-----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, IoyUwSNVz22nEKa2gI0mpfo+NYW/gqHD8JDa5tTBqq5THrbEC0jPWpBhTOuoSIdc R4Rm6tXCP32p/O+uLt5PsA== 0000021212-99-000015.txt : 19991115 0000021212-99-000015.hdr.sgml : 19991115 ACCESSION NUMBER: 0000021212-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748386 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, 1999 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 October 31, 1999: Common Shares, without par value 15,722,449 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, 1999 and December 31, 1998.................. 3-4 Condensed Consolidated Statements of Income- Three and Nine Months Ended September 30, 1999 and 1998... 5 Condensed Consolidated Statements of Cash Flows- Nine Months Ended September 30, 1999 and 1998............. 6 Notes to Condensed Consolidated Financial Statements...... 7-8 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 9-14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K..................... 15 SIGNATURES........................................................ 16 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 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; government laws and regulations, particularly related to safety, distribution and franchising, which may affect the way business is conducted; 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 profitability whether there are or are not increased sales; and the Company's ability to implement its new enterprise-wide technology system or make its software and equipment Year 2000 compliant. At times, the Company's actual performance differs 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 (in thousands) SEPTEMBER 30, DECEMBER 31, 1999 1998 ASSETS CURRENT ASSETS Cash and temporary cash investments $ 8,020 $ 23,009 Marketable securities 32,424 31,279 Trade receivables, less allowance for doubtful receivables 1999 - $956 and 1998 - $1,032 53,171 27,585 Other receivables 2,215 1,838 Refundable income taxes 857 3,741 Inventories 108,791 93,350 Prepaid expenses and other 1,852 1,341 Deferred income taxes 3,268 3,268 Total current assets 210,598 185,411 PROPERTY AND EQUIPMENT, at cost Land and improvements 11,698 11,017 Buildings and improvements 58,521 53,761 Machinery and equipment 22,374 19,713 Transportation equipment 12,239 11,176 Office furniture and fixtures 14,418 8,850 119,250 104,517 Less, Accumulated depreciation 45,064 41,445 Net property and equipment 74,186 63,072 OTHER ASSETS Real estate held for sale 2,622 2,622 Rental properties 1,331 1,372 Intangibles, less accumulated amortization 1999 - $612 and 1998 - $517 4,458 4,553 Deferred income taxes 579 579 Other 11,799 10,867 Total other assets 20,789 19,993 TOTAL ASSETS $305,573 $268,476 The accompanying notes are part of the condensed consolidated financial statements. 3 COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (CONT'D) (in thousands) SEPTEMBER 30, DECEMBER 31, 1999 1998 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 1,825 $ 2,125 Accounts payable, trade 40,727 18,997 Accrued wages, salaries and commissions 7,939 4,358 Accrued dealer incentives 3,526 3,784 Accrued warranty expense 6,556 6,138 Accrued income taxes 3,082 1,509 Accrued insurance 554 1,863 Other liabilities 7,393 6,944 Total current liabilities 71,602 45,718 LONG-TERM DEBT 8,766 10,191 OTHER 6,592 7,109 Total liabilities 86,960 63,018 SHAREHOLDERS' EQUITY Common shares, without par value: authorized 60,000 shares; issued 1999 - 20,946 shares and 1998 - 20,843 shares 90,168 89,105 Additional paid-in capital 3,960 3,867 Retained earnings 169,535 145,614 Treasury shares, at cost, 1999 - 4,984 shares and 1998 - 4,258 shares (45,050) (33,128) Total shareholders' equity 218,613 205,458 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $305,573 $268,476 The accompanying notes are part of the condensed consolidated financial statements. 4 COACHMEN INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1999 1998 1999 1998 Net sales $226,114 $202,593 $640,338 $579,300 Cost of goods sold 195,024 171,578 552,967 494,714 Gross profit 31,090 31,015 87,371 84,586 Operating expenses: Selling and delivery 10,362 9,627 30,003 27,516 General and administrative 5,843 6,451 19,747 21,262 Total operating expenses 16,205 16,078 49,750 48,778 Operating income 14,885 14,937 37,621 35,808 Nonoperating income (expense): Interest expense (531) (641) (1,508) (1,444) Investment income 249 1,182 1,533 3,615 Gain (loss) on sale of properties, net 37 (11) 1,432 (55) Other income, net 81 192 1,130 1,127 Total nonoperating Income (expense) (164) 722 2,587 3,243 Income before income taxes 14,721 15,659 40,208 39,051 Income taxes 5,196 5,472 13,797 13,242 Net income $ 9,525 $ 10,187 $ 26,411 $ 25,809 Earnings per common share: Basic $ .58 $ .59 $ 1.59 $ 1.49 Diluted $ .58 $ .59 $ 1.59 $ 1.48 Number of common shares used in the computation of earnings per share: Basic 16,496 17,199 16,595 17,312 Diluted 16,548 17,304 16,655 17,430 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 (in thousands) NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities $ 18,612 $ 24,240 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from: Sale of marketable securities 134,703 104,023 Sale of properties 1,946 2,020 Acquisitions of: Marketable securities (137,391) (113,652) Property and equipment (17,491) (15,181) Businesses - (9,002) Other (637) 300 Net cash (used in) investing activities (18,870) (31,492) CASH FLOWS FROM FINANCING ACTIVITIES Payments of long-term debt (1,725) (2,125) Issuance of common shares under stock option and stock purchase plans 1,063 1,385 Tax benefit from stock options exercised 394 753 Purchases of common shares for the treasury (11,972) (14,612) Cash dividends paid (2,491) (2,609) Net cash (used in) financing activities (14,731) (17,208) Decrease in cash and temporary cash investments (14,989) (24,460) CASH AND TEMPORARY CASH INVESTMENTS Beginning of period 23,009 71,428 End of period $ 8,020 $ 46,968 Noncash investing and financing activities: Liabilities assumed in acquisitions of businesses $ - $ 795 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 at December 31, 1998 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, 1999 are not necessarily indicative of the results to be expected for the full year. 3. Inventories consist of the following (in thousands): September 30, December 31, 1999 1998 Raw material $ 45,395 $ 29,692 Work-in-process 19,704 11,512 Finished goods 43,692 52,146 Total $108,791 $ 93,350 4. The Company was contingently liable at September 30, 1999 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. In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related 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: Vehicles (recreational, vans and specialized), including related parts and supplies, and Housing (modular). 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. 7 The table below presents information about segments used by the chief operating decision maker of the Company for the nine months ended September 30, 1999 and 1998 (in thousands): 1999 1998 Net sales: Vehicles $525,736 $484,441 Housing 114,602 94,859 Consolidated total $640,338 $579,300 Pretax income: Vehicles $ 25,365 $ 28,808 Housing 11,710 7,827 Other reconciling items 3,133 2,416 Consolidated total $ 40,208 $ 39,051 Total assets: Vehicles $186,641 $149,336 Housing 41,244 41,399 Other reconciling items 77,688 92,952 Consolidated total $305,573 $283,687 6. Change in Accounting Principle Effective January 1, 1999, the Company adopted SOP 98-1, Accounting for Costs of Computer Software. For years beginning after December 15, 1998, SOP 98-1 requires internal and external costs incurred to develop internal-use computer software during the application development stage to be capitalized and amortized over the software's useful life. During the quarter and nine months ended September 30, 1999, the Company capitalized $609,000 and $2,272,000, respectively, of internal costs which previously would have been expensed under generally accepted accounting principles. These capitalized internal costs are related to the Company's new enterprise-wide technology system which is currently being implemented. The effect of this change in accounting principle for the quarter and nine months ended September 30, 1999 was to increase net income by approximately $394,000 and $1,493,000, respectively, or $.02 per share (basic and diluted) for the quarter and $.09 per share (basic and diluted) for the nine months. 9 COACHMEN INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial condition, results of operations and cash flows during the periods included in the accompanying condensed consolidated financial statements. A summary of the changes in the principal items included in the condensed consolidated statements of income is shown below. Comparison of Three Months Nine Months Ended September 30, 1999 and 1998 ($ in thousands) Increases (Decreases) Net sales $ 23,521 11.6% $61,038 10.5% Cost of goods sold 23,446 13.7 58,253 11.8 Selling and delivery expenses 735 7.6 2,487 9.0 General and administrative expenses (608) (9.4) (1,515) (7.1) Interest expense (110) (17.2) 64 4.4 Investment income (933) (78.9) (2,082) (57.6) Gain (loss) on sale of properties, net 48 * 1,487 * Other income, net (111) (57.8) 3 * Income before income taxes (938) (6.0) 1,157 3.0 Income taxes (276) (5.0) 555 4.2 Net income (662) (6.5) 602 2.3 * Not meaningful 9 NET SALES Consolidated net sales for the quarter ended September 30, 1999 were $226.1 million, an increase of 11.6% over the $202.6 million reported for the corresponding quarter last year. Net sales for the nine months were $640.3 million, representing an increase of 10.5% over the $579.3 million reported for the same period in 1998. The Company's vehicle segment experienced a net sales increase of 9.9% for the quarter and a net sales increase of 8.5% for the nine months. The net sales increase for the third quarter reflects a number of unit sales that were delayed from the second quarter due to problems with the implementation of a new enterprise-wide technology system in several of the Company's operations and other unrelated supplier problems. The increase in net sales for the nine months is attributed to the overall increases in the recreational vehicle market. The Company's housing segment had a net sales increase for the 1999 quarter of 19.7% and 20.8% for the nine months with growing demand for the Company's modular housing products and also as the result of increased capacity. COST OF GOODS SOLD Cost of goods sold increased 13.7% or $23.4 million for the three months and 11.8% or $58.3 million for the nine months ended September 30, 1999. The increase for both periods is higher than the increase in net sales. As a percentage of net sales, cost of goods sold increased 1.6% and 1.0% for the quarter and nine months, respectively, from the comparable prior year periods. While the housing segment experienced a decrease in the percentage of cost of goods sold to net sales, the overall percentage increases are attributable to the RV segment. These percentages reflect the impact of a sales mix with increased motorized products, which has a higher cost of goods sold percentage due to the chassis and also due to implementation related costs and inefficiencies associated with the Company's investment in new enterprise-wide technology and operating systems, as well as, the costs associated with the start-up of a new Class A production facility in Indiana. OPERATING EXPENSES As a percentage of net sales, operating expenses, which include selling, delivery, general and administrative expenses, were 7.2% for the 1999 quarter and 7.8% for the nine months while for the comparable periods they were 7.9% for the 1998 quarter and 8.4% for the 1998 nine months. Selling and delivery expenses, as a percentage of net sales, decreased by .2% for the quarter with no change for the 1999 and 1998 nine months. The change for the quarter is primarily due to a slight decrease in selling expenses. General and administrative expenses were 2.6% of net sales for the third quarter compared to 3.2% for the 1998 corresponding quarter and 3.1% of net sales for the nine-month period compared to 3.7% for 1998. These decreases in both the quarter and nine-month periods primarily reflect the capitalization of compensation and related costs with the implementation the new enterprise-wide technology systems. (see Note 6 of Notes to Condensed Consolidated Financial Statements regarding Change in Accounting Principle). INTEREST EXPENSE Interest expense was $531,000 and $1,508,000 for the three and nine- month periods in 1999 compared to $641,000 and $1,444,000 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 10 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 the increases in cash surrender values. INVESTMENT INCOME Investment income decreased $933,000 and $2,082,000 respectively, for the 1999 three and nine-month periods. This decrease in investment income is principally due to the reduction in interest income as the result of less funds being invested in the 1999 periods. GAIN (LOSS) ON THE SALE OF PROPERTIES, NET There was a net gain on the sale of properties for the third quarter of 1999 of $37,000 compared with a loss of $11,000 in the same quarter of 1998. The net gain (loss) on the sale of properties was $1,432,000 and $(55,000) for the nine months ended September 30, 1999 and 1998, respectively. The gain for the 1999 nine months was substantially due to the sale of real estate in Indiana, including the corporate administrative building. 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 $81,000 for the third quarter and $1,130,000 for the nine months compared to income of $192,000 and $1,127,000 for the 1998 third quarter and nine months, respectively. The most significant item of income for the nine months was from the sale of a Company-owned dealership in the state of Georgia. The principal amount in the 1998 nine months is attributed to the receipt of nontaxable income realized from corporate owned life insurance proceeds. INCOME TAXES For the third quarter ended September 30, 1999, the effective tax rate was 35.3% and a year-to-date rate of 34.3% compared with a 1998 third quarter and year-to-date effective tax rate of 34.9% and 33.9%, respectively. The Company's effective tax rate fluctuates based upon the states where sales occur, with the level of export sales and also with the level of nontaxable income recognized from investing activities. 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, 1999, to meet its seasonal working capital needs. At September 30, 1999, there were no borrowings against this line of credit. For the nine months ended September 30, 1999, the major source of cash was from operating activities. The significant items in operating activities which generated positive cash flow were net income, depreciation and an increase in trade accounts payable. The positive cash flow from these items was partially offset by increases in trade receivables and inventories. Investing activities reflected a net cash use of $18.9 million. The principal use of cash in investing activities was the acquisition of property and equipment, including the acquisition of a new corporate administration facility in Indiana, a new addition and remodeling costs at an RV manufacturing facility in Georgia and the 11 acquisition of machinery and equipment for the Company's parts & supply group. Software and additional hardware requirements in connection with the Company's implementation of its new enterprise-wide technology system were also significant uses of cash for investing activities. The negative cash flow from financing activities was primarily for purchases of common shares for the treasury, cash dividends and repayment of long-term debt. At September 30, 1999, there was a slight decrease in working capital, to $139.0 million from $139.7 million at December 31, 1998. The $25.2 million increase in current assets at September 30, 1999 versus December 31, 1998, was primarily due to increased trade receivables and inventories. The $25.9 million increase in current liabilities was principally attributable to increased trade accounts payable. The increases in trade receivables, inventories and trade accounts payable are directly related to the increased sales activity and in part are attributable to the implementation of the new enterprise-wide technology system, i.e. the system has temporarily impacted the process for billing and collecting receivables, as well as, monitoring inventory levels. Year 2000 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. In 1997, the Company 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 could have been unable to process transactions beyond December 31, 1999. If correction or replacement of the software was not completed in a timely manner, the Year 2000 issue could have a material impact on the Company's operations and could result in an interruption in, or failure of, certain normal business activities or operations. The assessment phase of the Company's software, systems and equipment began in 1997. It was initially determined that the systems most likely to be affected by the Year 2000 issue were the general accounting systems and payroll. To remedy the Year 2000 issue with regard to these areas, the Company began devoting significant resources to replace the affected software with a new enterprise-wide technology system. As of September 30, 1999, the implementation status of general accounting systems and payroll is 100% complete for the entire Company. The implementation of the manufacturing and distribution portions of the enterprise-wide technology system is complete for four divisions of the RV segment. One additional division from this segment will be complete for manufacturing and distribution systems as of November 1, 1999. The implementation of these systems for the remaining divisions in the RV and Housing segments will be halted or delayed until the year 2000. For those divisions that will not be transferred to the new manufacturing and distribution systems in 1999, the Company's existing software is being reprogrammed to be Year 2000 compliant. The Company estimates that this process is 80% complete at September 30, 1999. Testing and implementation of the new enterprise-wide technology system and reprogrammed legacy systems of the Company is occurring on an ongoing basis throughout 1999 and is expected to be complete in adequate time to enable proper processing of transactions throughout the Company before January 1, 2000. The Company also initiated a senior management focus team in 1998 to identify and review other possible business system failures that could occur and to assess the need for contingency plans. The focus team has 12 determined that the Company's equipment with embedded systems is Year 2000 compliant. The focus team does not believe the Company's equipment is, for the most part, calendar-date sensitive. The Company believes the key risk factors associated with Year 2000 are those from outside the Company that it cannot directly control, such as the readiness of its key material suppliers, dealers, customers, financial institutions and public infrastructure suppliers. The Company relies on third parties to provide goods and services necessary for the manufacture and distribution of its products. The focus team has prioritized and communicated with third-party suppliers about the status of their compliance with Year 2000 issues. The Company has been assured by 100% of its high priority mission critical suppliers that they are Year 2000 compliant. The Company sells its products to numerous independent dealers. Management believes the risk associated with Year 2000 compliance by the dealers is minimized since the risk is spread among the dealers. Despite their assurances, due to the uncertainty of the Year 2000 readiness of third parties, the Company is unable to determine whether the consequences of Year 2000 failures of third parties will have a material impact on the Company's operations. The worst case scenario could include halting of production due to the inability of a single source supplier to deliver critical product or component. The largest exposure appears to be the Company's interface with chassis manufacturers for order processing. The Company believes these order processing systems to be Year 2000 compliant based on statements from representatives of the companies involved. The chassis suppliers have also advised the Company that the chassis are Year 2000 compliant. While the Company has obtained assurance from its mission critical third parties that they will be compliant, there can be no assurance that the systems of any third party on which the Company's operations rely will be timely compliant. Nevertheless, based on their assurances, the Company does not anticipate a material impact on its operations from direct interfaces with third parties. The Company believes the worst case scenario for Year 2000 issues would be the disruption or unavailability of utility services. This could hinder or stop the performance of normal business functions, such as manufacturing and selling, and might disrupt retail demand. However, due to the multiple business locations of the Company, its manufacturing facilities, and its owned and independent retail outlets, normal business functions could continue at those locations where utility disruptions or unavailability did not occur. If they do occur, it is expected they will be temporary, and some utility services may be available from remote locations, as through electric grids. The focus team has developed contingency plans to protect the Company's facilities from damage due to the disruption or unavailability of utility services, from interruptions of the supply of components critical to ongoing production, and to protect the electronic information it relies upon to conduct its business. Steps necessary to implement those plans are being taken and the Company believes that the plans will be ready for implementation if necessary, before December 31, 1999. Based on a review of its products by segment, vehicles and housing, the Company has determined that the products it has sold and will continue to sell should not require remediation to be Year 2000 compliant. Accordingly, the Company does not believe that the Year 2000 presents a material exposure as it relates to the Company's products. The objective of the Company and each of its operating subsidiaries is 13 to have all of their significant business systems, including those that affect facilities and manufacturing activities, functioning properly with respect to Year 2000, before January 1, 2000. At September 30, 1999, the total cost is currently estimated to be in excess of $11.9 million, exclusive of some uncapitalized internal labor costs. Approximately $9.8 million has been incurred as of September 30, 1999. Of the amount incurred, $1.9 million has been expensed and $7.9 million has been capitalized for new systems and equipment. In addition, the Company estimates it has incurred approximately $2.1 million in uncapitalized internal labor costs during 1997 and 1998. (see Note 6 of Notes to Condensed Consolidated Financial Statements regarding Change in Accounting Principle.) All costs are being funded through operating cash flows. These costs do not include any costs associated with the implementation of contingency plans. 14 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 None 15 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/ JAMES E. JACK Date: November 12, 1999 _______________________________ James E. Jack Executive Vice President Chief Financial Officer /s/ WILLIAM M. ANGELO Date: November 12, 1999 _______________________________ William M. Angelo Vice President Chief Accounting Officer 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 DEC-31-1999 SEP-30-1999 8,020 32,424 57,199 956 108,791 210,598 119,250 45,064 305,573 71,602 8,766 45,118 0 0 173,495 305,573 640,338 640,338 552,967 602,717 (2,587) 303 1,508 40,208 13,797 26,411 0 0 0 26,411 1.59 1.59
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