CFA Institute Research Challenge

Hosted in Des Moines, Iowa

CFA Society Iowa University of Iowa – Undergraduate Team

Disclosures: Ownership and material conflicts of interest:

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any individual affiliated with CFA Society Iowa, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

CFA Institute Research Challenge

Research Analysts:

Adrien Voellinger

Caitlin Sullivan

Jianliang Chen

Shan Xiao

Siddig Siddig

Sector: Consumer Goods

Industry: Recreational Vehicles

Recommendation: BUY February 5, 2016

Winnebago Industries Inc. (NYSE:WGO)

University of Iowa Undergraduate Team

CFA Institute Research Challenge

Current Price: $17.15

Target Price: $20.60 INVESTMENT HIGHLIGHTS We issue a BUY recommendation for Winnebago Industries, Inc. (WGO) with a target price of $20.60 and a 20.12% price appreciation based on financial valuation models and drivers. Winnebago Industries Inc. (WGO) shows potential external and internal advancements due to positive economic forecasts and WGO management's growth strategies. This recommendation is primarily supported by these drivers:

Brand Name – The products offered in this industry are based off of price, quality, innovative features and brand loyalty. One of Winnebago’s strongest assets is its brand name due to its historical customer service, warranty package, quality and marketing. Winnebago is able to sell at a price premium by marketing themselves as putting the consumer's needs first in both customer service and product features.

Management – At the end of firm's 2015 fiscal year, WGO announced plans for western expansion and motorhomes specialization. The ability to expand or cut operating divisions and non-operating costs in accordance with market conditions is essential due to the cyclical nature of this industry demands skilled management.

Growth Drivers – The recreational vehicles (RVS) industry feeds off of the supply of excess spending money, an older consumer base and economic price levels due to the nature of producing a luxury good. Currently, the stock market is healthy as unemployment is low, and the growing aging population continues to purchase RVs.

Risks to the Investment Thesis – The risks to the recommendation come from internal operation issues and unforeseeable competitive substitutes. In the past, Winnebago had an issue with an excess capacity and a shortage skilled labor supply that limited its revenue stream but is in the process of eliminating these issues by specializing and reallocating resources.

RECENT NEWS AND DEVELOPMENTS In December 2015, WGO purchased a manufacturing complex in Junction City, Oregon, which will allow them to free up labor resources in Forest City, Iowa as well as increase its presence in the West as they focus on diesel motorhome production.

WGO appointed Michael Happe on December 21, 2015 as CEO and President of the

Company. Mr. Happe has been authorized to establish an office presence in the

Minneapolis-St. Paul metropolitan area. This can potentially provide for further expansion

outside of rural Iowa.

The first quarterly earnings report of the 2016 fiscal year reported an earnings per share of $0.348 which was lower than what was reported in preceding quarters. This caused the stock price to decrease by 12.97%. Despite the lower earnings, the gross margin increased by 90 basis points within the last fiscal year due to improved product mix, increased towable market share, and reduced worker’s compensation expenses. However, this was offset by labor manufacturing inefficiencies and unfavorable warranty trends (product recalls and customer satisfaction actions).

On December 16, 2015, the Board of Directors approved a quarterly cash dividend of $0.10 per share payable on January 27, 2016, to common stockholders of record at the close of business on January 13, 2016.

Stock Performance Highlights

52 Week High $24.73

52 Week Low $16.11

Beta Value 1.61

Average Daily Volume 20,980

Share Highlights

Market Capitalization 470.53M

Shares Outstanding 2,698,000

Book Value per share 9.03

EPS $1.53

P/E Ratio 11.42

Dividend Payout Ratio 23.50%

Company Performance Highlights

ROA 0.11

ROE 0.2

Sales $976.5M

Financial Ratios

Current Ratio 3.26

Debt to Equity 0

Source: Yahoo! Finance

WGO began to make to significant investments in internal improvements during Q2 2015 with two strategic initiatives:

o The Enterprise Resource Planning system implementation will replace the in-house financial and operational systems that will allow for supply chain optimization, lower overall operating costs, and access to more recent and relevant data to act upon.

o The second initiative, the Strategic Sourcing Project, has the goal of obtaining long-term material cost savings through standardizing purchasing processes, optimizing supplier relationships, and improving current sourcing methodologies. It is anticipated to expand the gross margin by 30 to 50 basis points by June 2016.

BUSINESS DESCRIPTION Winnebago (WGO) is a recreational vehicle manufacturer and distributor that produces high-quality motorhomes for outdoor recreational activities. It has been in the recreational vehicle industry since 1958 in Forest City, IA. Its product class includes Class A, Class B, and Class C motorhomes as well as travel trailers and fifth wheel towables. The company sells its products through an extensive dealer network across the United States.

Product Lines Motorhomes Motorhomes are self-propelled vehicles equipped with amenities and equipment to be used as temporary living quarters during vacations, camping trips, etc. They typically accommodate up to seven people and include a kitchen, dining, sleeping and bath areas as well as a possible lounge. The Recreation Vehicle Industry Association classifies motorhomes into three main categories: Class A, B, and C. Winnebago designs, develops, manufactures, and markets them under the Winnebago brand name. Currently, Winnebago’s motorhomes are produced at four different campuses within the state of Iowa. Motorhomes accounted for about 88 percent of total revenue in FY2015, with 45 percent from Class A, 8 percent from Class B, and 35 percent from Class C. About 20 percent of motorhome shipments in the US industry came from Winnebago in FY2015. Towables Towables are non-motorized vehicles designed to be hitched onto pick-up trucks, SUVs, vans, or other vehicles as a temporary living quarter for recreational travel. The Recreation Vehicle Industry Association classifies towables into four main categories: conventional travel trailers, fifth wheels, folding camper trailers and truck campers. Winnebago entered the towables market in 2010 by acquiring a towable manufacturer, SunnyBrook RV. Inc., based out of Middlebury, Indiana. This acquisition enabled Winnebago to manufacture and to sell conventional travel trailers and fifth wheel trailers. Winnebago's dealer network and customer base has boosted SunnyBrook RV. Inc's unit sales from 1000 units in 2010 to 2670 units in 2015. The revenue from towable sales accounted for 7 percent or $72 million in total revenue in 2015.

Business Strategy Expansion to Towable Market Currently, Winnebago targets customers that fall into two age groups through its product lines. The towable industry, which Winnebago possesses less than a one percent market share, is focused on the consumer pool that falls in between the ages of 35 and 45. This product would mainly be for weekend trips as the majority of owners still are part of the labor force. With less than one percent current market share in the towable line, and the release of sleeker, innovative, and affordable towables, Winnebago is poised to capitalize on the opportunity in the shifting demographical and age trends. The aging of the population will cause the largest population group alive, millennials, to shift into Winnebago's target range. Since 70 percent of motorized customers start in a towable, and the towable industry is approximately a $7 billion a year industry, the towable market is expected to grow at 11% annually until 2019. Given the strong brand name and good dealer network built up from motorhomes market, Winnebago can quickly grow its market share in towable market. Winnebago is ambitious in growing its towable market share from its current 1% share to 5% share in the future.

Cost Efficiency and Supply Chain Optimization Within a mature industry, Winnebago views the cost efficiency as the key to increase its profit margin. The implementation of the new ERP system can improve efficiencies,

Source: RVIA, Company Data, Team Calculations

Figure 1: Revenue by Product Class

Figure 2: Towable Unit Sales Comparison

Source: Company Data, Team Estimates

decrease streamline processes, and collect accurate and appropriate data for further strategic planning. The Strategic Sourcing Project is expected to be finished by June 2016 and will improve the supply chain management and lower the overall operating costs.

Industry-Leading Innovation and Marketing Winnebago has consistently spent approximately 4 million dollars each year on research and development to create new products and to improve existing product features. From appliances to room design, Winnebago has been providing the most technologically advanced and innovative motorhomes in order meet customers' needs.

Winnebago is also at the forefront of marketing. Its products have being shown more than 100 times in movies and TV shows since 1970s. The RV industry's first lifestyle website, first stunning 3D virtual reality product visualization are revolutionary media to market its products.

Quick response operation strategy to market demand Winnebago’s management has been actively changing its product mix to response the market move. The exit of the unprofitable bus and extruded aluminum production markets and the new facility in Oregon shows Winnebago's active production management to the changing market.

MANAGEMENT & GOVERANCE Winnebago’s Corporate Governance Policy was adopted by the Board of Directors to reflect the principles in which the Company operates. The Board of Directors is composed of nine members, with five meeting the criteria for independence required by the NYSE, the SEC, and the Company's Policy Regarding Nominations of Directors. Highlights of Corporate Governance include the following:

Committees - Established Audit, Human Resources, Nominating and Governance, and Business Development Advisory Committees assist in distribution of responsibilities (Appendix).

Code of Conduct - The Board of Directors has adopted a Corporate Governance Policy, a Director Nomination Policy, a Shareholder and Other Interested Party Communications Policy and written charters for its Audit, Human Resources, and Nominating and Governance Committees.

Code of Ethics - The Board of Directors implemented a Code of Ethics applicable to all of its directors, officers and employees and a Code of Ethics specifically for the CEO and the Senior Financial Officers.

WGO’s management team averages over 12 years of experience with WGO and holds .873% of shares. Michael Happe, the newly appointed CEO and President, previously served as Executive Officer and Group VP of Toro’s Residential and Contractor businesses. Over a span of 19 years, he has held a series of leadership roles across Toro’s domestic and international divisions. In 2015, Winnebago also saw two additional replacements to the management team, Vice President of Administration Bret Woodson and Vice President of Product Development Steven Dummett. Winnebago hopes to drive positive change and further growth with these recent changes as well as with strategic initiatives and an expansion of corporate presence to the Twin Cities Area. In order to attract and retain superior key employees, Winnebago provides competitive compensation. Their compensation package is designed to reward specific annual, long-term, and strategic goal achievement, with the core objective of improving shareholder value. More information about management and its compensation can be found in Appendix.

INDUSTRY OVERVIEW

Recreational Vehicle Manufacturing Industry Over the past few years, the recreational vehicle industry has shown recession market recovery and is showing strong potential growth due to increasing discretionary income together with an increasing consumer base as the aging population continues to grow in size. The industry revenue is expected to grow at an annualized rate of 3% each year over the next five years along with a GDP growth of 2.2%. Each firm differentiates itself based on price, quality, product features and brand loyalty. The average consumer in this industry owns 2.5 motorhomes as it is common for consumers to buy motorhomes, resell it on the secondary market and purchase another motorhome that better fits the consumer’s needs at that point in time. The key drivers

Source: Factset

Figure 4: Outstanding Shareholders

Figure 5: Executive Compensation

Figure 6: Dealer Distribution Network

Source: WGO 10K

Figure 3: Ownership Statistics

for success in this industry are having the flexibility to respond to cyclical market changes, offering new features and innovation to product line, and building an extensive distribution network.

Winnebago has exemplified flexibility to the historically cyclical RV industry as well as innovated its products with smarter designs and functionality and redeveloped its distribution channels. WGO altered its Class C distribution channels 3-4 years ago by changing its dealership territory. It went from having one dealer being in an area to allowing multiple dealers in one area. This created the opportunity to vest with others. Winnebago reported that it expects to continue to grow in 2016 through investing and rebuilding for future gains. The company expects moderate growth that aligns with the projected 3% industry growth. However, increased labor efficiencies and moderate improvements will help the company penetrate and expand within the market and achieve excess growth overall.

Demand Drivers Access to Credit and Lending Standards With an average 60% of purchases financing its vehicles, access to credit is a key catalyst for Winnebago and the RV industry. Access to credit has gradually recovered in recent years, leading to industry growth. The low federal funds environment provides an excellent opportunity for consumers to obtain loans from banks at lower rates. The historical trend between the increasing number of banks willingness to lend and the effective federal funds rate points to the potential risk a substantial rate hike could have on consumer’s ability to purchase RV's. On a positive note, we anticipate the Fed to only increase the target range from 0.25% - 0.50% to 0.50 % - 0.75%. This estimated 25 basis point increase may impact banks willingness to lend, but even at a decreasing rate, 80 months into our expansionary period an easing lending standard signals positive economic sentiment. We expect baby boomers and millennials to respond accordingly by continuing to spend a large amount of its income on discretionary items.

Consumer Price Index The Consumer price index is highly correlated with the automotive industry. As the dollar strengthens, and consumers grow in confidence, their discretionary purchases begin to pick up, stirring up demand for Winnebago. The positive correlation between expansionary periods, and the CPI points to a cyclical issue for Winnebago. 2016 YoY growth in the CPI index is projected to be 1.49%, with CPI growth ramping up the proceeding 4 years.

Discretionary Income IBISWorld expects economic indicators that drive disposable income levels to steadily strengthen over the next 5 years. A greater number of Americans returning to work combined with improved housing and stock values should make consumers willing to spend on purchases delayed during the recession. However, future growth will be tempered relative to the boom leading up to the subprime mortgage crisis. We believe this to be true because consumers beliefs' in ever rising housing prices and unsound lending practices that created the bubble will not be present to inflate the perception of organic growth. Job growth and lower savings will lead to macroeconomic improvements, as a result, per capita disposable income growth is expected to be stagnant at an average annual rate of 2.5% over the five years to 2020 (Figure 8).

Competitive Landscape The RV manufacturing industry has about 600 companies with some major players and the rest of small manufacturers. The market share concentration is low due to small manufacturers and operations attributing to 75% of the market revenue. The barriers for entry are still relatively high and capital driven. There is a high initial cost to enter the market with the need for specialized machinery, skilled workers and raw materials. The cost structure of this industry is based upon profit, purchases and wages. The industry is expected to increase profit due to better economic conditions and spending cuts. In 2015, profit went up from 3.1% to 4.9% due to these growth opportunities; however, the threat of regulation and increase cost of production continue to affect the industry.

Figure 8: Discretionary Income

Figure 7: Access to Credit

Repeat Purchases According to Winnebago's management, 33% of their buyers are first time, making 67% repeat buyers, with 70% of first time buyers starting in a towable product. The repeated buyers sell to the secondary market and purchase new motorhomes that better fits its needs. The shifting needs of consumers provides Winnebago and its diverse product mix with the opportunity to ramp up sales over the next 10 years as the largest population group by age shifts into its towable category's target age.

Industry Supply The manufacturing of recreational vehicles requires a significant amount of raw materials especially steel, wiring and insulation material. 65.2% of industry costs in 2015 came from operating expense purchases and steel accounts for the largest amount of input purchased for manufacturing. The concern is significant impact of the volatility in the price of steel which is caused by delayed responses and lack of differentiation. Furthermore, wages contributed to 14.8% of industry costs in 2015. The cost and quality of labor impacts the RV manufacturing industry, including Winnebago. This industry is very labor intensive however has limits on production due to the specialization of its products.

COMPETITIVE POSITIONING The key competitive advantage for Winnebago is its brand recognition. The brand name itself is one of the most important assets the company holds that puts them at an advantage against its lesser known competitors. Its brand name has been in television shows and movies and they have also received recognition of being the top selling motorhome brand each year since 1974. Winnebago also stated that it believes that it has an advantage when it comes to product quality and service after sale which has allowed the company to have a price premium on its products and to stand out from its market entry level priced competitors like Forest River owned by Berkshire Hathaway. Winnebago’s strongest competitor would be Thor Industries as it has similar competitive advantages as Winnebago including brand loyalty, product differentiation, and innovation. It differs from Winnebago in its manufacturing efficiency strength. Although Winnebago is one of the few manufacturers to maintain an automobile assembly line style of production, WGO faces issues with the high need of labor supply with a low yield output. Thor had a significant fluctuation in gross margin that has increased over 100 basis points since 2012.

Winnebago is positioned to grab market share in the Towable during 2016, with the purchase of a new facility on the west coast dedicated to motorhomes, mainly Class A diesel, to free up some recourses that can be allocated elsewhere. The increased capacity coupled with the release of several new sleek innovative towable products support our projects of its revenue growth in the Towable industry. Winnebago currently possess a 0.86% market share in the Towables space compared to Thor’s monopolistic 37%. We expect to see a mix of Thor’s, along with the other competitors’ market share diluted over the coming year led by Winnebago’s efforts to gain traction in the Towable market.

On the motorhome side, again we must bring up Winnebago’s new facility on the west coast. This facility will be dedicated mainly to the production of Class A diesel motorhomes. Currently, Winnebago is lagging behind in Class A vehicles compared to its closest competitor Thor. Winnebago motorhome sales accounted for 20% of all motorhome sales in the industry, compared to Thor’s 24%. Class C sold better than Class A, and Winnebago held a 23% market share for the Class C vehicles compared to Thor’s 22%.

Another way Winnebago differentiates itself is through its financial strength. Winnebago takes pride in not having any debt and will continue to avoid any future debt. This is a significant contributor to healthier financial statements along with its investment strategies. This includes implementing a new in-house ERP platform to support changing needs and future growth as well as cost savings for the long run through the optimization of purchasing, supplier relationships and external support. The company predicts this will create a 30 to 50 basis point increase in gross margin.

VALUATION Valuation Price Target: $20.60

Figure 10: Motorhomes Unit Sales Comparison

Figure 9: Five Forces Theory

Figure 12: Relative Revenue Analysis

Source: Team Data

Figure 11: Relative EV/ EBITA Analysis

DCF Model Revenue Growth Revenue forecast for Winnebago is broken down into two dimensions: unit sales and ASP for each motorhome class and towable type. Trends and announcements disclosed in Winnebago's earlier 10K and 10Q reports combining with RV industry outlook are incorporated in this revenue forecast model. The forecast of unit sales growth for Winnebago is mainly driven by the motorhome production expansion and the large potential market share gains in towables.

Unit Sales The industry unit shipments of motorhomes for 2016 is estimated to be 48,600, which is still 14.81% lower than the 1988-2008 pre-recession average of 55,800. This indicates the growing potential unit shipments of motorhome industry in next 3 years. Speaking of Winnebago, its present motorhome production is challenged by the limited capacity. Unit deliveries of Class A in particular that has been dropped from 927 to 751 units in the first quarter of 2016 compared to last year due to the limited motorized labor capacity. The purchase of production facility in Junction City, Oregon on November 20, 2015 is expected to ease its stress from capacity limitation by the second half of 2017 so that the production of both Class A and Class C will be able to catch the favorable trend in motorhome industry.

The 49.45% increase of total towable unit sales of Winnebago in Q1 2016 compared to Q1 2015's sets the solid base of continual growth in towables market for the other three quarters in Fiscal 2016. Also, Winnebago is ambitious on expanding its market share in North American towables market from current 1% to 5% in the future. This reinforces our belief that the Winnebago is positioned to rising its shares in the towable market in next 5 years. Looking forward, we estimate towable revenue for WGO to increase 17% in 2016, and 12% in 2017. Expect to see WGO grab its anticipated market share quicker than usual if growth plateaus at Thor, or they were to divert its efforts away from towables.

ASP (Average Selling Price) ASP of every product category in motorhome increased in Fiscal 2015. However, due to the decreased unit sales of higher priced Class A products and rising unit sales of Class B and Class C, the ASP of total motorhome decreased in Fiscal 2015 about 1.7%. Total motorhome ASP is expected to not be rebounded till Fiscal 2018 since the facility in Junction City, Oregon will be fully in production in that year.

ASP of total towables is projected to decrease since the growing unit sales of lower priced travel trailer is very likely to continually outperform the growth of relatively higher priced fifth wheels in later quarters of Fiscal 2016.

Weighted Average Cost of Capital (WACC) Winnebago has no interest bearing debt, which makes its cost of equity as its only component of current WACC. As Winnebago is not anticipating to change its capital structure, our WACC calculation maintains the assumption of PV of operating lease as only debt source, which is relatively small amount comparing to equity. In Beta calculation, 10-Year weekly stock price of WGO were run into linear regression with S&P 500, since 10 years’ period provided a better reflection in correlation with the market in boom and bust cycle. To calculate Cost of Equity by using CAPM, Implied Equity Risk Premium of the market on January 2016 with trailing 12 months data was used in calculation. The risk free rate represented the forecast of increasing 10 year treasury rates during 2016. In Cost of Debt, We assume Winnebago has BB to BB+ rating, since Winnebago has similar market cap with Arctic Cat Inc.

CV Growth Rate

RV industry is relatively stable and high competitive, we expect Winnebago CV growth

rate will be 3% that similar to industry growth rate.

Figure 15: Towable Revenue

Table 1: WACC

Source: Team Data

Figure 14: WGO Total Revenue

Figure 13: Total Unit Sales

DDM Model

Winnebago suspended its quarterly dividend payments since the second quarter of

Fiscal 2009 to conserve capital and reinstated on the first quarter of Fiscal 2015.

Winnebago raised its quarterly dividend from 0.09 per share to 0.10 per share in

FY2016. We believe Winnebago will continually increase its dividend per share slightly

as its strategy prior to 2008 crisis. The average 5-year forecasted dividend payout ratio

is 23% with range from 21.2% to 24.2%. After discounted by the cost of equity, DDM

suggests the intrinsic value of WGO is $19.00 as of 2/5/2016. Due to suspended

dividend payout in last 5 years, and less informative policy, dividend discount model

could be underestimated.

Relative Valuation In relative analysis’s peer group, Thor Industries has similar product line as Winnebago but focusing more on towable market instead motorhome. Due to dramatic differences of the market capital between Winnebago and Thor Industries, several related companies, such as company in special vehicle suppliers, recreational vehicle and outdoor entertainment, are added. Average P/E multipliers in peer groups are 12.43x in 2016 and 11.15x in 2015 and these leads intrinsic value of $19.93 for WGO, which is 16% premium.

FINANCIAL ANALYSIS

Financial Flexibility Winnebago has a superior financial flexibility as shown from its historical liquidity ratios. With its current ratio closed to 3x and more than 1x in its quick ratio, Winnebago had excess cash holdings to be able to respond any unexpected expenses. In the meantime, no interest bearing debt was used to finance Winnebago. That indicates Winnebago can be easily increase its leverage for any good investment opportunities or the survival during the tough economic conditions.

DuPont Analysis We forecast Winnebago's ROE to be 18.71% in 2016 and 16.96% in 2020 respectively. The profit margin is expected to gradually increase from 4.48% to 5.21% in next 5 years. One is because the company is actively shifting from producing lower profit margin products to higher profit margin products. The termination of lower profitable bus and aluminum extrusion operation in Fiscal 2016 will help increase the higher margin motorhome production and thereby increase profitability. In addition, the new ERP system will support supply chain optimization and then decrease overall operating costs. This 3-year project is estimated to cost $12-16 million, with 40% of cost being expensed and 60% being capitalized. Also, Winnebago is involved in a strategic sourcing project which is expected to be done by June 2016. This project is anticipated to increase company's gross margin by 30 to 50 basis points. Both total asset turnover and equity multiplier in 2020 are lower than 2016's. This is consistent with our assumptions of no additional financing from debt and company’s

Source: Team Data

Figure 17: P/E Projections

Figure 18: ROE Breakdown

Source: Team Data, Bloomberg

Figure 16: Cash Flow Analysis

conservatism on excess cash holdings in next five years. If Winnebago decides to expand its business operation by financing with debt or spend its excess cash holdings on generating more sales in the next 5 years, equity multiplier and total asset turnover will increase and drive ROE to be higher than our current forecast.

INVESTMENT SUMMARY Investment Positives Favorable Product Mix shift The expansion in towable market can not only grow the total revenue of Winnebago in a faster rate, but also make the company less subject to the economic outlook. This is because towable sales are more stable compared to motorhome sales in the way that the average retail price of towables is about three times less than motorhome's. Even during the recession, customers can still make its towable purchases with its disposable income.

Financing The 60% of Winnebago's purchases are financed, leaving 40% of buyers paying with cash. The interesting part here being the divide in products being financed compared to products bought with cash. The most expensive vehicle, the Class A Diesel with and average selling price of $196,000, is purchased with cash, as the 60+ generation can usually afford to pay more upfront.

New Facility Winnebago introduced the purchase of a facility on the west coast this past quarter (Junction City, Oregon) to produce select class A diesel vehicles. New class A Diesel sells, for the most part, to the 60 plus age group, which makes up more than 50% of Winnebago's customer base. The added capacity should ramp up production will eliminating the need to rationalize specific production slots.

Financial Positioning Improvement & Reestablishment of Dividend Payout Winnebago's EPS had rebounded from the Great Recession since Fiscal 2011 with $1.54 per share, but it had not reinstated its quarterly dividend payments until four years later. Winnebago's conservatism is actually a good sign indicating its less risky management as well as its strong belief of high EPS in the future as of Fiscal 2015. Winnebago’s earning per share is expected to increase from $1.53 in Fiscal 2015 to $2.48 in Fiscal 2020. Along with the EPS growth, we forecast dividend per share to be $0.56 in Fiscal 2020 compared to $0.36 in Fiscal 2015. Investment Concerns Labor Shortages RV manufacturing industry is labor-intensive. Winnebago had faced labor shortages in 2014-2015, which affected its production on Class A products. If the unemployment rate is going down, Winnebago as well as the whole RV manufacturing industry will be negatively affected. Labor shortages limit Winnebago’s ability to increase motorized production volumes at a more rapid pace even if motorized demand justified increased production.

New CEO Winnebago's new CEO, Michael Happe will not be required to relocate to Forest City, IA and has been authorized to set up an office presence in the Minneapolis-St. Paul metropolitan area. The company claims this is not a headquarter move but only an expansion with the intention of providing leadership with the strategic and intellectual resources for successful growth and returns. Winnebago hasn't provided any additional details regarding its plans. If a relocation is due, it could bring high costs and risks to the company.

INVESTMENT RISKS Operational Risk Revenue Dependence 32.9% of revenue in 2015 came from two dealer organizations. The loss of either dealer could have a material negative effect on Winnebago. The deterioration in the liquidity or creditworthiness of either or both of these dealers could negatively impact sales and could trigger repurchase obligations under Winnebago's repurchase agreements. Capacity Issues

Figure 19: Population Forecasts

Figure 20: DPS & EPS Comparison

Figure 21: New CEO

Source: Company website

Source: Team Data

Winnebago suffered a loss of revenue due to hiring constraints and operating at capacity. WGO estimated they would need 20% population increase to meet expected demand over the coming years, although these issues have been addressed through the acquisition of its west coast facility that is estimated to increase production 33% by 2017. Economic Risk Cyclicality and Seasonality The cyclical nature of the RV industry leaves Winnebago at exposure to decline in revenue during the winter months, with a ramp in demand in the spring and summer months. There is typically a decline in RV sales during contractionary periods because it is a discretionary consumption area; although, when the market is down, oil is usually down, which makes these gas guzzlers that average 5-8 miles per gallon more attractive at a lower price. Oil Price Not only do high oil prices effect the cost of gasoline, but high oil prices also effect the home heating oil, manufacturing and electric power generation. Oil prices are seasonal, as is the RV business. Sales and Oil prices go up in the summer driven by high demand for gas during vacation times, while sales and oil prices tend to dip in the winter months. Limited Financing Options Substantial increases in interest rates or decreases in the general availability of credit for our dealers or for the retail purchaser may have an adverse impact upon our business and results of operations. Winnebago is impacted by the availability and terms of the financing to dealers. Generally, RV dealers finance its purchases of inventory with financing provided by lending institutions. Three financial flooring institutions held 67% of our total financed dealer inventory dollars that were outstanding at August 29, 2015. In the event that any of these lending institutions limit or discontinue dealer financing, WGO could experience a material adverse effect on its operations. In April 2015, General Electric (“GE”), announced its intention to sell the majority of GE Capital, including GE Commercial Distribution Finance, a major provider of floorplan financing for RV dealers. The ultimate outcome and impact of a sale or divestiture of GE Capital by GE is currently unknown.

Other Risks Anti-takeover effect Provisions of Winnebago's articles of incorporation, by-laws, the Iowa Business Corporation Act and provisions in credit facilities and certain compensation programs that WGO may enter into from time to time could make it more difficult for a third parties to acquire Winnebago, even if doing so would be perceived to be beneficial by the shareholders. The combination of these provisions effectively inhibits a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of WGO's common stock.

Figure 22: Oil Projections

APPENDIX Appendix A: CEO Profile

On December 21, 2015, Winnebago Industries, Inc. (the “Company”) announced that Michael J. Happe, age 44, was appointed as the President and CEO of the Company, in addition to being named to the Board of Directors. Mr. Happe started working for Winnebago and officially joined the Board of Directors on January 18, 2016. Mr. Happe joins Winnebago Industries from The Toro Company (NYSE: TTC) headquartered in Bloomington, Minnesota, where he most recently served as an Executive Officer and Group Vice President of Toro’s Residential and Contractor businesses. A 19-year veteran of Toro, he held a series of senior leadership positions throughout his career across a variety of the company’s domestic and international divisions.

Michael Happe received his Masters degree in Business Administration from the University of Minnesota and a Bachelor of Science degree from the University of Kansas. Mr. Erickson will stepped down as the interim CEO which took place upon Mr. Happe’s start date, but Mr. Erickson will stay in his role as Chairman of the Board.

Appendix B: Unit Order Backlog

Our unit order backlog was as follows:

We believe that the level of our dealer inventory at the end of Fiscal 2015 is reasonable given the improved retail demand and current sales order backlog of our product. A key metric used to evaluate dealer inventory levels is the retail turn rate (12 month retail volume/current deliver inventory). At the end of Fiscal 2015 the retail turn rate was over 2.2 turns which we feel reflects the alignment between retail demand and our dealers' inventory.

Source: Winnebago 10K.

Appendix C: Historical Performance and Recent Events

0

5

10

15

20

25

30

35

40

45

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

WGO Share Prices & News

Acquisition of SunnyBrookManufacturing Inc.

Dividend payout ended

Dividend payout reinstated

Stock buybacks

New CEO announced

Began exit of transit and aluminum

Beginning of no debt

2008 financial crisis

Appendix D: AGING POPULATION

The aging population of the United States will help continue to feed the well-established consumer base of

motorhomes.

Source: Administration for Community Living (ACL).

Appendix E: RV Industry Cost

The RV manufacturing industry is cyclical, which can hurt revenue and could be detrimental to the business.

However, 56.1% of the industry costs are manufacturers purchasing supplies to produce the vehicles that have been

ordered by the dealers. The ability to have the power to only produce what is ordered allows WGO, and other

competing firms to keep inventory shortages minimal.

Appendix F: Projected CPI

Appendix G: Product Line Description

Product Line Description

Mo

torh

om

es

Class A Diesel

Average Price (AP): $196,073 Unit Deliveries (UD): 1,105

Constructed on a medium-, and heavy-duty truck chassis, Winnebago designs and produces living areas and driving compartments for Class A motorhomes. Product Offerings: Ellipse, Ellipse Ultra, Forza, Grand Tour, Journey, Meridian, Reyo, Solei, Tour, Via

AP: $96,949 UD: 2,337

Refer to Class A Diesel. Require gasoline fuel. Product Offerings: Adventurer, Brave, Sightseer, Suncruiser, Sunova, Sunstar, Sunstar LX, Tribute, Vista, Vista LX

Class A Gas

Class B

AP: $75,575 UD: 991

Class B motorhomes are built on a Mercedes or Ram panel-type van chassis. Sleeping, kitchen, and toilet facilities are added as well as an option for more headroom with an extension. Available in gas and diesel. Product Offerings: Era, Travato

Class C

AP: $73,895 UD: 4,664

Class C motorhomes are build from ground up off of a Mercedes, Ford, or Ram van chassis. With access to the drivers compartment, Winnebago constructs all of the living area. Available in gas and diesel. Product Offerings: Aspect, Cambria, Minnie Winnie, Navion, Spirit, Trend, View, Viva!

Tow

able

s

Fifth Wheel

AP: $50,399 UD: 488

Fifth wheel trailers have a raised forward section and are connected to vehicles with a special fifth wheel hitch. Product Offerings: Voyage, Latitude, Destination, Scorpion

Travel Trailer

AP: $21,781 UD: 2,182

Conventional travel trailers are towed using a hitch attached to the frame of a vehicle. Product Offerings: Minnie, Micro Minnie, Ultralite, Spyder

Appendix H:

Each Non-Employee Director receives an annual retainer of $38,000 payable monthly, plus reimbursement of

expenses incurred in attending Board and committee meetings. The Lead Director, Audit chair, and other committee

chairs received an additional $5,000, $10,000, and $5,000, respectively. Additional fees for chairs include $1,200 per

day for meetings and $500 per telephonic meeting. The Company also awarded a restricted stock grant of 3,000

shares to each Non-Employee Director during FY15, which were valued at $21.93 per share, the closing date on

October 15, 2015.

Appendix I:

Director Fees Earned or

Paid in Cash Stock Awards Total

Irvin Aal1 $ 53,100 $ 65,790 $ 118,890

Robert Chiusano 53,100 65,790 118,890

Jerry Currie 48,100 65,790 113,890

Lawrence Erickson 58,100 65,790 123,890

William Fisher 15,567 -------- 15,567

Robert Olson1 14,734 65,790 80,524

Martha Rodamaker 48,100 65,790 113,890

Mark Schroepfer 58,100 65,790 123,890

1Irvin Aal and Robert Olson have retired from the Board of Directors and have been replaced with new members

Christopher Braun and David Miles in December 2015. Mr. Braun is a management consultant with over 30 years of

leadership experience. Mr. Miles is a financial advisor, entrepreneur, and investor with senior leadership experience

in private equity and venture capital. Newly appointed CEO Michael Happe has also joined the Board of Directors.

Appendix J:

Committee

Nominating and

Governance Audit Human Resources and Administrative

Business Development

Advisory Christopher Braun

Robert Chiusano X Chairperson

Jerry Currie X X

Lawrence Erickson (Chair)

X Chairperson

William Fisher

Michael Happe

David Miles

Mark Schroepfer Chairperson X

Martha Rodamaker X X X

Appendix K: Management & Board

18 total members, average age of 56 years, 8 years is average tenure, 1.333% insider owned

Appendix L:

Source: FactSet

Name Position Tenure WGO History

Michael Happe, 44

President & CEO

<1 >President & CEO since December 2015

Mr. Happe began his career with WGO on January 2016 as President & CEO after 19 years of tenure with Toro. At Toro, he served as Executive Officer and Group Vice President of their Residential and Contractor businesses. There he was able to build a track record of success with incredible performance in brand and product management. Mr. Happe is committed to delivering world-class financial results to the shareholders.

Sarah Nielsen, 43

VP, CFO 10 >VP, CFO since November 2005 >Director of Special Projects and Training in 2005

Mrs. Nielsen joined the company in August 2005 as Director of Special Projects and Training and was promoted to VP, CFO 3 months later. From 1995 to 2005, she was employed at Deloitte & Touche LLP, with the most recent position of Assurance and Advisory Services Senior Manager since 2003. Her extensive knowledge helped WGO continue its compliance Section 404 of the Sarbanes-Oxley Act as she accepted this position.

Scott Folkers, 55

VP, General Counsel & Secretary

5 >VP, General Counsel & Sec since 2012 >Assistant general counsel from 2010 to 2012

Mr. Folkers worked as in-house counsel in Sioux Falls following his role as an associate attorney. He was hired by WGO in 2010 as assistant general counsel. A member of the Iowa Bar Association, Mr. Folkers has proven to be a very able and talented corporate attorney.

Bret Woodson, 45

VP, Administration

1 >VP, Admin since 2015

Mr. Woodson holds over 22 years of business and human resources experience with Corbion, Sara Lee Corporation and the City of Prior Lake. He is currently responsible for ensuring effective support for the needs of employees, customers, and shareholders.

Daryl Krieger, 53

VP, Manufacturing

32 >Vice President, Manufacturing since May 2010 D>irector of Manufacturing from 2009 to 2010 >General Manager – Fabrication from 2002 to 2009

Starting off as a Part Standardization Administrator in 1984, Mr. Kreiger rose through the ranks, holding various manufacturing and engineering supervisory positions, until he was elected as VP of Manufacturing in 2010. His true passion and wealth of knowledge with the company make him well fit to handle WGO’s manufacturing needs.

Steven Dummett, 60

VP, Product Development

38 >VP, Product Development since 2015 >Design Engineering Manager from 2010 to 2015 >Project Engineering Coordinator and

Mr. Dummet joined the company in 1977 as a Detail Draftsman. He brings extensive design experience as he leads motorized product development and related activities. He holds the longest tenure with WGO and continues to help drive positive change and further growth.

Product Designer before 2010

Steven Degnan, 51

VP, Sales & Product Management

3 >VP, Sales & Product Management since 2012

Beginning his tenure in 2012, Mr. Degnan brings almost 25 years of RV sales and product management experience to the table. Prior to WGO, he served as VP of sales for MVP RV.

Appendix M:

Director Salary Stock Awards Incentive Plan Compensation

All Other Compensation Total

Michael Happe1,2 $ ---------- $ ---------- $ ---------- $ ---------- $ ----------

Randy Potts3 463,936 328,950 ---------- 315,526 1,108,412

Sarah Nielsen 287,370 231,677 59,074 8,660 586,781

Scott Folkers 253,380 219,378 52,087 8,983 533,828

Bret Woodson1 ---------- ---------- ---------- ---------- ----------

Daryl Krieger 247,200 213,680 50,817 7,909 519,606

Steven Dummett1 ---------- ---------- ---------- ---------- ----------

Steven Degnan 295,611 237,010 60,769 5,375 598,765

1Mr. Happe, Mr. Woodson, and Mr. Dummett’s salaries are unavailable as they joined Winnebago later in 2015. 2 Mr. Happe’s Employment Agreement provides a compensation package with a base salary of $550,000, signing

bonus of $330,000, stock grant on his start date of 10,000 shares with 1/3 vesting each year over three years, and

stock option grant on his start date of 10,000 shares with 1/3 vesting each year over three years. 2016 incentive

bonus will be targeted at 100% of base pay with a maximum of 200% of base pay. Long-term incentive bonus will be

targeted at 100% of base pay with a maximum of 150% of base pay. 3 Randy Potts is the former Chair, CEO, and President of Winnebago. He retired in August of 2015. During 2014, he

received a salary of $478,000, stock award of $328,950, incentive bonus of $506,437, and other compensation of

$5,101, for a total of $1,578,578.

Appendix N: SWOT ANALYSIS

Appendix O: Corporate Structure

Appendix P: Unit Sales Analysis

2015 RV Unit Sales Comparison

Source(s): RVIA, Winnebago 2015 10K, and Thor’s 2015 10k.

Unit Sales by Product Class 2013-2020:

Winnebago Industries, Inc.

Public Company

SunnyBrook Manufacturing,

IncSubsidary

Winnebago Health

Management Co.Subsidary

Winnebago of Indiana LLC

Subsidary

Appendix Q: Ownership Structure

(

118%

-20%2%

Ownership Type

Ownership (Institutional)

Ownership (Retail & Other)

Ownership (Insider)

CAPITALIQ / ThompsonOne

Appendix M: BUSINESS LOCATIONS

Winnebago along with its leading competitors have production located in Indiana. However, there is a high amount

of established recreational motorhome vehicles within the Midwest in comparison to the population. With the

announcement of the new CEO, Winnebago opened a new manufacturing establishment which will help penetrate

the market as the West has a higher population than motorhome establishments.

Appendix N: SEASONALITY OF STOCK PRICE

As is

evident

below, in

the 2015

ROE

Appendix O: Financial Analysis (Charts)

Decomposition of WGO and a few selected competitors, WGO possess a stronger ROE relative to competitor DW,

and a similar ROE in comparison to close competitor THO. PII's 49.5% ROE is impressive and can be attributed to high

sales, high assets combined with a well managed lowly kept stockholders equity, which keeps its financial leverage

and profit margins high. WGO manages its financial leverage by keeping assets high in relation to average equity.

WGO's higher than comparable asset turnover keeps its ROE up, and helps reduce the impact of the low profit

margin.

Appendix P:

The forecasted population graphs reflect a positive and extremely attractive opportunity for the RV industry ahead.

With the towable market targeted population being those under 45, the 5% increase from 2015 to 2020 in the 25 to

45 age group supports our projected revenue growth for Winnebago's towable line. The motorhome age population

tells a more optimistic story with a 19.72% increase in age population from 2015 to 2020.

Appendix Q: