<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended: September 27, 1997
------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period from to
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Commission File Number: 0-22256
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MONACO COACH CORPORATION
Delaware 35-1880244
(State of Incorporation) (I.R.S. Employer
Identification No.)
91320 Industrial Way
Coburg, Oregon 97408
(Address of principal executive offices)
Registrant's telephone number, including area code (541) 686-8011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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The number of shares outstanding of common stock, $.01 par value, as of
September 27, 1997: 5,493,523
<PAGE>
MONACO COACH CORPORATION
FORM 10-Q
SEPTEMBER 27, 1997
INDEX
Page
PART I - FINANCIAL INFORMATION Reference
- ----------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Balance Sheets as of 4
December 28, 1996 and September 27, 1997.
Condensed Consolidated Statements of Income 5
for the quarter ended September 28, 1996 and
September 27, 1997 and for the nine months ended
September 28, 1996 and September 27, 1997.
Condensed Consolidated Statements of Cash 6
Flows for the nine months ended September 28, 1996
and September 27, 1997.
Notes to Condensed Consolidated Financial Statements. 7 - 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 11 - 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 19
MARKET RISK.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS. 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 20
SIGNATURES 21
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE>
MONACO COACH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED: DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, SEPTEMBER 27,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Trade receivables $ 14,891 $ 29,848
Inventories 46,930 42,697
Prepaid expenses 1,343 214
Deferred tax assets 8,278 8,978
Notes receivable 1,064 1,617
Assets held for sale 1,383 0
---------- ----------
Total current assets 73,889 83,354
Notes receivable 636 2,021
Debt issuance costs, net of accumulated amortization
of $343 and $652, respectively 1,760 1,463
Property, plant and equipment, net 38,309 50,911
Goodwill, net of accumulated amortization of $2,084
and $2,574, respectively 20,774 20,683
Total assets $ 135,368 $ 158,432
---------- ----------
---------- ----------
LIABILITIES
Current liabilities:
Book overdraft $ 2,455 $ 6,136
Short-term borrowings 9,991 3,548
Current portion of long-term note payable 2,000 3,125
Accounts payable 24,218 30,021
Accrued expenses and other liabilities 23,361 26,395
Income taxes payable 7,362 736
---------- ----------
Total current liabilities 69,387 69,961
Deferred income 200 200
Notes payable, less current portion 16,500 14,000
Deferred tax liability 2,787 3,472
---------- ----------
88,874 87,633
---------- ----------
Redeemable convertible preferred stock 2,687
----------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 20,000,000 shares
authorized, 5,493,523 shares (4,430,467 shares
at December 28, 1996) issued and outstanding 44 55
Additional paid-in capital 25,430 44,100
Retained earnings 18,333 26,644
---------- ----------
Total stockholders' equity 43,807 70,799
---------- ----------
Total liabilities and stockholders' equity $ 135,368 $ 158,432
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
4
<PAGE>
MONACO COACH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED: DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------- -------------------------
SEP 28, SEP 27, SEP 28, SEP 27,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 102,065 $ 105,796 $ 270,758 $ 320,799
Cost of sales 87,121 91,712 236,679 277,353
---------- ---------- ---------- -----------
Gross profit 14,944 14,084 34,079 43,446
Selling, general and administrative expenses 10,637 8,546 24,563 26,826
Management fees 18 18 54 54
Amortization of goodwill 180 159 489 478
---------- ---------- ---------- -----------
Operating income 4,109 5,361 8,973 16,088
Other expense (income), net (96) (40) (145) (118)
Interest expense 881 537 3,160 1,924
Gain on Sale of Dealership assets (539) (539)
---------- ---------- ---------- -----------
Income before income taxes 3,324 5,403 5,958 14,821
Provision for income taxes 1,367 2,244 2,473 6,152
---------- ---------- ---------- -----------
Net income 1,957 3,159 3,485 8,669
Preferred stock dividends (39) (89) (41)
Accretion of redeemable preferred stock (24) (57) (317)
---------- ---------- ---------- -----------
Net income attributable to
common stock $ 1,894 $ 3,159 $ 3,339 $ 8,311
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Earnings per common share:
Primary $ .42 $ .56 $ .75 $ 1.69
Fully diluted (see note 7) $ .42 $ .56 $ .75 $ 1.71
Weighted average common shares outstanding:
Primary 4,477,423 5,593,174 4,471,894 4,923,571
Fully diluted 4,708,443 5,593,631 4,650,574 5,084,020
</TABLE>
See accompanying notes.
5
<PAGE>
MONACO COACH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED: DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
SEP 28, SEP 27,
1996 1997
---------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities:
Net income $ 3,485 $ 8,669
Adjustments to reconcile net income to net cash
generated (used) by operating activities:
Gain on sale of retail stores (539)
Depreciation and amortization 2,249 2,556
Deferred income taxes 225 (15)
Changes in working capital accounts, net of effect
of business acquisition and sale of retail stores:
Trade receivables (6,178) (14,962)
Inventories 15,862 1,934
Prepaid expenses (967) 1,129
Accounts payable 865 5,803
Accrued expenses and other current liabilities 7,314 2,989
Income taxes payable 425 (6,626)
--------- ---------
Net cash provided by operating activities 23,280 938
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (1,920) (14,312)
Payment for business acquisition (see note 2) (24,728)
Proceeds from sale of retail stores, collections on notes
receivable, net of closing costs 9,866 288
--------- ---------
Net cash used in investing activities (16,782) (14,024)
--------- ---------
Cash flows from financing activities:
Book overdraft 5,330 3,681
Payments on lines of credit, net (8,633) (241)
Payments on subordinated note (12,000)
Advances (payments) on floor financing, net (1,834) (4,650)
Borrowings on long-term notes payable 17,940
Debt issuance costs (10)
Payments on long-term notes payable (7,375) (1,375)
Issuance of common stock 74 16,326
Cost to issue shares of common stock (645)
Net cash (used in)/provided by financing activities (6,498) 13,086
--------- ---------
Net increase in cash 0 0
Cash at beginning of period 0 0
--------- ---------
Cash at end of period $ 0 $ 0
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE
Amount of capitalized interest $ 196 $ 554
Conversion of preferred stock to common stock 3,000
</TABLE>
See accompanying notes.
6
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim condensed consolidated 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, consisting only of normal
recurring adjustments, to present fairly the financial position of the
Company as of December 28, 1996 and September 27, 1997, and the results
of operations for the quarters and nine-month periods ended September 28,
1996 and September 27, 1997, and cash flows of the Company for the
nine-month periods ended September 28, 1996 and September 27, 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. The
balance sheet data as of December 28, 1996 was derived from audited
financial statements, but do not include all disclosures contained in the
Company's Annual Report to Stockholders. These interim condensed
consolidated 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:
(IN THOUSANDS)
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
-----------
-----------
The purchase price was allocated to the assets acquired based on
estimated fair values at March 4, 1996, as follows:
(IN THOUSANDS)
Receivables $ 9,536
Inventories 61,269
Property and equipment 11,592
Prepaids and other assets 86
Assets held for sale 7,100
Goodwill 2,560
Notes payable (21,784)
Accounts payable (16,851)
Accrued liabilities (14,264)
---------
$ 39,244
---------
---------
The allocation of the purchase price and the related goodwill was subject
to adjustment upon resolution of pre-Holiday Acquisition contingencies.
The effects of resolution of pre-Holiday Acquisition contingencies
occurring: (i) within one year of the acquisition date were reflected as
an adjustment of the allocation of the purchase price and of goodwill,
and (ii) after one year were recognized in the determination of net
income.
7
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
2. Holiday Acquisition (CONTINUED)
The ten acquired Holiday World retail store properties were classified as
"assets held for sale". Seven of the stores were sold during 1996 at a
gain of $1.4 million, which has been reflected as an adjustment of
goodwill. One store was sold during the first quarter of 1997 at a loss
of $399,000, which also has adjusted goodwill. The remaining two stores
were sold for a gain of $539,000 in the third quarter which was
recognized in the determination of net income for the period. The
Company's results of operations and cash flows include Holiday World
since March 4, 1996, as the operating activities of Holiday World are not
clearly distinguishable from other continuing operations. Net sales of
Holiday World stores subsequent to the purchase and included in the nine
months ended September 28, 1996 and September 27, 1997 were $23.5 million
and $6.8 million, respectively.
The following unaudited pro forma information presents the consolidated
results as if the Holiday Acquisition had occurred at the beginning of
1996 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.
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
NINE MONTHS
ENDED
SEPTEMBER 28,
1996
-------------
Net sales $ 329,560
Net loss 2,115
Loss per common share 0.47
3. INVENTORIES
Inventories are stated at lower of cost (first-in, first-out) or market.
The composition of inventory is as follows:
(IN THOUSANDS)
DECEMBER 28, SEPTEMBER 27,
1996 1997
----------- -------------
Raw materials $ 16,844 $ 18,973
Work-in-process 17,592 19,509
Finished units 3,998 4,215
Holiday World retail inventory 8,496
----------- -----------
$ 46,930 $ 42,697
----------- -----------
----------- -----------
8
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
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
September 27, 1997, the unamortized amount was $18.3 million. The
goodwill arising from the Holiday Acquisition is being amortized on a
straight-line basis over 20 years; at September 27, 1997 the unamortized
amount was $2.4 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 $45.0 million, with interest payable
monthly at varying rates based on the Company's interest coverage ratio
and interest payable monthly on the unused available portion of the line
at 0.375%. Outstanding borrowings under the line of credit were $3.5
million at September 27, 1997. The revolving line of credit expires
March 1, 2001 and is collateralized by all the assets of the Company.
6. LONG-TERM BORROWINGS
The Company has a term loan of $17.1 million outstanding as of September
27, 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.
9
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
7. EARNINGS PER COMMON 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>
NINE MONTHS ENDED
----------------------------------------------------------------
SEPTEMBER 28, SEPTEMBER 27,
1996 1997
------------------------------ ------------------------------
Primary Fully Diluted Primary Fully Diluted
----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Issued and outstanding (weighted average) 4,419,775 4,419,775 4,831,088 4,831,088
Stock options 52,119 55,020 92,483 108,352
Convertible preferred stock 175,779 144,580
--------- --------- --------- ---------
4,471,894 4,650,574 4,923,571 5,084,020
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Fully diluted earnings per share for the nine months ended September,
1997 were greater than primary earnings per share by $.02. The
antidilutive effect was caused principally by the conversion of all
shares of preferred stock to shares of common stock during the second
quarter, which required all remaining accretion related to preferred
stock shares to be charged against retained earnings.
8. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) 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>
QUARTER ENDED NINE MONTHS ENDED
---------------------------------------------------------
SEP 28, 1996 SEP 27, 1997 SEP 28, 1996 SEP 27, 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic $ .43 $ .58 $ .76 $ 1.72
Diluted $ .42 $ .56 $ .75 $ 1.71
</TABLE>
In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components of revenues, expenses, gains, and
losses.
In June of 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This statement
establishes standards for reporting information about operating segments.
Both SFAS No. 130, "Reporting of Comprehensive Income", and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
are effective for periods beginning after December 15, 1997. The Company
will be adopting the requirements of these statements in the first
quarter of 1998.
10
<PAGE>
MONACO COACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
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 will have a material adverse effect on the
business, financial condition, or results of operations of the Company.
OTHER COMMITMENTS
The Company recently started construction of a new paint facility and
finish area adjacent to the new Wakarusa facility. It is expected that
the new paint facility will cost between $7 million to $8 million and
will be operational by the end of the first quarter of 1998.
10. STOCK OFFERING
On June 17, 1997, the Company completed a secondary public offering of
800,000 new shares of its common stock. In connection with the offering,
65,217 shares of preferred stock were converted into 230,767 shares of
common stock. The net proceeds of $15.4 million were used to reduce
amounts outstanding under short-term borrowings with the remainder being
added to working capital.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, including statements that include the words "believes", "expects",
"anticipates" or similar expressions. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause actual results, performance or achievements of the Company to differ
materially from those expressed or implied by such forward-looking
statements. Such factors include, among others, the factors discussed below
under the caption "Factors That May Affect Future Operating Results" and
elsewhere in this Quarterly Report on Form 10-Q. The reader should carefully
consider, together with the other matters referred to herein, the factors set
forth under the caption "Factors That May Affect Future Operating Results".
The Company cautions the reader, however, that these factors may not be
exhaustive.
GENERAL
Monaco Coach Corporation is a leading manufacturer of premium Class A motor
coaches and towable recreational vehicles ("towables"). The Company's
product line currently consists of ten models of motor coaches and eight
models of fifth wheel trailers and travel trailers under the "Monaco",
"Holiday Rambler", and "McKenzie Towables" brand names. The Company's
products range in suggested retail price from $60,000 to $750,000 for motor
coaches and from $15,000 to $70,000 for towables.
Prior to March 1996, the Company's product line consisted exclusively of
High-Line Class A motor coaches (units with retail prices above $120,000).
On March 4, 1996, the Company acquired Holiday Rambler, a manufacturer of a
full line of Class A motor coaches and towables. The Holiday Acquisition
more than doubled the Company's net sales, significantly broadened the range
of products the Company offered (including the Company's first offerings of
towables and entry-level to midrange motor coaches) and significantly lowered
the price threshold for first-time buyers of the Company's products, making
them affordable for a significantly larger base of potential customers.
The acquired operations were incorporated into the Company's consolidated
financial statements from March 4, 1996. Therefore, the Company's
consolidated financial statements for the first nine months of 1996 include
only seven months of Holiday Rambler operations while the first nine months
of 1997 include a full nine months of Holiday Rambler results. Both 1996 and
1997 results contain expenses related to the Holiday Acquisition, primarily
interest expense, and the amortization of debt issuance costs and of Holiday
Acquisition goodwill.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 27, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 28, 1996
Net sales for the third quarter of 1997 were up 3.7 % to $105.8 million
compared to $102.1 million in the same period in 1996. 1996 sales included
$6.9 million of used or non-Holiday Rambler product sales at the retail
stores versus only $2.7 million of such sales in 1997 due to the disposition
of all 10 Holiday World retail stores acquired in the Holiday Acquisition
over the last twelve months. Excluding the sales of the previously-owned or
non-Holiday Rambler products at the retail dealerships, net sales in the
third quarter of 1997 would have increased by 8.3% from the third quarter of
1996. The Company's overall unit sales were up 2.7% in the third quarter of
1997 (excluding 38 units in 1997 and 179 units in 1996 that were sold by the
Company's Holiday World retail dealerships that were either previously-owned
or non-Holiday Rambler units). On a wholesale basis sales rose 8.9%, with
motorized products up 8.8% and towable products up 9.9%. The Company's
average unit selling price increased to $77,900 in the third quarter of 1997
versus $74,100 in the third quarter of 1996 primarily due to the strong
performance of the Company's High-Line Monaco brand products.
12
<PAGE>
Gross profit for the third quarter of 1997 decreased to $14.1 million, down
from $14.9 million in the same period in 1996 and gross margin decreased to
13.3% in 1997 from 14.6% in 1996. Gross margin in the third quarter of 1997
was negatively impacted by discounting and write-downs of inventory prior to,
and at the sale of, the two remaining Holiday World retail dealerships.
Factoring out the impact of the stores, gross margin would have been 13.7%.
Gross margin in the third quarter was also dampened slightly by the
completion of model changes in all of the plants and the move of the Indiana
Monaco motor coach line from Elkhart, Indiana to the new motorized facility
in Wakarusa, Indiana. 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 decreased by $2.1 million to
$8.5 million in the third quarter of 1997 compared to the same period in 1996
and decreased as a percentage of sales from 10.4% in the third quarter of
1996 to 8.1% in the third quarter of 1997. The relatively large decrease in
selling, general, and administrative expenses in dollars and as a percentage
of sales was primarily due to having only two of the original ten Holiday
World stores in the operating expenses of the third quarter of 1997. The
Holiday World stores spent more on selling, general, and administrative
expenses, on a percentage of sales basis, than the Company's manufacturing
operations in both periods. Additionally, the Company has reduced and plans
to continue lowering the level of spending by the Holiday Rambler division
for selling, general, and administrative expenses as a percentage of sales,
which has historically been higher than for the Company's Monaco Coach
operations. However, the Company's overall selling, general, and
administrative expenses as a percentage of sales is expected to remain higher
than the level prior to the Holiday Acquisition.
Amortization of goodwill was $159,000 in the third quarter of 1997 compared
to $180,000 in the same period in 1996. The reduction in amortization of
goodwill from year to year reflects a reduction in the amount of goodwill
arising from the Holiday Acquisition due to net gains of $1.0 million on the
first eight Holiday World store dispositions. At September 27, 1997,
goodwill, net of accumulated amortization was $20.7 million.
Operating income was $5.4 million in the third quarter of 1997, a $1.3
million increase over the $4.1 million in the third quarter of 1996. The
substantial decrease in selling, general, and administrative expenses as a
percentage of sales outweighed the decline in gross margin resulting in an
improvement in operating margin from 4.0% in the third quarter of 1996 to
5.1% in the comparable 1997 period.
Net interest expense was $537,000 in the third quarter of 1997 versus
$881,000 in the same period of 1996. The Company capitalized $167,000 of
interest expense in the third quarter of 1997 relating to the construction in
progress on the new paint facility in Wakarusa, Indiana and capitalized
$60,000 of interest in the third quarter of 1996 stemming from the
acquisition of the Holiday World retail stores held for resale. The
Company's interest expense included $32,000 in the third quarter of 1997 and
$214,000 in the third quarter of 1996 relating to floor plan financing at the
retail stores.
The Company sold its two remaining Holiday World retail dealerships during
the third quarter of 1997 and had a pre-tax gain on the sale of the buildings
and fixed assets from the stores of $539,000 which is reflected as a separate
line item above income before income taxes on the Company's Condensed
Consolidated Statements of Income. This equates to a $315,000 after-tax
gain, or 5.6 cents per share.
The Company reported a provision for income taxes of $2.2 million, or an
effective tax rate of 41.5%, in the third quarter of 1997, compared to $1.4
million, or an effective tax rate of 41.1%, for the comparable 1996 period.
Net income increased by $1.2 million from $2.0 million in the third quarter
of 1996 to $3.2 million in the same period of 1997 due to the increase in
operating margin, the reduction in interest expense and the gain on the sale
of the two remaining Holiday World retail dealerships.
13
<PAGE>
NINE MONTHS ENDED SEPTEMBER 27, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 28, 1996
Net sales increased $50.0 million, or 18.5%, for the first nine months of
1997 compared to the year earlier period. The increase was primarily due to
the inclusion of the sales of Holiday Rambler for a full nine months in 1997
versus seven months in 1996. Overall unit sales increased to 4,270 units in
the first nine months of 1997 compared to 3,399 in the first nine months of
1996 (excluding 211 units in 1997 and 763 units in 1996 that were sold at the
Holiday World retail 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 for the
first nine months of 1997 would have been up 8.5%, with motorized products up
7.8%, and towables up 12.3% over the comparable 1996 period. The Company's
overall average unit selling price was $74,500 in the first nine months of
1997 versus $75,500 in the year earlier period.
Gross profit for the nine month period ended September 27, 1997 was up $9.4
million to $43.4 million and gross margin increased to 13.5% from 12.6% in
the comparable 1996 period. Gross margin for the first nine months of 1996
was dampened by the expensing of a $1.75 million inventory write-up to fair
value arising from the Holiday Acquisition. Without this charge, gross
margin in the first nine months of 1996 would have been 13.2%.
Selling, general, and administrative expenses increased $2.3 million from
$24.6 million in the first nine months of 1996 to $26.9 million in the first
nine months of 1997 and decreased as a percentage of sales from 9.1% in the
first nine months of 1996 to 8.4% in the comparable 1997 period. The
decrease in selling, general, and administrative expenses as a percentage of
sales was due to a combination of the sale of Holiday World retail
dealerships, which spent more on selling, general, and administrative
expenses as a percentage of sales than the manufacturing Company's operations
and the reduction in selling, general, and administrative expenses as a
percentage of sales for the Holiday Rambler division which have historically
been higher than for the Company's Monaco Coach operations.
Amortization of goodwill was $$478,000 for the first nine months of 1997
compared to $489,000 for the comparable 1996 period.
Operating income was $16.1 million for the first nine months of 1997, a $7.1
million increase over the year earlier period. The Company's higher gross
margin combined with a reduction in selling, general, and administrative
expense as a percentage of sales, resulted in an improvement in operating
margin from 3.3% in the first nine months of 1996 to 5.0% in the comparable
1997 period. Results for the first nine months of 1996 included a $1.75
million expense related to an inventory write-up to fair value as a result of
the Holiday Acquisition. Excluding that charge, operating margin for the
first nine months of 1996 would have been 4.0% of sales.
Net interest expense declined $1.3 million in the first nine months of 1997
to $1.9 million from $3.2 million in the comparable 1996 period. The Company
capitalized $554,000 of interest expense in the first nine months of 1997 as
a result of the construction in progress for the new motorized manufacturing
facility as well as the new paint facility in Wakarusa, Indiana and $196,000
of interest in the comparable 1996 period related to the Holiday World retail
dealerships held for resale. The Company's interest expense in the nine
month period included $281,000 in 1997 and $837,000 in 1996 related to floor
plan financing at the Holiday World retail dealerships.
The Company reported a provision for income taxes of $6.2 million, or an
effective tax rate of 41.5%, for the first nine months of 1997 versus $2.5
million, or 41.5%, in the comparable 1996 period.
Net income increased to $8.7 million in the first nine months of 1997 from
$3.5 million in the first nine months of 1997, primarily due to the increase
in sales combined with an improvement in operating margin and a decrease in
net interest expense.
14
<PAGE>
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 the
first nine months of 1997, the Company generated net cash of $938,000 from
operating activities. Net income and non-cash expenses, such as depreciation
and amortization, net of the non-operating gain from the sale of the retail
stores generated $10.7 million. Increases in accounts payable and accrued
expenses and decreases in inventories and prepaid expenses generated another
$11.9 million, but the combination was offset by reductions in income taxes
payable and an abnormally large increase in trade receivables arising
primarily from heavy shipments near the end of the quarter. The increase in
trade receivables was temporary and the Company's trade receivable balance
has since returned to a more normal level.
The Company has credit facilities consisting of a term loan of $20.0 million
(the "Term Loan") and a revolving line of credit of up to $45.0 million (the
"Revolving Loans"). The Term Loan bears interest at various rates based upon
the prime lending rate announced from time to time by Banker's Trust Company
(the "Prime Rate") or LIBOR and is due and payable in full on March 1, 2001.
The Term Loan requires monthly interest payments, quarterly principal
payments and certain mandatory prepayments. The mandatory prepayments
consist of: (i) an annual payment on April 30 of each year, beginning April
30, 1997 of seventy-five percent (75%) of the Company's defined excess cash
flow for the then most recently ended fiscal year (no defined excess cash
flow existed for the year ended December 28, 1996); and (ii) a payment,
within two days of the sale of any Holiday World dealership, of the net cash
proceeds received by the Company from such sale. While the Company has now
sold all of the Holiday World dealerships, as of September 27, 1997, the
Company was still holding $3.6 million in notes receivable relating to the
sales of the stores which will fall under the (ii) provision when payment is
received. At September 27, 1997, the balance on the Term Loan was $17.1
million and the effective interest rate on the Term Loan was 7.32%. At the
election of the Company, the Revolving Loans bear interest at variable
interest rates based on the Prime Rate or LIBOR. The Revolving Loans are due
and payable in full on March 1, 2001, and require monthly interest payments.
As of September 27, 1997 $3.5 million was outstanding under the Revolving
Loans, with an interest rate of 8.5%. The Term Loan and the Revolving Loans
are collateralized by a security interest in all of the assets of the Company
and include various restrictions and financial covenants. As a result of the
sale of the two remaining Holiday World retail dealerships, the Company no
longer has any loan outstanding to finance retail inventory.
The Company's principal working capital requirements are for purchases of
inventory and, to a lesser extent, financing of trade receivables. The
Company's dealers typically finance product purchases under wholesale floor
plan arrangements with third parties as described below. At September 27,
1997, the Company had working capital of approximately $13.4 million, an
increase of approximately $8.9 million from working capital of $4.5 million
at December 28, 1996. The Company completed a public offering of a total of
1,955,000 shares of its Common Stock in June 1997 at $21.25 per share,
including 800,000 shares sold by the Company. The approximately $15.4
million of net proceeds to the Company from this offering were used to pay
down the outstanding balance under its Revolving Loans with the remainder
being added to working capital. The Company has been using short-term credit
facilities and cash flow to finance its construction of facilities and other
capital expenditures. The Company primarily used long-term debt and
redeemable preferred stock to finance the Holiday Acquisition.
The Company's capital expenditures were $14.3 million in the first nine
months of 1997, primarily for the Wakarusa, Indiana manufacturing facility.
This facility approximately doubled the Company's production capacity of
motor coaches. The total cost of the Wakarusa motorized facility, including
the main plant and offices, was $15.6 million and the main plant began
producing Holiday Rambler motorized products at the end of the second quarter
of 1997. During the third quarter, the Company started running a second line
in this facility, moving its Indiana motorized production of Monaco brand
products from Elkhart, Indiana into the new Wakarusa motorized facility. The
Company recently started construction of a new paint facility and finish area
adjacent to the new Wakarusa facility. It is expected that the new paint
facility will cost between $7 million to $8 million and will be operational
by the end of the first quarter of 1998.
15
<PAGE>
The Company believes that cash flow from operations and funds available under
its credit facilities will be sufficient to meet the Company's liquidity
requirements for the next twelve months. The Company anticipates that
capital expenditures for all of 1997 will total approximately $20.0 million,
of which an estimated $4 million will be used to start construction of the
paint 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 require additional equity or debt financing to
address working capital and facilities expansion needs, particularly if the
Company further expands its operations to address greater than anticipated
growth in the market for its products. The Company may also from time to
time seek to acquire businesses that would complement the Company's current
business, and any such acquisition could require additional financing. There
can be no assurance that additional financing will be available if required
or on terms deemed favorable by the Company.
As is typical in the recreational vehicle industry, many of the Company's
retail dealers, utilize wholesale floor plan financing arrangements with
third-party lending institutions to finance their purchases of the Company's
products. Under the terms of these floor plan arrangements, institutional
lenders customarily require the recreational vehicle manufacturer to agree to
repurchase any unsold units if the dealer fails to meet its commitments to
the lender, subject to certain conditions. 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 September 27, 1997, approximately
$117.9 million of products sold by the Company to independent dealers were
subject to potential repurchase under existing floor plan financing
agreements with approximately 10% concentrated with one dealer. If the
Company were obligated to repurchase a significant number of units under any
repurchase agreement, its business, operating results and financial condition
could be adversely affected.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The Company's net sales, gross
margin and operating results may fluctuate significantly from period to
period due to factors such as the mix of products sold, the ability to
utilize and expand manufacturing resources efficiently, the introduction and
consumer acceptance of new models offered by the Company, competition, the
addition or loss of dealers, the timing of trade shows and rallies, and
factors affecting the recreational vehicle industry as a whole. In addition,
the Company's overall gross margin on its products may decline in future
periods to the extent the Company increases its sales of lower gross margin
towable products or if the mix of motor coaches shifts to lower gross margin
units. Due to the relatively high selling prices of the Company's products
(in particular, its High-Line Class A motor coaches), a relatively small
variation in the number of recreational vehicles sold in any quarter can have
a significant effect on sales and operating results for that quarter. Demand
in the overall recreational vehicle industry generally declines during the
winter months, while sales and revenues are generally higher during the
spring and summer months. With the broader range of recreational vehicles
now offered by the Company as a result of the Holiday Acquisition, seasonal
factors could have a significant impact on the Company's operating results in
the future. In addition, unusually severe weather conditions in certain
markets could delay the timing of shipments from one quarter to another.
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
16
<PAGE>
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 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 Holiday Rambler's operations and
personnel 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, relocated its Elkhart, Indiana motor coach production to the new
Wakarusa facility, and recently completed set-up of a new 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 half of
1997, the Company experienced difficulty in increasing production rates of
motor coaches at its Coburg facility. There can be no assurance that the
Company will successfully integrate its manufacturing facilities or that it
will achieve the anticipated benefits and efficiencies from its expanded
manufacturing operations. In addition, the Company's operating results could
be materially and adversely affected if sales of the Company's products do
not increase at a rate sufficient to offset the Company's increased expense
levels resulting from this expansion.
The set-up of 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. Since the Company has
commenced 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 more than 150 dealerships located primarily in the United
States and Canada, as of September 27, 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% of the Company's net sales in 1996, the top
three dealers combined 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.
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 dealers'
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
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
17
<PAGE>
period to period and totaled approximately $117.9 million as of September 27,
1997, with approximately 10% concentrated with one dealer. See "Liquidity
and Capital Resources" and Note 9 of Notes to the Company's Condensed
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.),
substantially all of its transmissions (Allison Transmission Division of
General Motors Corporation), axles for all diesel motor coaches other than
the Holiday Rambler Endeavor Diesel model (Eaton Corporation) and chassis for
certain of its Holiday Rambler products (Chevrolet Motor Division of General
Motors Corporation, Ford Motor Company and Freightliner Custom Chassis
Corporation). The Company has no long term supply contracts with these
suppliers or their distributors, and there can be no assurance that these
suppliers, or other suppliers, will be able to meet the Company's future
requirements for 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.
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 to 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.
RISK 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 and 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.
18
<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
operations in Elkhart, Indiana, Nappanee, Indiana, Wakarusa, Indiana, Coburg,
Oregon, and Springfield, Oregon. The Company has also submitted revisions to
its application to reflect changing operations in its operations in Elkhart,
Indiana. The Company does not currently anticipate that any additional air
pollution control equipment will be required as a condition of receiving new
air permits, although new regulations and their interpretation may change
over time, and there can be no assurance that additional expenditures will
not be required. The Company 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, the Wakarusa,
Indiana manufacturing facility and the Leesburg, Florida dealership acquired
in the Holiday Acquisition. The Company has remediated the Wakarusa and
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. In
Florida, the Company and its consultants have completed additional site
investigations and determined the extent of contamination associated with
former underground storage tanks at the Leesburg dealership. Harley-Davidson
and its consultant are currently preparing a site remediation work plan for
submittal to the relevant Florida regulatory authority. 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 and a $10 million maximum in the case of the Wakarusa
site, and a no deductible $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.
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
19
<PAGE>
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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. 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, financial condition or results of operations of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial data schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during the
quarter ended September 27, 1997, for which this report is filed.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MONACO COACH CORPORATION
Dated: November 11, 1997 /s/: JOHN W. NEPUTE
--------------------------------
John W. Nepute
Vice President of Finance and
Chief Financial Officer (Duly
Authorized Officer and Principal
Financial Officer)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME OF MONACO COACH CORPORATION
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 29,972
<ALLOWANCES> 124
<INVENTORY> 42,697
<CURRENT-ASSETS> 83,354
<PP&E> 55,666
<DEPRECIATION> 4,755
<TOTAL-ASSETS> 158,432
<CURRENT-LIABILITIES> 69,961
<BONDS> 14,000
0
0
<COMMON> 55
<OTHER-SE> 70,744
<TOTAL-LIABILITY-AND-EQUITY> 158,432
<SALES> 320,799
<TOTAL-REVENUES> 320,799
<CGS> 277,353
<TOTAL-COSTS> 304,711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 14,821
<INCOME-TAX> 6,152
<INCOME-CONTINUING> 8,669
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<NET-INCOME> 8,669
<EPS-PRIMARY> 1.69
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</TABLE>
