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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 26, 2022 | | | | | | | | | | | |
| or | |
| | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| | | |
| For the transition period from _________________ to _________________ | |
| | | |
| Commission File Number: 001-06403 | |

| | | | | | | | | | | | | | |
WINNEBAGO INDUSTRIES, INC. |
(Exact name of registrant as specified in its charter) |
| | | | | | | | | | | | | | | | | | | | |
Minnesota | | | 42-0802678 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
| | | |
13200 Pioneer Trail | Eden Prairie | Minnesota | | | 55347 |
(Address of principal executive offices) | | | (Zip Code) |
| | | | | | |
| 952-829-8600 | |
(Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.50 par value per share | WGO | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated filer ☐
Smaller Reporting Company ☐ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of March 17, 2022, there were 32,776,455 shares of common stock, par value $0.50 per share, outstanding.
Winnebago Industries, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended February 26, 2022
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Consolidated 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 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
Net revenues | $ | 1,164,731 | | | $ | 839,886 | | | $ | 2,320,471 | | | $ | 1,633,017 | |
Cost of goods sold | 948,154 | | | 683,304 | | | 1,874,482 | | | 1,339,431 | |
Gross profit | 216,577 | | | 156,582 | | | 445,989 | | | 293,586 | |
Selling, general, and administrative expenses | 71,795 | | | 53,016 | | | 146,665 | | | 101,415 | |
Amortization | 8,015 | | | 3,591 | | | 16,187 | | | 7,181 | |
Total operating expenses | 79,810 | | | 56,607 | | | 162,852 | | | 108,596 | |
Operating income | 136,767 | | | 99,975 | | | 283,137 | | | 184,990 | |
Interest expense, net | 10,325 | | | 10,052 | | | 20,567 | | | 19,993 | |
Non-operating loss (income) | 6,507 | | | (311) | | | 12,864 | | | (217) | |
Income before income taxes | 119,935 | | | 90,234 | | | 249,706 | | | 165,214 | |
Provision for income taxes | 28,760 | | | 21,166 | | | 58,901 | | | 38,723 | |
Net income | $ | 91,175 | | | $ | 69,068 | | | $ | 190,805 | | | $ | 126,491 | |
| | | | | | | |
Earnings per common share: | | | | | | | |
Basic | $ | 2.75 | | | $ | 2.06 | | | $ | 5.75 | | | $ | 3.77 | |
Diluted | $ | 2.69 | | | $ | 2.04 | | | $ | 5.58 | | | $ | 3.74 | |
| | | | | | | |
Weighted average common shares outstanding: | | | | | | | |
Basic | 33,098 | | | 33,533 | | | 33,210 | | | 33,571 | |
Diluted | 33,934 | | | 33,910 | | | 34,168 | | | 33,821 | |
| | | | | | | |
Net income | $ | 91,175 | | | $ | 69,068 | | | $ | 190,805 | | | $ | 126,491 | |
Other comprehensive income: | | | | | | | |
Amortization of net actuarial loss (net of tax of $3, $3, $6, and $6) | 9 | | | 8 | | | 18 | | | 17 | |
Comprehensive income | $ | 91,184 | | | $ | 69,076 | | | $ | 190,823 | | | $ | 126,508 | |
| | | | | | | |
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
Winnebago Industries, Inc.
Consolidated Balance Sheets
| | | | | | | | | | | |
(in thousands, except per share data) | February 26, 2022 | | August 28, 2021 |
| (Unaudited) | | |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 134,832 | | | $ | 434,563 | |
Receivables, less allowance for doubtful accounts ($294 and $307, respectively) | 380,039 | | | 253,808 | |
Inventories, net | 469,454 | | | 341,473 | |
Prepaid expenses and other current assets | 25,139 | | | 29,069 | |
Total current assets | 1,009,464 | | | 1,058,913 | |
Property, plant, and equipment, net | 239,034 | | | 191,427 | |
Goodwill | 484,176 | | | 348,058 | |
Other intangible assets, net | 485,619 | | | 390,407 | |
Investment in life insurance | 29,306 | | | 28,821 | |
Operating lease assets | 43,473 | | | 28,379 | |
Other long-term assets | 18,361 | | | 16,562 | |
Total assets | $ | 2,309,433 | | | $ | 2,062,567 | |
| | | |
Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
Accounts payable | $ | 211,280 | | | $ | 180,030 | |
Income taxes payable | — | | | 8,043 | |
Accrued expenses: | | | |
Accrued compensation | 59,947 | | | 67,541 | |
Product warranties | 113,818 | | | 91,222 | |
Self-insurance | 17,871 | | | 19,296 | |
Promotional | 13,723 | | | 10,040 | |
Accrued interest and dividends | 4,489 | | | 10,720 | |
Other current liabilities | 42,918 | | | 20,384 | |
Total current liabilities | 464,046 | | | 407,276 | |
Long-term debt, net | 536,990 | | | 528,559 | |
Deferred income taxes | 11,458 | | | 13,429 | |
Unrecognized tax benefits | 6,222 | | | 6,483 | |
Long-term operating lease liabilities | 42,420 | | | 26,745 | |
Deferred compensation benefits, net of current portion | 9,425 | | | 9,550 | |
Other long-term liabilities | 29,885 | | | 13,582 | |
Total liabilities | 1,100,446 | | | 1,005,624 | |
Contingent liabilities and commitments (Note 11) | | | |
Shareholders' equity: | | | |
Preferred stock, par value $0.01: 10,000 shares authorized; Zero shares issued and outstanding | — | | | — | |
Common stock, par value $0.50: 120,000 shares authorized; 51,776 shares issued and outstanding | 25,888 | | | 25,888 | |
Additional paid-in capital | 238,159 | | | 218,490 | |
Retained earnings | 1,357,812 | | | 1,172,996 | |
Accumulated other comprehensive loss | (473) | | | (491) | |
Treasury stock, at cost: 19,045 and 18,713 shares, respectively | (412,399) | | | (359,940) | |
Total shareholders' equity | 1,208,987 | | | 1,056,943 | |
Total liabilities and shareholders' equity | $ | 2,309,433 | | | $ | 2,062,567 | |
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
Winnebago Industries, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended |
(in thousands) | February 26, 2022 | | February 27, 2021 |
Operating activities | | | |
Net income | $ | 190,805 | | | $ | 126,491 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | |
Depreciation | 10,767 | | | 8,559 | |
Amortization | 16,187 | | | 7,181 | |
Non-cash interest expense, net | 7,326 | | | 6,769 | |
Amortization of debt issuance costs | 1,225 | | | 1,229 | |
Last in, first-out expense | 2,772 | | | 552 | |
Stock-based compensation | 6,891 | | | 6,981 | |
Deferred income taxes | (1,977) | | | 914 | |
Contingent consideration fair value adjustment | 12,887 | | | — | |
Other, net | 2,212 | | | (3,460) | |
Change in operating assets and liabilities, net of assets and liabilities acquired | | | |
Receivables, net | (123,595) | | | (11,547) | |
Inventories, net | (109,304) | | | (96,079) | |
Prepaid expenses and other assets | 5,613 | | | 2,321 | |
Accounts payable | 26,703 | | | 12,487 | |
Income taxes and unrecognized tax benefits | (7,941) | | | (10,698) | |
Accrued expenses and other liabilities | 5,570 | | | 15,222 | |
Net cash provided by operating activities | 46,141 | | | 66,922 | |
| | | |
Investing activities | | | |
Purchases of property, plant, and equipment | (43,426) | | | (14,920) | |
Acquisition of business, net of cash acquired | (228,159) | | | — | |
Proceeds from the sale of property, plant, and equipment | 49 | | | 7,778 | |
Other, net | (245) | | | (223) | |
Net cash used in investing activities | (271,781) | | | (7,365) | |
| | | |
Financing activities | | | |
Borrowings on long-term debt | 1,943,583 | | | 1,647,764 | |
Repayments on long-term debt | (1,943,583) | | | (1,647,764) | |
Payments of cash dividends | (11,991) | | | (8,075) | |
Payments for repurchases of common stock | (64,218) | | | (12,109) | |
Payments of debt issuance costs | — | | | (224) | |
Other, net | 2,118 | | | 1,291 | |
Net cash used in financing activities | (74,091) | | | (19,117) | |
| | | |
Net (decrease)/increase in cash and cash equivalents | (299,731) | | | 40,440 | |
Cash and cash equivalents at beginning of period | 434,563 | | | 292,575 | |
Cash and cash equivalents at end of period | $ | 134,832 | | | $ | 333,015 | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
Supplemental Disclosures | | | |
Income taxes paid, net | $ | 71,344 | | | $ | 47,804 | |
Interest paid | 11,891 | | | 12,244 | |
| | | |
Non-cash investing and financing activities | | | |
Issuance of common stock for acquisition of business | $ | 22,000 | | | $ | — | |
Capital expenditures in accounts payable | 1,126 | | | 195 | |
Increase (decrease) in lease assets in exchange for lease liabilities: | | | |
Operating leases | 17,164 | | | (142) | |
Finance leases | 1,698 | | | (10) | |
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
Winnebago Industries, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended February 26, 2022 |
(in thousands, except per share data) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Shareholders' Equity |
Number | Amount | Number | Amount |
Balance at November 27, 2021 | 51,776 | | $ | 25,888 | | $ | 233,727 | | $ | 1,272,697 | | $ | (482) | | (18,476) | | $ | (372,572) | | $ | 1,159,258 | |
Stock-based compensation | — | | — | | 4,157 | | — | | — | | 1 | | 23 | | 4,180 | |
Issuance of stock, net | — | | — | | 275 | | — | | — | | 31 | | 645 | | 920 | |
Repurchase of common stock | — | | — | | — | | — | | — | | (601) | | (40,495) | | (40,495) | |
Common stock dividends; $0.18 per share | — | | — | | — | | (6,060) | | — | | — | | — | | (6,060) | |
Total comprehensive income | — | | — | | — | | — | | 9 | | — | | — | | 9 | |
Net income | — | | — | | — | | 91,175 | | — | | — | | — | | 91,175 | |
Balance at February 26, 2022 | 51,776 | | $ | 25,888 | | $ | 238,159 | | $ | 1,357,812 | | $ | (473) | | (19,045) | | $ | (412,399) | | $ | 1,208,987 | |
| | | | | | | | |
| 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 Shareholders' Equity |
Number | Amount | Number | Amount |
Balance at November 28, 2020 | 51,776 | | $ | 25,888 | | $ | 204,551 | | $ | 966,945 | | $ | (517) | | (18,275) | | $ | (325,309) | | $ | 871,558 | |
Stock-based compensation | — | | — | | 4,622 | | — | | — | | 1 | | 5 | | 4,627 | |
Issuance of stock, net | — | | — | | 554 | | — | | — | | 58 | | 1,045 | | 1,599 | |
Repurchase of common stock | — | | — | | — | | — | | — | | (9) | | (503) | | (503) | |
Common stock dividends; $0.12 per share | — | | — | | — | | (3,993) | | — | | — | | — | | (3,993) | |
Total comprehensive income | — | | — | | — | | — | | 8 | | — | | — | | 8 | |
Net income | — | | — | | — | | 69,068 | | — | | — | | — | | 69,068 | |
Balance at February 27, 2021 | 51,776 | | $ | 25,888 | | $ | 209,727 | | $ | 1,032,020 | | $ | (509) | | (18,225) | | $ | (324,762) | | $ | 942,364 | |
| | | | | | | | |
| Six Months Ended February 26, 2022 |
(in thousands, except per share data) | Common Shares | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Shareholders' Equity |
Number | Amount | Number | Amount |
Balances at August 28, 2021 | 51,776 | | $ | 25,888 | | $ | 218,490 | | $ | 1,172,996 | | $ | (491) | | (18,713) | | $ | (359,940) | | $ | 1,056,943 | |
Stock-based compensation | — | | — | | 6,859 | | — | | — | | 1 | | 32 | | 6,891 | |
Issuance of stock for acquisition | — | | — | | 14,709 | | — | | — | | 379 | | 7,291 | | 22,000 | |
Issuance of stock, net | — | | — | | (1,899) | | — | | — | | 225 | | 4,436 | | 2,537 | |
Repurchase of common stock | — | | — | | — | | — | | — | | (937) | | (64,218) | | (64,218) | |
Common stock dividends; $0.18 per share | — | | — | | — | | (6,060) | | — | | — | | — | | (6,060) | |
Other | — | | — | | — | | 71 | | — | | — | | — | | 71 | |
Total comprehensive income | — | | — | | — | | — | | 18 | | — | | — | | 18 | |
Net income | — | | — | | — | | 190,805 | | — | | — | | — | | 190,805 | |
Balances at February 26, 2022 | 51,776 | | $ | 25,888 | | $ | 238,159 | | $ | 1,357,812 | | $ | (473) | | (19,045) | | $ | (412,399) | | $ | 1,208,987 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 Shareholders' Equity |
Number | Amount | Number | Amount |
Balances at August 29, 2020 | 51,776 | | $ | 25,888 | | $ | 203,791 | | $ | 913,610 | | $ | (526) | | (18,133) | | $ | (315,297) | | $ | 827,466 | |
Stock-based compensation | — | | — | | 6,968 | | — | | — | | 1 | | 13 | | 6,981 | |
Issuance of stock, net | — | | — | | (1,032) | | — | | — | | 149 | | 2,631 | | 1,599 | |
Repurchase of common stock | — | | — | | — | | — | | — | | (242) | | (12,109) | | (12,109) | |
Common stock dividends; $0.24 per share | — | | — | | — | | (8,081) | | — | | — | | — | | (8,081) | |
Total comprehensive income | — | | — | | — | | — | | 17 | | — | | — | | 17 | |
Net income | — | | — | | — | | 126,491 | | — | | — | | — | | 126,491 | |
Balances at February 27, 2021 | 51,776 | | $ | 25,888 | | $ | 209,727 | | $ | 1,032,020 | | $ | (509) | | (18,225) | | $ | (324,762) | | $ | 942,364 | |
| | | | | | | | |
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
Winnebago Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(All amounts in tables are in thousands, except share and per share data, unless otherwise designated)
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Winnebago Industries, Inc. and its wholly owned subsidiaries. Significant intercompany account balances and transactions have been eliminated.
The use of the terms "Winnebago Industries," "Winnebago," "we," "our," and "us" in this Quarterly Report on Form 10-Q, unless the context otherwise requires, refers to Winnebago Industries, Inc. and its wholly owned subsidiaries.
The interim unaudited consolidated financial statements included herein are prepared pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The information furnished in these consolidated financial statements includes normal recurring adjustments, unless noted otherwise in the Notes to Consolidated Financial Statements, and reflects all adjustments that are, in management’s opinion, necessary for a fair presentation of such financial statements. The consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations.
The consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended August 28, 2021 filed with the SEC. Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year ending August 27, 2022.
Subsequent Events
In preparing the accompanying unaudited consolidated financial statements, we have evaluated subsequent events for potential recognition and disclosure through the date of this filing noting no material subsequent events except for the item noted below:
On March 16, 2022, our Board of Directors declared a quarterly cash dividend of $0.18 per share payable on April 27, 2022 to common shareholders of record at the close of business on April 13, 2022.
CARES Act
The Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law on March 27, 2020 to help alleviate the impact of the COVID-19 pandemic in the U.S. We took advantage of the employer payroll tax deferral offered by the CARES Act, which allowed us to defer the payment of employer payroll taxes for the period from March 27, 2020 to December 31, 2020. The deferred employer payroll tax liability paid in the first six months of Fiscal 2022 was $8.0 million and the liability left to pay as of February 26, 2022 was $8.2 million, which will be paid in December 2022. We also 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 available through the end of the third quarter of Fiscal 2020 reflected in cost of goods sold on the Consolidated Statements of Income and Comprehensive Income was approximately $4.0 million. The entire amount is expected to be received during calendar year 2022. As of February 26, 2022, $2.3 million remains outstanding within other current assets on the Consolidated Balance Sheets.
Recently Adopted Accounting Pronouncements
Accounting Standards Update ("ASU") Topic 740, Income Taxes: Simplifying the Accounting for Income Taxes, was adopted in the first quarter of Fiscal 2022. The new standard eliminates certain exceptions to Topic 740's general principles, improves consistent application and simplifies its application. We adopted the new guidance in the first quarter of Fiscal 2022, and there was not a material impact to our financial condition, results of operations or disclosures.
Recently Issued Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued 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) which reduces the number of models used to account for convertible instruments, amends diluted earnings per share ("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. Certain disclosure requirements were also added to increase transparency and decision-usefulness regarding a convertible instrument's terms and features. Additionally, the if-converted method for including convertible instruments must be used in diluted EPS as opposed to the treasury stock method. The new guidance is effective for annual reporting periods beginning after December 15, 2021, which is our Fiscal 2023. Early adoption is permitted using either a
modified retrospective or full retrospective approach. We expect to adopt the new guidance in the first quarter of Fiscal 2023 and have not yet evaluated the impact the adoption of this guidance will have on our financial condition, results of operations or disclosures; however, the new guidance is expected to change our diluted EPS reporting.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting, which 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 this guidance 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. This guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The guidance can be applied immediately through December 31, 2022. We will adopt this standard when LIBOR is discontinued and do not expect a material impact to our financial condition, results of operations or disclosures based on the current debt portfolio and capital structure.
Note 2. Business Combinations
On August 31, 2021, we purchased 100% of the equity interests of Barletta Boat Company, LLC and Three Limes, LLC (collectively, "Barletta"), a manufacturer of high-quality, premium pontoon boats that are sold through a network of independent authorized dealers.
The acquisition of Barletta resulted in a newly created Marine reportable segment that includes the Barletta and Chris-Craft operating segments.
We acquired Barletta for a purchase price of $286.3 million, including cash payments of $240.1 million, $25.0 million in common stock issued to the sellers (subject to a discount noted below), and contingent consideration from earnout provisions. The common stock fair value included in the purchase price reflects a 12% discount, due to the lack of marketability as these are unregistered shares that have a one-year lockup restriction, which reduced the value of the common stock to $22.0 million. The contingent consideration includes both a potential stock payout as well as a potential cash payment based on achievement of certain financial performance metrics over the next few years. The maximum payout under the earnout is $50.0 million in cash and $15.0 million in stock if all metrics are achieved. The fair value of the earnout as of August 31, 2021 was $24.2 million. The fair value of the earnout as of February 26, 2022 was $37.1 million, of which $13.8 million is included in other current liabilities and $23.3 million is included in other long-term liabilities on the Consolidated Balance Sheets.
The total purchase price was allocated to the acquired net tangible and intangible assets of Barletta, based on their preliminary fair values at the date of the acquisition. We expect to finalize the allocation of the purchase price when our valuation of the acquired intangible assets, goodwill, and tax accounts is complete.
The following table summarizes the preliminary fair values assigned to the Barletta net assets acquired as of the date of acquisition:
| | | | | |
(in thousands) | August 31, 2021 |
Cash | $ | 11,903 | |
Other current assets | 24,564 | |
Property, plant, and equipment | 17,250 | |
Goodwill | 136,118 | |
Other intangible assets | 111,400 | |
Total assets acquired | 301,235 | |
Accounts payable | 7,181 | |
Product warranties | 4,656 | |
Other current liabilities | 3,146 | |
Total liabilities assumed | 14,983 | |
Total purchase price | $ | 286,252 | |
Goodwill from the Barletta acquisition is recognized in our newly created Marine segment. We expect that the full amount of goodwill will be deductible for tax purposes.
The intangible assets acquired include a trade name, dealer network, and backlog. The trade name has an indefinite life, while the backlog and dealer network will be amortized on a straight line basis over 10 months and 12 years, respectively.
Total transaction costs related to the Barletta acquisition were $3.1 million, of which $2.4 million were expensed during the first quarter of Fiscal 2022 and $0.7 million were expensed during the fourth quarter of Fiscal 2021. Transaction costs are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income.
Pro forma results of operations for this acquisition have not been presented as they were immaterial to the reported results.
Note 3. Business Segments
We have seven operating segments: 1) Grand Design towables, 2) Winnebago towables, 3) Winnebago motorhomes, 4) Newmar motorhomes, 5) Chris-Craft marine, 6) Barletta marine and 7) Winnebago specialty vehicles. Financial performance is evaluated based on each operating segment's Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined below, which excludes certain corporate administration expenses and non-operating income and expense.
The acquisition of Barletta resulted in a newly created Marine reportable segment effective for the first quarter of Fiscal 2022. The segment consists of Barletta and our existing Chris-Craft operating segment. Prior year amounts for Chris-Craft have been reclassified from Corporate / All Other category to the Marine segment.
Our three reportable segments are: Towable (an aggregation of the Grand Design towables and the Winnebago towables operating segments); Motorhome (an aggregation of the Winnebago motorhomes and Newmar motorhomes operating segments); and Marine (an aggregation of the Chris Craft marine and Barletta marine operating segments). Towable is comprised of non-motorized products that are generally towed by another vehicle, along with other related manufactured products and services. Motorhome is comprised of products that include a motorized chassis, along with other related manufactured products and services. Marine is comprised of products that include boats, along with other manufactured products and services.
The Corporate / All Other category includes the Winnebago specialty vehicles operating segment as well as certain corporate administration expenses related to the oversight of the enterprise, 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.
Our Chief Executive Officer (the Chief Operating Decision Maker ("CODM")) regularly reviews consolidated financial results in their entirety and operating segment financial information through Adjusted EBITDA and has ultimate responsibility for enterprise decisions. Our CODM is responsible for allocating resources and assessing performance of the consolidated enterprise, reportable segments and between operating segments. Management of each operating segment has responsibility for operating decisions, allocating resources and assessing performance within their respective operating segment. The accounting policies of all reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 28, 2021.
We monitor and evaluate operating performance of our reportable segments based on Adjusted EBITDA. We believe disclosing Adjusted EBITDA is useful to securities analysts, investors and other interested parties when evaluating companies in our industries. 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 pretax adjustments made in order to present comparable results period over period. Examples of items excluded from Adjusted EBITDA include acquisition-related costs, litigation reserves, restructuring expenses, gain or loss on sale of property, plant and equipment, contingent consideration fair value adjustment, and non-operating income or loss.
Financial information by reportable segment is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
(in thousands) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
Net Revenues | | | | | | | |
Towable | $ | 646,601 | | | $ | 439,284 | | | $ | 1,297,625 | | | $ | 894,185 | |
Motorhome | 417,565 | | | 382,575 | | | 839,044 | | | 704,964 | |
Marine | 97,309 | | | 14,463 | | | 176,627 | | | 26,357 | |
Corporate / All Other | 3,256 | | | 3,564 | | | 7,175 | | | 7,511 | |
Consolidated | $ | 1,164,731 | | | $ | 839,886 | | | $ | 2,320,471 | | | $ | 1,633,017 | |
| | | | | | | |
Adjusted EBITDA | | | | | | | |
Towable | $ | 100,573 | | | $ | 62,366 | | | $ | 212,650 | | | $ | 125,509 | |
Motorhome | 46,095 | | | 50,969 | | | 96,248 | | | 81,312 | |
Marine | 12,953 | | | 1,024 | | | 23,523 | | | 1,878 | |
Corporate / All Other | (8,892) | | | (6,394) | | | (14,460) | | | (11,441) | |
Consolidated | $ | 150,729 | | | $ | 107,965 | | | $ | 317,961 | | | $ | 197,258 | |
| | | | | | | |
Capital Expenditures | | | | | | | |
Towable | $ | 10,181 | | | $ | 2,714 | | | $ | 21,339 | | | $ | 6,851 | |
Motorhome | 7,875 | | | 3,268 | | | 15,626 | | | 7,271 | |
Marine | 1,912 | | | 249 | | | 2,540 | | | 798 | |
Corporate / All Other | 243 | | | — | | | 3,921 | | | — | |
Consolidated | $ | 20,211 | | | $ | 6,231 | | | $ | 43,426 | | | $ | 14,920 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
(in thousands) | February 26, 2022 | | August 28, 2021 |
Assets | | | |
Towable | $ | 850,244 | | | $ | 790,257 | |
Motorhome | 910,496 | | | 728,060 | |
Marine | 402,395 | | | 102,901 | |
Corporate / All Other | 146,298 | | | 441,349 | |
Consolidated | $ | 2,309,433 | | | $ | 2,062,567 | |
Reconciliation of net income to consolidated Adjusted EBITDA is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
(in thousands) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
Net income | $ | 91,175 | | | $ | 69,068 | | | $ | 190,805 | | | $ | 126,491 | |
Interest expense, net | 10,325 | | | 10,052 | | | 20,567 | | | 19,993 | |
Provision for income taxes | 28,760 | | | 21,166 | | | 58,901 | | | 38,723 | |
Depreciation | 5,461 | | | 4,399 | | | 10,767 | | | 8,559 | |
Amortization | 8,015 | | | 3,591 | | | 16,187 | | | 7,181 | |
EBITDA | 143,736 | | | 108,276 | | | 297,227 | | | 200,947 | |
Acquisition-related costs | 486 | | | — | | | 3,870 | | | — | |
Litigation reserves | — | | | — | | | 4,000 | | | — | |
Restructuring expenses | — | | | — | | | — | | | 93 | |
Gain on sale of property, plant and equipment | — | | | — | | | — | | | (3,565) | |
Contingent consideration fair value adjustment | 6,517 | | | — | | | 12,887 | | | — | |
Non-operating income | (10) | | | (311) | | | (23) | | | (217) | |
Adjusted EBITDA | $ | 150,729 | | | $ | 107,965 | | | $ | 317,961 | | | $ | 197,258 | |
Note 4. Investments and Fair Value Measurements
In determining the fair value of financial assets and liabilities, we utilize market data or other assumptions that we believe market participants would use in pricing the asset or liability in the principal or most advantageous market and adjust for non-performance and/or other risks associated with us as well as counterparties, as appropriate. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:
Level 1 — Unadjusted quoted prices which are available in active markets for identical assets or liabilities accessible at the measurement date.
Level 2 — Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 — Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at | | Fair Value Hierarchy |
(in thousands) | February 26, 2022 | | Level 1 | | Level 2 | | Level 3 |
Assets that fund deferred compensation | | | | | | | |
Domestic equity funds | $ | 1,265 | | | $ | 1,265 | | | $ | — | | | $ | — | |
International equity funds | 68 | | | 68 | | | — | | | — | |
Fixed income funds | 184 | | | 184 | | | — | | | — | |
Total assets at fair value | $ | 1,517 | | | $ | 1,517 | | | $ | — | | | $ | — | |
| | | | | | | |
Contingent consideration | | | | | | | |
Earnout liability | $ | 37,078 | | | $ | — | | | $ | — | | | $ | 37,078 | |
Total liabilities at fair value | $ | 37,078 | | | $ | — | | | $ | — | | | $ | 37,078 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at | | Fair Value Hierarchy |
(in thousands) | August 28, 2021 | | Level 1 | | Level 2 | | Level 3 |
Assets that fund deferred compensation | | | | | | | |
Domestic equity funds | $ | 940 | | | $ | 940 | | | $ | — | | | $ | — | |
International equity funds | 41 | | | 41 | | | — | | | — | |
Fixed income funds | 46 | | | 46 | | | — | | | — | |
Total assets at fair value | $ | 1,027 | | | $ | 1,027 | | | $ | — | | | $ | — | |
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. These securities, used to fund the Executive Share Option Plan and the Executive Deferred Compensation Plan, are classified as Level 1 as they are traded in an active market for which closing stock prices are readily available. Refer to Note 11 of the Notes to the Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 28, 2021 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 on the Consolidated Balance Sheets. The remaining assets are classified as non-current and are included in other assets on the Consolidated Balance Sheets.
Contingent Consideration
Contingent consideration represents the earnout liability related to the Barletta acquisition and is valued using a probability-weighted scenario analysis of projected EBITDA and gross profit results and discounted at a risk-free rate. The contingent consideration is classified as Level 3. Actual EBITDA and gross profit results may differ significantly from those used in the estimate above, which may affect future payments. Changes in future payments will be reflected in future operating results as they occur.
The fair value of the earnout liability that will be settled within a year is included in other current liabilities on the Consolidated Balance Sheets. The remaining earnout liability is included in other long-term liabilities on the Consolidated Balance Sheets.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain financial instruments are measured at fair value on a nonrecurring basis. These assets primarily include goodwill, intangible assets, property, plant and equipment, and right-of-use lease assets. These assets were originally recognized at amounts equal to the fair value determined at date of acquisition or purchase. If certain triggering events occur, or if an annual impairment test is required, we will evaluate the non-financial asset for impairment. If an impairment has occurred, the asset will be written down to its current estimated fair value. No impairments were recorded for non-financial assets in the three or six months ended February 26, 2022 or February 27, 2021.
Assets and Liabilities Not Measured at Fair Value
Certain financial instruments are not measured at fair value but are recorded at carrying amounts approximating fair value based on their short-term nature. These financial instruments include cash and cash equivalents, receivables, accounts payable, other payables, and long-term debt. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy. The fair value of our long-term debt was determined using current quoted prices in active markets for our publicly traded debt obligations, which is classified as Level 1 in the fair value hierarchy. See Note 9 for the fair value of our long-term debt.
Note 5. Inventories
Inventories consist of the following: | | | | | | | | | | | |
(in thousands) | February 26, 2022 | | August 28, 2021 |
Finished goods | $ | 14,438 | | | $ | 12,243 | |
Work-in-process | 187,826 | | | 184,611 | |
Raw materials | 308,926 | | | 183,583 | |
Total | 511,190 | | | 380,437 | |
Less: Excess of FIFO over LIFO cost | 41,736 | | | 38,964 | |
Inventories, net | $ | 469,454 | | | $ | 341,473 | |
Inventory valuation methods consist of the following: | | | | | | | | | | | |
(in thousands) | February 26, 2022 | | August 28, 2021 |
LIFO basis | $ | 202,162 | | | $ | 139,544 | |
First-in, first-out basis | 309,028 | | | 240,893 | |
Total | $ | 511,190 | | | $ | 380,437 | |
The above inventory value, before reduction for the LIFO reserve, approximates replacement cost at the respective dates.
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 26, 2022 | | August 28, 2021 |
Land | $ | 10,697 | | | $ | 9,111 | |
Buildings and building improvements | 168,554 | | | 147,629 | |
Machinery and equipment | 128,707 | | | 121,911 | |
Software | 36,259 | | | 36,815 | |
Transportation | 5,977 | | | 5,335 | |
Construction in progress | 58,075 | | | 31,137 | |
Property, plant, and equipment, gross | 408,269 | | | 351,938 | |
Less: Accumulated depreciation | 169,235 | | | 160,511 | |
Property, plant, and equipment, net | $ | 239,034 | | | $ | 191,427 | |
Depreciation expense was $5.5 million and $4.4 million for the three months ended February 26, 2022 and February 27, 2021, respectively; and $10.8 million and $8.6 million for the six months ended February 26, 2022 and February 27, 2021, respectively.
Note 7. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by reportable segment, with no accumulated impairment losses, for the six months ended February 26, 2022 and February 27, 2021 are as follows: | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Towable | | Motorhome | | Marine | | Total |
Balances at August 29, 2020 and February 27, 2021(1) | $ | 244,684 | | | $ | 73,127 | | | $ | 30,247 | | | $ | 348,058 | |
| | | | | | | |
Balances at August 28, 2021 | $ | 244,684 | | | $ | 73,127 | | | $ | 30,247 | | | $ | 348,058 | |
Acquisition of Barletta(2) | — | | | — | | | 136,118 | | | 136,118 | |
Balances at February 26, 2022 | $ | 244,684 | | | $ | 73,127 | | | $ | 166,365 | | | $ | 484,176 | |
(1) There was no activity in the six months ended February 27, 2021.
(2) The change in marine activity is related to the acquisition of Barletta that occurred on August 31, 2021. See Note 2 to the Consolidated Financial Statements included in Item 1 of Part I of this quarterly report on Form 10-Q.
Other intangible assets, net of accumulated amortization, consist of the following: | | | | | | | | | | | | | | | | | |
| February 26, 2022 |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value |
Trade names | $ | 352,250 | | | $ | — | | | $ | 352,250 | |
Dealer networks | 179,981 | | | $ | 53,084 | | | 126,897 | |
Backlog | 42,327 | | | 36,727 | | | 5,600 | |
Non-compete agreements | 6,647 | | | 5,775 | | | 872 | |
Other intangible assets | $ | |