10-Q 2 r10q-101.txt 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 March 31, 2001 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) 2831 Dexter Drive, 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 April 30, 2001: Common Shares, without par value 15,780,399 shares outstanding including an equivalent number of common share purchase rights. COACHMEN INDUSTRIES, INC. INDEX Page No. PART I. FINANCIAL INFORMATION Financial Statements: Condensed Consolidated Balance Sheets- March 31, 2001 and December 31, 2000 4-5 Condensed Consolidated Statements of Operations- Three Months Ended March 31, 2001 and 2000 6 Condensed Consolidated Statements of Cash Flows- Three Months Ended March 31, 2001 and 2000 7 Notes to Condensed Consolidated Financial Statements 8-10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11-13 PART II. OTHER INFORMATION 13-14 Item 6. Exhibits and Reports on Form 8-K SIGNATURES 15 This Form 10-Q 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. These forward looking statements involve risks and uncertainties, and are dependent on factors, which may include, but are not limited to, the availability and price of gasoline and the impact of economic uncertainty on high-cost discretionary product purchases, which can hinder the 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; the functioning of the Company's enterprise-wide technology system, which can impact the Company's day-to-day operations; legislation governing the relationships of the Company with its recreational vehicle dealers, which may affect the Company's options and liabilities in the event of a general economic downturn; and also on the state of the recreational vehicle and modular housing industries in the United States. Other factors affecting forward-looking statements include the cyclical and seasonal nature of the Company's businesses, adverse weather, changes in property taxes and energy costs, changes in federal income tax laws and federal mortgage financing programs, changes in public policy, competition, government regulations 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. At times, the Company's actual performance differs materially from its projections and estimates regarding the economy, the recreational vehicle and housing and building 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. For further discussion of the elements involved in this report, see the Company's most recent Annual Report on Form 10-K. COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) MARCH 31, DECEMBER 31, 2001 2000 ASSETS CURRENT ASSETS Cash and temporary cash investments $ 17,229 $ 2,614 Marketable securities 17,100 18,737 Trade receivables, less allowance for doubtful receivables 2001 - $1,154 and 2000 - $1,066 37,812 37,743 Other receivables 3,065 2,336 Refundable income taxes 2,779 4,600 Inventories 98,866 97,315 Prepaid expenses and other 2,007 2,221 Deferred income taxes 8,968 8,384 Total current assets 187,826 173,950 PROPERTY AND EQUIPMENT, at cost 141,335 139,029 Less, Accumulated depreciation 55,297 54,866 Property and equipment, net 86,038 84,163 INTANGIBLES, net of accumulated amortization 2001 - $1,129 and 2000 - $917 19,260 15,983 OTHER 28,960 22,350 TOTAL ASSETS $322,084 $296,446 The accompanying notes are part of the condensed consolidated financial statements. COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (in thousands) MARCH 31, DECEMBER 31, 2001 2000 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 865 $ 865 Accounts payable, trade 31,299 24,015 Accrued income taxes 359 845 Accrued expenses and other liabilities 43,572 31,988 Total current liabilities 76,095 57,713 LONG-TERM DEBT 25,295 11,795 DEFERRED INCOME TAXES 3,722 3,370 OTHER 8,202 8,619 TOTAL LIABILITIES 113,314 81,497 SHAREHOLDERS' EQUITY Common shares, without par value: authorized 60,000 shares; issued 2001 - 21,026 shares and 2000 - 21,020 shares 90,915 90,861 Additional paid-in capital 5,648 5,563 Accumulated other comprehensive loss (1,016) - Retained earnings 164,038 169,766 Treasury shares, at cost: 2001 - 5,253 Shares and 2000 - 5,317 shares (50,815) (51,241) TOTAL SHAREHOLDERS' EQUITY 208,770 214,949 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $322,084 $296,446 The accompanying notes are part of the condensed consolidated financial statements. COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) THREE MONTHS ENDED MARCH 31, 2001 2000 Net sales $154,807 $202,485 Cost of goods sold 136,802 171,062 Gross profit 18,005 31,423 Operating expenses: Delivery 7,843 8,281 Selling 8,774 8,880 General and administrative 8,815 7,884 25,432 25,045 Operating income (loss) (7,427) 6,378 Nonoperating income (expense): Interest expense (574) (363) Investment income (loss) 152 (127) Gain (loss) on sale of properties, net (5) 30 Other, net 62 282 (365) (178) Income (loss) before income taxes (7,792) 6,200 Income taxes (2,852) 2,170 Net income (loss) $ (4,940) $ 4,030 Earnings (loss) per common share: Basic $ (.31) $ .26 Diluted (.31) .26 Shares used in the computation of earnings (loss) per common share: Basic 15,746 15,551 Diluted 15,746 15,570 Cash dividends per common share $ .05 $ .05 The accompanying notes are part of the condensed consolidated financial statements. COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) THREE MONTHS ENDED MARCH 31, 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities $ 15,737 $ 2,677 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from: Sale of marketable securities 12,590 56,604 Sale of properties - 55 Sale of businesses - 2,351 Acquisitions of: Marketable securities (12,759) (47,192) Property and equipment (1,857) (3,316) Businesses, net of cash acquired (7,103) - Other (92) 207 Net cash provided by (used in) investing activities (9,221) 8,709 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 13,500 - Payments of long-term debt (4,667) (143) Issuance of common shares under stock option and stock purchase plans 54 247 Tax benefit from stock options exercised - 67 Cash dividends paid (788) (782) Net cash provided by (used in) financing activities 8,099 (611) Increase in cash and temporary cash investments 14,615 10,775 CASH AND TEMPORARY CASH INVESTMENTS Beginning of period 2,614 4,269 End of period $ 17,229 $ 15,044 The accompanying notes are part of the condensed consolidated financial statements. COACHMEN INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 1. BASIS OF PRESENTATION The consolidated balance sheet data as of December 31, 2000 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 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 months ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year. 2. SEGMENT INFORMATION The Company has determined that its reportable segments are those that are based on the Company's method of internal reporting, which disaggregates its business by product category. The Company's two reportable segments are: Recreational vehicles, including related parts and supplies, and modular housing and building. The Company evaluates the performance of its segments and allocates resources to them based on pretax income. Differences between reported segment amounts and corresponding consolidated totals represent corporate expenses for administrative functions and costs or expenses relating to property and equipment that are not allocated to segments. The table below presents information about segments used by the chief operating decision maker of the Company for the three months ended March 31, 2001 and 2000: 2001 2000 Net sales: Recreational vehicles $107,230 $162,638 Modular housing and building 47,577 39,847 Consolidated total $154,807 $202,485 Pretax income (loss): Recreational vehicles $ (5,511) $ 5,867 Modular housing and building 475 1,854 Other reconciling items _ (2,756) (1,521) Consolidated total $ (7,792) $ 6,200 Total assets: Recreational vehicles $117,631 $165,999 Modular housing and building 116,799 41,918 Other reconciling items 87,654 87,423 Consolidated total $322,084 $295,340 3. INVENTORIES Inventories consist of the following: March 31, December 31, 2001 2000 Raw materials $ 31,183 $ 35,963 Work in process 9,350 8,244 Finished goods 58,333 53,108 Total $ 98,866 $ 97,315 4. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the dilutive effect of stock options and stock awards. The dilutive effect of stock options and awards did not enter into the computation of diluted earnings per share for the quarter ended March 31, 2001, because their inclusion would have been antidilutive. 5. COMPREHENSIVE INCOME Other comprehensive loss includes unrealized depreciation of available-for-sale securities, net of taxes. Other comprehensive loss for the three months ended March 31, 2001 was $(1,016). There was no other comprehensive income recorded for the quarter ended March 31, 2000. Total comprehensive income (loss) combines reported net income (loss) and other comprehensive income (loss). Total comprehensive income (loss) for the three months ended March 31, 2001 and 2000 was $(5,956) and $4,030, respectively. 6. ACQUISITION OF A BUSINESS On February 12, 2001, the Company acquired all the issued and outstanding shares of capital stock of Kan Build, Inc. ("Kan Build"), a manufacturer of modular buildings with facilities in Osage City, Kansas; Loveland, Colorado; and a new plant under construction in Millikin, Colorado. The purchase price aggregated $21.5 million and consisted of $8.8 cash paid at closing and the assumption of $12.7 of liabilities. The acquisition was accounted for as a purchase. Unaudited pro forma financial information as if this acquisition had occurred at the beginning of each period is as follows: THREE MONTHS ENDED MARCH 31, 2001 2000 Net sales $158,330 $210,090 Net income (loss) (4,847) 4,440 Earnings (loss) per share: Basic $ (.31) $ .29 Diluted (.31) .29 The unaudited pro forma financial information presented above, including the historical results of Kan Build, is not considered by management to be indicative of the consolidated results of operations which might have been attained had Kan Build actually been acquired at the beginning of these periods, nor is it necessarily indicative of results that may occur in the future. 7. RECLASSIFICATIONS Certain information in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2000 has bee reclassified to conform to the 2001 presentation. The reclassifications had no effect on net income as previously reported. 8. COMMITMENTS AND CONTINGENCIES The Company was contingently liable at March 31, 2001 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. Historically, the Company has not experienced losses under these agreements. However, in the fourth quarter of 2000 and continuing during the first quarter of 2001, as a result of business conditions affecting the recreational vehicle industry, the Company experienced losses under repurchase agreements. Accordingly, the Company is recording an accrual for estimated losses under repurchase agreements. 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 the ultimate outcome of these matters and any liabilities in excess of insurance coverage and self-insurance accruals will not have a material adverse impact on the Company's consolidated financial position or on its future business operations. COACHMEN INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per share data) 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 Ended March 31, 2001 and 2000 Increases (Decreases) Amount Percentage Net sales $ (47,678) (23.5)% Cost of goods sold (34,260) (20.0) Delivery (438) (5.3) Selling (106) (1.2) General and administrative 931 11.8 Interest expense 211 58.1 Investment income 279 219.7 Loss on sale of properties, net (35) (116.7) Other, net (220) (78.0) Loss before income taxes (13,992) (225.7) Income taxes (5,022) (231.4) Net loss (8,970) (222.6) NET SALES Consolidated net sales for the quarter ended March 31, 2001 were $154,807, a decrease of 23.5% from the $202,485 reported in the same quarter of 2000. The Company's recreational vehicle segment experienced a sales decrease of 34.1%. Both the motorized and towable products, reflected decreases in the number of units and sales dollars from the 2000 period. The Company's modular housing and building segment experienced a 19.4% increase in net sales for the quarter compared to last year's first quarter. This increase was principally attributable to net sales of acquired businesses during the past eleven-month period. COST OF GOODS SOLD Cost of goods sold decreased 20.0% or $34,260 for the three months ended March 31, 2001. As a percentage of net sales, cost of goods sold was 88.4% for the 2001 quarter and 84.5% for the 2000 quarter. The decrease in the dollar amount of cost of goods sold in the current quarter is attributable to lower variable expenses as a result of the decrease in sales and production. The increase in the cost of goods sold percentage to net sales for the 2001 quarter is primarily related to fixed overhead costs, which could not be reduced in the same relationship as the decrease in sales and production. OPERATING EXPENSES As a percentage of net sales, operating expenses, which include delivery, selling, general and administrative expenses, were 16.4% and 12.4% for the quarters ended March 31, 2001 and 2000, respectively. For the quarter ended March 31, 2001 compared to the prior year's first quarter, the percentage of delivery expense to net sales increased 1.0% and the percentage of selling expense to net sales increased 1.3%, while total dollars spent in both categories were down. General and administrative expenses were 5.7% of net sales for the first quarter of 2001 and 3.9% of net sales for the first quarter of 2000. The higher administrative expense is primarily the result of administrative expenses and goodwill amortization for companies acquired during the past eleven month period, which were not included in last year's first quarter results. INTEREST EXPENSE Interest expense was $574 and $363 for the quarters ended March 31, 2001 and 2000, respectively. The increase in interest expense reflects a higher overall level of outstanding debt. This increase was the result of borrowing for the Kan Build acquisition and Industrial Revenue Bonds assumed in the acquisitions of the Mod-U-Kraf Homes, Inc. and Miller Building Systems, Inc. during 2000. INVESTMENT INCOME Investment income was $152 for the 2001 quarter compared with an investment loss of $127 for the 2000 comparable quarter. The increase was principally attributable to unrealized gains on open U.S. Treasury bond futures compared to unrealized losses on futures options in the 2000 quarter. GAIN (LOSS) ON THE SALE OF PROPERTIES, NET The loss on the sale of properties for the quarter ended March 31, 2001 was $5 while the comparative quarter in 2000 was a gain of $30. This classification represents the net result of the amount of gain or loss recognized upon the disposition of various small properties. OTHER, NET Other income, net, represents income of $62 for the 2001 first quarter and $282 for the 2000 first quarter. There were no significant variances from the comparable quarters. INCOME TAXES For the first quarter ended March 31, 2001, the effective tax credit was 36.6% compared to a first quarter tax rate of 35.0% in 2000. The Company's effective tax rate fluctuates based upon the states where sales occur, the level of export sales and the amount of nontaxable dividend income on investments. LIQUIDITY AND CAPITAL RESOURCES The Company generally relies on funds from operations as its primary source of liquidity. In addition, the Company maintains a $50 million, unsecured bank line of credit to meet its seasonal working capital needs. At March 31, 2001, there was $13.5 million borrowed against this bank line of credit. For the three months ended March 31, 2001, the major source of cash was provided by operating activities. Net cash provided by operating activities aggregated $15,737 and $2,277 for the quarters ended March 31, 2001 and 2000, respectively. Increased operating cash flows for the current quarter were favorably impacted by an $18.9 million increase in accounts payable and accrued expenses and other liabilities. The cash used in investing activities included the purchase of Kan Build and the acquisition of property and equipment. The cash provided by financing activities consisted of proceeds from long-term debt (used to fund the purchase of Kan Build), partially offset by a cash dividend. At March 31, 2001, working capital decreased to $111.7 million from $116.2 million at December 31, 2000. The $13.9 million increase in current assets at March 31, 2001 versus December 31, 2000, was primarily due to increased cash and temporary cash investments. The increase in current liabilities of $13.3 million is substantially due to increased trade payables and other accrued liabilities partially offset by a decrease in accrued income taxes. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K during the quarter ended March 31, 2001 Form 8-K filed on January 12, 2001, reporting an item 5 event (a press release announcing a loss in the fourth quarter; profit for the year). Form 8-K filed on February 14, 2001, reporting an item 5 event to the effect that the Company modified it's By-Laws and that on February 9, 2001 the Company filed a press release announcing final results for 2000 including nonrecurring special charges and the third major acquisition in the last nine months. Form 8-K filed on February 16, 2001, reporting an item 5 event (a press release announcing expansion of modular sector, cash dividend and CFO change). Form 8-K filed on March 9, 2001, reporting an item 9 event (a press release announcing that on March 14, 2001, the Company will be presenting its calendar year 2000 performance and outlook for 2001 at the RedChip.com(TM) Investor Conference). 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) Date: May 14, 2001 \Richard M. Lavers________________ Richard M. Lavers, Executive Vice President, Interim Chief Financial Officer, General Counsel and Secretary Date: May 14, 2001 \William M. Angelo_______________ William M. Angelo, Vice President and Chief Accounting Officer