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Winnebago Industries, Inc. Form 10-Q for the period ended May 27, 2006

Table of Contents

 
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
 x Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the Quarterly Period Ended May 27, 2006

or

o Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the transition period from ____________ to ____________

Winnebago Industries, Inc.
(Exact Name of Registrant as Specified in its Charter)

Iowa 001-06403 42-0802678
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation or Organziation)   Identification No.)
 
P.O. Box 152, Forest City, Iowa 50436
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code    641-585-3535

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      
Yes x No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x            Accelerated filer o            Non-accelerated filer o

        Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      
Yes o No x

        The number of shares of common stock, par value $0.50 per share, outstanding on July 3, 2006 was 31,314,236.


 
 


WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES

INDEX TO REPORT ON FORM 10-Q

Page Number
PART I.   FINANCIAL INFORMATION:      
 
Item 1.  Unaudited Consolidated Balance Sheets  1 & 2  
 
   Unaudited Consolidated Statements of Income  3 
 
   Unaudited Condensed Consolidated Statements of Cash Flows  4 
 
   Unaudited Notes to Condensed Consolidated Financial Statements  5 – 11 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations  12 – 18 
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk  18 
 
Item 4.  Controls and Procedures  18 – 19 
 
   Report of Independent Registered Public Accounting Firm  20 
 
PART II.  OTHER INFORMATION 
 
Item 1.  Legal Proceedings  21 
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  21 
 
Item 6.  Exhibits  21 
 
   Signatures  22 
 
   Exhibit Index  23 


Table of Contents

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements.

WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)

ASSETS
May 27,
2006
August 27,
2005
 
CURRENT ASSETS:            
   Cash and cash equivalents   $ 15,419   $ 19,484  
   Short-term investments    125,000    93,100  
   Receivables, less allowance for doubtful  
      accounts ($183 and $270, respectively)    23,681    40,910  
   Inventories    88,199    120,655  
   Prepaid expenses and other assets    5,791    4,333  
   Deferred income taxes    9,459    9,610  
     Total current assets    267,549    288,092  
 
PROPERTY AND EQUIPMENT, at cost:
   Land    951    1,000  
   Buildings    59,482    60,282  
   Machinery and equipment    102,050    100,601  
   Transportation equipment    9,609    9,487  
     172,092    171,370  
     Less accumulated depreciation    113,572    107,517  
     Total property and equipment, net    58,520    63,853  
 
Deferred income taxes    24,146    24,997  
 
Investment in life insurance    20,741    22,066  
 
Other assets    15,377    13,952  
 
TOTAL ASSETS   $ 386,333   $ 412,960  


See Unaudited Notes to Condensed Consolidated Financial Statements.







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WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

LIABILITIES AND STOCKHOLDERS’ EQUITY
May 27,
2006
August 27,
2005
 
CURRENT LIABILITIES:            
   Accounts payable, trade   $ 31,209   $ 37,229  
   Income taxes payable    9,256    4,458  
   Accrued expenses:  
     Accrued compensation    11,787    16,380  
     Product warranties    10,719    12,183  
     Self-insurance    6,608    6,728  
     Promotional    5,588    5,495  
     Dividend payable    2,904    2,963  
     Other    5,446    5,187  
         Total current liabilities    83,517    90,623  
 
Postretirement health care and deferred  
   compensation benefits, net of current portion    86,366    86,450  
 
Contingent liabilities and commitments
 
STOCKHOLDERS’ EQUITY:  
   Capital stock, common, par value $0.50; authorized
      60,000 shares, issued 51,776 shares    25,888    25,888  
   Additional paid-in capital    21,220    16,811  
   Reinvested earnings    474,133    447,518  
     521,241    490,217  
   Less treasury stock, at cost (20,463 and 18,787 shares)    304,791    254,330  
   Total stockholders’ equity    216,450    235,887  
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 386,333   $ 412,960  


See Unaudited Notes to Condensed Consolidated Financial Statements.







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WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

Quarter Ended
Nine Months Ended
May 27,
2006
May 28,
2005
May 27,
2006
May 28,
2005
Net revenues     $ 220,312   $ 255,022   $ 658,992   $ 760,514  
Cost of goods sold    192,236    219,828    579,432    655,995  
     Gross profit    28,076    35,194    79,560    104,519  
 
Operating expenses  
     Selling    4,536    4,302    13,714    13,420  
     General and administrative    5,160    4,537    15,493    15,892  
     Total operating expenses    9,696    8,839    29,207    29,312  
 
Operating income    18,380    26,355    50,353    75,207  
Financial income    1,418    761    3,654    1,894  
 
Income before income taxes    19,798    27,116    54,007    77,101  
Provision for taxes    6,641    9,536    18,580    27,406  
Net income   $ 13,157   $ 17,580   $ 35,427   $ 49,695  
 
Income per common share:
     Basic   $ 0.41   $ 0.53   $ 1.09   $ 1.48  
     Diluted   $ 0.40   $ 0.52   $ 1.08   $ 1.46  
 
Weighted average shares of common stock  
   outstanding:  
     Basic    32,195    33,289    32,645    33,528  
     Diluted    32,496    33,747    32,937    34,065  
 
Dividends declared per common share   $ 0.09   $ 0.07   $ 0.27   $ 0.21  


See Unaudited Notes to Condensed Consolidated Financial Statements.







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WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Nine Months Ended
May 27, 2006
May 28, 2005
Operating activities:            
Net income   $ 35,427   $ 49,695  
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation    7,989    7,434  
  Stock-based compensation    3,964    99  
  Deferred income taxes    1,002    561  
  Deferred compensation and postretirement expense    958    907  
  Excess tax benefit from stock-based compensation    (280 )  —  
  Other    (355 )  (162 )
Change in operating assets and liabilities:  
  Receivables and other assets    16,030    20,055  
  Inventories    32,456    415  
  Accounts payable and accrued expenses    (11,696 )  (4,036 )
  Income taxes payable    5,113    2,189  
  Postretirement and deferred compensation benefits    (826 )  (701 )
Net cash provided by operating activities    89,782    76,456  
 
Investing activities:
  Purchases of short-term investments    (150,475 )  (196,424 )
  Proceeds from the sale or maturity of short-term investments    118,575    143,497  
  Purchases of property and equipment    (3,193 )  (6,666 )
  Other    168    (300 )
Net cash used in investing activities    (34,925 )  (59,893 )
 
Financing activities:
  Payments for purchase of common stock    (51,576 )  (26,796 )
  Payment of cash dividends    (8,871 )  (7,054 )
  Proceeds from issuance of treasury stock    1,245    3,144  
  Excess tax benefit from stock-based compensation    280    —  
Net cash used in financing activities    (58,922 )  (30,706 )
 
Net decrease in cash and cash equivalents    (4,065 )  (14,143 )
Cash and cash equivalents – beginning of period    19,484    24,445  
Cash and cash equivalents – end of period   $ 15,419   $ 10,302  
 
Supplemental cash flow disclosure:  
      Income taxes paid   $ 12,465   $ 24,765  

See Unaudited Notes to Condensed Consolidated Financial Statements.
Certain prior year information has been reclassified to conform to the current year presentation.


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WINNEBAGO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

NOTE 1:    Basis of Presentation

  The “Company,” “we,” “our,” and “us” are used interchangeably to refer to Winnebago Industries, Inc. or Winnebago Industries, Inc. and its subsidiaries, as appropriate to the context.

  In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position as of May 27, 2006, the consolidated results of operations for the three and nine months ended May 27, 2006 and May 28, 2005 and the consolidated statements of cash flows for the nine months ended May 27, 2006 and May 28, 2005. The consolidated statements of income for the nine months ended May 27, 2006 are not necessarily indicative of the results to be expected for the full year. The balance sheet data as of August 27, 2005 was derived from audited financial statements, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto appearing in our Annual Report to Shareholders for the year ended August 27, 2005. Certain prior period information has been reclassified to conform to the current year presentation.

NOTE 2:    Stock-Based Compensation

  We have a 2004 Incentive Compensation Plan (the “Plan”) in place which allows us to grant stock options and other equity compensation to employees. To date, we have only granted options under the Plan. The Plan also allows us to provide equity compensation to our nonemployee directors. The grant price of an option under the Plan is determined by the mean of the high and low prices of our common stock on the date of grant. The term of any options granted under the Plan may not exceed 10 years from the date of the grant. Options issued to employees generally vest over a three-year period in equal annual installments with immediate vesting upon retirement or upon a change of control (as defined in the Plan), if earlier. Historically, options issued to directors vested six months after grant. However, options issued to directors in Fiscal 2006 vest one year after grant.

  Prior to August 28, 2005, we applied Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for options. No stock-based compensation expense for stock options was recognized in our consolidated statements of income prior to Fiscal 2006, as the exercise price of all options granted was not less than 100 percent of fair market value of the common stock on the date of grant.

  Effective August 28, 2005, we adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (123R), requiring us to recognize expense related to the fair value of our stock-based compensation awards. We elected the modified prospective transition method as permitted by SFAS No. 123R; accordingly, results from prior periods have not been restated. Under this transition method, stock-based compensation expense for the nine months ended May 27, 2006 includes:

  (a)   compensation expense for all stock-based compensation awards granted prior to August 27, 2005, but not yet vested at the date of adoption, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and

  (b)   compensation expense for all stock-based compensation awards granted subsequent to August 27, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.


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  Historically, for SFAS No. 123 pro forma disclosure on stock-based compensation, we have recognized compensation expense for stock option awards issued to employees on a straight-line basis over the vesting period of three years. This policy differs from the policy required to be applied to awards granted after the adoption of SFAS No. 123R, which requires that compensation expense be recognized for awards over the requisite service period of the award or to an employee’s eligible retirement date, if earlier. We will continue to recognize compensation expense over the three-year vesting periods for awards granted prior to adoption of SFAS No. 123R, but for all awards granted after August 27, 2005, compensation expense will be recognized over the requisite service period of the award or over a period ending with an employee’s eligible retirement date, if earlier. Total stock option expense included in our statements of income for the quarters ended May 27, 2006 and May 28, 2005, was $997,000 ($807,000, net of tax or 2 cents per diluted share) and $-0-, respectively. Of the $997,000 option expense included in our statements of income for the quarter ended May 27, 2006, $588,000 relates to awards granted prior to Fiscal 2006 which continued to be expensed over the three-year vesting period. Total stock option expense included in our statements of income for the nine months ended May 27, 2006 and May 28, 2005 was $3.8 million ($3.1 million, net of tax or 10 cents per diluted share) and $-0-, respectively. Of the $3.8 million option expense included in our statements of income for the nine months ended May 27, 2006, $1.9 million relates to awards granted prior to Fiscal 2006 which continued to be expensed over the three-year vesting period.

  Prior to the adoption of SFAS No. 123R, we reported all tax benefits resulting from the exercise of stock options as operating cash flows in our consolidated statements of cash flows. In accordance with SFAS No. 123R, for the nine months ended May 27, 2006, the presentation of our statement of cash flows has changed from prior periods to report the excess tax benefits from the exercise of stock options as financing cash flows. For the nine months ended May 27, 2006, $280,000 of excess tax benefits were reported as financing cash flows rather than operating cash flows.

  The table below illustrates the effect on net earnings and earnings per share as if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation during the quarter and nine months ended May 28, 2005.

(In thousands, except per share data)
 		 Quarter Ended
May 28, 2005
Nine Months Ended
May 28, 2005
Net earnings, as reported     $ 17,580   $ 49,695  
   Deduct:   Stock-based compensation expense determined  
   under fair value method for all awards, net of tax(1)    (896 )  (2,425 )
Net earnings, pro forma   $ 16,684   $ 47,270  
 
Earnings per share:  
   Basic – as reported   $ 0.53   $ 1.48  
   Basic – pro forma   $ 0.50   $ 1.41  
 
   Diluted – as reported   $ 0.52   $ 1.46  
   Diluted – pro forma   $ 0.49   $ 1.39  

(1)

For purposes of this pro forma disclosure, the value of the stock-based compensation is amortized to expense on a straight-line basis over the vesting period. Forfeitures are estimated based on historical experience.









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  The following table summarizes stock option activity for the nine months ended May 27, 2006:

(In thousands, except per share data and years)
  		Options
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
Outstanding on August 27, 2005      1,374   $ 22.24          
Granted    340    27.68  
Exercised    (75 )  16.60            
Forfeited/Canceled    —    —  
Outstanding on May 27, 2006    1,639   $ 23.63    7.08   $ 10,539  
 
Exercisable on May 27, 2006    963   $ 20.11    5.94   $ 9,544  

  The aggregate intrinsic value of options (the amount by which the sale price of our stock on the date of exercise exceeded the exercise price) exercised during the nine months ended May 27, 2006 and May 28, 2005 was $1.2 million and $3.6 million, respectively.

  As of May 27, 2006, there was $3.0 million of unrecognized compensation expense related to nonvested option awards that is expected to be recognized over a weighted average period of 1.3 years.

  The fair value of each stock option was estimated on the date of the grant using the Black-Scholes option-pricing model. The weighted-average grant date fair value of stock options granted during the nine months ended May 27, 2006 and May 28, 2005, was $8.68 and $10.87, respectively.

Nine Months Ended
Black-Scholes Option Valuation Assumptions(1)
 May 27,
2006
May 28,
2005
Risk-free interest rate(2)      4.31 %  3.25 %
Expected dividend yield    1.27 %  0.7 %
Expected stock price volatility(3)    35.73 %  46.35 %
Expected life of stock options (in years)(4)    4.2    3  

(1)

Forfeitures are estimated based on historical experience.

(2)

Based on the Treasury Securities constant maturity interest rate whose term is consistent with the expected life of our stock options.

(3)

Expected stock price volatility is based on historical experience.

(4)

Expected life of stock options is based upon historical experience.


  Net cash proceeds from the exercise of stock options were $1.2 million and $3.1 million for the nine months ended May 27, 2006 and May 28, 2005, respectively. The actual income tax benefit realized from stock option exercises totaled $280,000 and $790,000, respectively, for those same periods.

NOTE 3:    New Accounting Pronouncements

  In December 2004, the FASB staff issued FASB Staff Position (FSP) FASB 109-1 that provides guidance on the application of FASB Statement No. 109, Accounting for Income Taxes, to the provision within the American Jobs Creations Act of 2004 that provides a tax deduction on qualified production activities. This FSP was effective upon issuance. The tax deduction on qualified production activities is expected to reduce our effective tax rate by approximately one percentage point for Fiscal 2006.


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NOTE 4:    Short-Term Investments – Available-For-Sale-Securities

  Our short-term investments consist of auction rate preferred securities, variable rate auction preferred stock and other investment-grade marketable debt securities. These investments, a portion of which have original maturities beyond one year, may be classified as short-term based on their highly liquid nature and because these securities represent the investment of cash that is available for current operations. These securities have certain economic characteristics of short-term investments due to a rate-setting mechanism and the ability to sell them through a Dutch auction process that occurs at pre-determined intervals of less than one year. Our short-term investments are classified as available-for-sale securities and the carrying value of these securities approximates fair market value due to their liquidity profile. As of May 27, 2006 and August 27, 2005, there were no unrealized gains or losses associated with these investments. We had $125.0 million and $93.1 million in short-term investments as of May 27, 2006 and August 27, 2005, respectively.

NOTE 5:    Inventories

  Inventories are valued at the lower of cost or market, with cost being determined under the last-in, first-out (LIFO) method and market defined as net realizable value.

  Inventories consist of the following (in thousands):

May 28,
2006
August 27,
2005
Finished goods     $ 38,390   $ 67,998  
Work-in-process    35,133    45,657  
Raw materials    47,667    38,461  
     121,190    152,116  
LIFO reserve    (32,991 )  (31,461 )
    $ 88,199   $ 120,655  

NOTE 6:    Warranties

  Estimated warranty costs are provided at the time of sale of the warranted products. Estimates of future warranty costs are based on prior experience and known current events. The changes in the provision for warranty reserve for the periods shown are as follows (in thousands):

As of
May 27,
2006
May 28,
2005
Balance at beginning of fiscal year     $ 12,183   $ 13,356  
Provision    8,058    10,179  
Claims paid    (9,522 )  (10,849 )
Balance at end of period   $ 10,719   $ 12,686  

NOTE 7:    Postretirement Health Care Benefits

  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. Retirees are required to pay a monthly premium for medical coverage based on years of service at retirement and their age. Effective September 2004, we amended our postretirement health care benefit plan to establish a maximum monthly amount we will pay per retiree. The plan amendment will significantly reduce the cost of the plan and


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  resulted in a $40.4 million reduction in the accumulated postretirement benefit obligation as of September 2004 which was deferred and is being amortized over the approximate remaining service period of active participants. Net postretirement benefit income consisted of the following components (in thousands):

Quarter Ended
Nine Months Ended
May 27,
2006
May 28,
2005
May 27,
2006
May 28,
2005
Interest cost     $ 457   $ 453   $ 1,370   $ 1,358  
Service cost    232    227    698    682  
Net amortization and deferral    (737 )  (745 )  (2,211 )  (2,234 )
Net periodic benefit income   $ (48 ) $ (65 ) $ (143 ) $ (194 )

  For accounting purposes, we recognized income from the plan in Fiscal 2005 and will recognize income from the Plan in Fiscal 2006 due to the amortization of the cost savings from the September 2004 amendment. However, we are still obligated to pay the cost of previously accrued and earned retiree benefits and paid $686,000 and $456,000 of such benefits for the nine months ended May 27, 2006 and May 28, 2005, respectively.

NOTE 8:    Contingent Liabilities and Commitments

Repurchase Commitments.

  Our contingent liability on outstanding repurchase agreements was $302.4 million and $345.2 million at May 27, 2006 and August 27, 2005, respectively. Our actual losses under these repurchase agreements were $-0- during both of the nine months ended May 27, 2006 and May 28, 2005. The reserve for repurchases at May 27, 2006 and August 27, 2005 was $170,000 and $225,000, respectively. (See further discussion of our repurchase commitments within the “Critical Accounting Policies” on page 13.)

Guarantees.

  During the second quarter of Fiscal 2002, we entered into a five-year services agreement (the “Agreement”) with one of our suppliers (the “Supplier”) and Forest City Economic Development, Inc., an Iowa nonprofit corporation (the “FCED”), requiring the Supplier to provide RV paint services to us. Under the terms of the Agreement in the event of a default by the Supplier, we would be obligated to purchase from the Supplier $525,000 of equipment installed in the paint facility at net book value and would be obligated to assume payment obligations for $45,000 in capital equipment leases ($11,000 remaining to be paid at May 27, 2006). As of May 27, 2006, the Supplier is current with its lease payment obligations to the FCED with $3,129,000 (principal and interest) remaining to be paid through August 2012.

  During the second quarter of Fiscal 2004, we entered into a five-year limited guaranty agreement (“Guarantee Agreement”) with a leasing corporation (“Landlord”) and the Supplier. The Landlord constructed a paint facility for the Supplier through debt financing on land adjoining one of our manufacturing plants. The Landlord and the Supplier have signed a ten-year lease agreement which commenced on August 1, 2004. The Guarantee Agreement states that we will guarantee the first 60 monthly lease payments (totaling $1.6 million of which $909,000 was remaining as of May 27, 2006). In the event of a payment default before August 2009 and the Supplier’s failure to correct the default, the Landlord shall give us (Guarantor) written notice of its intent to terminate said lease. At the time of this notification, we will have various options that we must exercise in a timely manner. One is to exercise an option to purchase the real estate with improvements from the Landlord. The price we would pay would be the outstanding loan incurred by the Landlord to construct the paint facility which was $1.8 million as of May 27, 2006. As of May 27, 2006, the Supplier is current with its lease payment obligations to the Landlord. The estimated fair value of the guarantee as of May 27, 2006 was $197,000.


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Litigation.

  Reference is made to Item 3 (Legal Proceedings) in the Company’s Annual Report on Form 10-K for the year ended August 27, 2005 for a description of certain litigation entitled Jody Bartleson, et al vs. Winnebago Industries, Inc., et al. On April 12, 2006, the Company settled this litigation. The settlement had no material effect on the financial condition of the Company.

  We are also involved in various legal proceedings which are ordinary routine litigation to our business, some of which are covered in whole or in part by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to this litigation, management is of the opinion that, while the final resolution of any such litigation may have an impact on our consolidated results for a particular reporting period, the ultimate disposition of such litigation will not have any material adverse effect on our financial position, results of operations or liquidity.

NOTE 9:    Dividend Declared

  On March 22, 2006, the Board of Directors declared a quarterly cash dividend of $0.09 per common share, payable July 10, 2006 to shareholders of record on June 9, 2006, which has been recorded as an accrued liability in the accompanying May 27, 2006 Balance Sheet.

  On June 21, 2006, the Board of Directors declared a quarterly dividend of $0.10 per common share, payable October 9, 2006 to shareholders of record on September 8, 2006.

NOTE 10:    Repurchase of Outstanding Stock

  On June 15, 2005, the Board of Directors authorized the repurchase of outstanding shares of our common stock, at the discretion of management, for an aggregate consideration of up to $30.0 million. In April 2006, this authorization was completed with approximately 1,007,000 shares being repurchased for $30.0 million of which approximately 715,000 shares were repurchased during the third quarter of Fiscal 2006 for $21.7 million.

  On April 12, 2006, the Board of Directors authorized the repurchase of outstanding shares of our common stock, at the discretion of management, for an aggregate consideration of up to $50.0 million. During the third quarter of Fiscal 2006, approximately 751,000 shares under this authorization were repurchased for $21.6 million. (See Part II, Item 2 on page 21.)

  During the third quarter and first nine months of Fiscal 2006, we repurchased approximately 1,466,000 and approximately 1,758,000 shares, respectively, of our common stock for $43.3 million and $51.6 million, respectively.










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NOTE 11:    Income Per Common Share

  The following table reflects the calculation of basic and diluted income per share for the quarters and nine months ended May 27, 2006 and May 28, 2005.

Quarter Ended
Nine Months Ended
(In thousands, except per share data)
  		May 27,
2006
May 28,
2005
May 27,
2006
May 28,
2005
Income per share – basic                    
Net income   $ 13,157   $ 17,580   $ 35,427   $ 49,695  
Weighted average shares outstanding    32,195    33,289    32,645    33,528  
Income per share – basic   $ 0.41   $ 0.53   $ 1.09   $ 1.48  
 
Income per share – assuming dilution
Net income   $ 13,157   $ 17,580   $ 35,427   $ 49,695  
Weighted average shares outstanding    32,195    33,289    32,645    33,528  
Dilutive impact of options outstanding    301    458    292    537  
Weighted average shares and potential
    dilutive shares outstanding    32,496    33,747    32,937    34,065  
Income per share - assuming dilution   $ 0.40   $ 0.52   $ 1.08   $ 1.46  

  For the quarter and nine months ended May 27, 2006, there were options outstanding to purchase 585,646 and 672,281 shares, respectively, of common stock at an average exercise price of $31.32 and $30.76, respectively, which were not included in the computation of diluted income per share because they are considered antidilutive under the treasury stock method per SFAS No. 128, Earnings Per Share (as amended).

  As of May 28, 2005, there were options’ outstanding to purchase 84,000 shares of common stock at an average exercise price of $34.99, which were not included in the computation of diluted income per share because the options’ exercise price was greater than the average market price of the common stock.













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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q, contains statements which may constitute “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, including, but not limited to, reactions to actual or threatened terrorist attacks, a decline in consumer confidence, availability and price of fuel, a significant increase in interest rates, a 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 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.

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 27, 2005.

BUSINESS OVERVIEW

Winnebago Industries, Inc., headquartered in Forest City, Iowa, is the leading United States (U.S.) manufacturer of motor homes, self-contained recreation vehicles (RV) used primarily in leisure travel and outdoor recreation activities. Winnebago Industries® was incorporated under the laws of the state of Iowa on February 12, 1958, and adopted its present name on February 28, 1961.

We manufacture and sell Class A and Class C motor homes as well as retail parts and accessories. We market our recreation vehicles on a wholesale basis to independent dealers in approximately 295 dealer locations in the U.S. and Canada as of May 27, 2006. As reported by Statistical Surveys, Inc., an independent retail reporting service, we are the leader in the combined retail sales of Class A and Class C motor homes, with a retail market share of 19.1 percent for the first four months of Calendar 2006.

Motorized products represented 54 percent of the RV industry revenues in Calendar 2005. We continue to focus on the motorized segment of the RV industry because it comprises such a large portion of the RV industry and we believe there are further growth opportunities in this segment. Funds for RV purchases, especially the motorized segment, usually come from a buyer’s discretionary income. The RV industry, long known as a cyclical market, is historically impacted by two economic factors: consumer confidence levels and interest rates. As consumer confidence levels decline, so may the number of units sold. In the same respect, motor home sales tend to decline as interest rates rise. Recent experience has also led us to believe that volatility in fuel prices also has a dampening effect on motor home sales. The RV industry as a whole is currently experiencing decreased sales of units in the motorized segment. We will continue to adjust our factory schedule as necessary to reflect the demand for our products.







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CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States of America, which in many cases require us to make assumptions, estimates and judgments that affect the amounts reported. Actual results could differ from estimates in amounts that may be material to our financial statements. Some of our accounting policies are critical because they are important in determining our financial condition and results of operations. These policies are described below and involve significant management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related income statement, asset and/or liability amounts.

Revenue.    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 floorplan financing institution; and the product has been delivered to the dealer who placed the order. Sales are generally made to dealers who finance their purchases under floorplan financing arrangements with banks or finance companies.

Revenues for our original equipment manufacturing (OEM) components and recreation vehicle 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.

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 at least 15 years of continuous service. Postretirement benefit liabilities are determined by actuaries using assumptions about the discount rate and health care cost-trend rates. A significant increase or decrease in interest rates could have a significant impact on the calculation of the postretirement benefit liability and, therefore, on our operating results. For further discussion of our postretirement benefit plan and related assumptions, see Note 6 to our 2005 Annual Report to Shareholders and Note 7 of the Unaudited Notes to Condensed Financial Statements for the periods ended May 27, 2006.

Warranty.    We offer with the purchase of any new Winnebago® or Itasca® motor home, a comprehensive 12-month/15,000-mile warranty and a 3-year/36,000-mile warranty on sidewalls and floors. Estimated costs related to product warranty are accrued at the time of sale and included in cost of sales in the Company’s Statements of Income and as a separate line item, product warranties, in the Company’s Balance Sheets. Estimates of future warranty costs 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. (See Note 6 of the Unaudited Notes to Condensed Consolidated Financial Statements for the periods ended May 27, 2006.)

In addition to the costs associated with the contractual warranty coverage provided on our motor homes, we also incur costs as a result of additional service actions not covered by our warranties, including product recalls and customer satisfaction actions. We estimate the cost of these service actions using past claim rate experiences and the estimated cost of the repairs. Estimated costs are accrued at the time the service action is announced and included in cost of sales in the Company’s Statements of Income and as other accrued expenses in the Company’s Balance Sheets.

Repurchase Commitments.    Generally, companies in the RV industry enter into repurchase agreements with lending institutions which have provided wholesale floorplan financing to dealers. Our repurchase agreements provide that, in the event of default by the dealer on the agreement to pay the lending institution, we will repurchase the financed motor homes. The agreements also provide that our liability will not exceed 100 percent of the dealer invoice and provide for periodic liability reductions based on the time since the date of the original invoice. These repurchase obligations generally expire upon the earlier to occur of (i) the dealer’s sale of the financed unit or (ii) one year from the date of the original invoice. Our exposure under these repurchase


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agreements is reduced by the proceeds received upon the resale of any repurchased unit. The gross repurchase obligation will vary depending on the season and the level of dealer inventories. Past losses under these agreements have not been significant and lender repurchase obligations have been funded out of working capital. (See Note 8 of the Unaudited Notes to Condensed Consolidated Financial Statements for the periods ended May 27, 2006.)

Stock-Based Compensation.    We grant stock options to our employees and non-employee directors as part of their compensation. The amount of stock option compensation expense incurred and to be incurred in future periods is dependent upon a number of factors, such as the number of options granted, the timing of incentive stock option exercises and actual forfeiture rates. We estimate the fair value of all stock option awards as of the date of grant by applying the Black-Scholes option-pricing model. The application of this valuation model involves assumptions, some of which are judgmental and highly sensitive, in the determination of stock option compensation expense. These assumptions include our expected stock price volatility and the expected life of our stock options, which are based primarily on our historical experience. The fair value of each option is amortized into compensation expense on a straight-line basis over the requisite service period or to an employee’s eligible retirement date, if earlier. This is because our options typically vest over three years or upon retirement, thus, options are expensed immediately upon grant for retirement eligible employees which results in relatively higher expense in the period of grant (typically our first fiscal quarter) and relatively less expense in the remaining quarters in a fiscal year. (See Note 2 of the Unaudited Notes to Condensed Consolidated Financial Statements for the periods ended May 27, 2006.)

Other.    We have reserves for other loss exposures, such as litigation, taxes, product liability, worker’s compensation, employee medical claims, inventory and accounts receivable. We also have loss exposure on loan guarantees. Establishing loss reserves for these matters requires the use of estimates and judgment in regards to risk exposure and ultimate liability. We estimate losses in these areas using consistent and appropriate methods; however, changes in assumptions could materially affect our recorded liabilities for loss.

SELECTED CONSOLIDATED STATEMENTS OF INCOME DATA

Current Quarter Compared to the Same Quarter Last Year

The following is an analysis of changes in key items included in the consolidated statements of income for the quarter ended May 27, 2006 compared to the quarter ended May 28, 2005.

Quarter Ended
(In thousands, except percent and per share data)
 		 May 27,
2006
% of Net
Revenues
May 28,
2005
% of Net
Revenues
(Decrease)
Increase
%
Change
Net revenues     $ 220,312    100.0 % $ 255,022    100.0 % $ (34,710 )  (13.6 )%
Cost of goods sold    192,236    87.3    219,828    86.2    (27,592 )  (12.6 )
Gross profit    28,076    12.7    35,194    13.8    (7,118 )  (20.2 )
Selling    4,536    2.1    4,302    1.7    234    5.4  
General and administrative    5,160    2.3    4,537    1.8    623    13.7  
Operating income    18,380    8.3    26,355    10.3    (7,975 )  (30.3 )
Financial income    1,418    0.7    761    0.3    657    86.3  
Provision for taxes    6,641    3.0    9,536    3.7    (2,895 )  (30.4 )
Net income   $ 13,157    6.0 % $ 17,580    6.9 % $ (4,423 )  (25.2 )%
 
Diluted income per share   $0.40      $0.52        $ (.12 )  (23.1 )%
Fully diluted average
   shares outstanding    32,496       33,747       (1,251 )  (3.7 )%

Quarter Ended
Motor Home Deliveries:
  		May 27,
2006
May 28,
2005
(Decrease)
Increase
%
Change
Class A motor homes (gas)      782    1,058    (276 )  (26.1 )%
Class A motor homes (diesel)    341    561    (220 )  (39.2 )%
     Total Class A motor homes    1,123    1,619    (496 )  (30.6 )%
Class C motor homes    1,443    1,088    355    32.6 %
     Total deliveries    2,566    2,707    (141 )  (5.2 )%


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Net revenues for the quarter ended May 27, 2006 decreased $34.7 million, or 13.6 percent primarily as a result of the shift in product mix weighted more heavily towards lower-priced products, which resulted in an 11.0 percent decrease in our average selling price of motor homes when compared to last year’s comparable quarter. Also, unit deliveries decreased by 5.2 percent during the same comparable period.

Gross profit margin decreased from 13.8 percent in the third quarter of Fiscal 2005 to 12.7 percent in the third quarter of Fiscal 2006. The deterioration of margin was primarily due to the change in our mix to lower-priced products with lower margins and higher fixed costs per unit of production resulting from lower production volumes. Also, contributing to a lesser extent to the reduced margin was stock option expense recorded as a result of the adoption of SFAS No. 123R.

Selling expenses increased $234,000, or 5.4 percent, during the third quarter ended May 27, 2006. As a percent of net revenues, selling expenses were 2.1 percent during the second quarter ended May 27, 2006 and 1.7 percent during the quarter ended May 28, 2005. The increase in dollars was due primarily to stock option expense and an increase in sales employee incentive compensation costs.

General and administrative expenses increased $623,000, or 13.7 percent, during the third quarter ended May 27, 2006. The increase in this expense was due primarily to stock option expense.

Financial income increased $657,000, or 86.3 percent, during the third quarter ended May 27, 2006. The increase in financial income during the third quarter of Fiscal 2006 was due to a higher average interest rate earned on investments and a higher average short-term investment balance.

The overall effective income tax rate decreased to 33.5 percent for the third quarter ended May 27, 2006 from 35.2 percent for the third quarter ended May 28, 2005. The decrease was primarily a result of the domestic production activities credit of the American Jobs Creation Act and an increase in tax-free investment income.

Net income decreased by 25.2 percent and income per diluted share decreased by 23.1 percent when comparing the third quarter ended May 27, 2006 to the third quarter ended May 28, 2005. The smaller percentage decrease in income per diluted share was due to a lower number of shares of common stock outstanding during the third quarter ended May 27, 2006, as a result of shares of common stock repurchased by the Company. (See Note 10 of the Unaudited Notes to Condensed Consolidated Financial Statements for the periods ended May 27, 2006.)

Current Year-to-Date Compared to the Same Period Last Year

The following is an analysis of changes in key items included in the consolidated statements of income for the nine months ended May 27, 2006 compared to the nine months ended May 28, 2005.

Nine Months
(In thousands, except percent and per share data)
 		 May 27,
2006
% of Net
Revenues
May 28,
2005
% of Net
Revenues
(Decrease)
Increase
%
Change
Net revenues     $ 658,992    100.0 % $ 760,514    100.0 % $ (101,522 )  (13.3 )%
Cost of goods sold    579,432    87.9    655,995    86.3    (76,563 )  (11.7 )
 
Gross profit    79,560    12.1    104,519    13.7    (24,959 )  (23.9 )
Selling    13,714    2.1    13,420    1.7    294    2.2  
General and administrative    15,493    2.4    15,892    2.1    (399 )  (2.5 )
 
Operating income    50,353    7.6    75,207    9.9    (24,854 )  (33.0 )
Financial income    3,654    0.6    1,894    0.2    1,760    92.9  
Provision for taxes    18,580    2.8    27,406    3.6    (8,826 )  (32.2 )
Net income   $ 35,427    5.4 % $ 49,695    6.5 % $ (14,268 )  (28.7 )%
 
Diluted income per share   $ 1.08        $ 1.46        $ (0.38 )  (26.0 )%
Fully diluted average
   shares outstanding    32,937         34,065         (1,128 )  (3.3 )%


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Nine Months Ended
Motor Home Deliveries:
  		May 27,
2006
May 28,
2005
(Decrease)
Increase
%
Change
Class A motor homes (gas)      2,341    3,501    (1,160 )  (33.1 )%
Class A motor homes (diesel)    1,234    1,707    (473 )  (27.7 )%
Total Class A motor homes    3,575    5,208    (1,633 )  (31.4 )%
Class C motor homes    3,753    2,878    875    30.4 %
     Total deliveries    7,328    8,086    (758 )  (9.4 )%

Net revenues for the nine months ended May 27, 2006 decreased $101.5 million, or 13.3 percent, primarily as a result of an 9.4 percent decrease in unit deliveries. Net revenues declined at a higher rate than deliveries due to a shift in product mix weighted more heavily towards lower-priced products, which resulted in a 6.3 percent decrease in our average selling price of motor homes during the period.

Gross profit margin decreased from 13.7 percent during the first nine months of Fiscal 2005 to 12.1 percent in the first nine months of Fiscal 2006. The decline in margin was primarily due to the change in our mix to lower-priced product with lower margins and higher fixed costs per unit of production resulting from lower production volumes. Also, negatively impacting gross profit was stock option expense recorded as a result of the adoption of SFAS No. 123R.

Selling expenses increased $294,000, or 2.2 percent, during the nine months ended May 27, 2006. As a percent of net revenues, selling expenses were 2.1 percent during the period ended May 27, 2006 and 1.7 percent during the period ended May 28, 2005. The increase in dollars was due primarily to the recording of stock option expense as a result of the adoption of SFAS No. 123R.

General and administrative expenses decreased $399,000, or 2.5 percent, during the nine months ended May 27, 2006. The decrease in expense was due primarily to a reduction in management incentive compensation expense, partially offset by stock option expense.

Financial income increased $1.8 million, or 92.9 percent, during the nine months ended May 27, 2006. The increase in financial income during the first nine months of Fiscal 2006 was due to a higher average interest rate earned on investments and a higher average short-term investment balance.

The overall effective income tax rate decreased to 34.4 percent for the nine months ended May 27, 2006 from 35.5 percent for the nine months ended May 28, 2005. The decrease was primarily a result of the domestic production activities credit of the American Jobs Creation Act and an increase in tax-free investment income.

Net income decreased by 28.7 percent and income per diluted share decreased by 26.0 percent when comparing the nine months ended May 27, 2006 to the nine months ended May 28, 2005. The smaller percentage decrease in income per diluted share was due to a lower number of shares of common stock outstanding during the nine months ended May 27, 2006, as a result of shares of common stock repurchased by the Company. (See Note 10 of the Unaudited Notes to Condensed Consolidated Financial Statements for the periods ended May 27, 2006.)

ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY AND RESOURCES

We have historically generated substantial cash from operations, which has enabled us to meet our working capital needs and make appropriate investments in manufacturing equipment and facilities. In recent years, cash generated from operations has also enabled us to pay increased cash dividends and repurchase stock. Cash and cash equivalents totaled $15.4 million and $19.5 million as of May 27, 2006 and August 27, 2005, respectively. Short-term investments, consisting primarily of highly liquid investments, totaled $125.0 million and $93.1 million as of May 27, 2006 and August 27, 2005, respectively. Working capital at May 27, 2006 and August 27, 2005 was $184.0 million and $197.5 million, respectively, a decrease of $13.5 million. We have no long-term debt.


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Operating Activities.    Cash provided by operating activities was $89.8 million during the nine months ended May 27, 2006, or $13.3 million higher compared to the nine months ended May 28, 2005. The increase in net cash provided by operating activities was primarily attributable to a decrease in our finished goods and work-in-process inventories offset partially by lower net income.

Investing Activities.    The primary uses of cash for investing activities were for manufacturing equipment and facilities of $3.2 million for the nine months ended May 27, 2006 compared to $6.7 million during the nine months ended May 28, 2005. We purchased $150.5 million of short-term investments and received proceeds of $118.6 million from the sale or maturity of short-term investments during the nine months ended May 27, 2006. During the nine months ended May 28, 2005, we purchased $196.4 million of short-term investments and received proceeds of $143.5 million from the sale or maturity of short-term investments.

Financing Activities.    Primary uses of cash in financing activities for the nine months ended May 27, 2006 were $51.6 million for repurchases of the Company’s common stock and payments of $8.9 million in dividends. Primary uses of cash in financing activities for the nine months ended May 28, 2005 were $26.8 million for repurchases of the Company’s common stock and $7.1 million for the payment of dividends. (See Unaudited Condensed Consolidated Statement of Cash Flows.)

Stock Repurchases.    As of May 27, 2006, we have $28.4 million remaining under the April 12, 2006 Board of Directors authorization to repurchase up to $50.0 million of our common stock.

Estimated demands as of May 27, 2006 on our liquid assets for the remainder of Fiscal 2006 include $2.9 million for payments of cash dividends and $1.1 million for estimated capital expenditures, primarily for manufacturing equipment and facilities.

We currently expect our cash on hand and funds from operations to be sufficient to cover both short-term and long-term operational requirements.

COMPANY OUTLOOK

The RV industry is cyclical and susceptible to slowdowns in the general economy. RV industry sales have been characterized by cycles of growth and contraction in consumer demand, reflecting prevailing economic, demographic and political conditions that affect disposable income for leisure-time activities. Some of the factors that contribute to this cyclicality include fuel availability and costs, interest rate levels, the level of discretionary spending and availability of credit and consumer confidence. An extended decline in consumer confidence would materially adversely affect our business, results of operations and financial condition.

Revenues and net income for the quarter and nine months ended May 27, 2006 were negatively impacted primarily by lower motor home industry retail demand resulting in lower motor home deliveries as well as a continued shift in product mix weighted more heavily towards lower-priced products. The shift in product mix is occurring industry-wide. Based on statistics from the Recreation Vehicle Industry Association for the first four months of Calendar 2006, Class A motor home shipments decreased 19.9 percent while Class C shipments for the industry decreased only 4.8 percent for the same period compared to the first four months of Calendar 2005.

As evidenced by the following table, we continue to see a shift in the mix of products on order to lower-priced Class C motor homes.










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Order backlog for our motor homes was as follows:

As of
Units
May 27,
2006
May 28,
2005
(Decrease)
Increase
%
Change
Class A motor homes (gas)      408    566    (158 )  (27.9 )%
Class A motor homes (diesel)    148    123    25    20.3 %
Total Class A motor homes    556    689    (133 )  (19.3 )%
Class C motor homes    1,086    834    252    30.2 %
Total backlog    1,642    1,523    119    7.8 %
 
Total approximate revenue  
dollars (in millions)   $ 121.0   $ 116.5   $ 4.5    3.9 %
 
Dealer inventory    4,881    5,209    (328 )  (6.3 )%

We include in our backlog all accepted purchase orders from dealers scheduled 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.

Long-term demographics, however, are favorable for us as our target market of consumers age 50 and older is expected to substantially increase over the next 30 years. Additionally, according to a 2005 study conducted by the University of Michigan, the median age of motor home owners in 2005 is 54 compared to the median age of 59 in 2001, indicating that younger buyers are increasing their ownership of motor homes. The study also reported that more households own motor homes today than at any other time during the past 25 years.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

As of May 27, 2006, we had $140.4 million of cash and short-term investments consisting of $15.4 million of cash and cash equivalents and available-for-sale securities of $125.0 million. Taking into account the credit risk criteria of our investments policies, the primary market risk associated with these investments is interest rate risk and a decline in value if market interest rates increase. However, we have the ability to hold our fixed income investments until maturity or for the typical Dutch auction period (an average of 67 days) and based upon historical experience do not believe there are significant risks of a failed Dutch auction. Therefore, we would not expect a material adverse impact in income or cash flows in the event of an increase in market interest rates.

Item 4.   Controls and Procedures.

As of the end of the period covered by this report, our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rule 13a-15 (f). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Our management, including the Chief Executive Officer and the Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors or all fraud. A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud within the Company, if any, have been detected. These inherent limitations include the realities that


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judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that (1) any design will succeed in achieving its stated goals under all potential future conditions, (2) over time controls may become inadequate because of changes in conditions, or (3) the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls over financial reporting during the fiscal quarter covered by this report.


















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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Winnebago Industries, Inc.
Forest City, Iowa

We have reviewed the accompanying consolidated balance sheet of Winnebago Industries, Inc. and subsidiaries (the “Company”) as of May 27, 2006, and the related consolidated statements of income for the quarters and nine months ended May 27, 2006 and May 28, 2005 and the condensed consolidated statements of cash flows for the nine months ended May 27, 2006 and May 28, 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the condensed consolidated financial statements, the Company changed its method of accounting for share-based payments to conform to Statement of Financial Accounting Standards No. 123R effective August 28, 2005.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of August 27, 2005, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated November 10, 2005, we expressed an unqualified opinion on those consolidated financial statements.



/s/   Deloitte & Touche LLP

Deloitte & Touche LLP
Minneapolis, Minnesota
July 5, 2006








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PART II.   OTHER INFORMATION

Item 1.   Legal Proceedings.

  Reference is made to Item 3 (Legal Proceedings) in the Company’s Annual Report on Form 10-K for the year ended August 27, 2005 for a description of certain litigation entitled Jody Bartleson, et al vs. Winnebago Industries, Inc., et al. On April 12, 2006, the Company settled this litigation. The settlement had no material effect on the financial condition of the Company.

  We are also involved in various legal proceedings which are ordinary routine litigation to our business, some of which are covered in whole or in part by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to this litigation, management is of the opinion that, while the final resolution of any such litigation may have an impact on our consolidated results for a particular reporting period, the ultimate disposition of such litigation will not have any material adverse effect on our financial position, results of operations or liquidity.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

  On June 15, 2005, the Board of Directors authorized the repurchase of outstanding shares of our common stock, at the discretion of management, for an aggregate consideration of up to $30.0 million. In April 2006, this authorization was completed with an aggregate purchase of approximately 1,007,000 shares for an aggregate consideration of $30.0 million. On April 12, 2006, the Board of Directors authorized the repurchase of outstanding shares of our common stock, at the discretion of management, for an aggregate consideration of up to $50.0 million with no expiration date. During the third quarter of Fiscal 2006, approximately 751,000 shares were repurchased under this authorization for an aggregate consideration of $21.6 million.

  This table provides information with respect to purchases by us of shares of our common stock during each fiscal month of the third quarter of Fiscal 2006:

Period Total Number of Shares Purchased Average Price
Paid per Share 		Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans
or Programs
02/26/06 – 04/01/06      222,976   $ 30.73    222,976   $ 14,864,500  
04/02/06 – 04/29/06    590,170   $ 30.04    590,170   $ 47,133,400  
04/30/06 – 05/27/06    652,600   $ 28.67    652,900   $ 28,423,700  
         Total    1,465,746   $ 29.54    1,465,746   $ 28,423,700  

Item 6.   Exhibits

    (a)   Exhibits – See Exhibit Index on page 23.


21

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


  WINNEBAGO INDUSTRIES, INC.
(Registrant)
 
 
Date    July 5, 2006   /s/   Bruce D. Hertzke
 
  Bruce D. Hertzke
  Chairman of the Board and Chief Executive Officer
  (Principal Executive Officer)
 
 
Date    July 5, 2006   /s/   Sarah N. Nielsen
 
  Sarah N. Nielsen
Chief Financial Officer (Principal Financial Officer)












22

Table of Contents

Exhibit Index

15.   Letter regarding Unaudited Interim Financial Information.

31.1   Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated July 5, 2006.

31.2   Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated July 5, 2006.

32.1   Certification by the Chief Executive Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated July 5, 2006.

32.2.   Certification by the Chief Financial Officer pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated July 5, 2006.














23

Exhibit 15 to Winnebago Industries, Inc. Form 10-Q for the period ended May 27, 2006

Exhibit 15

Winnebago Industries, Inc.
Forest City, Iowa

We have made a review, in accordance with the standards of the Public Company Accounting Oversight Board (United States), of the unaudited interim financial information of Winnebago Industries, Inc. and subsidiaries for the quarters and nine months ended May 27, 2006, and May 28, 2005, as indicated in our report dated July 5, 2006; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended May 27, 2006, is incorporated by reference in Registration Statements No. 2-40316, No. 2-82109, No. 33-21757, No. 33-59930, No. 333-31595, and No. 333-113246 on Form S-8.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

Yours truly,



/s/   Deloitte & Touche LLP

Minneapolis, Minnesota
July 5, 2006







Exhibit 31.1 to Winnebago Industries, Inc. Form 10-Q for the period ended May 27, 2006

Exhibit 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Bruce D. Hertzke, Chief Executive Officer of Winnebago Industries, Inc., certify that:

  1.   I have reviewed this Quarterly Report on Form 10-Q of Winnebago Industries, Inc. (the “Registrant”);

  2.   Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

  3.   Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;

  4.   The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

    a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

    b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

    c)   evaluated the effectiveness of the Registrant’s disclosure controls and procedures and, based on such evaluation, presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period covered by this Quarterly Report; and

    d)   disclosed in this Quarterly Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

  5.   The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s Board of Directors:

    a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

    b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


  Date:    July 5, 2006   By:    /s/   Bruce D. Hertzke
   
 
  Bruce D. Hertzke
Chief Executive Officer



Exhibit 31.2 to Winnebago Industries, Inc. Form 10-Q for the period ended May 27, 2006

Exhibit 31.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Sarah N. Nielsen, Chief Financial Officer of Winnebago Industries, Inc., certify that:

  1.   I have reviewed this Quarterly Report on Form 10-Q of Winnebago Industries, Inc. (“the Registrant”);

  2.   Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

  3.   Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;

  4.   The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

    a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

    b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

    c)   evaluated the effectiveness of the Registrant’s disclosure controls and procedures and, based on such evaluation, presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period covered by this Quarterly Report; and

    d)   disclosed in this Quarterly Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

  5.   The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s Board of Directors:

    a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

    b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


  Date:    July 5, 2006   By:    /s/   Sarah N. Nielsen
   
 
  Sarah N. Nielsen
Chief Financial Officer


Exhibit 32.1 to Winnebago Industries, Inc. Form 10-Q for the period ended May 27, 2006

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

Bruce D. Hertzke, Chief Executive Officer, certifies that pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

  (a)   This Quarterly Report on Form 10-Q (“periodic report”) of Winnebago Industries, Inc. (the “issuer”), for the quarter ended May 27, 2006 as filed with the Securities and Exchange Commission on the date of this certificate, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

  (b)   the information contained in this periodic report fairly represents, in all material respects, the financial condition and results of operations of the issuer.


  Date:    July 5, 2006   By:    /s/   Bruce D. Hertzke
   
 
  Bruce D. Hertzke
Chief Executive Officer










Exhibit 32.2 Winnebago Industries, Inc. Form 10-Q for the period ended May 27, 2006

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

Sarah N. Nielsen, Chief Financial Officer, certifies that pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

  (a)   This Quarterly Report on Form 10-Q (“periodic report”) of Winnebago Industries, Inc. (the “issuer”), for the quarter ended May 27, 2006 as filed with the Securities and Exchange Commission on the date of this certificate, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

  (b)   the information contained in this periodic report fairly represents, in all material respects, the financial condition and results of operations of the issuer.


  Date:    July 5, 2006   By:    /s/   Sarah N. Nielsen
   
 
  Sarah N. Nielsen
Chief Financial Officer