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 RVs 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. 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 RVs to repurchase current inventory if a dealership exits the business. Our total contingent liability on all repurchase agreements and due to state law or regulatory requirements was approximately $749.2 million and $417.2 million at May 27, 2017 and August 27, 2016, respectively, with the increase attributed primarily to Grand Design.

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 22% of our revenues in the first nine months of Fiscal 2017. 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 and our historical loss experience, we established an associated loss reserve. Our accrued losses on repurchases were $1.0 million as of May 27, 2017 and $0.9 million as of August 27, 2016 and are included in Accrued expenses - Other on the Consolidated Balance Sheets. 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 27, 2017		May 28, 2016		May 27, 2017		May 28, 2016
Inventory repurchased	$	408	$	445	$	408	$	445
Cash collected on resold inventory	$	370	$	—	$	393	$	36
Loss (gain) realized on resold inventory	$	38	$	—	$	44	$	(1	)

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.

In May 2016, Winnebago was awarded a favorable settlement of $2.75 million that was recorded within general and administrative expense in the third quarter of Fiscal 2016.

Lease Commitments

As part of our acquisition of Grand Design, we acquired leases to two properties which hold Grand Design’s current principal facilities, and facilities under construction for expansion. The lessor under these leases is an Indiana limited liability company, Three Oaks, LLC, owned by three of Grand Design's selling equity holders. One of the selling equity holders, Mr. Don Clark, has assumed the position of Vice President for Winnebago and is the President of Grand Design. Upon joining our company, Mr. Clark has agreed that as long as he is an employee of Grand Design he has relinquished his voting rights in Three Oaks, LLC while retaining all other economic rights in Three Oaks, LLC.

Our future lease commitments included these related party leases as well as a non-related party lease of an office facility as follows:



(In thousands)		Related Party Amount		Non-related Party Amount		Total
Year Ended:	2017	$	479	$	112	$	591
	2018	1,897		477		2,374
	2019	1,800		505		2,305
	2020	1,800		518		2,318
	2021	1,800		523		2,323
	Thereafter	8,374		766		9,140
	Total	$	16,150	$	2,901	$	19,051

No other significant changes have been made to lease commitments disclosed in our Form 10-K for the year ended August 27, 2016.