| |
• | Pricing and mix: Our motor home ASP increased 10.3 percent. This increase was primarily due a shift in mix of more Class A motor homes, our higher-priced products. Class A products were 55.3 percent of our volume this year compared to 37.4 percent last year. Our ASP also increased due to a significant reduction in product discounts this year due to improved market conditions. |
| |
• | Promotional incentives: Our retail and other incentives decreased significantly, a decrease of 2.5 percent (as a percentage of net revenues) due to improvement in the motor home market. |
| |
• | Repurchases: Our losses on repurchases of motor homes were lower than last year, also a result of improvement in the motor home market. As a percentage of net revenues, repurchase expense was 0.1 percent this year compared to 1.2 percent last year. |
| |
• | Other revenue: Revenues for motor home parts and services and other manufactured products increased by 4.0 percent. |
Cost of goods sold was $423.2 million, or 94.2 percent, of net revenues for Fiscal 2010 compared to $242.3 million, or 114.5 percent, of net revenues for Fiscal 2009 due to the following:
| |
• | The change in our variable costs (materials, direct labor, variable overhead, delivery expense and warranty) increased $181.4 million, which was primarily caused by increased sales volume. Total variable costs, as a percent of net revenues, decreased to 85.2 percent this year from 95.3
percent last year. The 10.1 percent decrease was primarily caused by decreased discounting and promotional incentives. |
| |
• | Our variable costs were favorably impacted by $780,000, or 0.2 percent, of net revenues this year due to the reduction of the last-in, first-out (LIFO) inventory liquidation, as compared to a LIFO inventory liquidation of $7.0 million, or 3.3 percent, of net reven
ues last year. |
| |
• | Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 8.9 percent of net revenues compared to 19.2 percent last year. This difference was due p
rimarily to higher absorption of fixed costs as a result of significantly higher production volume. |
| |
• | All factors considered, gross profit increased from a gross deficit of 14.5 percent of net revenues to a gross profit of 5.8 percent of net revenues. |
General and administrative expenses decreased $2.3 million, or 14.9 percent, in Fiscal 2010. This decrease was due primarily to reductions in legal expenses of $1.5 million and lower depreciation expense of $500,000. As a percent of net revenues, general and administrative expenses were 2.9 percent this year compared to 7.2 percent last year. The decrease in percentage of net revenues was caused by the significant difference in revenue levels between the two fiscal periods.
Asset impairment expenses of $855,000 were recorded in Fiscal 2009 as a result of the decision to close the Hampton, Iowa fiberglass manufacturing facility.
Financial income decreased $1.2 million or 84.7 percent, in Fiscal 2010. Primary reasons for this decrease were increased line of credit costs of $800,000 (which included a termination fee of $375,000 paid to Wells Fargo to terminate a credit and security agreement) and lower investment income of $600,000. For further discussion of financial income, see Note 6.
The overall effective income tax rate for this year was a benefit of 1,281.0 percent compared to an expense of 35.6 percent last year. The following table breaks down the two aforementioned tax rates: | | | | | | | | | | | |
| Year Ended |
| August 28
, 2010 | | August 29, 2009 |
(In thousands) | Amount | Effective Rate (%) | | Amount<
/font> | Effective Rate (%) |
Tax expense (benefit) on current operations | $ | 667 | | 89.9 | % | | $ | (22,898 | ) | (39.5 | )% |
Valuation allowance | | | | | |
Decrease (Fiscal 2009 carryback) | (5,792 | ) | (780.6 | )% | | — | | — | |
Increase | 336 | | 45.3 | % | | 44,976 | | 77.5 | % |
Uncertain tax positions settlements and adjustments |
(3,195 | ) | (430.6 | )% | | (500 | ) | (0.9 | )% |
Other | (1,521 | ) | (205.0 | )% | | (875 | ) | (1.5 | )% |
Total (benefit) provision for taxes | $ | (9,505 | ) | (1,281.0 | )% | | $ | 20,703 | | 35.6 | % |
Tax benefit on current operations
The overall effective income tax rate for Fiscal 2010 was 89.9 percent compared to the overall effective tax benefit rate of 39.5 percent for Fiscal 2009. The primary reason for the difference in the overall effective rate is the relationship between our lower pre-tax income relative to the permanent financial accounting to taxable income (loss) adjustments for this year compared to last year. Our significant permanent adjustments are tax-free income from company-owned life insurance (COLI) and student loan-related tax exempt securities which resulted in an increase to the tax benefit of $1.0 million and increased the tax benefit rate by 136.5 percent in Fiscal 2010. In Fiscal 2009, tax-free investment income
resulted in a tax benefit of $1.2 million (a 2.0 percent increase in the effective benefit rate).
Valuation allowance - decrease
At the end of Fiscal 2009, we had established a valuation allowance on all deferred tax assets and net operating loss (NOL) carryforward assets associated with Fiscal 2009. During our first quarter of Fiscal 2010, the President of the United States signed into law the Worker, Homeownership, and Business Assistance Act of 2009, which expanded the carryback period from two to five years, allowing us to carryback all Fiscal 2009 NOL. During the third quarter of this year, we filed a superseding federal tax return to accelerate certain tax deductions and amended our original carryback request which resulted in an additional
benefit of $1.0 million received during the fourth quarter of this year. As a result, we recorded a total tax benefit of $5.8 million and reduced the associated valuation allowance due to this beneficial tax law change.
Valuation allowance - increase
The increase in the valuation allowance of $336,000 related to Fiscal 2010 tax credits and NOL's established during the year due to taxable losses incurred. During the fourth quarter of Fiscal 2009
, we recorded a non-cash charge of $45.0
million to establish a full valuation allowance on the deferred tax assets. Accounting Standard Codification (ASC) 740, Income Taxes, requires that companies asse
ss whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, using a “more likely than not” standard. In making such assessments, significant weight is given to evidence that can be objectively verified. A company’s current or previous losses are given more weight than its future outlook. Under that standard, our three-year historical cumulative loss was a significant negative factor. This loss, combined with uncertain near-term market and economic conditions, reduced our ability to rely on our projections of any future taxable income in determining whether a valuation allowance is appropriate. Accordingly, we concluded that, based on ASC 740 guidelines, a full valuation allowance should be established. We will continue to assess the likelihood that our deferred tax assets will be realizable and our valuation allowance will be adjusted accordingly, which could materially impact our financial position and result
s of operations. For further discussion of income taxes, see Note 10.
Uncertain tax positions settlements and adjustments
During Fiscal 2010, benefits of $3.2 million were recorded as a result of positive settlements of uncertain tax positions with taxing authorities and other adjustments to uncertain tax positions. Of this amount, $1.7 million resulted from the reduction of reserves associated with unrecognized tax benefits as a result of a posi
tive resolution of the federal IRS tax audit on our income tax returns for Fiscal 2006 through Fiscal 2008. During Fiscal 2009, benefits of $500,000 were recorded as a result of favorable settlements with various taxing jurisdictions and other adjustments to uncertain tax positions. Benefits of $1.5 million and $875,000 were recorded as a result of tax planning initiatives recognized during Fiscal 2010 and 2009 respectively. For further discussion of income taxes, see Note 10.
Other
During Fiscal 2010, the tax benefits recorded were primarily the result of filing amended state returns.
Net income and diluted income per share were $10.2 million and $0.35 per share, respectively, for Fiscal 2010. In Fiscal 2009, the net loss was $78.8 million and diluted loss was $2.71 per share.
Fiscal 2009 Compared to Fiscal
2008
The following is an analysis of changes in key items included in the statements of operations for the fiscal year ended August 29, 2009 compared to the fiscal year ended August 30, 2008: | | | | | | | | | | | | | | | |
| Year Ended (1) |
(In thousands, except percent and per share data) | August 29,
2009 | % of Revenues(2) | August 30,
2008 | % of Revenues(2) | (Decrease) Increase | % Change |
Net revenues <
/td> | $ | 211,519 | | 100.0 | % | $ | 604,352 | | 100.0 | % | $ | (392,833 | ) | (65.0 | )% |
Cost of goods sold | 242,265 | | 114.5 | % | 569,580 | | 94.2 | % | (327,315 | ) | (57.5 | )% |
Gross (deficit) profit | (30,746 | ) | (14.5 | )% | 34,772 | | 5.8 | % | (65,518 | ) | NMF |
| | | | | <
/div> | |
Selling | 12,616 | | 6.0 | % | 18,482 | | 3.1 | % | (5,866 | ) | (31.7 | )% |
General and administrative | 15,298 | | 7.2 | <
div style="text-align:left;font-size:10pt;"> % | 21,359 | | 3.5 | % | (6,061 | ) | (28.4 | )% |
Asset impairment | 855 | | 0.4 | % | 4,686 | | 0.8 | % | (3,831 | ) | (81.8 | )% |
| Operating expenses | 28,769 | | 13.6 | % | 44,527 | | 7.4 | % | (15,758 | ) | (35.4 | )% |
| | | | | | |
Operating loss | (59,515 | ) | (28.1 | )% | (9,755 | ) | (1.6 | )% | (49,760 | ) | NMF |
Financial income | 1,452 | | 0.7 | % | 4,314 | | 0.7 | % | (2,862 | ) | (66.3 | )% |
Pre-tax loss | (58,063 | ) | (27.5 | )% |
(5,441 | ) | (0.9 | )% | (52,622 | ) | NMF |
Provision (benefit) for taxes | 20,703 | | 9.8 | % | (8,225 | ) | (1.4 | )% | 28,928 | | NMF |
Net (loss) income | $ | (78,766 | ) | (37.2 | )% | $ | 2,784 | | 0.5 | % | $ | (81,550 | ) | NMF |
Diluted (loss) income per share | $ | (2.71 | ) | | $ | 0.10 | | | $ | (2.81 | ) | NMF |
Diluted average shares outstanding | 29,051 | | | 29,144 | | | (93 | ) | (0.3 | )% |
(1) Fiscal year ended August
29, 2009 contained 52 weeks; fiscal year ended August 30, 2008 contained 53 weeks.
(2) Percentages may not add due to rounding differences.
Unit deliveries and ASP, net of discounts, consisted of the following:
| | | | | | | | | | | | | | | |
| Year Ended (1) |
(In units) | August 29,
2009 | Product Mix % | August 30,
2008 | Product Mix % | (Decrease) Increase | % Change |
Class A gas | 480 | | 21.8 | % | 2,129 | | 33.2 | % | (1,649 | ) | (77.5 | )% |
Class A diesel | 342 | | 15.6 | % | 900 | | 14.1 | % | (558 | ) | (62.0 | )% |
Total Class A | 822 | | 37.4 | % | 3,029 | | 47.3 | % | (2,207 | ) | (72.9 | )% |
Class B | 149 | | 6.8 | % | 140 | | 2.2 | % | 9 | | 6.4 | % |
Class C | 1,225 | | 55.8 | % | 3,238 | | <
div style="text-align:right;font-size:10pt;">50.5 | % | (2,013 | ) | (62.2 | )% |
Total deliveries | 2,196 | | 100.0 | % | 6,407 | | 100.0 | % | (4,211 | ) | (65.7 | )% |
ASP (in thousands) | $ | 87 | | | $ | 88 | | | $ | (1 | ) | (1.4 | )% |
(1)
; Fiscal year ended August 29, 2009 contained 52 weeks; fiscal year ended August 30, 2008 contained 53 weeks.
Net revenues for Fiscal 2009 decreased $392.8 million, or 65.0 percent, compared to Fiscal 2008 due to the following:
| |
• | Volume decline: The primary reason for the net revenue decline was due to unit deliveries decreasing by 65.7 percent. |
| |
• | Pricing and mix: Our ASP in Fiscal 2009 as compared to the previous year decreased 1.4 percent. The decrease in our ASP was due to an increase of product discounts we offered at the wholesale level and a shift in mix to lower-priced products, partially offset by increase in pricing. Our sales mix for the year was more heavily weighted to lower-priced products as 63 percent of our volume in Fiscal 2009 was Class B and C product as compared to a 53 percent mix of Class B and C products in Fiscal 2008. |
| |
• | Promotional incentives: Our retail and other incentives increased by 3.2 percent (as a percentage of net revenues) due to increased retail promotional activity on significantly lower revenues. We used retail incentive programs to help stimulate dealer traffic and the programs had a substantial impact in reducing the dealer inventory level, as our dealer inventory in units was down 53.8 percent at August 29, 2009 compared to August 30, 2008. |
| |
• | Repurchases: Our loss on repurchase of motor homes during Fiscal 2009 were significantly higher than previous years as a result of the dramatic decline in the motor home market. As a percentage of net revenues, repurchase expense was 1.2% in Fiscal 2009 compared to 0.1 percent in Fiscal 2008. |
| |
• | Other revenue: Revenues for motor home parts and services and other manufactured products decreased by 32.4 percent. |
Cost of goods sold was $242.3 million, or 114.5 percent, of net revenues for Fiscal 2009 compared to $569.6 million, or 94.2 percent, of net revenues for Fiscal 2008 due to the following:
| |
• | The change in our variable costs (materials, direct labor, variable overhead, delivery expense and warranty) comprised $316.6 million of the $327.3 million decrease which was primarily caused by decreased sales volume. Material, labor and var
iable overhead, as a percent of net revenues, increased to 91.8 percent in Fiscal 2009 compared to 82.2 percent in the prior year. The 9.6 percent increase was primarily caused by increased discounting and promotional incentives in Fiscal 2009 to promote sales in a difficult motor home market. |
| |
• | Our variable costs were favorably impacted by $7.0 million, or 3.3 percent, of net reve
nues in Fiscal 2009 due to the reduction of LIFO reserves as a result of a significant reduction in inventory levels, as compared to LIFO expense in Fiscal 2008 of $4.6 million, or 0.8 percent, of net revenues. |
| |
• | Fixed overhead, which consists primarily of manufacturing support labor, depreciation and facility costs, increased to 17.7 percent of net revenues in Fiscal 2009 compared
to 7.8 percent in the prior year. This difference was due primarily to lower absorption of fixed costs due to significantly lower production volumes. |
| |
• | All factors considered, gross (deficit) profit decreased from a gross profit of 5.8 percent of net revenues in Fiscal 2008 to a gross deficit of 14.5 percent of net revenues during Fiscal 2009. |
Selling expenses decreased $5.9 million, or 31.7 percent, during the fiscal year ended August 29, 2009. However, as a percent of net revenues, selling expenses were 6.0 percent during Fiscal 2009 compared to 3.1 percent for Fiscal 2008. The decrease in dollars was due primarily to reductions in salesmen incentives of $579,000, advertising expenses of $502,000 and wages and wage-related expenses of $422,000. The increase in percentage of net revenues was caused by the significant difference in revenue levels between the two fiscal periods.
General and administrative expenses decreased $6.1 million, or 28.4 percent, during the fiscal year ended August 29, 2009. However, as a percent of net revenues, general and administrative expenses were 7.2 percent during Fiscal 2009 compared to 3.5 percent for Fiscal 2008. The decrease in dollars was due to reductions of: stock-based compensation of $2.0 million, as we did not grant stock awards during Fiscal 2009; labor-related expenses of $1.5 million, as a result of reduced head count; legal expenses of $1.0 million; and lower depreciation expense of $500,000. The increase in percentage of net revenues was caused by the significant difference in revenue levels between the two fiscal periods.
Asset impairment expenses of $855,000 were recorded in Fiscal 2009 as a result of the decision to close the Hampton, Iowa fiberglass manufacturing facility.
Financial income decreased $2.9 million, or 66.3 percent, for the fiscal year ended August 29, 2009. The decrease in financial income was primarily due to a decrease in the average yield and, to a lessor extent, a decrease in average investment balances.
The overall effective income tax rate for Fiscal 2009 was a expense of 35.6 percent compared to an benefit of 151.2 percent for Fiscal 2008. The following table breaks down the two aforementioned tax rates: | | | | | | | | | | | |
| Year Ended (1) |
| August 29, 2009 | | August 30, 2008 |
(Dollars in thousands) | Amount | Effective Rate (%) | | Amount | Effective Rate (%) |
Tax benefit from current operations | $ | (22,898 | ) | (39.5 | )% | | $ | (3,345 |
) | (61.5 | )% |
Valuation allowance | 44,976 | | 77.5 | % | | 325 | | 6.0 | % |
Uncertain tax positions settlements and adjustments | (500 | ) | (0.9 | )% | | (4,149 | ) | (76.3 | )% |
O
ther | (875 | ) | (1.5 | )% | | (1,056 | ) | (19.4 | )% |
Total provision (benefit) for taxes | $ | 20,703 | | 35.6 | % | | $ | (8,225 | ) | (151.2 | )% |
(1) Fiscal year ended August 29, 2009 contained 52 weeks; fiscal year ended August 30, 2008 contained 53 weeks.
Tax benefit on current operations
At the end of the third quarter of Fiscal 2009, our a
bility to claim refunds of taxes previously paid was exhausted due to the size of our Fiscal 2009 operating losses. Thus, of the $22.9 million tax benefit on current operations, we established an associated tax refund receivable of $17.4 million. The overall effective income tax benefit rate for Fiscal 2009 was 39.5 percent compared to the overall effective tax benefit rate of 61.5% for Fiscal 2008. The primary reason for the difference in the overall effective rate is the relationship between our significant pre-tax loss of $58.1 million relative to the permanent financial account
ing to taxable income (loss) adjustments for Fiscal 2009 compared to the much smaller pre-tax loss of $5.4 million relative to the permanent financial accounting to taxable income (loss) adjustments for Fiscal 2008. Our significant permanent adjustments are tax-free income from COLI and student loan-related tax exempt securities and resulted in an increase to the tax benefit of $1.2 million and increased the tax benefit rate by 2.0 percent in Fiscal 2009. In Fiscal 2008, tax-free investment income resulted in a tax benefit of $1.8 million (a 32.6 percent increase in the effective benefit rate).
Valuation allowance
As previously discussed, we recorded a non-cash charge of $45.3 million t
o establish a full valuation allowance on the deferred tax assets during the fourth quarter of Fiscal 2009. During the fourth quarter of Fiscal 2008, we recorded a non-cash charge of $325,000 to establish a valuation allowance on tax credits that were determined not to be recoverable prior to their expiration.
Uncertain tax positions settlements and adjustments
During Fiscal 2009, we recognized a tax benefit of $500,000 as a result of favorable settlements with various taxing jurisdictions and other adjustments to uncertain tax positions, whic
h increased the tax benefit rate by 0.9 percent. In Fiscal 2008, we had an effective tax benefit rate of 76.3 percent, which was based on the favorable settlements of uncertain tax positions with various taxing jurisdictions. The original unrecognized tax benefit associated with these positions was $14.6 million, of which $8.0 million was paid in cash per the settlement. The balance of this reserve, net of the related deferred taxes, resulted in a $4.1 million increase in tax benefit.
Other
Other primarily represents tax ben
efits associated with tax planning initiatives implemented during Fiscal 2009, such as the extension of the research and development tax credit. In Fiscal 2008, tax planning initiatives represented additional tax benefits associated with tax-free income from investments in COLI.
Net loss and diluted loss per share were $78.8 million and $2.71 per share, respectively, for Fiscal 2009. In Fiscal 2008, net income was $2.8 million and diluted income was $0.10 per share.
Impact of Inflation
Historically, the impact of inflation on our operations has not been significantly detrimental, as we have usually been a
ble 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.
Analysis of Financial Condition, Liquidity and Resources
Cash and cash equivalents increased $38.1 million during Fiscal 2010 and totaled $74.7 million as of August 28, 2010<
font style="font-family:Arial;font-size:10pt;">. The significant liquidity events that occurred during Fiscal 2010 were:
| |
• | Receipt of tax refunds (net of payments) of $24.4 million: As previously discussed, we filed carryback federal tax returns and received total federal refunds, net of payments, of $22.8 million. We also received state refunds, net of payments, o
f $1.6 million. |
| |
• | Auction Rate Securities (ARS) net redemptions of $6.8 million: Our entire UBS AG (UBS) ARS portfolio balance of $13.5 million was redeemed at par and we repaid all associated borrowings on these assets of $9.1 million. Also, $2.4 million of our remaining ARS portfolio was redeemed at par during the year. We have $17.9 million ARS at par value classified as long-term investments as of August 28, 2010. See further discussion in Note 3. |
We have two manufacturing facilities held for sale at fiscal year end, one of which we have a sales agreement in place to sell for $3.9 million on or before November 1, 2010 (subject to certain closing conditions).
We also have in place a $20 million revolving credit facility, as described in further detail in Note 6, that allows us to borrow up to $12.5 million without financial covenant restrictions if there is adequate asset coverage. We had sufficient asset coverage in accounts receivable and inventory at the end of Fiscal 2010 to access the entire $12.5 million. The facility also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable covenants to be determined at the time of expansion. This potential additional borrowing capacity may be beneficial to us if inventory levels need to substantially increase rapidly as a result of product demand.
We filed a Registration Statement on Form S-3, which was declared effective by the SEC on March 31, 2010. Subject to market conditions, we have the ability to offer and sell up to $35 million of our common stock in one or more offerings p
ursuant 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 28, 2010 and August 29, 2009 was $91.3 million and $79.5 million, respectively, an increase of $11.9 million. We currently expect cash on hand, funds generated from operations (if any) and the availability under the credit facility to be sufficient to cover both short-term and long-term operating requirements. We anticipate capital expenditures of Fiscal 2011 of approximately $3.0 million, primarily for manufacturing equipment and facilities.
Operating Activities
Cas
h provided by operating activities was $33.0 million for the fiscal year ended August 28, 2010 compared to cash provided by operating activities of $8.3 million for the fiscal year ended August 29, 2009. The combination of a net income of $10.2 million in the current year and an improvem
ent in non-cash charges (e.g., depreciation, stock-based compensation) provided $17.4 million of operating cash compared to a usage of $30.9 million in the prior year period. In Fiscal 2010, changes in assets and liabilities (primarily income tax refunds and inventory reductions) provided an additional $15.6 million of operating cash. In Fiscal 2009, changes in assets and liabilities (primarily inventory reductions) provided an additional $39.2 million operating cash.
Investing Activities
Cash provided by investing activities of $14.3 million in Fiscal <
/font>2010 was due primarily to ARS redemptions of $15.9 million, partially offset by capital spending of $1.9 million. During Fiscal 2009, cash provided by investing activities of $5.0 million was primarily due to ARS redemptions of $8.9 million, partially offset by capital spending of $3.5 million.
Financing Activities
Cash used in financing activities for the fiscal year ended August 28, 2010 was $9.1 million for repayments on borrowings from our ARS portfolio. Cash pro
vided by financing activities for the fiscal year ended August 29, 2009 was due to borrowings on our ARS portfolio of $9.1 million, partially offset by dividend payments of $3.5 million.
Contractual Obligations and Commercial Commitments
Our principal contractual obligations and commercial commitments as of August 28, 2010 were as follows:
<
td width="45%"> | | | | | | | | | | | | | | |
| Payments Due By Period |
(In thousands) | Total | Fiscal 2011 | | Fiscal 2014-2015 | More than 5 Years |
Postretirement health care obligations (1) | $ | 40,327 | | $ | 1,262 | | $ | 3,124 | | $ | 3,829 | | $ | 32,112 | |
Deferred compensation obligations (1) | 25,446 | | 2,546 | | 4,717 | | 4,298 | | 13,885 | |
Executive share option obligations (1) | 8,698 | | — | | 1,088 | | 2,302 | | 5,308 | |
Supplemental executive retirement plan benefit obligations (1) | 3,107 | | 218 | | 416 | | 288 | | 2,185 | |
Operating leases <
/font>(2) | 354 | | 152 | | 157 | | 45 | | — | |
Contracted services | 87 | | 36 |
| 51 | | — | | — | |
Unrecognized tax benefits (3) | 5,877 | | — | | — | | — | <
/font> | — | |
Total contractual cash obligations | $ | 83,896 | | $ | 4,214 | | $ | 9,553 | | $ | 10,762 | | $ | 53,490 | |
| | | | | | | | | | | | |
| Expiration By Period |
(In thousands) | Total | Fiscal 2011 | Fiscal 2012-2013 | Fiscal 2014-2015 | More than 5 Years |
Formal repurchase obligations (3) | $ | 155,490 | | $ | 71,717 | | 83,773 | | — | | — | |
| |
(3) | We are not able to reasonably estimate in which future periods these amounts will ultimately be settled. |
Critical Accounting Policies
Our financial stat
ements are prepared in accordance with generally accepted accounting principles (GAAP). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that we believe to be relevant at the time our financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates and such differences could be material.
Our signif
icant accounting policies are discussed in Note 1. We believe that the following accounting estimates and policies are the most critical to aid in fully understanding and evaluating our reported financial results and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board.
Revenue Recognition
Generally, revenues for motor homes are recorded when all of the following conditions are met: an order for a product has been received from a dealer, written or verbal approval for payment has been received from the dealer's floorplan financing institution, and the product is delivered to the dealer who placed the order. Most sales are financed under floorplan financing arrangements with banks or finance companies.
Revenues from the sales of our OEM and motor home related parts are recorded as the products are shipped from our location. The title of ownership transfers on these products as they leave our location due to the freight terms of F.O.B. - Forest City, Iowa.
<
a name="sC56A1FD398DBD8A4196E5D59D9C3893D">Sales Promotions and Incentives
We accrue for sales promotions and incentive expenses, which are recognized as a reduction to revenues, at the time of sale to the dealer or when the sales incentive is offered to the dealer or retail customer. Examples of sales promotions and incentive programs include dealer and consumer rebates, volume discounts, retail financing programs and dealer sales associate incentives. Sales promotion and incentive expenses are estimated based upon current program parameters, such as unit or retail volume, and historical rates. Actual results may differ from these estimates if market conditions dictate the need to enhance or reduce sales promotion and incentive programs or if the retail customer usage rate
varies from historical trends. Historically, sales promotion and incentive expenses have been within our expectations
and differences have not been material.
Warranty
We provide with the purchase of any new motor home, a comprehensive 12-month/15,000-mile warranty on Class A, B and C motor homes and a 3-year/36,000-mile warranty on Class A and C sidewalls and floors. Estimated costs related to product warranty are accrued at the time of sale and are based upon past warranty claims and unit sales history and adjusted as required to reflect actual costs incurred, as information becomes available. A significant increase in dealership labor rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize. We also incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions. Est
imated costs are accrued at the time the service action is implemented and are based upon past claim rate experiences and the estimated cost of the repairs. Further discussion of our warranty costs and associated accruals is included in Note 7.
Unrecognized Tax Benefits
We only recognize tax benefits for filing positions that are considered more likely than not of being sustained under audit by the relevant taxing authority, without regard to t
he likelihood of such an audit occurring. We record a liability for uncertain tax positions when it is more likely than not that our filed tax positions will not be sustained. We record deferred tax assets related to reserves for filing positions in a particular jurisdiction that would result in tax deductions in another tax jurisdiction if we were unable to sustain our filing position in an audit. Our income tax returns are periodically audited by various taxing authorities. These audits include questions regarding our tax filing positions, including the timing and the amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple years are subject to audit by the various taxing authorities. We continually assess our tax positions for all periods that are open to examination or have not been effectively settled based on the most current available information. We adjust our liability for unrecognized tax benefits and income tax provision in the period in which an
uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.
Our liability for unrecognized tax benefits contains uncertainties because we are required to make assumptions and apply judgment to estimate the exposure associated with our various filing positions. Our effective tax rate is also affected by changes in tax laws, the level of our earnings or losses and the results of tax audits.
Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or realize gains that could be material. To the extent that we prevail in matters for which a liability has
been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective tax rate in the period of resolution.
Income Taxes
We account for income taxes in accordance with ASC 740, Income Tax
es. As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. Valuation allowances arise due to the uncertainty of realizing deferred tax assets. ASC 740 requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, using a "more likely than not" standard. In making such assessments, significant weight is to be given to evidence that can be objectively verified. A company's current or previous losses are given more weight than its future outlook. Under that standard, our three-year historical cumulative loss was a significant negative factor. We have evaluated the
sustainability of our deferred tax assets on our balance sheet which includes the assessment of cumulative income or losses over recent prior periods. Based on ASC 740 guidelines, we determined a full valuation allowance was appropriate as of August 28, 2010. We will continue to assess the likelihood that our deferred tax assets will be realizable at each reporting period and our valuation allowance will be adjusted accordingly, which could materially impact our financial position and results of operations.
Postretirement Benefits, Obligations and Costs
We provide certain health care and other benefits for retired employees hired before April 1, 2001, who have fulfilled eligibility requirements at age 55 with 15 years of continuous service. Postretirement benefit liabilities are determined by actuaries using assumptions about the discount rate and health care cost-trend rates. Assumed health care cost trend rates do not have a significant effect on the amounts reported for our health care plan due to the fact that in, Fiscal 2004, caps were placed on the amount we are required to pay for postretirement health care benefits per retiree on an annual basis. However, a significant increase or decrease in interest rates could have a significant impact on our operating results. Further discussion of our postretirement benefit plan and related assumptions is included in Note 8.
Other
We have reserves for other loss exposures, such as litigation, product liability, repurchase commitments, worker's compensation, inventory and accounts receivable. Establishing loss reserves for these matters requires the use of estimates and judgment in regards to risk exposure and ultimate liability. We estimate losses under the programs using consistent and appropriate methods; however, changes in assumptions could materially affect our recorded assets or liabilities.
New Accounting Pronouncements
See Note 1.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have market risk exposure to our ARS, which is described in further detail in Note 3.
Item 8. Financial Statements and Supplementary Data
| |
Index to Financial Statements | Page |
| |
| |
| |
| |
| |
| |
| |
| |
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Winnebago Industries, Inc. (the "Company") is responsible for establishing and maintaining effective internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. The Company's internal control over financial reporting is a process designed, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amen
ded, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company's internal control over financial reporting is supported by written policies and procedures that:
| |
1. | pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the Company's assets; |
| |
2. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company's management and directors; and |
| |
3. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. |
In addition, the Audit Committee of the Board of Directors, consisting solely of independent directors, meets periodically with Management, the internal auditors and the independent registered public accounting firm to review internal accou
nting controls, audit results and accounting principles and practices and annually selects the independent registered public accounting firm.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Company's annual financial statements, management of the Company has
undertaken an assessment of the effectiveness of the Company's internal control over financial reporting based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management's assessment included an evaluation of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of the Company's internal control over financial reporting.
Based on this assessment, management has concluded that the Company's internal control over financial reporting was effective as of August 28, 2010.
Deloitte & Touche LLP, the independent registered public accounting firm that audited the Company's financial statements included in this Annual Report on Form 10-K, has issued a report included herein, which expressed an unqualified opinion on the Company's internal control over financial reporting.
| | |
/s/ Robert J. Olson | | /s/ Sarah N. Nielsen |
Robert J. Olson | | Sarah N. Nielsen |
Chairman of the Board, Chief Executive Officer and President | | Vice President, Chief Financial Officer |
| | |
October 26, 2010 | | October 26, 2010 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Winnebago Industries, Inc.
Forest City, Iowa
<
font style="font-family:Arial;font-size:10pt;">We have audited the internal control over financial reporting of Winnebago Industries, Inc. (the "Company") as of August 28, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
W
e conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and princ
ipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detec
tion of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company ma
intained, in all material respects, effective internal control over financial reporting as of August 28, 2010, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended August 28, 2010 of the Company and our report dated October 26, 2010 expressed an unqualified opinion on those financial statements.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
October 26, 2010
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Winnebago Industries, Inc.
Forest City, Iowa
We have audited the accompanying balance sheets of Winnebago Industries, Inc. (the "Company") as of August 28, 2010 and August 29, 2009, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended August 28, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount
s and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at August 28, 2010 and August 29, 2009, and the results of its operations and its cash flows for each of the three years in the period ended August 28, 2010, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of August 28, 2010, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 26, 2010 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
October 26, 2010
Winnebago Industries, Inc.
Statements of Operations(1)
| | | | | | | | | |
| Year Ended (2) |
(In thousands, except per share data) | August 28, 2010 | August 29, 2009 | August 30, 2008 |
Net revenues <
/td> | $ | 449,484 | | $ | 211,
519 | | $ | 604,352 | |
Cost of goods sold | 423,217 | | 242,265 | | 569,580 | |
Gross profit (deficit) | 26,267 |
| (30,746 | ) | 34,772 | |
| | | |
Operating expenses: | | | |
Selling | 12,724 | | 12,616 | | 18,482 | |
General and administrative | 13,023 | | 15,298 | | 21,359 | |
Asset impairment | — | | 855 | | 4,686 | |
Total operating expenses | 25,747 | | 28,769 | | 44,527 | |
| | | |
Operating income (loss) | 520 | | (59,515 | ) | (9,755 | ) |
| | | |
Financial income | 222 | | 1,452 | | 4,314 | |
Income (loss) before income taxes | 742 | | (58,063 | ) | (5,441 | ) |
| | | |
(Benefit) provision for taxes | (9,505 | ) | 20,703 | | (8,225 | ) |
Net income (loss) | $ | 10,247 | | $ | (78,766 | ) | $ | 2,784 | |
| | | |
Income (loss) per common share: | | | |
Basic | $ | 0.35 | | $ | (2.71 | ) | $ | 0.10 | |
Diluted | $ | 0.35 | | $ | (2.71 | ) | $ | 0.10 | |
| | | |
<
td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;">Weighted average common shares outstanding:
| | |
Basic
29,091 | | 29,040 | | 29,093 | |
Diluted | 29,101 | | 29,051 | | 29,144 | |
(1) See notes to financial statements.
(2) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Winnebago Industries, Inc.
Balance Sheets(1)
| | | | | | |
(In thousands, except per share data) | August 28, 2010 | August 29, 2009 |
| | |
Assets | | |
Current assets: | | |
Cash and cash equivalents | $ | 74,691 | | $ | 36,566 | |
Short-term investments | — | | 13,500 | |
Receivables, less allowance for doubtful accounts ($91 and $185, respectively) | 18,798 | | 11,717 | |
&
nbsp; Inventories | 43,526 | | 46,850 | |
Prepaid expenses and other assets | 4,570 | | 3,425 | |
Income taxes receivable | 132 | | 17,356 | |
Total current assets | 141,717 | | 129,414 | |
Property, plant and equipment, net | 25,677 | | 28,040 | |
Assets held for sale | 4,254 | | 6,515 | |
Long-term investments | 17,785 | | 19,794 | |
Investment in life insurance | 23,250 | | 22,451 | |
Other assets | 14,674 | | 14,252 | |
Total assets | $ | 227,357 | | $ | 220,466 | |
| | |
Liabilities and Stockholders' Equity | | |
Current liabilities: | | |
Accounts payable | $ | 19,725 | | $ | 10,370 | |
&
nbsp; Short-term ARS borrowings | — | | 9,100 | |
Income taxes payable | 99 | | 299 | |
Accrued expenses: | | |
Accrued compensation | 10,529 | | 10,204 | |
Product warranties | 7,634 | | 6,408 | |
Self-insurance | 4,409 | | 5,356 | |
Accrued loss on repurchases | 1,362 | | 1,199 | |
Promotional | 1,817 | | 2,270 | |
Other | 4,797 | | 4,748 | |
Total current liabilities | 50,372 | | 49,954 | |
Total long-term liabilities: | | |
Unrecognized tax benefits | 5,877 | | 9,012 | |
Postretirement health care and deferred compensations benefits | 73,581 | | 69,169 | |
Total long-term liabilities | 79,458 | | 78,181 | |
Contingent liabilities and commitments | | |
Stockholders' equity: | | |
Capital stock common, par value $0.50; authorized 60,000 shares, issued 51,776 shares | 25,888 | | 25,888 | |
Additional paid-in capital | 29,464 | | 29,726 | |
Retained earnings | 420,675 | | 410,428 | |
Accumulated other comprehensive income | 1,242 | | 6,540 | |
Treasury stock, at cost (22,661 and 22,690 shares, respectively) | (379,742 | ) | (380,251 | ) |
Total stockholders' equity | 97,527 | | 92,331 | |
Total liabilities and stockholders' equity | $ | 227,357 | | $ | 220,466 | |
(1) See notes to financial statements.
Winnebago Industries, Inc.
Statements of Changes in Stockholders' Equity(1)
| | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | Additional Paid-In Capital (APIC) | Retained Earnings | Accumulated Other Compre- hensive Income | Treasury Stock | Total Stock-
holders' Equity |
(In thousands, except per share data) | Number | Amount | Number | Amount |
Balance, August 25, 2007 | 51,776 | | $ | 25,888 | | $ | 28,646 | | $ | 509,056 | | $ | 11,090 | | (22,223 | ) | $ | (366,326 | ) | $ | 208,354 | |
Stock option exercises | — | | — | | (159 | ) | — | | — | | 59 | | 992 | | 833 | |
Issuance of stock to directors | — | | — | | 60 | | — | | — | | 23 | | 383 | | 443 | |
Utilization of APIC pool due to stock award | — | | — | | (268 | ) | — | | — | | — | | — | | (268 | ) |
Issuance of restricted stock, net of forfeitures | — | | — | | (2,119 | ) | — | | — | | 128 | | 2,119 | | — | |
Stock-based compensation | — | | — | &n
bsp; | 3,472 | | — | | — | | — | | — | | 3,472 | |
Payments for the purchase of common stock | — | | — | | — | | — | | — | | (693 | ) | (17,771 | ) | (17,771 | ) |
Cash dividends paid and accrued on common stock - $0.48 per share | — | | — | | — | | (13,940 | ) | — | | — | | — | | (13,940 | ) |
Adjustments to initially apply new accounting standards, net of $1,111 tax | — | | — | | — | | (8,706 | ) | — | | — | | — | | (8,706 | ) |
Prior service cost and actuarial loss, net of $180 tax | — | | — | | — | | — | | (53 | ) | — | | — |
| (53 | ) |
Unrealized depreciation of investments, net of $738 tax | — | | — | | — | | — | | (1,224 | ) | — | | — | | (1,224 | ) |
Net income | — | | — | | — | | 2,784 | | — | | — | | — | | 2,784 | |
Balance, August 30, 2008 (2) | 51,776 | | $ | 25,888 | | $ | 29,632 | | $ | 489,194 | | $ | 9,813 | | (22,706 | ) | $ | (380,603 | ) | $ | 173,924 | |
Stock option exercises | — | | — | | (7 | ) | — | | — | | 1 | | 17 | | 10 | |
Utilization of APIC pool due to stock award | — | | — | | (411 | ) | — | | — | | — | | — | | (411 | ) |
Issuance of stock to directors | — | | — | | (312 | ) | — | | — | | 31 | | 518 | | 206 | |
Forfeitures | | — | | 20 | | — | | — | | (1 | ) | (20 | ) | — | |
Stock-based compensation | — | | — | | 804 | | — | | — | | — | | — | | 804 | |
Payments for the purchase of common stock | — | | — | | — | | — | | — | | (15 | ) | (163 | ) | (163 | ) |
Prior service cost and actuarial loss, net of $2,263 tax | — | | — | | — | | — | | (4,243 | ) | — | | — | | (4,243 | ) |
Unrealized appreciation of investments, net of $586 tax | — | | — | | — | | — | | 970 | | — | | — | | 970 | |
Net loss | — | | — | | — | | (78,766 | ) | — | | — | | — | | (78,766 | ) |
Balance, August 29, 2009 (2) | 51,776 | | $ | 25,888 | | $ | 29,726 | | $ | 410,428 | | $ | 6,540 | | (22,690 | ) | $ | (380,251 | ) | $ | 92,331 | |
Stock option exercises | — | | — | | (171 | ) | — | | — | | 31 | | 511 | | 340 |
|
Utilization of APIC pool due to stock award | — | | — | | (327 | ) | — | | — | | — | | — | | (327 | ) |
Issuance of stock to directors | — | | — | | (75 | ) | — | | — | | 15 | | 251 | | 176 | |
Forfeitures | — | | — | | (58 | ) | — | | — | | — | | (3 | ) | (
61 | ) |
Stock-based compensation | — | | — | | 369 | | — | | — | | — | | — | | 369 | |
Payments for the purchase of common stock | — | | — | | — | | — | | — | | (17 | ) | (250 | ) | (250 | ) |
Prior service cost and actuarial loss, net of $1,260 tax | — | | — | | — | | — | | (5,511 | ) | — | | — | | (5,511 | ) |
Unrealized appreciation of investments, net of $128 tax | — | | — | | — | | — | | 213 | | — | | — | | 213 | |
Net income | — | <
/div> | — | | — | | 10,247 | | — | | — | | — | | 10,247 | |
| <
div style="font-family:Arial;font-size:8pt;">Balance, August 28, 2010(2) | 51,776 | | $ | 25,888 | | $ | 29,464 | | $ | 420,675 | | $ | 1,242 | | (22,661 | ) | $ | (379,742 | ) | $ | 97,527 | |
| |
(1) | See notes to financial statements. |
| |
(2) | Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks. |
Winnebago Industries, Inc.
Statements of Cash Flows(1)
| | | | | | | | | |
| Year Ended (2) |
(In thousands) | A
ugust 28, 2010 | August 29, 2009 | August 30, 2008 |
Operating activities: | | | |
Net income (loss) | $ | 10,247 | | $ | (78,766 | ) | $ | 2,784 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation | 6,340 | | 7,834 | | 9,907 | |
Asset impairment | — | | 855 | | 4,686 | |
Stock-based compensation | 546 | | 1,010 | | 3,915 | |
Deferred income taxes including valuation allowance | — | | 37,440 | | 3,490 | |
Postretirement benefit income and deferred compensation expense | 1,275 | | 1,252 | | 1,414 | |
(Reduction) provision for doubtful accounts | (37 | ) | 73 | | 103 | |
Loss on
disposal of property | 25 | | 75 | | 64 | |
Other | 111 | | 132 | | 74 | |
Excess tax benefit from stock-based compensation | — | | — | | (92 | ) |
Increase in cash surrender value of life insurance policies | (1,090 | ) | (858 | ) | (759 | ) |
Change in assets and liabilities: |
| | |
Inventories | 3,324 | | 63,746 | | (9,388 | ) |
Receivables and prepaid assets | (8,550 | ) | (2,074 | ) | 21,022 | |
Income taxes and unrecognized tax benefits | 14,692 | | (8,708 | ) | (17,665 | ) |
Accounts payable and accrued expenses | 9,756 | | (10,567 | ) | (31,301 | ) |
Postretirement and deferred compensation benefits | (3,600 | ) | (3,172 | ) | (2,632 | ) |
Net cash provided by (used in) operating activities | 33,039 | | 8,272 | | (14,378 | ) |
| | | |
Investing activities: | | | |
Purchases of investments | — | | — | | (228,069 | ) |
Proceeds from the sale of investments, at par | 15,850 | | 8,900 | | 288,119 | |
Purchases of p
roperty and equipment | (1,874 | ) | (3,473 | ) | (3,720 | ) |
Proceeds from the sale of property | 96 | | 296 | | 298 | |
Other | 262 | | (737 | ) | (255 | ) |
Net cash provided by investing activities | 14,334 | | 4,986 | | 56,373 | |
| | | |
Financing activities: | | | |
Payments for purchases of common stock | (250 | ) | (163 | ) | (17,771 | ) |
Payments of cash dividends | — | | (3,489 | ) | (13,997 | ) |
(Payments) borrowings on ARS portfolio | (9,100 | ) | 9,100 | | — | |
Proceeds from exercise of stock options | 280 | | 9 | | 643 | |
Excess tax benefit of stock-based compensation | — | | — | | 92 | |
Other | (178 | ) | — | | — | |
Net cash (used in) provided by financing activities | (9,248 | ) | 5,457 | | (31,033 | ) |
| | | |
Net increase in cash and cash equivalents | 38,125 | | 18,715 | | 10,962 | |
Cash and cash equivalents at beginning of year | 36,566 | | 17,851 | | 6,889 | |
Cash and cash equivalents at end of year | $ | 74,691 | | $ | 36,566 | | $ |
17,851 | |
| | | |
Supplement cash flow disclosure: |
| | |
Income taxes (refunded) paid | $ | (24,356 | ) | $ | 191 | | $ | 8,487 | |
(1) See notes to financial statements.
(2) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Winnebago Industries, Inc.
Notes to Financial Statements
Note 1: Summary of Significant Accounting Policies
Nature of Operations
Winnebago Industries, Inc., founded in 1958 and headquartered in Forest City, Iowa, is one of the leading United States manufacturers of motor homes. We sell motor homes through independent dealers, primarily throughout the United States and Canada, under the Winnebago, Itasca and ERA brand names. Other products manufactured by us consist primarily of original equipment manufacturing parts, including extruded aluminum and other component products for other manufacturers and commercial vehicles.
Fiscal Period
We follow a 52-/53-week fiscal year, ending the last Saturday in August. The financial statements for Fiscal 2010 and 2009 contained 52 weeks; Fiscal 2008 contained 53 weeks.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments with an original maturity of three months or less. The carrying amount approximates fair value due to the short maturity of the investments.
Fair Value Disclosures of Financial Instruments
All financial instruments are carried at amounts believed to approximate fair value.
Derivative Instruments and Hedging Activities
All contracts that contain provisions meeting the definition of a derivative also meet the requirements of, and have been designated as, normal purchases or sales. Our policy is to not enter into contracts with terms that cannot be designated as normal purchases or sales.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on historical loss experience and any specific customer collection issues identified. Additional
amounts are provided through charges to income as we believe necessary after evaluation of receivables and current economic conditions. Amounts which are considered to be uncollectible are written off and recoveries of amounts previously written off are credited to the allowance upon recovery.
Inventories
Substantially, all inventories are stated at the lower of cost or market, determined on the LIFO basis. Manufacturing cost includes materials, labor and manufacturing overhead. Unallocated overhead and abnormal costs are expensed as incurred.
Property and Equipment
Depreciation of property and equipment is computed using the straight-line method on the cost of the assets, less allowance for salvage value where appropriate, at rates based upon their estimated service lives as follows:
| |
Asset Class | Asset Life |
Buildings | 10-30 yrs. |
Machinery and equipment | 3-10 yrs. |
Transportation equipment | 4-6 yrs. |
We review our long-lived depreciable assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable from future
cash flows. If the carrying value of a long-lived asset is impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. We assess the potential impairment of long-lived assets in accordance with ASC 360 Property, Plant and Equipment. We assessed the fair value of certain properties which were idled and are listed for sale (see Note 5). We also reviewed all other long-lived depreciable assets for impairment, noting no impairment.
Income Taxes
We account for income taxes in accordance with ASC 740, Income Taxes. As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together
with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our balance sheet. We then assess the likelihood that our deferred tax assets will be realized based on future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance or change this allowance in a period, we include an expense or a benefit within the tax provision in our Statements of Operations.
Legal
Our accounting policy regarding litigation expense is to accrue for probable exposure including estimated defense cost
s if we are able to estimate the financial impact.
Revenue Recognition
Generally, revenues for motor homes are recorded when all of the following conditions are met: an order for a product has been received from a dealer, written or verbal approval for payment has been received from the dealer's floorplan financing institution, and the product is delivered to the dealer who placed the order. Most sales are financed under floorplan financing arrangements with banks or finance companies.
Revenues of our OEM components and motor home related parts are recorded as the products are shipped from our
location. The title of ownership transfers on these products as they leave our location due to the freight terms of F.O.B. - Forest City, Iowa.
Sales Promotions and Incentives
We accrue for sales promotions and incentive expenses, which are recognized as a reduction to revenues, at the time of sale to the dealer or when the sales incentive is offered to the dealer or retail customer. Examples of sales promotions and incentive programs include dealer and consumer rebates, volume discounts, retail financing programs and dealer sales associate incentives. Sales promotion and incentive expenses are estimated based upon then current program parameters, such as unit or retail volume and historical rates. Actual results may differ from
these estimates if market conditions dictate the need to enhance or reduce sales promotion and incentive programs or if the retail customer usage rate varies from historical trends. Historically, sales promotion and incentive expenses have been within our expectations and differences have not been material.
Repurchase Commitments
It is customary practice for companies in the recreation vehicle industry to enter into repurchase agreements with financing institutions that provide financing to their dealers. Our repurchase agreements generally provide that, in the event of a default by a dealer in its obligation to these lenders, we will repurchase vehicles sold to the dealer that have not been resold to retail customers. The terms o
f these agreements, which can last up to 18 months, provide that our liability will be the lesser of remaining principal owed by the dealer or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our liability cannot exceed 100 percent of the dealer invoice. In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary relationship terminations.
Based on these repurchase agreements, we establish an associated loss reserve which is disclosed separately in the balance sheets. Repurchased sales are not recorded as a revenue transaction, but the net difference between the original repurchase price and the resale price are recorded against the loss reserve, which is a deduction from gross revenue. There are two significant assumptions associat
ed with establishing our loss reserve for repurchase commitments: (1) the percentage of dealer inventory that we will be required to repurchase as a result of defaults by the dealer, and (2) the loss that will be incurred, if any, when repurchased inventory is resold. The percentage of dealer inventory we estimate we will repurchase is based on historical information, current trends and an analysis of dealer inventory aging for all dealers with inventory subject to this obligation.
Shipping Revenues and Expenses
Shipping revenues for products shipped are included within sales, while shipping expenses are included within cost of goods sold.
Research and Development
Research and development expenditures are expensed as incurred. A portion of these expenditures qualify for state and federal tax benefits. Development activities generally relate to creating new products and improving or creating variations of existing products to meet new applications. During Fiscal 2010, 2009 and 2008, we spent approximately $3.2 million, $3.3 million and $4.1 million, respectively, on research and development activities.
Income Per Common Share
Basic income (loss) per common share is computed by dividing net income (loss) by the weighted average common shares outstanding during the period.
Diluted income (loss) per common share is computed by dividing net income (loss) by the weighted average common shares outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of dilutive stock options (see Note 14.)
Subsequent Events
We evaluated ev
ents occurring between the end of our most recent fiscal year and the date the financial statements were issued. There were no material subsequent events, except those described in Note 5.
New Accounting Pronouncements
On January 21, 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-06, amending ASC 820, Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standards No. 157) to add new requirements. The new requirements
are disclosures about transfers into and out of Levels 1 and 2 measurements (as defined in Note 2) and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements (as defined in Note 2). ASU 2010-06 clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new guidance became effective for our second quarter of Fiscal 2010, except for the requirement to provide Level 3 activity on a gross basis. That requirement will be effective starting in the first fiscal year beginning after December 15, 2010 (our Fiscal 2012).
Note 2: Fair Value Measurements
We adopted accounting guidance related to fair value measurements on August 31, 2008. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an order
ly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows:
Level 1 - Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.
Level 2 - Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:
| |
• | Quoted prices for similar assets or liabilities in active markets; |
| |
• | Quoted prices for identical or similar assets in nonactive markets; |
| |
• | Inputs other than quoted prices that are observable for the asset or liability; and |
| |
• | Inputs that are deri
ved principally from or corroborated by other observable market data. |
Level 3 - Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis. The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure f
air value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
The following table sets forth by level within the fair value hierarchy our financial assets that were accounted for at fair value on a recurring basis at August 28, 2010 and August 29, 2009 according to the valuation techniques we used to determine their fair values: | | | | | | | | | | | | | | | | |
| | Fair Value at August 28, 2010 | | Fair Value Measurements Using Inputs Considered As |
(In thousands) | | | Level 1 | | Level 2 | | Level 3 |
Long-term investments | | $ | 17,785 | | | $ | — | | | $ | — | | | $ | 17,785 | |
Assets that fund deferred compensation | | 10,954 | | | 10,954 | | | — | | | — | |
| | | | | | | | | | | | | | | | |
| | Fair Value at August 29, 2009 | | Fair Value Measurements Using Inputs Considered As |
(In thousands) | | | Level 1 | | Level 2 | | Level 3 |
Short-term investments (includes Put Rights) | | $ | 13,500 | | | $ | — | | | $ | — | | | $ | 13,500 | |
Long-term investments | | 19,794 | | | — | | | — | | | 19,794 | |
Assets that fund deferred compensation | | 10,858 | | | 10,858 | | | — | | | — | |
The following table provides a reconciliation between the beginning and ending b
alances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3):
| | | | | | |
(In thousands) | August 28, 2010 | August 29, 2009 |
Balance at beginning of year | $ | 33,294 | | $ | 37,538 | |
Net realized loss included in earnings | — | | — | |
Net c
hange included in other comprehensive income | 341 | | 1,556 | |
Sales | (15,850 | ) | (5,800 | ) |
Balance at the end of year | $ | 17,785 | | $ | 33,294 | |
The following methods and assumptions were used to estimate the fair value of each class
of financial instrument:
Short-term and long-term investments. Our debt securities are comprised of ARS. Our ARS related investments (as defined and as described in Note 3) are classified as Level 3 as quoted prices were unavailable due to events described in Note 3. Due to limited market information, we utilized a discounted cash flow ("DCF") model to derive an estimate of fair value at August 28, 2010. The assumptions used in preparing the DCF model included estimates with respect to the amount and timing of future interest and principal payments, forward projections of the interest rate benchmarks, the probability of full repayment of the principal considering the credit quality and guarantees in place and the rate of return required by investors to own such securities given the current liquidity risk associated with ARS.
Assets that fund deferred compensation. Our assets that fund deferred compensation are marketable equity securities measured at fair value using quoted market prices and primarily consist of equity-based mutual funds. They are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. These securities fund the Execu
tive Share Option Plan, a deferred compensation program, and are presented as other assets in the accompanying balance sheets.
Note 3: Investments
We own investments in marketable securities that have been designated as "available for sale" in accordance with ASC
320, Investments - Debt and Equity Securities. Available for sale securities are carried at fair value with the unrealized gains and losses reported in "Accumulated Other Comprehensive Income," a component of stockholders' equity.
At August 28, 2010, we held $17.9 million (par value) of investments comprised of tax-exempt ARS, which are variable-rate debt securities and have a long-term maturity with the interest rate being reset through Dutch auctions that are typically held every 7, 28 or 35 days. Prior to February 2008, these securities traded at par and are callable at par at t
he option of the issuer. Interest is typically paid at the end of each auction period or semiannually. The ARS we hold are AAA/Aaa rated with most collateralized by student loans guaranteed by the U.S. Government under the Federal Family Education Loan Program.
Since February 2008, most ARS auctions have failed for these securities and there is no assurance that future auctions will succeed and, as a result, our ability to liquidate our investment and fully recover the par value in the near term may be limited or nonexistent. We have no reason to believe that any of the underlying issuers of our ARS are presently at risk of default. We have continued to receive interest payments on the ARS in accordance with their terms. We believe we will ultimately be able to liquidate our ARS related investments without significant loss primarily due to the collateral securing the ARS. However, r
edemption could take until final maturity of the ARS (up to 30 years) to realize the par value of our
investments. Due to the changes and uncertainty in the ARS market, we believe the recovery period for these investments is likely to be longer than 12 months and as a result, we have classified these investments as long-term as of August 28, 2010.
In November 2008, we elected to participate in a rights offering by UBS, one of our brokers, which provide us with rights (the “Put Rights”) to sell to them $13.5 million at par value of our ARS portfolio, purchased through UBS, at any time during a two-year sale period beginning June 30, 2010. The terms of the legal settlement agreement also allowed us to borrow on a portion of our portfolio at “no net cost” and as a result, we borrowed $9.1 million under this arrangement in Fiscal 2009. We had the ability to maintain the no net cost loans until the securities were liquidated or they reach the June 2010 put date. During Fiscal 2010 in advance of the put date, UBS elected to redeem s
ecurities that had a par value of $12.6 million. Terms of the settlement agreement required us to repay a portion of the outstanding borrowings of $8.5 million. On June 30, 2010, we elected to exercise our Put Rights thereby liquidating our remaining UBS portfolio of $900,000 and within accordance of the terms repaid the remaining $610,000 of short-term ARS borrowings.
At August 28, 2010, there was insufficient observable ARS market information available to determine the fair value of our ARS investments. Therefore, we estimated fair value by incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions included credit quality, final stated maturities, estimates on the probability of the issue being
called prior to final maturity, impact due to extended periods of maximum auction rates and broker quotes from independent evaluators. Based on this analysis, we recorded a temporary impairment of $65,000 related to our long-term ARS investments of $17.9 million (par value).
Note 4: Inventories
I
nventories consist of the following:
| | | | | | |
(In thousands) | August 28, 2010
| August 29, 2009 |
Finished goods | $ | 21,200 | | $ | 18,709 | |
Work-in-process | 24,897 | | 24,982 | |
Raw materials | 26,992 | | 33,505 | |
| 73,089 | | 77,196 | |
LIFO reserve | (29,563 | ) | (30,346 | ) |
Total inventories | $ | 43,526 | | $ | 46,850 | |
The above value of inventories, before reduction for the LIFO reserve, approximates replacement cost at t
he respective dates. Due to a liquidation of LIFO inventory values as a result of a reduction of inventory levels during Fiscal 2010 and Fiscal 2009, we recorded a reduction to LIFO reserves of $780,000 and $7.0 million, respectively, which is net of inflation.
Note 5: Property, Plant and Equipment and Assets Held for Sa
le
Property, plant and equipment is stated at cost, net of accumulated depreciation and consists of the following:
| | | | | | | | |
(In thousands) | | August 28, 2010 | | August 29, 2009 |
Land | | $ | 772 | | | $ | 772 | |
Buildings | | 49,309 | | | 49,220 | |
Machinery and equipment | | 89,304 | | | 92,625 | |
Transportation | | 9,109 | | | 3,457 | |
| | 148,494 | | | 146,074 | |
Less accumulated depreciation | | (122,817 | ) | | (118,034 | ) |
Total property, plant and equipment, net | | $ | 25,677 | &nbs
p; | | $ | 28,040 | |
Assets held for sale as of August 28, 2010 of $4.3 million consisted of two idled manufacturing facilities, an assembly facility in Charles City, Iowa (CCMF) and a fiberglass manufacturing facility in Hampton, Iowa. We recorded an impairment of $855,000 for the Hampton facility in the fourth quarter of Fiscal 2009 and an impairment of $4.7 million for the Charles City manufacturing facility in the fourth quarter of Fiscal 2008. During the fourth quarter of Fiscal 2010, the airplane previously held for sale was reclassified into total property, plant and equipment.
On August 30, 2010
, we entered into sale agreement of CCMF to CGS TIRES US, INC. (CGS) for $3.9 million. We estimate that we will record a small gain on the sale when the transaction closes on or before November 1, 2010. The sale transaction is subject to certain closing conditions, including (i) approval of state, county, governmental or quasi-governmental incentives, and (ii) a due diligence inspection of CCMF, including an acceptable Phase I Environmental
Report.
Note 6: Credit Facilities
On September 17, 2008, we entered into a two-year $25.0 million credit and security agreement with Wells Fargo Bank, National Associat
ion. No borrowings were made under this agreement. On October 13, 2009, we terminated this agreement in accordance with its terms in order to enter into a new credit facility that would provide more financial flexibility over a longer period of time. As a result of the termination, as required pursuant to the agreement with Wells Fargo, a termination fee of 1.5 percent of the facility, or $375,000, was recorded as expense during the first quarter of Fiscal 2010.
On October 13, 2009, we entered into a Loan and Security Agreement (the "Loan Agreement") with Burdale Capital Finance, Inc., as Agent. The Loan Agreement provides for an initial $20.0 million revolving credit facility, based on the Company's eligible accounts receivable and eligible inventory, expiring on October 13, 2012, unless terminated earlier in accordance with its terms. The Loan Agreeme
nt contains no financial covenant restrictions for borrowings up to $12.5 million; provided that borrowings cannot exceed the Asset Coverage Amount (as defined in the Loan Agreement) divided by 2.25. The Loan Agreement requires us to comply with certain financial covenants not yet established if we borrow more than $12.5 million up to $20.0 million, including minimum EBITDA and minimum liquidity as defined in the agreement and limitations on capital expenditures. The Loan Agreement also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable covenants to be determined at the time of the expansion. Interest on loans made under the credit facility will be based on the greater of LIBOR or 2.0 percent plus a margin of 4.0 percent or the greater of prime rate or 4.25 percent plus a margin of 3.0 percent. The unused line fee associated with this Loan Agreement is 1.25 percent per annum. Additionally, under certain circumstances, we will be required to pay an early t
ermination fee ranging from 1 - 3 percent of the maximum credit available under the Loan Agreement if we terminate the Loan Agreement prior to October 13, 2012. No borrowings have been made under the Loan Agreement through October 26, 2010.
The Loan Agreement contains typical affirmative representations and covenants for a credit agreement of this size and nature. Additionally, the Loan 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 (including stock repurchases), engage in mergers, consolidations or acquisitions and sell certain assets. Our obligations under the Loan Agreement are secured by a security interest i
n 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.
Note 7: Warranty
We provide our motor home customers a comprehensive 12-month/15,000-mile warranty on our Class A, B and C motor homes, and a 3-year/36,000-mile structural warranty on Class A and C sidewalls and floors. We have also incurred costs for certain warranty-type expenses which occurred after the normal warranty period. We have voluntarily agreed to pay such costs to help protect the reputation of our products and the goodwill of our customers. We record our warranty liabilities based on our estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. We also incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions.
Changes in our product warranty liability during Fiscal 2010, Fiscal 2009 and Fiscal 2008 are as follows: | | | | | | | | | |
(In thousands) | August 28, 2010 | August 29, 2009 | August 30, 2008 |
Balance at beginning of year | $ | 6,408 | | $ | 9,859 | | $ | 11,259 | |
Provision | 6,209 | | 3,843 | | 10,967 | |
Claims paid | (4,983 | ) | (7,294 | ) | (12,367 | ) |
Balance at end of year | $ | 7,634 | | $ | 6,408 | | $ | 9,859 | |
Note 8: Employee and Retiree Benefits
Postretirement health care and deferred compensation benefits are as follows:
| | | | | | |
(In thousands) | August 28,
2010 | August 29,
2009 |
Postretire
ment health care benefit cost | $ | 40,327 | | $ | 35,312 | |
Non-qualified deferred compensation | 25,372 | | 26,092 | |
Executive share option plan liability | 8,698 | | 8,444 | |
SERP benefit liability | 3,107 | | 3,259 | |
Executive deferred compensation | 74 | | 59 | |
Total postretirement health care and deferred compensation benefits | 77,578 | | 73,166 | |
Less current portion | (3,997 | ) | (3,997 | ) |
Long-term postretirement health care
and deferred compensation benefits | $ | 73,581 | | $ | 69,169 | |
Postretirement Health Care Benefits
We provide certain health care and other benefits for retired employees hired before April 1, 2001, who have fulfilled eligibility requirements at a
ge 55 with 15 years of continuous service. Retirees are required to pay a monthly premium for medical coverage based on years of service and age at retirement. Our postretirement health care plan currently is not funded. We use a September 1 measurement date for this plan.
Changes in our postretirement health care liability are as follows:
| | | | | | |
(In thousands) | August 28, 2010 | August 29, 2009 |
Balance at beginning of year | $ | 35,312 | | $ | 30,827 | |
Interest cost | 1,979 | | 2,119 | |
Service cost | 555 | | 590 | |
Net benefits paid | (1,037 | ) | (829 | ) |
Actuarial loss | 3,518 | | 2,605 | |
Balance at end of year | $ | 40,327 | | $ | 35,312 | |
The discount rate used in determining the accumulated postretirement benefit obligation was 4.8 percent at August 28, 2010 and 5.7 percent at August 29, 2009. In Fiscal 2010, the decrease in the discount rate resulted in an increase to the benefit obligation, presented as an actuarial loss in the preceding table. The average assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligations as of August 28, 2010 was 8.5 percent, decreasing each successive year until it reaches 4.5 percent in 2019, after which it remains constant.
Net periodic postretirement benefit income for the past three fiscal years consisted of the following components:
| | | | | | | | | |
| Year Ended(1) |
(In thousands) | August 28, 2010 | August 29, 2009 | August 30, 2008 |
Interest cost | $ | 1,979 | | $ |
2,119 | | $ | 2,003 | |
Service cost | 555 | | 590 | | 734 | |
Net amortization and deferral | (3,324 | ) | (3,498 | ) | (3,298 | ) |
Net periodic postretirement benefit income | $ | (790 | ) | $ | (789 | ) | $ | (561 | ) |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Amounts not yet recognized in net periodic benefit cost and included in accumulated other comprehensive income (before taxes) are as follows:
| | | | | | |
(In thousands) | August 28, 2010 | August 29, 2009 |
Prior service credit | $ | (22,001 | ) | $ | (26,200 | ) |
Net actuarial loss | 17,257 | | 14,613 | &
nbsp; |
Accumulated other comprehensive income | $ | (4,744 | ) | $ | (11,587 | ) |
The estimated actuarial net loss and prior service credit that will be amortized from accumulated other comprehensive income as a reduction to net periodic benefit cost in Fiscal 2011 will be $3.1 million.
Expected future benefit payments for postretirement health care for the next ten years are as follows:
| | | | |
(In thousands) | <
td colspan="3" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;border-bottom:1px solid #000000;">Amount
Year: | 2011 | $ | 1,262 | |
| 2012 | 1,476
| |
| 2013 | 1,648 | |
| 2014 | 1,824 | |
| 2015 | 2,005 | |
| 2016 - 2020 | 12,279 | |
| Total | $ | 20,494 | |
The expe
cted benefits have been estimated based on the same assumptions used to measure our benefit obligation as of August 28, 2010 and include benefits attached to estimated current employees' future services.
Deferred Compensation Benefits
Non-Qualified Deferred Compensation Program (1981)
We have a Non-Qualified Deferred Compensation Program which permitted key employees to annually elect to defer a portion of thei
r compensation until their retirement. The plan has been closed to any additional deferrals since January 2001. The retirement benefit to be provided is based upon the amount of compensation deferred and the age of the individual at the time of the contracted deferral. An individual generally vests at the later of age 55 and five years of service since the deferral was made. For deferrals prior to December 1992, vesting occurs at the later of age 55 and five years of service from first deferral or 20 years of service. Deferred compensation expense was $1.9 million, $1.9 million and $1.8 million in Fiscal 2010, 2009 and 2008, respectively. Total deferred compensation liabilities were $25.4 million and $26.1 million at August 28, 2010 and August 29, 2009, respectively.
Supplemental Executive Retirement Plan (SERP)
The primary purpose of this plan was to provide our officers and managers with supplemental retirement income for a period of 15 years after retirement. We have not offered this plan o
n a continuing basis to members of management since 1998. The plan was funded with individual whole life insurance policies (Split Dollar Program) owned by the named insured officer or manager. We initially paid the life insurance premiums on the life of the individual and the individual would receive life insurance and supplemental cash payment during the 15 years following retirement. In October 2008, the plan was amended as a result of changes in the tax and accounting regulations and rising administrative costs. Under the redesigned SERP, the underlying life insurance policies previously owned by the insured individual became COLI by a release of all interests by the participant and assignment to us as a prerequisite to participation in the SERP and transition from the Split Dollar Program. Total SERP liabilities were $3.1 million and $3.3 million at August 28, 2010 and August 29, 2009, respectively. This program remains closed to new employee participation.
To assist in funding the deferred compensation and SERP liabilities, we have invested in COLI policies. The cash surrender value of these policies is presented as investment in life insurance in the accompanying balance sheets and consist of the following:
| | | | | | |
(In thousands) | August 28, 2010 | August 29, 2009 |
| Cash value | $ | 52,052 | | $ | 49,907 | |
Borrowings | (28,802 | ) | (27,456 | ) |
Investment in life insurance | $ | 23,250 | | $ | 22,451 | |
Non-Qualified Share Option Program (2001)
The Non-Qualified Share Option Program permitted participants in the Executive Share Option Plan (the "Executive Plan") to choose to exchange a portion of their salary or other eligible compensation for options on selected securities, primarily equity-based mutual funds. These assets are treated as trading securities and are recorded at fair value. The Executive Plan has been closed to any additional deferrals since January 2005. Total Executive Plan assets are included in other assets in the accompanying balanc
e sheets. Such assets on August 28, 2010 and August 29, 2009 were $11.0 million and $10.9 million, respectively, and the liabilities were $8.7 million and $8.4 million, respectively. The difference between the asset and liability balances represents the additional 25 percent we contributed at the time of the initial deferrals to aid in potential additional earnings to the participant. This contribution is required to be paid back to us when the option is exercised. A participant may exercise his or her options per the plan document, but there is a requirement that after these dollars have been invested for 15 years the participant is required to exercise such option.
Executive Deferred Compensation Plan (2007)
In December 2006, we adopted the Winnebago Industries, Inc. Executive Deferred Compensation Plan (the "Executive
Deferred Compensation Plan"). Under the Executive Deferred Compensation Plan, corporate officers and certain key employees may annually choose to defer up to 50 percent of their salary and up to 100 percent of their cash incentive awards. The assets are presented as other assets and the liabilities are presented as postretirement health care and deferred compensation benefits in the accompanying balance sheets. Such assets on August 28, 2010 and August 29, 2009 were $74,000 and $59,000, respectively, and liabilities were $74,000 and $59,000, respectively.
Profit Sharing Plan
We have a qualified profit sharing and contributory 401(k) plan for eligible employees. The plan provides quarterly discretionary matching cash contributions as approved by our Board of Directors. Contributions to the plan for Fiscal 2010, 2009 and 2008 were $685,000, $859,000 and $2.3 million, respectively.
Note 9: Contingent Liabilities and Commitments
Repurchase Commitments
Generally, companies in the RV industry enter into repurchase agreements with lending institutions which have provided wholesale floorplan financ
ing to dealers. Most dealers' motor homes 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 motor homes purchased.
Our repurchase agreements provide that, in the event of default by the dealer on the agreement to pay the lending institution, we will repurchase the financed merchandise. The terms of these agreements, which can last up to 18 months, provide that our liability will be the lesser of remaining principal owed by the dealer or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our contingent liability on these repurchase agreements was approximately $155.5 million and $90.6 million at August
28, 2010 and August 29, 2009, respectively.
In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary relationship terminations. Although laws vary from state to state, some states have laws in place that require manufacturers of motor vehicles to repurchase current inventory if a dealership exits the business. Incremental repurchase exposure beyond existing repurchase agreements, related to dealer inventory in states that we have had historical experience of repurchasing inventory, totaled $4.5 million at August 28, 2010.
Our risk of loss related to these repurchase commitments is reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous dealers and lenders. The aggregate contingent liability related to our repurchase agreements represents all financed dealer inventory at the period reporting date subject to a repurchase agreement, net of the greater of periodic reductions per the agreement or dealer principal payments. Based on the repurchase exposure as previously described, we established an associated loss reserve. Accrued loss on repurchases were $1.4 million as of August 28, 2010
and $1.2 million as of August 29, 2009. A summary of the activity for the fiscal years stated for repurchased units is as follows:
| | | | | | | | | | | | |
(Dollars in thousands) | | Fiscal 2010 | | Fiscal 2009 | | Fiscal 2008(1) |
Inventory repurchased: | | | | | | |
Units | | 4 | | | 136 | | | 36 | |
Dollars | | $ | 300 | | | $ | 12,664 | | | $ | 3
,021 | |
Inventory resold: | | | | | | |
Units | | 5 | | | 142 | | | 29 | |
Cash collected | | $ | 328 | | | $ | 11,283 | | | $ | 2,185 | |
Loss recognized | | $ | 44 | | | $ | 1,984 | | | $ | 162 | |
Units in ending inventory | | — | | | 1 | | | 7 | |
(1) Fiscal 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Self-Insured Product Liability
We have an insurance policy covering product liability claims, however, we self-insure for a portion of product liability claims. Self-insurance retention liability varies annually based on market conditions and for at least the last five fiscal years was at $2.5 milli
on per occurrence and $6.0 million in aggregate per policy year. In the event that the annual aggregate of the self-insured retention is exhausted by payment of claims and defense expenses, a deductible of $1.0 million, excluding defense expenses, is applicable to each claim covered under this policy. Our product liability accrual is included within accrued self-insurance on our balance sheet along with other types of self-insured liabilities, such as workers' compensation and employee medical claims.
Litigation
We are involved in various legal proceedings which are ordinary routine litigation incidental to our business, some of which are covered in whole or in part by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to this litigation, we believe that 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.
Lease Commitments
We lease certain equipment under operating leases. Lease expense was $220,000 for Fiscal 2010, $263,000 for Fiscal 2009 and $294,000 for Fiscal 2008. Minimum future lease commitments under noncancelable lease agreements in excess of one year as of August 28, 2010 are as follows: | | | | |
(In thousands) | Amount |
Year Ended: | 2011 | $ | 152 | |
| 2012 | 126 | |
| 2013 | 31 | |
|
2014 | 30 | |
| 2015 | 15 | |
| Total | $ | 354 | |
Note 10: Income Taxes<
font style="font-family:Arial;font-size:10pt;">
The components of the (benefit) provision for income taxes are as follows:
| | | | | | | | | | | | |
| | Year Ended(1) |
(In thousands) | | August 28, 2010 | | August 29, 2009 | | August 30, 2008 |
Current | | | | | | |
Federal | | $ | (7,694 | ) | | $ | (17,882 | ) | | $ | (2,132 | ) |
State | | (3,255 | ) | | (1,049 | ) | | (4,212 | ) |
Total current benefit | | (10,949 | ) | | (18,931 | ) | | (6,344 | ) |
Deferred | | | | | | |
Federal | | 1,260 | | | 34,559 | <
div style="text-align:left;"> | | (1,630 | ) |
State | | 184 | | | 5,075 | | | (251 | ) |
Total deferred provision (benefit) | | 1,444 | | | 39,634 | | | (1,881 | ) |
Total (benefit) provision | | $ | (9,505 | ) | | $ | 20,703 | | | $ | (8,225 | ) |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Current Benefit
Of the current federal benefit of $7.7 million for Fiscal 2010 reflected in the table above, $5.8 million relates
to the carryback of our Fiscal 2009 losses and the remaining benefit relates to settlements of uncertain tax positions as a result of our federal audit. On November 6, 2009, the President of the United States signed into law the Worker, Homeownership, and Business Assistance Act of 2009, which expanded the NOL carryback period from two to five years, allowing us to carryback all Fiscal 2009 NOLs. We filed our original tax return and carryback claim in December 2009 and received our federal refund of $21.9 million during our second quarter of Fiscal 2010. During the third quarter of Fiscal 2010, we filed a superseding federal tax return and amended our original carryback request, recording an additional benefit of approximately $1.0 million. As a result, we recorded a total tax benefit of $5.8 million in Fiscal 2010 related to the portion of the 2009 NOL that was previously not able to be carried back and reduced the associated valuation allowance. The current federal benefit recorded in Fiscal 2009 was prima
rily the amount of tax benefit that we were able to carryback under the then current legislation for taxable losses incurred during Fiscal 2009. The federal benefit recorded in Fiscal 2008 was primarily a result of tax planning initiatives recorded during the year.
The state benefit recorded in Fiscal 2010 and Fiscal 2009 is primarily a result of tax planning initiatives recorded during those years. The state benefit recorded during Fiscal 2008 is primarily a result of settlements of uncertain tax positions with various jurisdictions occurring during the year.
Deferred Provision (Benefit)
The deferred federal tax expense recorded during Fiscal 2010 is primarily the result of tax planning initiatives and changes in the valuation allowance recorded during the year. The deferred federal tax expense reported during Fiscal
2009 is primarily a result of establishing a full valuation allowance on all deferre
d tax assets during the year.
The deferred state tax expense reported during Fiscal 2009 is primarily a result of recording a full valuation allowance on all deferred tax assets during the year.
The following is a reconciliation of the U.S. statutory income tax rate to our effective tax rate:
| | | | | | | | | |
| | Year Ended(1) |
(A percentage) | | August 28, 2010 | | August 29, 2009 | | August 30, 2008 |
U.S. federal statutory rate | | 35.0 | % | &n
bsp; | (35.0 | )% | | (35.0 | )% |
Tax-free and dividend income | | (136.5 | )%
| | (2.0 | )% | | (69.6 | )% |
Other permanent items | | 187.2 | % | | — | % | | — | % |
State taxes, net of federal benefit | | 4.2 | % | | (2.5 | )% | | 1.3 | % |
Valuation allowance | | (735.3 | )% | | 77.5 | % | | 6.0 | % |
Amended state returns | | (193.4 | )% | | — | % | | — | % |
Incentive stock options | | — | % | | — | % | | 2.1 | % |
Uncertain tax positions settlements & adjustments | | (430.6 | )% | | (0.9 | )% | | (52.2 | )% |
Other | | (11.6 | )% | | (1.5 | )% | | (3.8 | )% |
Effective tax (benefit) provision rate | | (1,281.0 | )% | | 35.6 | % | | (151.2 | )% |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other f
iscal years contained 52 weeks.
Significant items comprising our net deferred tax assets are as follows:
| | | | | | | | | | | | | <
/td> | | | | | | |
| August 28, 2010 | | August 29, 2009 |
(In thousands) | Assets | Liabilities | Total | | Assets | Liabilities | Total |
Current | | | | | | | |
Warranty reserves | $ | 2,592 | | $ | — | | $ | 2,592 | | | $ | 2,393 | | $ | — | | $ | 2,393 | |
Self-insurance reserve | 1,657 | | — | | 1,657<
/div> | | | 1,752 | | — | | 1,752 | |
Accrued vacation | 1,658 | | — | | 1,658 | | | 1,842 | | — | | 1,842 | |
Miscellaneous reserves | 3,816 | | (262 | ) | 3,554 | | | 4,087 | | (1,147 | ) | 2,940 | |
Total current | 9,723 | | (262 | ) | 9,461 | | | 10,074 | | (1,147 | ) | 8,927 | |
Noncurrent | | | | | | | |
Deferred compensation | 13,879 | | — | | 13,879 | | | 14,439 | | — | | 14,439 | |
Postretirement health care benefits | 14,688 | | — <
/td> | | 14,688 | | | 12,940 | | — | | 12,940 | |
Unrecognized tax benefit | 1,756 | | — | | 1,756 | | | 2,249 | | — | | 2,249 | |
Tax credits and NOL carryforwards | 3,217 | | — | | 3,217 | | | 8,370 | | — | | 8,370 | |
Depreciation | — | | (2,160 | ) | (2,160 | ) | | — | | (2,766 | ) | (2,766 | ) |
Other | 988 | | — | | 988 | | | 1,142 | | — | | 1,142 | |
Total noncurrent | 34,528 | | (2,160 | ) | 32,368 | | | 39,140 | | (2,766 | ) | 36,374 | |
Total gross deferred tax assets | 44,251 | | (2,422 | ) | 41,829 | | | 49,214 | | (3,913 | ) | 45,301 | |
Valuation allowance | (44,251 | ) | 2,422 | | (41,829 | ) | | (49,214 | ) | 3,913 | | (45,301 | ) |
Total deferred tax assets | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At August 28, 2010, our deferred tax assets included
$1.8 million of unused tax credits, of which $365,000 can be carried forward 20 years and $1.4 million will expire in Fiscal 2014. In addition, at August 28, 2010, our deferred tax assets also included $1.5 million of NOL carryforwards, $115,000 of which is Federal NOLs that can be carried forward 20 years, and state NOLs in the amount of $1.3 million that will begin to expire in Fiscal 2013, if not otherwise used by us. A valuation allowance of $(41.8) million has been recognized to offset the related deferred tax assets due to the uncertainty of realizing the deferred tax assets.
Unrecognized Tax Benefits
At the beginning of Fiscal 2008, we adopted ASC 740 Income Taxes. ASC 740 prescribes criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, among other items. In addition, ASC 740 provides guidance on classification of tax liabilities, interest and penalties, accounting interim periods, disclosure and transition with respect to the application of the new accounting standard. As a result of this adoption, we recognized a cumulative effect adjustment of $8.5 million as a reduction to the balance of retained earnings,
an increase of $7.1 million in deferred tax assets, and an increase of $15.6 million in tax liabilities. The amount of unrecognized tax benefits totaled $21.8 million, of which $8.3 million was accrued for interest and penalties. It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits into tax expense.
Changes in the unrecognized tax benefits are as follows:
| | | | | | | | | | | | | |
(In thousands) | Fiscal 2010 | Fiscal 2009 | Fiscal 2008 |
Unrecognized tax benefits - beginning balance | $ | (9,012 | ) | | $ | (9,469 | ) | | $ | (21,807 | ) | |
Gross increases - tax positions in a prior period | (254 | ) | | (57 | ) | | (979 | ) | |
Gross decreases - tax positions in a prior period | 2,900 | | (1) | 677
| | | 7,218 | | (3 | ) |
Gross increases - current period tax positions | (57 | ) | | (163 | ) | | (1,862 | ) | |
Settlements | 546 | | (2) | — | | | 7,961 | | (3 | ) |
Unrecognized tax benefits - ending balance | $ | (5,877 | ) | | $ | (9,012 | ) | | $ | (9,469 | )<
/div> | |
| |
(1) | The $2.9 million decrease in unrecognized benefit reserves is primarily a reduction of reserves associated with positive settlements of uncertain tax positions related to the
finalization of the IRS examination of our federal income tax returns for Fiscal 2006 through Fiscal 2008. |
| |
(2) | The $546,000 reduction in reserves is actual cash payments as result of settlements of uncertain tax positions in various taxing jurisdictions. |
| |
(3) | During Fiscal 2008, there were favorable settlements of uncertain tax positions with various taxing jurisdictions. The original unrecognized tax benefit associated with these positions was $14.6 million, of which $8.0 million was paid in cash and included in "Settlements." The $6.6 million balance of this reserve, inclusive of related deferred taxes, is included in "Gross decreases-tax positions in a prior period." |
If the remaining uncertain positions are ultimately resolved, all of the $5.9 million could have a positive impact on our effective tax rate, as the deferred tax assets associated with these positions have a full valuation allowance established against them. Currently, $2.5 million is accrued for interest and penalties.
We file tax returns in the U.S. federal jurisdiction, as well as various international and state jurisdictions. Our federal income tax returns for Fiscal 2006 through Fiscal 2008 were under examination by the IRS and finalized during the third quarter of Fiscal 2010. Although certain years are no longer subject to examinations by the IRS and various state taxing authorities, NOL carryforwards generated in
those years may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a future period. A number of years may elapse before an uncertain tax position is audited and finally resolved, and it is often very difficult to predict the outcome of such audits. Periodically, various state and local jurisdictions conduct audits, therefore, a variety of years are subject to state and local jurisdiction review.
We do not believe within the next twelve months there will be a significant change in the total amount of unrecognized tax benefits as of August 28, 2010.
Note 11: Financial Income and Expense
The following is a reconciliation of financial income:
| | | | | | | | | |
| Year Ended (1) |
(In thousands) | August 28, 2010 | August 29, 2009 | August 30, 2008 |
COLI appreciation | $ | 3,308 | | $ | 3,021 | | $ | 2,368 | |
COLI death benefits | — | | 59 | | 91 | |
COLI premiums | (571 | ) | (623 | ) | (426 | ) |
COLI interest expense | (1,957 | ) | (1,875 | ) | (1,420 | ) |
Total COLI | 780 | | 582 | | 613 | |
Wells Fargo termination fee | (375 | ) | — | | — | |
Line of credit expenses (e.g. commitment fee, unused fee) | (592 | ) | (165 | ) | — | |
Total line of credit expense | (967 | ) | (165 | ) | — | |
Interest income | 420 | | 1,023 | | 3,709 | |
(Loss) gain on foreign currency transactions | (11 | ) | 12 | | (8 | ) |
Total financial income | $ | 222 | | $ | 1,452 | | $ | 4,314 | |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Note 12: Stock-based Compensation Plans
We have a 2004 Incentive Compensation Plan approved by shareholders (as amended, the "Plan") in place which allows us to grant or issue non-qualified stock options, incentive stock options, share awards and other equity compensation to key employees and to non-employee directors. No more than 4.0 million shares of common stock may be issued under
the Plan and no more than 2.0 million of those shares may be used for awards other than stock options or stock appreciation rights. Shares subject to awards that are forfeited, terminated, expire unexercised, settled in cash, exchanged for other awards, tendered to satisfy the purchase price of an award, withheld to satisfy tax obligations or otherwise lapse again become available for awards.
Stock Options and Share Awards
With respect to stock options, the Plan replaced the 1997 Stock Option Plan. Any stock options previously granted under the 1997 Stock Option Plan continue to be exercisable in accordance with their original terms and conditions.
The term of any options granted under the Plan may not exceed ten years from the date of the grant. Stock options are granted at the closing market price on the date of grant. Options issued to key employees generally vest over a three-year period in equal annual installment, beginning one year after the date of grant, with immediate vesting upon retirement or upon a change of control (as defined in the Plan), if earlier. Historically, options issued to directors vested six months after grant. Share awards vest based either upon continued employment, beginning
one year after the date of grant, with immediate vesting upon retirement or upon a change of control (as defined in the Plan) (collectively, "time-based") or upon attainment of established goals. Share awards that are not time-based typically vest at the end of a one year or three-year incentive period based upon the achievement of company goals ("performance-based"). The value of time-based restricted share awards is based on the number of shares granted and the closing price of our common stock on the date of grant. The value of performance-based restricted share awards is based upon the terms of the plan and an assessment of the probability of reaching the established performance targets. Historically, the terms of these plans linked the incentive payment to a percentage of base salary compensation and if the established goals are met, shares of the appropriate value are then granted.
Prior to Fiscal 2007, stock-based compensation generally consisted only of stock options. In Fiscal 2007 and Fiscal 2008, we granted restricted time-based share awards to key employees and directors instead of stock options. No stock options or restricted share awards were granted in Fiscal 2009 or Fiscal 2010.
Annual Incentive Plans
During Fiscal 2009 and Fiscal 2010, the Human Resources Committee of our Board of Directors established annual incentive plans for the officers that were in part payable in restricted stock. Certain diluted EPS and return on invested capit
al targets had to be met to achieve payment under these plans; these targets were not met for Fiscal 2009 or Fiscal 2010 and no stock-based compensation has been recognized for these plans.
Long-Term Incentive Plans
During Fiscal 2009 and Fiscal 2010, the Human Resources Committee of our Board of Directors established two different three-year restricted stock plans (Officers Long-Term Incentive Plan Fiscal 2009-2011 and Officers Long-Term Incentive Plan Fiscal 2010-2012) to serve as an incentive to our senior management team to achieve certain return on equity ("ROE") targets. If the ROE target is met, restricted stock will be awarded at the end of each three year period with a one-year restriction on sale upon award. In the event t
hat we do not achieve the required ROE targets, no restricted stock will be granted.
Based on our performance in Fiscal 2009 and Fiscal 2010, no stock-based compensation expense has been recognized for these plans. If it becomes probable that certain of the ROE performance targets will be achieved, the corresponding estimated cost of the grant will be recorded as compensation expense over the performance period. The probability of reaching the targets is evaluated each reporting period. If it becomes probable that certain of the target performance levels will be achieved, a cumulative adjustment will be recorded and future compensation expense will increase based on the currently projected performance levels. If we later determine that it is not probable that the minimum ROE performance threshold for the grants will be met, no further compensation cost will be recogn
ized and any previously recognized compensation cost related to these plans will be reversed.
Director's Awards
Non-employee directors may elect to receive all or part of their annual retainer and board fees in the form of Winnebago Industries stock units credited in the form of shares of our common stock instead of cash. The directors are restricted from selling these shares until their retirement. During Fiscal 2010, there were 14,975 stock units awarded to our non-employee directors in lieu of cash compensation. The aggregate intrinsic value of these awards as of August 28, 2010 wa
s $931,000 with 102,856 stock units outstanding.
Stock-Based Compensation
Total stock-based compensation expense for the past three fiscal years consisted of the following components: | | | | | | | | | |
| Year Ended (1) |
| August 28, 2010 | August 29, 2009 | A
ugust 30, 2008 |
Option expense | $ | — | | $ | 33 | | $ | 401 | |
Share awards: | | | |
Time-based employee award expense | 370 | | 772 | | 3,073 | |
Time-based directors award expense | — | |
— | | 231 | |
Directors stock unit expense | 176 | | 206 | | 211 | |
Total stock-based compensation | $ | 546 | | $ | 1,011 | | $ | 3,916 | |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Stock Options
A summary of stock option activity for Fiscal 2010, 2009 and 2008 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended(1) |
| | August 28, 2010 | | August 29, 2009 | | August 30, 2008 |
| | Sha
res | Price per Share | Wtd. Avg. Exercise Price/Share | | Shares | Price per Share | Wtd. Avg. Exercise Price/Share | | Shares | Price per Share | Wtd. Avg. Exercise Price/Share |
Outstanding at beginning of year | | 1,010,224 | | $9 - $36 | $ | 27.31 | | | 1,044,899 | | $7 - $36 | $ | 27.10 | | | 1,137,975 | | $5 - $36 | $ | 26.32 | |
Options granted | | — | | — | | — | | | — | | — | | &mda
sh; | | | — | | — | | — | |
Options exercised | | (30,500 | ) | 9 - 11 | 9.20 | | | (1,000 | ) | 9 | | 9.25 | | | (59,201 | ) | 5 - 27 | 10.86 | |
Options cancelled <
/td> | | (38,909 | ) | 9 - 36 | 29.18 | | | (33,675 | ) | 7 - 32 | 21.29 | | | (33,875 | ) | 26 - 32 | 29.25 | |
Outstanding at end of year | | 940,815 | | $9 - $36 | $ | 27.82 | | | 1,010,224 | | $9 - $36 | $ | 27.31 | | | 1,044,899 | | $7 - $36 | $ | 27.10 | |
Exercisab
le at end of year | | 940,815 | | $9 - $36 | $ | 27.82 | | | 1,010,224 | | $9 - $36 | $ | 27.31 | | | 971,540 | | $7 - $36 | $ | 27.09 | |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
The weighted average remaining contractual life for options outstanding and exercisable at August 28, 2010 was 3.87 years. The aggregate intrinsic value of options
outstanding and exercisable at August 28, 2010 was $600. Other values related to options are as follows:
| | | | | | | | | |
(In thousands) | 2010 | 2009 | 2008 |
Aggregate intrinsic value of o
ptions exercised (1) | $ | 156 | | $ | 2 | | $ | 497 | |
Net cash proceeds from the exercise of stock options | 281 | | 9 | | 643 | |
Actual income tax benefit realized from stock option exercises | 59 | | 1 | | 190 | |
(1) <
/font>The amount by which the closing price of our stock on the date of exercise exceeded the exercise price.
Employee Share Awards
A summary of nonvested employee share award activity for Fiscal 2010, 2009 and 2008 is as follows:
| | | | | | | | | | | | | | | |
| Year Ended(1) |
| August 28, 2010 | August 29, 2009 | August 30, 2008 |
| Shares | W
eighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value |
Beginning of year | 82,240 | | $ | 29.97 | | 138,112 | | $ | 30.36 | | 89,850 | | $ | 34.36 | |
Granted | — | | — | | — | | — | | 129,200 | | 26.61 | |
Vested | <
td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;">(53,930
) | 30.90 | | (54,672 | ) | 30.95 | | (79,938 | ) | 28.79 | |
Cancelled | (200 | ) | 28.21 | | (1,200 | ) | 30.26 | | (1,000 | ) | 30.67
| |
End of year | 28,110 | | $ | 28.21 | | 82,240 | | $ | 29.97 | | 138,112 | | $ | 30.36 | |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
The aggregate intrinsic value of employee awards outstanding at August 28, 2010 was $254,000.
As of August 28, 2010, there was $38,000 of unrecognized compensation expense related to restricted stock awards that is expected to be recognized over a weighted average period of less than two months. The total fair value of awards
vested during Fiscal 2010, Fiscal 2009 and Fiscal 2008 was $1.7 million, $1.7 million and $2.3 million, respectively.
Note 13: Net Revenues Classifications
Net revenue by product class:
| | | | | | | | | | | | | | | | | |
| Year Ended (1) |
(In thousands) | August 28, 2010 | % | | August 29, 2009 | % | | August 30, 2008 | % |
Motor homes | $ | 415,277 | | 92.4 | % | | $ | 178,619 | | 84.5 | % | | $ | 555,671 | | 91.9 | % |
Motor home parts and services | <
td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;">13,655
| 3.0 | % | | 12,559 | | 5.9 | % | | 16,923 | | 2.8 | % |
Other manufactured products | 20,552 | | 4.6 | % | | 20,341 | | 9.6 | % | | 31,758 | | 5.3 | % |
Total net revenues | $ | 449,484 | | 100.0 | % | | $ | 211,519 | | 100.0 | % | | $ | 604,352 | | 100.0 | % |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Net revenue by geographic area:
| | | | | | | | | | | | | | | | | |
| Year Ended (1) |
(In thousands) | August 28, 2010 | % | | August 29, 2009 | % | | August 30, 2008 | % |
United Stat
es | $ | 413,154 | | 91.9 | % | | $ | 199,579 | | 94.4 | % | | $ | 560,602 | | 92.8 | % |
International | 36,330 | | 8.1 | % | | 11,940
| | 5.6 | % | | 43,750 | <
div style="text-align:left;"> | 7.2 | % |
Total net revenues | $ | 449,484 | | 100.0 | % | | $ | 211,519 | | 100.0 | % | | $ | 604,352 | | 100.0 | % |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Note 14: Income Per Share
The following table reflects the calculation of basic and diluted income per share for the past three fiscal years:
| | | | | | | | | |
| Year Ended (1) |
(In thousands, exc
ept per share data) | August 28, 2010 | August 29, 2009 | August 30, 2008 |
Income (loss) per share - basic | | | |
Net income (loss) | $ | 10,247 | | $ | (78,766 | ) | $ | 2,784 | |
Weighted average shares outstanding | 29,091 | | 29,040 | | 29,093 | |
Net income (loss) per share - basic | 0.35 | | (2.71 | ) | 0.10 | |
| &n
bsp; | | |
Income (loss) per share - assuming dilution | | | |
Net income (loss) | $ | 10,247 | | $ | (78,766 | ) | $ | 2,784 | |
Weighted average shares outstanding | 29,091 | | 29,040 | | 29,093 | |
Dilutive impact of awards and options outstanding | 10 | | 11 | | 51 | |
Weighted average shares and potential dilutive shares outstanding | 29,101 | | 29,051 | | 29,144 | |
Net income (loss) per share - assuming dilution | 0.35 | | (2.71 | ) | 0.10 | |
(1) Fiscal year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
For the fiscal years ended August 28, 2010, August 29, 2
009 and August 30, 2008, there were options outstanding to purchase 927,815 shares, 1,010,224 shares and 881,591 shares, respectively, of common stock at an average price of $28.08, $27.31 and $29.36, respectively, which were not included in the computation of diluted income per share because they are considered anti-dilutive under the treasury stock method per ASC 260, Earnings Per Share.
Note 15: Stockholders Rights Plan
In May 2000, our Board of Directors adopted a Shareholder Rights Plan (the "Rights Plan") designed to assure stockholders of fair and equal treatment in the event of a proposed takeover. The rights were exercisable only if an individual or group acquired or announced a tender offer that would result in ownership of 15 percent or more (and for certain shareholders, 20 percent or more) of our outstanding common stock. Our Rights Plan expired on May 3, 2010, and our Board of Directors decided not to renew it.
Note 16: Interim Fi
nancial Information (Unaudited)
| | | | | | | | | | | | |
Fiscal 2010 | Quarter Ended |
(In thousands, except per share data) | November 28,
2009 | February 27,
2010 | May 29,
2010 | August 28,
2010 |
Net revenues | $ | 81,017 | | $ | 110,529 | | $ | 134,813 | | $ | 123,125 | |
Gross profit | 524 | | 4,784 | | 9,755 | | 11,204 | |
Operatin
g (loss) income | (5,977 | ) | (1,858 | ) | 3,404 | | 4,951 | |
Net (loss) income | $ | (1,344 | ) | $ | 706 | | $ | 5,992 | | $ | 4,893 | |
Net (loss) income per share (basic) | $ | (0.05 | )<
/div> | $ | 0.02 | | $ | 0
.21 | | $ | 0.17 | |
Net (loss) income per share (dil
uted) | $ | (0.05 | ) | $ | 0.02 | | $ | 0.21 | | $ | 0.17 | |
| | | | | | | | | | | | |
Fiscal 2009 | Quarter Ended |
(In thousands, except per share data) | November 29,
2008 | February 28,
2009 | May 30,
2009 | August 29,
2009 |
Net revenues | $ | 69,398 | | $ | 31,808 | | $ | 50,848 | | $ | 59,465 | |
Gross deficit | (8,894 | ) | <
font style="font-family:Arial;font-size:10pt;">(11,792 | ) | (8,285 | ) | (1,775 | ) |
Operating loss | (16,890 | ) | (18,611 | ) | (14,782 | ) | (9,232 | ) |
Net loss | $ | (9,596 | ) | $ | (10,381 | ) | $ | (8,553 | ) | $ | (50,236 | ) |
Net loss per share (basic) | $ | (0.33 | ) | $ | (0.36 | ) | $ | (0.29 | ) | $ | (1.73 | ) |
Net loss per share (diluted) | $ | (0.33 | ) | $ | (0.36 | ) | $ | (0.29 | ) | $ | (1.73 | ) |
Note 17: Comprehensive Income
Comprehensive income, net of tax, consists of: | | | | | | | | | |
| Year Ended (1) |
(In thousands) | August 28, 2010 | August 29, 2009 | August 30, 2008 |
Net income (loss) | $ | 10,247 | | $
| (78,766 | ) | $ | 2,784 | |
Unrealized appreciation (depreciation) of investments | 213 | | 970 | | (1,224 | ) |
Amortization of actuarial loss | 548 | | 438 | | 593 | |
(Increase) decrease in actuarial loss | (3,451 | ) | (1,988 | ) | 2,265 | |
Amortization of prior service credit | (2,608 | ) | (2,693 | ) | (2,911 | ) |
Comprehensive income (loss) | $ | 4,949 | | $ | (82,039 | ) | $ | 1,507 | |
(1) Year ended August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks.
Components of accumulated other comprehensive income, net of tax, were:
| | | | | | |
| As Of |
(In thousands) | August 28, 2010 | August 29, 2009 |
Impairment of investments | $ | (41 | ) | $<
/font> | (254 | ) |
Actuarial loss | (12,382 | ) | (9,479 | ) |
Prior service benefit | 13,665 | | 16,273 | |
Accumulated other comprehensive income | $ | 1,242 | | $ | 6,540 | |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of
Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as such term is defined under Securities Exchange Act of 1934, as amended ("Exchange Act") Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance re
garding management's disclosure control objectives.
We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Annual Report (the "Evaluation Date"). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the Evaluation Date.
Evaluation of Internal Control Over Financial Reporting
Management's report on internal control over financial reporting as of August 28, 2010 is included within Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. The report of Deloitte & Touche LLP on the effectiveness of internal control over financial reporting is included within Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
The
re were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Reference is made to the table entitled "Executive Officers of the Registrant" in Part I of this report and to the information included under the captions "Board of Directors, Committees of the Board and Corporate Governance", "Section 16(A) Beneficial Ownership Reporting Compliance", "Election of Directors" and "Fiscal Year 2011 Shareholder Proposals"
in our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held December 14, 2010, which information is incorporated by reference herein.
We have adopted a written code of ethics, the "Code of Ethics for CEO and Senior Financial Officers" (the "Code") which is applicable to our Chief Executive Officer, Chief Financial Officer, Controller and Treasurer (collectively, the "Senior Officers"). In accordance with the rules and regulations of the SEC, a copy of the Code has been filed as an exhibit to this Form 10-K and is posted on our Web Site.
We intend to disclose any changes in or waivers from the Code applicable to any Senior Officer on our Web Site at www.winnebagoind.com or by filing a Form 8-K.
Item 11. Executive Compensation
Reference is made to the information included under the captions "Director Compensation" and "Executive Compensation" in our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held December 14, 2010, which information is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Reference is made to the t
able entitled "Equity Compensation Plan Information" in Part II of this report and to the share ownership information included under the caption "Voting Securities and Principal Holders Thereof" in our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held December 14, 2010, which information is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions and Director Independence
Reference is made to the information included under the caption "Board of Directors, Committees of th
e Board and Corporate Governance" in our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held December 14, 2010, which information is incorporated by reference herein.
Item 14. Principal Accounting Fees and Services
Reference is made to the information included under the caption "Independent Registered Public Accountants Fees and Services" in our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held December 14, 2010 which information is incorporated by reference herein.
PART IV
Item 15. Exhibits, Financial Statement Schedules
| |
1. | Our financial statements are included in Item 8 and an index to financial statements appears on page 23 of this report. |
| |
2. | Financial Statement Schedules: All schedules are omitted because of the absence of the conditions under which they are required or because the information required is shown in the financial statements or the notes thereto. |
| |
3. | Exhibits: See Exhibit Index on pages 50 - 52. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. |
| | |
| By | /s/ Robert J. Olson |
| | Robert J. Olson |
| |
| | Chairman of the Board, Chief Executive Officer, |
| | President and Director |
&
nbsp; | | (Principal Executive Officer) |
Date: October 26, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on, October 26, 2010, by the following persons on behalf of the Registrant and in the capacities indicated.
| | |
Signature | | Capacity |
| | |
/s/ Robert J. Olson | | |
Robert J. Olson | | Chairman of the Board, Chief Executive Officer, President and Director (Principal Executive Officer) |
| | |
/s/ Sarah N. Nielsen | | |
Sarah N. Nielsen | | Vice President, Chief Financial Officer (Princ
ipal Financial Officer) |
| | |
/s/ Brian J. Hrubes | | |
Brian J. Hrubes | | Controller (Principal Accounting Officer) |
| | |
/s/ Irvin E. Aal | | |
Irvin E. Aal | | Director |
| | |
/s/ Robert M. Chiusano | | |
Robert M. Chiu
sano | | Director |
| | |
/s/ Jerry N. Currie | | |
Jerry N. Currie | | Director |
|
| |
/s/ Joseph W. England | | |
Joseph W. England | | Director |
| | |
/s/ Lawrence A. Erickson | | |
Lawrence A. Erickson | | Director |
| | |
/s/ John V. Hanson | | |
John V. Hanson | | Director |
| | |
/s/ Gerald C. Kitch | | |
Gerald C. Kitch | | Director |
Exhibit Index
3a. Articles of I
ncorporation previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended May 27, 2000 (Commission File Number 001-06403) and incorporated by reference herein.
3b. Amended By-Laws of the Registrant previously filed with the Registrant's Current Report on Form 8-K dated March 29, 2010 (Commission File Number 001-06403) and incorporated by reference herein.
4a. Lo
an and Security Agreement between Burdale Capital Finance, Inc. and Winnebago Industries, Inc. dated October 13, 2009 previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 29, 2009 (Commission File Number 001-06403) and incorporated by reference herein.
10a. Winnebago Industries, Inc. Deferred Compensation Plan previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 2, 1991 (Commission File Number 001-06403), and incorporated by reference herein and the Amendment dated June 29, 1995 previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 26, 1995 (Commission File Numbe
r 001-06403) and incorporated by reference herein.*
10b. Winnebago Industries, Inc. 1997 Stock Option Plan previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 30, 1997 (Commission File Number 001-06403) and incorporated by reference herein.*
10c. Winnebago Industries, Inc. Executive Share Option Plan previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 29, 1998 (Commission File Number 001-06403) and incorporated by reference herein, and the Amendment dated July 1, 1999 previously filed with the Registrant's Quarterly Repo
rt on Form 10-Q for the quarter ended May 29, 1999 (Commission File Number 001-06403) and incorporated by reference herein and the Amendment dated January 1, 2001 previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended February 24, 2001 (Commission File Number 001-06403) and incorporated by reference herein.*
10d. Form of Winnebago Industries, Inc. Incentive Stock Option Agreement for grants of Incentive Stock Options under the 2004 Incentive Compensation Plan previously filed with the Registrant's Current Report on Form 8-K dated October 13, 2004 (Commission File Number 001-06403) and incorporated by reference herein.*
10e. Form of Winnebago Industries, Inc. Non-Qualified Stock Option Agreement for grants of Non-Qualified Stock Options under the 2004 Incentive Compensation Plan previously filed with the Registrant's Report on Form 8-K dated October 13, 2004 (Commission File Number 001-06403) and incorporated by reference herein.*
10f. Winnebago Industries, Inc. Restricted Stock Grant Award Agreement under the 2004 Incentive Compensation Plan previously filed with the Registrant's Current Report on Form 8-K dated October 11, 2006 (Commission File Number 001-06403) and incorporated by reference herein.*
10g. Winnebago Industries, Inc. Executive Deferred Compensation Plan previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended November 25, 2006 (Commission File Number 001-06403) and incorporated by reference herein.*
10h. Winnebago Industries, Inc. 2004 Incentive Compensation Plan previously filed as Appendix B with the Registrant's Proxy Statement for the Annual Meeting of Shareholders held on January 13, 2004 (Commission File Number 001-06403) and incorporated by reference herein and the Amendment dated October 11, 2006 previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended November 25, 2006 (Commission File Number 001-06403) and incorporated by reference herein.*
10i. Winnebago Industries, Inc. Directors' Deferred Compensation Plan previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 30, 1997 (Commission File Number 001-06403), and incorporated by reference herein and the Amendment dated October 15, 2003 previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended November 29, 2003 (Commission File Number 001-06403) and incorporated by reference herein and the Amendment dated October 11, 2006 previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended November 25, 2006 (Commission File Number 001-06403) and incorporated by reference herein.*
10j. Winnebago Industries, Inc. Profit Sharing and Deferred Savings Investment Plan previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1985 (Commission File Number 001-06403), and incorporated by reference herein and the Amendment dated July 1, 1995 previously filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended August 26, 1995 (Commission File Number 001-06403) and incorporated by reference herein and the Amendment dated March 21, 2007 (Commission File Number 001-06403) and incorporated by reference herein.*
10k. Winnebago Industries, Inc. Officers' Long-Term Plan, fiscal three-year period 2008, 2009 and 2010 previously filed with the Registrant's Current Report on Form 8-K dated June 26, 2007 (Commission File Number 001-06403) and incorporated by reference herein.*
10l. Winnebago Industries, Inc. Officers' Long-Term Incentive Plan, fiscal three-year period 2009, 2010 and 2011 previously filed with the Registrant's Current Report on Form 8-K dated June 24, 2008 (Commission File Number 001-06403) and incorporated by reference herein.*
10m. Winnebago Industries, Inc. Officers' Long-Term Incentive Plan, fiscal three-year period 2010, 2011 and 2012 previously filed with the Registrant's Current Report on Form 8-K dated June 24, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10n. Winnebago Industries, Inc.
Officers' Long-Term Incentive Plan, fiscal three-year period 2011, 2012 and 2013 previously filed with the Registrant's Current Report on Form 8-K dated July 23, 2010 (Commission File Number 001-06403) and incorporated by reference herein.*
10o. Amended and Restated Executive Change of Control Agreement dated December 17, 2008 between Winnebago Industries, Inc. and Raymond M. Beebe previously filed with the Registrant's Annual Report on Form 1K for the fiscal year ended August 29, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10p. Amended and Restated Executive Change of Control Agreement dated December 17, 2008 between Winnebago Industries, Inc. and Robert L. Gossett previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 29, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10q. Amended and Restated Executive Change of Control Agreement dated December 17, 2008 between Winnebago Industries, Inc. and Robert J. Olson previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 29, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10r. Amended and Restated Executive Change of Control Agreement dated December 17, 2008 between Winnebago Industries, Inc. and William J. O'Leary previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 29, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10s. Amended and Restated Executive Change of Control Agreement dated December 17, 2008 betw
een Winnebago Industries, Inc. and Sarah N. Nielsen previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 29, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10t. Amended and Restated Executive Change of Control Agreement dated December 17, 2008 between Winnebago Industries, Inc. and Roger W. Martin previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 29, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10u. Amended and Restated Executive Change of Control Agreement dated December 17, 2008 between Winnebago Industries, Inc. and Randy J. Potts previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 29, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10v. Executive Change of Control Agreement dated May 3, 2010 between Winnebago Industries, Inc. and Daryl W. Krieger previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended May 29, 2010 (Commission File Number 001-06403) and incorporated by reference herein.*
10w. Winnebago Industries, Inc. Supplemental Executive Retirement Plan previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 29, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10x. Winnebago Industries, Inc. Officers' Incentive Compensation Plan for Fiscal 2008 previously filed with the Registrant's Current Report on Form 8-K dated June 26, 2007 (Commission File Number 001-06403) and incorporated by reference herein.*
10y. Winnebago Industries, Inc. Officers' Incentive Compensation Plan for
Fiscal 2009 previously filed with the Registrant's Current Report on Form 8-K dated August 14, 2008 (Commission File Number 001-06403) and incorporated by reference herein.*
10z. Winnebago Industries, Inc. Officers' Incentive Compensation Plan for Fiscal 2010 previously fi
led with the Registrant's Current Report on Form 8-K dated June 24, 2009 (Commission File Number 001-06403) and incorporated by reference herein.*
10aa. Winnebago Industries, Inc. Officers' Incentive Compensation Plan for Fiscal 2011 previously filed with the Registrant's Current Report on Form 8-K dated July 23, 2010 (Commission File Number 001-06403) and incorporated by reference herein.*
10bb. Agreement of Purchase and Sale between CGS TIRES US, INC. and Winnebago Industries, Inc. dated August 30, 2010.
14.1 Winnebago Industries, Inc. Code of Ethics for CEO and Senior Financial Officers previously filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended August 30, 2003 (Commission File Number 001-06403) and incorporated by reference herein.
23. Consent of Independent Registered Public Accounting Firm.
31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated October 26, 2010.
31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated October 26, 2010.
32.1 Certification by the Chief Ex
ecutive Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated October 26, 2010.
32.2 Certification by the Chief Financial Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated October 26, 2010.
*Management contract or compensation plan or arrangement.
| | | | | | | | | | | | | | | |
ITEM 6. 11-Year Selected Financial Data (1) | | | | | | | &
nbsp; |
| | | | | | | |
(In thousands, except percent and per share data) (Adjusted for the 2-for-1 stock split on March 5, 2004) | Aug. 28, 2010 | | Aug. 29, 2009 | | Aug. 30, 2008 (2) | | Aug. 25, 2007 |
For the Year | | | | | | | |
Net revenues | $ | 449,484 | | | $ | 211,519 | | | $ | 604,352 | | | $ | 870,152 | |
Income (loss) before taxes | 742 | | | (58,063 | ) | | (5,441 | ) | | 61,409 |
|
Pretax profit (loss) percent of revenue | 0.2 | % | | (27.4 | )% | | (0.9 | )% | | 7.1 | % |
(Benefit) provision for income taxes | (9,505 | ) | | 20,703 | | | (8,225 | ) | | 19,845 | |
Income tax (benefit) rate | (1,281.0 | )% | | 35.7 | % | | (151.2 | )% | | 32.3 | % |
Income (loss) from continuing operations | 10,247 | | | (78,766 | ) | | 2,784 | | | 41,564 | |
Income from discontinued operations (4) | — | | | — | | | <
td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;">—
| | — | |
Cum. effect of change in accounting principle | — | | | — | | | — | | | — | |
Net income (loss) | $ | 10,247 | | | $ | (78,766 | ) | | $ | 2,784 | | | $ | 41,564 | |
Income (loss) per share | | | | | | | |
Continuing operations | | | | | | | |
Basic | $ | 0.35 | | | $ | (2.71 | ) | | $ | 0.10 | | | $ | 1.33 | |
Diluted | 0.35 | | | (2.71 | ) | | 0.10 | | | 1.32 | |
Discontinued operations | | | | | | | |
Basic | — | | | — | | | — | | | — | |
Diluted | — | | | — | | | — | | | — | |
Cum. effect of change in accounting principle | | | | | | | |
Basic | — | | | — | | | — | | | — | |
Diluted | — | | | — | | | — | | | — | |
Net (loss) income per share | | | | | | | |
Basic | $ | 0.35 | | | $ | (2.71 | ) | | $ | 0.10 | | | $ | 1.33 | |
Diluted | 0.35 | | | (2.71 | ) | | 0.10 | | | 1.32 | |
Weighted average common shares outstanding (in thousands) | | | | | | | |
Basic | 29,091 | | | 29,040 | | | 29,093 | | | 31,162 | |
Diluted | 29,101 | | | 29,051 | | | 29,144 | <
div style="text-align:left;"> | | 31,415 | |
Cash dividends paid per share | $ | — | | | $ | 0.12 | | | $ | 0.48 | | | $ | 0.40 | |
Book value per share | 3.35 | | | 3.17 | | | 5.98 | | | 7.05 | |
Return on assets (ROA) (5) | 4.6 | % | | (30.0 | )% | | 0.8 | % | | 11.1 | % |
Return on equity (ROE) (6) | 10.8 | % | | (59.2 | )% | | 1.5 | % | | 19.5 | % |
Return on invested capital (ROIC) (7) | 13.8 | % | | (61.1 | )% | | 1.7 <
/td> | % | | 26.2 | % |
Unit sales | | | | &nbs
p; | | | |
Class A | 2,452 | | | 822 | | | 3,029 | | | 5,031 | |
Class B | 236 | |
; | 149 | | | 140 | | | — | |
Class C | 1,745 | | | 1,225 | | | 3,238 | | | 4,438 | |
Total motor homes | 4,433 | | | 2,196 | | | 6,407 | | | 9,469 | |
| | | | | | | |
At Year End | | | | | | | |
Total assets | $ | 227,357 | | | $ | 220,466 | | | $ | 305,455 | | | $ | 366,510 | |
Stockholders' equity | 97,527 | | | 92,331 | | | 173,924 | | | 208,354 | |
Market capitalization | 263,492 | | <
/td> | 337,991 | | | 329,956 | | | 821,282 | |
Working capital | 91,345 | | | 79,460 | | | 108,548 | | | 168,863 | |
Current ratio | 2.9 to 1 | | 2.6 to 1 | | 3.0 to 1 | | 2.9 to 1 |
Number of employees | 1,950 | | | 1,630 | | | 2,250 | | | 3,310 | |
Dealer inventory | 2,044 | | | 1,694 | | | 3,551 | | | 4,471 | |
| |
| (1) | Certain prior periods' information has been reclassified to conform to the current year-end presentation. |
| |
(2) | The fiscal years ended August 31, 2002 and August 30, 2008 contained 53 weeks; all other fiscal years contained 52 weeks. |
| |
(3) | Includes a noncash after-tax cumulative effect of change in accounting principle of $1.1 million expense or $0.05 per share due to the adoption of SAB No. 101, Revenue Recognition in Financial Statements. |
| |
(4) | Includes discontinued operations of Winnebago Acceptance Corporation for all years presented. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Aug. 26, 2006 | | Aug. 27, 2005 | | Aug. 28, 2004 | | Aug. 30, 2003 | | Aug. 31, 2002 (2) | | Aug. 2
5, 2001 (3) | | Aug. 26, 2000 |
| | | | | | | | | | | | |
$ | 864,403 | | | $ | 991,975 | | | $ | 1,114,154 | | | $ | 845,210 | | | $ | 825,269 | | | $ | 671,686 | | | $ | 743,729 | |
68,195 | | | 100,890 | | | 112,234 | | | 78,693 | | | 81,324 | | | 55,754 | | | 70,583 | |
7.9 | % | | 10.2 | % | | 10.1 | % | | 9.3 | % | | 9.9 | % | | 8.3 | % | | 9.5 | % |
23,451 | | | 35,817 | | | 41,593 | | | 29,961 | | | 28,431 | | | 14,258 | | | 24,400 | |
34.4 | % | | 35.5 | % | | 37.1 | % | | 38.1 | % | | 35.0 | % | | 25.6 | % | | 34.6 | % |
44,744 | | | 65,073 | | | 70,641 | | | 48,732 | | | 52,893 | | | 41,496 | | | 46,183 | |
— | | | — | | | — | | | 1,152 | | | 1,778 | | | 2,258 | | | 2,216 | |
— | | | — | | | — | | | — | | | — | | | (1,050 | ) | | — | |
$ | 44,744 | | | $ | 65,073 | | | $ | 70,641 | | | $ | 49,884 | | | $ | 54,671 | | | $ | 42,704 | | | $ | 48,399 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
$ | 1.39 | | | $ | 1.95 | | | $ | 2.06 | | | $ | 1.35 | | | $ | 1.37 | | | $ | 1.03 | | | $ | 1.12 | |
1.37 | | | 1.92 | | | 2.03 | | | 1.33 | | | 1.34 | | | 1.01 | | | 1.10 | |
| | | | | | | | | | | | |
&mda
sh; | | | — | | | — | | | 0.03 | | | 0.04 | | | 0.05 | | | 0.05 | |
— | | | — | | | — | | | 0.03 | | | 0.04 | | | 0.05 | | | 0.05 | |
| | | | | | | | | | | | |
— | | | — | | | — | | | — | | | — | | | (0.02 | ) | | — | |
— | | | — | | | — | | | — | | | — | | | (0.02 | ) | | — | |
| | | | | | | | | | | | |
$ | 1.39 | <
/div> | | $ | 1.95 | | | $ | 2.06 | | | $ | <
font style="font-family:Arial;font-size:10pt;">1.38 | | | $ | 1.41 | | | $ | 1.06 | | | $ | 1.17 | |
1.37 | | | 1.92 | | | 2.03 | | | 1.36 | | | 1.38 | | | 1.04 | | | 1.15 | |
| | | | | | | | | | | | |
32,265 | | | 33,382 | | | 34,214 | | | 36,974 | | | 39,898 | | | 41,470 | | | 43,360 | |
32,550 | | | 33,812 | | | 34,789 | | &nb
sp; | 37,636 | | | 40,768 | | | 42,080 | | | 44,022 | |
$ | 0.36 | | | $ | 0.28 | | | $ | 0.20 | | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.10 | |
7.01 | | | 7.15 | | | 6.01 | | | 5.78 | | | 4.81 | | | 5.00 | | | 4.11 | |
11.2 | % | | 16.1 | % | |
18.3 | % | | 14.0 | % | | 15.9 | % | | 12.9 | % | | 16.3 | % |
19.7 | % | | 29.7 | % | | 34.4 | % | | 25.6 | % | | 28.2 | % | | 22.3 | % | | 29.8 |
% |
24.9 | % | | 30.7 | % | | 35.4 | % | | 25.5 | % | | 29.1 | % | | 24.1 | % | | 28.2 | % |
| | | | | | | | |
| | | |
4,455 | | | 6,674 | | | 8,108 | | | 6,705 | | | 6,725 | | | 5,666 | | | 6,819 | |
|
— | | | — | | | — | | | 308 | | | 763 | | | 703 | | | 854 | |
5,388 | | | 3,963 | | | 4,408 | | | 4,021 | | | 4,329 | | | 3,410 | | | 3,697 | |
9,843 | | | 10,637 | | | 12,516 | |
| 11,034 | | | 11,817 |
| 9,779 | | | 11,370 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
$ | 384,715 | | | $ | 412,960 | | | $ | 394,556 | | | $ | 377,462 | | | $ | 337,077 | | | $ | 351,922 | | | $ | 308,686 | |
218,322 | | | 235,887 | | | 201,875 | | | 210,626 | | | 179,815 | | | 207,464 | | | 174,909 | |
884,789 | | | 1,073,165 | | | 1,071,570 | | | 898,010 | | | 713,500 | | | 581,779 | | | 272,733 | |
187,038 | | | 197,469 | | <
div style="overflow:hidden;font-size:10pt;"> | 164,175 | | | 164,017 | | | 144,303 | | | 173,677 | | | 141,096 | |
3.3 to 1 | | 3.2 to 1 | | 2.6 to 1 | | 2.8 to 1 | | 2.6 to 1 | | 3.2 to 1 | | 3.0 to 1 |
3,150 | | | 3,610 | | | 4,220 | | | 3,750 | | | 3,685 | | | 3,325 | | | 3,300 | |
4,733 | | | 4,794 | | | 4,978 | | | 3,945 | | | 4,000 | | | 3,549 | | | 3,756 | |
| | (5) | Includes discontinued operations of Winnebago Acceptance Corporation for all years presented. |
| |
(6) | ROE - Current period net income divided by average equity balance using current and previous ending periods. |
| |
(7) | ROIC - Current period net income divided by average invested capital (total assets minus cash, short-term and long-term investments and noninterest liabilities) using current ending periods. |
| | | | |
BOARD OF DIRECTORS Robert J. Olson (59) Chairman of the Board, Chief Executive Officer and President Winnebago Industries, Inc. Irvin E. Aal (71) 1,2 Former General Manager Case Tyler Business Unit of CNH Global Robert M. Chiusano (59) 1,2 Former Executive Vice President and Chief Operating Officer - Commercial Systems Rockwell Collins, Inc. Jerry N. Currie (65) 3 President and Chief Executive Officer CURRIES Company and GRAHAM Manufacturing Joseph W. England (70) 1 Former Senior Vice President Deere & Company Lawrence A. Erickson (61) 1*,2 Former Senior Vice President and Chief Financial Officer Rockwell Collins, Inc. John V. Hanson (68) 3* Former Deputy Chairman of the Board Winnebago Industries, Inc. Gerald C. Kitch (72) **,2*,3 Former Executive Vice President Pentair, Inc. | | SHAREHOLDER INFORMATION Publications A notice of Annual Meeting of Shareholders and Proxy Statement is furnished to shareholders upon request in advance of the annual meeting. Copies of our quarterly financial earnings releases, the annual report on Form 10-K (without exhibits), the quarterly reports on Form 10-Q (without exhibits) and current reports on Form 8-K (without exhibits) as filed by us with the Securities and Exchange Commission, may be obtained without charge from the corporate offices as follows: Sheila Davis, PR/IR Manager Winnebago Industries, Inc. 605 W. Crystal Lake Road P.O. Box 152 Forest City, Iowa 50436-0152 Telephone: (641) 585-3535 Fax: (641) 585-6966 E-Mail: ir@winnebagoind.com | | Independent Auditors Deloitte & Touche LLP 400 One Financial Plaza 120 South Sixth Street Minneapolis, Minnesota 55402-1844 (612) 397-4000 NYSE Annual CEO Certification and Sarbanes-Oxley Section 302 Certifications We submitted the annual Chief Executive Officer Certification to the New York Stock Exchange (NYSE) as required under the corporate governance rules of the NYSE. W
e also filed as exhibits to our 2010 Annual Report on Form 10-K, the Chief Executive Officer and Chief Financial Officer certifications required under Section 302 of the Sarbanes-Oxley Act of 2002. Winnebago Industries is an equal opportunity employer. |
Board Committee
/Members 1. Audit 2. Human Resources 3. Nominating and Governance * Committee Chairman ** Lead Independent Director | | All news releases issued by us, reports filed by us with the Securities and Exchange Commission (including exhibits) and information on our Corporate Governance Policies and Procedures may also be viewed at the Winnebago Industries' Web Site: http://winnebagoind.com/investor.html. Information contained on Winnebago Industries' Web Site is not incorporated into this Annual Report or other securities filings. | | |
OFFICERS Robert J. Olson (59) Chairman of the Board, Chief Executive Officer and President Raymond M. Beebe (68) Vice President, General Counsel and Secretary Robert J. Gossett (59) Vice President, Administration Daryl W. Krieger (47) Vice President, Manufacturing Roger W. Martin (50) Vice President, Sales and Mar
keting Sarah N. Nielsen (37) Vice President, Chief Financial Officer William J. O'Leary (61) Vice President, Product Development Randy J. Potts (51) Senior Vice President, Strategic Planning Donald L. Heidemann (38) Treasurer Brian J. Hrubes (59) Controller | | Number of Shareholders of Record As of October 5, 2010, Winnebago Industries had 3,544 shareholders of record. Dividends Paid No dividends were paid in Fiscal 2010. Cash dividend payments were suspended starting with the second quarter of Fiscal 2009. Shareholder Account Assistance Transfer Agent to contact for address changes, account cer
tificates and stock holdings: Wells Fargo Shareowner Services P.O. Box 64854 St. Paul, Minnesota 55164-0854 or 161 North Concord Exchange South St. Paul, Minnesota 55075-1139 Telephone: (800) 468-9716 or (651) 450-4064 Inquiries: www.wellsfargo.com/shareownerservices Annual Meeting The Annual Meeting of Shareholders is scheduled to be held on Tuesday, December 14, 2010, at 4:00 p.m. (CST) in Winnebago Industries' South Office Complex Theater, 605 W. Crystal Lake Road, Forest City, Iowa.
| | The Letter to Shareholders contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. A number of factors could cause actual results to differ materially from these statements. These factors are included under “Item 1A. Risk Factors” in Part 1 of the accompanying Annual Report on Form 10-K. |
Exhibit 10bb.
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF SALE (this “Agreement”), made this 30th day of August, 2010 (the “Effective Date”), by and between WINNEBAGO INDUSTRIES, INC., an
Iowa corporation (hereinafter called “Seller”), and CGS TIRES US, INC., a Delaware corporation (hereinafter called “Buyer”). The Effective Date shall be the last date this Agreement is executed by either Buyer or Seller.
W I T N E S S E T H:
For and in consideration of the mutual undertakings contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
1. Property.
(a) Seller hereby agrees to sell and convey to Buyer who agrees to purchase, all that certain lot, piece or parcel of ground (the “Land”), together with the improvements located thereon (the “Improvements”), situated in CHARLES CITY, IOWA and known as 1200 Rove Avenue consisting of approximately 34.1 acres of land, said lot, piece or parcel being more particularly described
on Exhibit “A-1” attached hereto and made a part hereof (the Land, the Improvements are collectively referred to as the “Property”). The Property shall be as depicted on the Plat of Survey attached hereto, marked Exhibit “A-2”, and by this reference made a part hereof (the “Plat of Survey”).
(b) The sale set forth in this Agreement shall also include (i) the fixtures, equipment and systems which are located in the Improvements; (ii) all certificates, licenses, permits, authorizations and approvals issued for or with respect to the Property by governmental and quasi-governmental authorities having jurisdiction (“Licenses, Permits and Approvals”), to the extent transferable; (iii) all assignable contracts
and agreements relating to the management, operation, servicing and/or maintenance of Property, to the extent said contracts or agreements do not relate to Seller's remaining property, and to the extent Buyer elects to assume the same as provided herein (“Contracts”); (iv) all appurtenances, easements and other rights and privileges in any way pertaining or beneficial to the Land or the Improvements; (v) all tangible personal property, and fixtures owned by Seller and located at or on the Property or otherwise used primarily in connection with the ownership, maintenance or operation thereof as agreed to by the parties and as described on a Personal Property Inventory to be furnished by Seller as part of the due diligence materials. (the “Personalty”); (vii) to the extent assignable, all right, title and interest to Seller in and to any drawings, plans, building permits, surveys and certificates of occupancy relating to the Property, that are in the possession of the Seller; and (viii)
all records relating to the described Property and Personalty for the previous three (3) years, including without limitation all records regarding management and leasing, real estate taxes, assessments, insurance, tenants, maintenance, repairs, capital improvements and services, to the extent available and in possession of Seller.
2. Purchase Price. The total consideration and purchase price (the “Purchase Price”), which Buyer agrees to pay to Seller and which Seller agrees to accept for the Property is Three Million Nine Hundred Thousand ($3,900,000.00), subject to credit, debt and adjustment as herein provided and subject to all the
terms and conditions herein contained, payable as follows:
(a) Within seven (7) business days after full execution and delivery by Buyer and Seller of this Agreement (the “Effective Date”), Buyer shall deposit as earnest money in escrow the sum of Three Hundred Ninety Thousand Dollars ($390,000.00) in cash (such sum, together with any interest thereon, being hereinafter collectively referred to and held as the “Deposit”).
(b) Buyer shall pay the balance of the Purchase Price by wire transfer, certified or cashier's check at Closing, subject to credit for application of the amount of the Deposit paid to Seller as provided in subsection (a) of this Paragraph and subject to credit and adjustment as provided herein.
The Deposit shall be paid to First American Title Insurance Company as escrow agent (hereinafter “Escrow Agent. The Deposit shall become non-refundable at the expiration of the Due Diligence Period (hereinafter defined) if
this Agreement has not been terminated prior to that date by the Buyer.
Buyer's Federal Tax I.D. Number # 13-4103544
Seller's Federal Tax I.D. Number # 42-0802678
3. Title and Survey.
(a) Seller, at its expense, shall promptly obtain an abstract of title covering the entire Property continued to a current date and deliver it to Buyer's attorney for examination. It shall show marketable title in Seller in conformity with this Agreement, Iowa law and title standards of the Iowa State Bar Association. Seller shall make every reasonable effort to promptly perfect title. If closing is delayed due to Seller's inability to provide marketable title, this Agreement shall continue in force and effect until either
party rescinds the Agreement after giving ten days written notice to the other party. The abstract shall become property of Buyer when the purchase price is paid in full.
(b) Buyer may, within thirty (30) days after the Effective Date, at it's sole cost and expense, apply for a commitment for title insurance policy with First American Title Insurance Company or from Iowa Title Guaranty (“Commitment for Title Insurance”). The Commitment for Title Insurance shall be in an amount equal to the Purchase Price and shall insure good, marketable fee simple title in the Property subj
ect only to Permitted Exceptions. All "Standard Exceptions" shall be deleted from the Title Policy. If obtained, Buyer shall provide Seller with a copy of the Commitment for Title Insurance prior to the expiration of the Due Diligence Period.
Within twenty (20) days after the Effective Date, Buyer may, at its sole cost and expense, obtain an “as-built” survey of the Property, which survey shall be prepared by a registered land surveyor and shall be certified to Buyer, Buyer's lender and Title Company (the "Survey"). The Survey shall be prepared in accordance with the "Minimum Standard Detail Requirements for ALTA/ASCM Land Title Surveys", jointly established by ALTA and ASCM in 1999, The Survey shall show, the exact legal description of the Property, the exact area of
the Property, exclusive of roads, road easements and rights of way, the boundary lines of the Property, all monuments, any building setback lines or similar restrictions, the location of all improvements now on the Property, access to public roads, the location of sewer, water, storm sewer, gas, electric and telephone connections to the public systems for service to the Property, and the location of all easements (by reference to the book and page or document number of the instrument creating same, if any), encroachments and rights of way on the Property. Notwithstanding the forgoing, Seller shall pay the cost to prepare and record the Plat of Survey. If obtained, Buyer shall provide Seller with a copy of the Survey prior to the expiration of the Due Diligence Period.
Buye
r shall have until the expiration of the Due Diligence Period to review the Abstract of Title, Commitment for Title Insurance and/or the Survey and give written notice to Seller of any objections Buyer may reasonably have to any item set forth in the title evidence or the Survey (“Title Objection Notice”).
If Buyer notifies Seller of any such objection(s), Seller shall either: (a) cure such objections as soon as reasonably possible but no later than prior to Closing (and, for purposes of this Agreement, "cure" shall include, but not be limited to, removing any such defect); or (b) decline to cure such objections. If Seller declines to cure such objections Seller shall so notify Buyer within five (5) business days of receiving Title Objection No
tice from Buyer. Thereafter, Buyer shall either waive such objections and proceed to Closing or terminate this Agreement. If title defects are discovered by or reported to Buyer on or prior to the Date of Closing which are not shown on the Abstract of Title, Commitment for Title Insurance or the Survey, or which were created or came into existence on or after the date of delivery of the Abstract of Title, Commitment for Title Insurance or the Survey, Buyer shall immediately notify Seller in writing of any such title defects. Seller may then either (a) cure such objections prior to Closing (and, for purposes of this Agreement, "cure" shall include, but not be limited to removing of any such defect); or (b) decline to cure such objections. If Seller declines to cure such objections, it shall so notify Buyer within five (5) business days. Thereafter, Buyer shall either waive such objections and proceed to Closing or terminate this Agreement.
“Permitted Exceptions” shall mean typical utility, drainage and access easements necessary for the operation and maintenance of the Property, liens for taxes, water charges, sewer rents and other governmental charges not due and payable by or at the Closing (provided same are apportioned between Seller and Buyer in the customary manner); the Declaration of Covenants and Restrictions filed January 29, 2001 as Document No. 2001-0181 of the Floyd County, Iowa, Recorder's Office (the “Declaration of Covenants”); leases and occupancy rights as may be approved by Buyer; and such other non-monetary encumbrances or exceptions as may be acceptable to Buyer.
4. Buyer's Financing Contingency. Buyer's obligation to purchase the Property and to perform its other obligations under this Agreement is contingent on Buyer obtaining a written commitment for a loan in the amount of at least $2,730,000 on terms reasonably satisfactory to Buyer (the “Loan Commitment”) on or before the date thirty (30) days after the Effective Date (the “Financing Contingency Deadline”). If Buyer provides Seller written notice on or before the Financing Contingency Deadline of Buyer's failure to obtain such Loan Commitment, this Agreement shall be rendered null and void, the Deposit shall be returned, and Buyer and Seller shall have no further obligations hereunder. If Buyer does not terminate this Agreement prior to expiration of the Financing Contingency Deadline, Buyer shall be deemed to have waived the financing contingency in this Paragraph 4. Upon receipt of the Loan Comm
itment, Buyer shall have no further right to terminate this Agreement and receive back the Deposit under this Paragraph 4.
5. Representations and Warranties of Buyer.
Buyer represents and warrants to Seller that Buyer has all requisite power and authority to execute, deliver, enter into and perform its duties and obligations under this Agreement; and that neither the execution nor the d
elivery of this Agreement, the consummation of the sale and purchase contemplated hereby, nor the fulfillment of or compliance with the terms and conditions hereof conflict with or will result in the breach of any of the terms, conditions or provisions of any agreement or instrument to which the Buyer is a party or by which the Buyer is bound. Buyer further represents and warrants to Seller that the Buyer has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in the bankruptcy or suffered the filing of an involuntary petition by Buyer's creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of the Buyer's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Buyer's assets, (v)
admitted in writing its inability to pay its debts as they become due, or (vi) made an offer of settlement, extension or compromise to its creditors generally.
6. Representations and Warranties of Seller.
Seller makes the following representations and warranties, which representations and warranties are true and correct on the date hereof, and which representations and warranties shall survive the Closing for a period of one (1) year. The phrases “to the best of Seller's knowledge” or “Seller's knowledge” as used in this Agreement shall mean the actual knowledge, without independent inquiry, of Sarah Nielsen, as Vice President and CFO of Seller, and Raymond Beebe, as Vice President-General Counsel and Secretary of Seller. In addition, the term “Environmental Law” shall mean any Federal, State or local law, rule, regulation, ordinance or other regulatory requirement intended to protect the environment or human health, and the term “Regulated Substance” shall mean any hazardous substance, residue or waste (including specifically petroleum and related hydrocarbons and their byproducts, asbestos, and polychlorinated biphenyls) that is r
egulated by an Environmental Law.
(a)Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Iowa.
(b)Seller has all necessary power and authority to own, use and transfer the Property and to transact the business in which it is engaged.
(c)Seller is duly authorized to execute, deliver and perform this Agreement and all documents and instruments and transactions contemplated hereby or incidental hereto.
(d)Seller owns the Property free and clear of all encumbrances except the Permitted Exceptions, other than liens to be discharged at Settlement.
(e)To the best of Seller's knowledge there has not been any generation, transportation, treatment, storage, disposal or release in or on the Property by third parties, and, to the best of Seller's knowledge, Seller has not caused or permitted any generation, transportation, treatment, storage, disposal or release in or on the Property (or in or on any other Property adjacent thereto which is or has been owned by Seller), of any Regulated Substances in violation of any Environmental Law that may support a claim or cause of action against the Property or any owner thereof, whether by a governmental agency or body, private party or individual, under any Environmental Law.
(f)To the best of Seller's knowledge, there are no underground storage tanks presently or previously located on the Property.
(g)To the best of Seller's knowledge there are no wells located on the Property.
(h)To the best of Seller's knowledge there are no individual sewage treatment systems located on or near the Property.
(i)To the best of Seller's knowledge no asbestos was used in the construction or insulation of the improvements on the Property.
(j)To the best of Seller's knowledge, there is no action, suit, proceeding or investigation pending which would become a cloud on the title to the Property or any portion thereof, or which questions the validity or enforceability of the transaction contemplated by this Agreement or any action taken pursuant hereto, in any court or by any federal, district, county or municipal department, commission, board, bureau, agency or other governmental instrumentality.
(k)Seller is neither a "foreign person" nor a
"foreign corporation" (as those terms are defined in Section 1445 of the Internal Revenue Code of 1986, as amended).
(l)Seller has not: (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by Seller's creditors, (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of Seller's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Seller's assets, (v) admitted in writing its inability to pay its debts as they become due, or (vi) made an offer of settlement, extension or compen
sation to its creditors generally; and no attachments, assignments for the benefit of creditors, or insolvency, bankruptcy, reorganization, execution or other proceedings are pending or, to the best of Seller's knowledge, threatened against Seller or the Property, nor are any such proceedings contemplated by Seller.
(m)No work has been performed or is in progress at, and no materials have been furnished to, the Property or any portion thereof by or on behalf of Seller which could give rise to any mechanic's, materialman's or other liens and no such liens are outstanding.
(n)Seller has received no written notice of condemnation of any portion of the Property from any governmental authority, that there are presently no pending assessments against the property and Seller has not received any written notice of any assessments being contemplated.
(o)There are no other agreements to lease, sell, option, mortgage or otherwise encumber or dispose of its interest in the Property or any part thereof, except for this Agreement and the Leases.
(p)There are no tenancies, occupancies affecting the Property or persons in possession of any part thereof, except under or pursuant to the Leases. As of the date hereof, Seller is the holder of all of the landlord's right, title and interest in, to and under the Leases. Seller has not received any written cl
aim from any tenant under any of the Leases alleging any type of default by the landlord under any of the Leases.
(q)The copies of documents comprising the Leases and the Contracts to be delivered to Buyer pursuant to this Agreement are accurate copies of all material documents comprising the Leases and the Contracts.
(r)Seller has received no written building code violation notices or other written notices of any violation of any federal, state, county or local law with respect to the Property (other than written notices of violations which have been removed or corrected), and Seller has received no written notices of any action or governmental proceeding in eminent domain, or for a zoning change, which would affect the Property, other than as may be disclosed in any of the documents or reports to be delivered by Seller to Buyer pursuant to this Agreement.
(s)Seller has not received any written notice from any governmental authority as to the existence of any diseas
e of any trees on the Property.
(t) Seller shall maintain prior to the Closing insurance policies with respect to the Property and such operation in amounts as are comparable.
(u) That utilities serving the Property are located on the Property, or enter the Property from adjacent public right-of-way, and Seller will relocate from the Property all service meters serving Seller's retained property to property owned by Seller. Buyer shall all
ow Seller sixty (60) days following Closing within which to complete this relocation. Seller shall repair all damage to the Property caused by such relocation.
Seller's warranties and representations contained in this paragraph shall survive the delivery of the Warranty Deed and Closing for a period of one (1) year. In the event any of the representations and warranties contained herein becomes untrue as of the Date of Closing as a result of information received by Seller or occurrences subsequent to the Effective Date hereof or otherwise, Seller shall promptly notify Buyer. Seller will indemnify Buyer, its successors and assigns, against and will hold Buyer, its successors and assigns, harmless from, any loss, claim, damage or expense, including reasonable attor
neys' fees, which Buyer incurs because of the breach of any of the above representations and warranties, whether such breach is discovered before or after the Date of Closing; provided that written notice of the breach is given by Buyer to Seller within one (1) year after the Closing Date.
7. Property Sold “AS IS” and “WHERE IS.” It is understood that the Property is being purchased on an “AS-IS” and “WHERE-IS” basis and has been or will be inspected by Buyer or Buyer's duly authorized agent; that the same is and has been purchased as a result of such inspection and not in reliance upon any represent
ations, inducements or promises, either oral or written, made by Seller, Agent or any selling agent or other agent of Seller except as expressly stated in this Agreement, and Seller shall not be responsible or liable for any agreement, condition or stipulation not set forth herein relating to or affecting the Property.
From the Effective Date through the Closing, Seller or its agent shall continue to manage and operate the Property in a first class manner consistent with the operation at the present time; however, during this period Seller shall not implement any operational changes, including, without limitation, the termination, extension or renewal of major service or maintenance contracts in effect on the Agreement Date, or enter into any new major service or
maintenance contracts (unless cancelable by the owner of the Property on not more than 30 days' notice) or leases, without having first obtained the written consent of Buyer, such consent not to be unreasonably withheld. Following the Approval Date or extension thereof as provided herein, no new leases or management/operating agreements may be signed by Seller without the prior written consent of Buyer. Subject to Closing on the Closing Date, Seller shall tender possession of the Property to Buyer in the same condition the Property was in when last inspected by Buyer, except for ordinary wear and tear, casualty loss and condemnation (provided Buyer shall not have elected to terminate this Agreement pursuant to Paragraphs 13 and 14 as a result of such casualty loss or condemnation).
From the Effective Date to the Closing Date, Seller shall maintain or cause to be maintained in full force and effect liability, casualty and other insurance upon and with respect to the Property against such hazards and in such amounts as are currently so maintained.
Absent the prior written consent of Buyer, from the Effective Date until the Closing Date, unless the Agreement is terminated during that period, Seller shall not sell, encumber or grant any interest in the Property or any part thereof in any form or manner whatsoever, or otherwise perform or permit any act that will diminish or otherwise affect Buyer's interest under this Agreement or in or to the Property or that will prevent Seller's fu
ll performance of its obligations hereunder.
8. Real Estate Taxes and Assessments.
(a) Seller shall pay all real estate taxes on the Property payable in the fiscal year of Closing and any unpaid real estate taxes payable in prior years. At Closing, Seller shall pay Buyer, or Buyer shall be given a credit for, taxes from the first day of July prior to the Closing Date to the Closing Date payable in the subsequent fiscal year based upon the last known actual net real estate taxes payable according to public records. However, if such taxes are based upon a partial assessment of the present property improvements or a changed tax classification as of the Closing Date, such proration shall be based on the current levy rate, assessed value, legislative tax rollbacks and real estate tax exemptions that will actually be applicable as shown by the assessor's records on the Closing Date. Buyer shall pay all subsequent real estate taxes. In the event that the sale of the Property requires a split of a current assessment parcel, Seller shall pay all taxes payable at c
losing and the proration amount shall be based on a pro rata allocation of respective land and improvement values of the tax parcel being split. It is agreed by Buyer and Seller that, if all of the improvements of a current assessment parcel being split are located on the Property, then the pro rata allocation of the taxes for that portion of the assessment parcel located on the Property shall include all taxes attributed by the Floyd County Assessor's Office to the improvements. The remaining portion of the real estate taxes attributed by the Floyd County Assessor's Office to the land shall be allocated between Buyer and Seller based on the percentage of acreage of land on the parties' respective portion of the current assessment parcel. In the event Floyd County will not issue a separate tax statement for fiscal year 2010-2011 for any parcel being purchased by Buyer, Buyer shall not receive a credit at Closing for prorated taxes for such parcel, and Buyer and Seller shall enter into a Tax Proration Agreeme
nt setting for their respective obligation for payment of the taxes based on the forgoing.
(b) Seller shall pay all special assessments that are a lien on the Property at the time of delivery of possession of such property to Buyer. Any preliminary or deficiency special assessments, if any, that cannot be paid at Closing shall be paid by escrowing the estimated amount of such payment, with the Escrow Agent to pay such assessment in full as soon as it can be paid, with any escrowed amount not needed for payment of such special assessment to be paid to Seller.
(c) All charges for solid waste, sewage, other utilities, and assessments made by any governmental body or public utility attributable to that period of Seller's ownership shall be paid by Seller.
(d) All subsequent real estate taxes, special assessments and charges are to be paid by Buyer.
9. Easements.
Prior to the expiration of the Due Diligence Period, Buyer and Seller shall mutually agree to the form and content of (a) a written access easement for limited ingress and egress by Buyer over the vacated portion of Corporate Drive/Winnebago Road retained by Seller. Said ingress and egress by Buyer shall be limited to fire or life safety emergencies, technical inspections, fence maintenance or unexpected difficulties with the main entrance to the Property and (b) an easement for storm water detention to benefit the Property and Seller's retained property (the “Easements”).
Except for emergency situations, Buyer shall give reasonable advance notice to Seller of any planned use of the ingress/egress easement.
The storm water easement shall provide that Buyer may continue to allow storm water to drain onto Seller's retained property at the current rate of discharge. If any proposed improvements by Buyer would increase the rate of discharge, then Buyer will need to provide additional retention on its own property so that the rate of discharge onto Seller's retained property will remain the same. Pursuant to the Declaration of Covenants, Buyer must submit a complete storm water detention plan to the Charles City City Engineer and Floyd County Engineer for review and approval prior to the commencement of any
improvements on the Property. Buyer shall provide Seller with a copy of the aforementioned plan at the same time Buyer submits it to the City and County Engineer.
Each of the Easements shall be in form and content mutually acceptable to Buyer and Seller, shall be consistent with this Agreement, and shall be executed and delivered by the parties at closing, and shall be filed of record following the Deed to Buyer.
In the event that Buyer and Seller are unable to reach agreement on the form and content of the Easement prior to the expi
ration of the Due Diligence Period, either party may elect to terminate this Agreement.
10. Settlement.
(a) Settlement (also sometimes referred to herein as “Closing”) shall be made on or before November 1, 2010 (“Settlement Date” or “Closing Date”) at 10:00 a.m. (prevailing time) at the office of the Title Company, unless Seller and Buyer agree in w
riting to a different time and place (“Settlement”). The date and time of Settlement is hereby agreed to be of the essence of this Agreement. Buyer shall have the right to advance the date of Settlement at its option.
(b) Realty taxes, water and sewer rentals, and any other items or charges which are properly apportionable under local law or custom shall be apportioned on a per diem basis pro rata as of the date of Settlement.
(c) State and local realty transfer taxes, if any, applicable to the sale set forth in this Agreement shall be paid by Seller.
(d) Possession of the Property is to be delivered broom clean, vacant condition and free of all tenancies and/or occupancies by executed Deed (defined below) and keys at the time of Settlement, Said Deed shall be prepared by Seller or Seller's attorney and the acknowledgment and recording fees paid by Buyer. Seller shall submit to Buyer a copy of the Deed at least five (5) days prior to the time fixed for Settleme
nt. Buyer shall submit to Seller a duplicate copy of the Title Report issued by the title insurance company insuring the title for Buyer and a copy of the survey, if ordered, at least fifteen (15) days prior to the time fixed for Settlement.
(e) Without limitation to other conditions set forth in this Agreement, and notwithstanding anything contained herein to the contrary, Buyer's obligation to close hereunder is expressly contingent upon the satisfaction, or the express written waiver, of the following conditions:
(
i) As of the Settlement, title to the Property shall be as required or waived by Buyer, pursuant to Paragraph 3 of this Agreement;
(ii) All representations and warranties made by Seller in this Agreement shall be true, complete and accurate in all material respects as of the Settlement Date;
(iii) Seller shall have performed, observed and complied with all agreements, covenants and obligations to be performed by Seller under this Agreement, including without limitation, the execution and/or delivery of all documents
required to be executed and/or delivered by or on behalf of Seller hereunder;
(iv) Buyer shall have reviewed and approved or waived its right to approve each of the Contracts pursuant to Paragraph 23 of this Agreement. Buyer shall review and approve such Contracts (or disapprove the same and thereby terminate this Agreement) on or before the expiration of the Due Diligence Period; provided, however, that in the event Buyer shall disapprove any of the Contracts, Seller may, on or before the Date of Closing, secure at its own expense and effect a cancellation of such disapproved Contract(s) to the reasonable satisfaction of Buyer, whereupon this condition shall not be deemed unsatisfied by reason of Buyer's disapproval of such cancelled Contract(s)
;
(v) Buyer shall have reviewed and approved a physical inspection(s) and engineering report(s) and analyses with respect to the Property, reflecting the physical condition of all improvements, equipment, plumbing, mechanical and electrical systems, fixtures, inventory and personal property comprising the Property, and the condition of the Property or waived its rights to object by not objecting prior to the expiration of the Due Diligence Period. Buyer agrees to furnish Seller with copies of such report(s) and analyses in the event that this Agreement is terminated. Buyer shall review and approve such report(s) and analyses (or disapprove the same and thereby terminate this Agreement) on or before the Due Diligence Date; provided, however, that
in the event Buyer shall disapprove any matter shown on such report or analysis, Seller may, on or before the Date of Closing, at its own expense and effort, cure such disapproved matter to the reasonable satisfaction of Buyer, whereupon this condition shall not be deemed unsatisfied by reason of Buyer's disapproval of such matter shown on such report or analysis.
(vi) Buyer shall have reviewed and approved the Survey of the Property or waived its right to object pursuant to Paragraph 3 of this Agreement.
(vii) Buyer obtaining financing for the purchase of the Property or waiving the financing contingency pursuant to Paragraph 4 of this Agreement.
(viii) Buyer being able to obtain or waiving, pursuant to Paragraph 23 of this Agreement, all approvals, licenses and permits from appropriate governmental authorities having jurisdiction over the Property deemed necessary by Buyer to permit Buyer's use and operation of the Property in the manner contemplated by Buyer, which approvals shall be obtained at Buyer's expense. Buyer shall have timely received confirmation acceptable to Buyer, or waived its rights under Paragraph 23, that Buyer's intended use of the Property (with appropriate parking areas and setbacks) is a permitted use
in the zoning classification pertaining to the Land. Seller shall cooperate with Buyer in obtaining such approvals, but shall not be obligated to assume any cost or liability in connection with the same, except as otherwise provided herein.
(ix) Buyer obtaining, or waiving pursuant to Paragraph 23 of this Agreement, governmental incentives from appropriate entities including but not limited to Charles City, Floyd County, and the State of Iowa upon terms and conditions acceptable to Buyer in its sole discretion. In the event that incentives acceptable to Buyer are not received by the expiration of the Due Diligence Period, Buyer may terminate this Agreement in accordance with Paragraph 23 of this Agreement.
Failure of Satisfaction of Conditions. In the event that any one or more of the matters referred to in each of the subsections of Paragraph 10(e) has not been reviewed and approved and the condition precedent set forth in each such subsection thereby satisfied on or before the the expiration of the Due Diligence Period (or, if earlier, the date for satisfaction thereof), Buyer may, at its option, elect to terminate this Agreement. In the event that on or prior to the expiration of the Due Diligence Period (or, if earlier, the date for satisfaction thereof) any such condition precedent is not expressly designated as satisfied or unsatisfied in writing by Buyer, then such condition precedent shall be conclus
ively deemed satisfied or waived by
Buyer.
(f) Without limitation to other conditions set forth in this Agreement, and notwithstanding anything contained herein to the contrary, Seller's obligation to close hereunder is expressly contingent upon the satisfaction, or the express written waiver, of the following conditions:
(i) Seller shall have received the Purchase Price as adjusted pursuant to and payable in the manner provided for in this Agreement;
(ii) All of the representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects as of the Date of Closing; and
(iii) Buyer shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Buyer as of the Date of Closing.
11. Closing Documents.
(a) At the time and place of Settlement, Seller shall deliver or cause to be delivered to Buyer the following:
(i) a general warranty deed executed by Seller in recordable form whereby Seller shall convey to Buyer fee simple title to the Property subject only to the Permitted Exceptions (the “Deed”);
(ii) an assignment whereby Seller will assign and Buyer shall assume all of Seller's right, title, and interest, including all the obligations of Seller, in, to and under any assignable warranties, Licenses, Permits and Approvals and Contracts (hereinafter referred to as the “Assignment”);
(iii) all original Licenses and as many signed originals (or true and correct copies of same) of the Con-tracts and other items covered by the Assignment as are in Seller's possession, unless previously delivered by Seller to Buyer;
(iv) all equipment operating manuals and all equipment warranties and equipment guarantees, if any, in Seller's possession;
(v) all m
aster and duplicate keys to all locks for the Improvements which are in Seller's possession;
(vi) a non-foreign person certification;
(vii) a Seller's title affidavit and such other documents as may be reasonably requested by the Title Company; and
(viii) the Easements.
(b) At the time and place of Settlement, Buyer shall deliver or cause to be delivered to Seller the following:
(i) the balance of the Purchase Price;
(ii) the Easement; and
(iii) such other documents as may be reasonably requested by Seller to carry out the intent of this Agreement or by the Title Company.
12. Risk of Loss. All risk of loss shall be on Seller until possession of the Property shall be delivered to Buyer. Seller agrees to maintain its existing insurance covering the Property while this Agreement remains in effect.
13. Casualty. If the Property should be destroyed or damaged by any casualty prior to closing, Seller shall promptly give written notice of the casualty to Buyer. If the cost of the cost of repairing or restoring the Property exceeds $150,000.00, then Buyer shall elect either to (i) accept title to the Property in its destroyed or damaged condition, in which event at the closing Seller shall assign to Buyer all of Seller's right, title and interest in and to the insurance proceeds available for repair or restoration and Buyer shall receive a credit toward the Purchase Price equal to the amount of any deductible under the insurance policy, or (ii) terminate this Agreement by giving written notice to Seller, in which case the Earnest Money
shall be promptly returned to Buyer. If Buyer elects to terminate this Agreement, both parties shall be relieved from any further liability hereunder. If the cost of repairing or restoring the Property is less than $150,000.00, then Buyer and Seller shall proceed in accordance with clause (i) above.
14. Condemnation. If prior to Settlement any part of the Property is subject to a bona fide threat of condemnation by a body having the power of eminent domain, or is taken by eminent domain or condemnation (or sold in lieu thereof), Seller shall promptly provide written notice thereof to Buyer, and Buyer may, in Buyer's discretion, el
ect to terminate this Agreement by
written notice to Seller, in which case the Earnest Money shall be promptly returned to Buyer. If Buyer elects to terminate this Agreement, both parties shall be relieved from any further liability hereunder. If Buyer does not elect to terminate this Agreement, it shall remain in full force and effect, and the full Purchase Price shall be due at closing without adjustment; provided, however, Buyer shall receive notice of and be entitled to control over all negotiations or meetings with condemning authorities, and Seller shall, at closing, assign, transf
er, and set over to Buyer, all of Seller's right, title, and interest in and to any awards made in connection with such taking.
15. Recording. This Agreement may not be recorded in the Office for Recording of Deeds or in any other office or place of public record without Seller's prior consent.
16. Waiver of Tender. Tender at the time of Settlement of an executed Deed by Seller and the balance of the Purchase Price by Buyer are hereby mutually waived, but nothing herein contained shall be construed as to relieve Seller from the obligation to deliver the Deed or to relieve Buyer from the concurrent obligation to pay the balance of the Purchase Price.
17. Broker. Seller and Buyer acknowledge that Binswanger Midwest of Illinois, Inc. (“Agent”) is the sole, moving, efficient and procuring cause of this sale and in consideration of its services in making this sale and at the time of Settlement, Seller hereby agrees to pay a
commission to Agent, pursuant to the terms of a separate brokerage agreement between Seller and Broker.
18. Default; Remedies.
(a) If Buyer is in default in the observance or performance of its obligations hereunder, after a thirty (30) day written notice with an opportunity to cure, then Seller may exercise such rights and remedies as may be provided for in this Agreement or as may be provided for or
allowed by law or equity (including, without limitation, specific performance and the right to be paid the Deposit and all interest earned thereon as liquidated damages for such breach).
(b) If Seller is in default in the observance or performance of its obligations hereunder, after a thirty (30) day written notice with an opportunity to cure, then Buyer may exercise such rights and remedies as may be provided for in this Agreement or as may be provided for or allowed by law or equity (including, without limitation, specific performance).
19. Notices. All notices to be given hereunder shall be in writing and deemed to have been duly given if said notice is delivered personally, sent by reputable overnight courier, sent by legible facsimile transmission, or sent by registered or certified mail, postage prepaid, and addressed as set forth below:
Seller: WINNEBAGO INDUSTRIES
605 W. Crystal Lake Road
P.O. Box 152
Forest City, IA 50436
Attn: Ray Beebe
Fax: (641) 585-6806
E-mail: rbeebe@winnebagoind.com
With a copy to: Davis Brown Law Firm
215 10th Street, Suite 1300
Des Moines, IA 50309
Attn: Gary M. Myers
Fax: (515) 243-0654
E-mail: garymyers@davisbrownlaw.com
Buyer: CGS TIRES US, INC.
7400 Carmel Executive Park, Suite 345
Charlotte, NC 28226
Attn: Neil Rayson
Fax: 704-542-3474
E-mail: neil.rayson@cgs-tires.com
With a copy to: Nyemaster Goode P.C.
700 Walnut, Suite 1600
Des Moines, IA 50309
Attn: Dwayne VandeKrol
Fax: (515) 283-3109
E-mail: dvandekrol@nyemaster.com
Escrow Agent: First American Title Insurance Company
13924 Gold Circle
Omaha, NE 68144
Attn: Debbie Saxton
Fax: (402) 333-1098
Email: dsaxton@firstam.com
Each such mailed notice or communication shall be deemed to have been given to, or served upon, the party to whom or to which addressed on the date the same is served, sent by overnight courier, or is deposited in the United States certified mail, return receipt requested, postage prepaid, properly addressed in the manner above provided, or, in the case of facsimile transmission, as of the date of the facsimile transmission (or the next business day if transmitted on a day other than a business day or after 5:00 p.m. Central Time on a business day) provided that the transmitting machine generates a satisfactory transmission report. Any party may change the address to which notices are to be addressed by giving the other parties notice in the manner set forth above.
20. Entire Agreement. This Agreement sets forth all the agreements, promises, warranties, representations, understandings and promises between the parties hereto, and the parties are not bound by any agreements, undertakings or conditions except as expressly set forth herein. All additions, variations or modifications to this Agreement shall be void and ineffective unless in writing and signed by the parties.
21. Successors and Assigns; Assignment. This Agree
ment shall extend to, be binding upon, and inure to the benefit of the heirs, executors, administrators and successors of the parties hereto. Buyer shall have the right to assign this Agreement, or any of its rights, duties or obligations hereunder to a related party, entity or affiliate with three (3) days advance written notice provided to Seller.
22. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the state of Iowa.
23. Due Diligence. For a period from the Effective Date until October 25, 2010 (the “Due Diligence Period”), Buyer shall with reasonable prior notice to Seller have the right to enter upon, go in, on or over the Property for the purpose of conducting building surveys, inspections, soil tests, core drillings, environmental testing and other examinations thereof as Buyer may desire. Seller has the right, but is not obligated, to be present at the Property at all times during any inspections, examinations and other tests conducted by Buyer pursuant to this Agreement. Seller shall designate a person who shall be notified by phone prior to entry on the Property by Buyer or its agents. Buyer shall repair any and all damage by reason of any such testing and shall indemnify and save Seller harmless from any liability in conj
unction therewith. During this Due Diligence Period, Buyer shall obtain (i) approval of all state, county, government or quasi-governmental incentives required, and (ii) an acceptable Phase I Environmental Report. In the event Buyer is not satisfied with the results of its inspection of the Property for any reason whatsoever, or the required incentives are not approved, Buyer in its sole discretion may before the end of this Due Diligence Period terminate this Agreement by giving Seller written notification of such election and the Deposit and all accrued interest shall be returned to the Buyer and this Agreement shall become null and void and of no force and effect and all copies of this Agreement shall be returned to Seller for cancellation. If Buyer does not give Seller such notice within such period, all conditions herein shall be deemed to be, and shall be, waived, the Deposit will become non-refundable and the Seller and Buyer shall proceed to Settlement as set forth in this Agreement.
To the extent any of the following documents or items exist and are in Seller's or Seller's agent's possession or control and have not already been delivered to Buyer, Seller shall deliver original or legible copies of the following documents to Buyer within ten (10) business days following the Effective Date.
1.Current leases, management, maintenance and service agreements and contracts relating to the Propert
y but not related to Seller's retained property.
2.Copies of real estate tax bills for the current and prior two (2) tax years, including information regarding any proposed reassessments or appeals relating to the Property.
3.A list of any personal property or chattel currently used in the maintenance and operat
ion of the Property which shall be included in the sale (including furniture, fixtures and equipment).
4.Copies of all certificates of insurance evidencing All Risk Property Insurance and General Liability Insurance pertaining to the Property and chattel.
5.Documentation concerning any actual, pending or, to the
best of Seller's knowledge, threatened litigation against the Property or Seller (relating to the Property and/or its ownership).
6.Documentation concerning written violations cited against the Property (whether or not corrected), from the federal, state, county or local regulatory authorities within the last three (3) years.
7.Copies of all Certificates of Occupancy (or their equivalent) issued for the Property, plus copies of any other permits or certificates that have been issued relative to the operation or use of the Property in Seller's or Seller's agent's possession.
8.Copies of any “as built” and “as existing” plans and specificatio
ns for the Property.
IN WITNESS WHEREOF, the individual parties hereto have hereunto duly set their hands and seals, and the corporate parties hereto have caused these presents to be duly executed and their corporate seal to be duly attached by their proper officers thereunto duly authorized, the day and year first above written.
SELLER:
WINNEBAGO INDUSTRIES
Witness: /s/ Kathy Bonjour By: /s/ Raymond M. Beebe
Title: Vice President, General Counsel and Secretary
Date: August 25, 2010
BUYER:
CGS TIRES US, INC.
Witness: /s/ Oldrich Slemr By: /s/ Tomas Nemec
Title: Vice President
Date: August 30, 2010
EXHIBIT “A-1”
Lot
1, Block 2, except the North 35.00 feet, in Southwest Development Park Second Subdivision to Charles City, Floyd County, Iowa, containing 5.24 acres subject to any easements of record.
TOGETHER WITH:
That part of Lot 5 in Southwest Development Park First Subdivision to Charles City, Iowa described as follows: Beginning at the Southeast Corner of said Lot 5; thence S89°43'00”W, 478.66 feet (recorded as West, 478.56 feet) along the Southerly line of said Lot 5 to the Southwest Corner of said Lot 5; thence N00°25'44”W, 340.08 feet (r
ecorded as N00°09'06”W) along the Westerly line of said Lot 5; thence N89°51'53”E, 479.54 feet to a point on said Easterly line; thence S00°16'52”E, 338.84 feet (recorded as North) along said Easterly line to the Point of Beginning, containing 3.73 acres subject to any easements of record.
TOGETHER WITH:
That part of vacated Corporate Drive in Southwest Development Park First Subdivision to Charles City, Iowa described as follows: Beginning at the Southwest Corner of Lot 6 in said Southwest Development Part First Subdivis
ion; thence N00°17'00”W, 73.51 feet (recorded as North) along the Westerly line of said Lot 6; thence S89°51'53”W, 66.00 feet to a point on the Easterly line of Lot 5 in said Southwest Development Park First Subdivision, said point being 203.68 feet Northerly, measured along said Easterly line, from the Southeast Corner of said Lot 5; thence S00°17'00”E, 203.68 feet along said Easterly line to said Southeast Corner; thence N89°43'00”E, 66.00 feet along the Easterly extension of the Southerly line of said Lot 5 to a point on the Westerly line of Lot 1, Block 2, in Southwest Development Park Second Subdivision to Charles City, Iowa; thence N00°17'00”W, 130.00 feet (recorded as North) along said Westerly line to the Point of Beginning, containing 0.31 acre subject to any easements of record.
TOGETHER WITH:
All of Lots One (1) and Two (2), and Lot Three (3) except the South Four Hundred Sixty feet (460”) thereof, all in Block One (1); and Lot Two (2), Block Two (2), all in the Southwest Development Park Second Subdivision to Charles City, Floyd County, Iowa.
TOGETHER WITH:
That part of Corporate Drive adjacent to Lots One (1), Two (2) and Three (3), in Block One (1) and Lots One (1) and Two (2), Block Two (2) of Southwest Development Park Second Subdivision to Charles City, Floyd County, Iowa.
EXHIBIT “A-2”
WebFilings | EDGAR view
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements on Form S-8 (N
os. 333-31595, No. 333-47123, and No. 333-113246) and on Form S-3 (No. 333-165541) of our reports dated October 26, 2010, relating to the financial statements of Winnebago Industries, Inc. (the “Company”) and the effectiveness of the Company’s internal control over financial reporting, appearing in the Annual Report on Form 10-K of Winnebago Industries, Inc. for the year ended August 28, 2010.
|
/s/ DELOITTE & TOUCHE LLP |
|
Minneapolis, Minnesota |
October 26, 2010 |
WebFilings | EDGAR view
Exhibit 31.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Olson certify that:
| |
1. | I have reviewed this Annual Report on Form 10-K of Winnebago Industries, Inc. (the "Reg
istrant"); |
| |
2. | Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; |
| |
3. | Based on my knowledge, the financial statements and other financial information included in this Annual Report fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Annual Report; |
;
| |
4. | The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registrant and have: |
| |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the Registrant is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; |
| |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
c. | evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; |
| |
d. | disclosed in this Annual Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in this case) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; |
| |
5. | The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's Board of Directors (or persons performing the equivalent functions): |
| |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and |
| |
b. | any fraud, whether or not material, that involved management or other employees who have a significant role in the Registrant's internal control over financial reporting. |
| | | | |
Date: | October 26, 2010 | | By: | /s/ Robert J. Olson |
| | | | Robert J. Olson |
| | | | Chairman of the Board, |
| | | | Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Sarah N. Nielsen certify that:
| |
1. | I have reviewed this Annual Report o
n Form 10-K of Winnebago Industries, Inc. (the "Registrant"); |
| |
2. | Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with res
pect to the period covered by this Annual Report; |
| |
3. | Based on my knowledge, the financial statements and other financial information included in this Annual Report fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in thi
s Annual Report; |
| |
4. | The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registra
nt and have: |
| |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the Registrant is made known to us by others within those entities, particularly during the period in which this Annual Report
is being prepared; |
| |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for extern
al purposes in accordance with generally accepted accounting principles; |
| |
c. | evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period cov
ered by this Annual Report based on such evaluation; |
| |
d. | disclosed in this Annual Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in this case) that has materially affected,
or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; |
| |
5. | The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's Boa
rd of Directors (or persons performing the equivalent functions): |
| |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial informati
on; and |
| |
b. | any fraud, whether or not material, that involved management or other employees who have a significant role in the Registrant's internal control over financial reporting. |
| | | | |
Date: | October 26, 2010 | | By: | /s/ Sarah N. Nielsen |
|
; | | | Sarah N. Nielsen |
| | | | Vice President, Chief Financial Officer |
55<
/div>
WebFilings | EDGAR view
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with this Annual Report on Form 10-K of Winnebago Industries, Inc. for the year ended August 28, 2010, I, Robert J. Olson certify that pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| |
a. | This Annual Report on Form 10-K (“periodic report”) of Winnebago Industries, Inc. (the “issuer”), for the fiscal year ended August 28, 2010 as filed with the Securities and Exchange Commission on the date of this certificate, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and |
| |
b. | the information contained in this periodic report fairly represents, in all material respects, the financial condition and results of operations of the issuer. |
<
td width="8%"> | | | |
Date: | October 26, 2010 | | By: | /s/ Robert J. Olson |
| | | | Robert J. Olson |
| | | | Chairman of the Board, |
| | | | Chief Executive Officer and President |
WebFilings | EDGAR view
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with this Annual Report on Form 10-K of Winnebago Industries, Inc. for the year ended August 28, 2010, I, Sarah N. Nielsen certify that pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| |
a. | This Annual Report on Form 10-K (“periodic report”) of Winnebago Industries, Inc. (the “issuer”), for the fiscal year ended August 28, 2010 as filed with the Securities and Exchange Commission on the date of this certificate, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and |
| |
b. | the information contained in this periodic report fairly represents, in all material respects, the financial condition and results of operations of the issuer. |
| | | | |
Date: | October 26, 2010 | | B
y: | /s/ Sarah N. Nielsen |
| | | | Sarah N. Nielsen |
| | | | Vice President, Chief Financial Officer |
