Winnebago Industries Inc (WGO) 2006 Q3 法說會逐字稿

At this time I would like to welcome everyone to the Winnebago Industries third quarter conference call. (OPERATOR INSTRUCTIONS).

I would now like to turn the call over to Ms. Sheila Davis, Public Relations and Investor Relations Manager for Winnebago Industries.

Ms. Davis?

Good morning and welcome to Winnebago Industries' conference call to review the Company's results for the third quarter of fiscal 2006 27 ended May 27, 2006.

Conducting the call today are Bruce Hertzke, Winnebago's Chairman of the Board and Chief Executive Officer, Ed Barker, President, and Sarah Nielsen, Vice President and Chief Financial Officer.

We trust each of you have received a copy of the news release with our earnings results this morning.

This call is being broadcast live on our Website at Winnebagoind.com, and on Vcall.com.

A replay of the call will be the available at each site at approximately 1 PM Eastern Time today.

If you have any questions about accessing any of this information, please call our investor relations department at 641-585-6803 following the conference call.

Before we start, let me offer the following cautionary note.

This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that forward-looking statements are inherently uncertain.

A number of factors could cause actual results to differ materially from these statements.

These factors are contained in the Company's filings with the Securities and Exchange Commission over the last 12 months, copies of which are available from the SEC or from the Company upon request.

I will now turn the call over to Bruce Hertzke.

Thank you, Sheila.

Good morning and welcome to Winnebago Industries' conference call.

First I will review the current motorhome climate, Ed Barker will provide a few highlights of the third quarter and the first nine months, and then Sarah Nielsen will review our financials with you.

The market for motorhomes continues to be negatively affected by decreased consumer confidence levels, driven primarily by higher fuel costs and increasing interest rates.

This in turn had a negative impact on our results for the third quarter.

We also continued to see a weakness in the mix of products, away from higher-end Class A and diesel motorhomes to lower-priced products, such as our Class C. This is not unique to Winnebago Industries.

This same trend is occurring industry-wide.

Wholesale shipments calendar year-to-date through April show Class A motorhomes down almost 19%, while Class C motorhomes are down only about 5.4%.

In retail sales, we are pleased that we continue to lead the industry with a combined Class A and C motorhome market share of 19.1% year-to-date through April, which is up 17.4% from the same period last year.

The same trend of shift in product mix is also seen in the retail market, with Class C's retaining volume much better than the Class A's.

Calendar year to date through April, Stat Surveys, the independent retail reporting service from the industry, reports Class A motorhomes down approximately 20%, while Class C motorhomes are down 4.8% year to date compared to the same period last year.

This being the case, we are fortunate to have a great presence in the Class C market.

Our new Winnebago View and Itasca Navion Class C diesel motorhomes continue to perform very well in the marketplace.

These motorhomes are very timely, with fuel efficiency of 17 to 19 miles per gallon.

We are also pleased to have two of these motorhomes featured on the CBS Early Show in their Great American Vacation segment.

The segment airs twice weekly, and is scheduled to run for eight consecutive weeks, providing exposure of roughly 15 million people per episode.

At this time I'll turn the call over to Ed Barker.

Good morning.

We're pleased to report that Winnebago Industries earned 13 million in net income, or $0.40 a share, for our shareholders in the third quarter of fiscal 2006.

While these results are somewhat less than a year ago, we continue to focus on achieving the best financial results given the market conditions.

And while the current market environment is somewhat challenging, we remain strongly probable.

Impacting our most recent quarter was a shift in product mix and lower motorhome deliveries, which resulted in lower revenues and net income for the third quarter and the first nine months.

We look for continued strength in our Class C business as a result of a somewhat -- what I believe is the best Class C lineup in the Company's history.

Not only do we have a tremendous homerun with our new View and Navion products, we also recently introduced a new value-priced Class C product called the Winnebago Access and Itasca Impulse.

We anticipate further growth in our Class C market share as we continue to fill orders for these exciting new products.

Now I'll turn the call over to Sarah for the financial review.

Thank you, Ed.

Good morning.

I'm pleased to review with you the revenues and earnings performance for the Company's third quarter and first nine months of fiscal 2006.

Revenues for the third quarter of fiscal 2006, ended on May 27, were 220.3 million, a decrease of 13.6 compared to revenues of 255 million for the third quarter of fiscal 2005.

Operating income for the third quarter was 18.4 million, or 8.3% of revenues, compared to 26.4 million, or 10.3% of revenues for the third quarter last year.

Operating income decreased due to a shift in mix to lower-priced motorhome products, primarily to Class C motorhomes, and to a lesser extent to lower motorhome delivery.

An analysis of the 2566 motorhomes sold during the third quarter shows how dramatic the shift of mix was, with 44% Class A's and 56% Class C's, compared to the more typical mix of 60% Class A's and 40% Class C's for the same quarter last year.

As a result of this significant product mix shift, our average selling price per unit decreased approximately 11% this quarter when compared to last year's comparable quarter.

Net income for the third quarter was 13.2 million, compared to 17.6 million for the same period last year.

On a diluted per share basis, the Company earned $0.40 for the third quarter fiscal 2006, compared to $0.52 a share for the same quarter last year.

As we have discussed in our previous quarterly conference calls, at the beginning of this year we began reporting stock option expense as a result of the adoption of the share-based payment accounting standard # 123R.

Option expense in the third quarter reduced net income by 807,000, or $0.02 per diluted share, and we estimate that there will be a $0.02 impact in the fourth quarter.

The Company completed the quarter with 140.4 million in cash and short-term investments.

Cash generated by operating activities during the first nine months was 90 million, an increase of 17.4% from the first nine months of 2005.

This increase was primarily a result of continued improvements in our finished good inventory levels at the end of the third quarter.

The significant uses of cash during our first nine months were 51.6 million of stock repurchases for 1,758,000 shares of the Company's stock.

Also, 8.9 million was paid out in cash dividends and 3.2 million on capital expenditures.

We have approximately 28.4 million remaining on the current share repurchase authorization of 50 million, and we estimate that 1.1 million will be spent during the remainder of fiscal 2006 on capital expenditures.

I will now turn call back over to Bruce.

Thank you, Sarah.

It continues to be a challenging environment for motorhome sales, with decreased volumes as well as a shift mix to lower-priced products.

The good news for Winnebago Industries is that we have a terrific Class C lineup providing us with some market advantage.

Although it's challenging right now, we continue to believe in the long-term growth of our industry and for Winnebago Industries.

Winnebago Industries has a tremendous cash flow, a strong balance sheet and no long-term debt.

We intend to maintain our primary focus on continued strong profitability in spite of the challenging market environment.

At this time I'll turn the call over to the operator for the question-and-answer portion of today's call.

(OPERATOR INSTRUCTIONS).

Ed Aaron, RBC Capital Markets.

I want to talk a little bit about the dealer inventory.

Looks like it's down 6% year-over-year on a unit basis.

With the mix shift taking place, what would you estimate year-over-year decline to be on a dollar basis?

I'm sure it's probably closer to 10 or 11%, similar to the -- I think Sarah reported that the average price of our product went down 11%.

So I'd probably say it's probably close to that also.

Bruce, what do you think -- as you look at the environment right now, what do you think is kind of like the right inventory level today?

Again, our inventory level, as we were talking about the dollar amount, has shifted pretty considerably.

With our new View and Navion products, naturally our dealer inventory has a lot more Class C's and larger Class A diesels and Class A gas.

So again, I think that with the new product, we think, as we stated even at the end of our second-quarter conference call, we feel our dealer inventory is not high.

Would you make the same assessment for the industry overall?

From what I know, from the information I have, I think it's fair to say all the other manufacturers that I'm aware of, that their dealer inventory is down.

And then also on the backlog, it's up a little bit on a year-over-year basis in terms of dollars.

When you have backlog at these sort of extreme levels, either high or low, it's kind of tough to make predictions of kind of modeling out the out quarter sales number, based on those backlogs.

Would you interpret from a slightly positive backlog number that maybe the next quarter we might see a return to positive sales growth?

It all depends on retail.

Everything right now depends upon the turn rate of what it turns through.

I don't think inventories need to come down anymore, but we do have to depend on whatever retail activity is going to happen.

Fair enough.

On that same line, if I look at the numbers that you gave for unit shipments and then (indiscernible) inventories, you can kind of back into a retail number for the quarter which looks to be something on the lines of flat for the quarter.

And if I kind of compare that against what we know from the Stat Surveys data, it would actually imply that at retail your sales were up maybe 7% or so in the month of May.

Does that sound -- does that sound roughly right?

Yes it does.

Greg Badishkanian, Citigroup.

In terms of the mix shift, I'm just wondering, are you finding that maybe consumers are substituting purchases of Class A and purchasing Class C?

Or is it just that the consumers who are going to buy a Class A are just delaying their purchases, so maybe you have a little bit of pent-up demand on that side of the business?

I think, as we talked on one of our other conference calls, in 2004 the environment, with the low interest rates and financing opportunities, we think that we may have pulled a little business ahead in '04 and early '05.

But again, I wish I could tell you I knew all of the reasons for the change, why the smaller products seem to be much stronger right now.

But we do believe some business was pulled ahead during the good interest rate times.

And you've been in the industry for a very long time.

Based on sort of your historical perspective, what would it take for Class A to get reinvigorated?

Or when do you think this sort of downturn period will -- how long do you think that will last?

Again, if you went back to the previous four or five years, the big market growth opportunity was in the diesel area.

How long this -- the market trends toward smaller units -- I mean, we've seen niches in our industry, at the oil embargo, to the Gulf Wars, to a lot of different times product mix shifts for a while.

But I don't think there's any consistent that I could say that I feel comfortable saying, well, we're going to go to lower products for two or three years, and then it's going to go back to higher product.

You get a good economy and the consumer confidence comes back up; people get used to paying $2.50, $3 for gasoline.

I still believe that there will be a strong A-body market again.

Scott Stember, Sidoti.

Sarah, do you have the ASPs for the A's and the C's?

And maybe break out the A's by gas and diesel.

I sure do.

Overall, the ASP was $79,767.

Class A gas was 90,636.

Diesel was 154,000.

Class A combined was 109,876.

And Class C was 56,334.

Bruce, looking at the backlog, obviously, as was mentioned before, it's hard in this environment to look at trends, but it looks like the diesel backlog on the A side of the business was up a little bit.

Anything to read into that, or is that just maybe the dealers stocking up a little in certain spots?

I don't think there's really anything to read into it.

We haven't seen any major shift from what we've said, even after the second quarter.

And as far as it sounds with inventories being in good shape, discounting is pretty much the same as you were talking about last quarter?

Yes.

I think it's fair to say it's definitely down.

There is still some going on.

Again, our primary focus, we will try to do some programs now and then for -- but our primary focus, as we stated, will still be to make money even in a depressed market.

As far as capacity utilization, could you talk about where you are right now?

This is Ed.

We finished the third quarter about 60% [of capacity] utilization.

Where were you last time at this year?

Do you remember?

It would have been slightly higher, based upon a heavier mix of Class A's.

Craig Kennison, Robert W. Baird.

The gross margin was a surprise on the upside from our perspective.

What is your outlook for the remainder of the year?

It really hasn't changed from the guidance we gave on the March call.

We still think that the second half of this year, 11 to 13% is kind of how to look at that.

I know you have a dealer event later in the year.

You've already announced some additional Class C product.

Could there be more to come, or is that what's on the table this year?

We have our dealer program at the end of this month, and we will -- naturally, the reason for having dealer days is to introduce some product lines.

We have, as you said, introduced and released some.

But there is some new products that will be coming out that we'll be introducing to our dealers.

The backlog is very strong in Class C. To what extent does that reflect incremental demand for the Access and Impulse, or is there no order for that product yet?

Yes, there is order input for that product.

In the margin profile of that product, is it fairly similar to the overall Class C portfolio?

As I mentioned, it's a low-priced Class C, very aggressively priced to go after the entry-level segment of the Class C market.

So it's pretty aggressively priced.

And adding to that backlog comment, because it is a new product, in the first quarter we will see significant demand to bring our dealer stocks up on that product.

I think last quarter you launched Journey, a special edition Journey, which was a lower-priced diesel unit, and it met with some pretty strong success at the dealer level.

Have you seen that turn at the consumer level?

(indiscernible) very well.

That's correct.

Actually, we introduced that product through the wholesale channel in the second quarter.

We also did ship a few of those in the March period.

But it has retailed very well.

And then finally, one of your competitors, Monaco, announced plans to get into the finance business more actively.

Have you given consideration to that element of the strategy?

We have had discussions on that earlier.

And with our cash position, we would be in a very good position.

But we also think that the financial community is pretty strong, and that there really is no financial issue for dealers or consumers.

So it's whether we believe that it would be a good profit center area that we should review.

(OPERATOR INSTRUCTIONS).

Kathryn Thompson, Avondale Partners.

Nice quarter.

I want to talk a little bit about gross margins.

In the previous quarter, you said that about two-thirds of the pressure was from volume and the remaining was really from mix.

But it sounds like mix was a greater factor in this quarter.

If you were to break that out again in this quarter, how much was volume versus mix?

We basically have a reverse of what we were seeing in the second quarter.

And you're right, as we indicated in our opening remarks, the majority of the downward change in our margin quarter-over-quarter is a result of mix, and to a much lesser extent would be from volume, with unit deliveries only down 141 units.

Is this something that we should expect -- I assume going into the fourth quarter, seeing a similar type mix going into the fourth quarter, in terms of how it would affect -- or wouldn't affect gross margins?

I think most definitely matter of fact it might accelerate a little bit, simply because our new Excess and Impulse low value-priced Class C products, we have a lot of dealer channels still on that product.

So you're probably going to continue to see an acceleration in terms of the amount of C bodies as a percentage of the mix in the fourth quarter.

Great. (indiscernible) dealers, and I've had a chance to speak to a few dealers, and pretty universally they've talked about how floor planning, finance rates, and the rising rates have affected their stocking patterns.

And you've done a nice job of reducing your dealer inventories.

How much is that attributable to just working through an excess of the dealer inventories left over from last year, and how much do you think it is of dealers just deciding, hey, I'm paying sometimes twice as much for floor planning rates, so I'm just going to stock less now?

I think that's -- first of all, I think it's fair to say that all dealers have pretty much realized that.

I think the average dealer inventory of dealers across the United States is down on a very consistent basis across it for all of them.

And I think that's probably the biggest single reason.

Is rising floor plan rates?

Yes.

Where do you see that trending?

Do you see this trend continuing?

I would intuitively think that it would, given the rising interest rate environment.

I think that's fair to say.

A dealer is going to have to either figure out, well, I had three or four manufacturers -- do I cut down to (indiscernible) four manufacturers' products, do I cut down to three, or do I cut everybody's products?

And I think we're seeing some of that in the marketplace out there right now, where dealers are trying to make those type of decisions.

Have you gotten pushback from dealers saying, listen, I've bought 10 but now I'm going to buy eight units from you?

The only thing we do is expect our dealers to honor their dealer agreements.

And if they have product lines that they're carrying of ours, we expect them to stock them and try to sell them.

So they have to make a decision whether they're going to carry less of our inventories, or whether they have to drop product lines, or whether they have to -- what they have to do to reduce their inventories.

If you could just give us an update on (indiscernible).

And two, comments on end-of-the-season -- that is 2006 -- discounting for your products.

The first part, the total (indiscernible), it's still part of the market that we continue to review and look at.

It's still a very viable part of the market.

On the same hand, we don't have anything to announce that -- about that segment.

The second part was the question on what would (multiple speakers)

I'll help you with that.

Discounts were substantially minimized this quarter versus a year ago.

As you remember a year ago, there was a lot of discounting activity and competitive pressure because manufacturers had built up too much inventory coming out of the spring of last year.

I think all the manufacturers, us included, have been more rational with our production schedules, given the current market conditions.

We've been working very hard the last year to minimize factory inventory, to eliminate the opportunity to get into trouble from a discount standpoint.

So it's, I think, a much better environment right now.

And for you guys, would you say that you're discounting your '06 -- because at the end of the season, I understand that there's some level of discounting.

Are you doing any more or less this year than just historical levels?

They were probably less than historical levels.

We had a very clean transition from an inventory and production standpoint from '06 to '07.

John Diffendal, BB&T Capital Markets.

My question has really been asked.

But just give us a little sense, I guess, on both the gas and the diesel categories, maybe points of strength, points of weakness within the pricing spectrum of those two segments for us.

As you can see by the Stat Surveys, we definitely have a lot of strength in Class C. In the Class A gas, we've led that category for a lot of years.

And we do see some new competition that -- in that area.

But we still believe we're doing pretty good in Class A gas.

The diesel area, as you know, John, is an area that Winnebago got into late.

And we've made some improvements in that area.

But we're still a long way from where we would like to be in the diesel market share.

So I would say that's the other two areas I'd probably classify as strength, and more weak in the diesel area.

Barry Vogel, Barry Vogel & Associates.

First, I have a couple of questions on product development, Bruce.

You talked about in your press release the Impulse and the Access.

Do you have anything else that you would consider new product developments that we should look for for fiscal '07?

We can't -- we have our dealer days right at the end of this month.

And in some of the different product lines we will be introducing some new product.

But we have decided that we are going to let our dealers see some of that product first at our dealer show at the end of the month.

Have you incorporated those high roof lines that we've seen in the last year or two for Class A?

Yes.

Are those available as a standard item or an option?

No, they're standard in our product lines.

Okay.

So as far as the industry developments that we know so far, would you say you're at the curve?

Just like -- Barry, I think all companies have different areas of strong points.

And again, as I answered to John Diffendal on the question before, we are very pleased, very excited and pleased with our Class C product lines.

We believe our Class A gas and different things are good, and we'd like to see our diesel product line strengthen some.

So there's always some areas to work on, but that's kind of where we sit.

Going back to what John was talking about in terms of price points, if you go to the Stat Surveys figures for the first four months of the year, there was a very, very interesting change, where the strongest company in the industry all of a sudden became the number one retailer of Class A gas, topping Winnebago.

And it happened really over the last four months.

Do you feel comfortable today, given the competitive environments, in terms of where your price points are going forward in gas?

I think I can say yes, we still feel we have a pretty good gas lineup, and that our product will perform quite well in the industry.

Ed?

I do think that what will help us there is our new 2007 products are more aggressively positioned, both from a price and feature standpoint, than our '06 products.

And I think it's just a matter of time of getting that '07 product into the channel.

So what you're saying is you have taken note of that and you have basically been more aggressive in price points?

Absolutely.

And our 2007 products, you've got to remember, though, that the product and the channel is right now for the most part '06 product.

We continue, obviously, month by month (indiscernible) a higher percentage of that mix will be '07.

We certainly in our '07 product lineup did more aggressively position, both from a price and a feature standpoint, our products. (indiscernible) that was our Class C lineup, when I talked about our Access and Impulse.

Again, we expect very good market performance in that going forward.

And we had some -- also have done the same things in some of our Class A product lineups, too.

As far as inventories, they're at a very low level now at $88 million.

Do you expect them to stay at this level by the end of the fiscal year, or go down further?

We think those are appropriate where they're at right now.

The last question I have for you, Bruce, is looking at the industry today, we know there are two very strong publicly-owned players -- you and somebody else.

The rest of the publicly-owned players are really struggling.

You have not made any acquisitions of companies since I know you.

That's correct.

Where is your thought process as far as that as a potential positive for the shareholders?

We've had some discussions, and we've even talked to some different companies.

But I can tell you that we don't have anything to announce, Barry.

And we'll look into it.

And it's a determination whether we think that's the best area for us to move into, or -- and a lot of different ways.

You don't have to necessarily buy companies; you can start up and do it.

But we have had those discussions.

Congratulations on a pretty good job.

(OPERATOR INSTRUCTIONS).

Ed Aaron, RBC Capital Markets.

A quick follow-up for you.

If you look at kind of the other component of your revenues, so excluding the RVs -- in other words, the parts and the other things that you sell -- just some back-of-the-envelope calculations, it looks like you had some pretty good growth in that part of your revenue line this quarter.

Is that right?

That's correct.

What's driving that, first of all?

Secondly, can you just remind us of what the gross margin profile is on those revenue dollars versus the motorhome revenues?

The gross margin profile is a little higher than our Class A or Class C motorhome products, simply because the bulk of that is parts and accessories, but also a big piece of that is our OEM operation of aluminum.

And if your metals prices have been and going up -- so some of that growth in the other segment is caused simply because of a rise in metal prices in our OEM aluminum extrusion operations.

But the gross profit profile is a little bit stronger in the other category than it is in the motorhome side of the business.

Is it something that materially moves the needle on the blended gross margin percentage for the quarter?

Not significantly.

Again, as a percent of the total, it's not all that significant.

It's approximately 7% of total revenues for the third quarter.

That's still a pretty small number.

So even if you have a better margin on 7%, even if the 7% moves a little bit, it doesn't move the big number much.

Eric Elbell, Fenimore Asset Management.

I just want to clarify -- you had mentioned, I think, your CapEx expectations for fourth quarter of 1.1 million.

Was that correct?

That's correct.

Any comments about expectations for next fiscal year at this point?

We're planning to finish 2006 at about 4.3 million in total capital expenditures.

And I wouldn't expect 2007 to be materially different, in that 5 to $6 million range in '07.

We're basically just maintaining the buildings and the property that we currently have.

Timothy Jones, Wasserman & Associates.

You said that your dealer inventories were in line.

They certainly look very nice [as an] aggregate.

Could you go through on the three categories and say if you think that's the case?

Following pretty much the trend you see on our sales line, we see an improvement on a year-to-year basis; the dealers are carrying more of our Class C products.

Likewise, they're carrying less of our Class A products.

That's really what's going on.

And that's really they're simply adjusting to the marketplace, and certainly the nature of the fact that their flooring costs are higher this year than last year.

And the market isn't -- from a retail standpoint isn't as strong.

So it's very much similar to what we're seeing in our backlog numbers, how they are stocking product.

Somebody asked you about flooring costs before, and I didn't get quite your answer.

Is it that significant or not?

Because the rates -- they haven't gone up that much.

In flooring costs, you have to understand, if you back and look at the market, and also the fact that two years ago, in 2004, the interest rate environment was extremely favorable.

We had a lot of dealers that were flooring product in the 4% range, maybe even south of that.

We had a very strong retail rate environment.

So the dealer -- and plus the retail activity was strong.

So the dealers in general were pretty aggressive about stocking product, simply because their cost to stock that product on a historical basis was probably at a 30-year low.

So when you go back and look at historical stocking levels for the dealers versus where we are today, the environment has changed.

Their interest rates are probably up 300 basis points, so therefore, their cost to floor that product is much higher.

The level of retail traffic is slightly less than where it was then.

So from, I think, a business management standpoint, they're adjusting their inventories appropriately.

I assume many of our dealers -- I know for a fact -- they watch their inventory turns, and are trying to adjust their inventory appropriately.

And that's -- and I think they've done a pretty good job of that.

It's obviously pegged to short-term paper.

Very much so.

Somebody asked you were you considering to go into the towables.

I've followed this industry for 37 years, and the towables for 37 years.

What would make you think to do that, given the fact that there's tremendous competition on the lower end of the lines and the margins (indiscernible)?

I think that's kind of fair.

We have had all those discussions, the same here at Winnebago Industries also.

And we've just got to see if we -- which area of the industry, or if there's any other ways that we can grow, that probably fit Winnebago's business style better.

So is that a yes or a no?

There's no commitment either way.

(OPERATOR INSTRUCTIONS).

Jim Larkins, Wasatch.

One detail question to start with.

What tax rate should I use for the coming quarter, and also (indiscernible) for the coming year, for next year?

We are estimating our annual tax rate to be 34.4%, which was slightly lower than we had been recording expense in the previous two quarters.

And that was just based on a true-up of our estimate for the annual year.

And I would expect to have a similar rate in the next fiscal year.

However, it could be slightly lower as we are eligible for more of the domestic production activities credit in fiscal 2007.

But that 34 to 34.5% range is appropriate.

And then, could you break out your market share in more detail than what you provided on the press release?

Could you give -- I don't know if it works on a year-to-date basis -- but Class A gas, Class A diesel, and then Class C?

Do you have that information?

We have it for Class A's.

On a year-to-date basis, we are at 15.3%.

And for Class C's, on a year-to-date basis we are at 25.7%.

And for a combined industry market share, that's the 19.1%.

Would you have that for a year ago?

Yes we do.

Year ago for Class A's we were 16.6.

For Class C's a year ago we were 18.9, versus 25.7 this year.

And for combined we're at 19.1 year to date, versus 17.3 last year year to date.

Great.

Do you have the Class A gas versus diesel?

I don't have that with me broken out.

Kathryn Thompson, Avondale Partners.

What was your capacity utilization in the quarter or at quarter end, and where is it now?

At the end -- during the quarter we ran at just about [60]% capacity.

It was about [62]% in the previous quarter.

Do you see that ramping up at all with increase of your new lower-priced Class C's?

Again, that's going to be primarily dictated by order demand flow, based on retail.

That's a forecast, and we typically don't -- we are not that good at doing that, I guess.

We'll just have to see what the retail pull is.

[George Mellis], Lord Abbett.

I think this question is for Ed, just to pick up a little bit on Kathryn's question.

Can you remind us a little bit where you make the products in (indiscernible) Forest City, talking about the three sort of big category products?

And help us (indiscernible) your gross margin is very fluctuated a great deal based on capacity utilization.

How do you calculate that 60%?

And in a way, I think the question there is -- I don't know if you (indiscernible) is it the number of labor man hours?

And maybe -- and what is the ratio for Class C versus Class A?

To answer your first question is the fact that we produce many of our Class C products in Charles City.

However, there are certain Class C products that are built in our Forest City assembly plant.

Because of the mix shift in the marketplace and the demand for our Class C products, we also have the flexibility of also producing those for the most part all in Forest City also.

So Charles City produces only C products;

Forest City produces both Class A and Class C, and is pretty multifunctional.

So that's where our production comes from, from an assembly standpoint.

Your question in regards to capacity -- capacity varies based on mix.

We believe that at about a ratio of 50% C, 50% A, we probably have the capacity to produce over 16,000 units annually.

If our mix goes back to where we've historically been, more at a [60]% A body mix and a 40% C body mix, then we believe our capacity is in that 14,000 unit area.

And it's really based upon what we believe we can do on a single shift basis out of all of our assembly lines.

At this time there are no further questions.

I'd like to turn the call back over to Mr. Bruce Hertzke for closing remarks.

Thank you.

I'd like to thank everyone for joining Winnebago Industries for our conference call today.

We look forward to talking to you again in October when we will report our fourth quarter and our fiscal 2006 results.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.