It is suggested that this management's discussion be read in conjunction with the Management's Discussion and Analysis included in our Annual Report to Shareholders for the year ended August 30, 2008.

Forward-Looking Information

Certain of the matters discussed in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. A number of factors could cause actual results to differ materially from these statements, including, but not limited to, interest rates and availability of credit, low consumer confidence, significant increase in repurchase obligations, availability and price of fuel, a further or continued slowdown in the economy, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions and other factors which may be disclosed throughout this report. Although we believe that the expectations reflected in the "forward-looking statements" are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Undue reliance should not be placed on these "forward-looking statements," which speak only as of the date of this report. We undertake no obligation to publicly update or revise any "forward-looking statements," whether as a result of new information, future events or otherwise, except as required by law or the rules of the New York Stock Exchange.

Executive Overview

Winnebago Industries, Inc. is a leading motor home manufacturer with a proud history of manufacturing recreation vehicles for more than 50 years. Our strategy is to manufacture quality motor homes in a profitable manner. We produce all of our motor homes in highly vertically integrated manufacturing facilities in the state of Iowa. We distribute our product through independent dealers throughout the United States and Canada, who then retail the product to the end consumer. We have led the industry with the highest market share in the U.S. of Class A and Class C motor homes combined for the past eight calendar years and in Calendar 2009 through April. We began producing Class B motor homes in February 2008 and have moved into the number three U. S. position from a retail unit market share standpoint in Calendar 2009 through April. See specific U.S. retail unit market share for all categories in the following table:

                           Winnebago Industries U.S. Retail Market Share (1)
                             Calendar Year
                           Through April 30,                 Calendar Year
                         2009            2008            2008            2007
Class A gas              22.6%           23.2%           23.2%           22.0%
Class A diesel            9.4%            7.2%            8.1%            8.9%
Total Class A            15.5%           14.7%           15.3%           15.1%

Class C                  22.2%           21.4%           22.9%           24.0%
Total Class A and C      18.4%           17.3%           18.3%           18.5%

Class B                  15.7%            1.0%            3.7%             0%

(1) As reported by Statistical Surveys, Inc. (Statistical Surveys). During June 2009, Statistical Surveys released revised information, as shown above, for Calendar 2008 and 2007 and for the first four calendar months of 2009.

Company and Business Outlook



The RV industry saw substantial reductions in wholesale motor home shipments and
retail registrations during Calendar 2008. The trend has only worsened thus far
in Calendar 2009, as detailed in the table below:



                                    U. S. RV Industry                           U. S. RV Industry
                                  Wholesale Shipments(1)                     Retail Registrations(2)
                          Calendar Year                               Calendar Year
                                                           % of                                        % of
(In units)                2008      2007     Decrease    Decrease     2008      2007     Decrease    Decrease
First quarter            10,400    13,600      (3,200 )     (23.5 )   8,800    11,500      (2,700 )     (23.5 )
Second quarter            8,600    15,000      (6,400 )     (42.7 )   9,700    15,100      (5,400 )     (35.8 )
Third quarter             4,600    12,400      (7,800 )     (62.9 )   6,300    12,200      (5,900 )     (48.4 )
Fourth quarter            2,800    11,300      (8,500 )     (75.2 )   4,100     8,400      (4,300 )     (51.2 )
Total                    26,400    52,300     (25,900 )     (49.5 )  28,900    47,200     (18,300 )     (38.8 )

                          2009      2008                              2009      2008
January                     600     3,100      (2,500 )     (80.6 )   1,500     2,600      (1,100 )     (42.3 )
February                    700     3,300      (2,600 )     (78.8 )   1,200     2,900      (1,700 )     (58.6 )
March                       900     4,000      (3,100 )     (77.5 )   1,700     3,300      (1,600 )     (48.5 )
April                       900     3,700      (2,800 )     (75.7 )   2,200     3,400      (1,200 )     (35.3 )
Total year-to-date        3,100    14,100     (11,000 )     (78.0 )   6,600    12,200      (5,600 )     (45.9 )

(1) As reported by the Recreation Vehicle Industry Association (RVIA) Class A and C wholesale shipments, rounded to the nearest hundred.

(2) As reported by Statistical Surveys, as revised, Class A and C U.S. Retail Registrations, rounded to the nearest hundred.

The motorized market has been significantly impacted by highly unstable market conditions. The tightening of the wholesale and retail credit markets, low consumer confidence, and the uncertainty of fuel prices are placing pressure on retail sales and as a result, our dealers have significantly reduced their inventory levels. Dealers continue to sell older model year units and are not reordering inventory on a one-for-one basis, which negatively affects manufacturers' shipments and backlog. The decline in wholesale and retail demand has directly impacted our gross margins as we have produced and delivered far fewer units in recent quarters and we have also had to increase our discounts to meet competitive pricing and provide retail incentives to help dealers move inventory.

In early March 2009, two of our significant competitors, Fleetwood Enterprises, Inc. ("Fleetwood") and Monaco Coach Corporation ("Monaco"), filed for Chapter 11 bankruptcy protection. The combined Class A and C motor home unit retail market share of these two companies combined was 28.2 percent for Calendar 2008, as reported by Statistical Surveys. Significant publicly disclosed developments regarding these two companies since their Chapter 11 filing are as follows:

• On June 3, 2009, Fleetwood announced that it has signed an asset purchase agreement to sell its motor home business to American Industrial Partners Capital Fund IV LP for a bid of $53 million subject to reduction for the assumption of certain liabilities, not to exceed $18 million. Under the bidding procedures, any competing bidders were required to submit qualifying bids by June 18, and none were submitted. The court finalized the sale on June 24, 2009. The deal is expected to close on July 10, 2009.

• On June 4, 2009, Navistar International Corp. ("Navistar") completed its purchase of certain assets of Monaco for approximately $47 million and a new company named Monaco RV LLC was established. According to a news release issued by Navistar, the newly formed company "will resume production at certain facilities in the coming months," subject to market conditions.

Due to extremely challenging market conditions which have resulted in a severe decline in our revenues in recent quarters, maintaining liquidity and conserving capital are the primary goals of management in order to enhance our financial flexibility. In the first nine months of Fiscal 2009, we improved our cash and short-term investment position by $20.8 million despite a net loss of $28.5 million. Multiple steps were taken in our first three quarters of Fiscal 2009 to conserve capital and maintain liquidity, as follows:

1. Inventories were significantly reduced since the beginning of the fiscal year which resulted in an improvement of working capital of approximately $57.4 million. We estimate that we have the opportunity to reduce inventory levels an additional $3.0 to $5.0 million during the last quarter of Fiscal 2009.

2. We entered into a $25.0 million line of credit facility during the first quarter of Fiscal 2009. We have not yet borrowed on this facility.

3. We elected to participate in a "no net cost" loan program and borrowed $9.1 million through UBS during the second quarter, secured by a portion of the ARS owned by us and held by UBS.

4. We suspended cash dividend payments starting in the second quarter of Fiscal 2009. This suspension reduces the amount of cash which we would have used approximately $10.5 million for Fiscal 2009.

As of May 30, 2009, we had $41.7 million of cash and short-term investments as well as our $25.0 million credit facility. Due to the ability to carryback our tax loss for the first nine months of Fiscal 2009 to prior years, we expect to receive a federal tax refund of nearly $19.0 million in our second quarter of Fiscal 2010. We also have the ability to put the remaining $4.4 million of unencumbered ARS securities held by UBS to UBS in the fourth quarter of Fiscal 2010. In aggregate, this provides liquidity of approximately $90.1 million which does not include the potential inventory reductions noted above. When considering all of these factors, we expect to have sufficient liquidity for at least the next 12 to 18 months, even at the current depressed sales levels.

We have taken significant actions over the past 18 months to reduce our fixed cost structure which we anticipate will result in reductions in excess of $21 million on an annual basis. Specifically, actions taken thus far include the reduction of our total headcount by nearly 50 percent, salary reductions, the elimination of Fiscal 2009 stock grants to key management and the board, elimination of bonuses, reductions of the 401(k) match and the adoption of two mandatory unpaid weeks off (one during the second fiscal quarter and one to occur during the fourth fiscal quarter). Other fixed costs have been eliminated through many strategic actions, including the closure of our Charles City manufacturing facility, cancellation of certain promotional events typically held and reduced spending throughout the Company. On June 11, 2009, we also announced that we will be closing our Hampton, Iowa fiberglass manufacturing facility during our fourth fiscal quarter of 2009. We have the ability to sustain our current operational costs and maintain physical capacity at present levels for the foreseeable future (in excess of 12 months). Additional cost reduction activities are expected to continue during these challenging market conditions.

Order backlog for our motor homes was as follows:

                                  May 30, 2009         May 31, 2008
                                          Product              Product                 %
                                Units      Mix %     Units      Mix %    Decrease    Change
Class A gas                         104      27.2        280      24.4        (176 )  (62.9 )
Class A diesel                       72      18.9        136      11.9         (64 )  (47.1 )
Total Class A                       176      46.1        416      36.3        (240 )  (57.7 )
Class B                               2       0.5        216      18.8        (214 )  (99.1 )
Class C                             204      53.4        515      44.9        (311 )  (60.4 )
Total backlog                       382     100.0      1,147     100.0        (765 )  (66.7 )
Total approximate revenue
dollars (in millions) (1)      $   33.6             $   93.9             $   (60.3 )  (64.2 )
Dealer inventory (units)          2,324                4,341                (2,017 )  (46.5 )

(1) We include in our backlog all accepted purchase orders from dealers to be shipped within the next six months. Orders in backlog can be canceled or postponed at the option of the purchaser at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.

When wholesale and retail credit availability and consumer confidence improve, we expect to see an increase in motor home demand as dealers will again have the ability to order units to maintain their inventory levels after an extended period of inventory reduction. We also expect to benefit from our ability to ramp-up production in an industry with fewer motor home competitors. A longer term positive outlook for the recreation vehicle industry is supported by favorable demographics as baby boomers reach the age group that has historically accounted for the bulk of retail RV sales.

Critical Accounting Policies. Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (GAAP). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that we believe to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates and such differences could be material.

We believe that the following accounting estimates and policies are the most critical to aid in fully understanding and evaluating our reported financial results and they require our most difficult, subjective or complex judgments resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board.

Revenue Recognition. Generally, revenues for motor homes are recorded when all of the following conditions are met: an order for a product has been received from a dealer, written or verbal approval for payment has been received from the dealer's floor plan financing institution and the product is delivered to the dealer who placed the order. Most sales are financed under floor plan financing arrangements with banks or finance companies.

Revenues from the sales of our OEM and motor home-related parts are recorded as the products are shipped from our location. The title of ownership transfers on these products as they leave our location due to the freight terms of F.O.B. - Forest City, Iowa.

Sales Promotions and Incentives. We accrue for sales promotions and incentive expenses, which are recognized as a reduction to revenues, at the time of sale to the dealer or when the sales incentive is offered to the dealer or retail customer. Examples of sales promotions and incentive programs include dealer and consumer rebates, volume discounts, retail financing programs, and dealer sales associate incentives. Sales promotion and incentive expenses are estimated based upon current program parameters, such as unit or retail volume, and historical rates. Actual results may differ from these estimates if market conditions dictate the need to enhance or reduce sales promotion and incentive programs or if the retail customer usage rate varies from historical trends. Historically, sales promotion and incentive expenses have been within our expectations and differences have not been material.

Repurchase Commitments. It is customary practice for companies in the recreation vehicle industry to enter into repurchase agreements with financing institutions that provide financing to their dealers. Our repurchase agreements generally provide that, in the event of a default by a dealer in its obligation to these credit sources, we will repurchase vehicles sold to the dealer that have not been resold to retail customers. The terms of these agreements, which can last up to 18 months, provide that our liability will be the lesser of remaining principal owed by the dealer or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our liability cannot exceed 100 percent of the dealer invoice. In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary relationship terminations. Our risk of loss is reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous dealers and financial institutions. The aggregate contingent liability related to our repurchase agreements represents all financed dealer inventory at the period reporting date subject to a repurchase agreement, net of the greater of periodic reductions per the agreement or dealer principal payments.

Based on these repurchase agreements, we establish an associated loss reserve. This loss reserve is disclosed separately in the consolidated balance sheets. Repurchased sales are not recorded as a revenue transaction, but the net difference between the original repurchase price and the resale price are recorded against the loss reserve, which is a deduction from gross revenue. There are two significant assumptions associated with establishing our loss reserve for repurchase commitments: (1) the percentage of dealer inventory that we will be required to repurchase as a result of defaults by the dealer, and (2) the loss that will be incurred, if any, when repurchased inventory is resold. Historically, losses under these agreements have not been material; however, given the decreased demand for recreation vehicles, repurchase activity has become higher than has historically been the case and it may be necessary to offer greater discounts in order to relocate such product to alternative dealers during current market conditions. To the extent that dealers are reducing their inventories, which they have been doing the past 12 months, our overall exposure to repurchase agreements is likewise reduced. The percentage of dealer inventory we estimate we will repurchase is based on historical information, current trends and an analysis of dealer inventory aging for all dealers with inventory subject to this obligation. The estimated loss per repurchased unit is based primarily on recent history because until recently, we were generally able to sell repurchased units for minimal losses. In the past few quarters, we have incurred a significant increase in losses associated with repurchases due to the challenging motor home industry conditions. As a result, we have revised our underlying loss reserve estimate assumptions during Fiscal 2009 based on rapidly changing circumstances to provide for greater potential future losses due to unfavorable experience. Further discussion of our repurchase commitments and related assumptions is included in Note 10 to the Consolidated Financial Statements.

Warranty. We provide with the purchase of any new motor home, a comprehensive 12-month/15,000-mile warranty on Class A, Class B and Class C motor homes and a 3-year/36,000-mile warranty on Class A and Class C sidewalls and floors. Estimated costs related to product warranty are accrued at the time of sale and are based upon past warranty claims and unit sales history and adjusted as required to reflect actual costs incurred, as information becomes available. A significant increase in dealership labor rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize. We also incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions. Estimated costs are accrued at the time the service action is implemented and are based upon past claim rate experiences and the estimated cost of the repairs. Further discussion of our warranty costs and associated accruals is included in Note 7 to the Consolidated Financial Statements.

Stock-Based Compensation. Prior to Fiscal 2007, we granted stock options to our key employees and nonemployee directors as part of their compensation. In Fiscal 2007 and 2008, we granted restricted stock awards to key employees and nonemployee directors instead of stock options. No stock options or restricted stock awards were granted in the first three quarters of Fiscal 2009.

The amount of stock-based compensation expense incurred and to be incurred in future periods is dependent upon a number of factors, such as the number of options and shares granted, the timing of stock option exercises, the age of the recipient and actual forfeiture rates.

The value of the restricted stock is based on the closing price of our common stock on the date of grant. The fair value of each award is amortized on a straight-line basis over the requisite service period or to an employee's eligible retirement date, if earlier. This amortization method is used because our awards typically vest over three years, beginning one year after date of grant or upon retirement if earlier; thus, options and restricted stock awards are expensed immediately upon grant for retirement-eligible employees. This feature accelerates expense in the period of grant (typically our first fiscal quarter) and creates an uneven pattern of stock-based compensation that results in relatively higher expense in our first fiscal quarter and relatively lower expense in our second through fourth quarters. The impact of this feature is significant since a majority of our awards are made to retirement-eligible employees.

Unrecognized Tax Benefits. We only recognize tax benefits for filing positions that are considered more likely than not of being sustained under audit by the relevant taxing authority, without regard to the likelihood of such an audit occurring. We record a liability for uncertain tax positions when it is more likely than not that our filed tax positions will not be sustained. We record deferred tax assets related to reserves for filing positions in a particular jurisdiction that would result in tax deductions in another tax jurisdiction if we were unable to sustain our filing position in an audit. Our income tax returns are periodically audited by various taxing authorities. These audits include questions regarding our tax filing positions, including the timing and the amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple years are subject to audit by the various taxing authorities. We continually assess our tax positions for all periods that are open to examination or have not been effectively settled based on the most current available information. We adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.

Our liability for unrecognized tax benefits contains uncertainties because we are required to make assumptions and apply judgment to estimate the exposure associated with our various filing positions. Our effective tax rate is also affected by changes in tax law, the level of our earnings or losses and the results of tax audits.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or realize gains that could be material. To the extent that we prevail in matters for which a liability has been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective tax rate in the period of resolution.

Income Taxes. We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be realized based on future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or change this allowance in a period, we must include an expense or a benefit within the tax provision in our consolidated statement of operations.

Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. Valuation allowances arise due to the uncertainty of realizing deferred tax assets. SFAS No. 109 requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, using a "more likely than not" standard. In making such assessments, significant weight is to be given to evidence that can be objectively verified. A company's current or previous losses are given more weight than its future outlook. We have evaluated the sustainability of our deferred tax assets on our consolidated balance sheet which includes the assessment of cumulative income over recent prior periods. Based on SFAS No. 109 guidelines, we determined a valuation allowance of $325,000 was appropriate as of May 30, 2009. We will continue to assess the likelihood that our deferred tax assets will be realizable at each reporting period, and our valuation allowance will be adjusted accordingly, which could materially impact our financial position and results of operations.

Postretirement Benefits, Obligations and Costs. We provide certain health care and other benefits for retired employees hired before April 1, 2001, who have fulfilled eligibility requirements at age 55 with 15 years of continuous service. Postretirement benefit liabilities are determined by actuaries using assumptions about the discount rate and health care cost-trend rates. Thus, a significant increase or decrease in interest rates could have a significant impact on our operating results. Further discussion of our postretirement . . .