<PAGE>
PROSPECTUS
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-23591
1,700,000 SHARES
[LOGO]
COMMON STOCK
---------
Of the 1,700,000 shares of Common Stock, par value $.01 per share, offered
hereby (the "Offering"), 800,000 shares are being sold by Monaco Coach
Corporation (the "Company") and 900,000 shares are being sold by certain
stockholders (the "Selling Stockholders"). See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
the Common Stock by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "MCCO." The last reported sale price of the Company's Common Stock on the
Nasdaq National Market on June 17, 1997 was $21.375 per share. See "Price Range
of Common Stock."
--------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share $21.25 $1.22 $20.03 $20.03
Total(3) $36,125,000 $2,074,000 $16,024,000 $18,027,000
</TABLE>
(1) For information concerning indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $475,000 payable by the Company.
(3) Certain of the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 255,000 additional shares of Common Stock
to cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $41,543,750,
$2,385,100 and $23,134,650, respectively.
--------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock will be available for delivery on or about June 23, 1997, at the
office of Smith Barney Inc., 333 West 34th Street, New York, New York 10001.
--------------
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
A.G. EDWARDS & SONS, INC.
June 17, 1997
<PAGE>
[PHOTO OF MONACO MOTOR COACH WITH MONACO COACH CORPORATION LOGO OVERLAY]
"Aluma-Lite," "Dynasty," "Endeavor," "The Executive," "Holiday Rambler,"
"Vacationer" and "Windsor" are among the registered trademarks of the Company.
This Prospectus also includes other trade names and trademarks of the Company as
well as other companies.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS SET FORTH IN THE FINANCIAL STATEMENTS
AND NOTES THERETO APPEARING ELSEWHERE HEREIN, INFORMATION IN THIS PROSPECTUS
ASSUMES: (I) THE CONVERSION OF THE 65,217 SHARES OF REDEEMABLE SERIES A
CONVERTIBLE PREFERRED STOCK (THE "REDEEMABLE PREFERRED STOCK") ACQUIRED BY HR,
LLC, A COMPANY OWNED BY HARLEY-DAVIDSON, INC. ("HARLEY-DAVIDSON"), IN CONNECTION
WITH THE HOLIDAY ACQUISITION (AS HEREINAFTER DEFINED) INTO 230,767 SHARES OF
COMMON STOCK AND THE SALE OF SUCH 230,767 SHARES OF COMMON STOCK IN THE
OFFERING; AND (II) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THE
COMPANY'S FISCAL YEAR CONSISTS OF THREE 13-WEEK QUARTERS AND A FOURTH QUARTER
ENDING ON THE SATURDAY CLOSEST TO THE END OF THE CALENDAR YEAR. REFERENCES TO
1994, 1995 AND 1996 REFER TO THE FISCAL YEARS ENDED DECEMBER 31, 1994, DECEMBER
30, 1995 AND DECEMBER 28, 1996, RESPECTIVELY.
THE COMPANY
The Company is a leading manufacturer of premium Class A motor coaches and
towable recreational vehicles. The Company's product line consists of ten models
of motor coaches and five models of fifth wheel trailers and travel trailers
(collectively, "towables") under the well known "Monaco" and "Holiday Rambler"
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.
The Company has achieved significant market positions in the high end price
range of the market segments in which it competes. Based upon retail
registrations in 1996, the Company believes it had a 25% share of the market for
High-Line Class A motor coaches (units with retail prices above $120,000), an
11% share of the market for high end fifth wheel trailers (units with retail
prices above $24,000) and a 48% 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 168 dealerships located primarily in the United
States and Canada.
Prior to March 1996, the Company's product line consisted exclusively of
High-Line Class A motor coaches. In March 1996, the Company acquired Holiday
Rambler, a manufacturer of a full line of Class A motor coaches and towables.
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. The Company believes that developing
relationships with a broader base of first-time buyers, coupled with the
Company's strong emphasis on quality, customer service and design innovation,
will foster brand loyalty and increase the likelihood that, over time, more
customers will trade-up through the Company's line of products. Attracting
larger numbers of first-time buyers is important to the Company because of the
Company's belief that many recreational vehicle customers purchase multiple
recreational vehicles during their lifetime.
The Company's strategy is to increase sales and earnings by attracting new
customers in both the Class A motor coach and towables market segments and
providing these customers with additional products to choose from when they
trade-up to a higher priced product category. Principal elements of this
strategy include: (i) continuing to offer high quality, premium products in both
the Class A motor coach and towables market segments; (ii) introducing new Class
A motor coach and towable products to broaden the price range of the Company's
products within each market segment; (iii) expanding production capacity while
maximizing manufacturing efficiencies in an effort to better meet market demand
as well as lower costs and improve operating margins; (iv) maintaining and
expanding the Company's dealer network, primarily by adding more towables
dealers with greater geographic coverage; (v) emphasizing new product design and
innovation; and (vi) promoting customer satisfaction and brand loyalty.
3
<PAGE>
The recreational vehicle industry is currently experiencing favorable
demographic trends. Recreational vehicles are purchased by adults in all age
ranges, with the highest market penetration in the 45 to 74 age group. According
to the Census Bureau of the U.S. Department of Commerce, the number of adults
between the ages of 45 and 74 is projected to increase by approximately 41% from
1995 through the year 2010, compared with a projected increase of approximately
13% for the overall population, thereby representing an expanded potential
consumer market for recreational vehicle sales. In 1996, according to the
Recreation Vehicle Industry Association (the "RVIA"), recreational vehicle
manufacturers shipped units (excluding conversion vehicles) with an aggregate
retail value of approximately $6.3 billion.
The principal office of the Company is located at 91320 Industrial Way,
Coburg, Oregon 97408, and its telephone number is (541) 686-8011. The Company
has manufacturing facilities in Coburg, Oregon, Springfield, Oregon, Elkhart,
Indiana and Wakarusa, Indiana. The Company maintains websites for both the
"Monaco" and "Holiday Rambler" brand names on the World Wide Web. Information
contained in the Company's websites will not be deemed to be a part of this
Prospectus.
Unless the context otherwise requires, (i) the term "Holiday Acquisition"
when used in this Prospectus means the Company's acquisition on March 4, 1996 of
Harley-Davidson's Holiday Rambler LLC Recreational Vehicle Manufacturing
Division ("Holiday Rambler") and ten retail dealerships (the "Holiday World
Dealerships") owned by an affiliate of Harley-Davidson; (ii) the term "Company"
when used in this Prospectus refers to Monaco Coach Corporation, its Predecessor
(as hereinafter defined) and, after March 4, 1996, the combined operations of
the Company, Holiday Rambler and the Holiday World Dealerships; and (iii) the
term "Monaco" refers to the Company's Monaco Division.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company............. 800,000 shares
Common Stock Offered by the Selling 900,000 shares
Stockholders..................................
Total Common Stock Offered...................... 1,700,000 shares
Common Stock to be Outstanding after the 5,481,699 shares(1)
Offering......................................
Use of Proceeds................................. For repayment of debt, working capital,
general corporate purposes, and potential
acquisitions
Nasdaq National Market Symbol................... MCCO
</TABLE>
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(1) Excludes: (i) 525,000 shares reserved for issuance under the Company's 1993
Incentive Stock Option Plan (the "Option Plan"), under which options to
purchase 216,840 shares were outstanding as of the date of this Prospectus;
and (ii) 40,000 shares reserved for issuance under the Company's 1993
Director Option Plan (the "Director Plan"), under which options to purchase
12,800 shares were outstanding as of the date of this Prospectus. See
"Capitalization."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND CONSOLIDATED OPERATING DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ---------------------------
---------------------------------------- MARCH 30, MARCH 29,
1994 1995 1996(1) 1996(1) 1997(1)
------------ ------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net sales............................................. $ 107,300 $ 141,611 $ 365,638 $ 61,964 $ 109,023
Gross profit.......................................... 17,406 17,019 47,729(2) 6,727(2) 15,042
Operating income...................................... 9,633 8,355 13,741 1,930 5,389
Interest expense...................................... 69 298 3,914 863 821
Net income............................................ 5,941 4,898 5,909 634 2,695
Earnings per common share............................. $ 1.33 $ 1.09 $ 1.26(3) $ .14(3) $ .57(3)
Weighted average common shares outstanding............ 4,473 4,475 4,678 4,540 4,747
CONSOLIDATED OPERATING DATA:
Units sold (4):
Motor coaches....................................... 717 982 2,733 441 809
Towables............................................ -- -- 1,977 200 682
Dealerships at end of period.......................... 48 49 159 164 168
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 29, 1997
-------------------------
ACTUAL AS ADJUSTED(5)
--------- --------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................................................................... $ 1,806 $ 17,354
Total assets.......................................................................... 149,189 153,465
Long-term borrowings, less current portion............................................ 15,875 15,875
Redeemable Preferred Stock............................................................ 2,735 --
Total stockholders' equity............................................................ 46,528 64,811
</TABLE>
- ------------------------------
(1) Includes the operations of Holiday Rambler and the Holiday World Dealerships
from March 4, 1996. The Holiday World Dealerships generated net sales of
$25.0 million in fiscal 1996 and $5.3 million and $3.5 million in the three
months ended March 30, 1996 and March 29, 1997, respectively. These amounts
represent the sale of 820 units during fiscal 1996 and 193 units and 98
units in the three months ended March 30, 1996 and March 29, 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 fiscal 1996, one in the first three months of 1997, and
intends to sell the two remaining dealerships.
(2) Includes a $645,000 increase in the three months ended March 30, 1996 and a
$1.7 million increase in fiscal 1996 to cost of sales resulting from the
sale of inventory that was written up to fair value at the date of the
Holiday Acquisition.
(3) Earnings per common share for fiscal 1996 and for the three months ended
March 29, 1997 are fully diluted earnings per share. Includes a one-time
charge of $.08 per share for the three months ended March 30, 1996 and $0.22
per share for fiscal 1996, net of tax effect, related to the inventory
write-up described in Note 2 above. Excluding this charge, fully diluted
earnings per common share in the three months ended March 30, 1996 and in
fiscal 1996 would have been $.22 and $1.48 per share, respectively.
(4) Excludes units sold by the Holiday World Dealerships that were either
previously owned or not Holiday Rambler units.
(5) Adjusted for the sale by the Company of 800,000 shares of Common Stock
offered hereby, the application of the estimated net proceeds therefrom as
described under "Use of Proceeds" and the conversion of the 65,217 shares of
Redeemable Preferred Stock into 230,767 shares of Common Stock.
5
<PAGE>
RISK FACTORS
THIS PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN,
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), INCLUDING STATEMENTS
THAT INCLUDE THE WORDS "BELIEVES," "EXPECTS" OR "ANTICIPATES" OR SIMILAR
EXPRESSIONS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE RISK
FACTORS DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS AND IN DOCUMENTS WHICH
ARE INCORPORATED BY REFERENCE HEREIN. IN ANALYZING AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER,
TOGETHER WITH THE OTHER MATTERS REFERRED TO HEREIN, THE RISK FACTORS DESCRIBED
BELOW. THE COMPANY CAUTIONS THE READER, HOWEVER, THAT THIS LIST OF RISK FACTORS
MAY NOT BE EXHAUSTIVE.
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.
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, 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, the Company has experienced
significant growth in the number of its employees, in the size of its
manufacturing operations and in 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
6
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information systems. While management believes it has substantially completed
the integration of Holiday Rambler's operations and personnel into the Company,
due to the large size of the Holiday Acquisition relative to the Company, there
can be no assurance that the Company will not encounter problems in the future
associated with the integration of the acquisition or that the anticipated
benefits of the Holiday Acquisition will be fully realized. In addition, there
can be no assurance that the Company will adequately support and manage the
growth of its business and the failure to do so 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 order to meet market demand and realize manufacturing efficiencies, the
Company has recently completed construction of a new motor coach manufacturing
facility in Wakarusa, Indiana, and intends to relocate its Elkhart, Indiana
motor coach production to the new Wakarusa facility, and has just opened a
Springfield, Oregon facility to manufacture towables. 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 and continuing in the first quarter of 1997, the
Company has 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 the new facilities 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
commence full-scale commercial production at its Wakarusa and Springfield
facilities in a timely manner could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
at such time as the Company commences production at these new facilities, it 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 168 dealerships located
primarily in the United States and Canada at March 29, 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 1996, the
top three dealers accounted for approximately 22.5% 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. See "Business--Sales
and Marketing."
POTENTIAL LIABILITY UNDER REPURCHASE AGREEMENTS
As is common in the recreational vehicle industry, the Company enters into
repurchase agreements with the financing institutions used by its dealers to
finance their purchases. These agreements obligate the Company to repurchase a
dealer's inventory under certain circumstances in the event of a default by the
dealer to its lender. In 1993, the Company's then third largest dealer went into
default with its lenders, and the Company was required to repurchase 16 motor
coaches. Although the Company was able to resell these motor coaches within
three months, the Company incurred expenses of approximately $291,000 in
7
<PAGE>
connection with this dealer's default. Additionally, the need to resell these
motor coaches and the loss of that dealer temporarily limited the Company's
sales of new motor coaches. 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 $137.0 million as of March
29, 1997, with approximately 7.0% concentrated with one dealer. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--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 Engine Company, Inc. ("Cummins")), substantially all of its
transmissions (Allison Transmission Division of General Motors Corporation
("Allison")), axles for all diesel motor coaches other than the Holiday Rambler
Endeavor Diesel model (Eaton Corporation ("Eaton")), and chassis for certain of
its Holiday Rambler products (the Chevrolet Motor Division of General Motors
Corporation ("Chevrolet"), the Ford Motor Company ("Ford") and Freightliner
Custom Chassis Corporation ("Freightliner")). The Company has no long term
supply contracts with these suppliers or their distributors, and there can be no
assurance that these suppliers will be able to meet the Company's future
requirements for these components. Although the Company believes that adequate
alternative suppliers exist for each of these components, an extended delay or
interruption in the supply of any of the components currently obtained from a
single source supplier or limited supplier could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Business--Manufacturing."
NEW PRODUCT INTRODUCTIONS
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 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, a lack of market acceptance of new models or
features, 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. See "Business--Competition."
8
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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. In addition, as a result of the Holiday
Acquisition, the Company assumed most of the liabilities of Holiday Rambler,
including product liability and warranty claims. Although the Company does not
believe that the outcome of any pending litigation 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 $26.0 million for each occurrence and $27.0
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.
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 its
cabinet making facility in Nappanee, Indiana and its operations in Elkhart,
Indiana and Wakarusa, Indiana, including the new motor coach production facility
in Wakarusa, and is in the process of preparing such applications for its
facility in Coburg, Oregon. The Company has provided the relevant state agency
with a schedule of completion for the Coburg application, which will be filed
after the regulatory deadline, and the agency has indicated to the Company that
the schedule will be acceptable.
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, and the Wakarusa, Indiana
manufacturing facility and Leesburg, Florida dealership acquired in the Holiday
Acquisition. 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
9
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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 is
investigating the Wakarusa site and expects soon to recommend 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 and its consultants are conducting investigations to determine the
appropriate remediation program to recommend to the relevant Florida regulatory
authority for the contamination associated with former underground storage tanks
at the Leesburg dealership. 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.
OTHER REGULATORY MATTERS
The Company, its products and its manufacturing operations are subject to a
variety of federal, state and local regulations, including the National Traffic
and Motor Vehicle Safety Act and numerous state consumer protection laws and
regulations relating to the operation of motor vehicles, including so-called
"Lemon Laws." Amendments to these regulations and laws and the implementation of
new regulations and laws could significantly increase the costs of
manufacturing, purchasing, operating or selling the Company's products and could
have a material adverse effect on the Company's business, results of operations
and financial condition. The failure of the Company to comply with present or
future regulations and laws could subject the Company to fines, potential civil
and criminal liability, suspension of production or cessation of operations. See
"Business--Government Regulation."
Certain U.S. tax laws currently afford favorable tax treatment for the
purchase and sale of recreational vehicles that are financed through mortgage
loans. 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 business in the future. Amendment or repeal of
these laws and regulations and the implementation of new laws and regulations
could have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company is subject to regulations that may require the Company to recall
products with safety defects. Product defects may also result in a large number
of product liability or warranty claims. The Company has on occasion voluntarily
recalled certain products. The occurrence of a major product recall or the
incurrence of warranty claims in excess of warranty reserves in any period could
have a material adverse effect on the Company's business, results of operations
and financial condition.
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
10
<PAGE>
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. See "Business--Employees" and "Management."
CONCENTRATION OF STOCK OWNERSHIP
Based upon the shares of Common Stock that will be outstanding upon
completion of the Offering (assuming no exercise of the Underwriters'
over-allotment option), the Company's directors and executive officers, as a
group, will beneficially own approximately 30.6% of the Company's outstanding
Common Stock. As a result, these stockholders will have the ability to strongly
influence the actions of the Board of Directors and the outcome of actions that
are brought before the stockholders for approval. Such a high level of ownership
may have the effect of delaying or preventing a change in control of the Company
and may adversely affect the voting and other rights of the holders of Common
Stock. See "Management" and "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Substantial sales of the Company's Common Stock in the public market after
the Offering could adversely affect the market price of the Common Stock. All of
the 5,481,699 shares which will be outstanding after the Offering will be freely
tradeable in the public market, subject in some cases to compliance with certain
volume limitations under Rule 144 and to "lock-up" agreements under which
certain holders have agreed not to sell or otherwise dispose of any of their
shares for 90 days from the date of this Prospectus without the prior written
consent of Smith Barney Inc. In addition, the holders of 1,701,605 shares of
Common Stock (1,446,605 shares if the Underwriters' over-allotment option is
exercised in full) are entitled to certain rights with respect to registration
of such shares of Common Stock for offer or sale to the public, which can be
exercised after the lock-up agreements have terminated. Furthermore, as of the
date of this Prospectus, there were options outstanding under the Company's
stock option plans to purchase 229,640 shares of Common Stock, of which 80,178
shares have vested and are eligible for sale upon exercise. See "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE
The Company believes that 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 investment
analysts, announcements of new products by the Company or its competitors,
general economic conditions and 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 that 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. See "Price Range of Common Stock."
ANTI-TAKEOVER PROTECTIONS
The Company's Certificate of Incorporation and Bylaws provide for a
classified Board of Directors and authorize the Board of Directors to issue
without stockholder approval Preferred Stock with such terms as the Board may
determine. These provisions could delay or prevent a change in control of the
Company or could impede a merger, consolidation, takeover or other business
combination involving the Company or discourage a potential acquiror from making
a tender offer or otherwise attempting to obtain control of the Company. The
Company is also afforded the protections of Section 203 of the Delaware General
Corporation Law, which could have similar effects. See "Description of Capital
Stock--Preferred Stock" and "--Delaware Anti-Takeover Law and Certain Charter
Provisions."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be $15.5
million, after deducting underwriting discounts and commissions and the
estimated expenses of the Offering.
The Company will use a portion of the net proceeds from the sale of the
shares offered by the Company to retire the outstanding balance under its
revolving line of credit. At June 16, 1997, a balance of $9.2 million was
outstanding under the revolving line of credit, which bears interest at prime
rate plus 1.25% and matures in March 2001. See Note 7 of Notes to the Company's
Consolidated Financial Statements. Any remaining net proceeds will be used for
working capital and general corporate purposes. The Company may use an
unspecified portion of the net proceeds from the Offering to acquire other
businesses having product lines that are compatible with the Company's business.
In addition, any such acquisitions may be financed with additional indebtedness
and may involve the issuance of the Company's capital stock. Such issuances of
additional capital stock could result in dilution of ownership interests in the
Company. The Company is not involved in any ongoing negotiations related to any
material acquisition at the present time, and there can be no assurance that any
acquisition will be made. Pending such uses, the Company intends to invest the
net proceeds from the Offering in short-term, investment-grade, interest-bearing
instruments. The Company will not receive any proceeds from the sale of shares
of Common Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company currently intends to retain any earnings for reinvestment in its
business and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. The Company's existing credit facilities prohibit the
payment of dividends on the Common Stock, and future borrowing agreements may
contain similar restrictions. Any future determinations to pay dividends will be
at the discretion of the Company's Board of Directors and will be dependent upon
the Company's results of operations, financial condition, contractual
restrictions and other factors deemed relevant by the Board of Directors.
PRICE RANGE OF COMMON STOCK
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 sale prices for the Common Stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter......................................................... $16.50 $14.00
Second Quarter........................................................ 16.50 13.75
Third Quarter......................................................... 16.00 12.25
Fourth Quarter........................................................ 13.00 8.25
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......................................................... 22.50 15.50
Second Quarter (through June 17, 1997)................................ 24.00 16.00
</TABLE>
On June 17, 1997 the last reported sale price of the Company's Common Stock
on the Nasdaq National Market was $21.375. As of June 17, 1997, there were
approximately 105 holders of record of the Company's Common Stock.
12
<PAGE>
CAPITALIZATION
The following table sets forth short-term borrowings and the capitalization
of the Company as of March 29, 1997 and as adjusted to give effect to: (i) the
conversion of the 65,217 shares of Redeemable Preferred Stock into 230,767
shares of Common Stock; and (ii) the sale of the 800,000 shares of Common Stock
offered by the Company hereby, after deducting underwriting discounts and
commissions and estimated expenses of the Offering, and the application of the
net proceeds therefrom as described in "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 29, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings:
Bank line of credit..................................................................... $ 11,272 $ --
Flooring agreements..................................................................... 4,182 4,182
Current portion of long-term note payable................................................. 2,250 2,250
--------- -----------
Total................................................................................. $ 17,704 $ 6,432
--------- -----------
--------- -----------
Long-term note payable, less current portion.............................................. $ 15,875 $ 15,875
Redeemable Series A Convertible Preferred Stock, $.01 par value; redemption value of
$3,005,000; 100,000 shares designated; 65,217 shares issued and outstanding, actual; no
shares issued and outstanding, as adjusted.............................................. 2,735 --
Stockholders' equity:
Preferred Stock, $.01 par value: 2,000,000 shares authorized, actual; 1,934,783 shares
authorized, as adjusted; no shares issued and outstanding, actual and as adjusted..... -- --
Common Stock, $.01 par value: 20,000,000 shares authorized; 4,438,217 shares issued and
outstanding, actual; 5,468,984 shares issued and outstanding, as adjusted(1).......... 44 55
Additional paid-in capital.............................................................. 25,504 43,776
Retained earnings....................................................................... 20,980 20,980
--------- -----------
Total stockholders' equity............................................................ 46,528 64,811
--------- -----------
Total capitalization................................................................ $ 65,138 $ 80,686
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes: (i) 525,000 shares reserved for issuance under the Option Plan,
under which options to purchase 178,445 shares were outstanding as of March
29, 1997; and (ii) 40,000 shares reserved for issuance under the Director
Plan, under which options to purchase 12,800 shares were outstanding as of
March 29, 1997. Also excludes the following activity that occurred after
March 29, 1997 and prior to the date of this Prospectus: (i) the grant of
options under the Option Plan to purchase 52,600 shares; (ii) the exercise
of options under the Option Plan to purchase 12,715 shares; and (iii) the
forfeiture of options under the Option Plan to purchase 1,490 shares.
13
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The Consolidated Statements of Income Data set forth below with respect to
fiscal years 1994, 1995 and 1996 and the Consolidated Balance Sheet Data at
December 30, 1995 and December 28, 1996, are derived from, and should be read in
conjunction with, the audited Consolidated Financial Statements and Notes
thereto of the Company included in this Prospectus. The Consolidated Statements
of Income Data set forth below with respect to fiscal years 1992 and 1993 and
the Consolidated Balance Sheet Data at January 2, 1993, January 1, 1994 and
December 31, 1994 are derived from audited financial statements of the
Predecessor and the Company, respectively, not included in this Prospectus. The
Consolidated Statements of Income Data and the Consolidated Balance Sheet Data
set forth below with respect to the three months ended March 30, 1996 and March
29, 1997 are derived from unaudited financial statements of the Company included
in this Prospectus that have been prepared on the same basis as the audited
financial statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows for
such periods. Results for interim periods are not necessarily indicative of
results for the entire year. The Company's fiscal year consists of three 13-week
quarters and a fourth quarter ending on the Saturday closest to the end of the
calendar year. References to 1994, 1995 and 1996 refer to the fiscal years ended
December 31, 1994, December 30, 1995 and December 28, 1996, 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 Prospectus, the Company's Unaudited Condensed Consolidated Financial
Statements and the Notes thereto appearing elsewhere in this Prospectus, and the
Unaudited Pro Forma Combined Statements of Income.
14
<PAGE>
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR(1) ----------------------------------------------------------------------------
---------------------
TWO MONTHS TEN MONTHS THREE MONTHS
ENDED ENDED ENDED
---------- ---------- FISCAL YEAR -------------------------
MARCH 4, JAN. 1, -------------------------------- MARCH 30, MARCH 29,
1992 1993 1994 1994 1995 1996(2) 1996(2) 1997(2)
------- ---------- ---------- -------- -------- -------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND CONSOLIDATED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
INCOME DATA:
Net sales.................. $64,338 $12,026 $65,964 $107,300 $141,611 $365,638 $61,964 $109,023
Cost of sales.............. 54,310 10,202 56,141 89,894 124,592 317,909(3) 55,237(3) 93,981
------- ---------- ---------- -------- -------- -------- ---------- ----------
Gross profit........... 10,028 1,825 9,823 17,406 17,019 47,729 6,727 15,042
Selling, general and
administrative
expenses................. 3,922 1,202 4,036 7,184 8,075 33,299 4,650 9,476
Management fees to
stockholders............. 800 159 205 72 72 72 18 18
Amortization of goodwill... -- -- 431 517 517 617 129 159
------- ---------- ---------- -------- -------- -------- ---------- ----------
Operating income....... 5,306 464 5,151 9,633 8,355 13,741 1,930 5,389
Other expense (income),
net...................... (8) (5) (11) (153) 40 (244) (7) (39)
Interest expense........... 163 5 1,308 69 298 3,914 863 821
------- ---------- ---------- -------- -------- -------- ---------- ----------
Income before provision
for income taxes..... 5,151 464 3,855 9,717 8,017 10,071 1,074 4,607
Provision for income
taxes.................... -- -- 1,553 3,776 3,119 4,162 440 1,912
Pro forma provision for
income taxes............. 1,999(4) 181(4) -- -- -- -- -- --
------- ---------- ---------- -------- -------- -------- ---------- ----------
Net income............. 3,152 283 2,302(5) 5,941 4,898 5,909 634 2,695
Redeemable Preferred Stock
dividends................ -- -- -- -- -- (75) -- (23)
Accretion of Redeemable
Preferred Stock.......... -- -- -- -- -- (84) -- (25)
------- ---------- ---------- -------- -------- -------- ---------- ----------
Net income attributable to
common stock............. $ 3,152 $ 283 $ 2,302(5) $ 5,941 $ 4,898 $ 5,750 $ 634 $ 2,647
------- ---------- ---------- -------- -------- -------- ---------- ----------
------- ---------- ---------- -------- -------- -------- ---------- ----------
Earnings per common
share.................... -- -- $ 0.67(5) $ 1.33 $ 1.09 $ 1.26(6) $ .14(6) $ .57(6)
---------- -------- -------- -------- ---------- ----------
---------- -------- -------- -------- ---------- ----------
Weighted average common
shares outstanding....... -- -- 3,416 4,473 4,475 4,678 4,540 4,747
CONSOLIDATED OPERATING
DATA:
Units sold: (7)
Motor coaches............ 477 87 463 717 982 2,733 441 809
Towables................. -- -- -- -- -- 1,977 200 682
Dealerships at end of
period................... 34 34 37 48 49 159 164 168
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- ---------------------------------------------------------------
JAN. 2, JAN. 1, DEC. 31, DEC. 30, DEC. 28, MARCH 29,
1993 1994 1994 1995 1996 1997
------------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................. $ 5,577 $ 2,918 $ 5,910 $ 3,795 $ 4,502 $ 1,806
Total assets..................................... 11,092 40,052 48,219 68,502 135,368 149,189
Long-term borrowings, less current portion....... -- -- -- 5,000 16,500 15,875
Redeemable Preferred Stock....................... -- -- -- -- 2,687 2,735
Total stockholders' equity....................... 6,431 26,951 32,945 37,930 43,807 46,528
</TABLE>
- ----------------------------------
(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 net sales of
$25.0 million in fiscal 1996 and $5.3 million and $3.5 million in the three
months ended March 30, 1996 and March 29, 1997, respectively. These amounts
represent the sale of 820 units in fiscal 1996 and 193 units and 98 units
for the three months ended March 30, 1996 and March 29, 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 fiscal
1996, one in the first three months of 1997, and intends to sell the two
remaining dealerships.
(3) Includes a $645,000 increase in the three months ended March 30, 1996 and a
$1.7 million increase in fiscal 1996 to 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
per share.
(6) Earnings per common share for fiscal 1996 and the three months ended March
29, 1997 are fully diluted earnings per common share. Includes a one-time
charge of $.08 for the three months ended March 30, 1996 and $0.22 per share
for fiscal 1996, net of tax effect, related to the inventory write-up
described in Note 3 above. Excluding this charge, fully diluted earnings per
common share in the three months ended March 30, 1996 and in fiscal 1996
would have been $.22 and $1.48 per share, respectively.
(7) Excludes units sold by the Holiday World Dealerships that were either
previously owned or not Holiday Rambler units.
15
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The Unaudited Pro Forma Combined Statements of Income for 1996 present the
results of operations of the Company as if the Holiday Acquisition had occurred
on December 30, 1995. This unaudited pro forma information is based on the
historical Consolidated Financial Statements of the Company for the period from
December 30, 1995 to December 28, 1996, adjusted to give effect to the
assumptions and adjustments set forth in the accompanying notes. Company results
include the results of Holiday Rambler and the Holiday World Dealerships for the
period from March 4, 1996 to December 28, 1996. Historical results for Holiday
Rambler and the Holiday World Dealerships consist of the results of Holiday
Rambler and the Holiday World Dealerships from January 1, 1996 to March 3, 1996.
The Unaudited Pro Forma Combined Statements of Income have been prepared by
management of the Company and are not necessarily indicative of the Company's
results of operations had the Holiday Acquisition been consummated at December
30, 1995, nor are they necessarily indicative of the Company's results of
operations for any future period. This unaudited pro forma combined financial
data should be read in conjunction with the historical Consolidated Financial
Statements and related Notes thereto of the Company included elsewhere in this
Prospectus and Management's Discussion and Analysis of Financial Condition and
Results of Operations.
16
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 28, 1996
---------------------------------------------------------------------
HOLIDAY RAMBLER HOLIDAY ACQUISITION PRO FORMA FOR
AND HOLIDAY WORLD ADJUSTMENTS INCOME THE HOLIDAY
COMPANY DEALERSHIPS(1) (EXPENSE) ACQUISITION
----------- ------------------- -------------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................ $ 365,638 $ 53,802 $ -- $ 419,440
Cost of sales........................................ 317,909(2) 46,349 -- 364,258
----------- ------- ------ -------------
Gross profit..................................... 47,729 7,453 -- 55,182
Selling, general and administrative expenses......... 33,299 8,477 68(3) 41,708
Management fees to stockholders...................... 72 -- -- 72
Amortization of goodwill............................. 617 -- (20)(4) 637
----------- ------- ------ -------------
Operating income (loss).......................... 13,741 (1,024) 48 12,765
Other expense (income), net.......................... (244) 31 -- (213)
Interest expense and debt issuance costs............. 3,914 1,879 (460)(5) --
-- -- (100)(6) --
-- -- 1,434(7) 4,919
----------- ------- ------ -------------
Income (loss) before provision (benefit) for
income taxes................................... 10,071 (2,934) 922 8,059
Provision (benefit) for income taxes................. 4,162 (1,170) (368)(8) 3,360
----------- ------- ------ -------------
Net income (loss).................................. 5,909 (1,764) 554 4,699
----------- ------- ------ -------------
Redeemable Preferred Stock dividends................. (75) -- (15)(9) (90)
Accretion of Redeemable Preferred Stock.............. (84) -- (16)(9) (100)
----------- ------- ------ -------------
Net income (loss) attributable to common stock....... $ 5,750 $ (1,764) $ 523 $ 4,509
----------- ------- ------ -------------
----------- ------- ------ -------------
Earnings per share:
Primary............................................ $ 1.28 $ 1.01
Fully diluted...................................... $ 1.26 $ 1.00
Weighted average common shares outstanding:
Primary............................................ 4,474,791 4,474,791
Fully diluted...................................... 4,678,111 41,262(10) 4,719,373
</TABLE>
- ------------------------------
(1) For the period beginning January 1, 1996 and ended March 3, 1996.
(2) Includes a $1.7 million increase to cost of sales resulting from the sale of
inventory that was written up to fair value at the date of the Holiday
Acquisition.
(3) Elimination of depreciation expense for the Holiday World Dealerships
held-for-sale.
(4) Amortization of goodwill over the useful life of 20 years.
(5) Interest expense on the approximately $39.4 million of acquisition-related
indebtedness.
(6) Amortization of debt issuance costs of $2.1 million related to the
incurrence of debt to be amortized over a five-year term.
(7) Elimination of interest expense related to affiliated companies of Holiday
Rambler and the Holiday World Dealerships. No intercompany debt of Holiday
Rambler and the Holiday World Dealerships was assumed by the Company in the
Holiday Acquisition.
(8) Pro forma effect on income taxes based on pro forma adjustments.
(9) The issuance of 65,217 shares of the Redeemable Preferred Stock, which are
convertible into 230,767 shares of Common Stock, is excluded from the
calculation of primary earnings per share because the Redeemable Preferred
Stock does not meet the conditions of common stock equivalents. However,
dividends of $90,000 per year and accretion to redemption value of $100,000
per year related to the Redeemable Preferred Stock are subtracted from net
income in determining primary earnings per share. The total accretion to
redemption value of the Redeemable Preferred Stock to be recognized is
$401,000.
(10) The fully diluted share adjustment of 41,262 shares is necessary to reflect
common shares outstanding as if the Redeemable Preferred Stock had been
converted into Common Stock as of December 30, 1995.
17
<PAGE>
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 Acquisition"). 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 1994, 1995 and 1996
and quarters ended March 30, 1996 and March 29, 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 is currently convertible into 230,767 shares
of Common Stock), and the assumption of most of the liabilities of Holiday
Rambler. Concurrently, the Company acquired ten Holiday World Dealerships for
$13.0 million, including a $12.0 million subordinated promissory note, and the
assumption of certain liabilities. The Company sold seven Holiday World
Dealerships in 1996 and one in the first quarter of 1997, retired the $12.0
million note from the proceeds of these sales, and intends to sell the remaining
two dealerships. The Holiday Acquisition was accounted for using the purchase
method of accounting.
Beginning on March 4, 1996, the acquired operations were included in the
Company's consolidated financial statements. The Company's consolidated
financial statements for the fiscal year ended December 28, 1996 and the three
months ended March 30, 1996 contain expenses related to the Holiday Acquisition,
primarily consisting of a $1.7 million increase in cost of sales resulting from
the sale of inventory in 1996 (of which $645,000 occurred in the first quarter
of 1996) that was written up to fair value at the date of the Holiday
Acquisition, interest expense, the amortization of debt issuance costs and
Holiday Acquisition goodwill.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1997 COMPARED TO THREE MONTHS ENDED MARCH 30,
1996
Net sales increased 75.9% to $109.0 million in the first three months of
1997 compared to $62.0 million for the same period last year. The primary reason
for this increase was the inclusion in the 1997 period of three months of
Holiday Rambler operations compared to one month in the 1996 period. The
Company's overall unit sales more than doubled from 641 units in the first three
months of 1996 to 1,491 units in the first three months of 1997 (excluding units
that were sold by the Company's Holiday World Dealerships that were either
previously owned or not Holiday Rambler units). On a pro forma basis, assuming
the Company had acquired Holiday Rambler at the beginning of 1996, wholesale
sales dollars would have been up 7.4%, with motorized products up 4.1% and
towables up 26.9% in the first three months of 1997 compared to the first three
months of 1996. The substantial increase in towable sales was primarily due to
sales of the Company's Alumascape model which was introduced in the third
quarter of 1996. The Company's average unit selling price dropped to $71,684 in
the first quarter of 1997 from $92,650 in the first quarter of 1996. Due to the
inclusion of Holiday Rambler's generally lower priced products, the Company
expects its overall average selling price to remain under $100,000.
Gross profit for the first three months of 1997 increased to $15.0 million,
up $8.3 million from $6.7 million in the first three months of 1996, and gross
margin increased to 13.8% in the first three months of 1997 from 10.9% in the
first three months of 1996. Gross margin in the first quarter of 1996 was
limited by a $645,000 increase in cost of sales resulting from an inventory
write-up to fair value arising from the Holiday Acquisition. Without this
charge, gross margin in the first quarter of 1996 would have been 11.9%. Gross
margin in the first three months of 1997 was adversely affected by a combination
of factors. The
18
<PAGE>
Company had abnormally high costs stemming from the ramp up of production in the
Coburg, Oregon plant from 8 to 10 units per week. Additionally, the Company took
some modest inventory write-downs in anticipation of model changes coming up in
the second quarter. One of the Company's objectives continues to be to improve
individual model gross margins, primarily through additional purchasing and
manufacturing synergies anticipated to be derived from the Holiday Acquisition.
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 from $4.7 million in
the first three months of 1996 to $9.5 million in the first three months of 1997
and increased as a percentage of net sales from 7.5% in the first three months
of 1996 to 8.7% in the first three months of 1997. The increase in selling,
general, and administrative expenses in dollars and as a percentage of net sales
was primarily due to the inclusion of a full quarter of Holiday Rambler
operations in the 1997 period versus only one month in the 1996 period. Holiday
Rambler has historically spent more for selling, general, and administrative
expense as a percentage of net sales than Monaco. The Company has reduced and
plans to continue lowering the level of spending by Holiday Rambler for selling,
general, and administrative expenses as a percentage of net sales. However, the
Company's overall selling, general, and administrative expenses as a percentage
of net sales are expected to remain higher than the level prior to the Holiday
Acquisition.
Amortization of goodwill was $159,000 in the first three months of 1997
compared to $129,000 in the same period of 1996. At March 29, 1997, goodwill,
net of accumulated amortization, was $21.0 million.
Operating income was $5.4 million in the first three months of 1997, a $3.5
million increase over $1.9 million in the first three months of 1996. The
improvement in the Company's gross margin was greater than the increase in
selling, general, and administrative expense as a percentage of net sales,
resulting in an increase in operating margin from 3.1% in the first quarter of
1996 to 4.9% in the first quarter of 1997. The Company's operating margin in the
first quarter of 1996 was adversely affected by a $645,000 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 in the first quarter of 1996 would
have been 4.1%.
Net interest expense was $821,000 in the first three months of 1997 compared
to $863,000 in the comparable 1996 period. The Company capitalized $146,000 of
interest expense in the first quarter of 1997 relating to the construction in
progress for a new motorized manufacturing facility in Wakarusa, Indiana, and
capitalized $34,000 of interest expense in the first quarter of 1996 stemming
from the construction of the Coburg, Oregon facility. The Company's interest
expense included $153,000 in the 1997 period and $209,000 in the 1996 period
relating to floor plan financing at the retail stores. Additionally, 1997 first
quarter interest expense included $103,000 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 reported a provision for income taxes of $1.9 million, or an
effective tax rate of 41.5%, in the first three months of 1997, compared to
$440,000, or an effective tax rate of 41%, for the comparable 1996 period.
Net income increased by $2.1 million from $634,000 in the first three months
of 1996 to $2.7 million in the first three months of 1997, primarily due to the
substantial increases in net sales and operating income resulting from the
Holiday Acquisition.
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 its Coburg facility, which
commenced operations in late 1995. Net
19
<PAGE>
sales in 1996 also included $25.0 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
declined from $145,600 in 1995 to $66,500 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.
Amortization of goodwill was $617,000 in 1996 compared with $517,000 in
1995. At December 28, 1996, goodwill arising from the Predecessor Acquisition,
net of accumulated amortization, was $18.7 million, which is currently being
amortized on a straight-line basis over 40 years. Goodwill of approximately $2.2
million was acquired in the Holiday Acquisition and is being amortized over 20
years.
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 the year.
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 expense 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 expense 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%, for 1996 compared to $3.1 million, or an effective
tax rate of 39%, 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.
1995 COMPARED WITH 1994
Net sales for 1995 increased by $34.3 million from $107.3 million in 1994 to
$141.6 million in 1995, a 32.0% increase. The increase was attributable
primarily to net sales of the Company's Windsor model
20
<PAGE>
motor coach, which was introduced in 1994 and, to a lesser extent, net sales of
its Dynasty model motor coach, offset by decreases in the net sales of its
Signature and Executive model motor coaches. Total unit net sales for 1995 were
up 37.0% over 1994 while the Company's average unit selling price decreased
3.7%, with a 6.0% increase for same models being offset by a shift in the mix of
motor coaches sold towards the Company's lower priced models, Windsor and
Dynasty.
Gross profit for 1995 decreased $388,000, or 2.2%, and gross margin
decreased to 12.0% from 16.2% in the prior year. The decrease in gross margin in
1995 was attributable to several factors. In the first half of 1995, the Company
experienced start-up inefficiencies related to the Windsor model resulting in
lower than projected gross margins. In addition, the Company encountered many
unexpected costs in making three model changes simultaneously during the third
quarter. These costs, combined with a sales mix that included a
lower-than-anticipated percentage of higher margin Signature and Executive motor
coaches, significantly lowered the Company's gross margin for the year.
Selling, general, and administrative expenses increased by $890,000, or
12.4%, in 1995, but decreased as a percentage of net sales to 5.7% in 1995 from
6.7% in 1994. The decline in selling, general, and administrative expenses as a
percentage of net sales was due to a combination of marketing and administrative
efficiencies related to the Company's increased sales level and a significant
decline, both in dollars and as a percentage of net sales, in incentive-based
compensation.
Amortization of goodwill arising from the Predecessor Acquisition was
$517,000 in 1995, the same as in 1994.
Operating income for 1995 was $8.4 million, a $1.3 million decrease from
1994. The Company's lower gross margin resulted in a decline in operating margin
from 9.0% in 1994 to 5.9% in 1995.
Interest expense increased from $69,000 in 1994 to $298,000 in 1995 due to
higher outstanding borrowings. The Company capitalized approximately $625,000 of
interest expense paid in 1995 that was incurred in connection with the
construction of a new manufacturing facility in Coburg, Oregon.
Net income of $4.9 million in 1995 was $1.0 million lower than that reported
for 1994. The decline was attributable to the substantial increase in net sales
being more than offset by the reduction in gross margin, lower operating income
and higher interest expense.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations for the periods presented.
21
<PAGE>
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited financial and operating
data for each of the Company's most recent nine fiscal quarters. The financial
data for each of these quarters include, in the opinion of management, all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair presentation of the results of operations for such periods. The results
for any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
--------------------------------------------------------------------------------------------------
1995 1996(1)
-------------------------------------------------- ----------------------------------------------
APR. 1 JULY 1 SEPT. 30 DEC. 30 MAR. 30 JUNE 29 SEPT. 28 DEC. 28
----------- ----------- ----------- ----------- ----------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND UNITS SOLD DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 38,015 $ 35,082 $ 36,726 $ 31,788 $ 61,964 $ 106,729 $ 102,065 $ 94,880
Gross profit.................... 5,342 4,650 3,255 3,772 6,727 12,408 14,944 13,650
Operating income................ 2,726 2,632 1,269 1,728 1,930 2,934 4,109 4,768
Net income...................... 1,662 1,606 705 925 634 891 1,957 2,427
----------- ----------- ----------- ----------- ----------- --------- --------- -----------
----------- ----------- ----------- ----------- ----------- --------- --------- -----------
Net income per fully diluted
share......................... $ 0.37 $ 0.36 $ 0.16 $ 0.20 $ 0.14 $ 0.19 $ 0.42 $ 0.51
----------- ----------- ----------- ----------- ----------- --------- --------- -----------
----------- ----------- ----------- ----------- ----------- --------- --------- -----------
Other data:
Gross sales(2):
Motor coaches............... $ 38,513 $ 35,409 $ 37,146 $ 31,933 $ 51,806 $ 81,159 $ 82,420 $ 80,057
Towables.................... -- -- -- -- 6,000 15,800 14,800 16,300
Units sold(2):
Motor coaches............... 265 252 252 213 441 796 787 709
Towables.................... -- -- -- -- 200 585 530 662
<CAPTION>
1997
---------
MAR. 29
---------
<S> <C>
Net sales....................... $ 109,023
Gross profit.................... 15,042
Operating income................ 5,389
Net income...................... 2,695
---------
---------
Net income per fully diluted
share......................... $ 0.57
---------
---------
Other data:
Gross sales(2):
Motor coaches............... $ 90,273
Towables.................... 17,700
Units sold(2):
Motor coaches............... 809
Towables.................... 682
</TABLE>
- ------------------------------
(1) Includes operations of Holiday Rambler and the Holiday World Dealerships
from March 4, 1996.
(2) Excludes units sold by the Holiday World Dealerships that were either
previously owned or not Holiday Rambler units.
The following table sets forth certain unaudited financial data expressed as
a percentage of net sales for each of the most recent nine fiscal quarters.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-------------------------------------------------------------------------------------------
1995 1996(1)
------------------------------------------------- ----------------------------------------
APR. 1 JULY 1 SEPT. 30 DEC. 30 MAR. 30 JUNE 29 SEPT. 28
---------- ---------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............... 14.1 13.3 8.9 11.9 10.9 11.6 14.6
Operating income........... 7.2 7.5 3.5 5.4 3.1 2.7 4.0
Net income................. 4.4 4.6 1.9 2.9 1.0 0.8 1.9
<CAPTION>
1997
------------
DEC. 28 MAR. 29
----------- ------------
<S> <C> <C>
Net sales.................. 100.0% 100.0%
Gross profit............... 14.4 13.8
Operating income........... 5.0 4.9
Net income................. 2.6 2.5
</TABLE>
- ------------------------------
(1) Includes operations of Holiday Rambler and the Holiday World Dealerships
from March 4, 1996.
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
22
<PAGE>
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.
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
1996, the Company generated net cash from operations of $26.7 million. Net
income and non-cash expenses such as depreciation and amortization generated
approximately $9.0 million of this amount and the balance was generated by
increases in accrued expenses and income taxes payable combined with a decrease
in trade receivables and inventories, primarily from the sale of seven Holiday
World Dealerships, which more than offset a reduction in deferred income taxes.
During the first quarter of 1997, the Company had a cash outflow of $6.8 million
from operations. A large increase in trade receivables, arising primarily from a
trade show in March, combined with payments that reduced income taxes payable
more than offset the $3.5 million generated from net income and non-cash
expenses such as depreciation and amortization, as well as increases in accounts
payable and accrued expenses. The increase in trade receivables was temporary
and the Company's trade receivable balance has since returned to a more normal
level.
In connection with the Holiday Acquisition, on March 4, 1996, the Company
replaced its bank line of credit with new 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) subsequent to repayment
by the Company of the $12.0 million note issued in conjunction with the purchase
of the Holiday World Dealerships (which was repaid in full in the third quarter
of 1996), a payment, within two days of the sale of any dealership, of the net
cash proceeds received by the Company from such sale. At the election of the
Company, the Revolving Loans bear interest at variable interest rates based on
the Prime Rate or LIBOR. At March 29, 1997, the effective interest rates on the
Revolving Loans and the Term Loan were 9.75% and 8.53%, respectively. The
Revolving Loans are due and payable in full on March 1, 2001, and require
monthly interest payments. As of March 29, 1997, $18.1 million was outstanding
under the Term Loan and $11.3 million was outstanding under the Revolving Loans.
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. Because borrowings under the Revolving Loans have been less
than originally anticipated, the Company is currently in the process of
negotiating new terms relating to the amount available under the Revolving Loans
and the interest rates, covenants and restrictions relating to both loans. The
Company does not expect any adverse changes to the credit facilities as a result
of these discussions. The Company also has various loans outstanding to finance
retail inventory at the two remaining Holiday World Dealerships which amounted
to approximately $4.2 million at March 29, 1997 and which bear interest at
various rates based on the prime rate and are collateralized by certain assets
of the Company.
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 March 29, 1997, the
Company had working capital of approximately $1.8 million, a decrease of $2.7
million from working capital of $4.5
23
<PAGE>
million at December 28, 1996. The Company used short-term credit facilities to
finance the construction in progress on the new Wakarusa facility. The Company
primarily used long-term debt and the Redeemable Preferred Stock to finance the
Holiday Acquisition.
The Company's capital expenditures were $7.3 million in 1996 and $3.8
million in the first quarter of 1997, primarily for expansion of manufacturing
facilities. In the first quarter of 1996, the Company completed spending on the
new Coburg, Oregon manufacturing facility started in 1995. During the second
half of 1996, construction began on the new manufacturing facility and
administrative offices in Wakarusa, Indiana which will enable the Company to
increase its production capacity of motor coaches. The total cost of the
Wakarusa facility is estimated to be approximately $15.0 million.
The Company believes that cash flow from operations, funds available under
its credit facilities and the proceeds of the Offering will be sufficient to
meet the Company's liquidity requirements for the next 12 months. The Company
anticipates capital expenditures in 1997 will total approximately $17.0 to $20.0
million, of which an estimated $10.0 million will be used to finish construction
of the Wakarusa facility, $1.0 million will be used to set up the Springfield,
Oregon facility and up to $2.0 million will be used to upgrade the Company's
management information systems, including software to handle the "Year 2000"
issue. The Company may, however, 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, including the Holiday World Dealerships, utilize wholesale floor
plan financing arrangements with third party lending institutions to finance
their purchases of the Company's products. Under the terms of these floor plan
arrangements, institutional lenders customarily require the recreational vehicle
manufacturer to agree to repurchase any unsold units if the dealer fails to meet
its commitments to the lender, subject to certain conditions. The Company has
agreements with several institutional lenders under which the Company currently
has repurchase obligations. The Company's contingent obligations under these
repurchase agreements are reduced by the proceeds received upon the sale of any
repurchased units. The Company's obligations under these repurchase agreements
vary from period to period. At March 29, 1997, approximately $137.0 million of
products sold by the Company to independent dealers were subject to potential
repurchase under existing floor plan financing agreements, with approximately
7.0% 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.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share", which is
required to be adopted for periods ending after December 15, 1997. The following
table presents unaudited pro forma earnings per share, calculated in accordance
with the provisions of this new standard:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MARCH 30, 1996 MARCH 29, 1997
----------------- -----------------
<S> <C> <C>
Basic........................................................ $ 0.14 $ 0.60
Diluted...................................................... $ 0.14 $ 0.57
</TABLE>
24
<PAGE>
BUSINESS
The Company is a leading manufacturer of premium Class A motor coaches and
towable recreational vehicles. The Company's product line consists of ten models
of motor coaches and five models of fifth wheel trailers and travel trailers
under the well known "Monaco" and "Holiday Rambler" 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. The Company has achieved
significant market positions in the high end price range of the market segments
in which it competes. Based upon retail registrations in 1996, the Company
believes it had a 25% share of the market for High-Line Class A motor coaches
(units with retail prices above $120,000), an 11% share of the market for high
end fifth wheel trailers (units with retail prices above $24,000) and a 48%
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 168
dealerships located primarily in the United States and Canada.
Prior to March 1996, the Company's product line consisted exclusively of
High-Line Class A motor coaches. In March 1996, the Company acquired Holiday
Rambler, a manufacturer of a full line of Class A motor coaches and towables.
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. The Company believes that developing
relationships with a broader base of first-time buyers, coupled with the
Company's strong emphasis on quality, customer service and design innovation,
will foster brand loyalty and increase the likelihood that, over time, more
customers will trade-up through the Company's line of products. Attracting
larger numbers of first-time buyers is important to the Company because of the
Company's belief that many recreational vehicle customers purchase multiple
recreational vehicles during their lifetime.
INDUSTRY AND DEMOGRAPHIC DATA
Recreational vehicles are broadly classified as "motor coaches" (full-size
Class A motorhomes, Class B motorhomes (or van campers), Class C mini-motorhomes
and van conversions) and "towables" (fifth wheel trailers, travel trailers,
truck campers and folding camping trailers). Set forth below is a brief
description of the principal segments of the recreational vehicle market.
MOTOR COACHES
The RVIA defines a "motorhome," also known as a "motor coach," as a
self-propelled recreational vehicle chassis with permanently installed living
systems, including cooking, refrigeration, toilet, water and other systems.
CLASS A MOTOR COACHES are designed for full-time living. They include a
living room, kitchen, dining room, bedroom and bathroom. These vehicles
typically are equipped with a wide range of kitchen and bathroom appliances,
stereo, television and other amenities, including deluxe carpeting and fabrics,
couches, air conditioner, closets and other luxury options. Class A motor
coaches are built on specially designed heavy duty motor vehicle chassis to
provide safety and stability. The category of Class A motor coaches can be
further divided into two groups according to price points: High-Line Class A
motor coaches (defined as units with retail prices above $120,000) and
entry-level to mid-range Class A motor coaches (defined as units with retail
prices between $40,000 and $120,000). According to the RVIA, the 1996 industry
average retail price for Class A motor coaches was $78,965.
CLASS B MOTOR COACHES, also known as van campers, are automotive vans that
are converted by the recreational vehicle manufacturer to provide sleeping,
kitchen and toilet facilities. According to the RVIA, the 1996 industry average
retail price for Class B motor coaches was $42,953.
25
<PAGE>
CLASS C MOTOR COACHES are constructed on van chassis. Retaining the cab
section of the chassis, the recreational vehicle manufacturer adds the body
section with complete living quarters, including bathroom, kitchen, bedroom and
various appliances. According to the RVIA, the 1996 industry average retail
price for Class C motor coaches was $47,060.
TOWABLES
FIFTH WHEEL TRAILERS are transported by a pickup truck equipped with a
device known as a fifth wheel hitch. They are distinguished by their raised
forward section that extends over the bed of the pickup truck to form a spacious
and functional bi-level floor plan. According to the RVIA, the 1996 industry
average retail price for fifth wheel trailers was $22,673.
TRAVEL TRAILERS are towed by a bumper or frame hitch attached to the towing
vehicle. They are constructed with solid sidewalls and solid interior walls that
include beds, dinettes and fully functional kitchens. According to the RVIA, the
1996 industry average retail price for travel trailers was $14,213.
TRUCK CAMPERS slide into the bed of a pickup truck. They can be unloaded and
parked at home or at the campsite, enabling owners to use the truck with or
without the camper. According to the RVIA, the 1996 industry average retail
price for truck campers was $11,083.
FOLDING CAMPING TRAILERS are constructed with collapsible "tent" sidewalls
which fold for easy towing. When opened, camping trailers provide many of the
comforts of travel trailers, with beds, dinettes and fully functional kitchens.
According to the RVIA, the 1996 industry average retail price for folding
camping trailers was $4,957.
The following table shows the retail sales in dollars of Class A motor
coaches, fifth wheel trailers, travel trailers and the total recreational
vehicle market (excluding conversion vehicles), based on vehicle registration
data prepared by the RVIA.
INDUSTRY RETAIL SALES
<TABLE>
<CAPTION>
COMPOUND
ANNUAL
GROWTH
1992 1993 1994 1995 1996 RATE
--------- --------- --------- --------- --------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Class A motor coaches......................................... $ 1,748 $ 1,966 $ 2,555 $ 2,737 $ 2,882 13.3%
Fifth wheel trailers.......................................... $ 750 $ 810 $ 956 $ 950 $ 1,100 10.0%
Travel trailers............................................... $ 773 $ 834 $ 956 $ 977 $ 1,072 8.5%
Total recreational vehicle market............................. $ 4,282 $ 4,712 $ 5,690 $ 5,895 $ 6,327 10.3%
</TABLE>
Customers purchase recreational vehicles for a variety of purposes,
including camping, traveling, sightseeing, vacationing, retirement and enjoyment
of outdoor activities and sporting events. Recreational vehicle purchasers are
also often attracted to the "recreational vehicle lifestyle" as a way to enjoy
the outdoors in comfort and to join others in the comradery of recreational
vehicle activities. Thousands of campgrounds and recreational vehicle parks are
available through the U.S. Forest Service, other governmental agencies and
private organizations such as Coast-to-Coast Resorts, Kampgrounds of America,
Inc., Thousand Trails, Inc., Outdoor Resorts of America, Inc. and Fort
Wilderness, which is owned by The Walt Disney Company. These sites offer
electrical and water hook-ups in a wide variety of settings ranging from rugged
wilderness areas to exclusive country club-style resorts. Recreational vehicle
owners can also participate in the social aspects of the recreational vehicle
lifestyle by joining a recreational vehicle club, by attending any of the
numerous gatherings, known as "rallies," sponsored by the clubs or recreational
vehicle associations, or by attending tailgate parties at sporting events. Two
of the larger recreational vehicle clubs, the Good Sam Club and the Family Motor
Coach Association, have over 900,000 and 100,000 members, respectively. Rallies
sponsored by these associations can attract thousands of recreational vehicle
owners to a single location. These clubs also offer emergency road-side
services, publish magazines and offer group affinity benefits such as credit
cards and insurance.
26
<PAGE>
According to a 1994 study sponsored by the RVIA, approximately 8.2 million
households owned recreational vehicles (including conversion vehicles) in 1993,
up from 7.7 million households in 1988 and 5.8 million households in 1980.
Recreational vehicles are purchased by adults in all age ranges, but the highest
market penetration is with those individuals between the ages of 45 to 74.
According to the Census Bureau of the U.S. Department of Commerce, the number of
adults between the ages of 45 and 74 is projected to grow by approximately 41%
from 1995 through the year 2010, compared with a projected increase of
approximately 13% for the overall population, thereby representing an expanded
potential consumer market for recreational vehicle sales.
BUSINESS STRATEGY
The Company's strategy is to increase sales and earnings by attracting new
customers in both the Class A motor coach and towables market segments and
providing these customers with additional products as they choose to trade-up to
a higher priced product. Principal elements of this strategy include:
- CONTINUING TO OFFER HIGH QUALITY, PREMIUM PRODUCTS
Historically, the Company has targeted its motor coach and towable products
at the high end of each market segment in which it competes and has achieved
a significant market share in each of these market segments. With its focus
on the high end, the Company has gained a reputation for high quality,
premium products. By continuing to offer premium products in each of its
market segments, the Company is able to take advantage of the growing number
of its target customers, which the Company believes may be more affluent and
may retire earlier than prior generations. Additionally, the Company
believes that directing its product offerings towards the high end of each
market segment generally offers the opportunity to achieve higher gross
margins.
- INTRODUCING NEW PRODUCTS TO OFFER A BROADER PRICE RANGE
The Company intends to capitalize on its reputation as a high quality
manufacturer of premium motor coaches and towables to broaden the price
range of its products. By increasing the number of price points available to
potential customers, the Company plans to attract a wider range of buyers in
order to be better positioned to capture their trade-up business. The
Company believes that many recreational vehicle customers purchase multiple
recreational vehicles during their lifetime. The Company significantly
increased the price range of its product offerings with the Holiday
Acquisition by expanding its Class A motor coach line to include
complementary High-Line and entry-level to mid-range motor coaches and by
adding its first towable products. The Company plans to continue to broaden
the price range of its product offerings through selective new product
introductions. For example, the Company recently entered the mid-range fifth
wheel and travel trailer markets with the introduction of its Alumascape
models.
- EXPANDING PRODUCTION CAPACITY WHILE MAXIMIZING MANUFACTURING
EFFICIENCIES
In recent years, the Company has been capacity constrained in its High-Line
Class A motor coach production. As a result, the Company believes it has
lost sales opportunities. A portion of the new, three line, motor coach
production facility adjoining its existing Wakarusa, Indiana facility became
operational in the second quarter of 1997. This facility, when fully
operational, should almost double the Company's motor coach manufacturing
capacity. As part of this process, the Company intends to relocate its
Elkhart, Indiana motor coach production to the Wakarusa facility which it
believes will increase production efficiencies and improve gross margins on
its motor coach products. Furthermore, this consolidation into the new
facility will make available space in the Elkhart facility that may be used
to produce additional towable products. In addition, the Company has leased
a facility in Springfield, Oregon (which became operational in the second
quarter of 1997) to further increase its towable products manufacturing
capacity.
27
<PAGE>
- MAINTAINING AND EXPANDING THE DEALER NETWORK
The Company has an extensive dealer network in the United States and Canada.
This dealer network provides customers with more accessible post-sales
service, affords the Company more direct customer communication and provides
the Company with a broad geographic presence in the market. The recreational
vehicle market is highly fragmented, with over 3,000 dealers in the United
States. There has been a recent trend toward consolidation in the industry
with the creation of larger "megadealers" which carry a broader product
range and emphasize superior quality and customer service. The Company
believes this trend is favorable to the Company due to its broad product
offerings, longstanding relationships with many of the leading dealers, and
the Company's focus on product quality, design innovation and customer
service.
The Company's strategy is to expand further its dealer network by adding
dealers that are more focused on selling entry-level to mid-range products
and expanding into currently underpenetrated markets including the West
Coast and Canada. To accomplish this, the Company plans to selectively grow
the number of motor coach dealers to increase geographic coverage and
density, and to aggressively add new dealers for its towable products. To
support this strategy, the Company recently added five account executives to
focus exclusively on towable products.
- EMPHASIZING NEW PRODUCT DESIGN AND INNOVATION
The Company has successfully introduced a number of industry-leading
product design innovations that the Company believes have been important
elements in differentiating its products from those of its competitors.
These products include its Roadmaster semi-monocoque chassis (which enhances
ride stability and performance), kitchen suite slide (which expands the
living space in the kitchen/ dining area), flat-floored coaches and
one-piece windshields. The Company believes its innovative designs and its
emphasis on the quality and value of each model have supported the Company's
penetration of the high end of various product categories. The Company's
focus on product innovation has led to a series of successful new product
introductions and model redesigns in the last eight years. To maintain its
product innovation and brand quality, the Company modifies and improves each
model yearly and typically redesigns models at least every three to four
years to meet changing consumer preferences. The Company also focuses on the
vertical integration of its manufacturing process, which allows the Company
to more quickly introduce new designs in response to changes in consumer
preferences.
- PROMOTING CUSTOMER SATISFACTION AND BRAND LOYALTY
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 believes that a significant number of its
customers are repeat customers and that this is largely due to the high
quality of the Company's products and its emphasis on customer satisfaction.
The Company also believes that responsive and professional customer service
is necessary to promote customer satisfaction and brand loyalty. The
Company's approximately 180-person service and warranty staff provides
support to both the Company's retail customers and its dealer network. The
Company maintains individualized production records and a computerized
warranty tracking system which enables the Company's service personnel to
identify problems quickly and to provide individualized customer service.
Another important element in promoting customer satisfaction and brand
loyalty is the Company's advertising and marketing activities. The Company
advertises regularly in trade journals and magazines and participates in
more than 150 recreational vehicle trade shows and rallies each year. The
Company provides its customers complimentary service for minor repairs at
several of these trade shows and rallies. The Company also attempts to
foster brand loyalty by sponsoring clubs for the owners of its products so
that the owners can share experiences and enjoy the comradery of other
Monaco and Holiday Rambler owners.
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<PAGE>
PRODUCTS
The Company currently manufactures ten motor coach and five 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. The following table highlights the Company's
product offerings as of the date of this Prospectus:
COMPANY MOTOR COACH PRODUCTS
<TABLE>
<CAPTION>
CURRENT SUGGESTED
MODEL RETAIL PRICE RANGE BRAND
- -------------------------------------------------- -------------------- -------------------
<S> <C> <C>
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
Endeavor-Diesel................................... $130,000-$145,000 Holiday Rambler
Endeavor-Gasoline................................. $ 80,000-$ 95,000 Holiday Rambler
Vacationer........................................ $ 60,000-$ 85,000 Holiday Rambler
</TABLE>
COMPANY TOWABLE PRODUCTS
<TABLE>
<CAPTION>
CURRENT SUGGESTED
MODEL RETAIL PRICE RANGE BRAND
- ----------------------------------------------------- ------------------ -------------------
<S> <C> <C>
Imperial Fifth Wheel................................. $50,000-$70,000 Holiday Rambler
Aluma-Lite Fifth Wheel............................... $35,000-$50,000 Holiday Rambler
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
</TABLE>
In the first quarter of 1997, the average unit wholesale selling prices of
the Company's motor coaches, fifth wheel trailers and travel trailers were
approximately $111,500, $34,800 and $20,800, 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.
29
<PAGE>
An interior layout for a Signature Series motor coach is shown below:
[Drawing of interior floorplan of Signature Series motor coach]
An interior layout for an Imperial Fifth Wheel Trailer (with double
slide-outs) is shown below:
[Drawing of interior floorplan of Imperial Fifth Wheel Trailer]
An interior layout for an Alumascape Travel Trailer (with a slide-out) is
shown below:
[Drawing of interior floorplan of Alumascape Travel Trailer]
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
30
<PAGE>
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. Larry Shinoda, who is credited with designing the
1963 Corvette Stingray automobile, assists as a consultant to the Company in the
design process. The Company also 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 five years, the Company has expanded its dealer network from
34 dealerships in 1992 to 168 dealerships primarily located in the United States
and Canada at March 29, 1997, including 116 dealerships added as a result of the
Holiday Acquisition. The Company's dealerships generally sell either Monaco
motor coaches or Holiday Rambler motor coaches and towables. The Company intends
to expand its dealer network, primarily by adding towables-only dealers. The
Company maintains an internal sales organization consisting of 17 account
executives who service the Company's dealer network, including five recently
hired account executives who will be focusing exclusively on the towables
market.
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 was not required to repurchase any of its products in
1996 pursuant to these repurchase agreements.
31
<PAGE>
As a result of the Holiday Acquisition, the Company acquired ten Holiday
World Dealerships. The Company sold seven of these Holiday World Dealerships in
1996 and one in the first quarter of 1997 and plans to sell the remaining two
dealerships.
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 13,000
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 (diesel engines), Eaton (axles), Allison (transmissions) and
Chevrolet, Ford and 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 March 29, 1997, the Company had 168
dealerships providing service to owners of the Company's products. In addition,
owners of the Company's diesel products have access to the entire Cummins dealer
network, which includes more than 750 repair centers.
The Company operates service centers in Coburg, Oregon and Elkhart and
Wakarusa, Indiana. The Company currently has approximately 180 employees in
customer service. 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.
32
<PAGE>
MANUFACTURING
The Company currently operates manufacturing facilities in Coburg, Oregon,
where it manufactures Signature Series, Executive, Dynasty and Navigator motor
coaches; in Elkhart, Indiana, where it manufactures Dynasty and Windsor motor
coaches and Alumascape fifth wheel and travel trailers; and in Wakarusa,
Indiana, where it manufactures Imperial, Endeavor and Vacationer motor coaches
and Imperial and Aluma-Lite fifth wheel and travel trailers. The Company also
operates its Royale Coach bus conversion facility in Elkhart, Indiana. The
Company's current motor coach production capacity is three units per day at its
Coburg facility, and a combined 11.5 units per day at its Wakarusa and Elkhart
facilities. The Company's production of motor coaches has been limited by
capacity constraints in recent years. The Company's current towables production
capacity is a combined 16 units per day at its Wakarusa and Elkhart facilities.
The Company is in the process of expanding its manufacturing capacity at its
Wakarusa location and has leased an additional facility in Springfield, Oregon.
The new Wakarusa facility, a portion of which became operational in the second
quarter of 1997, will enable the Company to consolidate Indiana motor coach
production in Wakarusa, freeing up existing space at the Elkhart facility which
may be used to increase production of towable products. As part of the new
Wakarusa facility, the Company has begun construction of a new paint facility in
order to take advantage of the benefits of vertical integration and reduce
production costs. The Springfield towables facility became operational in the
second quarter of 1997. Upon completion of the expansion of its manufacturing
capacity, the Company should have motor coach production capacity of 25 units
per day in Wakarusa, and three units per day in Coburg, and towables production
capacity of a combined 16 units per day in its Elkhart and Wakarusa facilities,
and eight units per day in Springfield. In addition, if the Company decides to
use all the existing free space at the Elkhart facility to produce towable
products, towables production capacity at the Elkhart and Wakarusa facilities
would increase to a combined 24 units per day. The Company believes that this
expanded manufacturing capacity will free the Company from capacity constraints
on its motor coaches and allow the Company to gradually increase its overall
production volumes for motor coaches 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
33
<PAGE>
not have any long-term supply contracts with these suppliers or their
distributors, but believes it has good relationships with them. To minimize the
risks associated with reliance on a single-source supplier, the Company
typically keeps a 60-day supply of axles, engines, chassis and transmissions in
stock or available at the suppliers' facilities and believes that, in an
emergency, other suppliers could fill the Company's needs on an interim basis.
However, there can be no assurance that these suppliers will be able to meet the
Company's future requirements for these 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 March 29, 1997, the Company's backlog of orders was
$78.6 million compared with $68.9 million at March 30, 1996. 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.
FACILITIES
The Company is headquartered in Coburg, Oregon, approximately 100 miles from
Portland, Oregon. The following table summarizes the Company's current and
planned manufacturing facilities:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
MANUFACTURING FACILITY OWNED/LEASED FOOTAGE PRODUCTS MANUFACTURED
- ----------------------------------------------- -------------------- ------------ -----------------------------
<S> <C> <C> <C>
Coburg, Oregon................................. Owned 300,000 Motor Coaches
Elkhart, Indiana............................... Owned 325,000 Motor Coaches, Towables
Elkhart, Indiana............................... Leased 28,000 Bus Conversions
Wakarusa, Indiana.............................. Owned/Leased(1) 516,000 Motor Coaches, Towables
Wakarusa, Indiana(2)........................... Owned 500,000 Motor Coaches
Springfield, Oregon(3)......................... Leased 100,000 Towables
</TABLE>
- ------------------------
(1) The Company leases approximately 110,510 square feet of this facility.
(2) Includes a new facility of approximately 400,000 square feet, a portion of
which became operational in the second quarter of 1997.
(3) Became operational in the second quarter of 1997.
As of the date of this Prospectus, the Company's production of motor coaches
is capacity constrained. After the new Wakarusa, Indiana and Springfield, Oregon
plants are fully operational and the transfer of the Elkhart, Indiana motor
coach production has been successfully completed, the Company believes that its
existing facilities will be sufficient to meet its production requirements for
the foreseeable future. Should the Company require increased production capacity
in the future, the Company believes that additional or alternative space
adequate to serve the Company's foreseeable needs would be available on
commercially reasonable terms.
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,
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<PAGE>
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 RVIA, a voluntary association of recreational
vehicle manufacturers and suppliers, which promulgates recreational vehicle
safety standards. Each of the products manufactured by the Company has an RVIA
seal affixed to it to certify that such standards have been met.
Many states regulate the sale, transportation and marketing of recreational
vehicles. The Company is also subject to state consumer protection laws and
regulations, which in many cases require manufacturers to repurchase or replace
chronically malfunctioning recreational vehicles. Some states also legislate
additional safety and construction standards for recreational vehicles.
The Company is subject to regulations promulgated by the Occupational Safety
and Health Administration ("OSHA"). The Company's plants are periodically
inspected by federal or state agencies, such as OSHA, concerned with workplace
health and safety.
The Company believes that its products and facilities comply in all material
respects with the applicable vehicle safety, consumer protection, RVIA and OSHA
regulations and standards. Amendments to any of the foregoing regulations and
the implementation of new regulations could significantly increase the cost of
manufacturing, purchasing, operating or selling the Company's products and could
materially and adversely affect the Company's net sales and operating results.
The failure of the Company to comply with present or future regulations could
result in fines being imposed on the Company, potential civil and criminal
liability, suspension of production or cessation of operations.
The Company is subject to product liability and warranty claims arising in
the ordinary course of business. To date, the Company has been successful in
obtaining product liability insurance on terms the Company considers acceptable.
The Company's current policies jointly provide coverage against claims based on
occurrences within the policy periods up to a maximum of $26.0 million for each
occurrence and $27.0 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.
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<PAGE>
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 its
cabinet making facility in Nappanee, Indiana and its operations in Elkhart,
Indiana and Wakarusa, Indiana, including the new motor coach production facility
in Wakarusa, and is in the process of preparing such applications for its
facility in Coburg, Oregon. The Company has provided the relevant state agency
with a schedule of completion for the Coburg application, which will be filed
after the regulatory deadline, and the agency has indicated to the Company that
the schedule will be acceptable.
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, and the Wakarusa, Indiana
manufacturing facility and Leesburg, Florida dealership acquired in the Holiday
Acquisition. 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 is investigating the Wakarusa site and expects soon to
recommend 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 and its consultants are
conducting investigations to determine the appropriate remediation program to
recommend to the relevant Florida regulatory authority for the contamination
associated with former underground storage tanks at the Leesburg dealership.
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
indentified 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
36
<PAGE>
environmental problems or that the cost to the Company of the remediation
activities will not exceed the Company's expectations.
EMPLOYEES
As of March 29, 1997, the Company had 2,244 employees, including 1,798 in
production, 50 in sales, 180 in service and 216 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.
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. In addition, in connection with
the Holiday Acquisition, the Company assumed most of the liabilities of that
business, including product liability and warranty claims. The Company does not
believe that the outcome of its pending legal proceedings will have a material
adverse effect on the business, results of operations or financial condition of
the Company.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
March 29, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Kay L. Toolson......................... 53 Chairman, Chief Executive Officer and President
John W. Nepute......................... 45 Vice President of Finance and Chief Financial Officer
D. Page Robertson...................... 58 President of Monaco Division
James V. Sheldon....................... 56 President of Holiday Rambler Division and Chief Operating Officer,
Indiana Operations
Richard E. Bond........................ 43 Vice President, Secretary and General Counsel
Michael J. Kluger...................... 40 Director
Carl E. Ring, Jr.(1)(2)................ 59 Director
Richard A. Rouse(1)(2)................. 51 Director
Roger A. Vandenberg(2)................. 49 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
MR. TOOLSON has served as President and Chief Executive Officer of the
Company and the Predecessor since 1986 and as Chairman of the Company since July
1993. From September 1982 to August 1986, Mr. Toolson served as Executive Vice
President of Executive Industries, Inc., a motor coach manufacturer. Prior to
joining Executive Industries, Mr. Toolson served from 1973 until 1982 as Vice
President of Kings Highway Mobile Industries, Inc., a motor coach manufacturer.
He holds a B.S. degree in Business Administration and Computer Science and an
M.B.A. degree, both from Utah State University.
MR. NEPUTE has served the Company and the Predecessor in his current
capacity as Vice President of Finance and Chief Financial Officer since January
1991. From January 1988 until January 1991 he served the Predecessor as
Controller. From 1977 to 1988, Mr. Nepute served as Controller of Tiffany Drug
Stores, Inc., a privately-held retail chain. Mr. Nepute holds a B.S. degree in
Industrial Management from Georgia Institute of Technology and an M.B.A. degree
in Finance from the University of Oregon.
MR. ROBERTSON has served as the President of the Monaco Division since
January 1997. From October 1995 until January 1997, Mr. Robertson served as
President of the Company. Mr. Robertson also served the Company and its
Predecessor as Vice President of Sales and Marketing from January 1991 to August
1995. From January 1988 until January 1991, he served the Company's predecessor
as National Sales Manager. Mr. Robertson attended Western Carolina College and
Louisburg College, where he studied business administration and marketing.
MR. SHELDON has served as the President of the Holiday Rambler Division and
Chief Operating Officer, Indiana Operations of the Company since March 1996.
From 1971 to 1995, Mr. Sheldon held several key management positions with the
Recreational Group of Fleetwood Enterprises, including Plant General Manager,
Director of Sales, Director of Product Development, Director of Marketing, and
Managing Director of European Operations. Mr. Sheldon holds a B.S. degree in
Economics from Georgetown University and an M.B.A. degree in Marketing from
George Washington University.
MR. BOND has served as Vice President, Secretary and General Counsel of the
Company since February 1997 and has been an employee of the Company since
January 1997. From 1987 to December 1996 he served as Vice President, Secretary
and General Counsel of Holiday Rambler. He also served
38
<PAGE>
as Holiday Rambler's Vice President and Assistant General Counsel from 1984 to
1987. Prior to that and from 1979, Mr. Bond was engaged in the private practice
of law in Oregon and Indiana. Mr. Bond holds an A.B. in Economics and History
from Indiana University and a J.D. from Willamette University College of Law.
MR. KLUGER has served as a director of the Company since March 1993. He is a
founding partner of Liberty Partners, L.P., whose general partner is Liberty
Capital Partners, Inc., a New York investment management firm, where he has
served as Managing Director since September 1992. For five years prior thereto,
Mr. Kluger was a Director and Senior Vice President of Merrill Lynch
Interfunding Inc., a subsidiary of Merrill Lynch & Co., an investment banking
and brokerage firm. Mr. Kluger is also a director and stockholder of Liberty
Capital Partners, Inc.
MR. RING has served as a director of the Company since March 1993. He is a
founding partner of Liberty Partners, L.P., whose general partner is Liberty
Capital Partners, Inc., a New York investment management firm, where he has
served as Managing Director since September 1992. From June 1991 to September
1992 he was President of Eden, Miller & Co., Incorporated, an investment banking
firm. For more than five years prior thereto, Mr. Ring was a Managing Director
of Lehman Brothers, an investment banking and brokerage firm. Mr. Ring is also a
director and stockholder of Liberty Capital Partners, Inc.
MR. ROUSE has served as a director of the Company since July 1993. He
currently serves as Chairman of Emergency Road Service, Inc., a privately-held
nationwide roadside assistance company, which position he has held since July
1991. From July 1988 to July 1991, he was President of Trailer Life Enterprises,
Inc., a publisher and sponsor of recreational vehicle publications and clubs.
MR. VANDENBERG has served as a director of the Company since March 1993. He
currently serves as the President of Cariad Capital, Inc., which he founded in
January 1992, and as a Managing Director of Narragansett Capital, Inc., a
private investment firm, a position he has held since June 1986. Mr. Vandenberg
is also a general partner of the general partner of Narragansett Capital
Partners -A and - B, L.P. ("NCPAB"), related venture capital funds, and a
general partner of the general partner of Narragansett First Fund, a venture
capital fund. One of the portfolio companies with which NCPAB is affiliated
filed for protection under Federal bankruptcy laws in 1993, although it has
subsequently emerged from bankruptcy and is operating profitably. Mr. Vandenberg
served as the President and a director of this portfolio company, Glasstech
Industries, Inc., and as a director and vice chairman of its operating company
subsidiary, Glasstech, Inc. ("Glasstech"), from 1989 to December 1994. Glasstech
manufactures equipment for bending and tempering glass. Mr. Vandenberg is also a
director of Wellman, Inc., a polyester fiber manufacturer, and a general partner
of Monaco Capital Partners.
The Board of Directors is divided into two classes with each director
serving a two year term and one class being elected at each year's annual
meeting of stockholders. Directors Kluger and Toolson are in the class of
directors whose term expires at the 1998 Annual Meeting of Stockholders and
Directors Ring, Rouse and Vandenberg are in the class of directors whose term
expires at the 1997 Annual Meeting of Stockholders.
All executive officers serve at the discretion of the Board of Directors.
There are no family relationships between any of the directors or executive
officers of the Company.
STOCKHOLDERS' AGREEMENT
In March 1993, all the holders of the shares of Common Stock then
outstanding and the Company entered into a Stockholders Agreement, which was
amended in August 1993 (the "Stockholders Agreement"). The stockholders subject
to the Stockholders Agreement are obligated to vote for two nominees to the
Company's Board of Directors presented by Liberty Investment Partners II, two
nominees presented by Monaco Capital Partners, and one nominee chosen by the
Company's executive officers from among the executive officers. The Stockholders
Agreement also provides that so long as Mr. Toolson is the Company's
39
<PAGE>
Chief Executive Officer, he will serve as the nominee of the executive officers.
The Stockholders Agreement will terminate upon the closing of the Offering.
REGISTRATION RIGHTS
Monaco Capital Partners, Liberty Investment Partners II and certain members
of the Company's management have the right to require the Company to register
their shares of Common Stock under the Securities Act under certain
circumstances. See "Description of Capital Stock--Registration Rights."
40
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of May 20, 1997 (except as
otherwise indicated), and as adjusted to reflect the sale of the 1,700,000
shares offered by this Prospectus, by: (i) each person who is known by the
Company to own beneficially more than five percent of the Common Stock, (ii)
each of the Company's directors, (iii) each of the Company's executive officers,
(iv) all directors and executive officers as a group, and (v) each Selling
Stockholder. Except as indicated in the footnotes to this table, the persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING AFTER OFFERING
--------------------------- SHARES ---------------------------
NAME SHARES PERCENTAGE(1) TO BE SOLD(2) SHARES PERCENTAGE(1)
- ---------------------------------------------------- ---------- --------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Liberty Partners Holdings 2, L.L.C. (3) ............ 1,276,931 28.7% 441,717 835,214 15.3%
c/o Liberty Capital Partners, Inc.
1177 Avenue of the Americas
New York, N.Y. 10036
Michael J. Kluger (4) .............................. 1,277,931 28.8% 441,717 836,214 15.3%
c/o Liberty Capital Partners, Inc.
1177 Avenue of the Americas
New York, N.Y. 10036
Carl E. Ring, Jr. (5) .............................. 1,276,931 28.7% 441,717 835,214 15.3%
c/o Liberty Capital Partners, Inc.
1177 Avenue of the Americas
New York, N.Y. 10036
Kay L. Toolson (6) ................................. 637,107 14.3% 125,000 512,107 9.3%
c/o Monaco Coach Corporation
91320 Industrial Way
Coburg, OR 97408
Roger A. Vandenberg (7) ............................ 271,683 6.1% 30,000 241,683 4.4%
c/o Cariad Capital, Inc.
1 Turks Head Place
Providence, R.I. 02903
Bass Management Trust (8) .......................... 251,000 5.6% -- 251,000 4.6%
201 Main St., Suite 3200
Fort Worth, TX 76102
D. Page Robertson (6)............................... 67,990 1.5% 20,000 47,990 *
John W. Nepute (6).................................. 44,750 1.0% 10,000 34,750 *
Richard A. Rouse (6)................................ 12,800 * -- 12,800 *
James V. Sheldon (6)................................ 1,748 * -- 1,748 *
Richard E. Bond (6)................................. 240 * -- 240 *
All directors and executive officers as a group (9
persons) (4)(5)(6)(7)............................. 2,314,249 51.7% 626,717 1,687,532 30.6%
<CAPTION>
OTHER SELLING STOCKHOLDERS
- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
HR, LLC (9)......................................... 230,767 4.9% 230,767 -- --
Andreas P. Graham (10).............................. 53,689 1.2% 28,689 25,000 *
B. Ray Mehaffey (6)................................. 47,973 1.1% 10,000 37,973 *
Mary A. Ferreira.................................... 7,846 * 3,846 4,000 *
Monaco Capital Partners (7)......................... 100 * 100 -- --
</TABLE>
- ------------------------
* Less than one percent.
41
<PAGE>
(1) Applicable percentage of beneficial ownership both before and after the
Offering is based on 4,442,512 shares of Common Stock outstanding as of May
20, 1997 together with applicable options for each stockholder. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission, and includes voting and investment power with respect
to shares. Shares of Common Stock subject to options currently exercisable
or exercisable within 60 days after May 20, 1997 are deemed outstanding for
purposes of computing the percentage ownership of the person holding such
options, but are not deemed outstanding for computing the percentage of any
other stockholder. Beneficial ownership after the Offering also reflects the
issuance of the 230,767 shares of Common Stock upon conversion of the 65,217
shares of Redeemable Preferred Stock held by HR, LLC.
(2) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, the following Selling
Stockholders will sell the additional shares (and will beneficially own the
percentages) indicated: Liberty Partners Holdings 2, L.L.C., 175,000 shares
(12.1%); Kay L. Toolson, 40,000 shares (8.6%); Roger A. Vandenberg, 20,000
shares (4.1%); D. Page Robertson, 10,000 shares (less than 1.0%); B. Ray
Mehaffey, 5,000 shares (less than 1.0%); and John W. Nepute, 5,000 shares
(less than 1.0%).
(3) Liberty Partners Holdings 2, L.L.C., a Delaware limited liability company,
holds 1,276,931 shares of Common Stock. The members of Liberty Partners
Holdings 2, L.L.C. are Liberty Investments 5, Inc., which is beneficially
owned by the State Board of Administration of Florida, and Liberty
Investment Partners II, which is beneficially owned by, among others,
Directors Michael J. Kluger and Carl E. Ring, Jr., as well as Peter E.
Bennet and Paul J. Huston. The Manager of Liberty Partners Holdings 2,
L.L.C., which has sole voting and investment power over the shares of Common
Stock, is Liberty Partners, L.P. Liberty Capital Partners, Inc. is the
general partner of Liberty Partners, L.P. Michael J. Kluger, Carl E. Ring,
Jr., Peter E. Bennett and Paul J. Huston are directors and stockholders of
Liberty Capital Partners, Inc.
(4) Includes 1,000 shares held by Mr. Kluger directly. Also includes the shares
held of record by Liberty Partners Holdings 2, L.L.C. See Note (3) above.
(5) Includes the shares held of record by Liberty Partners Holdings 2, L.L.C.
See Note (3) above.
(6) Includes the number of shares subject to options which are exercisable
within 60 days of May 20, 1997 by the following persons: Mr. Toolson (6,000
shares), Mr. Rouse (4,800 shares), Mr. Nepute (12,120 shares), Mr. Robertson
(12,220 shares), Mr. Sheldon (500 shares), Mr. Bond (240 shares) and Mr.
Mehaffey (12,120 shares).
(7) Includes 100 shares held of record by Monaco Capital Partners, all of which
will be sold in the Offering. Mr. Vandenberg, as the managing general
partner of Monaco Capital Partners, has the sole right to direct the voting
and disposition of securities of the Company held by Monaco Capital
Partners, except for 19 shares, as to which Mr. Graham directs the voting
but does not have the right to direct the disposition thereof. See Note (10)
below. Mr. Vandenberg may therefore be deemed to be a beneficial owner of
all of the 100 shares held of record by Monaco Capital Partners. Cariad
Capital, Inc., of which Mr. Vandenberg is President, currently receives
consulting and management fees of $72,000 per year from the Company pursuant
to the terms of a management contract scheduled to expire on September 23,
1998.
(8) Includes the shares held by the following entities: The Bass Management
Trust ("BMT"), Sid R. Bass Management Trust ("SRBMT"), Lee M. Bass ("LMB"),
Edward P. Bass ("EPB"), Wesley Guylay Capital Management ("WGCM") and Terry
Guylay ("TG"), who may be deemed to constitute a "group" within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. The
above parties note that neither the fact of their filing with the Commission
a Schedule 13D on which the following information as to beneficial
ownership, voting and dispositive power of the shares
42
<PAGE>
was disclosed nor anything contained therein shall be deemed to be an
admission by them that a group exists. Each of the following entities has
reported shared voting or dispositive power over none of the shares over
which they hold beneficial ownership. The following entities have sole
voting and dispositive power over the following shares: BMT, 33,537; NLB, 0;
SRBMT, 33,437; LMB, 33,537; EPB, 24,489; WGCM, 125,000; TG, 1,000.
(9) HR, LLC presently holds 65,217 shares of Redeemable Preferred Stock which
will be converted into 230,767 shares of Common Stock that will be sold in
the Offering. HR, LLC is a company owned by Harley-Davidson, Inc.
(10) Includes 19 shares held of record by Monaco Capital Partners, as to which
Mr. Graham directs the voting but does not have the right to direct the
disposition. Mr. Graham was a director of the Company from March 1993 to May
1996.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, $.01 par value, and
1,934,783 shares of Preferred Stock, $.01 par value, after giving effect to the
conversion of the 65,217 shares of Redeemable Preferred Stock held by HR, LLC
into 230,767 shares of Common Stock.
The following summary of certain provisions of the Common Stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Certificate of Incorporation which is included as an
exhibit to the Registration Statement of which this Prospectus is a part, and by
the provisions of applicable law.
COMMON STOCK
As of June 17, 1997, there were 4,450,932 shares of Common Stock outstanding
that were held of record by approximately 105 stockholders.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior liquidation
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be issued upon completion of the Offering will be
fully paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of the Offering, the Board of Directors will have
the authority, without any further vote or action by the stockholders, to
provide for the issuance of up to 1,934,783 shares of Preferred Stock from time
to time in one or more series with such designations, rights, preferences and
limitations as the Board of Directors may determine, including the consideration
received therefor, the number of shares comprising each series, dividend rates,
redemption provisions, liquidation preferences, sinking fund provisions,
conversion rights and voting rights, all without approval by the holders of
Common Stock. Although it is not possible to state the effect that any issuance
of Preferred Stock might have on the rights of holders of Common Stock, the
issuance of Preferred Stock may have one or more of the following effects: (i)
restrict Common Stock dividends if Preferred Stock dividends have not been paid;
(ii) dilute the voting power and equity interest of holders of Common Stock to
the extent that any Preferred Stock series has voting rights or is convertible
into Common Stock; or (iii) prevent current holders of Common Stock from
participating in the Company's assets upon liquidation until any liquidation
preferences granted to holders of Preferred Stock are satisfied. In addition,
the issuance of Preferred Stock may, under certain circumstances, have the
effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of Preferred Stock that require approval by
the separate vote of the holders of Preferred Stock for any amendment to the
Certificate of Incorporation or any reorganization, consolidation or merger (or
other similar transaction involving the Company). As a result, the issuance of
such Preferred Stock may discourage bids for the Company's Common Stock at a
premium over the market price therefor and could have a material adverse effect
on the market value of the Common Stock. The Board of Directors does not
presently intend to issue any shares of Preferred Stock.
44
<PAGE>
REGISTRATION RIGHTS
After the Offering, the holders (or their permitted transferees) of
1,701,605 shares of Common Stock (or 1,446,605 shares if the Underwriters'
over-allotment option is exercised in full), will be entitled to certain rights
with respect to the registration of such shares under the Securities Act. Under
the terms of agreements between the Company and such holders, if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or the account of other security holders exercising registration
rights, the holders are entitled to notice of such registration and are entitled
to include shares of Common Stock therein; provided, among other conditions,
that the underwriters of any offering have the right to limit or exclude such
shares from registration. In addition, the holders of 835,214 shares of Common
Stock (or 660,214 shares if the Underwriters' over-allotment option is exercised
in full) may require the Company on not more than three occasions to file a
registration statement under the Securities Act with respect to such shares, and
the Company is required to use its reasonable best efforts to effect such
registration, subject to certain conditions and limitations, and is required to
pay the expenses incurred in connection with such registrations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation could make more difficult the acquisition of the Company by means
of a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to first negotiate
with the Company. The Company believes that the benefits of increased protection
of the Company's potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure the Company
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
The Company is subject to the provisions of Section 203 of the Delaware law.
In general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock. This provision may have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the stockholder.
The Company's Certificate of Incorporation provides that the Board of
Directors is divided into two classes, with staggered two-year terms. As a
result, only one class of directors will be elected at each annual meeting of
stockholders of the Company, with the other class continuing for the remainder
of its respective two-year term. The classification of the Board of Directors
makes it more difficult for the Company's existing stockholders to replace the
Board of Directors as well as for another party to obtain control of the Company
by replacing the Board of Directors. Since the Board of Directors has the power
to retain and discharge officers of the Company, these provisions could also
make it more difficult for existing stockholders or another party to effect a
change in management.
The Company's Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and may not be
taken by written consent. The Bylaws provide that special meetings of
stockholders can be called only by the Chairman of the Board, the President or
the Board of Directors. Stockholders are not permitted to call a special meeting
or to require that the Board of Directors call a special meeting of the
stockholders. Moreover, the business permitted to be conducted at
45
<PAGE>
any special meeting of stockholders is limited to the business brought before
the meeting by the Chairman of the Board, the President or the Board of
Directors. The Bylaws set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors and with regard to business to be brought
before an annual meeting of stockholders of the Company.
The Company's Certificate of Incorporation and the Bylaws contain provisions
requiring the affirmative vote of the holders of at least two-thirds of the
voting stock of the Company to amend the foregoing provisions of the Certificate
of Incorporation and Bylaws.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Norwest
Bank Minnesota, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have 5,481,699 shares of
Common Stock outstanding, all of which will be freely tradeable without
restriction under the Securities Act, unless they are held by "affiliates" of
the Company as that term is used under the Securities Act. The shares held by
affiliates of the Company are "restricted securities" as defined in Rule 144
under the Securities Act (the "Restricted Shares"), and are eligible for resale,
subject to the volume limitations of Rule 144, as hereinafter described.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned his or her restricted
securities (as that term is defined in Rule 144) for at least one year is
entitled to sell, within any three-month period, a number of such securities
that does not exceed the greater of 1% of the then outstanding shares of the
Company's Common Stock (approximately 54,817 shares immediately after the
Offering) or the average weekly trading volume during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. A person who is not an
affiliate, has not been an affiliate within three months prior to the sale and
has beneficially owned the restricted securities for at least two years is
entitled to sell such shares under Rule 144(k) without regard to any of the
limitations described above. In meeting the one year and two year holding
periods described above, a holder of Restricted Shares may include the holding
period of a prior owner who is not an affiliate of the Company.
As of the date of this Prospectus, options to purchase an aggregate of
229,640 shares of Common Stock were outstanding under the Company's stock option
plans, of which 80,178 shares have vested and are eligible for sale upon
exercise.
Certain holders of Restricted Shares have the right, after termination of
the lock-up agreements, to cause the Company to register the sale of their
shares under the Securities Act. If such registration rights are exercised, the
shares can be sold without any holding period or sales volume limitation. See
"Description of Capital Stock--Registration Rights."
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<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Smith Barney Inc................................................................ 567,000
William Blair & Company, L.L.C.................................................. 566,500
A.G. Edwards & Sons, Inc........................................................ 566,500
------------
Total....................................................................... 1,700,000
------------
------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all of the shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page of this Prospectus and
part of the shares to certain dealers at a price which represents a concession
not in excess of $.73 per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $.10 per share to certain other dealers. After the initial offering of the
shares to the public, the public offering price and such concessions may be
changed by the Underwriters.
Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to 255,000 additional shares of Common Stock at the price to public set forth on
the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the offering of the shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company, its officers and directors, the Selling Stockholders, and
certain other stockholders of the Company designated by the Underwriters, have
agreed that, for a period of 90 days from the date of this Prospectus, they will
not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell, or otherwise dispose of, any shares of Common Stock of the
Company or any securities convertible into, or exercisable or exchangeable for,
Common Stock of the Company.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Underwriters have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an
47
<PAGE>
arrangement permitting the Underwriters to reclaim the selling concession
otherwise accruing to an Underwriter or dealer in connection with the Offering
if the Common Stock originally sold by such Underwriter or dealer is purchased
by the Underwriters in a syndicate covering transaction and has therefore not
been effectively placed by such Underwriter or dealer. The Underwriters have
advised the Company that such transactions may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any time.
As permitted by Rule 103 under the Exchange Act, Underwriters or prospective
Underwriters that are market makers ("passive market makers") in the Common
Stock may make bids for or purchases of Common Stock on the Nasdaq National
Market until such time, if any, when a stabilizing bid for such securities has
been made. Rule 103 generally provides that: (i) a passive market maker's net
daily purchases of the Common Stock may not exceed 30% of its average daily
trading volume in such securities for the two full consecutive calendar months
(or any 60 consecutive days ending within the 10 days) immediately preceding the
filing date of the registration statement of which this Prospectus forms a part;
(ii) a passive market maker may not effect transactions or display bids for the
Common Stock at a price that exceeds the highest independent bid for the Common
Stock by persons who are not passive market makers; and (iii) bids made by
passive market makers must be identified as such.
From time to time, Smith Barney Inc. has provided, and may continue to
provide, investment banking services to the Company.
LEGAL MATTERS
The validity of Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by
Orrick, Herrington & Sutcliffe LLP, San Francisco, California.
EXPERTS
The consolidated balance sheets as of December 30, 1995 and December 28,
1996 and the consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 28, 1996 of
Monaco Coach Corporation and subsidiaries included in this Prospectus have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, on the authority of that firm as experts in accounting
and auditing.
The combined balance sheets of Holiday Rambler LLC Recreational Vehicle
Manufacturing Division and certain Holiday World Retail Operations at December
31, 1994 and 1995 and the combined statements of operations and deficiency in
net assets and cash flows for each of the three years in the period ended
December 31, 1995 appearing in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected without charge at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048, and copies of all or any part of such material can also be obtained
from such offices upon payment of the fees prescribed by the Commission. In
addition, the Commission maintains a World Wide Web site
48
<PAGE>
on the Internet at www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Quotations relating to the Company's Common Stock appear on
the Nasdaq National Market and such reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission in Washington, D.C. a registration
statement (herein together with all amendments thereto called the "Registration
Statement") under the Securities Act, with respect to the securities covered by
this Prospectus. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain items of which are contained in or
incorporated by reference as exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits filed or incorporated as a
part thereof. Statements contained herein concerning the provisions of documents
filed with, or incorporated by reference in, the Registration Statement as
exhibits are necessarily summaries of such documents and each such statement is
qualified in its entirety by reference to the copy of the applicable documents
filed with the Commission. Copies of the Registration Statement, including
exhibits, may be obtained from the Commission upon payment of a prescribed fee,
or may be examined without charge at the offices of the Commission as described
above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated by reference herein: (i) the Company's Annual
Report on Form 10-K for the year ended December 28, 1996 and Quarterly Report on
Form 10-Q for the period ended March 29, 1997 and (ii) all other reports and
other documents filed by the Company pursuant to Sections 13(a), 14 and 15(d) of
the Exchange Act since the end of the fiscal year covered by the Annual Report
referred to above and prior to the date of this Prospectus.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Prospectus to the extent
that a statement contained in the Registration Statement or in this Prospectus
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered (including any beneficial owner),
upon the written or oral request of any such person, a copy of any or all of the
documents referred to above or elsewhere herein which have been incorporated by
reference in this Prospectus, other than exhibits to such documents. Written
requests for such copies should be directed to John W. Nepute, Vice President of
Finance and Chief Financial Officer, 91320 Industrial Way, Coburg, Oregon 97408.
Telephone requests may be directed to Mr. Nepute at (541) 686-8011.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
MONACO COACH CORPORATION--CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants......................................................................... F-2
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996................................. F-3
Consolidated Statements of Income for the Fiscal Years Ended December 31, 1994, December 30, 1995 and
December 28, 1996....................................................................................... F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended December 31, 1994, December 30,
1995 and December 28, 1996.............................................................................. F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 1994, December 30, 1995 and
December 28, 1996....................................................................................... F-6
Notes to Consolidated Financial Statements................................................................ F-8
Condensed Consolidated Balance Sheets as of December 31, 1996 and March 29, 1997 (Unaudited).............. F-23
Condensed Consolidated Statements of Income for the Three Months Ended March 30, 1996 and March 29, 1997
(Unaudited)............................................................................................. F-24
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 30, 1996 and March 29,
1997 (Unaudited)........................................................................................ F-25
Notes to Condensed Consolidated Financial Statements (Unaudited).......................................... F-26
HOLIDAY RAMBLER LLC RECREATIONAL VEHICLE MANUFACTURING DIVISION AND CERTAIN HOLIDAY WORLD RETAIL
OPERATIONS--COMBINED FINANCIAL STATEMENTS:
Report of Independent Accountants......................................................................... F-30
Combined Balance Sheets as of December 31, 1994 and 1995.................................................. F-31
Combined Statements of Operations and Deficiency in Net Assets for the Years Ended December 31, 1993, 1994
and 1995................................................................................................ F-32
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995.................... F-33
Notes to Combined Financial Statements.................................................................... F-34
</TABLE>
F-1
<PAGE>
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 its subsidiaries (the "Company") as of December 30, 1995 and
December 28, 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 28, 1996. 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 its subsidiaries as of December 30, 1995 and December 28, 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 28, 1996 in conformity with
generally accepted accounting principles.
/S/ COOPERS & LYBRAND L.L.P.
Eugene, Oregon
January 31, 1997
F-2
<PAGE>
MONACO COACH CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Trade receivables, net of $31 and $140, respectively............................... $ 7,071 $ 14,891
Inventories........................................................................ 19,591 46,930
Prepaid expenses................................................................... 447 1,343
Deferred income taxes.............................................................. 575 8,278
Notes receivable................................................................... -- 1,064
Assets held for sale............................................................... -- 1,383
------------ ------------
Total current assets............................................................. 27,684 73,889
Notes receivable..................................................................... -- 636
Debt issuance costs, net of accumulated amortization of $343......................... -- 1,760
Property and equipment, net.......................................................... 21,587 38,309
Goodwill, net of accumulated amortization of $1,466 and $2,084, respectively......... 19,231 20,774
------------ ------------
Total assets..................................................................... $ 68,502 $ 135,368
------------ ------------
------------ ------------
LIABILITIES
Current liabilities:
Book overdraft..................................................................... $ 516 $ 2,455
Short-term borrowings:
Bank line of credit.............................................................. 9,845 3,789
Flooring agreements.............................................................. -- 6,202
Current portion of long-term note payable.......................................... 2,000 2,000
Accounts payable................................................................... 8,459 24,218
Income taxes payable............................................................... 221 7,362
Accrued expenses and other liabilities............................................. 2,848 23,361
------------ ------------
Total current liabilities........................................................ 23,889 69,387
Note payable, less current portion................................................... 5,000 16,500
Deferred income tax liabilities...................................................... 1,483 2,787
Deferred income...................................................................... 200 200
------------ ------------
Total liabilities................................................................ 30,572 88,874
------------ ------------
Redeemable Series A Convertible Preferred Stock, $.01 par value; redemption value of
$3,005; 100,000 shares authorized; 65,217 shares issued and outstanding (Note 9)... -- 2,687
------------ ------------
Commitments and contingencies (Notes 12 and 17)...................................... -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,900,000 shares authorized; no shares issued and
outstanding........................................................................
Common stock, $.01 par value, 20,000,000 shares authorized; 4,410,889 and 4,430,467
shares issued and outstanding, respectively........................................ 44 44
Additional paid-in capital........................................................... 25,303 25,430
Retained earnings.................................................................... 12,583 18,333
------------ ------------
Total stockholders' equity....................................................... 37,930 43,807
------------ ------------
Total liabilities and stockholders' equity....................................... $ 68,502 $ 135,368
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................................................. $ 107,300 $ 141,611 $ 365,638
Cost of sales.............................................................. 89,894 124,592 317,909
---------- ---------- ----------
Gross profit........................................................... 17,406 17,019 47,729
Selling, general and administrative expenses............................... 7,184 8,075 33,299
Management fees to stockholders............................................ 72 72 72
Amortization of goodwill................................................... 517 517 617
---------- ---------- ----------
Operating income....................................................... 9,633 8,355 13,741
Other expense (income), net................................................ (153) 40 (244)
Interest expense........................................................... 69 298 3,914
---------- ---------- ----------
Income before income taxes............................................. 9,717 8,017 10,071
Provision for income taxes................................................. 3,776 3,119 4,162
---------- ---------- ----------
Net income............................................................. 5,941 4,898 5,909
Preferred stock dividends.................................................. -- -- (75)
Accretion of redeemable preferred stock.................................... -- -- (84)
---------- ---------- ----------
Net income attributable to common stock................................ $ 5,941 $ 4,898 $ 5,750
---------- ---------- ----------
---------- ---------- ----------
Earnings per common share:
Primary................................................................ $ 1.33 $ 1.09 $ 1.28
Fully diluted.......................................................... $ 1.33 $ 1.09 $ 1.26
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding:
Primary................................................................ 4,469,734 4,473,383 4,474,791
Fully diluted.......................................................... 4,473,098 4,475,229 4,678,111
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1994................................ 4,394,548 $ 44 $ 25,163 $ 1,744 $ 26,951
Issuance of common stock................................. 6,549 0 34 -- 34
Tax benefit of stock options exercised................... -- -- 19 -- 19
Net income............................................... -- -- -- 5,941 5,941
---------- --- ----------- --------- ---------
Balances, December 31, 1994.............................. 4,401,097 44 25,216 7,685 32,945
Issuance of common stock................................. 9,792 0 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 0 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
---------- --- ----------- --------- ---------
---------- --- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH:
Cash flows of operating activities:
Net income..................................................................... $ 5,941 $ 4,898 $ 5,909
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................ 812 1,077 3,005
Loss on disposal of equipment................................................ 2 60 79
Deferred income taxes........................................................ 269 273 (6,399)
Change in assets and liabilities, net of effects of business combination:
Trade receivables.......................................................... (431) (3,440) 1,266
Inventories................................................................ (3,549) (4,180) 9,702
Prepared expenses.......................................................... (96) (15) (810)
Accounts payable........................................................... 1,911 745 (457)
Accrued expenses and other current liabilities............................. 1,070 (218) 7,246
Income taxes payable....................................................... (169) 140 7,141
Deferred income............................................................ -- 200 --
--------- --------- ---------
Net cash provided by (used in) operating activities...................... 5,760 (460) 26,682
--------- --------- ---------
Cash flows of investing activities:
Additions to property and equipment............................................ (4,399) (13,864) (7,327)
Payment for business acquisition (Note 1)...................................... -- -- (24,645)
Proceeds from sale of retail stores, collections on notes receivable, net of
closing costs................................................................ -- -- 11,749
Other.......................................................................... (188) -- 40
--------- --------- ---------
Net cash used in investing activities.................................... (4,587) (13,864) (20,183)
--------- --------- ---------
Cash flows of financing activities:
Book overdraft................................................................. -- 516 1,939
Borrowings (payments) on line of credit, net................................... (1,095) 6,487 (6,056)
Payments on subordinated note.................................................. -- (12,000)
Borrowings on long-term notes payable.......................................... -- 7,000 20,000
Debt issuance costs............................................................ -- -- (2,060)
Payments on long-term notes payable............................................ (163) -- (8,500)
Other.......................................................................... 53 87 178
--------- --------- ---------
Net cash provided by (used in) financing activities...................... (1,205) 14,090 (6,499)
--------- --------- ---------
Net decrease in cash............................................................. (32) (234) 0
Cash at beginning of period...................................................... 266 234 0
--------- --------- ---------
Cash at end of period............................................................ $ 234 $ 0 $ 0
--------- --------- ---------
--------- --------- ---------
</TABLE>
Continued
F-6
<PAGE>
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest, net of amount capitalized of $69 in 1994, $625 in 1995 and $244 in
1996............................................................................ $ 61 $ 273 $ 3,679
Income taxes...................................................................... 3,670 2,731 3,382
Business acquisition:
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Monaco Coach Corporation and its subsidiaries (the "Company") manufacture 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.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of recreational vehicles (i)
upon shipment or dealer/ customer pick-up (most of the dealers finance their
purchases under flooring arrangements with banks or finance companies; for these
sales, the flooring is completed before the vehicles are shipped), or (ii) when
the dealer has floor planned 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 19%, 17% and 7% of net revenues for the fiscal years ended
December 31, 1994, December 30, 1995 and December 28, 1996, respectively. Sales
to a second customer were approximately 28%, 23% and 9% of net revenues for the
fiscal years ended December 31, 1994, December 30, 1995 and December 28, 1996,
respectively. No other individual dealers represented over 10% of net revenues.
The loss of a significant dealer or a substantial decrease in sales by such a
dealer could have a material adverse effect on the Company's business, results
of operations and financial results.
Concentrations of credit risk exist for accounts receivable and repurchase
agreements (see Note 17), primarily for the Company's largest dealers. The
Company sells to dealers throughout the United States and there is no geographic
concentration of credit risk.
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.
F-8
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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. Holiday World retail
inventory, including new and used units, is valued at the lower of specific cost
or market.
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 $69 in 1994, $625 in 1995, and $48 in
1996. 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.
GOODWILL AND DEBT ISSUANCE COSTS
Goodwill represents the excess of the cost of acquisition over the fair
value of net assets acquired. The goodwill arising from the acquisition of the
assets and operations of the Company's Predecessor in March 1993 is being
amortized on a straight-line basis over 40 years and, at December 28, 1996, the
unamortized amount was $18,713. 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 December
28, 1996, the unamortized amount was $2,061. 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 $1,760 at December 28, 1996 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 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.
F-9
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ADVERTISING COSTS
The Company expenses advertising costs as incurred, except for prepaid show
costs which are expensed when the event takes place.
At December 30, 1995 and December 28, 1996, total advertising reported in
prepaid expenses was $185 and $51, respectively. During the fiscal year 1996,
approximately $5,483 ($1,136 in 1994 and $1,539 in 1995) of advertising costs
were expensed.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred and were
$3,205 for 1996. These costs were insignificant in 1995 and 1994.
2. HOLIDAY ACQUISITION:
On March 4, 1996, the Company acquired certain assets of the Holiday Rambler
LLC Recreational Vehicle Manufacturing Division ("Holiday Rambler") and ten
retail dealerships ("Holiday World") from an affiliate 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:
<TABLE>
<S> <C>
Cash, including transaction costs of $2,131........................ $ 24,645
Preferred stock (Note 9)........................................... 2,599
Subordinated debt.................................................. 12,000
---------
$ 39,244
---------
---------
</TABLE>
The purchase price was allocated to the assets acquired and liabilities
assumed based on estimated fair values at March 4, 1996, as follows:
<TABLE>
<S> <C>
Receivables....................................................... $ 9,536
Inventories....................................................... 61,269
Property and equipment............................................ 11,592
Prepaids and other assets......................................... 86
Assets held for sale.............................................. 7,499
Goodwill.......................................................... 2,161
Notes payable..................................................... (21,784)
Accounts payable.................................................. (16,851)
Accrued liabilities............................................... (14,264)
---------
$ 39,244
---------
---------
</TABLE>
The allocation of the purchase price and the related goodwill of $2,161 is
subject to adjustment upon resolution of preacquisition contingencies. The
effects of resolution of preacquisition contingencies occurring: (i) within one
year of the acquisition date will be reflected as an adjustment of the
allocation of
F-10
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
2. HOLIDAY ACQUISITION: (CONTINUED)
the purchase price and of goodwill, and (ii) after one year will be recognized
in the determination of net income.
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
$1,402, which has been reflected as an adjustment of goodwill. The remaining
three stores are still held for sale. The Company's 1996 results of operations
and cash flows include Holiday World for the period March 4, 1996 through
December 28, 1996, as the operating activities of Holiday World are not clearly
distinguishable from other continuing operations. Net sales of the Holiday World
retail stores subsequent to the purchase were approximately $25,000.
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 nor is it necessarily
indicative of future operating results.
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Net sales........................................................ $ 441,850 $ 419,440
Net income (loss)................................................ (5,376) 4,699
Earnings (loss) per common share................................. $ (1.15) $ 1.00
</TABLE>
3. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Raw materials.................................................... $ 8,069 $ 16,844
Work-in-process.................................................. 10,136 17,592
Finished units................................................... 1,386 3,998
Holiday World retail inventory................................... -- 8,496
------------ ------------
$ 19,591 $ 46,930
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Land............................................................. $ 1,708 $ 5,440
Buildings........................................................ 16,783 23,358
Equipment........................................................ 2,416 4,085
Furniture and fixtures........................................... 1,069 1,958
Vehicles......................................................... 106 748
Leasehold improvements........................................... 263 312
Construction in progress......................................... 276 5,542
------------ ------------
22,621 41,443
Less accumulated depreciation and amortization................... 1,034 3,134
------------ ------------
$ 21,587 $ 38,309
------------ ------------
------------ ------------
</TABLE>
5. NOTES RECEIVABLE:
The Company acquired notes receivable from 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 though September 2001. The
outstanding balance at December 28, 1996 was $1,700, with $1,064 expected to be
collected in 1997.
6. ACCRUED EXPENSES AND OTHER LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------- ------------
<S> <C> <C>
Payroll, vacation and related accruals........................... $ 1,100 $ 5,132
Payroll and property taxes....................................... 326 1,424
Provision for warranty claims.................................... 1,037 8,791
Provision for product liability claims........................... 100 4,507
Promotional and advertising...................................... 9 818
Other............................................................ 276 2,689
------ ------------
$ 2,848 $ 23,361
------ ------------
------ ------------
</TABLE>
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 $45,000,
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 0.5%. There were outstanding borrowings of $3,789 at December 28,
1996, with an effective interest rate of 9.5%. The weighted average interest
rate on the outstanding borrowings under the revolving line of credit at
December 28, 1996 was 10.8% (8.4% at December 30, 1995). The revolving line of
credit expires on
F-12
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
7. SHORT-TERM BORROWINGS: (CONTINUED)
March 1, 2001 and 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 (earnings before interest, taxes,
depreciation and amortization), interest coverage ratio, leverage ratio and
capital expenditures.
Holiday World retail stores have various flooring agreements outstanding to
finance retail inventory at the dealerships which amounted to $6,202 at December
28, 1996, with interest at the prime rate plus 1% (prime rate at December 28,
1996 was 8.25%). The loans are collateralized by the assets of a subsidiary.
8. LONG-TERM BORROWINGS:
The Company obtained a term loan of $20,000 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 December 28, 1996, there were outstanding
borrowings of $18,500, with $500 at an effective interest rate of 9.75% and
$18,000 at 8.59% 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:
<TABLE>
<S> <C>
1997............................................................... $ 2,000
1998............................................................... 3,750
1999............................................................... 5,000
2000............................................................... 5,500
2001............................................................... 2,250
---------
$ 18,500
---------
---------
</TABLE>
9. PREFERRED STOCK:
The Company has authorized "blank check" preferred stock (2,000,000 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
December 28, 1996, except as described below.
The Company has designated 100,000 shares of its Preferred Stock as
redeemable 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. Shares of Series A may be redeemed by its
holders at established dates at the stated value of $46 per share plus any
accrued but unpaid dividends. Dividends are cumulative and accrue annually at a
rate of $1.38 per share through February 28, 1997, at which time the dividend
rate may vary based on the average closing market price of
F-13
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
9. PREFERRED STOCK: (CONTINUED)
the Company's Common Stock for the thirty days prior to March 1, June 1,
September 1 and December 1. The rate for such period will be: (i) if such
average is less than $10 per share, $2.30 per share per annum, or (ii) if such
average is more than or equal to $10 per share, $1.38 per share per annum. The
holders of Series A have preference over holders of Common Stock as to payment
of dividends or in the event of liquidation. Each share of Series A is
convertible into approximately 3.54 shares of Common Stock.
The excess of redemption value over the carrying value of Series A is being
accreted by periodic charges to retained earnings. For the year ended December
28, 1996, the accretion charge was $84.
The accrual of Series A dividends was $75 ($70 was paid in 1996) for the
year ended December 28, 1996, the unpaid portion of which was included in the
carrying amount of preferred stock.
The holders of Series A may require the Company to redeem the holder's
outstanding shares at the stated value as follows:
<TABLE>
<S> <C>
March 4, 1998....................................................... $ 1,000
March 4, 1999....................................................... 1,500
March 4, 2000....................................................... 500
---------
$ 3,000
---------
---------
</TABLE>
In addition, the holders of Series A may accelerate their redemption rights
upon the occurrence of certain events, such as a secondary offering of the
Company's Common Stock or dispositions of substantially all of the Company's
assets. The redemption value is 100% of issue price plus any accumulated
dividends.
10. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal......................................... $ 2,774 $ 2,382 $ 8,563
State........................................... 733 464 1,998
------ ------ ------
3,507 2,846 10,561
Deferred:
Federal......................................... 219 211 (5,245)
State........................................... 50 62 (1,154)
------ ------ ------
Provision for income taxes.................... $ 3,776 $ 3,119 $ 4,162
------ ------ ------
------ ------ ------
</TABLE>
F-14
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
10. INCOME TAXES: (CONTINUED)
The reconciliation of the provision of income taxes at the U.S. federal
statutory rate to the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Expected U.S. federal income taxes at statutory
rates........................................... $ 3,304 $ 2,726 $ 3,525
State and local income taxes, net of federal
benefit......................................... 484 366 541
Other............................................. (12) 27 96
------ ------ ------
$ 3,776 $ 3,119 $ 4,162
------ ------ ------
------ ------ ------
</TABLE>
The components of the current net deferred tax asset and long-term net
deferred tax liability are:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------- -------------
<S> <C> <C>
Current deferred income tax assets:
Warranty liability............................................. $ 404 $ 3,519
Product liability.............................................. 40 1,802
Other accruals................................................. 56 1,454
Contingent dealer rebates...................................... 108 841
Payroll and related............................................ 85 781
Prepared expenses.............................................. (118) (119)
------ ------
$ 575 $ 8,278
------ ------
------ ------
Long-term deferred income tax liabilities:
Depreciation................................................... $ 206 $ 189
Amortization................................................... 1,277 2,598
------ ------
$ 1,483 $ 2,787
------ ------
------ ------
</TABLE>
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.
11. EARNINGS PER SHARE:
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 the Series A Convertible Preferred
F-15
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
11. EARNINGS PER SHARE: (CONTINUED)
Stock. The weighted average number of common shares used in the computation of
earnings per common share for the years ended December 31, 1994, December 30,
1995 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Primary:
Issued and outstanding shares (weighted
average)...................................... 4,397,282 4,407,327 4,422,187
Stock options................................... 72,452 66,056 52,604
------------ ------------ ------------
Weighted average number of shares............. 4,469,734 4,473,383 4,474,791
------------ ------------ ------------
------------ ------------ ------------
Fully Diluted:
Issued and outstanding shares (weighted
average)...................................... 4,397,282 4,407,327 4,422,187
Stock options................................... 75,816 67,902 66,419
Convertible preferred stock..................... -- -- 189,505
------------ ------------ ------------
Weighted average number of shares............. 4,473,098 4,475,229 4,678,111
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
12. LEASES:
The Company leases equipment under operating leases that expire May 1997 and
September 1998, respectively.
The Company leases administrative and production facilities under operating
leases that expire 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 31, 1994, December 30, 1995 and December 28,
1996 related to operating leases amounted to approximately $327, $375 and $570,
respectively.
Approximate future minimum rental commitments under these leases at December
28, 1996 are summarized as follows:
<TABLE>
<S> <C>
1997................................................................. $ 268
1998................................................................. 133
1999................................................................. 125
2000................................................................. 25
2001................................................................. 4
</TABLE>
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 31, 1994, December 30, 1995 and December 28, 1996 was $1,765,
$1,140 and $2,938, respectively.
F-16
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
14. STOCK PURCHASE PLANS:
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 1993 Employee Stock Purchase Plan (the "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 30, 1995 and December 28, 1996, 2,857 shares and
5,450 shares, respectively, were purchased under the Purchase Plan. The
weighted-average fair value of those purchase rights granted in 1995 and 1996
was $15.09 and $10.66, 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 or the last day 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 Company's 1993
Director's Option Plan (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 December 28,
1996, no options have been exercised and options to purchase 12,800 shares of
Common Stock were outstanding.
OPTION PLAN
The Company's 1993 Incentive Stock 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
F-17
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
14. STOCK PURCHASE PLANS: (CONTINUED)
under the Option Plan. As of December 28, 1996, options to purchase 186,196
shares of Common Stock were outstanding. These options vest over five years
commencing March 5, 1993, October 29, 1993, April 1, 1994, November 2, 1994,
April 1, 1995 and April 1, 1996, respectively. Options to purchase 6,935 and
14,128 shares of Common Stock at $3.35 per share were exercised during the years
ended December 30, 1995 and December 28, 1996, respectively.
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:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..................................... 141,884 $ 7.36 179,249 $ 9.68
Granted............................................................ 46,600 16.06 56,000 13.97
Exercised.......................................................... (6,935) 3.35 (14,128) 3.35
Forfeited.......................................................... (2,300) 14.92 (22,125) 10.26
--------- ----- --------- -----------
Outstanding at end of year........................................... 179,249 $ 9.68 198,996 $ 11.27
--------- ---------
--------- ---------
</TABLE>
The following table summarizes information about the stock options
outstanding at December 28, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
NUMBER OF WEIGHTED- NUMBER OF
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 28, CONTRACTUAL EXERCISE DECEMBER 28, EXERCISE
RANGE OF EXERCISE PRICES 1996 LIFE PRICE 1996 PRICE
- --------------------------------------------------------- ------------ --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$3.35.................................................... 59,546 6.3 $ 3.35 19,570 $ 3.35
$11.50-12.75............................................. 4,800 8.4 12.29 800 11.50
$13.00-15.00............................................. 84,550 8.3 13.96 10,950 13.75
$15.26-17.60............................................. 50,100 6.7 16.03 4,900 16.11
------------ ------
198,996 36,220
------------ ------
------------ ------
</TABLE>
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
F-18
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
14. STOCK PURCHASE PLANS: (CONTINUED)
No. 123, the Company's pro forma net income and pro forma earnings per share
would have been as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Net income--as reported.................................................... $ 4,898 $ 5,909
Net income--pro forma...................................................... 4,741 5,624
Earnings per share--as reported............................................ $ 1.09 $ 1.26
Earnings per share--pro forma.............................................. 1.07 1.20
</TABLE>
The pro forma effect on net income for 1995 and 1996 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:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Risk-free interest rate.................................................. 7.20% 6.33%
Expected life (in years)................................................. 7.50 7.50
Expected volatility...................................................... 60.60% 60.60%
Expected dividend yield.................................................. 0.00% 0.00%
</TABLE>
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. ln 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 15% of their regular monthly compensation or the statutory limit.
Company contributions to the plan totaled $370 in 1996 ($49 in 1995 and $40 in
1994).
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 $1,700 at December 28, 1996.
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 $7,000 and $18,500 at December 30, 1995 and
December 28, 1996, respectively.
SHORT-TERM BORROWINGS--The carrying amount outstanding against the revolving
line of credit is $9,845 and $3,789 at December 30, 1995 and December 28, 1996,
respectively, which approximates the estimated
F-19
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
fair value. The carrying amount on the various outstanding loans of $6,202 at
December 28, 1996 also approximates 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 such charge was recorded during the years ended
December 31, 1994, December 30, 1995 and December 28, 1996. The approximate
amount subject to contingent repurchase obligations arising from these
agreements at December 28, 1996 is $105,660. 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.
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. At December 28, 1996, chassis inventory, accounted for
as consigned inventory, approximated $3,000. No such obligation existed at
December 30, 1995.
WARRANTY AND PRODUCT LIABILITY
The Company is subject to regulations that 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
F-20
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
17. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
"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 material 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 1996, the Company began construction of a new manufacturing facility in
Indiana. The new facility is expected to be completed in 1997 at a total
estimated cost of $15,000. At December 28, 1996, the Company had incurred
approximately $5,000 in expenditures related to construction in progress on the
facility.
F-21
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
18. QUARTERLY RESULTS (UNAUDITED):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- ---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 30, 1995:
Net sales.......................................................... $ 38,015 $ 35,082 $ 36,726 $ 31,788
Gross profit....................................................... 5,342 4,650 3,255 3,772
Operating income before management fees and amortization........... 2,873 2,779 1,416 1,877
Operating income................................................... 2,726 2,632 1,269 1,728
Net income......................................................... 1,662 1,606 705 925
--------- ---------- ---------- ---------
Earnings per common share.......................................... $ 0.37 $ 0.36 $ 0.16 $ 0.20
--------- ---------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- ---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 28, 1996(A):
Net sales.......................................................... $ 61,964 $ 106,729 $ 102,065 $ 94,880
Gross profit....................................................... 6,727 12,408 14,944 13,650
Operating income before management fees and amortization........... 2,077 3,131 4,307 4,915
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:
Primary.......................................................... $ 0.14 $ 0.19 $ 0.42 $ 0.53
Fully diluted.................................................... $ 0.14 $ 0.19 $ 0.42 $ 0.51
--------- ---------- ---------- ---------
</TABLE>
- ------------------------
(a) Includes results of operations of Holiday Rambler and Holiday World after
March 4, 1996.
F-22
<PAGE>
MONACO COACH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 28,
1996
------------ MARCH 29,
1997
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Trade receivables................................................................... $ 14,891 $ 27,642
Inventories......................................................................... 46,930 45,249
Prepaid expenses.................................................................... 1,343 532
Deferred tax assets................................................................. 8,278 8,278
Notes receivable.................................................................... 1,064 177
Assets held for sale................................................................ 1,383 908
------------ -----------
Total current assets.............................................................. 73,889 82,786
Notes receivable...................................................................... 636 2,093
Debt issuance costs, net of accumulated amortization of $343 and $446, respectively... 1,760 1,666
Property, plant and equipment, net.................................................... 38,309 41,589
Goodwill, net of accumulated amortization of $2,084 and $2,243, respectively.......... 20,774 21,014
Other................................................................................. -- 41
------------ -----------
Total assets...................................................................... $ 135,368 $ 149,189
------------ -----------
------------ -----------
LIABILITIES
Current liabilities:
Book overdraft...................................................................... $ 2,455 $ 6,150
Short-term borrowings............................................................... 9,991 15,454
Current portion of long-term note payable........................................... 2,000 2,250
Accounts payable.................................................................... 24,218 28,322
Accrued expenses and other liabilities.............................................. 23,361 25,318
Income taxes payable................................................................ 7,362 3,486
------------ -----------
Total current liabilities......................................................... 69,387 80,980
Deferred income....................................................................... 200 200
Note payable, less current portion.................................................... 16,500 15,875
Deferred tax liability................................................................ 2,787 2,871
------------ -----------
88,874 99,926
------------ -----------
Redeemable convertible preferred stock, redemption value of $3,005.................... 2,687 2,735
------------ -----------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 20,000,000 shares authorized, 4,438,217 shares
(4,430,467 shares at December 28, 1996) issued and outstanding...................... 44 44
Additional paid-in capital............................................................ 25,430 25,504
Retained earnings..................................................................... 18,333 20,980
------------ -----------
Total stockholders' equity........................................................ 43,807 46,528
------------ -----------
Total liabilities and stockholders' equity........................................ $ 135,368 $ 149,189
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-23
<PAGE>
MONACO COACH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 30, MARCH 29,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net sales............................................................................. $ 61,964 $ 109,023
Cost of sales......................................................................... 55,237 93,981
------------ ------------
Gross profit........................................................................ 6,727 15,042
Selling, general and administrative expenses.......................................... 4,650 9,476
Management fees....................................................................... 18 18
Amortization of goodwill.............................................................. 129 159
------------ ------------
Operating income.................................................................... 1,930 5,389
Other (income), net................................................................... (7) (39)
Interest expense...................................................................... 863 821
------------ ------------
Income before income taxes.......................................................... 1,074 4,607
Provision for income taxes............................................................ 440 1,912
------------ ------------
Net income.......................................................................... 634 2,695
Preferred stock dividends............................................................. -- (23)
Accretion of redeemable preferred stock............................................... -- (25)
------------ ------------
Net income attributable to common stock............................................. $ 634 $ 2,647
------------ ------------
------------ ------------
Earnings per common share:
Primary............................................................................. $ .14 $ .59
Fully Diluted....................................................................... $ .14 $ .57
Weighted average shares outstanding:
Primary............................................................................. 4,465,903 4,516,215
Fully Diluted....................................................................... 4,540,236 4,747,083
</TABLE>
See accompanying notes.
F-24
<PAGE>
MONACO COACH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 30, MARCH 29,
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Increase (Decrease) in Cash:
Cash flows from operating activities:
Net income.............................................................................. $ 634 $ 2,695
Adjustments to reconcile net income to net cash provided by (used in) by operating
activities:
Depreciation and amortization......................................................... 566 786
Deferred income taxes................................................................. 84 84
Changes in working capital accounts, net of effect of business acquisition and sale of
retail stores:
Trade receivables................................................................... (4,637) (12,735)
Inventories......................................................................... 8,592 (611)
Prepaid expenses.................................................................... (84) 811
Accounts payable.................................................................... 3,880 4,104
Accrued expenses and other current liabilities...................................... 1,129 1,957
Income taxes payable................................................................ 172 (3,876)
---------- ----------
Net cash provided by (used in) operating activities............................... 10,336 (6,785)
---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment.............................................. (329) (3,780)
Payment for business acquisition (see note 2)........................................... (25,350) --
Proceeds from sale of retail stores, collections on notes receivable, net of closing
costs................................................................................. -- 206
---------- ----------
Net cash used in investing activities................................................. (25,679) (3,574)
---------- ----------
Cash flows from financing activities:
Book overdraft.......................................................................... (516) 3,695
Borrowings on lines of credit, net...................................................... 5,837 7,483
Payments on floor financing, net........................................................ (356) (468)
Borrowings on long-term notes payable................................................... 20,000 --
Debt issuance costs..................................................................... (2,024) --
Payments on long-term notes............................................................. (7,000) (375)
Other................................................................................... 37 24
---------- ----------
Net cash provided by financing activities............................................. 15,978 10,359
---------- ----------
Net increase in cash...................................................................... 635 0
Cash at beginning of period............................................................... 0 0
---------- ----------
Cash at end of period..................................................................... $ 635 $ 0
---------- ----------
---------- ----------
Supplemental disclosure
Amount of capitalized interest.......................................................... 34 146
</TABLE>
See accompanying notes.
F-25
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
The interim financial statements have been prepared by Monaco Coach
Corporation (the "Company") without audit. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of December 28, 1996 and
March 29, 1997, and the results of operations and cash flows of the Company for
the quarters ended March 30, 1996 and March 29, 1997. The condensed consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiary, and all significant intercompany accounts and transactions have been
eliminated in consolidation. These interim financial statements should be read
in conjunction with the audited financial statements and notes thereto appearing
in the Company's Annual Report to Stockholders for the year ended December 28,
1996.
2. HOLIDAY ACQUISITION
On March 4, 1996, the Company acquired certain assets of the Holiday Rambler
LLC Recreational Vehicle Manufacturing Division ("Holiday Rambler") and ten
retail dealerships ("Holiday World") from an affiliate of Harley-Davidson, Inc.
("Harley-Davidson"). The acquisition (the "Holiday Acquisition") was accounted
for as a purchase.
The purchase price for Holiday Rambler and Holiday World was comprised of:
<TABLE>
<S> <C>
Cash, including transaction costs of $2,131, net of $836
received from Harley-Davidson................................ $ 24,645
Preferred stock................................................ 2,599
Subordinated debt.............................................. 12,000
-----------
$ 39,244
-----------
-----------
</TABLE>
The purchase price was allocated to the net assets acquired based on
estimated fair values at March 4, 1996, as follows:
<TABLE>
<S> <C>
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
-----------
-----------
</TABLE>
The allocation of the purchase price and the related goodwill of $2,161 was
subject to adjustment upon resolution of pre-Holiday Acquisition contingencies.
The effects of resolution of pre-Holiday Acquisition contingencies occuring: (i)
within one year of the acquisition date were reflected as an
F-26
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
2. HOLIDAY ACQUISITION (CONTINUED)
adjustment of the allocation of the purchase price and of goodwill, and (ii)
after one year will be recognized in the determination of net income.
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
$1,402, which has been reflected as an adjustment of goodwill. One store was
sold during the first quarter of 1997 at a loss of $399, which also has adjusted
goodwill. The remaining two stores are held for sale. 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 quarters ended March 30, 1996 and March 29, 1997
were $9.6 million and $2.9 million, respectively.
The following unaudited pro forma information presents the consolidated
results as if the Holiday Acquisition had occurred at the beginning of the
quarter 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 actual results that would have occurred
nor is it necessarily indicative of future operating results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 30, 1996
-------------------
<S> <C>
Net sales................................................................ $ 115,766
Net loss................................................................. 733
Loss per common share.................................................... 0.16
</TABLE>
3. INVENTORIES
Inventories are stated at lower of cost (first-in, first-out) or market. The
composition of inventory is as follows:
<TABLE>
<CAPTION>
DECEMBER 28, MARCH 29,
1996 1997
------------ -----------
<S> <C> <C>
Raw materials....................................................... $ 16,844 $ 15,945
Work-in-process..................................................... 17,592 17,139
Finished units...................................................... 3,998 6,449
Holiday World retail inventory...................................... 8,496 5,716
------------ -----------
$ 46,930 $ 45,249
------------ -----------
------------ -----------
</TABLE>
4. GOODWILL
Goodwill represents the excess of the cost of acquisition over the fair
value of net assets acquired. 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 March 29, 1997, the
unamortized amount was $18.6 million. The goodwill arising from the Holiday
Acquisition is being amortized on a straight-line basis over 20 years; at March
29, 1997 the unamortized amount was $2.4
F-27
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
4. GOODWILL (CONTINUED)
million. 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.
5. SHORT-TERM BORROWINGS
In connection with the Holiday Acquisition, the Company replaced its bank
line of credit with new credit facilities consisting, in part, of a revolving
line of credit of up to $45,000, 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 0.5%. There were outstanding
borrowings of approximately $11,272 at March 29, 1997. The revolving line of
credit expires March 1, 2001 and is collateralized by all the assets of the
Company. The newly acquired Holiday World subsidiary has various loans
outstanding to finance retail inventory at the dealerships which amounted to
approximately $4,182 at March 29, 1997, which bear interest at various rates
based on the prime rate and are collateralized by the assets of the subsidiary.
6. LONG-TERM BORROWINGS
The Company has a term loan of $18,125 outstanding as of March 29, 1997
which was obtained in connection with the Holiday Acquisition. The term loan
bears interest at various rates based on the Company's interest coverage ratio,
and expires on March 1, 2001. The term loan requires monthly interest payments,
quarterly principal payments and certain mandatory prepayments, and is
collateralized by all the assets of the Company.
7. EARNINGS PER SHARE
Earnings per 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. Common shares issued and options
granted by the Company are considered outstanding for the period presented,
using the treasury stock method. The weighted average number of common shares
used in the computation of earnings per common share are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 30, 1996 MARCH 29, 1997
---------------------- ----------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Issued and outstanding (weighted
average)................................ 4,414,254 4,414,254 4,435,703 4,435,703
Stock options............................. 51,649 60,020 80,512 80,512
Convertible preferred stock............... 65,962 -- 230,868
---------- ---------- ---------- ----------
4,465,903 4,540,236 4,516,215 4,747,083
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-28
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
8. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share", which is
required to be adopted for periods ending after December 15, 1997. The following
table presents unaudited pro forma earnings per share, calculated in accordance
with the provisions of this new standard:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MARCH 30, 1996 MARCH 29, 1997
----------------- -----------------
<S> <C> <C>
Basic........................................................ $ .14 $ .60
Diluted...................................................... $ .14 $ .57
</TABLE>
9. 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 dealers 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 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. The Company does not anticipate any significant
losses will be incurred under these agreements in the foreseeable future.
LITIGATION
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. In addition, in connection with
the Holiday Acquisition, the Company assumed most of the liabilities of that
business, including product liability and warranty claims. The Company does not
believe that the outcome of its pending legal proceedings, in excess of
insurance coverage and accruals recorded for estimated settlements, will have a
material adverse effect on the business, financial condition or results of
operations of the Company.
OTHER COMMITMENTS
In 1996, the Company began construction of a new manufacturing facility in
Wakarusa, Indiana. The new facility is expected to be completed in 1997 at a
total estimated cost of $15 million. At March 29, 1997, the Company had incurred
approximately $8.2 million in expenditures related to construction in progress
on the facility.
10. SUBSEQUENT EVENT
On March 19, 1997, the Company filed a registration statement with the
United States Securities and Exchange Commission to register for sale to the
public 800,000 shares of its Common Stock. The Company intends to use a portion
of the net proceeds from the offering to retire the outstanding balance under
its revolving line of credit. The balance of the proceeds are expected to be
used for working capital and general corporate purposes.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Harley-Davidson, Inc.
We have audited the accompanying combined balance sheets of Holiday Rambler
LLC Recreational Vehicle Manufacturing Division and certain Holiday World Retail
Operations (as described in Note 1) as of December 31, 1994 and 1995, and the
related combined statements of operations and deficiency in net assets and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the management of Holiday Rambler
LLC. 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.
The Recreational Vehicle Manufacturing Division and Holiday World Retail
Operations are part of Holiday Rambler LLC, which is ultimately a wholly owned
subsidiary of Harley-Davidson, Inc. As more fully described in Note 8, the
Recreational Vehicle Manufacturing Division has significant notes payable to
Harley-Davidson, Inc.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Holiday
Rambler LLC Recreational Vehicle Manufacturing Division and certain Holiday
World Retail Operations at December 31, 1994 and 1995, and the combined results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
January 20, 1996
F-30
<PAGE>
HOLIDAY RAMBLER LLC RECREATIONAL VEHICLE MANUFACTURING DIVISION
AND CERTAIN HOLIDAY WORLD RETAIL OPERATIONS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 2,200 $ 675
Accounts Receivable, net of allowance for doubtful accounts (NOTE 3).................... 18,052 14,665
Inventories (NOTE 3).................................................................... 64,264 61,893
Deferred income taxes................................................................... 6,302 4,764
Prepaid expenses........................................................................ 615 535
---------- ----------
Total current assets.................................................................. 91,433 82,532
Due from affiliates (NOTE 8).............................................................. 7,832 --
Property, plant and equipment, at cost, less accumulated depreciation (NOTE 3)............ 32,851 33,430
Other assets.............................................................................. 1,729 2,254
---------- ----------
$ 133,845 $ 118,216
---------- ----------
---------- ----------
LIABILITIES AND DEFICIENCY IN NET ASSETS
Current liabilities:
Notes payable (NOTE 4).................................................................. $ 12,718 $ 17,225
Accounts payable........................................................................ 20,541 12,926
Accrued expenses and other liabilities.................................................. 16,026 17,005
---------- ----------
Total current liabilities............................................................. 49,285 47,156
Due to Harley-Davidson, Inc. (NOTE 8)..................................................... 102,259 93,466
Deferred income taxes..................................................................... -- 666
Due to affiliates (NOTE 8)................................................................ -- 4,587
Commitments and contingencies (NOTE 6).................................................... -- --
Deficiency in net assets (NOTES 1 AND 8).................................................. (17,699) (27,659)
---------- ----------
$ 133,845 $ 118,216
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-31
<PAGE>
HOLIDAY RAMBLER LLC RECREATIONAL VEHICLE MANUFACTURING DIVISION
AND CERTAIN HOLIDAY WORLD RETAIL OPERATIONS
COMBINED STATEMENTS OF OPERATIONS AND DEFICIENCY IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................................... $ 190,980 $ 271,474 $ 300,239
Cost of goods sold........................................................... 162,050 230,678 258,796
---------- ---------- ----------
Gross margin................................................................. 28,930 40,796 41,443
Selling and administrative expenses.......................................... 40,145 42,757 47,426
Goodwill charges (NOTE 2).................................................... 46,401 -- --
---------- ---------- ----------
Loss from operations......................................................... (57,616) (1,961) (5,983)
Other income................................................................. 598 537 542
Interest expense............................................................. (13,635) (9,920) (9,591)
---------- ---------- ----------
Loss before income tax benefit............................................... (70,653) (11,344) (15,032)
Income tax benefit (NOTE 5).................................................. 8,250 6,093 5,072
---------- ---------- ----------
Net loss..................................................................... (62,403) (5,251) (9,960)
Deficiency in net assets, beginning of year.................................. (14,277) (76,680) (17,699)
Capital contribution (NOTE 8)................................................ -- 64,232 --
---------- ---------- ----------
Deficiency in net assets, end of year........................................ $ (76,680) $ (17,699) $ (27,659)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-32
<PAGE>
HOLIDAY RAMBLER LLC RECREATIONAL VEHICLE MANUFACTURING DIVISION
AND CERTAIN HOLIDAY WORLD RETAIL OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................................................... $ (62,403) $ (5,251) $ (9,960)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................ 5,375 3,237 2,728
Deferred income taxes........................................................ 90 (6,750) 2,204
Write-off of goodwill........................................................ 46,401 -- --
Changes in operating assets and liabilities:
Receivables................................................................ 7,799 (10,597) 3,387
Inventories................................................................ (7,213) (20,324) 2,371
Prepaid expenses and other assets.......................................... 1,601 (500) (445)
Accounts payable and accrued expenses...................................... 16,025 11,412 (6,636)
---------- ---------- ---------
Total adjustments.............................................................. 70,078 (23,522) 3,609
---------- ---------- ---------
Net cash provided by (used in) operating activities............................ 7,675 (28,773) (6,351)
INVESTING ACTIVITIES
Capital expenditures........................................................... (944) (1,363) (3,307)
Other.......................................................................... 673 -- --
---------- ---------- ---------
Net cash used in investing activities.......................................... (271) (1,363) (3,307)
FINANCING ACTIVITIES
Net change in notes payable.................................................... (527) 46 4,507
Net change in due to Harley-Davidson, Inc...................................... (280) 20,413 (8,793)
Other.......................................................................... 77 (126) --
Net change in due to/from affiliates........................................... (9,824) 11,166 12,419
---------- ---------- ---------
Net cash provided by (used in) financing activities............................ (10,554) 31,499 8,133
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents........................... (3,150) 1,363 (1,525)
Cash and cash equivalents at beginning of year................................. 3,987 837 2,200
---------- ---------- ---------
Cash and cash equivalents at end of year....................................... $ 837 $ 2,200 $ 675
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes.
F-33
<PAGE>
HOLIDAY RAMBLER LLC RECREATIONAL VEHICLE MANUFACTURING DIVISION
AND CERTAIN HOLIDAY WORLD RETAIL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. BASIS OF PRESENTATION
On January 21, 1996, an asset purchase agreement was entered into between
Harley-Davidson, Inc. ("Harley-Davidson"), Holiday Rambler LLC and State Road
Properties L.P. (collectively, the "Company") and Monaco Coach Corporation
("Monaco") wherein Monaco agreed to purchase certain assets and liabilities of
Holiday Rambler LLC's Recreational Vehicle Manufacturing Division and certain
real estate owned by State Road Properties L.P. In addition, Monaco signed a
letter of intent to purchase certain assets and liabilities of the retail sales
operation of Holiday World Stores, a subsidiary of Holiday Holding Corp. Holiday
Rambler LLC and Holiday Holding Corp. are ultimately wholly owned by
Harley-Davidson. State Road Properties L.P. is 67% ultimately owned by
Harley-Davidson.
The purpose of the combined financial statements is to present the
historical financial position and results of operations of the businesses Monaco
intends to purchase. Accordingly, the accompanying combined financial statements
include the accounts of the Holiday Rambler LLC Recreational Vehicle
Manufacturing Division, certain real estate used in the Holiday Rambler
operations which is owned by State Road Properties, L.P. and ten retail sales
operations. These retail sales operations are located in Elkhart, Indiana;
Everett, Washington; Tacoma, Washington; Houston, Texas (North and South
operations); Mesquite, Texas; Camarillo, California; Leesburg, Florida;
Albuquerque, New Mexico; and Portland, Oregon.
Although the Company is owned by nontaxable pass-through entities, because
the entities' operations were included in Harley-Davidson's consolidated federal
tax return, all tax accounts are presented as if the Company were taxable.
The combined financial statements are not intended to be complete
presentations of the consolidated financial statements of Holiday Rambler LLC.
All significant interdivisional accounts and transactions are eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Holiday Rambler LLC Recreational Vehicle Manufacturing Division produces
and distributes recreational motor vehicles, which are sold through dealers,
including Holiday World retail operations.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash and cash equivalents, trade
receivables and notes payable, the carrying values of which are considered to
approximate their respective fair values.
F-34
<PAGE>
HOLIDAY RAMBLER LLC RECREATIONAL VEHICLE MANUFACTURING DIVISION
AND CERTAIN HOLIDAY WORLD RETAIL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market. All inventories are
valued using the last-in, first-out (LIFO) method except for used recreational
vehicles and other miscellaneous inventories ($8.1 million in 1994 and $9.9
million in 1995), which are valued using the first-in, first-out (FIFO) method.
DEPRECIATION
Depreciation of plant and equipment is determined on the straight-line basis
over the estimated useful lives of the assets. Accelerated methods are used for
income tax purposes.
PRODUCT WARRANTY
Product warranty costs are charged to operations as revenues are recorded
based upon the estimated historical warranty cost per unit sold.
GOODWILL
During 1993, Holiday Rambler LLC recorded a $46.4 million charge to
operations resulting from the write-off of the remaining goodwill associated
with the purchase of Holiday Rambler LLC by Harley-Davidson in 1986. Since 1986,
the markets in which Holiday Rambler LLC operates have become increasingly
competitive, resulting in lower profitability than initially anticipated.
Holiday Rambler LLC considered these factors, as well as estimated future
operating results, during the fourth quarter of 1993 in concluding that an
impairment had occurred. The Company measured the impairment and, based on the
results of that measurement, recorded a $46.4 million charge against earnings.
In measuring the impairment, Holiday Rambler LLC calculated the discounted value
of its estimated cash flows, over the approximate remaining goodwill
amortization period, using a targeted cost of capital discount rate.
Prior to its write-off in 1993, goodwill was being amortized over 25 years
using the straight-line method.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ENVIRONMENTAL LIABILITIES
Environmental loss contingencies are accrued when it is probable that a
liability has been incurred and the amount can be reasonably estimated.
Environmental loss contingencies are not believed to be material to the
financial position of the combined operations at December 31, 1995.
F-35
<PAGE>
HOLIDAY RAMBLER LLC RECREATIONAL VEHICLE MANUFACTURING DIVISION
AND CERTAIN HOLIDAY WORLD RETAIL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
3. ADDITIONAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Allowance for doubtful accounts included in accounts receivable......... $ 162 $ 212
--------- ---------
--------- ---------
Inventories:
Components at the lower of FIFO cost, or market:
Raw materials....................................................... $ 17,074 $ 15,699
Work in process..................................................... 12,461 8,285
Finished goods...................................................... 38,171 42,710
--------- ---------
67,706 66,694
Excess of FIFO over LIFO inventories.................................... 3,442 4,801
--------- ---------
$ 64,264 $ 61,893
--------- ---------
--------- ---------
Property, plant and equipment:
Land.................................................................. $ 9,657 $ 9,565
Buildings and improvements............................................ 20,897 23,581
Machinery and equipment............................................... 21,150 21,985
--------- ---------
51,704 55,131
Less accumulated depreciation......................................... 18,853 21,701
--------- ---------
Total............................................................. $ 32,851 $ 33,430
--------- ---------
--------- ---------
Accrued expenses and other liabilities:
Payroll, bonuses and related expenses................................. $ 5,864 $ 4,636
Dealer incentives..................................................... 1,935 2,101
Other taxes........................................................... 1,610 1,827
Product liability..................................................... 1,277 1,707
Product warranty...................................................... 2,303 3,561
Interest.............................................................. 115 166
Other current liabilities............................................. 2,922 3,007
--------- ---------
Total............................................................. $ 16,026 $ 17,005
--------- ---------
--------- ---------
</TABLE>
4. NOTES PAYABLE
Notes payable represent floor plan obligations of the Holiday World retail
operations which are secured by specific units held for sale (approximately
$20.3 million of finished goods inventory at December 31, 1995). The floor plan
obligations are primarily with Eaglemark Financial Services, Inc., which is a
wholly owned subsidiary of Harley-Davidson.
F-36
<PAGE>
HOLIDAY RAMBLER LLC RECREATIONAL VEHICLE MANUFACTURING DIVISION
AND CERTAIN HOLIDAY WORLD RETAIL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
5. INCOME TAXES
Deferred income taxes result from timing differences in the recognition of
revenues and expenses for financial statements and tax returns. The principal
sources of these differences and the related effect of each on the provision
(benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accruals not yet deductible.............................................. $ 1,511 $ 2,188
Legal reorganization..................................................... 2,912 --
Inventory adjustments.................................................... 691 940
Other, net............................................................... 1,188 1,636
--------- ---------
6,302 4,764
Deferred tax liabilities:
Fixed assets, book tax basis difference.................................. -- (666)
--------- ---------
Net deferred tax asset................................................. $ 6,302 $ 4,098
--------- ---------
--------- ---------
</TABLE>
The income tax benefit differs from the amount which would be provided by
applying the statutory U.S. corporate income tax rate due to the following
items:
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Benefit at statutory rate.................................... $ (24,729) $ (3,970) $ (5,151)
Write-off of goodwill........................................ 16,251 -- --
Legal reorganization......................................... -- (2,282) --
Other........................................................ 228 159 79
---------- --------- ---------
Income tax benefit........................................... $ (8,250) $ (6,093) $ (5,072)
---------- --------- ---------
---------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax benefit:
Current.................................................... $ (5,118) $ 657 $ (7,276)
Deferred................................................... (3,132) (6,750) 2,204
---------- --------- ---------
$ (8,250) $ (6,093) $ (5,072)
---------- --------- ---------
---------- --------- ---------
</TABLE>
The Company's 1994 tax provision includes a one-time benefit of $2.3 million
related to the legal reorganization of the Company.
6. COMMITMENTS AND CONTINGENCIES
At December 31, 1995, Holiday Rambler LLC estimates that it is contingently
liable under repurchase agreements for an approximate maximum of $76.9 million
to lending institutions that provide wholesale
F-37
<PAGE>
HOLIDAY RAMBLER LLC RECREATIONAL VEHICLE MANUFACTURING DIVISION
AND CERTAIN HOLIDAY WORLD RETAIL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
floor plan financing to its dealers. These agreements are customary in the
recreational vehicle industry. Holiday Rambler LLC's loss exposure on repurchase
is limited to the difference between the net realized resale value of the
vehicle and the amount required to be paid to the lending institution at the
time of repurchase.
Holiday Rambler LLC has not incurred any material losses from the repurchase
or guaranty agreements and currently anticipates no material losses.
Various claims and litigation are pending, including claims with respect to
warranties and product liability. Prior to June 30, 1995, product liability
losses were fully self-insured. Beginning on July 1, 1995, product liability
losses in the United States are self-insured up to $3 million (catastrophic
coverage is maintained for individual claims in excess of $3 million, up to $25
million). Holiday Rambler LLC accrues for claim exposures which are probable of
occurrence and can be reasonably estimated.
7. EMPLOYEE RETIREMENT PLAN
Holiday Rambler LLC sponsors a retirement plan (the "Plan") covering
substantially all full-time employees. The Plan is funded partly by employee
wage deferrals in accordance with Section 401(k) of the Internal Revenue Code.
Holiday Rambler LLC matches employee contributions up to 3% of compensation.
Matching is discretionary and subject to certain net worth measurements. Holiday
Rambler LLC's contributions for 1993, 1994 and 1995 were $0 million, $1.0
million and $1.1 million, respectively.
8. RELATED-PARTY TRANSACTIONS
The Company has amounts due to Harley-Davidson, its parent company, of
$107.1 million and $98.3 million at December 31, 1994 and 1995, respectively.
Interest is charged at rates between 9% and 10%. Interest expense on this debt
was $12.7 million, $8.4 million and $9.0 million for the years ended 1993, 1994
and 1995, respectively. During 1994, Harley-Davidson contributed capital of
$64.2 million to the Company in the form of debt forgiveness in a non-cash
transaction.
The Company provides management information systems, human resources and
other administrative services to certain affiliated entities. Certain affiliated
companies transfer all excess operating cash to the Company. The net advances
to/from affiliates represents the net of the operating cash transfers with the
affiliates. These advances are non-interest-bearing. General and administrative
costs of $1.2 million, $1.2 million and $1.4 million for the years ended 1993,
1994 and 1995, respectively, have been allocated to the affiliated entities and
are, therefore, not included in the general and administrative costs presented
in these financial statements.
F-38
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 12
Dividend Policy................................ 12
Price Range of Common Stock.................... 12
Capitalization................................. 13
Selected Historical Consolidated Financial
Data......................................... 14
Unaudited Pro Forma Combined Statements of
Income....................................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 18
Business....................................... 25
Management..................................... 38
Principal and Selling Stockholders............. 41
Description of Capital Stock................... 44
Shares Eligible for Future Sale................ 46
Underwriting................................... 47
Legal Matters.................................. 48
Experts........................................ 48
Available Information.......................... 48
Incorporation of Certain Documents By
Reference.................................... 49
Index to Financial Statements.................. F-1
</TABLE>
1,700,000 SHARES
[LOGO]
COMMON STOCK
------
PROSPECTUS
JUNE 17, 1997
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SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
A.G. EDWARDS & SONS, INC.
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