10-Q 1 wgo-20220226.htm 10-Q wgo-20220226
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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
wgo-20220226_g1.jpg
WINNEBAGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Minnesota42-0802678
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
13200 Pioneer TrailEden PrairieMinnesota55347
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.50 par value per shareWGONew 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

2

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Winnebago Industries, Inc.
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
Three Months EndedSix 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 sold948,154 683,304 1,874,482 1,339,431 
Gross profit216,577 156,582 445,989 293,586 
Selling, general, and administrative expenses71,795 53,016 146,665 101,415 
Amortization8,015 3,591 16,187 7,181 
Total operating expenses79,810 56,607 162,852 108,596 
Operating income136,767 99,975 283,137 184,990 
Interest expense, net10,325 10,052 20,567 19,993 
Non-operating loss (income)6,507 (311)12,864 (217)
Income before income taxes119,935 90,234 249,706 165,214 
Provision for income taxes28,760 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:
Basic33,098 33,533 33,210 33,571 
Diluted33,934 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.
3


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, net469,454 341,473 
Prepaid expenses and other current assets25,139 29,069 
Total current assets1,009,464 1,058,913 
Property, plant, and equipment, net239,034 191,427 
Goodwill484,176 348,058 
Other intangible assets, net485,619 390,407 
Investment in life insurance29,306 28,821 
Operating lease assets43,473 28,379 
Other long-term assets18,361 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 compensation59,947 67,541 
Product warranties113,818 91,222 
Self-insurance17,871 19,296 
Promotional13,723 10,040 
Accrued interest and dividends4,489 10,720 
Other current liabilities42,918 20,384 
Total current liabilities464,046 407,276 
Long-term debt, net536,990 528,559 
Deferred income taxes11,458 13,429 
Unrecognized tax benefits6,222 6,483 
Long-term operating lease liabilities42,420 26,745 
Deferred compensation benefits, net of current portion9,425 9,550 
Other long-term liabilities29,885 13,582 
Total liabilities1,100,446 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 capital238,159 218,490 
Retained earnings1,357,812 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' equity1,208,987 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.
4

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
Depreciation10,767 8,559 
Amortization16,187 7,181 
Non-cash interest expense, net7,326 6,769 
Amortization of debt issuance costs1,225 1,229 
Last in, first-out expense2,772 552 
Stock-based compensation6,891 6,981 
Deferred income taxes(1,977)914 
Contingent consideration fair value adjustment12,887  
Other, net2,212 (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 assets5,613 2,321 
Accounts payable26,703 12,487 
Income taxes and unrecognized tax benefits(7,941)(10,698)
Accrued expenses and other liabilities5,570 15,222 
Net cash provided by operating activities46,141 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 equipment49 7,778 
Other, net(245)(223)
Net cash used in investing activities(271,781)(7,365)
Financing activities
Borrowings on long-term debt1,943,583 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, net2,118 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 period434,563 292,575 
Cash and cash equivalents at end of period$134,832 $333,015 
5

Supplemental Disclosures
Income taxes paid, net$71,344 $47,804 
Interest paid11,891 12,244 
Non-cash investing and financing activities
Issuance of common stock for acquisition of business$22,000 $ 
Capital expenditures in accounts payable1,126 195 
Increase (decrease) in lease assets in exchange for lease liabilities:
Operating leases17,164 (142)
Finance leases1,698 (10)
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
6

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 CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury Stock Total Shareholders' Equity
NumberAmountNumberAmount
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 SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Shareholders' Equity
NumberAmountNumberAmount
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 SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Shareholders' Equity
NumberAmountNumberAmount
Balances at August 28, 202151,776 $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, 202251,776 $25,888 $238,159 $1,357,812 $(473)(19,045)$(412,399)$1,208,987 
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Six Months Ended February 27, 2021
(in thousands,
except per share data)
Common SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Shareholders' Equity
NumberAmountNumberAmount
Balances at August 29, 202051,776 $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, 202151,776 $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.
8

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
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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 assets24,564 
Property, plant, and equipment17,250 
Goodwill136,118 
Other intangible assets111,400 
Total assets acquired301,235 
Accounts payable7,181 
Product warranties4,656 
Other current liabilities3,146 
Total liabilities assumed14,983 
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.
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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.

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Financial information by reportable segment is as follows:
Three Months EndedSix 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 
Motorhome417,565 382,575 839,044 704,964 
Marine97,309 14,463 176,627 26,357 
Corporate / All Other3,256 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 
Motorhome46,095 50,969 96,248 81,312 
Marine12,953 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 
Motorhome7,875 3,268 15,626 7,271 
Marine1,912 249 2,540 798 
Corporate / All Other243  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 
Motorhome910,496 728,060 
Marine402,395 102,901 
Corporate / All Other146,298 441,349 
Consolidated$2,309,433 $2,062,567 


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Reconciliation of net income to consolidated Adjusted EBITDA is as follows:
Three Months EndedSix Months Ended
(in thousands)February 26, 2022February 27, 2021February 26, 2022February 27, 2021
Net income$91,175 $69,068 $190,805 $126,491 
Interest expense, net10,325 10,052 20,567 19,993 
Provision for income taxes28,760 21,166 58,901 38,723 
Depreciation5,461 4,399 10,767 8,559 
Amortization8,015 3,591 16,187 7,181 
EBITDA143,736 108,276 297,227 200,947 
Acquisition-related costs486  3,870  
Litigation reserves  4,000  
Restructuring expenses   93 
Gain on sale of property, plant and equipment   (3,565)
Contingent consideration fair value adjustment6,517  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 2Inputs 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 3Unobservable 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.

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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 atFair Value Hierarchy
(in thousands)February 26,
2022
Level 1Level 2Level 3
Assets that fund deferred compensation
Domestic equity funds$1,265 $1,265 $ $ 
International equity funds68 68   
Fixed income funds184 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 atFair Value Hierarchy
(in thousands)August 28,
2021
Level 1Level 2Level 3
Assets that fund deferred compensation
Domestic equity funds$940 $940 $ $ 
International equity funds41 41   
Fixed income funds46 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.

14

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-process187,826 184,611 
Raw materials308,926 183,583 
Total511,190 380,437 
Less: Excess of FIFO over LIFO cost41,736 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 basis309,028 240,893 
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 improvements168,554 147,629 
Machinery and equipment128,707 121,911 
Software36,259 36,815 
Transportation5,977 5,335 
Construction in progress58,075 31,137 
Property, plant, and equipment, gross408,269 351,938 
Less: Accumulated depreciation169,235 160,511 
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.

15

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)TowableMotorhomeMarineTotal
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 AmountAccumulated AmortizationNet Carrying Value
Trade names$352,250 $— $352,250 
Dealer networks179,981 $53,084 126,897 
Backlog42,327 36,727 5,600 
Non-compete agreements6,647 5,775 872 
Other intangible assets$