Winnebago Industries Inc (WGO) 0 Q0 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Winnebago Industries' fourth-quarter fiscal 2009 results conference call.

My name is Heather and I'll be your coordinator for today.

At this time all participants are in listen-only mode.

We will be facilitating a question and answer session towards the end of today's conference.

(Operator Instructions)

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

Sheila Davis, Public Relations and Investor Relations Manager.

Please proceed.

Thank you, Heather.

Good morning and welcome to the Winnebago Industries, Incorporated, conference call to review the Company's results for the fourth quarter of fiscal year 2009 ended August 29, 2009.

Conducting the call today are Bob Olson, Winnebago Industries' Chairman of the Board, Chief Executive Officer, and President, and Sarah Nielsen, Vice President and 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 12 p.m.

Central 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, it's my responsibility to inform you this presentation may contain certain forward-looking statements within the meaning of the Private Securities Litigation 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 identified in our 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 Bob Olson.

Bob?

Thank you, Sheila.

Good morning and welcome to Winnebago Industries' fourth-quarter conference call.

Sarah will go into the results for our fourth quarter and fiscal year 2009 shortly, but it is evident from our financials that fiscal 2009 was one of the most challenging years in our history as a corporation.

We have worked very hard this year in light of some extremely difficult economic conditions to reduce expenses while successfully launching a very exciting 2010 product lineup.

We have focused on managing our balance sheet to take all the necessary steps to maintain adequate liquidity and preserve our ability to make investments in products and processes important to our long-term growth and profitability.

As an industry, we have been in one of the most severe downturns over the last 18 months that we have ever seen.

We are hopeful that we are at or near the bottom of this downward cycle and that the worst may be over.

The general economy is looking healthier, with improved consumer confidence, stable fuel prices, low interest rates, and an improved equity market.

Along with these economic improvements, our product lineup for 2010 is being very well received by our dealers as well as retail customers.

Unlike many of our competitors, who seem to have chosen to simply warm up last year's models, this is a lineup that has been revamped with new floor plans, exciting new interior and exterior decors, and in new offerings such as the Winnebago Via and Itasca Reyo, as well as the new Winnebago Tour and Itasca Ellipse 42-foot tag axle.

Winnebago Industries' commitment to providing our dealers with industry-leading products continues to be evident.

The excitement over our 2010 products has also been evident at recent shows, particularly at the Pennsylvania Camping and Travel Show in Hershey.

At the Hershey show, we were pleased to see acceptance of our products in nearly every product category.

As mentioned earlier, we feel we are at or near the bottom of this downward cycle and that the worst may be over.

One of the indicators of this is that the replenishment cycle may be starting.

We make this statement based on our sales order backlog on August 29, 2009, of 940 units or $86.6 million, which has grown by 146% on a unit basis and 158% on a dollar basis compared to what we reported at the end of the third fiscal quarter.

It has continued to grow since the end of the fiscal year.

We are also pleased that we continue to gain market share.

Results from the calendar year-to-date through August 2009 were reported earlier this week and show market share growth Winnebago Industries in the combined Class A and Class C market as well as substantial improvement on our Class A diesel market.

Combined market share results for calendar 2009 year-to-date through August were 19.1% compared to 18.5% for the same period last year.

Our Class A diesel market share was 10.8% compared to 7.6% for the same period last year.

While improving somewhat, credit continues to be challenging at both the wholesale and retail level.

Floorplan lenders continue to monitor dealer inventories very closely with an emphasis on the aging of inventory and the number of times a dealer is able to turn their inventory each year.

Wholesale lenders have helped manage dealers' inventories so closely it has resulted in historically low levels of Winnebago Industries products on our dealers' lots.

Judging from our sales order backlog, however, we believe dealer inventory is also bottoming out, which we are confident will increase dealer inventories in fiscal 2010.

With a terrific 2010 product lineup, increased market share, a growing backlog of orders, and extremely low levels of inventory currently available to retail customers, we are optimistic about continuing to grow our market share as the year progresses.

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

Sarah?

Thank you, Bob.

I will now review the financial performance for the Company's fourth quarter of fiscal year 2009.

Revenues for the fourth quarter were $59.5 million, a 30.3% decrease as compared to the fourth quarter of fiscal 2008.

This was primarily a result of a decrease in our motorhome deliveries of 323 units or 34.8%.

Industry wholesale shipments, as reported by RVIA, were down 36.7% for the same period.

Our average selling price increased 4.3% as compared to the same quarter last year due to an increase in Class A diesel mix, which is partially offset by an increase in product incentives offered at the wholesale level.

In regards to cost of goods sold, as a result of significant inventory reductions, which resulted in liquidation of last-in first-out inventory values, we recorded a benefit of $2.8 million in the quarter, to reduce our LIFO reserves.

Aside from this positive non-cash item, the quarter was negatively impacted by lower motorhome deliveries and corresponding lower absorption of fixed costs, higher production inefficiencies due to these lower volumes, and increased wholesale and retail promotions as compared to the prior year.

SG&A expenses were nearly $2 million less than last year the same quarter.

This was due to reduced legal and professional fees, reduced severance costs, and lower wage-related expenses due to the reduced headcount as compared to last year.

We recorded a non-cash charge of $855,000 to reflect the impairment of the asset value of our Hampton fiberglass facility.

As announced in June, we are closing that facility to further reduce our fixed cost structure and have listed the building for sale during the quarter.

A portion of the production has been moved back to Forest City this past month, and a portion was outsourced.

We also listed the Charles City manufacturing facility for sale during the quarter.

From a tax perspective, the fourth quarter included significant activity.

We established a full valuation allowance against all of our deferred tax assets in accordance with the applicable accounting rules.

Under these rules, our recent cumulative losses are a significant negative factor.

Our losses, combined with uncertain near-term market and economic conditions, reduced our ability to rely on any future taxable income projection.

Thus we concluded that a full valuation allowance should now be established.

This valuation allowance was a non-cash charge and thus had no impact on our cash flow.

The economic benefit of these future tax deductions has not been lost; and when we return to profitability the tax deductions will be taken and the associated tax benefits will be recorded.

We do have a $17.4 million tax refund receivable related to losses incurred in 2009 which we expect to receive in our second quarter of fiscal 2010.

We ended the fiscal year with $36.6 million in cash.

We had also classified a $13.5 million portion of our auction rate securities as short term, which we have borrowed $9.1 million.

We expect to receive the remaining $4.4 million in our fourth fiscal quarter of 2010 due to the UBS settlement.

We saw a further reduction in inventories during the quarter of $6.4 million.

This was due to $9 million reduction in raw materials, primarily chassis utilization, and a $4.6 million reduction in finished goods inventory, which was partially offset by an increase in our work-in-process inventories and a decrease in our LIFO reserve.

In regards to repurchases, there was minimal activity during the fourth quarter.

We bought back 13 units; resold 14; and realized a net loss of less than 20,000.

This is encouraging as the first three quarters were quite challenging in this area.

Our dealer location count also remained constant since May.

Our repurchase reserve decreased during the quarter due to the continued decrease in our contingent liabilities as a result of the decline in dealer inventory levels, which dropped 27.1% from 2,324 units at the end of the third quarter to 1,694 at the end of the fiscal year.

Lastly, we did terminate our existing credit facility and entered into a new credit facility this week.

This new facility provides increased flexibility with a three-year term and the ability to borrow up to $12.5 million without financial covenant restrictions if there is adequate asset coverage.

We also have the option to increase the facility size up to $50 million subject to certain provisions.

This potential borrowing capacity may be beneficial if we need to increase our inventory levels rapidly.

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

(Operator Instructions) Kathryn Thompson, Thompson Research.

Thank you so much.

First wanted to focus on your backlog.

You mention in your prepared comments that you've seen an improving trend in backlog since the August fiscal year-end.

Could you give a little bit more color in terms of the types of units and the pace of the improvement in overall backlogs, and how that compares to kind of your previous periods, going from the summer into the fall?

Well, I think we're pretty pleased with what we're seeing for orders coming in right now.

I think the mix is fairly strong.

It's kind of spread evenly across the board.

Comparing to previous periods, I think historically this industry looks at going into the fall and winter is our weaker periods of time.

But I can say that we are seeing an increase in orders that may be a little bit higher than what we would normally see.

We've seen recoveries before where we've had to do some extra things in the typically slower parts of the year that we're hoping we're going to see maybe something similar this time.

That it's going to be better than what the typical fall and winter season will be.

Kathryn, this is Sarah.

I think part of what we are seeing too is maybe that inflection point where the dealer inventory levels out in the field are just at that low point where it's not sustainable.

And that's a function of our order increase, in our view, and also just a function too of having exciting new product that creates some momentum out there.

So these are very good things after such a long, protracted downturn.

I would assume that -- is this in terms of -- is this just more dealer restocking?

Or is this driven by consumer demand?

I would assume there would be some consumer demand based on your comments on the Hershey show.

I think part of it is consumer demand.

But I really think that we're at a point now with the dealer inventories going down so low over the course of the last 18 to 24 months that I think maybe we are finally seeing the bottom of where the dealers are looking at holding their inventory levels.

So I think there's a couple things.

I think you do have some increased retail activity; but I think you've got a bigger issue here with two other things.

One is the dealers are looking at it and saying, you know, I'm finally at a point now that I am turning my inventory and I can afford to restock and the lending institutions are going to give me the floorplanning wherewithal to do that.

But I think a big issue of that is what we've come out with for our 2010 product lineup.

We are just hearing very, very good reports on acceptance of that 2010 product, which we have made no secrets about that we spent a lot of R&D resources and have changed the product pretty substantially this year in anticipation that we were getting close to the bottom.

And this will give that extra incentive for the dealers and hopefully the retail customer to look for something new.

Okay.

One thing you noted in your press release and we had also been hearing from the field, you're starting to see some positive trends with diesels.

When did you start seeing positive trends with diesel sales?

Well, I think part of it you can say was at the end of our fiscal 2009, when we were getting -- trying to get rid of our 2009 so we could open up spots for our 2010.

And I'll openly admit that part of that is from discounting, that we offered some good deals on that end of the year stuff.

But I think from a 2010 standpoint, once we started bringing our dealer counsel in, our sales district managers, and started getting our 2010 product out into the dealers' lots, the acceptance of that product has been just phenomenal.

We're starting to see some of the benefits of all that effort that we put towards our 2010 product.

Before I move to my next question, just to be clear on the backlog, my understanding is you really started to see more of a pickup toward the latter part of the quarter; and it's really that momentum that is carrying into September and October.

Is that a correct assessment?

That's a fair statement.

We started seeing some of this late July and then it picked up momentum in August.

And it's just continued through so far into the first quarter.

Okay, great.

Would you be able to give some color on current capacity utilization?

For the fourth quarter we ran utilization rate at about 22%.

Okay.

So we've still got a long ways to go.

But it was a sequential improvement from --

Yes, I think last quarter we were around that 18% range.

Looking forward and thinking about how you plan going into Louisville and then also for your December, just your seasonal shutdown, is it too early to have some type of speculation about how much time you anticipate taking off for your seasonal shutdown?

And how much time was taken off last year, just to put some perspective on those numbers?

Well, maybe one thing I would first answer on that topic is we have adjusted our line rate so significantly in the downturn that the norm kind of went out the window.

And then you're well aware that we took two mandatory weeks down from a salary standpoint during fiscal 2009, one of which was in July and one was over the January time frame last year.

And our hourly workforce had been living through that much more dramatically all throughout.

So there was the typical time shutdown a year ago during the holiday season; but we had a lot of shortened work weeks, alternating lines, all sorts of ways to manage and only produce to demand.

Yes, and that's really a tough question to answer from the standpoint of comparisons.

I agree with Sarah that it wasn't the norm last year.

To give you an idea on that, we were just talking yesterday about the fact that -- how long has it been since we have run all three lines at the same time?

And it was August of '08.

That's how long this thing has been in the downward cycle.

Are you running all three lines now?

Yes, we are.

In fact, this week is the first week that we have had all three running at the same time, which is really a nice feeling.

So you potentially could see maybe one or two weeks off in December versus much longer, which was happening last year.

We hope it's going to be much shorter than it was last year.

Okay, great.

Thank you very much.

Greg Badishkanian, Citigroup.

Hi, this is actually Alvin Concepcion in for Greg.

Just wanted to ask about retail sales trends.

Have they changed much since September and October from what you saw in August?

They've come up a little bit.

But since the first of the year they've been hanging in there around that 18,000, 18,500 annualized for an industry on the motorized.

Okay, and on the new products, the model year '10, how do the margins compare to last year's lineup?

From a margin standpoint, if you just look on a variable margin perspective, the climate in 2009 fiscal year was challenging throughout because of the incentives offered both at the retail level, at the dealer level, basically across the board.

So it was more -- it wasn't the pricing of the product itself; it was what was done after the fact.

On a prospective basis, first and foremost we have to have the volume here in our factory to support the fixed overhead side of the equation, which has been a drag on us for six quarters, to improve our margin picture.

If that is there, then you're going to see the improvement across the board for us from a margin perspective.

Would you be able to give an update on what you're seeing on the wholesale and retail credit side?

How has it trended in the last two months?

Also, given the improving trends in the RV industry, what are the prospects like for a major lender like Bank of America to increase their presence?

Well, from a wholesale financing -- I'll touch upon that first.

I think that it's been a long year in regards to living through where we were starting actually in October of '08 to now.

But there has been a sense of people understand what the rules are.

They are very, very different than where we used to be.

And a lot of dealers have worked their inventory positions down fairly dramatically.

That's evident in some of the numbers that we report.

So a lot of dealers have improved their turns and their inventory positions and are in a healthier spot.

Not all dealers.

And I think that the rules that both the major two lenders on a wholesale side are following are understood.

But I think at least from that standpoint there is not a freeze or an eruption.

It's going to be based on the specific metrics of a dealer and where they are at.

From a retail side, I think that it's still a pretty tight buy box.

But if you have the right qualifications you are going to be able to find the financing.

Both on wholesale and retail the rates are not necessarily that bad.

It's more what obligations you might have curtailment-wise, and how aged the product might be could be the bigger challenge because that's not all the way corrected.

But at least we have had a period of time where it's been fairly consistent approach to the marketplace is I guess some overall comments I would provide.

Yes, I guess just to add to that, I think a lot of it depends on a dealer by dealer basis.

You have got some dealers out there that are in pretty good shape right now and they are not having by near the troubles getting flooring from some of the national chains.

On the retail side, I think a lot of our dealers are starting to learn to ask the right questions, that this is going to be the new norm, that they have to have qualified buyers, and then it's just not going to go through.

We're kind of getting back to our roots, which I think is good for this industry.

We've talked to both BofA and to GE, and both of them are committed to this industry and both have intentions on trying to grow their presence in it.

Thank you.

Scott Stember, Sidoti & Company.

Morning.

Sarah, do you have the ASPs by product line in this year and last year?

Yes, I do.

From a Class A gas standpoint, our average for the quarter was $82,669.

That was as compared to $85,038 last year.

On the Class A diesel side, the ASP was $159,274 as compared to $172,035.

But overall A's did increase; it was $119,859 as compared to $107,467.

From a Class C standpoint, our ASP was $67,051 as compared to $67,125.

A and C in total, $89,982 as compared to $85,655.

And then Class B, $62,020 as compared to $69,438, to give a total ASP for the quarter $87,671 versus $84,047.

Okay.

Maybe just talk about the backlog a little bit.

You have had two major competitors that's been out of the market for a while.

It appears that they will -- probably going to start up operations relatively shortly again.

Can you maybe touch on what impact, positive impact, that had on your backlog this quarter or at the end of this quarter, and how that could possibly turn the other way a little bit if -- once they get up and running?

Well, there is always that possibility.

I think we were still in, as an industry, dealers trying to reduce their inventories, and there are still some dealers out there that are still challenged with that.

I think between dealers looking at it and saying -- I want to align myself with a manufacturer that is currently producing and has a good presence in this industry, I think we probably did gain a little bit from that.

But I'll still go back that we've aligned ourselves over the years with what we feel are some of the strongest dealers out there.

If they've ordered our product, if they happen to carry one of these other competitors' lines, if they've ordered our product versus that, I think that reinforces the fact that they're trying to align themselves with somebody stronger.

Now with that being said, I think there was a little bit of benefits for us, getting some of maybe that shelf space.

But I think when you look at what we're introducing for new product for 2010, I fully expect that is going to continue until at least some of these other manufacturers really get their feet under them and come out with a product line that they know what they're going to offer.

Okay.

Going back to past utilization, I think Kathryn had asked also about where it is as we stand right now.

At the current run rates, could you basically talk about what you're seeing from a capacity utilization standpoint?

And maybe also touch on what we need once again to turn to profitability.

Well, I think the big issue is volume, obviously.

And we are very pleased with what we are seeing with the current backlog.

But there again, we've got a pretty big horse here that takes a lot of hay to feed.

We need to get additional orders in here so we can start running all three lines at a much higher volume.

As I mentioned when Kathryn was on the phone, that this is the first week that we've had all three lines running consecutively.

And at least that is a start.

As dealers continue to replenish their very, very low inventories, we think that we're going to see more of those orders and hopefully we can bring that volume up.

Along with that, as the economy starts to improve, there ought to be a tendency of retail activity improving as well.

You look at the 18,000, 18,500 that the industry has been running here from an annualized rate, and you go back in the history and that is exceptionally low.

So if we can start seeing some improvement in that retail activity as well, that's just going to bump up this volume for all of the manufacturers in this industry.

As we feel that we've got a pretty strong product lineup for 2010, we're hoping that as the industry expands then maybe we can get a little bit bigger piece of that action as well.

Okay.

So I guess what I'm trying to get at is at the levels that you're running at right now, you're saying that you still need more to happen in order for you guys to turn the corner towards profitability?

Yes, we do.

Okay.

As far as new products go, most of the stuff you've introduced earlier this year, is there anything new coming down the pike just anecdotally for Louisville?

There might be a couple new floorplans, those types of things, but nothing major.

And if there was, I probably couldn't tell you anyway.

I figured as much.

Last question.

I think, Sarah, in the past you have said 1,400 to 1,600 units per quarter is breakeven.

I know that there is some variability with discounting in the market.

What you're seeing now, are we still in that 1,400 to 1,600 quarterly rate?

That question comes up each quarter.

In regards to what we think is a breakeven unit amount to look at, there are some other variables.

You definitely hit it appropriately in regards to what are we doing on the top line.

Another area that we maybe haven't talked much about on a historical basis is there is a portion of our revenue stream that comes from other areas outside of the core motorhome sales.

Back in the earlier profitable years here, when you even look at 2007 and 2008, the level of that revenue base in regards to where it migrated here in 2009 is another element of the variability to what our breakeven would be or what our unit would be.

So the one thing I guess I would add to the unit quantification is if we see the levels of the non-motorhome revenue base, which would be what we identify as parts and services and some of the other manufactured products we make, if that stays at the lows we've seen in 2009, we are going to need a little bit higher of a run rate from a motorhome standpoint to make up for those revenue streams.

So if you're going to look at a quantification, 1,700 to 1,900 units would be a fair characterization as opposed to 1,400 to 1,600.

Now if we see recovery that's more significant on the non-motorhome revenue side, then that can help push the unit run rate down a bit.

But there is a lot of different variables to consider in that equation, so it's never going to be a simple answer, unfortunately.

Right.

To that point, the non-motorhome demand right now, have you seen any uptick in that?

Well, part of it is a function of what's happening with billet.

A portion of our motorhome revenues is aluminum extrusion, and a lot of our customers there have been suffering in this economic downturn same that we are.

You look back at 2007 and we had over $50 million of non-motorhome revenues; and in 2009 it's going to be just slightly above $30 million.

So 2010 it's hard to predict where we're going to see that move.

Some of it is going to be correlative to the unit volume because it's parts and services types of the business.

And then there are some that's completely independent, and I'm not going to venture a forecast on that front.

But it would be a function of what the general economy does to some degree, and I'll leave it at that.

Yes, just to talk a little bit about the aluminum extrusion, I think it's going to be tied very significantly to the economy.

So if that starts to pick up I think we've got some opportunities.

But we've got some fairly big customers that are in the automotive industry, remodeling, windows, doors, those types of things.

So a lot of categories, a lot of commodities that are tied to the general economy.

So if we start seeing an improvement in the overall economy I think we'll start seeing an improvement in that business as well.

But only time is going to tell.

Okay, that's great.

Thanks a lot.

Bret Jordan, Avondale Partners.

Yes, this is Anand for Bret.

My question is basically turning to inventories.

Just wondering how much further you think that you can lower the inventories in the upcoming quarter.

I think that what was accomplished in 2009 is not something that we expect to repeat itself on a prospective basis.

Our finished goods inventory level we've moved down more than -- we basically halved it from where we ended at the end of fiscal 2008.

We put -- we have really reduced work-in-process which -- as we migrate production levels up we're going to actually see work-in-process increase.

And from a raw materials standpoint that would be a positive too, if we are moving those inventory positions back up to support production.

So if there is a recovery in our shipments and the business, I think we are going to need at least this much inventory or more on a prospective basis versus further reducing these levels.

Okay.

Then the only other question I have is basically can you give us a feel for a contingent liability number?

In regards to where we ended the fiscal year, we were in the mid $90-million range; and if you look at where we were at the end of the third quarter it was approximately $120 million.

So it's about -- it's down in the 20% range.

Okay, perfect.

Thank you.

Craig Kennison, Robert W.

Baird.

Good morning, everybody.

I would just say that first of all I do agree with you, Bob, that inventory seems to have bottomed in the channel; and that's just great news for everybody.

What I wanted to --

It's been a long time coming.

I hear you.

It is great news, though, and happy to hear it.

Let me ask you this.

Sarah, I just wanted to confirm.

I think in the past -- maybe my notes are off -- but you had said breakeven at more like 1,200 to 1,400 units per quarter.

Am I mistaken on that?

That's what was in the transcript from the third-quarter call.

1,200 to 1,400 was in the transcript?

Yes.

Okay, but you're saying now because of the loss of some ancillary revenues it is more like 1,700 to 1,900 units?

Yes, well when I was talking in past quarters, we had always caveated if we were assuming a normal mix and normal levels of discounting and promotional activity; and I'm looking in the rearview mirror as to our true results in the 2007 time frame.

That was where our breakeven was.

With all that we've done in regards to cost reductions and the changing we've made -- the changes we've made in relation to fixed costs, our goal is to make sure we could maintain that kind of breakeven.

But when we have such significant declines in the 40% level of some of the non-motorhome types of revenues and then some of the other increases in the costs that we are mitigating against -- such as increases in [SUDA], increases in our average wage from an hourly standpoint with the downsizing that's happened in the last 18 months, the mix of our employees, it's a higher hourly rate, healthcare, etc.

There is a lot of things that have mitigated against the cost reductions we've made.

I just think it's probably best in relation to talking about where we are on a prospective basis to be more conservative and not assume that it's going to repeat the times of '07 at this juncture.

Well, that's helpful, I appreciate it.

But just to put this into context for myself here, you just concluded a year in which the industry probably saw its worst year in my memory and probably most of your memories.

But you have shipped 2,200 units.

And what you're saying in terms of breakeven is you would have to more than triple that to get to the 1,700 number that you're talking about.

Is that the right way to think about it?

Yes, I think that's fair as to how significant it could be.

I mean you're right, we've never seen a year like this, to have an industry that maybe will ship wholesale-wide 11,000 units.

The worst year before that was in the mid-20s.

It's a big hole that we have to climb out of.

That's very true.

Just to follow up on that, with the backlog up 58%, obviously an incredibly strong backlog, but is that going to be enough to give you the momentum, I guess, to approach that, do you think, in your fiscal 2010?

That's our goal.

For fiscal 2010?

We are looking -- you know our history in regards to providing forecasts and that we're not going to attempt it.

All we can do is to manage, I guess, the reality that we are living today.

If it needs to involve further cost reductions because the volume isn't going to support the structure we have, we're going to continue to do so.

But if the business is recovering and we have the opportunity to accomplish it that way, that's obviously our preference.

But we think liquidity-wise we're in a very good situation for 2010.

But we've taken great effort to do that.

The reductions that we have accomplished in inventory I can't repeat.

So we either have to have the business internally to sustain ourselves or we're going to have to cut our fixed cost structure further.

I'm sorry to press the point, but I just don't want to put words in your mouth.

You are not saying that your goal is to ship three times as many units in 2010 as you did in 2009?

No, no, no.

Our goal is to be profitable as soon as possible.

I'm not -- I'm trying to tell you the time frame in which we think that's possible; but the six quarters we've lived through here with the business environment we've been in have been very, very painful.

And we don't plan to -- I guess to quote Bob across the table from me, we've been surviving, but we need to move our focus from surviving to succeeding or to be profitable and not accept this on a continued basis.

Yes, I think one of the things, just to echo that, what we've talked about here, especially in recent weeks, is that we've got to change our mindset from survivability to profitability.

And that's always been at the forefront.

I think all of you guys that have followed this Corporation know that profitability is very important to us, and that hasn't changed.

It's just that we've been thrown quite a set of cards and we've had to play with that deck.

And I'll echo what Sarah said, that the profitability goal has never changed; and as we go forward we're hopeful that we will see the volume that, with the cuts that we've made, will get us to that goal of profitability.

But if it hasn't, we'll have to take additional actions.

To sit here and try to figure out what the size of this industry is going to be is very difficult.

In fact, we just had a meeting last night with our key management group and one of the things that we talked about there was the fact that we are walking a very fine line.

We don't want to be too conservative, because if we are too conservative we are going to leave orders on the table because dealers aren't going to put up with extremely long lead times and they will go to somebody else to place their orders.

But we can't get too aggressive because if this is a mirage and not sustainable, then we've just took all that cash that we've worked so hard to get and turned it back into inventories.

And none of us want that.

So it's a very fine line that we walk.

And we look at all of the different variables every single day to make sure that we continue to make the right decisions.

Well, thanks, and I would say I think you guys have done just a masterful job of surviving in this really difficult environment when a lot of your competitors couldn't.

I just wondered to what -- if orders aren't going to triple and you're not announcing material cost cuts today, it's hard for me to see when -- what type of outlook you would have to have or when you would like to see profitability, let alone kind of a dollar or more in earnings power.

I appreciate your perspective.

Thank you.

Barry Vogel, Barry Vogel & Associates.

Good morning, ladies and gentlemen.

First I have a question for Sarah.

Can you give us your estimate of capital expenditures and the depreciation and amortization this year?

For 2010?

Yes.

We're looking at spending $2 million this next year.

And depreciation is going to be in the $6.5 million range.

As far as those plants that are for sale, are you having any nibbles?

In other words, do you think it is probable that you might sell some of these facilities?

Yes, I do think it is probable.

Okay.

As far as the cost reductions, if things continue the way they are right now, are you currently planning any further cost reductions?

Or you're satisfied that you're really down to a very, very low level of operating costs?

Right now, I think we're happy with where we're at, especially with what we've seen in the last few weeks from order activity.

But as we said with Craig, it is going to be dependent on where this thing goes in the next few months.

Our goal continues to be profitability.

And if we can get it with the volume that looks like could be coming at us, that's great; if not, we're going to have to make some adjustments.

Now as far as color on those two major competitors that went into Chapter 11, Bob, do you know if they are actually producing motorhomes right now?

I don't know that for a fact, but I have heard that they are in a very limited quantity.

Are they shipping motorhomes into the marketplace?

As far as I know, in limited quantities.

Okay, so they are in there.

Those two brands are in the statistics?

Yes.

As far as wholesale shipments in the industry.

Yes.

Do you know about their discounting right now?

You probably do.

What they are doing to try to get rid of inventories.

I really can't answer that, Barry.

I think there may be some going on, but I think going forward you may see that starting to diminish.

I think the real issue is what's on the dealers' lots today.

And the two new companies coming out of the ashes really don't have anything to do with that.

Is it still a significant amount of inventory on the dealer lots from those two competitors?

We don't have visibility of that.

We have to make some assumptions.

There's plenty.

I think the bigger issue there is the age of the product than it is the actual quantity.

Because overall, you look at this industry's dealer inventory and it's at historic low levels.

Okay.

Thank you very much.

I am looking forward to resuming profitability at some point.

So are we.

Thank you.

Kathryn Thompson, Thompson Research Group.

Hi, I just want to follow up.

Do you have an estimation of what your total cost cuts are, from the peak of the market when you started cutting 18 to 24 months ago to today?

Keeping in mind that you've sold two facilities, you have cut your headcount, what is the overall cost cuts from a percentage basis by your estimation?

I guess one thing I want to correct, there have not been any facilities sold.

We have two for sale.

I understood that, but you moved production from those two idled facilities to your main campus.

Yes.

When you look at -- what I guess I have at hand or I can easily answer that is from '08 to '09 we've seen about a $24 million reduction.

That's including SG&A.

Now from -- if you want to talk about specific facilities, we saw a benefit from a Charles City standpoint in 2009 of approximately $1.5 million.

But we did have to spend some to ready that facility for sale.

We think that Hampton on a prospective basis, once that facility is sold, will equate to $700,000 to $800,000 of incremental savings.

That's just getting finalized as we speak.

So between those two facilities on an annualized basis, prospectively you're probably talking about $3 million.

But other cost-cutting events that have happened, so much has been through headcount reductions across the board, and then also it's a function of things that we did in '09 that are not necessarily sustainable if we need the people to be producing products, such as our mandatory weeks off.

So not everything that has occurred is permanent in nature.

But those are some of the, I guess, stats I can provide you off the top of my head.

So basically you're implying that you haven't even seen the full benefit from your plant closures in '09; and it's really into the current fiscal year that you'll start seeing the full benefit of that.

Yes, well, Hampton, that was announced in June, and the production just started last month in September here in Forest City.

And we do have those facilities for sale, and that has to -- those have to be sold to eliminate the property taxes and some of the maintenance kinds of costs associated with that.

But yes, some of that is still in the works.

So it seems that you seem to be a little bit in flux in determining what your total cost cuts are until you really get some volume flowing through.

So it would seem to me to be a little challenging to be able to pinpoint exactly what a unit basis is in terms of breakeven.

Is that logic off?

No, that logic is not off.

It's right on.

Yes, so I think it might be a little hasty to say, well, it was 1,200 to 1,400 units and now it's 1,700.

I think the reality is it may be somewhere in between or more skewed toward the bottom, particularly if you have a significant increase in production at your main facility.

Yes, the challenge of the dialogues we have had in the past is once you provide a range it's always brought up again; and I prefer to be conservative rather than not.

But it's a very, very difficult exercise to say exactly what it is, because you have to plan.

There are so many different variables that enter into that equation.

And first and foremost we're interested in increasing the production schedule to support the demand and get the product out into the field, take on additional shelf space, and we have some great opportunities here on the diesel side with what's happened in the industry in the last particular six to eight months with some of the two major players in that space.

So yes, there is a lot in the mix right now.

And that is fair, Kathryn, as to how you're describing the quantification of what we stated.

At the end of the day, volume is the most important metric.

That to some extent is driven by your backlogs, correct?

That is correct.

Okay, great.

Thank you very much.

Richard Keim, Kensington Management.

Good morning.

Most of my questions have been answered, but a quick question in regard to Barry's question.

Isn't it true that these -- I would have to term new competitors, people who have bought the bankrupt companies, are really just starting to get into the market and they're not really -- they're just dribbling in?

Is that fair, or do you think they're in full production?

No, no, I think that is a fair assessment.

It's going to take them a while to get their feet under themselves.

I mean you've got to look at renewing all of your licenses, you've got to look at renewing your dealer base, you've got to look at your supplier base; and that all takes time.

I can't tell you what they are producing from a volume standpoint, other than what the scuttlebutt in the industry is -- that they are producing, but it's at fairly low volumes right now.

Right, right.

Well, I guess just following up then, it seems to me that probably your market share has really been picked up from those people who went out of business, as opposed to majors in the business today who are still there.

Would that be a fair assumption?

Well, we've increased market share.

There's no doubt about that.

Yes; no I'm not --

I don't want to give the false impression that we are gaining market share in leaps and bounds, because you can't lose sight of the fact that those competitors had quite a bit of product out on the dealers' lots.

Right.

Until that blows through, you're still going to be dealing with them.

Because I think if you look at the market share reports you are going to find that Fleetwood and Monaco are both doing pretty good from a market share standpoint, considering that they've been out of business for several months.

If I carried this thinking through, would it be erroneous for me to consider the fact that maybe your market share will even go down as productions starts from new companies that we're talking about?

You're going to have more players --

Right, correct.

-- that you have to deal with, and that assumption can be made.

We're hoping that with what we're trying to do with our dealer base and our new products and things like that, that it will mitigate those new people coming back in.

Okay.

Shifting for a moment into your finances, now if I understand correctly, you have increased your loan capacity.

Is that correct?

We have a new agreement in place that allows us through an accordion feature to move the line up to $50 million.

But it's secured by assets, primarily inventory and receivables; and we have to have the adequate asset coverage to be able to accomplish that.

So the size of it today is not increased, but we have the ability to, if it's needed, on a prospective basis.

Okay, so the size has increased, but not today's borrowing.

Carrying that through, is one of the reasons you did that, anticipating that maybe you would need more money, is the fact that now you're looking at 1,700 to 1,900 units as a breakeven and you know you're not going to make -- it's pretty well assured that you're not going to make money in the current year of 2010?

So maybe you increased it because of the uncertainty moving forward?

The change in the facility in regards to what we had is the fact that the prior facility we had didn't provide us the flexibility.

This allows us to borrow with no financial covenant restrictions up to $12.5 million; and then has that additional element of expanding it when needed.

So it was more to have a facility that would provide the increased flexibility we thought we would need over a longer term.

So it was a decision made in that light.

I'm sorry, I didn't get your last statement.

It was a decision made in light of the increased flexibility that the facility would offer us in regards to having access to borrow with no financial covenant restrictions, which was not the case in our previous facility.

Okay.

Thank you.

As there are no further questions in queue at this time, I'd like to turn the call back over to Bob Olson for closing remarks.

Thank you.

While we continue to be challenged by current conditions, we are pleased to see more positive momentum in the marketplace, and we are optimistic about the long-term outlook for the RV industry.

Customers who have delayed their motorhome purchase due to the depressed economic environment will soon be ready to buy when the credit market loosens up and the general economy gains momentum.

I believe our 2010 products are the right products for the current marketplace.

And as the leading motorhome manufacturer in the industry, we are ready and able to take advantage of the recovery.

I would like to thank everyone for joining Winnebago Industries' conference call today, and I look forward to talking with you again in December when we report our first-quarter fiscal 2010 results.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.