SEC Filing - Winnebago Industries

View:

wgo-20210227

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 27, 2021


	or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _________________ to _________________

	Commission File Number:	001-06403

https://cdn.kscope.io/eaef14ea92296437743d4b01cc81a2a3-wgo-20210227_g1.jpg

WINNEBAGO INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Iowa

42-0802678

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

P. O. Box 152

Forest City

Iowa

50436

(Address of principal executive offices)

(Zip Code)

641-

585-3535

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.50 par value per share	WGO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated filer ☐

Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock, par value $0.50 per share, outstanding on March 18, 2021 was 33,600,159.

Winnebago Industries, Inc.

Table of Contents


PART I.	FINANCIAL INFORMATION.	3
Item 1.	Condensed Consolidated Financial Statements.	3
	Condensed Consolidated Statements of Income and Comprehensive Income	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Changes in Stockholders' Equity	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	33
Item 4.	Controls and Procedures.	33

PART II.	OTHER INFORMATION.	34
Item 1.	Legal Proceedings.	34
Item 1A.	Risk Factors.	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	34
Item 6.	Exhibits.	35

SIGNATURES		36

Table of Contents

PART I. FINANCIAL INFORMATION.

Item 1. Condensed Consolidated Financial Statements.

Winnebago Industries, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)


	Three Months Ended				Six Months Ended
(in thousands, except per share data)	February 27, 2021		February 29, 2020		February 27, 2021		February 29, 2020
Net revenues	$	839,886	$	626,810	$	1,633,017	$	1,215,268
Cost of goods sold	683,304		547,028		1,339,431		1,056,873
Gross profit	156,582		79,782		293,586		158,395
Selling, general, and administrative expenses	53,016		42,164		101,415		93,269
Amortization of intangible assets	3,591		7,974		7,181		11,588
Total operating expenses	56,607		50,138		108,596		104,857
Operating income	99,975		29,644		184,990		53,538
Interest expense	10,052		8,651		19,993		14,700
Non-operating income	(311)		(270)		(217)		(386)
Income before income taxes	90,234		21,263		165,214		39,224
Provision for income taxes	21,166		3,995		38,723		7,888
Net income	$	69,068	$	17,268	$	126,491	$	31,336

Income per common share:
Basic	$	2.06	$	0.51	$	3.77	$	0.95
Diluted	$	2.04	$	0.51	$	3.74	$	0.95

Weighted average common shares outstanding:
Basic	33,533		33,614		33,571		32,840
Diluted	33,910		33,918		33,821		33,143

Net income	$	69,068	$	17,268	$	126,491	$	31,336
Other comprehensive income (loss):
Amortization of net actuarial loss (net of tax of $3, $3, $6, and $5)	8		8		17		16
Interest rate swap activity (net of tax of $—, $—, $—, and $22)	—		—		—		(68)
Total other comprehensive income (loss)	8		8		17		(52)
Comprehensive income	$	69,076	$	17,276	$	126,508	$	31,284

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

Winnebago Industries, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except per share data)	February 27, 2021		August 29, 2020
Assets
Current assets:
Cash and cash equivalents	$	333,015	$	292,575
Receivables, less allowance for doubtful accounts ($301 and $353, respectively)	232,349		220,798
Inventories, net	278,468		182,941
Prepaid expenses and other assets	21,146		17,296
Total current assets	864,978		713,610
Property, plant, and equipment, net	173,609		174,945
Other assets:
Goodwill	348,058		348,058
Other intangible assets, net	397,587		404,768
Investment in life insurance	28,301		27,838
Operating lease assets	27,833		29,463
Other assets	15,429		15,018
Total assets	$	1,855,795	$	1,713,700

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	144,604	$	132,490
Income taxes payable	—		8,840
Accrued expenses:
Accrued compensation	47,086		36,533
Product warranties	76,040		64,031
Self-insurance	17,469		17,437
Promotional	11,719		12,543
Accrued interest	4,260		4,652
Other	19,825		23,864
Total current liabilities	321,003		300,390
Non-current liabilities:
Long-term debt, less current maturities	520,284		512,630
Deferred income taxes	16,528		15,608
Unrecognized tax benefits	6,207		6,511
Operating lease liabilities	25,942		27,048
Deferred compensation benefits, net of current portion	10,521		11,130
Other	12,946		12,917
Total non-current liabilities	592,428		585,844
Contingent liabilities and commitments (Note 10)
Stockholders' equity:
Preferred stock, par value $0.01: Authorized-10,000 shares; Issued-zero	—		—
Common stock, par value $0.50: Authorized-120,000 shares; Issued-51,776 shares	25,888		25,888
Additional paid-in capital	209,727		203,791
Retained earnings	1,032,020		913,610
Accumulated other comprehensive loss	(509)		(526)
Treasury stock, at cost: 18,225 and 18,133 shares, respectively	(324,762)		(315,297)
Total stockholders' equity	942,364		827,466
Total liabilities and stockholders' equity	$	1,855,795	$	1,713,700

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

Winnebago Industries, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended
(in thousands)	February 27, 2021		February 29, 2020
Operating activities:
Net income	$	126,491	$	31,336
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	8,559		7,720
Amortization of intangible assets	7,181		11,588
Non-cash interest expense, net	6,769		4,182
Amortization of debt issuance costs	1,229		1,457
Last-in, first-out expense	552		664
Stock-based compensation	6,981		3,640
Deferred income taxes	914		576
Other, net	(3,460)		252
Change in assets and liabilities:
Receivables	(11,547)		11,734
Inventories	(96,079)		45,275
Prepaid expenses and other assets	2,321		(4,081)
Accounts payable	12,487		4,688
Income taxes and unrecognized tax benefits	(10,698)		(966)
Accrued expenses and other liabilities	15,222		1,099
Net cash provided by operating activities	66,922		119,164

Investing activities:
Purchases of property and equipment	(14,920)		(19,057)
Acquisition of business, net of cash acquired	—		(264,280)
Proceeds from sale of property and equipment	7,778		—
Other, net	(223)		179
Net cash used in investing activities	(7,365)		(283,158)

Financing activities:
Borrowings on long-term debt	1,647,764		1,412,294
Repayments on long-term debt	(1,647,764)		(1,115,044)
Purchase of convertible bond hedge	—		(70,800)
Proceeds from issuance of warrants	—		42,210
Payments of cash dividends	(8,075)		(7,174)
Payments for repurchases of common stock	(12,109)		—
Payments of debt issuance costs	(224)		(10,761)
Other, net	1,291		(1,223)
Net cash (used in) provided by financing activities	(19,117)		249,502

Net increase in cash and cash equivalents	40,440		85,508
Cash and cash equivalents at beginning of period	292,575		37,431
Cash and cash equivalents at end of period	$	333,015	$	122,939

Table of Contents


Supplemental cash flow disclosure:
Income taxes paid, net	$	47,804	$	7,652
Interest paid	$	12,244	$	9,938

Non-cash transactions:
Issuance of Winnebago common stock for acquisition of business	$	—	$	92,572
Capital expenditures in accounts payable	$	195	$	118

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

Winnebago Industries, Inc.

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)


	Three Months Ended February 27, 2021
(in thousands, except per share data)	Common Shares			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Stockholders' Equity
	Number	Amount								Number	Amount
Balances at November 28, 2020	51,776	$	25,888	$	204,551	$	966,945	$	(517)	(18,275)	$	(325,309)	$	871,558
Stock-based compensation, net of forfeitures	—	—		4,622		—		—		1	5		4,627
Issuance of stock, net	—	—		554		—		—		58	1,045		1,599
Repurchase of common stock	—	—		—		—		—		(9)	(503)		(503)
Common stock dividends; $0.12 per share	—	—		—		(3,993)		—		—	—		(3,993)
Actuarial loss, net of tax	—	—		—		—		8		—	—		8
Net income	—	—		—		69,068		—		—	—		69,068
Balances at February 27, 2021	51,776	$	25,888	$	209,727	$	1,032,020	$	(509)	(18,225)	$	(324,762)	$	942,364

	Six Months Ended February 27, 2021
(in thousands, except per share data)	Common Shares			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Stockholders' Equity
	Number	Amount								Number	Amount
Balances at August 29, 2020	51,776	$	25,888	$	203,791	$	913,610	$	(526)	(18,133)	$	(315,297)	$	827,466
Stock-based compensation, net of forfeitures	—	—		6,968		—		—		1	13		6,981
Issuance of stock, net	—	—		(1,032)		—		—		149	2,631		1,599
Repurchase of common stock	—	—		—		—		—		(242)	(12,109)		(12,109)
Common stock dividends; $0.24 per share	—	—		—		(8,081)		—		—	—		(8,081)
Actuarial loss, net of tax	—	—		—		—		17		—	—		17
Net income	—	—		—		126,491		—		—	—		126,491
Balances at February 27, 2021	51,776	$	25,888	$	209,727	$	1,032,020	$	(509)	(18,225)	$	(324,762)	$	942,364

	Three Months Ended February 29, 2020
(in thousands, except per share data)	Common Shares			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Stockholders' Equity
	Number	Amount								Number	Amount
Balances at November 30, 2019	51,776	$	25,888	$	198,733	$	877,469	$	(551)	(18,177)	$	(315,930)	$	785,609
Stock-based compensation, net of forfeitures	—	—		1,830		—		—		—	8		1,838
Issuance of stock, net	—	—		188		—		—		25	430		618
Repurchase of common stock	—	—		—		—		—		(1)	(74)		(74)
Common stock dividends; $0.11 per share	—	—		—		(3,743)		—		—	—		(3,743)
Actuarial loss, net of tax	—	—		—		—		8		—	—		8
Net income	—	—		—		17,268		—		—	—		17,268
Balances at February 29, 2020	51,776	$	25,888	$	200,751	$	890,994	$	(543)	(18,153)	$	(315,566)	$	801,524

Table of Contents


	Six Months Ended February 29, 2020
(in thousands, except per share data)	Common Shares			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Stockholders' Equity
	Number	Amount								Number	Amount
Balances at August 31, 2019	51,776	$	25,888	$	91,185	$	866,886	$	(491)	(20,262)	$	(351,256)	$	632,212
Stock-based compensation, net of forfeitures	—	—		3,624		—		—		—	17		3,641
Issuance of stock, net	—	—		(2,031)		—		—		153	2,649		618
Issuance of stock for acquisition	—	—		57,811		—		—		2,000	34,761		92,572
Repurchase of common stock	—	—		—		—		—		(44)	(1,737)		(1,737)
Common stock dividends; $0.22 per share	—	—		—		(7,228)		—		—	—		(7,228)
Actuarial loss, net of tax	—	—		—		—		16		—	—		16
Interest rate swap activity, net of tax	—	—		—		—		(68)		—	—		(68)
Equity component of convertible senior notes and offering costs, net of tax of $20,840	—	—		61,335		—		—		—	—		61,335
Convertible note hedge purchase, net of tax of $17,417	—	—		(53,383)		—		—		—	—		(53,383)
Warrant transactions	—	—		42,210		—		—		—	—		42,210
Net income	—	—		—		31,336		—		—	—		31,336
Balances at February 29, 2020	51,776	$	25,888	$	200,751	$	890,994	$	(543)	(18,153)	$	(315,566)	$	801,524

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

Winnebago Industries, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1: Basis of Presentation

Unless the context otherwise requires, the use of the terms "Winnebago Industries," "Winnebago", and "the Company" in these Notes to Condensed Consolidated Financial Statements refers to Winnebago Industries, Inc. and its wholly-owned subsidiaries.

In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.

Interim results are not necessarily indicative of the results to be expected for the full year. The interim Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020.

Fiscal Period

The Company follows a 52-/53-week fiscal year, ending the last Saturday in August. Fiscal 2021 and Fiscal 2020 are both a 52-week year.

Cash and cash equivalents

Cash equivalents include all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted. Accounts at each banking institution are insured by the Federal Deposit Insurance Corporation up to $250,000, while the remaining balances are uninsured.

Subsequent Events

In preparing the accompanying unaudited Condensed Consolidated Financial Statements, the Company evaluated subsequent events for potential recognition and disclosure through the date of this filing. There were no material subsequent events, except for the item noted below.

Dividend

On March 17, 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.12 per share payable on April 28, 2021 to common stockholders of record at the close of business on April 14, 2021.

CARES Act

The Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law on March 27, 2020. The Company is taking advantage of the employer payroll tax ("FICA") deferral offered by the CARES Act, which allows the Company to defer the payment of employer payroll taxes for the period from March 27, 2020 to December 31, 2020. The deferred FICA liability as of February 27, 2021 was $16.2 million and will be payable in equal installments at December 2021 and December 2022. Additionally, the Company took advantage of a tax credit granted to companies under the CARES Act who continued to pay their employees when operations were fully or partially suspended. The refundable tax credit through the end of the third quarter of Fiscal 2020, reflected in cost of goods sold and within other current assets, is approximately $4.0 million, of which $3.2 million is outstanding, and will be received in Fiscal 2021.

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Codification ("ASC") Topic 326, Financial Instruments—Credit Losses (“Topic 326”), effective August 30, 2020. The new impairment model (known as the current expected credit loss ("CECL") model) is based on expected losses rather than incurred losses. Topic 326 is applicable to financial assets measured at amortized cost, such as accounts receivable and deposits. It requires historical loss data to be adjusted to reflect changes in asset-specific considerations, current conditions and reasonable and supportable forecasts of future economic conditions. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The Company adopted Topic 326 using the modified retrospective transition approach, which involves recognizing the cumulative effect of initial adoption of Topic 326 as an adjustment to its opening retained earnings as of August 30, 2020. Therefore, comparative information prior to the adoption date has not been adjusted. As a result of adoption of Topic 326, the Company did not recognize an incremental allowance for credit losses on its accounts receivable for the first six months ended February 27, 2021. The adoption of this standard did not materially impact the Company's Condensed Consolidated Financial Statements.

Table of Contents

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of models used to account for convertible instruments, amends diluted EPS calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under the amendment, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2021 (the Company's Fiscal 2023). Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company expects to adopt the new guidance in the first quarter of Fiscal 2023. While it will change the Company's diluted EPS reporting, the extent to which the standard will have a material impact on the Company's consolidated financial statements is uncertain at this time.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company will adopt this standard when LIBOR is discontinued, and does not expect a material impact to its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740. The standard is effective for annual reporting periods beginning after December 15, 2020 (the Company's Fiscal 2022), including interim periods within those annual reporting periods. The Company expects to adopt the new guidance in the first quarter of Fiscal 2022, and does not expect a material impact to its consolidated financial statements.

Note 2: Business Segments

The Company has six operating segments: 1) Grand Design towables, 2) Winnebago towables, 3) Winnebago motorhomes, 4) Newmar motorhomes, 5) Chris-Craft marine, and 6) Winnebago specialty vehicles. The Company evaluates performance based on each operating segment's Adjusted EBITDA, as defined below, which excludes certain corporate administration expenses and non-operating income and expense.

The Company's two reportable segments include: 1) Towable (comprised of products which are not motorized and are generally towed by another vehicle as well as other related manufactured products and services), which is an aggregation of the Grand Design towables and the Winnebago towables operating segments and 2) Motorhome (comprised of products that include a motorized chassis as well as other related manufactured products and services), which is an aggregation of the Winnebago motorhomes and Newmar motorhomes operating segments.

The Corporate / All Other category includes the Chris-Craft marine and Winnebago specialty vehicles operating segments as well as expenses related to certain corporate administration expenses for the oversight of the enterprise. These expenses include items such as corporate leadership and administration costs.

Identifiable assets of the reportable segments exclude general corporate assets, which principally consist of cash and cash equivalents and certain deferred tax balances. The general corporate assets are included in the Corporate / All Other category.

The Company's chief operating decision maker ("CODM") is its Chief Executive Officer. The Company's CODM relies on internal management reporting that analyzes consolidated results and each operating segment's Adjusted EBITDA. The Company's CODM has ultimate responsibility for enterprise decisions. The Company's CODM determines, in particular, resource allocation for, and monitors the performance of, the consolidated enterprise, the Towable segment, and the Motorhome segment. The operating segments' management have responsibility for operating decisions, allocating resources, and assessing performance within their respective segments. The accounting policies of both reportable segments are the same and are described in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020.

The Company evaluates the performance of its reportable segments based on Adjusted EBITDA. EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation and amortization expense, and other adjustments made in order to present comparable results from period to period. Examples of items excluded from Adjusted EBITDA include acquisition-related fair-value inventory step-up, acquisition-related costs, restructuring expenses, gain or loss on sale of property

Table of Contents

and equipment, and non-operating income. The following table shows information by reportable segment:


	Three Months Ended				Six Months Ended
(in thousands)	February 27, 2021		February 29, 2020		February 27, 2021		February 29, 2020
Net Revenues
Towable	$	439,284	$	283,463	$	894,185	$	624,713
Motorhome	382,575		325,542		704,964		551,433
Corporate / All Other	18,027		17,805		33,868		39,122
Consolidated	$	839,886	$	626,810	$	1,633,017	$	1,215,268

Adjusted EBITDA
Towable	$	62,366	$	34,746	$	125,509	$	70,531
Motorhome	50,969		14,946		81,312		24,277
Corporate / All Other	(5,370)		(4,263)		(9,563)		(7,331)
Consolidated	$	107,965	$	45,429	$	197,258	$	87,477

Capital Expenditures
Towable	$	2,714	$	5,640	$	6,851	$	9,666
Motorhome	3,268		5,372		7,271		7,612
Corporate / All Other	249		1,421		798		1,779
Consolidated	$	6,231	$	12,433	$	14,920	$	19,057


(in thousands)	February 27, 2021		August 29, 2020
Total Assets
Towable	$	723,388	$	718,253
Motorhome	694,077		600,304
Corporate / All Other	438,330		395,143
Consolidated	$	1,855,795	$	1,713,700

Reconciliation of net income to consolidated Adjusted EBITDA:


	Three Months Ended				Six Months Ended
(in thousands)	February 27, 2021		February 29, 2020		February 27, 2021		February 29, 2020
Net income	$	69,068	$	17,268	$	126,491	$	31,336
Interest expense	10,052		8,651		19,993		14,700
Provision for income taxes	21,166		3,995		38,723		7,888
Depreciation	4,399		4,134		8,559		7,720
Amortization of intangible assets	3,591		7,974		7,181		11,588
EBITDA	108,276		42,022		200,947		73,232
Acquisition-related fair-value inventory step-up	—		3,634		—		4,810
Acquisition-related costs	—		—		—		9,950
Restructuring expenses	—		43		93		(129)
Gain on sale of property and equipment	—		—		(3,565)		—
Non-operating income	(311)		(270)		(217)		(386)
Adjusted EBITDA	$	107,965	$	45,429	$	197,258	$	87,477

Table of Contents

Note 3: Investments and Fair Value Measurements

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measurement, and expands disclosure about fair value measurement. The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value 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. The Company's 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.

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 orderly 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 derived 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.

The following tables set forth by level within the fair value hierarchy the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis at February 27, 2021 and August 29, 2020 according to the valuation techniques the Company used to determine their fair values:


	Fair Value at		Fair Value Hierarchy
(in thousands)	February 27, 2021		Level 1		Level 2		Level 3
Assets that fund deferred compensation:
Domestic equity funds	$	838	$	838	$	—	$	—
International equity funds	36		36		—		—
Fixed income funds	47		47		—		—
Total assets at fair value	$	921	$	921	$	—	$	—


	Fair Value at		Fair Value Hierarchy
(in thousands)	August 29, 2020		Level 1		Level 2		Level 3
Assets that fund deferred compensation:
Domestic equity funds	$	626	$	626	$	—	$	—
International equity funds	34		34		—		—
Fixed income funds	50		50		—		—
Total assets at fair value	$	710	$	710	$	—	$	—

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Assets that fund deferred compensation

The Company's assets that fund deferred compensation are marketable equity securities measured at fair value using quoted market prices and primarily consist of equity-based mutual funds. These securities are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. These securities fund the Executive Share Option Plan and the Executive Deferred Compensation Plan. Refer to Note 11, Employee and Retiree Benefits, of the Notes to Consolidated

Table of Contents

Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020 for additional information regarding these plans.

The proportion of the assets that will fund options which expire within a year are included in Prepaid expenses and other assets in the accompanying Condensed Consolidated Balance Sheets. The remaining assets are classified as non-current and are included in Other assets.

Assets and Liabilities that are measured at Fair Value on a Nonrecurring Basis

The Company's non-financial assets, which include goodwill, intangible assets, and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, the Company must evaluate the non-financial asset for impairment. If an impairment has occurred, the asset is required to be recorded at the estimated fair value. No impairments were recorded for non-financial assets in the second quarter of Fiscal 2021 or the second quarter of Fiscal 2020.

Fair Value of Financial Instruments

The Company's financial instruments, other than those presented in the disclosures above, include cash, receivables, accounts payable, other payables, and long-term debt. The fair values of cash, receivables, accounts payable, and other payables approximated carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. See Note 8, Long-Term Debt, for information about the fair value of the Company's long-term debt.

Note 4: Inventories

Inventories consist of the following:


(in thousands)	February 27, 2021		August 29, 2020
Finished goods	$	9,184	$	17,141
Work-in-process	145,092		86,651
Raw materials	160,577		114,982
Total	314,853		218,774
Less last-in, first-out ("LIFO") reserve	36,385		35,833
Inventories, net	$	278,468	$	182,941

Inventory valuation methods consist of the following:


(in thousands)	February 27, 2021		August 29, 2020
LIFO basis	$	131,760	$	88,675
First-in, first-out basis	183,093		130,099
Total	$	314,853	$	218,774

The above value of inventories, before reduction for the LIFO reserve, approximates replacement cost at the respective dates.

Table of Contents

Note 5: Property, Plant, and Equipment

Property, plant, and equipment is stated at cost, net of accumulated depreciation, and consists of the following:


(in thousands)	February 27, 2021		August 29, 2020
Land	$	9,111	$	11,101
Buildings and building improvements	147,587		144,565
Machinery and equipment	120,106		117,370
Software	28,611		28,456
Transportation	4,938		4,913
Construction in progress	19,216		20,778
Property, plant, and equipment, gross	329,569		327,183
Less accumulated depreciation	155,960		152,238
Property, plant, and equipment, net	$	173,609	$	174,945

Depreciation expense was $4.4 million and $4.1 million during the second quarters of Fiscal 2021 and 2020, respectively; and $8.6 million and $7.7 million for the first six months of Fiscal 2021 and 2020, respectively.

Note 6: Goodwill and Intangible Assets

The changes in the carrying amount of goodwill by segment were as follows for the first six months of Fiscal 2021 and 2020, of which there were no accumulated impairment losses:


(in thousands)	Towable		Motorhome		Corporate / All Other		Total
Balances at August 31, 2019	$	244,684	$	—	$	30,247	$	274,931
Acquisition of Newmar(1)	—		73,929		—		73,929
Balances at February 29, 2020	$	244,684	$	73,929	$	30,247	$	348,860

Balances at August 29, 2020 and February 27, 2021(2)	$	244,684	$	73,127	$	30,247	$	348,058

(1) The change in Motorhome activity is related to the acquisition of Newmar Corporation, Dutch Real Estate Corp., New-Way Transport and New-Serv (collectively "Newmar") that occurred on November 8, 2019. See Note 2, Business Combinations in the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020 for additional acquisition information.

(2) There was no activity in the six months beginning August 29, 2020 and ending February 27, 2021.

Other intangible assets, net of accumulated amortization, consist of the following:


		February 27, 2021					August 29, 2020
($ in thousands)	Weighted Average Life-Years	Cost		Accumulated Amortization		Weighted Average Life-Years	Cost		Accumulated Amortization
Trade names	Indefinite	$	275,250			Indefinite	$	275,250
Dealer networks	12.1	159,581		$	39,070	12.2	159,581		$	32,487
Backlog	0.5	28,327		28,327		0.5	28,327		28,327
Non-compete agreements	4.3	6,647		4,821		4.1	6,647		4,223
Other intangible assets, gross		469,805		72,218			469,805		65,037
Less accumulated amortization		72,218					65,037
Other intangible assets, net		$	397,587				$	404,768

The weighted average remaining amortization period for intangible assets as of February 27, 2021 was approximately 10 years.

Table of Contents

Remaining estimated aggregate annual amortization expense by fiscal year is as follows:


(in thousands)	Amount
Fiscal 2021	$	7,180
Fiscal 2022	13,719
Fiscal 2023	13,526
Fiscal 2024	13,424
Fiscal 2025	13,219
Thereafter	61,269
Total amortization expense remaining	$	122,337

Note 7: Product Warranties

The Company provides certain service and warranty on its products. From time to time, the Company also voluntarily incurs costs for certain warranty-type expenses occurring after the normal warranty period to help protect the reputation of the Company's products and the goodwill of the Company's customers. Estimated costs related to product warranty are accrued at the time of sale and are based upon historical warranty and service claims experience. Adjustments are made to accruals as claim data and cost experience becomes available.

In addition to the costs associated with the contractual warranty coverage provided on products, the Company also occasionally incurs costs as a result of additional service actions not covered by warranties, including product recalls and customer satisfaction actions. Although the Company estimates and reserves for the cost of these service actions, there can be no assurance that expense levels will remain at current levels or such reserves will continue to be adequate.

Changes in the Company's product warranty liability are as follows:

Three Months Ended

Six Months Ended