Winnebago Industries Inc (WGO) 2011 Q4 法說會逐字稿

Greetings and welcome to the Winnebago Industries fourth-quarter 2011 earnings conference call.

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

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Sheila Davis, Investor Relations Manager for Winnebago Industries.

Thank you.

Ms.

Davis, you may begin.

Thank you, Melissa.

Good morning and welcome to Winnebago Industries conference call to review the Company's results for the fourth quarter of fiscal 2011 ended August 27, 2011.

Conducting the call today are Randy Potts, 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 o'clock noon 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 duty to inform you that this presentation may contain certain 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 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 Randy Potts.

Randy?

Thanks, Sheila.

Welcome, everybody, to the Winnebago Industries fourth quarter and fiscal '11 conference call.

In a moment Sarah will go over financial detail but I would like to begin the call by saying that we are all pleased to see a year of growth in revenues and profits for fiscal '11.

A quick review of the year would show that the first half of the year was better than the last half, and that the fourth quarter was similar to the third.

And that consumer confidence and general economic conditions had eroded since March and remained at a lower than anticipated level.

Retail sales slowed and motor home dealers were more cautious about reordering product.

While market conditions continue to be challenging, we are pleased to see the average sales price for our motor homes rise.

As this increase is driven by selling a better mix of higher-priced, Class A diesel motor homes.

We've seen great reception to our Highline Class A diesel products, particularly the Winnebago Tour and Itasca Ellipse 42QD floor plan, which is the hit of the recent Pennsylvania RV and Camping Show in Hershey last month.

Speaking of the Hershey show, it was good to see that despite torrential rains and flooding, consumer traffic and retail sales were still good, and we had a great show.

We also participated in our first dealer open house in Elkhart, Indiana in September.

It was a good experience for us.

It was an interesting venue and our first opportunity to show our motorized and towable products together in the same display.

The open house event was also an opportunity for us to sign up new dealers for our SunnyBrook and Winnebago brand towable products.

Corporately, the launch of our new 2012 products, which occurred primarily throughout our fourth quarter, has gone very well.

On the motorized side, we've introduced many new exciting new floor plans that are being well received by dealers.

Nearly 40% of our floor plans are either new or redesigned for 2012.

In addition to the new floor plans, we have chosen a market strategy of more aggressive pricing in select motor home lines for 2012.

We continue to see growth in our Class A diesel market share due to new products we have introduced over the past couple of years.

Our Class A diesel market share was 17.9% for the fiscal year compared to 13.2% for fiscal '10.

That also helped bring our total Class A and C market share to 19.4% for fiscal '11 versus 18.2% for fiscal '10.

On the towable side, the integration of SunnyBrook RV into Winnebago Industries operations is going well.

While not yet profitable, I am pleased with the progress that we're making in our towable subsidiary.

We've made a great deal of progress in the integration of systems, expansion of the distribution network, and most importantly great new products.

Many of the SunnyBrook brand products have been redesigned and are being well received in the marketplace, most notably the Raven line of trailers and fifth wheels.

We have also launched 2 new Winnebago brand travel trailer floorplans, named the Winnebago ONE, and 2 new Winnebago brand fifth wheel trailer floorplans named the Winnebago Lite Five.

We've had an excellent reception from our Winnebago motor home dealers to the new Winnebago towable line.

At present, about a fourth of our Winnebago brand motor home dealers have signed up to carry our new Winnebago brand towable products.

We are truly excited about the opportunity that entering the much larger towable market offers to Winnebago Industries, and feel confident about the positive impact this new subsidiary will have in future quarters.

On a personal and professional level, I am working closely with our Chairman Bob Olson to ensure a smooth transition into my additional role as Chief Executive Officer.

It is a great challenge and opportunity for me.

Winnebago Industries is a great company with a great reputation.

Going forward, my challenge is to maintain the integrity of this Company, while finding ways to grow our business.

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

Thanks, Randy.

I will now review the financial performance of the Company's fourth quarter of fiscal 2011.

Net revenues for the fourth quarter were $130.6 million, a 6.1% increase from the fourth quarter of fiscal 2010.

The net increase was due primarily to our towable division which contributed $7.8 million during the quarter.

Motor home deliveries were down 76 units, or 6.5%, which was partially offset by a 6.4% improvement in the average selling price during the quarter.

The improvements in our ASP is a direct result of our increasing Class A market share, notably in the higher-priced diesel Class A segment.

As noted in our press release, our fourth quarter was significantly impacted by LIFO basis accounting as we recorded expense this year as opposed to income last year due to higher inventory levels and higher inflation experience.

This resulted in a negative incremental non-cash impact of $1.6 million.

Separate from LIFO, we continued to face the negative impact of commodity pressures in our fourth quarter, similar to our third.

The rise in metals and petroleum-based materials has leveled off in recent weeks.

However, on a comparable year-over-year basis our cost of raw materials is up approximately 65 basis points.

From an operating expense perspective, based on an annual actuarial analysis performed during the quarter, we reduced our self insurance reserve associated with product liability.

This resulted in a reduction of general and administrative expenses of approximately $1.1 million in the quarter.

In regards to the towables performance, for the fourth quarter we incurred an operational loss of approximately $950,000.

And for the full fiscal year operating losses totaled $1.5 million.

The loss incurred in the fourth quarter was primarily a result of an on-site physical inventory taken during the quarter which resulted in a negative inventory adjustment of $600,000.

Additionally, increased manufacturing, selling and G&A expenses contributed to the loss in the quarter as headcount was ramped up considerably in the summer to support the product development efforts and the expansion of the distribution network.

We consider fiscal 2011 to be a year of investment for the subsidiary and are excited about what this next year holds for towables group.

We recorded at tax benefit of $1.7 million in our fourth quarter which reduced our year-to-date effective tax rate to nearly 0%.

During the fiscal year, we did incur current, federal and state tax liabilities based on taxable earnings.

However, the tax benefit we recorded is to reestablish a portion of our deferred tax assets that have been fully reserved since the end of fiscal 2009.

The portion of reestablished deferred tax assets is directly related to the taxable income earned in fiscal 2011 and the ability for us to carry back, if need, in future years.

Cash generated from operations during the quarter was $3.9 million, which increased our cash balance to $69.3 million.

Working capital changes were a portion of this improvement as inventory balances decreased by $6.3 million, partially offset by changes in receivables and payables that reduced cash from operations by a combined $5.6 million.

The decrease in our inventories during the quarter is primarily due to reductions in our finished goods of $4.8 million and raw chassis inventory of $3.2 million.

On a year-over-year basis inventories are up considerably.

Obviously we do have incremental inventory associated with the towables group which was $6.5 million.

We also have incremental inventory associated with the resumed production of Class B products, which is approximately $3 million.

We also have a higher average cost per unit on hand due to mix of product orders by our dealers.

The remainder of the increase is due to higher levels of raw chassis inventory within finished goods product.

We believe that from a dealer perspective their dealer inventories are in line with retail demand which grew by 7% during the fourth quarter.

On a full-year basis our retail registrations have grown by 9.7% and is up approximately 7.6% on a 2-year basis.

As we have demonstrated over the last 2 fiscal years, our right-sizing of the business allows us to achieve operational profits at these historic low levels.

We also have made strategic investments in new markets which we believe will fuel future growth and add incremental profits for our shareholders.

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

(Operator Instructions) Kathryn Thompson with Thompson Research Group.

This is Jamie Baskin on the line for Kathryn.

Can you talk about the gross margin profile of the towable division, and when you expect towables to contribute to profitability?

Hi, Jamie, this is Randy.

Our expectations are for towables to be profitable in the coming year.

And of course, margins will be dependent upon the level, and we expect that to continue to grow.

But within that year, we would expect margins to be comparable to what our motorized expectations are.

Okay, and then could you talk about how deliveries trended during the quarter?

It seemed there was some destocking in the earlier part of your quarter.

Did you see any acceleration in August?

If you look at our fourth quarter from a delivery standpoint, because of the introduction of our model year, that really accelerates during the quarter, we typically do see more deliveries probably happen towards the latter part versus the beginning.

We also do have a typical week-long shutdown around the 4th of July.

So that is not a new trend for us, but that would be probably a fair way to explain it.

And then with the Elkhart show, do you think this will change any of the typical seasonality usually experienced in this next quarter?

Probably not for us, in the motorized specifically.

I think in towables, the Elkhart show was the beginning of a lot of things they need to do, which is signing dealers and taking orders.

So, while we don't have a seasonal history with our towables subsidiary, it was a very big thing for them.

And finally, can you talk about any major discounting in the market right now, especially in the motorized division?

We hear of that.

I think it is fair to say that we aren't participating in anything unusual.

From our standpoint, on a quarter-over-quarter basis, we are very much just comparable to the levels that we saw a year ago.

But there is always competition that is aggressive at different points in time.

And there is definitely some active programs out there -- a lot, I think, might've been associated with the Elkhart event, in regards to that generation of orders.

Maybe much more towables focused.

But I think it is a competitive landscape, but from our perspective we haven't seen it shift significantly up or down.

Okay, that's all I had.

Thank you very much.

Greg Badishkanian with Citigroup.

Like this time of year, it is not, in terms of discounting, just to follow-on, that is not anything that you think has been accelerating in the last month or 2?

It has been maybe a little bit high, but a bit more consistent?

Or how would you categorize that?

Again, Greg, I think for the industry as a whole, we read the same news you do, and hear the same things, and that is really all we know about that.

As far as what we are specifically doing, I think we have explained that pretty well.

No, good to see you have the discipline.

Just wondering what your -- sometimes your competitors don't always have your level of discipline.

And then, as you talk to the dealers over the last month or 2, especially with the stock market volatility, what color are you getting from the field?

I think we're hearing really the same thing we have been hearing for the recent quarter and year.

And that is that everybody is cautiously optimistic.

I think this year will go down as a year where people were more optimistic than they have been for the last several years going into the spring.

And it just didn't develop to the extent that everybody had hoped.

And looking forward to next spring, I am sure we will all be hoping for the same optimism, but hopefully some follow through this time.

Any color in terms of maybe consumers pulling back in terms of purchases just because motor homes are high ticket items?

Or has it just been more consistent?

Really pretty consistent, I think.

The market is still operating at a reduced level from history.

And right now I don't see any major shifts either way.

Hopefully it is still somewhat of a seasonal market.

And I'm sure we will all be looking to the next big selling season of spring.

Yes, good to hear.

Thanks so much.

Scott Stember with Sidoti & Company.

Sarah, do you have the ASPs by grouping for this year and last year?

Certainly.

For the fourth quarter, our average Class A gas was $94,686, as compared to $91,315 last year.

And Class A diesel was $180,097 versus $154,197 last year.

That resulted in our combined Class A coming in at $126,911 versus $114,357.

From a Class C perspective, $77,504 versus $73,158.

Our total A and C is now $107,489 versus $99,226.

And Class B is $74,884 versus $63,215 last year.

All-in, we're at a combined ASP of $104,462 versus $98,174 last year.

Could you talk about some of the new markets that you referred to, Randy, about possibly moving into?

Are you prepared to maybe talk about that right now?

No.

Beyond towables, which we are still working on, and as Sarah said, we are still really excited about that.

And we are really just getting our toe in the water there.

We are working on other projects.

And I have to just keep telling you that I am sure we will have news in the future.

I'm sorry, but that's really all I can talk about at this point.

What was your capacity utilization during the quarter?

And could you maybe just touch on any further thought that you guys have given about any changes possibly to the way you guys operate structurally?

As far as capacity, it is not an exacting science because it depends somewhat on model mix.

But I think it is fair to say we are in about the 40% range.

Your other question had to do with integration?

More just big picture.

You've alluded to the fact over the last month or 2 that you would take a look at all aspects of Winnebago's operating structure and the way you guys are set up.

Have you had any conclusions since then of what you could possibly do?

More questions than answers, but I assure you that that is high on my agenda.

It is going to take some time to research these things and to vet out the ideas.

It's going to involve a lot of folks at all levels of the Company.

But our goal needs to be to find ways of maximizing our profitability at these lower levels of production.

And I think we have made a lot of strides that way, but we need to continue down that path.

And just following up on the comments on the open house in Indiana.

Would there probably be any less amount of new products being offered at Louisville?

Or did you pretty much keep the motorized new products under your hat until early December?

Yes, it won't change what we will be doing at Louisville.

What will be different for us at Louisville is our display will include our towables products, which is really exciting.

That will be new for us at Louisville.

But as far as how we approach it, with what we have done with motorized in the past, there will be no change.

And last question.

Sarah, for modeling purposes, what should we be looking at for a tax rate, assuming there are no more NOLs being released in the year?

We didn't have any NOLs released in 2011.

We actually have reestablished some deferred tax assets on our books because we had a taxable earning on this year.

And looking forward into the future, I envision 2012 to be similar, where we will have a very low tax rate with continued profitability because we will be able to continue to reestablish to protect that, but to the extent of our earnings.

And at the end of this fiscal year, we have over $39 million of deferred tax assets that are still fully reserved.

And at some point in the future, depending on a lot of complicated accounting requirements, but if we have a strong earnings profile and a positive outlook, we are going to just have to put all of deferred tax assets back on the books.

But that would be a significant non-cash event.

But as far as from a rate perspective, are we talking mid-20% range?

No, I would say almost nothing, similar to what we had in our fourth quarter.

Okay.

That's all I have, thank you.

Craig Kennison with Robert W Baird.

Sarah, on the gross margin line, can you help us understand or quantify the impact of the LIFO and commodity issues?

Just trying to work with a go-forward number that is more reasonable.

When I quantify the impact of the LIFO in dollars, as I mentioned, it was year over year a $1.6 million change.

On a percentage impact to gross profit, it's 128 basis points from the unfavorable pressure.

Now, on a prospective basis, I think it will be much more comparable because if we just assume we will have LIFO expense in '12 at a similar level to '11, then at least it won't be a talking point.

But it is still a non-cash cost of operations for us in the gross profit area.

And then, as I mentioned, the economic side of it, which is a multitude of things, but we boiled it down to about 65 basis points.

And obviously, as I separately discussed, from a towables standpoint, we have a sizable inventory adjustment.

And so we had some unusual effects here inside of the quarter that, on a prospective basis, won't be there.

But the major 2 items, as we highlighted, really were in inflationary and LIFO category.

So, I know you're reluctant to comment too much on go-forward gross profit margin, but is it fair to say that Q4 was unusually low?

And that you could return closer to the 2010 levels at some point?

I would say, you look at where we have been in the last 2 quarters.

The volume's a little bit depressed.

Really, volume is what has to be the catalyst probably for our margins to really get pulled upward notably.

And mix can favorably or negatively impact that, or promotions, et cetera.

We introduced some cost back into our Company here mid-year with just reinstatement of salaries that we had reduced back in 2008.

And so, we aren't even still caught up in regards to our employee cost, as to where we had been prior to the recession.

But if we just hold our own, you could see continued similarity in the margin profile unless the volumes grow.

Regarding your volume comment, what is the fixed portion of gross margin in dollars that you'd anticipate for 2012?

When I look at 2011, it's a fair first perspective -- even with the introduction of the towables group, we didn't see really a material movement in our fixed cost.

They are actually slightly down annually.

We are running, when you consider the research and development kinds of expenses we incur on an annual basis, we were slightly under $40 million this year.

Adding in 4 more months of towables I don't think will notably change our cost structure going forward.

But, as Randy indicated, we are still in serious internal discussions on what can we do differently to pull additional costs out.

But I think a $40 million run rate inside of cost of goods sold is a fair viewpoint of our fixed cost today.

And then just with respect to your SG&A expense, you guys did a nice job in the fourth quarter.

What should we think about in terms of your expectations for 2012?

I highlighted the actuarial adjustment because that is pretty unusual to have such a sizable adjustment in our fourth quarter reducing that reserve.

And that is based on really great experience.

And a positive in regards to our product quality, reduced product liability exposure.

When we look into 2012, we would see a very similar thought process.

When I think of items in 2011 that were unique and different, we did grant stock in March, which had a non-cash expense that flowed through multiple lines.

A good portion of it was in G&A inside fiscal '11.

And if we don't grant any stock compensation in '12, that is a difference.

Notably, the things that we haven't been doing in the last few years really related to our dealer events that we used to have in our third quarter.

And if we would proceed to do something different there, that could change our selling expense.

However, that is really the only thing that I would say is probably a significant item that would move it up or down.

I know you don't like to comment on guidance, but do you think earnings can grow from this point forward?

That is exactly our goal.

And obviously we have a lot of opportunity with the towables group from where they -- they were not helpful in 2011 profitability-wise.

It was really an 8-month period of investment.

So, yes, I definitely think they can grow.

And a couple quick wrap-ups then.

Do you have the towable ASP?

I do.

Bear with me for a moment.

I have it here handy on an annualized basis, probably easiest.

And it's still running in that $21,000 level.

We haven't seen that really move materially in the year of ownership thus far.

And then getting back to an earlier question with respect to Elkhart, is there any evidence that the timing of that (inaudible) impacted the backlog in the August quarter, or will influence the backlog in the upcoming quarter, in a way that would make the year-over-year comparison tough?

Not on the motorized side, no.

And, of course, we don't have a year-over-year comparison on the towables side.

But again, it was a big towable order event for us.

And lastly, do you have an approximation of the age of the dealer inventory today, and how that might compare to last year?

You definitely can see dealer inventories have remained conservative.

We are down sequentially from where we were at the end of May.

If we look at our dealer aging profile, units over 1 year, approximately in the mid-teen area.

That is slightly up from where we were a year ago.

But I think a year ago is a tough comp because so much had been flushed out, and we hadn't been shipping at very high volumes but for 2 quarters before the end of fiscal '10.

But we feel really good about where the dealer inventories are at, in regards to aging.

They are just in line with where they need to be from a retail standpoint.

And as I mentioned in my prepared remarks, our retail registrations from dealer inventory inside our fiscal fourth quarter was up.

That was a good turn of events because we were flat inside our third quarter.

And in the first 2 quarters for us, we had been up about 20%.

So on a year-over-year basis, we had growth in retail registrations.

Now we have a better comp.

It was a tougher comp for us, first quarter of '11 last year, so it will be interesting to see how we compare on a go-forward basis.

And Randy highlighted, happy with the Hershey show in the September month, despite some of the weather challenges that that event faced.

That is where we really need to see continued growth to pull that inventory out of the system, and allow room for new product to go out to our dealers.

Great, thanks for taking my questions.

Bret Jordan with Avondale Partners.

Couple quick questions.

Randy, you mentioned a more aggressive pricing strategy on 2012 product line early in your commentary.

Do have a feeling for what ASPs might change in 2012, given that pricing strategy?

It was strategically applied to certain product categories, Bret.

So, I wouldn't expect there to be a significant shift in ASP as a result of just that action.

And along those lines, it seems that dealer open houses certainly saw some change in promotion and some partnerships with floor plan lenders to get preferred response to Thor and Forest River.

Is that going to change the promotional level as other people who did not participate in that need to either drive dealer interest with other spiffs?

Or is that pretty much going to be a 1-time event and things return to normal?

No.

Promotions, spiffs, buydown of financing -- there is all kinds of ways to spend promotional dollars.

And this isn't, from my perspective, really anything bold or new, as far as the types of promotions that you saw coming out of Elkhart.

I guess I'd want to qualify a statement I made earlier that Elkhart wasn't a order position-moving event for us in motorized.

I would like to qualify that based on the fact that we didn't take a lot of product out there.

This is the first time we have had motorized product at Elkhart, and it was as much of an exploratory exercise from the motorized perspective as anything.

We wanted to go out there, get our feet on the ground, and get a better understanding of what this event is turning out to be, and how do we want to participate going forward.

So, as far as us in Elkhart and promotions, who knows what the future holds?

And looking at the towables business, which was overweight for Elkhart, looking at last night's stat survey data, your towable market share is roughly 0.5% or 0.6%.

And it seems like maybe you've culled some market share since you've acquired SunnyBrook, given it's trended down.

What market share do you see needing to get that business to breakeven or to contribute?

Assuming that the industry forecasts are correct and volumes are down in the low- to mid-single digits for 2012.

When I look at the market share results for the month of August, I think we had 92 Winnebago towable product retail registered.

It is going to be hard to measure by retail market share, Bret, because we are loading the pipeline.

Our profits are going to be based on wholesale sales, not retail.

And we are growing that operation much quicker at the wholesale level than we are at the retail level.

Do you have visibility on sell through?

Is it particularly successful at the retail level?

We're very happy with what we're seeing, but it is still very early.

But the wholesale take rate of the Winnebago product, as I said, has been just fantastic.

And the new and improved SunnyBrook products, especially that Raven line, is getting very good acceptance.

The strategy side, because if you look, I think when you acquired it, it was 0.8% market share.

Is there a significant amount of inventory or product that you are calling to replace with a new and redesigned product?

Is it just essentially we are in a shift out period where we're clearing out the old inventory and loading the channel with new wholesale product?

With some of the existing SunnyBrook brands, that would be true.

With the Raven brand and the Winnebago brands, that wouldn't be the case at all.

Those are blue sky opportunities.

I think in general, that percentage that you recalled is still probably in the ballpark of where we need to be.

On Class B, that was particularly strong in the fourth quarter.

I didn't see the Class B August retail numbers.

How is B as a product looking industry-wide?

It's still a very small segment.

In regards to deliveries on an annualized basis, we're talking just a couple thousand.

We're going to grow that market share back up.

There was no dealer inventory to speak of for us to retail after taking a year hiatus on production of the B.

So, I think if you look at the August report, I think we had like 8% -- 8.5%, 8.8% Class B penetration.

Still not back up to our high of 18%, but we are growing back up to that level.

My question was -- what did B perform as an industry B performance relative to A and C?

Did it outperform as a product line?

Not necessarily for you, but as an industry?

No, it was down.

Yes, as an industry, I think it's currently down slightly.

One last question on inventory composition.

I think last quarter and the third quarter, Randy, you were overweight in some chassis products.

If we looked at your fourth quarter ending inventory, are you particularly having any in-lines or work-in-process versus raw materials?

We're working through a continuation of where we were at.

We made progress in pulling down raw chassis inventory inside the quarter, but there is more that we could do in the future quarters.

Okay, great, thanks.

David Whiston with Morningstar.

Most of these are for Sarah.

On the valuation allowance reversal, it sounded like you said that will be more of a gradual process.

But ideally, would you prefer to just take that reversal all in 1 quarter?

Yes, that is the pain we took when we put the reserve on the books in the fourth quarter of '09.

At this juncture, there are so many variables that we need to review.

One of the more notable considerations is -- do we have a cumulative 3-year income profile?

And based on the losses that are dropping off, that notably could be in the fourth quarter of 2012 where a lot of the prior history is now beyond and outside of that 3-year window.

So you could see in the next year or so more of that dynamic.

But up until that point, now to the extent we have taxable earnings, there is a defense that that asset is realizable because we could carry back to it if things completely turned around.

So it won't probably be all at once immediately, but in the next year or year-plus it could.

And once that happens, you would expect a more normalized tax rate going forward, right?

Exactly.

On working capital, do you expect inventory to be as large of a hit there as it was in fiscal 2011?

No, I do not see it to be a cash utilization of $20-plus million in fiscal '12.

And do you expect to be free cash flow positive next year?

Yes, we do.

Any update -- I know it depends on mix, but the typical range of motorhome unit deliveries that would be needed to break even each quarter?

We have established a baseline on actual results if you look at the last 6 quarters now.

And I think that is a fair barometer to look at.

These were much lower levels than we would have ever believed prior to the recession that we could be operationally profitable.

But there are so many variables that go into that.

It is not a number that it's easy to say -- it's exactly this number of units.

Is there a range, though, you could pin it down to?

Again, I would point to the volume levels in the past 6 quarters to give you maybe a reasonable range.

And finally on acquisitions.

I know, Randy, you said you didn't want to get into specifics right now.

Can you at least talk about any ideal dollar spend you would want to do this year?

And do you have any plans to vertically integrate?

No, I am really not in a position to talk about what the capital impact would be in the coming year.

As far as to vertically integrate, you mean to integrate an acquisition into our Corporation?

I didn't understand that.

Vertically integrating upstream, and any more suppliers or anything like that.

We're already quite vertically integrated.

One of our challenges is to find the proper mix of that vertical integration.

So I'd best answer that by saying that that is always being evaluated.

And what we should build for ourselves and what we should outsource is a never-ending conversation.

It is always changing.

But I don't think it will move our business dramatically in the coming year.

Okay, thank you very much.

Barry Vogel with Barry Vogel & Associates.

I have a couple of questions, first, for Sarah.

Can you give us your best guess at capital expenditures and depreciation in the new year?

We're looking at that to be approximately $5 million for both this next year.

And you've answered a lot of my questions.

I have a question for Randy here.

It is interesting that in the last 7 quarters, dealer inventories have hovered around 2,000 a quarter, which I find quite remarkably stable.

Do you think, unless something really changes in terms of the prospect of selling motorhomes in this country, that this would be the new normal?

I think that is exactly right, Barry.

And I hope that is the case because it doesn't benefit us in the long run for dealers to inventory more product than they are capable of retailing.

It just leads to aging issues and everything that comes with that.

So, I think you've hit the nail on the head.

We think the stocking level of dealers is very appropriate for the current retail size.

And until something like a generally improved economy and better retail pass-through starts to appear, that is where it should be.

Sarah, can you -- or Randy, or both of you -- discuss what is happening in terms of financing, in terms of who are the major players right now?

And how would you characterize availability for the dealers as well as retail right now?

From a wholesale standpoint, and it's different when you look at motorized versus towables, on the motorized side, BofA is still the significant financer.

And then GE makes up the next largest floor plan dollar representative in that category.

We did see that Ally has made progress in this past year on expanding their wholesale presence, which has introduced, I think, from a dealer standpoint at least more competition and more choice.

And that is a good thing.

You do have Bank of the West out there, as well.

They didn't move up as notably, at least with the visibility we have.

But they are also actively looking to expand from a portfolio perspective.

So, on the wholesale side, it is not dramatically different than it has been in the past, but there is a little bit more competition, and I think that is a good thing.

On the towables side, it is much more GE concentrated.

But then there is a lot of other smaller players.

My 8-month history is probably not extensive enough to make me make any more comments than that.

On the financing side, from a retail standpoint, I don't think we can point to anything that is very new or different in the last calendar year, or even fiscal year.

I think the reins were loosened a bit in January from a BofA standpoint.

But since that point in time, it has continued on as is, definitely stricter than it used to be, which is good.

I don't have any more color probably to add than that.

As far as the ARS issue, is that $10 million on your balance sheet to the ARS, that is still left to be paid?

Yes.

We had redemptions during the year of over $7 million at par.

And we see a consistent redemption pattern from one of the holdings every December and June.

But we are down to just 3 positions and some student loan securities.

And there really hasn't been a lot of movement here in the last few months.

So that $10 million is what's left?

That's what's left.

We started at over $60 million.

Excuse me?

We started at over $60 million in 2008.

If you figure that you're going to get that $10 million back, and you look at $69 million in cash, you have $79 million pro forma in cash.

And assuming that you're on a very sound footing, and assuming that we don't have a double-dip recession or any other calamity, am I wrong in the thought process that you have too much cash?

That's the first question.

And if that is true, could you name the 3 uses of cash in order of importance that you might want to do going forward?

You might want to use it going forward.

I think your assessment of the level of cash is a valid question, Barry.

We've always been a Company that wanted to operate on cash.

And there is certainly a comfort level that we need to achieve, that, based on how we feel about the economy and the size of the business of what that cash reserve needs to be from an operational basis.

Yes, we are probably, we're in the neighborhood of exceeding that.

How to use that cash?

To specifically prioritize that would be very difficult.

It is something we talk about a lot.

And I don't have any specifics we can share.

As Sarah said, we still have some employee issues that we need to deal with going forward.

And those are operational things that would affect our profitability going forward.

We need to walk that balance between profitability and our cash reserves in the meantime, to find our way into making ourselves whole with these employees again.

These aren't huge things, but when we are still in this level of operations where profits are not huge, we just still have to be very careful with this.

That is understandable.

I have 1 more question.

Has there been any change in the competitive nature of any of the motorhome competitors in the last 12 months?

Not sure I understand?

Have any of your competitors in motorized been much more aggressive trying to take share than they had been before?

Yes.

I think you can look at the retail numbers, and see that there's a few pieces of business where we are not performing as well as we would like.

And some of that more notably in the very low-priced entry-level product.

We are not as competitive as we would like to be, and that presents an opportunity for us going forward.

Would you name the 1 or 2 manufacturers that have been very aggressive in that category?

An example would be in the entry-level C body, the Ford Econoline-based products.

And I think Forest River and Thor are both making some headway.

And a lot of that appears to be price driven.

How about in Class A gas and diesel?

In Class A gas, I think it's been spread out pretty evenly.

We haven't seen the competition be as severe.

We have done well with some of our new design products, the Vista and Sunstar still holding up very well.

In Class A diesel, we have made great strides in market share.

And we have got some products that are just performing very well for us.

So, not many pressures there.

Why are they performing well?

What did you do differently?

Over 2 years ago, we introduced a completely redesigned product at our highest price point in the diesel pusher market.

And I think it is fair to say that's performed well beyond our expectations.

It is a very nice product at a very nice price point.

Also in the Class A diesel segment, we have the Via and Reyo, which is the only Class A diesel in the country built on a Mercedes-Benz Sprinter chassis.

That is exclusive to us in the marketplace at this point.

So we've got some very good diesel offerings that are performing well.

That's great.

It's a tough situation, and I think you're doing a very good job as the leader of the Company.

And best of luck.

We are ready to wrap up our call.

We have no more questions.

So, as we close our call today, I want to first thank our employees for their hard work and dedication.

While the market conditions continue to present us with a multitude of challenges, we are pleased with the progress we have made during fiscal '11.

We're hopeful that we'll soon see a recovery in the US economy.

And, in any case, we will continue to look for ways to profitably grow our business.

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

And we look forward to talking with you again in December when we report our results for the first quarter of fiscal 2012.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.