**SECURITIESAND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý** | **Quarterly Report Pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934** |
|------------|----------------------------------------------------------------------------------------------|

 

**Forthe period ended:  June 29, 2002**

**or**

 
| **o** | **Transition Report Pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934** |
|-------|-----------------------------------------------------------------------------------------------|

** **

**Forthe period from             to           **

** **

**Commission File Number:  1-14725**

 

**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 checkmark whether the registrant  (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and  (2) has been subject to such filingrequirements for the past 90 days.

 

YES    ý        NO   o

 

The number ofshares outstanding of common stock, $.01 par value, as of June 29, 2002:  28,831,487

 

 

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**MONACO COACH CORPORATION**

 

**FORM 10-Q**

 

**June 29, 2002**

 

**INDEX**

 
| **PART I - FINANCIAL INFORMATION** |
|------------------------------------|
|                               |   |   |   |
|                               | **Item 1.  Financial Statements.** |
|                               |   |   |   |
|                               |   | Condensed Consolidated  Balance Sheets as of December 29, 2001 and June 29, 2002. |
|                               |   |   |   |
|                               |   | Condensed  Consolidated Statements of Income for the quarters and six-month periods  ended June 30, 2001 and June 29, 2002. |
|                               |   |   |   |
|                               |   | Condensed  Consolidated Statements of Cash Flows for the six-month periods ended June  30, 2001 and June 29, 2002. |
|                               |   |   |   |
|                               |   | Notes  to Condensed Consolidated Financial Statements. |   |
|                               |   |   |   |
|                               |   |   |   |
|                               | **Item  2.  Management’s Discussion and  Analysis of Financial Condition and Results of Operations.** |
|                               |   |   |   |
|                               | **Item  3.  Quantitative and Qualitative  Disclosures About Market Risk.** |
|                               |   |   |   |
|                               |   |   |   |
| **PART II - OTHER  INFORMATION**   |
|                               |   |   |   |
|                               |   |   |   |
|                               | **Item  4.  Submission of Matters to a Vote of  Security Holders.** |
|                               |   |   |   |
|                               | **Item 6.  Exhibits and Reports on Form 8-K.** |
|                               |   |   |   |
|                               |   |   |   |
|                               | **Signatures** |
|                                    |  |  |  |  |  |

 

 

2

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**PART I - FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

3

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**MONACO COACH CORPORATION**

**CONDENSED****CONSOLIDATED BALANCE SHEETS**

**(Unaudited: dollars in thousands)**

 
|                                                                                                                         |   | **December 29,  2001** |    | **June 29,  2002** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|--------------------|--------|
| **ASSETS**                                                                                                                   |   |                   |    |               |   |
| Current assets:                                                                                                              |   |                   |    |               |   |
| Trade  receivables, net                                                                                                      |   | $                      | 82,885  |               | $      | 122,133 |   |
| Inventories                                                                                                                  |   | 127,075                |    | 151,180            |   |
| Prepaid  expenses                                                                                                            |   | 2,063                  |    | 5,055              |   |
| Deferred income  taxes                                                                                                       |   | 27,327                 |    | 30,073             |   |
|                                                                                                                         |   |                   |    |               |   |
| Total  current assets                                                                                                        |   | 239,350                |    | 308,441            |   |
|                                                                                                                         |   |                   |    |               |   |
| Notes  receivable                                                                                                            |   | 8,157                  |    | 8,170              |   |
| Property,  plant and equipment, net                                                                                          |   | 122,795                |    | 125,676            |   |
| Debt  issuance costs net of accumulated amortization of $75, and $232, respectively                                          |   | 940                    |    | 783                |   |
| Goodwill,  net of accumulated amortization of $5,320 and $5,320, respectively                                                |   | 55,856                 |    | 54,974             |   |
|                                                                                                                         |   |                   |    |               |   |
| Total assets                                                                                                                 |   | $                      | 427,098 |               | $      | 498,044 |   |
|                                                                                                                         |   |                   |    |               |   |
| **LIABILITIES**                                                                                                              |   |                   |    |               |   |
| Current liabilities:                                                                                                         |   |                   |    |               |   |
| Book  overdraft                                                                                                              |   | $                      | 5,889   |               | $      | 16,758 |   |
| Line  of credit                                                                                                              |   | 26,004                 |    | 27,004             |   |
| Current  portion of long-term note payable                                                                                   |   | 10,000                 |    | 10,000             |   |
| Accounts  payable                                                                                                            |   | 66,859                 |    | 88,057             |   |
| Income  taxes payable                                                                                                        |   | 0                      |    | 6,317              |   |
| Accrued expenses  and other liabilities                                                                                      |   | 66,904                 |    | 76,794             |   |
|                                                                                                                         |   |                   |    |               |   |
| Total  current liabilities                                                                                                   |   | 175,656                |    | 224,930            |   |
|                                                                                                                         |   |                   |    |               |   |
| Long-term  note payable                                                                                                      |   | 30,000                 |    | 25,000             |   |
| Deferred income  taxes                                                                                                       |   | 8,312                  |    | 13,166             |   |
|                                                                                                                         |   |                   |    |               |   |
|                                                                                                                         |   | 213,968                |    | 263,096            |   |
|                                                                                                                         |   |                   |    |               |   |
| Commitments and contingencies (Note 8)                                                                                       |   |                   |    |               |   |
|                                                                                                                         |   |                   |    |               |   |
| **STOCKHOLDERS’  EQUITY**                                                                                               |   |                   |    |               |   |
| Common  stock, $.01 par value; 50,000,000 shares authorized, 28,632,774 and  28,831,487 issued and outstanding, respectively |   | 286                    |    | 288                |   |
| Additional  paid-in capital                                                                                                  |   | 48,522                 |    | 49,695             |   |
| Retained  earnings                                                                                                           |   | 164,322                |    | 184,965            |   |
|                                                                                                                         |   |                   |    |               |   |
| Total stockholders’  equity                                                                                             |   | 213,130                |    | 234,948            |   |
|                                                                                                                         |   |                   |    |               |   |
| Total liabilities and  stockholders’ equity                                                                             |   | $                      | 427,098 |               | $      | 498,044 |   |

 

See accompanyingnotes.

 

4

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**MONACO COACH CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OFINCOME**

**(Unaudited: dollars in thousands,except share and per share data)**

 
|                                          |   | **Quarter Ended**  |       | **Six-Months Ended** |       |
|-----------------------------------------------|--------|--------------------|------------|----------------------|------------|
|                                          |   | **June 30,  2001** |       | **June 29,  2002**   |       | **June 30,  2001** |   | **June 29,  2002** |   |
|                                          |   |               | ** ** |                 | ** ** |   | ** ** |   | ** ** |
| Net  sales                                    |   | $                  | 223,424    |                 | $          | 313,742 |   | $ | 434,652 |   | $ | 607,342 |   |
| Cost of sales                                 |   | 197,620            |       | 272,513              |       | 383,360 |   | 528,368 |   |
|                                          |   |               |       |                 |       |   |   |   |   |
| Gross  profit                                 |   | 25,804             |       | 41,229               |       | 51,292 |   | 78,974 |   |
|                                          |   |               |       |                 |       |   |   |   | ** ** |
| Selling,  general and administrative expenses |   | 16,489             |       | 22,505               |       | 32,728 |   | 43,671 |   |
| Amortization of  goodwill                     |   | 162                |       | 0                    |       | 323 |   | 0 |   |
|                                          |   |               |       |                 |       |   |   |   |   |
| Operating  income                             |   | 9,153              |       | 18,724               |       | 18,241 |   | 35,303 |   |
|                                          |   |               |       |                 |       |   |   |   | ** ** |
| Other  income, net                            |   | 245                |       | 2                    |       | 361 |   | 43 |   |
| Interest expense                              |   | (414               | )          | (669                 | )          | (1,098 | ) | (1,367 | ) |
|                                          |   |               |       |                 |       |   |   |   |   |
| Income  before income taxes                   |   | 8,984              |       | 18,057               |       | 17,504 |   | 33,979 |   |
|                                          |   |               |       |                 |       |   |   |   | ** ** |
| Provision for  income taxes                   |   | 3,504              |       | 7,087                |       | 6,827 |   | 13,336 |   |
|                                          |   |               |       |                 |       |   |   |   | ** ** |
| Net income                                    |   | $                  | 5,480      |                 | $          | 10,970 |   | $ | 10,677 |   | $ | 20,643 |   |
|                                          |   |               |       |                 |       |   |   |   | ** ** |
| Earnings per common share:                    |   |               |       |                 |       |   |   |   | ** ** |
| Basic                                         |   | $                  | .19        |                 | $          | .38 |   | $ | .37 |   | $ | .72 |   |
| Diluted                                       |   | $                  | .19        |                 | $          | .37 |   | $ | .37 |   | $ | .70 |   |
|                                          |   |               |       |                 |       |   |   |   | ** ** |
| Weighted average common shares outstanding:   |   |               |       |                 |       |   |   |   | ** ** |
| Basic                                         |   | 28,505,199         |       | 28,807,792           |       | 28,485,257 |   | 28,760,396 |   |
| Diluted                                       |   | 29,204,979         |       | 29,660,847           |       | 29,166,891 |   | 29,642,792 |   |

 

See accompanyingnotes.

 

5

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**MONACO COACH CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(Unaudited: dollars in thousands)**

 
|                                                                                      |   | **Six-Months  Ended**  |   |
|-------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                      |   | **June 30,**

**2001** |   | **June 29,**

**2002** |   |
|                                                                                      |   |                   |   |   |   |
| **Increase  (Decrease) in Cash**:                                                         |   |                   |   |   |   |
|                                                                                      |   |                   |   |   |   |
| Cash flows from operating activities:                                                     |   |                   |   |   |   |
| Net  income                                                                               |   | $                      | 10,677 |   | $ | 20,643 |   |
| Adjustments to reconcile net income to net cash  provided (used) by operating activities: |   |                   |   |   |   |
| Gain  on sale of assets                                                                   |   | (74                    | )      | 0 |   |
| Depreciation  and amortization                                                            |   | 3,316                  |   | 4,010 |   |
| Deferred  income taxes                                                                    |   | 729                    |   | 4,030 |   |
| Changes in working capital accounts:                                                      |   |                   |   |   |   |
| Trade  receivables, net                                                                   |   | (11,429                | )      | (39,301 | ) |
| Inventories                                                                               |   | 17,761                 |   | (24,105 | ) |
| Prepaid  expenses                                                                         |   | (520                   | )      | (2,992 | ) |
| Accounts  payable                                                                         |   | (12,645                | )      | 21,198 |   |
| Income  taxes payable                                                                     |   | 1,695                  |   | 6,317 |   |
| Accrued expenses  and other liabilities                                                   |   | (1,290                 | )      | 8,953 |   |
|                                                                                      |   |                   |   |   |   |
| Net cash  provided (used) by operating activities                                         |   | 8,220                  |   | (1,247 | ) |
|                                                                                      |   |                   |   |   |   |
| Cash flows from investing activities:                                                     |   |                   |   |   |   |
| Additions  to property, plant and equipment                                               |   | (3,848                 | )      | (6,797 | ) |
| Proceeds  from sale of assets                                                             |   | 106                    |   | 13 |   |
| Issuance of  notes receivable                                                             |   | (4,750                 | )      | (13 | ) |
|                                                                                      |   |                   |   |   |   |
| Net cash used in  investing activities                                                    |   | (8,492                 | )      | (6,797 | ) |
|                                                                                      |   |                   |   |   |   |
| Cash flows from financing activities:                                                     |   |                   |   |   |   |
| Book  overdraft                                                                           |   | 6,274                  |   | 10,869 |   |
| (Payments)  borrowings on lines of credit, net                                            |   | (6,497                 | )      | 1,000 |   |
| Issuance  of common stock                                                                 |   | 495                    |   | 1,175 |   |
| Payments on  long-term note                                                               |   | 0                      |   | (5,000 | ) |
|                                                                                      |   |                   |   |   |   |
| Net cash  provided by financing activities                                                |   | 272                    |   | 8,044 |   |
|                                                                                      |   |                   |   |   |   |
| Net  change in cash                                                                       |   | 0                      |   | 0 |   |
| Cash at  beginning of period                                                              |   | 0                      |   | 0 |   |
|                                                                                      |   |                   |   |   |   |
| Cash at end of period                                                                     |   | $                      | 0      |   | $ | 0 |   |

** **

**Seeaccompanying notes.**

 

6

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**MONACO COACH CORPORATION**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.             Basis of Presentation**

 

The interim condensed consolidated financial statements have beenprepared by Monaco Coach Corporation (the “Company”) without audit.  In the opinion of management, theaccompanying unaudited financial statements contain all adjustments necessary,consisting only of normal recurring adjustments, to present fairly thefinancial position of the Company as of December 29, 2001 and June 29, 2002,and the results of its operations for the quarters and six-month periods endedJune 30, 2001 and June 29, 2002, and cash flows of the Company for thesix-month periods ended June 30, 2001 and June 29, 2002.  The condensed consolidated financialstatements include the accounts of the Company and its wholly-ownedsubsidiaries, and all significant intercompany accounts and transactions havebeen eliminated in consolidation.  Thebalance sheet data as of December 29, 2001 was derived from audited financialstatements, but does not include all disclosures contained in the Company’sAnnual Report to Stockholders.  Theseinterim condensed consolidated financial statements should be read inconjunction with the audited financial statements and notes thereto appearingin the Company’s Annual Report to Stockholders for the year ended December 29,2001.

 

**2.             Acquisitionof SMC Corporation**

** **

The Company announced on June 25, 2001 that it had reached an agreementwith Oregon based motor home manufacturer SMC Corporation (“SMC”) to acquireall of the outstanding shares of SMC pursuant to a cash tender offer at a priceof $3.70 per share.  On August 6, 2001,the Company completed the back-end merger, and owned 100% of the shares.

** **

The cash paid for SMC, including transaction costs of $3,062,000,totaled $24,320,000.  The total assetsacquired and liabilities assumed of SMC based on estimated fair values atAugust 6, 2001, is as follows:

 
|                                           |   | **(in  thousands)** |   |
|------------------------------------------------|--------|---------------------|--------|
|                                           |   |                |   |
| Receivables                                    |   | $                   | 1,680  |   |
| Inventories                                    |   | 25,360              |   |
| Deferred  tax asset                            |   | 21,391              |   |
| Property  and equipment                        |   | 15,800              |   |
| Prepaids  and other assets                     |   | 114                 |   |
| Goodwill                                       |   | 37,037              |   |
|                                           |   |                |   |
| Total assets  acquired                         |   | 101,382             |   |
|                                           |   |                |   |
| Book  overdraft                                |   | (1,551              | )      |
| Notes  payable                                 |   | (16,349             | )      |
| Accounts  payable                              |   | (24,079             | )      |
| Accrued  liabilities                           |   | (35,083             | )      |
|                                           |   |                |   |
| Total  liabilities assumed                     |   | (77,062             | )      |
|                                           |   |                |   |
| Total assets acquired  and liabilities assumed |   | $                   | 24,320 |   |

 

The allocation ofthe purchase price and the related goodwill is subject to adjustment uponresolution of pre-SMC Acquisition contingencies.  The effects of resolution of pre-SMC Acquisition contingenciesoccurring: (i) within one year of the acquisition date will be reflected as anadjustment of the allocation of the purchase price and of goodwill, and (ii)after one year they will be recognized in the determination of net income.

 

7

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**3.             Inventories**

 

Inventories are stated at lower of cost (first-in,first-out) or market.  The compositionof inventory is as follows:

 
|            |   | **December  29,  2001** |    | **June 29,  2002** |   |
|-----------------|--------|-------------------------|---------|--------------------|--------|
|            |   | **(in thousands)**      |    |
| Raw  materials  |   | $                       | 53,160  |               | $      | 60,941 |   |
| Work-in-process |   | 44,436                  |    | 60,925             |   |
| Finished units  |   | 29,479                  |    | 29,314             |   |
|            |   |                    |    |               |   |
|            |   | $                       | 127,075 |               | $      | 151,180 |   |

 

**4.             Goodwill**

 

Goodwill represents the excess of the cost of acquisition over the fairvalue of net assets acquired.  At eachbalance sheet date, management assesses whether there has been permanentimpairment in the value of goodwill. The amount of any such impairment is determined by comparing the fairvalue of the associated goodwill with its carrying value.  The factors considered by management inperforming this assessment include current operating results, trends andprospects, as well as the effects of obsolescence, demand, competition andother economic factors.  As of June 29,2002, as required by FASB Statement No. 142, management has determined thatthere has been no impairment of goodwill requiring a write down.  FASB Statement No. 142 also states thatgoodwill and other intangible assets with indefinite lives are no longersubject to amortization.  Therefore, inaccordance with the requirements of FASB Statement No. 142, the Company has notrecorded amortization for the period ending June 29, 2002.

 

The following table presents the impact of SFAS 142 on net income andnet income per share had SFAS 142 been in effect prior to the three and sixmonth periods ended June 30, 2001:

 
|                           |   | **Quarter  Ended** |   | **Six Months  Ended** |   |
|--------------------------------|--------|--------------------|--------|-----------------------|--------|
|                           |   | **June 30,  2001** |   | **June 29,  2002**    |   | **June 30,  2001** |   | **June 29,  2002** |   |
|                           |   |               |   |                  |   |   |   |   |   |
| Net  income as reported        |   | $                  | 5,480  |                  | $      | 10,970 |   | $ | 10,677 |   | $ | 20,643 |   |
| Add:  Amortization of goodwill |   | 162                |   | 0                     |   | 323 |   | 0 |   |
| Income tax  effect             |   | (63                | )      | 0                     |   | (126 | ) | 0 |   |
|                           |   |               |   |                  |   |   |   |   |   |
| Net income - adjusted          |   | $                  | 5,579  |                  | $      | 10,970 |   | $ | 10,874 |   | $ | 20,643 |   |
|                           |   |               |   |                  |   |   |   |   |   |
| Earnings per common share:     |   |               |   |                  |   |   |   |   |   |
| Basic                          |   | $                  | .20    |                  | $      | .38 |   | $ | .38 |   | $ | .72 |   |
| Diluted                        |   | $                  | .19    |                  | $      | .37 |   | $ | .37 |   | $ | .70 |   |

** **

**5.             Lineof Credit**

 

The Company has a bank line of credit consisting of a revolving line ofcredit of up to $70 million.  At theelection of the Company, the line of credit bears interest at varying ratesthat fluctuate based on the Prime rate or LIBOR, and are determined based onthe Company’s leverage ratio.  TheCompany also pays interest monthly on the unused available portion of the lineat varying rates, determined by the Company’s leverage ratio.  The revolving line of credit is due andpayable in full on September 30, 2004, and requires monthly interestpayments.  The balance outstanding underthe line of credit at June 29, 2002 was $27 million.  The line of credit is collateralized by all the assets of theCompany and includes various restrictions and financial covenants.

 

8

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**6.             EarningsPer Common Share**

 

Basic earnings per common share is based on the weighted average numberof shares outstanding during the period. Diluted earnings per common share is based on the weighted averagenumber of shares outstanding during the period, after consideration of thedilutive effect of stock options.  Theweighted average number of common shares used in the computation of earnings percommon share are as follows:

 
|                                              |   | **Quarter  Ended** |   | **Six Months  Ended** |   |
|---------------------------------------------------|--------|--------------------|--------|-----------------------|--------|
|                                              |   | **June 30,  2001** |   | **June 29,  2002**    |   | **June 30,  2001** |   | **June 29,  2002** |   |
| **Basic**                                         |   |               |   |                  |   |   |   |   |   |
| Issued  and outstanding shares (weighted average) |   | 28,505,199         |   | 28,807,792            |   | 28,485,257 |   | 28,760,396 |   |
|                                              |   |               |   |                  |   |   |   |   |   |
| **Effect  of Dilutive Securities**                |   |               |   |                  |   |   |   |   |   |
| Stock Options                                     |   | 699,780            |   | 853,055               |   | 681,634 |   | 882,396 |   |
|                                              |   |               |   |                  |   |   |   |   |   |
| **Diluted**                                       |   | 29,204,979         |   | 29,660,847            |   | 29,166,891 |   | 29,642,792 |   |

 

**7.             Long-termNote Payable**

** **

The Company has a long-term note payable of $35.0 million outstandingat June 29, 2002.  The term note bearsinterest at varying rates that fluctuate based on the Prime rate or LIBOR, andare determined based on the Company’s leverage ratio.  The term note requires monthly interest payments and quarterlyprincipal payments and is collateralized by all the assets of the Company.  The term note is due and payable in full onSeptember 28, 2005.  As of  June 29, 2002, the interest rate on the termdebt was 3.9%.

 

The following table displays the scheduled future principal payments byfiscal year that will be due on the term loan.

 

| **Year** |   | **Amount of  Payment due** |   |
|----------|--------|----------------------------|--------|
|     |   | **(in thousands)**         |   |
| 2002     |   | $                          | 5,000  |   |
| 2003     |   | 12,500                     |   |
| 2004     |   | 10,000                     |   |
| 2005     |   | 7,500                      |   |
|     |   |                       |   |
|     |   | $                          | 35,000 | ** ** |

 

**8.             Commitmentsand Contingencies**

 

Repurchase Agreements

 

Substantially all of the Company’s sales to independent dealers aremade on terms requiring cash on delivery. However, most dealers finance units on a “floor plan” basis with a bankor finance company lending the dealer all or substantially all of the wholesalepurchase price and retaining a security interest in the vehicles.  Upon request of a lending institutionfinancing a dealer’s purchases of the Company’s product, the Company willexecute a repurchase agreement.  Theseagreements provide that, for varying periods of up to 18 months after a unit isshipped, the Company will repurchase its products from the financinginstitution in the event that they have repossessed them upon a dealer’sdefault.  The risk of loss resultingfrom these agreements is further reduced by the resale value of the productsrepurchased.  The Company’s contingentobligations under repurchase agreements vary from period to period and totaledapproximately $423.0 million as of June 29, 2002, with approximately  9.8% concentrated with one dealer.

 

9

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Litigation

 

The Company is involved in legal proceedings arising in the ordinarycourse of its business, including a variety of product liability and warrantyclaims typical in the recreational vehicle industry.  Management does not believe that the outcome of its pending legalproceedings will have a material adverse effect on the business, financialcondition, or results of operations of the Company.

 

Debt Guarantee

 

In 2000, the Company entered into an agreement with Outdoor Resorts ofLas Vegas (“ORLV”) and ORLV’s parent company Outdoor Resorts of America(“ORA”), for the purpose of constructing a luxury motor coach resort in LasVegas, Nevada.  In the first quarter of2001, two additional projects, one in Naples, Florida, and the other in Indio,California, were added.  As of June 29,2002, the Company has advanced $8.1 million in the form of a long term notereceivable from ORA and its respective subsidiaries.  Accrued interest receivable from the loans was $1.3 million atJune 29, 2002, of which approximately $355,000 was in arrears due to delays indevelopment of the respective projects. Accordingly, the Company has reserved the entire interest receivable.

 

As part of the financing structure for the projects, the Company alsoagreed to act as co-guarantor with ORLV’s parent company, ORA, on an $11.2million construction loan for the Las Vegas resort.  At June 29, 2002, ORLV and ORA had approximately $9.9 millionoutstanding on the construction loan. In return for the Company’s loans and guarantee commitment, ORLV and ORAhas agreed to pay interest and income participation to the Company.  This guarantee has off-balance sheet creditrisk until the construction loan is fully repaid.  The Company could incur a loss if the proceeds from the sale oflots are insufficient to satisfy the construction loan.

 

Subsequent to June 29, 2002, the Company and Outdoor Resorts of America(ORA) reached an agreement in principle in which the Company will purchase theassets of ORA’s resort properties under development in Las Vegas, Nevada,Indio, California, and Naples, Florida. As consideration for these assets, Monaco will assume the current debtand liabilities of the projects of approximately $30 million, including the $8.2million note payable to the Company, and the $10 million co-guaranteed debt.The transaction is subject to due diligence procedures by the Company, andexecution of a definitive agreement. This planned acquisition relieves ORA of certain debt pressures associatedwith resort construction, and will allow ORA to continue to focus ondevelopment and lot sales.

 

Aircraft Lease Commitment

 

The Company has a two-year operating lease for an aircraft, with annualrenewals for up to three additional years. If at the end of the initial lease period the Company elects to returnthe aircraft, the Company has guaranteed up to $16 million in the event theLessor’s net sales proceeds are less than $18.5 million.

 

10

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** **

**Item 2. Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

This QuarterlyReport on Form 10-Q contains forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. These statements include, but are not limited to, those below that havebeen marked with an asterisk (*).  Inaddition, the Company may from time to time make forward-looking statementsthrough statements that include the words “believes”, “expects”, “anticipates”or similar expressions.  Suchforward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actualresults, performance or achievements of the Company to differ materially fromthose expressed or implied by such forward-looking statements, including thoseset forth below under the caption “Factors That May Affect Future OperatingResults” 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 underthe caption “Factors That May Affect Future Operating Results”.  The Company cautions the reader, however,that these factors may not be exhaustive.

 

**GENERAL**

 

Monaco CoachCorporation is a leading manufacturer of premium Class A motor coaches andtowable recreational vehicles (“towables”). The Company’s product line currently consists of a broad line of motorcoaches, fifth wheel trailers and travel trailers under the “Monaco”, “HolidayRambler”, “Royale Coach”, “Beaver”, “Safari”, and “McKenzie” brand names.  The Company’s products, which are typicallypriced at the high end of their respective product categories, range insuggested retail price from $60,000 to $1.2 million for motor coaches and from$20,000 to $65,000 for towables.

 

**RESULTS OF OPERATIONS**

 

**Quarter ended June 29, 2002 Comparedto Quarter ended June 30, 2001**

 

Second quarter netsales increased 40.4% to $313.7 million compared to $223.4 million for the sameperiod last year. Gross diesel motorized sales revenues were up 36.5%, whilegas motorized were up 75.4% and towables were up 16.4%, reflecting improvedmarket conditions.  The Company’s overallunit sales were up 25.1% in the second quarter of 2002 with diesel motorizedunit sales up 27.4% to 1,486 units, gas motorized unit sales up 62.8% to 609units, and towable unit sales up by 5.4% to 901 units.  The Company’s total average selling price increasedto $106,000 from $95,000 in the same period last year.

 

Gross profit forthe second quarter of 2002 increased to $41.2 million, up from $25.8 million in2001, and gross margin increased from 11.5% in the second quarter of 2001 to13.1% in the second quarter of 2002. The increase in gross margin over the prior year was primarily due to areduction in sales discounts.  Grossmargins were otherwise comparable to the prior year, even with continuedintegration activities of the Safari and Beaver operations.  The integration of Beaver and Safari hasgone as planned.  The Company’s overallgross margin may fluctuate in future periods if the mix of products shifts fromhigher to lower gross margin units or if the Company encounters unexpectedmanufacturing difficulties or competitive pressures.

 

Selling, general,and administrative expenses increased by $6.0 million to $22.5 million in thesecond quarter of 2002 and decreased as a percentage of sales from 7.4% in 2001to 7.2% in 2002.  Selling, general and administrativeexpenses in the first quarter of 2002 included slight decreases in spendingrelated to retail promotion efforts that were partially offset by slightlyhigher legal costs.  The Company’sselling, general, and administrative expense may fluctuate in future periodsdepending on the Company’s strategy of retail promotions as a  result of difficult market conditions orcompetitive pressures.

 

Operating incomewas $18.7 million, or 6.0% of sales in the second quarter of 2002 compared to$9.2 million, or 4.1% of sales in the similar 2001 period.  The increase in operating margins reflectsan improved gross profit combined with slightly lower selling, general andadministrative costs.

 

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Net interestexpense was $669,000 in the second quarter of 2002 compared to $414,000 in thecomparable 2001  period, reflecting ahigher level of borrowing during the second quarter of 2002.

 

The Companyreported a provision for income taxes of $7.1 million, or an effective tax rateof 39.3% in the second quarter of 2002, compared to $3.5 million, or aneffective tax rate of 39.0% for the comparable 2001 period.

 

Net income for thesecond quarter of 2002 was $11.0 million compared to $5.5 million in 2001 dueto the increase in sales combined with an improved operating margin that wasonly partially offset by an increase in interest expense.

 

**Six Months ended June 29, 2002Compared to Six Months ended June 30, 2001**

 

Net salesincreased 39.7% to $607.3 million compared to $434.7 million for the sameperiod last year.  Gross dieselmotorized sales revenues were up 39.1%, gas motorized were up 58.8%, andtowables were up 41.4%.  Overall unitsales for the Company were up 37.7% in the first six months of 2002 compared tothe similar period in 2001 with diesel motorized unit sales up 30.2% to 2,984units, gas motorized up 52.1% to 1,034 units, and towables down 2.9% to 1,670.The Company’s average unit selling prices increased in the first six months of2002 compared to the similar 2001 period to $108,000 from $95,000 .

 

Gross profit forthe six-month period ended June 29, 2002 increased to $79.0 million from $51.3million in 2001, and gross margin increased to 13.0% in 2002 from 11.8% in2001. Gross margin in the first six months of 2002 was  improved due to a reduction in salesdiscounts of 1.8% of sales.  This waspartially offset by a slight increase in direct labor caused by shifts inproduction, and the introductions of new models.

 

Selling, general,and administrative expenses increased by $10.9 million to $43.7 million in thefirst six months of 2002 and decreased as a percentage of sales from 7.5% in2001 to 7.2% in 2002.  Selling, generaland administrative expenses in the first six months of 2002 were lower than thecorresponding quarter of 2001, due to a reduction of promotional expense of .6%of sales.

 

Operating incomeincreased to $35.3 million in the first six months of 2002 from $18.2 millionin 2001.  The Company’s lower selling,general, and administrative expense as a percentage of sales combined with theimprovements in the Company’s gross margin, resulted in an increase inoperating margin to 5.8% in the first six months of 2002 compared to 4.2% inthe first six months of 2001.

 

Net interestexpense was $1.4 million in the first six months of 2002 compared to $1.1million in the comparable 2001  period,reflecting a higher level of borrowing during the first half of 2002.

 

The Companyreported a provision for income taxes of $13.3 million, or an effective taxrate of 39.3% for the first six months of 2002, compared to $17.5 million, oran effective tax rate of 39.0% for the comparable 2001 period.

 

Net income for thefirst half of 2002 was $20.6 million compared to $10.7 million in 2001 due tothe increase in sales combined with an improved operating margin that was onlypartially offset by an increase in interest expense.

 

**INFLATION**

 

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

 

**CRITICAL ACCOUNTING POLICIES**

 

The discussion and analysis of our financial condition and results ofoperations are based upon our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted inthe United States of America.  Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates,including those related to warranty costs, product liability, and impairment ofgoodwill.  We base our estimates onhistorical experience and on various other assumptions that are believed to bereasonable under the circumstances. Actual results may differ from these estimates under differentassumptions or conditions.  We believethe following critical accounting policies and related judgments and estimatesaffect the preparation of our consolidated financial statements.

 

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WARRANTY COSTS  The Companyprovides an estimate for accrued warranty costs at the time a product issold.  This estimate is based onhistorical average repair costs, as well as other reasonable assumptions ashave been deemed appropriate by management.

 

PRODUCT LIABILITY  The Companyprovides an estimate for accrued product liability based on current pendingcases, as well as for those cases which are incurred but not reported.  This estimate is developed by legal counselbased on professional judgment, as well as historical experience.

 

IMPAIRMENT OF GOODWILL  TheCompany assesses the potential impairment of goodwill in accordance withFinancial Accounting Standards Board (FASB) Statement No. 142.  This estimate involves management comparingthe fair value of goodwill to the respective carrying value, to see if goodwillhas been impaired.  See note 4 of theNotes to Condensed Consolidated Financial Statements.

 

**FACTORS THAT MAY AFFECT FUTUREOPERATING RESULTS**

 

WE MAY EXPERIENCE UNANTICIPATED FLUCTUATIONS IN  OUR OPERATING RESULTS FOR A VARIETY OFREASONS  Our net sales, gross margin andoperating results may fluctuate significantly from period to period due to anumber of factors, many of which are not readily predictable.  These factors include the following:

 

•  The marginsassociated with the mix of products we sell in any particular period

 

•   Our ability toutilize and expand our manufacturing resources efficiently

 

•   Shortages ofmaterials used in our products

 

•         A determination by us that goodwill or otherintangible assets are impaired and have to be written down to their fairvalues, resulting in a charge to our results of operations

 

•  Our ability tointroduce new models that achieve consumer acceptance

 

•  The introduction,marketing and sale of competing products by others

 

•  The addition orloss of our dealers

 

•  The timing oftrade shows and rallies, which we use to market and sell our products

 

•  Factors affectingthe recreational vehicle industry as a whole, including economic and seasonalfactors

 

Our overall gross margin may decline in future periods to the extentthat we increase the percentage of sales of lower gross margin towable productsor if the mix of motor coaches we sell shifts to lower gross margin units.  In addition, a relatively small variation inthe number of recreational vehicles we sell in any quarter can have asignificant impact on total sales and operating results for that quarter.

 

Demand in the recreational vehicle industry generally declines duringthe winter months, while sales are generally higher during the spring andsummer months.  With the broader rangeof products we now offer, seasonal factors could have a significant impact onour operating results in the future. Additionally, unusually severe weather conditions in certain marketscould delay the timing of shipments from one quarter to another.

 

We attempt to forecast orders for our products accurately and commencepurchasing and manufacturing prior to receipt of such orders.  However, it is highly unlikely that we willconsistently accurately forecast the timing and rate of orders.  This aspect of our business makes ourplanning inexact and, in turn, affects our shipments, costs, inventories,operating results and cash flow for any given quarter.

 

THE RECREATIONAL VEHICLE INDUSTRY IS CYCLICAL AND SUSCEPTIBLE TOSLOWDOWNS IN THE GENERAL ECONOMY  Therecreational vehicle industry has been characterized by cycles of growth andcontraction in consumer demand, reflecting prevailing economic, demographic andpolitical conditions that affect 

 

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disposable income forleisure-time activities.  For example,unit sales of recreational vehicles (excluding conversion vehicles) peaked atapproximately 259,000 units in 1994 and declined to approximately 247,000 unitsin 1996.  The industry peaked again in1999 at approximately 321,000 units and declined in 2000 and 2001 toapproximately 300,000 and 257,000 units, respectively.  Our business is necessarily subject to thecyclical nature of this industry.  Someof the factors that contribute to this cyclicality include fuel availabilityand costs, interest rate levels, the level of discretionary spending, andavailability of credit and overall consumer confidence.  The recent decline in consumer confidenceand slowing of the overall economy has adversely affected the recreationalvehicle market.  An extendedcontinuation of these conditions would materially affect our business, resultsof operations and financial condition.

 

OUR RECENT GROWTH HAS PUT PRESSURE ON THE CAPABILITIES OF OUROPERATING, FINANCIAL, AND MANAGEMENT INFORMATION SYSTEMS  In the past few years we have significantlyexpanded the size and scope of our business, which has required us to hire additionalemployees.  Some of these new employeesinclude new management personnel.  Inaddition, our current management personnel have assumed additionalresponsibilities.   The increase in oursize over a relatively short period of time has put pressure on our operating,financial, and management information systems. If we continue to expand, such growth would put additional pressure onthese systems and may cause such systems to malfunction or to experience significantdelays.

 

WE MAY EXPERIENCE UNEXPECTED PROBLEMS AND EXPENSES ASSOCIATED WITH THEEXPANSION OF OUR MANUFACTURING CAPACITY In the past few years we have significantly increased our manufacturingcapacity.   In connection with thisexpansion, we have also integrated some of our manufacturing facilities.   We may experience unexpected building andproduction problems associated with this expansion.  In the past, we have had difficulties with the manufacturing ofnew models and increasing the rates of production of our plants.   Our expenses have increased as a result ofthe expansion and we will be materially and adversely affected if the expansiondoes not result in an increase in revenue from the new or additional products.

 

This expansion involves risks, including the following:

 

•         We must rely on timely performance bycontractors, subcontractors, and government agencies, whose performance we maybe unable to control.

 

•         The development of new products involves costsassociated with new machinery, training of employees, and compliance with environmental,health, and other government regulations.

 

•         We may be unable to complete a plannedexpansion in a timely manner, which could result in lower production levels andan inability to satisfy customer demand for our products.

 

WE RELY ON A RELATIVELY SMALL NUMBER OF DEALERS FOR A SIGNIFICANTPERCENTAGE OF OUR SALES  Although ourproducts were offered by 385 dealerships located primarily in the United Statesand Canada as of June 29, 2002, a significant percentage of our sales areconcentrated among a relatively small number of independent dealers.  Sales to one dealer, Lazy Days RV Center,accounted for 12.1% of total sales in 2000 and 11.7% in 2001.  Our 10 largest dealers, including Lazy DaysRV Center, accounted for a total of 36% of our sales in 2000 and 39% of oursales in 2001.  The loss of asignificant dealer or a substantial decrease in sales by any of these dealerscould have a material impact on our business, results of operations andfinancial condition.

 

WE MAY HAVE TO REPURCHASE A DEALER’S INVENTORY OF OUR PRODUCTS IN THEEVENT THAT THE DEALER DOES NOT REPAY ITS LENDER  As is common in the recreational vehicle industry, we enter intorepurchase agreements with the financing institutions used by our dealers tofinance their purchases of our products. These agreements require us to repurchase the dealer’s inventory in theevent that the dealer does not repay its lender.  Obligations under these agreements vary from period to period,but totaled approximately $423.0 million as of June 29, 2002, withapproximately 9.8% concentrated with one dealer.  If we have to repurchase a significant number of our products inthe future, it could have a material adverse effect on our financial condition,business and results of operations.

 

WE MAY EXPERIENCE A DECREASE IN SALES OF OUR PRODUCTS DUE TO ANINCREASE IN THE PRICE OR A DECREASE IN THE SUPPLY OF FUEL  An interruption in the supply, or asignificant increase 

 

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in the price or tax onthe sale, of diesel fuel or gasoline on a regional or national basis couldsignificantly affect our business. Diesel fuel and gasoline have, at various times in the past, been eitherexpensive or difficult to obtain.

 

WE DEPEND ON SINGLE OR LIMITED SOURCES TO PROVIDE US WITH CERTAINIMPORTANT COMPONENTS THAT WE USE IN THE PRODUCTION OF OUR PRODUCTS  A number of important components for certainof our products are purchased from single or a limited number of sources. Theseinclude turbo diesel engines (Cummins and Caterpillar), substantially all ofour transmissions (Allison), axles (Dana) for all diesel motor coaches andchassis (Workhorse and Ford) for certain motor home products.  We have no long-term supply contracts withthese suppliers or their distributors, and we cannot be certain that thesesuppliers will be able to meet our future requirements.  For example, in 1997, Allison placed allchassis manufacturers on allocation with respect to one of the transmissionsthat we use, and again in 1999 Ford placed one of its gasoline powered chassison allocation.  An extended delay orinterruption in the supply of any components that we obtain from a singlesupplier or from a limited number of suppliers could adversely affect our business,results of operations and financial condition.

 

OUR INDUSTRY IS VERY COMPETITIVE. WE MUST CONTINUE TO INTRODUCE NEW MODELS AND NEW FEATURES TO REMAINCOMPETITIVE  The market for our productsis very competitive.  We currentlycompete with a number of manufacturers of motor coaches, fifth wheel trailers,and travel trailers.  Some of thesecompanies have greater financial resources than we have and extensivedistribution networks.  These companies,or new competitors in the industry, may develop products that customers in theindustry prefer over our products.

 

We believe that the introduction of new products and new features iscritical to our success.  Delays in theintroduction of new models or product features, quality problems associatedwith these introductions, or a lack of market acceptance of new models orfeatures could affect us adversely.  Forexample, unexpected costs associated with model changes have affected our grossmargin in the past.  Further, newproduct introductions can divert revenues from existing models and result infewer sales of existing products.

 

OUR PRODUCTS COULD FAIL TO PERFORM ACCORDING TO SPECIFICATIONS OR PROVETO BE UNRELIABLE, CAUSING DAMAGE TO OUR CUSTOMER RELATIONSHIPS AND OURREPUTATION AND RESULTING IN LOSS OF SALES Our customers require demanding specifications for product performanceand reliability.  Because our productsare complex and often use advanced components, processes and techniques,undetected errors and design flaws may occur. Product defects result in higher product service and warranty andreplacement costs and may cause serious damage to our customer relationshipsand industry reputation, all of which will negatively affect our sales andbusiness.

 

OUR BUSINESS IS SUBJECT TO VARIOUS TYPES OF LITIGATION, INCLUDINGPRODUCT LIABILITY AND WARRANTY CLAIMS We are subject to litigation arising in the ordinary course of ourbusiness, typically for product liability and warranty claims that are commonin the recreational vehicle industry. While we do not believe that the outcome of any pending litigation, netof insurance coverage, will materially adversely affect our business, resultsof operations or financial condition, we cannot provide assurances in thisregard because litigation is an inherently uncertain process.*

 

To date, we have been successful in obtaining product liabilityinsurance on terms that we consider acceptable.  Our current policies jointly provide coverage against claimsbased on occurrences within the policy periods up to a maximum of $101 millionfor each occurrence and $102 million in the aggregate.  We cannot be certain we will be able toobtain insurance coverage in the future at acceptable levels or that the costsof such insurance will be reasonable. Further, successful assertion against us of one or a series of largeuninsured claims, or of a series of claims exceeding our insurance coverage,could have a material adverse effect on our business, results of operations andfinancial condition.

 

WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES, DELAYING PRODUCTDEVELOPMENT AND MANUFACTURING  Oursuccess depends in part upon attracting and retaining highly skilledprofessionals.  A number of ouremployees are highly skilled engineers and other technical professionals, andour failure to continue to attract and retain such individuals could adverselyaffect our ability to compete in the industry.

 

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**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company’sprimary sources of liquidity are internally generated cash from operations andavailable borrowings under its credit facilities.  During the first six months of 2002, the Company used cash of$1.2 million from operating activities. The Company generated $24.7 million from net income and non-cashexpenses such as depreciation and amortization. This amount was reduced by anincrease of $39.3 million in trade receivables, as well as an increase of $24.1million in inventories, that was mostly offset by an increase in trade payablesof $21.2, and an additional increase in other liabilities and deferred taxes of$19.3 million.  The increase in tradereceivables reflect increased shipments near the end of the quarter compared tothe year end of 2001.  Increasedinventory levels reflect an increase of work in process as the Company implementeda new quality improvement process that added an additional stage to the finalcompletion of the product.  Increasedpayables and liabilities are reflective of increased purchases for modelchange, accruals for current income taxes payable, and various other accruedliabilities.

 

The Company hascredit facilities consisting of a revolving line of credit of up to $70.0million (the “Revolving Loan”).  At theelection of the Company, the Revolving Loan bears interest at varying ratesthat fluctuate based on the Prime rate or LIBOR, and are determined based onthe Company’s leverage ratio.  TheCompany also pays interest monthly on the unused available portion of theRevolving Loan at varying rates, determined by the Company’s leverageratio.  The Revolving loan is due andpayable in full on September 30, 2004, and requires monthly interestpayments.  The balance outstanding underthe Revolving Loan at June 29, 2002 was $27.0 million.  The Revolving Loan is collateralized by allthe assets of the Company and includes various restrictions and financialcovenants.  The Company utilizes “zerobalance” bank disbursement accounts in which an advance on the line of creditis automatically made for checks clearing each day.  Since the balance of the disbursement account at the bank returnsto zero at the end of each day, the outstanding checks of the Company arereflected as a liability.  Theoutstanding check liability is combined with the Company’s positive cashbalance accounts to reflect a net book overdraft or a net cash balance forfinancial reporting.

 

The Company’sprincipal working capital requirements are for purchases of inventory and, to alesser extent, financing of trade receivables. The Company’s dealers typically finance product purchases under wholesalefloor plan arrangements with third parties as described below.  At June 29, 2002, the Company had workingcapital of approximately $83.5 million, an increase of $19.8 million fromworking capital of $63.7 million at December 29, 2001.  The Company has been using short-term creditfacilities and cash flow to finance its capital expenditures.

 

The Companybelieves that cash flow from operations and funds available under itsanticipated credit facilities will be sufficient to meet the Company’s liquidityrequirements for the next 12 months.* The Company’s capital expenditures were $6.8 million in the first halfof 2002, primarily for completing the Company’s warranty and service centerproject in Harrisburg, Oregon, as well as various other smaller projects.  The Company anticipates that capitalexpenditures for all of 2002 will be approximately $10 to $12 million, whichincludes $4 to $5 million of routine capital expenditures for computer systemupgrades and additions, smaller scale plant remodeling projects and normalreplacement of outdated or worn-out equipment.*  The Company may require additional equity or debt financing toaddress working capital and facilities expansion needs, particularly if theCompany significantly increases the level of working capital assets such asinventory and accounts receivable.  TheCompany may also from time to time seek to acquire businesses that wouldcomplement the Company’s current business, and any such acquisition could requireadditional financing.  There can be noassurance that additional financing will be available if required or on termsdeemed favorable by the Company.

 

As is common inthe recreational vehicle industry, the Company enters into repurchaseagreements with the financing institutions used by its dealers to finance theirpurchases. These agreements obligate the Company to repurchase a dealer’sinventory under certain circumstances in the event of a default by the dealerto its lender. If the Company were obligated to repurchase a significant numberof its products in the future, it could have a material adverse effect on theCompany’s financial condition, business and results of operations. TheCompany’s contingent obligations under repurchase agreements vary from periodto period and totaled approximately $423.0 million as of June 29, 2002, withapproximately 9.8% concentrated with one dealer.

 

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As part of the normal course of business, the Company incurs certaincontractual obligations and commitments which will require future cashpayments. The following tables summarize the significant obligations andcommitments.

 

PAYMENTS DUE BYPERIOD

 
| **Contractual  Obligations (in thousands)** |   | **1 year or  less** |      | **1 to 3  years** |   | **4 to 5  years** |   | **Thereafter** |   | **Total** |   |
|---------------------------------------------|--------|---------------------|-----------|-------------------|--------|-------------------|--------|----------------|--------|-----------|--------|
|                                        |   |                |      |              |   |              |   |           |   |      |   |
| Long-term debt (1)                          |   | $                   | 10,000    |              | $      | 25,000            |   | $              | 0      |      | $      | 0 |   | $ | 35,000 |   |
| Operating Leases  (2)                       |   | 2,204               |      | 2,988             |   | 1,350             |   | 4,333          |   | 10,875    |   |
|                                        |   |                |      |              |   |              |   |           |   |      |   |
| Total Contractual Cash  Obligations         |   | $                   | 12,204    |              | $      | 27,988            |   | $              | 1,350  |      | $      | 4,333 |   | $ | 45,875 |   |
|                                        |   |                |      |              |   |              |   |           |   |      |   |   |   |   |   |   |
| AMOUNT OF COMMITMENT  EXPIRATION BY PERIOD  |
|                                        |   |                |      |              |   |              |   |           |   |      |   |   |   |   |   |   |
| **Other  Commitments (in thousands)**       |   | **1 year or less**  |      | **1 to 3 years**  |   | **4 to 5 years**  |   | **Thereafter** |   | **Total** |   |
|                                        |   |                |      |              |   |              |   |           |   |      |   |
| Lines of Credit (3)                         |   | $                   | 0         |              | $      | 70,000            |   | $              | 0      |      | $      | 0 |   | $ | 70,000 |   |
| Guarantees                                  |   | 9,900               | (4)  | 16,039            | (2)    | 0                 |   | 0              |   | 25,939    |   |
| Repurchase  Obligations (5)                 |   | 0                   |      | 423,000           |   | 0                 |   | 0              |   | 423,000   |   |
| Total Commitments                           |   | $                   | 9,900     |              | $      | 509,039           |   | $              | 0      |      | $      | 0 |   | $ | 518,939 |   |
|                                             |        |                     |           |                   |        |                   |        |                |        |           |        |  |  |  |  |  |  |  |

 

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(1)  See Note 7to the financials.

(2)  Variousleases including manufacturing facilities, aircraft, and machinery andequipment.  See Note 8 to thefinancials.

(3)  See Note5  to the financials.  The amount listed represents availableborrowings on the line of credit at June 29, 2002.

(4)  See Note 8to the financials.

(5)  Reflectsobligations under manufacturer repurchase commitments.  See Note 8 to the financials.

 

NEWLY ISSUED FINANCIAL REPORTING PRONOUNCEMENTS

 

**SFAS 143, Accounting for AssetRetirement Obligations**

 

In June 2001, FASBissued Statement No. 143, Accounting for Asset Retirement Obligations.  FASB Statement No. 143 is effective for thefiscal years beginning after June 15, 2002. FASB Statement No. 143, addresses financial accounting and reporting forobligations associated with the retirement of tangible long-lived assets andthe associated asset retirement costs. FASB Statement No. 143 requires that thefair value of a liability for an asset retirement obligation be recognized inthe period in which it is incurred if a reasonable estimate of fair value canbe made. The associated asset retirement costs are capitalized as part of thecarrying amount of the long-lived asset. The impact of this pronouncement onthe Company’s financial statements is not expected to be material.

 

**FAS 145, Rescission of FAS Nos. 4,44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002**

 

This Statementrescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishmentof Debt, and an amendment of that Statement, FASB Statement No. 64,Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. ThisStatement also rescinds FASB Statement No. 44, Accounting for Intangible Assetsof Motor Carriers. This Statement amends FASB Statement No. 13, Accounting forLeases, to eliminate an inconsistency between the required accounting for sale-leasebacktransactions and the required accounting for certain lease modifications thathave economic effects that are similar to sale-leaseback transactions.  This Statement also amends other existingauthoritative pronouncements to make various technical corrections, clarifymeanings, or describe their 

 

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applicabilityunder changed conditions.  The Companyhas reviewed this pronouncement and will consider it’s impact on any relevanttransactions.

 

**FAS 146, Accounting for CostsAssociated with Exit or Disposal Activities**

 

This Statementaddresses financial accounting and reporting for costs associated with exit ordisposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in aRestructuring).”

 

This Statementapplies to costs associated with an exit activity that does not involve anentity newly acquired in a business combination or with a disposal activitycovered by FASB Statement No. 144, Accounting for the Impairment or Disposal ofLong-lived Assets.  Those costs include,but are not limited to, the following:

 

a.  Termination benefits provided to currentemployees that are involuntarily terminated under the terms of a benefitarrangement that, in substance, is not an ongoing benefit arrangement or anindividual deferred compensation contract (hereinafter referred to as one-timetermination benefits),

 

b.  Costs to terminate a contract that is not acapital lease, and,

 

c.  Costs to consolidate facilities or relocateemployees.

 

This Statementdoes not apply to costs associated with the retirement of a long-lived assetcovered by FASB Statement No. 143, Accounting for Asset RetirementObligations.  The impact of thispronouncement on the Company’s financial statements is not expected to bematerial.

** **

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk**

 

Not applicable.

 

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**PART II- OTHER INFORMATION**

 

**Item4.  Submission of Matters to a Vote ofSecurity Holders**

 

At the Annual Meeting of Stockholders of the Company,held on May 16, 2002 in Coburg, Oregon, the Stockholders (i) elected threeClass I directors to serve on the Company’s Board of Directors, (ii) amendedthe Company’s Director Option Plan to (a) extend the term of the Director Planan additional ten years until March 2012; and (b) make certain other changes tothe Director Option Plan as set forth in the proxy statement, (iii) amended theCompany’s Incentive Stock Option Plan to (a) increase the number of sharesissuable thereunder by 600,000 shares; (b) extend the term of the IncentiveStock Option Plan an additional ten years until March 2012; (c) allow“performance based compensation” grants under the Stock Plan in compliance withSection 162(m) of the Tax Code; and (d) make certain other changes to theIncentive Stock Option Plan as set forth in the proxy statement, and (iv)  ratified the Company’s appointment ofPricewaterhouseCoopers LLP as independent auditors.

 

The vote for the election of the three Class Idirectors was as follows:

 

| **Nominee**       |   | **For**    |   | **Withheld** |   |
|-------------------|--------|------------|--------|--------------|--------|
| Kay  L. Toolson   |   | 21,658,908 |   | 5,596,701    |   |
| Richard  A. Rouse |   | 27,118,611 |   | 136,998      |   |
| L.  Ben Lytle     |   | 27,125,376 |   | 130,233      |   |

 

The vote for amending the Company’s Director OptionPlan was as follows:

 
| **For**    |   | **Against** |   | **Abstained** |   |
|------------|--------|-------------|--------|---------------|--------|
| 21,591,918 |   | 4,601,669   | +      | 1,162,572     |   |

 

The vote for amending the Company’s Incentive StockOption Plan was as follows:

 
| **For**    |   | **Against** |   | **Abstained** |   |
|------------|--------|-------------|--------|---------------|--------|
| 14,300,095 |   | 11,902,077  | +      | 1,153,987     |   |

 

The vote for ratifying the appointment ofPricewaterhouseCoopers LLP was as follows:

 
| **For**    |   | **Against** |   | **Abstained** |   |
|------------|--------|-------------|--------|---------------|--------|
| 27,106,679 |   | 139,544     |   | 9,386         |   |

 

----

+ Includes 3,692,636 broker nonvotes

 

**Item6.  Exhibits and Reports on Form 8-K**

 
| (a)    | Exhibits                                                                                                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                      |   |
|   | 3.1                                                                                                                       | Amended and Restated Bylaws of the Registrant. |
|   | 10.1                                                                                                                      | 1993 Incentive Stock Option Plan as Amended Through  May 16, 2002. |
|   | 10.2                                                                                                                      | 1993 Director Option Plan as Amended Through May 16,  2002. |
|   | 99.1                                                                                                                      | Certification by CEO and CFO of Financial  Statements. |
|   |                                                                                                                      |   |
| (b)    | Reports on Form 8-K                                                                                                       |
|   |                                                                                                                      |   |
|   | No reports on Form 8-K were required to be filed  during the quarter ended June 29, 2002, for which this report is filed. |

 

 

19

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|   |            | **MONACO COACH CORPORATION**      |
|--------|-----------------|-----------------------------------|
|   |            |                              |
|   |            |                              |
| Dated: | August 13, 2002 |                              |   | /s/ P. Martin  Daley |   |
|   |            | P. Martin Daley                   |
|   |            | Vice President  and               |
|   |            | Chief Financial  Officer (Duly    |
|   |            | Authorized  Officer and Principal |
|   |            | Financial  Officer)               |
|        |                 |                                   |  |  |  |

 

 

20

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