Michael Happe - President and CEO Sarah Nielsen - VP and CFO Don Heidemann - Treasurer and Director of Finance

Craig Kennison - Robert W. Baird Gerrick Johnson - BMO Capital Markets Mike Swartz – SunTrust Seth Woolf - Northcoast Research David Whiston – Morningstar Mathew Paige - Gabelli & Company Morris Ajzenman - Griffin Securities

Good day, ladies and gentlemen, and welcome to the Winnebago Fourth Quarter 2016 Earnings Conference Call. At this time, all participants have in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder this conference call is being recorded. I would now like to turn the conference over to Don Heidemann, Treasurer and Director of Finance. Sir, you may begin.

Thank you. Good morning, and welcome to Winnebago Industries’ conference call to review the Company’s results for the fiscal 2016 fourth quarter and full year, which ended August 27, 2016. Conducting the call with me today will be Michael Happe, President and Chief Executive Officer and Sarah Nielsen, Vice President and Chief Financial Officer. This call is being broadcast live on our website at investor.wgo.net and a replay of the call will be available on our website at approximately 1:00 PM Central Time today. The news release with our fourth quarter earnings results was posted on our website earlier this morning. If you have any questions about accessing this information, please call our Investor Relations department at 641-585-6160 following today’s conference call. Certain statements made during today’s conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties. As a result, the Company cautions you that forward-looking statements are inherently uncertain and a number of factors, many of which are beyond the Company’s control, could cause actual results to differ materially from these statements. These factors are identified in our filings with the Securities and Exchange Commission over the last 12 months, copies of which are available from the SEC or from the Company upon request. With that said, I would now like to turn the call over to our President and CEO, Michael Happe. Mike?

Thank you, Don, and good morning everyone. Hope you are all well. We spoke with many of you last Monday, October 3, about the definitive purchase agreement that Winnebago Industries has signed to acquire Grand Design, one of the industry's fastest growing RV companies. Later in the call and certainly probably as part of the Q&A, we will provide some additional color as to our progress since that announcement toward the close of this deal late in our first quarter. We have spoken with many industry stakeholders about the Grand Design acquisition and almost all have validated that it appears to be a strong cultural and strategic fit for both parties. We are extremely excited that it will also be a financially accretive opportunity for Winnebago’s shareholders. I will start with an overview of the key drivers of Winnebago’s fiscal 2016 fourth quarter and full year, and then our CFO, Sarah Nielsen will follow by diving deeper into the details of our financial results. We are pleased that in our fiscal fourth quarter, Winnebago’s revenue, gross margin, and net income all improved, driven by an internal climate of positive change and renewed determination by our employees to return this company's market and financial results to higher levels in the future. Let's dive into each of these areas. Concerning revenues, our towables business continues to gain momentum with each and every month and quarter. Towables’ wholesale deliveries and retail registrations both improved more than 50% for the quarter. Our product line continues to evolve positively and we are focused on expanding our dealer network in terms of both quantity and quality of channel partners. We are especially seeing strong end customer demand for our travel trailer lines, specifically the many branded products. On the motorized side, revenues also increased as our wholesale deliveries increased 3% year over year in the quarter, due to continued strong demand from the channel and our Class B and C product lines. Continued increased focus on higher levels of manufacturing output also translated to more efficiency in our motorhome shipments. Total revenue improved in the fourth quarter despite Winnebago’s exit in our aluminum extrusion OEM and bus operations, both of which had previously lower margins. However I will speak directly this morning to two areas of our business that stand out in terms of areas for improvement in the future; class A motorized shipments and our overall motorized backlog. We continue to have both self-imposed, but also market imposed pressure on our Class A shipments. We anticipate fiscal 2017 to be a year where the opening of our new manufacturing facility in Junction City, Oregon and the subsequent freed up capacity in our Forest City, Iowa campus, can materially loosen the production constraints around our Class A line. We have chosen to manage our Class A production to ensure balance with the momentum of our Class C products. There is work to do though on the market side. We have been releasing new competitively priced floor plans of our opening price Vista line in recent weeks, and will continue to tweak and improve that product brand’s offering, including another new model which we will showcase in Louisville. Internally and concurrently, our product management and engineering resources are hard at work on multiple future new Class A series that should make Winnebago significantly more competitive in both the Class A gas and diesel categories. We are distinctly aware of the market share dilution occurring currently, especially on the lower end of the space, but we are also committed to providing our end customers and dealers a new Class A gas offering that while it competes for increased volume, also adequately represents our reputation for quality and desire for future innovation and differentiation. Now, while not a material factor on our recent fiscal 2016 fourth quarter motorized shipments, we are undoubtedly focused on improving upon the motorized backlog position that you all saw at the end of August. The recent Open House event for RV dealers in Elkhart, Indiana several weeks ago, provided a significant step forward on this topic as both of our sales teams motorized and towables exceeded our pre-event dealer order targets. More than 10 all new motorhome and towable models and or floor plans were on hand as we displayed the whole of our lineups to our dealers. Our towable backlog remains strong as of today and our motorized backlog position has improved substantially with 50% more orders in hand today than at the end of August 45 days ago. Gross profit improved for the fourth consecutive quarter due to product mix, improved manufacturing utilization, continued benefits from our strategic sourcing initiative, and the transition out of the defunct businesses previously mentioned. We continue to believe that there is upside and runway on future gross profit improvement for Winnebago due to planned product line improvements, continued sourcing traction, and especially operational excellence initiatives that are just now getting launched. In recent calls, we have focused the 4 strategic initiatives that consist of a combination of immediate impact items, as well as investments which should set the stage for more accelerated success in the future. We continue to spend significant energy and dollars on the implementation of a new ERP system. Our strategic sourcing initiative has been extended into our towables business, and is now working more closely with our product design and development functions as well. We are making important strides with the work needed to ramp up output from our new Oregon manufacturing and service facility. In fact pilot units are rolling off the Oregon assembly line in this past fourth quarter and currently, and we expect to see significant production volume in the back half of our fiscal 2017 year. And lastly, we will continue to make the changes and investment necessary to expand our company's presence in the towables segment of the RV industry. In addition to the strong results, our own Winnebago branded towables division is now delivering. The announcement of our agreement to acquire Grand Design, validates our intention to be a stronger, full-line RV manufacturer. Now I will turn the call over to Sarah Nielsen, who will review our fiscal 2016 Q4 financials in much more detail. Sarah?

Thanks Mike, and hello everyone. Year-over-year fourth quarter operating income improved 11.7% and net income increased by 12.2% on a 4.9% improvement in revenue. The improved bottom line result was in part driven by a fourth consecutive quarter of gross margin expansion. Revenues improved year-over-year as a result of higher overall volume, partially offset due to the exit from aluminum extrusion sales, which negatively impacted our fourth quarter revenue by $5.4 million. We continue to see strong results from our towables group where revenues grew 16.6% over last year. As noted in our earnings release this morning, towable unit volume increased over 57%, and motorized unit volume increased 3%. The increased motorized volume primarily relates to our heightened focus on higher manufacturing throughput, as motorhome revenues grew over 6% in the quarter. Motorhome ASPs improved in the fourth quarter, as we saw improved mix in our class B and C units. Both class C and class B categories experienced a 10%-plus improvement in ASPs in the fourth quarter. From a towable standpoint, ASPs declined in the fourth quarter compared to the prior year. Our results increased demand for the lower priced units, in particular our Winnie Drop product line. Fourth quarter gross margin expanded approximately 90 basis points year-over-year due to improved overall product mix, which includes our exit from aluminum and extrusion product sales. We also benefited from a strategic sourcing project in the quarter and favorable warranty trends. Our efforts to increase internal unit trail unit inspection and streamline our product quality processes are starting to have a positive impact on warranty expenses. Fourth quarter operating expenses increased due to higher selling and advertising expense, in part due to increased marketing costs, as well higher G&A expenses related to increased bonuses compared to the prior year. Increases in other costs such as professional fees and personnel related costs were primarily offset by costs related to a retirement agreement with the company’s former CEO that occurred last year. The overall effect of income tax rate for the fourth quarter of fiscal 2016 was essentially flat compared to the same period in fiscal 2015. For the full year, the overall effective income tax rate was 31.3% compared to 30.8% last year. In fiscal 2017, we anticipate a higher effective tax rate, a range of 33.5% to 34.5% when considering the accretive impact of brand design to our overall consolidated result. Moving to our balance sheet and cash flow, I would like to highlight that cash generation from operations is up 17% year to date, primarily related to improved working capital. As a result, we ended the year with a cash balance of over $85 million, up over $15 million from a year ago. Towable backlog grew over 98% year over year on a unit basis, driven by an expansion of our distribution base and new products. However motorized unit backlog decreased year over year, influenced by several factors similar to what we have previously discussed. As a reminder though, we began the fiscal fourth quarter with a little over 1,500 units in motorized backlog and delivered over 2,400 units within the quarter. This is a similar cadence to what we experienced in the motorized business pre-recession. Our time for sales ordered to invoice has decreased and we are meeting our dealers’ needs in a more timely manner. Within both motorized and towables, we continue to believe that there is an alignment between retail demand and our dealer inventory as well. Before I turn the call back over to Mike, I just wanted to review the transaction costs associated with the acquisition of Grand Design. We incurred $355,000 of related transaction expenses in our fourth fiscal quarter, which reduced EPS by approximately $0.01. We are estimating that the total transaction expenses will be approximately $18 million in fiscal 2017. At this point in time, it appears that approximately $6 million to $7 million would be expensed in Q1 of fiscal 2017. The remainder of the expenses will be primarily associated with debt financing and amortized over the timeframe of those associated agreements that we put into place. This concludes my review of our quarterly financials, and I’d like to pass the line back over to Mike.

Thanks, Sarah. As we close the books on a productive fiscal 2016 year, we're already underway obviously in fiscal 2017. My remaining comments this morning will focus first on several of the important seeds of change that have been planted in the last nine months, and secondly, some further thoughts on the Grand Design announcement and integration activity ahead. Working with our board of directors, our executive leadership team and with many key employees throughout the organization, we recently unveiled a new vision statement for Winnebago Industries. While most successful organizations have this already in place, Winnebago in fact did not have such a document that could serve as the North Star for our work ahead in the years to come. The seeding of common language around purpose, vision, mission, values and guiding principles is candidly foundational work that must be and now has been done for the whole of our team to be aligned in the future about how we will treat each other and serve our customers. We will be focused on helping our customers explore the outdoor lifestyle, enabling extraordinary experiences as they travel, live, work and play. This new vision provides a strong base for future growth and highlights the passion our Winnebago employees have for their craft, the dedication of our channel partners to exceed customer expectations and the loyalty and zealotry our end customers have for our brand, and for the outdoor lifestyle. No organization can reach its ultimate potential without the right leadership team and chemistry in place. We have been very pointedly and diligently upgrading, repositioning and adding new talent on the executive leadership team here at Winnebago. Our work continues on this front, but we are pleased to date with the moves made. Scott Degnan has made the move internally to our towables leadership position in Indiana and has begun to make further necessary changes to strengthen that business. We have invested in focused general manager leadership within our motorhome division and added a talented experienced senior executive in Brian Hazelton, to focus and lead our upcoming resurgence in that core category. Our investment in a VP for strategic planning and business development, Ashis Bhattacharya, has already paid off with the pending addition of Grand Design to the portfolio. Within the last several weeks, our latest DLT addition, Vice President of Operations and Manufacturing, Chris West has begun and immediately started prioritizing a long list of operational excellence opportunities that are present here. And lastly, we are nearing the final stages of our search for a new Chief Information Officer, who will not only help bring home the ERP implementation project, but as importantly, provide functional leadership in building the data driven decision making culture we aspire to, and will work with our product management and engineering teams in the future to create a more connected customer experience. Leadership matters and we will not rest until we have the right talent in place across the whole of the business model to compete for ultimate leadership in the industries that we compete in. Our recent investments in an operational assessment of our manufacturing and supply chain competencies and a brand health assessment have also been completed. Now, the hard work begins. Both assessments provided rich feedback about what we do well, but also what we can do better. On the operation side of our business, while a leader in the RV industry in terms of the quality of the products being produced, we have untapped levels of capacity, quality, efficiency and employee satisfaction that we will immediately begin work on. Concerning the brand study, we have validated that indeed Winnebago is the best known brand in the RV industry, and has significant goodwill with customers in terms of reliability, quality, safety, and trust, much of it due to our outstanding legacy and the hard work of our employees. But as we become more precise with our marketing and product segmentation efforts, we must ensure that our flagship brand is both relevant and alluring to customers across the whole of the RV demographic spectrum, and that we have unique positions of differentiation that are communicated, and most importantly valued. 2017 should bring some fresh new strategies as to how we tell our Winnebago brand story. My final comment on our organic activity has to do with our renewed focus on dealer relationships, and bringing stronger new products new to market. While possessing some of the best sales people in the RV industry, it has become apparent to me that senior leadership at Winnebago can do a much better job in supporting those sales teams, by forming stronger, more strategic relationships with our important dealer partners. We will look for more intimate opportunities to listen to dealer principals, sales managers, and service leaders. We will work to ensure they trust our commitment to this industry, and our passion for improving our business, by providing products and services that enhance their bottom line as well. Winnebago was late to the product management model within the RV industry, and we're really just now beginning to gain some momentum with these leaders and their teams in driving differentiated new products to the market. The Winnebago Paseo is the latest addition to our market leading class B line up. Built on the Ford transit van chassis, the Paseo further elevates our company's class B product offerings, featuring off the grid camping capabilities, and an innovative floorplan. New floorplans within our Forza diesel product series are also gaining momentum, and improving our value based diesel options. The Winnie Drop 170K is Winnebago’s newest entry to our retro teardrop travel trailer lineup. It features an outside kitchen and an easy to pull lightweight design. Available in several exteriors colors, the Winnie Drop matches as well to almost any tow vehicle out there. The Minnie Plus is also a new line up of travel trailers, which already includes the Micro Minnie and the Minnie Lines. Now, moving on to the acquisition of Grand Design. We covered many details surrounding this transaction on our call last week, and in several one on one discussions that followed. Today, we’d like to further focus on the business strategy, market reaction, and integration related to this opportunity. Earlier on in my tenure with Winnebago, it became apparent that we needed to both accelerate the growth of our towables business, and explore any consolidation plays that were available to be made. However, we were always committed that the deal must be right culturally, strategically and financially. By acquiring the fastest growing manufacturer of towable RVs in Grand Design, we will immediately enhance our product penetration in the towable segment with a suite of some of the industry’s strongest towable floorplans. Winnebago has the whole game scale, possesses a broader catalog of products, and mitigates a bit of cyclicality pressure to do a much more balanced portfolio in terms of motorhomes, versus towable sales. From a brand perspective, we have added the hottest set of product labels in the towables category, and a legitimate complementary brand in Grand Design that has miles of runway. From a talent perspective, we are gaining some of the best operators in the entire RV industry. They will bring a tremendous amount of expertise, passion, and additional unique points of view to our key leadership team. Their care for each other and their customers, is similar to that of Winnebago. And financially, the acquisition should result in new topline growth opportunities, immediate enhancement of our margin profile in fiscal 2017, and bottom line accretion that will benefit both the shareholder, but also the business. Now we're moving toward the close of this transaction in a managed, yet expeditious manner, paying particular attention to the financing structure and the details of our future balance sheet. Our teams have been in constant contact with our dealer networks, clarifying the anticipated benefits and highlighting what will or what won't change in our go to market strategies. The specifics of our integration approach are evolving. We will initially be focused on the areas of finance, HR, IT and sourcing in the first 90 to 100 days. Both employee bases are excited and the Winnebago team is preparing for how we best support and continue to empower Don Clark and the Grand Design business team and their unique business model in the years ahead. The annual RVIA show in Louisville is less than 50 days away and it will be great to see two strong brands in the convention center that will contribute strongly to our enterprise’s future. So that's probably enough for now. Before we head into the Q&A, I would like to end by thanking our employees in Winnebago for handling so professionally all the change that has been thrown at them in the last nine months. All is intended to be change in the right direction. We also very much look forward to welcoming Don Clark, Ron and Bill Fenech and the entire Grand Design team to the Winnebago family in November. Thanks for your time this morning and I will now turn the line back over to the operator for any questions.

Thank you. [Operator Instructions] Our first question will come from Craig Kennison at Robert W. Baird. Your line is open.

Good morning. Thanks for taking my questions and for the thoughtful comments on the call here. I wanted to start with the backlog. I think you said your orders were up 50% following Elkhart. I'm wondering if you can translate that into a backlog metric that would help us with our model.

Good morning, Craig. This is Mike. Yes, I did state that since the end of August, we have improved our backlog position around 50% versus that August 2016 number that we shared in the release and that is primarily a function of the activity at the Elkhart Open House. It puts us very comparatively to the backlog position that we had roughly a year ago at this time. The numbers continue to be fluid every day as we run the business. We have some West Coast retail shows going on as well, where we're engaging some of our larger dealers on the West Coast. But we feel better about the backlog position on motorhome improving, but very candidly we continue to have significant work to do to make sure that that backlog is consistently healthy throughout the whole of the year. We did change some of the timing around how we collect orders within the last 12 to 18 months. We skipped the national dealer meeting. Our presence in Elkhart has been evolving at the Open House event. So some of that has some impact on the timing of the numbers, but we're again pleased to report that we're in much better position today, but we aspire to be even stronger in the future.

Thanks for that and I know that production capacity has been somewhat constrained for a variety of reasons, but you do plan to ramp in Oregon and do other things to increase capacity. Is there any way for you to I guess measure the increase in your capacity in fiscal ‘17 as Oregon ramps up in the second half? And then when that's fully ramped, what your capacity might look like in 2018.

Thank you for that question as well. That is probably an answer that is evolving in terms of the mix of products that we intend to make and maybe I'll try to be as transparent as possible about some of the activities. Obviously the Oregon plant should add significant capacity that currently is target for diesel at this time. I think we've referenced that -- now, this isn't necessarily the demand number, but I think we've referenced approximately 500 units of production annually that we can get to in that facility without too much problem. Now that’s not all incremental because as you know, some of the diesel product was already being made in Iowa. What's exciting though is as we talked about in the past, that facility is a much better facility for us to do work in the 45 foot segment of the diesel category, which we've largely been absent from in the future. We intend to backlog certainly the hours and labor in Forest City. That will be a mix of class A gas and class B products. Those come at different price points and certainly the unit capacity would depend on some of the market demand. The last thing I'll note is with our increasing class B growing business that we are working very diligently on class B capacity expansion as well, and we feel that we can do a lot of that within our existing facilities in North Iowa, specifically at Lake Mills and with Charles City, and we don't believe there's a significant capital investment that's needed to continue to grow our class B business. So I apologize for not being able to give you a hard number. That’s evolving right now and with a new VP of manufacturing and operations joining us, that’s certainly a topic we're going to be spending a lot more time on to understand what our runway is within those facilities that I just mentioned.

Thank you. And again looking at fiscal 2017, do you see any changes to your rental volume, or the cadence of that volume that you would call out?

Not particularly, Craig. Our relationships with our rental customers continue to be very solid. We continue to work with them on the products that are necessary for them to drive more business on their side as well. But at this time, I can tell you that there’s significant change ahead in terms of that segment of our business. It’s been healthy. It’s been growing. We appreciate those partnerships, and so we will continue to work on giving them the products they need to grow. I know several of the rental companies in North America continue to look to expand their presence. Not all of those rental companies have presence especially some of them on the East Coast as an example, and you'll probably see some more of that from their end, which undoubtedly would flow to us we hope with some increased demand in the future, but that timing for their expansion is really up to them.

Thanks, and the last one for me just on the brand health assessment you referenced, very interesting color there. I'm wondering if there was a sort of a demographic dimension to your study and whether brand perception is different, or the opportunity is different among millennials, gen X or boomers.

Thanks for that question. That certainly was a part of the scope. This is probably a topic that we’ll be able to share some more details on in the future. We've just really digested the qualitative and quantitative research. Now, obviously we're going to keep a lot of that confidential so we can work on the strategies that we think are advantageous to us. Maybe here is [indiscernible] I’ll answer the question this morning. The Winnebago brand is definitely very healthy with our traditional core customers, those being especially those baby boomers. It probably would not be surprising for you to hear and others that we’re probably not quite as strong with those customers that A, are in the towables market, and B that are probably a little bit younger. Now, that doesn't mean that our brand awareness is deficient, but the study really looks at a whole number of factors about what our brand means to different demographics and different segments. And yes, you can probably infer through my comments in the script that we will be trying to make sure that our brand is relevant and appealing to customers across the whole of that demographic segment. We are very pleased that the RV industry is attracting a younger buyer and that those buyers are using our products for different lifestyle choices, like more outdoor activities, biking, hiking, kayaking, all of that, and we intend to make sure that our brand is relevant to those especially younger, more active customers. I think our class B position has certainly helped us as a fast mover in North America there, but yes, we did look at that and we have work to do across the board, but we want to make sure we're very relevant to the younger customers.

Great. Thank you.

Thank you, and our next question comes from Gerrick Johnson at BMO Capital Markets, your line is now open.

Hey, good morning. So in the last few months the SSI data shows the acceleration of industry retail in the year-over-year basis from say double digit to mid-single digit. Do you think this is a permanent deceleration? What might explain? And also can you talk a little bit more about your retail in the quarter? I think you mentioned towables, but I'm not sure if I caught what you said about motorized. Thank you.

Certainly. First I guess when we talk about where we are from an industry standpoint, and looking at that survey, in the month of August, this was recently released, so we're still digesting that information from an external perspective. But if you look at a rolling 12 month basis, big picture you have retail and wholesale very much in staff, which first and foremost we think is an important element of some having the retail pull through on the wholesale side. On their seasonality elements of that, that play out during the course of the year, but on a rolling 12 month basis we're seeing that it in line. So a lot of numbers are certainly going to have an impact on a percentage increase, notably in the towables side because how large the market is and how much growth there has been. But we think that there is significant opportunity for us on a number of different fronts, be it with the market growth or with us executing and taking share. Specifically on the retail registration, we touched upon this. The strong numbers that we saw from a towable standpoint. From a motorized standpoint inside the quarter based on our internal retail staff, we were down slightly, a little over 4% inside the quarter and for the year we are flat. When you break that apart, it’s very similar to some of the key things that Mike touched upon. We’re seeing success in the Bs and Cs and the softness on the A side and there's a lot of activity on that front for the teams incorporated in the motorized side B working on and they are to make a difference on a go forward basis

Great. Thank you for that, Sarah. And just a couple more. How long a time period are we looking at for the financing costs to be amortized over, maybe ballpark?

We’re looking at -- between the two different arrangements that we’re underway on the ABL side, it’s a five year time frame and the term B would be seven years.

Okay, good. One more. On the tax rate, why does the tax rate go up when $75 million worth of tax assets was the reason or part of the reason for -- Not a big reason, but part of the reason for the Grand Design acquisition?

That’s a good question. The tax assets that we purchased is deductible for tax purposes, but it does not affect our effective overall rate from a GAAP perspective. So we get that cash tax deduction each year, but it's rate neutral. So over the course of time, we will actually be establishing a different tax liability as that close through and when we get that deduction. So when you put that aside and that being rate neutral in of itself, the fact that we're going to be adding the accretive element of Grand Design to the overall operations drives up the pretax number and that has an impact of our existing permanent deductions as a larger percentage of the overall base, driving the rate up to some degree. So that is the more technical answer as to why, but a very good question.

All right, thank you Sarah. Thanks.

Thank you, and our next question will come from Michael Swartz of SunTrust. Your line is now open.

Good morning everyone. Just wanted to follow up on Craig’s first question. Just to clarify, I think you said, Mike that kind of currently as we sit backlog on motorhome is kind of flattish year over year. Is that the way to look at it coming up with open house?

Morning. It varies day to day. So we're not comfortable probably getting into a future trend of giving you a backlog update at every earnings call as of that particular day. These things are very fluid. I mean they vary day to day, week to week. I would say I’d have to look at this morning's numbers, but as of yesterday as I said, we had improved significantly since the end of August and we were around last year's last number. We’re probably not all the way there, but I mean it's not -- if the backlog at the end of August was down, I think it was 35% or whatever that number was. I mean we’re at the right direction versus climbing back to even versus a year ago. And again, as Sarah noted in her comments, backlog in the various industries can be both good and bad. Backlog certainly can signal a strong demand for your products. At the same time, as many of you know who cover other companies in other sectors, too high of a backlog can be a function of some manufacturing challenges capacity wise, and so it’s a balance. I didn't necessarily like the imbalance we had it the end of August. Timing wise it was good. We had the open house in Elkhart in September. The teams put on a nice show there and were able to gather the orders on both sides, motorized and towables that we were looking. Towables backlog position is very strong, and so the teams are very focused on that. At the same time, as we improve our manufacturing efficiency, as Sarah indicated, we will be sort of less dependent within the quarters on the backlogs that we report, because we’ll also be capturing retail orders consistently, and filling those as well with either the inventory that we have, or the future production within that quarter. So it's an important metric. I know everybody looks at it. We do too, and we don't want to discount it when it doesn't look favorable for us. We also don't want to overly emphasize it when it does look favorable. It's something that we certainly look at with our sales teams and we're pleased to say this morning that the trend is better as of today.

Thanks for the color, but I guess the reason I'm asking is just given there were some shift in dealer facing events this year, I'm trying to figure out how do we look at this on an apples to apples basis? And from the standpoint, I think Craig touched on it, just modeling going forward. I mean should we see a material change in kind of the cadence of your wholesale shipments throughout the year relative to the years prior? Will it look materially different?

No, I don't think the shipment cycle -- again remember that's obviously largely determined by retail demand. The shipment cycle probably -- I mean it won't be dramatically different in fiscal 2017 from fiscal 2016. I think your comments are right in the sense of there are industry events. Obviously there's been some competitive consolidation are going to make some of the backlogs apples to oranges within the industry. We'll see that on the towable side too in the future with Grand Design. At the same time we are looking at some changes in the cadence of how we collect orders. The national dealer meeting that this company had historically held annually before I arrived at the company and we did not have one this year, in 2016, but we reserve the right to bring that back in the future as we work on strength and relationships with our dealers. If we do that, I don't necessarily want that to be just an order writing event. I want to work on some things that are very important to our dealers and how they're successful, but if we brought that back, that would potentially be something that would potentially influence the timing on some orders too, so good question. I wish I could answer it specifically, but we're really just trying to make sure it's healthy enough for the retail demand and the shipment demand that we see ahead of us

Okay, thanks for the color there, and then just a couple questions for Sarah. One, I think you kind of called out in terms of the gross margin improvement in the quarter, warranty was a positive there. If I go back the prior few quarters, it looks like warranty has been a headwind of 50 basis points year to date going into the quarter. Was there any kind of one time or any kind of accrual reversal of the accrual in the fourth quarter that we should look at as more onetime in nature, understanding that you probably accrue at a lower rate going forward as well?

Part of it is a comparison in relation to last year. We really saw an elevated level of warranty spend a year ago in our fourth quarter and there was a recall we also expensed and accrued for in Q4 2015. And so that was really probably the beginning of some escalated warranty expenses that we've been talking about for the past few quarters, and a lot of efforts were put into place to improve upon quality, our processes et cetera. And we knew it wouldn’t immediately change in the light of the tail on that can take place from a warranty perspective. And so I think it's multifaceted on a really higher amount a year ago, and also we're seeing some of the fruits of the efforts that we put in the past, this past year.

Okay, and did you have a warranty number for the full year that you’d share with us or wait for the 10K?

We're going to be filing our 10K next week actually on Tuesday. On a year-over-year basis warranty is up for the year, so we’re in that 1.7% approximately annually.

Okay, great. And then just with regards to the ERP, I didn’t hear you break out the ERP expense for the fourth quarter. I assume there were some costs in there and then I guess how should we look at that going forward into 2017?

Yes. We certainly continue along the journey from an ERP standpoint. It was fairly similar to last year same quarter in relation to the expense flowing through from a DNA standpoint, so it wasn't a significant delta. But we expense approximately $1.4 million in Q4 related to ERP, in addition to capitalizing and investing from the standpoint of some of the capitalizable costs. And when we look into this next fiscal year, we're still looking to have ERP costs part of fiscal 2017. The objective is that we're going to finalize all the last pieces of this inside of this next fiscal year. But the key -- I guess the key comparison is it’s very similar to a year ago. And when you look at 2016 in total, we've expensed approximately $5.9 million inside the year, which was in comparison to 2015 up quite a ways. We were up at $2.5 million in 2015, and those are all the expensed elements of it. There's an additional amount that we've capitalized on to the balance sheet. So our cumulative investment in this project is approximately $19.5 million over the past few years. Mike Swartz - SunTrust: And did I hear you say for ‘17 the amount that will be expensed will be similar to the ‘16 level or the ‘15 level?

We're still going to be in the first part of ’17 probably at a higher level as the last pieces of it are worked through. As we have more information each quarter, we’ll continue to give an update. But from a modeling standpoint, I think Q1 and Q2 of fiscal ‘16 would be comparable numbers to be using for modeling purposes. Mike Swartz - SunTrust: Okay, wonderful. That’s helpful. Thank you.

Thank you, and our next question comes from Seth Woolf at Northcoast Research. Your line is now open.

Thank you. Thanks for taking my question. Sarah, I was wondering just really quickly, could you repeat the numbers you were giving on the AFP that had a tough time keeping up and then that was for fourth quarter, not the full year, correct?

Correct. I just gave a little bit of color from a really high level perspective. On the motorized side, we saw our AFPs grow inside the quarter. It was up approximately 4%. And on the towables side we saw our AFPs drop on really a mixed shift because of the Winnie Drop product line. And so that was in the -- is in excess of 20% probably I think in the 26% range. When we file our K next Tuesday it will have all the annual numbers and that will be available and shared in that regard. But motorized specifically, one of the highlights I noted was in the Class B and C categories. That was where we saw the significant increase inside the quarter compared to last year.

Did you say it was 10% for each of them or?

Yeah.

Okay. That’s what I was kind of looking for. All right, thank you. And then Mike, just a couple of quick questions, first the dealer event. I think referenced it a couple of times, didn't have it this year. Where are you in terms of bringing it back possibly? Can you handicap how likely it is going to -- the chance of it coming back are, number one? And number two, if it did come back, would it be in the same timeframe, I don’t know, what is it, April, May?

Good morning Seth and thanks for the question. It's tough to put probably any certainty around that. Part of the challenge for me is, I’ve only been a part of this company for roughly nine months now and don't have the history that the others do here about those events. Certainly I'm familiar with those type of events from a previous career. I have asked the team to take a look at that and make a recommendation to me as to whether at this point in time we think it would be a productive event to have. But I've also been very clear with the team as to the type of event that I would be looking for in the future. I can tell you right now we have made no decisions about whether to have a dealer event in the future. But if we were to make a decision on that event, we'd certainly have to communicate the timing especially to the dealers. Again, that’s part of my learning curve to understand when the best time. I think we’ve historically had it in the spring time period. As I’m getting used to the cadence, we’ll wait for the team’s recommendation on that on whether we choose to do that this year and or at some other point in the future. I will tell you we are spending a significant amount of time, especially those of us that are new to the company and the industry, at gaining credibility and trust with the dealer community and letting them know that we’re certainly committed to protecting what’s working well at Winnebago, but we are also going to be impatient about the things that can be improved in the future. While a dealer meeting is sometimes viewed as a big event and I’m sure as you are asking what would be expense related to that and timing, if it generated any orders, there are other means to obviously strengthen our dealer relationship as well. We’ll let you know if we make a decision at some point in the future, but as of right now we have not made a decision on that yet.

Okay. Thank you very much. And then Mike, last one from me if I can stick one more in. This has do with the overall, the dealer environment inventory levels. I think if you back out the impact of the rental orders, retail registrations, we are looking at three straight quarters of decline and then you have the inventory up at the end of the year 6.7%. I know there’s a lot of moving parts with the mix and production capacity and everything else, but I was just wondering if you could talk maybe qualitatively about your view of the dealer inventory, dealer network and the health. Thanks.

Thank you for the question, Seth. I’ll share some thoughts on that. We pay attention to that very carefully, both the macro number but also the field inventory numbers by model and the ageing inventory. We are happy to report that we are not seeing any significant negative trends in ageing inventory within our dealer base, which is probably a comment that is helpful for you all on the industry health as much as Winnebago. I’ll give you a little color on the field inventory size specific to some of our classes. As you might expect, our inventory is down in the field on the class A size in part because our retail is down. The dealers are unfortunately at times with certain models probably choosing to stock a competitive model until we get our lineup stronger and can compete for that position in their lots again. As I look at our class A line, I’m not dismayed by the amount of inventory out there relative to our retail trend. I wish it was higher because our retail -- I wish our retail was higher. The class B and C is really where the increase in inventory is in the field, but it’s very specific to some of the new models that we’ve been bringing out here recently. We’ve been excited about a product called the Travato in class B. Our retail is just fantastic on the Travato and our inventory is up significantly on the Travato as our dealers embrace that. There’s some hype still to some degree there as they are gaining confidence in that product’s prospects in the future. The class C side, again it really goes back to what’s retailing well. Our View and Navion products have retailed very well in fiscal year ’16 and at the end of ’16, the inventory was up there as well. Now, to be clear, we want to keep inventory in the field certainly in that -- we’ve stated before that minimum two tons range and we’d like for that to be closer to two and a half over time. It has not fallen below two by any means. We like that field inventory has creeped up on negative retail and macro, well not really but then we have to go into the details and look at where it’s happening and I feel more comfortable when I look at where it’s happening. We want the dealers to have great turns with Winnebago products. We want them to make increasingly better margins we hope in the future on Winnebago products. We’ll be watching both of those metrics carefully in the future. Good question because right, it is up a little bit and we are watching that because as you know, at some point that can get stagnant on you if that rise is too far ahead of retail.

Okay. Thanks for the color.

Thank you. Our next question will come from the line of David Whiston at Morningstar. Your line is now open.

Thanks. Good morning. First I wanted to go to Mike. You made some comments towards the end about how senior leaders could do more to work with your sales team. I think that was in regards to dealer relations, and I was a little surprised to hear that because I thought your dealer relations were excellent. Is there some kind of negative feedback you're getting from your dealer network that’s caused you to say that?

I would tell you a couple of things. One, I do think our overall dealer relationships are good in total. Our sales teams, the folks that have served our dealers for years on the sales and service side are doing an excellent job and I just want to be clear. Thank you for your question. I want to be clear, I don't think our dealer relationships are in a bad position at all. I will tell you though, I think they can be stronger and we are hearing from our dealer base that they would like more access to senior management, that they would like senior management to be more in touch with their goals and their business and relative to potentially past leadership, myself and I think some of the others that we're adding, but also some of the existing folks, we are being very conscious right now about listening and gaining the trust and credibility with the dealers leadership teams especially. So for me it's more of a good to great type movement. I think they’re in a really good shape right now. We’ve reinstituted some practices which -- dealer councils and the like, which we think can be really effective in the future at listening to their needs and then creating strategies that address those. So I don't want to speak for our dealers. They can do that themselves, but I want them to know and I certainly want our employees to know that we're going to be relentlessly focused on listening to not only our end customers’ needs and problems, but our dealers’ needs and problems as well because our competitors probably do a very good job of it and we have to compete for their trust and their time, and ultimately their lot space.

That's helpful. Thank you. And in light of Grand Design being a pretty big transformative deal, are you still looking for some more really big acquisitions soon or you think this gives you plenty to handle?

Well, this is a significant play obviously. In our company's history, there's been nothing that’s come anything close to it and we are very focused on two things in the short term. One, certainly welcoming and appropriately integrating the Grand Design business into the Winnebago family. We are quite respectful of the uniqueness of their model and what's different about them from some of the other choices brand wise in the market. We're going to do everything we can to balance Don and his team at Grand Design driving their differentiated model to the market, but also looking for some appropriate synergies and best practices that can help our enterprise as a whole. The other thing that obviously we're going to be focused on is appropriate deleveraging in the future. The leverage that we're taking on the balance sheet is significant. And while we are cautiously optimistic about the stability of the RV market here for the next several years, we think it's appropriate to our shareholders, but also candidly to put ourselves back in position maybe to invest organically, but also compete non-organically in the future. We think we need to put appropriate prioritization on deleveraging with the cash flow that will be generated from the new consolidated company. And so again, we're always going to keep our eyes open as to what's out there because there are deals that are small that you could potentially make, but I just want everybody to be rest assured that we're going to be very, very focused on doing this Grand Design deal in the right way for the market, but also for our balance sheet.

And that actually ties in well with my last question which was, I know debt is going to come down per your slide deck from the other week, but it sounds like maybe we should not expect a debt free balance sheet long term anymore. Is that fair?

Well, that was really a question that I received in the first week or two. I was introduced to many of you in the financial community. I would tell you that certainly a big debt free balance sheet is not all bad. I mean it was very helpful to the company when the recession hit in 2008 and 2009. Sarah, Don and their colleagues did a tremendous job helping the company ultimately survive. That being said, I'm not sure zero is always the right answer. It's more obviously how you're using the debt to grow your business profitably. I think there's probably -- with different leadership periods, there's probably maybe a different opinion on that, but I can tell you it's not one which is overly aggressive. I mean I’m respecting the cyclicality of the industry here. I have participated in seasonal and cyclical industries in my career in the past and we will very carefully in the future hopefully make sure our balance sheet has the ability to survive significant market or industry recessionary events.

Okay. Thank you very much.

Thank you. And our next question will come from Matthew Paige at Gabelli & Company. Your line is now open.

Good Morning. My first question relates to Grand Design. Could you speak to your expected growth trajectory and as you look out at post close?

Good morning, Matthew, by the way and thanks for the question. We are obviously working here towards close and have good familiarity with their financials no doubt. We feel very confident that they can continue to exceed the towables market growth significantly. The law of numbers starts to factor in at some point based on their size, but I would tell you that we're pretty comfortable with their growth in that high single digit, low double digit range going forward in the future, but we’re probably not offering any more color besides that. The timing of the close will dictate any impact on the first quarter as we close the schedule for November, but if that's early November it will be a little bit more material. If that’s late November it will be less, but we believe they can absolutely continue to exceed the market growth rate by a significant amount, but at some point that CAGR becomes a little bit more difficult for them to comp. But Don and his team have done a great job and I don't want to underestimate their potential in the future, but we’ll give you more color I'm sure in future calls.

Excellent. And then speaking of the overall market with oil starting to be rebound, is there a point when gas prices start to impact buying behavior?

The general belief within the RV industry, and I don't think this is just Winnebago’s, is that the gas prices currently are at a place where they would have to rise very significantly to probably impact both buying and usage. When the gas prices begin to go up, they probably affect usage at this price, at the price because where they're at a little bit more than buying. The factors that are probably more important to actual purchases of RVs are things like consumer confidence, the wealth effect, but also the ability to access financing and we're not seeing any significant signs of financing tightening. The financing companies are a little smarter certainly than they were back ’08 and ’09. But we're not seeing any significant signs that the macro metrics are providing significant headwinds. As we near an election date in early November, there's no doubt that I think consumers are certainly with all discretionary purchases, maybe just taking a look at what's going to happen here in the next couple of months but again, we believe as does RVIA, that the next couple of years could again be cautiously still upward for the overall RV industry.

Great. And then you mentioned aluminum extrusions, but are there any other products now that you've been on the job a little bit, that you no longer wish to continue producing yourself?

Really the aluminum extrusion and the bus business were both non-core RV elements. One was more of a supply side operation and the bus side was certainly more of a all-good forward looking. I think both decisions the previous management made were the right ones. We will continue to rationalize our existing vertical integration and make sure that those operations are efficient, and if they're not efficient we'll certainly explore whether there are some more economical opportunities to buy from on the outside. From a product line standpoint, what I'm excited about is as we increase an ability within our culture with the new ERP systems to get more data, we’ll be able to be more precise about within our product line, exactly where we're making money and where we're not. And we’ll be challenging our product development teams, our product managers to ride those cash cows, but also to address any units or models that need some margin improvement efforts.

Okay. And then where are your new executives going to be based out of? Is that in Minneapolis?

Our executive team right now is physically wherever they need to be to drive the business. I mean our guys, myself included, are on the road constantly. We have executives that live and are based in our Forest City, Iowa headquarters. We have executives that are in Indiana. I say executives plural because I'm assuming we’ll obviously add with a successful close, Don Clark to that in addition to Scott Degnan who leads our Winnebago towables business. We have an office in the Twin Cities, in a suburb of the Twin Cities south where several of the new leadership members that we've added they have a desk at, is probably the best way I'll say it right now, but as they travel, they're learning their whatever. So for a little while in the future, we're probably going to be fragmented across a number of locations and then I guess there are some decisions in the future to be made about whether we want to consolidate any of that in a specific location. We're not going to let geographic location get in the way of acquiring the right talent and we're very focused on some more supporting the communities that our existing employees live and work in.

All right. I appreciate the color. Thanks for taking my call.

Thank you. Our next question comes from Zack Ajzenman at Griffin Securities. Your line is now open.

Hi thanks, good morning. Just one question from us that was touched on during the prepared remarks, but to dig a little deeper on the puts and takes of the overall sustainability of gross margin given some of the factors such as the ongoing internal improvements and prospects such as the acquisition and accelerating Class A production. Net net it sounds like we should be assuming an acceleration from the 90 basis point improvement in gross margin seen in fiscal ’16, but can you provide any more color or detail particularly in light of Grand Design as to how we should think about gross margins over the next year or two?

Certainly we have an opportunity with this acquisition in light of the EBITDA performance that we have probably shared for that to be accretive at the margin level. But specifically to our operations that we reported on today, we are very focused on continuing to drive margin on expansion in a number of those areas you touched upon. There’s more opportunity as it relates to strategic sourcing, the warranty topic that we touched upon earlier, the operational projects that Mike touched upon. There’s a lot of opportunities in our view to drive that. So I think kind of big picture there’s the enhancements to margins from the acquisition, but there's also opportunities on just a base core business that we're going to continue to be working on.

Okay, thank you.

Thank you. I’m showing no further questions at this time, I'd like to turn the call back over to Don Heidemann for closing remarks.

Thank you. Thank you to everyone for joining us today as we reviewed our fourth quarter fiscal results. We look forward to speaking with you again as we review our first quarter of fiscal 2017 results on Wednesday December 21, 2016. Thank you very much.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may all disconnect. Everyone have a great day.