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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended January 3, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
___________ to ___________
Commission File Number: 0-22256
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MONACO COACH CORPORATION
(Exact Name of Registrant as specified in its charter)
DELAWARE 35-1880244
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
91320 INDUSTRIAL WAY
COBURG, OREGON 97408
(Address of principal executive offices)
Registrant's telephone number, including area code: (541) 686-8011
----------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
----------------------------
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 X
---
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
February 27, 1998 as reported on the Nasdaq National Market, was
approximately $157,469,515. 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 February 27, 1998, the Registrant had 5,501,165 shares of Common Stock
outstanding.
----------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on May 20, 1998 (the "Proxy Statement") is
incorporated by reference in Part III of this Form 10-K to the extent stated
therein.
----------------------------
This document consists of 55 pages. The Exhibit Index appears at page 52.
INDEX
PART I
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS 11
ITEM 6. SELECTED FINANCIAL DATA 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT 45
ITEM 11. EXECUTIVE COMPENSATION 45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 46
SIGNATURES 49
2
PART I
THIS REPORT CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING,
WITHOUT LIMITATION, STATEMENTS THAT INCLUDE THE WORDS "BELIEVES," "EXPECTS,"
AND "ANTICIPATES," "PLANS" OR SIMILAR EXPRESSIONS AND STATEMENTS. 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. ALTHOUGH THE COMPANY BELIEVES THAT ITS PLANS,
INTENTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH PLANS, INTENTIONS OR
EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE SET FORTH IN
THIS REPORT.
ITEM 1. BUSINESS
Monaco Coach Corporation (the "Registrant" or "Company") is a leading
manufacturer of premium Class A motor coaches and towable recreational
vehicles. The Company's product line consists of a broad line of motor
coaches, 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 $750,000 for motor coaches and from $15,000 to $70,000 for towables. Based
upon retail registrations in 1997, the Company believes it had a 30% share of
the market for High-Line Class A motor coaches (units with retail prices
above $120,000), a 9% share of the market for high end fifth wheel trailers
(units with retail prices above $24,000) and a 57% share of the market for
high end travel trailers (units with retail prices above $20,000). The
Company's products are sold through an extensive network of 208 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 Holiday Acquisition: (i) more than doubled the
Company's net sales; (ii) provided the Company with a significantly broader
range of products, including complementary High-Line Class A motor coaches
and the Company's first product offerings of fifth wheel trailers, travel
trailers and entry-level to mid-range motor coaches; and (iii) lowered the
price threshold for first-time buyers of the Company's products, thus making
them more affordable for a significantly larger base of potential customers.
PRODUCTS
The Company currently manufactures 11 motor coach and seven 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 three segments of the recreational vehicle market:
Class A motor coaches, fifth wheel trailers and travel trailers. The Company
does not currently compete, and has no present plans to compete, in any other
segment of the recreational vehicle industry. In December 1997, the Company
introduced the Diplomat, a new low-end diesel motor coach under the Monaco
brand name, and plans to introduce two new gasoline powered models, the La
Palma, under the Monaco label, and the Admiral, under the Holiday Rambler
brand, in the summer of 1998. All three of these products are designed to
bring customers into the Company's line of products at a lower price point
giving the Company the opportunity to benefit as these customers trade-up
through the Company's line of products. The following table highlights the
Company's current product offerings.
COMPANY MOTOR COACH PRODUCTS
CURRENT SUGGESTED
MODEL RETAIL PRICE RANGE BRAND
- --------------------------------------------------- ------------------ --------
Royale Coach....................................... $550,000-$750,000 Monaco
Signature Series................................... $300,000-$400,000 Monaco
Executive.......................................... $250,000-$300,000 Monaco
Navigator.......................................... $250,000-$300,000 Holiday Rambler
Dynasty............................................ $205,000-$240,000 Monaco
Imperial........................................... $190,000-$210,000 Holiday Rambler
Windsor............................................ $150,000-$175,000 Monaco
Diplomat........................................... $130,000-$145,000 Monaco
Endeavor-Diesel.................................... $130,000-$145,000 Holiday Rambler
Endeavor-Gasoline.................................. $ 80,000-$ 95,000 Holiday Rambler
Vacationer......................................... $ 75,000-$ 85,000 Holiday Rambler
La Palma........................................... $ 60,000-$ 75,000 Monaco*
Admiral............................................ $ 60,000-$ 75,000 Holiday Rambler*
* The Company plans to introduce these models in the summer of 1998.
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COMPANY TOWABLE PRODUCTS
CURRENT SUGGESTED
MODEL RETAIL PRICE RANGE BRAND
- ---------------------------------------------- ------------------ ----------
Imperial Fifth Wheel.......................... $ 50,000-$ 70,000 Holiday Rambler
Aluma-Lite Fifth Wheel........................ $ 35,000-$ 50,000 Holiday Rambler
McKenzie Fifth Wheel.......................... $ 35,000-$ 50,000 McKenzie
Alumascape Fifth Wheel........................ $ 20,000-$ 35,000 Holiday Rambler
Aluma-Lite Travel Trailer..................... $ 25,000-$ 45,000 Holiday Rambler
Alumascape Travel Trailer..................... $ 15,000-$ 25,000 Holiday Rambler
McKenzie Travel Trailer....................... $ 15,000-$ 25,000 McKenzie
In 1997, the average unit wholesale selling prices of the Company's motor
coaches, fifth wheel trailers and travel trailers were approximately
$112,700, $32,400 and $22,400, 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, video
cassette recorders and televisions from Quasar and Sony, microwave ovens from
Sharp and General Electric, stoves and ranges from KitchenAid and Modern
Maid, and refrigerators from Dometic and Norcold. The Company's high end
products offer top-of-the-line amenities, including 20" Sony stereo
televisions, fully automatic DSS (satellite) systems, Corian kitchen and bath
countertops, imported ceramic tile and leather furniture.
PRODUCT DESIGN
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.
SALES AND MARKETING
DEALERS
Over the past six years, the Company has expanded its dealer network from
34 dealerships in 1992 to 208 dealerships primarily located in the United
States and Canada at January 3, 1998. 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 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 Towable line. The Company maintains an internal
sales organization consisting of account executives and support staff who
service the Company's dealer network.
4
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 17 of Notes to the Company's
Consolidated Financial Statements. The Company does not anticipate any
significant losses will be incurred under these agreements. No material
charge has been incurred during the last four years.
As a result of the Holiday Acquisition, the Company acquired 10 retail
dealerships (the "Holiday World Dealerships"). The Company sold seven of
these Holiday World Dealerships in 1996 and sold the remaining three
dealerships in 1997.
ADVERTISING AND PROMOTION
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
14,000 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 1,800 recreational vehicles.
The Company frequently receives support from its dealers and suppliers to
host these rallies.
CUSTOMER SERVICE
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 one year. In addition,
customers are protected by the warranties of major component suppliers such
as those of Cummins Engine Company, Inc. ("Cummins") (diesel engines), Eaton
Corporation ("Eaton") (axles), Allison Transmission Division of General
Motors Corporation ("Allison") (transmissions) and Chevrolet Motor Division
of General Motors Corporation ("Chevrolet"), Ford Motor Company ("Ford") and
Freightliner Custom Chassis Corporation ("Freightliner") (chassis). The
Company's warranty covers all manufacturing-related problems and part 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 January 3, 1998, the Company had 208 dealerships providing service to
owners of the Company's products. In addition,
5
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 and Elkhart and
Wakarusa, Indiana. 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.
MANUFACTURING
The Company currently operates motorized manufacturing facilities in
Coburg, Oregon, where it manufactures Signature Series, Executive, Dynasty
and Navigator motor coaches and in Wakarusa, Indiana, where it manufactures
Imperial, Endeavor, Vacationer, Dynasty, Diplomat, La Palma, Admiral and
Windsor motor coaches. The Company's towable manufacturing facilities are in
Elkhart, Indiana, where it manufactures Alumascape fifth wheel and travel
trailers; in Wakarusa, Indiana where it produces Imperial and Aluma-Lite
fifth wheel and travel trailers, and Springfield, Oregon, where it
manufactures McKenzie fifth wheel and travel trailers. The Company also
operates its Royale Coach bus conversion facility in Elkhart, Indiana.
The Company recently completed an upgrade and expansion of its Wakarusa
motorized facility. The Company's current motor coach production capacity is
three units per day at its Coburg facility and 25 units per day at its
Wakarusa facility. The Company believes its production of motor coaches has
been limited by capacity constraints in recent years and the Company's
current capacity is double that of a year ago.
The Company's current towables production capacity is a combined 21 units
per day at its Wakarusa, Springfield, and Elkhart facilities. The expansion
of the Wakarusa motorized facility and the subsequent consolidation of all
Indiana motorized production into that facility freed up existing space at
the Elkhart facility which will be used to consolidate all Indiana towable
production into that facility in June 1998. This will allow the Company to
vacate existing leased towable manufacturing space in Wakarusa prior to the
expiration of that lease in July 1998. Towable production capacity will be a
combined 23 units per day in the remaining Elkhart and Springfield facilities.
The Company believes that this expanded manufacturing capacity will free
the Company from capacity constraints on its motor coach production and allow
the Company to gradually increase its overall production volumes for motor
coaches, including the new models, and towables, consistent with anticipated
market demand.
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 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 three 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 has a 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, Chevrolet,
Cummins, Eaton, Ford and Freightliner. 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
6
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. Recently,
Allison put all chassis manufacturers on allocation with respect to one of
the transmissions the Company uses. However, the Company believes that its
allocation is sufficient to enable the unit volume increases that are planned
for models using that transmission and does not foresee any operating
difficulties with respect to this issue. Nevertheless, there can be no
assurance that Allison or any of the other suppliers will be able to meet the
Company's future requirements for transmissions 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.
BACKLOG
The Company's products are generally manufactured against orders from the
Company's dealers. As of January 3, 1998, the Company's backlog of orders was
$170.8 million compared to $100.2 million at December 28, 1996.
Approximately $30 million of the year-to-year increase in the Company's
backlog is related to orders taken for the Company's new Diplomat motor
coach, which was introduced at the Louisville, Kentucky show in the first
week of December 1997. The Company began production of this model in January
1998 and as a result all of those orders were unfilled as of year-end. 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.
COMPETITION
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. Some of the Company's
competitors have significantly greater financial resources and more extensive
marketing capabilities than the Company. 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.
GOVERNMENT REGULATION
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, except for the Royale Coach bus
conversions.
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.
7
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.
ENVIRONMENTAL REGULATION AND REMEDIATION
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 operations. The air permits have either been issued or not yet acted
upon 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.
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 clean-up 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 has identified petroleum and/or solvent ground contamination
at the Elkhart, Indiana manufacturing facility, at the Wakarusa, Indiana
manufacturing facility and the Leesburg, Florida dealership acquired in the
Holiday Acquisition and subsequently sold in 1997. The Company has remediated
the Elkhart site and recommended to the relevant Indiana regulatory authority
that no further action be taken because the remaining contaminants are below
the state's clean-up standards. The Company currently expects that the
regulatory authority will concur with this finding, although there is no
assurance that such approval will be forthcoming or that the regulatory
authority will not require additional investigation and/or remediation. The
Company has investigated the Wakarusa site and recently recommended to the
relevant regulatory authority that no further action be taken at that site
based on its consultant's view that there is a limited risk associated with
the remaining contamination. It is unclear whether the regulatory authority
will concur in this finding or whether additional remediation will be
required. In Florida, the Company has recently proposed additional sampling
and monitoring of the site for two (2) years to the relevant Florida
regulatory authority with respect to the contamination associated with former
underground storage tanks at the Leesburg dealership for the purpose of
confirming that the site is stable and natural
8
attenuation is reducing known contamination. With regard to the Wakarusa and
Leesburg sites, the Company is indemnified by Harley-Davidson for
investigation and remediation costs incurred by the Company (subject to a
$300,000 deductible in the case of the Wakarusa site and subject to a $10
million maximum in the case of the Wakarusa site and a $5 million maximum in
the case of the Leesburg site for matters, such as these, that were
identified at the closing of the Holiday Acquisition).
The Company does not believe that any costs it will bear with respect to
continued investigation or remediation of the foregoing locations and other
facilities currently or formerly owned or occupied by the Company will have a
material adverse effect upon the Company's business, results of operations or
financial condition. Nevertheless, there can be no assurance that the Company
will not discover additional environmental problems or that the cost to the
Company of the remediation activities will not exceed the Company's
expectations.
EMPLOYEES
As of January 3, 1998, the Company had 2,433 employees, including 2,048
in production, 40 in sales, 158 in service and 187 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. The Company believes its relations with its employees are good.
DEPENDENCE ON KEY PERSONNEL
The Company's future prospects depend upon its key management personnel,
including Kay L. Toolson, the Company's Chief Executive Officer. 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.
ITEM 2. PROPERTIES
The Company is headquartered in Coburg, Oregon, approximately 100 miles
from Portland, Oregon. The following table summarizes the Company's current
manufacturing facilities:
APPROXIMATE SQUARE
MANUFACTURING FACILITY OWNED/LEASED FOOTAGE PRODUCTS MANUFACTURED
- ----------------------------------------- ------------ ------------------ -------------------------
Coburg, Oregon........................... Owned 300,000 Motor Coaches
Elkhart, Indiana......................... Owned 325,000 Towables
Elkhart, Indiana......................... Leased 28,000 Bus Conversions
Wakarusa, Indiana........................ Owned/Leased(1) 1,044,000 Motor Coaches, Towables
Nappanee, Indiana........................ Owned 130,000 Wood Components
Springfield, Oregon...................... Leased 100,000 Towables
- -------------------------
(1) The Company leases approximately 110,510 square feet of this facility.
The Company believes that after the recent expansion of its motor coach
and towable facilities its existing facilities are 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.
9
ITEM 3. LEGAL PROCEEDINGS
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MCCO." The following table sets forth for the periods indicated
the high and low closing sale prices for the Common Stock as reported on the
Nasdaq National Market.
HIGH LOW
------------------
1996
First Quarter.................... 14.25 8.50
Second Quarter................... 14.00 11.50
Third Quarter.................... 14.625 10.625
Fourth Quarter................... 16.50 12.25
1997
First Quarter ................... 21.50 15.50
Second Quarter................... 23.25 16.50
Third Quarter.................... 25.75 21.00
Fourth Quarter................... 25.75 22.375
On February 27, 1998 the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $39.50. As of February 27, 1998,
there were approximately 212 holders of record of the Company's Common Stock.
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 prohibit the payment of
dividends on the Common Stock without the lender's consent.
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.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The Consolidated Statements of Income Data set forth below with respect
to fiscal years 1995, 1996 and 1997, and the Consolidated Balance Sheet Data
at December 28, 1996 and January, 3, 1998, 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 1993 and 1994 and the Consolidated Balance Sheet Data at January 1,
1994, December 31, 1994 and December 30, 1995 are derived from audited
financial statements of the Predecessor and the Company, respectively, not
included in this Annual Report on Form 10-K. The Company's fiscal year
consists of three 13-week quarters and a fourth quarter ending the Saturday
closest to the end of the calendar year. References to 1995, 1996 and 1997
refer to the fiscal years ended December 30, 1995, December 28, 1996 and
January 3, 1998, respectively.
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.
11
FIVE-YEAR SELECTED FINANCIAL DATA
The following table sets forth financial data of Monaco Coach Corporation (the
Company) and Predecessor for the years indicated (in thousands of dollars,
except per share data and Consolidated Operating Data).
Predecessor (1) Company
----------- --------------------------------------------------------------------
Two Months Ten Months Fiscal Year
Ended Ended -------------------------------------------------------
March 4, January 4, 1994 1995 1996(2) 1997(2)
1993 1994
----------- --------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net sales $ 12,026 $ 65,964 $ 107,300 $ 141,611 $ 365,638 $ 441,895
Cost of sales 10,202 56,141 89,894 124,592 317,909(3) 382,367
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 1,825 9,823 17,406 17,019 47,729 59,528
Selling, general and
administrative expenses 1,361 4,241 7,256 8,147 33,371 36,307
Amortization of goodwill 0 431 517 517 617 594
- -------------------------------------------------------------------------------------------------------------------------------
Operating income 464 5,151 9,633 8,355 13,741 22,627
Other expense (income), net (5) (11) (153) 40 (244) (468)
Interest expense 5 1,308 69 298 3,914 2,379
Loss (gain) on sale of dealership assets (539)
- -------------------------------------------------------------------------------------------------------------------------------
Income before provision
for income taxes 464 3,855 9,717 8,017 10,071 21,255
Provision for income taxes 1,553 3,776 3,119 4,162 8,819
Pro forma provision for income taxes 181
- -------------------------------------------------------------------------------------------------------------------------------
Net income 283(4) 2,302(5) 5,941 4,898 5,909 12,436
Redeemable preferred stock dividends (75)
Accretion of redeemable preferred stock (84) (317)
- -------------------------------------------------------------------------------------------------------------------------------
Net income attributable to common stock 283 2,302(5) 5,941 4,898 5,750 12,119
- -------------------------------------------------------------------------------------------------------------------------------
Earnings per common share:
Basic 0.77(5) 1.35 1.11 1.30(6) 2.43
Diluted 0.67(5) 1.33 1.09 1.27(6) 2.39
Weighted average shares outstanding:
Basic 3,003,230 4,397,282 4,407,327 4,422,187 4,997,287
Diluted 3,414,614 4,469,734 4,473,383 4,664,790 5,198,656
CONSOLIDATED OPERATING DATA:
Units sold: (7)
Motor coaches 87 463 717 982 2,733 3,347
Towables 1,977 2,397
Dealerships at end of period 34 37 48 49 159 208
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Predecessor Company
----------- ----------------------------------------------------------------------
Jan 2, Jan 1, Dec 31, Dec 30, Dec 28, Jan 3,
1993 1994 1994 1995 1996 1998
----------- ---------- ----------- ----------- ----------- -----------
CONSOLIDATED BALANCE SHEET DATA:
Working capital $ 5,577 $ 2,918 $ 5,910 $ 3,795 $ 4,502 $ 10,412
Total assets 11,092 40,052 48,219 68,502 135,368 159,832
Long-term borrowings, less current portion 5,000 16,500 11,500
Redeemable preferred stock - - - 2,687 0
Total stockholders' equity 6,431 26,951 32,945 37,930 43,807 74,748
(1) The Company commenced operations on March 5, 1993 by acquiring
substantially all of the assets and liabilities of the Predecessor. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview."
(2) Includes the operations of Holiday Rambler and the Holiday World
Dealerships from March 4, 1996. The Holiday World Dealerships generated
$25.0 million and $6.8 million in net sales in 1996 and 1997 respectively,
which included the sale of 820 and 211 units in 1996 and 1997,
respectively that were either previously owned or not Holiday Rambler
units, as well as service revenues. The Company sold seven Holiday World
Dealerships in 1996 and the remaining three dealerships in 1997.
(3) Includes a $1.7 million increase in cost of sales resulting from the
sale of inventory that was written up to fair value at the date of the
Holiday Acquisition.
(4) The Predecessor was an S Corporation not subject to federal and
certain state income taxes during the periods indicated. The pro forma
provision for income taxes reflects the effect of the federal and state
income taxes as if the Predecessor had been a C Corporation, based on the
effective tax rates that would have been in effect during these periods.
(5) Excludes an extraordinary charge of $558,000, net of tax effect, or
$0.16 of diluted earnings per share.
(6) Includes a one time charge of $0.21 per share, net of tax effect,
related to the inventory write-up described in Note 3 above. Excluding
this charge, diluted earnings per common share would have been $1.48 per
share.
(7) Excludes units sold by the Holiday World Dealerships that were either
previously owned or not Holiday Rambler units.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is the successor to a company formed in 1968 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 1995, 1996 and 1997 all contain Predecessor
Acquisition-related expenses, consisting primarily of the amortization of
acquired goodwill.
On March 4, 1996, the Company acquired from Harley-Davidson certain
assets of Holiday Rambler in exchange for $21.5 million in cash, 65,217
shares of Redeemable Preferred Stock (which were convertible into 230,767
shares of Common Stock), and the assumption of most of the liabilities of
Holiday Rambler. Concurrently, the Company acquired 10 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 operations acquired in the Holiday
Acquisition were incorporated into the Company's consolidated financial
statements. The Company's consolidated financial statements for the fiscal
years ended December 28, 1996 and January 3, 1998 contain expenses related to
the Holiday Acquisition, consisting of interest expense, the amortization of
debt issuance costs and Holiday Acquisition goodwill. The Company's
consolidated financial statements for the year ended December 28, 1996 also
include a $1.7 million increase in cost of sales resulting from the sale of
inventory in the first and second quarters of 1996 that was written up to
fair value at the date of the Holiday Acquisition.
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
Net sales increased 20.9% from $365.6 million in 1996 to $441.9 million
in 1997. Included in net sales in 1996 and 1997 were $25.9 million and $10.1
million respectively, representing sales of units that were either previously
owned or not Holiday Rambler units and service revenues generated by the
Holiday World Dealerships prior to their sale. The Company's overall unit
sales increased 22.0% from 4,710 units in 1996 to 5,744 units in 1997
(excluding 820 units in 1996 and 211 units in 1997 sold by the Holiday World
Dealerships that were either previously owned or not Holiday Rambler units).
The Company's unit sales were up 22.5% on the motorized side and 21.2% for
towables. The Company's overall average unit selling price (excluding units
sold by the Holiday World dealerships that were either previously owned or
not Holiday Rambler units) increased slightly from $74,000 in 1996 to $76,900
in 1997. Due to the inclusion of Holiday Rambler's generally lower priced
products and the planned introduction of new products at historically lower
price points, the Company expects its overall average unit selling price to
remain below $100,000.
Gross profit increased by $11.8 million from $47.7 million in 1996 to
$59.5 million in 1997 and gross margin increased from 13.1% in 1996 to 13.5%
in 1997. 1996 gross profit and gross margin were limited by a $1.7 million
increase in cost of sales as a result of an inventory write-up to fair value
arising from the Holiday Acquisition. Without this charge, gross profit would
have been $49.5 million and gross margin would have been 13.5% for 1996. 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 $2.9 million
from $33.4 million in 1996 to $36.3 million in 1997 and decreased as a
percentage of net sales from 9.1% in 1996 to 8.2% in 1997. The relatively
high percentage of selling, general and administrative expenses to net sales
in 1996 was primarily attributable to the addition of the Holiday Rambler
operations which have traditionally had a higher percentage than Monaco.
13
Amortization of goodwill was $617,000 in 1996 compared with $594,000 in
1997. At January 3, 1998, goodwill arising from the Predecessor Acquisition,
net of accumulated amortization, was $18.2 million, which is currently being
amortized on a straight-line basis over 40 years. Goodwill from the Holiday
Acquisition, net of accumulated amortization, was $2.3 million, and is being
amortized over 20 years.
Operating income increased $8.9 million from $13.7 million in 1996 to
$22.6 million in 1997. The increase in the Company's gross margin, combined
with the reduction of selling, general and administrative expenses as a
percentage of net sales, resulted in an increase in operating margin from
3.8% in 1996 to 5.1% in 1997. The Company's operating margin was adversely
affected in 1996 by a $1.7 million expense related to an inventory write-up
to fair value as a result of the Holiday Acquisition. Without that charge,
the Company's operating margin would have been 4.2% for the year.
Interest expense decreased substantially from $3.9 million in 1996 to
$2.4 million in 1997. The Company's 1996 interest expense included
approximately $992,000 of floor plan interest expense relating to the Holiday
World Dealerships compared with $281,000 in 1997. Additionally, interest
expense included $343,000 in 1996 and $411,000 in 1997 related to the
amortization of $2.1 million in debt issuance costs recorded in conjunction
with the Holiday Acquisition. These costs are being written off over a
five-year period. The Company capitalized approximately $244,000 of interest
in 1996 primarily due to the purchase of the Holiday World Dealerships and
construction in progress at the manufacturing facility in Wakarusa, Indiana.
The Company capitalized $643,000 of interest in 1997 related to the
construction in progress at the manufacturing facilities in Wakarusa, Indiana.
The Company sold its two remaining Holiday World retail dealerships
during the third quarter of 1997 and had a pre-tax gain on the sale of the
buildings and fixed assets from the stores of $539,000 which is reflected as
a separate line item above income before income taxes on the Company's
Consolidated Statements of Income. This equates to a $315,000 after-tax
gain, or 6.1 cents of diluted earnings per share.
The Company reported a provision for income taxes of $4.2 million, or an
effective tax rate of 41.3%, for 1996 compared to $8.8 million, or an
effective tax rate of 41.5%, for 1997.
Net income increased by $6.5 million from $5.9 million in 1996 to $12.4
million in 1997 due to the increase in net sales combined with an improvement
in operating margin and a decrease in interest expense.
1996 COMPARED WITH 1995
Net sales increased 158.2% from $141.6 million in 1995 to $365.6 million
in 1996, primarily due to the Holiday Acquisition. Excluding the Holiday
Acquisition, net sales of Monaco motor coaches decreased 3.4% from $141.6
million in 1995 to $136.8 million in 1996, primarily due to difficulties in
achieving higher production rates of motor coaches at the Company's Coburg
facility, which commenced operations in late 1995. Net sales in 1996 also
included $25.9 million of sales of units that were either previously owned or
not Holiday Rambler units and service revenues generated by the Holiday World
Dealerships. The Company's overall unit sales increased almost five-fold from
982 units in 1995 to 4,710 units in 1996 (excluding 820 units sold by the
Holiday World Dealerships that were either previously owned or not Holiday
Rambler units). The Company's overall average unit selling price (excluding
units sold in 1996 by the Holiday World dealerships that were either
previously owned or not Holiday Rambler units) declined from $145,600 in 1995
to $74,000 in 1996, primarily as a result of the Company selling a
significantly large number of lower priced Holiday Rambler products,
particularly towable products.
Gross profit increased by $30.7 million from $17.0 million in 1995 to
$47.7 million in 1996 and gross margin increased from 12.0% in 1995 to 13.1%
in 1996. The increase in gross profit and gross margin was limited by a $1.7
million increase in cost of sales as a result of an inventory write-up to
fair value arising from the Holiday Acquisition. Without this charge, gross
margin would have been 13.5% for 1996. Gross margin in 1995 was depressed
primarily due to start-up inefficiencies relating to the Windsor model and
unexpected costs associated with making three model changes simultaneously.
Selling, general and administrative expenses increased by $25.2 million
from $8.1 million in 1995 to $33.3 million in 1996 and increased as a
percentage of net sales from 5.7% in 1995 to 9.1% in 1996. The increase in
selling, general and administrative expenses in dollars and as a percentage
of net sales in 1996 was primarily attributable to the addition of the
Holiday Rambler operations that have traditionally had higher selling,
general and administrative expenses as a percentage of net sales than Monaco.
In addition, the Company's selling, general and administrative expenses in
1995 were unusually low, both in dollars and as a percentage of net sales, in
part because of lower than normal incentive-based compensation.
14
Amortization of goodwill was $517,000 in 1995 compared with $617,000 in
1996 as a result of the additional expense related to the amortization of
Holiday Acquisition goodwill.
Operating income was $13.7 million in 1996, a $5.4 million increase over
the $8.4 million in 1995. The increase in the Company's gross margin was less
than the increase in selling, general and administrative expenses as a
percentage of net sales, resulting in a decline in operating margin from 5.9%
in 1995 to 3.8% in 1996. The Company's operating margin was adversely
affected in 1996 by a $1.7 million expense related to an inventory write-up
to fair value as a result of the Holiday Acquisition. Without that charge,
the Company's operating margin would have been 4.2% for 1996.
Interest expense increased substantially from $298,000 in 1995 to $3.9
million in 1996. The Company's 1996 interest expense included approximately
$992,000 of floor plan interest expense relating to the Holiday World
Dealerships. Additionally, 1996 interest expense included $343,000 related to
the amortization of $2.1 million in debt issuance costs recorded in
conjunction with the Holiday Acquisition. These costs are being written off
over a five-year period. The Company capitalized approximately $244,000 of
interest in 1996 primarily due to the purchase of the Holiday World
Dealerships and construction in progress at the manufacturing facility in
Wakarusa, Indiana. The Company capitalized $625,000 of interest in 1995
related to the expansion of its Coburg, Oregon facility.
The Company reported a provision for income taxes of $4.2 million, or an
effective tax rate of 41.3%, for 1996 compared to $3.1 million, or an
effective tax rate of 38.9%, for the comparable period in 1995.
Net income increased by $1.0 million from $4.9 million in 1995 to $5.9
million in 1996 due to substantial increases in net sales and operating
income that more than offset increases in interest and amortization expense.
INFLATION
The Company does not believe that inflation has had a material impact on
its results of operations for the periods presented.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
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, 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 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 as a result of the Holiday Acquisition, 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.
15
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. Although unit sales of
High-Line Class A motor coaches have increased in each year since 1989, there
can be no assurance that this trend will continue. Furthermore, as a result
of the Holiday Acquisition and recent new model introductions, the Company
offers a much broader range of recreational vehicle products and will likely
be more susceptible to recreational vehicle industry cyclicality than in the
past. 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, interest rates rose significantly in 1994
and while recent interest rates have not had a material adverse effect on the
Company's business, no assurances can be given that an increase in interest
rates would not have a material adverse effect on the Company's business,
results of operations and financial condition.
MANAGEMENT OF GROWTH As a result of the Holiday Acquisition and the
recent expansion of its manufacturing facilities, 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, 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 significantly increased its
manufacturing capacity in 1995 by expanding its Elkhart, Indiana facility and
opening its Coburg, Oregon facility. In 1997, in order to meet market demand
and realize manufacturing efficiencies, the Company completed construction of
a new motor coach manufacturing facility in Wakarusa, Indiana, has relocated
its Elkhart, Indiana motor coach production to the new Wakarusa facility, and
has opened a Springfield, Oregon facility to manufacture towables. In the
first quarter of 1998 the Company expects to begin a third line of production
in its motorized facility in Wakarusa, Indiana. By June 1998 the Company
expects to consolidate its existing Wakarusa, Indiana towable production with
existing Elkhart, Indiana towable production. The integration of the
Company's facilities and the expansion of the Company's manufacturing
operations involve a number of risks including unexpected production
difficulties. In 1995, the Company experienced start-up inefficiencies in
manufacturing the Windsor model, and, beginning in 1996, the Company
experienced difficulty in increasing production rates of motor coaches at its
Coburg facility. 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 set-up of new models and scale-up of production facilities in
Wakarusa, Elkhart, and Springfield 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
set-up 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 208 dealerships located primarily in the United
States and Canada at the end of 1997, a significant percentage of the
Company's sales have been and will continue to be concentrated among a
relatively small number of independent dealers. Although no single dealer
accounted for as much as 10.0% of the Company's net sales in 1997, the top
two dealers accounted for approximately 15.0% of the Company's net sales in
that period. 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.
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
16
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 $141.5
million as of January 3, 1998, with approximately 10.7% concentrated with one
dealer. See "Liquidity and Capital Resources" and Note 17 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 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 for all diesel motor coaches other than
the Holiday Rambler Endeavor Diesel model and chassis for certain of its
Holiday Rambler products (Chevrolet, Ford and Freightliner). The Company has
no long term supply contracts with these suppliers or their distributors.
Recently, Allison put all chassis manufacturers on allocation with respect
to one of the transmissions the Company uses. The Company believes that its
allocation is sufficient to enable the unit volume increases that are planned
for models using that transmission and does not foresee any operating
difficulties with respect to this issue. Nevertheless, there can be no
assurance that Allison or any of the other suppliers will be able to meet the
Company's future requirements for transmissions 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.
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, in the third
quarter of 1995 the Company incurred unexpected costs associated with three
model changes introduced in that quarter which adversely affected the
Company's gross margin. There also can be no assurance that product
introductions in the future will not 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, some of which have
significantly greater financial resources and more extensive marketing
capabilities than the Company. 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 $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, results of operations
and financial condition.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are internally generated cash
from operations and available borrowings under its credit facilities. During
1997, the Company used net cash from operations of $41,000. Net income and
non-cash expenses such as depreciation and amortization generated
approximately $15.5 million, which was offset primarily by an increase in
accounts receivable and a reduction in income taxes payable. Accounts
receivable were up $10.4 million, on a year-to-year basis, largely due to
higher than normal end of year unit shipments in 1997. Income taxes payable
were abnormally high at the end of 1996 due to the Holiday Acquisition and
the $6.4 million reduction in 1997 was to a more normal level.
The Company has credit facilities consisting of a term loan of $20.0
million (the "Term Loan") and a revolving line of credit of up to $45.0
million (the "Revolving Loans"). The Term Loan bears interest at various
rates based upon the prime lending rate announced from time to time by
Banker's Trust Company (the "Prime Rate") or LIBOR and is due and payable in
full on March 1, 2001. The Term Loan requires monthly interest payments,
quarterly principal payments and certain mandatory prepayments. The mandatory
prepayments consist of: (i) an annual payment on April 30 of each year,
beginning April 30, 1997, of seventy-five percent (75%) of the Company's
defined excess cash flow for the then most recently ended fiscal year; and
(ii) a payment within two days of the sale of any Holiday World dealership,
of the net cash proceeds received by the Company from such sale. While the
Company has now sold all of the Holiday World dealerships, as of January 3,
1998, the Company was still holding $2.7 million in notes receivable relating
to the sales of the stores which will fall under provision (ii) when payment
is received. At January 3, 1998, the balance on the Term Loan was $15.9
million with $15.0 million at an effective interest rate of 7.47% and $875,000
at 8.5%. At the election of the Company, the Revolving Loans bear interest
at variable interest rates based on the Prime Rate or LIBOR. The Revolving
Loans are due and payable in full on March 1, 2001, and require monthly
interest payments. As of January 3, 1998, $9.4 million was outstanding under
the Revolving Loans, with an effective interest rate of 8.5%. The Term Loan
and the Revolving Loans are collateralized by a security interest in all of
the assets of the Company and include various restrictions and financial
covenants. As a result of the sale of the three remaining Holiday World
retail dealerships in 1997, the Company no longer has any loans outstanding
to finance retail inventory.
The Company's principal working capital requirements are for purchases of
inventory and, to a lesser extent, financing of trade receivables. The
Company's dealers typically finance product purchases under wholesale floor
plan arrangements with third parties as described below. At January 3, 1998,
the Company had working capital of approximately $10.4 million, an increase
of $5.9 million from working capital of $4.5 million at December 28, 1996.
The Company and certain stockholders completed a secondary public offering of
1,955,000 shares of the Company's Common Stock in June 1997 at $21.25 per
share, including 800,000 shares sold by the Company. The approximately $15.4
million of net proceeds to the Company from this offering were used to pay
down the outstanding balance under its Revolving Loans with the remainder
being added to working capital. The Company has been using short-term credit
facilities and cash flow to finance its construction of facilities and other
capital expenditures. The Company primarily used long-term debt and
redeemable preferred stock to finance the Holiday Acquisition.
The Company's capital expenditures were $19.6 million in 1997, primarily
for the Wakarusa, Indiana motorized manufacturing facility. This facility
approximately doubled the Company's production capacity of motor coaches.
The Company started construction of a new paint facility and finish area
adjacent to the new Wakarusa facility in the fourth quarter of 1997. The new
paint facility is expected to cost approximately $8.6 million and will be
operational by the end of the first quarter of 1998.
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 anticipates
capital expenditures in 1998 will total approximately $6.0 to $7.0 million,
of which an estimated $2.8 million will be used to finish construction of the
new Wakarusa paint facility. The Company spent approximately $700,000 for new
hardware and software in 1997 to upgrade the Company's management information
systems, including software to handle the "Year 2000" issue, and plans to
spend $500,000 in 1998 to complete this project. The Company may require
additional equity or debt financing to address working capital and facilities
expansion needs, particularly if the Company further expands its operations
to address greater than anticipated growth in the market for its products.
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.
18
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 January 3,
1998, approximately $141.5 million of products sold by the Company to
independent dealers were subject to potential repurchase under existing floor
plan financing agreements, with approximately 10.7% concentrated with one
dealer. If the Company were obligated to repurchase a significant number of
products under any repurchase agreement, its business, operating results and
financial condition could be adversely affected.
NEWLY ISSUED FINANCIAL REPORTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standard (SFAS) No.
129, "Disclosures of Information about Capital Structure." This Statement
requires disclosures relating to the special aspects of the Company's capital
structure. Implementation of this Statement did not result in significant
additional disclosures.
In 1998 the Company intends to adopt the following SFAS':
SFAS No. 130, "Reporting Comprehensive Income." This Statement establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This
Statement will require additional financial statement disclosures.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This Statement will require disclosure of information about key
revenue-producing segments of an entity. A reconciliation of segment
financial information to amounts reported in the financial statements will be
required. The effect of implementation of this Statement has not yet been
determined by the Company.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This Statement standardizes the disclosure requirements for
pension and other postretirement benefits to the extent practicable. The
implementation of this Statement will not result in significant additional
financial statement disclosures.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Monaco Coach Corporation--Consolidated Financial Statements:
Report of Independent Accountants................................................... 21
Consolidated Balance Sheets as of December 28, 1996 and January 3, 1998............. 22
Consolidated Statements of Income for the Fiscal Years Ended December 30,
1995, December 28, 1996 and January 3, 1998....................................... 23
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended
December 30, 1995, December 28, 1996 and January 3, 1998........................... 24
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30,
1995, December 28, 1996 and January 3, 1998........................................ 25
Notes to Consolidated Financial Statements........................................... 27
Schedule Included in Item 14(a):
II Valuation and Qualifying Accounts................................................ 50
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Monaco Coach Corporation:
We have audited the accompanying consolidated balance sheets of Monaco Coach
Corporation and Subsidiaries (the Company) as of December 28, 1996 and
January 3, 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended January 3, 1998. These financial statements 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 in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Monaco Coach
Corporation and Subsidiaries as of December 28, 1996 and January 3, 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended January 3, 1998 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Eugene, Oregon
January 30, 1998, except for stock split
information in Note 1, as to which the
date is March 16, 1998.
21
MONACO COACH CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
December 28, January 3,
1996 1998
----------- ---------
ASSETS
Current assets:
Trade receivables, net of $140 and $127, respectively $ 14,891 $ 25,309
Inventories 46,930 45,421
Prepaid expenses 1,343 928
Deferred income taxes 8,278 8,222
Notes receivable 1,064 1,552
Assets held for sale 1,383
----------- ---------
Total current assets 73,889 81,432
Notes receivable, less current portion 636 1,125
Property and equipment, net 38,309 55,399
Debt issuance costs, net of accumulated amortization of
$343 and $755, respectively 1,760 1,358
Goodwill, net of accumulated amortization of $2,084 and
$2,739, respectively 20,774 20,518
----------- ---------
Total assets $ 135,368 $ 159,832
----------- ---------
----------- ---------
LIABILITIES
Current liabilities:
Book overdraft $ 2,455 $ 6,762
Short-term borrowings:
Bank line of credit 3,789 9,353
Flooring agreements 6,202
Current portion of long-term note payable 2,000 4,375
Accounts payable 24,218 23,498
Income taxes payable 7,362 1,005
Accrued expenses and other liabilities 23,361 26,027
----------- ---------
Total current liabilities 69,387 71,020
Note payable, less current portion 16,500 11,500
Deferred income tax liabilities 2,787 2,564
Deferred income 200
----------- ---------
Total liabilities 88,874 85,084
----------- ---------
Redeemable Series A Convertible Preferred Stock, $.01
par value; 100,000 and 34,783 shares authorized,
respectively; 65,217 shares (redemption value of $3,005)
issued and outstanding at December 28, 1996 2,687
----------- ---------
Commitments and contingencies (Notes 12 and 17)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,900,000 shares
authorized, no shares outstanding
Common stock, $.01 par value, 20,000,000 shares
authorized, 4,430,467 and 5,496,499 shares
issued and outstanding, respectively 44 55
Additional paid-in capital 25,430 44,241
Retained earnings 18,333 30,452
----------- ---------
Total stockholders' equity 43,807 74,748
----------- ---------
Total liabilities and stockholders' equity $ 135,368 $ 159,832
----------- ---------
----------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
22
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1995 1996 1997
-------- -------- --------
Net sales $ 141,611 $ 365,638 $ 441,895
Cost of sales 124,592 317,909 382,367
-------- -------- --------
Gross profit 17,019 47,729 59,528
Selling, general and administrative expenses 8,147 33,371 36,307
Amortization of goodwill 517 617 594
-------- -------- --------
Operating income 8,355 13,741 22,627
Other expense (income), net 40 (244) (468)
Interest expense 298 3,914 2,379
Loss (gain) on sale of dealership assets (539)
-------- -------- --------
Income before income taxes 8,017 10,071 21,255
Provision for income taxes 3,119 4,162 8,819
-------- -------- --------
Net income 4,898 5,909 12,436
Preferred stock dividends (75)
Accretion of redeemable preferred stock 0 (84) (317)
-------- -------- --------
Net income attributable to
common stock $ 4,898 $ 5,750 $ 12,119
-------- -------- --------
-------- -------- --------
Earnings per common share:
Basic $1.11 $1.30 $2.43
Diluted $1.09 $1.27 $2.39
Average common shares outstanding:
Basic 4,407,327 4,422,187 4,997,287
Diluted 4,473,383 4,664,790 5,198,656
The accompanying notes are an integral part of these consolidated financial
statements.
23
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- ---------
Balances, December 31, 1994 4,401,097 $ 44 $ 25,216 $ 7,685 $ 32,945
Issuance of common stock 9,792 58 58
Tax benefit of stock options exercised 29 29
Net income 4,898 4,898
--------- ------ ---------- -------- ---------
Balances, December 30, 1995 4,410,889 44 25,303 12,583 37,930
Issuance of common stock 19,578 89 89
Tax benefit of stock options exercised 38 38
Preferred stock accretion (84) (84)
Preferred stock dividends (75) (75)
Net income 5,909 5,909
--------- ------ ---------- -------- ---------
Balances, December 28, 1996 4,430,467 44 25,430 18,333 43,807
Issuance of common stock 835,265 9 15,697 15,706
Conversion of preferred stock 230,767 2 2,997 2,999
Tax benefit of stock options exercised 117 117
Preferred stock accretion (317) (317)
Net income 12,436 12,436
--------- ------ ---------- -------- ---------
Balances, January 3, 1998 5,496,499 $ 55 $ 44,241 $ 30,452 $ 74,748
--------- ------ ---------- -------- ---------
--------- ------ ---------- -------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
24
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1995 1996 1997
-------- -------- --------
INCREASE (DECREASE) IN CASH:
Cash flows of operating activities:
Net income $ 4,898 $ 5,909 $ 12,436
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of dealership assets (539)
Depreciation and amortization 1,077 3,005 3,641
Loss on disposal of equipment 60 79
Deferred income taxes 273 (6,399) (167)
Change in assets and liabilities, net of effects
of business combination:
Trade receivables (3,440) 1,266 (10,423)
Inventories (4,180) 9,702 (790)
Prepaid expenses (15) (810) 415
Accounts payable 745 (457) (720)
Accrued expenses and other current liabilities (218) 7,246 2,663
Income taxes payable 140 7,141 (6,357)
Deferred income 200 0 (200)
-------- -------- --------
Net cash provided by (used in) operating
activities (460) 26,682 (41)
-------- -------- --------
Cash flows of investing activities:
Additions to property and equipment (13,864) (7,327) (19,617)
Payment for business acquisition (24,645)
Proceeds from sale of retail stores, collections on
notes receivable, net of closing costs 11,749 1,249
Other 0 40
-------- -------- --------
Net cash used in investing activities (13,864) (20,183) (18,368)
-------- -------- --------
Cash flows of financing activities:
Book overdraft 516 1,939 4,307
Borrowings (payments) on line of credit, net 6,487 (6,056) 5,564
Payments on subordinated note (12,000)
Borrowings on long-term notes payable 7,000 20,000
Debt issuance costs (2,060)
Payments on floor financing, net (4,650)
Payments on long-term notes payable (8,500) (2,625)
Issuance of common stock 16,351
Cost to issue shares of common stock (645)
Other 87 178 107
-------- -------- --------
Net cash provided by (used in) financing
activities 14,090 (6,499) 18,409
-------- -------- --------
Net decrease in cash (234) 0 0
Cash at beginning of period 234 0 0
-------- -------- --------
Cash at end of period $ 0 $ 0 $ 0
-------- -------- --------
-------- -------- --------
Continued
25
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1995 1996 1997
-------- -------- --------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest, net of amount capitalized of $625 in
1995, $244 in 1996 and $643 in 1997 $ 273 $ 3,435 $ 2,064
Income taxes 2,731 3,382 15,311
Business acquisition (Note 2):
Fair value of assets acquired $ 92,143
Less liabilities assumed 52,899
Less issuance of subordinated debt 12,000
Less issuance of preferred stock 2,599
--------
Net cash paid at the acquisition $ 24,645
--------
--------
Sale of retail stores:
Notes receivable obtained from the sale of
retail stores
$ 2,730 $ 2,038
The accompanying notes are an integral part of these consolidated financial
statements.
26
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Monaco Coach Corporation and its subsidiaries (the "Company") manufactures a
line of 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.
CONSOLIDATION POLICY
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.
FISCAL PERIOD
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. Therefore 1997 was 53 weeks long and the 1996 and
1995 years were 52 weeks long. All references to years in the consolidated
financial statements relate to fiscal years rather than calendar years.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of recreational vehicles (i)
upon shipment or dealer/customer pick-up (most dealers finance their
purchases under floor plan financing arrangements with banks or finance
companies; for these sales, the financing is completed before the vehicles
are shipped), or (ii) when the dealer has arranged floor plan financing
for the vehicle and the vehicle is available for delivery but has been set
aside and held at the request of the dealer, generally for a few days,
until pick-up or delivery.
ESTIMATES AND INDUSTRY FACTORS
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles 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 17%, 7% and 5% of net revenues for the fiscal
years ended December 30, 1995, December 28, 1996 and January 3, 1998,
respectively. Sales to a second customer were approximately 23%, 9% and 10%
of net revenues for the fiscal years ended December 30, 1995, December 28,
1996 and January 3, 1998, respectively. No other individual dealers
represented over 10% of net revenues in any of the three years. 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.
Continued
27
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, Continued:
Concentrations of credit risk exist for accounts receivable and repurchase
agreements (see Note 17), 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, Chevrolet, Cummins, Eaton, Ford and
Freightliner. The Company does not have any long-term contracts with these
suppliers or their distributors. Recently, Allison put all chassis
manufacturers on allocation with respect to one of the transmissions the
Company uses. The Company believes that its allocation is sufficient to
enable the unit volume increases that are planned for models using that
transmission and does not foresee any operating difficulties with respect to
this issue. Nevertheless, in light of these dependencies, it is possible
that failure of Allison or any of the other suppliers to meet the Company's
future requirements for transmissions 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.
INVENTORIES
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 AND EQUIPMENT
Property 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 $625,000
in 1995, $48,000 in 1996 and $643,000 in 1997. 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.
Continued
28
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, Continued:
GOODWILL AND DEBT ISSUANCE COSTS
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 January 3, 1998, the unamortized
amount was $18.2 million. The goodwill arising from the acquisition of
Holiday Rambler (as hereinafter defined) and Holiday World (as hereinafter
defined) is being amortized on a straight-line basis over 20 years; at
January 3, 1998, the unamortized amount was $2.3 million. At each balance
sheet date, management assesses whether there has been permanent impairment
in the value of goodwill and the amount of such impairment by comparing
anticipated undiscounted future cash flows from operating activities with
the carrying value of the goodwill. 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.
Unamortized debt issuance costs of $1.8 million at December 28, 1996 and
$1.4 million at January 3, 1998, arising from the Holiday Acquisition, are
being amortized over the term of the loan.
INCOME TAXES
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.
ADVERTISING COSTS
The Company expenses advertising costs as incurred, except for prepaid show
costs which are expensed when the event takes place.
At December 28, 1996 and January 3, 1998, total advertising included in
prepaid expenses was $51,000 and $106,000, respectively. During the fiscal
year 1997, approximately $6.2 million ($1.5 million in 1995 and $5.5 million
in 1996) of advertising costs were expensed.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred and were
$3.2 million for 1996 and $4.6 million for 1997. These costs were
insignificant for 1995.
Continued
29
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, Continued:
STOCK SPLIT
On March 16, 1998 the Board of Directors declared a 3-for-2 stock split in
the form of a 50% stock dividend on the Company's Common stock, payable
April 16, 1998 to stockholders of record April 2, 1998. Share and per share
amounts have not been restated for the stock split. If per share amounts
had been restated, diluted earnings per share would have been $0.73, $0.84
and $1.59 for 1995, 1996 and 1997 respectively.
2. HOLIDAY ACQUISITION:
On March 4, 1996, the Company acquired certain assets of the Holiday Rambler
Recreational Vehicle Manufacturing Division ("Holiday Rambler") and certain
assets of the Holiday World Retail Division ("Holiday World") of Harley-
Davidson, Inc. ("Harley-Davidson"). The acquisition was accounted for as a
purchase.
The purchase price for Holiday Rambler and Holiday World was comprised of:
(IN THOUSANDS)
Cash, including transaction costs of $2.1 million, net of
$836,000 received from Harley-Davidson $ 24,645
Preferred stock (Note 9) 2,599
Subordinated debt 12,000
--------
$ 39,244
--------
--------
The purchase price was allocated to the assets acquired and liabilities
assumed based on estimated fair values at March 4, 1996, as follows:
(IN THOUSANDS)
Receivables $ 9,536
Inventories 61,269
Property and equipment 11,592
Prepaids and other assets 86
Assets held for sale 7,100
Goodwill 2,560
Notes payable (21,784)
Accounts payable (16,851)
Accrued liabilities (14,264)
--------
$ 39,244
--------
--------
The allocation of the purchase price and the related goodwill was subject to
adjustment upon resolution of pre-Holiday Acquisition contingencies. The
effects of resolution of pre-Holiday Acquisition contingencies occurring:
(i) within one year of the acquisition date were reflected as an adjustment
of the allocation of the purchase price and of goodwill, and (ii) after one
year were recognized in the determination of net income.
30
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. HOLIDAY ACQUISITION, Continued:
The ten acquired Holiday World retail store properties were classified as
"assets held for sale". Seven of the stores were sold during 1996 at a gain
of $1.4 million, which has been reflected as an adjustment of goodwill. One
store was sold during the first quarter of 1997 at a loss of $399,000, which
also has adjusted goodwill. The remaining two stores were sold for a gain
of $539,000 in the third quarter which was recognized in the determination
of net income for the period. The Company's results of operations and cash
flows include Holiday World since March 4, 1996, as the operating activities
of Holiday World are not clearly distinguishable from other continuing
operations. Net sales of Holiday World stores subsequent to the purchase
and included in the fiscal years ended December 28, 1996 and January 3, 1998
were $25.0 million and $6.8 million, respectively.
The following unaudited pro forma information presents the consolidated
results as if the acquisition had occurred at the beginning of the period
and giving effect to the adjustments for the related interest on financing
the purchase price, goodwill and depreciation. The pro forma information
does not necessarily reflect results that would have occurred or is it
necessarily indicative of future operating results.
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
1995 1996
--------- ---------
Net sales $ 441,850 $ 419,440
Net income (loss) (5,376) 4,699
Diluted earnings (loss) per common share $ (1.20) $ 1.01
3. INVENTORIES:
Inventories consist of the following:
(IN THOUSANDS)
December 28, January 3,
1996 1998
------------ ----------
Raw materials $ 16,844 $ 20,826
Work-in-process 17,592 20,212
Finished units 3,998 4,383
Holiday World retail inventory 8,496
---------- --------
$ 46,930 $ 45,421
---------- --------
---------- --------
31
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
(IN THOUSANDS)
December 28, January 3,
1996 1998
------------ ----------
Land $ 5,440 $ 3,830
Buildings 23,358 37,385
Equipment 4,085 8,579
Furniture and fixtures 1,958 3,574
Vehicles 748 746
Leasehold improvements 312 540
Construction in progress 5,542 6,320
----------- ----------
41,443 60,974
Less accumulated depreciation and amortization 3,134 5,575
----------- ----------
$ 38,309 $ 55,399
----------- ----------
----------- ----------
5. NOTES RECEIVABLE:
The Company acquired notes receivable as consideration for the sale of
certain Holiday World retail stores. The notes provide for the periodic
collection of principal, with interest ranging from 8% to 10% and mature
through September 2001. The outstanding balance at January 3, 1998 was $2.7
million, with $1.6 million expected to be collected in 1998.
6. ACCRUED EXPENSES AND OTHER LIABILITIES:
(IN THOUSANDS)
December 28, January 3,
1996 1998
------------ ----------
Payroll, vacation and related accruals $ 5,132 $ 6,393
Payroll and property taxes 1,424 1,241
Provision for warranty claims 8,791 9,981
Provision for product liability claims 4,507 5,259
Promotional and advertising 818 654
Other 2,689 2,499
---------- ----------
$23,361 $26,027
---------- ----------
---------- ----------
32
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. SHORT-TERM BORROWINGS:
In connection with the acquisition of Holiday Rambler and Holiday World on
March 5, 1996, the Company replaced its bank line of credit with new credit
facilities consisting, in part, of a revolving line of credit of up to $45
million, with interest payable monthly at varying rates based on the
Company's interest coverage ratio and interest payable monthly on the unused
available portion of the line at .375%. There were outstanding borrowings
of $9.4 million at January 3, 1998 with an effective interest rate of 8.5%.
The weighted average interest rate on the outstanding borrowings under the
revolving line of credit was 9.5% and 9.6% for 1996 and 1997, respectively.
Interest expense on the unused available portion of the line was $164,000 or
3.4% and $186,000 or 3.4% of weighted average outstanding borrowings for
1996 and 1997, respectively. The revolving line of credit expires March 1,
2001 and would be collateralized by all the assets in the event the Company
is in default under the loan agreement. The agreement contains restrictive
covenants as to EBITDA (earnings before interest, taxes, depreciation and
amortization), interest coverage ratio, leverage ratio and capital
expenditures.
8. LONG-TERM BORROWINGS:
The Company obtained a term loan of $20 million primarily to finance the
acquisition of Holiday Rambler and Holiday World on March 5, 1996, with
interest payable monthly at various rates based on the Company's interest
coverage ratio, expiring on March 1, 2001. The term loan requires quarterly
principal payments and certain mandatory payments. At January 3, 1998,
there were outstanding borrowings of $15.9 million, with $875,000 at an
effective interest rate of 8.5% and $15 million at 7.47% under a LIBOR
arrangement. The term loan would be collateralized by all the assets of the
Company in the event the Company is in default under the loan agreement.
The agreement contains restrictive covenants as to EBITDA, interest coverage
ratio, leverage ratio and capital expenditures.
The principal on the long-term debt is payable as follows:
(IN THOUSANDS)
1998 $ 4,375
1999 5,000
2000 4,250
2001 2,250
-------
$15,875
-------
-------
33
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. PREFERRED STOCK:
The Company has authorized "blank check" preferred stock (1,900,000 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 3, 1998.
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 acquisition of Holiday Rambler and Holiday World.
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 (see note 18). 34,783 unissued shares of Series A remain
authorized with none outstanding at January 3, 1998.
The excess of redemption value over the carrying value of Series A was
accreted by charges to retained earnings. For the years ended December 28,
1996 and January 3, 1998, the accretion charge was $84,000 and $317,000,
respectively.
34
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. INCOME TAXES:
The provision for income taxes for the years ended December 30, 1995,
December 28, 1996 and January 3, 1998 is as follows:
(IN THOUSANDS)
1995 1996 1997
-------- -------- --------
Current:
Federal $2,382 $ 8,563 $ 7,349
State 464 1,998 1,637
-------- -------- --------
2,846 10,561 8,986
Deferred:
Federal 211 (5,245) (136)
State 62 (1,154) (31)
-------- -------- --------
Provision for income taxes $3,119 $ 4,162 $ 8,819
-------- -------- --------
-------- -------- --------
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:
(IN THOUSANDS)
1995 1996 1997
-------- -------- --------
Expected U.S. federal income taxes at
statutory rates $2,726 $3,525 $ 7,439
State and local income taxes, net of
federal benefit 366 541 1,106
Other 27 96 274
-------- -------- --------
$3,119 $4,162 $ 8,819
-------- -------- --------
-------- -------- --------
Continued
35
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. INCOME TAXES, Continued:
The components of the current net deferred tax asset and long-term net
deferred tax liability are:
(IN THOUSANDS)
December 28, January 3,
1996 1998
------------ ----------
Current deferred income tax assets:
Warranty liability $ 3,519 $ 3,994
Product liability 1,802 2,228
Other accruals 1,454 1,166
Contingent dealer rebates 841 158
Payroll and related 781 727
Prepaid expenses (119) (51)
------------ ----------
$ 8,278 $ 8,222
------------ ----------
------------ ----------
Long-term deferred income tax liabilities:
Depreciation $ 189 $ 979
Amortization 2,598 1,585
------------ ----------
$ 2,787 $ 2,564
------------ ----------
------------ ----------
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.
36
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. EARNINGS PER SHARE:
In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share," which establishes new standards for
computing and presenting earnings per share. This statement requires
presentation of basic and diluted earnings per share. 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. Earnings per share information for
prior periods has been restated in accordance with this Statement. The
weighted average number of common shares used in the computation of
earnings per common share for the years ended December 30, 1995,
December 28, 1996 and January 3, 1998 are as follows:
1995 1996 1997
--------- --------- ---------
BASIC
Issued and outstanding shares (weighted
average) 4,407,327 4,422,187 4,997,287
EFFECT OF DILUTIVE SECURITIES
Stock options 66,056 53,098 95,233
Convertible preferred stock 0 189,505 106,136
--------- --------- ---------
DILUTED 4,473,383 4,664,790 5,198,656
--------- --------- ---------
--------- --------- ---------
12. LEASES:
The Company leases administrative and production facilities under
operating leases that expire in 2001 and has the option to renew the
leases annually for the two subsequent years. Lease terms, upon renewal,
will be adjusted for changes in the Consumer Price Index since the date of
occupancy. Total rental expense for the fiscal years ended December 30,
1995, December 28, 1996 and January 3, 1998 related to operating leases
amounted to approximately $375,000, $570,000 and $1.1 million,
respectively.
Approximate future minimum rental commitments under these leases at January
3, 1998 are summarized as follows:
Fiscal Year (IN THOUSANDS)
-----------
1998 $ 649
1999 431
2000 355
2001 322
2002 212
37
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. BONUS PLAN:
The Company has a discretionary bonus plan for certain key employees.
Bonus expense included in selling, general and administrative expenses
for the years ended December 30, 1995, December 28, 1996 and January 3,
1998 was $1.1 million , $2.9 million and $4.3 million, respectively.
14. STOCK PURCHASE PLAN:
The Company has an Employee Stock Purchase Plan (the "Purchase Plan") -
1993, a Nonemployee Director Stock Option Plan (the "Director Plan") -
1993, and an Incentive Stock Option Plan (the "Option Plan") - 1993:
STOCK PURCHASE PLAN
The Company's Purchase Plan qualifies under Section 423 of the Internal
Revenue Code. The Company has reserved 135,000 shares of Common Stock for
issuance under the Purchase Plan. During the years ended December 28, 1996
and January 3, 1998, 5,450 shares and 10,420 shares, respectively, were
purchased under the Purchase Plan. The weighted-average fair value of
purchase rights granted in 1996 and 1997 was $10.66 and $19.13,
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.
DIRECTORS' OPTION PLAN
The Board of Directors and the stockholders have authorized a total of
40,000 shares of common stock for issuance pursuant to the Director Plan,
which is currently administered by the Board. Under the Director Plan, each
non-employee director of the Company, other than directors affiliated with
Liberty Partners, L.P. or Monaco Capital Partners, is entitled to
participate. Each eligible director will receive a nonstatutory option to
purchase 8,000 shares of the Company's Common Stock. In connection with the
effective date of the initial public offering, the Company granted options
to purchase 8,000 shares of Common Stock to a director. In addition, as of
September 30, 1994, each eligible director was granted an additional
nonstatutory option to purchase 1,600 shares of Common Stock on September 30
of each year if, on such date, they have served on the Board of Directors
for at least six months. Unless terminated sooner, the Director Plan will
terminate in 2003. The exercise price of each option granted under the
Director Plan is equal to the fair market value of a share of the Company's
Common Stock on the date of grant. The initial option granted to each
eligible director has a ten-year term and vests ratably over five years.
Subsequent options granted under the Plan vest at the end of five years. As
of January 3, 1998, no options have been exercised, and options to purchase
22,400 shares of Common Stock were outstanding.
Continued
38
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. STOCK PURCHASE PLAN, Continued:
OPTION PLAN
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
525,000 shares of Common Stock have been reserved for issuance under the
Option Plan. As of January 3, 1998, options to purchase 201,201 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
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
as follows:
1995 1996 1997
----------------- ------------------ -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------- ------ ------- ------ -------
Outstanding at
beginning of year 141,884 $ 7.36 179,249 $ 9.68 198,996 $11.27
Granted 46,600 16.06 56,000 13.97 67,925 18.23
Exercised (6,935) 3.35 (14,128) 3.35 (24,845) 8.18
Forfeited (2,300) 14.92 (22,125) 10.26 (18,475) 14.27
-------- -------- --------
Outstanding at end of year 179,249 $ 9.68 198,996 $ 11.27 223,601 $13.48
-------- -------- --------
-------- -------- --------
The following table summarizes information about all stock options
outstanding at January 3, 1998:
Options Outstanding Options Exercisable
------------------------------------------- -----------------------
Number of Weighted- Number of
Outstanding Average Weighted- Exercisable Weighted-
Range of at Remaining Average at Average
Exercise January 3, Contractual Exercise January 3, Exercise
Prices 1998 Life Price 1998 Price
-------- ----------- ----------- --------- ----------- ---------
$ 3.35 47,346 5.2 $ 3.35 31,614 $ 3.35
$11.50 - 15.77 84,275 6.6 14.07 29,725 14.05
$16.00 - 19.66 82,380 7.8 17.34 11,080 16.29
$23.63 - 25.50 9,600 9.6 25.19 0 --
---------- ---------
223,601 72,419
---------- ---------
---------- ---------
Continued
39
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. STOCK PURCHASE PLAN, Continued:
The Company adopted 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:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1996 1997
-------- -------- --------
Net income - as reported $ 4,898 $ 5,909 $ 12,436
Net income - pro forma 4,824 5,752 12,158
Diluted earnings per share - as reported $ 1.09 $ 1.27 $ 2.39
Diluted earnings per share - pro forma 1.08 1.23 2.34
The pro forma effect on net income for 1995, 1996 and 1997 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:
1995 1996 1997
-------- -------- --------
Risk-free interest rate 7.20% 6.33% 6.14%
Expected life (in years) 7.50 7.50 6.16
Expected volatility 60.60% 60.60% 56.07%
Expected dividend yield 0.00% 0.00% 0.00%
15. 401(K) DEFINED CONTRIBUTION PLAN:
The Company sponsors a 401(k) defined contribution plan covering
substantially all full-time employees. The plan has a one-quarter match of
participants' contributions up to 4% of compensation. In addition,
contributions may be made at the discretion of the Company's Board of
Directors and are allocated ratably based on each participant's compensation
to total compensation. Participants may make salary deferral contributions
up to the lesser of 16% of their regular monthly compensation or the
statutory limit. Company contributions to the plan totaled $439,000 in
1997 ($49,000 in 1995 and $370,000 in 1996).
40
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
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.
LONG-TERM RECEIVABLES - The estimated fair value approximates the carrying
value of $1.7 million and $2.7 million at December 28, 1996 and January 3,
1998, respectively.
LONG-TERM BORROWINGS - The estimated fair values of long-term borrowings
were determined by discounting estimated future cash flows using the
Company's incremental borrowing rate. Based on this calculation, the
estimated fair value approximates the carrying value of $18.5 million and
$15.9 million at December 28, 1996 and January 3, 1998, respectively.
SHORT-TERM BORROWINGS - The carrying amount outstanding against the
revolving line of credit is $3.8 million and $9.4 million at December 28,
1996 and January 3, 1998, respectively, which approximates the estimated
fair value. The carrying amount on other outstanding short-term loans of
$6.2 million at December 28, 1996 also approximated market.
17. COMMITMENTS AND CONTINGENCIES:
REPURCHASE AGREEMENTS
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.
The Company does not anticipate any significant losses will be incurred
under these agreements. No significant charges were incurred during the
years ended December 30, 1995, December 28, 1996 or January 3, 1998. The
approximate amount subject to contingent repurchase obligations arising from
these agreements at January 3, 1998 is $141.5 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.
Continued
41
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. COMMITMENTS AND CONTINGENCIES, Continued:
OBLIGATION TO PURCHASE CONSIGNED INVENTORIES
The Company obtains vehicle chassis for certain of its recreational and
specialized vehicle products directly from automobile manufacturers under
converter pool agreements. The agreements generally provide that the
manufacturer will provide a supply of chassis at the Company's various
production facilities under the terms and conditions as set forth in the
agreement. Chassis are accounted for as consigned inventory until either
assigned to a unit in the production process or 90 days have passed. At the
earlier of these dates, the Company is obligated to purchase the chassis and
it is recorded as inventory. Chassis inventory, accounted for as consigned
inventory, was approximated $3.0 million at December 28, 1996 and $2.0
million at January 3, 1998.
WARRANTY AND PRODUCT LIABILITY
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 per occurrence and an annual
aggregate "stop loss" amount. In addition, the Company has obtained excess
umbrella policies. 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
materially adverse effect on the Company's business, results of operations
and financial condition.
LITIGATION
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.
OTHER COMMITMENTS
In 1997, the Company began construction of a new paint facility in Indiana.
The new facility is expected to be completed in 1998 at a total estimated
cost of $8.6 million. At January 3, 1998, the Company had incurred
approximately $5.8 million in expenditures related to construction in
progress on the facility.
42
18. STOCK OFFERING
On June 23, 1997, the Company completed a secondary public offering of
800,000 new shares of its common stock. In connection with the offering,
65,217 shares of preferred stock were converted into 230,767 shares of
common stock. The fair value of these shares at the conversion date was
$5.1 million, based upon the closing price of the Common Stock on June 23,
1997 as reported on the Nasdaq National Market. The net proceeds of $15.4
million received by the Company were used to reduce amounts outstanding
under short-term borrowings with the remainder being added to working
capital.
19. QUARTERLY RESULTS (UNAUDITED):
1st 2nd 3rd 4th
YEAR ENDED DECEMBER 28, 1996(a) Quarter Quarter Quarter Quarter
---------------------------------------------------------
(In thousands, except per share data)
Net sales $ 61,964 $ 106,729 $ 102,065 $ 94,880
Gross profit 6,727 12,408 14,944 13,650
Operating income 1,930 2,934 4,109 4,768
Net income 634 891 1,957 2,427
Net income attributable to common stock 634 828 1,894 2,394
---------------------------------------------------------
Earnings per common share:
Basic $ 0.14 $ 0.19 $ 0.43 $ 0.54
Diluted $ 0.14 $ 0.19 $ 0.42 $ 0.51
---------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
YEAR ENDED JANUARY 3, 1996 Quarter Quarter Quarter Quarter
---------------------------------------------------------
(In thousands, except per share data)
Net sales $ 109,024 $ 105,981 $ 105,796 $ 121,094
Gross profit 15,034 14,329 14,084 16,081
Operating income 5,391 5,341 5,361 6,534
Net income 2,697 2,816 3,159 3,764
Net income attributable to common stock 2,672 2,524 3,159 3,764
---------------------------------------------------------
Earnings per common share:
Basic $ 0.60 $ 0.55 $ 0.58 $ 0.68
Diluted $ 0.57 $ 0.55 $ 0.56 $ 0.67
---------------------------------------------------------
(a) Includes results of operations of Holiday Rambler and Holiday World after
March 4, 1996.
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
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.
ITEM 11. EXECUTIVE COMPENSATION
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report on Form 10-K:
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 SCHEDULES. The following financial statement
schedule of Monaco Coach Corporation for the fiscal year ended December 30,
1995, December 28, 1996 and January 3, 1998 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 50
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.
2.1(1) Asset Purchase Agreement dated February 4, 1993 between the
Registrant, Warrick Industries, Inc., William L. Warrick, Arlen J.
Paul, Kay L. Toolson, Jay M. DeVoss and James A. Krider.
2.2(1) First Amendment to Asset Purchase Agreement dated March 5, 1993
between the Registrant, Warrick Industries, Inc., William L. Warrick,
Arlen J. Paul, Kay L. Toolson, Jay M. DeVoss and James A. Krider.
2.3(1) Assumption Agreement dated March 5, 1993 between the Registrant and
Warrick Industries, Inc.
2.4(1) Letter Agreement dated August 10, 1993 between the Registrant,
Warrick Industries, Inc., William L. Warrick, Arlen J. Paul, Jay M.
DeVoss, James A. Krider and Kay L. Toolson.
2.5(2) Asset Purchase Agreement dated as of January 21, 1996 among Harley-
Davidson, Inc., Holiday Rambler LLC, State Road Properties L.P., and
the Registrant (the "HR Asset Purchase Agreement").
2.6(2) Amendment No. 1 to the HR Asset Purchase Agreement dated as of March
4, 1996 among Harley-Davidson, Inc., Holiday Rambler LLC, State Road
Properties L.P., and the Registrant.
2.7(2) Asset Purchase Agreement dated as of March 4, 1996 among Harley-
Davidson, Inc., Holiday Holding Corp., Holiday World, Inc., a
California corporation, Holiday World, Inc., a Texas corporation,
Holiday World, Inc., a Florida corporation, Holiday World, Inc., an
Oregon corporation, Holiday World, Inc., an Indiana corporation,
Holiday World, Inc., a Washington corporation, Holiday World, Inc., a
New Mexico corporation, the Registrant and MCC Acquisition
Corporation.
2.8(2) Subordinated Promissory Note, dated as of March 4, 1996, issued to
Holiday Holding Corp. by MCC Acquisition Corporation.
3.1(3) Amended and Restated Certificate of Incorporation of the Registrant.
46
3.2(3) Bylaws of Registrant, as amended to date.
3.3(2) Certificate of Designations of Rights, Preferences and Privileges of
Series A Convertible Preferred Stock of the Registrant.
10.1(1) Form of Indemnification Agreement for directors and executive
officers.
10.2(1)+ 1993 Incentive Stock Option Plan and form of option agreement
thereunder.
10.3(1)+ 1993 Director Option Plan.
10.4(1)+ 1993 Employee Stock Purchase Plan and form of subscription agreement
thereunder.
10.5(1) Amended and Restated Management Agreement dated August 10, 1993
between the Registrant and Cariad Capital, Inc.
10.6(1) Registration Agreement dated March 5, 1993 between the Registrant,
Liberty Investment Partners, II and SBA.
10.7(1) Registration Agreement dated March 5, 1993 among the Registrant,
Monaco Capital Partners, Tucker Anthony Holding Corporation and
certain other stockholders of the Registrant.
10.8(2) Credit Agreement dated as of March 5, 1996 among BT Commercial
Corporation, Deutsche Financial Services Corporation, Nationsbank of
Texas, N.A., LaSalle National Bank and Monaco Coach Corporation.
10.9(2) Registration Rights Agreement dated as of March 4, 1996 among Holiday
Rambler LLC and Monaco Coach Corporation.
10.10(4) Agreement of Lease dated March 4, 1996, with First Amendment dated as
of March 4, 1996, pertaining to 3 State Road 19, Wakarusa, Indiana
46573.
10.11(4) Agreement of Lease dated March 4, 1996, with First Amendment dated as
of March 4, 1996, pertaining to 5 State Road 19, Wakarusa, Indiana
46573.
10.12(4) Agreement of Lease dated March 4, 1996, with First Amendment dated as
of March 4, 1996, pertaining to 6 State Road 19, Wakarusa, Indiana
46573.
10.13(4) Agreement of Lease dated March 4, 1996, with First Amendment dated as
of March 4, 1996, pertaining to 7 State Road 19, Wakarusa, Indiana
46573.
10.14(4) Agreement of Lease dated March 4, 1996 pertaining to 8 State Road
19, Wakarusa, Indiana 46573.
10.15(4) Form of Lease dated April 1, 1997 pertaining to 5280 High Banks
Road, Springfield, Oregon.
10.16(4) Lease Agreement dated April 1, 1995 pertaining to 1330 Wade Drive,
Elkhart, Indiana.
11.1 Computation of earnings per share (see Note 11 of Notes to
Consolidated Financial Statements included in Item 8 hereto).
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
47
24.1 Power of Attorney (included on the signature pages hereof).
27 Financial Data Schedule (see page 51).
- ------
(1) Incorporated by reference to exhibits filed in response to Item
16(a), "Exhibits," of the Company's Registration Statement on Form
S-1 (File No. 33-67374) declared effective on September 23, 1993.
(2) Incorporated by reference to exhibits filed in response to Item 7,
"Financial Statements and Exhibits," of the Company's Current Report
on Form 8-K dated March 4, 1996.
(3) Incorporated by reference to exhibits filed in response to Item
14(a), "Exhibits, Financial Statement Schedules, and Reports on
Form-8-K," of the Company's Form 10-K Annual Report for the year
ended January 1, 1994.
(4) Incorporated by reference to exhibits filed in response to Item
16(a), "Exhibits," of the Company's Registration Statement on Form
S-2 (File No. 333-23591) declared effective on June 17, 1997.
+ The item listed is a compensatory plan.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the
Company during the quarter ended January 3, 1998.
48
SIGNATURES
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.
April 3, 1998 MONACO COACH CORPORATION
By: /s/ Kay L. Toolson
-----------------------------
Kay L. Toolson
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kay L. Toolson and John W. Nepute, 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:
Signature Title Date
- -----------------------------------------------------------------------------------------------------------------
/s/ Kay L. Toolson Chairman of the Board and Chief Executive
- ----------------------- Officer (Principal Executive Officer) April 3, 1998
(Kay L. Toolson)
/s/ John W. Nepute Vice President of Finance and Chief Financial
- ----------------------- Officer (Principal Financial and Accounting April 3, 1998
(John W. Nepute) Officer)
/s/ Michael J. Kluger Director April 3, 1998
- -----------------------
(Michael J. Kluger)
/s/ Lee A. Posey Director April 3, 1998
- -----------------------
(Lee A. Posey)
/s/ Carl E. Ring, Jr. Director April 3, 1998
- -----------------------
(Carl E. Ring, Jr.)
/s/ Richard A. Rouse Director April 3, 1998
- -----------------------
(Richard A. Rouse)
/s/ Roger A. Vandenberg Director April 3, 1998
- -----------------------
(Roger A. Vandenberg)
49
MONACO COACH CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Liability
Balance at Assumed as Charge Balance at
Beginning as part of the to Claims End of
Description of Period Acquisition Expense Paid Period
- ----------- ---------- -------------- ------- ------ ----------
Fiscal year ended December 30, 1995:
Reserve for warranty and other claims.............. $ 765 $ 3,245 $ 2,873 $1,137(1)
------ -------- -------- ------
------ -------- -------- ------
Fiscal year ended December 28, 1996:
Reserve for warranty............................... $1,037 $6,593 $ 7,126 $ 5,965 $8,791
------ ------ -------- -------- ------
------ ------ -------- -------- ------
Reserve for Product Liability...................... $ 100 $1,760 $ 3,404 $ 757 $4,507
------ ------ -------- -------- ------
------ ------ -------- -------- ------
Fiscal year ended January 3, 1998:
Reserve for warranty............................... $8,791 $ 14,697 $ 13,507 $9,981
------ -------- -------- ------
------ -------- -------- ------
Reserve for Product Liability...................... $4,507 $ 3,929 $ 3,177 $5,259
------ -------- -------- ------
------ -------- -------- ------
- -------------------------------------------
(1) Includes warranty and product liability.
50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
Our report on the consolidated financial statements of Monaco Coach
Corporation is included on page 21 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedule on page 50 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the financial statements taken as a whole, presents
fairly, in all material respects, the information required to be included
therein.
/s/ Coopers & Lybrand L.L.P.
Eugene, Oregon
January 30, 1998, except for stock split
information in Note 1, as to which the
date is March 16, 1998.
51
EXHIBIT INDEX
Exhibit
No. Exhibit
- --------- --------------------------------------------------------------------
2.1(1) Asset Purchase Agreement dated February 4, 1993 between the
Registrant, Warrick Industries, Inc., William L. Warrick, Arlen J.
Paul, Kay L. Toolson, Jay M. DeVoss and James A. Krider.
2.2(1) First Amendment to Asset Purchase Agreement dated March 5, 1993
between the Registrant, Warrick Industries, Inc., William L. Warrick,
Arlen J. Paul, Kay L. Toolson, Jay M. DeVoss and James A. Krider.
2.3(1) Assumption Agreement dated March 5, 1993 between the Registrant and
Warrick Industries, Inc.
2.4(1) Letter Agreement dated August 10, 1993 between the Registrant,
Warrick Industries, Inc., William L. Warrick, Arlen J. Paul, Jay M.
DeVoss, James A. Krider and Kay L. Toolson.
2.5(2) Asset Purchase Agreement dated as of January 21, 1996 among Harley-
Davidson, Inc., Holiday Rambler LLC, State Road Properties L.P., and
the Registrant (the "HR Asset Purchase Agreement").
2.6(2) Amendment No. 1 to the HR Asset Purchase Agreement dated as of March
4, 1996 among Harley-Davidson, Inc., Holiday Rambler LLC, State Road
Properties L.P., and the Registrant.
2.7(2) Asset Purchase Agreement dated as of March 4, 1996 among Harley-
Davidson, Inc., Holiday Holding Corp., Holiday World, Inc., a
California corporation, Holiday World, Inc., a Texas corporation,
Holiday World, Inc., a Florida corporation, Holiday World, Inc., an
Oregon corporation, Holiday World, Inc., an Indiana corporation,
Holiday World, Inc., a Washington corporation, Holiday World, Inc., a
New Mexico corporation, the Registrant and MCC Acquisition Corporation.
2.8(2) Subordinated Promissory Note, dated as of March 4, 1996, issued to
Holiday Holding Corp. by MCC Acquisition Corporation.
3.1(3) Amended and Restated Certificate of Incorporation of the Registrant.
3.2(3) Bylaws of Registrant, as amended to date.
3.3(2) Certificate of Designations of Rights, Preferences and Privileges of
Series A Convertible Preferred Stock of the Registrant.
10.1(1) Form of Indemnification Agreement for directors and executive
officers.
10.2(1)+ 1993 Incentive Stock Option Plan and form of option agreement
thereunder.
10.3(1)+ 1993 Director Option Plan.
10.4(1)+ 1993 Employee Stock Purchase Plan and form of subscription agreement
thereunder.
10.5(1) Amended and Restated Management Agreement dated August 10, 1993
between the Registrant and Cariad Capital, Inc.
10.6(1) Registration Agreement dated March 5, 1993 between the Registrant,
Liberty Investment Partners, II and SBA.
10.7(1) Registration Agreement dated March 5, 1993 among the Registrant,
Monaco Capital Partners, Tucker Anthony Holding Corporation and
certain other stockholders of the Registrant.
52
10.8(2) Credit Agreement dated as of March 5, 1996 among BT Commercial
Corporation, Deutsche Financial Services Corporation, Nationsbank of
Texas, N.A., LaSalle National Bank and Monaco Coach Corporation.
10.9(2) Registration Rights Agreement dated as of March 4, 1996 among Holiday
Rambler LLC and Monaco Coach Corporation.
10.10(4) Agreement of Lease dated March 4, 1996, with First Amendment dated
as of March 4, 1996, pertaining to 3 State Road 19, Wakarusa, Indiana
46573.
10.11(4) Agreement of Lease dated March 4, 1996, with First Amendment dated as
of March 4, 1996, pertaining to 5 State Road 19, Wakarusa, Indiana
46573.
10.12(4) Agreement of Lease dated March 4, 1996, with First Amendment dated as
of March 4, 1996, pertaining to 6 State Road 19, Wakarusa, Indiana
46573.
10.13(4) Agreement of Lease dated March 4, 1996, with First Amendment dated as
of March 4, 1996, pertaining to 7 State Road 19, Wakarusa, Indiana
46573.
10.14(4) Agreement of Lease dated March 4, 1996 pertaining to 8 State Road 19,
Wakarusa, Indiana 46573.
10.15(4) Form of Lease dated April 1, 1997 pertaining to 5280 High Banks Road,
Springfield, Oregon.
10.16(4) Lease Agreement dated April 1, 1995 pertaining to 1330 Wade Drive,
Elkhart, Indiana.
11.1 Computation of earnings per share (see Note 11 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).
27 Financial Data Schedule
- ------------
(1) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
33-67374) declared effective on September 23, 1993.
(2) Incorporated by reference to exhibits filed in response to Item 7,
"Financial Statements and Exhibits," of the Company's Current Report on
Form 8-K dated March 4, 1996.
(3) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits, Financial Statement Schedules, and Reports on Form-8-K," of
the Company's Form 10-K Annual Report for the year ended January 1, 1994.
(4) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-2 (File No.
333-23591) declared effective on June 17, 1997.
+ The item listed is a compensatory plan.
53