Stock-Based Compensation Plans

We have a 2004 Incentive Compensation Plan approved by shareholders (as amended, the "Plan") in place which allows us to grant or issue non-qualified stock options, incentive stock options, share awards and other equity compensation to key employees and to non-employee directors. No more than 4.0 million shares of common stock may be issued under the Plan and no more than 2.0 million of those shares may be used for awards other than stock options or stock appreciation rights. Shares subject to awards that are forfeited, terminated, expire unexercised, settled in cash, exchanged for other awards, tendered to satisfy the purchase price of an award, withheld to satisfy tax obligations or otherwise lapse again become available for awards.

Stock Options and Share Awards

With respect to stock options, the Plan replaced the 1997 Stock Option Plan. Any stock options previously granted under the 1997 Stock Option Plan continue to be exercisable in accordance with their original terms and conditions.

The term of any options granted under the Plan may not exceed ten years from the date of the grant. Stock options are granted at the closing market price on the date of grant. Options issued to key employees generally vest over a three-year period in equal annual installment, beginning one year after the date of grant, with immediate vesting upon retirement or upon a change of control (as defined in the Plan), if earlier. Historically, options issued to directors vested six months after grant. Share awards vest based either upon continued employment, beginning one year after the date of grant, with immediate vesting upon retirement or upon a change of control (collectively, "time-based") or upon attainment of established goals. Share awards that are not time-based typically vest at the end of a one year or three-year incentive period based upon the achievement of company goals ("performance-based"). The value of time-based restricted share awards is based on the number of shares granted and the closing price of our common stock on the date of grant. The value of performance-based restricted share awards is based upon the terms of the plan and an assessment of the probability of reaching the established performance targets. Historically, the terms of these plans linked the incentive payment to a percentage of base salary compensation and if the established goals are met, shares of the appropriate value are then granted.

Prior to Fiscal 2007, stock-based compensation generally consisted only of stock options. In Fiscal 2007 and Fiscal 2008, we granted restricted time-based share awards to key employees and directors instead of stock options. No stock options or restricted share awards were granted in Fiscal 2010. In Fiscal 2011 we again granted restricted time-based stock awards to key employees and directors. In Fiscal 2012 the Board of Directors granted 50,000 shares of restricted common stock to Robert J. Olson, retiring Executive Chairman of the Board, in recognition of his contributions to the Company during his 43 years of service.

Annual Incentive Plans

For Fiscal 2010, Fiscal 2011 and Fiscal 2012, the Human Resources Committee of our Board of Directors established annual incentive plans for the officers that were to be paid in 2/3 cash and 1/3 restricted stock. Certain financial performance metrics had to be met to achieve payment under these plans; these metrics (diluted EPS and ROIC) were not met for Fiscal 2010 and Fiscal 2011. Certain financial performance metrics (pre-tax income and ROIC) were achieved for Fiscal 2012 under the annual incentive plan thus $459,000 of compensation expense was accrued under this plan at the end of Fiscal 2012 of which $120,000 was stock-based. On October 9, 2012, the Human Resources Committee of the Board of Directors approved the award of 9,606 restricted shares to the officers under the annual incentive plan. Of the shares granted, we repurchased 2,408 shares from employees who elected to pay their payroll tax via shares as opposed to cash. The restricted stock has a one-year restriction on sale upon award.

Long-Term Incentive Plans

For Fiscal 2010, Fiscal 2011 and Fiscal 2012, the Human Resources Committee of our Board of Directors established three different three-year incentive compensation plans (Officers Long-Term Incentive Plan Fiscal 2010-2012, 2011-2013 and 2012-2014) to serve as an incentive to our senior management team to achieve certain ROE targets. If the ROE target is met, restricted stock will be awarded subsequent to the end of each three year period with a one-year restriction on sale upon award. In the event that we do not achieve the required ROE targets, no restricted stock will be granted. If it becomes probable that certain of the ROE performance targets will be achieved, the corresponding estimated cost of the grant will be recorded as stock-based compensation expense over the performance period. The probability of reaching the targets is evaluated each reporting period. If it becomes probable that certain of the target performance levels will be achieved, a cumulative adjustment will be recorded and future stock-based-compensation expense will increase based on the then projected performance levels. If we later determine that it is not probable that the minimum ROE performance threshold for the grants will be met, no further stock-based compensation cost will be recognized and any previously recognized stock-based compensation cost related to these plans will be reversed.

As of the end of Fiscal 2012, $791,000 of stock-based compensation expense has been accrued for these plans. Specifically, for the 2010-2012 plan, the ROE target was met, thus subsequent to year end, in October 2012 restricted stock was awarded to the officers in this plan. On October 9, 2012, the Human Resources Committee of the Board of Directors approved the award of 25,532 shares to the officers under the 2010-2012 long-term incentive plan. Of the shares granted, we repurchased 7,295 shares from employees who elected to pay their payroll tax via shares as opposed to cash. The restricted stock has a one-year restriction on sale upon award.

Director's Awards

Non-employee directors may elect to receive all or part of their annual retainer and board fees in the form of Winnebago Industries stock units credited in the form of shares of our common stock instead of cash. The directors are restricted from selling these shares until their retirement. During Fiscal 2012, there were 26,819 stock units awarded to our non-employee directors in lieu of cash compensation. The aggregate intrinsic value of these awards as of August 25, 2012 was $1,294,000 with 117,535 stock units outstanding.

Stock-Based Compensation

Total stock-based compensation expense for the past three fiscal years consisted of the following components:



	Year Ended
(In thousands)	August 25, 2012		August 27, 2011		August 28, 2010
Share awards:
Performance-based annual plan employee award expense	$	120	$	—	$	—
Performance-based long-term plan employee award expense	791		—		—
Time-based employee award expense	685		1,068		370
Time-based directors award expense	87		58		—
Directors stock unit expense	235		189		176
Total stock-based compensation	$	1,918	$	1,315	$	546

Stock Options

A summary of stock option activity for Fiscal 2012, 2011 and 2010 is as follows:



	Year Ended
	August 25, 2012					August 27, 2011					August 28, 2010
	Shares		Price per Share	Wtd. Avg. Exercise Price/Share		Shares		Price per Share	Wtd. Avg. Exercise Price/Share		Shares		Price per Share	Wtd. Avg. Exercise Price/Share
Outstanding at beginning of year	812,983		$18 - $36	$	28.84	940,815		$9 - $36	$	27.82	1,010,224		$9 - $36	$	27.31
Options granted	—		—	—		—		—	—		—		—	—
Options exercised	—		—	—		(9,000	)	9 - 11	9.20		(30,500	)	9 - 11	9.20
Options canceled	(85,319	)	19 - 32	26.81		(118,832	)	9 - 32	22.23		(38,909	)	9 - 36	29.18
Outstanding at end of year	727,664		$18 - $36	$	29.08	812,983		$18 - $36	$	28.84	940,815		$9 - $36	$	27.82
Exercisable at end of year	727,664		$18 - $36	$	29.08	812,983		$18 - $36	$	28.84	940,815		$9 - $36	$	27.82

The weighted average remaining contractual life for options outstanding and exercisable at August 25, 2012 was 2.1 years. There was no aggregate intrinsic value for the options outstanding and exercisable at August 25, 2012. Other values related to options are as follows:



(In thousands)	Fiscal 2012		Fiscal 2011		Fiscal 2010
Aggregate intrinsic value of options exercised ⁽¹⁾	$	—	$	53	$	156
Net cash proceeds from the exercise of stock options	—		83		280
Actual income tax benefit realized from stock option exercises	—		20		59


⁽¹⁾	The amount by which the closing price of our stock on the date of exercise exceeded the exercise price.

Share Awards

A summary of share award activity for Fiscal 2012, 2011 and 2010 is as follows:



	Year Ended
	August 25, 2012				August 27, 2011				August 28, 2010
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Beginning of year	148,500		$	13.49	28,110		$	28.21	82,240		$	29.97
Granted	50,000		7.96		151,000		13.49		—		—
Vested	(120,044	)	11.19		(30,610	)	27.01		(53,930	)	30.90
Canceled	(7,500	)	13.49		—		—		(200	)	28.21
End of year	70,956		$	13.49	148,500		$	13.49	28,110		$	28.21

The aggregate intrinsic value of awards outstanding at August 25, 2012 was $781,000.

As of August 25, 2012, there was $474,000 of unrecognized compensation expense related to restricted stock awards that is expected to be recognized over a weighted average period of 1.5 years. The total fair value of awards vested during Fiscal 2012, 2011 and 2010 was $1.2 million, $582,000 and $1.7 million, respectively.

The Human Resources Committee of the Board of Directors of Winnebago Industries, Inc. recommended the award of, and on October 10, 2012, the full Board of Directors approved the award of, grants of 141,600 shares of our restricted common stock under the Plan to our key management group (approximately 60 employees). The Board of Directors also granted 14,000 shares of our restricted common stock to the non-management members of the Board.

The value of the restricted stock is based on the closing price of our common stock on the date of grant, which was $12.20. The fair value of this award to employees is amortized on a straight-line basis over the requisite service period of three years or to an employee's eligible retirement date, if earlier; thus restricted stock awards are expensed immediately upon grant for retirement-eligible employees. Estimated non-cash stock compensation expense based on this restricted stock grant will be approximately $550,000 for the first quarter of Fiscal 2013 and $850,000 for Fiscal 2013.