Winnebago Industries Earnings 2021-02-27
| Balance Sheet | Income Statement | Cash Flow |
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Assets, Equity
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Rev, G Profit, Net Income
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Ops, Inv, Fin
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | ||||||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended February 27, 2021
| or | |||||||||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||
| For the transition period from _________________ to _________________ | |||||||||||
| Commission File Number: | |||||||||||
| (Exact name of registrant as specified in its charter) | ||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
| (Registrant's telephone number, including area code) | ||||||||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Smaller Reporting Company ☐ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock, par value $0.50 per share, outstanding on March 18, 2021 was 33,600,159 .
Winnebago Industries, Inc.
Table of Contents
2
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Consolidated Financial Statements.
Winnebago Industries, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (in thousands, except per share data) | February 27, 2021 | February 29, 2020 | February 27, 2021 | February 29, 2020 | |||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general, and administrative expenses | |||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Non-operating income | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Income per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
Amortization of net actuarial loss (net of tax of $ | |||||||||||||||||||||||
Interest rate swap activity (net of tax of $ | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
3
Winnebago Industries, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| (in thousands, except per share data) | February 27, 2021 | August 29, 2020 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Receivables, less allowance for doubtful accounts ($ | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant, and equipment, net | |||||||||||
| Other assets: | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Investment in life insurance | |||||||||||
| Operating lease assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Income taxes payable | |||||||||||
| Accrued expenses: | |||||||||||
| Accrued compensation | |||||||||||
| Product warranties | |||||||||||
| Self-insurance | |||||||||||
| Promotional | |||||||||||
| Accrued interest | |||||||||||
| Other | |||||||||||
| Total current liabilities | |||||||||||
| Non-current liabilities: | |||||||||||
| Long-term debt, less current maturities | |||||||||||
| Deferred income taxes | |||||||||||
| Unrecognized tax benefits | |||||||||||
| Operating lease liabilities | |||||||||||
| Deferred compensation benefits, net of current portion | |||||||||||
| Other | |||||||||||
| Total non-current liabilities | |||||||||||
| Contingent liabilities and commitments (Note 10) | |||||||||||
| Stockholders' equity: | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Treasury stock, at cost: | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements.
4
Winnebago Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended | |||||||||||
| (in thousands) | February 27, 2021 | February 29, 2020 | |||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization of intangible assets | |||||||||||
| Non-cash interest expense, net | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Last-in, first-out expense | |||||||||||
| Stock-based compensation | |||||||||||
| Deferred income taxes | |||||||||||
| Other, net | ( | ||||||||||
| Change in assets and liabilities: | |||||||||||
| Receivables | ( | ||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Accounts payable | |||||||||||
| Income taxes and unrecognized tax benefits | ( | ( | |||||||||
| Accrued expenses and other liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Acquisition of business, net of cash acquired | ( | ||||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Other, net | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing activities: | |||||||||||
| Borrowings on long-term debt | |||||||||||
| Repayments on long-term debt | ( | ( | |||||||||
| Purchase of convertible bond hedge | ( | ||||||||||
| Proceeds from issuance of warrants | |||||||||||
| Payments of cash dividends | ( | ( | |||||||||
| Payments for repurchases of common stock | ( | ||||||||||
| Payments of debt issuance costs | ( | ( | |||||||||
| Other, net | ( | ||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Net increase in cash and cash equivalents | |||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
5
| Supplemental cash flow disclosure: | |||||||||||
| Income taxes paid, net | $ | $ | |||||||||
| Interest paid | $ | $ | |||||||||
| Non-cash transactions: | |||||||||||
| Issuance of Winnebago common stock for acquisition of business | $ | $ | |||||||||
| Capital expenditures in accounts payable | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements.
6
Winnebago Industries, Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
| Three Months Ended February 27, 2021 | ||||||||||||||||||||||||||
| (in thousands, except per share data) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders' Equity | ||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||
| Balances at November 28, 2020 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | — | — | ||||||||||||||||||||||
| Issuance of stock, net | — | — | — | — | ||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||
Common stock dividends; $ | — | — | — | ( | — | — | — | ( | ||||||||||||||||||
| Actuarial loss, net of tax | — | — | — | — | — | — | ||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
| Balances at February 27, 2021 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Six Months Ended February 27, 2021 | ||||||||||||||||||||||||||
| (in thousands, except per share data) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders' Equity | ||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||
| Balances at August 29, 2020 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | — | — | ||||||||||||||||||||||
| Issuance of stock, net | — | — | ( | — | — | |||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||
Common stock dividends; $ | — | — | — | ( | — | — | — | ( | ||||||||||||||||||
| Actuarial loss, net of tax | — | — | — | — | — | — | ||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
| Balances at February 27, 2021 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Three Months Ended February 29, 2020 | ||||||||||||||||||||||||||
| (in thousands, except per share data) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders' Equity | ||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||
| Balances at November 30, 2019 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | — | — | ||||||||||||||||||||||
| Issuance of stock, net | — | — | — | — | ||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||
Common stock dividends; $ | — | — | — | ( | — | — | — | ( | ||||||||||||||||||
| Actuarial loss, net of tax | — | — | — | — | — | — | ||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
| Balances at February 29, 2020 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
7
| Six Months Ended February 29, 2020 | ||||||||||||||||||||||||||
| (in thousands, except per share data) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders' Equity | ||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||
| Balances at August 31, 2019 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | — | — | — | |||||||||||||||||||||
| Issuance of stock, net | — | — | ( | — | — | |||||||||||||||||||||
| Issuance of stock for acquisition | — | — | — | — | ||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||
Common stock dividends; $ | — | — | — | ( | — | — | — | ( | ||||||||||||||||||
| Actuarial loss, net of tax | — | — | — | — | — | — | ||||||||||||||||||||
| Interest rate swap activity, net of tax | — | — | — | — | ( | — | — | ( | ||||||||||||||||||
Equity component of convertible senior notes and offering costs, net of tax of $ | — | — | — | — | — | — | ||||||||||||||||||||
Convertible note hedge purchase, net of tax of $ | — | — | ( | — | — | — | — | ( | ||||||||||||||||||
| Warrant transactions | — | — | — | — | — | — | ||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||
| Balances at February 29, 2020 | $ | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
8
Winnebago Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Basis of Presentation
Unless the context otherwise requires, the use of the terms "Winnebago Industries," "Winnebago", and "the Company" in these Notes to Condensed Consolidated Financial Statements refers to Winnebago Industries, Inc. and its wholly-owned subsidiaries.
In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Condensed Consolidated Financial Statements.
Interim results are not necessarily indicative of the results to be expected for the full year. The interim Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020.
Fiscal Period
The Company follows a 52-/53-week fiscal year, ending the last Saturday in August. Fiscal 2021 and Fiscal 2020 are both a 52-week year.
Cash and cash equivalents
Cash equivalents include all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted. Accounts at each banking institution are insured by the Federal Deposit Insurance Corporation up to $250,000, while the remaining balances are uninsured.
Subsequent Events
In preparing the accompanying unaudited Condensed Consolidated Financial Statements, the Company evaluated subsequent events for potential recognition and disclosure through the date of this filing. There were no material subsequent events, except for the item noted below.
Dividend
On March 17, 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.12 per share payable on April 28, 2021 to common stockholders of record at the close of business on April 14, 2021.
CARES Act
The Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law on March 27, 2020. The Company is taking advantage of the employer payroll tax ("FICA") deferral offered by the CARES Act, which allows the Company to defer the payment of employer payroll taxes for the period from March 27, 2020 to December 31, 2020. The deferred FICA liability as of February 27, 2021 was $16.2 million and will be payable in equal installments at December 2021 and December 2022. Additionally, the Company took advantage of a tax credit granted to companies under the CARES Act who continued to pay their employees when operations were fully or partially suspended. The refundable tax credit through the end of the third quarter of Fiscal 2020, reflected in cost of goods sold and within other current assets, is approximately $4.0 million, of which $3.2 million is outstanding, and will be received in Fiscal 2021.
Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Codification ("ASC") Topic 326, Financial Instruments—Credit Losses (“Topic 326”), effective August 30, 2020. The new impairment model (known as the current expected credit loss ("CECL") model) is based on expected losses rather than incurred losses. Topic 326 is applicable to financial assets measured at amortized cost, such as accounts receivable and deposits. It requires historical loss data to be adjusted to reflect changes in asset-specific considerations, current conditions and reasonable and supportable forecasts of future economic conditions. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The Company adopted Topic 326 using the modified retrospective transition approach, which involves recognizing the cumulative effect of initial adoption of Topic 326 as an adjustment to its opening retained earnings as of August 30, 2020. Therefore, comparative information prior to the adoption date has not been adjusted. As a result of adoption of Topic 326, the Company did not recognize an incremental allowance for credit losses on its accounts receivable for the first six months ended February 27, 2021. The adoption of this standard did not materially impact the Company's Condensed Consolidated Financial Statements.
9
Recently Issued Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of models used to account for convertible instruments, amends diluted EPS calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under the amendment, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2021 (the Company's Fiscal 2023). Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company expects to adopt the new guidance in the first quarter of Fiscal 2023. While it will change the Company's diluted EPS reporting, the extent to which the standard will have a material impact on the Company's consolidated financial statements is uncertain at this time.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company will adopt this standard when LIBOR is discontinued, and does not expect a material impact to its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740. The standard is effective for annual reporting periods beginning after December 15, 2020 (the Company's Fiscal 2022), including interim periods within those annual reporting periods. The Company expects to adopt the new guidance in the first quarter of Fiscal 2022, and does not expect a material impact to its consolidated financial statements.
Note 2: Business Segments
The Company has six operating segments: 1) Grand Design towables, 2) Winnebago towables, 3) Winnebago motorhomes, 4) Newmar motorhomes, 5) Chris-Craft marine, and 6) Winnebago specialty vehicles. The Company evaluates performance based on each operating segment's Adjusted EBITDA, as defined below, which excludes certain corporate administration expenses and non-operating income and expense.
The Company's two reportable segments include: 1) Towable (comprised of products which are not motorized and are generally towed by another vehicle as well as other related manufactured products and services), which is an aggregation of the Grand Design towables and the Winnebago towables operating segments and 2) Motorhome (comprised of products that include a motorized chassis as well as other related manufactured products and services), which is an aggregation of the Winnebago motorhomes and Newmar motorhomes operating segments.
The Corporate / All Other category includes the Chris-Craft marine and Winnebago specialty vehicles operating segments as well as expenses related to certain corporate administration expenses for the oversight of the enterprise. These expenses include items such as corporate leadership and administration costs.
Identifiable assets of the reportable segments exclude general corporate assets, which principally consist of cash and cash equivalents and certain deferred tax balances. The general corporate assets are included in the Corporate / All Other category.
The Company's chief operating decision maker ("CODM") is its Chief Executive Officer. The Company's CODM relies on internal management reporting that analyzes consolidated results and each operating segment's Adjusted EBITDA. The Company's CODM has ultimate responsibility for enterprise decisions. The Company's CODM determines, in particular, resource allocation for, and monitors the performance of, the consolidated enterprise, the Towable segment, and the Motorhome segment. The operating segments' management have responsibility for operating decisions, allocating resources, and assessing performance within their respective segments. The accounting policies of both reportable segments are the same and are described in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020.
The Company evaluates the performance of its reportable segments based on Adjusted EBITDA. EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation and amortization expense, and other adjustments made in order to present comparable results from period to period. Examples of items excluded from Adjusted EBITDA include acquisition-related fair-value inventory step-up, acquisition-related costs, restructuring expenses, gain or loss on sale of property
10
and equipment, and non-operating income. The following table shows information by reportable segment:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (in thousands) | February 27, 2021 | February 29, 2020 | February 27, 2021 | February 29, 2020 | |||||||||||||||||||
| Net Revenues | |||||||||||||||||||||||
| Towable | $ | $ | $ | $ | |||||||||||||||||||
| Motorhome | |||||||||||||||||||||||
| Corporate / All Other | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
| Adjusted EBITDA | |||||||||||||||||||||||
| Towable | $ | $ | $ | $ | |||||||||||||||||||
| Motorhome | |||||||||||||||||||||||
| Corporate / All Other | ( | ( | ( | ( | |||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
| Capital Expenditures | |||||||||||||||||||||||
| Towable | $ | $ | $ | $ | |||||||||||||||||||
| Motorhome | |||||||||||||||||||||||
| Corporate / All Other | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
| (in thousands) | February 27, 2021 | August 29, 2020 | |||||||||||||||||||||
| Total Assets | |||||||||||||||||||||||
| Towable | $ | $ | |||||||||||||||||||||
| Motorhome | |||||||||||||||||||||||
| Corporate / All Other | |||||||||||||||||||||||
| Consolidated | $ | $ | |||||||||||||||||||||
Reconciliation of net income to consolidated Adjusted EBITDA:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (in thousands) | February 27, 2021 | February 29, 2020 | February 27, 2021 | February 29, 2020 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Depreciation | |||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||
| EBITDA | |||||||||||||||||||||||
| Acquisition-related fair-value inventory step-up | |||||||||||||||||||||||
| Acquisition-related costs | |||||||||||||||||||||||
| Restructuring expenses | ( | ||||||||||||||||||||||
| Gain on sale of property and equipment | ( | ||||||||||||||||||||||
| Non-operating income | ( | ( | ( | ( | |||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | $ | |||||||||||||||||||
11
Note 3: Investments and Fair Value Measurements
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measurement, and expands disclosure about fair value measurement. The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows:
Level 1 - Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.
Level 2 - Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:
•Quoted prices for similar assets or liabilities in active markets;
•Quoted prices for identical or similar assets in nonactive markets;
•Inputs other than quoted prices that are observable for the asset or liability; and
•Inputs that are derived principally from or corroborated by other observable market data.
Level 3 - Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
The following tables set forth by level within the fair value hierarchy the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis at February 27, 2021 and August 29, 2020 according to the valuation techniques the Company used to determine their fair values:
| Fair Value at | Fair Value Hierarchy | ||||||||||||||||||||||
| (in thousands) | February 27, 2021 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets that fund deferred compensation: | |||||||||||||||||||||||
| Domestic equity funds | $ | $ | $ | $ | |||||||||||||||||||
| International equity funds | |||||||||||||||||||||||
| Fixed income funds | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Fair Value at | Fair Value Hierarchy | ||||||||||||||||||||||
| (in thousands) | August 29, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets that fund deferred compensation: | |||||||||||||||||||||||
| Domestic equity funds | $ | $ | $ | $ | |||||||||||||||||||
| International equity funds | |||||||||||||||||||||||
| Fixed income funds | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Assets that fund deferred compensation
The Company's assets that fund deferred compensation are marketable equity securities measured at fair value using quoted market prices and primarily consist of equity-based mutual funds. These securities are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. These securities fund the Executive Share Option Plan and the Executive Deferred Compensation Plan. Refer to Note 11, Employee and Retiree Benefits, of the Notes to Consolidated
12
Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 2020 for additional information regarding these plans.
The proportion of the assets that will fund options which expire within a year are included in Prepaid expenses and other assets in the accompanying Condensed Consolidated Balance Sheets. The remaining assets are classified as non-current and are included in Other assets.
Assets and Liabilities that are measured at Fair Value on a Nonrecurring Basis
The Company's non-financial assets, which include goodwill, intangible assets, and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, the Company must evaluate the non-financial asset for impairment. If an impairment has occurred, the asset is required to be recorded at the estimated fair value. No
Fair Value of Financial Instruments
The Company's financial instruments, other than those presented in the disclosures above, include cash, receivables, accounts payable, other payables, and long-term debt. The fair values of cash, receivables, accounts payable, and other payables approximated carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. See Note 8, Long-Term Debt, for information about the fair value of the Company's long-term debt.
Note 4: Inventories
Inventories consist of the following:
| (in thousands) | February 27, 2021 | August 29, 2020 | |||||||||
| Finished goods | $ | $ | |||||||||
| Work-in-process | |||||||||||