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Summary of Significant Accounting Policies | 12 Months Ended
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Aug. 29, 2020
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Unless the context otherwise requires, the use of the terms "Winnebago Industries," "Winnebago," and "the Company" in these Notes to Consolidated Financial Statements refers to Winnebago Industries, Inc. and its wholly-owned subsidiaries. Nature of Operations Winnebago Industries, Inc. is one of the leading North American manufacturers with a diversified portfolio of recreation vehicles ("RV"s) and marine products used primarily in leisure travel and outdoor recreation activities. The Company distributes RV and marine products primarily through independent dealers throughout the U.S. and Canada, who then retail the products to the end consumer. The Company also distributes marine products internationally through independent dealers, who then retail the products to the end consumer. Other products manufactured by the Company consist primarily of original equipment manufacturing parts for other manufacturers and commercial vehicles. Reportable Segments The Company has two reportable segments: (1) Towable and (2) Motorhome. The Towable segment includes all products which are not motorized and are generally towed by another vehicle. The Motorhome segment includes products that include a motorized chassis as well as other related manufactured products. Certain corporate administration expenses and non-operating income and expense are recorded in a Corporate / All Other category. See Note 3, Business Segments. Principles of Consolidation The consolidated financial statements for Fiscal 2020 include the parent company and the Company's wholly-owned subsidiaries. All intercompany balances and transactions with our subsidiaries have been eliminated. Fiscal Period The Company follows a 52-/53-week fiscal year, ending the last Saturday in August. Fiscal 2020 is a 52-week year, Fiscal 2019 was a 53-week year, and 2018 was a 52-week year. The extra (53rd) week in Fiscal 2019 was recognized in our fourth quarter. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting years. Actual results could differ from those estimates. 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. The carrying amount approximates fair value due to the short maturity of the investments. Accounts at each banking institution are insured by the Federal Deposit Insurance Corporation up to $250,000, while the remaining balances are uninsured. Derivative Instruments and Hedging Activities The Company used derivative instruments to hedge their floating interest rate exposure. Derivative instruments were accounted for at fair value in accordance with Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging. These derivatives were designated as cash flow hedges for accounting purposes. Changes in fair value, for the effective portion of qualifying hedges, were recorded in other comprehensive income. The Company reviewed the effectiveness of the hedging instruments on a quarterly basis, recognized current year hedge ineffectiveness and the impact of the termination of the underlying instrument immediately in earnings, and discontinued hedge accounting for any hedge that was no longer considered to be highly effective. As of August 29, 2020, the Company does not have any derivative instruments or hedging activities related to interest rate risk. See Note 4 Derivatives, Investments, and Fair Value Measurements and Note 9 Long-Term Debt for additional information on the convertible debt. Receivables Receivables consist principally of amounts due from the Company's dealer network for RVs and boats sold. The Company establishes allowances for doubtful accounts based on historical loss experience and any specific customer collection issues identified. Additional amounts are provided through charges to income as the Company deems necessary, after evaluation of receivables and current economic conditions. Amounts which are considered to be uncollectible are written off, and recoveries of amounts previously written off are credited to the allowance upon recovery. Inventories Generally, inventories are stated at the lower of cost or market, valued using the First-in, First-out basis ("FIFO"), except for the Company's Winnebago Motorhome operating segment, which is valued using the Last-in, First-out ("LIFO") basis. Manufacturing cost includes materials, labor, and manufacturing overhead. Unallocated overhead and abnormal costs are expensed as incurred. Property and Equipment Depreciation of property and equipment is computed using the straight-line method on the cost of the assets, less allowance for salvage value where appropriate, at rates based upon their estimated service lives as follows:
Asset Class | Asset Life
Buildings | 10-30 years
Machinery and equipment | 3-15 years
Software | 5-10 years
Transportation equipment | 5-6 years
Goodwill and Indefinite-Lived Intangible Assets Goodwill Goodwill is tested annually in the fourth quarter of each year and is tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amounts may be impaired. Impairment testing for goodwill is done at a reporting unit level and all goodwill is assigned to a reporting unit. The Company's reporting units are the same as the operating segments as defined in Note 3, Business Segments. Companies have the option to first assess qualitative factors to determine whether the fair value of a reporting unit is “more likely than not” less than its carrying amount. If it is more likely than not that an impairment has occurred, companies then perform the quantitative goodwill impairment test. If the Company performs the quantitative test, the carrying value of the reporting unit is compared to an estimate of the reporting unit’s fair value to identify impairment. The estimate of the reporting unit’s fair value is determined by weighting a discounted cash flow model and a market-related model using current industry information that involve significant unobservable inputs (Level 3 inputs). In determining the estimated future cash flow, the Company considers and applies certain estimates and judgments, including current and projected future levels of income based on management plans, business trends, prospects, market and economic conditions, and market-participant considerations. If the Company fails the quantitative assessment of goodwill impairment, an impairment loss equal to the amount that a reporting unit's carrying value exceeds its fair value will be recognized. Trade names The Company has indefinite-lived intangible assets for trade names related to Newmar within the Motorhome segment, Grand Design within the Towable segment, and to Chris-Craft within the Corporate / All Other category. Annually in the fourth quarter, or if conditions indicate an interim review is necessary, the Company assesses qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If the Company performs a quantitative test, the relief from royalty method is used to determine the fair value of the trade name. This method uses assumptions, which require significant judgment and actual results may differ from assumed and estimated amounts. If the Company concludes that there has been impairment, the asset's carrying value will be written down to its fair value. During the fourth quarter of Fiscal 2020, the Company completed the annual impairment tests. The Company elected to rely on a qualitative assessment for the Grand Design business, and performed the quantitative analysis for the Chris-Craft and Newmar businesses. The result of the test was that the fair value exceeded the carrying value, and no impairment was indicated. Definite-Lived Intangible Assets and Long-Lived Assets Long-lived assets, which include property, plant and equipment, and definite-lived intangible assets, primarily the dealer network, are assessed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable from future cash flows. The impairment test involves comparing the carrying amount of the asset to the forecasted undiscounted future cash flows generated by that asset. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. In the event the carrying amount of the asset exceeds the undiscounted future cash flows generated by that asset and the carrying amount is not considered recoverable, an impairment exists. An impairment loss is measured as the excess of the asset’s carrying amount over its fair value and is recognized in the statement of income in the period that the impairment occurs. The reasonableness of the useful lives of the asset and other long-lived assets is regularly evaluated. There was no impairment loss for the year ended August 29, 2020 for definite-lived intangible assets or long-lived assets. Self-Insurance Generally, the Company self-insures for a portion of product liability claims, workers' compensation, and health insurance. Under these plans, liabilities are recognized for claims incurred, including those incurred but not reported. The Company uses third party administrators and actuaries using historical claims experience and various state statutes to assist in the determination of the accrued liability balance. The Company has a $50.0 million insurance policy that includes a self-insured retention for product liability of $1.0 million per occurrence and $2.0 million in aggregate per policy year. The Company's self-insured health insurance policy includes an individual retention of $0.3 million per occurrence and an aggregate retention of 125% of expected annual claims. The Company maintains excess liability insurance with outside insurance carriers to minimize the risks related to catastrophic claims in excess of self-insured positions for product liability, health insurance, and personal injury matters. Any material change in the aforementioned factors could have an adverse impact on operating results. Balances are included within Accrued expenses: Self-insurance on our Consolidated Balance Sheets. Income Taxes In preparing these financial statements, the Company is required to estimate the income taxes in each of the jurisdictions in which the Company operates. This process involves estimating the current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within the balance sheet. The Company then assesses the likelihood that the deferred tax assets will be realized based on future taxable income and, to the extent that recovery is not likely, a valuation allowance is established. To the extent the Company establishes a valuation allowance or changes this allowance in a period, an expense or a benefit is included within the tax provision in the Consolidated Statements of Income and Comprehensive Income. Legal Litigation expense, including estimated defense costs, is recorded when probable and reasonably estimable. Revenue Recognition The Company's primary source of revenue is generated through the sale of non-motorized towable units, motorized units, and marine units to the Company's independent dealer network (customers). Unit revenue is recognized at a point-in-time when the performance obligation is satisfied, which generally occurs when the unit is shipped to or picked-up from the manufacturing facilities by the customer. The Company's payment terms are typically before or on delivery, and do not include a significant financing component. The amount of consideration received and recorded to revenue varies with changes in marketing incentives and offers to customers. These marketing incentives and offers to customers are considered variable consideration. The Company adjusts the estimate of revenue at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed. Refer to Note 13, Revenue Recognition, for additional information. Advertising Advertising costs, which consist primarily of literature and trade shows, were $12.5 million, $8.3 million, and $7.4 million in Fiscal 2020, 2019, and 2018, respectively. Advertising costs are included in Selling, general, and administrative expenses and are expensed as incurred. Dividend On August 19, 2020, the Board of Directors declared a quarterly cash dividend of $0.12 per share, totaling $4.0 million, paid on September 30, 2020 to common stockholders of record at the close of business on September 16, 2020. Coronavirus (COVID-19) pandemic The Company is closely monitoring the impact of the 2019 novel coronavirus, or COVID-19, on all aspects of its business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the President of the United States declared the COVID-19 outbreak a national emergency on March 13, 2020. 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 CARES 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 August 29, 2020 was $7.8 million and will be payable in equal installments at December 2021 and December 2022. Additionally, the Company is taking 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, reflected in cost of goods sold and within other current assets, is approximately $4.0 million and is expected to be received in Fiscal 2021. Subsequent Events The Company has evaluated events occurring between the end of the most recent fiscal year and the date the financial statements were issued. There were no material subsequent events except as disclosed in Note 14 Stock-Based Compensation Plans. Recently Adopted Accounting Pronouncements The Company adopted the Financial Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), as of September 1, 2019, using the modified retrospective basis as of the beginning of the period of adoption. In addition, the Company elected the package of practical expedients permitted under the transition guidance with the new standard, which among other things, allowed the Company to carry forward the historical lease classification, and the Company elected the hindsight practical expedient. Adoption of the new standard resulted in the recording of net lease assets and lease liabilities of $33.8 million and $33.4 million, respectively, as of September 1, 2019. The adoption of the standard did not materially impact the Company's consolidated net earnings and had no impact on the Company's cash flows. See Note 10 Leases for more information regarding our operating and financing leases.
(in thousands) | August 31, 2019 As Reported |  | ASU 2016-02 Adjustment on September 1, 2019 |  | September 1, 2019 As Adjusted
Assets |  |  |  |  |
Other intangible assets, net | 256,082 |  |  | $ | (1,310) |  |  | $ | 254,772 |
Lease assets | — |  |  | 33,811 |  |  | 33,811 |
Total assets | $ | 1,104,231 |  |  | $ | 32,501 |  |  | $ | 1,136,732 |
Liabilities and Stockholders' Equity |  |  |  |  |
Accrued expenses: Other | $ | 13,678 |  |  | $ | 1,258 |  |  | $ | 14,936 |
Total current liabilities | 197,744 |  |  | 1,258 |  |  | 199,002 |
Lease liabilities | — |  |  | 31,243 |  |  | 31,243 |
Total non-current liabilities | 274,275 |  |  | 31,243 |  |  | 305,518 |
Total liabilities and stockholders' equity | 1,104,231 |  |  | $ | 32,501 |  |  | $ | 1,136,732 |
Also, in the first quarter of Fiscal 2020, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815), which improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. The adoption of this standard did not materially impact the Company's Consolidated Financial Statements. 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). 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 its consolidated financial statements is uncertain at this time. In March 2020, 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, 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. In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and has since issued additional amendments. ASU 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The standard is effective for annual reporting periods beginning after December 15, 2019 (our Fiscal 2021), including interim periods within those annual reporting periods. The Company expects to adopt the new guidance in the first quarter of Fiscal 2021, and does not expect a material impact to its consolidated financial statements.

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