ITEM
8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
INDEX
TO FINANCIAL STATEMENTS
Monaco Coach CorporationConsolidated Financial
Statements:
|
|
|
Report of
Independent Registered Public Accounting Firm
|
|
38
|
Consolidated
Balance Sheets as of December 30, 2006 and December 29, 2007
|
|
39
|
Consolidated
Statements of Income for the Years Ended December 31, 2005,
December 30, 2006, and December 29, 2007
|
|
40
|
Consolidated
Statements of Stockholders Equity for the Years Ended December 31,
2005, December 30, 2006, and December 29, 2007
|
|
41
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2005,
December 30, 2006, and December 29, 2007
|
|
42
|
Notes to
Consolidated Financial Statements
|
|
43
|
37
Report of Independent
Registered Public Accounting Firm
To the Stockholders and Board of Directors of Monaco Coach
Corporation
In our opinion, the
accompanying consolidated balance sheets and the related consolidated
statements of income, stockholders equity and cash flows present fairly, in
all material respects, the financial position of Monaco Coach Corporation and
its subsidiaries (the Company) at December 29, 2007 and December 30,
2006 and the results of their operations and their cash flows for each of the
three years in the period ended December 29, 2007 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting
as of December 29, 2007, based on criteria established in
Internal Control - Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these
financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Managements Report on
Internal Control over Financial Reporting.
Our responsibility is to express opinions on these financial statements
and on the Companys internal control over financial reporting based on our
integrated audits. We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained
in all material respects. Our audits of
the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our
audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
As discussed in Note 17
to the consolidated financial statements, the Company changed the manner in
which it accounts for stock-based compensation in 2006. As discussed in Note 1
to the consolidated financial statements, the Company changed the manner in
which it accounts for uncertain tax positions as of December 31, 2006.
A companys internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
|
Portland, Oregon
|
|
March 13, 2008
|
38
MONACO COACH CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except share and per share data)
|
|
December 30,
|
|
December 29,
|
|
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash
|
|
$
|
4,984
|
|
$
|
6,282
|
|
Trade
receivables, net
|
|
81,588
|
|
88,170
|
|
Inventories, net
|
|
155,871
|
|
158,236
|
|
Resort lot
inventory
|
|
7,997
|
|
8,838
|
|
Prepaid expenses
|
|
5,624
|
|
5,142
|
|
Income taxes
receivable
|
|
6,901
|
|
0
|
|
Deferred income
taxes
|
|
38,038
|
|
37,608
|
|
Total current
assets
|
|
301,003
|
|
304,276
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
153,895
|
|
144,291
|
|
Land held for development
|
|
16,300
|
|
24,321
|
|
Investment in joint venture
|
|
0
|
|
4,059
|
|
Debt issuance costs, net of accumulated amortization
of $912 and $1,098, respectively
|
|
540
|
|
498
|
|
Goodwill
|
|
86,412
|
|
86,323
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
558,150
|
|
$
|
563,768
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Book overdraft
|
|
$
|
16,626
|
|
$
|
1,601
|
|
Current portion
of long-term debt
|
|
5,714
|
|
5,714
|
|
Line of credit
|
|
2,036
|
|
0
|
|
Income taxes
payable
|
|
0
|
|
3,726
|
|
Accounts payable
|
|
72,591
|
|
82,833
|
|
Product
liability reserve
|
|
15,764
|
|
14,625
|
|
Product warranty
reserve
|
|
33,804
|
|
35,171
|
|
Accrued expenses
and other liabilities
|
|
44,364
|
|
48,609
|
|
Discontinued
operations
|
|
298
|
|
0
|
|
Total current
liabilities
|
|
191,197
|
|
192,279
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
29,071
|
|
23,357
|
|
Deferred income taxes
|
|
21,678
|
|
21,506
|
|
Deferred revenue
|
|
883
|
|
683
|
|
Total
liabilities
|
|
242,829
|
|
237,825
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 20)
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
Preferred stock,
$.01 par value; 1,934,783 shares authorized, no shares outstanding
|
|
|
|
|
|
Common stock,
$.01 par value; 50,000,000 shares authorized, 29,769,356 and 29,989,534
issued and outstanding, respectively
|
|
298
|
|
300
|
|
Additional paid-in capital
|
|
63,722
|
|
69,514
|
|
Retained earnings
|
|
251,301
|
|
256,129
|
|
Total
stockholders equity
|
|
315,321
|
|
325,943
|
|
|
|
|
|
|
|
Total
liabilities and stockholders equity
|
|
$
|
558,150
|
|
$
|
563,768
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
39
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 2005, December 30, 2006, and December 29,
2007
(in thousands of dollars, except share and per share data)
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,236,238
|
|
$
|
1,297,986
|
|
$
|
1,272,130
|
|
Cost of sales
|
|
1,111,468
|
|
1,173,443
|
|
1,131,262
|
|
Gross profit
|
|
124,770
|
|
124,543
|
|
140,868
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
113,179
|
|
120,465
|
|
117,459
|
|
Plant relocation costs
|
|
4,370
|
|
269
|
|
0
|
|
Operating income
|
|
7,221
|
|
3,809
|
|
23,409
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
255
|
|
615
|
|
851
|
|
Interest expense
|
|
(1,820
|
)
|
(4,430
|
)
|
(3,496
|
)
|
Loss from investment in joint venture
|
|
0
|
|
0
|
|
(614
|
)
|
Income (loss)
before income taxes, continuing operations
|
|
5,656
|
|
(6
|
)
|
20,150
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes, continuing
operations
|
|
1,687
|
|
(992
|
)
|
8,137
|
|
Income from continuing operations
|
|
3,969
|
|
986
|
|
12,013
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
provision (benefit)
|
|
(1,321
|
)
|
18
|
|
0
|
|
Net income
|
|
$
|
2,648
|
|
$
|
1,004
|
|
$
|
12,013
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
Basic from
continuing operations
|
|
$
|
0.13
|
|
$
|
0.03
|
|
$
|
0.40
|
|
Basic from
discontinued operations
|
|
(0.04
|
)
|
0.00
|
|
0.00
|
|
Basic
|
|
$
|
0.09
|
|
$
|
0.03
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
Diluted from
continuing operations
|
|
$
|
0.13
|
|
$
|
0.03
|
|
$
|
0.40
|
|
Diluted from
discontinued operations
|
|
(0.04
|
)
|
0.00
|
|
0.00
|
|
Diluted
|
|
$
|
0.09
|
|
$
|
0.03
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
29,516,794
|
|
29,712,957
|
|
29,931,730
|
|
Diluted
|
|
29,858,036
|
|
29,902,830
|
|
30,346,917
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
40
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
for the years ended December 31, 2005, December 30, 2006, and December 29,
2007
(in thousands of dollars, except share data)
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Total
|
|
Balances, January 1, 2005
|
|
29,425,787
|
|
$
|
294
|
|
$
|
57,454
|
|
$
|
261,868
|
|
$
|
319,616
|
|
Issuance of common stock
|
|
135,979
|
|
2
|
|
1,420
|
|
|
|
1,422
|
|
Stock-based compensation expense
|
|
|
|
|
|
16
|
|
|
|
16
|
|
Tax benefit of stock options exercised
|
|
|
|
|
|
115
|
|
|
|
115
|
|
Dividends paid
|
|
|
|
|
|
|
|
(7,085
|
)
|
(7,085
|
)
|
Net income
|
|
|
|
|
|
|
|
2,648
|
|
2,648
|
|
Balances, December 31, 2005
|
|
29,561,766
|
|
296
|
|
59,005
|
|
257,431
|
|
316,732
|
|
Issuance of common stock
|
|
207,590
|
|
2
|
|
1,797
|
|
|
|
1,799
|
|
Stock-based compensation expense
|
|
|
|
|
|
2,759
|
|
|
|
2,759
|
|
Tax benefit of stock-based award activity
|
|
|
|
|
|
161
|
|
|
|
161
|
|
Dividends paid
|
|
|
|
|
|
|
|
(7,134
|
)
|
(7,134
|
)
|
Net income
|
|
|
|
|
|
|
|
1,004
|
|
1,004
|
|
Balances, December 30, 2006
|
|
29,769,356
|
|
298
|
|
63,722
|
|
251,301
|
|
315,321
|
|
Issuance of common stock
|
|
220,178
|
|
2
|
|
1,506
|
|
|
|
1,508
|
|
Stock-based compensation expense
|
|
|
|
|
|
4,011
|
|
|
|
4,011
|
|
Tax benefit of stock-based award activity
|
|
|
|
|
|
275
|
|
|
|
275
|
|
Dividends paid
|
|
|
|
|
|
|
|
(7,185
|
)
|
(7,185
|
)
|
Net income
|
|
|
|
|
|
|
|
12,013
|
|
12,013
|
|
Balances, December 29, 2007
|
|
29,989,534
|
|
$
|
300
|
|
$
|
69,514
|
|
$
|
256,129
|
|
$
|
325,943
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
41
MONACO COACH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2005, December 30, 2006, and December 29,
2007
(in thousands of dollars)
|
|
2005
|
|
2006
|
|
2007
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,648
|
|
$
|
1,004
|
|
$
|
12,013
|
|
Adjustments to
reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
Loss on sale of
assets
|
|
276
|
|
14
|
|
58
|
|
Depreciation and
amortization
|
|
10,678
|
|
14,177
|
|
14,132
|
|
Deferred income
taxes
|
|
(2,943
|
)
|
(1,900
|
)
|
347
|
|
Stock-based
compensation expense
|
|
16
|
|
2,759
|
|
4,108
|
|
Net losses in
equity investment
|
|
0
|
|
0
|
|
614
|
|
Changes in
working capital accounts:
|
|
|
|
|
|
|
|
Trade
receivables, net
|
|
39,203
|
|
21,078
|
|
(6,582
|
)
|
Inventories
|
|
(2,916
|
)
|
27,421
|
|
(6,425
|
)
|
Resort lot inventory
|
|
145
|
|
1,138
|
|
(841
|
)
|
Prepaid expenses
|
|
1,422
|
|
(1,270
|
)
|
479
|
|
Land held for
development
|
|
0
|
|
(16,300
|
)
|
(8,022
|
)
|
Accounts payable
|
|
(5,947
|
)
|
(5,708
|
)
|
10,242
|
|
Product
liability reserve
|
|
(1,619
|
)
|
(3,762
|
)
|
(1,139
|
)
|
Product warranty
reserve
|
|
(4,486
|
)
|
902
|
|
1,093
|
|
Income taxes
payable
|
|
(2,293
|
)
|
(6,664
|
)
|
10,627
|
|
Accrued expenses
and other liabilities
|
|
805
|
|
7,224
|
|
4,277
|
|
Deferred revenue
|
|
0
|
|
883
|
|
(200
|
)
|
Discontinued
operations
|
|
(662
|
)
|
4,271
|
|
(18
|
)
|
Net cash
provided by operating activities
|
|
34,327
|
|
45,267
|
|
34,763
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Additions to
property, plant, and equipment
|
|
(17,718
|
)
|
(9,324
|
)
|
(5,279
|
)
|
Investment in
joint venture
|
|
0
|
|
0
|
|
(366
|
)
|
Payment for
business acquisition, net of cash acquired
|
|
(54,601
|
)
|
0
|
|
0
|
|
Proceeds from
sale of assets
|
|
123
|
|
215
|
|
644
|
|
Discontinued
operations
|
|
(4
|
)
|
0
|
|
0
|
|
Net cash used in
investing activities
|
|
(72,200
|
)
|
(9,109
|
)
|
(5,001
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Book overdraft
|
|
12,475
|
|
2,076
|
|
(15,025
|
)
|
Payments on
lines of credit, net
|
|
(9,062
|
)
|
(22,964
|
)
|
(2,036
|
)
|
Borrowing
(payments) on long-term notes payable
|
|
40,500
|
|
(5,715
|
)
|
(5,714
|
)
|
Debt issuance
costs
|
|
(298
|
)
|
(79
|
)
|
(278
|
)
|
Dividends paid
|
|
(7,085
|
)
|
(7,134
|
)
|
(7,194
|
)
|
Issuance of
common stock
|
|
1,537
|
|
1,799
|
|
1,508
|
|
Tax benefit of
stock-based award activity
|
|
0
|
|
161
|
|
275
|
|
Discontinued
operations
|
|
392
|
|
96
|
|
0
|
|
Net cash
provided by (used in) financing activities
|
|
38,459
|
|
(31,760
|
)
|
(28,464
|
)
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
586
|
|
4,398
|
|
1,298
|
|
Cash at beginning of period
|
|
0
|
|
586
|
|
4,984
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
586
|
|
$
|
4,984
|
|
$
|
6,282
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
42
MONACO COACH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES:
Business
Monaco
Coach Corporation and its subsidiaries (the Company) manufacture premium
motor coaches and towable recreational vehicles at manufacturing facilities in
Oregon and Indiana. These products are sold to independent dealers primarily
throughout the United States and Canada. In addition, the Company owns two
motor coach resort properties, where the developed lots are sold to retail
customers, and two additional parcels of land that are being developed into
resorts.
The
Companys core business activities are comprised of three distinct operations.
The first is the design, manufacture, and sale of motorized recreational
vehicles. The second is the design, manufacture, and sale of towable
recreational vehicles. The third is the development and sale of motor coach
recreation resort lots. Accordingly, the Company has presented segmented
financial information for these three segments at Note 12 of the Companys
Notes to Consolidated Financial Statements.
Consolidation Policy
The accompanying
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All material intercompany transactions and balances
have been eliminated. The Company has no material variable interest in any
variable interest entities.
Fiscal Period
The Company follows a
52/53 week fiscal year period ending on the Saturday closest to December 31.
Interim periods also end on the Saturday closest to the calendar quarter end.
The fiscal periods were 52 weeks long for 2005, 2006, and 2007. All references
to years in the consolidated financial statements relate to fiscal years rather
than calendar years.
Estimates and Industry
Factors
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The Company bases estimates on various assumptions that are
believed to be reasonable under the circumstances. Actual results could differ
from those estimates and such differences may be material to the consolidated
financial statements. Management is
continually evaluating and updating these estimates, and it is possible that these
estimates will change in the near future.
Credit
Risk
The Company
distributes its motorized and towable recreational vehicles through an
independent dealer network for recreational vehicles. Sales to one customer
were approximately 11% of net revenues for fiscal year 2005, 9% for 2006, and
9% for 2007. The net revenues generated from this customer are reported in the
motorized and towable segments. No other individual dealers represented over
10% of net revenues in 2005, 2006, or 2007. The loss of a significant dealer or
a substantial decrease in sales by such a dealer could have a material adverse
effect on the Companys business, results of operations, and financial
condition. The terms and conditions of payment are a combination of open trade
receivables and commitments from dealer floor plan lending institutions.
For resort lot customers, funds are required at the time of
closing. For our RV dealers, terms are net 30 days for units that are financed
by a third party lender. For open receivables, terms vary from net 30 days to
net 180 days, depending on the specific agreement. Terms beyond 30 days
generally require additional collateral, as well as security interest in the
inventory sold.
43
As
of December 29, 2007, total trade receivables were $88.2 million, net of
$714,000 for allowance for doubtful accounts ($81.6 million, net of $708,000 at
December 30, 2006). At December 29, 2007 approximately $70.5 million,
or 80.0% of the outstanding accounts receivable balance was concentrated among
floor plan lenders ($49.5 million, or 60.7% at December 30, 2006). The
remaining open $17.7 million of secured trade receivables were substantially
concentrated with one dealer. Terms of open trade receivables are granted by
the Company, on a very limited basis, to dealers who have been subjected to
evaluative credit processes conducted by the Company. These processes include
evaluating the strength of the dealerships balance sheet, how long the
dealership has been in existence, reputation within the industry, and credit
references.
Concentrations
of credit risk exist for accounts receivable and repurchase agreements (see
Note 20), primarily for the Companys largest dealers. As of December 29,
2007, the Company had one dealer that comprised 16.6% of the outstanding trade
receivables. The Company generally sells to dealers throughout the United
States and there is no geographic concentration of credit risk.
Product Warranty Reserve
Estimated
warranty costs are provided for at the time of sale of products with warranties
covering the products for up to one year from the date of retail sale (five
years for the front and sidewall frame structure, and three years on the
Roadmaster chassis). These estimates are based on historical average repair
costs, as well as other reasonable assumptions deemed appropriate by
management. The adjustments are related to the R-Vision acquisition. The
following table discloses significant changes in the product warranty reserve:
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
31,884
|
|
$
|
32,902
|
|
$
|
33,804
|
|
Expense
|
|
28,861
|
|
38,884
|
|
40,752
|
|
Payments
|
|
(33,348
|
)
|
(37,982
|
)
|
(39,385
|
)
|
Adjustments
|
|
5,505
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
32,902
|
|
$
|
33,804
|
|
$
|
35,171
|
|
Product Liability Reserve
Estimated
litigation costs are provided for at the time of sale of products or at the
time a determination is made that an estimable loss has occurred. These
estimates are developed by legal counsel based on professional judgment and
historical experience. The adjustments are related to the R-Vision acquisition.
The following table discloses significant changes in the product liability
reserve:
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(in
thousands)
|
|
Beginning balance
|
|
$
|
20,233
|
|
$
|
19,275
|
|
$
|
15,764
|
|
Expense
|
|
9,635
|
|
10,000
|
|
12,390
|
|
Payments
|
|
(11,254
|
)
|
(13,689
|
)
|
(13,529
|
)
|
Adjustments
|
|
661
|
|
178
|
|
0
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
19,275
|
|
$
|
15,764
|
|
$
|
14,625
|
|
Inventories
Inventories consist of
raw materials, work-in-process, and finished recreational vehicles and are
stated at the lower of cost (first-in, first-out) or market. Cost of
work-in-process and finished recreational vehicles includes material, labor,
and manufacturing overhead costs.
44
Inventory Allowance
The Company writes down
its inventory for obsolescence, and the difference between the cost of
inventory and its estimated market value. These write-downs are based on
assumptions about future sales demand and market conditions. If actual sales
demand or market conditions change from those projected by management,
additional inventory write-downs may be required.
Resort Lot Inventory
Resort
lot inventories consist of construction-in-progress on motor coach properties,
as well as fully developed motor coach properties. These properties are stated
at the lower of cost (specific identification) or market. Costs of land,
construction, and interest incurred during construction are capitalized as the
cost basis for lots available for sale. The cost of land is allocated to each
phase of the total project based on acreage used. Allocated land cost plus all
other costs of construction for each phase have been allocated to each
developed lot on a pro rata basis, using individual lot selling prices as a
percent of total sales for the total development.
Property, Plant, and
Equipment
Property,
plant, and equipment, including significant improvements thereto, are stated at
cost less accumulated depreciation and amortization. Cost includes expenditures
for major improvements, replacements and renewals and the net amount of
interest cost associated with significant capital additions during periods of
construction. Maintenance and repairs are charged to expense as incurred.
Replacements and renewals are capitalized. When assets are sold, retired or
otherwise disposed of, the cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss is reflected in income.
The
cost of plant and equipment is depreciated using the straight-line method over
the estimated useful lives of the related assets. Buildings are generally
depreciated over 39 years and equipment is depreciated over 3 to 10 years.
Leasehold improvements are amortized under the straight-line method based on
the shorter of the lease periods or the estimated useful lives.
At
each balance sheet date, management assesses whether there has been any
triggering events that might indicate permanent impairment in the value of
property, plant, and equipment assets. The amount of any such impairment is
determined by comparing anticipated undiscounted future cash flows from
operating activities with the associated carrying value. The factors considered
by management in performing this assessment include current operating results,
trends and prospects, as well as the effects of obsolescence, demand,
competition, and other economic factors.
Brand Elements and
Signage
As
part of its franchise program for dealers, the Company places certain fixed
assets at independent dealerships. These assets are comprised of informational
computer kiosks, brand island displays, furniture and fixtures, as well as
outdoor storefront signage. These assets are leased to dealers over 10 years
through an operating lease, and the Company depreciates the assets over their
respective economic useful lives, generally three years. As of December 30,
2006 and December 29, 2007 the brand elements and signage assets have a
balance of approximately $4.9 million and $3.6 million, respectively (net of
accumulated depreciation of approximately $1.7 million and $4.1 million,
respectively). These assets are classified with property, plant, and equipment.
Land Held for
Development
In June 2006, the Company acquired an 80 acre
piece of undeveloped land near La Quinta, California for $16.3 million. In addition, on April 20, 2007, the
Company acquired a 24 acre parcel near Naples, Florida for the purchase price
of $8.0 million. These two properties
are being developed as motorcoach only resorts.
Debt Issuance Costs
Unamortized debt issuance
costs of $540,000 and $498,000 (at December 30, 2006, and December 29,
2007, respectively), are being amortized on a straight-line basis over the
terms of the related loans.
45
Goodwill
Goodwill
represents the excess of the cost of acquisition over the fair value of net
assets acquired. Total goodwill of $86.3 million as of December 29, 2007,
included $55.3 million of goodwill arising from the various acquisitions of
assets and operations prior to January 1, 2005. The Company recorded $30.7
million of goodwill associated with the November 18, 2005 acquisition of
R-Vision. In 2006, the Company recorded additional goodwill of $490,000 related
to adjustments to the allocation of the purchase price of R-Vision. In 2006 and
2007, the Company also recorded a reduction of $30,000 and $89,000,
respectively for the tax benefit realized on the excess of tax-deductible
goodwill over goodwill for financial reporting purposes related to R-Vision.
During 2006, the Company
reorganized its reporting structure which resulted in the splitting of the RV
segment information of the Motorized Recreational Vehicle reporting segment and
the Towable Recreational Vehicle reporting segment. The allocation of goodwill
to the reporting segments was based on relative fair values in each segment.
The amount of goodwill assigned to each reportable segment and changes in
carrying amounts of such is as follows (all dollars represented are in
thousands):
|
|
|
|
|
|
Motorized
|
|
Towable
|
|
|
|
|
|
Recreational
|
|
Motorhome
|
|
Recreational
|
|
Recreational
|
|
|
|
|
|
Vehicle
|
|
Resorts
|
|
Vehicle
|
|
Vehicle
|
|
|
|
|
|
Segment
|
|
Segment
|
|
Segment
|
|
Segment
|
|
Total
|
|
Balance,
January 1, 2005
|
|
$
|
55,254
|
|
$
|
0
|
|
N/A
|
|
N/A
|
|
$
|
55,254
|
|
Allocation of
goodwill due to reorganization of reporting structure
|
|
(55,254
|
)
|
0
|
|
$
|
46,966
|
|
$
|
8,288
|
|
0
|
|
Goodwill
acquired
|
|
0
|
|
0
|
|
0
|
|
30,698
|
|
30,698
|
|
Balance,
December 31, 2005
|
|
N/A
|
|
0
|
|
46,966
|
|
38,986
|
|
85,952
|
|
Adjustment to
allocation of purchase price of R-Vision
|
|
0
|
|
0
|
|
0
|
|
490
|
|
490
|
|
Excess of tax
deductible goodwill
|
|
0
|
|
0
|
|
0
|
|
(30
|
)
|
(30
|
)
|
Balance,
December 30, 2006
|
|
N/A
|
|
0
|
|
46,966
|
|
39,446
|
|
86,412
|
|
Excess of tax
deductible goodwill
|
|
0
|
|
0
|
|
0
|
|
(89
|
)
|
(89
|
)
|
Balance,
December 29, 2007
|
|
$
|
N/A
|
|
$
|
0
|
|
$
|
46,966
|
|
$
|
39,357
|
|
$
|
86,323
|
|
SFAS
142 requires that management assess at least annually whether there has been
permanent impairment in the value of goodwill at the individual reporting unit
basis. To assess whether or not there has been impairment, the Companys
management compares the fair value of each reporting unit to its carrying
amount, including goodwill, of net book value to determine if goodwill has been
impaired. The Company determines the fair value of each reporting unit using an
estimate of discounted future cash flows. As required by SFAS 142, management
completed its annual testing during 2005, 2006, and 2007 and has determined
that there was no impairment of goodwill.
Deferred Revenue
Deferred revenue of
$683,000 as of December 29, 2007 is related to the $1 million received in
2006 from GE Commercial Distribution Finance Corporation (GECDFC) related
to the Monaco Financial Services agreement. The deferred earnings are a
nonrefundable incentive payment received from GECDFC for use of the Companys
name in branding and are being recognized over the term of the agreement, which
is five years.
46
Stock-Based Award Plans
At
December 29, 2007, the Company had three stock-based award plans (see Note
17). As of January 1, 2006, the Company adopted the provisions of FAS
123R, Share-Based Payments (the Statement). The Statement replaces FAS 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. The Statement establishes fair
value as the measurement objective in accounting for share-based payment
arrangements and requires a fair-value-based measurement method in accounting
for share-based payments to employees, except for equity instruments held by
employee share ownership plans. We elected to adopt the modified prospective
application method of the Statement.
Prior
to the adoption, the Company accounted for stock-based employee compensation
plans under the recognition and measurement principles of APB Opinion No. 25.
No stock-based employee compensation cost related to these options were
reflected in net income of prior periods, as all options granted under those
plans had an exercise price equal to the market value of the underlying Common
Stock on the date of grant.
Income Taxes
The Company adopted FIN
48, Accounting for Uncertainty in Income Taxes an Interpretation of FAS 109,
(the Interpretation) as of the beginning of fiscal year 2007 with no material
effect on our financial position or results of operations. The Interpretation clarifies the accounting
for uncertainty in income taxes recognized in accordance with FAS 109, Accounting
for Income Taxes, by defining a criteria that an individual tax position must
meet for any part of the benefit to be recognized in the financial
statements. See Note 13 of the Companys
Notes to Consolidated Financial Statements.
Deferred
taxes are recognized based on the difference between the financial statement
and tax basis of assets and liabilities at enacted tax rates in effect in the
years in which the differences are expected to reverse. Deferred tax expense or
benefit represents the change in deferred tax asset/liability balances. A
valuation allowance is established for deferred tax assets when it is more
likely than not that the deferred tax asset will not be realized
.
The
Company has elected to utilize the practical transition option provided by FAS
123R to determine its pool of windfall tax benefits that are available to
absorb tax deficiencies recognized subsequent to the Companys adoption of FAS
123R.
Revenue Recognition
The Company recognizes
revenue from the sale of recreational vehicles upon shipment and recognizes
revenue from resort lot sales upon closing. The title and risk of loss pass to
the dealers upon shipment of recreational vehicles. The Company does not offer
any rights of return to our dealers, or resort lot customers.
In
December 2003, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition in Financial
Statements. SAB No. 104 provides guidance for revenue recognition under
certain circumstances. The Company has complied with the guidance provided by
SAB No. 104 for fiscal years 2005, 2006, and 2007.
Repurchase Obligations
Upon
request of a lending institution financing a dealers purchases of the Companys
product, the Company may execute a repurchase agreement. The Company has
recorded a liability associated with the disposition of repurchased inventory.
To determine the appropriate liability, the Company calculates a reserve based
on an estimate of potential net losses and qualitative and quantitative
factors, including dealer inventory turn rates and the financial strength of
individual dealers.
47
Advertising and Printing
Costs
The Company expenses
advertising and printing costs as incurred, except for prepaid show costs,
which are expensed when the event takes place. Advertising and printing costs,
including retail programs, are recorded as selling, general and administrative
expenses, while discounts off of invoice, or sales allowances (including
wholesale volume incentives), are recorded as adjustments to net sales. During
2007, approximately $9.6 million ($11.6 million in 2005 and $9.8 million in
2006) of advertising and printing costs were expensed.
Research and Development
Costs
Research
and development costs consist of salaries and employee benefits, contract
services fees, utilities, materials and operating supplies and are charged to
expense as incurred and were $1.7 million in 2007 ($1.5 million in 2005
and $1.9 million in 2006).
New Accounting
Pronouncements
FAS 157
In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements. The Statement defines fair value,
establishes a framework for measuring fair value, and expands disclosure
requirements regarding fair value measurements.
SFAS No. 157 is effective for fiscal years beginning after November 15,
2007. We believe that the adoption for
SFAS No. 157 will not have a material effect on our financial position or
results of operations.
FAS 159
In February 2007, the FASB issued
SFAS No. 159, Fair Value Option for Financial Assets and Financial
Liabilities. This statement permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. Entities that elect the fair value option
will report unrealized gains and losses in earnings at each subsequent
reporting date. The fair value option
may be elected on an instrument-by-instrument basis, with few exceptions. SFAS No. 159 is effective as of the
beginning of an entitys first fiscal year that begins after November 15,
2007. We believe that the adoption for SFAS No. 159 will not have a
material effect on our financial position or results of operations.
EITF 06-11
In June 2007, the FASB Emerging
Issues Task Force issued EITF Issue No. 06-11, Accounting for Income Tax
Benefits of Dividends on Share-Based Payment Awards. EITF 06-11 requires that a realized income
tax benefit from dividends or dividend equivalent units paid on unvested
restricted shares and restricted share units be reflected as an increase in
contributed surplus and reflected as an addition to the Companys excess tax
benefit pool, as defined under FAS 123R.
EITF 06-11 is effective for the Company in the first quarter of fiscal
year 2009. We are assessing the impact
that the EITF will have on our financial position and results of operations.
Supplemental Cash Flow
Disclosures:
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,355
|
|
$
|
4,099
|
|
$
|
3,399
|
|
Income taxes
|
|
$
|
6,160
|
|
$
|
7,708
|
|
$
|
2,843
|
|
48
2. ACQUISITION:
R-Vision
The
Company announced on November 9, 2005 that it had reached an agreement to
acquire the Indiana-based R-Vision companies and affiliates in an all cash
transaction. The acquisition was completed on November 18, 2005. The
R-Vision companies and affiliates consist of R-Vision, Inc., R-Vision
Motorized, LLC, Bison Manufacturing, LLC, and Roadmaster, LLC collectively
known as R-Vision. R-Vision manufactures towable and motorized recreational
vehicle products, and the acquisition was primarily to strengthen the Companys
towable recreational vehicle segment. R-Visions results of operations for the
period November 18, 2005 to December 31, 2005 are included in the
consolidated financial statements of the Company.
The cash paid for
R-Vision, including transaction costs of $584,985, totaled $54,623,512, net of
cash acquired. All the goodwill associated with the R-Vision acquisition was
allocated to the towable recreational vehicle segment. This was based on the
conclusion that the purchase price allocated to the motorized portion of
R-Vision, based on relative fair values, did not exceed its carrying amount of
net book value. Of the total goodwill acquired, $33.8 million is expected to be
deductible for tax purposes. The total R-Vision assets acquired and liabilities
assumed of R-Vision based on estimated fair values at November 18, 2005,
is as follows:
|
|
(in thousands)
|
|
Receivables
|
|
$
|
14,571
|
|
Inventories
|
|
18,160
|
|
Prepaids and other assets
|
|
618
|
|
Property and equipment
|
|
12,945
|
|
Goodwill
|
|
31,188
|
|
Total assets
acquired
|
|
77,482
|
|
|
|
|
|
Accounts payable
|
|
8,769
|
|
Accrued liabilities
|
|
12,142
|
|
Current deferred tax liability
|
|
1,184
|
|
Long-term deferred tax liability
|
|
808
|
|
Total
liabilities assumed
|
|
22,903
|
|
|
|
|
|
Total assets and liabilities assumed
|
|
$
|
54,579
|
|
The
purchase price was derived from a calculation of a multiple of earnings before
interest, taxes, depreciation and amortization for a trailing 12-month period
(adjusted for certain non-recurring expense items), which exceeded the book
value of R-Vision and generated goodwill of $30.7 million. The allocation of
the purchase price and the related goodwill has been adjusted in 2006 for the
resolution of pre-acquisition contingencies of $490,000 for estimates for
reserve amounts related to product litigation and deferred taxes established to
account for certain book to tax basis differences as of the acquisition date.
49
The
following unaudited pro forma information presents the consolidated results as
if the acquisition had occurred at the beginning of the period and giving
effect to the adjustments for the related interest on financing the purchase
price, goodwill and depreciation. The pro-forma information does not
necessarily reflect results that would have occurred nor is it necessarily
indicative of future operating results.
|
|
2005
|
|
|
|
Unaudited
|
|
|
|
(in thousands, except per share data)
|
|
Net sales
|
|
$
|
1,455,189
|
|
Net income
|
|
12,079
|
|
Diluted earnings per common share
|
|
$
|
0.40
|
|
3. DISCONTINUED OPERATIONS:
During
the third quarter of 2005, the Company announced that it planned to close its
Royale Coach operations in Elkhart, Indiana. Royale Coach produces Prevost bus
conversion motor coaches with price points in excess of $1.4 million. Royale
Coach sold approximately 20 coaches per year and was not a significant portion
of the Companys overall business. Plant closure costs of approximately
$1.3 million (net of tax) were recognized in 2005. The net income (loss)
from discontinued operations for the fiscal years ended December 31, 2005
and December 30, 2006 is net of a tax benefit of $868,000 and tax expense
of $28,000, respectively. There was no
affect on net income from discontinued operations for 2007.
The operating results of
Royale Coach are presented in the Companys Consolidated Statements of Income
as discontinued operations, net of income tax, and all prior periods have been
reclassified. The components of discontinued operations for the periods
presented are as follows.
|
|
2005
|
|
2006
|
|
|
|
(in thousands)
|
|
Net sales
|
|
$
|
5,452
|
|
$
|
4,835
|
|
Cost of sales
|
|
5,923
|
|
4,916
|
|
Gross profit
(loss)
|
|
(471
|
)
|
(81
|
)
|
Selling, general and administrative expenses
|
|
1,718
|
|
(127
|
)
|
Income (loss)
from discontinued operations before income taxes
|
|
(2,189
|
)
|
46
|
|
Income tax expense (benefit)
|
|
(868
|
)
|
28
|
|
Income (loss)
from discontinued operations
|
|
$
|
(1,321
|
)
|
$
|
18
|
|
4. PLANT RELOCATION:
During the second
quarter of 2005, the Company announced plans to close the Bend, Oregon
production operations and relocate them to the Coburg, Oregon facility. The
Bend, Oregon operations ceased as of June 15, 2005. The Company recognized
pre-tax charges in 2005 and 2006 of $4.4 million and $269,000, respectively.
The charges were primarily for the impairment of property, plant and equipment
and future rental expense related to the facility.
50
The
accrued liability for restructuring reserves consists of the following:
|
|
December 30,
|
|
December 29,
|
|
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Lease commitment
|
|
$
|
29
|
|
$
|
25
|
|
Other
|
|
107
|
|
118
|
|
|
|
$
|
136
|
|
$
|
143
|
|
5. INVENTORIES, NET:
Inventories
consist of the following:
|
|
December 30,
|
|
December 29,
|
|
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Raw materials
|
|
$
|
84,069
|
|
$
|
79,640
|
|
Work-in-process
|
|
55,473
|
|
54,760
|
|
Finished units
|
|
26,773
|
|
33,241
|
|
Raw material reserves
|
|
(10,444
|
)
|
(9,405
|
)
|
|
|
|
|
|
|
|
|
$
|
155,871
|
|
$
|
158,236
|
|
6. PROPERTY, PLANT, AND EQUIPMENT:
Property,
plant, and equipment consist of the following:
|
|
December 30,
|
|
December 29,
|
|
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Land
|
|
$
|
15,226
|
|
$
|
15,438
|
|
Buildings
|
|
128,073
|
|
130,140
|
|
Equipment
|
|
45,341
|
|
44,702
|
|
Furniture and fixtures
|
|
22,397
|
|
21,972
|
|
Vehicles
|
|
3,473
|
|
2,809
|
|
Leasehold improvements
|
|
2,002
|
|
1,649
|
|
Brand elements signage
|
|
6,617
|
|
7,686
|
|
Construction in progress
|
|
3,398
|
|
1,321
|
|
|
|
226,527
|
|
225,717
|
|
Less accumulated depreciation and amortization
|
|
72,632
|
|
81,426
|
|
|
|
$
|
153,895
|
|
$
|
144,291
|
|
51
7. JOINT VENTURE:
On February 25,
2007, the Company closed a transaction with International Truck and Engine
Corporation to form a joint venture to manufacture all of the Companys diesel
chassis. The terms of the agreement
grant the Company a 49% ownership in the joint venture, known as Custom Chassis
Products, LLC (CCP). The investment is
accounted for under the equity method.
The Company contributed $4,060,000 of inventory, $246,000 of fixed
assets, and $140,000 of cash to CCP and incurred transaction costs of
$226,000. The Companys portion of CCPs
net loss for the year ended December 29, 2007 is $614,000. As of December 29, 2007, the Company has
a net trade payable to the joint venture of $17.0 million.
8. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued
expenses and other liabilities consist of the following:
|
|
December 30,
|
|
December 29,
|
|
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Payroll, vacation, payroll taxes and related
accruals
|
|
$
|
15,997
|
|
$
|
20,142
|
|
Promotional and advertising
|
|
13,594
|
|
13,171
|
|
Health insurance reserves and premiums payable
|
|
5,997
|
|
5,575
|
|
Resorts profit sharing accruals
|
|
3,700
|
|
4,118
|
|
Other
|
|
5,076
|
|
5,603
|
|
|
|
$
|
44,364
|
|
$
|
48,609
|
|
At December 29,
2007, a balance of $20.9 million related to dealer incentives under our FFTF
program is classified as accounts payable on the consolidated balance sheet
($22.0 million at December 30, 2006).
9. LINE OF CREDIT:
The
Companys credit facilities consist of a revolving line of credit of up to
$105.0 million. At the end of the 2007 fiscal year, there was no balance
outstanding on the revolving line of credit (the Revolving Loan). At the
election of the Company, the Revolving Loan bears interest at varying rates
that fluctuate based on the prime rate or LIBOR and are determined based on the
Companys leverage ratio. The Company also pays interest quarterly on the
unused available portion of the Revolving Loan at varying rates, determined by
the Companys leverage ratio. The Revolving Loan is due and payable in full on November 17,
2009 and requires monthly interest payments. The Company also has four unused
letters of credit of $3.8 million outstanding as of December 29,
2007.
The
weighted-average interest rate on the outstanding borrowings under the
Revolving Loan was 6.8% and 7.4% for 2006 and 2007, respectively. Interest
expense on the unused available portion of the line was $229,000 or 1.3% and
$371,000 or 19.6% of weighted average outstanding borrowings for 2006 and 2007,
respectively. The Revolving Loan is collateralized by substantially all the
assets of the Company. The agreement contains restrictive covenants as to the
Companys leverage ratio, current ratio, fixed charge coverage ratio, and
tangible net worth. As of December 29, 2007, the Company was in compliance
with these covenants.
10. LONG-TERM NOTE PAYABLE:
In
November 2005, the Company amended its credit facilities to borrow $40.0
million of term debt (the Term Debt) to effect the acquisition of R-Vision
(see Note 2). In January 2007, the Company amended its credit facilities
agreement to modify certain restrictive covenants. At the end of the 2007 year,
borrowings outstanding were $28.6 million. At the election of the Company, the
Term Debt bears interest at varying rates that fluctuate based on the prime
rate or LIBOR and are determined based on the Companys leverage ratio. The
Term Debt requires quarterly interest payments and quarterly principal payments
of $1.4 million, with a final balloon payment of $12.9 million due on November 18,
2010. As of year end 2007, the weighted-average interest rate on the Term Debt
was 6.3%. The Term Debt is collateralized by all the assets of the Company. The
agreement contains restrictive covenants as to the Companys leverage ratio,
current ratio, fixed charge coverage ratio, and tangible net worth. As of December 29,
2007, the Company was in compliance with these covenants.
52
In
November 2005, the Company obtained a term loan of $500,000 from the State
of Oregon in connection with the relocation of jobs to the Coburg, Oregon
production facilities from the Bend, Oregon facility. The principal and
interest is due on April 30, 2009. The loan bears a 5% annual interest
rate.
The following table
displays the scheduled principal payments by year that will be due in thousands
on the term loans.
|
|
Amount
of
|
|
|
|
payment
due
|
|
|
|
|
|
2008
|
|
$
|
5,714
|
|
2009
|
|
6,214
|
|
2010
|
|
17,143
|
|
|
|
|
|
|
|
$
|
29,071
|
|
11.
PREFERRED
STOCK:
The
Company has authorized blank check preferred stock (1,934,783 shares
authorized, $.01 par value) (Preferred Stock), which may be issued from time
to time in one or more series upon authorization by the Companys Board of
Directors. The Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
and any other rights, preferences, privileges, and restrictions applicable to
each series of the Preferred Stock. There were no shares of Preferred Stock
outstanding as of December 30, 2006 or December 29, 2007.
12. SEGMENT REPORTING:
The
Company is a leading manufacturer of premium class A, B and C motor
coaches (Motorized Recreational Vehicle Segment) and towable recreational
vehicles (Towable Recreational Vehicle Segment). Our product line currently
consists of a broad line of motor coaches, fifth wheel trailers, travel
trailers, and specialty trailers under the Monaco, Holiday Rambler, Beaver,
Safari, McKenzie, R-Vision, Bison, and Roadmaster brand names.
In
addition to the manufacturing of premium recreational vehicles, the Company
also owns and operates two motorhome resort properties (Motorhome Resort
Segment) located in Las Vegas, Nevada, and Indio, California. In addition to
these two resorts, the Company also has property in La Quinta, California and
in Naples, Florida that are being developed into resorts. The resorts offer sales of individual lots to
recreational vehicle owners and also offer a common interest in the amenities
at the resort. The resorts provide destination locations for premium class A
recreational vehicle owners and help to promote the recreational vehicle
lifestyle.
53
The following table
provides the results of operations of the three segments of the Company for the
years 2005, 2006, and 2007, respectively.
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Motorized Recreational Vehicle Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,017,766
|
|
$
|
941,657
|
|
$
|
998,448
|
|
Cost of sales
|
|
925,014
|
|
869,110
|
|
887,830
|
|
Gross profit
|
|
92,752
|
|
72,547
|
|
110,618
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative expenses and corporate overhead
|
|
89,479
|
|
78,478
|
|
85,900
|
|
Plant relocation costs
|
|
4,370
|
|
269
|
|
0
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
$
|
(1,097
|
)
|
$
|
(6,200
|
)
|
$
|
24,718
|
|
|
|
|
|
|
|
|
|
Towable Recreational Vehicle Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
185,433
|
|
$
|
324,342
|
|
$
|
261,391
|
|
Cost of sales
|
|
174,242
|
|
292,876
|
|
238,684
|
|
Gross profit
|
|
11,191
|
|
31,466
|
|
22,707
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative expenses and corporate overhead
|
|
13,191
|
|
30,060
|
|
23,611
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
$
|
(2,000
|
)
|
$
|
1,406
|
|
$
|
(904
|
)
|
|
|
|
|
|
|
|
|
Motorhome Resorts Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
33,039
|
|
$
|
31,987
|
|
$
|
12,291
|
|
Cost of sales
|
|
12,212
|
|
11,457
|
|
4,748
|
|
Gross profit
|
|
20,827
|
|
20,530
|
|
7,543
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative expenses and corporate overhead
|
|
10,509
|
|
11,927
|
|
7,948
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
$
|
10,318
|
|
$
|
8,603
|
|
$
|
(405
|
)
|
54
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Reconciliation to Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
Motorized
recreational vehicle segment
|
|
$
|
(1,097
|
)
|
$
|
(6,200
|
)
|
$
|
24,718
|
|
Towable
recreational vehicle segment
|
|
(2,000
|
)
|
1,406
|
|
(904
|
)
|
Motorhome
resorts segment
|
|
10,318
|
|
8,603
|
|
(405
|
)
|
Total operating
income
|
|
7,221
|
|
3,809
|
|
23,409
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
255
|
|
615
|
|
851
|
|
Interest expense
|
|
(1,820
|
)
|
(4,430
|
)
|
(3,496
|
)
|
Loss from investment in joint venture
|
|
0
|
|
0
|
|
(614
|
)
|
Income (loss)
before income taxes, continuing operations
|
|
5,656
|
|
(6
|
)
|
20,150
|
|
|
|
|
|
|
|
|
|
Provision for
(benefit from) income taxes, continuing operations
|
|
1,687
|
|
(992
|
)
|
8,137
|
|
Income from continuing operations
|
|
3,969
|
|
986
|
|
12,013
|
|
|
|
|
|
|
|
|
|
Income (loss)
from discontinued operations, net of tax provision (benefit)
|
|
(1,321
|
)
|
18
|
|
0
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,648
|
|
$
|
1,004
|
|
$
|
12,013
|
|
The
following table provides information for the respective segments related to
assets:
|
|
December 30,
|
|
December 29,
|
|
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Motorized recreational vehicle segment
|
|
$
|
306,196
|
|
$
|
297,910
|
|
Towable recreational vehicle segment
|
|
87,153
|
|
87,811
|
|
Motorhome resort segment
|
|
25,954
|
|
34,814
|
|
Total segment
assets
|
|
$
|
419,303
|
|
$
|
420,535
|
|
The Company includes the
total of inventories and resort lot inventory in the measure of the segments
assets that are used for decision making purposes. Property, plant, and
equipment specific to the segments are also included in the measure of the
segments assets for decision making purposes. Remaining assets are accounted
for at the corporate level and are not allocated out to the business segments.
Total depreciation expense is allocated among the segments either based on the
associated assets being allocated to the segment or through the corporate
overhead allocation of expenses. Corporate overhead is comprised of certain
shared services, and is allocated to the respective segments based on a
combination of activities performed for the segment as well as the relative
segments percent of sales for the Company in total.
55
The
following table reconciles assets of the segments to total consolidated assets:
|
|
December 30,
|
|
December 29,
|
|
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Reconciliation of segment assets to total assets
|
|
|
|
|
|
|
|
|
|
|
|
Total assets allocated to segments
|
|
$
|
419,303
|
|
$
|
420,535
|
|
|
|
|
|
|
|
Assets not allocated to segments:
|
|
|
|
|
|
Cash
|
|
4,984
|
|
6,282
|
|
Trade
receivables, net
|
|
81,588
|
|
88,170
|
|
Prepaid expenses
|
|
5,624
|
|
5,142
|
|
Income tax
receivable
|
|
6,901
|
|
0
|
|
Deferred income
taxes
|
|
38,038
|
|
37,608
|
|
Property, plant,
and equipment, net
|
|
1,172
|
|
1,474
|
|
Investment in
joint venture
|
|
0
|
|
4,059
|
|
Debt issuance
costs, net
|
|
540
|
|
498
|
|
Total assets
|
|
$
|
558,150
|
|
$
|
563,768
|
|
The
following table provides information for the respective segments related to
capital expenditures:
|
|
December 30,
|
|
December 29,
|
|
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Motorized recreational vehicle segment
|
|
$
|
7,589
|
|
$
|
2,932
|
|
Towable recreational vehicle segment
|
|
736
|
|
1,593
|
|
Motorhome resort segment
|
|
999
|
|
96
|
|
Total segment
capital expenditures
|
|
|
9,324
|
|
|
4,621
|
|
Capital expenditures not allocated to segments
|
|
0
|
|
658
|
|
Total capital
expenditures
|
|
$
|
9,324
|
|
$
|
5,279
|
|
The
following table provides information for the respective segments relating to
depreciation expense:
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Motorized recreational vehicle segment
|
|
$
|
9,603
|
|
$
|
11,871
|
|
$
|
11,498
|
|
Towable recreational vehicle segment
|
|
818
|
|
1,951
|
|
2,151
|
|
Motorhome resort segment
|
|
74
|
|
111
|
|
160
|
|
Total segment
depreciation expense
|
|
$
|
10,495
|
|
$
|
13,933
|
|
$
|
13,809
|
|
13.
INCOME
TAXES:
The Company adopted FIN
48, Accounting for Uncertainty in Income Taxes an Interpretation of FAS 109,
(the Interpretation) as of the beginning of fiscal year 2007. The Interpretation clarifies the accounting
for uncertainty in income taxes recognized in accordance with FAS 109, Accounting
for Income Taxes, by defining a criterion that an individual tax position must
be met for any part of the benefit to be recognized in the financial
statements.
As of the beginning of
fiscal year 2007, the Companys total unrecognized tax benefits were $850,000,
and all of these benefits, if recognized, would positively affect the Companys
effective tax rate. The Company also had
accrued interest related to these unrecognized tax benefits of $55,000 as of
the date of adoption. Accrued interest
as of
56
December 29, 2007
increased to $97,000. The interest
expense associated with income tax contingencies is classified as income taxes
in the Companys financial statements.
In fiscal year 2007, the Company recognized interest expense of
$42,000. Penalties associated with
income taxes are classified as selling, general and administrative
expenses. Penalties expense was zero for
fiscal year 2007.
As
of the date of adoption, the federal and a portion of the state uncertainty
relates to subjectivity in the measurement of certain deductions claimed for
United States income tax purposes and the remainder of the state uncertainty
relates to state income tax apportionment matters. A reconciliation of the beginning and ending
amount of the unrecognized tax benefits is as follows.
|
|
(in thousands)
|
|
|
|
|
|
Balance at December 30, 2006
|
|
$
|
850
|
|
Reductions for tax positions of prior years
|
|
(45
|
)
|
Lapse of statute of limitations
|
|
(60
|
)
|
Balance at December 29, 2007
|
|
$
|
745
|
|
As of December 29,
2007, the Companys 2004 through 2006 U.S. federal and state income tax returns
remain subject to examination. In
addition, some 2003 state income tax returns are also still subject to
examination. In the next 12 months, it
is reasonably possible that the lapse of statutes of limitations for federal
and state tax returns may reduce the unrecognized tax benefits related to the
uncertainty in the measurement of certain deductions claimed for U.S. federal
and state income tax purposes by approximately $100,000.
The
provision for income taxes for continuing operations is as follows:
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,729
|
|
$
|
970
|
|
$
|
6,765
|
|
State
|
|
(169
|
)
|
258
|
|
1,111
|
|
|
|
4,560
|
|
1,228
|
|
7,876
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
(2,573
|
)
|
(1,249
|
)
|
(59
|
)
|
State
|
|
(300
|
)
|
(971
|
)
|
320
|
|
Provision for
(benefit from) income taxes
|
|
$
|
1,687
|
|
$
|
(992
|
)
|
$
|
8,137
|
|
The
reconciliation of the provision for income taxes at the U.S. federal statutory
rate to the Companys effective income tax rate is as follows:
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Expected U.S. federal income taxes at statutory
rates
|
|
$
|
1,923
|
|
$
|
(2
|
)
|
$
|
7,053
|
|
State and local income taxes, net of federal benefit
|
|
(305
|
)
|
(788
|
)
|
948
|
|
Domestic manufacturing deduction
|
|
(90
|
)
|
(51
|
)
|
(427
|
)
|
Other
|
|
159
|
|
(151
|
)
|
563
|
|
Provision for (benefit
from) income taxes
|
|
$
|
1,687
|
|
$
|
(992
|
)
|
$
|
8,137
|
|
57
The components of the
current net deferred tax asset and long-term net deferred tax liability are:
|
|
December 30,
|
|
December 29,
|
|
|
|
2006
|
|
2007
|
|
|
|
(in thousands)
|
|
Current deferred income tax assets:
|
|
|
|
|
|
Warranty
liability
|
|
$
|
11,308
|
|
$
|
11,780
|
|
Product
liability
|
|
6,244
|
|
5,804
|
|
Inventory
allowances
|
|
3,902
|
|
3,587
|
|
Franchise and
other incentive accruals
|
|
10,532
|
|
10,293
|
|
Compensation and
related accruals
|
|
2,030
|
|
2,463
|
|
Insurance
accruals
|
|
2,637
|
|
2,036
|
|
Other
|
|
1,092
|
|
1,323
|
|
Net operating
loss carryforward
|
|
293
|
|
322
|
|
|
|
$
|
38,038
|
|
$
|
37,608
|
|
|
|
|
|
|
|
Long-term deferred income tax liabilities:
|
|
|
|
|
|
Depreciation
|
|
$
|
15,835
|
|
$
|
15,262
|
|
Amortization
|
|
6,859
|
|
8,231
|
|
Compensation and
related accruals
|
|
(734
|
)
|
(1,441
|
)
|
Net operating
loss (NOL) carryforward
|
|
(263
|
)
|
(143
|
)
|
State tax credit
carryforward
|
|
(303
|
)
|
(519
|
)
|
Other
|
|
0
|
|
(198
|
)
|
Valuation
allowance on state tax credit carryforward
|
|
284
|
|
314
|
|
|
|
$
|
21,678
|
|
$
|
21,506
|
|
Management believes that
the temporary differences which gave rise to the deferred income tax assets
will be realized in the foreseeable future, except for a portion of the
benefits arising from the state tax credit carryforward. Accordingly,
management has provided a valuation allowance for the portion of the state tax
credit carryforward that may not be fully realized. Net operating loss
carryforwards expire between 2015 and 2026 and state tax credits expire between
2008 and 2014.
58
14.
EARNINGS PER
SHARE:
Basic earnings per
common share is based on the weighted-average number of shares outstanding
during the period. Diluted earnings per common share is based on the weighted
average number of shares outstanding during the period, after consideration of
the dilutive effect of outstanding stock-based awards. For the fiscal year
ending 2007, there were 778,342 anti-dilutive stock-based awards excluded from
the diluted earnings per share calculation (385,890 and 819,500 for the fiscal
years ending 2005 and 2006, respectively). The weighted-average number of
common shares used in the computation of earnings per common share for the
years ended December 31, 2005, December 30, 2006, and December 29,
2007 are as follows:
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
Issued and outstanding shares (weighted-average)
|
|
29,516,794
|
|
29,712,957
|
|
29,931,730
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
Stock-based awards
|
|
341,242
|
|
189,873
|
|
415,187
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
29,858,036
|
|
29,902,830
|
|
30,346,917
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
Cash dividends per common share
|
|
$
|
0.24
|
|
$
|
0.24
|
|
$
|
0.24
|
|
Cash dividends paid
(in thousands)
|
|
$
|
7,085
|
|
$
|
7,134
|
|
$
|
7,194
|
|
15.
LEASES:
The
Company has commitments under certain noncancelable operating leases. Total
rental expense for the fiscal years ended December 31, 2005, December 30,
2006, and December 29, 2007 related to operating leases amounting to
approximately $3.6 million, $3.4 million, and $2.9 million, respectively. The
Companys most significant lease is an operating lease for an aircraft that
expires June 10, 2012. The future minimum rental commitment under the term of
this lease is $1.3 million annually in 2008 through 2011 and $664,000 in
2012. The Company has guaranteed up to
$10.9 million of any deficiency in the event that the lessors net sales
proceeds from the aircraft are less than $13.4 million. The Company has
commitments under certain noncancelable subleases. As of December 29,
2007, the total minimum sublease rental income to be received in the future is
approximately $2.0 million. Sublease rental income will be recognized ratably
over the next eight years.
Approximate future
minimum rental commitments under these leases at December 29, 2007 are
summarized as follows:
Fiscal Year
|
|
(in thousands)
|
|
2008
|
|
$
|
2,351
|
|
2009
|
|
$
|
2,186
|
|
2010
|
|
$
|
2,052
|
|
2011
|
|
$
|
2,052
|
|
2012
|
|
$
|
1,388
|
|
2013 and thereafter
|
|
$
|
1,103
|
|
16.
BONUS PLAN:
The Company has a
discretionary bonus plan for certain key employees. Bonus expense included in
selling, general, and administrative expenses for the years ended December 31,
2005, December 30, 2006, and December 29, 2007 was $607,000, $2.2
million, and $5.6 million, respectively.
59
17. STOCK-BASED AWARD PLANS:
The
Company has an Employee Stock Purchase Plan (the Purchase Plan) - 2007, a non-employee
1993 Director Stock Plan (the Director Plan), and an amended and restated
1993 Stock Plan (the Stock Plan). The compensation expense recognized in 2007
for the plans was $4.1 million with an income tax benefit of $1.6 million ($2.8
million and $1.1 million, respectively, in 2006). The amount of cash received
from the exercise of stock options, stock issued under the Stock Purchase Plan,
and stock issued in lieu of some directors cash retainer was $1.5 million. The
tax benefit realized from stock-based award activity in 2007 was $275,000.
Stock Purchase Plan
The
Purchase Plan qualifies under Section 423 of the Internal Revenue Code.
The Purchase Plan was approved by the Board of Directors in 2007 and
stockholder approval will be sought at the 2008 Annual Meeting of
Stockholders. The Company has 400,000
shares of Common Stock reserved for issuance under the Purchase Plan, of which
none have been issued as of December 29, 2007. Under the Purchase Plan, an
eligible employee may purchase shares of Common Stock from the Company through
payroll deductions of up to 10% of base compensation, at a price per share
equal to 85% of the lesser of the fair market value of the Companys Common
Stock as of the first day (grant date) or the last day (purchase date) of each
offering period under the Purchase Plan.
The first offering period is twelve months and ends on July 15,
2008. Subsequent offering periods under
the Purchase Plan are each six months.
The
Employee Stock Purchase Plan 1993 was previously in effect. As of December 29, 2007, the Company had
issued 621,495 shares of Common Stock under the 1993 Purchase Plan. During the
years ended December 30, 2006 and December 29, 2007, 69,644 shares
and 28,968 shares, respectively, were issued under the 1993 Purchase Plan. The
weighted-average fair value of purchase rights granted in 2006 and 2007 was
$11.28 and $14.90, respectively.
The
Purchase Plan is administered by a committee appointed by the Board of
Directors. Any employee who is customarily employed for at least 20 hours per
week and more than five months in a calendar year by the Company, or by any
majority-owned subsidiary designated from time to time by the Board of
Directors, and who does not own 5% or more of the total combined voting power or
value of all classes of the Companys outstanding capital stock, is eligible to
participate in the Purchase Plan.
Director Plan
Effective
May 17, 2006, no further awards will be made under the Director Plan, but
it will continue to govern awards previously granted thereunder. Subsequent
equity awards to directors are being made under the Stock Plan. The Board of
Directors and the stockholders had authorized a total of 352,500 shares of
Common Stock for issuance pursuant to the Director Plan. On May 17, 2006
authorization for 76,924 shares were transferred from the Director Plan to the
Stock Plan, which represented the number of shares reserved under the Director
Plan that had not been issued pursuant to awards granted under the plan plus
the number of shares reserved that were not subject to any outstanding awards
granted under the plan.
Options
granted under the Director Plan to non-employee directors on the date the
optionee first became a director vest ratably over a five-year period, while
subsequent annual grants vest in full on the fifth anniversary of their grant
date. The exercise price of all options granted under the Director Plan was
equal to the fair market value of a share of the Companys Common Stock on the
date of grant. The maximum term of these options is ten years. As of December 29,
2007, 110,100 options had been exercised, and options to purchase 138,450
shares of Common Stock were outstanding. As of December 29, 2007, 15,526
shares of Common Stock had been issued in lieu of some directors cash retainer
as allowed by the Director Plan up to May 17, 2006.
Stock Plan
The
Stock Plan, as amended on May 17, 2006, provides for the grant of
stock-based awards to employees, directors and consultants who provide services
to the Company and its affiliates. Allowed awards include stock options,
restricted stock, restricted stock units, stock appreciation rights,
performance shares, performance units, dividend equivalents and other stock
awards. A total of 5,534,737 shares of Common Stock have been reserved for
issuance under the Stock Plan, which includes the transfer of unused share
authorizations under the Director Plan on May 17, 2006.
60
The
stock options issued subsequent to May 16, 2002, the restricted stock
units and the performance share awards include a retirement eligible provision.
Employees and directors who reach the retirement age of 62 and have provided
five years of service meet the provision. The recognition of compensation expense
associated with these awards is accelerated based upon this criteria and is
derived by the use of the non-substantive vesting period approach. This
approach was followed under APB 25 and subsequently with the adoption of FAS
123R.
The
Stock Plan provides for the issuance of shares of Common Stock to directors in
lieu of the annual cash retainer. As of December 29,
2007, 13,830 shares of Common Stock have been issued in lieu of the cash
retainer. Prior to May 17, 2006,
such shares were issued under the provisions of the Director Plan.
Stock Options
A
component of the Stock Plan permits the Company to grant stock options. As of December 29,
2007, 1,725,959 options had been exercised, and options to purchase 1,005,534
shares of Common Stock were outstanding. These options vest ratably over five
years commencing with the date of grant.
The
exercise price of all stock options granted under the Stock Plan must be at
least equal to the fair market value of a share of the Companys Common Stock
on the date of grant. With respect to any participant possessing more than 10%
of the voting power of the Companys outstanding capital stock, the exercise
price of any incentive stock option granted must equal at least 110% of the
fair market value on the grant date, and the maximum term of the option must
not exceed five years. The terms of all other options granted under the Stock
Plan may not exceed ten years. Options outstanding to participants who meet the
retirement eligible provision vest upon actual retirement or the normal vesting
period, whichever is earlier.
In
the fourth quarter of 2005, the Company elected to accelerate all non-vested
stock options outstanding with an exercise price greater than $16 per share.
The purpose of the acceleration was to enable the Company to avoid recognizing
compensation expense associated with these options in future periods in its
consolidated statements of income pursuant to Financial Accounting Standards
Board Statement No. 123R. Under FAS No. 123R, the Company began
applying the expense recognition provisions relating to stock options beginning
in the first quarter of fiscal 2006. In approving the acceleration, the Company
considered its impact on future financial results, stockholder value and
employee retention. The Company believes that the acceleration was in the best
interest of stockholders as it reduces the Companys reported compensation
expense in periods subsequent to fiscal 2005 in light of these accounting
regulations. The compensation expense in future periods that is eliminated as a
result of the acceleration of the vesting of these options is approximately
$3.7 million. This acceleration did not result in a charge to the Companys
expenses in the consolidated statements of income in fiscal 2005.
61
Option
transactions involving the Director Plan and the Stock Plan are summarized with
the corresponding weighted-average exercise prices as follows:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Outstanding at January 1, 2005
|
|
1,314,573
|
|
$
|
14.08
|
|
|
|
|
|
Granted
|
|
292,020
|
|
16.13
|
|
|
|
|
|
Exercised
|
|
(72,078
|
)
|
5.87
|
|
|
|
|
|
Forfeited
|
|
(65,240
|
)
|
18.14
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
1,469,275
|
|
14.71
|
|
|
|
|
|
Exercised
|
|
(128,475
|
)
|
7.44
|
|
|
|
|
|
Forfeited
|
|
(33,950
|
)
|
20.01
|
|
|
|
|
|
Outstanding at December 30, 2006
|
|
1,306,850
|
|
15.28
|
|
5.2
|
|
$
|
19,974
|
|
Exercised
|
|
(144,426
|
)
|
7.61
|
|
|
|
|
|
Forfeited
|
|
(18,440
|
)
|
20.58
|
|
|
|
|
|
Outstanding at December 29, 2007
|
|
1,143,984
|
|
$
|
16.17
|
|
4.6
|
|
$
|
18,495
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 29, 2007
|
|
1,085,694
|
|
$
|
16.36
|
|
4.5
|
|
$
|
17,759
|
|
The
total intrinsic value of options exercised during fiscal years 2005, 2006, and
2007 was approximately $739,000, $819,000, and $1.1 million, respectively. The
proforma weighted-average grant-date fair value of options granted in 2005 was
$5.41.
There
was $441,000 and $231,000 of stock option related compensation expense
recognized from the combination of the Stock Plan, the Stock Purchase Plan and
the Director Plan in 2006 and 2007, respectively. The total remaining expense
to be recognized in future periods for outstanding non-vested stock options is
approximately $119,000. The expense is expected to be recognized over a
weighted-average period of 2.0 years.
Restricted Stock Unit
Grant
A
component of the Stock Plan permits the Company to grant shares of restricted
stock units (RSUs). These grants are compensation expense under the rules of
FAS 123R, and are required to be recognized in the Companys consolidated
statements of income. The valuation of the RSUs is based on the closing market
price of the Common Stock on the date of grant. The RSUs vest ratably over
four years or cliff vest at four years for employees and cliff vest at
three years for directors. RSUs outstanding to participants who meet the
retirement eligible provision vest upon actual retirement or the normal vesting
period, whichever is earlier. Under Section 162(m) of the Internal
Revenue Code of 1986, as amended, RSUs granted to certain employees require
performance criteria to be met in order for the units to cliff vest at three
years. The performance criteria is based on the return on equity. As of December 29,
2007, there are 132,686 RSUs outstanding that require the attainment of the performance
criteria.
The
number of performance based RSUs issued in 2006 and 2007 was 72,695 and
59,991, respectively and the associated compensation expense recognized in the
fiscal years was $725,000 and $894,000, respectively. During the fiscal years
2006 and 2007, $1.3 million and $2.2 million, respectively was recorded as
compensation expense related to all RSUs. A forfeiture rate is applied to the
majority of the RSUs granted to employees based on the historical forfeiture
experience with stock options. The total remaining expense to be recognized in
future periods for outstanding non-vested RSUs is approximately $3.4 million.
The expense is expected to be recognized over a weighted-average period of 2.5
years.
62
RSUs
granted after fiscal year 2005 earn dividend equivalents that are paid out at
the time the RSUs vest. The expense
recognized for dividend equivalents in 2006 and 2007 was approximately $44,000
and $97,000, respectively.
Restricted
stock unit transactions under the Stock Plan are summarized with the
weighted-average grant-date fair value as follows:
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Restricted
|
|
Grant-Date
|
|
|
|
Stock Units
|
|
Fair Value
|
|
|
|
|
|
|
|
Non-vested at January 1, 2005
|
|
0
|
|
$
|
0.00
|
|
Granted
|
|
53,250
|
|
14.73
|
|
Non-vested at December 31, 2005
|
|
53,250
|
|
14.73
|
|
Granted
|
|
254,159
|
|
12.71
|
|
Forfeited
|
|
(27,500
|
)
|
14.67
|
|
Non-vested at December 30, 2006
|
|
279,909
|
|
12.90
|
|
Granted
|
|
224,209
|
|
16.24
|
|
Vested
|
|
(38,219
|
)
|
12.95
|
|
Forfeited
|
|
(10,604
|
)
|
14.33
|
|
Non-vested at December 29, 2007
|
|
455,295
|
|
$
|
14.51
|
|
Performance Share Awards
A
component of the Stock Plan also permits the Company to grant performance share
awards (PSAs). Grants in 2006 included target payouts to participants of a
total of 164,909 shares under a two-year performance plan and 164,909 shares
under a three-year performance plan. Grants in 2007 included target payouts to
participants of a total of 138,714 shares under a three-year performance
plan. The plans require the achievement
of performance based on Return on Net Assets-adjusted (RONA) and Total
Shareholder Return (TSR) compared to a group of peer companies. Depending on
the ranking of the Companys performance against the peer group, the
participants could earn from 0% up to 200% of the target payout of performance
shares. A participant who retires during a performance period and meets the
retirement eligible provision is entitled to receive 100% of the award that
would have otherwise been earned had the participant remained employed through
the end of the performance period. The award to such a participant will be
settled at the end of the normal performance period.
The fair value of share
awards requiring achievement of the goal based on TSR is estimated on the date
of grant using a lattice-based valuation model that uses assumptions noted in
the following table. Because lattice-based option valuation models incorporate
ranges of assumptions for inputs, those ranges are disclosed. Expected
volatilities were based on historical volatility of the Companys stock and the
average of the competitor companies stock, as well as other factors. The
Company used historical data to estimate employee termination within the
valuation model. The expected term of awards granted was derived from the
output of the option valuation model and represents the period of time that
awards granted are expected to be outstanding. The risk-free interest rate is
based on interest rates on total constant maturity U.S. Treasury notes with
lives consistent with the expected lives of the related option. The grant-date
fair value of the TSR related awards granted in 2006 is $10.62 and $11.99 per
share for the two-year and three-year performance plan, respectively. The grant-date fair value of the TSR related
awards granted in 2007 is $22.25.
|
|
2006
|
|
2007
|
|
Risk-free interest rate
|
|
4.97%-5.00
|
%
|
4.50
|
%
|
Expected life (in years)
|
|
2 to 3
|
|
3
|
|
Expected volatility of the Company
|
|
40.40
|
%
|
38.60
|
%
|
Expected dividend yield
|
|
1.90
|
%
|
1.40
|
%
|
Peer companies average volatility experience
|
|
33.90
|
%
|
33.10
|
%
|
63
The
fair value of the share awards requiring achievement of the goal based on RONA
is the Common Stock market price at grant date, which was $12.73 and $16.75 for
the awards granted in 2006 and 2007, respectively. The recognition of compensation
expense is initially based on the probable outcome of the performance condition
and adjusted for subsequent changes in the estimated or actual outcome. The
Company reassesses at each reporting date whether achievement of the
performance condition is probable. The assessment involves comparing the
Companys forecasted RONA for the performance period to the historical RONA
achieved by a group of peer companies.
The
TSR goal is based on the market price of the Companys Common Stock as compared
to the peer group. This is considered a market condition under FAS 123R, thus
compensation expense recognized is not reversed if the goal is not achieved by
the end of the performance period. The compensation expense related to share
awards that are forfeited is reversed. If the performance goal related to RONA
is not met, no compensation expense is recognized and any recognized compensation
expense is reversed as of the end of the plan period. A total of $981,000 and
$1.6 million of compensation expense was recorded during the fiscal years ended
2006 and 2007, respectively, relating to the performance share awards. As of December 30,
2006, it was not probable that the RONA goal would be met at the end of the
performance periods and thus compensation expense recognized throughout 2006
was reversed. The total remaining expense expected to be recognized in future
periods for outstanding PSAs is approximately $1.1 million. The expense is
expected to be recognized over a weighted-average period of 1.8 years.
Performance
share award transactions under the Stock Plan are summarized with the
weighted-average grant-date fair value as follows:
|
|
Performance
|
|
Weighted-
|
|
|
|
Share Awards
|
|
Average
|
|
|
|
at Target
|
|
Grant-Date
|
|
|
|
Payout
|
|
Fair Value
|
|
|
|
|
|
|
|
Non-vested at December 31, 2005
|
|
0
|
|
$
|
0.00
|
|
Granted
|
|
329,818
|
|
12.02
|
|
Non-vested at December 30, 2006
|
|
329,818
|
|
12.02
|
|
Granted
|
|
138,714
|
|
19.50
|
|
Forfeited
|
|
(5,438
|
)
|
14.22
|
|
Non-vested at December 29, 2007
|
|
463,094
|
|
$
|
14.23
|
|
The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FAS 123 to stock-based
compensation in the fiscal year ended 2005 compared to the fair value
recognition provisions of FAS 123R that are applied to the stock-based payment
arrangements in the fiscal years ended 2006 and 2007.
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(in thousands, except per share data)
|
|
Net income before stock-based compensation expense
|
|
$
|
2,648
|
|
$
|
2,690
|
|
$
|
14,461
|
|
Deduct: Total
stock-based compensation expense determined under fair value based methods
for all awards, net of related tax effects
|
|
(3,219
|
)
|
(1,686
|
)
|
(2,448
|
)
|
Net income (loss)*
|
|
$
|
(571
|
)
|
$
|
1,004
|
|
$
|
12,013
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
Basic - as
reported
|
|
$
|
0.09
|
|
$
|
0.03
|
|
$
|
0.40
|
|
Basic - with
stock-based compensation
|
|
$
|
(0.02
|
)
|
$
|
0.03
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
Diluted - as
reported
|
|
$
|
0.09
|
|
$
|
0.03
|
|
$
|
0.40
|
|
Diluted - with
stock-based compensation
|
|
$
|
(0.02
|
)
|
$
|
0.03
|
|
$
|
0.40
|
|
* Net loss prior to 2006 is pro-forma for the effect of
FAS 123R.
64
For purposes of the
above information, the fair value of each option grant was estimated at the
date of grant using the Black-Scholes option pricing model based on the
weighted-average assumptions noted in the following table. There were no
options granted in 2006 or 2007. Expected volatility was based on historical
volatility of the Companys Common Stock, and other factors. The Company used
historical data to estimate option exercise and employee termination within the
valuation model. The expected term of options granted was derived from the
output of the option valuation model and represents the period of time that
options granted are expected to be outstanding. The risk-free interest rate is
based on interest rates on total constant maturity U.S. Treasury notes with
lives consistent with the expected lives of the related option.
|
|
2005
|
|
Risk-free interest rate
|
|
4.03
|
%
|
Expected life (in years)
|
|
6.69
|
|
Expected volatility
|
|
31.25
|
%
|
Expected dividend yield
|
|
1.70
|
%
|
18. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The
fair value of the Companys financial instruments are presented below. The
estimates require subjective judgments and are approximate. Changes in
methodologies and assumptions could significantly affect estimates.
Line
of Credit -
The
carrying amount outstanding on the
revolving line of credit is $2.0 million and zero at December 30, 2006 and
December 29, 2007, respectively, which approximates the estimated fair
value as this instrument requires interest payments at a market rate of
interest plus a margin.
Long-Term
Notes Payable -
The carrying amount outstanding on the
long-term notes payable is $29.1 million (including $5.7 million of
current payable) at December 29, 2007, which approximates the estimated
fair value as these instruments require interest payments at a market value
rate of interest plus a margin.
19. 401(K) DEFINED CONTRIBUTION PLAN:
The
Company sponsors a 401(k) defined contribution plan covering substantially
all full-time employees. Company contributions to the plan totaled
approximately $880,000 in 2005, $787,000 in 2006, and $863,000 in 2007.
20. COMMITMENTS AND CONTINGENCIES:
Repurchase Agreements
Many
of the Companys sales to independent dealers are made 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 dealers purchases of the
Companys product, the Company may execute a repurchase agreement. These
agreements provide that, for up to 15 months after a unit is shipped, the
Company will repurchase a dealers inventory in the event a dealer defaults on
its floorplan credit arrangement with its lender. It has been the Companys
experience that the chance of default by dealers has been very low.
The
Companys liability under repurchase agreements is limited to the unpaid
balance owed to the lending institution by reason of its extending credit to
the dealer to purchase its vehicles, reduced by the resale value of vehicles
which may be repurchased. The risk of loss is spread over numerous dealers and
financial institutions.
Losses
of approximately $79,000, $232,000 and $313,000 were incurred in 2005, 2006,
and 2007, respectively. The approximate amount subject to contingent repurchase
obligations arising from these agreements at December 29, 2007 is $518.6
million, with approximately 3.9% concentrated with one dealer. The Company has
recorded a liability of approximately $362,000 for potential losses resulting
from guarantees on repurchase obligations for products shipped to dealers. 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.
65
Product Liability
The
Company is subject to regulations which may require the Company to recall
products with design or safety defects, and such recall could have a material
adverse effect on the Companys business, results of operations, and financial
condition.
The
Company has from time to time been subject to product liability claims. To
date, the Company has been successful in obtaining product liability insurance
on terms the Company considers acceptable. The terms of the policy contain a
self-insured retention amount of $500,000 per occurrence, with a maximum annual
aggregate self-insured retention of $3.0 million. Overall product liability
insurance, including umbrella coverage, is available to a maximum amount of
$100.0 million for each occurrence, as well as in the aggregate. The Company
has recorded an accrual for its probable exposure on product liability claims. 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
Companys business, results of operations, and financial condition.
Letter of Credit on
Behalf of the Joint Venture
The
Company has an unused letter of credit of $1.0 million outstanding as of December 29,
2007 on behalf of CCP. The letter of
credit is with a tire vendor and expires on June 1, 2008.
Litigation
The Company is involved
in various legal proceedings which are incidental to the industry and for which
certain matters are covered in whole or in part by insurance or, otherwise. The
Company has recorded accruals for probable settlements. Management believes
that any ultimate liability which may result from these proceedings will not
have a material adverse effect on the Companys consolidated financial
statements.
21. SUBSEQUENT EVENT:
In January 2008, the Board of
Directors approved a stock repurchase program where by up to an aggregate of
$30 million worth of the Companys outstanding shares of Common Stock may be
repurchased from time to time. There is
no time restriction on this authorization to purchase our Common Stock. The program provides for the Company to
repurchase shares through the open market and other approved transactions at
prices deemed appropriate by management.
The timing and amount of repurchase transactions under the program will
depend upon market conditions and corporate and regulatory considerations. During January 2008, the Company
repurchased 313,400 shares of common stock on the open market for an average
price of $9.03 per share.
66
22. QUARTERLY RESULTS (UNAUDITED):
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Year ended December 30,
2006
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
385,068
|
|
$
|
321,283
|
|
$
|
292,473
|
|
$
|
299,163
|
|
Gross profit
|
|
$
|
48,449
|
|
$
|
30,491
|
|
$
|
18,533
|
|
$
|
27,071
|
|
Operating income (loss)
|
|
$
|
14,470
|
|
$
|
793
|
|
$
|
(10,941
|
)
|
$
|
(512
|
)
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
8,293
|
|
$
|
479
|
|
$
|
(7,098
|
)
|
$
|
(687
|
)
|
Discontinued
operations
|
|
0
|
|
(107
|
)
|
0
|
|
125
|
|
|
|
$
|
8,293
|
|
$
|
372
|
|
$
|
(7,098
|
)
|
$
|
(562
|
)
|
Earnings (loss) per share-basic:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.28
|
|
$
|
0.01
|
|
$
|
(0.24
|
)
|
$
|
(0.02
|
)
|
Discontinued
operations
|
|
0.00
|
|
0.00
|
|
0.00
|
|
0.00
|
|
Basic
|
|
$
|
0.28
|
|
$
|
0.01
|
|
$
|
(0.24
|
)
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share-diluted:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.28
|
|
$
|
0.01
|
|
$
|
(0.24
|
)
|
$
|
(0.02
|
)
|
Discontinued
operations
|
|
0.00
|
|
0.00
|
|
0.00
|
|
0.00
|
|
Diluted
|
|
$
|
0.28
|
|
$
|
0.01
|
|
$
|
(0.24
|
)
|
$
|
(0.02
|
)
|
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Year ended December 29, 2007
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
322,244
|
|
$
|
335,319
|
|
$
|
322,422
|
|
$
|
292,146
|
|
Gross profit
|
|
$
|
35,996
|
|
$
|
36,598
|
|
$
|
36,179
|
|
$
|
260,051
|
|
Operating income
|
|
$
|
3,638
|
|
$
|
8,732
|
|
$
|
6,518
|
|
$
|
32,095
|
|
Net income
|
|
$
|
1,499
|
|
$
|
4,464
|
|
$
|
3,681
|
|
$
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
$
|
0.15
|
|
$
|
0.12
|
|
$
|
0.08
|
|
Diluted
|
|
$
|
0.05
|
|
$
|
0.15
|
|
$
|
0.12
|
|
$
|
0.08
|
|
67