-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LJJ0n8tcpTZbXr/59nGYrtCuwFePma9iOSnO0W46IoPlJgg4ekgGgnUZdb+gKpj8 /4AadgnNFtW1fmQ31HOZ1g== 0000021212-98-000014.txt : 19981116 0000021212-98-000014.hdr.sgml : 19981116 ACCESSION NUMBER: 0000021212-98-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COACHMEN INDUSTRIES INC CENTRAL INDEX KEY: 0000021212 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR HOMES [3716] IRS NUMBER: 351101097 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07160 FILM NUMBER: 98747448 BUSINESS ADDRESS: STREET 1: 601 E BEARDSLEY AVE STREET 2: P O BOX 3300 CITY: ELKHART STATE: IN ZIP: 46514 BUSINESS PHONE: 2192620123 MAIL ADDRESS: STREET 1: 601 E BEARDSLEY AVE CITY: ELKHART STATE: IN ZIP: 46515 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________to__________________ Commission file number 1-7160 COACHMEN INDUSTRIES, INC. (Exact name of registrant as specified in its charter) INDIANA 35-1101097 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification number) 601 EAST BEARDSLEY AVENUE, ELKHART, INDIANA 46514 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 219-262-0123 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: At October 31, 1998: Common Shares, without par value 16,575,427 shares outstanding including an equivalent number of common share purchase rights. 1 COACHMEN INDUSTRIES, INC. INDEX Page No. PART I. FINANCIAL INFORMATION Financial Statements: Condensed Consolidated Balance Sheets- September 30, 1998 and December 31, 1997................ 3-4 Condensed Consolidated Statements of Income- Three and Nine Months Ended September 30, 1998 and 1997. 5 Condensed Consolidated Statements of Cash Flows- Nine Months Ended September 30, 1998 and 1997........... 6 Notes to Condensed Consolidated Financial Statements.... 7-8 Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 9-12 PART II. OTHER INFORMATION.................................... 13 Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES..................................................... 13 This Report contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements may include, but are not limited to statements related to the availability of gasoline, which can impact sales of recreational vehicles; availability of chassis, which are used in the production of many of the Company's recreational vehicle products; interest rates, which affect the affordability of the Company's products; and also on the state of the recreational vehicle and modular housing industries in the United States. Other factors affecting forward-looking statements include competition in these industries and the Company's ability to maintain or increase gross margins which are critical to the profitability whether there are or are not increased sales; and the Company's ability to make its software and equipment year 2000 compliant. At times, the Company's actual performance differs materially from its projections and estimates regarding the economy, the recreational vehicle and housing industries and other key performance indicators. Readers of this Report are cautioned that reliance on any forward-looking statements involves risks and uncertainties. Although the Company believes that the assumptions on which the forward-looking statements contained herein are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. There can be no assurance that the forward-looking statements contained in this Report will prove to be accurate. The inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's objectives will be achieved. 2 COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 1998 1997 ASSETS CURRENT ASSETS Cash and temporary cash investments $ 46,968,317 $ 71,427,918 Short-term investments 24,912,385 15,852,718 Trade receivables, less allowance for doubtful receivables 1998 - $1,032,000 and 1997 - $1,354,000 36,688,167 25,212,595 Other receivables 2,153,072 2,980,257 Refundable income taxes 625,000 1,761,000 Inventories 85,365,546 68,416,006 Prepaid expenses and other 1,717,525 1,247,973 Deferred income taxes 3,040,000 3,040,000 Total current assets 201,470,012 189,938,467 PROPERTY AND EQUIPMENT, at cost Land and improvements 10,861,356 9,041,817 Buildings and improvements 50,729,035 39,950,161 Machinery and equipment 19,075,960 16,874,788 Transportation equipment 13,272,360 10,159,168 Office furniture and fixtures 8,337,452 5,712,961 102,276,163 81,738,895 Less, Accumulated depreciation 40,084,026 35,137,268 Net property and equipment 62,192,137 46,601,627 OTHER ASSETS Real estate held for sale 2,622,218 4,188,063 Rental properties 1,380,539 2,000,218 Intangibles, less accumulated amortization 1998 - $618,556 and 1997 - $516,469 4,825,720 4,927,807 Deferred income taxes 569,000 569,000 Other 10,627,845 10,836,844 Total other assets 20,025,322 22,521,932 TOTAL ASSETS $283,687,471 $259,062,026 The accompanying notes are part of the condensed consolidated financial statements. 3 COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONT'D) SEPTEMBER 30, DECEMBER 31, 1998 1997 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 2,125,175 $ 2,258,519 Accounts payable, trade 35,567,702 22,818,303 Accrued wages, salaries and commissions 7,532,123 4,876,790 Accrued dealer incentives 2,931,815 3,226,255 Accrued warranty expense 6,362,494 6,013,528 Accrued income taxes 1,442,904 1,529,543 Accrued insurance 2,673,631 2,319,518 Other accrued liabilities 7,349,584 6,633,762 Total current liabilities 65,985,428 49,676,218 LONG-TERM DEBT 10,599,874 12,591,144 OTHER 6,939,371 6,658,872 Total liabilities 82,899,673 68,926,234 SHAREHOLDERS' EQUITY Common shares, without par value: authorized 60,000,000 shares; issued 1998 - 20,827,157 shares and 1997 - 20,689,214 shares 88,904,712 87,519,740 Additional paid-in capital 3,050,744 3,012,596 Retained earnings 139,184,377 115,984,289 Treasury shares, at cost: 1998 - 4,135,274 shares and 1997 - 3,387,648 shares (30,977,035) (16,380,833) Total shareholders' equity 200,162,798 190,135,792 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $283,687,471 $259,062,026 The accompanying notes are part of the condensed consolidated financial statements. 4 COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1998 1997 1998 1997 Net sales $202,593,063 $174,885,358 $579,299,844 $502,359,402 Cost of goods sold 171,577,920 148,461,929 494,713,422 432,361,204 Gross profit 31,015,143 26,423,429 84,586,422 69,998,198 Operating expenses: Selling and delivery 9,626,676 8,102,059 27,516,178 24,113,819 General and administrative 6,451,967 7,472,979 21,262,244 20,003,278 Total operating expenses 16,078,643 15,575,038 48,778,422 44,117,097 Operating income 14,936,500 10,848,391 35,808,000 25,881,101 Nonoperating income (expense): Interest expense (641,340) (369,581) (1,444,014) (1,164,643) Investment income 1,182,420 1,221,473 3,615,284 3,373,051 Gain (loss) on sale of properties, net (11,499) (87,913) (55,708) 45,379 Other income, net 192,463 187,882 1,127,421 368,027 Total nonoperating income 722,044 951,861 3,242,983 2,621,814 Income before income taxes 15,658,544 11,800,252 39,050,983 28,502,915 Income taxes 5,472,000 4,207,000 13,242,000 10,061,000 Net income $ 10,186,544 $ 7,593,252 $ 25,808,983 $ 18,441,915 Earnings per common share: Basic $ .59 $ .44 $ 1.49 $ 1.07 Diluted $ .59 $ .44 $ 1.48 $ 1.06 Number of common shares used in the computation of earnings per share: Basic 17,198,730 17,233,378 17,312,497 17,225,930 Diluted 17,304,097 17,382,321 17,429,829 17,395,703 Cash dividends per common share $ .05 $ .05 $ .15 $ .15 The accompanying notes are part of the condensed consolidated financial statements. 5 COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities $ 24,240,421 $ 36,239,934 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from: Sale of short-term investments 104,023,193 16,809,392 Sale of properties 2,019,713 1,213,142 Acquisitions of: Short-term investments (113,652,335) (16,396,715) Property and equipment (15,180,692) (11,193,626) Businesses (9,001,812) - Other 299,803 (34,819) Net cash (used in) investing activities (31,492,130) (9,602,626) CASH FLOWS FROM FINANCING ACTIVITIES Payments of long-term debt (2,124,614) (1,828,095) Issuance of common shares under stock option and stock purchase plans 1,384,972 829,726 Tax benefit from stock options exercised 753,251 395,264 Purchases of common shares for treasury (14,612,606) (827,500) Cash dividends paid (2,608,895) (2,585,091) Net cash (used in) financing activities (17,207,892) (4,015,696) Increase (decrease)in cash and temporary cash investments (24,459,601) 22,621,612 CASH AND TEMPORARY CASH INVESTMENTS Beginning of period 71,427,918 66,448,901 End of period $ 46,968,317 $ 89,070,513 Noncash investing and financing activities: Liabilities assumed in acquisitions of businesses $ 795,000 $ - The accompanying notes are part of the condensed consolidated financial statements. 6 COACHMEN INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet data as of December 31, 1997 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. In the opinion of management, the information furnished herein includes all adjustments of a normal and recurring nature necessary to reflect a fair statement of the interim periods reported. The results of operations for the three and nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full year. 3. Inventories consist of the following: September 30, December 31, 1998 1997 Raw material $ 31,646,099 $ 19,437,977 Work-in-process 11,797,622 9,327,308 Finished goods 41,921,825 39,650,721 Total $ 85,365,546 $ 68,416,006 4. The Company was contingently liable at September 30, 1998 to banks and other financial institutions on repurchase agreements in connection with financing provided by such institutions to most of the Company's independent dealers in connection with their purchase of the Company's recreational vehicle products. These agreements provide for the Company to repurchase its products from the financing institution in the event that they have repossessed them upon a dealer's default. The risk of loss resulting from these agreements is spread over the Company's numerous dealers and is further reduced by the resale value of the products repurchased. The Company is involved in various legal proceedings which are ordinary litigations incidental to the industry and which are covered in whole or in part by insurance. Management believes that any liability which may result from these proceedings will not be significant. 5. On February 3, 1998, the Company acquired certain assets and the operations of three retail recreational vehicle dealerships, two located in Florida and one in Georgia. The assets acquired consisted of new and used unit inventories, real and personal property, parts inventories, tools and supplies and other miscellaneous items. The purchase price, which aggregated $9.8 million and approximated the fair value of the acquired assets, consisted of $9.0 million in cash and the balance in the assumption of certain liabilities of the sellers. The acquisitions were accounted for as a purchase and the operating results of the acquired businesses are included in the Company's consolidated financial statements from the date of acquisition. Pro forma financial information has not been presented as it is not materially different from the Company's historical results. 6. On May 1, 1997 the Board of Directors authorized the repurchase of up to one million shares of the Company's outstanding common stock and on October 19, 1998 the Board of Directors authorized the repurchase of an additional one million shares. Shares may be purchased from time to time, depending on market conditions and other factors, on the open market or through privately negotiated 7 transactions at the then prevailing market prices. As of September 30, 1998, the Company repurchased 800,000 shares of its common stock on the open market pursuant to the above authorizations. 8 COACHMEN INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial condition, results of operations and cash flows during the periods included in the accompanying condensed consolidated financial statements. A summary of the changes in the principal items included in the condensed consolidated statements of income is shown below. Comparison of Three Months Nine Months Ended September 30, 1998 and 1997 Increases (Decreases) Net sales $ 27,707,705 15.8% $ 76,940,442 15.3% Cost of goods sold 23,115,991 15.6 62,352,218 14.4 Selling and delivery expenses 1,524,617 18.8 3,402,359 14.1 General and administrative expenses (1,021,012) (13.7) 1,258,966 6.3 Interest expense 271,759 73.5 279,371 24.0 Investment income (39,053) (3.2) 242,233 7.2 Gain (loss) on sale of properties, net 76,414 * (101,087) * Other income, net 4,581 * 759,394 * Income before income taxes 3,858,292 32.7 10,548,068 37.0 Income taxes 1,265,000 30.1 3,181,000 31.6 Net income 2,593,292 34.2 7,367,068 39.9 * Not meaningful 9 NET SALES Consolidated net sales for the quarter ended September 30, 1998 were $202,593,063 an increase of 15.8% over the $174,885,358 reported for the corresponding quarter last year. Net sales for the nine months were $579,299,844 representing an increase of 15.3% over the $502,359,402 reported for the same period in 1997. The Company's vehicle segment experienced net sales increases of 15.1% and 15.9% for the quarter and nine months, respectively. These increases are attributed to improvements in capacity utilization as well as additions to capacity and overall increases in the recreational vehicle market. The Company's housing segment had a net sales increase for the 1998 quarter of 19.3% and 12.5% for the nine months as demand for the Company's modular housing products continued its upswing and also as the result of increased capacity. Both the vehicle and housing segments experienced increases in the number of units sold and in the average sales price per unit. COST OF GOODS SOLD Cost of goods sold increased 15.6% or $23,115,991 for the three months and 14.4% or $62,352,218 for the nine months ended September 30, 1998. The increase for both periods is lower than the increase in net sales. As a percentage of net sales, cost of goods sold decreased .2% and .7% for the quarter and nine months, respectively, from the comparable prior year periods. These percentages reflect improvements over the higher 1997 expenses associated with capacity start-up costs incurred in the vehicle segment and costs associated with the implementation of a 7-day work week production schedule at the Company's largest housing facility. OPERATING EXPENSES As a percentage of net sales, operating expenses, which include selling, delivery, general and administrative expenses, were 7.9% and 8.9% for the 1998 and 1997 quarter, respectively, and 8.4% for the 1998 nine months compared to 8.8% for the comparable period last year. Selling expense, as a percentage of net sales, increased by .2% for the quarter while staying the same for the nine months and delivery expense stayed substantially the same for both comparable periods. General and administrative expenses were 3.2% of net sales for the third quarter compared to 4.3% for the 1997 corresponding quarter and 3.7% of net sales for the nine-month period compared to 4.0% for 1997. The administrative cost percentage decreases for both periods is primarily the result of increasing the Company's bad debt expense in the 1997 quarter by approximately $1.5 million to reflect a slowdown in the overall van conversion industry. The higher administrative cost dollars for the nine month period is associated with three acquired dealerships and to the ongoing implementation of an enterprise computer system. INTEREST EXPENSE Interest expense was $641,340 and $1,444,014 for the three and nine-month periods in 1998 compared to $369,581 and $1,164,643 in the same periods last year. Interest expense varies with the amount of long-term debt and the increase in cash surrender value for the Company's investment in life insurance contracts. These life insurance contracts were purchased to fund obligations under deferred compensation agreements with executives and other key employees. The interest costs associated with deferred compensation obligations and with the borrowings against the cash value of the insurance policies are partially offset by increases in cash surrender values. 10 INVESTMENT INCOME Investment income decreased $39,053 and increased $242,233 respectively, for the 1998 three and nine-month periods. Investment income is indicative of the amounts of cash and temporary cash investments, as well as, short-term investment activity in 1998 in comparison to 1997. GAIN (LOSS) ON THE SALE OF PROPERTIES, NET There was a net loss on the sale of properties for the third quarter of 1998 of $(11,499) compared with a loss of $(87,913) in the same quarter of 1997. The net gain (loss) on the sale of properties for the first nine months was $(55,708) and $45,379 for 1998 and 1997, respectively. These amounts represent the net result of gains or loses recognized upon the disposition of various small properties. Assets are continually analyzed and every effort is made to sell or dispose of properties that are determined to be unproductive. OTHER INCOME, NET Other income, net, represents income of $192,463 for the third quarter and $1,127,421 for the nine months compared to income of $187,882 and $368,027 for the 1997 third quarter and nine months, respectively. The most significant variance for the 1998 nine-months was due to the receipt of nontaxable proceeds from corporate owned life insurance. INCOME TAXES For the third quarter ended September 30, 1998, the effective tax rate was 34.9% and a year-to-date rate of 33.9% compared with a 1997 third quarter and year-to-date effective tax rate of 35.7% and 35.3%, respectively. The Company's effective tax rate fluctuates based upon the states where sales occur and also with the level of export sales. The first nine months of 1998 was also impacted by the amount of nontaxable income realized from the recognition of corporate owned life insurance proceeds. LIQUIDITY AND CAPITAL RESOURCES The Company generally relies on funds from operations as its primary source of liquidity. In addition, the Company maintains an unsecured committed line of credit, which totaled $30 million at September 30, 1998, to meet its seasonal working capital needs. At September 30, 1998, there were no borrowings against this line of credit. For the nine months ended September 30, 1998, the major source of cash was from operating activities. The significant items in operating activities were net income, depreciation and an increase in trade accounts payable. The positive cash flow from these items was partially offset by an increase in inventories and accounts receivable. Investing activities reflected a net cash use of $31,492,130. The principal use of cash in investing activities was the acquisition of capital equipment, short-term investments and the acquisition of three businesses (recreational vehicle retail stores). Property and equipment acquisitions consisted principally of the construction of an All American Homes manufacturing facility in the state of Ohio and the purchase of an existing recreational vehicle manufacturing facility in Indiana. Software and additional hardware requirements in connection with the Company's implementation of a new enterprise computer system were also significant capital expenditures. The negative cash flow from financing activities was primarily for purchases of common shares for the treasury, cash dividends and the repayment of long-term debt. 11 At September 30, 1998, working capital decreased to $135.5 million from $140.3 million at December 31, 1997. The $10.9 million increase in current assets at September 30, 1998 versus December 31, 1997, was primarily due to increased inventories, trade receivables and short-term investments, partially offset by a decrease in cash. The $19.6 million increase in current liabilities was substantially due to increased trade accounts payable. The increases in inventories and trade accounts payable are directly related to the increased sales activity. OTHER MATTERS The Year 2000 issue relates to the way computer systems, software and some equipment define calendar dates; they could fail or make miscalculations due to interpreting a date including "00" to mean 1900, not 2000. The Company has determined that certain of its computer software was originally programmed using two digits rather than four to define the applicable year. As a result, this software may be unable to process transactions beyond December 31, 1999. In 1997, the Company began devoting significant resources to replace the affected software with a new enterprise computer system. The total cost of the project, including hardware, software and consulting related costs, is currently estimated to be in excess of $4.0 million, of which $2.5 million has been incurred as of September 30, 1998. These costs do not include any costs associated with the implementation of contingency plans, which are in the process of being developed. Due to the uncertainty of the Year 2000 readiness of third-party suppliers and customers, the Company is currently unable to determine whether the consequences of Year 2000 failures will have a material impact on the Company's operations. The failure to correct a material Year 2000 problem could result in an interruption in, or failure of, certain normal business activities or operations. The Company has initiated a senior management focus team to review possible business system failures that may occur and to design and implement contingency plans. Those business systems considered most critical to continued operations are being given the highest priority. The focus team has begun the process of identifying and communicating with third-party suppliers and customers about their plans and progress in addressing their potential Year 2000 problems. Detailed evaluations will be made and integrated in the overall contingency plans. The objective of the Company and each of its operating subsidiaries is to have all of their significant business systems, including those that effect facilities and manufacturing activities, functioning properly with respect to Year 2000, before January 1, 2000. 12 PART II. OTHER INFORMATION Item 5. Other Information At its regular meeting on July 24, 1998, the Board of Directors Elected Robert J. Deputy as the tenth member of the Board. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COACHMEN INDUSTRIES, INC. (Registrant) s/s: GARY L. GROOM Date: November 13, 1998 _______________________________ Gary L. Groom, Executive Vice President - Finance (Principal Financial Officer) S/S: WILLIAM M. ANGELO Date: November 13, 1998 _______________________________ William M. Angelo, Corporate Controller (Principal Accounting Officer) 13 EX-27 2
5 This schedule contains summary financial information extracted from the consolidated statement of income and consolidated balance sheet and is qualified in its entirety by reference to such financial statements. 0000021212 COACHMEN INDUSTRIES, INC. 1000 9-MOS 9-MOS DEC-31-1998 DEC-31-1997 SEP-30-1998 SEP-30-1997 46,968 79,472 24,912 9,599 38,841 37,619 1,032 1,477 85,366 35,446 201,470 191,432 102,276 80,900 40,084 33,917 283,687 261,046 65,985 57,788 10,600 13,027 57,928 70,697 0 0 0 0 142,235 112,885 283,687 261,046 579,300 502,359 579,300 502,359 494,713 432,361 543,492 476,478 (3,243) (2,622) (27) 1,682 1,444 1,165 39,051 28,503 13,242 10,061 25,809 18,442 0 0 0 0 0 0 25,809 18,442 1.49 1.07 1.48 1.06 RESTATED FOR 1997
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