2014 10-K

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended August 30, 2014; 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
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
 
 
P.O. Box 152, Forest City, Iowa
 
50436
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (641) 585‑3535
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock ($.50 par value)
 
The New York Stock Exchange, Inc.
 
 
Chicago Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x.
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 Act). Yes o No x
Aggregate market value of the common stock held by non-affiliates of the registrant: $714,649,480 (26,806,057 shares at the closing price on the New York Stock Exchange of $26.66 on February 28, 2014).
Common stock outstanding on October 14, 2014: 26,957,153 shares.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to the registrant's December 2014 Annual Meeting of Shareholders, scheduled to be held December 16, 2014, are incorporated by reference into Part II and Part III of this Annual Report on Form 10-K where indicated.
 


Winnebago Industries, Inc.
2014 Form 10-K Annual Report
Table of Contents

 
 
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
Item 15.


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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)
Apollo
Apollo Motorhome Holidays, LLC
Amended Credit Agreement
Credit Agreement dated as of May 28, 2014 by and between Winnebago Industries, Inc and Winnebago of Indiana, LLC, as Borrowers, and General Electric Capital Corporation, as Agent
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 (as amended May 28, 2014)
DCF
Discounted Cash Flow
EBITDA
Earnings Before Interest, Tax, Depreciation, and Amortization
EPS
Earnings Per Share
FASB
Financial Accounting Standards Board
FIFO
First In, First Out
GAAP
Generally Accepted Accounting Principles
GECC
General Electric Capital Corporation
IRS
Internal Revenue Service
IT
Information Technology
LIBOR
London Interbank Offered Rate
LIFO
Last In, First Out
MVA
Motor Vehicle Act
NMF
Non-Meaningful Figure
NOL
Net Operating Loss
NYSE
New York Stock Exchange
OCI
Other Comprehensive Income
OEM
Original Equipment Manufacturing
OSHA
Occupational Safety and Health Administration
ROE
Return on Equity
ROIC
Return on Invested Capital
RV
Recreation Vehicle
RVIA
Recreation Vehicle Industry Association
SEC
U.S. Securities and Exchange Commission
SERP
Supplemental Executive Retirement Plan
SIR
Self-Insured Retention
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



iii
Table of Contents

WINNEBAGO INDUSTRIES, INC.
FORM 10‑K
Report for the Fiscal Year Ended August 30, 2014
Forward-Looking Information
Certain of the matters discussed in this Annual Report on Form 10-K 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, availability of labor, 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 Annual Report on Form 10-K. Although we believe that the expectations reflected in the "forward-looking statements" are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Undue reliance should not be placed on these "forward-looking statements," which speak only as of the date of this report. We undertake no obligation to publicly update or revise any "forward-looking statements," whether as a result of new information, future events or otherwise, except as required by law or the rules of the NYSE. We advise you, however, to consult any further disclosures made on related subjects in future quarterly reports on Form 10-Q and current reports on Form 8-K that are filed or furnished with the SEC.

PART I

Item 1. Business

General
The "Company," "Winnebago Industries," "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.
Winnebago Industries, Inc., headquartered in Forest City, Iowa, is a leading United States manufacturer of RVs used primarily in leisure travel and outdoor recreation activities.
As a result of our motorhome manufacturing capabilities, equipment and facilities, we use our incremental capacity to manufacture product for outside customers. Other products manufactured by us consist primarily of OEM parts, including extruded aluminum and other component products for other manufacturers and commercial vehicles.
We also rent facilities in Middlebury, Indiana where we manufacture travel trailers and fifth wheel RVs.
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.
Available Information
Our website, located at www.wgo.net, provides additional information about us. On our website, you can obtain, free of charge, this and prior year Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all of our other filings with the SEC. Our recent press releases are also available on our website. Our website also contains important information regarding our corporate governance practices. Information contained on our website is not incorporated into this Annual Report on Form 10-K. You may also read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website that contains reports, proxy statements and other information that is filed electronically with the SEC. The website can be accessed at www.sec.gov.


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Table of Contents

Principal Products
We have one reportable segment, the RV market. We design, develop, manufacture and market motorized and towable recreation products along with supporting products and services. Net revenues by major product classes were as follows:
 
Year Ended (1)
(In thousands)
August 30, 2014
 
August 31, 2013
 
August 25, 2012
 
August 27, 2011
 
August 28, 2010
Motorhomes (2)
$
853,488

90.3
%
 
$
718,580

89.5
%
 
$
496,193

85.3
%
 
$
456,337

91.9
%
 
$
428,932

95.4
%
Towables (3)
58,123

6.1
%
 
54,683

6.8
%
 
56,784

9.8
%
 
16,712

3.4
%
 
—

—
%
Other manufactured products
33,552

3.6
%
 
29,902

3.7
%
 
28,702

4.9
%
 
23,369

4.7
%
 
20,552

4.6
%
Total net revenues
$
945,163

100.0
%
 
$
803,165

100.0
%
 
$
581,679

100.0
%
 
$
496,418

100.0
%
 
$
449,484

100.0
%
(1) 
The fiscal year ended August 31, 2013 contained 53 weeks; all other fiscal years contained 52 weeks.
(2) 
Includes motorhome units, parts and services
(3) 
Includes towable units and parts.
 
Motorhomes, parts and service. A motorhome is a self-propelled mobile dwelling used primarily as temporary living quarters during vacation and camping trips, or to support some other active lifestyle. The RVIA classifies motorhomes into three types, all of which we manufacture and sell under the Winnebago brand name, which are defined as follows:
Type
Description
Winnebago products offerings
Class A
Conventional motorhomes constructed directly on medium- and heavy-duty truck chassis, which include the engine and drivetrain components. The living area and driver's compartment are designed and produced by the motorhome manufacturer.
Gas: Adventurer, Brave, Sightseer, Suncruiser, Sunova, Sunstar, Tribute, Vista
Diesel: Ellipse, Ellipse Ultra, Forza, Grand Tour, Journey, Meridian, Reyo, Solei, Tour, Via
Class B
(gas and diesel)
Panel-type vans to which sleeping, kitchen, and/or toilet facilities are added. These models may also have a top extension to provide more headroom.

Winnebago Touring Coach (Era, Travato)
Class C
(gas and diesel)
Motorhomes built on van-type chassis onto which the motorhome manufacturer constructs a living area with access to the driver's compartment.

Aspect, Cambria, Minnie Winnie, Minnie Winnie Premier, Navion, Spirit, Spirit Silver, Trend, View, Viva!
Motorhomes generally provide living accommodations for up to seven people and include kitchen, dining, sleeping and bath areas, and in some models, a lounge. Optional equipment accessories include, among other items, generators, home theater systems, king-size beds, and UltraLeatherTM upholstery and a wide selection of interior equipment. With the purchase of any new motorhome, we offer a comprehensive 12-month/15,000-mile warranty on the coach and, for Class A and C motorhomes, a 3-year/36,000-mile structural warranty on sidewalls and floors.
Our Class A, B and C motorhomes are sold by dealers in the retail market with manufacturer's suggested retail prices ranging from approximately $60,000 to $421,000, depending on size and model, plus optional equipment and delivery charges. Our motorhomes range in length from 21 to 43 feet.
Unit sales of our motorhomes for the last five fiscal years were as follows:
 
Year Ended (1)(2)
Units
August 30, 2014
 
August 31, 2013
 
August 25, 2012
 
August 27, 2011
 
August 28, 2010
Class A
4,466

51.0
%
 
3,761

55.1
%
 
2,579

55.6
%
 
2,436

55.4
%
 
2,452

55.3
%
Class B
751

8.6
%
 
372

5.5
%
 
319

6.9
%
 
103

2.3
%
 
236

5.3
%
Class C
3,538

40.4
%
 
2,688

39.4
%
 
1,744

37.6
%
 
1,856

42.2
%
 
1,745

39.4
%
Total motorhomes
8,755

100.0
%
 
6,821

100.0
%
 
4,642

100.0
%
 
4,395

100.0
%
 
4,433

100.0
%
(1) 
The fiscal year ended August 31, 2013 contained 53 weeks; all other fiscal years contained 52 weeks.
(2) 
Percentages may not add due to rounding differences.
Motorhome parts and service activities represent revenues generated by service work we perform for retail customers at our Forest City, Iowa facility as well as revenues from sales of RV parts. As of August 30, 2014, our parts inventory was approximately $2.7 million and is located in a 450,000-square foot warehouse with what we believe to be among the most sophisticated distribution and tracking systems in the industry. Our competitive strategy is to provide proprietary manufactured parts through our dealer network, which we believe increases customer satisfaction and the value of our motorhomes.
Towables. A towable is a non-motorized vehicle that is designed to be towed by passenger automobiles, pickup trucks, SUVs or vans and is used as temporary living quarters for recreational travel. The RVIA classifies towables in four types: conventional travel trailers, fifth wheels, folding campers trailers and truck campers; we manufacture and sell conventional travel trailers and fifth

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wheels under the Winnebago brand name, which are defined as follows:
Type
Description
Winnebago product offerings
Travel trailer
Conventional travel trailers are towed by means of a hitch attached to the frame of the vehicle.
Minnie, Micro Minnie, Ultralite, ONE, Sunset Creek, Remington
Fifth wheel
Fifth wheel trailers are constructed with a raised forward section that is connected to the vehicle with a special fifth wheel hitch.
Voyage, Latitude, Destination, Lite Five, Raven
Unit sales of our towables for the last three fiscal years were as follows:
 
Year Ended (1)(2)
Units
August 30, 2014
 
August 31, 2013
 
August 25, 2012
Travel trailer
2,052

81.8
%
 
2,038

80.4
%
 
1,372

58.7
%
Fifth wheel
457

18.2
%
 
497

19.6
%
 
966

41.3
%
Total towables
2,509

100.0
%
 
2,535

100.0
%
 
2,338

100.0
%
(1) 
The fiscal year ended August 31, 2013 contained 53 weeks; all other fiscal years contained 52 weeks.
(2) 
Percentages may not add due to rounding differences.
Other Manufactured Products. As a result of our motorhome manufacturing capabilities, equipment and facilities, we use our incremental capacity to manufacture product for outside customers. Notably, we manufacture aluminum extrusions which are sold to approximately 80 customers. To a limited extent, we manufacture other component parts sold to outside manufacturers. We also manufacture commercial vehicles which are motorhome shells, primarily custom designed for the buyer's special needs and requirements, such as law enforcement command centers and mobile medical and dental clinics. These commercial vehicles are sold through our dealer network. In addition, we also provide commercial vehicles as bare shells to third-party upfitters for conversion at their facilities. We are a manufacturer of commercial transit buses that are sold to both public and private transportation agencies for use in community based transit programs, para transit applications, hospitality shuttles, car rental shuttles, airport shuttles, and other various applications. Our transit buses are marketed under the trade name Metro, Metro Link, and Metro Connect and distributed to a nationwide dealer network through our exclusive distribution partner, Metro Worldwide.

Production
We generally produce motorhomes and towables to order from dealers. We have some ability to increase our capacity by scheduling overtime and/or hiring additional production employees or to decrease our capacity through the use of shortened workweeks and/or reducing head count. We have long been known as an industry leader in innovation as each year we introduce new or redesigned products. These changes generally include new floor plans and sizes as well as design and decor modifications.
Our motorhomes are produced in the state of Iowa at three different campuses. Our Forest City facilities are vertically integrated and provide mechanized assembly line manufacturing for Class A and C motorhomes. We assemble Class B motorhomes in our Lake Mills and Charles City facilities. Hardwood cabinet, countertop and compartment door products are also manufactured at our Charles City campus. Our motorhome bodies are made from various materials and structural components which are typically laminated into rigid, lightweight panels. Body designs are developed with computer aided design and manufacturing and subjected to a variety of tests and evaluations to meet our standards and requirements. We manufacture a number of components utilized in our motorhomes, with the principal exceptions being chassis, engines, generators and appliances.
Most of our raw materials such as steel, aluminum, fiberglass and wood products are obtainable from numerous sources. Certain parts, especially motorhome chassis, are available from a small group of suppliers. We are currently purchasing Class A and C chassis from Ford Motor Company, Mercedes-Benz USA (a Daimler company) and Mercedes-Benz Canada (a Daimler company) and Class A chassis from Freightliner Custom Chassis Corporation (a Daimler company). Class B chassis are purchased from Mercedes-Benz USA, Mercedes-Benz Canada and Chrysler Group, LLC. Class C chassis are also purchased from Chrysler Group, LLC. In Fiscal 2014, only two vendors, Ford Motor Company and Freightliner Custom Chassis Corporation individually accounted for more than 10% of our raw material purchases and approximating 32% in the aggregate.

Our towables are produced at an assembly plant located in Middlebury, Indiana. The majority of components are comprised of frames, appliances and furniture and are purchased from suppliers.
Backlog
The approximate revenue of our motorhome backlog was $172.6 million and $346.7 million as of August 30, 2014 and August 31, 2013, respectively. The approximate revenue of our towable backlog was $3.8 million and $4.7 million as of August 30, 2014 and August 31, 2013, respectively. A more detailed description of our motorhome and towable order backlog is included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."


3
Table of Contents

Distribution and Financing
We market our RVs on a wholesale basis to a diversified independent dealer network located throughout the US and, to a limited extent, in Canada. Foreign sales, including Canada, were 10% or less of net revenues during each of the past three fiscal years. See Note 14 to our Financial Statements of this Annual Report on Form 10-K.
As of August 30, 2014, our RV dealer network in the US and Canada included 274 motorized and 207 towable physical dealer locations, 113 of these locations carried both Winnebago motorized and towable product. With respect to product line points of distribution (number of product lines offered at each dealer location) as of August 30, 2014 there were 2,608 motorized points of distribution compared to 2,205 as of August 31, 2013, up 18% in Fiscal 2014 as we have taken a more strategic approach to managing our dealer network and the product lines they offer as well as a much more aggressive approach to new product innovations and introductions. One of our dealer organizations accounted for 19.7% of our net revenue for Fiscal 2014, as this dealer sold our products in 72 of their dealership locations across 28 US states. A second dealer organization accounted for 12.5% of our net revenue for Fiscal 2014, as this dealer sold our products in 11 dealership locations across 4 US states.
We have sales and service agreements with dealers which are subject to annual review. Many of the dealers are also engaged in other areas of business, including the sale of automobiles, trailers or boats, and many dealers carry one or more competitive lines of RVs. We continue to place high emphasis on the capability of our dealers to provide complete service for our RVs. Dealers are obligated to provide full service for owners of our RVs or, in lieu thereof, to secure such service from other authorized providers.
We advertise and promote our products through national RV magazines, the distribution of product brochures, the Go RVing national advertising campaign sponsored by RVIA, direct-mail advertising campaigns, various national promotional opportunities and on a local basis through trade shows, television, radio and newspapers, primarily in connection with area dealers.
RV sales to dealers are made on cash terms. 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 merchandise purchased. As is customary in the RV industry, we typically enter into a repurchase agreement with a lending institution financing a dealer's purchase of our product upon the lending institution's request and after completion of a credit check of the dealer involved. Our repurchase agreements provide that for up to 18 months after a unit is financed, in the event of default by the dealer on the agreement to pay the lending institution and repossession of the unit(s) by the lending institution, we will repurchase the financed merchandise. Our maximum exposure for repurchases varies significantly from time to time, depending upon general economic conditions, seasonal shipments, competition, dealer organization, gasoline availability and access to and the cost of financing. See Note 10.

Competition
The RV market is highly competitive with many other manufacturers selling products which compete directly with our products. Some of our competitors are much larger than us, most notably in the towable RV market, which may provide these competitors additional purchasing power. The competition in the RV industry is based upon design, price, quality and service of the products. We believe our principal competitive advantages are our brand strength, product quality and our service after the sale. We also believe that our motorhome products have historically commanded a price premium as a result of these competitive advantages.

Seasonality

The primary use of RVs for leisure travel and outdoor recreation has historically led to a peak retail selling season concentrated in the spring and summer months and lower during winter months. Our sales of RVs are generally influenced by this pattern in retail sales, but can also be affected by the level of dealer inventory. As a result, RV sales are historically lowest during our second fiscal quarter, which ends in February.

Regulations and Trademarks
We are subject to a variety of federal, state and local laws and regulations, including the MVA, under which the National Highway Traffic Safety Administration may require manufacturers to recall RVs that contain safety-related defects, and numerous state consumer protection laws and regulations relating to the operation of motor vehicles, including so-called "Lemon Laws." We are also subject to regulations established by OSHA. Our facilities are periodically inspected by federal and state agencies, such as OSHA. We are a member of RVIA, a voluntary association of RV manufacturers which promulgates RV safety standards. We place an RVIA seal on each of our RVs to certify that the RVIA standards have been met. We believe that our products and facilities comply in all material respects with the applicable vehicle safety, consumer protection, RVIA and OSHA regulations and standards.
Our operations are subject to a variety of federal and state environmental laws and regulations relating to the use, generation, storage, treatment, emission, labeling, and disposal of hazardous materials and wastes and noise pollution. We believe that we currently are in compliance with applicable environmental laws and regulations in all material aspects.
We have several registered trademarks associated with our motorhomes and towable products which include: Winnebago, Access, Adventurer, Aspect, Bristol Bay, Brookside, Cambria, Chalet, Destination, Ellipse, Era, Impulse, Itasca, Journey, Latitude, Meridian,

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Navion, Outlook, Raven, Reyo, Rialta, Sightseer, Spirit, Suncruiser, Sundancer, Sunnybrook, Sunova, Sunrise, Sunset Creek, Sunstar, Tour, Vectra, Via, View, Vista, Voyage, and West Pointe. We believe that our trademarks and trade names are significant to our business and we have in the past and will in the future vigorously protect them against infringement by third parties. We are not dependent upon any patents or technology licenses of others for the conduct of our business.

Research and Development
Research and development expenditures are expensed as incurred. During Fiscal 2014, 2013 and 2012, we spent approximately $4.3 million, $3.8 million and $3.4 million, respectively on research and development activities.

Human Resources
At the end of Fiscal 2014, 2013 and 2012, we employed approximately 2,850, 2,680 and 2,380 persons, respectively. None of our employees are covered under a collective bargaining agreement. We believe our relations with our employees are good.

Executive Officers of the Registrant
Name
Office (Year First Elected an Officer)
Age
Randy J. Potts (1)
Chairman of the Board, Chief Executive Officer and President (2006)
55
S. Scott Degnan
Vice President, Sales and Product Management (2012)
49
Scott C. Folkers
Vice President, General Counsel & Secretary (2012)
52
Robert L. Gossett
Vice President, Administration (1998)
63
Daryl W. Krieger
Vice President, Manufacturing (2010)
51
Sarah N. Nielsen
Vice President, Chief Financial Officer (2005)
41
William J. O'Leary
Vice President, Product Development (2001)
65
Donald L. Heidemann
Treasurer and Director of Finance (2007)
42
(1) Director
Officers are elected annually by the Board of Directors. There are no family relationships between or among any of the Corporate Officers or Directors of the Company.
Mr. Potts has over 30 years of experience with Winnebago Industries. He has been Chairman of the Board since January 2012, Chief Executive Officer since June 2011, and President since January 2011. Prior to that time, he served as Senior Vice President, Strategic Planning from November 2009 to June 2011, Vice President, Manufacturing from October 2006 to November 2009, Director of Manufacturing from February 2006 to October 2006 and as General Manager of Manufacturing Services from November 2000 to February 2006.
Mr. Degnan joined Winnebago Industries in May 2012, as Vice President of Sales and Product Management. Prior to joining Winnebago Industries, Mr. Degnan served as vice president of sales for Riverside, California's MVP RV from 2010 to 2012. He also previously served in management and sales positions with Coachmen RV from 2008 to 2010, with National RV from 2007 to 2008, and Fleetwood Enterprises from 1987 to 2007.
Mr. Folkers joined Winnebago Industries in August 2010, as assistant general counsel. He was elected to the position of Vice President, General Counsel and Secretary in June 2012. Prior to joining Winnebago Industries, Mr. Folkers was employed as in‑house counsel for John Morrell & Co., in Sioux Falls, SD from 1998 to 2010. Mr. Folkers is a member of the Iowa Bar Association.
Mr. Gossett has over 15 years of experience with Winnebago Industries. He has been Vice President, Administration since joining the Company in 1998.
Mr. Krieger has over 30 years of experience with Winnebago Industries. He has been Vice President, Manufacturing since May 2010. Prior to that time, he served as Director of Manufacturing from November 2009 to May 2010 and General Manager - Fabrication from February 2002 to November 2009.
Ms. Nielsen has nine years of experience with Winnebago Industries. She has been Vice President and Chief Financial Officer since November 2005. Ms. Nielsen joined the Company in August 2005 as Director of Special Projects and Training. Prior to joining Winnebago Industries, she was employed as a senior audit manager at Deloitte & Touche LLP, where she worked from 1995 to 2005. Ms. Nielsen is a Certified Public Accountant.
Mr. O'Leary has over 42 years of experience with Winnebago Industries. He has been Vice President, Product Development since 2001. Mr. O'Leary has announced plans to retire effective on or about January 9, 2015.
Mr. Heidemann has seven years of experience with Winnebago Industries. He was elected to the position of Treasurer in August 2007 and added Director of Finance responsibilities in August 2011.  Prior to joining Winnebago Industries, Mr. Heidemann served

5
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in various treasury positions for Select Comfort Corporation from 2003 to July 2007 and served in various treasury positions for Rent-A-Center Incorporated from 1998 to 2003.
Item 1A. Risk Factors
The following risk factors should be considered carefully in addition to the other information contained in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face, but represent the most significant risk factors that we believe may adversely affect the RV industry and our business, operations or financial position. The risks and uncertainties discussed in this report are not exclusive and other risk factors that we may consider immaterial or do not anticipate may emerge as significant risks and uncertainties.
Risks Related to Our Business
Competition
The market for RVs is very competitive. Competition in this industry is based upon price, design, value, quality and service. There can be no assurance that existing or new competitors will not develop products that are superior to our RVs or that achieve better consumer acceptance, thereby adversely affecting our market share, sales volume and profit margins. Some of our competitors are much larger than us, most notably in the towable RV market, which may provide them additional purchasing power. These competitive pressures may continue to have a material adverse effect on our results of operations.
Hiring Constraints
Our operations are dependent upon attracting and retaining skilled employees. Our motorhome operation is located in northern Iowa, a largely rural area. If we are unable to hire enough skilled employees to meet production demands or are unable to hire, motivate, retain and promote skilled personnel in all levels of our organization, we may be unable to develop and distribute products as effectively as might otherwise be achieved.
General Economic Conditions and Certain Other External Factors
Companies within the RV industry are subject to volatility in operating results due primarily to general economic conditions because the purchase of an RV is often viewed as a consumer luxury purchase. Specific factors affecting the RV industry include:
•
overall consumer confidence and the level of discretionary consumer spending;
•
employment trends;
•
the adverse impact of global tensions on consumer spending and travel-related activities; and
•
adverse impact on margins of increases in raw material costs which we are unable to pass on to customers without negatively affecting sales.

Dependence on Credit Availability and Interest Rates to Dealers and Retail Purchasers
Our business is affected by the availability and terms of the financing to dealers. Generally, RV dealers finance their purchases of inventory with financing provided by lending institutions. Three financial flooring institutions held 71% of our total financed dealer inventory dollars that were outstanding at August 30, 2014. In the event that any of these lending institutions limit or discontinue dealer financing, we could experience a material adverse effect on our results of operations. Our business is also affected by the availability and terms of financing to retail purchasers. Retail buyers purchasing a motorhome or towable may elect to finance their purchase through the dealership or a financial institution of their choice. Substantial increases in interest rates or decreases in the general availability of credit for our dealers or for the retail purchaser may have an adverse impact upon our business and results of operations.
Cyclicality and Seasonality
The RV industry has been characterized by cycles of growth and contraction in consumer demand, reflecting prevailing economic and demographic conditions, which affect disposable income for leisure-time activities. Consequently, the results for any prior period may not be indicative of results for any future period.
Seasonal factors, over which we have no control, also have an effect on the demand for our products. Demand in the RV industry generally declines over the winter season, while sales are generally highest during the spring and summer months. Also, unusually severe weather conditions in some markets may impact demand. Our business also does well when the US housing market is strong and our business weakens when the US housing market weakens.
Potential Loss of a Large Dealer Organization
One of our dealer organizations accounted for 19.7% of our net revenue for Fiscal 2014, as they sold our products in 72 of their dealership locations across 28 US states. A second dealer organization accounted for 12.5% of our net revenue for Fiscal 2014, as they sold products in 11 of their dealership locations across 4 US states. The loss of either or both of these dealer organizations could have a significant adverse effect on our business. In addition, deterioration in the liquidity or creditworthiness of either of both of these dealers could negatively impact our sales and could trigger repurchase obligations under our repurchase agreements.

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Table of Contents

Potential Repurchase Liabilities
In accordance with customary practice in the RV industry, upon request we enter into formal repurchase agreements with lending institutions financing a dealer's purchase of our products. In these repurchase agreements we agree, in the event of a default by an independent dealer in its obligation to a lender and repossession of the unit(s) by the lending institution, to repurchase units at declining prices over the term of the agreements, which can last up to 18 months. The difference between the gross repurchase price and the price at which the repurchased product can then be resold, which is typically at a discount to the gross repurchase price, represents a potential expense to us. In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary terminations. We also have agreed to repurchase certain units that we sell to a rental company. If we are obligated to repurchase a substantially larger number of RVs in the future, this would increase our costs and could have a material adverse effect on our results of operations, financial condition, and cash flows.
Lower-Than-Anticipated Residual Values for Rental Motorhomes Sold with Repurchase Option
We project expected residual values and return volumes for the motorhomes we deliver with a repurchase option. Actual proceeds realized upon the sale of repurchased rental motorhomes may be lower than the amount projected, which would reduce the profitability of the transaction. Among the factors that can affect the value of repurchased rental motorhomes are the volume of motorhomes returned, economic conditions, and quality or perceived quality, or reliability of the units. Each of these factors, alone or in combination, has the potential to adversely affect our profitability if actual results were to differ significantly from our projections.
Fuel Availability and Price Volatility
Gasoline or diesel fuel is required for the operation of motorized RVs. There can be no assurance that the supply of these petroleum products will continue uninterrupted or that the price or tax on these petroleum products will not significantly increase in the future. RVs, however, are not generally purchased for fuel efficiency. Fuel shortages and substantial increases in fuel prices have had a material adverse effect on the RV industry as a whole in the past and could have a material adverse effect on us in the future.
Dependence on Suppliers
Most of our RV components are readily available from numerous sources. However, a few of our components are produced by a small group of suppliers. In the case of motorhome chassis, Ford Motor Company, Freightliner Custom Chassis Corporation, Mercedes-Benz (USA and Canada) and Chrysler Group, LLC are our major suppliers. Our relationship with our chassis suppliers is similar to our other supplier relationships in that no special contractual commitments are engaged in by either party. This means that we do not have minimum purchase requirements and our chassis suppliers do not have minimum supply requirements. Our chassis suppliers also supply to our competitors. Historically, chassis suppliers resort to an industry-wide allocation system during periods when supply is restricted. These allocations have been based on the volume of chassis previously purchased. Sales of motorhomes rely on chassis supply and are affected by shortages from time to time. Decisions by our suppliers to decrease production, production delays, or work stoppages by the employees of such suppliers, or price increases could have a material adverse effect on our ability to produce motorhomes and ultimately, on our results of operations, financial condition and cash flows.
Warranty Claims
We receive warranty claims from our dealers in the ordinary course of our business. Although we maintain reserves for such claims, which to date have been adequate, there can be no assurance that warranty expense levels will remain at current levels or that such reserves will continue to be adequate. A significant increase in warranty claims exceeding our current warranty expense levels could have a material adverse effect on our results of operations, financial condition and cash flows.
In addition to the costs associated with the contractual warranty coverage provided on our products, we also occasionally incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions. Although we estimate and reserve for the cost of these service actions, there can be no assurance that expense levels will remain at current levels or such reserves will continue to be adequate.
Product Liability
We are subject, in the ordinary course of business, to litigation including a variety of warranty, "Lemon Law" and product liability claims typical in the RV industry. Although we have an insurance policy with a $35 million limit covering product liability, we are self-insured for the first $2.5 million of product liability claims on a per occurrence basis, with a $6.0 million aggregate. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us, which may have a material adverse effect on our results of operations and financial condition. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premium that we are required to pay for insurance to rise significantly. Product liability claims may also cause us to pay punitive damages, not all of which are covered by our insurance. In addition, if product liability claims rise to a level of frequency or size that are significantly higher than similar claims made against our competitors, our reputation and business may be harmed.

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Information Systems and Web Applications
We rely on our information systems and web applications to support our business operations, including but not limited to procurement, supply chain, manufacturing, distribution, warranty administration, invoicing and collection of payments. We use information systems to report and audit our operational results. Additionally, we rely upon information systems in our sales, marketing, human resources and communication efforts. Due to our reliance on our information systems, our business processes may be negatively impacted in the event of substantial disruption of service. Further, misuse, leakage or falsification of information could result in a violation of privacy laws and damage our reputation which could, in turn, have a negative impact on our results.
Government Regulation
We are subject to numerous federal, state and local regulations. Some regulations govern the manufacture and sale of our products, including the provisions of the MVA, and the safety standards for RVs and components which have been established under the Motor Vehicle Act by the Department of Transportation. The MVA authorizes the National Highway Traffic Safety Administration to require a manufacturer to recall and repair vehicles which contain certain hazards or defects. Any major recalls of our vehicles, voluntary or involuntary, could have a material adverse effect on our results of operations, financial condition and cash flows. While we believe we are substantially in compliance with the foregoing laws and regulations as they currently exist, amendments to any of these regulations or the implementation of new regulations could significantly increase the cost of manufacturing, purchasing, operating or selling our products and could have a material adverse effect on our results of operations, financial condition, and cash flows. In addition, our failure to comply with present or future regulations could result in fines being imposed on us, potential civil and criminal liability, suspension of sales or production or cessation of operations.
We are also subject to federal and numerous state consumer protection and unfair trade practice laws and regulations relating to the sale, transportation and marketing of motor vehicles, including so-called "Lemon Laws." Federal and state laws and regulations also impose upon vehicle operators various restrictions on the weight, length and width of motor vehicles, including motorhomes that may be operated in certain jurisdictions or on certain roadways. Certain jurisdictions also prohibit the sale of vehicles exceeding length restrictions.
Failure to comply with NYSE and SEC laws or regulations could have an adverse impact on our business. Additionally, amendments to these regulations and the implementation of new regulations could increase the cost of manufacturing, purchasing, operating or selling our products and therefore could have an adverse impact on our business.
The SEC adopted rules pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act setting forth new disclosure requirements concerning the use or potential use of certain minerals, deemed conflict minerals (tantalum, tin, gold and tungsten), that are mined from the Democratic Republic of Congo and adjoining countries. These requirements necessitate due diligence efforts on our part to assess whether such minerals are used in our products in order to make the relevant required disclosures that began in May 2014. We incurred costs and diverted internal resource to comply with these new disclosure requirements, including for diligence to determine the sources of those minerals that may be used or necessary to the production of our products. Compliance costs may increase in future periods. We may face reputational challenges that could impact future sales if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products.
Finally, federal and state authorities also have various environmental control standards relating to air, water, noise pollution and hazardous waste generation and disposal which affect us and our operations. Failure by us to comply with present or future laws and regulations could result in fines being imposed on us, potential civil and criminal liability, suspension of production or operations, alterations to the manufacturing process, or costly cleanup or capital expenditures, any or all of which could have a material adverse effect on our results of operations.

Risks Related to Our Company

Anti-takeover Effect
Provisions of our articles of incorporation, by-laws, the Iowa Business Corporation Act and provisions in our credit facilities and certain of our compensation programs that we may enter into from time to time could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial by our shareholders. The combination of these provisions effectively inhibits a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.

Item 1B. Unresolved Staff Comments
None.


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Item 2. Properties
Our principal manufacturing, maintenance and service operations are conducted in multi-building complexes owned or leased by us. The following sets forth our material facilities as of August 30, 2014:
Location
Facility Type/Use
# of Buildings
Owned or Leased
Square
Footage
Forest City, Iowa
Manufacturing, maintenance, service and office
32

Owned
1,546,000

Forest City, Iowa
Warehouse
3

Owned
459,000

Charles City, Iowa
Manufacturing
2

Owned
161,000

Lake Mills, Iowa
Manufacturing
1

Leased
96,000

Middlebury, Indiana
Manufacturing and office
4

Leased
277,000

 
 
42

 
2,539,000

The facilities that we own in Forest City and Charles City are located on approximately 310 acres of land. Most of our buildings are of steel or steel and concrete construction and are protected from fire with high‑pressure sprinkler systems, dust collector systems, automatic fire doors and alarm systems. We believe that our facilities and equipment are well maintained, in excellent condition and suitable for the purposes for which they are intended.
In January 2011, we entered into a five-year lease agreement with FFT Land Management for real property consisting of four buildings and approximately 30 acres of land located in Middlebury, Indiana. The buildings are being utilized to assemble towables.
In November 2013, we entered into a five-year lease with the city of Lake Mills, IA for a manufacturing plant with two options to renew for five years each. This plan is being utilized to assemble Class B product.
In the first quarter of Fiscal 2013, property in Hampton, Iowa, an asset held for sale, was sold for $550,000 in gross proceeds resulting in a loss of $28,000 not including previous impairments. In the second quarter of Fiscal 2014, we sold a warehouse property for $2.3 million in gross proceeds resulting in a gain of $629,000. See Note 5.
Under terms of our credit facility, as further described in Note 7, we have encumbered substantially all of our real property for the benefit of the lender under such facility.
Item 3. Legal Proceedings
We are involved in various legal proceedings which are ordinary and 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 4. Mine Safety Disclosure

Not Applicable.

PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the New York and Chicago Stock Exchanges with the ticker symbol of WGO.
Below are the New York Stock Exchange high, low and closing prices of Winnebago Industries, Inc. common stock for each quarter of Fiscal 2014 and Fiscal 2013:
Fiscal 2014
High
Low
Close
 
Fiscal 2013
High
Low
Close
First Quarter
$
31.80

$
21.26

$
30.96

 
First Quarter
$
14.49

$
10.99

$
14.22

Second Quarter
32.41

23.18

26.66

 
Second Quarter
20.10

13.53

19.49

Third Quarter
28.85

22.68

24.76

 
Third Quarter
22.34

16.72

20.76

Fourth Quarter
26.69

22.80

24.73

 
Fourth Quarter
25.15

19.33

22.27

 
Holders
Shareholders of record as of October 14, 2014: 3,150

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Dividends Paid Per Share
On October 15, 2014, our Board of Directors declared a cash dividend of $0.09 per outstanding share of common stock. The dividend will be paid on November 26, 2014 to all shareholders of record at the close of business on November 12, 2014. The Board currently intends to continue to pay quarterly cash dividends payments in the future; however, declaration of future dividends, if any, will be based on several factors including our financial performance, outlook and liquidity. We have not paid dividends since the first quarter of Fiscal 2009.
The payment of dividends may limit our ability to fully utilize our credit facility.  Our credit facility, as further described in Note 7, contains covenants that limit our ability to pay certain cash dividends without impacting financial ratio covenants.   
Issuer Purchases of Equity Securities
Our credit facility, as further described in Note 7, contains covenants that limits our ability, among other things, except for limited purchases of our common stock from employees, to make distributions or payments with respect to or purchases of our common stock without consent of the lenders.
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 Fiscal 2014, approximately 1.0 million shares were repurchased under the authorization, at an aggregate cost of approximately $26.3 million, or $25.62 per share. Approximately 61,000 of these shares were repurchased from employees who vested in Winnebago Industries shares during the fiscal year and elected to pay their payroll tax via delivery of common stock as opposed to cash. As of August 30, 2014, there was approximately $13.6 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 fourth quarter of Fiscal 2014:
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
06/01/14 - 07/05/14
84,641

$
23.81

84,641

(1)
 
$
13,582,000

 
07/06/14 - 08/02/14
—

$
—

—

 
 
$
13,582,000

 
08/03/14 - 08/30/14
—

$
—

—

 
 
$
13,582,000

 
Total
84,641

$
23.81

84,641

(1)
 
$
13,582,000

 
Equity Compensation Plan Information
The following table provides information as of August 30, 2014 with respect to shares of our common stock that may be issued under our existing equity compensation plans:
 
(a)
(b)
(c)

Plan Category
Number of Securities to
be Issued Upon
Exercise of
Outstanding Options,
 Warrants and Rights
Weighted Average
Exercise Price of
Outstanding Options,
 Warrants and Rights
Number of Securities
 Remaining Available for
Future Issuance Under Equity
 Compensation Plans
 (Excluding Securities
 Reflected in (a))
Equity compensation plans
  approved by shareholders - 2004 Plan (1)
457,421

 
$
30.38

—

 
Equity compensation plans
  approved by shareholders - 2004 Plan (2)
198,523

 
$
18.98

—

 
Equity compensation plans
  approved by shareholders - 2014 Plan
 
 
 
 
3,600,000

(3) 
Equity compensation plans not
  approved by shareholders (4)
104,490

(5) 
$
13.44

—

(6) 
Total
760,434

 
$
25.08

3,600,000

 
(1) 
This number represents stock options granted under the 2004 Incentive Compensation Plan, as amended ("2004 Plan") which will continue to be exercisable in accordance with their original terms and conditions. No new grants may be made under the 2004 Plan.
(2) 
This number represents unvested share awards granted under the 2004 Plan. No new grants may be made under the 2004 Plan.
(3) 
This number represents stock options available for grant under the 2014 Omnibus Equity, Performance Award, and Incentive Compensation Plan, as amended ("2014 Plan") as of August 30, 2014. The 2014 Plan replaced the 2004 Plan effective January 1, 2014 and was approved by the shareholders at the December 17, 2013 Annual Meeting.
(4) 
Our sole equity compensation plan not previously submitted to our shareholders for approval is the Directors' Deferred Compensation Plan, as amended ("Directors' Plan"). The Board of Directors may terminate the Directors' Plan at any time. If not terminated earlier, the Directors' Plan will automatically terminate on June 30, 2023. For a description of the key provisions of the Directors' Plan, see the information in our Proxy

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Table of Contents

Statement for the Annual Meeting of Shareholders scheduled to be held December 16, 2014 under the caption "Director Compensation," which information is incorporated by reference herein.
(5) 
Represents shares of common stock issued to a trust which underlie stock units, payable on a one-for-one basis, credited to stock unit accounts as of August 30, 2014 under the Directors' Plan.
(6) 
The table does not reflect a specific number of stock units which may be distributed pursuant to the Directors' Plan. The Directors' Plan does not limit the number of stock units issuable thereunder. The number of stock units to be distributed pursuant to the Directors' Plan will be based on the amount of the director's compensation deferred and the per share price of our common stock at the time of deferral.

Performance Graph
The following graph compares our five-year cumulative total shareholder return (including reinvestment of dividends) with the cumulative total return on the Standard & Poor's 500 Index and a peer group. The peer group companies consisting of Thor Industries, Inc., Polaris Industries, Inc. and Brunswick Corporation were selected by us as they also manufacture recreation products. It is assumed in the graph that $100 was invested in our common stock, in the Standard & Poor's 500 Index and in the stocks of the peer group companies on August 29, 2009 and that all dividends received within a quarter were reinvested in that quarter. In accordance with the guidelines of the SEC, the shareholder return for each entity in the peer group index has been weighted on the basis of market capitalization as of each annual measurement date set forth in the graph.
 
Base Period
 
Company/Index
8/29/09
8/28/10
 
8/27/11
 
8/25/12
 
8/31/13
 
8/30/14
Winnebago Industries, Inc.
100.00

77.88

 
61.45

 
97.68

 
197.57

 
219.39

S&P 500 Index
100.00

105.56

 
119.01

 
145.74

 
172.52

 
216.08

Peer Group
100.00

123.04

 
168.91

 
256.64

 
395.88

 
498.02



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Item 6. Selected Financial Data
 
Fiscal Years Ended
(In thousands, except EPS)
08/30/14
 
08/31/13
 
8/25/12 (1)
 
08/27/11
 
08/28/10
Income statement data:
 
 
 
 
 
 
 
 
 
Net revenues
$
945,163

 
$
803,165

 
$
581,679

 
$
496,418

 
$
449,484

Net income
45,053

 
31,953

 
44,972

 
11,843

 
10,247

 
 
 
 
 
 
 
 
 
 
Per share data:
 
 
 
 
 
 
 
 
 
Net income - basic
1.64

 
1.14

 
1.54

 
0.41

 
0.35

Net income - diluted
1.64

 
1.13

 
1.54

 
0.41

 
0.35

Dividends declared and paid per common share
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
Balance sheet data:
 
 
 
 
 
 
 
 
 
Total assets
358,302

 
309,145

 
286,072

 
239,927

 
227,357

(1) In Fiscal 2012 we recorded a non-cash tax benefit of $37.7 million through the reduction of our Fiscal 2009 deferred tax asset valuation allowance.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in eight sections:
•
•
•
•
•
•
•
•

Our MD&A should be read in conjunction with the Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Executive Overview
Winnebago Industries, Inc. is a leading US manufacturer of RVs with a proud history of manufacturing RV products for more than 50 years. We produce all of our motorhomes in vertically integrated manufacturing facilities in Iowa and we produce all travel trailer and fifth wheel trailers 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 July 31
 
Calendar Year
US and Canada
 
2014
2013
 
2013
2012
2011
Motorized A, B, C
 
20.9
%
17.6
%
 
18.6
%
19.8
%
18.1
%
 
 
 
 
 
 
 
 
Travel trailer and fifth wheels
 
0.8
%
0.9
%
 
1.0
%
0.9
%
0.6
%

Through the first seven months of the calendar year, we increased our North American motorhome retail market share by 330 basis points. The most notable growth occurred in the Class C segment which was fueled in part by our partnership with a large rental dealer. We also experienced strong retail growth in our Class B and Class A diesel segments due to new products introduced in those categories.

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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
Q1
 
1,534

1,416

2,045

2,118

 
557

367

1,555

687

Q2
 
1,419

1,072

2,392

2,752

 
548

328

1,775

381

Q3
 
1,978

1,736

2,634

2,846

 
713

846

1,642

443

Q4
 
1,890

1,870

2,654

3,380

 
717

748

1,611

221

Fiscal 2013
 
6,821

6,094

 
 
 
2,535

2,289

 
 
 
 
 
 
 
 
 
 
 
 
 
Q1
 
2,005

1,524

3,135

3,534

 
484

504

1,591

151

Q2
 
2,055

1,283

3,907

2,900

 
575

394

1,772

206

Q3 (1)
 
2,331

2,783

3,798

2,357

 
727

724

1,775

303

Q4
 
2,364

2,183

3,979

1,899

 
723

777

1,721

163

Fiscal 2014
 
8,755

7,773

 
 
 
2,509

2,399

 
 
 
 
 
 
 
 
 
 
 
 
 
Unit change
 
1,934

1,679

1,325

 
 
(26
)
110

110

 
Percentage change
 
28.4
%
27.6
%
49.9
%
 
 
(1.0
)%
4.8
%
6.8
%
 
(1) 
An additional 343 units were delivered but not included in Q3 2014 motorhome wholesale deliveries as presented in the table above as the units are subject to repurchase option. These units were included as retail registrations, not in dealer inventory, as the units were immediately placed into rental service once delivered. See Note 5 to the financial statements.

Highlights of Fiscal 2014:
Consolidated revenues, gross profit, and operating income were significantly higher for Fiscal 2014 as compared to Fiscal 2013. Quarterly results for the past two fiscal years are illustrated as follows:
(In thousands)
Revenues
 
Gross Profit
 
Gross Margin
 
Operating
Income
 
Operating Margin
2014
2013
 
2014
2013
 
2014
2013
 
2014
2013
 
2014
2013
Q1
$
222,670

193,554

 
$
25,962

$
20,747

 
11.7
%
10.7
%
 
$
16,006

$
9,946

 
7.2
%
5.1
%
Q2
228,811

177,166

 
22,845

17,191

 
10.0
%
9.7
%
 
14,036

8,872

 
6.1
%
5.0
%
Q3
247,747

218,199

 
26,481

21,197

 
10.7
%
9.7
%
 
15,589

10,248

 
6.3
%
4.7
%
Q4
245,935

214,246

 
28,709

25,496

 
11.7
%
11.9
%
 
18,278

15,332

 
7.4
%
7.2
%
Total
$
945,163

$
803,165

 
$
103,997

$
84,631

 
11.0
%
10.5
%
 
$
63,909

$
44,398

 
6.8
%
5.5
%
  
Operational performance:
•
Fiscal 2014 wholesale motorhome deliveries and retail demand both increased by approximately 28% as compared to Fiscal 2013. As a result, dealer inventory grew by nearly 50% to support the increased retail demand 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. During the course of the fiscal year we continued to accelerate our motorhome production rates. This acceleration, coupled with the elimination of a key chassis supply chain constraint, allowed us to reduce our motorhome backlog to a more reasonable level of 1,899 at the end of Fiscal 2014 compared to 3,380 at the end of Fiscal 2013.
•
As previously discussed, we entered into a new partnership with a large rental dealer. This relationship generated a new transaction for us. Not reflected in our wholesale motorhome deliveries are 343 units that we produced for this rental customer. These units are not recorded as motorhome revenue due to the fact that we agreed to repurchase 343 units at the end of the customer's rental season, however we did record operating lease income. Details of this transaction are available in Note 4 to the Financial Statements.
Financial performance:
•
Our towable products achieved our objective of being financially accretive for the fiscal year. The emphasis for the towable management team was operational improvement; most notably the focus was on cost reductions and improved pricing. Towables generated operating income of $1.3 million in Fiscal 2014 compared to an operating loss of $3.5 million in Fiscal 2013. While towable net revenue experienced modest growth of 6%, the key factors in the $4.8 million improvement in operating loss to operating income were reduced costs associated with materials and warranty.
•
The strong growth for our motorized products has led to enhanced financial performance. Our net income in Fiscal 2014 grew 41% compared to the prior fiscal year. This was achieved by strong revenue growth, expanding gross margins and leveraging our operating expenses which remained flat on a year over year basis.

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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
(In units)
2013

 
2012

Increase
Change
 
2013

 
2012

Increase
Change
Q1
8,500

 
6,869

1,631

23.7
%
 
7,147

 
5,706

1,441

25.3
%
Q2
10,972

 
7,707

3,265

42.4
%
 
10,909

 
8,206

2,703

32.9
%
Q3
9,469

 
6,678

2,791

41.8
%
 
9,125

 
6,916

2,209

31.9
%
Q4
9,391

 
6,944

2,447

35.2
%
 
6,281

 
4,922

1,359

27.6
%
Total
38,332

 
28,198

10,134

35.9
%
 
33,462

 
25,750

7,712

29.9
%
 
 
 
 
 
 
 
 
 
 
 
 
(In units)
2014

 
2013

Increase
Change
 
2014

 
2013

Increase
Change
Q1
11,125

 
8,500

2,625

30.9
%
 
8,070

 
7,147

923

12.9
%
Q2
12,203

 
10,972

1,231

11.2
%
 
12,427

 
10,909

1,518

13.9
%
July
3,201

 
2,850

351

12.3
%
 
3,655

 
3,328

327

9.8
%
August
3,964

 
3,302

662

20.0
%
 
 
(4
)
2,996





September
3,626

(3)
3,317

309

9.3
%
 
 
(4
)
2,801

 
 
Q3
10,791

(3)
9,469

1,322

14.0
%
 
 
(4
)
9,125

 
 
Q4
10,500

(3)
9,391

1,109

11.8
%
 
 
(4
)
6,281

 
 
Total
44,619

(3) 
38,332

6,287

16.4
%
 


 
33,462




 
 
 
 
 
 
 
 
 
 
 
 
July year to date growth
26,529

 
22,322

4,207

18.8
%
 
24,152

 
21,384

2,768

12.9
%
(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 2014 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 Fall 2014 Industry Forecast Issue. The revised RVIA annual 2014 wholesale shipment forecast is 44,800 and the annual forecast for 2015 is 45,700, an increase of 2.0%.
(4) 
Stat Surveys has not issued a projection for 2014 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)
2013

 
2012

Increase
Change
 
2013

 
2012

Increase
Change
Q1
66,745

 
60,402

6,343

10.5
%
 
42,987

 
39,093

3,894

10.0
%
Q2
79,935

 
71,095

8,840

12.4
%
 
94,717

 
83,990

10,727

12.8
%
Q3
61,251

 
56,601

4,650

8.2
%
 
79,805

 
67,344

12,461

18.5
%
Q4
60,104

 
54,782

5,322

9.7
%
 
37,054

 
32,469

4,585

14.1
%
Total
268,035

 
242,880

25,155

10.4
%
 
254,563

 
222,896

31,667

14.2
%
 
 
 
 
 
 
 
 
 
 
 
 
(In units)
2014

 
2013

Increase
Change
 
2014

 
2013

Increase
Change
Q1
75,458

 
66,745

8,713

13.1
%
 
45,873

 
42,987

2,886

6.7
%
Q2
85,648

 
79,935

5,713

7.1
%
 
98,754

 
94,717

4,037

4.3
%
   July
23,691

 
22,083

1,608

7.3
%
 
32,111

 
31,306

805

2.6
%
   August
21,370

 
20,797

573

2.8
%
 
 
(4
)
27,935




   September
19,672

(3
)
18,371

1,301

7.1
%
 
 
(4
)
20,564

 
 
Q3
64,733

(3
)
61,251

3,482

5.7
%
 
 
(4
)
79,805

 
 
Q4
62,400

(3
)
60,104

2,296

3.8
%
 
 
(4
)
37,054

`

 
Total
288,239

(3
)
268,035

20,204

7.5
%
 


 
254,563




 
 
 
 
 
 
 
 
 
 
 
 
July year to date growth
184,797
 
168,763

16,034

9.5
%
 
176,738

 
169,010

7,728

4.6
%

(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 2014 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 Fall 2014 Industry Forecast Issue. The revised annual 2014 wholesale shipment forecast is 291,100 and the annual forecast for 2015 is 301,400, an increase of 3.5%.
(4) 
Stat Surveys has not issued a projection for 2014 retail demand for this period.


14
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 are attempting to grow revenues and earnings in a market significantly larger than the motorized market.

In Fiscal 2014 our motorhome shipments increased by approximately 28% compared to the forecasted industry growth rate for calendar 2014 of 16.4%. We believe this demonstrates that our dealer network and ultimately the retail consumer have a strong demand for our products. This is driven in part by the new products that we have introduced in recent periods.

During the course of the fiscal year we continued to accelerate our motorhome production rates. As a result we produced nearly 30% more units in Fiscal 2014. This acceleration, coupled with the elimination of a key supply chain constraint of Class A gas chassis, allowed us to reduce our motorhome backlog to 1,899 at the end of the fiscal year. We expect to continue to increase production during Fiscal 2015 to align the growing demand for our products, while managing constraints as they may occur in relation to labor and component parts.

Our unit order backlog was as follows:
 
As Of
(In units)
August 30, 2014
 
August 31, 2013
 
(Decrease)
Increase
%
Change
Class A gas
338

17.8
%
 
1,405

41.6
%
 
(1,067
)
(75.9
)%
Class A diesel
302

15.9
%
 
607

18.0
%
 
(305
)
(50.2
)%
Total Class A
640

33.7
%
 
2,012

59.5
%
 
(1,372
)
(68.2
)%
Class B
323

17.0
%
 
300

8.9
%
 
23

7.7
 %
Class C
936

49.3
%
 
1,068

31.6
%
 
(132
)
(12.4
)%
Total motorhome backlog(1)
1,899

100.0
%
 
3,380

100.0
%
 
(1,481
)
(43.8
)%
 
 
 
 
 
 
 
 
 
Travel trailer
134

82.2
%
 
180

81.4
%
 
(46
)
(25.6
)%
Fifth wheel
29

17.8
%
 
41

18.6
%
 
(12
)
(29.3
)%
Total towable backlog(1)
163

100.0
%
 
221

100.0
%
 
(58
)
(26.2
)%
 
 
 
 
 
 
 
 
 
Approximate backlog revenue in thousands
 
 
 
 
 
 
 
Motorhome
$
172,575

 
 
$
346,665

 
 
$
(174,090
)
(50.2
)%
Towable
$
3,750

 
 
$
4,744

 
 
$
(994
)
(21.0
)%
(1) 
We include in our backlog all accepted purchase orders from dealers to be shipped within the next six months. Orders in backlog can be canceled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.

Our unit dealer inventory was as follows:
 
August 30,
2014
August 31,
2013
 
Increase
%
Change
Motorhomes
3,979

2,654

 
1,325

49.9
%
Towables
1,721

1,611

 
110

6.8
%

We believe that the level of our dealer inventory at the end of Fiscal 2014 is reasonable given the improved retail demand and current sales order backlog of our product. We have introduced a number of new products in the past year (Class B: Travato; Class C: Trend, Viva; Class A diesel: Forza, Solei), many of these products were delivered to the dealers during Fiscal 2014 for their initial stocking. These innovative products have generated additional retail demand and we believe will continue to do so. We have also expanded our points of distribution for these new product offerings in the past year as our dealer locations have increased 11.8%, which is another factor contributing to our dealer inventory growth.

Impact of Inflation
Materials cost is the primary component in the cost of our products. Historically, the impact of inflation on our operations has not been significantly detrimental, as we have usually been able to adjust our prices to reflect the inflationary impact on the cost of manufacturing our products. While we have historically been able to pass on these increased costs, in the event we are unable to continue to do so due to market conditions, future increases in manufacturing costs could have a material adverse effect on our results of operations.


15
Table of Contents

Results of Operations
Fiscal 2014 Compared to Fiscal 2013
The following is an analysis of changes in key items included in the statements of operations for the fiscal year ended August 30, 2014 compared to the fiscal year ended August 31, 2013:
 
Year Ended
(In thousands, except percent and per share data)
August 30,
2014
% of
Revenues(1)
August 31,
2013
% of
Revenues(1)
Increase
(Decrease)
%
Change
Net revenues
$
945,163

100.0
 %
$
803,165

100.0
%
$
141,998

17.7
 %
Cost of goods sold
841,166

89.0
 %
718,534

89.5
%
122,632

17.1
 %
Gross profit
103,997

11.0
 %
84,631

10.5
%
19,366

22.9
 %
 
 
 
 
 
 
 
Selling
18,293

1.9
 %
18,318

2.3
%
(25
)
(0.1
)%
General and administrative
22,424

2.4
 %
21,887

2.7
%
537

2.5
 %
(Gain) loss on real estate
(629
)
(0.1
)%
28

—
%
(657
)
NMF

Operating expenses
40,088

4.2
 %
40,233

5.0
%
(145
)
(0.4
)%
 
 
 
 
 
 
 
Operating income
63,909

6.8
 %
44,398

5.5
%
19,511

43.9
 %
Non-operating income
768

0.1
 %
696

0.1
%
72

10.3
 %
Income before income taxes
64,677

6.8
 %
45,094

5.6
%
19,583

43.4
 %
Provision (benefit) for taxes
19,624

2.1
 %
13,141

1.6
%
6,483

49.3
 %
Net income
$
45,053

4.8
 %
$
31,953

4.0
%
$
13,100

41.0
 %
Diluted income per share
$
1.64

 
$
1.13

 
$
0.51

45.1
 %
Diluted average shares outstanding
27,545

 
28,170

 




(1) Percentages may not add due to rounding differences.
Unit deliveries and ASP, net of discounts, consisted of the following:
 
Year Ended
(In units)
August 30,
2014
Product
Mix % (1)
August 31,
2013
Product
Mix % (1)
Increase
(Decrease)
%
Change
Motorhomes:
 
 
 
 
 
 
Class A gas
3,056

34.9
%
2,446

35.9
%
610

24.9
 %
Class A diesel
1,410

16.1
%
1,315

19.3
%
95

7.2
 %
Total Class A
4,466

51.0
%
3,761

55.1
%
705

18.7
 %
Class B
751

8.6
%
372

5.5
%
379

101.9
 %
Class C
3,538

40.4
%
2,688

39.4
%
850

31.6
 %
Total motorhome deliveries
8,755

100.0
%
6,821

100.0
%
1,934

28.4
 %
 
 
 
 
 
 
 
ASP (in thousands) (1)
$
96

 
$
105

 
$
(8
)
(7.8
)%
 
 
 
 
 
 
 
Towables:
 
 
 
 
 
 
Travel trailer
2,052

81.8
%
2,038

80.4
%
14

0.7
 %
Fifth wheel
457

18.2
%
497

19.6
%
(40
)
(8.0
)%
Total towable deliveries
2,509

100.0
%
2,535

100.0
%
(26
)
(1.0
)%
 
 
 
 
 
 
 
ASP (in thousands)(1)
$
23

 
$
21

 
$
2

8.6
 %
(1) Percentages and dollars may not add due to rounding differences.

16
Table of Contents


Net revenues consisted of the following:
 
Year Ended
(In thousands)
August 30, 2014
 
August 31, 2013
 
Increase
%
Change
Motorhomes (1)
$
853,488

90.3
%
 
$
718,580

89.5
%
 
$
134,908

18.8
%
Towables (2)
58,123

6.1
%
 
54,683

6.8
%
 
3,440

6.3
%
Other manufactured products
33,552

3.6
%
 
29,902

3.7
%
 
3,650

12.2
%
Total net revenues
$
945,163

100.0
%
 
$
803,165

100.0
%
 
$
141,998

17.7
%
(1) 
Includes motorhome units, parts, and services
(2) 
Includes towable units and parts

The increase in motorhome net revenues of $134.9 million or 18.8% was primarily attributed to a 28.4% increase in unit deliveries driven by higher dealer and retail consumer demand when compared to Fiscal 2013. ASP decreased 7.8% in Fiscal 2014 due to new products introduced in all classes at lower price points during the year.

Towables revenues were $58.1 million in Fiscal 2014 compared to revenues of $54.7 million in Fiscal 2013. ASP increased 8.6% and towable unit deliveries decreased by 1.0%.

One contributing factor to the increase in unit deliveries during Fiscal 2014 relates to revised shipping terms with our dealers. Effective in the first quarter of Fiscal 2014, we entered into revised dealer agreements to change our shipping terms so that title and risk of loss passes to our dealers upon acceptance of the unit by an independent transportation company for delivery which is standard industry practice. As a result of this term change, an additional $40.8 million of revenue was recognized in Fiscal 2014, which represented units in possession of the transportation company in-transit to the dealer. In Fiscal 2013, such revenues would have been recognized in the next fiscal year. Conversely, due to our 52/53 week fiscal year convention, Fiscal 2013 had an extra week in the first quarter as compared to Fiscal 2014 resulting in an additional $13.8 million of revenue recognized in the prior year first quarter. The net effect of these two timing items resulted in a positive impact of $27.0 million when comparing Fiscal 2014 to Fiscal 2013.

Cost of goods sold was $841.2 million, or 89.0% of net revenues for Fiscal 2014 compared to $718.5 million, or 89.5% of net revenues for Fiscal 2013 due to the following:
•
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, were 83.7% in both years.
•
Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 5.3% of net revenues compared to 5.7%. The difference was due primarily to increased revenues in Fiscal 2014.
•
All factors considered, gross profit increased from 10.5% to 11.0% of net revenues.
Selling expenses decreased to 1.9% from 2.3% of net revenues in Fiscal 2014 and Fiscal 2013, respectively. The decrease was due primarily to increased revenues in Fiscal 2014, as selling expenses were flat year over year.
General and administrative expenses were 2.4% and 2.7% of net revenues in Fiscal 2014 and Fiscal 2013, respectively. The decrease was due primarily to increased revenues in Fiscal 2014. General and administrative expenses increased $537,000, or 2.5%, in Fiscal 2014. This increase was due primarily to a reduction of rental income as a result of the sale of one of our warehouse properties in Fiscal 2014 and was partially offset by approximately $550,000 additional amortization on our Towables intangible assets in Fiscal 2013 (see Note 6).
During the second quarter of Fiscal 2014, we sold a warehouse facility in Forest City, Iowa, resulting in a gain of $629,000. See Note 5.
Non-operating income increased $72,000 or 10.3%, in Fiscal 2014. We received proceeds from COLI policies in both Fiscal 2014 and Fiscal 2013. See Note 12.

The overall effective income tax rate for Fiscal 2014 was 30.3% compared to 29.1% in Fiscal 2013. The overall increase is primarily a result of higher level of pre-tax book income earned in Fiscal 2014 compared to Fiscal 2013, as certain permanent deductions (tax-free income from COLI) recorded during Fiscal 2014 were relatively flat in dollar value compared to the prior year and legislation for various applicable tax credits expired on December 31, 2013; therefore our projected benefits for these tax credits are limited to four months of our fiscal year. See Note 11.

Net income and diluted income per share were $45.1 million and $1.64 per share, respectively, for Fiscal 2014. In Fiscal 2013, the net income was $32.0 million and diluted income was $1.13 per share.


17
Table of Contents

Fiscal 2013 Compared to Fiscal 2012

The following is an analysis of changes in key items included in the statements of operations for the fiscal year ended August 31, 2013 compared to the fiscal year ended August 25, 2012:
 
Year Ended
(In thousands, except percent and per share data)
August 31,
2013
% of
Revenues(1)
August 25,
2012
% of
Revenues(1)
Increase
(Decrease)
%
Change
Net revenues
$
803,165

100.0
%
$
581,679

100.0
 %
$
221,486

38.1
 %
Cost of goods sold
718,534

89.5
%
537,999

92.5
 %
180,535

33.6
 %
Gross profit
84,631

10.5
%
43,680

7.5
 %
40,951

93.8
 %
 
 
 
 
 
 
 
Selling
18,318

2.3
%
16,837

2.9
 %
1,481

8.8
 %
General and administrative
21,887

2.7
%
17,267

3.0
 %
4,620

26.8
 %
Loss on real estate
28

—
%
50

—
 %
(22
)
NMF

Operating expenses
40,233

5.0
%
34,154

5.9
 %
6,079

17.8
 %
 
 
 
 
 
 
 
Operating income
44,398

5.5
%
9,526

1.6
 %
34,872

NMF

Non-operating income
696

0.1
%
581

0.1
 %
115

19.8
 %
Income before income taxes
45,094

5.6
%
10,107

1.7
 %
34,987

NMF

Provision (benefit) for taxes
13,141

1.6
%
(34,865
)
(6.0
)%
48,006

NMF

Net income
$
31,953

4.0
%
$
44,972

7.7
 %
$
(13,019
)
(28.9
)%
Diluted income per share
$
1.13

 
$
1.54

 
$
(0.41
)
(26.6
)%
Diluted average shares outstanding
28,170

 
29,207

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

Unit deliveries and ASP, net of discounts, consisted of the following:
 
Year Ended
(In units)
August 31,
2013
Product
Mix %(1)
August 25,
2012
Product
Mix %(1)
Increase
(Decrease)
%
Change
Motorhomes:
 
 
 
 
 
 
Class A gas
2,446

35.9
%
1,648

35.5
%
798

48.4
 %
Class A diesel
1,315

19.3
%
931

20.1
%
384

41.2
 %
Total Class A
3,761

55.1
%
2,579

55.6
%
1,182

45.8
 %
Class B
372

5.5
%
319

6.9
%
53

16.6
 %
Class C
2,688

39.4
%
1,744

37.6
%
944

54.1
 %
Total motorhome deliveries
6,821

100.0
%
4,642

100.0
%
2,179

46.9
 %
 
 
 
 
 
 
 
ASP (in thousands)(1)
$
105

 
$
105

 
$
(1
)
(0.9
)%
 
 
 
 
 
 
 
Towables:
 
 
 
 
 
 
Travel trailer
2,038

80.4
%
575

58.7
%
666

115.8
 %
Fifth wheel
497

19.6
%
194

41.3
%
(469
)
(241.8
)%
Total towable deliveries
2,535

100.0
%
769

100.0
%
197

25.6
 %
 
 
 
 
 
 
 
ASP (in thousands)(1)
$
21

 
$
24

 
$
(3
)
(10.5
)%
(1) 
Percentages and dollars may not add due to rounding differences.


18
Table of Contents

Net revenues consisted of the following:
 
Year Ended
(In thousands)
August 31, 2013
 
August 25, 2012
 
Increase
(Decrease)
%
Change
Motorhomes (1)
$
704,472

87.7
%
 
$
483,532

83.1
%
 
$
220,940

45.7
 %
Towables (2)
54,683

6.8
%
 
56,784

9.8
%
 
(2,101
)
(3.7
)%
Motorhome parts and services
14,108

1.8
%
 
12,661

2.2
%
 
1,447

11.4
 %
Other manufactured products
29,902

3.7
%
 
28,702

4.9
%
 
1,200

4.2
 %
Total net revenues
$
803,165

100.0
%
 
$
581,679

100.0
%
 
$
221,486

38.1
 %
(1) 
Includes motorhome units, parts and service
(2) 
Includes towable units and parts.

The increase in motorhome net revenues of $222.4 million or 44.8% was primarily attributed to a 46.9% increase in unit deliveries driven by higher dealer and retail consumer demand when compared to Fiscal 2012. ASP decreased 0.9% in Fiscal 2013.

Towables revenues were $54.7 million in Fiscal 2013 compared to revenues of $56.8 million in Fiscal 2012. Although towable unit deliveries increased by 8.4%, the growth was more than offset by an ASP decline of 10.5%.

Cost of goods sold was $718.5 million, or 89.5% of net revenues for Fiscal 2013 compared to $538.0 million, or 92.5% of net revenues for 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 83.7% this year from 85.3% mainly due to decreased material costs and increased operating efficiencies.
•
Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 5.7% of net revenues compared to 7.1%. The difference was due primarily to increased revenues in Fiscal 2013.
•
All factors considered, gross profit increased from 7.5% to 10.4% of net revenues.
Selling expenses decreased to 2.3% from 2.9% of net revenues in Fiscal 2013 and Fiscal 2012, respectively. However, selling expenses increased $1.5 million, or 8.8%, in Fiscal 2013. The expense increase was primarily due to increased wage-related expenses of $680,000 and advertising expenses of $440,000.
General and administrative expenses were 2.7% and 3.0% of net revenues in Fiscal 2013 and Fiscal 2012, respectively. General and administrative expenses increased $4.6 million, or 26.8%, in Fiscal 2013. This increase was due primarily to an increase of $3.7 million in wage-related expenses. We also recorded approximately $550,000 additional amortization on our Towables intangible assets in Fiscal 2013 due to a decrease in the estimated useful lives.
During the first quarter of Fiscal 2013 we realized a loss of $28,000 on the sale of our Hampton, Iowa property. See Note 5.
Non-operating income increased $115,000 or 19.8%, in Fiscal 2013. This difference is primarily due to decreased line of credit expenses which was partially offset by lower investment income. We also received proceeds from COLI policies in both Fiscal 2013 and Fiscal 2012. See Note 12.

The overall effective income tax rate for FIscal 2013 was an expense of 29.1% compared to a benefit of (345.0)% in Fiscal 2012. For further discussion of income taxes (which includes a reconciliation of the US statutory income tax rate to our effective tax rate), see Note 11. The following table breaks down the two aforementioned tax rates:
 
Year Ended
 
August 31, 2013
 
August 25, 2012
(In thousands)
Amount
Effective
Rate
 
Amount
Effective
Rate
Tax expense on current operations
$
13,551

30.0
 %
 
$
2,914

28.8
 %
Valuation allowance
73

0.2
 %
 
(37,681
)
(372.8
)%
Uncertain tax positions settlements and adjustments
(483
)
(1.1
)%
 
(159
)
(1.6
)%
Amended tax returns
—

—
 %
 
61

0.6
 %
Total provision (benefit) for taxes
$
13,141

29.1
 %
 
$
(34,865
)
(345.0
)%

•
Tax expense on current operations: The primary reason for the increase in the overall effective tax expense rate on current operations in Fiscal 2013 was due to higher pretax income from operations compared to Fiscal 2012. Significant permanent deductions include domestic production activities deduction, income tax credits and tax-free income from COLI and student loan-related tax exempt securities.


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•
Valuation allowance: During Fiscal 2013, adjustments to the realizable value of certain deferred tax assets were recorded. This resulted in a non-cash tax expense of $73,000 through the increase of our valuation allowance. At the end of the fourth quarter of Fiscal 2012, we re-established almost all remaining deferred tax assets due to the fact that we were in a three-year historical cumulative income position as opposed to a three-year historical loss position and that we had a positive future outlook. This resulted in a non-cash tax benefit of $37.7 million through the reduction of our valuation allowance.

•
Uncertain tax positions settlements and adjustments: During Fiscal 2013, benefits of $483,000 were recorded as a result of adjustments to uncertain tax positions. During Fiscal 2012, benefits of $159,000 were recorded as a result of adjustments to uncertain tax positions.

Net income and diluted income per share were $32.0 million and $1.13 per share, respectively, for Fiscal 2013. In Fiscal 2012, net income was $45.0 million and diluted income was $1.54 per share. Net income and diluted income per share were higher in Fiscal 2012 compared to Fiscal 2013 despite a significant increase in net revenue and pre-tax income due primarily to the tax benefit realized in Fiscal 2012.

Analysis of Financial Condition, Liquidity and Resources
Cash and cash equivalents decreased $6.5 million during Fiscal 2014 and totaled $57.8 million as of August 30, 2014. The significant liquidity events that occurred during Fiscal 2014 were:
•
Generated net income of $45.1 million
•
Increases of receivables of $38.2 million and payables of $10.9 million
•
Stock repurchases of $26.3 million
•
Capital expenditures of $10.5 million

On October 31, 2012 we entered into the Credit Agreement with GECC. On May 28, 2014 we amended this Credit Agreement ("the Amended Credit Agreement") which now provides up to $50.0 million revolving credit facility based on our eligible inventory and expires on May 29, 2019. See Note 7 to the financial statements.

The Credit Agreement contains no financial covenant restrictions for borrowings where we have excess borrowing availability under the facility of greater than $5.0 million. The Credit Agreement requires us to comply with a fixed charge ratio if excess borrowing availability under the facility is less than $5.0 million. In addition the Credit Agreement also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable terms at the time of the expansion. 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.

On May 28, 2014, we amended this Credit Agreement (the "Amended Credit Agreement"). The Amended Credit Agreement extends the term of the credit facility from October 31, 2015 to May 28, 2019.  In addition, interest on loans made under the Amended Credit Facility will be based on LIBOR plus a margin of 2.0%. The amendment also revised and added definitions of several terms including an expanded Restricted Payment Basket that now permits up to $15.0 million purchases of company stock or cash dividends to be excluded from the Fixed Charge ratio.  In addition, the definition of Eligible Accounts was expanded to permit certain receivables to be included in the Borrowing Base.  The Amended Credit Agreement also permits us to engage in certain sale lease buyback transactions in the ordinary course of business subject to certain restrictions and increases our ability to incur capital lease obligations.

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.

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 $35.0 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 August 30, 2014 and August 31, 2013 was $172.0 million and $153.5 million, respectively, an increase of $18.5 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 in Fiscal 2015 of $15‑$20 million, primarily for IT upgrades and for manufacturing equipment and facilities.

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On October 15, 2014, the Board of DIrectors approved the reinstatement of a quarterly cash dividend of $.09 per share of common stock, payable on November 26, 2014 to shareholders of record at the close of business on November 12, 2014. We expect this cash outflow to be approximately $2.5 million for each quarter that this dividend is paid.
Operating Activities
Cash provided by operating activities was $23.2 million for the fiscal year ended August 30, 2014 compared to $10.2 million for the fiscal year ended August 31, 2013, and $115,000 for the fiscal year ended August 25, 2012. The combination of net income of $45.1 million in Fiscal 2014 and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided $50.6 million of operating cash compared to $39.0 million in Fiscal 2013 and $15.9 million in Fiscal 2012. In Fiscal 2014, Fiscal 2013, and Fiscal 2012, changes in assets and liabilities (primarily an increase in receivables in Fiscal 2014 and inventory increases in Fiscal 2013 and Fiscal 2012) used $27.4 million, $28.8 million, and $15.8 million, respectively, of operating cash.
Investing Activities
Cash used in investing activities of $5.4 million in Fiscal 2014 was due primarily to capital spending of $10.5 million and was partially offset by proceeds on the sale of property of $2.4 million and ARS investments of $2.4 million. In Fiscal 2013, cash provided by investing activities of $4.1 million was primarily due to proceeds of ARS redemptions of $7.3 million and was partially offset by capital spending of $4.4 million. During Fiscal 2012, cash used in investing activities of $118,000 was primarily due to capital spending of $2.2 million and was offset by proceeds of $1.7 million from COLI policies and ARS redemptions of $1.1 million.
Financing Activities
Cash used in financing activities was $24.3 million, $12.7 million and $6.6 million for the fiscal years ended August 30, 2014, August 31, 2013, and August 25, 2012, respectively, and was primarily for repurchases of our stock each year.
 
Contractual Obligations and Commercial Commitments
Our principal contractual obligations and commercial commitments as of August 30, 2014 were as follows:
 
Payments Due By Period
(In thousands)
Total
Fiscal
2015
Fiscal
2016-2017
Fiscal
2018-2019
More than
5 Years
Postretirement health care obligations (1)
$
36,244

$
1,202

$
2,974

$
3,628

$
28,440

Deferred compensation obligations (1)
21,227

2,687

4,764

4,458

9,318

Executive share option obligations (1)
5,629

276

2,839

2,004

510

Supplemental executive retirement plan benefit obligations (1)
2,974

470

559

598

1,347

Operating leases (2)
1,234

742

367

125

—