Winnebago Industries Inc (WGO) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2008 Winnebago earnings conference call.

My name is Amity and I will be your coordinator for today.

(Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Ms.

Sheila Davis, Public Relations and Investor Relations Manager.

Please go ahead, ma'am.

Thank you.

Good morning and welcome to the Winnebago Industries conference call to review the Company's results for the second quarter of fiscal 2008 ending March 1, 2008.

Conducting call today are Bruce Hertzke, Winnebago Industries' Chairman of the Board and Chief Executive Officer; Bob Olson, President; and Sarah Nielsen, Vice President, Chief Financial Officer.

I 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.

A replay of the call will be available on our website at approximately noon 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.

Bruce?

Thank you, Sheila.

Good morning, everyone, and welcome to Winnebago Industries' second quarter conference call this morning.

My opening comments today will be brief so that Bob and Sarah will be able to review the quarter's operational and financial performance, and I will save a lot of my comments for some closing remarks.

The second quarter was definitely a challenging quarter for Winnebago Industries.

Recently, the RV industry and Winnebago have had little positive news.

Yet, we were pleased to ship our very first ERA Class B motor home during the quarter.

We introduced this new product at the National RV Trade Show in Louisville, Kentucky, in early December and began limited production during the second quarter.

The new ERA has a separate brand identity from our Winnebago and Itasca lineup and will be we retailed in part through a separate and new dealer base.

We have had tremendous interest in this new product from dealers wishing to include this in their new product lines.

We look forward to this new product segment to provide some incremental opportunities for us in the future.

Now I will turn the call over to Bob Olson for a review of the second quarter operational performance.

Bob?

Thank you, Bruce, and good morning.

Our second quarter is traditionally our seasonally slowest quarter, and unfortunately the quarter was even more challenging due to a very difficult economic environment.

Our dealer inventories of Winnebago, Itasca and ERA brand products at the end of the second quarter was 4837 units, a decrease of 1.8% from the second quarter last year; however, a 10.8% increase from the first quarter of 2008.

We anticipate that dealers will continue to control motor home inventories until they can see improvement in the retail motor home market.

Statistical Surveys, the retail reporting service for the RV industry, has reported a continued softness in retail motor home sales with Class A and C motor homes combined down double digits for the past three months and down 16.9% for the most recently reported month of January.

On a wholesale shipment basis, RVIA's economist, Dr.

Richard Curtin from the University of Michigan, has also revised calendar 2008 downward to 45,900 Class A, B and C motor homes, a 17% decrease from actual shipments of 55,400 motor homes in calendar year 2007.

As we have previously indicated, it is our intention to increase our presence in the diesel market.

Our goal has not changed.

Frankly, however, we are not happy with our current diesel market share.

Our higher end diesel lines, the Winnebago Vector and Tour, and Itasca Horizon and Ellipse on the new Maxum chassis that were introduced in model year 2008 have been very well accepted.

However, our more economical lines, the Winnebago Destination and Journey, and Itasca Latitude and Meridian, have not been as well-received by the retail market.

With input from our dealer partners, we are making further changes to these products for the new 2009 model year, which will be introduced in May at our Dealer Days event in Las Vegas.

We believe these changes will allow us to capture additional diesel market share as we launch our 2009 products.

We continue to be very bullish about the long-term outlook for the RV industry.

We are concerned, however, about the current economic environment and have yet to see signs of a motor home market recovery.

You can't turn on the news today without being overwhelmed by bad news on the economy, so it's easy to understand our customers' reluctance to making a large ticket discretionary purchase.

While the Federal Reserve's interest rate cuts should have a positive impact long-term, the reductions in interest rates have not yet reached the retail customer.

We believe this may cause potential buyers to delay their purchases until they see the rates for motor home loans begin to decline.

Due to the many negative economic factors affecting consumer confidence and resulting in a soft retail motor home market and reduced demand from our dealer partners, we have reduced our employment level by approximately 300 people, or 9% of our workforce, through layoffs and attrition.

In addition, we continue our lean journey to drive out waste in our product and processes wherever possible and we continue to reduce budgetary expenses in an effort to match spending to current production volumes.

To date, we have kept our production capabilities intact and ingested our production volumes through reductions in labor force.

We will continue to monitor the economic conditions of the country and of our own industry and continue to make adjustments, whether that be in labor, facilities or other spending in an effort to right-size the demand of our customers.

These tough decisions were made and will continue to be made to help us achieve our primary objective, which is to build quality motor homes while remaining profitable.

With that, I'll now turn the call over to Sarah for the financial review.

Sarah?

Thank you, Bob.

Good morning, everyone.

I will now review with you the financial performance for the Company's second quarter of fiscal year 2008.

Revenues for the second quarter were $164.2 million, a 17.5% decrease over the second quarter of 2007.

The revenue decrease was primarily the result of unit delivery declines of 406 units, or 19.3%, offset partially by an increase in the average selling price of 1.7%.

We saw the average selling price increase in every product category this quarter as compared to the second quarter of last year.

Our gross profit margin was 7.4% for the second quarter compared to 9.5% for the same quarter last year.

Of the 210 basis point decrease in our margins, the most significant factor was the reduced volume, which represented a 190 basis-point impact.

Also contributing to the decrease in gross profit margins were an additional promotional program, which was partially offset by increased pricing as compared to prior year.

As discussed in our earnings release, approximately $500,000 of severance-related costs were included within general and administrative expenses associated with the layoff that occurred in the second quarter.

Conversely, bonus accruals established in the first quarter of 2008 for key management have been eliminated as a result of the second quarter performance.

Our effective tax rate in the second quarter was 31.8% as compared to 31.3% in the second quarter last year.

Year to date, the tax rate has also increased.

The increase is primarily due to increased state taxes.

Net income for the quarter was $2.5 million as compared to $7.5 million last year.

I will now highlight a few significant balance sheet items.

Inventories are up over $27 million from the end of the fiscal year, primarily due to increased raw material chassis inventory, and to a lesser extent, due to increased finished good inventory.

As discussed in our first quarter conference call, our chassis inventory was up significantly in the first quarter for a variety of reasons, such as new product launch, chassis model year changeover and softening market conditions, and we did not anticipate that we would significantly work through these additional chassis until the third quarter.

This is still our expectation.

I will say that we're not pleased with the current inventory levels and that we are working very hard to reduce all categories in the coming months, including chassis inventory.

As noted in our earnings release, at the end of our second quarter the Company held $54.2 million of investments in highly rated tax-exempt auction rate securities that were recorded at par value and classified as long-term.

For the last 20-plus years and up until February of 2008, the tax-exempt auction rate security's market was highly liquid.

Therefore, we have historically classified these as short-term investments.

During the week of February 11, a substantial number of auctions failed, meaning that there was not enough demand to sell the entire issue at auction.

From the time the auctions began to fail to the end of our quarter, we were able to successfully sell 10% of our portfolio.

However, by March 1, almost every security that we held had experienced a partial or a complete auction failure.

The immediate effect of a failed auction is that the holders cannot sell the securities and the interest or dividend rate on the security generally resets to a penalty rate.

We have seen that to be the case with the investments in our portfolio, as most of the interest rates are quite a bit higher than what we can earn elsewhere.

The securities for which auctions have failed will continue to accrue interest at the contractual rates and be auctioned generally every seven to 35 days until the auction succeeds, the issuer calls the securities, or they mature.

The stated maturities of our investments range in duration from 16 to 33 years.

These investments are recorded at par value, which is consistent with how we have historically treated them, and also what has been financial industry convention and what was reflected on our February broker statements.

However, we are currently evaluating if these investments are appropriately valued at par value due to the significant changes in the market conditions and we resolve this analysis upon filing the 10-Q for the second fiscal quarter.

We do not believe that this is a credit risk, but rather a liquidity risk.

As such, we have reclassified these auction rate securities as long-term investments as we are uncertain as to when we will have the ability to sell these securities.

We continue to believe that we will ultimately recover all amounts invested and that we can manage liquidity risk through cash flows generated from operations.

At the end of the quarter, we had $15.5 million in cash, and as of yesterday, that cash balance has grown to $30 million.

Last quarter in our earnings release, we noted that we had adopted the new income tax accounting standard FIN 48, and as a result established a liability related to uncertain tax positions as required.

During the second quarter, over $11 million was reclassified to current liabilities, which is included within accrued expenses due to the fact that we anticipate resolution through expected settlements or payments in the next 12 months.

Of this amount, up to $4.5 million may positively impact our effective tax rate in future quarters.

As I mentioned previously, we completed the quarter with $15.5 million in cash and cash equivalents.

During the first 27 weeks of this fiscal year, cash used in operations was $12.6 million as compared to $13.1 million of cash generated from our operations last year.

This is primarily a result of the increase in inventory levels that I have already discussed and also due to decreases in accounts payable and accrued expenses.

From a capital expenditure perspective, we have spent $2.5 million year-to-date and expense has been in the range of $5 million to $6 million for the entire fiscal year.

We have also paid approximately $7 million in dividends.

I will now turn the call back over to Bruce for final comments.

Thank you, Sarah.

Today will end another journey for me at Winnebago Industries, as this will be my last conference call.

I would like to thank you for the privilege of working with many of you over the past decade as Chairman and CEO of Winnebago Industries.

As I leave Winnebago in my 37th year with the Company, I am happy to say it's in a much stronger financial position and product position than we were 10-plus years ago.

I've told Bob, Sarah and the rest of the executive staff that the current conditions are tough, but you will have a great opportunity when the economic conditions turn favorable.

It's times like this that the market leaders who are well financed, have a strong reputation for quality, will survive to grow even stronger in the future.

Winnebago Industries is just that.

Winnebago and our industry are experiencing some tough times now.

But we will weather the storm only to have less competition and a better opportunity for the next economic upturn.

I believe the strong returns that Winnebago Industries produced in the past will return when a better economic environment returns.

Bob and his team are ready to take on this new challenge and lead Winnebago Industries into the next decade of growth and prosperity.

I will now turn the call over to the operator for the question and answer portion of the call today.

(Operator Instructions).

Scott Stember, Sidoti.

Sarah, could you give the ASP's this year versus last year by segment?

Certainly.

For Class A gas, our average price was $90,097; Class A diesel was $170,159.

So the average for Class A was $118,050.

Class C was $62,805, and our average A and C was $90, 102.

Class B was $69,244, and in aggregate we are looking at an average ASP of $90,090.

Would you have last year's figures as well?

Yes.

At the end of the second quarter for 2007, our Class A gas was $81,933; our Class A diesel was $155,574; Class A in aggregate was $105,995; Class C was $59,504; and average A and C was $88,597.

And could you talk about during the quarter, where your capacity utilization rates were, and maybe talk about with the current environment where they are projected to be over the next six to nine months?

Scott, this is Bob.

For the quarter, we were at about 52% of our production capacity, and as I had made in my comments, we have tried to adjust our capacity right now with adjustments in our labor force.

Right now, if the schedule stays as is and the economy doesn't get any worse, just from a seasonal standpoint, we should have better capacity.

But there is, like I say, in this type of environment, it's hard to project.

And with regards to the inventory balances, Sarah, you were talking about finished goods.

Could you talk about maybe the level of finished goods in the quarter versus last year?

Certainly.

We did see finished goods go up a bit, and part of that is a function of building some rental units that will be shipped in our third quarter.

But as we compare to the end of the fiscal year, our finished goods position is up about 15%.

And as I mentioned earlier, too, the significant increase is really associated with our raw material chassis position, which is up approximately $24 million.

Okay.

And also, discounting -- it's obvious that things have tightened up.

What are you guys seeing, what happened in the quarter, and what are you seeing currently as you speak right now with dealer discounting?

Scott, this is Bob again.

I don't think we have seen the discounting go as crazy as it did here a couple of years ago.

As you can see by our financials that we have done a little bit of it, but it's basically to help some of our '07 product to make room for the '08, and some of the things that we had out there that we needed to help our dealers with to move off their lot and ours.

Okay, so we are not at the levels that we have seen two or three years ago, but -- ?

No, we don't think so.

Okay.

And just last question on the issue with reclassified short-term securities.

Could you maybe disclose what the actual penalties have been so far and what it meant on an earnings basis?

In relation to the yields that we are currently receiving?

Yes.

All these are tax-exempt.

We are at near double digits in our yield.

Scott, this is Bruce.

There have been no penalties.

We've actually got a premium.

The penalty has been that we have not been able to cash them.

But the interest rate has actually increased in a lot of cases.

Okay.

And you would expect over time that as the market becomes more liquid that you would be able to move these and reclassify them as short-term again?

Yes.

They are AAA securities, so we think they are very good paper.

[Paul Burton], RBC Capital Markets.

I have a question about demand elasticity to interest rate cuts.

Retail financing rates have been a fairly narrow bandwidth for the past several years.

How impactful do you think it will be to demand if retail rates drop by, say, 50 or 100 basis points?

I think it's fair to say that interest rates have always helped our industry.

And it's just how soon that they will help the consumer.

I think the consumer in a lot of cases right now is worrying about his net worth, and his home values.

And it definitely will help future consumer confidence, and I think it will definitely help our business.

How soon, I wish I could tell you.

I believe it's going to take some time, though.

Paul, this is Bob.

I think one of the other things that you can look at interest rates helping this industry, if you go back to 2004, which was one of the best years that we have had in this industry, interest rates were very, very low at that time, and that was just one of many indicators that helped the market.

So we think that interest rates, especially being reduced from a long-term standpoint, will definitely help both us and the industry.

Thanks.

I think, Sarah, you mentioned that management bonus accruals were eliminated in Q2.

I'm wondering if you had them in Q1, how much, and do you have any plans to reverse those accruals, given the current market conditions?

Our annual plan is based on EPS and the return on the invested capital.

And in the first quarter, we are doing very well as compared to last year, which was why we were recording bonus expense.

In relation to where are year-to-date, we are meeting the objectives of the program, and that is reflected in our financials.

Obviously, EPS is now down over last year.

So it really is contingent upon how we do prospectively and if there is improvement, that would be the case.

But if there isn't, then we are looking at having no bonus for the year.

Okay, sure.

What do you think appropriate level of dealer inventory in the current demand environment is?

Looking back at history, I just happened to go back this morning in preparation for this, and you look at our dealer inventory, where we were at at the end of the second quarter.

Historically, it's well under where we have been for the last six years.

Now, things are a little bit different right now because I think our dealer partners are looking at their inventories a little bit closer.

They are wanting things that turn.

I think the turn is probably more important than -- so they keep their [flooring] plans down.

And I think it's going to vary depending on each one of our dealers.

Each one of them have a little bit different variation of what their philosophies are as far as inventory are concerned.

But in our [4836], I am not overly concerned with that dealer inventory, because like I say, historically it's in pretty good shape.

And then on the Class Bs, can you give us some sense of how to model the initial pipeline fill of the Class B's based on backlog?

Can we assume that 178 units of backlog amount to a partial quarter of shipments?

First of all, just like when we started the 500 series, which was our View and Navion product, there were some chassis restraints, and it took awhile to catch up with the pipe fill.

We are experiencing some of that with the B van also.

And so as we can get product, we are going to get it to the marketplace as fast as we can get there.

But some chassis restrictions are going to affect part of our opportunity.

And our backlog represents what we expect to ship in the next six months.

So we are still looking at third quarter being a time of ramping up, and by fourth quarter we should have a more normalized level of shipments going out the door.

As long as we can get the chassis, because this is kind of a new territory for us.

We've had pretty good luck getting our View and Navion chassis, but because this is a new chassis we are kind of standing in line like everybody else is.

That's all I had.

Bruce, good luck from Ed and myself.

Thank you very much.

I enjoyed working with you.

Kathryn Thompson, Avondale Partners.

Bruce, best of luck in your retirement.

Thank you.

You did a nice job on TV this morning.

Thank you.

A couple questions.

First, on inventory, I know you have given a little bit of color about your different inventory levels.

Do you have a target for Q3 or for the fiscal year end; and also, breaking that out between finished goods and your chassis inventories?

Ideally, we would still like to have our levels be back near that $90 million to $100 million that we discussed before.

In the current environment, we definitely are working through some additional chassis inventories because a lot of the commitments and orders placed for those were well in advance of the significant downturn that we saw in the back half of '07.

So we don't anticipate that we are going to be able to work our way all the way through it by the end of the third quarter, but our goal is to be at that range by the end of the fiscal year.

And from a finished goods inventory standpoint, we are looking right now at shipping a lot of our rental business in third quarter, which will reduce our finished goods inventory levels also.

But part of it is really dependent upon the mix of the product, because we do see that our average price is going to be moving based on the tight supplies that we are shipping.

So that's a little bit dependent there.

But I guess to answer your question, our goal is to be down towards that $100 million range by the end of fiscal year.

(multiple speakers) were there actually canceled orders in the back half or the last quarter of '07 that resulted in the increase in chassis inventory?

No, [it was] primarily a result of looking out into the future and trying to forecast the chassis positions and support the demand that we had been seeing historically.

So that is not based on an order position that we have to forecast out much further than that.

So it's not a function of order cancellation; it's a softening environment, and it's turning much more quickly than we had anticipated.

Okay, great.

You gave capacity utilization for the quarter.

Is there any current update on capacity utilization?

Not for this quarter.

We'll report that next quarter, Kathryn.

Well, no, I mean just like you said, the previous quarter end, at the end of Q2 it's 52%, but has there been any change since then, is really what I am trying to get a sense of?

Not really.

Okay.

Also, you saw an increase in accrued expenses.

What was the driver for this?

That was primarily the reclassification of that uncertain tax position liability that I touched upon.

We had $11 million reclassified out of long-term into short-term, and that's in that accrued expense line item.

And finally, what is your appetite for repurchasing stock, and does your cash situation impede your ability to repurchase?

Well, in our second quarter, as we have not purchased any stock back since our first quarter, there were two functions in that that I wanted to touch upon.

First, we were out of the market until Bruce's announcement was made public.

And then, shortly after that occurred, we did have all the auction failures start in the middle of the month of February and that has been our main concern, to work through that.

But as I commented, our cash position has increased fairly substantially, and as we pull money out of the auction rates, we are not going back into that type of investment.

And so we don't anticipate we are going to have any liquidity issues, but our first concern is to work through that, and then secondly would be to take advantage of opportunities in buying stock.

Okay, thank you very much.

Craig Kennison, Robert W.

Baird.

With respect to gross margin, obviously we are all trying to get a feel for where that could be so we can set the right expectation with our estimates.

Part of the influence will be the layoff that you announced.

Can you give us any dollar quantification around the cost saving you expect on a quarterly basis, from that layoff?

Well, as we touched upon, the onetime severance costs associated with the position eliminations was approximately $500,000, and we look at that would be the savings we'd see on a quarterly basis prospectively, so nearly $1 million in the back half of this year.

Okay, that is helpful.

And then sometimes you will comment on just your forward margin guidance, giving a range so that we set the right expectation.

Would you expect a meaningful improvement from this level as you ramp your capacity utilization a little bit?

That's a tough question.

In relation to what's happening in the marketplace, it's challenging in relation to the dealer demand and sluggish retail.

So unless we see some improvement in relation to those two key factors, it's going to be difficult to have a substantial amount of improvement sequentially.

Now, we do have the benefit of, our third quarter does not have as much of a shutdown as what we typically see in the planned vacation over Christmas and some of the elements of overhead that are more associated with the winter months, but it's really going to be a function of what we ship in the volume levels.

And so it's challenging on the margin side, and it's hard for us to be confident on what that will be, too.

Obviously, you have to forecast to some extent what your expectations will be to set the right cost structure, because this business doesn't work really well at this level of gross margin.

Do you think this is enough of a cut, given your expectations for the market, or could you see more if things deteriorate?

This is Bob.

We monitor that every day, and a lot of it's going to hinge on retail.

We've gotten questions about inventory levels and things like that.

You realize that our objective is to reduce inventories and not raise them.

So to say -- is this enough?

As we know it today, we think it's a good plan forward.

The problem that we've got is, there are so many uncertainties out there in the economy that is it going to have an adverse impact on retail?

Is it going to stay the same or is it going to get better?

And really, I think our forward stance right now is going to be, we are going to be so closely tied to retail that we will have to make decisions around that.

You mentioned dealer inventory.

Would you expect a normal sequential decline again this quarter as you would have historically?

Again, I'm not sure of that either because there are so many uncertainties out there.

We are going into our 2009 product launch, which typically you get a few additional orders there, you go into that next quarter and we are still introducing 2009 product.

I think a lot of it is going to hinge on the appetite and the either conservatism or optimism of the dealers to four additional units or less units.

Again, I think a lot of it is going to depend on just what that retail activity is going to be out there in the marketplace.

And that gets to my last question.

The diesel market share, that can't be satisfactory from your perspective.

What kind of changes are you making?

And do you think -- is it the problem that dealers don't feel like the product will sell or that these dealers have purchased the product and it's not turning?

In other words, is it a wholesale problem or a retail problem?

How can you give us some reassurance that maybe market share gains are on the come?

I think -- go back and give you a little history lesson.

We introduced the Destination Latitude not at last Dealer Days, but the Dealer Days prior to that.

And when we took it down there, we knew we were taking a gamble because it looked different then any other motor home in the industry at that price point, but we felt good about it.

And we went down to Dealer Days with it, introduced it, had an unveiling, and our dealers went through it.

Some of you guys were down there, went through it.

And we didn't hear really any negatives to that vehicle.

In fact, we heard things like, geez, we can't believe that you guys created that in Forest City, Iowa.

Finally, something out there that looks different than my grandma's kitchen.

It looks like a flat that you would see in New York or Chicago.

So we left Dealer Days feeling very, very good about this product.

And I think the dealers showed us that same optimism because we had a good wholesale activity with that product as well.

But I think once we got it out into the dealer channels and the retail customers and started looking at it, they said, yes, that's nice, but I don't think it's for me yet.

And it's not likely haven't sold any yet.

We've sold several let them.

But it's more to like the professional type individuals, the younger crowd.

We think it's still a viable product, and we certainly have not given up on it, because as we mentioned before, we are making some changes for '09.

Now, I don't want to give away anything that we are doing in '09, but trust me, we have listened.

We have talked to several of our dealer partners and they have given us suggestions on this product, and we will be unveiling at Dealer Days.

So I suggest you come out and see us, and you'll be able to see the product and what we are doing with it.

But I am optimistic that we are much closer to being on the mark with the '09 product than we were with the '08 product.

And to answer your other question, I think right now, it really is more of a retail issue than it is a wholesale issue.

That is very helpful.

Once again, Bruce, best of luck to you from all of us at Baird.

John Diffendal, BB&T Capital Markets.

First off, Bruce, I will be missing hearing you on the call and dealing with you as well, so congratulations on your retirement.

Secondly, going back to the resets for a second, you mentioned when you file your Q, you'll make a decision on whether you will take an impairment.

Have your accountants mentioned whether anyone else that has been in the same situation, has anyone else taken any sort of write down on those assets?

That's a very interesting question.

We had that conversation, to a great extent, many, many times.

Our challenge is, we are right on top of this event, and our quarter ended two weeks after all of this kind of had unfolded.

And to go back over what other companies have done, a lot of companies that reported at the end of the calendar year or at the end of January, this was a subsequent event.

So I think the rules are still being written from an accounting guidance standpoint, and it's very fluid and changing based on new information daily.

So there are some other significant companies with this kind of portfolio as of the end of February.

And then at the end of the calendar quarter, I think you are going to even see more I guess data points or comparison points.

When you look at the kind of securities that we have on the student loan or municipality type Triple-A rated security, it's very sound from a credit risk standpoint.

Our challenge is that the par value designation that has been the history of presenting it, to establish an independent valuation with no secondary market really is migrating toward evaluating a typical kind of a security and doing some discounted cash flow analysis.

So there are some companies out there that have taken impairments, but I would say a lot of the kinds of companies that have, have asset-backed or CDO-type securities.

But it has been such a dynamic and changing set of circumstances and very challenging to obtain help with valuation that we are in the situation we are.

So we're working to resolve that here as quickly as possible.

But --

So you're kind of the leading edge of this, with (multiple speakers) of your quarter?

Exactly.

And even the fact that we reclassified a long-term is a different position than a lot of companies have taken.

But it's true in relation to -- the liquidity is very real, or illiquidity, because they are failing still daily.

So we are pulling out money when we have the ability to, and we are getting great returns while we are investing in these types of assets.

But the market is still completely dislocated, and there is so much panic, and every day there is some new announcement that creates more panic.

This is a pretty real issue.

And you mentioned the tax rate, some of the shifting dollars there.

What's your guess at this point for the full year rate, so you sort of think about what the second half rate would be, and the timing of the movement of those dollars you mentioned?

We look at our effective tax rate on an annual basis to be 33%.

However, I mentioned that we have in the next 12 months visibility or anticipation of resolving some uncertain tax positions.

So that could be in the back half of '08 or it could be in the first part of '09.

And so until those events happen, I can't consider that in my rate.

So from a normal standpoint, it's 33%, but there is some tax positions that they have resolved that would reduce that rate.

And lastly, Bob or Bruce, you mentioned the inventories are up at the dealer level certainly relative to the prior quarter.

And the backlog, especially on the diesels, are down three quarters or whatever.

I guess that would -- am I wrong?

I certainly would assume that some of that is, as you say, buildup, especially of the Destination and Latitude there.

So do you expect that you will have to be taking, especially as you are changing -- you're ready to turn your model year here, be taking some additional discounts to move that as you get ready to update that product as you mentioned, in May?

We have tried very hard.

I think if you look at our financials, our discounting has been up a little bit this quarter.

So we work diligently at that.

I guess the good news, we are sitting in pretty good shape at the factory.

Now it's just a matter of our dealers getting it into the retail channel.

And we have offered some help on that already, and so we feel good that if the economy picks up, along with what we have done so far, that we should be able to move some of that product off.

But there is a fair -- I am not wrong in assuming that there's a pretty big concentration of diesels in that inventory sitting there that still has to be sort of purged?

Well, when we look back over the last few quarters or historically, the percentage of diesel inventory in backlog -- excuse me -- in dealer inventory, it's not proportionately different.

So I don't want to send an alarm signal on that point.

I think it's very real that we have to be supportive of moving some of the units that aren't maybe as widely received on the retail side.

But as a percentage, our diesel inventory isn't out of line as to where it's been.

(Operator Instructions).

Barry Vogel, Barry Vogel Associates.

Before I forget, Bruce, it has been a total pleasure dealing with you since I've known you.

Thank you, Barry, same to you also.

I have enjoyed the relationship.

And are you going to go down to Louisville, or are you just never going to go there again?

Well, I've been to 25-plus Louisville's; I think that's enough.

Anyway, best of luck.

Good health and good fortune.

Thank you.

Now, I'm going back to the inventory issue with you guys, and Sarah, can you give us a breakdown in, first of all, in dollars in your inventory of $128 million, into finished goods, work in process and raw materials and break down the raw materials, I guess, or wherever the chassis are?

We had approximately $52.5 million in finished goods, and work in process was $36.9 million.

Raw materials, which is where our chassis inventories are, is approximately $163 million, and then we had a LIFO reserve of $34 million to arrive at $128 million approximately.

How much was the LIFO reserve?

$34 million.

Okay.

And in the chassis, was that in raw materials?

Yes.

And how much was the chassis?

Over $50 million.

$50 million?

Yes.

Alright, $50 million was chassis.

Now, as far as -- I don't know if you have these figures, do you have -- on the models that you have in dealer inventory, are there any 2007 models that you know of?

Yes, there would be.

We always look at the aging in relation to the time the units have been on the lot.

In relation to what is over 12 months, it's fairly similar to where it has been historically, but there are a portion of units that have been sitting in the dealers' lots in excess of 12 months.

So as far as over the last 12 months, it's normal, as far is aging?

Yes.

Okay, because you have had a very aggressive purging of inventories that were left over at the end of each year, and I would think you're going to do the same thing this year.

If necessary.

Okay.

Now, as far as the Class B's, I just wanted to make sure I got this straight.

You implied that you would ship the backlog in the second half of the year, which would amount to about 180 units.

Was that the correct assumption?

Yes.

Yes, assuming that all the chassis get here on time.

Who provides you chassis of this Class B?

These are Dodge Sprinter (multiple speakers) chassis.

(inaudible) again, and it's more difficult I am assuming because you have competition getting some Sprinter chassis?

Well, it's just a popular product overseas, and it's on an allocation basis, and so --.

Barry, this is Bob.

Not only are we competing with other B van manufacturers, but this is a widely used chassis in a lot of fleet companies.

So it's a worldwide allocation, and we are finding out that it's a little bit more difficult to get the chassis than what we are accustomed to.

So if that is the case, in fiscal '09, you might have a chassis problem again?

We think that they should be able to ramp up and catch up in production.

That is their indications to us, that it's going to continue to improve.

Based on your initial dealer responses, and I know, I don't want you to project, but what could -- but you have a certain amount of dealers in this new dealer base.

And am I right, that it's just for these dealers and not for your other dealers?

Yes.

So in other words --

It's both.

Barry, it's a combination between current dealers that we already have for our A and C categories, certain ones, but then we will also be looking for other dealers that specialize in B van marketing.

Okay, so looking at your select dealers that you currently have now and the 50 dealers that you already signed up, what would be a good approximation for the amount of dealers starting in fiscal '09 that might be able to carry the product?

In excess of 100.

So over 100 dealers.

And that's very narrow compared to your current dealer base.

Yes.

Yes.

And what do you think would be a fair pipeline fill per dealer, assuming -- in fiscal '09, per dealer?

I think that's going to vary on each dealership, but I say on average, two-ish.

Two-ish?

Yes.

On a pipeline fill basis, that's only 200 units.

I'm sorry -- yes, am I right?

200 units, just on the pipeline fill?

Well, but then we'll be turning around and selling also, and then feeding on top of that.

Okay.

Bob, as far as your backlog in Class B's, that was very impressive, to be up 10.8% versus last year, because it was a pretty good product last year.

How come you were so successful in this tough environment?

I think we've got a couple of things.

We've introduced a couple of new floor plans.

We've got some rental going on.

The Navion IQ is new, the 231-J for Winnebago dealers were new.

We do have some rental product that is in there.

And you look at our overall lineup, I think we've got a very good C-body lineup.

Have any of your competitors in getting the Sprinter chassis to compete with you in Navion?

Yes, we've been hearing some of it.

We know we've seen quite a few in the different shows that we have seen, and we have not heard a lot about what is out in the dealers' lots, but we are sure that they are starting to get some out into the pipeline.

Now as far as the B's, what is your best estimate as far as operating margins?

Do you think they will be equivalent to your C's potential profit margins on the B's?

Yes, I think that's a fair assumption.

It will be comparable.

Alright, the same as C's.

Okay.

A lot of questions had been asked, so I don't have -- I know what I wanted to ask you.

Bruce and Bob, you have both been around a long time at Winnebago.

You have seen all kinds of markets.

We are entering the season in a very low backlog.

And you have been in a recession now for Class A motor homes for over three years.

And by any stretch, all of the things that are out there that you talked about and considering the incredible high level of discretionary purchase the Class A's are, and I am asking you both your opinion -- do you think you will have an extremely muted seasonal uptick, in fact maybe hardly any seasonal uptick?

We're going to see -- just because it's spring, we will see some uptick.

I think the market is already down very considerable, and I think the uptick that we're going to see compared to other years is definitely going to be less, because we are at a less rate already.

So I don't know how else to answer that, Barry, other than the fact that we have not seen any indications -- if you're asking if we've seen any indications that the market has taken off, I don't think us, RBIA or anybody in the industry is giving any type of indication like that.

No, I'm not looking for taking off, what I am concerned is there's hardly any seasonal uptick.

That would be pretty bad.

I think you're going to see is somewhat tempered this year.

All you've got to do, Barry, is turn on the TV, and until some of that starts going away and we get some fixes to all of the things that are going on with the Fed right now, you're going to have people being very cautioned.

And I think if we can start getting some of those things fixed, you're going to start seeing an uptick.

But from a spring standpoint, I think it's got to be tempered, just simply because of consumer confidence and everything else.

How much is it going to be tempered?

We're not really sure.

And as you know, things are changing daily around here.

And I have often said that where this thing is going to finally turn around is hopefully sometime post-election.

Okay, so post-election means the next two or three quarters will be difficult.

I think they will be.

I think we'd be kidding ourselves if we didn't think they were going to be difficult.

I think you're absolutely 100% right, and I know you will do whatever you can to be as lean and mean as possible.

So I have confidence in you that you will do that, but you cannot change the market, but all you can do is I guess adjust some of your products, like you were talking about.

Yes, I think one thing that we have learned a valuable lesson over the years is that we have to manage our way through these tough times.

And we have done it for 50 years.

We have seen it where it's been a whole lot worse; we've seen in where it's been a whole lot better.

And I think we've got the things in place that will allow us to do that.

Now, as far as your price points, I know you made some adjustments in the last 12 months, particularly in Class A's, with lower price points.

Has that been helping you?

Yes, I think it has helped our Class A gas products as far as volume on that.

That is -- where we slipped in some diesel, we have done okay in our gas products.

Correct me if I am wrong?

The Latitude -- because I don't remember all these things -- but the curved cabinets, was that the Latitude and Destination?

Yes, and the Journey and Meridian as well.

Okay, because I was one of those who thought it was a pretty nifty product.

You did not buy enough.

You were not alone, Barry.

And now I know why you are so cautious and made your changes.

Now, as far as any new changes, anything major for the new model year, is there anything you are planning that will be a major change in product development?

You will have to come to Dealer Days and see, Barry, sorry.

Okay.

Thanks very much, and it has been a long haul on the way down here, and it's going to take time, there's no question about it.

Thank you very much for your help.

I would now like to turn the call over to Mr.

Bob Olson for closing remarks.

Please proceed, sir.

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

I would also like to thank Bruce for the 37 years of his service and leadership.

I think the measure of success is if you leave something better than you took it over, and I think we can honestly say that that was the case.

So again, Bruce, happy trails, and we look forward to talking to you again in June, when the report our third quarter fiscal 2008 results.

So, thank you.

Ladies and gentlemen, this now concludes your presentation.

You may now disconnect.

Have a good day.