Contingent Liabilities and Commitments

Repurchase Commitments

Generally, manufacturers in the RV industry enter into repurchase agreements with lending institutions which have provided wholesale floorplan financing to dealers. Most dealers' RVs are financed on a "floorplan" basis under which a bank or finance company lends the dealer all, or substantially all, of the purchase price, collateralized by a security interest in the recreation vehicles purchased.

Our repurchase agreements provide that, in the event of default by the dealer on the agreement to pay the lending institution, we will repurchase the financed merchandise. The terms of these agreements, which generally can last up to 18 months, provide that our liability will be the lesser of remaining principal owed by the dealer to the lending institution, or dealer invoice less periodic reductions based on the time since the date of the original invoice. Our total contingent liability on all repurchase agreements was approximately $419.0 million and $386.0 million at May 28, 2016 and August 29, 2015, respectively.

In certain instances, we also repurchase inventory from our dealers due to state law or regulatory requirements that govern voluntary or involuntary relationship terminations. Although laws vary from state to state, some states have laws in place that require manufacturers of recreation vehicles to repurchase current inventory if a dealership exits the business. Incremental repurchase exposure beyond existing repurchase agreements, related to dealer inventory in states that we have had historical experience of repurchasing inventory, totaled $7.3 million and $7.2 million at May 28, 2016 and August 29, 2015, respectively.

Our risk of loss related to our repurchase commitments is significantly reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous dealers and lenders although two dealer organizations account for approximately 31% of our revenues. The aggregate contingent liability related to our repurchase agreements represents all financed dealer inventory at the period reporting date subject to a repurchase agreement, net of the greater of periodic reductions per the agreement or dealer principal payments. Based on the repurchase exposure as previously described, we established an associated loss reserve. Our accrued losses on repurchases were $1.1 million as of May 28, 2016 and $1.3 million as of August 29, 2015. Repurchase risk is affected by the credit worthiness of our dealer network and we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to establish the loss reserve for repurchase commitments.

A summary of repurchase activity is as follows:



	Three Months Ended				Nine Months Ended
(In thousands)	May 28, 2016		May 30, 2015		May 28, 2016			May 30, 2015
Inventory repurchased	$	445	$	—	$	445		$	7,325
Cash collected on resold inventory	$	—	$	—	$	36		$	6,309
(Gain) loss realized on resold inventory	$	—	$	—	$	(1	)	$	1,033

Litigation

We are involved in various legal proceedings which are ordinary litigation incidental to our business, some of which are covered in whole or in part by insurance. While we believe the ultimate disposition of litigation will not have material adverse effect on our financial position, results of operations or liquidity, there exists the possibility that such litigation may have an impact on our results for a particular reporting period in which litigation effects become probable and reasonably estimable. Though we do not believe there is a reasonable likelihood that there will be a material change related to these matters, litigation is subject to inherent uncertainties and management’s view of these matters may change in the future.

For the past several years we have been involved in litigation in Australia seeking to recover from Knott for damages arising from Knott using our name on RVs without our approval. On December 2, 2015, the Federal Court of Australia, New South Wales District Registry, General Division, entered judgment in our favor and against Knott for damages arising out of its use of the Winnebago name. Damages awarded were 1.0% of the total sales of Winnebago branded recreation vehicles from October 14, 2004, through October 17, 2013, plus interest. We previously disclosed that the amount of that award was likely to exceed $5.0 million, plus attorneys’ fees. Knott appealed that ruling. On May 26, 2016, in exchange for immediate payment to Winnebago of $2.75 million, Winnebago and Knott executed a global settlement pursuant to which Knott will cease all use of the Winnebago name and logos, all appeals and oppositions are terminated, and all proceedings between the parties have been settled. Winnebago’s trademarks in Australia will proceed to registration without further opposition from Knott. The settlement of $2.75 million was recorded within general and administrative expense in the third quarter of Fiscal 2016.