Executive Overview

Winnebago Industries, Inc. is the leading U.S. manufacturer of motor homes 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 products through independent dealers throughout the United States and Canada, who then retail the products to the end consumer. We have led the industry with the highest market share in the U.S. of Class A and C motor homes combined for the past eight calendar years and in Calendar 2009 through August 31, 2009. We began producing Class B motor homes in February 2008 and in Calendar Year through August 31, 2009, we hold the number three U.S. position in retail unit market share. See our U.S. retail unit market share for all categories in the following table:

                              Winnebago Industries U.S. Retail Market Share (1)
                        Calendar Year Through August 31,             Calendar Year
                            2009                 2008               2008         2007
Class A gas                  23.2 %                23.3 %            23.2 %     22.0 %
Class A diesel               10.8 %                 7.6 %             8.1 %      8.9 %
Total Class A                16.5 %                15.2 %            15.3 %     15.1 %
Class C                      22.5 %                23.0 %            22.9 %     24.0 %
Total Class A and C          19.1 %                18.5 %            18.3 %     18.5 %
Class B                      16.1 %                 2.8 %             3.7 %      0.0 %

(1) As reported by Statistical Surveys.

Company and Business Outlook

The RV industry saw substantial reductions in wholesale motor home shipments
(down nearly 50 percent) and retail registrations (down nearly 40 percent)
during Calendar 2008 as compared to 2007. The trend has worsened thus far in
Calendar 2009, with motor home shipments down nearly 70 percent and retail
registrations down over 40 percent, as detailed in the table below:


                           Industry Wholesale Shipments (1)                          Industry Retail Registration (2)
                                     Calendar Year                                            Calendar Year
(In units)           2008        2007     Decrease      % of Decrease        2008        2007     Decrease      % of 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 )         9,800      15,100     (5,300 )          (35.1 )
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 )
                    26,400      52,300    (25,900 )          (49.5 )        29,000      47,200    (18,200 )          (38.6 )

(In units)           2009        2008     Decrease      % of Decrease        2009        2008     Decrease      % of Decrease
First quarter        2,200      10,400     (8,200 )          (78.8 )         4,400       8,800     (4,400 )          (50.0 )
Second quarter       2,900       8,600     (5,700 )          (66.3 )         6,000       9,800     (3,800 )          (38.8 )
July                   800       1,500       (700 )          (46.7 )         1,700       2,300       (600 )          (26.1 )
August               1,000       1,500       (500 )          (33.3 )         1,600       2,000       (400 )          (20.0 )
                     6,900      22,000    (15,100 )          (68.6 )        13,700      22,900     (9,200 )          (40.2 )

(1) As reported by RVIA Class A and C wholesale shipments, rounded to the nearest hundred.
(2) As reported by Statistical Surveys Class A and C 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, the effect of the global recession and uncertainty related to fuel prices placed 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 during most of Fiscal 2009, they were not reordering inventory on a one-for-one basis, which negatively affected 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 Fiscal 2009 and we have also had to increase our discounts to meet competitive pricing and provide retail incentives to help dealers move inventory.

Order backlog for our motor homes was as follows:

                                                                 As Of
                     August 29,        Product Mix         August 30,       Product Mix       Increase        %
(In units)              2009                %                 2008               %           (Decrease)    Change
Class A gas                345               36.7                 119            20.0              226       189.9
Class A diesel             198               21.0                 100            16.8               98        98.0
Total Class A              543               57.7                 219            36.8              324       147.9
Class B                     10                1.1                  46             7.7              (36 )     (78.3 )
Class C                    387               41.2                 331            55.5               56        16.9
Total backlog
(1)                        940              100.0                 596           100.0              344        57.7
Total
approximate
revenue dollars
(in thousands)        $ 86,626                               $ 50,599                         $ 36,027        71.2
Dealer inventory
(units)                  1,694                                  3,663                           (1,969 )     (53.8 )

(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 dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.

As noted above, our dealer inventories were nearly 54 percent lower than last year. We attribute the growth in our backlog to the very low level of dealer inventories and the strong acceptance of our 2010 product lineup. This increase may be a sign that the replenishment process is now beginning. As 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. 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.

Results of Operations

Fiscal 2009 Compared to Fiscal 2008

The following is an analysis of changes in key items included in the
consolidated statements of income for the fiscal year ended August 29, 2009
compared to the fiscal year ended August 30, 2008:


                                                                   Year Ended (1)
(In thousands, except
percent and per share       August 29,                        August 30,                        (Decrease)        %
data)                          2009        % of Revenues         2008         % of Revenues      Increase       Change
Net revenues               $    211,519         100.0         $   604,352          100.0         $ (392,833 )   (65.0 )
Cost of goods sold              242,265         114.5             569,580           94.2           (327,315 )   (57.5 )
Gross (deficit) profit          (30,746 )       (14.5 )            34,772            5.8            (65,518 )  (188.4 )

Selling                          12,616           6.0              18,482            3.1             (5,866 )   (31.7 )
General and
administrative                   15,298           7.2              21,359            3.5             (6,061 )   (28.4 )
Asset impairment                    855           0.4               4,686            0.8             (3,831 )   (81.8 )
Operating expenses               28,769          13.6              44,527            7.4            (15,758 )   (35.4 )

Operating loss                  (59,515 )       (28.1 )            (9,755 )         (1.6 )          (49,760 )  (510.1 )
Financial income                  1,452           0.7               4,314            0.7             (2,862 )   (66.3 )
Pre-tax loss                    (58,063 )       (27.4 )            (5,441 )         (0.9 )          (52,622 )  (967.1 )
Provision (benefit)
for taxes                        20,703           9.8              (8,225 )         (1.4 )           28,928     351.7
Net (loss) income          $    (78,766 )       (37.2 )       $     2,784            0.5         $  (81,550 )     NMF
Diluted (loss) income
per share                  $      (2.71 )                     $      0.10                        $    (2.81 )     NMF
Fully diluted average
shares outstanding               29,051                            29,144                               (93 )    (0.3 )

(1) Fiscal year ended August 29, 2009 contained 52 weeks; fiscal year ended August 30, 2008 contained 53 weeks.

Unit deliveries consisted of the following:

                                                                  Year Ended (1)
                             August 29,      Product Mix      August 30,      Product Mix      (Decrease)        %
(In units)                      2009              %              2008              %            Increase      Change
Class A gas                       480             21.8           2,129             33.2          (1,649 )     (77.5 )
Class A diesel                    342             15.6             900             14.1            (558 )     (62.0 )
Total Class A                     822             37.4           3,029             47.3          (2,207 )     (72.9 )
Class B                           149              6.8             140              2.2               9         6.4
Class C                         1,225             55.8           3,238             50.5          (2,013 )     (62.2 )
Total deliveries                2,196            100.0           6,407            100.0          (4,211 )     (65.7 )

(1) Fiscal year ended August 29, 2009 contained 52 weeks; fiscal year ended August 30, 2008 contained 53 weeks.

Net revenues for the year ended August 29, 2009 decreased $392.8 million, or 65.0 percent, due to the following:

1. Volume decline: The primary reason for the net revenue decline was due to unit deliveries decreasing by 65.7 percent.
2. Pricing and mix: Our motor home average selling price (ASP), net of discounts, decreased 1.4 percent. The decrease in our ASP was due to an increase of product discounts we offered at the wholesale level and a shift in mix to lower-priced products, partially offset by the increase in pricing. Our sales mix for the year was more heavily weighted to lower-priced products as 63 percent of our volume in Fiscal 2009 was Class B and C products as compared to a 53 percent mix of Class B and C products in Fiscal 2008.
3. Promotional incentives: Our retail and other incentives increased 3.2 percent (as a percentage of net revenues) due to increased retail promotional activity on significantly lower revenues. We used retail incentive programs to help stimulate dealer retail traffic and the programs have had a substantial impact in reducing the dealer inventory level, as our dealer inventory in units is down 53.8 percent at August 29, 2009 compared to August 30, 2008.
4. Repurchases: Our losses on repurchases of motor homes during Fiscal 2009 were significantly higher than previous years as a result of the dramatic decline in the motor home market. As a percentage of net revenues, repurchase expense was 1.2 percent in Fiscal 2009 compared to 0.1 percent in Fiscal 2008.
5. Other revenue: Revenues for motor home parts and services and other manufactured products decreased by 32.4 percent.

Cost of goods sold was $242.3 million, or 114.5 percent, of net revenues for Fiscal 2009 compared to $569.6 million, or 94.2 percent, of net revenues for Fiscal 2008. The change in our variable costs (materials, direct labor, variable overhead, delivery expense and warranty) comprise $316.6 million of the $327.3 million decrease, which was primarily caused by decreased sales volume. Material, labor and variable overhead, as a percent of net revenues, increased to 91.8 percent from 82.2 percent in Fiscal 2009 from Fiscal 2008. The 9.6 percent increase was primarily caused by increased discounting and promotional incentives in Fiscal 2009 to promote sales in a difficult motor home market. Delivery expenses and warranty costs in relation to net sales remained consistent in Fiscal 2009 to Fiscal 2008. Our variable costs were favorably impacted by $7.0 million, or 3.3 percent, of net revenues in Fiscal 2009 due to the reduction of the last-in, first-out (LIFO) inventory liquidation, as compared to LIFO expense in Fiscal 2008 of $4.6 million, or 0.8 percent, of net revenues. Fixed overhead, which consists primarily of manufacturing support labor, depreciation and facility costs, increased to 17.7 percent of net revenues in Fiscal 2009 compared to 7.8 percent in Fiscal 2008. This difference was due primarily to low absorption of fixed costs as a result of significantly lower production volume. All factors considered, gross (deficit) profit decreased from a gross profit of 5.8 percent of net revenues during Fiscal 2008 to a gross deficit of 14.5 percent of net revenues during Fiscal 2009.

Selling expenses decreased $5.9 million, or 31.7 percent, during the fiscal year ended August 29, 2009. However, as a percent of net revenues, selling expenses were 6.0 percent during Fiscal 2009 compared to 3.1 percent for Fiscal 2008. The decrease in dollars was due primarily to reductions in advertising expenses of $2.9 million, labor-related expenses of $1.4 million as a result of reduced head count, salesmen incentives of $400,000, travel and meeting expenses of $400,000 and stock compensation of $200,000, as we did not grant stock awards during Fiscal 2009. The increase in percentage of net revenues was caused by the significant difference in revenue levels between the two fiscal periods.

General and administrative expenses decreased $6.1 million, or 28.4 percent, during the fiscal year ended August 29, 2009. However, as a percent of net revenues, general and administrative expenses were 7.2 percent during Fiscal 2009 compared to 3.5 percent for Fiscal 2008. The decrease in dollars was due primarily to reductions in stock compensation of $2.0 million, as we did not grant stock awards during Fiscal 2009, labor-related expenses of $1.5 million as a result of reduced head count, legal expenses of $1.0 million and lower depreciation expense of $500,000. The increase in percentage of net revenues was caused by the significant difference in revenue levels between the two fiscal periods.

Asset impairment expenses of $855,000 were recorded in Fiscal 2009 was a result of the decision to close the Hampton, Iowa fiberglass manufacturing facility.

Financial income decreased $2.9 million, or 66.3 percent, for the fiscal year ended August 29, 2009. The decrease in financial income was primarily due to a decrease in the average yield and to a lesser extent, due to a decrease in average investment balances.

The overall effective income tax rate for Fiscal 2009 was an expense of 35.6 percent compared to a benefit of (151.2) percent for Fiscal 2008. The following table breaks down the two aforementioned tax rates:

                                                               Year Ended (1)
                                                August 29, 2009              August 30, 2008
                                                          Effective                   Effective
(Dollars in thousands)                       Amount        Rate (%)       Amount       Rate (%)
Tax benefit on current operations           $ (22,898 )     (39.5 )      $ (3,345 )     (61.5 )
Valuation allowance                            44,976        77.5             325         6.0
Settlements of uncertain tax positions           (500 )      (0.9 )        (4,149 )     (76.3 )
Other                                            (875 )      (1.5 )        (1,056 )     (19.4 )
Total provision (benefit) for taxes         $  20,703        35.6        $ (8,225 )    (151.2 )

(1) Fiscal year ended August 29, 2009 contained 52 weeks; fiscal year ended August 30, 2008 contained 53 weeks.

Tax benefit on current operations. At the end of the third quarter of Fiscal 2009, our ability to claim refunds of taxes previously paid was exhausted due to the size of our Fiscal 2009 operating losses. Thus, of the $22.9 million tax benefit on current operations, we have established an associated tax refund receivable of $17.4 million. The effective tax benefit rate of 39.5 percent as compared to a benefit rate of 61.5 percent is primarily attributable to the Fiscal 2009 pre-tax loss of $58.1 million versus the Fiscal 2008 pre-tax loss of $5.4 million. Included within the Fiscal 2009 pre-tax loss of $58.1 million was $1.5 million of financial income, which was primarily tax-free income from investments in municipal and student loan related securities and appreciation in company-owned life insurance (COLI), and resulted in an increase to the tax benefit of $1.2 million and increased the tax benefit rate by 2.0 percent. In Fiscal 2008, tax-free investment income resulted in a tax benefit of $1.8 million (a 32.6 percent increase in the effective benefit rate).

Valuation Allowance. During the fourth quarter of Fiscal 2009, we recorded a non-cash charge of $45.3 million to establish a full valuation allowance on the deferred tax assets. Statement of Financial Accounting Standards (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 given to evidence that can be objectively verified. A company's current or previous losses are given more weight than its future outlook. Under that standard, our three-year historical cumulative loss was a significant negative factor. This loss, combined with uncertain near-term market and economic conditions, reduced our ability to rely on our projections of any future taxable income in determining whether a valuation allowance is appropriate. Accordingly, we concluded that, based on SFAS No. 109 guidelines, a full valuation allowance should now be established. We will continue to assess the likelihood that our deferred tax assets will be realizable and our valuation allowance will be adjusted accordingly, which could materially impact our financial position and results of operations. During the fourth quarter of Fiscal 2008, we recorded a charge of $325,000 to establish a valuation allowance on tax credits that were determined not to be recoverable prior to the tax credits expiring.

Settlements. During Fiscal 2009, we recognized a tax benefit of $500,000 as a result of favorable settlements with various taxing jurisdictions, which increased the tax benefit rate by 0.9 percent. In Fiscal 2008, we had an effective tax benefit rate of 76.3 percent, which was based on the favorable settlements of uncertain tax positions with various taxing jurisdictions. The original unrecognized tax benefit associated with these positions was $14.6 million, of which $8.0 million was paid in cash per the settlement. The balance of this reserve, net of the related deferred taxes, resulted in a $4.1 million increase in tax benefit.

Other. Other primarily represents tax benefits associated with tax planning initiatives implemented during Fiscal 2009, such as the extension of the research and development tax credit. In Fiscal 2008, tax planning initiatives represented additional tax benefits associated with tax-free income from investments in Company-owned life insurance.

Net loss and diluted loss per share were $78.8 million and $2.71 per share, respectively, for Fiscal 2009. In Fiscal 2008, net income was $2.8 million and diluted income was $0.10 per share.

Fiscal 2008 Compared to Fiscal 2007

The following is an analysis of changes in key items included in the
consolidated statements of income for the year ended August 30, 2008 compared to
the year ended August 25, 2007:


                                                            Year Ended (1)
(In thousands, except
percent and per share        August 30,        % of       August 25,      % of        Increase         %
data)                           2008         Revenues        2007       Revenues     (Decrease)      Change
Net revenues                    $ 604,352      100.0       $ 870,152      100.0       $ (265,800 )   (30.5 )
Cost of goods sold                569,580       94.2         770,955       88.6         (201,375 )   (26.1 )
Gross profit                       34,772        5.8          99,197       11.4          (64,425 )   (64.9 )

Selling                            18,482        3.1          19,865        2.3           (1,383 )    (7.0 )
General and
administrative                     21,359        3.5          24,446        2.8           (3,087 )   (12.6 )
Asset impairment                    4,686        0.8           - - -      - - -            4,686     - - -
Operating expenses                 44,527        7.4          44,311        5.1              216       0.5

Operating (loss) income           (9,755)       (1.6 )        54,886        6.3          (64,641 )  (117.8 )
Financial income                    4,314        0.7           6,523        0.8           (2,209 )   (33.9 )
Pre-tax (loss) income             (5,441)       (0.9 )        61,409        7.1          (66,850 )  (108.9 )
(Benefit) provision for
taxes                             (8,225)       (1.4 )        19,845        2.3          (28,070 )  (141.4 )
Net income                      $   2,784        0.5       $  41,564        4.8       $  (38,780 )   (93.3 )
Diluted income per share        $    0.10                  $    1.32                  $    (1.22 )   (92.4 )
Fully diluted average
shares outstanding                 29,144                     31,415                      (2,271 )    (7.2 )

(1) Fiscal year ended August 30, 2008 contained 53 weeks; fiscal year ended August 25, 2007 contained 52 weeks.

Unit deliveries consisted of the following:

                                                      Year Ended (1)
                      August 30,    Product Mix    August 25,    Product Mix     Increase        %
  (In units)             2008            %            2007            %         (Decrease)    Change
  Class A gas             2,129           33.2         3,539           37.4        (1,410 )   (39.8 )
  Class A diesel            900           14.1         1,492           15.7          (592 )   (39.7 )
  Total Class A           3,029           47.3         5,031           53.1        (2,002 )   (39.8 )
  Class B                   140            2.2         - - -          - - -           140     - - -
  Class C                 3,238           50.5         4,438           46.9        (1,200 )   (27.0 )
  Total deliveries        6,407          100.0         9,469          100.0        (3,062 )   (32.3 )

(1) Fiscal year ended August 30, 2008 contained 53 weeks; fiscal year ended August 25, 2007 contained 52 weeks.

Net revenues for the year ended August 30, 2008 decreased $265.8 million, or 30.5 percent, due to the following:

1. Volume decline: The primary reason for the net revenue decline was due to unit deliveries decreasing by 32.3 percent.
2. Pricing and mix: Our average selling price in Fiscal 2008 as compared to Fiscal 2007 was essentially flat, up only 0.7 percent. Price increases associated with the new model year were partially offset by increased wholesale and retail incentives and a higher mix of lower-priced products. Total Class B and C unit deliveries were 52.7 percent of our total deliveries in Fiscal 2008 as compared to Class C deliveries, which were 46.9 percent of our total deliveries in Fiscal 2007.
3. Promotional incentives: Our retail and other incentives increased by 0.5 percent (as a percentage of net revenues) due to increased retail promotional activity on lower revenues.
4. Other revenue: Revenues for motor home parts and services and other manufactured products decreased by 10.3 percent.

Cost of goods sold was $569.6 million, or 94.2 percent, of net revenues for Fiscal 2008 compared to $771.0 million, or 88.6 percent, of net revenues for Fiscal 2007. The change in our variable costs (materials, direct labor, variable overhead, delivery expense and warranty) comprised $199.2 million of the $201.4 million decrease which was primarily caused by decreased sales volume. Material, labor and variable overhead, as a percent of net revenues, increased to 82.2 percent in Fiscal 2008 compared to 79.3 percent in Fiscal 2007. The 2.9 percent increase was primarily caused by a greater percentage of lower-margin motor home deliveries in Fiscal 2008. Also contributing to the reduced margins were additional wholesale and retail promotional programs and an increase in LIFO expense in Fiscal 2008 as compared to Fiscal 2007 due to the increase in inflation and higher inventory levels at the end of the year. Fixed overhead, which consists primarily of manufacturing support labor, depreciation and facility costs, increased to 7.8 percent of net revenues in Fiscal 2008 compared to 5.7 percent in Fiscal 2007. This difference was due primarily to lower absorption of fixed costs due to lower production volumes. All factors considered, gross profit decreased from 11.4 percent of net revenues in Fiscal 2007 to 5.8 percent of net revenues during Fiscal 2009.

Selling expenses decreased $1.4 million, or 7.0 percent, during the fiscal year ended August 30, 2008. However, as a percent of net revenues, selling expenses were 3.1 percent during Fiscal 2008 compared to 2.3 percent for Fiscal 2007. The decrease in dollars was due primarily to reductions in salesmen incentives of $579,000, advertising expenses of $502,000 and wages and wage-related expenses of $422,000. The increase in percentage of net revenues was caused by the significant difference in revenue levels between the two fiscal periods.

General and administrative expenses decreased $3.1 million, or 12.6 percent, during the fiscal year ended August 30, 2008. However, as a percent of net revenues, general and administrative expenses were 3.5 percent during Fiscal . . .