SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the quarterly period ended March 1, 1997 ------------------------------------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the transition period from _____________________ to _______________________ Commission file number 1-6403 WINNEBAGO INDUSTRIES, INC. (Exact name of registrant as specified in its charter) IOWA 42-0803978 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. Box 152, Forest City, Iowa 50436 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (515) 582-3535 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 ____. There were 25,453,179 shares of $.50 par value common stock outstanding on April 9, 1997. <TABLE> <CAPTION> WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO REPORT ON FORM 10-Q Page Number ----------- <S> <C> PART I. FINANCIAL INFORMATION: (Interim period information unaudited) Consolidated Balance Sheets 1 & 2 Unaudited Consolidated Statements of Operations 3 Unaudited Consolidated Condensed Statements of Cash Flows 4 Unaudited Condensed Notes to Consolidated Financial Statements 5 & 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 9 PART II. OTHER INFORMATION 10 - 12 </TABLE> Part I Financial Information <TABLE> <CAPTION> WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Dollars in thousands MARCH 1, AUGUST 31, ASSETS 1997 1996 - ------------------------------------------------------ -------- -------- (Unaudited) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 34,910 $ 797 Marketable securities -- 4,316 Receivables, less allowance for doubtful accounts ($1,815 and $702, respectively) 36,948 30,029 Dealer financing receivables less allowance for doubtful accounts ($208 and $197, respectively) 12,696 11,491 Inventories 47,749 63,103 Prepaid expenses 3,212 3,253 Deferred income taxes 6,343 6,343 Current assets of discontinued operations -- 7,285 -------- -------- Total current assets 141,858 126,617 -------- -------- PROPERTY AND EQUIPMENT, at cost Land 1,500 1,501 Buildings 44,019 43,952 Machinery and equipment 66,930 67,456 Transportation equipment 7,757 7,878 -------- -------- 120,206 120,787 Less accumulated depreciation 82,100 80,858 -------- -------- Total property and equipment, net 38,106 39,929 -------- -------- LONG-TERM NOTES RECEIVABLE, less allowances ($997 and $797, respectively) 3,875 3,918 -------- -------- INVESTMENT IN LIFE INSURANCE 16,993 16,821 -------- -------- DEFERRED INCOME TAXES, NET 14,548 14,548 -------- -------- OTHER ASSETS 3,704 3,906 -------- -------- LONG-TERM ASSETS OF DISCONTINUED OPERATIONS -- 14,857 -------- -------- TOTAL ASSETS $219,084 $220,596 ======== ======== See Unaudited Condensed Notes to Consolidated Financial Statements </TABLE> <TABLE> <CAPTION> WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Dollars in thousands MARCH 1, AUGUST 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 - ------------------------------------------------------------------------ -------- --------- (Unaudited) <S> <C> <C> CURRENT LIABILITIES Current maturities of long-term debt $ 154 $ 1,866 Accounts payable, trade 20,933 20,232 Current liabilities of discontinued operations -- 17,532 Provision for loss on disposal of electronic component assembly segment -- 4,074 Income tax payable 6,476 -- Accrued expenses: Insurance 2,688 2,947 Product warranties 3,386 3,489 Vacation liability 2,832 3,116 Promotional 4,419 2,193 Other 10,362 9,013 -------- -------- Total current liabilities 51,250 64,462 -------- -------- LONG-TERM DEBT 1,496 1,692 -------- -------- POSTRETIREMENT HEALTH CARE AND DEFERRED 47,631 46,937 -------- -------- MINORITY INTEREST IN DISCONTINUED OPERATIONS -- 2,194 -------- -------- STOCKHOLDERS' EQUITY Capital stock, common, par value $.50; authorized 60,000,000 shares 12,923 12,920 Additional paid-in capital 23,203 23,723 Reinvested earnings 87,182 74,221 -------- -------- 123,308 110,864 Less treasury stock, at cost 4,601 5,553 -------- -------- Total stockholders' equity 118,707 105,311 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $219,084 $220,596 ======== ======== See Unaudited Condensed Notes to Consolidated Financial Statements </TABLE> <TABLE> <CAPTION> WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS ================================================================================================================= IN THOUSANDS EXCEPT PER SHARE DATA THIRTEEN TWENTY-SIX TWENTY-SEVEN WEEKS ENDED WEEKS ENDED WEEKS ENDED ------------------------ ----------- ------------ March 1, March 2, March 1, March 2, 1997 1996 1997 1996 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net revenues $ 105,702 $ 106,161 $ 219,594 $ 219,896 Cost of goods sold 95,503 92,639 194,316 190,405 --------- --------- --------- --------- Gross profit 10,199 13,522 25,278 29,491 --------- --------- --------- --------- Operating expenses: Selling and delivery 6,663 5,139 13,001 11,578 General and administrative 6,866 5,510 11,751 11,073 --------- --------- --------- --------- Total operating expenses 13,529 10,649 24,752 22,651 --------- --------- --------- --------- Operating (loss) income (3,330) 2,873 526 6,840 Financial income 745 384 1,114 707 --------- --------- --------- --------- Pre-tax (loss) income from continuing operations (2,585) 3,257 1,640 7,547 Provision for taxes 1,089 1,059 2,608 2,677 --------- --------- --------- --------- (Loss) income from continuing operations (3,674) 2,198 (968) 4,870 Discontinued operations: Income from discontinued Cycle-Sat operations (less applicable income tax provisions of $17 and $157, respectively) -- 40 -- 358 Gain from sale of discontinued Cycle-Sat subsidiary (includes a loss on operations of 160 less applicable income tax credits of $123 and a gain on disposal of $16,632 less income taxes of $13,462) -- -- 16,472 -- --------- --------- --------- --------- Net (loss) income $ (3,674) $ 2,238 $ 15,504 $ 5,228 ========= ========= ========= ========= Net (loss) income per common share: Continuing operations $ (.15) $ .09 $ (.04) $ .20 Discontinued operations -- -- -- .01 Gain from sale of Cycle-Sat -- -- .65 -- --------- --------- --------- --------- Net (loss) income $ (.15) $ .09 $ .61 $ .21 ========= ========= ========= ========= Weighted average number of shares of common stock outstanding 25,431 25,346 25,405 25,346 ========= ========= ========= ========= See Unaudited Condensed Notes to Consolidated Financial Statements. ================================================================================================================ </TABLE> <TABLE> <CAPTION> WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Dollars in thousands Increase (decrease) in cash and cash equivalents TWENTY-SIX TWENTY-SEVEN WEEKS ENDED WEEKS ENDED ----------- ------------ March 1, March 2, 1997 1996 ----------- ------------ <S> <C> <C> Cash flows from operating activities: Net income $ 15,504 $ 5,228 Adjustments to reconcile net income to net cash from operating activities: Pre-tax gain on sale of Cycle-Sat subsidiary (29,811) -- Depreciation and amortization 3,826 3,318 Realized and unrealized gains on investments, net (137) (149) Investments in trading securities -- (3,157) Proceeds from sale of trading securities 4,453 1,737 Other 1,616 146 Change in assets and liabilities: (Increase) decrease in accounts receivable (7,533) 1,523 Decrease (increase) in inventories 15,354 (4,846) Increase in accounts payable and accrued expenses 4,950 9,679 Increase in postretirement benefits 694 1,549 Other (2,194) (1,269) -------- -------- Net cash provided by operating activities 6,722 13,759 -------- -------- Cash flows provided (used) by investing activities: Gross proceeds from the sale of Cycle-Sat subsidiary 55,883 -- Payment to minority shareholder for sale of Cycle-Sat (7,160) -- Purchases of property and equipment (2,039) (3,636) Investments in dealer receivables (21,695) (20,022) Collections of dealer receivables 20,078 19,601 Other (440) (500) -------- -------- Net cash provided (used) by investing activities 44,627 (4,557) -------- -------- Cash flows used by financing activities and capital transactions: Payment of long-term debt of discontinued operation (13,220) -- Payments of long-term debt and capital leases (1,908) (646) Payment of cash dividends (2,542) (2,534) Other 434 76 -------- -------- Net cash used by financing activities and capital transactions (17,236) (3,104) -------- -------- Net increase in cash and cash equivalents 34,113 6,098 Cash and cash equivalents - beginning of period 797 8,508 -------- -------- Cash and cash equivalents - end of period $ 34,910 $ 14,606 ======== ======== See Unaudited Condensed Notes to Consolidated Financial Statements. </TABLE> WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position as of March 1, 1997, the consolidated results of operations for the 26 and 13 weeks ended March 1, 1997 and the 27 and 13 weeks ended March 2, 1996, and the consolidated cash flows for the 26 weeks ended March 1, 1997 and the 27 weeks ended March 2, 1996. The results of operations for the 26 weeks ended March 1, 1997, are not necessarily indicative of the results to be expected for the full year. 2. Inventories are valued at the lower of cost or market, with cost being determined under the last-in, first-out (LIFO) method and market defined as net realizable value. Inventories are composed of the following (dollars in thousands): March 1, August 31, 1997 1996 ------------ ------------ Finished goods.................... $ 17,704 $ 28,228 Work in process.......... 15,622 13,915 Raw materials............ 31,450 37,537 ------------ ------------ 64,776 79,680 LIFO (17,027) (16,577) reserve.................. ============ ============ $ 47,749 $ 63,103 ============ ============ 3. Since March 1992, the Company has had a financing and security agreement with NationsCredit Corporation (NationsCredit). Terms of the agreement limit borrowings to the lesser of $30,000,000 or 75 percent of eligible inventory (fully manufactured recreation vehicles and motor home chassis and related components). Borrowings are secured by the Company's receivables and inventory. Borrowings under the agreement bear interest at the prime rate, as defined in the agreement, plus 50 basis points. The line of credit is available through March 31, 1998, and continues during successive one-year periods unless either party provides at least 90-days' notice prior to the end of the one-year period to the other party that they wish to terminate the line of credit. The agreement also contains certain restrictive covenants including maintenance of minimum net worth, working capital and current ratio. As of March 1, 1997, the Company was in compliance with these covenants. There were no outstanding borrowings under the line of credit at March 1, 1997 or August 31, 1996. 4. It is customary practice for companies in the recreation vehicle industry to enter into repurchase agreements with lending institutions which have provided wholesale floor plan financing to dealers. The Company's agreements provide for the repurchase of its products from the financing institution in the event of repossession upon a dealer's default. The Company was contingently liable for approximately $150,954,000 and $129,135,000 under repurchase agreements with lending institutions as of March 1, 1997 and August 31, 1996, respectively. Included in these contingent liabilities as of March 1, 1997 and August 31, 1996 are approximately $34,278,000 and $33,216,000, respectively, of certain dealer receivables subject to recourse agreements with NationsCredit and Green Tree Financial Corporation. 5. Fiscal year-to-date the Company paid cash for the following (dollars in thousands): Twenty-Six Twenty-Seven Weeks Ended Weeks Ended ----------- ------------ March 1, March 2, 1997 1996 ---------- ---------- Interest $ 355 $ 978 Income taxes 10,175 520 6. The Company, as a result of the continuing sluggish RV market conditions in central Europe, decided to close the rental and retail operations of its subsidiary, Winnebago Industries Europe GmbH (WIE), located in Kirkel, Germany. The 13 and 26 weeks ended March 1, 1997 were negatively impacted by charges aggregating $5 million as a result of this decision. The $5 million of charges are principally reflected in cost of goods sold, selling expenses and general and administrative expenses. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Thirteen Weeks Ended March 1, 1997 Compared to Thirteen Weeks Ended March 2, 1996. Net revenues for the 13 weeks ended March 1, 1997 were $105,702,000, a decrease of $459,000, or 0.4 percent from the 13 week period ended March 2, 1996. Motor home shipments (Classes A and C) were 1,828 units, a decrease of 40 units, or 2.1 percent, during the second quarter of fiscal 1997 compared to the second quarter of fiscal 1996. Even though the Company did record a negative impact to the financial statements for its German subsidiary, WIE, during the second quarter of fiscal 1997, the long-term outlook for the motor home sales domestically appears favorable. Gross profit, as a percent of net revenues, was 9.6 percent for the 13 weeks ended March 1, 1997 compared to 12.7 percent for the 13 weeks ended March 2, 1996. This decrease can be attributed primarily to reductions in valuations of the units and parts inventories at WIE and by an increase in discount programs to sell specific units into the U.S. marketplace. Selling and delivery expenses were $6,663,000 or 6.3 percent of net revenues during the second quarter of fiscal 1997 compared to $5,139,000 or 4.8 percent of net revenues during the second quarter of fiscal 1996. The increases in dollars and percentage is due to increases in product promotional expenses. General and administrative expenses increased by $1,356,000 to $6,866,000 comparing the 13 weeks ended March 1, 1997 to the 13 weeks ended March 2, 1996 and increased as a percentage of net revenues to 6.5 percent from 5.2 percent. The increases in dollars and percentage were caused primarily by the increases in legal reserves at WIE and the Company, an increase in the allowance for doubtful receivables at WIE and an increase in the bad debt reserve at the Company's finance subsidiary, Winnebago Acceptance Corporation (WAC), partially offsetting these increases was a reduction in the Company's product liability reserve. The Company had net financial income of $745,000 for the second quarter of fiscal 1997 compared to net financial income of $384,000 for the comparable quarter of fiscal 1996. During the 13 weeks ended March 1, 1997, the Company recorded $636,000 of interest income, gains of $93,000 in foreign currency transactions and $16,000 of realized and unrealized gains in its trading securities portfolio. During the 13 weeks ended March 2, 1996, the Company recorded $228,000 of interest income, $188,000 of realized and unrealized gains in its trading securities portfolio and losses of $32,000 in foreign currency transactions. For the 13 weeks ended March 1, 1997, the Company had pre-tax income from domestic continuing operations of $3,115,000 and a pre-tax loss from WIE of $5,700,000, of which $5,000,000 was due to the Company's decision to close the rental and retail operations of WIE (See Note 6). The $5,700,000 pre-tax loss of WIE is considered an operating loss of a foreign subsidiary that does not qualify for a tax deduction, therefore, the Company was required to record a provision for taxes of $1,089,000 resulting in a consolidated net loss of $3,674,000 or $.15 per share. For the comparable period of fiscal 1996, the Company had pre-tax income of $3,257,000 from continuing operations and a provision for taxes of $1,059,000 resulting in income from continuing operations of $2,198,000 and income from discontinued Cycle-Sat operations of $40,000 (net of income tax provisions of $17,000) resulting in net income of $2,238,000 or $.09 per share. Twenty-Six Weeks Ended March 1, 1997 Compared to Twenty-Seven Weeks Ended March 2, 1996 Net revenues for the 26 weeks ended March 1, 1997 were $219,594,000, a decrease of $302,000, or 0.1 percent from the 27 week period ended March 2, 1996. Motor home shipments (Classes A and C) were 3,786 units, a decrease of 146 units, or 3.7 percent, during the 26 weeks ended March 1, 1997 when compared to the 27 weeks ended March 2, 1996. Even though motor home shipments decreased by 3.7 percent, net revenues remained relatively constant due to an increase in the average motor home sales price when comparing the two periods. Gross profit, as a percent of net revenues, was 11.5 percent for the 26 weeks ended March 1, 1997 compared to 13.4 percent for the 27 weeks ended March 2, 1996. This decrease can be attributed primarily to reductions in valuations of the units and parts inventories at WIE and by an increase in discount programs to sell specific units into the U.S. marketplace. Selling and delivery expenses were $13,001,000 or 5.9 percent of net revenues during the 26 weeks ended March 1, 1997 compared to $11,578,000, or 5.3 percent of net revenues during the 27 weeks ended March 2, 1996. The increases in dollars and percentage is due to increases in product promotional expenses. General and administrative expenses increased by $678,000 to $11,751,000 when comparing the 26 weeks ended March 1, 1997 to the 27 weeks ended March 2, 1996. Also, the percentage increased to 5.4 percent of net revenues from 5.0 percent of net revenues when comparing the same periods. The increases in dollars and percentage were caused primarily by the increases in legal reserves at WIE and the Company, an increase in the allowance for doubtful receivables at WIE and an increase in the bad debt reserve at the Company's finance subsidiary, WAC, partially offsetting these increases was a reduction in the Company's product liability reserve. The Company had net financial income of $1,114,000 for the first half of fiscal 1997 compared to net financial income of $707,000 for the comparable period of fiscal 1996. During the 26 weeks ended March 1, 1997, the Company recorded $945,000 of interest income, $137,000 of realized and unrealized gains in its trading securities portfolio and $32,000 of gains in foreign currency transactions. During the 27 weeks ended March 2, 1996, the Company recorded $482,000 of interest income, $148,000 of realized and unrealized gains in its trading securities portfolio and $77,000 of gains in foreign currency transactions. For the 26 weeks ended March 1, 1997, the Company had pre-tax income from domestic continuing operations of $7,440,000 and a pre-tax loss from WIE of $5,800,000 of which $5,000,000 was due to the write down of selected assets caused by excess inventory buildup and the Company's decision to close the rental and retail operations of WIE (See Note 6). The $5,800,000 pre-tax loss of WIE is considered an operating loss of a foreign subsidiary that does not qualify for a tax deduction, therefore, the Company was required to record a provision for taxes of $2,608,000 resulting in a loss from continuing operations of $968,000 or $.04 per share. For the 26 weeks ended March 1, 1997, the Company recorded a gain from the sale of the discontinued Cycle-Sat subsidiary of $16,472,000 (net of income taxes of $13,462,000), or $.65 per share. For the 27 weeks ended March 2, 1996, the Company reported income from discontinued Cycle-Sat operations of $358,000 (net of income tax provisions of $157,000), or $.01 per share. During the 26 weeks ended March 1, 1997, the Company had net income of $15,504,000, or $.61 per share, compared to $5,228,000, or $.21 per share for the 27 weeks ended March 2, 1996. LIQUIDITY AND FINANCIAL CONDITION The Company meets its working capital and capital equipment requirements and cash requirements of subsidiaries with funds generated internally and funds from agreements with financial institutions. At March 1, 1997, working capital was $90,608,000, an increase of $28,453,000 from the amount at August 31, 1996. The increase in the Company's working capital was caused primarily by proceeds from the sale of the Cycle-Sat subsidiary. The Company's principal sources and uses of cash during the 26 weeks ended March 1, 1997 are set forth in the unaudited consolidated condensed statement of cash flows for that period. Principal known demands at March 1, 1997 on the Company's liquid assets for the remainder of fiscal 1997 include approximately $8,000,000 of income taxes partially due to the gain on the sale of Cycle-Sat, $3,500,000 of capital expenditures (primarily equipment replacement) and $2,500,000 of cash dividends declared by the Board of Directors on March 20, 1997 (payable July 7, 1997). Management currently expects its cash on hand, funds from operations and borrowings available under existing credit facilities to be sufficient to cover both short-term and long-term operating requirements. Part II Other Information Item 4 Submission of Matters to a Vote of Security Holders (a) The annual meeting of shareholders was held December 18, 1996. (b) The election of eight directors was the only shareholder business transacted at the annual meeting. The breakdown of the votes was as follows*: VOTES CAST VOTES CAST VOTES FOR AGAINST ABSTAINED -------------- ----------- ----------- Gerald E. Boman 21,048,736 316,120 195,061 Jerry N. Currie 21,150,466 214,390 195,061 Fred G. Dohrmann 20,913,994 450,862 195,061 John V. Hanson 20,909,784 455,072 195,061 Gerald C. Kitch 21,147,556 217,300 195,061 Joseph M. Shuster 21,163,439 201,417 195,061 Frederick M. Zimmerman 21,164,839 200,017 195,061 Francis L. Zrostlik 21,153,863 210,993 195,061 * There were no broker non-votes. Item 6 Exhibits and Reports on Form 8-K (a) Exhibit - See Exhibit Index on page 12. (b) The Company filed a current report on Form 8-K on December 4, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WINNEBAGO INDUSTRIES, INC. ---------------------------------------- (Registrant) Date April 10, 1997 /s/ Fred G. Dohrmann ------------------------- ----------------------------------------- Fred G. Dohrmann Chairman of the Board and Chief Executive Officer Date April 10, 1997 /s/ Edwin F. Barker ------------------------- ----------------------------------------- Edwin F. Barker Vice President - Chief Financial Officer EHIBIT INDEX 3b. Amended by-laws of the Registrant. 27 Financial Data Schedule.