10-K 1 a201910-k.htm 10-K 2019 Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended August 31, 2019; or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________________ to _______________________
Commission File Number 001‑06403
wgologo.jpg
WINNEBAGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Iowa
 
42-0802678
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
 
 
P.O. Box 152, Forest City, Iowa
 
50436
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (641) 585‑3535

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.50 par value per share
WGO
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 x    Accelerated Filer o   Non-accelerated filer o Smaller Reporting Company o Emerging Growth Company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Aggregate market value of the common stock held by non-affiliates of the registrant: $648,711,299 (19,209,362 shares at the closing price on the New York Stock Exchange of $33.77 on February 22, 2019).
Common stock outstanding on October 7, 2019: 31,630,845 shares.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to the registrant's 2019 Annual Meeting of Shareholders, scheduled to be held December 17, 2019, are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.



Winnebago Industries, Inc.
Fiscal 2019 Form 10-K
Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


WINNEBAGO INDUSTRIES, INC.
FORM 10‑K
Report for the Fiscal Year Ended August 31, 2019

Forward-Looking Information

Certain of the matters discussed in this Annual Report on Form 10-K are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. A number of factors could cause actual results to differ materially from these statements, including, but not limited to, competition and new product introductions by competitors, our ability to attract and retain qualified personnel, increases in market compensation rates, business or production disruptions, sales order cancellations, risk related to the terms of our credit agreement and compliance with debt covenants and leverage ratios, stock price volatility and share dilution, disruptions or unanticipated costs from facility expansions, availability of labor, a slowdown in the economy, low consumer confidence, the effect of global tensions, increases in interest rates, availability of credit, availability of financing for RV and marine dealers, impairment of good will, risk related to cyclicality and seasonality of our business, slower than anticipated sales of new or existing products, integration of operations relating to merger and acquisition activities generally, our plans to acquire Newmar Corporation (“Newmar”), risk that our acquisition of Newmar (the “Newmar Acquisition”) will not be completed, the possibility that the Newmar acquisition may not perform as expected or may not result in earnings growth, difficulties and expenses related to integrating Newmar into our business, possible unknown liabilities of Newmar, significant costs related to the Newmar acquisition, increased focus of management attention and resources on the Newmar Acquisition, inadequate liquidity or capital resources, inventory and distribution channel management, our ability to innovate, our reliance on large dealer organizations, significant increase in repurchase obligations, availability and price of fuel, availability of chassis and other key component parts, increased material and component costs, exposure to warranty claims, ability to protect our intellectual property, exposure to product liability claims, dependence on information systems and web applications, any unexpected expenses related to the implementation of our Enterprise Resource Planning system, risk related to data security, governmental regulation, including for climate change, risk related to anti-takeover provisions applicable to us, and other factors which may be disclosed throughout this Annual Report on Form 10-K. Although we believe that the expectations reflected in the "forward-looking statements" are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Undue reliance should not be placed on these "forward-looking statements," which speak only as of the date of this report. We undertake no obligation to publicly update or revise any "forward-looking statements," whether as a result of new information, future events, or otherwise, except as required by law or the rules of the New York Stock Exchange. We advise you, however, to consult any further disclosures made on related subjects in future quarterly reports on Form 10-Q and current reports on Form 8-K that are filed or furnished with the U.S. Securities and Exchange Commission ("SEC").


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PART I

Item 1. Business.

General

The "Company," "Winnebago Industries," "we," "our," and "us" are used interchangeably to refer to Winnebago Industries, Inc. and its wholly-owned subsidiaries, as appropriate in the context.

Winnebago Industries, Inc. is a leading U.S. manufacturer with a diversified portfolio of recreation vehicles ("RV"s) and marine products used primarily in leisure travel and outdoor recreation activities. We produce our Towable units in IN; our Motorhome units in manufacturing facilities in IA; and our marine products in FL. We distribute our RV and marine products primarily through independent dealers throughout the U.S. and Canada, who then retail the products to the end consumer. We also distribute our marine products internationally through independent dealers, who then retail the products to the end consumer.

We were incorporated under the laws of the state of Iowa on February 12, 1958, and adopted our present name on February 28, 1961.

Available Information

Our website, located at www.wgo.net, provides additional information about us. On our website, you can obtain, free of charge, this and prior year Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all of our other filings with the SEC. Our recent press releases are also available on our website. Our website also contains important information regarding our corporate governance practices. Information contained on our website is not incorporated into this Annual Report on Form 10-K.

Principal Products

We have five operating segments: 1) Grand Design towables, 2) Winnebago towables, 3) Winnebago motorhomes, 4) Chris-Craft marine, and 5) Winnebago specialty vehicles. We evaluate performance based on each operating segment's Adjusted EBITDA, as defined within Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K, which excludes certain corporate administration expenses and non-operating income and expense.

Our 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 Winnebago towables and Grand Design towables operating segments, and 2) Motorhome (comprised of products that include a motorized chassis as well as other related manufactured products and services).

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.

Towable

A towable is a non-motorized vehicle that is designed to be towed by automobiles, pickup trucks, SUVs, or vans and is used as temporary living quarters for recreational travel. The Recreation Vehicle Industry Association ("RVIA") classifies towables in four types: conventional travel trailers, fifth wheels, folding camper trailers, and truck campers. We manufacture and sell conventional travel trailers and fifth wheels under the Winnebago and Grand Design brand names, which are defined as follows:
Type
Description
Winnebago product offerings
Grand Design product offerings
Travel trailer
Towed by means of a hitch attached to the frame of the vehicle
Minnie Plus, Minnie, Micro Minnie, Minnie Drop, and Spyder
Transcend, Imagine, and Reflection
Fifth wheel
Constructed with a raised forward section that is connected to the vehicle with a special fifth wheel hitch
Minnie Plus and Micro Minnie
Momentum, Reflection, and Solitude

Our travel trailer and fifth wheel towables are sold by dealers in the retail market with manufacturer's suggested retail prices ranging from approximately $20,000 to $110,000, depending on size and model, plus optional equipment and delivery charges.

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Unit sales of our towables for the last three fiscal years were as follows:
 
2019
 
2018
 
2017
Travel trailer
22,458

 
61.0
%
 
22,360

 
61.1
%
 
13,650

 
60.7
%
Fifth wheel
14,371

 
39.0
%
 
14,229

 
38.9
%
 
8,824

 
39.3
%
Total towables
36,829

 
100.0
%
 
36,589

 
100.0
%
 
22,474

 
100.0
%

Motorhome

A motorhome is a self-propelled mobile dwelling used primarily as temporary living quarters during vacation and camping trips, or to support active and mobile lifestyles. The RVIA classifies motorhomes into three types, all of which we manufacture and sell under the Winnebago brand name, which are defined as follows:
Type
Description
Winnebago products offerings
Class A
Built on a heavy truck chassis in both diesel and gas models with the ability to tow a small vehicle
Gas: Adventurer, Intent, Vista, and Sunstar
Diesel: Horizon and Forza
Class B
Built by adding taller roof and amenities to existing van, which allows for easy maneuvering
Boldt, Revel, Travato, and Era
Class C
Built on a medium truck chassis in both diesel and gas models with similar features and amenities to Class A models
View, Navion, Vita, Porto, Minnie Winnie, Spirit, Outlook, and Fuse

Our Class A, B, and C motorhomes are sold by dealers in the retail market with manufacturer's suggested retail prices ranging from approximately $80,000 to $500,000, depending on size and model, plus optional equipment and delivery charges. Our motorhomes range in length from 21 to 44 feet.

Unit sales of our motorhomes for the last three fiscal years were as follows:
 
2019
 
2018
 
2017
Class A
1,582

 
20.8
%
 
2,997

 
31.4
%
 
3,182

 
34.4
%
Class B
2,784

 
36.7
%
 
2,012

 
21.1
%
 
1,541

 
16.6
%
Class C
3,225

 
42.5
%
 
4,539

 
47.5
%
 
4,537

 
49.0
%
Total motorhomes
7,591

 
100.0
%
 
9,548

 
100.0
%
 
9,260

 
100.0
%

Motorhome parts and service activities represent revenues generated by service work we perform for retail customers at our Forest City, IA facilities as well as revenues from the sale of unit parts. Our competitive strategy is to provide proprietary manufactured parts through our dealer network, which we believe increases customer satisfaction and the value of our motorhomes.

Chris-Craft

On June 4, 2018, we acquired 100% of the ownership interests of Chris-Craft USA, Inc. ("Chris-Craft"), a privately-owned company based in Sarasota, Florida. As a result of this acquisition, we manufacture and sell premium quality boats in the recreational powerboat industry through an established global network of independent authorized dealers.

Winnebago Specialty Vehicles

We also manufacture other specialty commercial vehicles primarily custom designed for the buyer's specific needs and requirements, such as law enforcement command centers, mobile medical clinics, and mobile office space. These specialty commercial vehicles are manufactured in Forest City, Iowa and sold through our dealer network. In addition, we also provide commercial vehicles as bare shells to third-party upfitters for conversion at their facilities.

Production

We generally produce towables and motorhomes to stock for dealers. We have some ability to increase our capacity by scheduling overtime and/or hiring additional production employees or to decrease our capacity through the use of shortened work weeks and/or reducing head count. We have long been known as an industry leader in innovation as each year we introduce new or redesigned products. These changes generally include new floor plans and sizes as well as design and decor modifications. Most of our raw materials such as steel, aluminum, fiberglass, and wood products are obtainable from numerous sources.

Our towables are produced at two assembly campuses located in Middlebury, IN. The majority of components are comprised of frames, appliances, and furniture, and are purchased from suppliers. In Fiscal 2019, we had one supplier that accounted for more than 10% of our Towable raw material purchases.

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Our motorhomes are produced in the state of IA at four different campuses. Our motorhome business utilizes vertically integrated supply streams, with the principal exceptions being chassis, engines, generators, and appliances that we purchase from reputable manufacturers. Certain parts, especially motorhome chassis, are available from a small group of suppliers. In Fiscal 2019, we had three suppliers that each individually accounted for more than 10% of our Motorhome raw material purchases.

Backlog

We strive to balance timely order fulfillment to our dealers with the lead times suppliers require to efficiently source materials and manage costs. Production facility constraints at peak periods also lead to fluctuations in backlog orders which we manage closely. The approximate revenue of our Towable backlog was $234.3 million and $244.9 million as of August 31, 2019 and August 25, 2018, respectively. The approximate revenue of our Motorhome backlog was $165.4 million and $157.6 million as of August 31, 2019 and August 25, 2018, respectively. A more detailed description of our Motorhome and Towable order backlog is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.

Distribution and Financing

We market our products on a wholesale basis to a diversified independent dealer network located throughout the U.S. and, to a limited extent, in Canada, Africa, Asia, Europe, Australia, and South America. Foreign sales were 10% or less of Net revenues during each of the past three fiscal years.

As of August 31, 2019, our RV and marine dealer network in the U.S. and Canada included approximately 600 physical dealer locations, many of which carry more than one of our brands. None of our dealer organizations accounted for more than 10% of our Net revenues for Fiscal 2019, 2018, and 2017.

We have sales and service agreements with dealers which are subject to annual review. Many of the dealers are also engaged in other areas of business, including the sale of automobiles, trailers, or boats, and most dealers carry one or more competitive lines of RVs. We continue to place high emphasis on the capability of our dealers to provide complete service for our products. Dealers are obligated to provide full service for owners of our products or, in lieu thereof, to secure such service from other authorized providers.

We advertise and promote our products through national trade magazines, the distribution of product brochures, the Go RVing national advertising campaign sponsored by RVIA, our websites, social media, direct-mail advertising campaigns, various national promotional opportunities, and on a local basis through trade shows, television, radio, and newspapers, primarily in connection with area dealers.

Sales to dealers are made on cash terms. Most dealers are financed on a "floorplan" basis under which a bank or finance company lends the dealer all, or substantially all, of the purchase price, collateralized by a security interest in the merchandise purchased. As is customary in our industries, we typically enter into a repurchase agreement with a lending institution financing a dealer's purchase of our product upon the lending institution's request and after completion of a credit check of the dealer involved. Our repurchase agreements provide that, for up to 18 months after an RV unit is financed and up to 24 months after a marine unit is financed, in the event of default by the dealer on the agreement to pay the lending institution and repossession of the unit(s) by the lending institution, we will repurchase the financed merchandise from the lender at the amount then due, which is often less than dealer invoice. Our maximum exposure for repurchases varies significantly from time to time, depending upon the level of dealer inventory, general economic conditions, demand for our products, dealer location, and access to and the cost of financing. See Note 11Contingent Liabilities and Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Competition

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

Seasonality

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


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Governmental Regulations

We are subject to a variety of federal, state, local, and, to a limited extent, international laws and regulations, including the federal Motor Vehicle Act ("MVA"), under which the National Highway Traffic Safety Administration ("NHTSA") may require manufacturers to recall RVs that contain safety-related defects, and numerous state consumer protection laws and regulations relating to the operation of motor vehicles, including so-called "Lemon Laws." The Boat Safety Act of 1971 has similar safety-related recall requirements for marine units. In addition, marine units sold in the U.S. and Europe must meet the certification standards of the U.S. Coast Guard and the European Community, respectively.

We are also subject to regulations established by the Occupational Safety and Health Administration ("OSHA"). Our facilities are periodically inspected by federal and state agencies, such as OSHA. We are a member of RVIA, a voluntary association of RV manufacturers which promulgates RV safety standards. We place an RVIA seal on each of our RVs to certify that the RVIA standards have been met. We believe that our products and facilities comply in all material respects with the applicable vehicle safety, consumer protection, RVIA, and OSHA regulations and standards.

Our operations are subject to a variety of federal and state environmental laws and regulations relating to the use, generation, storage, treatment, emission, labeling, and disposal of hazardous materials and wastes, and noise pollution. We believe that we are currently in compliance with applicable environmental laws and regulations in all material aspects.

Trademarks

We have several domestic and foreign trademark registrations and pending applications associated with our products which include: Winnebago, 3-finger Salute (design), 24 W 7 (logo), +Lounger, Adventurer, Affinity, Airlie, Aspect, Benchmark, Brave, Boldt, Bound by the W, Bryon, Cambria, CC (logo), Chalet, Chris Craft, Chris-Craft (logo), Commander, Corsair, Cottesloe, Country Coach, Destination, Dynomax, Ellipse, eMLU, Era, Forza, Fuse, Glide & Dine, GoWinnebago, Grand Design, Grand Design Recreational Vehicles, Grand Design RV, Horizon, Imagine, InLounge, Inspire, Instinct, Intable, Intent, Intrigue, Itasca, Itasca (logo), Journey, Lancer, Latitude, Maxum Chassis, Meridian, Micro Minnie, Minnie, Minnie Drop, Minnie Winnie, MLU, Momentum, Navion, Outlook, Paseo, Porto Powerline Energy Management System (logo), Pure3 Energy Management System, Reflection, Rest Easy, Revel, Roamer, Scorpion, Sightseer, Solei, Solitude, Spirit, Spyder, Suncruiser, Sunova, Sunstar, Supershell, The Most Recognized Name in Motorhomes, Thermo-Panel, Transcend, Transcend Xplor, Travato, Trend, Tribute, True Air, True Trax, Via, View, Vista, Vita, Viva!, Voyage, W, Flying W (logo), Winnebago (logo), Winnebago Ind (logo), Winnebago Minnie, Winnebago Touring Coach, Winnebago Towables (logo), WinnebagoLife, WinnebagoLife (logo), Winnie Drop, WIT Club, and Design of motor home front end (trade dress).

We believe that our trademarks and trade names are significant assets to our business, and we have in the past and will in the future vigorously protect them against infringement by third parties. We are not dependent upon any patents or technology licenses of others for the conduct of our business.           

Human Resources

At the end of Fiscal 2019, 2018, and 2017, we employed approximately 4,500, 4,700, and 4,060 persons, respectively. None of our employees are covered under a collective bargaining agreement. We believe our relations with our employees are good.

Item 1A. Risk Factors.

Described below are certain risks that we believe apply to our business and the industry in which we operate. The following risk factors should be considered carefully in addition to the other information contained in this Annual Report on Form 10-K. The risks and uncertainties highlighted represent the most significant risk factors that we believe may adversely affect our business, financial condition, results of operations, cash flows, liquidity or access to sources of financing, and, consequently, the market value of our common stock. The risks and uncertainties discussed in this report are not exclusive and other risk factors that we may consider immaterial or do not anticipate may emerge as significant risks and uncertainties.

The industry in which we operate is highly competitive. Failure to compete effectively against competitors could negatively impact our business and operating results.

The markets for RVs and marine products are very competitive. Competitive factors in the industry include price, design, value, quality, service, brand awareness, and reputation. There can be no assurance that existing or new competitors will not develop products that are superior to our products or that achieve better consumer acceptance, thereby adversely affecting our market share, sales volume, and profit margins. Some of our competitors are much larger than we are, and this size advantage provides these competitors with more financial resources and access to capital, additional purchasing power, and greater leverage with the dealer networks. In addition, competition could increase if new companies enter the market, existing competitors consolidate their operations, or if existing competitors expand their product lines or intensify efforts within existing product lines. Our current products, products under development, and our ability to develop new and improved products may be insufficient to enable us to compete effectively with our competitors. These competitive pressures may have a material adverse effect on our results of operations.

7



If we fail to identify, attract, and retain appropriately qualified employees, including employees in key positions, our operations and profitability may be harmed. Changes in market compensation rates may adversely affect our profitability.

Our ability to meet our strategic objectives and otherwise grow our business will depend to a significant extent on the continued contributions of our leadership team. Our future success will also depend in large part on our ability to identify, attract, and retain other highly qualified managerial, technical, sales and marketing, operations, and customer service personnel. Competition for these individuals in our manufacturing markets is intense and supply is limited. Since we operate in a competitive labor market, there is a risk that market increases in compensation could have an adverse effect on our business. We may not succeed in identifying, attracting, or retaining qualified personnel on a cost-effective basis. The loss or interruption of services of any of our key personnel, inability to identify, attract, or retain qualified personnel in the future, delays in hiring qualified personnel, or any employee work slowdowns, strikes, or similar actions could make it difficult for us to conduct and manage our business and meet key objectives, which could harm our business, financial condition, and operating results.

Our operations are primarily centered in northern IA and northern IN. Any disruption at these sites could adversely affect our business and operating results.

We currently manufacture most of our products in northern IA and northern IN. These facilities may be affected by natural or man-made disasters and other external events. In the event that one of our manufacturing facilities was affected by a disaster or other event, we could be forced to shift production to one of our other manufacturing facilities or to cease operations. Although we maintain insurance for damage to our property and disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses. Any disruption in our manufacturing capacity could have an adverse impact on our ability to produce sufficient inventory of our products or may require us to incur additional expenses in order to produce sufficient inventory, and therefore, may adversely affect our net sales and operating results. Any disruption or delay at our manufacturing facilities could impair our ability to meet the demands of our customers, and our customers may cancel orders or purchase products from our competitors, which could adversely affect our business and operating results.

The terms of our Credit Agreement could adversely affect our operating flexibility and pose risks of default under our Credit Agreement.

We incurred substantial indebtedness to finance the acquisition of Grand Design. We entered into new asset-based revolving credit ("ABL") and term loan ("Term Loan") agreements (collectively, the "Credit Agreement") with JPMorgan Chase Bank, N.A. ("JPMorgan Chase"), as administrative agent for certain lenders and the lenders from time to time party thereto. Under the terms of the Credit Agreement, we had a $165.0 million ABL credit facility, including a $10.0 million letter of credit facility, and a $300.0 million term loan as of August 31, 2019. On October 22, 2019, our ABL credit facility was amended and restated to increase the commitments thereunder to $192.5 million, which includes a $19.25 million letter of credit facility, and to extend the maturity to October 22, 2024 (subject to certain factors which may accelerate the maturity date). In addition to JPMorgan Chase, BMO Harris Bank N.A. and Goldman Sachs Bank USA are also committing lenders under the ABL credit facility.

The Credit Agreement is secured by substantially all of our assets, including cash, inventory, accounts receivable, and certain machinery and equipment. The Credit Agreement contains certain requirements, including affirmative and negative financial covenants. If we are unable to comply with these requirements and covenants, we may be restricted in our ability to pay dividends or engage in certain other business transactions, the lender may obtain control of our cash accounts, and we may experience an event of default. If a default occurs, the lenders under the Credit Agreement may elect to declare all of their respective outstanding debt, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. Under such circumstances, we may not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed on our ability to incur additional debt and to take other corporate actions might significantly impair our ability to obtain other financing.
 
Borrowing availability under the ABL credit facility is limited to the lesser of the facility total and the calculated borrowing base, which is based on stipulated loan percentages applied to our eligible trade accounts receivable and eligible inventories. Should the borrowing base decline, our ability to borrow to fund future operations and business transactions could be limited.

In addition, the Credit Agreement contains certain restrictions on our ability to undertake certain types of transactions.  Therefore, we may need to seek permission from our lenders in order to engage in certain corporate actions and any additional indebtedness that we may incur, including any indebtedness needed to fund the acquisition of Newmar Corporation ("Newmar"), will need to comply with the terms of the Credit Agreement and will have its own restrictions on our ability to undertake certain types of transactions.

In addition, our indebtedness could:
Make us more vulnerable to general adverse economic, regulatory, and industry conditions;
Limit our flexibility in planning for, or reacting to, changes and opportunities in the markets in which we compete;
Place us at a competitive disadvantage compared to our competitors that have less debt or could require us to dedicate a substantial portion of our cash flow to service our debt; and
Restrict us from making strategic acquisitions or exploiting other business opportunities.

8



Various factors, including share dilution, changes to credit terms, and our ability to meet financial performance expectations, could result in a decline in our stock price.

Our stock price may fluctuate based on many factors.  Our acquisition of Grand Design, for example, provided important strategic positioning and earnings growth potential, but to partially finance the transaction we issued $124.1 million worth of common stock to the owners of Grand Design and registered these shares for resale after the transaction closed. Under the terms of our agreement to acquire Newmar, we will issue 2.0 million shares of our common stock to the owners of Newmar at closing of the transaction. Any future stock issuance by us or liquidation of stock holding by the former owners of Grand Design or the owners or Newmar may cause dilution of earnings per share or put selling pressure on our share price. Changing credit agreements and leverage ratios may also impact stock price. In general, analysts' expectations and our ability to meet those expectations quarterly may cause stock price fluctuations. If we fail to meet expectations related to future growth, profitability, debt repayment, dividends, share issuance or repurchase, or other market expectations, our stock price may decline significantly.

Our current facility expansions may not provide the results that were planned, which could negatively impact our production and operating results at these locations.

We are expanding our production capabilities within our Towable segment and our Chris-Craft operating segment. The expansions and renovations entail risks that could cause disruption in the operations of our business and unanticipated cost increases. Should we experience production variances, quality, or safety issues as we ramp up these operations, our business and operating results could be adversely affected.

We could be impacted by the potential adverse effects of union activities.

Although none of our employees are currently represented by a labor union, unionization could result in higher employee costs and increased risk of work stoppages. We are, directly or indirectly, dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition, or operating results. If a work stoppage occurs, it could delay the manufacture and sale of our products and have a material adverse effect on our business, prospects, operating results, or financial condition.

Our business may be sensitive to economic conditions, including those that impact consumer spending.

Companies within the RV and marine industries are subject to volatility in operating results due primarily to general economic conditions because the purchase of a RV or marine product is often viewed as a consumer discretionary purchase. Demand for discretionary goods in general can fluctuate with recessionary conditions, slow or negative economic growth rates, negative consumer confidence, reduced consumer spending levels resulting from tax increases or other factors, prolonged high unemployment rates, higher commodity and component costs, fuel prices, inflationary or deflationary pressures, reduced credit availability or unfavorable credit terms for dealers and end-user customers, higher short-term interest rates, and general economic and political conditions and expectations. Specific factors affecting the RV and marine industries include:

Overall consumer confidence and the level of discretionary consumer spending;
Employment trends;
The adverse impact of global tensions on consumer spending and travel-related activities; and
The adverse impact on margins due to increases in raw material costs, which we are unable to pass on to customers without negatively affecting sales.

An impairment in the carrying value of goodwill and trade names could negatively impact our consolidated results of operations.

Goodwill and indefinite-lived intangible assets, such as our trade names, are recorded at fair value at the time of acquisition and are not amortized but are reviewed for impairment at least annually or more frequently if impairment indicators arise. Our determination of whether goodwill impairment has occurred is based on a comparison of each of our reporting units’ fair value with its carrying value. Significant and unanticipated changes in circumstances, such as significant and long-term adverse changes in business climate, unanticipated competition, and/or changes in technology or markets, could require a provision for impairment in a future period that could negatively impact our results of operations.

Credit market deterioration and volatility may restrict the ability of our dealers and retail customers to finance the purchase of our products.

Our business is affected by the availability and terms of the financing to dealers. Generally, RV and marine dealers finance their purchases of inventory with financing provided by lending institutions. One financial flooring institution held 36.8% of our total financed dealer inventory dollars that were outstanding at August 31, 2019. In the event that this lending institution limits or discontinues dealer financing, we could experience a material adverse effect on our results of operations.


9


Our business is also affected by the availability and terms of financing to retail purchasers. Retail buyers purchasing one of our products may elect to finance their purchase through the dealership or a financial institution of their choice. Substantial increases in interest rates or decreases in the general availability of credit for our dealers or for the retail purchaser may have an adverse impact upon our business and results of operations.

Our business is both cyclical and seasonal and is subject to fluctuations in sales and net income.

The RV and marine industries have been characterized by cycles of growth and contraction in consumer demand, reflecting prevailing economic and demographic conditions, which affect disposable income for leisure-time activities. Consequently, the results for any prior period may not be indicative of results for any future period.

Seasonal factors, over which we have no control, also have an effect on the demand for our products. Demand in the RV and marine industries generally declines over the winter season, while sales are generally highest during the spring and summer months. Also, unusually severe weather conditions in some markets may impact demand.

Failure to effectively manage strategic acquisitions and alliances, joint ventures, or partnerships could have a negative impact on our business.

One of our growth strategies is to drive growth through targeted acquisitions and alliances, stronger customer relations, and new joint ventures and partnerships that contribute profitable growth while supplementing our existing brands and product portfolio. In September 2019, we entered into a definitive agreement to acquire Newmar (the "Newmar Acquisition"), a leading manufacturer of Class A and Super C motorized RVs, which is expected to close in early Fiscal 2020. Our ability to grow through acquisitions depends, in part, on the availability of suitable candidates at acceptable prices, terms, and conditions, our ability to compete effectively for acquisition candidates, and the availability of capital and personnel to complete such acquisitions and run the acquired business effectively. Any acquisition, alliance, joint venture, or partnership could impair our business, financial condition, reputation, and operating results. The benefits of an acquisition, including the pending Newmar Acquisition, or new alliance, joint venture, or partnership may take more time than expected to develop or integrate into our operations, and we cannot guarantee that previous or future acquisitions, alliances, joint ventures, or partnerships will, in fact, produce any benefits. Such acquisitions, alliances, joint ventures, and partnerships may involve a number of risks, including:

Diversion of management’s attention;
Disruption to our existing operations and plans;
Inability to effectively manage our expanded operations;
Difficulties or delays in integrating and assimilating information and financial systems, operations, and products of an acquired business or other business venture or in realizing projected efficiencies, growth prospects, cost savings, and synergies;
Inability to successfully integrate or develop a distribution channel for acquired product lines;
Potential loss of key employees, customers, distributors, or dealers of the acquired businesses or adverse effects on existing business relationships with suppliers, customers, distributors, and dealers;
Adverse impact on overall profitability, if our expanded operations do not achieve the financial results projected in our valuation model;
Inaccurate assessment of additional post-acquisition or business venture investments, undisclosed, contingent or other liabilities or problems, unanticipated costs associated with an acquisition or other business venture, and an inability to recover or manage such liabilities and costs; and
Incorrect estimates made in the accounting for acquisitions, occurrence of non-recurring charges, and write-off of significant amounts of goodwill or other assets that could adversely affect our operating results.

For further information on the risks of the Newmar Acquisition, see “Risk Factors-Risks Related to the Newmar Acquisition.”

If we are unable to properly forecast future demand of our products, our production levels may not meet demands, which could negatively impact our operating results.

Our ability to manage our inventory levels to meet our customer's demand for our products is important for our business. For example, certain dealers are focused on the rental market which spikes over the summer vacation period while other dealers are focused on direct sales to the consumer at various price points. Our production levels and inventory management are based on demand estimates six to twelve months forward taking into account supply lead times, production capacity, timing of shipments, and dealer inventory levels. If we overestimate or underestimate demand for any of our products during a given season, we may not maintain appropriate inventory levels, which could negatively impact our net sales or working capital, hinder our ability to meet customer demand, or cause us to incur excess and obsolete inventory charges.

Unanticipated changes to our distribution channel customers' inventory levels could negatively impact our operating results.

We sell many of our products through distribution channels and are subject to risks relating to their inventory management decisions and operational and sourcing practices. Our distribution channel customers carry inventories of our products as part of

10


their ongoing operations and adjust those inventories based on their assessments of future needs. Such adjustments may impact our inventory management and working capital goals as well as operating results. If the inventory levels of our distribution channel customers are higher than they desire, they may postpone product purchases from us, which could cause our sales to be lower than the end-user demand for our products and negatively impact our inventory management and working capital goals as well as our operating results.

If we are unable to continue to enhance existing products and develop and market new or enhanced products that respond to customer needs and preferences, we may experience a decrease in demand for our products and our business could suffer.

One of our growth strategies is to develop innovative, customer-valued products to generate revenue growth. We may not be able to compete as effectively with our competitors, and ultimately satisfy the needs and preferences of our customers, unless we can continue to enhance existing products and develop new innovative products for the markets in which we compete. Product development requires significant financial, technological, and other resources. Product improvements and new product introductions also require significant research, planning, design, development, engineering, and testing at the technological, product, and manufacturing process levels, and we may not be able to timely develop and introduce product improvements or new products. Our competitors' new products may beat our products to market, be higher quality or more reliable, be more effective with more features and/or less expensive than our products, obtain better market acceptance, or render our products obsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs, and research and development.

The loss of a large dealer organization could have a significant impact on our business.

While none of our dealer organizations accounted for more than 10% of our Net revenues for Fiscal 2019, 2018, and 2017, the loss of a major dealer or multiple dealers could have a significant adverse effect on our business. In addition, deterioration in the liquidity or creditworthiness of a major dealer or multiple dealers could negatively impact our sales and could trigger repurchase obligations under our repurchase agreements.

If we are obligated to repurchase a substantially larger number of our products in the future than estimated due to dealer default, these purchases could result in adverse effects on our results of operations, financial condition, and cash flows.

In accordance with customary practice in our industries, upon request we enter into formal repurchase agreements with lending institutions financing a dealer's purchase of our products. In these repurchase agreements we agree, in the event of a default by an independent dealer in its obligation to a lender and repossession of the unit(s) by the lending institution, to repurchase units at declining prices over the term of the agreements, which can last up to 24 months. The difference between the gross repurchase price and the price at which the repurchased product can then be resold, which is typically at a discount to the gross repurchase price, represents a potential expense to us. In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary terminations. If we are obligated to repurchase a substantially larger number of units in the future than we estimate, this would increase our costs and could have a material adverse effect on our results of operations, financial condition, and cash flows.

For some of the components used in production, we depend on a small group of suppliers and the loss of any of these suppliers could affect our ability to obtain components timely or at competitive prices, which would decrease our results of operations, financial condition, and cash flows.

Most of our RV and marine components are readily available from numerous sources. However, a few of our components are produced by a small group of suppliers. In the case of Motorhome chassis, Mercedes-Benz (USA and Canada), Ford Motor Company, and Chrysler of Forest City Inc. are our major suppliers. Our relationship with our chassis suppliers is similar to our other supplier relationships in that no specific contractual commitments are engaged in by either party. This means that we do not have minimum purchase requirements, and our chassis suppliers do not have minimum supply requirements. Our chassis suppliers also supply to our competitors. Historically, chassis suppliers resort to an industry-wide allocation system during periods when supply is restricted. These allocations have been based on the volume of chassis previously purchased, which could mean our larger competitors could receive more chassis in a time of scarcity. Sales of motorhomes rely on chassis supply and are affected by shortages from time to time. Decisions by our suppliers to decrease production, production delays or work stoppages by the employees of such suppliers, or price increases could have a material adverse effect on our ability to produce motorhomes and ultimately, on our results of operations, financial condition, and cash flows. In Fiscal 2019, none of our manufacturers individually accounted for more than 10% of our consolidated raw material purchases.

Increases in raw material, commodity, and transportation costs and shortages of certain raw materials could negatively impact our business.

We purchase raw materials such as steel, aluminum, and other commodities, and components, such as chassis, refrigerators, and televisions, for use in our products. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, copper, lead, rubber, and others that are integrated into our end products. Our profitability is affected by

11


significant fluctuations in the prices of the raw materials and the components and parts we use in our products. Additionally, the current political landscape has introduced significant uncertainty with respect to future trade regulations and existing international trade agreements. The U.S. has initiated tariffs on certain foreign goods, including raw materials, commodities, and products manufactured outside the U.S. that are used in our manufacturing processes, which has increased our cost of goods sold. In response, certain foreign governments have imposed tariffs on certain U.S. goods, and are considering imposing additional tariffs on other U.S. goods, including goods that we sell internationally. The tariffs imposed to date and the possibility of additional retaliatory trade actions stemming from these tariffs could continue to increase our cost of goods sold, both directly and as a result of price increases implemented by domestic suppliers, which we may not be able to pass on to our customers. The impact from these tariffs could also result in decreased demand for our products. All of these could materially and adversely affect our results of operations and financial condition.

In addition, increases in other costs of doing business may also adversely affect our profit margins and businesses. For example, an increase in fuel costs may result in an increase in our transportation costs, which also could adversely affect our operating results and businesses. Historically, we have mitigated cost increases, in part, by collaborating with suppliers, reviewing alternative sourcing options, substituting materials, engaging in internal cost reduction efforts, and increasing prices on some of our products, all as appropriate. However, we may not be able to fully offset such increased costs in the future. Further, if our price increases are not accepted by our customers and the market, our net sales, profit margins, earnings, and market share could be adversely affected.

Significant product repair and/or replacement costs due to product warranty claims and product recalls could have a material adverse impact on our results of operations, financial condition, and cash flows.

We receive warranty claims from our dealers in the ordinary course of our business. Although we maintain reserves for such claims, which to date have been adequate, there can be no assurance that warranty expense levels will remain at current levels or that such reserves will continue to be adequate. A significant increase in warranty claims exceeding our current warranty expense levels could have a material adverse effect on our results of operations, financial condition, and cash flows.

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

Our continued success is dependent on positive perceptions of our brands which, if impaired, could adversely affect our results of operations or financial condition.

We believe that one of the strengths of our business is our brands, which are widely known around the world. We vigorously defend our brands and our other intellectual property rights against third parties on a global basis. We have, from time to time, had to bring claims against third parties to protect or prevent unauthorized use of our brand. If we are unable to protect and defend our brands or other intellectual property, it could have a material adverse effect on our results of operations or financial condition.

If the frequency and size of product liability and other claims against us increase, our reputation and business may be harmed.

We are subject, in the ordinary course of business, to litigation including a variety of warranty, "Lemon Law," and product liability claims typical in the RV and marine industries. Although we have an insurance policy with a $50.0 million limit covering product liability, we are self-insured for the first $1.0 million of product liability claims on a per occurrence basis, with a $2.0 million aggregate per policy year. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us, which may have a material adverse effect on our results of operations and financial condition. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premium that we are required to pay for insurance to rise significantly. Product liability claims may also cause us to pay punitive damages, not all of which are covered by our insurance. In addition, if product liability claims rise to a level of frequency or size that are significantly higher than similar claims made against our competitors, our reputation and business may be harmed.

We may be subject to information technology system failures, network disruptions, and breaches in data security that could adversely affect our business. In addition, the benefits of our new enterprise resource planning system may not be realized, or we may incur unanticipated costs or delays, which may result in decreased sales, increased overhead costs, excess or obsolete inventory, and product shortages, causing our business, reputation, financial condition, and operating results to suffer.

We rely on our information systems and web applications to support our business operations, including but not limited to procurement, supply chain, manufacturing, distribution, warranty administration, invoicing, and collection of payments. We use information systems to report and audit our operational results. Additionally, we rely upon information systems in our sales, marketing, human resources, and communication efforts. Due to our reliance on our information systems, our business processes may be negatively impacted in the event of substantial disruption of service. Further, misuse, leakage, or falsification of information could result in a violation of privacy laws and damage our reputation which could, in turn, have a negative impact on our results.

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In addition to our general reliance on information systems, we began implementation of a new enterprise resource planning system at the end of Fiscal 2015. Though we perform planning and testing to reduce risks associated with such a complex, enterprise-wide systems change, failure to meet requirements of the business could disrupt our business and harm our reputation, which may result in decreased sales, increased overhead costs, excess or obsolete inventory, and product shortages, causing our business, reputation, financial condition, and operating results to suffer.

Failure to prevent or effectively respond to a breach of the security or privacy of our customers', clients', and suppliers' confidential information could expose us to substantial costs and reputational damage, as well as litigation and enforcement actions.

We have security systems in place with the intent of maintaining the physical security of our facilities and protecting our customers', clients', and suppliers' confidential information and information related to identifiable individuals against unauthorized access through our information systems or by other electronic transmission or through the misdirection, theft, or loss of physical media. These include, for example, the appropriate encryption of information. Despite such efforts, we are subject to breach of security systems which may result in unauthorized access to our facilities or the information we are trying to protect. Because the technologies used to obtain unauthorized access are constantly changing and becoming increasingly more sophisticated and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement sufficient preventative measures. If unauthorized parties gain physical access to one of our facilities or electronic access to our information systems or such information is misdirected, lost, or stolen during transmission or transport, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers and clients that we have not performed our contractual obligations, litigation by affected parties, and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business.

We are subject to certain government regulations that could have a material adverse impact on our business.

We are subject to numerous federal, state, and local regulations and the following summarizes some, but not all, of the laws and regulations that apply to us.

Federal Motor Vehicle Safety Standards govern the design, manufacture and sale of our RV products, which standards are promulgated by the NHTSA.  NHTSA requires manufacturers to recall and repair vehicles which are non-compliant with a Federal Motor Vehicle Safety Standard or contain safety defects. In addition, the U.S. Coast Guard maintains certification standards for the manufacture of our marine products, and the safety of recreational boats in the U.S. is subject to federal regulation under the Boat Safety Act of 1971, which requires boat manufacturers to recall products for replacement of parts or components that have demonstrated defects affecting safety. Any major recalls of our products, voluntary or involuntary, could have a material adverse effect on our results of operations, financial condition, and cash flows.  While we believe we are in compliance with the foregoing laws and regulations as they currently exist, amendments to any of these regulations or the implementation of new regulations could significantly increase the cost of testing, manufacturing, purchasing, operating, or selling our products and could have a material adverse effect on our results of operations, financial condition, and cash flows.  In addition, our failure to comply with present or future regulations could result in federal fines being imposed on us, potential civil and criminal liability, suspension of sales or production, or cessation of operations.

We are also subject to federal and numerous state consumer protection and unfair trade practice laws and regulations relating to the sale, transportation, and marketing of motor vehicles, including so-called "Lemon Laws." Federal and state laws and regulations also impose upon vehicle operators various restrictions on the weight, length, and width of motor vehicles, including motorhomes that may be operated in certain jurisdictions or on certain roadways. Certain jurisdictions also prohibit the sale of vehicles exceeding length restrictions.

Failure to comply with the New York Stock Exchange and SEC laws or regulations could also have an adverse impact on our business. Additionally, amendments to these regulations and the implementation of new regulations could increase the cost of our operations and therefore could have an adverse impact on our business.

Finally, federal and state authorities also have various environmental control standards relating to air, water, noise pollution, and hazardous waste generation and disposal that affect us and our operations. Failure by us to comply with present or future laws and regulations could result in fines being imposed on us, potential civil and criminal liability, suspension of production or operations, alterations to the manufacturing process, or costly cleanup or capital expenditures, any or all of which could have a material adverse effect on our results of operations.

Changing climate-related regulations may require us to incur additional costs in order to be in compliance.

There is growing concern from members of the scientific community and the general public that an increase in global average temperatures due to emissions of greenhouse gases ("GHG") and other human activities have or will cause significant changes in weather patterns and increase the frequency and severity of natural disasters. We are currently subject to rules limiting emissions and other climate related rules and regulations in certain jurisdictions where we operate. In addition, we may become subject to

13


additional legislation and regulation regarding climate change, and compliance with any new rules could be difficult and costly. Concerned parties, such as legislators, regulators, and non-governmental organizations, are considering ways to reduce GHG emissions. Foreign, federal, state, and local regulatory and legislative bodies have proposed various legislative and regulatory measures relating to climate change, regulating GHG emissions, and energy policies. If such legislation is enacted, we could incur increased energy, environmental, and other costs and capital expenditures to comply with the limitations. Climate change regulation combined with public sentiment could result in reduced demand for our products, higher fuel prices, or carbon taxes, all of which could materially adversely affect our business. Due to uncertainty in the regulatory and legislative processes, as well as the scope of such requirements and initiatives, we cannot currently determine the effect such legislation and regulation may have on our products and operations.

Certain provisions that we are subject to may reduce the ability of a third-party to acquire us, even if beneficial to shareholders.

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

Risks Related to the Newmar Acquisition

The Newmar Acquisition may not be consummated, and if consummated, may not perform as expected.

Completion of the Newmar Acquisition is subject to a number of risks and uncertainties, and we can provide no assurance that the various closing conditions to the acquisition agreement will be satisfied. To fund the Newmar Acquisition, we have obtained a commitment to fund a Bridge Facility, which is subject to certain conditions; however, we intend to raise the necessary funds to provide permanent financing through a combination of the issuance of equity and debt securities and new debt financing, which is subject to market conditions and other risks and uncertainties. In addition, if we are not able to raise gross proceeds in the amounts contemplated or at all, we may draw funds under the Bridge Facility. The timing, amounts, and terms of any such issuance will depend on market conditions and other factors, and our financing plans may change. There can be no assurance that we will be able to raise the necessary funds on terms we consider favorable, or at all. The inability to complete the Newmar Acquisition, or to obtain permanent financing on terms that are favorable, or at all, could have a material adverse effect on our results of operations, financial condition and prospects.

The Newmar Acquisition is also subject to other risks and uncertainties, including: (1) the risk that the Newmar Acquisition may not be completed, or completed within the expected timeframe; (2) costs relating to the Newmar Acquisition (including in respect
of the financing transactions described above) may be greater than expected; and (3) the possibility that the closing conditions in the acquisition agreement will not be satisfied in a timely manner or at all. If the Newmar Acquisition does not close, we may be required to pay a termination fee of $5.0 million. We cannot assure you that the Newmar business will perform as expected, that integration or other one-time costs will not be greater than expected, that we will not incur unforeseen obligations or liabilities, or that the rate of return from such businesses will justify our decision to invest capital to acquire them.

We may experience difficulties in integrating the operations of Newmar into our business and in realizing the expected benefits of the Newmar Acquisition.

The success of the proposed acquisition of Newmar, if completed, will depend in part on our ability to realize the anticipated business opportunities from combining the operations of Newmar with our business in an efficient and effective manner. The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures, and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the Newmar Acquisition, and could harm our financial performance. If we are unable to successfully or timely integrate the operations of Newmar with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies, and other anticipated benefits resulting from the Newmar Acquisition, and our business, results of operations, and financial condition could be materially and adversely affected.

The Newmar Acquisition also involves risks associated with acquisitions and integrating acquired assets into existing operations which could have a material adverse effect on our business, financial condition, results of operations, and cash flows, including, among others:

failure to implement our business plan for the combined business;
unanticipated issues in integrating equipment, logistics, information, communications, and other systems;
possible inconsistencies in standards, controls, contracts, procedures, and policies;
impacts of change in control provisions in contracts and agreements;
failure to retain key customers and suppliers;
unanticipated changes in applicable laws and regulations;

14


failure to recruit and retain key employees to operate the combined business;
increased competition within the industries in which Newmar operates;
difficulties in managing the expanded operations of a significantly larger and more complex combined company;
inherent operating risks in the business;
unanticipated issues, expenses, and liabilities;
additional reporting requirements pursuant to applicable rules and regulations;
additional requirements relating to internal control over financial reporting;
diversion of our senior management’s attention from the management of daily operations to the integration of the assets acquired in the acquisition of Newmar;
significant unknown and contingent liabilities we incur for which we have limited or no contractual remedies or insurance coverage;
the assets to be acquired failing to perform as well as we anticipate; and
unexpected costs, delays, and challenges arising from integrating the assets acquired in the Newmar Acquisition
into our existing operations.

Even if we successfully integrate the assets acquired in the Newmar Acquisition into our operations, it may not be possible to realize the full benefits we anticipate or we may not realize these benefits within the expected time frame. If we fail to realize the benefits we anticipate from the Newmar Acquisition, our business, results of operations, and financial condition may be adversely affected.

Newmar may have liabilities that are not known, probable, or estimable at this time.

As a result of the Newmar Acquisition, Newmar will become our subsidiary and it will remain subject to all of its liabilities. There could be unasserted claims or assessments that we failed or were unable to discover or identify in the course of performing due diligence investigations of Newmar. In addition, there may be liabilities that are neither probable nor estimable at this time that may become probable or estimable in the future. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial results.

Additionally, Newmar is subject to various rules, regulations, laws, and other legal requirements, enforced by governments or other public authorities. Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by any of Newmar’s directors, officers, employees, or agents could have a significant impact on Newmar’s business and reputation and could subject Newmar to fines and penalties and criminal, civil, and administrative legal sanctions, resulting in reduced revenues and profits.

We will incur significant transaction costs and merger-related integration costs in connection with the Newmar Acquisition.

We will incur significant costs in connection with the Newmar Acquisition. The substantial majority of these costs will be non-recurring expenses related to the acquisition. In addition, we may incur additional costs in the integration of Newmar's business and may not achieve cost synergies and other benefits sufficient to offset the incremental costs of the Newmar Acquisition.

The Newmar Acquisition may significantly increase our goodwill and other intangible assets.

We have a significant amount, and following the Newmar Acquisition we expect to have an additional amount, of goodwill and other intangible assets on our consolidated financial statements that are subject to impairment based upon future adverse changes in our business or prospects. The impairment of any goodwill and other intangible assets may have a negative impact on our consolidated results of operations.

The Newmar Acquisition may not achieve its intended results, including anticipated investment opportunities and earnings growth.

Although we expect the Newmar Acquisition to result in various benefits, we cannot assure you regarding when or the extent to which we will be able to realize these or other benefits. Achieving the anticipated benefits, is subject to a number of uncertainties, including whether the businesses acquired can be operated in the manner we intend and whether our costs to finance the Newmar Acquisition will be consistent with our expectations. Events outside of our control, including but not limited to regulatory changes or developments, could also adversely affect our ability to realize the anticipated benefits from the Newmar Acquisition. Thus, the integration of Newmar may be unpredictable, subject to delays, or changed circumstances, and we cannot assure you that Newmar will perform in accordance with our expectations or that our expectations with respect to the Newmar Acquisition will be achieved. While we expect the Newmar Acquisition to be accretive in the first year following the Newmar Acquisition, excluding transaction-related amortization and one-time costs, we cannot assure you that the Newmar Acquisition will be accretive to the extent we anticipate or at all. In addition, we cannot assure you that the Acquisition will result in higher operating or EBITDA margins, less cyclicality in our business, greater cash flow predictability, or that the Newmar Acquisition will lead to the return on invested capital currently anticipated. We cannot assure you that we will be able to drive further operating improvements to Newmar’s business, improve or expand Newmar’s operating or EBITDA margins, or be able to grow Newmar’s business, revenues, or profitability.

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Integrating Newmar’s business into our business may divert management’s attention away from operations, and we may also encounter significant difficulties in integrating the two businesses.

The Newmar Acquisition involve, among other things, the integration into our business platform of Newmar. The success
of the Newmar Acquisition and its anticipated financial and operational benefits, including increased revenues, synergies,
and cost savings, will depend in part on our ability to successfully combine and integrate Newmar’s business into ours, and there can be no assurance regarding when or the extent to which we will be able to realize these increased revenues, synergies, cost savings, or other benefits. These benefits may not be achieved within the anticipated time frame, or at all.

Successful integration of Newmar’s operations, products and personnel may place a significant burden on management and other internal resources. The diversion of management’s attention, and any difficulties encountered in the transition and integration process, could harm our business, financial condition, and results of operations.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal manufacturing, maintenance, and service operations are conducted in multi-building complexes owned or leased by us. The following sets forth our material facilities as of August 31, 2019:
Location
Facility Type/Use
 
Reportable Segment
 
# of
Buildings
 
Owned or
Leased
 
Square
Footage
Charles City, IA
Manufacturing
 
Motorhome
 
2

 
Owned
 
161,000

Forest City, IA
Manufacturing, warehouse, maintenance, service, and office
 
Motorhome
 
35

 
Owned
 
2,005,000

Forest City, IA
Warehouse
 
Motorhome
 
1

 
Leased
 
1,000

Lake Mills, IA
Manufacturing
 
Motorhome
 
1

 
Owned
 
99,000

Waverly, IA
Manufacturing
 
Motorhome
 
1

 
Owned
 
33,000

Junction City, OR
Manufacturing, service, and office
 
Motorhome
 
10

 
Owned
 
305,000

Middlebury, IN
Manufacturing and office
 
Towable
 
6

 
Owned
 
449,000

Middlebury, IN
Manufacturing, service, and office
 
Towable
 
9

 
Leased
 
995,000

Bristol, IN
Manufacturing and maintenance
 
Towable
 
1

 
Leased
 
50,000

Sarasota, FL
Manufacturing, warehouse, and office
 
Corporate / All Other
 
3

 
Owned
 
136,000

Eden Prairie, MN
Office
 
Corporate / All Other
 
1

 
Leased
 
30,000

 
 
 
 
 
70

 
 
 
4,264,000

Refer to Note 11, Contingent Liabilities and Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information on our leases.

Most of our buildings are of steel or steel and concrete construction and are protected from fire with high‑pressure sprinkler systems, dust collector systems, automatic fire doors, and alarm systems. We believe that our facilities and equipment are well maintained and suitable for the purposes for which they are intended.

Under terms of our Credit Agreement, we have encumbered substantially all of our real property for the benefit of the lenders under those facilities. For additional information, see Note 9Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Item 3. Legal Proceedings.

For a description of our legal proceedings, see Note 11Contingent Liabilities and Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Item 4. Mine Safety Disclosure.

Not Applicable.


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Information about our Executive Officers
Name
Office (Year First Elected an Officer)
Age
Michael J. Happe
President and Chief Executive Officer (2016)
48
Ashis N. Bhattacharya
Vice President, Business Development, Specialty Vehicles, and Advanced Technology (2016)
56
Stacy L. Bogart
Vice President, General Counsel and Secretary (2018)
55
Donald J. Clark
President of Grand Design RV; Vice President of Winnebago Industries (2016)
59
S. Scott Degnan
Vice President and General Manager, Towables Business (2012)
54
Brian D. Hazelton
Vice President and General Manager, Motorhome Business (2016)
53
Bryan L. Hughes
Vice President, Chief Financial Officer (2017)
50
Jeff D. Kubacki
Vice President, Information Technology, Chief Information Officer (2016)
61
Christopher D. West
Vice President, Operations (2016)
47
Bret A. Woodson
Vice President, Administration (2015)
49

Officers are elected annually by the Board of Directors and hold office until their successors are chosen and qualify or until their death or resignation. There are no family relationships between or among any of the Executive Officers or Directors of the Company.

Mr. Happe joined Winnebago Industries in January 2016 as President and Chief Executive Officer. Prior to joining Winnebago, he had been employed by The Toro Company, a provider of outdoor maintenance and beautification products, from 1997 to 2016. He served as Executive Officer and Group Vice President of Toro's Residential and Contractor businesses from March 2012 to December 2015. From August 2010 to March 2012, he served as Vice President, Residential and Landscape Contractor Businesses. Prior to that, he held a series of senior leadership positions throughout his career across a variety of Toro's domestic and international divisions.

Mr. Bhattacharya joined Winnebago Industries in May 2016 as Vice President, Strategic Planning and Development. He became Vice President, Business Development, Specialty Vehicles, and Advanced Technology in 2019. Prior to joining Winnebago, Mr. Bhattacharya served at Honeywell International, Inc., a software industrial company, as Vice President, Strategy, Alliances & Internet of Things for the Sensing and Productivity Solutions division from 2010 to 2016. Prior to that, he was employed with Moog, Motorola, and Bain & Company in a variety of roles.

Ms. Stacy Bogart joined Winnebago Industries in January 2018 as Vice President, General Counsel and Secretary. Prior to joining Winnebago Industries, Ms. Bogart was Senior Vice President, General Counsel and Compliance Officer, Corporate Secretary at Polaris Industries Inc., a manufacturer and marketer of powersports products, where she joined in November 2009. Previously, Ms. Bogart was General Counsel of Liberty Diversified International; Assistant General Counsel and Assistant Secretary at The Toro Company; and a Senior Attorney for Honeywell International, Inc.

Mr. Clark, President of Grand Design RV and Vice President of Winnebago Industries, became an officer of Winnebago Industries in November 2016 in accordance with terms of the Grand Design acquisition. He co-founded Grand Design RV, LLC in 2012 and built the team at Grand Design RV. Mr. Clark has over 30 years of successful RV industry experience.

Mr. Degnan joined Winnebago Industries in May 2012 as Vice President of Sales and Product Management. He became Vice President and General Manager, Towables Business in 2016. Prior to joining Winnebago, Mr. Degnan served as Vice President of Sales for Riverside, California's MVP RV from 2010 to 2012. He also previously served in management and sales positions with Coachmen RV from 2008 to 2010, with National RV from 2007 to 2008, and Fleetwood Enterprises from 1987 to 2007.

Mr. Hazelton joined Winnebago Industries in August 2016 as Vice President and General Manager, Motorhome Business. He previously was CEO of Schwing America, Inc., a manufacturer of concrete pumps and truck mixers, from 2009 to 2016. Prior to his employment with Schwing, he worked for Terex Corporation and Detroit Diesel Corporation in various executive roles.

Mr. Hughes joined Winnebago Industries in April 2017 and was appointed Vice President, Chief Financial Officer of the Company in May 2017. Mr. Hughes joined Winnebago Industries from Ecolab, Inc., a water technologies and services company, where he served as Senior Vice President and Corporate Controller from 2014 to 2017, as Vice President of Finance from 2008 to 2014 and in various management positions from 1996 to 2008. Prior to his employment with Ecolab, Inc., he worked for Ernst & Young, a public accounting firm.

Mr. Kubacki joined Winnebago Industries in November 2016 as Vice President, Information Technology, Chief Information Officer. He previously was Vice President and Chief Information Officer at Westinghouse Electric Company, a global provider of nuclear power plant products and services, in 2016. Prior to his employment with Westinghouse, he worked as Chief Information Officer at Alliant Techsystems, a defense, aerospace, sporting goods, and retail markets company, from 2010 to 2015, and at Kroll, a global risk consulting firm, from 2007 to 2010. He also held various IT roles with Ecolab, Inc.


17


Mr. West joined Winnebago Industries in September 2016 as Vice President, Operations. He previously was Vice President of Global Supply Chain for Joy Global, a worldwide equipment manufacturer, from 2014 to 2016, and Operations Director from 2012 to 2014. Mr. West served as Director of Manufacturing for AGCO Corporation, an agricultural equipment manufacturer, from 2008 to 2012 and as Director of Operations and in other management positions for the Nordam Group, a manufacturer of aircraft interiors, from 1999 to 2009.

Mr. Woodson joined Winnebago Industries in January 2015 as Vice President, Administration. Prior to joining Winnebago, Mr. Woodson was Vice President of Human Resources at Corbion N.V., a food and biochemicals company, from 2007 to 2014 and Director, Human Resources at Sara Lee Corporation from 1999 to 2007. Mr. Woodson has over 24 years of business and human resources experience.


18


PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Market Information

Our common stock is listed on the New York Stock Exchange with the ticker symbol of WGO.

Holders

Shareholders of record as of October 7, 2019: 2,445

Dividends Paid Per Share

On August 14, 2019, our Board of Directors declared a quarterly cash dividend of $0.11 per share, totaling $3.5 million, paid on September 25, 2019 to common stockholders of record at the close of business on September 11, 2019. The Board currently intends to continue to pay quarterly cash dividends payments in the future; however, declaration of future dividends, if any, will be based on several factors including our financial performance, outlook, and liquidity.

Our Credit Agreement, as further described in Note 9Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, contains restrictions that may limit our ability to pay dividends, if we fail to maintain certain financial covenants.   

Issuer Purchases of Equity Securities

Our Credit Agreement contains restrictions that may limit our ability to make distributions or payments with respect to purchases of our common stock without consent of the lenders, except for limited purchases of our common stock from employees, in the event of a significant reduction in our EBITDA or in the event of a significant borrowing on our ABL credit facility. See additional information on our ABL in Note 9, Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

On October 18, 2017, our Board of Directors authorized a share repurchase program in the amount of $70.0 million. There is no time restriction on the authorization. During Fiscal 2019, we repurchased 0.2 million shares of our common stock at a cost of $6.1 million. An additional 0.1 million shares of our common stock at a cost of $2.1 million were repurchased to satisfy tax obligations on employee equity awards as they vested. We continually evaluate if share repurchases reflect a prudent use of our capital and, subject to compliance with our Credit Agreement, we may purchase shares in the future. At August 31, 2019, we have $58.9 million remaining on our board repurchase authorization.

Purchases of our common stock during each fiscal month of the fourth quarter of Fiscal 2019 were:
 
Total Number of Shares Purchased(1)
 
Average Price Paid per Share
 
Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2)(3)
05/26/19 - 06/29/19
13,285

 
$
32.71

 
12,273

 
$
58,870,000

06/30/19 - 07/27/19

 
$

 

 
$
58,870,000

07/28/19 - 08/31/19
409

 
$
32.25

 

 
$
58,870,000

Total
13,694

 
$
32.69

 
12,273

 
$
58,870,000

(1)
Shares not purchased as part of a publicly announced program were repurchased from employees who vested in Company shares and elected to pay their payroll tax via the value of shares delivered as opposed to cash.
(2)
Pursuant to a $70.0 million share repurchase program authorized by our Board of Directors on October 18, 2017. There is no time restriction on the authorization.
(3)
Adjustment in dollar amount remaining available for repurchase from prior quarter reflects correction in counting share repurchases against authorization.


19


Equity Compensation Plan Information

The following table provides information as of August 31, 2019 with respect to shares of our common stock that may be issued under our existing equity compensation plans:
 
(a)
 
(b)
 
(c)

Plan Category
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
 Warrants and Rights
 
Weighted Average
Exercise Price of
Outstanding Options,
 Warrants and Rights(1)
 
Number of Securities
 Remaining Available for
Future Issuance Under
Equity Compensation Plans
 (Excluding Securities
 Reflected in (a))
Equity compensation plans
approved by shareholders - 2004 Plan
6,500

(2) 
 
$

 

 
Equity compensation plans
approved by shareholders - 2014 Plan
667,764

(3) 
 
$
34.43

 

 
Equity compensation plans
approved by shareholders - 2019 Plan

(4) 
 
$

 
4,101,850

(5) 
Equity compensation plans approved by shareholders - ESPP
1,820

(6) 
 
$

 
149,342

(7) 
Equity compensation plans not
approved by shareholders
(8)
35,198

(9) 
 
$

 

(10) 
Total
711,282

 
 
$
34.43

 
4,251,192

 
(1)
This number represents the weighted average exercise price of outstanding stock options only. Restricted share awards do not have an exercise price so weighted average is not applicable.
(2)
This number represents unvested share awards granted under the 2004 Plan. No new grants may be made under the 2004 Plan.
(3)
This number represents stock options and unvested stock awards granted under the 2014 Omnibus Equity, Performance Award, and Incentive Compensation Plan, as amended ("2014 Plan"). The 2014 Plan replaced the 2004 Plan effective January 1, 2014.
(4)
This number represents stock options and unvested stock awards granted under the Winnebago Industries, Inc. 2019 Omnibus Incentive Plan ("2019 Plan"), which replaced the 2014 Plan effective on December 11, 2018.
(5)
This number represents shares available for grant of awards under the 2019 Plan as of August 31, 2019.
(6)
This number represents unvested stock awards granted under the Winnebago Industries, Inc. Employee Stock Purchase Plan ("ESPP").
(7)
This number represents shares available for issuance under the ESPP as of August 31, 2019.
(8)
Our sole equity compensation plan not previously submitted to our shareholders for approval is the Directors' Deferred Compensation Plan, as amended ("Directors' Plan"). The Board of Directors may terminate the Directors' Plan at any time. If not terminated earlier, the Directors' Plan will automatically terminate on June 30, 2023. For a description of the key provisions of the Directors' Plan, see the information in our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held December 17, 2019 under the caption "Director Compensation," which information is incorporated by reference herein.
(9)
Represents shares of common stock issued to a trust which underlie stock units, payable on a one-for-one basis, credited to stock unit accounts as of August 31, 2019 under the Directors' Plan.
(10)
The table does not reflect a specific number of stock units which may be distributed pursuant to the Directors' Plan. The Directors' Plan does not limit the number of stock units issuable thereunder. The number of stock units to be distributed pursuant to the Directors' Plan will be based on the amount of the director's compensation deferred and the per share price of our common stock at the time of deferral.


20


Performance Graph

The following graph compares our five-year cumulative total shareholder return (including reinvestment of dividends) with the cumulative total return on the Standard & Poor's 500 Index and a peer group. The peer group companies consisting of Thor Industries, Inc., Polaris Industries, Inc., and Brunswick Corporation were selected by us as they also manufacture recreation products. It is assumed in the graph that $100 was invested in our common stock, in the Standard & Poor's 500 Index and in the stocks of the peer group companies on August 30, 2014 and that all dividends received within a quarter were reinvested in that quarter. In accordance with the guidelines of the SEC, the shareholder return for each entity in the peer group index has been weighted on the basis of market capitalization as of each annual measurement date set forth in the graph.

wgo2019pgchart.jpg
 
Base Period
 
 
 
 
 
 
Company/Index
August 30,
2014
 
August 29,
2015
 
August 27,
2016
 
August 26,
2017
 
August 25,
2018
 
August 31,
2019
Winnebago Industries, Inc.
100.00

 
83.98

 
100.25

 
146.84

 
159.98

 
139.15

S&P 500 Index
100.00

 
101.32

 
112.94

 
129.87

 
155.77

 
161.89

Peer Group
100.00

 
99.79

 
90.86

 
106.13

 
117.57

 
80.43

Source: Zacks Investment Research, Inc.


21


Item 6. Selected Financial Data.
(in thousands, except per share data)
 
 
 
 
 
 
 
 
 
Fiscal Year
2019
 
2018
 
2017(1)
 
2016
 
2015
Consolidated Statements of Income Data:
 
 
 
 
 
 
 
 
 
Net revenues
$
1,985,674

 
$
2,016,829

 
$
1,547,119

 
$
975,226

 
$
976,505

Net income
111,798

 
102,357

 
71,330

 
45,496

 
41,210

Income per common share:
 
 
 
 
 
 
 
 
 
Basic
3.55

 
3.24

 
2.33

 
1.69

 
1.53

Diluted
3.52

 
3.22

 
2.32

 
1.68

 
1.52

Dividends paid per common share
0.43

 
0.40

 
0.40

 
0.40

 
0.36

 
 
 
 
 
 
 
 
 
 
Year End Data:
 
 
 
 
 
 
 
 
 
Total assets
1,104,231

 
1,051,805

 
902,512

 
390,718

 
362,174

Total non-current liabilities
274,275

 
313,175

 
293,680

 
29,410

 
59,601

Note: Fiscal 2019 included 53 weeks. All other years presented included 52 weeks.

(1)
Includes Grand Design operations from the date of its acquisition on November 8, 2016.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in six sections:

Overview
Results of Operations
Analysis of Financial Condition, Liquidity, and Capital Resources
Contractual Obligations and Commercial Commitments
Critical Accounting Estimates
New Accounting Pronouncements

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

Overview

Winnebago Industries, Inc. is one of the leading U.S. manufacturers with a diversified portfolio of recreation vehicles ("RV"s) and marine products used primarily in leisure travel and outdoor recreation activities. We produce our Towable units in IN; our Motorhome units in manufacturing facilities in IA; and our marine products in FL. We distribute our RV and marine products primarily through independent dealers throughout the U.S. and Canada, who then retail the products to the end consumer. We also distribute our marine products internationally through independent dealers, who then retail the products to the end consumer.

Non-GAAP Reconciliation

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"), as well as certain adjusted or non-GAAP financial measures such as EBITDA and 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. These non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, have been provided as information supplemental and in addition to the financial measures presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein. The non-GAAP financial measures presented may differ from similar measures used by other companies.

Refer to the Results of Operations-Fiscal 2019 Compared to Fiscal 2018 and the Results of Operations-Fiscal 2018 Compared to Fiscal 2017 for a detailed reconciliation of items that impacted EBITDA and Adjusted EBITDA. We have included this non-GAAP performance measure as a comparable measure to illustrate the effect of non-recurring transactions occurring during the year and improve comparability of our results from period to period.  We believe Adjusted EBITDA provides meaningful supplemental information about our operating performance because this measure excludes amounts that we do not consider part of our core

22


operating results when assessing our performance. Examples of items excluded from Adjusted EBITDA include acquisition-related costs, restructuring expenses, and non-operating income.

Management uses these non-GAAP financial measures (a) to evaluate our historical and prospective financial performance and trends as well as our performance relative to competitors and peers; (b) to measure operational profitability on a consistent basis; (c) in presentations to the members of our board of directors to enable our board of directors to have the same measurement basis of operating performance as is used by management in its assessments of performance and in forecasting and budgeting for our company; (d) to evaluate potential acquisitions; and (e) to ensure compliance with covenants and restricted activities under the terms of our Credit Agreement, as further described in Note 9Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. We believe these non-GAAP financial measures are frequently used by securities analysts, investors, and other interested parties to evaluate companies in our industry.

Business Combinations

On June 4, 2018, we acquired 100% of the ownership interests of Chris-Craft, a privately-owned company based in Sarasota, FL. Chris-Craft manufactures and sells premium quality boats in the recreational powerboat industry through an established global network of independent authorized dealers.

On November 8, 2016, we closed on the acquisition of all the issued and outstanding capital stock of towable RV manufacturer Grand Design RV, LLC ("Grand Design") for an aggregate purchase price of $520.5 million. This acquisition was funded from our cash on hand, $353.0 million from asset-based revolving and term loan credit facilities, as well as stock consideration as is more fully described in Note 2, Business Combinations, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. We purchased Grand Design to significantly expand our existing towable RV product offerings and dealer base and acquire additional talent in the RV industry.

Subsequent to Year-end

On September 15, 2019, we entered into a definitive agreement to acquire Newmar Corporation for total consideration of approximately $344 million, based on the closing price of our stock on September 13, 2019. The consideration will consist of approximately $270.0 million in cash and a fixed amount of 2.0 million shares of our stock. Newmar is a leading manufacturer of Class A and Super C motorized recreational vehicles that sells through an established network of independent authorized dealers throughout North America.

The Purchase Agreement also provides that we may terminate the Purchase Agreement if our stock price falls below $20.00 per share, in which case we will be subject to a termination fee of $5.0 million. The acquisition is not subject to approval by our shareholders.

In connection with the execution of the Purchase Agreement, we executed a commitment letter with Goldman Sachs Bank USA, Bank of Montreal, and BMO Capital Markets Corp. (the “Commitment Letter”). As set forth in the Commitment Letter, (a) we intend to obtain up to $290.0 million in gross cash proceeds from the issuance of senior secured notes (the “Senior Notes”) and (b) if we do not, or are unable to, issue the full amount of the Senior Notes at or prior to the time of the closing of the acquisition, we plan to obtain a senior secured bridge facility in an amount up to $290.0 million minus any gross cash proceeds received by us from the issuance of any Senior Notes or other securities.

Reportable Segments

We have five operating segments: 1) Grand Design towables, 2) Winnebago towables, 3) Winnebago motorhomes, 4) Chris-Craft marine, and 5) Winnebago specialty vehicles. We evaluate performance based on each operating segment's Adjusted EBITDA, as defined above, which excludes certain corporate administration expenses and non-operating income and expense.

Our 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 Winnebago towables and Grand Design towables operating segments, and 2) Motorhome (comprised of products that include a motorized chassis as well as other related manufactured products and services).

The Corporate / All Other category includes the Winnebago specialty vehicles and Chris-Craft marine 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.

Industry Trends

Key reported statistics for the North American RV industry are as follows:
Wholesale unit shipments: RV product delivered to the dealers, which is reported monthly by the Recreation Vehicle Industry Association ("RVIA")

23


Retail unit registrations: consumer purchases of RVs from dealers, which is reported by Stat Surveys

We track RV Industry conditions using these key statistics to monitor trends and evaluate and understand our performance relative to the overall industry. The following is an analysis of changes in these key statistics for the rolling 12 months through August as of 2019 and 2018:
 
US and Canada Industry
 
Wholesale Unit Shipments per RVIA
 
Retail Unit Registrations per Stat Surveys
 
Rolling 12 Months through August
 
Rolling 12 Months through August
 
2019
 
2018
 
Unit Change
 
% Change
 
2019
 
2018
 
Unit Change
 
% Change
Towable(1)
355,598

 
443,791

 
(88,193
)
 
(19.9
)%
 
395,181

 
421,013

 
(25,832
)
 
(6.1
)%
Motorhome(2)
48,605

 
62,095

 
(13,490
)
 
(21.7
)%
 
52,416

 
59,204

 
(6,788
)
 
(11.5
)%
Combined
404,203

 
505,886

 
(101,683
)
 
(20.1
)%
 
447,597

 
480,217

 
(32,620
)
 
(6.8
)%
(1)
Towable: Fifth wheel and travel trailer products.
(2)
Motorhome: Class A, B and C products.

The rolling twelve months shipments for 2019 and 2018 reflect a contraction in shipments as dealers rationalize inventory. The rolling twelve months retail information for 2019 and 2018 illustrates that the RV industry is growing at a slower rate than previous quarters, however ahead of wholesale shipments. We believe retail demand is the key driver to continued growth in the industry.

The most recent RVIA wholesale shipment forecasts for calendar year 2020, as noted in the table below, indicate that industry shipments are most likely expected to decline in 2020. The RV sales outlook for 2019 considers the continuation of dealer inventory realignment that has been occurring over the last 9-12 months and gradually increasing interest rates, partially offset by anticipated growth in wages and employment levels.
 
Calendar Year
Wholesale Unit Shipment Forecast per RVIA(1)
2020
Forecast
 
2019
Actual
 
Unit Change
 
% Change
Aggressive
400,900

 
401,200

 
(300
)
 
(0.1
)%
Most likely
387,400

 
401,200

 
(13,800
)
 
(3.4
)%
Conservative
368,000

 
401,200

 
(33,200
)
 
(8.3
)%
(1)
Prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Fall 2019 Industry Forecast Issue.

Market Share

Our retail unit market share, as reported by Stat Surveys based on state records, is illustrated below. Note that this data is subject to adjustment and is continuously updated.
 
Rolling 12 Months through August
 
Calendar Year
US and Canada
2019
 
2018
 
2018
 
2017
 
2016(1)
Travel trailer and fifth wheels
8.8
%
 
7.4
%
 
7.8
%
 
6.1
%
 
1.7
%
Motorhome A, B, C
15.3
%
 
15.6
%
 
15.6
%
 
16.3
%
 
18.0
%
Total market share
9.5
%
 
8.5
%
 
8.7
%
 
7.4
%
 
3.7
%
(1)
Includes retail unit market share for Grand Design since acquisition on November 8, 2016.

Facility Expansion

Due to the rapid growth in our Towable segment, we have implemented facility expansion projects in our Grand Design towables and Winnebago towables operating segments. The Grand Design towables expansion project consisted of three new production facilities--two were completed in Fiscal 2018 and the remaining is expected to be completed mid-Fiscal 2020. The facility expansion in the Winnebago towables division was completed in the third quarter of Fiscal 2019.

Enterprise Resource Planning System

In the second quarter of Fiscal 2015, our Board of Directors approved the strategic initiative of implementing an enterprise resource planning ("ERP") system to replace our legacy business applications. The new ERP platform will provide better support for our

24


changing business needs and plans for future growth. Our initial cost estimates have grown for additional needs of the business, such as the opportunity to integrate the ERP system with additional manufacturing systems. The project includes software, external implementation assistance, and increased internal staffing directly related to this initiative. We anticipate that approximately 40% of the cost will be expensed in the period incurred and 60% will be capitalized and depreciated over its useful life.

The following table illustrates the cumulative project costs:
 
 
 
 
 
 
 
 
 
 
 
Cumulative
(in thousands)
2019
 
2018
 
2017
 
2016
 
2015
 
Investment
Capitalized
$
3,875

 
$
5,941

 
$
1,881

 
$
7,798

 
$
3,291

 
$
22,786

 
57.5
%
Expensed
3,709

 
2,107

 
2,601

 
5,930

 
2,528

 
16,875

 
42.5
%
Total
$
7,584

 
$
8,048

 
$
4,482

 
$
13,728

 
$
5,819

 
$
39,661

 
100.0
%

Restructuring

On February 4, 2019, we announced our intent to move our Motorhome diesel production from Junction City, OR to Forest City, IA to enable more effective product development and improve our cost structure. These restructuring activities resulted in pretax charges of $1.9 million in Fiscal 2019. These expenses are included in our Motorhome segment and include employee-related costs and accelerated depreciation for assets that will no longer be used. Employee-related costs were primarily paid in Fiscal 2019. We expect additional expenses of approximately $1.0 million in Fiscal 2020, primarily related to facility closure costs. We expect these expenses to be fully offset by the corresponding savings generated by the project.

We currently estimate that upon completion of this restructuring plan in Fiscal 2020, these actions will reduce annual costs by approximately $4.0 million, which is primarily due to lower employee-related costs, lower depreciation expense, and other manufacturing and logistics efficiencies. We achieved a portion of these savings in Fiscal 2019. We expect a portion of these savings will be achieved in Fiscal 2020, and the full annual benefit of these actions is expected in Fiscal 2021.

Results of Operations - Fiscal 2019 Compared to Fiscal 2018

Consolidated Performance Summary

The following is an analysis of changes in key items included in the statements of operations for the fiscal year ended August 31, 2019 compared to the fiscal year ended August 25, 2018:
(in thousands, except percent and per share data)
2019
 
% of Revenues(1)
 
2018
 
% of Revenues(1)
 
$ Change
 
% Change
Net revenues
$
1,985,674

 
100.0
 %
 
$
2,016,829

 
100.0
 %
 
$
(31,155
)
 
(1.5
)%
Cost of goods sold
1,678,477

 
84.5
 %
 
1,716,993

 
85.1
 %
 
(38,516
)
 
(2.2
)%
Gross profit
307,197

 
15.5
 %
 
299,836

 
14.9
 %
 
7,361

 
2.5
 %
Selling, general, and administrative expenses ("SG&A")
142,295

 
7.2
 %
 
130,116

 
6.5
 %
 
12,179

 
9.4
 %
Amortization of intangible assets
9,635

 
0.5
 %
 
9,328

 
0.5
 %
 
307

 
3.3
 %
Total operating expenses
151,930

 
7.7
 %
 
139,444

 
6.9
 %
 
12,486

 
9.0
 %
Operating income
155,267

 
7.8
 %
 
160,392

 
8.0
 %
 
(5,125
)
 
(3.2
)%
Interest expense
17,939

 
0.9
 %
 
18,246

 
0.9
 %
 
(307
)
 
(1.7
)%
Non-operating income
(1,581
)
 
(0.1
)%
 
(494
)
 
 %
 
1,087

 
220.0
 %
Income before income taxes
138,909

 
7.0
 %
 
142,640

 
7.1
 %
 
(3,731
)
 
(2.6
)%
Provision for income taxes
27,111

 
1.4
 %
 
40,283

 
2.0
 %
 
(13,172
)
 
(32.7
)%
Net income
$
111,798

 
5.6
 %
 
$
102,357

 
5.1
 %
 
$
9,441

 
9.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
Diluted income per share
$
3.52

 
 
 
$
3.22

 
 
 
$
0.30

 
9.3
 %
Diluted average shares outstanding
31,721

 
 
 
31,814

 
 
 
(93
)
 
(0.3
)%
(1)
Percentages may not add due to rounding differences.

Net revenues decreased in Fiscal 2019 compared to Fiscal 2018 primarily due to a decrease in our Motorhome segment sales, which is partially offset by an increase in our Towable segment sales and the acquisition of Chris-Craft in the fourth quarter of Fiscal 2018.


25


Gross profit as a percentage of revenue increased in Fiscal 2019 compared to Fiscal 2018 due to a favorable mix and pricing that were partially offset by higher allowances and higher cost inputs.

Operating expenses increased in Fiscal 2019 compared to Fiscal 2018 due to the addition of the Chris-Craft business and investments in our business, partially offset by a reduction in variable compensation.

Interest expense decreased in Fiscal 2019 compared to Fiscal 2018 due to the unamortized debt issuance costs expensed in Fiscal 2018 related to our voluntary prepayment on our Credit Agreement and our Credit Agreement amendment during the second quarter of Fiscal 2018, which resulted in a decrease to the interest rate spread by 1.0% on the Term Loan and 0.25% on the ABL.

Non-operating income increased in Fiscal 2019 compared to Fiscal 2018 due to net proceeds received from company-owned life insurance policies.

The effective tax rate decreased to 19.5% in Fiscal 2019 compared to 28.2% in Fiscal 2018 primarily due to the enactment of the Tax Cuts and Jobs Act (the "Tax Act") on December 22, 2017 and $3.6 million in net favorable discrete items, primarily attributable to R&D-related tax credits, realized in the current fiscal year. The reduction related to the enactment of the Tax Act is primarily attributable to the reduction in the Federal statutory tax rate to 21% being applied to the entirety of Fiscal 2019 earnings whereas Fiscal 2018 utilized a blended rate of 25.9%.

Net income and diluted income per share increased in Fiscal 2019 compared to Fiscal 2018 primarily due to a lower effective tax rate and increased Towable segment sales, partially offset by a decrease in our Motorhome segment profitability.

Non-GAAP Reconciliation

The following table reconciles net income to consolidated EBITDA and Adjusted EBITDA for Fiscal 2019 and 2018:
(in thousands)
2019
 
2018
Net income
$
111,798

 
$
102,357

Interest expense
17,939

 
18,246

Provision for income taxes
27,111

 
40,283

Depreciation
13,682

 
9,849

Amortization of intangible assets
9,635

 
9,328

EBITDA
180,165

 
180,063

Restructuring(1)
1,068

 

Acquisition-related costs

 
2,177

Non-operating income
(1,581
)
 
(494
)
Adjusted EBITDA
$
179,652

 
$
181,746

(1)
Balance excludes depreciation expense classified as restructuring as the balance is already included in the EBITDA calculation.

26


Reportable Segment Performance Summary

Towable

The following is an analysis of key changes in our Towable segment for Fiscal 2019 and 2018:
(in thousands, except ASP)
2019
 
% of Revenues
 
2018
 
% of Revenues
 
$ Change
 
% Change
Net revenues
$
1,197,327

 
 
 
$
1,127,723

 
 
 
$
69,604

 
6.2
 %
Adjusted EBITDA
163,677

 
13.7
%
 
157,010

 
13.9
%
 
6,667

 
4.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
Average Selling Price ("ASP")(1)
32,811

 
 
 
30,941

 
 
 
1,870

 
6.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
Unit deliveries
2019
 
Product Mix(2)
 
2018
 
Product Mix(2)
 
Unit Change
 
% Change
Travel trailer
22,458

 
61.0
%
 
22,360

 
61.1
%
 
98

 
0.4
 %
Fifth wheel
14,371

 
39.0
%
 
14,229

 
38.9
%
 
142

 
1.0
 %
Total Towable
36,829

 
100.0
%
 
36,589

 
100.0
%
 
240

 
0.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
August 31, 2019
 
 
 
August 25, 2018
 
 
 
Change
 
% Change
Backlog(3)
 
 
 
 
 
 
 
 
 
 
 
Units
7,225

 
 
 
7,651

 
 
 
(426
)
 
(5.6
)%
Dollars
$
234,339

 
 
 
$
244,854

 
 
 
$
(10,515
)
 
(4.3
)%
Dealer Inventory
 
 
 
 
 
 
 
 
 
 
 
Units
15,658

 
 
 
14,877

 
 
 
781

 
5.2
 %
(1)
ASP excludes off-invoice dealer incentives.
(2)
Percentages may not add due to rounding differences.
(3)
We include in our backlog all accepted orders from dealers to generally be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.

Net revenues increased in Fiscal 2019 compared to Fiscal 2018 due to increased pricing and organic volume growth.

ASP increased in Fiscal 2019 compared to Fiscal 2018 due to price increases as well as favorable product mix.

Adjusted EBITDA increased in Fiscal 2019 compared to Fiscal 2018 primarily due to sales growth, offset partially by higher incentives to dealers and higher input costs.

Unit deliveries increased in Fiscal 2019 to Fiscal 2018 primarily due to volume growth in excess of recent industry trends. Our Towable segment market share increased from 7.4% to 8.8% when comparing retail registrations during the twelve-month trailing periods ended August 2018 and August 2019. Shipments grew faster than the industry as a result of greater penetration of our new products and further expansion of our products on dealer lots.

We have seen a decrease in the backlog volumes as of August 31, 2019 compared to August 25, 2018 due to our utilization of additional capacity added during 2018 and a change in our dealer ordering patterns as a result of a more challenging retail environment, partially offset by strong demand for our new products.


27


Motorhome

The following is an analysis of key changes in our Motorhome segment for Fiscal 2019 and 2018:
(in thousands, except ASP)
2019
 
% of Revenues
 
2018
 
% of Revenues
 
$ Change
 
% Change
Net revenues
$
706,927

 
 
 
$
860,675

 
 
 
$
(153,748
)
 
(17.9
)%
Adjusted EBITDA
27,455

 
3.9
%
 
35,508

 
4.1
%
 
(8,053
)
 
(22.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
ASP(1)
93,549

 
 
 
89,879

 
 
 
3,670

 
4.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
Unit deliveries
2019
 
Product Mix(2)
 
2018
 
Product Mix(2)
 
Unit Change
 
% Change
Class A
1,582

 
20.8
%
 
2,997

 
31.4
%
 
(1,415
)
 
(47.2
)%
Class B
2,784

 
36.7
%
 
2,012

 
21.1
%
 
772

 
38.4
 %
Class C
3,225

 
42.5
%
 
4,539

 
47.5
%
 
(1,314
)
 
(28.9
)%
Total Motorhome
7,591

 
100.0
%
 
9,548

 
100.0
%
 
(1,957
)
 
(20.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
August 31, 2019
 
 
 
August 25, 2018
 
 
 
Change
 
% Change
Backlog(3)
 
 
 
 
 
 
 
 
 
 
 
Units
1,808

 
 
 
1,693

 
 
 
115

 
6.8
 %
Dollars
$
165,373

 
 
 
$
157,554

 
 
 
$
7,819

 
5.0
 %
Dealer Inventory
 
 
 
 
 
 
 
 
 
 
 
Units
3,891

 
 
 
4,620

 
 
 
(729
)
 
(15.8
)%
(1)
ASP excludes off-invoice dealer incentives.
(2)
Percentages may not add due to rounding differences.
(3)
We include in our backlog all accepted orders from dealers to generally be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.

Net revenues decreased in Fiscal 2019 compared to Fiscal 2018 due to a decrease in the number of units sold, partially offset by increased pricing.

ASP increased in Fiscal 2019 compared to Fiscal 2018 due to price increases implemented during the second half of Fiscal 2018.

Adjusted EBITDA decreased in Fiscal 2019 compared to Fiscal 2018 due to lower volume and higher input costs, partially offset by increased pricing and favorable mix of business.

Unit deliveries decreased in Fiscal 2019 compared to Fiscal 2018 driven by decreases in our Class A and Class C products, partially offset by an increase in our Class B products.

We have seen an increase in the volume and dollar value of backlog as of August 31, 2019 compared to August 25, 2018 due to the introduction of new product models.


28


Results of Operations - Fiscal 2018 Compared to Fiscal 2017

Consolidated Performance Summary

The following is an analysis of changes in key items included in the statements of operations for the fiscal year ended August 25, 2018 compared to the fiscal year ended August 26, 2017:
(in thousands, except percent and per share data)
2018
 
% of Revenues(1)
 
2017
 
% of Revenues(1)
 
$ Change
 
% Change
Net revenues
$
2,016,829

 
100.0
 %
 
$
1,547,119

 
100.0
 %
 
$
469,710

 
30.4
 %
Cost of goods sold
1,716,993

 
85.1
 %
 
1,324,542

 
85.6
 %
 
392,451

 
29.6
 %
Gross profit
299,836

 
14.9
 %
 
222,577

 
14.4
 %
 
77,259

 
34.7
 %
SG&A
130,116

 
6.5
 %
 
97,607

 
6.3
 %
 
32,509

 
33.3
 %
Postretirement health care benefit income

 
 %
 
(24,796
)
 
(1.6
)%
 
24,796

 
(100.0
)%
Amortization of intangible assets
9,328

 
0.5
 %
 
24,660

 
1.6
 %
 
(15,332
)
 
(62.2
)%
Total operating expenses
139,444

 
6.9
 %
 
97,471

 
6.3
 %
 
41,973

 
43.1
 %
Operating income
160,392

 
8.0
 %
 
125,106

 
8.1
 %
 
35,286

 
28.2
 %
Interest expense
18,246

 
0.9
 %
 
16,837

 
1.1
 %
 
1,409

 
8.4
 %
Non-operating income
(494
)
 
 %
 
(330
)
 
 %
 
164

 
49.7
 %
Income before income taxes
142,640

 
7.1
 %
 
108,599

 
7.0
 %
 
34,041

 
31.3
 %
Provision for income taxes
40,283

 
2.0
 %
 
37,269

 
2.4
 %
 
3,014

 
8.1
 %
Net income
$
102,357

 
5.1
 %
 
$
71,330

 
4.6
 %
 
$
31,027

 
43.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
Diluted income per share
$
3.22

 
 
 
$
2.32

 
 
 
$
0.90

 
38.8
 %
Diluted average shares outstanding
31,814

 
 
 
30,766

 
 
 
1,048

 
3.4
 %
(1)
Percentages may not add due to rounding differences.

Consolidated net revenues increased in Fiscal 2018 compared to Fiscal 2017 primarily due to organic volume growth in our Towable segment and acquisition-related growth.

Gross profit as a percentage of revenue increased in Fiscal 2018 compared to Fiscal 2017 driven by a favorable mix due to the accelerated growth in the Towable segment.

Selling expenses increased in Fiscal 2018 compared to Fiscal 2017 primarily due to volume growth in our Towable segment.
Total general and administrative expenses increased in Fiscal 2018 compared to Fiscal 2017 due primarily to the $24.8 million benefit recorded in Fiscal 2017 associated with the termination of the postretirement health care plan, investments in our business, and incentives related to the growth in our business. The increase was partially offset by the reduction of amortization of definite-lived intangible assets, driven by the Grand Design acquisition in Fiscal 2017.
Interest expense increased in Fiscal 2018 compared to Fiscal 2017, which was related to our Credit Agreements associated with the acquisition of Grand Design. See Analysis of Financial Condition, Liquidity, and Resources and Note 9, Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information.
The overall effective income tax rate for Fiscal 2018 was 28.2% compared to the effective income tax rate of 34.3% for Fiscal 2017. The decrease in the tax rate from Fiscal 2017 to Fiscal 2018 was primarily due to the decrease in the Federal statutory rate as part of the enactment of the Tax Act on December 22, 2017. The decrease was partially offset by the required remeasurement of our net deferred tax assets due to the change in the Federal statutory tax rate.
Net income and diluted income per share increased in Fiscal 2018 compared to Fiscal 2017 primarily due to the sales increase in the Towable segment, the increased gross profit rate, and the lower effective income tax rate. These increases were partially offset by an increase in the SG&A rate driven primarily by the termination of the postretirement health care plan, which lowered expense in Fiscal 2017.


29


Non-GAAP Reconciliation

The following table reconciles net income to consolidated EBITDA and Adjusted EBITDA for Fiscal 2018 and 2017:
(in thousands)
2018
 
2017
Net income
$
102,357

 
$
71,330

Interest expense
18,246

 
16,837

Provision for income taxes
40,283

 
37,269

Depreciation
9,849

 
7,315

Amortization of intangible assets
9,328

 
24,660

EBITDA
180,063

 
157,411

Postretirement health care benefit income

 
(24,796
)
Acquisition-related costs
2,177

 
6,592

Non-operating income
(494
)
 
(330
)
Adjusted EBITDA
$
181,746

 
$
138,877


Reportable Segment Performance Summary

Towable

The following is an analysis of key changes in our Towable segment for Fiscal 2018 and 2017:
(in thousands, except ASP)
2018
 
% of Revenues
 
2017
 
% of Revenues
 
$ Change
 
% Change
Net revenues
$
1,127,723

 
 
 
$
685,197

 
 
 
$
442,526

 
64.6
 %
Adjusted EBITDA
157,010

 
13.9
%
 
89,734

 
13.1
%
 
67,276

 
75.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
ASP(1)
30,941

 
 
 
30,571

 
 
 
370

 
1.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
Unit deliveries
2018
 
Product Mix(2)
 
2017
 
Product Mix(2)
 
Unit Change
 
% Change
Travel trailer
22,360

 
61.1
%
 
13,650

 
60.7
%
 
8,710

 
63.8
 %
Fifth wheel
14,229

 
38.9
%
 
8,824

 
39.3
%
 
5,405

 
61.3
 %
Total Towable
36,589

 
100.0
%
 
22,474

 
100.0
%
 
14,115

 
62.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
August 25, 2018
 
 
 
August 26, 2017
 
 
 
Change
 
% Change
Backlog(3)
 
 
 
 
 
 
 
 
 
 
 
Units
7,651

 
 
 
8,001

 
 
 
(350
)
 
(4.4
)%
Dollars
$
244,854

 
 
 
$
229,706

 
 
 
$
15,148

 
6.6
 %
Dealer Inventory
 
 
 
 
 
 
 
 
 
 
 
Units
14,877

 
 
 
9,545

 
 
 
5,332

 
55.9
 %
(1)
ASP excludes off-invoice dealer incentives.
(2)
Percentages may not add due to rounding differences.
(3)
We include in our backlog all accepted orders from dealers to generally be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.

Towable net revenues increased in Fiscal 2018 as compared to Fiscal 2017 primarily due to organic volume growth as well as the annualization of net revenues related to the Fiscal 2017 acquisition of Grand Design.

Towable unit deliveries grew in Fiscal 2018 as compared to Fiscal 2017 primarily due to Towable growth in excess of recent industry trends and due to the acquisition of Grand Design. With the addition of Grand Design in the first quarter of Fiscal 2017, our Towable market share increased to 7.4% from 5.2% when comparing shipments during the twelve-month trailing periods ended August 2018 and August 2017.

Towable Adjusted EBITDA increased in Fiscal 2018 as compared to Fiscal 2017 due to the favorable impact of organic growth as well as the annualization of net revenues related to the Fiscal 2017 acquisition of Grand Design. We achieved strong results in our

30


Towable segment, where shipments grew much faster than the industry as a result of greater penetration of our new products and further expansion of our distribution base, as well as higher gross profit from cost savings initiatives and pricing, which more than offset escalating cost inputs.

Motorhome

The following is an analysis of key changes in our Motorhome segment for Fiscal 2018 and 2017:
(in thousands, except ASP)
2018
 
% of Revenues
 
2017
 
% of Revenues
 
$ Change
 
% Change
Net revenues
$
860,675

 
 
 
$
853,360

 
 
 
$
7,315

 
0.9
 %
Adjusted EBITDA
35,508

 
4.1
%
 
56,518

 
6.6
%
 
(21,010
)
 
(37.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
ASP(1)
89,879

 
 
 
91,759

 
 
 
(1,880
)
 
(2.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
Unit deliveries
2018
 
Product Mix(2)
 
2017
 
Product Mix(2)
 
Unit Change
 
% Change
Class A
2,997

 
31.4
%
 
3,182

 
34.4
%
 
(185
)
 
(5.8
)%
Class B
2,012

 
21.1
%
 
1,541

 
16.6
%
 
471

 
30.6
 %
Class C
4,539

 
47.5
%
 
4,537

 
49.0
%
 
2

 
 %
Total Motorhome
9,548

 
100.0
%
 
9,260

 
100.0
%
 
288

 
3.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
August 25, 2018
 
 
 
August 26, 2017
 
 
 
Change
 
% Change
Backlog(3)
 
 
 
 
 
 
 
 
 
 
 
Units
1,693

 
 
 
1,293

 
 
 
400

 
30.9
 %
Dollars
$
157,554

 
 
 
$
122,142

 
 
 
$
35,412

 
29.0
 %
Dealer Inventory
 
 
 
 
 
 
 
 
 
 
 
Units
4,620

 
 
 
4,282

 
 
 
338

 
7.9
 %
(1)
ASP excludes off-invoice dealer incentives.
(2)
Percentages may not add due to rounding differences.
(3)
We include in our backlog all accepted orders from dealers to generally be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.

Motorhome net revenues increased in Fiscal 2018 as compared to Fiscal 2017 primarily due to an increase in the number of units sold, partially offset by product mix.

Motorhome unit deliveries grew slower than recent industry growth in Fiscal 2018 compared to Fiscal 2017. Our overall Motorhome market share moved to 15.7% from 16.4% when comparing shipments during the twelve-month trailing periods ended August 2018 and August 2017 due to a mix change from our Class A-diesel products to our Class B products.

Motorhome Adjusted EBITDA decreased in Fiscal 2018 as compared to Fiscal 2017 due to increased material costs and investments in our business, including higher costs and lower productivity associated with a new facility that produces our Class A diesel product line.


31


Analysis of Financial Condition, Liquidity, and Capital Resources

Cash Flows

The following table summarizes our cash flows from total operations for Fiscal 2019, 2018, and 2017:
(in thousands)
2019
 
2018
 
2017
Total cash provided by (used in):
 
 
 
 
 
Operating activities
$
133,750

 
$
83,346

 
$
97,127

Investing activities
(38,936
)
 
(111,761
)
 
(405,385
)
Financing activities
(59,725
)
 
(5,188
)
 
258,620

Net increase (decrease) in cash and cash equivalents
$
35,089

 
$
(33,603
)
 
$
(49,638
)

Operating Activities

Cash provided by operating activities increased in Fiscal 2019 compared to Fiscal 2018 primarily due to steady profitability and working capital as a percent of sales.

Cash provided by operating activities decreased in Fiscal 2018 compared to Fiscal 2017 due to an increase in inventory to support organic growth, partially offset by growth in net income.

Investing Activities

Cash used in investing activities decreased in Fiscal 2019 compared to Fiscal 2018 primarily due to a decrease in cash used for the Chris-Craft acquisition in Fiscal 2018 partially offset by increased capital expenditures related to the capacity expansions within our Towable segment.

Cash used in investing activities for Fiscal 2018 consisted primarily of the acquisition of Chris-Craft and capital expenditures related to the capacity expansions taking place in our Towable segment. In Fiscal 2017, cash used in investing activities consisted of the acquisition of Grand Design for which we paid cash of $392.5 million, net of cash acquired, in addition to issuing Winnebago stock with a value of $124.1 million at closing.

Financing Activities

Cash used in financing activities increased in Fiscal 2019 compared to Fiscal 2018 primarily due to increased net payments on our Credit Agreement and increased share repurchases.

Cash used in financing activities for Fiscal 2018 consisted of payments on the Credit Agreement, dividend payments, and share repurchases; these were partially offset by cash proceeds on the Credit Agreement. Cash provided by financing activities for Fiscal 2017 consisted of cash proceeds from the Credit Agreement, partially offset by payments on the Credit Agreement, payment of debt issuance costs, and dividend payments.

Debt and Capital

As described in Note 9, Long-Term Debt, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, our Credit Agreement consisted of a term loan B loan agreement ("Term Loan") and an asset-based revolving credit agreement ("ABL") (collectively, the "Credit Agreement") with JPMorgan Chase. The commitment under the ABL was increased to $192.5 million revolving credit agreement as of October 22, 2019.

Other Financial Measures

Working capital at August 31, 2019 and August 25, 2018 was $212.9 million and $167.8 million, respectively. We currently expect cash on hand, funds generated from operations, and the borrowing available under our Credit Agreement to be sufficient to cover both short-term and long-term operating requirements.

Capital Expenditures

We anticipate capital expenditures in Fiscal 2020 of approximately $35.0 million to $45.0 million. We will continue to invest in our ERP system as well as expand our Towable and marine facilities and make improvements to our Motorhome facilities.


32


Share Repurchases and Dividends

We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors. Our long-term capital allocation strategy is to first fund operations and investments in growth, maintain a debt leverage ratio within our targeted zone, maintain reasonable liquidity, and then return excess cash over time to shareholders through dividends and share repurchases.

On October 18, 2017, our Board of Directors authorized a share repurchase program in the amount of $70.0 million. There is no time restriction on the authorization. During Fiscal 2019, we repurchased 0.2 million shares of our common stock at a cost of $6.1 million. An additional 0.1 million shares of our common stock at a cost of $2.1 million were repurchased to satisfy tax obligations on employee equity awards as they vested. We continually evaluate if share repurchases reflect a prudent use of our capital and, subject to compliance with our Credit Agreement, we may purchase shares in the future. At August 31, 2019, we have $58.9 million remaining on our board repurchase authorization.

On August 14, 2019, our Board of Directors declared a quarterly cash dividend of $0.11 per share, totaling $3.5 million, paid on September 25, 2019 to common stockholders of record at the close of business on September 11, 2019.

Contractual Obligations and Commercial Commitments

Our principal contractual obligations and commercial commitments as of August 31, 2019 were as follows:
 
Total
 
Payments Due by Period
(in thousands)
 
Less than 1 Year
 
1-3 Years
 
3-5 Years
 
More than 5 Years
ABL(1)
$

 
$

 
$

 
$

 
$

Term loan(2)
260,000

 
10,250

 
30,000

 
219,750

 

Interest at variable rate(3)
29,956

 
8,447

 
14,596

 
6,913

 

Net swap payments(4)
28,596

 
6,580

 
13,675

 
8,341

 

Deferred compensation obligations
15,798

 
2,925

 
5,606

 
4,288

 
2,979

Operating leases(5)
25,057

 
4,100

 
7,553

 
7,928

 
5,476

Contracted services
4,571

 
1,771

 
2,088

 
665

 
47

Unrecognized tax benefits(6)
3,591

 

 

 

 

Total contractual cash obligations
$
367,569

 
$
34,073

 
$
73,518

 
$
247,885

 
$
8,502

 
 
 
 
 
 
 
 
 
 
 
Total
 
Expiration by Period
(In thousands)
 
Less than 1 Year
 
1-3 Years
 
3-5 Years
 
More than 5 Years
Contingent repurchase obligations
$
874,912

 
$