Shipments Fall, Repurchases Rise at Winnebago Industries

As is common in the recreational vehicle industry, Winnebago Industries has entered into repurchase agreements with lending institutions, which provide that, in the event of default by RV dealers on the their agreement to repay financing, Winnebago has guaranteed to repurchase the financed merchandise. Amid the current recession, which has caused many RV dealerships to fold, inventory repurchases climbed 189% year-on-year to $4.9 million during the first quarter of 2009 ended November 29, according to its 10-Q regulatory filing:

• The company incurred a significant increase in losses associated with repurchases due to challenging motor home industry conditions (loss recognized increased to $479,000 from $37,000 last year). As a result, we have increased our repurchase reserve as of November 29, 2008, to provide for potential future losses. Repurchase reserves under our repurchase agreements at November 29, 2008 and August 30, 2008 were $1.7 million and $661,000, respectively.
• The agreements provide that our liability will not exceed 100 percent of the dealer invoice and provide for periodic liability reductions based on the time since the date of the original invoice. Our contingent liability on these repurchase agreements was approximately $142.6 million at November 29, 2008.

In my opinion, however, Winnebago remains one of the better-positioned RV makers, due to its solid balance sheet. The company has $34 million in cash, working capital of $102 million, and no long-term debt.