MONACO COACH CORP /DE/ - 10-K Annual Report

MONACO COACH CORPORATION
(Exact Name of Registrant as specified in its charter)

Delaware		35-1880244
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

91320 Industrial Way
Coburg, Oregon 97408
(Address of principal executive offices)

Title of each class:		Name of each exchange on which registered:
Common Stock, par value $.01 per share		New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes /x/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K / /

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on March 23, 2001 as reported on the New York Stock Exchange, was approximately $228.4 million. Shares of Common Stock held by officers and directors and their affiliated entities have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes.

As of March 23, 2001, the Registrant had 18,985,217 shares of Common Stock outstanding.

The Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 17, 2001 (the "Proxy Statement") is incorporated by reference in Part III of this Form 10-K to the extent stated therein.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include without limitation those below marked with an asterisk (*). In addition, the Company may from time to time make oral forward-looking statements through statements that include the words "believes", "expects", "anticipates" or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to differ materially from those expressed or implied by such forward-looking statements, including those set forth below under "Factors That May Affect Future Operating Results" within Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company cautions the reader, however, that these factors may not be exhaustive.

Monaco Coach Corporation (the "Company") is a leading manufacturer of premium Class A motor coaches, Class C motor coaches and towable recreational vehicles. The Company's product line consists of nineteen models of motor coaches and eight models of towables (fifth wheel trailers and travel trailers) under the "Monaco", "Holiday Rambler", "Royale Coach", and "McKenzie Towables" brand names. The Company's products, which are typically priced at the high end of their respective product categories, range in suggested retail price from $60,000 to $1.2 million for motor coaches and from $24,000 to $80,000 for towables. Based upon retail registrations in 2000, the Company believes it had a 26.9% share of the market for diesel Class A motor coaches, an 11% share of the market for mid-to-high end fifth wheel trailers (units with retail prices above $20,000) and a 32% share of the market for mid-to-high end travel trailers (units with retail prices above $17,000). The Company's products are sold through an extensive network of 338 dealerships located primarily in the United States and Canada.

The Company is the successor to a company formed in 1968 (the "Predecessor") and commenced operations on March 5, 1993 by acquiring all the assets and liabilities of its predecessor company (the "Predecessor Acquisition"). Prior to March 1996, the Company's product line consisted exclusively of High-Line Class A motor coaches. In March 1996, the Company acquired the Holiday Rambler Division of Harley-Davidson, Inc. ("Holiday Rambler"), a manufacturer of a full line of Class A motor coaches and towables (the "Holiday Acquisition"). The Company believes that developing relationships with a broad base of first-time buyers, coupled with the Company's strong emphasis on quality, customer service and design innovation, will foster brand loyalty and increase the likelihood that, over time, more customers will trade-up through the Company's line of products. Attracting larger numbers of first-time buyers is important to the Company because of the Company's belief that many recreational vehicle customers purchase multiple recreational vehicles during their lifetime.

The Company currently manufactures nineteen motor coach and eight towable models, each of which has distinct features and attributes designed to target the model to a particular suggested retail price range. The Company's product offerings currently target four product types within the recreational vehicle market: Class A motor coaches, Class C motor coaches, fifth wheel trailers and travel trailers. The Company does not currently compete in any other product categories of the recreational vehicle industry. During the third quarter of 2000, the Company introduced the Diplomat LE, a new luxury edition of the Monaco brand diesel motor coach. In December 2000, the Company introduced the Scepter, a new diesel motor coach, and its first Class C motor coach, the Atlantis, both under the Holiday Rambler brand name. These products were designed to fill a retail price point previously without a product offering from the Company.

The following table highlights the Company's product offerings as of January 1, 2000:

MODEL	CURRENT SUGGESTED RETAIL PRICE RANGE
Class A
Royale Coach	$	695,000-$1.2 million	Monaco
Signature Series	$	403,000-$475,000	Monaco
Navigator	$	289,000-$385,000	Holiday Rambler
Executive	$	278,000-$385,000	Monaco
Dynasty	$	228,000-$326,000	Monaco
Imperial	$	229,000-$281,000	Holiday Rambler
Windsor	$	196,000-$267,000	Monaco
Diplomat LE	$	187,000-$229,000	Monaco
Scepter	$	182,000-$220,000	Holiday Rambler
Endeavor-Diesel	$	151,000-$196,000	Holiday Rambler
Diplomat	$	147,000-$195,000	Monaco
Knight	$	121,000-$162,000	Monaco
Ambassador	$	121,000-$162,000	Holiday Rambler
Endeavor-Gasoline	$	99,000-$119,000	Holiday Rambler
LaPalma	$	87,000-$120,000	Monaco
Vacationer	$	80,000-$110,000	Holiday Rambler
Monarch	$	75,000-$110,000	Monaco
Admiral	$	73,000-$110,000	Holiday Rambler
Class C
Atlantis	$	60,000-$70,000	Holiday Rambler

MODEL	CURRENT SUGGESTED RETAIL PRICE RANGE
Grand Medallion Fifth Wheel	$	60,000-$79,000	McKenzie
Medallion Fifth Wheel	$	39,000-$65,000	McKenzie
Presidential Fifth Wheel	$	38,000-$47,000	Holiday Rambler
Lakota Fifth Wheel	$	29,000-$49,000	McKenzie
Alumascape Fifth Wheel	$	28,000-$37,000	Holiday Rambler
Aluma-Lite Travel Trailer	$	31,000-$36,000	Holiday Rambler
Medallion Travel Trailer	$	26,000-$37,000	McKenzie
Alumascape Travel Trailer	$	24,000-$30,000	Holiday Rambler

In 2000, the average unit wholesale selling prices of the Company's motor coaches, fifth wheel trailers and travel trailers were approximately $125,700, $27,400 and $21,700, respectively. The Company's motor coach products generated 89.6%, 88.8% and 89.1% of total revenues for the fiscal years 2000, 1999 and 1998, respectively.

The Company's recreational vehicles are designed to offer all the comforts of home within a 190 to 400 square foot area. Accordingly, the interior of the recreational vehicle is designed to maximize use of available space. The Company's products are designed with five general areas, all of which are smoothly integrated to form comfortable and practical mobile accommodations. The five areas are the living room, kitchen, dining room, bathroom and bedroom. For each model, the Company offers a variety of interior layouts.

Each of the Company's recreational vehicles comes fully equipped with a wide range of kitchen and bathroom appliances, audio and visual electronics, communication devices, and other amenities, including couches, dining tables, closets and storage spaces. All of the Company's recreational vehicles incorporate products from well-recognized suppliers, including: stereos, CD and cassette players, VCR's, DVD's and televisions from Quasar, Bose, Panasonic and Sony; microwave ovens from Sharp, Magic Chef, and General Electric; stoves and ranges from KitchenAid and Modern Maid; engines from Cummins; transmissions from Allison; and chassis from Ford and Workhorse. The Company's high end products offer top-of-the-line amenities, including 25" Sony stereo televisions, GPS systems from Carin, fully automatic DSS (satellite) systems, Corian and Wilsonart solid surface kitchen and bath countertops, imported ceramic tile and leather furniture, and Ralph Lauren and Martha Stewart fabrics.

To address changing consumer preferences, the Company modifies and improves its products each model year and typically redesigns each model every three or four years. The Company's designers work with the Company's marketing, manufacturing and service departments to design a product that is appealing to consumers, practical to manufacture and easy to service. The designers try to maximize the quality and value of each model at the strategic retail price point for that model. The marketing and sales staffs suggest features or characteristics that they believe could be integrated into the various models to differentiate the Company's products from those of its competitors. By working with manufacturing personnel, the Company's product designers engineer the recreational vehicles so that they can be built efficiently and with high quality. Service personnel suggest ideas to improve the serviceability and reliability of the Company's products and give the designers feedback on the Company's past designs.

The exteriors of the Company's recreational vehicles are designed to be aesthetically appealing to consumers, aerodynamic in shape for fuel efficiency and practical to manufacture. The Company has an experienced team of computer-aided design personnel to complete the product design and produce prints from which the products will be manufactured.

The Company expensed $5.1 million, $4.7 million and $4.2 million for research and development in the fiscal years 2000, 1999 and 1998, respectively.

The Company expanded its dealer network over the past year from 294 dealerships at the beginning of 2000 to 338 dealerships primarily located in the United States and Canada at December 30, 2000. Revenue generated from shipments to dealerships located outside the United States were approximately 4.3%, 4.0% and 4.3% of total sales for the fiscal years 2000, 1999 and 1998, respectively. The Company's dealerships generally sell either Monaco motor coaches, the McKenzie Towables line, or Holiday Rambler motor coaches and towables. The Company intends to continue to expand its dealer network, primarily by adding additional motorized dealers to carry the Company's new lower priced gas and diesel units as well as towables-only dealers to carry the McKenzie Towables line.* The Company maintains an internal sales organization consisting of 32 account executives who service the Company's dealer network.

The Company analyzes and selects new dealers on the basis of such criteria as location, marketing ability, sales history, financial strength and the capability of the dealer's repair services. The Company provides its dealers with a wide variety of support services, including advertising subsidies and technical training, and offers certain model pricing discounts to dealers who exceed wholesale purchase volume milestones. The Company's sales staff is also available to educate dealers about the characteristics and advantages of the Company's recreational vehicles compared with competing products. The Company

offers dealers geographic exclusivity to carry a particular model. While the Company's dealership contracts have renewable one or two-year terms, historically the Company's dealer turnover rate has been low.

Dealers typically finance their inventory through revolving credit facilities established with asset-based lending institutions, including specialized finance companies and banks. It is industry practice that such "floor plan" lenders require recreational vehicle manufacturers to agree to repurchase (for a period of 12 to 18 months from the date of the dealer's purchase) motor coaches and towables previously sold to the dealer in the event the dealer defaults on its financing agreements. The Company's contingent obligations under these repurchase agreements are reduced by the proceeds received upon the sale of any repurchased units. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources", and Note 14 of Notes to the Company's Consolidated Financial Statements.

The Company advertises regularly in trade journals and magazines, participates in cooperative advertising programs with its dealers, and produces color brochures depicting its models' performance features and amenities. The Company also promotes its products with direct incentive programs to dealer sales personnel linked to sales of particular models.

A critical marketing activity for the Company is its participation in the more than 150 recreational vehicle trade shows and rallies each year. National trade shows and rallies, which can attract as many as 40,000 attendees, are an integral part of the Company's marketing process because they enable dealers and potential retail customers to compare and contrast all the products offered by the major recreational vehicle manufacturers. Setting up attractive display areas at major trade shows to highlight the newest design innovations and product features of its products is critical to the Company's success in attracting and maintaining its dealer network and in generating enthusiasm at the retail customer level. The Company also provides complimentary service for minor repairs to its customers at several rallies and trade shows.

The Company attempts to encourage and reinforce customer loyalty through clubs for the owners of its products so that they may share experiences and communicate with each other. The Company's clubs currently have more than 17,000 members. The Company publishes magazines to enhance its relations with these clubs and holds rallies for clubs to meet periodically to view the Company's new models and obtain maintenance and service guidance. Attendance at Company-sponsored rallies can be as high as 2,100 recreational vehicles per year. The Company frequently receives support from its dealers and suppliers to host these rallies.

The Company's web site also offers an extensive listing of the Company's models, floor plans, and features, including "virtual tours" of some models. A dealer locator feature identifies for customers the closest dealers to their location for the model(s) they are interested in purchasing. The Company's web site also provides information for upcoming rallies and club functions as well as links to other R.V. Lifestyle web sites of interest to existing or potential customers.

The Company believes that customer satisfaction is vitally important in the recreational vehicle market because of the large number of repeat customers and the rapid communication of business reputations among recreational vehicle enthusiasts. The Company also believes that service is an integral part of the total product the Company delivers and that responsive and professional customer service is consistent with the premium image the Company strives to convey in the marketplace.

The Company offers a warranty to all purchasers of its new vehicles. The Company's current warranty covers its products for up to one year (or 24,000 miles, whichever occurs first) from the date

of retail sale (five years for the front and sidewall frame structure). In addition, customers are protected by the warranties of major component suppliers such as those of Cummins Engine Company, Inc. ("Cummins") (diesel engines), Spicer Heavy Axle & Brake Division of Dana Corporation ("Dana") (axles), Allison Transmission Division of General Motors Corporation ("Allison") (transmissions), Workhorse (chassis), and Ford Motor Company ("Ford"). The Company's warranty covers all manufacturing-related problems and parts and system failures, regardless of whether the repair is made at a Company facility or by one of the Company's dealers or authorized service centers. As of December 30, 2000, the Company had 338 dealerships providing service to owners of the Company's products. In addition, owners of the Company's diesel products have access to the entire Cummins dealer network, which includes over 2,000 repair centers.

The Company operates service centers in Coburg, Oregon, Elkhart, Indiana and Leesburg, Florida. The Company had approximately 416 employees in customer service at December 30, 2000. The Company maintains individualized production records and a computerized warranty tracking system which enable the Company's service personnel to identify problems quickly and to provide individualized customer service. While many problems can be resolved on the telephone, the customer may be referred to a nearby dealer or service center. The Company believes that dedicated customer service phone lines are an ideal way to interact directly with the Company's customers and to quickly address their technical problems.

The Company has expanded its on-line dealer support network to assist its service personnel and dealers in providing better service to the Company's customers. Service personnel and dealerships are able to access information relating to specific models and sales orders, file warranty claims and track their status, and view the status of existing parts orders. The Company's on-line dealer support network gives service personnel at dealerships the ability to order parts through an electronic parts catalog.

The Company currently operates motorized manufacturing facilities in Coburg, Oregon and in Wakarusa, Indiana. The Company's towable manufacturing facilities are in Elkhart, Indiana and Coburg, Oregon. The Company also operates its Royale Coach bus conversion facility in Elkhart, Indiana.

During fiscal year 2000, the Company completed the expansion of its diesel chassis manufacturing facilities in Elkhart. With this increase, the Company is currently able to produce all the chassis required for its diesel motor coach production. The Company's motor coach production capacity at the end of 2000 was 14 units per day at its Coburg facility and 25 units per day at its Wakarusa facility. The Company believes that this manufacturing capacity will position the Company to take advantage of future growth potential of the company's products within the RV market.* The company's current towables production capacity is a combined 25 units per day between its Coburg and Elkhart facilities.

The Company believes that its manufacturing process is one of the most vertically integrated in the recreational vehicle industry. By manufacturing a variety of items, including the Roadmaster semi-monocoque diesel chassis, plastic components, some of its cabinetry and fiberglass parts, as well as many subcomponents, the Company maintains increased control over scheduling, component production and overall product quality. In addition, vertical integration enables the Company to be more responsive to market dynamics.

Each facility has several stations for manufacturing, organized into four broad categories: chassis manufacturing, body manufacturing, painting and finishing. It takes from two weeks to two months to build each unit, depending on the product. The Company keeps a detailed log book during the manufacture of each product and inputs key information into its computerized service tracking system.

Each unit is given an inspection during which its appliances and plumbing systems are thoroughly tested. As a final quality control check, each motor coach is given a road test. To further ensure both

dealer and end-user satisfaction, the Company pays a unit fee per recreational vehicle to its dealers so that they will thoroughly inspect each product upon delivery and return a detailed report form.

The Company purchases raw materials, parts, subcomponents, electronic systems, and appliances from approximately 750 vendors. These items are either directly mounted in the vehicle or are utilized in subassemblies which the Company assembles before installation in the vehicle. The Company attempts to minimize its level of inventory by ordering most parts as it needs them. Certain key components that require longer purchasing lead times are ordered based on planned needs. Examples of these components are diesel engines, axles, transmissions, chassis and interior designer fabrics. The Company has a variety of major suppliers, including Allison, Workhorse, Cummins, Dana and Ford. The Company does not have any long-term supply contracts with these suppliers or their distributors, but believes it has good relationships with them. To minimize the risks associated with reliance on a single-source supplier, the Company typically keeps a 60-day supply of axles, engines, chassis and transmissions in stock or available at the suppliers' facilities and believes that, in an emergency, other suppliers could fill the Company's needs on an interim basis.* In 1997, Allison put all chassis manufacturers on allocation with respect to one of the transmissions the Company uses, and in 1999 Ford put one of its gasoline powered chassis on allocation. The Company presently believes that its allocation by suppliers of all components is sufficient to meet planned production volumes, and the Company does not foresee any operating difficulties as a result of vendor supply issues.* Nevertheless, there can be no assurance that Allison, Ford, or any of the Company's other suppliers will be able to meet the Company's future requirements for transmissions, chassis, or other key components. An extended delay or interruption in the supply of any components obtained from a single or limited source supplier could have a material adverse effect on the Company's business, results of operations and financial condition.

The Company's products are generally manufactured against orders from the Company's dealers. As of December 30, 2000, the Company's backlog of orders was $80.6 million, compared to $205.7 million at January 1, 2000. The Company includes in its backlog all accepted purchase orders from dealers shippable within the next six months. Orders in backlog can be canceled at the option of the purchaser at any time without penalty and, therefore, backlog should not be used as a measure of future sales. The Company expects to fill all backlog orders.*

The market for recreational vehicles is highly competitive. The Company currently encounters significant competition at each price point for its recreational vehicle products. The Company believes that the principal competitive factors that affect the market for the Company's products include product quality, product features, reliability, performance, quality of support and customer service, loyalty of customers, brand recognition and price. The Company believes that it competes favorably against its competitors with respect to each of these factors. The Company's competitors include, among others: Coachmen Industries, Inc., Fleetwood Enterprises, Inc., National R.V. Holdings, Inc., Skyline Corporation, SMC Corporation, Thor Industries, Inc. and Winnebago Industries, Inc. Many of the Company's competitors have significant financial resources and extensive marketing capabilities. There can be no assurance that either existing or new competitors will not develop products that are superior to or that achieve better consumer acceptance than the Company's products, or that the Company will continue to remain competitive.

The manufacture and operation of recreational vehicles are subject to a variety of federal, state and local regulations, including the National Traffic and Motor Vehicle Safety Act and safety standards for recreational vehicles and their components that have been promulgated by the Department of

Transportation. These standards permit the National Highway Traffic Safety Administration to require a manufacturer to repair or recall vehicles with safety defects or vehicles that fail to conform to applicable safety standards. Because of its sales in Canada, the Company is also governed by similar laws and regulations promulgated by the Canadian government. The Company has on occasion voluntarily recalled certain products. The Company's operating results could be adversely affected by a major product recall or if warranty claims in any period exceed warranty reserves.

The Company is a member of the Recreation Vehicle Industry Association (the "RVIA"), a voluntary association of recreational vehicle manufacturers and suppliers, which promulgates recreational vehicle safety standards. Each of the products manufactured by the Company has an RVIA seal affixed to it to certify that such standards have been met.

Many states regulate the sale, transportation and marketing of recreational vehicles. The Company is also subject to state consumer protection laws and regulations, which in many cases require manufacturers to repurchase or replace chronically malfunctioning recreational vehicles. Some states also legislate additional safety and construction standards for recreational vehicles.

The Company is subject to regulations promulgated by the Occupational Safety and Health Administration ("OSHA"). The Company's plants are periodically inspected by federal or state agencies, such as OSHA, concerned with workplace health and safety.

The Company believes that its products and facilities comply in all material respects with the applicable vehicle safety, consumer protection, RVIA and OSHA regulations and standards.* Amendments to any of the foregoing regulations and the implementation of new regulations could significantly increase the cost of manufacturing, purchasing, operating or selling the Company's products and could materially and adversely affect the Company's net sales and operating results. The failure of the Company to comply with present or future regulations could result in fines being imposed on the Company, potential civil and criminal liability, suspension of production or cessation of operations.

The Company is subject to product liability and warranty claims arising in the ordinary course of business. To date, the Company has been successful in obtaining product liability insurance on terms the Company considers acceptable. The Company's current policies jointly provide coverage against claims based on occurrences within the policy periods up to a maximum of $41.0 million for each occurrence and $42.0 million in the aggregate. There can be no assurance that the Company will be able to obtain insurance coverage in the future at acceptable levels or that the costs of insurance will be reasonable. Furthermore, successful assertion against the Company of one or a series of large uninsured claims, or of one or a series of claims exceeding any insurance coverage, could have a material adverse effect on the Company's business, operating results and financial condition.

Certain U.S. tax laws currently afford favorable tax treatment for the purchase and sale of recreational vehicles. These laws and regulations have historically been amended frequently, and it is likely that further amendments and additional laws and regulations will be applicable to the Company and its products in the future. Furthermore, no assurance can be given that any increase in personal income tax rates will not have a material adverse effect on the Company's business, operating results and financial condition by reducing demand for the Company's products.

REGULATION The Company's recreational vehicle manufacturing operations are subject to a variety of federal and state environmental regulations relating to the use, generation, storage, treatment and disposal of hazardous materials. These laws are often revised and made more stringent, and it is likely that future amendments to these laws will impact the Company's operations.

The Company has submitted applications for "Title V" air permits for all of its existing and new operations. The air permits have either been issued or are in the process of being issued by the relevant state agency.

The Company does not currently anticipate that any additional air pollution control equipment will be required as a condition of receiving new air permits, although new regulations and their interpretation may change over time, and there can be no assurance that additional expenditures will not be required.*

The Company is aware of the forthcoming adoption and implementation of new federal Maximum Achievable Control Technology ("MACT") regulations. The Company does not currently anticipate that compliance with the MACT regulations by the Company will require any material capital expenditures at its facilities beyond those which have already been incurred.* However, the specific content and interpretation of these regulations is uncertain and there can be no assurance that additional capital expenditures will not be required.

While the Company has in the past provided notice to the relevant state agencies that air permit violations have occurred at its facilities, the Company has resolved all such issues with those agencies, and the Company believes that there are no ongoing violations of any of its existing air permits at any of its owned or leased facilities at this time.* However, the failure of the Company to comply with present or future regulations could subject the Company to: (i) fines; (ii) potential civil and criminal liability; (iii) suspension of production or cessation of operations; (iv) alterations to the manufacturing process; or (v) costly cleanup or capital expenditures, any of which could have a material adverse effect on the Company's business, results of operations and financial condition.

REMEDIATION The Company is not currently involved in remediation activities at any of its facilities and none are in prospect. Nevertheless, there can be no assurance that the Company will not discover environmental problems or incur remediation costs in the future.

As of December 30, 2000, the Company had 3,973 employees, including 3,175 in production, 74 in sales, 416 in service and 308 in management and administration. The Company's employees are not represented by any collective bargaining organization, and the Company has never experienced a work stoppage resulting from labor issues. The Company believes its relations with its employees are good.

The Company's future prospects depend upon its key management personnel, including Kay L. Toolson, the Company's Chief Executive Officer and John W. Nepute, the Company's President. The loss of one or more of these key management personnel could adversely affect the Company's business. The prospects of the Company also depend in part on its ability to attract and retain qualified technical, manufacturing, managerial and marketing personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel.

The following sets forth certain information with respect to the executive officers of the Company as of March 23, 2001:

Name	Age	Position with the Company
Kay L. Toolson	57	Chairman and Chief Executive Officer
John W. Nepute	49	President
Richard E. Bond	47	Senior Vice President, Secretary and Chief Administrative Officer
Martin W. Garriott	45	Vice President and Director of Oregon Manufacturing
Irvin M. Yoder	53	Vice President and Director of Indiana Manufacturing
Patrick F. Carroll	43	Vice President of Product Development
P. Martin Daley	36	Vice President and Chief Financial Officer

Mr. Toolson has served as Chief Executive Officer of the Company and the Predecessor since 1986 and as Chairman of the Company since July 1993. He served as President of the Company from 1986 to October 2000, except for the periods from October 1995 to January 1997 and August 1998 to September 1999. From 1973 to 1986, Mr. Toolson held executive positions with two motor coach manufacturers.

Mr. Nepute has served the Company as President since October 2000. He served as Executive Vice President, Treasurer and Chief Financial Officer from September 1999 to October 2000. Prior to that and from 1991 he served the Company and the Predecessor in the capacity of Vice President of Finance, Treasurer and Chief Financial Officer. From January 1988 until January 1991 he served the Predecessor as Controller.

Mr. Bond has served as Senior Vice President, Secretary and Chief Administrative Officer of the Company since September 1999 and as Vice President, Secretary and Chief Administrative Officer beginning in August of 1998. Prior to that and from February 1997 he served the Company as Vice President, Secretary and General Counsel, having joined the Company in January 1997. From 1987 to December 1996 he held the position of Vice President, Secretary and General Counsel of Holiday Rambler, and originally joined Holiday Rambler as Vice President and Assistant General Counsel in 1984.

Mr. Garriott has served the Company as Vice President and Director of Oregon Manufacturing since January 1997. He has been continuously employed by the Company or the Predecessor since November 1975 in various capacities, including Vice President of Corporate Purchasing from October 1994 until December 1996.

Mr. Yoder has served the Company as Vice President and Director of Indiana Manufacturing since August 1998. Joining the Company upon the acquisition of Holiday Rambler in March 1996 as Director of Indiana Motorized Manufacturing, he served in that capacity through July 1998. Mr. Yoder began his employment with Holiday Rambler in 1969 and held a variety of production-related positions, serving as Area Manager of Motorized Production from 1980 until March 1996.

Mr. Carroll has served as Vice President of Product Development since August 1998 and prior to that as Director of Product Development since joining the Company in October 1995. He has held a variety of marketing and product development positions with various recreational vehicle manufacturers since 1979.

Mr. Daley has served as Vice President and Chief Financial Officer since October 2000. He served as Corporate Controller from March 1996 to October 2000. Prior to that he served as the Oregon Controller since joining the Company in November 1994.

The Company is headquartered in Coburg, Oregon, approximately 100 miles from Portland, Oregon. The following table summarizes the Company's current and planned facilities:

FACILITY	OWNED/ LEASED	APPROXIMATE SQ FOOTAGE	ACTIVITY
Coburg, Oregon	Owned	822,000	Service & Motor Coaches/Towables/Chassis prod.
Coburg, Oregon	Leased	38,000	Service
Elkhart, Indiana	Owned	382,000	Service & Towables/Chassis production
Elkhart, Indiana	Leased	30,000	Bus Conversions production
Wakarusa, Indiana	Owned	1,154,000	Motor Coaches production
Nappanee, Indiana	Owned	130,000	Wood Components production
Springfield, Oregon	Leased	100,000	Fiberglass components production
Leesburg, Florida	Owned	22,000	Service

The Company believes that its existing facilities will be sufficient to meet its production requirements for the foreseeable future.* Should the Company require increased production capacity in the future, the Company believes that additional or alternative space adequate to serve the Company's foreseeable needs would be available on commercially reasonable terms.*

The Company is involved in legal proceedings arising in the ordinary course of its business, including a variety of product liability and warranty claims typical in the recreational vehicle industry. The Company does not believe that the outcome of its pending legal proceedings, net of insurance coverage, will have a material adverse effect on the business, financial condition or results of operations of the Company.*

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the New York Stock Exchange under the symbol "MNC." The following table sets forth for the periods indicated the high and low closing sale prices for the Common Stock (rounded to the nearest $.01 per share).

		High		Low
2000
	First Quarter	$	25.00	$	15.69
	Second Quarter	$	19.38	$	11.06
	Third Quarter	$	18.13	$	12.25
	Fourth Quarter	$	18.38	$	13.94
1999
	First Quarter	$	21.54	$	15.13
	Second Quarter	$	28.21	$	16.25
	Third Quarter	$	30.94	$	23.44
	Fourth Quarter	$	27.50	$	19.31

As of March 23, 2001, there were approximately 607 holders of record of the Company's Common Stock. The high and low closing sales prices listed above have been adjusted to reflect the stock splits approved by the Board on May 19, 1999, November 2, 1998 and March 16, 1998.

The Company has never paid dividends on its Common Stock and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The Company's existing loan agreements limit the payment of dividends on the Common Stock.

The market price of the Company's Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, announcements of new products by the Company or its competitors, general conditions in the recreational vehicle market and other events or factors. In addition, the stocks of many recreational vehicle companies have experienced price and volume fluctuations which have not necessarily been directly related to the companies' operating performance, and the market price of the Company's Common Stock could experience similar fluctuations.

The Consolidated Statements of Income Data set forth below with respect to fiscal years 1998, 1999 and 2000, and the Consolidated Balance Sheet Data at January 1, 2000 and December 30, 2000, are derived from, and should be read in conjunction with, the audited Consolidated Financial Statements and Notes thereto of the Company included in this Annual Report on Form 10-K. The Consolidated Statements of Income Data set forth below with respect to fiscal years 1996 and 1997 and the Consolidated Balance Sheet Data at December 28, 1996, January 3, 1998 and January 2, 1999 are derived from audited consolidated financial statements of the Company which are not included in this Annual Report on Form 10-K.

The data set forth in the following table should be read in conjunction with, and are qualified in their entirety by, Management's Discussion and Analysis of Financial Condition and Results of Operations, the Company's Consolidated Financial Statements and the Notes thereto appearing elsewhere in this Annual Report on Form 10-K.

The following table sets forth financial data of Monaco Coach Corporation for the years indicated (in thousands of dollars, except share and per share data and consolidated operating data).

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company is the successor to a company formed in 1968 (the "Predecessor") and commenced operations on March 5, 1993 by acquiring substantially all of the assets and liabilities of the Predecessor. The Predecessor's management and the manufacturing of its High-Line Class A motor coaches were largely unaffected by the Predecessor Acquisition. However, the Company's consolidated financial statements for fiscal years 1998, 1999 and 2000 all contain Predecessor Acquisition-related expenses, consisting primarily of the amortization of goodwill.

On March 4, 1996, the Company acquired from Harley-Davidson certain assets of Holiday Rambler (the "Holiday Acquisition") in exchange for $21.5 million in cash, 65,217 shares of the Company's Redeemable Preferred Stock (which was subsequently converted into 230,767 shares of the Company's Common Stock), and the assumption of most of the liabilities of Holiday Rambler. Concurrently, the Company acquired ten Holiday World Dealerships for $13.0 million, including a $12.0 million subordinated promissory note, and the assumption of certain liabilities. The Company sold seven Holiday World Dealerships in 1996, retired the $12.0 million note from the proceeds of these sales, and sold the remaining three dealerships in 1997. The Holiday Acquisition was accounted for using the purchase method of accounting.

Beginning on March 4, 1996, the acquired operations were incorporated into the Company's consolidated financial statements. The Company's consolidated financial statements for the fiscal years 1998, 1999 and 2000 contain expenses related to the Holiday Acquisition, consisting of interest expense, the amortization of debt issuance costs and Holiday Acquisition goodwill.

Net sales increased 15.5% from $780.8 million in 1999 to $901.9 million in 2000. The Company's overall unit sales were up 5.3% from 9,502 in 1999 to 10,009 units in 2000. The Company's units sales were up 6.4% on the motorized side reflecting a full year of production in the facilities expanded in third quarter of 1999 in Coburg, Oregon, combined with slightly higher production rates in the other existing motorized facilities in both Coburg, Oregon and Wakarusa, Indiana. Motorized gross sales were up 17.6% reflecting the shift in sales from the Company's gas units to diesel unit sales. The Company's fiscal year 2000 sales of motorized units were helped by the introduction in late 1999 of one new gas and two new diesel motorized products which accounted for 1,344 of the 6,632 motorized units sold in 2000. The Company's 1999 sales of motorized units were helped by the introduction of two new motorized products introduced in 1998 which accounted for 1,643 of the 6,233 motorized units sold in 1999. The Company's unit sales of towable products were up 3.3% from 1999 to 2000 as McKenzie towable operations reported strong increases. The Company's overall average unit selling price increased from $82,900 in 1999 to $91,800 in 2000 reflecting the strong sales growth of the Company's higher priced diesel motorized products. The Company's broad range of product offerings which include several in the less expensive gasoline motor coach market as well as the towable market is expected to keep the overall average selling price below $100,000.*

Gross profit increased by $7.4 million from $122.3 million in 1999 to $129.7 million in 2000 and gross margin decreased from 15.7% in 1999 to 14.4% in 2000. The decrease in gross margin in 2000 was due to a combination of factors resulting from competitive pressures in the market. In the second half of 2000 the Company found it necessary to offer above normal discounts to maintain sales to dealers. In addition, in efforts to match production to the models that were selling well in the market, the Company experienced some production inefficiencies resulting from shifting volume among

production lines as well as changing the mix of models produced on those lines. The Company's overall gross margin may fluctuate in future periods if the mix of products shifts from higher to lower gross margin units or if the Company encounters unexpected manufacturing difficulties or competitive pressures.

Selling, general, and administrative expenses increased by $10.4 million from $48.8 million in 1999 to $59.2 million in 2000 and increased as a percentage of sales from 6.2% in 1999 to 6.6% in 2000. Selling, general, and administrative expenses benefited in 1999 from a $1.75 million reduction in the estimated accrual for 1998 incentive based compensation. Without this benefit, selling, general, and administrative expenses in 1999 would have been $50.5 million or 6.5% of sales, only slightly lower than the 6.6% of sales in 2000.

Operating income decreased $3.0 million from $72.8 million in 1999 to $69.8 million in 2000. The Company's static level of selling, general, and administrative expense as a percentage of sales combined with the reduction in the Company's gross margin, resulted in a decrease in operating margin to 7.7% in 2000 compared to 9.3% in 1999. The Company's operating margin in 1999 was positively affected by the $1.75 million reduction of incentive based compensation accrued for 1998. Without this benefit the Company's operating margin in 1999 would have been 9.1%.

Net interest expense decreased $511,000 from $1.1 million in 1999 to $632,000 in 2000. The Company capitalized $195,000 of interest expense in 1999 relating to the construction in Oregon and $192,000 in 2000 relating to the construction in Indiana. The Company's interest expense included $176,000 in 1999 and $61,300 in 2000 related to the amortization of debt issuance costs recorded in conjunction with the Company's credit facilities. Additionally, interest expense in 1999 and 2000 included $639,000 and $52,700, respectively, from accelerated amortization of debt issuance costs related to the credit facilities. The Company paid off its long term debt of approximately $10 million at the end of the first quarter of 1999 and also reduced the amount of availability on its revolving line of credit. The Company also paid off its revolving credit facility in the third quarter of 2000 and obtained financing from another lender. See "Liquidity and Capital Resources".

The Company reported a provision for income taxes of $28.1 million, or an effective tax rate of 39.1%, for 1999, compared to $26.9 million, or an effective tax rate of 38.7% for 2000.

Net income decreased by $1.3 million from $43.8 million in 1999 to $42.5 million in 2000, due to the increase in net sales being offset with a lower operating margin.

Net sales increased 31.3% from $594.8 million in 1998 to $780.8 million in 1999. The Company's overall unit sales were up 36% from 6,985 in 1998 to 9,502 units in 1999. The Company's units sales were up 30.7% on the motorized side reflecting higher production rates in both the Coburg, Oregon and Wakarusa, Indiana motorized plants. The Company's unit sales of towable products were up 47.5% from 1998 to 1999 as both the Holiday Rambler and McKenzie towable operations reported strong increases. The Company's sales of towable units had been dampened in 1998 by the consolidation of the two Indiana-based towable facilities into one Company-owned facility in Elkhart, Indiana. This consolidation slowed unit production volume in that facility in the second quarter of 1998, and production of towables in Indiana was constrained in the second half of 1998 while that plant was expanded and remodeled. The remodeling and expansion of the Elkhart facility was completed by the end of 1998 and Indiana towable production capacity returned to pre-consolidation levels in 1999. The Company's overall average unit selling price decreased slightly from $86,100 in 1998 to $82,900 in 1999 reflecting the strong sales growth of the Company's new lower priced motorized and towable products.

Gross profit increased by $40.1 million from $82.2 million in 1998 to $122.3 million in 1999 and gross margin increased from 13.8% in 1998 to 15.7% in 1999. In 1999 gross margin benefited from a strong mix of motorized products and manufacturing efficiencies from an increase in production volume

in all of the Company's manufacturing plants. Gross margin in 1998 was dampened by lower gross margins in the three towable plants in the first half of 1998 due to reduced production volumes in those plants and by costs incurred in the second quarter of 1998 related to consolidation of the two Indiana-based towable plants into one Company-owned facility in Elkhart, Indiana.

Selling, general, and administrative expenses increased by $7.2 million from $41.6 million in 1998 to $48.8 million in 1999 and decreased as a percentage of sales from 7.0% in 1998 to 6.2% in 1999. Selling, general, and administrative expenses benefited in 1999 from a $1.75 million reduction in the estimated accrual for 1998 incentive based compensation. Without this benefit, selling, general, and administrative expenses in 1999 would have increased by $9.0 million to $50.5 million or 6.5% of sales, still significantly less than the 7.0% of sales in 1998. The decrease in selling, general, and administrative expenses as a percentage of sales reflected efficiencies arising from the Company's increased sales level.

Operating income increased $32.8 million from $40.0 million in 1998 to $72.8 million in 1999. The Company's lower selling, general, and administrative expense as a percentage of sales combined with the improvement in the Company's gross margin, resulted in an increase in operating margin to 9.3% in 1999 compared to 6.7% in 1998. The Company's operating margin in 1999 was positively affected by the $1.75 million reduction of incentive based compensation accrued for 1998. Without this benefit the Company's operating margin in 1999 would have been 9.1%.

Net interest expense decreased $718,000 from $1.9 million in 1998 to $1.1 million in 1999. The Company capitalized $44,000 of interest expense in 1998 relating to the construction in Indiana and $195,000 in 1999 relating to the construction in Oregon. The Company's interest expense included $411,000 in 1998 and $176,000 in 1999 related to the amortization of debt issuance costs recorded in conjunction with the Company's credit facilities. Additionally, interest expense in 1999 included $639,000 from accelerated amortization of debt issuance costs related to the credit facilities.

The Company reported a provision for income taxes of $16.1 million, or an effective tax rate of 41.5%, for 1998, compared to $28.1 million, or an effective tax rate of 39.1% for 1999.

Net income increased by $21.1 million from $22.7 million in 1998 to $43.8 million in 1999, due to the increase in net sales combined with an improvement in operating margin and a decrease in interest expense.

The Company does not believe that inflation has had a material impact on its results of operations for the periods presented.

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS The Company's net sales, gross margin and operating results may fluctuate significantly from period to period due to factors such as the mix of products sold, the ability to utilize and expand manufacturing resources efficiently, material shortages, the introduction and consumer acceptance of new models offered by the Company, competition, the addition or loss of dealers, the timing of trade shows and rallies, and factors affecting the recreational vehicle industry as a whole. In addition, the Company's overall gross margin on its products may decline in future periods to the extent the Company increases its sales of lower gross margin towable products or if the mix of motor coaches sold shifts to lower gross margin units. Due to the relatively high selling prices of the Company's products (in particular, its High-Line Class A motor coaches), a relatively small variation in the number of recreational vehicles sold in any quarter can have a significant effect on sales and operating results for that quarter. Demand in the overall recreational vehicle industry generally declines during the winter months, while sales and revenues are generally higher during the spring and summer months. With the broader range of recreational vehicles now

offered by the Company, seasonal factors could have a significant impact on the Company's operating results in the future. In addition, unusually severe weather conditions in certain markets could delay the timing of shipments from one quarter to another.

CYCLICALITY The recreational vehicle industry has been characterized by cycles of growth and contraction in consumer demand, reflecting prevailing economic, demographic and political conditions that affect disposable income for leisure-time activities. Unit sales of recreational vehicles (excluding conversion vehicles) reached a peak of approximately 259,000 units in 1994 and declined to approximately 247,000 units in 1996. The industry peaked again in 1999 at approximately 321,000 units and began declining thereafter as unit sales in 2000 were approximately 300,000 units. Furthermore, the Company offers a broad range of recreational vehicle products and is susceptible to the cyclicality inherent in the recreational vehicle industry. Factors affecting cyclicality in the recreational vehicle industry include fuel availability and fuel prices, prevailing interest rates, the level of discretionary spending, the availability of credit and overall consumer confidence. In particular, the decline in consumer confidence and/or a slowing of the overall economy has had a material adverse effect on the recreational vehicle market. An extended continuance of these conditions could have a material adverse effect on the Company's business, results of operations and financial condition.

MANAGEMENT OF GROWTH Over the past several years the Company has experienced significant growth in the number of its employees and the scope of its business. This growth has resulted in the addition of new management personnel and increased responsibilities for existing management personnel, and has placed added pressure on the Company's operating, financial and management information systems. While management believes it has been successful in managing this expansion there can be no assurance that the Company will not encounter problems in the future associated with the continued growth of the Company. Failure to adequately support and manage the growth of its business could have a material adverse effect on the Company's business, results of operations and financial condition.

MANUFACTURING EXPANSION The Company has significantly increased its manufacturing capacity over the last few years. The integration of the Company's facilities and the expansion of the Company's manufacturing operations involve a number of risks including unexpected building and production difficulties. In the past the Company experienced startup inefficiencies in manufacturing a new model and also has experienced difficulty in increasing production rates at a plant. There can be no assurance that the Company will successfully integrate its manufacturing facilities or that it will achieve the anticipated benefits and efficiencies from its expanded manufacturing operations. In addition, the Company's operating results could be materially and adversely affected if sales of the Company's products do not increase at a rate sufficient to offset the Company's increased expense levels resulting from this expansion.

The setup of new models and scale-up of production facilities involve various risks and uncertainties, including timely performance of a large number of contractors, subcontractors, suppliers and various government agencies that regulate and license construction, each of which is beyond the control of the Company. The setup of production for new models involves risks and costs associated with the development and acquisition of new production lines, molds and other machinery, the training of employees, and compliance with environmental, health and safety and other regulatory requirements. The inability of the Company to complete the scale-up of its facilities and to commence full-scale commercial production in a timely manner could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the Company may from time to time experience lower than anticipated yields or production constraints that may adversely affect its ability to satisfy customer orders. Any prolonged inability to satisfy customer demand could have a material adverse effect on the Company's business, results of operations and financial condition.

CONCENTRATION OF SALES TO CERTAIN DEALERS Although the Company's products were offered by 338 dealerships located primarily in the United States and Canada at the end of 2000, a significant percentage of the Company's sales have been and will continue to be concentrated among a relatively small number of independent dealers. Sales to Lazy Days RV Center, Inc. accounted for 10.0% of the Company's sales in 1999 and 12.1% in 2000. The Company's 10 largest dealers, including Lazy Days RV Center, Inc., accounted for a combined 33.0% of sales in 1999 and 36.0% in 2000. The loss of a significant dealer or a substantial decrease in sales by such a dealer could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business—Sales and Marketing."

POTENTIAL LIABILITY UNDER REPURCHASE AGREEMENTS As is common in the recreational vehicle industry, the Company enters into repurchase agreements with the financing institutions used by its dealers to finance their purchases. These agreements obligate the Company to repurchase a dealer's inventory under certain circumstances in the event of a default by the dealer to its lender. If the Company were obligated to repurchase a significant number of its products in the future, it could have a material adverse effect on the Company's financial condition, business and results of operations. The Company's contingent obligations under repurchase agreements vary from period to period and totaled approximately $320.1 million as of December 30, 2000, with approximately 7.5% concentrated with one dealer. See "Liquidity and Capital Resources" and Note 14 of Notes to the Company's Consolidated Financial Statements.

AVAILABILITY AND COST OF FUEL An interruption in the supply, or a significant increase in the price or tax on the sale, of diesel fuel or gasoline on a regional or national basis could have a material adverse effect on the Company's business, results of operations and financial condition. Diesel fuel and gasoline have, at various times in the past, been difficult to obtain, and there can be no assurance that the supply of diesel fuel or gasoline will continue uninterrupted, that rationing will not be imposed, or that the price of or tax on diesel fuel or gasoline, which have increased in price in the past year, will not significantly increase in the future, any of which could have a material adverse effect on the Company's business, results of operations and financial condition.

DEPENDENCE ON CERTAIN SUPPLIERS A number of important components for certain of the Company's products are purchased from single or limited sources, including its turbo diesel engines (Cummins), substantially all of its transmissions (Allison), axles (Dana) for all diesel motor coaches and chassis (Workhorse and Ford) for certain of its motorhome products. The Company has no long term supply contracts with these suppliers or their distributors, and there can be no assurance that these suppliers will be able to meet the Company's future requirements for these components. In 1997, Allison put all chassis manufacturers on allocation with respect to one of the transmissions the Company uses, and in 1999 Ford put one of its gasoline powered chassis on allocation. The Company presently believes that its allocation by suppliers of all components is sufficient to meet planned production volumes, and the Company does not foresee any operating difficulties as a result of vendor supply issues.* Nevertheless, there can be no assurance that Allison, Ford, or any of the Company's other suppliers will be able to meet the Company's future requirements for transmissions, chassis or other key components. An extended delay or interruption in the supply of any components obtained from a single or limited source supplier could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business—Changes."

NEW PRODUCT INTRODUCTIONS The Company believes that the introduction of new features and new models will be critical to its future success. Delays in the introduction of new models or product features or a lack of market acceptance of new models or features and/or quality problems with new models or features could have a material adverse effect on the Company's business, results of operations and financial condition. For example, unexpected costs associated with model changes have adversely affected the Company's gross margin in the past. Future product introductions could divert

revenues from existing models and adversely affect the Company's business, results of operations and financial condition.

COMPETITION The market for the Company's products is highly competitive. The Company currently competes with a number of other manufacturers of motor coaches, fifth wheel trailers and travel trailers, many of which have significant financial resources and extensive distribution capabilities. There can be no assurance that either existing or new competitors will not develop products that are superior to, or that achieve better consumer acceptance than, the Company's products, or that the Company will continue to remain competitive.

RISKS OF LITIGATION The Company is subject to litigation arising in the ordinary course of its business, including a variety of product liability and warranty claims typical in the recreational vehicle industry. Although the Company does not believe that the outcome of any pending litigation, net of insurance coverage, will have a material adverse effect on the business, results of operations or financial condition of the Company, due to the inherent uncertainties associated with litigation there can be no assurance in this regard.*

To date, the Company has been successful in obtaining product liability insurance on terms the Company considers acceptable. The Company's current policies jointly provide coverage against claims based on occurrences within the policy periods up to a maximum of $65.0 million for each occurrence and $66.0 million in the aggregate. There can be no assurance that the Company will be able to obtain insurance coverage in the future at acceptable levels or that the costs of insurance will be reasonable. Furthermore, successful assertion against the Company of one or a series of large uninsured claims, or of one or a series of claims exceeding any insurance coverage, could have a material adverse effect on the Company's business, results of operations and financial condition.

The Company's primary sources of liquidity are internally generated cash from operations and available borrowings under its credit facilities. During 2000, the Company had cash flows of $6.4 million from operating activities. The Company generated $48.9 million from net income and non-cash expenses such as depreciation and amortization, which was offset by a net increase in the Company's working capital accounts. Accounts receivable increased $31.5 million related to significant shipments during the final two weeks of the year. Inventories increased by $26.8 million reflecting the Company's plan to carry higher than normal finished goods levels to keep efficient production run rates. These increases were only partially offset by the $16.2 million increase in accounts payable.

During the third quarter of 2000, the Company paid off its revolving line of credit and obtained a commitment from another lender for financing. As part of the transition between credit facilities, the Company's new lender issued the Company a temporary revolving line of credit of up to $40 million (the "Temporary Revolving Loan") which was paid on January 18, 2001. The Company's new permanent credit facility consists of a revolving line of credit of up to $50.0 million (the "Revolving Loan"). At the election of the Company, the Revolving Loan bears interest at variable interest rates based on the Prime Rate or LIBOR. The Revolving Loan is due and payable in full on April 30, 2003, and requires monthly interest payments. The balance outstanding under the Temporary Revolving Loan at December 30, 2000 was $20.6 million. The Revolving Loan is collateralized by all of the assets of the Company and includes various restrictions and financial covenants. The Company utilizes "zero balance" bank disbursement accounts in which an advance on the line of credit is automatically made for checks clearing each day. Since the balance of the disbursement account at the bank returns to zero at the end of each day the outstanding checks of the Company are reflected as a liability. The outstanding check liability is combined with the Company's positive cash balance accounts to reflect a net book overdraft or a net cash balance for financial reporting.

The Company's principal working capital requirements are for purchases of inventory and financing of trade receivables. The Company's dealers typically finance product purchases under wholesale floor plan arrangements with third parties as described below. At December 30, 2000, the Company had working capital of approximately $69.3 million, an increase of $30.4 million from working capital of $38.9 million at January 1, 2000. The Company has been using short-term credit facilities and cash flow to finance its construction of facilities and other capital expenditures.

The Company believes that cash flow from operations and funds available under its credit facilities will be sufficient to meet the Company's liquidity requirements for the next 12 months.* The Company's capital expenditures were $19.8 million in 2000, primarily for the expansion of facilities which began in late 1999 including the new diesel chassis manufacturing facility in Elkhart, Indiana and upgrading the service and warranty facilities in both Oregon and Indiana as well as a new service center in Florida. In the fiscal year 2000, the Company also spent about $4 to $5 million on routine capital expenditures for computer system upgrades and additions, smaller scale plant remodeling projects and normal replacement of outdated or worn-out equipment. The Company is expecting capital expenditures in 2001 to be approximately $12 to $15 million, which includes completing the Company's warranty and service center projects and minor modifications to existing manufacturing facilities.* The Company may require additional equity or debt financing to address working capital and facilities expansion needs, particularly if the Company significantly increases the level of working capital assets such as inventory and accounts receivable. The Company may also from time to time seek to acquire businesses that would complement the Company's current business, and any such acquisition could require additional financing. There can be no assurance that additional financing will be available if required or on terms deemed favorable by the Company.

As is typical in the recreational vehicle industry, many of the Company's retail dealers utilize wholesale floor plan financing arrangements with third party lending institutions to finance their purchases of the Company's products. Under the terms of these floor plan arrangements, institutional lenders customarily require the recreational vehicle manufacturer to agree to repurchase any unsold units if the dealer fails to meet its commitments to the lender, subject to certain conditions. The Company has agreements with several institutional lenders under which the Company currently has repurchase obligations. The Company's contingent obligations under these repurchase agreements are reduced by the proceeds received upon the sale of any repurchased units. The Company's obligations under these repurchase agreements vary from period to period. At December 30, 2000, approximately $320.1 million of products sold by the Company to independent dealers were subject to potential repurchase under existing floor plan financing agreements with approximately 7.5% concentrated with one dealer. If the Company were obligated to repurchase a significant number of units under any repurchase agreement, its business, operating results and financial condition could be adversely affected.

In June 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS No. 133 requires that all derivatives be recognized at fair value in the balance sheet, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. SFAS No. 133, as amended, will be effective for fiscal years beginning after June 15, 2000. The Company has adopted the provisions of FASB No. 133. The Company does not currently hold derivative instruments or engage in hedging

activities and therefore the adoption of FASB No. 133 has not had a significant effect on the Company's financial position, results of operations or cash flows.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders' equity, and of cash flows listed in the accompanying index present fairly, in all material respects, the financial position of Monaco Coach Corporation and Subsidiaries (the Company) at January 1, 2000 and December 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements and are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying notes are an integral part of these consolidated financial statements.

Monaco Coach Corporation and its subsidiaries (the "Company") manufacture premium motor coaches, bus conversions and towable recreational vehicles at manufacturing facilities in Oregon and Indiana. These products are sold primarily to independent dealers throughout the United States and Canada.

Pursuant to Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," effective for fiscal years beginning after December 31, 1997, the Company has determined that it has a single reportable operating segment consisting of the design, manufacture, and sale (wholesale) of recreational vehicles including motor coaches and towable fifth wheel and travel trailers. These product lines have similar economic characteristics and are similar in the nature of products, manufacturing processes, customer characteristics, and distribution methods.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated.

The Company follows a 52/53 week fiscal year period ending on the Saturday closest to December 31. Interim periods also end on the Saturday closest to the calendar quarter end. For 1998, 1999, and 2000, all fiscal periods were 52 weeks long. All references to years in the consolidated financial statements relate to fiscal years rather than calendar years.

Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk—The Company distributes its products through an independent dealer network for recreational vehicles. Sales to one customer were approximately 6%, 10%, and 12% of net revenues for the fiscal years ended January 2, 1999, January 1, 2000, and December 30, 2000 respectively. No other individual dealers represented over 10% of net revenues in 1998, 1999, or 2000. The loss of a significant dealer or a substantial decrease in sales by such a dealer could have a material adverse effect on the Company's business, results of operations and financial results.

Concentrations of credit risk exist for accounts receivable and repurchase agreements (see Note 14), primarily for the Company's largest dealers. The Company generally sells to dealers throughout the United States and there is no geographic concentration of credit risk.

Reliance on Key Suppliers—The Company's production strategy relies on certain key suppliers' ability to deliver subassemblies and component parts in time to meet manufacturing schedules. The

Company has a variety of key suppliers, including Allison, Workhorse, Cummins, Dana, and Ford. The Company does not have any long-term contracts with these suppliers or their distributors. In 1997, Allison put all chassis manufacturers on allocation with respect to one of the transmissions the Company uses, and in 1999 Ford put one of its gasoline powered chassis on allocation. In light of these dependencies, it is possible that failure of Allison, Ford or any of the other suppliers to meet the Company's future requirements for transmissions, chassis or other key components could have a material near-term impact on the Company's business, results of operations and financial condition.

Warranty Claims—Estimated warranty costs are provided for at the time of sale of products with warranties covering the products for up to one year from the date of retail sale (five years for the front and sidewall frame structure).

Inventories consist of raw materials, work-in-process and finished recreational vehicles and are stated at the lower of cost (first-in, first-out) or market. Cost of work-in-process and finished recreational vehicles includes material, labor and manufacturing overhead costs.

Property, plant and equipment, including significant improvements thereto, are stated at cost less accumulated depreciation and amortization. Cost includes expenditures for major improvements, replacements and renewals and the net amount of interest cost associated with significant capital additions during periods of construction. Capitalized interest was $44,000 in 1998, $195,000 in 1999 and $192,000 in 2000. Maintenance and repairs are charged to expense as incurred. Replacements and renewals are capitalized. When assets are sold, retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income.

The cost of plant and equipment is depreciated using the straight-line method over the estimated useful lives of the related assets. Buildings are generally depreciated over 39 years and equipment is depreciated over 3 to 10 years. Leasehold improvements are amortized under the straight-line method based on the shorter of the lease periods or the estimated useful lives.

At each balance sheet date, management assesses whether there has been permanent impairment in the value of long-lived assets. The amount of any such impairment is determined by comparing anticipated undiscounted future cash flows from operating activities with the associated carrying value. The factors considered by management in performing this assessment include current operating results, trends and prospects, as well as the effects of obsolescence, demand, competition and other economic factors.

Goodwill represents the excess of the cost of acquisition over the fair value of net assets acquired. The Company is the successor to a company formed in 1968 (the "Predecessor") and commenced operations on March 5, 1993 by acquiring substantially all of the assets and liabilities of the Predecessor. The goodwill arising from the acquisition of the assets and operations of the Company's Predecessor in March 1993 is being amortized on a straight-line basis over 40 years and, at December 30, 2000, the unamortized amount was $16.6 million. In March 1996, the Company acquired

the Holiday Rambler Division of Harley-Davidson, Inc. ("Holiday Rambler"). The goodwill arising from the acquisition of Holiday Rambler is being amortized on a straight-line basis over 20 years; at December 30, 2000, the unamortized amount was $1.9 million. At each balance sheet date, management assesses whether there has been permanent impairment in the value of goodwill. The amount of any such impairment is determined by comparing anticipated undiscounted future cash flows from operating activities with the associated carrying value. The factors considered by management in performing this assessment include current operating results, trends and prospects, as well as the effects of obsolescence, demand, competition and other economic factors.

Deferred taxes are recognized based on the difference between the financial statement and tax bases of assets and liabilities at enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax expense or benefit represents the change in deferred tax asset/liability balances. A valuation allowance is established for deferred tax assets when it is more likely than not that the deferred tax asset will not be realized.

The Company recognizes revenue from the sale of recreational vehicles upon shipment.

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. SAB No. 101 provides guidance for revenue recognition under certain circumstances. The Company has complied with the guidance provided by SAB No. 101 for the fiscal years 1998, 1999 and 2000.

The Company expenses advertising costs as incurred, except for prepaid show costs which are expensed when the event takes place. During 2000, approximately $7.8 million ($6.2 million in 1998 and $6.4 million in 1999) of advertising costs were expensed.

Research and development costs are charged to expense as incurred and were $5.1 million for 2000 ($4.2 million in 1998 and $4.7 million for 1999).

		1998		1999		2000
		(in thousands)
Cash paid during the period for:
	Interest, net of amount capitalized of $44 in 1998, $195 in 1999 and $192 in 2000	$	1,994	$	1,131	$	632
	Income taxes		14,733		30,823		28,226

	January 1, 2000		December 30, 2000
	(in thousands)
Raw materials	$	48,300	$	45,187
Work-in-process		26,743		31,739
Finished units		12,553		37,471

	$	87,596	$	114,397

	January 1, 2000		December 30, 2000
	(in thousands)
Land	$	6,323	$	6,687
Buildings		72,184		83,564
Equipment		16,679		20,559
Furniture and fixtures		5,687		6,644
Vehicles		1,028		1,232
Leasehold improvements		825		854
Construction in progress		567		3,504

		103,293		123,044
Less accumulated depreciation and amortization		13,854		19,454

	$	89,439	$	103,590

	January 1, 2000		December 30, 2000
	(in thousands)
Payroll, vacation and related accruals	$	11,652	$	11,371
Payroll and property taxes		1,815		1,491
Reserve for warranty claims		15,300		15,479
Reserve for product liability claims		7,543		6,391
Promotional and advertising		1,085		1,271
Other		3,014		2,475

	$	40,409	$	38,478

Company's new lender issued the Company a temporary revolving line of credit of up to $40 million (the "Temporary Revolving Loan") which was paid on January 18, 2001. The Company's new permanent credit facility consists of a revolving line of credit of up to $50.0 million (the "Revolving Loan"). At the election of the Company, the Temporary Revolving Loan and the Revolving Loan bear interest at variable interest rates based on the Prime Rate or LIBOR. The Revolving Loan is due and payable in full on April 30, 2003, and requires monthly interest payments. The balance outstanding under the Temporary Revolving Loan at December 30, 2000 was $20.6 million. The Temporary Revolving Loan and the Revolving Loan are collateralized by all of the assets of the Company, and include various restrictions and financial covenants.

The weighted average interest rate on the outstanding borrowings under the revolving line of credit was 8.0% and 8.9% for 1999 and 2000, respectively. Interest expense on the unused available portion of the line was $89,000 or .32% and $34,000 or .4% of weighted average outstanding borrowings for 1999 and 2000, respectively. The revolving line of credit is collateralized by all the assets of the Company. The agreement contains restrictive covenants as to the Company's leverage ratio, current ratio, fixed charge coverage ratio and tangible net worth.

The Company has authorized "blank check" preferred stock (1,934,783 shares authorized, $.01 par value) ("Preferred Stock"), which may be issued from time to time in one or more series upon authorization by the Company's Board of Directors. The Board of Directors, without further approval of the stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges and restrictions applicable to each series of the Preferred Stock. There were no shares of Preferred Stock outstanding as of January 1, 2000 or December 30, 2000.

The Company had designated 100,000 shares of the original 2,000,000 shares authorized of Preferred Stock as Series A Convertible Preferred Stock ("Series A") at $.01 par value. The Company issued 65,217 shares of Series A in connection with the Holiday Acquisition. The outstanding shares of Series A were converted into 230,767 shares of Common Stock in conjunction with the Company's secondary public offering on June 23, 1997. None of the Series A remained authorized at December 30, 2000.

			1998			1999			2000
			(in thousands)
Current:
	Federal		$	14,985		$	24,439		$	19,120
	State			3,119			5,133			4,130

				18,104			29,572			23,250
Deferred:
	Federal			(1,660	)		(1,222	)		2,945
	State			(351	)		(269	)		664

		Provision for income taxes	$	16,093		$	28,081		$	26,859

The reconciliation of the provision for income taxes at the U.S. federal statutory rate to the Company's effective income tax rate is as follows:

	1998		1999			2000
	(in thousands)
Expected U.S. federal income taxes at statutory rates	$	13,567	$	25,145		$	24,283
State and local income taxes, net of federal benefit		1,799		3,162			3,116
Other		727		(226	)		(539	)

	$	16,093	$	28,081		$	26,860

The components of the current net deferred tax asset and long-term net deferred tax liability are:

		January 1, 2000		December 30, 2000
		(in thousands)
Current deferred income tax assets:
	Warranty liability	$	6,063	$	6,121
	Product liability		2,989		2,527
	Inventory reserves		2,443		1,853
	Payroll and related accruals		973		958
	Other accruals		1,022		1,738

		$	13,490	$	13,197

Long-term deferred income tax liabilities:
	Depreciation	$	2,194	$	5,197
	Amortization		2,136		2,449

		$	4,330	$	7,646

Management believes that the temporary differences which gave rise to the deferred income tax assets will be reversed in the foreseeable future and that the benefit thereof will be realized as a reduction in the provision for current income taxes.

Basic earnings per common share is based on the weighted average number of shares outstanding during the period using net income attributable to common stock as the numerator. Diluted earnings per common share is based on the weighted average number of shares outstanding during the period, after consideration of the dilutive effect of stock options and convertible preferred stock, using net income as the numerator. The weighted average number of common shares used in the computation of earnings per common share for the years ended January 2, 1999, January 1, 2000 and December 30, 2000 are as follows:

	1998	1999	2000
Basic
Issued and outstanding shares (weighted average)	18,658,003	18,808,963	18,918,082
Effect of Dilutive Securities
Stock options	423,981	558,006	400,761

Diluted	19,081,984	19,366,969	19,318,843

The Company has commitments under certain noncancelable operating leases. Total rental expense for the fiscal years ended January 2, 1999, January 1, 2000, and December 30, 2000 related to operating leases amounted to approximately $1.1 million, $1.0 million, and $2.4 million, respectively.

Approximate future minimum rental commitments under these leases at January 1, 2000 are summarized as follows:

Fiscal Year		(in thousands)
	2001		1,645
	2002		271
	2003		31

The Company has a discretionary bonus plan for certain key employees. Bonus expense included in selling, general and administrative expenses for the years ended January 2, 1999, January 1, 2000 and December 30, 2000 was $9.0 million, $8.0 million and $9.0 million, respectively.

The Company has an Employee Stock Purchase Plan (the "Purchase Plan")—1993, a Non-employee Director Stock Option Plan (the "Director Plan")—1993, and an Incentive Stock Option Plan (the "Option Plan")—1993:

The Company's Purchase Plan qualifies under Section 423 of the Internal Revenue Code. The Company has reserved 455,625 shares of Common Stock for issuance under the Purchase Plan. During the years ended January 1, 2000 and December 30, 2000, 25,394 shares and 46,390 shares, respectively, were purchased under the Purchase Plan. The weighted-average fair value of purchase rights granted in 1999 and 2000 was $20.40 and $18.60, respectively. Under the Purchase Plan, an eligible employee may

purchase shares of common stock from the Company through payroll deductions of up to 10% of base compensation, at a price per share equal to 85% of the lesser of the fair market value of the Company's Common Stock as of the first day (grant date) or the last day (purchase date) of each six-month offering period under the Purchase Plan.

The Purchase Plan is administered by a committee appointed by the Board. Any employee who is customarily employed for at least 20 hours per week and more than five months in a calendar year by the Company, or by any majority-owned subsidiary designated from time to time by the Board, and who does not own 5% or more of the total combined voting power or value of all classes of the Company's outstanding capital stock, is eligible to participate in the Purchase Plan.

Each non-employee director of the Company is entitled to participate in the Company's "Director Plan". The Board of Directors and the stockholders have authorized a total of 135,000 shares of Common Stock for issuance pursuant to the Director Plan. Under the terms of the Director Plan, each eligible non-employee director is automatically granted an option to purchase 8,000 shares of Common Stock (the "Initial Option") on the later of the effective date of the Company's initial public offering or the date on which the optionee first becomes a director of the Company. Thereafter, each optionee is automatically granted an additional option to purchase 3,500 shares of Common Stock (a "Subsequent Option") on September 30 of each year if, on such date, the optionee has served as a director of the Company for at least six months. Each Initial Option vests over five years at the rate of 20% of the shares subject to the Initial Option at the end of each anniversary following the date of grant. Each Subsequent Option vests in full on the fifth anniversary of its date of grant. The exercise price of each option is the fair market value of the Common Stock as determined by the closing price reported by the New York Stock Exchange on the date of grant. As of December 30, 2000, 16,200 options had been exercised, and options to purchase 92,700 shares of common stock were outstanding.

The Option Plan provides for the grant to employees of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the grant to employees and consultants of the Company of nonstatutory stock options. A total of 1,771,875 shares of Common Stock have been reserved for issuance under the Option Plan. As of December 30, 2000, options to purchase 891,683 shares of Common Stock were outstanding. These options vest ratably over five years commencing with the date of grant.

The exercise price of all incentive stock options granted under the Option Plan must be at least equal to the fair market value of a share of the Company's Common Stock on the date of grant. With respect to any participant possessing more than 10% of the voting power of the Company's outstanding capital stock, the exercise price of any option granted must equal at least 110% of the fair market value on the grant date, and the maximum term of the option must not exceed five years. The terms of all other options granted under the Option Plan may not exceed ten years.

Transactions involving the Director Plan and the Option Plan are summarized with corresponding weighted-average exercise prices as follows:

		Shares		Price
Outstanding at January 3, 1998		754,640		$	3.98
	Granted	188,335			11.60
	Exercised	(144,345	)		2.86
	Forfeited	(17,116	)		5.64

Outstanding at January 2, 1999		781,514			5.99
	Granted	155,151			15.66
	Exercised	(124,264	)		5.22
	Forfeited	(2,972	)		8.43

Outstanding at January 1, 2000		809,429			7.95
	Granted	137,900			18.64
	Exercised	(45,873	)		4.87
	Forfeited	(9,773	)		11.89

Outstanding at December 30, 2000		891,683		$	9.72

For various price ranges, weighted average characteristics of all outstanding stock options at December 30, 2000 were as follows:

		Options Outstanding				Options Exercisable
Range of Exercise Prices		Shares	Remaining Life (years)	Weighted- Average Price		Shares	Weighted- Average Price
$	0.98	75,601	2.2	$	0.98	75,601	$	0.98
$	2.45-4.88	220,287	4.2		4.24	187,060		4.26
$	4.89-7.31	127,310	5.9		5.40	59,936		5.32
$	7.32-9.75	10,800	6.6		7.55	—		—
$	9.76-12.19	169,434	7.3		11.59	58,391		11.62
$	12.20-17.06	165,351	8.4		15.51	29,070		15.37
$	17.07-19.50	117,900	9.2		19.00	—		—
$	19.51-24.38	5,000	8.8		24.38	—		—

		891,683				410,058

The Company complies with the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", and thus no compensation cost has been recognized for the Director Plan, the Option Plan or the Purchase Plan. Had compensation cost for the three stock-based compensation plans been determined based on the fair value of options at the date of grant consistent with the

provisions of SFAS No. 123, the Company's pro forma net income and pro forma earnings per share would have been as follows:

	1998		1999		2000
	(In thousands, except per share data)
Net income — as reported	$	22,669	$	43,761	$	42,521
Net income — pro forma		22,226		43,067		41,743
Diluted earnings per share — as reported	$	1.19	$	2.26	$	2.20
Diluted earnings per share — pro forma		1.17		2.22		2.16

The pro forma effect on net income for 1998, 1999 and 2000 is not representative of the pro forma effect in future years because compensation expense related to grants made in prior years is not considered. For purposes of the above pro forma information, the fair value of each option grant was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	1998		1999		2000
Risk-free interest rate	5.57	%	5.29	%	6.27	%
Expected life (in years)	6.69		6.65		5.68
Expected volatility	56.58	%	55.65	%	54.63	%
Expected dividend yield	0.00	%	0.00	%	0.00	%

The fair value of the Company's financial instruments are presented below. The estimates require subjective judgments and are approximate. Changes in methodologies and assumptions could significantly affect estimates.

Line of Credit—The carrying amount outstanding on the revolving line of credit is $7.9 million and $20.6 million at January 1, 2000 and December 30, 2000, respectively, which approximates the estimated fair value as this instrument requires interest payments at a market rate of interest plus a margin.

The Company sponsors a 401(k) defined contribution plan covering substantially all full-time employees. Company contributions to the plan totaled $493,000 in 1998, $571,000 in 1999 and $593,000 in 2000.

Substantially all of the Company's sales to independent dealers are made on terms requiring cash on delivery. The Company does not finance dealer purchases. However, most purchases are financed on a "floor plan" basis by a bank or finance company which lends the dealer all or substantially all of the wholesale purchase price and retains a security interest in the vehicles. Upon request of a lending institution financing a dealer's purchases of the Company's product, the Company will execute a repurchase agreement. These agreements provide that, for up to 18 months after a unit is shipped, the Company will repurchase a dealer's inventory in the event of a default by a dealer to its lender.

The Company's liability under repurchase agreements is limited to the unpaid balance owed to the lending institution by reason of its extending credit to the dealer to purchase its vehicles, reduced by the resale value of vehicles which may be repurchased. The risk of loss is spread over numerous dealers and financial institutions.

No significant net losses were incurred during the years ended January 2, 1999, January 1, 2000 or December 30, 2000. The approximate amount subject to contingent repurchase obligations arising from these agreements at December 30, 2000 is $320.1 million. If the Company were obligated to repurchase a significant number of recreational vehicles in the future, losses and reduction in new recreational vehicle sales could result.

The Company is subject to regulations which may require the Company to recall products with design or safety defects, and such recall could have a material adverse effect on the Company's business, results of operations and financial condition.

The Company has from time to time been subject to product liability claims. To date, the Company has been successful in obtaining product liability insurance on terms the Company considers acceptable. The terms of the policy contain a self-insured retention amount of $100,000 per occurrence, with a maximum annual aggregate self-insured retention of $1.0 million. Overall product liability insurance, including umbrella coverage, is available to a maximum amount of $65.0 million for each occurrence and an annual aggregate of $66.0 million. There can be no assurance that the Company will be able to obtain insurance coverage in the future at acceptable levels or that the cost of insurance will be reasonable. Furthermore, successful assertion against the Company of one or a series of large uninsured claims, or of one or a series of claims exceeding any insurance coverage, could have a material adverse effect on the Company's business, results of operations and financial condition.

The Company is involved in various legal proceedings which are incidental to the industry and for which certain matters are covered in whole or in part by insurance or, otherwise, the Company has recorded accruals for estimated settlements. Management believes that any liability which may result from these proceedings will not have a material adverse effect on the Company's consolidated financial statements.

In 2000, the Company loaned $2.8 million to Outdoor Resorts of Las Vegas ("ORLV") for the purpose of constructing a luxury motor coach resort in Las Vegas, Nevada. As part of the financing structure for the new resort, the Company also agreed to act as co-guarantor with ORLV's parent company, Outdoor Resorts of America ("ORA"), on an $11.2 million construction loan. In return for the Company's loan and guarantee commitment, ORLV has agreed to pay interest and income participation to the Company. At December 30, 2000 ORLV had drawn $5.5 million on the construction loan.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Information required by this Item regarding directors and executive officers set forth under the captions "Proposal 1—Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act" in the Registrant's definitive Proxy Statement is incorporated herein by reference.

Information required by this Item regarding compensation of the Registrant's directors and executive officers set forth under the captions "Proposal 1—Election of Directors—Compensation of Directors" and "Additional Information—Executive Compensation" in the Proxy Statement is incorporated herein by reference.

Information required by this Item regarding beneficial ownership of the Registrant's Common Stock by certain beneficial owners and management of the Registrant set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated herein by reference.

Information required by this Item regarding certain relationships and related transactions with management set forth under the caption "Additional Information—Compensation Committee Interlocks and Insider Participation" in the Proxy Statement is incorporated herein by reference.

1. Financial Statements. The Consolidated Financial Statements of Monaco Coach Corporation and the Report of Independent Accountants are filed in Item 8 within this Annual Report on Form 10-K.

2. Financial Statement Schedule. The following financial statement schedule of Monaco Coach Corporation for the fiscal years ended January 2, 1999, January 1, 2000 and December 30, 2000 is filed as part of this Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements, and related notes thereto, of Monaco Coach Corporation.

Schedule				Page
II		Valuation and Qualifying Accounts		44

Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

3. EXHIBITS. The following Exhibits are filed as part of, or incorporated by reference into, this Report on Form 10-K.

Exhibit No.		Exhibit
3.1		Amended and Restated Certificate of Incorporation of the Registrant (Incorporated herein by reference to Exhibit (3.1) to the Registrant's Annual Report on Form 10-K for the year ended January 1, 1994).
3.2		Certificate of Amendment of Amended & Restated Certificate of Incorporation dated June 30, 1999 (Incorporated herein by reference to Exhibit (3.2) to the Registrant's Annual Report on Form 10-K for the year ended January 1, 2000).
3.3		Bylaws of Registrant, as amended to date (Incorporated herein by reference to Exhibit (3.2) to the Registrant's Annual Report on Form 10-K for the year ended January 1, 1994).
10.1		Form of Indemnification Agreement for directors and executive officers (Incorporated herein by reference to Exhibit (10.2) to the Registrant's Registration Statement on Form S-1 (Reg. No. 33-67374) declared effective on September 23, 1993).
10.2†		1993 Incentive Stock Option Plan and form of option agreement thereunder (Incorporated herein by reference to Exhibit (3.2) to the Registrant's Annual Report on Form 10-K for the year ended January 1, 2000).
10.3†		1993 Director Option Plan and form of subscription agreement thereunder.
10.4†		1993 Employee Stock Purchase Plan and form of subscription agreement thereunder (Incorporated herein by reference to Exhibit (10.5) to the Registrant's Registration Statement on Form S-1 (Reg. No. 33-67374) declared effective on September 23, 1993).
10.5		Temporary Credit Agreement dated August 25, 2000 with U.S. Bank National Association (Incorporated herein by reference to Exhibit (10.1) to the Registrant's quarterly report on Form 10-Q filed November 14, 2000).
10.6		Temporary Credit Agreement dated November 30, 2000 with U.S. Bank National Association.
10.7†		Executive Variable Compensation Plan (Incorporated herein by reference to Exhibit A to the Registrant's definitive Proxy Statement filed with the Securities and Exchange Commission on April 19, 1999).
11.1		Computation of earnings per share (see Note 8 of Notes to Consolidated Financial Statements included in Item 8 hereto).
21.1		Subsidiaries of Registrant.
23.1		Consent of Independent Accountants.
24.1		Power of Attorney (included on the signature pages hereof).

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kay L. Toolson and P. Martin Daley, and each of them, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on 10-K has been signed by the following persons in the capacities and on the dates indicated:

PART I
ITEM 1.	BUSINESS	3
ITEM 2.	PROPERTIES	12
ITEM 3.	LEGAL PROCEEDINGS	12
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	12
PART II
ITEM 5.	MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS	13
ITEM 6.	SELECTED FINANCIAL DATA	13
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	24
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	42
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT	43
ITEM 11.	EXECUTIVE COMPENSATION	43
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	43
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	43
PART IV
ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	44
SIGNATURES		46

		Fiscal Year
		1996 (1)			1997 (1)			1998			1999			2000
Consolidated Statements of Income Data:
Net sales		$	365,638		$	441,895		$	594,802		$	780,815		$	901,890
Cost of sales			317,909(2	)		382,367			512,570			658,536			772,240

	Gross profit		47,729			59,528			82,232			122,279			129,650
Selling, general and administrative expenses			33,371			36,307			41,571			48,791			59,175
Amortization of goodwill			617			594			645			645			645

	Operating income		13,741			22,627			40,016			72,843			69,830
Other income, net			(244	)		(468	)		(607	)		(142	)		(182	)
Interest expense			3,914			2,379			1,861			1,143			632
Gain on sale of dealership assets			—			539			—			—			—

	Income before provision for income taxes		10,071			21,255			38,762			71,842			69,380
Provision for income taxes			4,162			8,819			16,093			28,081			26,859

	Net income		5,909			12,436			22,669			43,761			42,521
Redeemable preferred stock dividends			(75	)		—			—			—			—
Accretion of redeemable preferred stock			(84	)		(317	)		—			—			—

Net income attributable to common stock			5,750			12,119			22,669			43,761			42,521

Earnings per common share:
	Basic	$	0.39(3	)	$	0.72		$	1.21		$	2.33		$	2.25
	Diluted	$	0.38(3	)	$	0.71		$	1.19		$	2.26		$	2.20
Weighted average shares outstanding:
	Basic		14,924,880			16,865,842			18,658,003			18,808,963			18,918,082
	Diluted		15,743,665			17,545,464			19,081,984			19,366,969			19,318,843
Consolidated Operating Data:
Units sold: (4)
	Motor coaches		2,733			3,347			4,768			6,233			6,632
	Towables		1,977			2,397			2,217			3,269			3,377
Dealerships at end of period			159			208			263			294			338
Consolidated Balance Sheet Data:
Working capital		$	4,502		$	10,412		$	23,676		$	38,888		$	69,299
Total assets			135,368			159,832			190,127			246,727			321,610
Long-term borrowings, less current portion			16,500			11,500			5,400			—			—
Redeemable preferred stock			2,687			—			—			—			—
Total stockholders' equity			43,807			74,748			98,193			143,339			186,625

			January 1, 2000		December 30, 2000
ASSETS
Current assets:
	Trade receivables, net of $199 and $164 respectively		$	36,538	$	67,998
	Inventories			87,596		114,397
	Prepaid expenses			322		1,046
	Deferred income taxes			13,490		13,197

		Total current assets		137,946		196,638
Notes receivable, less current portion						2,800
Property, plant and equipment, net				89,439		103,590
Debt issuance costs, net of accumulated amortization of $1,999 and $2,113 respectively				114		0
Goodwill, net of accumulated amortization of $4,029 and $4,675 respectively				19,228		18,582

		Total assets	$	246,727	$	321,610

LIABILITIES
Current liabilities:
	Book overdraft		$	12,478	$	15,178
	Line of credit			7,853		20,585
	Accounts payable			36,912		53,098
	Income taxes payable			1,406		0
	Accrued expenses and other liabilities			40,409		38,478

		Total current liabilities		99,058		127,339
Deferred income taxes				4,330		7,646

		Total liabilities		103,388		134,985

Commitments and contingencies (Note 14)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 50,000,000 shares authorized, 18,871,084 and 18,952,107 issued and outstanding respectively				189		190
Additional paid-in capital				46,268		47,032
Retained earnings				96,882		139,403

		Total stockholders' equity		143,339		186,625

		Total liabilities and stockholders' equity	$	246,727	$	321,610

	Common Stock
	Common Stock			Additional Paid-in Capital			Retained Earnings
	Shares	Amount		Additional Paid-in Capital			Retained Earnings		Total
Balances, January 3, 1998	5,496,499		55		44,241			30,452		74,748
Issuance of common stock	72,420		1		590					591
Tax benefit of stock options exercised					185					185
Stock splits	6,912,176		69		(69	)				0
Net income								22,669		22,669

Balances, January 2, 1999	12,481,095		125		44,947			53,121		98,193
Issuance of common stock	116,311		1		956					957
Tax benefit of stock options exercised					428					428
Stock split	6,273,678		63		(63	)				0
Net income								43,761		43,761

Balances, January 1, 2000	18,871,084		189		46,268			96,882		143,339
Issuance of common stock	81,023		1		727					728
Tax benefit of stock options exercised					37					37
Net income								42,521		42,521

Balances, December 30, 2000	18,952,107	$	190	$	47,032		$	139,403	$	186,625

					1998			1999			2000
Increase (Decrease) in Cash:
Cash flows from operating activities:
	Net income				$	22,669		$	43,761		$	42,521
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				4,947			5,904			6,359
		Gain on disposal of equipment				(32	)
		Deferred income taxes				(2,011	)		(1,491	)		3,609
		Change in assets and liabilities:
			Trade receivables, net			(10,764	)		(465	)		(31,460	)
			Inventories			(14,145	)		(28,030	)		(26,801	)
			Prepaid expenses			785			(179	)		(724	)
			Accounts payable			5,000			8,414			16,186
			Income taxes payable			3,144			(2,743	)		(1,406	)
			Accrued expenses and other liabilities			7,392			6,990			(1,931	)

				Net cash provided by operating activities		16,985			32,161			6,353

Cash flows from investing activities:
	Additions to property, plant and equipment					(10,286	)		(32,228	)		(19,750	)
	Proceeds from sale of equipment					189
	Collections on notes receivable					1,847			910
	Issuance of notes receivable					(80	)					(2,800	)

				Net cash used in investing activities		(8,330	)		(31,318	)		(22,550	)

Cash flows from financing activities:
	Book overdraft					3,757			1,959			2,700
	(Payments) borrowings on line of credit, net					(7,713	)		6,213			12,732
	Payments on long-term notes payable					(5,475	)		(10,400	)
	Issuance of common stock					591			1,385			765
	Other					185

				Net cash (used in) provided by financing activities		(8,655	)		(843	)		16,197

Net change in cash						0			0			0
Cash at beginning of period						0			0			0

Cash at end of period					$	0		$	0		$	0

		Page
Monaco Coach Corporation—Consolidated Financial Statements:
	Report of Independent Accountants	25
	Consolidated Balance Sheets as of January 1, 2000 and December 30, 2000	26
	Consolidated Statements of Income for the Fiscal Years Ended January 2, 1999, January 1, 2000 and December 30, 2000	27
	Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended January 2, 1999, January 1, 2000 and December 30, 2000	28
	Consolidated Statements of Cash Flows for the Fiscal Years Ended January 2, 1999, January 1, 2000 and December 30, 2000	29
	Notes to Consolidated Financial Statements	30
Schedule Included in Item 14(a):
	II Valuation and Qualifying Accounts	47

Year ended January 2, 1999		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
		(In thousands, except per share data)
Net sales		$	137,176	$	134,679	$	153,223	$	169,724
Gross profit			18,353		18,141		21,332		24,406
Operating income			7,616		8,173		10,770		13,457
Net income			4,193		4,493		6,313		7,670

Earnings per common share:
	Basic	$	0.23	$	0.24	$	0.34	$	0.41
	Diluted	$	0.22	$	0.24	$	0.33	$	0.40

Year ended January 1, 2000		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
		(In thousands, except per share data)
Net sales		$	193,201	$	199,178	$	196,694	$	191,742
Gross profit			29,164		31,347		30,998		30,770
Operating income			17,300		18,919		18,373		18,251
Net income			9,878		11,457		11,227		11,199

Earnings per common share:
	Basic	$	0.53	$	0.61	$	0.60	$	0.59
	Diluted	$	0.51	$	0.59	$	0.58	$	0.58

Year ended December 30, 2000		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
		(In thousands, except per share data)
Net sales		$	237,983	$	226,091	$	226,393	$	211,423
Gross profit			37,314		32,117		30,908		29,311
Operating income			21,375		18,217		16,143		14,095
Net income			12,918		11,148		9,807		8,648

Earnings per common share:
	Basic	$	0.68	$	0.59	$	0.52	$	0.46
	Diluted	$	0.67	$	0.58	$	0.51	$	0.45

March 30, 2001		MONACO COACH CORPORATION
		By:		/s/ KAY L. TOOLSON Kay L. Toolson Chief Executive Officer

Signature	Title	Date

/s/ KAY L. TOOLSON (Kay L. Toolson)	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	March 30, 2001
/s/ P. MARTIN DALEY (P. Martin Daley)	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 30, 2001
/s/ MICHAEL J. KLUGER (Michael J. Kluger)	Director	March 30, 2001
/s/ CARL E. RING, JR. (Carl E. Ring, Jr.)	Director	March 30, 2001
/s/ RICHARD A. ROUSE (Richard A. Rouse)	Director	March 30, 2001
/s/ ROGER A. VANDENBERG (Roger A. Vandenberg)	Director	March 30, 2001

Description		Balance at Beginning of Period		Charge to Expense		Claims Paid		Balance at End of Period
Fiscal year ended January 2, 1999:
	Reserve for warranty claims	$	9,981	$	12,726	$	10,801	$	11,906

	Reserve for product liability	$	5,259	$	3,872	$	3,433	$	5,698

Fiscal year ended January 1, 2000:
	Reserve for warranty claims	$	11,906	$	14,881	$	11,487	$	15,300

	Reserve for product liability	$	5,698	$	5,625	$	3,780	$	7,543

Fiscal year ended December 30, 2000:
	Reserve for warranty claims	$	15,300	$	17,474	$	17,295	$	15,479

	Reserve for product liability	$	7,543	$	5,489	$	6,641	$	6,391