Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Winnebago Earnings Conference Call. My name is Diana [ph], and I'll be the operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Sheila Davis, Public Relations and Investor Relations Manager. Please proceed.

Thank you, Diana. Good morning, and welcome to Winnebago Industries conference call to review the company's results for the second quarter of fiscal 2012 ended February 25, 2012. Conducting the call today are Randy Potts, Chairman of the Board, Chief Executive Officer and President; and Sarah Nielsen, Vice President, Chief Financial Officer. I trust each of you have received a copy of the news release with our earnings results this morning. This copy is being broadcast live on our website at winnebagoind.com. A replay of the call will be available on our website at approximately 12:00 noon Central Time today. If you have any questions about accessing any of this information, please call our Investor Relations Department at (641) 585-6803 following the conference call. Before we start, it's my duty to inform you that this presentation may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. A number of factors 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. I'll now turn the call over to Randy Potts. Randy?

Thanks, Sheila, and welcome, everybody, to the Winnebago Industries Second Quarter Fiscal 2012 Conference Call. The second quarter held many challenges for us. Sarah will get into the details of the financials in a minute. But first, I want to make a few overall comments. It's not uncommon for the winter season to present challenges in the RV industry. Seasonal slowdown that often accompanies the winter season, in conjunction with excess motorized industry capacity, created a competitive environment, which negatively impacted our business. Specifically, certain discount programs were offered to secure additional volume in the quarter and minimize production shutdowns, which would've resulted in additional unabsorbed overhead and higher inventory levels. Unfortunately, these programs, along with some raw material cost pressures that were not passed on, impacted results to the point illustrated in our financial release. Within the quarter, I had the opportunity to visit with several dealers on both coasts, with trips to California and Florida. Dealership visits give me the opportunity to be face to face with our wholesale partners in their business environment. It gives me a good perspective on what they're seeing in their expectations. In Florida, we were also able to combine a dealer visit with a rally at one of our largest dealers, Lazydays, in Seffner, Florida, allowing us to interact with our Motor Home retail customers as well. Based on dealer sentiment and what I see going forward, there are reasons to be optimistic about the remainder of our fiscal year. We're better positioned this year in relation to model year changeover being essentially sold out of current model year product ahead of the changeover, which is a third quarter event. Inventories at the factory and dealerships are lean by most measures. And for the first time in 4 years, we're scheduled to resume our annual dealer meeting, we call Dealer Days. That'll take place in May and it affords us the opportunity to meet with our dealer partners and showcase our exciting lineup of new or redesigned motor homes, fifth wheels and travel trailers. With that, I'll turn the call over to Sarah for the financial review.

Thank you, Randy. Net revenues for the second quarter were $131.6 million, a 23.5% increase from the second quarter of fiscal 2011. The net increase in revenue was achieved from multiple sources. Motor home deliveries were up 92 units or 9.1%, which was enhanced by a 1.6% improvement in the average selling price during the quarter. In addition, our Towable division contributed an incremental $12.7 million of revenue during the quarter. As Randy discussed, discounting initiatives to the dealers were elevated during the quarter associated with some late fall and winter promotions that were offered to keep production level in January and February. Both of these programs have now ended. We also decided not to pass on certain inflationary pressures in the form of a mid-year price increase due to the competitive landscape in the motorized market, which created further margin degradation. As noted in the press release, last year, the second quarter was significantly impacted by a $3.5 million pre-tax inventory adjustment as a result of the annual physical performed on work-in-process inventory. We did not have any material inventory adjustments based on physical inventories taken this quarter. From a Towable perspective, we have achieved some moderate financial improvements. In February, we realized our first operationally profitable month. However, it was still not accretive in aggregate for the quarter with an operating loss of approximately $250,000. We have laid the foundation over the past year by investing in the Towable division and expect to see continued improvements as we enter into the typically more active selling season. As reflected in the balance sheet, our long-term benefit-related liabilities decreased approximately $5 million, which included the 10% reduction of employer subsidized retiree healthcare benefits that was effective during this quarter. During the quarter, we were able to generate $10.2 million of cash from operations, which was a $28.9 million improvement as compared to the year-ago quarter. The majority of cash generation was due to improvements in working capital, with the leading contributor being a reduction of inventory. The quarter activity brings our cash balance to $80 million, an $18 million increase over the trailing 12 months. I will now turn the call over to the operator for the question-and-answer portion of the call.

[Operator Instructions] And the first question will come from the line of Kathryn Thompson, Thompson Research Group.

I've a few questions on discounting. In terms of what product category do you see the greatest discounting? And if you could maybe give a little bit more clarity about discounting trends from the end of '11 to where we are today?

Yes, Kathryn, this is Randy. The discounting was really very broad-based. We didn't see a specific pressure on a particular model. Our goal -- the reason for the discounting was to keep the production lines busy and keep absorbing the overhead and moving the inventory. And it was really across the board. So I can't say that there was really a specific product that we focused on. There really wasn't. As far as discounting since the end of fiscal '11, is that your question? Or calendar '11?

Calendar. So if you look at what's discounting at, the highest, for instance, say November and December and it's waned or did really peak more in January or February?

Well, the discounting really -- the decisions that we had to make really occurred after our conference call in December. If you recall at that time, I was asked if we were seeing unusual discounting. And really at that point, things looked pretty, pretty normal for the season. And it was really after that, that we started looking ahead at late December and into January and getting a little concerned about being able to keep things busy. So a lot of the decisions were made -- really all the decisions were made after that. And naturally, some of those decisions that affect the pricing, spill into the months as they go on. So it's hard to say exactly where the peak is but they're certainly -- they're waning. It's subsiding at this point. Most of those have run their course for going forward. And we expect it to be a better environment. We're already in a better environment.

Yes. And I guess that really leads me into a follow-up question, is the backlog less promotional than what flow through revenues in the quarter you just reported?

I would say that's a fair assumption that backlog has -- is less promotionally incented than what we had in the prior 3 months, yes.

And to what degree have higher raw material costs impact earnings versus discounting? And it could just be in a roughly like it was split half and half or it was more weighted towards...

Well, I'll let Sarah talk about the specifics. But I guess, before she does, I want to make the comment. I want to comment on that in that this is a decision that was put in front of us last fall. We did see these higher material pressures. And had to make a decision as to whether or not it was time to pass those on or whether we thought they were beginning to subside. Now that's a thing that we look at on a very regular basis. And it's a hard thing to call because certain commodities go up and down. And looking back, maybe we would have made a different decision knowing what we know now. But I just wanted to make sure that there's no -- that nobody has any suspicion that, that caught us off guard. It's always in hindsight that you look back and see where those commodities actually ended up. But Sarah can have specifics on what those pressures were.

Okay. In my prepared remarks, I commented on some of the specific programs. And from a marginal impact inside our fiscal quarter, if we look at the discounting that was elevated as compared to a year ago, that's approximately 90 basis points. So then your left with the remainder and it's important, I guess, to calibrate last year's margin percentage. We would have had a 7.4% gross profit margin, excluding the impact of that sizeable inventory adjustment. But the remainder is a function of the material cost pressures. And as Randy discussed, in the fall, we were looking at that time of pricing pressures of the 80-basis-point range. Things have changed and increased since that point in time. In our second quarter, we saw increases in steel, copper and petroleum-based plastics and resin. Aluminum was flat to slightly down in our quarter, but we definitely have some of that volatility that does impact us quarter-to-quarter. But hopefully, maybe some of those stats give you a little clarity on the financial impact inside our quarter.

Sure, they do. And then my final question is, as you said your current model year is sold out. In any given year, when do you -- and granted we've not really had a normal year. But in a normal year and then in what we've seen in the downturn, when are current model years typically sold out on a calendar basis? So is...

The reason we made that -- we made note of that, Kathryn, is that it's not unusual at all for us to have some previous model year goods all the way into our fourth quarter that just don't get sold. And of course, naturally, the longer they're around, the harder it becomes to sell them because they're aged product at that point. So it's not at all unusual to see us have to do some discounting into the fourth quarter just to clear out that previous model year goods.

One thing I want to highlight, just to clarify, our backlog reflects that sold-out position. There's a lot of deliveries yet to take place on this transition. So it's not that the finished good inventory has been moved. The third quarter will play that out most notably. But I think it is a positive situation for us to be in at this point. Granted the last 4 years haven't been normal by any shape or form, but this is a much better position for us to be in, in the middle of March.

So that product is accounted for or sold out [indiscernible] is a good indication of demand in the field.

I think that's what we're suggesting.

And the next question will come from the line of Bret Jordan, Avondale Partners.

This is David Kelly in for Bret. A couple of quick questions for you. I was just wondering if you could provide some color maybe on the magnitude of discounting in the Towable segment relative to what you're seeing in Motor Homes?

Well, Towables, of course, for us, is still in its infancy. I mean, it's still pretty small. And my history is in motorized. So as we go down the path of growing that piece of our business, I'm becoming more familiar with what that environment is. So it's hard for me to make comparisons of the current environment to the past because we've just never looked at the history of the Towable discounting environment. But my impression at this point with where we've been is that our products have been -- there's always a certain amount of discounting depending on size of orders, quantity buys and that kind of thing, as there is in most businesses. A lot of it has to do with the freshness of their product, the seasonality. I think it's fair to say at this point with us that we've been able to hold our pricing pretty good because a lot of our product is new and fresh. The Winnebago brand is new. The models are fresh. The Raven at SunnyBrook is fresh. That's not to say that's not discounting. Obviously, there is. I'm just trying to put it in the perspective with what the rest of the towable market might see. Does that help?

Yes, that's great. And then just kind of touching base on, I know January retail sales for Motor Homes was released a couple of days ago and Class As were down. Class Cs were slightly up. Do you think that could be a factor or at least being factored in from rising fuel prices? And if so, what are your expectations for the impact of what we've seen as far as rising fuel prices, thus far, in maybe the third quarter?

Fuel prices come into this discussion every time you talk about the Motor Home, the RV market in general. The bottom line is, we just don't know. We think and we've always said that there's probably a connection between very quickly rising prices kind of a shock effect of prices if they rise very quickly. And history seems to show that, that tends to wear off. And of course, availability would be a much bigger concern, and we're not seeing that. So I don't think we have any reason to directly tie fuel prices to January's market. I'm not saying it's not but we just -- we don't see that direct connection. But certainly, it's reasonable to suspect that.

Okay, great. And then just one last question. Sarah, do you mind to provide the ASPs this year or this quarter by category?

Certainly. In our second quarter Class A gas, our average selling price is $95,478. Our Class A diesel was $191,178. So both of those have increased over the prior year same quarter. Our overall Class A ASP was $133,726. Class C was $74,077. So total Class A and C was $110,919. Our Class B was $75,338. So from a -- Motor Home ASP, in totality, we're looking at $109,177. And as I had touched upon earlier, that's up 1.6% from the quarter last year.

The next question comes from the line of David Whiston, MorningStar.

I wanted to go back first on Kathryn's raw material question. I wasn't quite clear on what you're discussing about at the beginning of the fiscal year, you have to make a decision on an issue and it sounds like it may not have worked out the way you wanted. Could you elaborate on that, please?

You want to talk about economic?

Well, we've always evaluated mid-year of our model year if the inflationary pressures we're seeing on all of our costs are in line with what we had estimated at the beginning of the model year, and we did consider a price increase. But because of the competitive landscape, we opted not to proceed with that. And that had a negative impact from a marginal perspective. Those were some of the key points we were touching on earlier with Kathryn.

Okay, that's helpful. I guess going forward for the rest of the fiscal year, do you expect to be free cash flow positive? Or I mean, do you expect to build inventories? Or do you think they'll actually come down with the busy selling season coming up?

Well, this quarter was a very positive cash flow quarter for us, and in a large part, due to inventories and also some other working capital changes. We are looking at that to continue for the remainder of the year, that always can change if we have a dramatically different environment. But we do think that, for the entire fiscal year, that's a fair assumption in the next 2 quarters.

Okay. And I think on the prior call, you and I discussed reversing the detail valuation allowance. Given the loss this quarter, does that reversal get slowed at all? Or is the timing still in place?

Well, it's a very fair question because on the year-to-date basis, our position from a book earnings standpoint is a loss. And we evaluate that reversal based on a 3-year cumulative income position. If we have strong enough earnings in quarters 3 and 4, that's still a very reasonable event to put those to protect us as back on our books but it's also contingent upon a positive outlook for the next fiscal year. So it's going to be a pretty significant evaluation to occur in our fourth fiscal quarter to ensure that we have the evidence that would support putting those back on our books.

All right, I would agree with you there. And, Randy, it sounded like last quarter you wanted to be at the point to announce a deal really soon and haven't seen any announcement. Can you comment on your pipeline?

Can you repeat that, I'm sorry?

Last quarter, it sounded like you were on a verge of being ready to announce a deal but you weren't quite ready. Can you just comment on your pipeline?

Yes, we've been working on a startup opportunity for some time that I was hopeful at the time we were going to decide on that to move forward. And we just -- we haven't made that decision yet. We're still considering that. We just aren't sure that it's the right fit, and we need to do some more work on that. So that's something we need to enter in very carefully. And we have some more work to do on it. I don't think we'll probably have that announcement ready even yet or if we'll even proceed with that. We just have to do more work on it. Along with that, we do continue to look at several joint venture and acquisition opportunities. So we're looking for opportunities, but it needs to be the right fit. It needs to make sense. We don't want to rush in but...

Is the hesitation purely because of strategic bid or because of macroeconomic variables?

Both.

And the next question comes from the line of Barry Vogel, Barry Vogel & Associates.

I have a couple of questions for Sarah first. Actually, I'll start with Randy. If we look at your dealer inventories for Motor Homes, it's essentially been flat for 9 straight quarters through the second quarter that you just announced. Do you see any signs whatsoever of change in this trend going forward?

Well, I think that's going to be driven by the market, Barry. Dealers are looking for a certain turn rate that fits their business model. And I think based on the dealer inventories that we currently see, it's probably where it should be based on the size of the market. So naturally, when the business picks up, I would expect to see them docking more product in response. I think it's as simple as that.

I want to say that, I think there's an overall sense of conservatism. And there's definitely been discussion on our dealers losing out on opportunities because they are so conservative on their stocking levels. And that's a big shift and a leap of faith. And so I think that is going to be a continued focus point on a perspective basis. But we don't want to have our dealers overstocked and have to help incent at the retail level. But they have to have the right amount of product to have it on their lot for the customers to look at than when they're on site.

Yes. In the motorized side, they're trying to get 2 to 3 turns a year.

Okay. Now are you concerned, and I know you just finished at a seasonally low point of the year. But if we look at the RV retail statistics in this recovery, there's no doubt, no doubt that Motorized has really gone nowhere essentially compared to Towables. And I know you're involved with -- more with Towables than at any time in the past by your acquisition and trying to develop a business there. But are you concerned that at this point in the recovery and Towables gaining some momentum, that nothing really has happened in any magnitude for Motorized business?

Yes. Naturally, we're looking for the light at the end of the tunnel. But your observations are correct. The Motorized side has only recovered to about 50% of its historic norms, while the Towables side has recovered to probably more like 9/10 of their historical norms. So that's certainly one of our decisions to get into the Towables side of the business. There's more space there.

Yes. Having said that, we know by looking at the retail statistics in Towables, between Forest River and Ford, they're the dominant companies by far. I would have to call them almost the duopoly.

Yes, at this point...

Not quite but close to a duopoly rather than anything else. So how do you manage against these very powerful companies both financially and experience wise and all the advantages they have and purchasing power, et cetera?

You do it with great product, Barry. It's the product that makes the difference. And I think there's plenty of opportunities for entry into that market. And I think we're showing that. We're certainly growing within it. And Sarah mentioned, we did in the quarter at a profitable month in Towables. So I think Towables is one of those businesses that doesn't have a lot of entry barriers when compared to Motorized. And there's always room for new players if they've got their act together to be successful in Towables. I mean, that's how those guys got started. A lot of it was with acquisitions, but those acquisitions started as very small companies.

Okay. And Sarah, I have a question on financing availability in the industry. How would you characterize the atmosphere for flooring, as well as the atmosphere for retail financing?

Well, there's been a lot more interest. I had a number of institutions stop by at Louisville. There's been new entrants into the space, and you still have -- 2 of that are on the Motorized side. They garner the largest market share, so to speak, on flooring. But they're still committed to the space, and you have some other choices out there. So I don't see that to be an issue from a dealer standpoint. And on the retail side, that has been, I think, a pretty even playing field for a while now. The disciplines are still there in regards to the processes that you would go through to make that purchase at the retail level. But you have availability there, in our view. So I don't think that's preventing sales to occur. But it's the consumers interest, their comfort level on if they want to finance this purchase or not, I think is maybe a changed dynamic from where we were back in 2007. And also, just their financial situation, and I think the correlation to the housing market. And if I look at our target consumers, which are typically over 55 on the Motorized side, do they have home equity tied up or can they access that? I think those still are relevant categories that might be holding down demand. But I think the financing side is not an issue. It's the demand at the retail level.

And I've one other question, Sarah. You're operating basically at a breakeven point for all intents and purposes based on 1,000 units of motorized shipments a quarter. And can you give us some color whatsoever on incremental operating margins for Motor Homes going forward?

Well, the first thing that it's problematic and we talked about how that negatively impacted us inside this quarter, is it starts with what level of incentive we're securing to get the business. And if we exclude the discounting side, we're still in the range on cost of goods sold line item, approximately $42 million a year of fixed cost there on an annualized basis. And so if you look at a variable contribution margin on average, let's say you're talking mid- to low teens, that's the flow-through if you covered your fixed costs, and you aren't discounting at a level that completely changes that relationship.

So would you say, again, this is in broad terms, that in the Motorized, obviously, to the company right now, that you might have in place now a 15% incremental operating margin? Or some other number?

I think the mix can greatly influence that. And so that can move quite a bit down into the lower single or double-digit category depending on the mix of products we're talking about.

Let's use the current mix within the last quarter as an example.

I don't want to go into any more specifics at this point, Barry.

[Operator Instructions] And the next question comes from the line of Mark Altschwager, Robert W. Baird.

A couple of things. It looks like retail sales did pick up a bit in this quarter relative to the trends we saw in the last couple. Do you know what extent are we seeing any retail pull forward given the warmer winter weather versus maybe a slight turn in the macro?

Are you referring to Motorized?

Yes.

I wish I could answer that. But every year is different. Everything plays into it, as we said, weather, the economy. It's just so hard to really speculate on that. I don't think it would be very productive for me to do that. I have to apologize.

But you're right to look at that from an underlying comp for us. Our retail registrations were up approximately 9.5% second quarter to second quarter. So on a trailing 12-month basis now, we're seeing our retail demand be in the that 4,500-unit level, and that's up a little over 100 units over the prior 12 ruling months. So it's not a huge movement, but it's still in the right direction.

It's just really impossible to speculate exactly what's driving that. I want to say it's great products. But as far as saying it's weather, that's a stretch.

Okay, great. And then, strong cash flow quarter, can you maybe just update us on plans for cash and potential for dividend?

Yes, we've been talking about cash a lot and, as well we should. There's always potential for dividend. We certainly won't rule that out. We also need to look at opportunities to use that cash to try to invest in our company in ways that would make us more profitable. And we're talking about some things that might be -- might create that type of an opportunity. As I've said in the past, we have -- we also have some pending things from the great recession that are yet to be worked out as far as employee compensation. And we're still holding back on some of those just based on their effect on profitability. So there's a lot of things in play. But dividends is certainly one of them.

That's helpful. Maybe one final one, Sarah, just housekeeping. Would you mind giving us the Towable ASPs?

Sure.

And the next question comes from the line of Andrew Wedeck [ph], Wedeck [ph] and Associates.

My question was answered but I'll throw another one in there. Do you want to give us -- or is there any differential in terms of which brands are doing better in the Towable line? I know it's still very early, but...

Yes. Well, I'll speak to that and it is very early. The Winnebago line really wasn't introduced until late summer. And it wasn't being sold and produced in large numbers until fall, really around Louisville. Really, Louisville was our first chance to show that to a lot of people. And so we created a bit of a bubble there. We signed a lot of dealers and put a lot of product on their lots. Of course, the selling season wasn't there. So this is sell-through that has to occur. At the same time, the redesigned and the reinvented SunnyBrook brand -- the Raven has been very successful in especially the fifth wheel model. But so have the other SunnyBrook brands. So it's been a real mixed bag but really generally successful on all fronts from the numbers.

And the next question comes from the line of Jarrod Edelen, South Dakota investment.

Randy, can you talk about with your visits to Florida and California, and maybe more broadly, are there regional differences in demand that you're seeing outside of the different markets?

Yes, there's always been regional differences. Some of it is seasonal, especially late winter as it was when we made these visits, your market is more to the southern part of the country, naturally. There's a sustained market there of local people, and then there's the snowbird phenomenon that occurs. So that's part of it. But beyond that, there's also an East Coast, West Coast phenomenon that has really been a shift in the last 5 years, where the West Coast used to be a stronger market for RVs, in general, not just us, than the East Coast. I think we've seen a shift and the numbers show this, more towards the East Coast right now. The East Coast is stronger than the West Coast in the RV market and that might be generally reflected in the economy in general. I think there's still a lot of things working out in the West Coast, specifically in California.

Okay. Do you think there's been any shift in the buyer demographic, maybe over the last 5 years. I mean with sort of the baby boom that's occurring? And expect a lot more of those baby boomers to be in the market for RVs, especially the motorized?

Yes, there's always that. But I think more than that, we saw a phenomenon occurring early in the decade, early in the previous decade, where there were -- there was a feeling of wealth at an earlier point in life. In other words, there were people that were in the houses, were in other investments that really ended up being part of a bubble. And they found themselves with access to money that really hadn't been there before and probably isn't been now. So I think the most recent demographic shift we've seen has more to do with economics than age.

Okay. Is it more of a shift to the older population?

In the motorized sector, for sure.

Yes, okay. And then, Sarah, can I ask you a question about how you guys think about the incremental profitability and somebody touched on this as well. You mentioned there's a $42 million sort of hurdle to get over your fixed costs. But how -- can you talk about the elasticity of your demand? Is there a level at which, especially this quarter, you couldn't go above because you wouldn't have -- your sales would've fallen off dramatically? And it probably relates to the industry incentives as well?

Well, when we look at this quarter in particular, had we not discounted at the level that we had and the pricing would have been different. We could have had a profitable quarter. So we were at that point -- at that inflection point. But then there's always the unknown as to what would volumes have been without the incentives offered. But the seasonal -- we made some decisions to keep the factory busy because we had experienced the pressures in the first quarter of approximately 7 down days, which shortened work weeks and the unabsorbed overhead and expenses associated on that side of the fence and went a little bit more aggressively to the marketplace to keep that demand to be a little bit more stable and not have shortened work weeks inside the second quarter. So I don't know if I'm hitting your question there but...

Yes, maybe I need a follow-on to that. Can you touch on where the drive for incentives comes from? Is it from the dealers? Is it from your perspective, trying to manage sales volume? And as a follow-on to that, how -- if you don't discount and somebody chooses to push out of sale or from your brand, do you -- what are your thoughts on whether that sale is lost to a different brand? Or if they're dedicated to the Winnebago brand?

Well, I think it's very competitive in the marketplace. And so with a dealer that is working with multiple manufacturers, there's always a comparison and a choice to be made. And so in our view, I think there's opportunities to obtain more of the volume but at a price in ceratin instances and if we aren't willing to be as aggressive, the volume might shift to another party.

And the next question comes from the line of Brian Delaney, EnTrust.

Just a follow-on to that line of questioning. Is the focus to keep the plants busy over operating profit? Or is it a -- we were too aggressive in retrospect? What is the ultimate objective when you guys are looking at how to run the plants right now?

Well, it's always a very difficult decision when you're faced with that. To elaborate just a little bit, probably what drives that is our orders. We're looking forward at the orders we need to run the plant, 3 to 4 weeks out on a typical basis to allow for us that's in material acquisition and that kind of thing. So if we're starting to feel challenged and our ability to keep that order position solid that close in, then we start talking about what we need to do to get that order position. And we work with dealers and we say, what would it take to get orders incentive-based? And then we weigh that against what we perceive the benefits and/or negatives would be in that case. So it's always very difficult. Naturally, you're trying to weigh that out. If the discounts are so great, we'd make the other decision and say, well, we just can't afford to do this. We're better off just taking some downtime.

And so is it -- where we're running right now, I mean, we've taken all the costs out that we can and that's why we're managing to the unit level.

Not sure I understood that.

I mean, so we look at it -- it sounds like throughout the quarter, we're saying, based on the order flow thus far, to keep the plants operating at the level we want. We need to be more promotional. That conclusion as opposed to saying based on where the orders are right now, let's back on some of our costs or meaning that there was not much more you can do on the cost side?

Yes, yes, that's certainly a fair assumption. There's always some things you can do. But on that short of a notice. There's not a lot of opportunity to move the needle substantially.

Okay. And last question, you talked about the great recession, some pent-up investments that we need to make, particularly I think on the comp side. What is the expectation that we should have on once the overall industry demand levels get to a higher placement unit perspective and discounts come down a bit? How should we think about the incremental spend that we should be modeling in where I think predominantly the comp for some of the salary guys, based on where we've been from the prerecession levels?

Well, some of that is already put back in. At the depth of the recession, we had pay cuts. All wages were frozen in and there were cuts on top of that, temporary pay reductions and those types of things. The pay was reinstated -- the pay has been reinstated. The -- certain increases have been reinstated, but there's more to do. So I guess, I don't want to say we're halfway there or we're 3/4 away there, but we're already into it. And we're in control of that. In other words, we still haven't reinstated salaried merit increases. And when we decide to do that, we'll still be in control of at what rate we would -- what kind of opportunity we'd create by deciding what that rate would be. There's also 401(k) matches that are at a reduced level. So there's just a lot of things there to turn back on. But we're in control of when and at what rate. So it's kind of hard to say specifically. There's a lot of variables there.

But would it be to manage to a breakeven level? Meaning that...

No. We want to manage to a profitable level.

And the next question is a follow-up question from the line of Andrew Wedeck [ph], Wedeck [ph] and Associates.

I just wanted to ask an adjacent question, the one that was asked earlier about the coasts. I've heard some rumors that the Midwest is a little stronger than the East Coast or let me just back up and just ask what is -- how does the Midwest fit into the whole picture? And also I'm just wondering, are you seeing any shift in terms of dealer strength from smaller to larger dealers or vice versa?

As far as the first part of your question, the Midwest, that's tough. I'm not sure I can answer that. We tend to look at it as a east side of the river or west side of the river. And Sarah, do you have any...

Well, yes, I have that breakout on the east and west side at hand. And you're looking at, in calendar 2011, about 55% of the retail sales happened in the states we defined to be in the east side of the country. And that kind of goes back to the comments Randy was making earlier that we've seen a little bit of a shift. Notably, in that roll-up on the east, you have Florida, which is one of the largest in that range. But it's -- out all the way east is where we've seen some strength as well. But we could definitely recalibrate the definition of looking at the states that are in the Midwest and provide that to you at a later time.

Okay. And the other half of the question was shift from large dealers to small dealers or vice versa in terms of selling strength.

Well, I think we've seen many of the large dealers come through this well, although there were some large dealers that didn't come through this either. But I can't speak for the whole industry. But I think we're doing quite well with our larger dealer base.

I mean, I think it is a fair characterization that dealers have become larger throughout this last 4 years and are in a stronger position. And the smaller dealers, that's been a shift in relation to how many there are, and the size, the biggest versus the smallest.

But I think there's a distinction there between Motorized and Towables, too. I think there's still a lot of very small Towable dealers out there. But just because of the amount of capital involved in being a motorized dealer, it's probably shifted more towards large and...

Okay. And just as a follow-up, would you expect that's a recession-based phenomenon and that when the landscape returns to more normal levels that, that would shift back?

Well, I suppose that's always possible. Those things are very hard to predict. Some of that will also depend on the price point of Motorized in the future. Maybe a smaller dealer might get back into lower price point vehicles. But it's not likely to be a high-line dealer [ph] just because of the outlay involved, I would guess.

And ladies and gentlemen, this concludes the question-and-answer portion for today. I would now like to turn the call back to Mr. Randy Potts, Chairman, President and CEO, for closing remarks.

Yes, I'd like to thank everybody for their calls. And as I mentioned earlier, we're beginning to see positive signs that the economy is improving. Consumer confidence has been trending higher and the jobless rate is improving. Both the stock market and housing market are showing signs of improvement. But rising fuel prices do remain a concern. We anticipate the recovery to be slow. However, we will continue to look for ways to profitably grow our business. I'd like to thank everybody for joining Winnebago Industries' conference call today and look forward to talking to you again in June, when we report our results for the third quarter of fiscal 2012.

Ladies and gentlemen, thank you for your participation. This concludes today's presentation. You may now disconnect and have a great day.