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WINNEBAGO INDUSTRIES INC - Quarter Report: 2015 February (Form 10-Q)


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 10-Q
 

(Mark One)
 
 
 
 
x 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the quarterly period ended February 28, 2015
 
 
or
 
 
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from _________________ to _________________
 
 
 
 
 
Commission File Number: 001-06403
 


WINNEBAGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Iowa
 
 
42-0802678
(State or other jurisdiction of incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
 
 
 
 
P. O. Box 152, Forest City, Iowa
 
 
50436
(Address of principal executive offices)
 
 
(Zip Code)
 
 
 
 
 
 
 
(641) 585-3535
 
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer  x
 
 Non-accelerated filer o
 
 Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of common stock, par value $0.50 per share, outstanding March 26, 2015 was 26,931,255.

 


Winnebago Industries, Inc.
Table of Contents

 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A
Item 2.
Item 6.
 
 
 


Table of Contents

Glossary


The following terms and abbreviations appear in the text of this report and are defined as follows:
AOCI
Accumulated Other Comprehensive Income (Loss)
Amended Credit Agreement
Credit Agreement dated as of May 28, 2014 by and between Winnebago Industries, Inc. and Winnebago of Indiana, LLC, as Borrowers, and General Electric Capital Corporation, as Agent
Apollo
Apollo Motorhome Holidays, LLC
ASC
Accounting Standards Codification
ASP
Average Sales Price
ASU
Accounting Standards Update
Credit Agreement
Credit Agreement dated as of October 31, 2012 by and between Winnebago Industries, Inc. and Winnebago of Indiana, LLC, as Borrowers, and General Electric Capital Corporation, as Agent (was amended May 28, 2014)
ERP
Enterprise Resource Planning
FASB
Financial Accounting Standards Board
FIFO
First In, First Out
GAAP
Generally Accepted Accounting Principles
GECC
General Electric Capital Corporation
IRS
Internal Revenue Service
IT
Information Technology
LIBOR
London Interbank Offered Rate
LIFO
Last In, First Out
NMF
Non-Meaningful Figure
NYSE
New York Stock Exchange
OCI
Other Comprehensive Income
RV
Recreation Vehicle
RVIA
Recreation Vehicle Industry Association
SEC
U.S. Securities and Exchange Commission
SERP
Supplemental Executive Retirement Plan
Stat Surveys
Statistical Surveys, Inc.
Towables
Winnebago of Indiana, LLC, a wholly-owned subsidiary of Winnebago Industries, Inc.
US
United States of America
XBRL
eXtensible Business Reporting Language
YTD
Year To Date



1
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Winnebago Industries, Inc.
Consolidated Statements of Income and Comprehensive Income
(Unaudited)

 
 
Three Months Ended
 
Six Months Ended
(In thousands, except per share data)
 
February 28,
2015
 
March 1,
2014
 
February 28,
2015
 
March 1,
2014
Net revenues
 
$
234,543

 
$
228,811

 
$
458,946

 
$
451,481

Cost of goods sold
 
210,285

 
205,966

 
410,302

 
402,674

Gross profit
 
24,258

 
22,845

 
48,644

 
48,807

Operating expenses:
 
 
 
 
 
 
 
 
Selling
 
4,846

 
4,489

 
9,553

 
8,822

General and administrative
 
7,464

 
4,949

 
12,701

 
10,572

Gain on sale of real estate
 
—

 
(629
)
 
—

 
(629
)
Total operating expenses
 
12,310

 
8,809

 
22,254

 
18,765

Operating income
 
11,948

 
14,036

 
26,390

 
30,042

Non-operating income (expense)
 
28

 
(74
)
 
35

 
17

Income before income taxes
 
11,976

 
13,962

 
26,425

 
30,059

Provision for taxes
 
3,880

 
4,369

 
8,434

 
9,320

Net income
 
$
8,096

 
$
9,593

 
$
17,991

 
$
20,739

 
 
 
 
 
 
 
 
 
Income per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.30

 
$
0.35

 
$
0.67

 
$
0.75

Diluted
 
$
0.30

 
$
0.35

 
$
0.67

 
$
0.74

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
26,924

 
27,595

 
26,946

 
27,723

Diluted
 
27,018

 
27,724

 
27,048

 
27,850

 
 
 
 
 
 
 
 
 
Net income
 
$
8,096

 
$
9,593

 
$
17,991

 
$
20,739

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Amortization of prior service credit
  (net of tax of $506, $528, $998 and $1,010)
 
(822
)
 
(876
)
 
(1,622
)
 
(1,676
)
Amortization of net actuarial loss
  (net of tax of $136, $102, $258 and $201)
 
220

 
168

 
419

 
332

Plan amendment
  (net of tax of $581, $1,346, $581 and $1,346)
 
944

 
2,234

 
944

 
2,234

Unrealized appreciation of investments
  (net of tax of $0, $0, $0 and $91)
 
—

 
—

 
—

 
151

Total other comprehensive income (loss)
 
342

 
1,526

 
(259
)
 
1,041

Comprehensive income
 
$
8,438

 
$
11,119

 
$
17,732

 
$
21,780


See notes to consolidated financial statements.



2
Table of Contents

Winnebago Industries, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data)
February 28,
2015
 
August 30,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
7,938

 
$
57,804

Receivables, less allowance for doubtful accounts ($119 and $127)
75,636

 
69,699

Inventories
149,841

 
112,848

Net investment in operating leases
—

 
15,978

Prepaid expenses and other assets
8,215

 
5,718

Income taxes receivable and prepaid
8,808

 
5

Deferred income taxes
1,975

 
9,641

Total current assets
252,413

 
271,693

Property, plant and equipment, net
28,370

 
25,135

Investment in life insurance
25,650

 
25,126

Deferred income taxes
23,762

 
24,029

Goodwill
1,228

 
1,228

Other assets
9,508

 
11,091

Total assets
$
340,931

 
$
358,302

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
34,215

 
$
33,111

Income taxes payable
—

 
2,927

Accrued expenses:
 
 
 
Accrued compensation
16,284

 
20,763

Operating lease repurchase obligations
—

 
16,050

Product warranties
9,856

 
9,501

Self-insurance
5,633

 
4,941

Accrued loss on repurchases
1,544

 
2,212

Promotional
3,315

 
3,205

Other
5,709

 
7,009

Total current liabilities
76,556

 
99,719

Non-current liabilities:
 
 
 
Unrecognized tax benefits
2,756

 
3,024

Postretirement health care and deferred compensation benefits
59,630

 
62,811

Total non-current liabilities
62,386

 
65,835

Contingent liabilities and commitments


 


Stockholders' equity:
 
 
 
Capital stock common, par value $0.50;
   authorized 60,000 shares, issued 51,776 shares
25,888

 
25,888

Additional paid-in capital
31,438

 
31,672

Retained earnings
567,604

 
554,496

Accumulated other comprehensive loss
(2,067
)
 
(1,808
)
Treasury stock, at cost (24,845 and 24,727 shares)
(420,874
)
 
(417,500
)
Total stockholders' equity
201,989

 
192,748

Total liabilities and stockholders' equity
$
340,931

 
$
358,302


See notes to consolidated financial statements.

3
Table of Contents

Winnebago Industries, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
(In thousands)
February 28,
2015
 
March 1,
2014
Operating activities:
 
 
 
Net income
$
17,991

 
$
20,739

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
2,125

 
1,966

LIFO expense
626

 
608

Stock-based compensation
1,348

 
1,388

Deferred income taxes including valuation allowance
7,127

 
(152
)
Postretirement benefit income and deferred compensation expense
(338
)
 
(405
)
Provision (benefit) for doubtful accounts
2

 
(1
)
Gain on disposal of property
(35
)
 
(702
)
Increase in cash surrender value of life insurance policies
(462
)
 
(440
)
Change in assets and liabilities:
 
 
 
Inventories
(37,619
)
 
(12,356
)
Receivables, prepaid and other assets
(7,560
)
 
(40,056
)
Investment in operating leases, net of repurchase obligations
(72
)
 
—

Income taxes and unrecognized tax benefits
(11,258
)
 
1,269

Accounts payable and accrued expenses
(4,075
)
 
536

Postretirement and deferred compensation benefits
(1,852
)
 
(1,924
)
Net cash used in operating activities
(34,052
)
 
(29,530
)
 
 
 
 
Investing activities:
 
 
 
Proceeds from the sale of investments, at par
—

 
2,350

Purchases of property and equipment
(5,154
)
 
(3,772
)
Proceeds from the sale of property
43

 
2,392

Other
294

 
(105
)
Net cash (used in) provided by investing activities
(4,817
)
 
865

 
 
 
 
Financing activities:
 
 
 
Payments for purchases of common stock
(6,141
)
 
(21,484
)
Payments of cash dividends
(4,883
)
 
—

Proceeds from exercise of stock options
—

 
2,080

Borrowings on loans
22,000

 
—

Repayments of loans
(22,000
)
 
—

Other
27

 
50

Net cash used in financing activities
(10,997
)
 
(19,354
)
 
 
 
 
Net decrease in cash and cash equivalents
(49,866
)
 
(48,019
)
Cash and cash equivalents at beginning of period
57,804

 
64,277

Cash and cash equivalents at end of period
$
7,938

 
$
16,258

 
 
 
 
Supplement cash flow disclosure:
 
 
 
Income taxes paid, net of refunds
$
12,565

 
$
8,200

Interest paid
$
10

 
$
—


See notes to consolidated financial statements.

4
Table of Contents

Winnebago Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)


Note 1: Basis of Presentation
The "Company," "we," "our" and "us" are used interchangeably to refer to Winnebago Industries, Inc. and its wholly-owned subsidiary, Winnebago of Indiana, LLC, as appropriate in the context.

We were incorporated under the laws of the state of Iowa on February 12, 1958 and adopted our present name on February 28, 1961. Our executive offices are located at 605 West Crystal Lake Road in Forest City, Iowa. Our telephone number is (641) 585-3535; our website is www.winnebagoind.com. Our common stock trades on the NYSE under the symbol “WGO.”

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly our consolidated financial position as of February 28, 2015 and the consolidated results of income and comprehensive income and consolidated cash flows for the first six months of Fiscal 2015 and 2014. The consolidated statement of income and comprehensive income for the first six months of Fiscal 2015 is not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet data as of August 30, 2014 was derived from audited financial statements, but does not include all of the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended August 30, 2014.

Fiscal Period
We follow a 52-/53-week fiscal year, ending the last Saturday in August. Both Fiscal 2015 and Fiscal 2014 are 52-week years.

New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which specifies how and when to recognize revenue as well as providing informative, relevant disclosures. ASU 2014-09 will become effective for fiscal years beginning after December 15, 2016 (our Fiscal 2018). We are currently evaluating the impact on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Going Concern (Subtopic 205-40), which provides guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and related footnote disclosures. ASU 2014-15 will become effective for years ending after December 15, 2016 (our Fiscal 2017). We are currently evaluating the impact of ASU 2014-15 on our consolidated financial statements.

Note 2: Concentration Risk

One of our dealer organizations accounted for 20.1% and 20.7% of our consolidated net revenues for the first six months of Fiscal 2015 and Fiscal 2014, respectively. A second dealer organization accounted for 19.2% and 12.6% of our consolidated net revenues for the first six months of Fiscal 2015 and Fiscal 2014, respectively. The loss of either or both of these dealer organizations could have a significant adverse effect on our business. In addition, deterioration in the liquidity or creditworthiness of these dealers could negatively impact our sales and could trigger repurchase obligations under our repurchase agreements.

Note 3: Investments and Fair Value Measurements
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
We account for fair value measurements in accordance with ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurement. The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

Cash Equivalents
The carrying value of cash equivalents approximates fair value as original maturities are less than three months. Our cash equivalents are comprised of money market funds traded in an active market with no restrictions.


5
Table of Contents

The following tables set forth by level within the fair value hierarchy our financial assets that were accounted for at fair value on a recurring basis at February 28, 2015 and August 30, 2014 according to the valuation techniques we used to determine their fair values:
 
 
 
 
Fair Value Measurements
Using Inputs Considered As
(In thousands)
 
Fair Value at
February 28,
2015
 
Level 1 Quoted Prices in Active Markets for Identical Assets
 
Level 2 Significant Other
Observable Inputs
 
Level 3 Significant
Unobservable Inputs
Assets that fund deferred compensation:
 
 
 
 
 
 
 
 
  Domestic equity funds
 
$
5,117

 
$
5,117

 
$
—

 
$
—

  International equity funds
 
514

 
514

 
—

 
—

  Fixed income funds
 
247

 
247

 
—

 
—

Total assets at fair value
 
$
5,878

 
$
5,878

 
$
—

 
$
—


 
 
 
 
Fair Value Measurements
Using Inputs Considered As
(In thousands)
 
Fair Value at
August 30,
2014
 
Level 1 Quoted Prices in Active Markets for Identical Assets
 
Level 2 Significant Other
Observable Inputs
 
Level 3 Significant
Unobservable Inputs
Assets that fund deferred compensation:
 
 
 
 
 
 
 
 
  Domestic equity funds
 
$
5,465

 
$
5,465

 
$
—

 
$
—

  International equity funds
 
716

 
716

 
—

 
—

  Fixed income funds
 
242

 
242

 
—

 
—

Total assets at fair value
 
$
6,423

 
$
6,423

 
$
—

 
$
—


The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3):
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
February 28,
2015
 
March 1,
2014
 
February 28,
2015
 
March 1,
2014
Balance at beginning of period
 
$
—

 
$
—

 
$
—

 
$
2,108

Net change included in other comprehensive income
 
—

 
—

 
—

 
242

Sales
 
—

 
—

 
—

 
(2,350
)
Balance at end of period
 
$
—

 
$
—

 
$
—

 
$
—

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Assets that Fund Deferred Compensation
Our assets that fund deferred compensation are marketable equity securities measured at fair value using quoted market prices and primarily consist of equity-based mutual funds. They are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. These securities fund the Executive Share Option Plan (see Note 9), a deferred compensation program, and are presented as other assets in the accompanying balance sheets.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Our non-financial assets, which include goodwill and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, we must evaluate the non-financial asset for impairment. If an impairment did occur, the asset is required to be recorded at the estimated fair value. During the first six months of Fiscal 2015, no impairments were recorded for non-financial assets.


6
Table of Contents

Note 4: Inventories
Inventories consist of the following:
(In thousands)
 
February 28,
2015
 
August 30,
2014
Finished goods
 
$
36,923

 
$
28,029

Work-in-process
 
71,684

 
49,919

Raw materials
 
73,159

 
66,200

Total
 
181,766

 
144,148

LIFO reserve
 
(31,925
)
 
(31,300
)
Total inventories
 
$
149,841

 
$
112,848

The above value of inventories, before reduction for the LIFO reserve, approximates replacement cost. Of the $181.8 million and $144.1 million inventory at February 28, 2015 and August 30, 2014, respectively, $169.0 million and $137.7 million is valued on a LIFO basis. Towables inventory of $12.8 million and $6.4 million at February 28, 2015 and August 30, 2014, respectively, is valued on a FIFO basis.

Note 5: Net Investment in Operating Leases and Operating Lease Repurchase Obligations

During the third quarter of Fiscal 2014 we delivered 520 RV rental units to Apollo, a US RV rental company. Under the terms of a sales agreement with Apollo, all units were paid for upon delivery. To secure an order of this magnitude, we contractually agreed to repurchase up to 343 of the units at specified prices after one season of rental use (by no later than December 31, 2014) provided certain conditions are met. On December 29, 2014 the repurchase timing was extended from December 31, 2014 to February 28, 2015. The original cost of these units was depreciated down to the estimated net realizable value of the rental units during the time frame that the units were in rental use. During the first quarter of Fiscal 2015, we were released of repurchase obligation for 124 units as Apollo sold the units in the market place. As units subject to repurchase were sold, we removed the remaining net investment in operating lease as well as the operating lease repurchase obligation. In the second quarter of Fiscal 2015, we were released of the remaining repurchase obligations and as a result, there were no associated assets or liabilities on the balance sheet at February 28, 2015.

Net lease revenue was recorded ratably over the rental period that Apollo held the units based upon the difference between the proceeds received and the estimated repurchase obligation less the estimated depreciation expense of the unit. We were not required to repurchase any units from Apollo, thus we did not record a gain or loss for the difference between the estimated residual value of the unit and the actual resale value as a component of net lease revenue. We recorded net lease revenue of $626,000 during Fiscal 2014, $623,000 and $1.3 million during the second quarter and first six months of Fiscal 2015, respectively.

In March 2015, we received a rental order of similar size from Apollo for the 2015 rental season. Under the terms of the 2015 sales agreement, the sales of these units will all be normal sales with no units recorded as operating leases. Based on the planned delivery schedule, we will ship approximately two-thirds of these units in the third quarter of Fiscal 2015 and one-third in the fourth quarter of Fiscal 2015.

Note 6: Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and consists of the following:
(In thousands)
 
February 28,
2015
 
August 30,
2014
Land
 
$
738

 
$
738

Buildings and building improvements
 
48,092

 
47,273

Machinery and equipment
 
92,351

 
90,101

Software
 
5,052

 
4,356

Transportation
 
9,347

 
9,098

Total property, plant and equipment, gross
 
155,580

 
151,566

Less accumulated depreciation
 
(127,210
)
 
(126,431
)
Total property, plant and equipment, net
 
$
28,370

 
$
25,135



7
Table of Contents

Note 7: Credit Facilities
On October 31, 2012, we entered into the Credit Agreement with GECC. The Credit Agreement provides for an initial $35.0 million revolving credit facility based on eligible inventory and was to expire on October 31, 2015, unless terminated earlier in accordance with its terms. There is no termination fee associated with the Credit Agreement.

The Credit Agreement contains no financial covenant restrictions for borrowings where we have excess borrowing availability under the facility of greater than $5.0 million. The Credit Agreement requires us to comply with a fixed charge ratio if excess borrowing availability under the facility is less than $5.0 million. In addition the Credit Agreement also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable terms at the time of the expansion. The initial unused line fee associated with the Credit Agreement is 0.5% per annum and has the ability to be lowered based upon facility usage.

The Credit Agreement contains typical affirmative representations and covenants for a credit agreement of this size and nature. Additionally, the Credit Agreement contains negative covenants limiting our ability, among other things, to incur debt, grant liens, make acquisitions, make certain investments, pay certain dividends and distributions, engage in mergers, consolidations or acquisitions and sell certain assets. Obligations under the Credit Agreement are secured by a security interest in all of our accounts and other receivables, chattel paper, documents, deposit accounts, instruments, equipment, inventory, investment property, leasehold interest, cash and cash equivalents, letter-of-credit rights, most real property and fixtures and certain other business assets.

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

During the second quarter we utilized the credit facility from time to time to meet working capital needs, however at the end of the period no borrowings were outstanding. As of the date of this report, we are in compliance with all material terms of the Amended Credit Agreement, and no borrowings are outstanding.

Note 8: Warranty

We provide our motorhome customers a comprehensive 12-month/15,000-mile warranty on our Class A, B and C motorhomes, and a 3-year/36,000-mile structural warranty on Class A and C sidewalls and floors. We provide a comprehensive 12-month warranty on all towable products. We have also incurred costs for certain warranty-type expenses which occurred after the normal warranty period. We have voluntarily agreed to pay such costs to help protect the reputation of our products and the goodwill of our customers. Estimated costs related to product warranty are accrued at the time of sale and are based upon past warranty claims and unit sales history and adjusted as required to reflect actual costs incurred, as information becomes available. A significant increase in dealership labor rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize.

Changes in our product warranty liability are as follows:
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
February 28,
2015
 
March 1,
2014
 
February 28,
2015
 
March 1,
2014
Balance at beginning of period
 
$
9,090

 
$
8,345

 
$
9,501

 
$
8,443

Provision
 
2,269

 
2,368

 
4,846

 
5,138

Claims paid
 
(1,503
)
 
(1,932
)
 
(4,491
)
 
(4,800
)
Balance at end of period
 
$
9,856

 
$
8,781

 
$
9,856

 
$
8,781



8
Table of Contents

Note 9: Employee and Retiree Benefits
Postretirement health care and deferred compensation benefits are as follows:
(In thousands)
 
February 28,
2015
 
August 30,
2014
Postretirement health care benefit cost
 
$
35,829

 
$
36,930

Non-qualified deferred compensation
 
20,313

 
21,014

Executive share option plan liability
 
5,206

 
5,628

SERP benefit liability
 
3,025

 
2,974

Executive deferred compensation
 
290

 
213

Officer stock-based compensation
 
387

 
627

Total postretirement health care and deferred compensation benefits
 
65,050

 
67,386

Less current portion (1)
 
(5,420
)
 
(4,575
)
Long-term postretirement health care and deferred compensation benefits
 
$
59,630

 
$
62,811

(1) The current portions of these benefits are presented on the consolidated balance sheets in accrued compensation with the exception of postretirement health care which is included in other accrued expenses.
Postretirement Health Care Benefits
We provide certain health care and other benefits for retired employees hired before April 1, 2001, who have fulfilled eligibility requirements at age 55 with 15 years of continuous service. We use a September 1 measurement date for this plan and our postretirement health care plan currently is not funded.

We established dollar caps on the amount that we will pay for postretirement health care benefits per retiree on an annual basis to reduce our exposure to medical inflation. Retirees are required to pay a monthly premium in excess of the employer dollar caps for medical coverage based on years of service and age at retirement. Changes in the postretirement benefit plan include:
Date
Event
 
Dollar Cap Reduction
Liability Reduction
(In thousands)
Amortization Period
Fiscal 2005
Established employer dollar caps
 
 
 
 
 
January 2012
Reduced employer dollar caps
 
10%
$
4,598

7.8
years
January 2013
Reduced employer dollar caps
 
10%
$
4,289

7.5
years
January 2014
Reduced employer dollar caps
 
10%
$
3,580

7.3
years
January 2015
Reduced employer dollar caps
 
10%
$
1,524

7.1
years

Net periodic postretirement benefit income consisted of the following components:
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
February 28,
2015
 
March 1,
2014
 
February 28,
2015
 
March 1,
2014
Interest cost
 
$
332

 
$
386

 
$
685

 
$
780

Service cost
 
103

 
98

 
213

 
200

Amortization of prior service benefit
 
(1,327
)
 
(1,405
)
 
(2,620
)
 
(2,686
)
Amortization of net actuarial loss
 
351

 
269

 
667

 
529

Net periodic postretirement benefit income
 
$
(541
)
 
$
(652
)
 
$
(1,055
)
 
$
(1,177
)
 
 
 
 
 
 
 
 
 
Payments for postretirement health care
 
$
225

 
$
259

 
$
476

 
$
532

 
Note 10: Stockholders' Equity
Stock-Based Compensation
We have a 2014 Omnibus Equity, Performance Award, and Incentive Compensation Plan (as amended, the "Plan") approved by shareholders in place which allows us to grant or issue non-qualified stock options, incentive stock options, share awards and other equity compensation to key employees and to non-employee directors.
On October 15, 2014 and October 16, 2013 the Human Resources Committee of the Board of Directors granted an aggregate of 99,600 and 84,200 shares, respectively, of restricted common stock to our key employees and non-employee directors under the Plan. The value of the restricted stock award is determined using the intrinsic value method which, in this case, is based on the number of shares granted and the closing price of our common stock on the date of grant.

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Table of Contents

Stock-based compensation expense was $447,000 and $436,000 during the second quarters of Fiscal 2015 and 2014, respectively. Stock-based compensation expense was $1.3 million and $1.4 million during the six months of Fiscal 2015 and 2014, respectively. Of the $1.3 million expense recognized in Fiscal 2015, $838,000 related to the October 15, 2014 grant of 99,600 shares. The remainder is related to the amortization of previously granted restricted stock awards, as well as non-employee director stock units issued in lieu of director fees. Compensation expense is recognized over the requisite service period of the award or over a period ending with the employee's eligible retirement date, if earlier.
Dividends
On December 17, 2014, the Board of Directors declared a quarterly cash dividend of $0.09 per share of common stock, which was paid on February 4, 2015 to shareholders of record at the close of business on January 21, 2015.

On March 18, 2015, the Board of Directors declared a quarterly cash dividend of $0.09 per share of common stock, payable on May 6, 2015 to shareholders of record at the close of business on April 22, 2015.

Note 11: Contingent Liabilities and Commitments
Repurchase Commitments
Generally, manufacturers in the RV industry enter into repurchase agreements with lending institutions which have provided wholesale floorplan financing to dealers. Most dealers' RVs 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 recreation vehicles purchased.
Our repurchase agreements provide that, in the event of default by the dealer on the agreement to pay the lending institution, we will repurchase the financed merchandise. The terms of these agreements, which generally can last up to 18 months, provide that our liability will be the lesser of remaining principal owed by the dealer or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our contingent liability on these repurchase agreements was approximately $429.6 million and $363.8 million at February 28, 2015 and August 30, 2014, respectively.
In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary relationship terminations. Although laws vary from state to state, some states have laws in place that require manufacturers of recreation vehicles to repurchase current inventory if a dealership exits the business. Incremental repurchase exposure beyond existing repurchase agreements, related to dealer inventory in states that we have had historical experience of repurchasing inventory, totaled $6.5 million and $6.8 million at February 28, 2015 and August 30, 2014, respectively.
Our risk of loss related to our repurchase commitments is significantly reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous dealers and lenders. The aggregate contingent liability related to our repurchase agreements represents all financed dealer inventory at the period reporting date subject to a repurchase agreement, net of the greater of periodic reductions per the agreement or dealer principal payments. Based on the repurchase exposure as previously described, we established an associated loss reserve. Our accrued losses on repurchases were $1.5 million as of February 28, 2015 and $2.2 million as of August 30, 2014.
A summary of repurchase activity is as follows:
 
 
Three Months Ended
 
Six Months Ended
(Dollars in thousands)
 
February 28,
2015
 
March 1,
2014
 
February 28,
2015
 
March 1,
2014
Inventory repurchased:
 
 
 
 
 
 
 
 
Units
 
—

 
—

 
54

 
14

Dollars
 
$
—

 
$
—

 
$
7,156

 
$
325

Inventory resold:
 
 
 
 
 
 
 
 
Units
 
53

 
—

 
55

 
14

Cash collected
 
$
6,102

 
$
—

 
$
6,140

 
$
257

Loss realized
 
$
1,022

 
$
—

 
$
1,033

 
$
68

Units in ending inventory
 
—

 
—

 
—

 
—


The majority of the units resold in the second quarter of Fiscal 2015 were attributable to a single dealership. The loss realized in the quarter had previously been reserved for, and the decrease in the loss reserve is the result of the resale of the repurchased units.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our loss reserve for repurchase commitments. A hypothetical change of a 10% increase or decrease in our significant repurchase commitment assumptions at February 28, 2015 would have affected net income by approximately $293,000.
  

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Table of Contents

Litigation
We are involved in various legal proceedings which are ordinary litigation incidental to our business, some of which are covered in whole or in part by insurance. We believe while the final resolution of any such litigation may have an impact on our results for a particular reporting period, the ultimate disposition of such litigation will not have any material adverse effect on our financial position, results of operations or liquidity.
Note 12: Income Taxes
We account for income taxes under ASC 740, Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.

We file tax returns in the US federal jurisdiction, as well as various international and state jurisdictions. Although certain years are no longer subject to examinations by the IRS and various state taxing authorities, net operating loss carryforwards generated in those years may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a future period. As of February 28, 2015, our federal returns from Fiscal 2011 to present continue to be subject to review by the IRS. With few exceptions, the state returns from Fiscal 2009 to present continue to be subject to review by the taxing jurisdictions. A number of years may elapse before an uncertain tax position is audited and finally resolved, and it is often very difficult to predict the outcome of such audits.

As of February 28, 2015, our unrecognized tax benefits were $2.8 million including accrued interest and penalties of $1.1 million. If we were to prevail on all unrecognized tax benefits recorded, $1.9 million of the $2.8 million would benefit the overall effective tax rate. It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits as tax expense. It is reasonably possible that the amount of unrecognized tax benefits with respect to our other unrecognized tax positions will increase or decrease during the next twelve months; however, an estimate of the amount or range of the change cannot be made at this time.

Note 13: Earnings Per Share
The following table reflects the calculation of basic and diluted income per share:
 
 
Three Months Ended
 
Six Months Ended
(In thousands, except per share data)
 
February 28,
2015
 
March 1,
2014
 
February 28,
2015
 
March 1,
2014
Income per share - basic
 
 
 
 
 
 
 
 
Net income
 
$
8,096

 
$
9,593

 
$
17,991

 
$
20,739

Weighted average shares outstanding
 
26,924

 
27,595

 
26,946

 
27,723

Net income per share - basic
 
$
0.30

 
$
0.35

 
$
0.67

 
$
0.75

 
 
 
 
 
 
 
 
 
Income per share - assuming dilution
 
 
 
 
 
 
 
 
Net income
 
$
8,096

 
$
9,593

 
$
17,991

 
$
20,739

Weighted average shares outstanding
 
26,924

 
27,595

 
26,946

 
27,723

Dilutive impact of awards and options outstanding
 
94

 
129

 
102

 
127

Weighted average shares and potential dilutive shares outstanding
 
27,018

 
27,724

 
27,048

 
27,850

Net income per share - assuming dilution
 
$
0.30

 
$
0.35

 
$
0.67

 
$
0.74


At the end of the second quarter of Fiscal 2015 and Fiscal 2014, there were options outstanding to purchase 180,154 shares and 316,600 shares, respectively, of common stock at an average price of $28.20 and $32.02, respectively, which were not included in the computation of diluted income per share because they are considered anti-dilutive under the treasury stock method per ASC 260, Earnings Per Share.


11
Table of Contents

Note 14: Comprehensive Income (Loss)

Changes in AOCI by component, net of tax, were:
 
 
Three Months Ended
 
 
February 28, 2015
 
March 1, 2014
(In thousands)
 
Defined
Benefit
Pension
Items
Unrealized
Gains and Losses on
Available-
for-Sale Securities
Total
 
Defined
Benefit
Pension
Items
Unrealized
Gains and Losses on
Available-
for-Sale Securities
Total
Balance at beginning of period
 
$
(2,409
)
$
—

$
(2,409
)
 
$
364

$
—

$
364

 
 
 
 
 
 
 
 
 
OCI before reclassifications
 
944

—

944

 
2,234

—

2,234

Amounts reclassified from AOCI
 
(602
)
—

(602
)
 
(708
)
—

(708
)
Net current-period OCI
 
342

—

342

 
1,526

—

1,526

 
 
 
 
 
 
 
 
 
Balance at end of period
 
$
(2,067
)
$
—

$
(2,067
)
 
$
1,890

$
—

$
1,890

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
 
February 28, 2015
 
March 1, 2014
(In thousands)
 
Defined
Benefit
Pension
Items
Unrealized
Gains and Losses on Available-
for-Sale Securities
Total
 
Defined
Benefit
Pension
Items
Unrealized Gains and Losses on Available-
for-Sale Securities
Total
Balance at beginning of period
 
$
(1,808
)
$
—

$
(1,808
)
 
$
1,000

$
(151
)
$
849

 
 
 
 
 
 
 
 
 
OCI before reclassifications
 
944

—

944

 
2,234

151

2,385

Amounts reclassified from AOCI
 
(1,203
)
—

(1,203
)
 
(1,344
)
—

(1,344
)
Net current-period OCI
 
(259
)
—

(259
)
 
890

151

1,041

 
 
 
 
 
 
 
 
 
Balance at end of period
 
$
(2,067
)
$
—

$
(2,067
)
 
$
1,890

$
—

$
1,890


Reclassifications out of AOCI in net periodic benefit costs, net of tax, were:
 
 
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
Location on Consolidated Statements
of Income and Comprehensive Income
 
February 28,
2015
 
March 1,
2014
 
February 28,
2015
 
March 1,
2014
Amortization of prior service credit
 
Operating expenses
 
$
(822
)
 
$
(876
)
 
(1,622
)
 
(1,676
)
Amortization of net actuarial loss
 
Operating expenses
 
220

 
168

 
419

 
332

Total reclassifications
 
 
 
$
(602
)
 
$
(708
)
 
$
(1,203
)
 
$
(1,344
)

Note 15: Subsequent Event

We evaluated all events or transactions occurring between the balance sheet date for the quarterly period ended February 28, 2015 and the date of issuance of the financial statements that would require recognition or disclosure in the financial statements. There were no material subsequent events except the March 26, 2015 Apollo sales agreement as noted in Note 5 and the March 18, 2015 dividend declaration as noted in Note 10.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This management's discussion should be read in conjunction with the Unaudited Consolidated Financial Statements contained in this Form 10-Q as well as the Management's Discussion and Analysis and Risk Factors included in our Annual Report on Form 10‑K for the fiscal year ended August 30, 2014 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.


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Table of Contents

Forward-Looking Information

Certain of the matters discussed in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. A number of factors could cause actual results to differ materially from these statements, including, but not limited to: increases in interest rates, availability of credit, low consumer confidence, availability of labor, significant increase in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions, integration of operations relating to mergers and acquisitions activities, any unexpected expenses related to ERP and strategic sourcing projects, and other factors which may be disclosed throughout this report. Although we believe that the expectations reflected in the “forward-looking statements” are reasonable, we cannot guarantee future results, or levels of activity, performance or achievements. Undue reliance should not be placed on these “forward-looking statements,” which speak only as of the date of this report. We undertake no obligation to publicly update or revise any “forward-looking statements” whether as a result of new information, future events or otherwise, except as required by law or the rules of the NYSE.

Executive Overview
Winnebago Industries, Inc. is a leading US manufacturer of RVs with a proud history of manufacturing RV products for more than 50 years. We produce all of our motorhomes in vertically integrated manufacturing facilities in Iowa and we produce all travel trailer and fifth wheel trailers in Indiana. We distribute our products primarily through independent dealers throughout the US and Canada, who then retail the products to the end consumer.
Our retail unit market share, as reported by Stat Surveys based on state records, is illustrated below. Note that this data is subject to adjustment and is continuously updated.
 
 
Through January 31
 
Calendar Year
US and Canada
 
2015
2014
 
2014
2013
2012
Motorized A, B, C
 
21.3
%
18.6
%
 
20.7
%
18.6
%
19.8
%
Travel trailer and fifth wheels
 
1.0
%
0.8
%
 
0.8
%
1.0
%
0.9
%

During calendar 2014, we increased our North American motorhome retail market share by 210 basis points. The most notable growth occurred in the Class C segment which was fueled in part by our partnership with a large rental dealer. We also experienced significant retail growth in Class B in calendar 2014 due to new products introduced and increased demand for existing offerings.

Presented in fiscal quarters, certain key metrics are shown below:
 
 
Class A, B & C Motorhomes
 
Travel Trailers & Fifth Wheels
 
 
 
 
As of Quarter End
 
 
 
As of Quarter End
 
 
Wholesale
Retail
Dealer
Order
 
Wholesale
Retail
Dealer
Order
(In units)
 
Deliveries
Registrations
Inventory
Backlog
 
Deliveries
Registrations
Inventory
Backlog
Q3 2013
 
1,978

1,736

2,634

2,846

 
713

846

1,642

443

Q4 2013
 
1,890

1,870

2,654

3,380

 
717

748

1,611

221

Q1 2014
 
2,005

1,524

3,135

3,534

 
484

504

1,591

151

Q1 2014
 
2,055

1,283

3,907

2,900

 
575

394

1,772

206

Rolling 12 months
 
7,928

6,413

 
 
 
2,489

2,492

 
 
Mar 2013-Feb 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 2014 (1)
 
2,674

2,783

3,798

2,357

 
727

724

1,775

303

Q4 2014
 
2,364

2,183

3,979

1,899

 
723

777

1,721

163

Q1 2015
 
2,031

1,818

4,192

2,122

 
546

585

1,682

154

Q2 2015
 
2,104

1,518

4,778

2,275

 
605

410

1,877

130

Rolling 12 months
 
9,173

8,302

 


 
2,601

2,496

 
 
Mar 2014-Feb 2015
 
 
 




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unit change
 
1,245

1,889

871

(625
)
 
112

4

105

(76
)
Percentage change
 
15.7
%
29.5
%
22.3
%
(21.6
)%
 
4.5
%
0.2
%
5.9
%
(36.9
)%
(1) Of the 2,674 units delivered in Q3 2014, 343 units were accounted for as operating leases as the units were subject to repurchase option. These units were included as retail registrations, not in dealer inventory, as the units were immediately placed into rental service once delivered. See Note 5 to the financial statements.


13
Table of Contents

Industry Outlook
Key statistics for the motorhome industry are as follows:
 
US and Canada Industry Class A, B & C Motorhomes
 
Wholesale Shipments(1)
 
Retail Registrations(2)
 
Calendar Year
 
Calendar Year
(In units)
2014

 
2013

Unit Change
% Change
 
2014

 
2013

Unit Change
% Change
Q1
11,125

 
8,500

2,625

30.9
 %
 
8,076

 
7,147

929

13.0
 %
Q2
12,203

 
10,972

1,231

11.2
 %
 
12,505

 
10,909

1,596

14.6
 %
Q3
10,704

 
9,469

1,235

13.0
 %
 
10,609

 
9,125

1,484

16.3
 %
Q4
9,919

 
9,391

528

5.6
 %
 
7,500

 
6,281

1,219

19.4
 %
Total
43,951

 
38,332

5,619

14.7
 %
 
38,690

 
33,462

5,228

15.6
 %
 
2015

 
2014

Unit Change
% Change
 
2015

 
2014

Unit Change
% Change
January
3,732

 
3,268

464

14.2
 %
 
2,110

 
2,119

(9
)
(0.4
)%
February
4,087

  
3,737

350

9.4
 %
 
 
(4)
2,420





March
4,532

(3) 
4,120

412

10.0
 %
 
 
(4)
3,537





Q1
12,351

(3) 
11,125

1,226

11.0
 %
 
 
(4)
8,076





Q2
12,900

(3) 
12,203

697

5.7
 %
 


(4)
12,505





Q3
10,700

(3) 
10,704

(4
)
—
 %
 
 
(4)
10,609





Q4
10,000

(3) 
9,919

81

0.8
 %
 
 
(4)
7,500





Total
45,951

(3) 
43,951

2,000

4.6
 %
 

 
38,690





 
 
 
 
 
 
 
 
 
 
 
 
YTD (5)
7,819

 
7,005

814

11.6
 %
 
2,110

 
2,119





(1) 
Class A, B and C wholesale shipments as reported by RVIA.
(2) 
Class A, B and C retail registrations as reported by Stat Surveys for the US and Canada combined.
(3) 
Monthly and quarterly Class A, B and C wholesale shipments are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Spring 2015 Industry Forecast Issue. The revised RVIA annual 2015 wholesale shipment forecast is 45,000.
(4) 
Stat Surveys has not issued a projection for 2015 retail demand for this period.
(5) 
YTD wholesale shipments include January through February; YTD retail registrations include January.
    
Key statistics for the towable industry are as follows:
 
US and Canada Travel Trailer & Fifth Wheel Industry
 
Wholesale Shipments(1)
 
Retail Registrations(2)
 
Calendar Year
 
Calendar Year
(In units)
2014

 
2013

Unit Change
% Change
 
2014

 
2013

Unit Change
% Change
Q1
75,458

 
66,745

8,713

13.1
 %
 
45,970

 
42,987

2,983

6.9
%
Q2
85,648

 
79,935

5,713

7.1
 %
 
99,881

 
94,717

5,164

5.5
%
Q3
65,543

 
61,251

4,292

7.0
 %
 
86,737

 
79,805

6,932

8.7
%
Q4
72,289

 
60,104

12,185

20.3
 %
 
42,144

 
37,054

5,090

13.7
%
Total
298,938

 
268,035

30,903

11.5
 %
 
274,732

 
254,563

20,169

7.9
%
 
2015

 
2014

Unit Change
% Change
 
2015

 
2014

Unit Change
% Change
January
23,799

 
21,306

2,493

11.7
 %
 
11,053

 
10,115

938

9.3
%
February
26,979

 
26,043

936

3.6
 %
 
 
(4)
13,653

 
 
March
30,899

(3)
28,109

2,790

9.9
 %
 
 
(4)
22,202

 
 
Q1
82,272

(3)
75,458

6,814

9.0
 %
 
 
(4)
45,970





Q2
94,300

(3)
85,648

8,652

10.1
 %
 
 
(4)
99,881





Q3
73,400

(3)
65,543

7,857

12.0
 %
 
 
(4)
86,737





Q4
70,900

(3)
72,289

(1,389
)
(1.9
)%
 
 
(4)
42,144

 
 
Total
320,872

(3)
298,938

21,934

7.3
 %
 


 
274,732




 
 
 
 
 
 
 
 
 

 
 
YTD (5)
50,778

 
47,349

3,429

7.2
 %
 
11,053

 
10,115





(1) 
Towable wholesale shipments as reported by RVIA.
(2) 
Towable retail registrations as reported by Stat Surveys for the US and Canada combined.

14
Table of Contents

(3) 
Monthly and quarterly towable wholesale shipments are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Spring 2015 Industry Forecast Issue. The revised RVIA annual 2015 wholesale shipment forecast is 319,700.
(4) 
Stat Surveys has not issued a projection for retail demand for this period.
(5) 
YTD wholesale shipments include January through February; YTD retail registrations include January.

Company Outlook
Our motorized dealer backlog is an indicator of demand for our product in the current marketplace. We believe that the decrease in our backlog (as noted in the table below) is a result of more timely delivery through increased production rates and improved chassis supply. We continued to increase our production rates during the first six months of fiscal Fiscal 2015. In Fiscal 2014 we leased an additional production facility to facilitate the increased production rate and to reach an additional labor market. During the second quarter of fiscal 2015 we took motorhome orders for 2,257 units as compared to 1,421 units in the second quarter of fiscal 2014. We believe this also represents the positive outlook of our dealer base.

Our motorized sales order backlog of 2,275 as of February 28, 2015 represents orders to be shipped in the next two quarters:
 
As Of
(In units)
February 28, 2015
 
March 1, 2014
 
(Decrease)
Increase
%
Change
Class A gas
487

21.4
%
 
1,129

38.9
%
 
(642
)
(56.9
)%
Class A diesel
229

10.1
%
 
274

9.4
%
 
(45
)
(16.4
)%
Total Class A
716

31.5
%
 
1,403

48.4
%
 
(687
)
(49.0
)%
Class B
238

10.5
%
 
274

9.4
%
 
(36
)
(13.1
)%
Class C
1,321

58.1
%
 
1,223

42.2
%
 
98

8.0
 %
Total motorhome backlog(1)
2,275

100.0
%
 
2,900

100.0
%
 
(625
)
(21.6
)%
 
 
 
 
 
 
 
 
 
Travel trailer
83

63.8
%
 
169

82.0
%
 
(86
)
(50.9
)%
Fifth wheel
47

36.2
%
 
37

18.0
%
 
10

27.0
 %
Total towable backlog(1)
130

100.0
%
 
206

100.0
%
 
(76
)
(36.9
)%
 
 
 
 
 
 
 
 
 
Approximate backlog revenue in thousands(2)
 
 
 
 
 
 
 
Motorhome
$
216,228

 
 
$
260,095

 
 
$
(43,867
)
(16.9
)%
Towable
$
4,121

 
 
$
4,853

 
 
$
(732
)
(15.1
)%
(1) 
Percentages may not add due to rounding differences.
(2) 
Our backlog includes all accepted purchase orders from dealers to be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the purchaser and, therefore, backlog may not necessarily be an accurate measure of future sales.

Our unit dealer inventory was as follows:
 
February 28,
2015
March 1,
2014
 
Increase
%
Change
Motorhomes
4,778

3,907

 
871

22.3
%
Towables
1,877

1,772

 
105

5.9
%

We believe that the increased level of our motorized dealer inventory at the end of the second quarter of Fiscal 2015 is aligned with current market conditions given the improved retail demand and the strong sales order backlog of our product. Notably, dealer inventory of our Class B motorhomes has increased significantly in the past year (up 329 units) due to the strong retail demand of our product which was up over 100% on a trailing twelve month basis. We have introduced a number of new products in the past year in all segments, many of these products were delivered to the dealers during calendar 2014 for their initial stocking. We believe that these innovative products will generate additional retail demand in the coming quarters. We have also restructured our dealer distribution points for these new product offerings in the past year as our dealer physical locations have increased, which is another factor contributing to our dealer inventory growth.

The recreation vehicle industry has, from time to time, experienced shortages of chassis due to various causes such as component shortages and/or production delays due to quality issues at the chassis manufacturers. In the first half of Fiscal 2014 we experienced shortages of certain motorized RV chassis which negatively affected our sales and earnings. Conditions improved during the second half of Fiscal 2014 with Ford’s improved Class A chassis supply and resolution of their Class A chassis quality issues which had caused a supply constraint.  We continue to closely monitor our chassis suppliers and work with them to minimize impact to our production.

Our motorized production facilities are located in sparsely populated areas of Iowa. In addition, the unemployment rate in these areas is currently low. These factors limit our ability to increase motorized production volumes at a more rapid pace. To the extent

15
Table of Contents

that we have been able to increase the production rate, we have also incurred incremental operating expenses associated with overtime and workers compensation expense.

At the December 2014 Board of Directors meeting, two strategic initiatives were approved and, as a result, commenced in the second quarter of Fiscal 2015. Both of these projects represent significant investments that we believe will contribute to our future success.
•
The first strategic initiative relates to the execution of an ERP system implementation which will replace our in-house developed financial and operation legacy systems and provide better support for our changing business needs and plans for future growth. We believe that this project will deliver long-term cost savings through supply chain management optimization and operational improvements once completed, in addition to a reduction in system maintenance, internal development and support costs. Our current estimate for completion of this project is $12 to $16 million over a three-year time frame which includes software, external implementation assistance and increased internal staffing directly related to this initiative. We anticipate that approximately 40% of the cost will be immediately expensed over the life of the project and 60% will be capitalized. As a result, we expect up to $3.0 million of incremental general and administrative expense in Fiscal 2015 of which $652,000 was incurred in our second fiscal quarter.
•
The second initiative is a strategic sourcing project with the objective of obtaining long-term material cost savings through standardizing our purchasing processes, optimizing our supplier relationships and improving our current sourcing methodologies. We have engaged external support with deep domain expertise to help us conduct this project and, as a result, we expect to incur up to $2.8 million in general and administrative expenses for this assistance, of which $827,000 and $967,000 was incurred in the second quarter and first six months of Fiscal 2015, respectively. We expect to incur approximately $700,000 of incremental general and administrative expense for the remainder of Fiscal 2015 and $1.1 million in Fiscal 2016; the project is planned to be completed in June 2016 based on current internal staffing support. When fully implemented, we anticipate this investment will provide gross margin expansion of 30 to 50 basis points.

Results of Operations
Current Quarter Compared to the Comparable Quarter Last Year
The following is an analysis of changes in key items included in the statements of operations:
 
 
Three Months Ended
(In thousands, except percent
and per share data)
 
February 28,
2015
% of
Revenues(1)
 
March 1,
2014
% of
Revenues(1)
 
Increase
(Decrease)
%
Change
Net revenues
 
$
234,543

100.0
%
 
$
228,811

100.0
 %
 
$
5,732

2.5
 %
Cost of goods sold
 
210,285

89.7
%
 
205,966

90.0
 %
 
4,319

2.1
 %
Gross profit
 
24,258

10.3
%
 
22,845

10.0
 %
 
1,413

6.2
 %
 
 
 
 
 
 
 
 
 
 
Selling
 
4,846

2.1
%
 
4,489

2.0
 %
 
357

8.0
 %
General and administrative
 
7,464

3.2
%
 
4,949

2.2
 %
 
2,515

50.8
 %
Gain on sale of real estate
 
—

—
%
 
(629
)
(0.3
)%
 
629

(100.0
)%
Operating expenses
 
12,310

5.2
%
 
8,809

3.8
 %
 
3,501

39.7
 %
 
 
 
 
 
 
 
 
 
 
Operating income
 
11,948

5.1
%
 
14,036

6.1
 %
 
(2,088
)
(14.9
)%
Non-operating income (expense)
 
28

—
%
 
(74
)
—
 %
 
102

(137.8
)%
Income before income taxes
 
11,976

5.1
%
 
13,962

6.1
 %
 
(1,986
)
(14.2
)%
Provision for taxes
 
3,880

1.7
%
 
4,369

1.9
 %
 
(489
)
(11.2
)%
Net income
 
$
8,096

3.5
%
 
$
9,593

4.2
 %
 
$
(1,497
)
(15.6
)%
 
 
 
 
 
 
 
 
 
 
Diluted income per share
 
$
0.30

 
 
$
0.35

 
 
$
(0.05
)
(14.3
)%
Diluted average shares outstanding
 
27,018

 
 
27,724

 
 
(706
)
(2.5
)%
(1) Percentages may not add due to rounding differences.

16
Table of Contents

Unit deliveries and ASP, net of discounts, consisted of the following:
 
 
Three Months Ended
(In units)
 
February 28,
2015
Product
Mix % (1)
 
March 1,
2014
Product
Mix % (1)
 
(Decrease)
Increase
%
Change
Motorhomes:
 
 
 
 
 
 
 
 
 
Class A gas
 
524

24.9
%
 
589

28.7
%
 
(65
)
(11.0
)%
Class A diesel
 
286

13.6
%
 
456

22.2
%
 
(170
)
(37.3
)%
Total Class A
 
810

38.5
%
 
1,045

50.9
%
 
(235
)
(22.5
)%
Class B
 
277

13.2
%
 
198

9.6
%
 
79

39.9
 %
Class C
 
1,017

48.3
%
 
812

39.5
%
 
205

25.2
 %
Total motorhome deliveries
 
2,104

100.0
%
 
2,055

100.0
%
 
49

2.4
 %
 
 
 
 
 
 
 
 
 
 
ASP (in thousands)
 
$
100.2

 
 
$
100.6

 
 
$
(0.4
)
(0.4
)%
 
 
 
 
 
 
 
 
 
 
Towables:
 
 
 
 
 
 
 
 
 
Travel trailer
 
508

84.0
%
 
463

80.5
%
 
45

9.7
 %
Fifth wheel
 
97

16.0
%
 
112

19.5
%
 
(15
)
(13.4
)%
Total towable deliveries
 
605

100.0
%
 
575

100.0
%
 
30

5.2
 %
 
 
 
 
 
 
 
 
 
 
ASP (in thousands)
 
$
25.7

 
 
$
23.9

 
 
$
1.8

7.7
 %
(1) Percentages may not add due to rounding differences.

Net revenues consisted of the following:
 
 
Three Months Ended
(In thousands)
 
February 28,
2015
 
March 1,
2014
 
Increase
(Decrease)
%
Change
Motorhomes (1)
 
$
212,329

90.5
%
 
$
207,406

90.6
%
 
$
4,923

2.4
 %
Towables (2)
 
15,351

6.5
%
 
13,726

6.0
%
 
1,625

11.8
 %
Other manufactured products
 
6,863

2.9
%
 
7,679

3.4
%
 
(816
)
(10.6
)%
Total net revenues
 
$
234,543

100.0
%
 
$
228,811

100.0
%
 
$
5,732

2.5
 %
(1) 
Includes motorhome units, parts and services, and net motorhome lease revenue.
(2) 
Includes towable units and parts.

Motorhome net revenues increased $4.9 million or 2.4% in the second quarter of Fiscal 2015 attributed primarily to a 2.4% increase in unit deliveries. Motorhome ASP dropped slightly due to a shift from Class A products to Class B and C unit sales in the second quarter of Fiscal 2015.

The increase in Towables revenues of $1.6 million or 11.8% was attributed to an increase in ASP of 7.7% and a 5.2% increase in unit deliveries as compared to the second quarter of Fiscal 2014.

Cost of goods sold was $210.3 million, or 89.7% of net revenues for the second quarter of Fiscal 2015 compared to $206.0 million, or 90.0% of net revenues for the same period a year ago due to the following:
•
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, slightly decreased to 84.4% compared to 84.5%.
•
Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 5.2% compared to 5.5% of net revenues, mostly a result of higher production levels which resulted in increased absorption of fixed costs.
•
All factors considered, gross profit increased to 10.3% from 10.0% of net revenues.
Selling expenses were $4.8 million and $4.5 million, or 2.1% and 2.0% of net revenues in the second quarter of Fiscal 2015 and Fiscal 2014, respectively. Increases in the second quarter of Fiscal 2015 included advertising and product promotions as compared to the prior year.
General and administrative expenses were $7.5 million and $4.9 million, or 3.2% and 2.2% of net revenues in the second quarter of Fiscal 2015 and Fiscal 2014, respectively. The increase in the second quarter of Fiscal 2015 was primarily related to costs associated with ERP implementation and a strategic sourcing project which totaled $1.5 million. In addition, we incurred increased legal expenses of approximately $500,000 and increased equipment maintenance costs.

17
Table of Contents

During the second quarter of Fiscal 2014 we realized a gain of $629,000 on the sale of a leased warehouse facility.
The overall effective income tax rate for the second quarter of Fiscal 2015 was 32.4% compared to the effective tax rate of 31.3% for the same period in Fiscal 2014. The increase in tax rate for the second quarter of Fiscal 2015 is primarily a result of the increased estimated state taxes, lower tax-free income and tax credits. The legislation for various applicable tax credits expired on December 31, 2014; therefore our projected benefits for these credits are limited to four months of our fiscal year.
Net income and diluted income per share were $8.1 million and $0.30 per share, respectively, for the second quarter of Fiscal 2015. In the second quarter of Fiscal 2014, net income was $9.6 million and diluted income was $0.35 per share. The impact of stock repurchases in the last twelve months on diluted net income per share was an increase of $0.01 for the second quarter of Fiscal 2015. See Part II, Item 2.

Six Months of Fiscal 2015 Compared to the Comparable Six Months of Fiscal 2014
The following is an analysis of changes in key items included in the statements of operations:
 
 
Six Months Ended
(In thousands, except percent
and per share data)
 
February 28,
2015
% of
Revenues(1)
 
March 1,
2014
% of
Revenues(1)
 
Increase
(Decrease)
%
Change
Net revenues
 
$
458,946

100.0
%
 
$
451,481

100.0
 %
 
$
7,465

1.7
 %
Cost of goods sold
 
410,302

89.4
%
 
402,674

89.2
 %
 
7,628

1.9
 %
Gross profit
 
48,644

10.6
%
 
48,807

10.8
 %
 
(163
)
(0.3
)%
 
 
 
 
 
 
 
 
 
 
Selling
 
9,553

2.1
%
 
8,822

2.0
 %
 
731

8.3
 %
General and administrative
 
12,701

2.8
%
 
10,572

2.3
 %
 
2,129

20.1
 %
Gain on sale of real estate
 
—

—
%
 
(629
)
(0.1
)%
 
629

(100.0
)%
Operating expenses
 
22,254

4.8
%
 
18,765

4.2
 %
 
3,489

18.6
 %
 
 
 
 
 
 
 
 
 
 
Operating income
 
26,390

5.8
%
 
30,042

6.7
 %
 
(3,652
)
(12.2
)%
Non-operating income
 
35

—
%
 
17

—
 %
 
18

105.9
 %
Income before income taxes
 
26,425

5.8
%
 
30,059

6.7
 %
 
(3,634
)
(12.1
)%
Provision for taxes
 
8,434

1.8
%
 
9,320

2.1
 %
 
(886
)
(9.5
)%
Net income
 
$
17,991

3.9
%
 
$
20,739

4.6
 %
 
$
(2,748
)
(13.3
)%
 
 
 
 
 
 
 
 
 
 
Diluted income per share
 
$
0.67

 
 
$
0.74

 
 
$
(0.07
)
(9.5
)%
Diluted average shares outstanding
 
27,048

 
 
27,850

 
 
(802
)
(2.9
)%
(1) Percentages may not add due to rounding differences.

18
Table of Contents

Unit deliveries and ASP, net of discounts, consisted of the following:
 
 
Six Months Ended
(In units)
 
February 28,
2015
Product
Mix % (1)
 
March 1,
2014
Product
Mix % (1)
 
(Decrease)
Increase
%
Change
Motorhomes:
 
 
 
 
 
 
 
 
 
Class A gas
 
1,139

27.5
%
 
1,299

32.0
%
 
(160
)
(12.3
)%
Class A diesel
 
598

14.5
%
 
853

21.0
%
 
(255
)
(29.9
)%
Total Class A
 
1,737

42.0
%
 
2,152

53.0
%
 
(415
)
(19.3
)%
Class B
 
465

11.2
%
 
300

7.4
%
 
165

55.0
 %
Class C
 
1,933

46.7
%
 
1,608

39.6
%
 
325

20.2
 %
Total motorhome deliveries (2)
 
4,135

100.0
%
 
4,060

100.0
%
 
75

1.8
 %
 
 
 
 
 
 
 
 
 
 
ASP (in thousands)
 
$
99.3

 
 
$
100.5

 
 
$
(1.3
)
(1.2
)%
 
 
 
 
 
 
 
 
 
 
Towables:
 
 
 
 
 
 
 
 
 
Travel trailer
 
969

84.2
%
 
870

82.2
%
 
99

11.4
 %
Fifth wheel
 
182

15.8
%
 
189

17.8
%
 
(7
)
(3.7
)%
Total towable deliveries
 
1,151

100.0
%
 
1,059

100.0
%
 
92

8.7
 %
 
 
 
 
 
 
 
 
 
 
ASP (in thousands)
 
$
25.4

 
 
$
22.9

 
 
$
2.6

11.2
 %
(1) Percentages may not add due to rounding differences.
(2) An additional 343 motorhomes were delivered in Fiscal 2014 but not included in wholesale deliveries as presented in the table above as the units are subject to repurchase option. See Note 5 to the financial statements.

Net revenues consisted of the following:
 
 
Six Months Ended
(In thousands)
 
February 28,
2015
 
March 1,
2014
 
Increase
(Decrease)
%
Change
Motorhomes (1)
 
$
415,371

90.5
%
 
$
411,791

91.2
%
 
$
3,580

0.9
 %
Towables (2)
 
28,957

6.3
%
 
24,257

5.4
%
 
4,700

19.4
 %
Other manufactured products
 
14,618

3.2
%
 
15,433

3.4
%
 
(815
)
(5.3
)%
Total net revenues
 
$
458,946

100.0
%
 
$
451,481

100.0
%

$
7,465

1.7
 %
(1) 
Includes motorhome units, parts and services.
(2) 
Includes towable units and parts.

The increase in motorhome net revenues of $3.6 million or 0.9% was attributed primarily to a 1.8% increase in unit deliveries in the first six months of Fiscal 2015 as compared to the first six months of Fiscal 2014, partially offset by a decrease in motorhome ASP of 1.2% as compared to the first six months of Fiscal 2014. The decrease in ASP was primarily due to a lower percentage of class A gas and diesel unit sales in the first six months of Fiscal 2015.

Towables revenues increased 19.4%, and were $29.0 million in the first six months of Fiscal 2015, compared to $24.3 million in the first six months of Fiscal 2014. The increase in revenues was a result of an 11.2% increase in ASP and an 8.7% increase in unit deliveries.

Cost of goods sold was $410.3 million, or 89.4% of net revenues for the first six months of Fiscal 2015 compared to $402.7 million, or 89.2% of net revenues for the first six months of Fiscal 2014 due to the following:
•
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, increased to 84.2% in Fiscal 2015 compared to 83.8% in Fiscal 2014. The increase is primarily due to higher labor-related expenses in Fiscal 2015, notably workers' compensation.
•
Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 5.2% of net revenues compared to 5.3% for Fiscal 2014.
•
All factors considered, gross profit decreased to 10.6% from 10.8% of net revenues.
Selling expenses increased $731,000, or 2.1% from 2.0% of net revenues in the first six months of Fiscal 2015 and Fiscal 2014, respectively. The increase was primarily related to advertising and product promotions.
General and administrative expenses were 2.8% and 2.3% of net revenues in the first six months of Fiscal 2015 and Fiscal 2014, respectively. General and administrative expenses increased $2.1 million, or 20.1% in the first six months of Fiscal 2015 compared

19
Table of Contents

to the same period in Fiscal 2014. The increase related to ERP implementation, a strategic sourcing project, legal and equipment maintenance costs.
During the second quarter of Fiscal 2014 we realized a gain of $629,000 on the sale of a leased warehouse facility.
Non-operating income was flat in the first six months of Fiscal 2015 compared to the same period in Fiscal 2014.
The overall effective income tax rate for the first six months of Fiscal 2015 was 31.9% compared to the effective income tax rate of 31.0% for the first six months of Fiscal 2014. The tax rate for the first six months of Fiscal 2015 is primarily a result of the lower level of pretax book income earned during Fiscal 2015. We also had a reduced level (in comparison to book income) of benefits recorded for tax credits and other tax planning initiatives in Fiscal 2015 in relation to the same period in Fiscal 2014. The legislation for various applicable tax credits expired on December 31, 2014; therefore our projected benefits for these credits are limited to four months of our fiscal year.
Net income and diluted income per share were $18.0 million and $0.67 per share, respectively, for the first six months of Fiscal 2015. In the first six months of Fiscal 2014, net income was $20.7 million and diluted net income was $0.74 per share. The impact of stock repurchases in the last twelve months on diluted net income per share was an increase of $0.01 for the first six months of Fiscal 2015. See Part II, Item 2.

Analysis of Financial Condition, Liquidity and Resources
Cash and cash equivalents decreased $49.9 million during the first six months of Fiscal 2015 and totaled $7.9 million as of February 28, 2015. Significant liquidity events that occurred during the first six months of Fiscal 2015 were:
•
Increase in inventory of $37.6 million
•
Line of credit borrowings and repayments of $22.0 million
•
Generation of net income of $18.0 million
•
Increase in income tax receivable of $11.3 million
•
Increase in receivables and prepaid assets of $7.6 million
•
Stock repurchases of $6.1 million
•
Dividend payment of $4.9 million

As noted in Note 7, through our Amended Credit Agreement with GECC, we have the ability to borrow $35.0 million through a revolving credit facility based on our eligible inventory and certain receivables. In addition, the Amended Credit Agreement also includes a framework to expand the size of the facility up to $50.0 million, based on mutually agreeable terms at the time of the expansion.
We filed a Registration Statement on Form S-3, which was declared effective by the SEC on May 9, 2013. Subject to market conditions, we have the ability to offer and sell up to $35.0 million of our common stock in one or more offerings pursuant to the Registration Statement. The Registration Statement will be available for use for three years from its effective date. We currently have no plans to offer and sell the common stock registered under the Registration Statement; however, it does provide another potential source of liquidity in addition to the alternatives already in place.
Working capital at February 28, 2015 and August 30, 2014 was $175.9 million and $172.0 million, respectively, an increase of $3.9 million. We currently expect cash on hand, cash collected on receivables, funds generated from operations and the availability under a credit facility to be sufficient to cover both short-term and long-term operating requirements for Fiscal 2015. We anticipate capital expenditures in Fiscal 2015 of approximately $15 - $20 million, primarily for manufacturing equipment and facilities and IT upgrades. We are planning to purchase the currently leased Towables assembly facilities in Middlebury, Indiana for approximately $5.4 million which is included in the range previously noted. We believe we will close this transaction in April of 2015.
We made share repurchases of $6.1 million in the first six months of Fiscal 2015. If we believe the common stock is trading at attractive levels and reflects a prudent use of our capital, subject to compliance with our agreement with GECC, we may purchase additional shares in the remainder of Fiscal 2015. At February 28, 2015 we have $7.4 million remaining on our board repurchase authorization. See Part II, Item 2 of this Form 10-Q.
Operating Activities
Cash used by operating activities was $34.1 million for the six months ended February 28, 2015 compared to $29.5 million for the six months ended March 1, 2014. In Fiscal 2015 the combination of net income of $18.0 million and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided $28.4 million of operating cash. Changes in assets and liabilities (primarily an increase in inventories and receivables) used $62.4 million of operating cash. In the first six months of Fiscal 2014, the combination of net income of $20.7 million and changes in non-cash charges (e.g., depreciation, LIFO, stock-based compensation, deferred income taxes) provided $23.0 million of operating cash. Changes in assets and liabilities (primarily increases in receivables and inventories) used $52.5 million of operating cash.

20
Table of Contents

Investing Activities
Cash used in investing activities of $4.8 million for the six months ended February 28, 2015 was due primarily to capital spending of $5.2 million. In the six months ended March 1, 2014, cash provided in investing activities of $865,000 was due primarily to proceeds from the sale of investments of $2.4 million, proceeds from the sale of property of $2.4 million partially offset by capital spending of $3.8 million.
Financing Activities
Cash used in financing activities of $11.0 million for the six months ended February 28, 2015 was primarily due to $6.1 million in repurchases of our stock and $4.9 million for the payment of dividends. We borrowed and repaid $22.0 million on our line of credit in the six months ended February 28, 2015. Cash used in financing activities of $19.4 million for the six months ended March 1, 2014 was primarily due to repurchases of our stock of $21.5 million partially offset by proceeds from the exercise of stock options of $2.1 million.
 
Significant Accounting Policies

We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended August 30, 2014. We discuss our critical accounting estimates in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended August 30, 2014. We refer to these disclosures for a detailed explanation of our significant accounting policies and critical accounting estimates. There has been no significant change in our significant accounting policies or critical accounting estimates since the end of Fiscal 2014.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk

None

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures", as such term is defined under Securities Exchange Act of 1934, as amended ("Exchange Act") Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's disclosure control objectives.

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Report (the "Evaluation Date"). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the Evaluation Date.

Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II OTHER INFORMATION

Item 1. Legal Proceedings
We are involved in various legal proceedings which are ordinary litigation incidental to our business, some of which are covered in whole or in part by insurance. We believe, while the final resolution of any such litigation may have an impact on our results for a particular reporting period, the ultimate disposition of such litigation will not have any material adverse effect on our financial position, results of operations or liquidity.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10‑K for the fiscal year ended August 30, 2014.


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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 19, 2007, the Board of Directors authorized the repurchase of outstanding shares of our common stock, depending on market conditions, for an aggregate consideration of up to $60 million. There is no time restriction on this authorization. During the second quarter of Fiscal 2015, 9,478 shares were repurchased under the authorization, at an aggregate cost of $190,000. All of these shares were repurchased from employees who vested in Winnebago Industries shares during the second quarter of Fiscal 2015 and elected to pay their payroll tax via shares as opposed to cash. As of February 28, 2015, there was approximately $7.4 million remaining under this authorization.
Purchases of our common stock during each fiscal month of the second quarter of Fiscal 2015 were:
Period
Total Number
of Shares
Purchased
Average Price
Paid per Share
Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar Value
of Shares That May Yet Be
Purchased Under the
Plans or Programs
11/30/14 - 01/03/15
—

 
$
—

 
—

 
$
7,632,000

 
01/04/15 - 01/31/15
9,478

 
$
20.05

 
9,478

 
$
7,442,000

 
02/01/15 - 02/28/15
—

 
$
—

 
—

 
$
7,442,000

 
Total
9,478

 
$
20.05

 
9,478

 
$
7,442,000

 
 
Our Credit Agreement contains covenants that limit our ability, among other things, to pay certain cash dividends. See Note 7 to the financial statements.

Item 6. Exhibits
31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated March 27, 2015.
31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated March 27, 2015.
32.1
Certification by the Chief Executive Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated March 27, 2015.
32.2
Certification by the Chief Financial Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated March 27, 2015.
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
*Attached as Exhibit 101 to this report are the following financial statements from our Quarterly Report on Form 10-Q for the quarter ended February 28, 2015 formatted in XBRL: (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Operations and Comprehensive Income, (iii) the Unaudited Consolidated Statement of Cash Flows, and (iv) related notes to these financial statements. Such exhibits are deemed furnished and not filed pursuant to Rule 406T of Regulation S-T.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
WINNEBAGO INDUSTRIES, INC.
 
 
 
 
 
 
Date:
March 27, 2015
By
/s/ Randy J. Potts
 
 
 
 
Randy J. Potts
 
 
 
 
Chief Executive Officer, President, Chairman of the Board
 
 
 
 
(Principal Executive Officer)
 
 
 
 
 
 
Date:
March 27, 2015
By
/s/ Sarah N. Nielsen
 
 
 
 
Sarah N. Nielsen
 
 
 
 
Vice President, Chief Financial Officer
 
 
 
 
(Principal Financial and Accounting Officer)
 


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