2012. The decrease in ASP was primarily due to a shift in class A gas product to lower price points, a higher percent of Class C unit sales and a lower percent of class A diesel units sales in the third quarter of Fiscal 2013.

The decrease in Towables revenues of $1.0 million or 6.4% was attributed to a decrease in ASP of 14.5% partially offset by a 10.4% increase in unit deliveries as compared to the third quarter of Fiscal 2012.

Cost of goods sold was $197.0 million, or 90.3% of net revenues for the third quarter of Fiscal 2013 compared to $143.6 million, or 92.2% of net revenues for the third quarter of Fiscal 2012 due to the following:
•
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, decreased to 84.6% this year from 85.6% last year which was primarily due to a lower percentage of sales discounts and incentives of net revenues than the prior year.
•
Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 5.7% of net revenues compared to 6.6% for Fiscal 2012. This difference was primarily due to significantly higher production levels in Fiscal 2013 which resulted in higher absorption of fixed overhead costs.
•
All factors considered, gross profit increased from 7.8% to 9.7% of net revenues.
Selling expenses decreased to 2.2% from 2.8% of net revenues in the third quarter of Fiscal 2013 compared to Fiscal 2012, respectively. However, selling expenses increased $526,000, or 12.1%, in the third quarter of Fiscal 2013 compared to the same period in Fiscal 2012. The expense increase was primarily due to advertising expenses associated with our Dealer Days show and compensation expense in Fiscal 2013.
General and administrative expenses were 2.8% and 2.7% of net revenues in the third quarter of Fiscal 2013 and Fiscal 2012, respectively. General and administrative expenses increased $1.9 million, or 44.6% in the third quarter of Fiscal 2013 compared to the same period in Fiscal 2012. This increase was due primarily to increases of $1.9 million in incentives accrued under annual and long-term bonus plans.
Non-operating income decreased $258,000 or 64.2%, in the third quarter of Fiscal 2013 compared to the same period in Fiscal 2012. This difference is primarily due to higher proceeds from COLI policies in Fiscal 2012.
The overall effective income tax provision rate for the third quarter of Fiscal 2013 was 26.3% compared to the tax benefit rate of (0.3)% for the second quarter of Fiscal 2012. The increase in tax rate for the third quarter of Fiscal 2013 is primarily a result of the level of pretax book income earned during the quarter. We also had a reduced level (in comparison to book income) of benefits recorded for uncertain tax positions during the quarter. Our effective tax benefit rate for the third quarter of Fiscal 2012 was impacted by the lack of taxable income being generated during the quarter, thus resulting in minimal tax being recorded during the quarter from operations. In addition, we recorded tax benefits in the quarter associated with tax planning initiatives as well as reductions to reserves for uncertain tax positions.
Net income and diluted income per share were $7.7 million and $0.27 per share, respectively, for the third quarter of Fiscal 2013. In the third quarter of Fiscal 2012, the net income was $3.9 million and diluted income was $0.13 per share. The impact of stock repurchases since July 2012 (the date we began recent repurchases) on diluted net income per share was an increase of $0.01 for the third quarter of Fiscal 2013. See Part II, Item 2.


18
Table of Contents

Nine Months Compared to the Comparable Nine Months Last Year
The following is an analysis of changes in key items included in the statements of operations:
 
 
Nine Months Ended
(In thousands, except percent
and per share data)
 
June 1,
2013
% of
Revenues(1)
 
May 26,
2012
% of
Revenues(1)
 
Increase
(Decrease)
%
Change
Net revenues
 
$
588,919

100.0
%
 
$
419,146

100.0
 %
 
$
169,773

40.5
 %
Cost of goods sold
 
529,784

90.0
%
 
391,733

93.5
 %
 
138,051

35.2
 %
Gross profit
 
59,135

10.0
%
 
27,413

6.5
 %
 
31,722

115.7
 %
 
 
 
 
 
 
 
 
 
 
Selling
 
13,649

2.3
%
 
12,485

3.0
 %
 
1,164

9.3
 %
General and administrative
 
16,392

2.8
%
 
11,938

2.8
 %
 
4,454

37.3
 %
Loss on assets held for sale
 
28

—
%
 
—

—
 %
 
28

NMF

Operating expenses
 
30,069

5.1
%
 
24,423

5.8
 %
 
5,646

23.1
 %
 
 
 
 
 
 
 
 
 
 
Operating income
 
29,066

4.9
%
 
2,990

0.7
 %
 
26,076

NMF

Non-operating income
 
739

0.1
%
 
549

0.1
 %
 
190

34.6
 %
Income before income taxes
 
29,805

5.1
%
 
3,539

0.8
 %
 
26,266

NMF

Provision (benefit) for taxes
 
8,468

1.4
%
 
(525
)
(0.1
)%
 
8,993

NMF

Net income
 
$
21,337

3.6
%
 
$
4,064

1.0
 %
 
$
17,273

425.0
 %
 
 
 
 
 
 
 
 
 
 
Diluted income per share
 
$
0.76

 
 
$
0.14

 
 
$
0.62

442.9
 %
Diluted average shares outstanding
 
28,218

 
 
29,243

 
 
(1,025
)
(3.5
)%
(1) Percentages may not add due to rounding differences.
Unit deliveries and ASP, net of discounts, consisted of the following:
 
 
Nine Months Ended
(In units)
 
June 1,
2013
Product
Mix % (1)
 
May 26,
2012
Product
Mix % (1)
 
Increase
(Decrease)
%
Change
Motorhomes:
 
 
 
 
 
 
 
 
 
Class A gas
 
1,779

36.1
%
 
1,163

35.0
%
 
616

53.0
 %
Class A diesel
 
989

20.1
%
 
701

21.1
%
 
288

41.1
 %
Total Class A
 
2,768

56.1
%
 
1,864

56.1
%
 
904

48.5
 %
Class B
 
263

5.3
%
 
215

6.5
%
 
48

22.3
 %
Class C
 
1,900

38.5
%
 
1,242

37.4
%
 
658

53.0
 %
Total motorhome deliveries
 
4,931

100.0
%
 
3,321

100.0
%
 
1,610

48.5
 %
 
 
 
 
 
 
 
 
 
 
ASP (in thousands)
 
$
106.2

 
 
$
106.0

 
 
$
0.1

0.1
 %
 
 
 
 
 
 
 
 
 
 
Towables:
 
 
 
 
 
 
 
 
 
Travel trailer
 
1,433

78.8
%
 
928

56.5
%
 
505

54.4
 %
Fifth wheel
 
385

21.2
%
 
715

43.5
%
 
(330
)
(46.2
)%
Total towable deliveries
 
1,818

100.0
%
 
1,643

100.0
%
 
175

10.7
 %
 
 
 
 
 
 
 
 
 
 
ASP (in thousands)
 
$
21.6

 
 
$
24.6

 
 
$
(3.1
)
(12.4
)%
(1) Percentages may not add due to rounding differences.


19
Table of Contents

Net revenues consisted of the following:
 
 
Nine Months Ended
(In thousands)
 
June 1,
2013
 
May 26,
2012
 
Increase
(Decrease)
%
Change
Motorhomes (1)
 
$
517,216

87.8
%
 
$
347,510

82.9
%
 
$
169,706

48.8
 %
Towables (2)
 
39,309

6.7
%
 
40,948

9.8
%
 
(1,639
)
(4.0
)%
Motorhome parts and services
 
9,570

1.6
%
 
8,695

2.1
%
 
875

10.1
 %
Other manufactured products
 
22,824

3.9
%
 
21,993

5.2
%
 
831

3.8
 %
Total net revenues
 
$
588,919

100.0
%
 
$
419,146

100.0
%
 
$
169,773

40.5
 %
(1) 
Motorhome unit revenue less discounts, sales promotions and incentives, and accrued loss on repurchase adjustments.
(2) 
Includes towable units and parts.

The increase in motorhome net revenues of $169.7 million or 48.8% was attributed primarily to a 48.5% increase in unit deliveries in the first nine months of Fiscal 2013 driven by higher dealer and retail consumer demand as compared to the first nine months of Fiscal 2012.

Towables revenues were $39.3 million in the first nine months of Fiscal 2013, compared to $40.9 million in the first nine months of Fiscal 2012. Overall, the 10.7% increase in unit deliveries was offset by a 12.4% decrease in ASPs.

Cost of goods sold was $529.8 million, or 90.0% of net revenues for the first nine months of Fiscal 2013 compared to $391.7 million, or 93.5% of net revenues for the first nine months of Fiscal 2012 due to the following:
•
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, decreased to 84.2% this year from 85.9% last year which was primarily due to lower material costs and greater production efficiencies due to increased production levels.
•
Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 5.8% of net revenues compared to 7.6% for Fiscal 2012. This difference was primarily due significantly higher production levels in Fiscal 2013 which resulted in higher absorption of fixed overhead costs.
•
All factors considered, gross profit increased from 6.5% to 10.0% of net revenues.
Selling expenses decreased to 2.3% from 3.0% of net revenues in the first nine months of Fiscal 2013 as compared to Fiscal 2012, respectively. However, selling expenses increased $1.2 million, or 9.3%, in the first nine months of Fiscal 2013 compared to the same period in Fiscal 2012. The expense increase was due to increased sales compensation of $500,000, advertising expenses of $270,000, and accrued incentives of $115,000.
General and administrative expenses were 2.8% and 2.8% of net revenues in the first nine months of Fiscal 2013 and Fiscal 2012, respectively. General and administrative expenses increased $4.5 million, or 37.3% in the first nine months of Fiscal 2013compared to the same period in Fiscal 2012. This increase was due primarily to increases of $3.9 million in incentives accrued under annual and long-term bonus plans, $460,000 in consulting and audit fees, and $440,000 in legal expenses.
During the first quarter of Fiscal 2013 we realized a loss of $28,000 on the sale of an idled manufacturing facility (Hampton). See Note 6 to the financial statements.
Non-operating income increased $190,000 or 34.6%, in the first nine months of Fiscal 2013compared to the same period in Fiscal 2012. This difference is primarily due to reduced COLI expenses and financing fees.
The overall effective income tax provision rate for the first nine months of Fiscal 2013 was 28.4% compared to the tax benefit rate of (14.8)% for the first nine months of Fiscal 2012. The tax rate for the first nine months of Fiscal 2013 most notably is a result of the level of pretax book income earned during the first nine months of Fiscal 2013. We also had a reduced level (in comparison to book income) of benefits recorded for uncertain tax positions during the first nine months. Our effective tax benefit rate for the first nine months of Fiscal 2012 was impacted by the pretax loss recorded during the first six months, as well as favorable tax benefits being recorded to the reserve for uncertain tax positions, as well as tax planning initiatives recorded during this period.
Net income and diluted income per share were $21.3 million and $0.76 per share, respectively, for the first nine months of Fiscal 2013. In the first nine months of Fiscal 2012, the net income was $4.1 million and diluted income was $0.14 per share. The impact of stock repurchases since July 2012 (the date we began recent repurchases) on diluted net income per share was an increase of $0.03 for the first nine months of Fiscal 2013. See Part II, Item 2.

Analysis of Financial Condition, Liquidity and Resources
Cash and cash equivalents decreased $20.3 million during the first nine months of Fiscal 2013 and totaled $42.4 million as of June 1, 2013. Significant liquidity events that occurred during the first nine months of Fiscal 2013 were:
•
Generated net income of $21.3 million

20
Table of Contents

•
Increase in inventory of $26.3 million: The increase was primarily a result of significantly more finished goods units ready for delivery and in transit
•
Stock repurchases of approximately $11.1 million
On October 31, 2012, we entered into the Credit Agreement with GECC. The Credit Agreement provides for an initial $35.0 million revolving credit facility based on our eligible inventory and expires on October 31, 2015 unless terminated earlier in accordance with its terms. There is no termination fee associated with the Credit Agreement.
The Credit Agreement contains no financial covenant restrictions for borrowings where we have excess borrowing availability under the facility of greater than $5.0 million. The Credit Agreement requires us to comply with a fixed charge ratio if excess borrowing availability under the facility is less than $5.0 million or if we repurchase more than $25.0 million of company stock within the first twelve months of the date of the Credit Agreement. In addition, the Credit Agreement also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable terms at the time of the expansion. See Note 8 to the financial statements.
We filed a Registration Statement on Form S-3, which was declared effective by the SEC on May 9, 2013. Subject to market conditions, we have the ability to offer and sell up to $35 million of our common stock in one or more offerings pursuant to the Registration Statement. The Registration Statement will be available for use for three years from its effective date. We currently have no plans to offer and sell the common stock registered under the Registration Statement; however, it does provide another potential source of liquidity in addition to the alternatives already in place.
Working capital at June 1, 2013 and August 25, 2012 was $141.6 million and $126.1 million, respectively, an increase of $15.5 million. We currently expect cash on hand, funds generated from operations and the availability under a credit facility to be sufficient to cover both short-term and long-term operating requirements. We anticipate capital expenditures during the balance of Fiscal 2013 of approximately $1.4 million, primarily for manufacturing equipment and facilities.
We made share repurchases of $11.1 million in the first nine months of Fiscal 2013. See Part II, Item 2. If we believe the common stock is trading at attractive levels we may purchase additional shares in the remainder of Fiscal 2013.
Operating Activities
Cash used in operating activities was $6.9 million for the nine months ended June 1, 2013 compared to cash provided by operating activities of $11.7 million for the nine months ended May 26, 2012. The combination of net income of $21.3 million in Fiscal 2013 and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided $23.9 million of operating cash compared to $9.1 million in the first nine months of Fiscal 2012. In the nine months ended June 1, 2013 changes in assets and liabilities (primarily an increase in inventories) used $30.8 million of operating cash. In the nine months ended May 26, 2012, changes in assets and liabilities provided $2.6 million of operating cash.
Investing Activities
Cash used in investing activities of $2.1 million for the nine months ended June 1, 2013 was due primarily to capital spending of $3.3 million and payments of COLI borrowings of $1.4 million, and was partially offset by proceeds of $1.0 million from COLI policies and proceeds of $637,000 from the sale of property. In the nine months ended May 26, 2012, cash provided by investing activities of $85,000 was due to COLI proceeds of $1.4 million, and was offset by capital spending of $1.5 million.
Financing Activities
Cash used in financing activities of $11.2 million for the nine months ended June 1, 2013 was primarily due to $11.1 million in repurchases of our stock. Cash used in financing activities for the nine months ended May 26, 2012 was $310,000.
 
Significant Accounting Policies

We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended August 25, 2012. We discuss our critical accounting estimates in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended August 25, 2012. We refer to these disclosures for a detailed explanation of our significant accounting policies and critical accounting estimates. There has been no significant change in our significant accounting policies or critical accounting estimates since the end of Fiscal 2012.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have market risk exposure to our ARS, which is described in further detail in Note 4 to the financial statements.


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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures", as such term is defined under Securities Exchange Act of 1934, as amended ("Exchange Act") Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's disclosure control objectives.

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, required by Exchange Act Rule 13a-15(b), 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 have concluded that our disclosure controls and procedures were effective as of the Evaluation Date.

Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings
We are involved in various legal proceedings which are ordinary routine litigation incidental to our business, some of which are covered in whole or in part by insurance. We believe, while the final resolution of any such litigation may have an impact on our results for a particular reporting period, the ultimate disposition of such litigation will not have any material adverse effect on our financial position, results of operations or liquidity.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 19, 2007, the Board of Directors authorized the repurchase of outstanding shares of our common stock, depending on market conditions, for an aggregate consideration of up to $60 million. There is no time restriction on this authorization. During the third quarter of Fiscal 2013, approximately 154,000 shares were repurchased under the authorization, at an aggregate cost of approximately $2.8 million. Approximately 10,300 of these shares were repurchased from employees who vested in Winnebago Industries shares during the third quarter of Fiscal 2013 and elected to pay their payroll tax via shares as opposed to cash. As of June 1, 2013, there was approximately $41.4 million remaining under this authorization.
This table provides information with respect to purchases by us of shares of our common stock during each fiscal month of the third quarter of Fiscal 2013:
Period
Total Number
of Shares
Purchased
Average Price
Paid per Share
Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar Value
of Shares That May Yet Be
Purchased Under the
Plans or Programs
03/03/13 - 04/06/13
20,280

$
20.32

20,280

 
$
43,787,000

 
04/07/13 - 05/04/13
133,377

$
17.58

133,377

 
$
41,442,000

 
05/05/13 - 06/01/13
—

$
—

—

 
$
41,442,000

 
Total
153,657

$
17.94

153,657

 
$
41,442,000

 
 
Item 6. Exhibits
10.1
Winnebago Industries, Inc. Directors' Deferred Compensation Plan as amended on July 1, 2013.
31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated June 28, 2013.
31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated June 28, 2013.
32.1
Certification by the Chief Executive Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated June 28, 2013.
32.2
Certification by the Chief Financial Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated June 28, 2013.

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Table of Contents

101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
*Attached as Exhibit 101 to this report are the following financial statements from our Quarterly Report on Form 10-Q for the quarter ended June 1, 2013 formatted in XBRL: (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Operations and Comprehensive Income, (iii) the Unaudited Consolidated Statement of Cash Flows, and (iv) related notes to these financial statements. Such exhibits are deemed furnished and not filed pursuant to Rule 406T of Regulation S-T.
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 28, 2013
By
/s/ Randy J. Potts
 
 
 
 
Randy J. Potts
 
 
 
 
Chief Executive Officer, President, Chairman of the Board
 
 
 
 
(Principal Executive Officer)
 
 
 
 
 
 
Date:
June 28, 2013
By
/s/ Sarah N. Nielsen
 
 
 
 
Sarah N. Nielsen
 
 
 
 
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
 



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