10-Q 1 coa10q2.txt SECOND QUARTER 10-Q ENDING JUNE 30, 2002 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 June 30, 2002 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 574-262-0123 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 July 31, 2002: Common Shares, without par value 16,134,359 shares outstanding including an equivalent number of common share purchase rights. -------------------------------------------------------------------------------- 2 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q INDEX PAGE NO. PART I. FINANCIAL INFORMATION Financial Statements: Consolidated Balance Sheets- June 30, 2002 and December 31, 2001 3-4 Consolidated Statements of Operations- Three and Six Months Ended June 30, 2002 and 2001 5 Consolidated Statements of Cash Flows- Six Months Ended June 30, 2002 and 2001 6 Notes to Consolidated Financial Statements 7-10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16-17 Signatures 18 2 3 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) June 30, December 31, 2002 2001 ---- ---- (Unaudited) ASSETS Current assets: Cash and temporary cash investments $ 52,699 $ 28,416 Marketable securities 11,181 12,180 Trade receivables, less allowance for doubtful receivables 2002 - $1,004 and 2001 - $972 33,953 23,756 Other receivables 1,958 2,162 Refundable income taxes 558 2,241 Inventories 77,155 80,477 Prepaid expenses and other 5,377 4,656 Deferred income taxes 7,115 7,319 -------- -------- Total current assets 189,996 161,207 -------- -------- Property, plant and equipment, at cost 141,166 141,040 Less, Accumulated depreciation 63,680 60,807 -------- -------- Property, plant and equipment, net 77,486 80,233 -------- -------- Goodwill, net of accumulated amortization 2002 and 2001 - $2,096 18,954 18,954 Cash value of life insurance 13,926 13,454 Real estate held for sale 5,259 11,129 Other 5,218 3,583 -------- -------- Total assets $310,839 $288,560 ======== ======== See Notes to Consolidated Financial Statements. 3 4 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) June 30, December 31, 2002 2001 ---- ---- (Unaudited) LIABILITIES Current liabilities: Accounts payable, trade $ 33,153 $ 18,944 Accrued income taxes 2,194 494 Accrued expenses and other liabilities 41,213 38,846 Current maturities of long-term debt 914 917 -------- -------- Total current liabilities 77,474 59,201 Long-term debt 10,777 11,001 Deferred income taxes 2,158 1,257 Other 8,636 8,461 -------- -------- Total Liabilities 99,045 79,920 -------- -------- SHAREHOLDERS' EQUITY Common shares, without par value: authorized 60,000 shares; issued 2002 - 21,054 shares and 2001 - 21,046 shares 91,176 91,072 Additional paid-in capital 5,884 5,755 Accumulated other comprehensive loss (524) (931) Retained earnings 164,011 162,646 Treasury shares, at cost: 2002 - 4,924 shares and 2001 - 5,110 shares (48,753) (49,902) -------- -------- Total shareholders' equity 211,794 208,640 -------- -------- Total liabilities and shareholders' equity $310,839 $288,560 ======== ======== See Notes to Consolidated Financial Statements. 4 5 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) Three Months Six Months Ended June 30, Ended June 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales $172,705 $162,359 $327,162 $315,283 Cost of sales 144,283 134,300 278,760 271,102 -------- -------- -------- -------- Gross profit 28,422 28,059 48,402 44,181 -------- -------- -------- -------- Operating expenses: Delivery 8,200 8,500 15,418 16,343 Selling 7,186 7,210 13,701 14,101 General and administrative 8,121 8,870 15,779 17,685 -------- -------- -------- -------- Total operating expenses 23,507 24,580 44,898 48,129 -------- -------- -------- -------- Operating income (loss) 4,915 3,479 3,504 (3,948) -------- -------- -------- -------- Nonoperating (income) expense: Interest expense 421 977 961 1,551 Investment (income) loss 190 41 (42) (111) Gain on sale of properties, net (684) (67) (1,349) (62) Other (income) expense, net (419) 281 (577) 219 -------- -------- -------- -------- Total nonoperating (income) expense, net (492) 1,232 (1,007) 1,597 -------- -------- -------- -------- Income (loss) before income taxes 5,407 2,247 4,511 (5,545) Income taxes (benefit) 1,844 823 1,538 (2,029) -------- -------- -------- -------- Net income (loss) $ 3,563 $ 1,424 $ 2,973 $ (3,516) ======== ======== ======== ======== Earnings (loss) per common share: Basic $ .22 $ .09 $ .19 $ (.22) Diluted $ .22 $ .09 $ .18 $ (.22) Number of common shares used in the computation of earnings (loss) per common share: Basic 16,112 15,778 16,065 15,733 ------ ------ ------ ------ Diluted 16,228 15,855 16,188 15,773 ------ ------ ------ ------ Cash dividends per common share $ .05 $ .05 $ .10 $ .10 See Notes to Consolidated Financial Statements. 5 6 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended June 30, 2002 2001 ---- ---- Cash flows from operating activities: Net income (loss) $ 2,973 $ (3,516) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 4,947 5,584 Amortization and write-off of intangibles - 557 Provision for doubtful receivables 85 110 Provision for write-down of property to net realizable value - 400 Gain on sale of properties, net (1,349) (62) Increase in cash surrender value of life insurance policies (701) (400) Net realized and unrealized losses on marketable securities and derivatives 641 1,339 Deferred income taxes 1,105 (1,494) Other 573 57 Changes in certain assets and liabilities, net of effects of acquisitions and dispositions: Receivables (10,078) 10,254 Inventories 3,322 15,328 Prepaid expenses and other (721) (944) Accounts payable, trade 14,209 (4,378) Income taxes - accrued and refundable 2,367 2,817 Accrued expenses and other liabilities 3,383 1,916 -------- -------- Net cash provided by operating activities 20,756 27,568 -------- -------- Cash flows from investing activities: Proceeds from sales of marketable securities 20,399 30,251 Proceeds from sale of properties 5,894 105 Proceeds from payments received on notes receivable - 3,244 Investments in marketable securities (19,634) (27,993) Purchases of property and equipment (2,300) (3,093) Acquisition of businesses, net of cash acquired - (7,273) Other 226 490 -------- -------- Net cash provided by (used in) investing activities 4,585 (4,269) -------- -------- Cash flows from financing activities: Proceeds from long-term debt - 13,500 Payments of long-term debt (227) (13,261) Issuance of common shares under stock incentive plans 684 525 Tax benefit from stock options exercised 110 - Purchases of common shares for treasury (17) - Cash dividends paid (1,608) (1,579) -------- -------- Net cash provided by (used in) financing activities (1,058) (815) -------- -------- Increase in cash and temporary cash investments 24,283 22,484 Cash and temporary cash investments Beginning of period 28,416 2,614 -------- -------- End of period $ 52,699 $ 25,098 ======== ======== See Notes to Consolidated Financial Statements. 6 7 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 1. BASIS OF PRESENTATION The consolidated balance sheet data as of December 31, 2001 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. 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 six month periods ended June 30, 2002 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, income 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 and six month periods ended June 30, 2002 and 2001: Three Months Six Months Ended June 30, Ended June 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales: Recreational vehicles $111,382 $ 93,914 $220,903 $200,178 Modular housing and building 61,323 68,445 106,259 115,105 -------- -------- -------- -------- Consolidated total $172,705 $162,359 $327,162 $315,283 ======== ======== ======== ======== Pretax income (loss): Recreational vehicles $ 1,110 $ (1,998) $ 537 $ (7,509) Modular housing and building 3,970 5,723 3,458 6,198 Other reconciling items 327 (1,478) 516 (4,234) -------- -------- -------- -------- Consolidated total $ 5,407 $ 2,247 $ 4,511 $ (5,545) ======== ======== ======== ======== 7 8 2. SEGMENT INFORMATION, Continued. As of As of June 30, December 31, 2002 2001 ---- ---- Total assets: Recreational vehicles $ 93,207 $ 88,629 Modular housing and building 99,441 97,578 Other reconciling items 118,191 102,353 -------- -------- Consolidated total $310,839 $288,560 ======== ======== 3. INVENTORIES Inventories consist of the following: June 30, December 31, 2002 2001 ---- ---- Raw materials $ 27,160 $ 24,224 Work in process 11,437 7,866 Finished goods 38,558 48,387 -------- -------- Total $ 77,155 $ 80,477 ======== ======== 4. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities at year-end consist of the following: June 30, December 31, 2002 2001 ---- ---- Wages, salaries and commissions $ 3,538 $ 3,860 Dealer incentives 2,786 4,443 Warranty 9,197 8,391 Insurance-products and general liability, workers compensation, group health and other 7,740 7,148 Customer deposits and unearned revenues 8,359 7,318 Other current liabilities 9,593 7,686 ------- ------- Total $41,213 $38,846 ======= ======= 5. 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 six months ended June 30, 2001, because their inclusion would have been antidilutive. 8 9 6. OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) represents unrealized depreciation of available-for-sale securities, net of taxes. Other comprehensive income (loss) for the quarter and six months ended June 30, 2002 was $353 and $407, respectively and $(190) and $(1,206) for the quarter and six months ended June 30, 2001, respectively. Total comprehensive income (loss) combines reported net income (loss) and other comprehensive income (loss). Total comprehensive income (loss) for the quarter and six months ended June 30, 2002 was $3,916 and $3,380, respectively and $1,234 and $(4,722) for the quarter and six months ended June 30, 2001, respectively. 7. ACQUISITION OF A BUSINESS On February 12, 2001, the Company acquired all of the issued and outstanding shares of capital stock of Kan Build, Inc. ("Kan Build"), a manufacturer of modular buildings. The purchase price aggregated $21.6 million and consisted of $8.9 million cash paid at closing and the assumption of $12.7 million of liabilities. The excess of purchase price over fair value of assets acquired ("goodwill"), approximated $4.1 million. The acquisition was accounted for as a purchase and the operating results of Kan Build are included in the Company's consolidated financial statements from the date of acquisition. Unaudited pro forma financial information as if this acquisition had occurred at the beginning of each period is as follows: Six Months Ended June 30, 2002 2001 ---- ---- Net sales $327,162 $318,806 Net income (loss) 2,973 (3,494) Earnings (loss) per share: Basic $ .19 $ (.22) Diluted .18 (.22) 8. COMMITMENTS AND CONTINGENCIES The Company was contingently liable at June 30, 2002 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 experienced losses under these agreements and accordingly, is recording an accrual for estimated losses under repurchase agreements. The Company is involved in various legal proceedings, which are ordinary disputes 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- 9 10 8. COMMITMENTS AND CONTINGENCIES, Continued. insurance accruals will not have a material adverse impact on the Company's consolidated financial position or on its future business operations. 9. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", which eliminates the pooling of interests method of accounting for business acquisitions and Statement No. 142, "Goodwill and Other Intangible Assets", which revised the standards for accounting for goodwill and other intangible assets. SFAS No. 142 requires that goodwill and indefinite lived identifiable intangible assets no longer be amortized, but be tested for impairment at least annually based on their estimated fair market values. The provisions of SFAS No. 142 became effective on January 1, 2002 and require full implementation of the impairment measurement provisions by December 31, 2002. Effective January 1, 2002, the Company is not recording goodwill amortization expense. Based on the estimated fair values of the Company's reporting units using a discounted cash flows valuation, it does not appear that any goodwill for any unit is impaired. Application of the nonamortizaton provisions of Statement No. 142 would have resulted in an increase in 2001 second quarter net earnings of $218 ($.01 per diluted share) and an increase in 2001 year-to-date earnings of $353 ($.02 per diluted share). In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations" for a disposal of a segment of a business. The Company was required to adopt Statement No. 144 as of January 1, 2002 and it did not have a significant impact on operations or financial position of the Company. The Company is actively marketing certain real property, which is no longer being used in the operations of the business. The Company expects that disposition of such property will be completed within the next year given current market conditions and the location and condition of the properties. Under the provisions of SFAS No. 144, such property is being classified as real estate held for sale in the accompanying consolidated balance sheets at the lower of cost or estimated net selling price. The property is no longer being depreciated pending their sale. However, under the transition rules contained in SFAS No. 144, should these assets no longer qualify as assets held for sale at December 31, 2002 under the definition contained in the statement, such assets would be reclassified as assets held and used at that date and re-measured to the lower of its original carrying amount adjusted for depreciation had the asset been in continuous use or fair value. 10 11 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis Of Financial Condition and Results of Operations (in thousands, except per share amounts) 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 Six Months Ended June 30, 2002 and 2001 Increases (Decreases) --------------------- Amount Percentage Amount Percentage ------ ---------- ------ ---------- Net sales $ 10,346 6.4 % $ 11,879 3.8 % Cost of sales 9,983 7.4 7,658 2.8 Delivery expense (300) (3.5) (925) (5.7) Selling expenses (24) (.3) (400) (2.8) General and administrative expenses (749) (8.4) (1,906) (10.8) Interest expense (556) (56.9) (590) (38.0) Investment (income) loss 149 363.4 (69) (62.2) Gain on sale of properties, net 617 920.9 1,287 2075.8 Other income, net 700 n/m 796 n/m Income before income taxes 3,160 140.6 10,056 181.4 Income taxes 1,021 124.1 3,567 175.8 Net income 2,139 150.2 6,489 184.6 n/m - not meaningful 11 12 NET SALES Consolidated net sales for the quarter ended June 30, 2002 were $172.7 million, an increase of 6.4% from the $162.4 million reported for the corresponding quarter last year. Net sales for the six months were $327.2 million, representing an increase of 3.8% from the $315.3 million reported for the same period in 2001. The Company's recreational vehicle segment experienced a net sales increase of 18.6% for the quarter and an increase of 10.4% for the six months. Both the motorized and towable products had increases in the number of units and sales dollars from the 2001 periods reflecting a continuing recovery from the softness that occurred in the recreational vehicle industry during the three and six month comparable periods. The Company's modular housing and building segment experienced a net sales decrease for the 2002 quarter of 10.4% and 7.7% for the six months. This decrease was principally attributable to decreased demand for commercial structures in the telecommunications industry. However, incoming orders for housing and non-telecom structures started strengthening during the second quarter, giving some reasonable optimism about the prospects for this segment during the second half of the year. COST OF SALES Cost of sales increased 7.4% or $10.0 million for the three months and 2.8% or $7.7 million for the six months ended June 30, 2002. The increase in cost of sales of 7.4% was slightly greater than the 6.4% increase in net sales. For the six month period, the increase in cost of sales of 2.8% was less than the 3.8% increase in net sales. Cost of sales for the most recent quarter was affected by a higher sales contribution from the recreational vehicle segment, which accounted for 64.5% of total net sales in 2002 as compared to 57.8% in the comparable period for 2001. The recreational vehicle segment typically operates on smaller profit margins than the modular housing and building segment. However, for the six month period, overall cost of sales was 85.2% of net sales in 2002 as compared to 86.0% in 2001. This improvement was directly related to cost cutting efforts initiated during 2001, which included manufacturing consolidations to address excess overhead in the recreational vehicle segment. OPERATING EXPENSES As a percentage of net sales, operating expenses, which include delivery, selling, general and administrative expenses, were 13.6% and 13.7% for the 2002 quarter and six months compared to 15.1% and 15.3% for the quarter and six months of 2001. As a percentage of net sales, delivery expenses decreased by .5 percentage points for both the three and six month periods as compared to the prior year three and six month periods. Selling expenses, at 4.2% of net sales for both the quarter and six months ended June 30, 2002, were .2 and .3 percentage points less than the comparable periods of the previous year. Dollars spent were down in both categories, as well, when compared to the previous periods. The decrease in selling expenses was primarily related to reductions in sales programs that were necessary in the 2001 periods due to the challenging sales environment caused by a downturn in the economy. General and administrative expenses were 4.7% of net sales for the second quarter compared to 5.5% for the 2001 corresponding quarter and 4.8% of net sales for the six month period compared to 5.6% for 2001. These decreases in both the quarter and six month periods were primarily the result of the discontinuation of goodwill amortization in 2002 resulting from the adoption of SFAS No. 142 as previously discussed. 12 13 INTEREST EXPENSE Interest expense was $421 and $961 for the three and six month periods in 2002 compared to $977 and $1,551 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 the increases in cash surrender values. The decrease in interest expense reflects a reduction in debt and lower rates on variable rate loans. During the first quarter of 2001, the Company borrowed $13.5 million from its bank line of credit to finance the acquisition of Kan Build, Inc. Those borrowings were subsequently paid in full by the third quarter of 2001. INVESTMENT INCOME (LOSS) There was an investment loss of $190 for the quarter ended June 30, 2002 compared to an investment loss of $41 for the second quarter of 2001. For the six month period, investment income in 2002 was $42 compared to investment income of $111 the previous year. The investment losses are principally attributable to realized losses incurred from the sale of preferred stocks held by the Company. GAIN ON THE SALE OF PROPERTIES, NET There was a net gain on the sale of properties for the second quarter of 2002 of $684 compared with a gain of $67 in the same quarter of 2001. The net gain on the sale of properties for the first six months of 2002 and 2001 was $1,349 and $62, respectively. During the quarter ended June 30, 2002, the Company sold an idle manufacturing facility located in Elkhart, Indiana and undeveloped land located in Perris, California. The Company continues to actively market those properties included in the balance sheet as real estate held for sale. OTHER INCOME, NET Other income, net, represents income of $419 for the second quarter of 2002 and an expense of $281 for the same period of the previous year. For the six month period, other income, net for 2002 was $577 compared to an expense of $219 in 2001. The most significant item of income for the 2002 quarter was a gain of $208 on the redemption of a life insurance policy. In the 2001 quarter, there was a $400 charge to write-down the carrying value of property held for sale to estimated fair value less cost to sell. INCOME TAXES For the second quarter and six months ended June 30, 2002, the effective tax rate was 34.1% compared with a 2001 second quarter and year-to-date rate of 36.6%. The Company's effective tax rate fluctuates based upon the states where sales occur, with the level of export sales and also with 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 $30 million secured bank line of credit to meet its seasonal working capital needs. The loan agreement contains covenants whereby the Company must maintain certain financial ratios. At June 30, 2002, there were no borrowings against this bank line of credit. 13 14 At June 30, 2001, there was $8.5 million remaining of $13.5 million borrowed under credit facilities to finance the cash purchase price of Kan Build, Inc. For the six months ended June 30, 2002, the major source of cash was from operating activities. Net cash provided by operating activities aggregated $20,756 and $27,568 for the six months ended June 30, 2002 and 2001, respectively. The significant items in operating activities for the six months ended June 30, 2002 were net income, depreciation, a decrease in inventories and increases in trade accounts payable and accrued expenses. The positive cash flow from these items was partially offset by an increase in trade receivables. The cash provided by investing activities was primarily related to proceeds from the sale of properties. The cash used in financing activities consisted principally of cash dividends paid and the repayment of long-term debt offset by the issuance of common shares under stock incentive plans. At June 30, 2002, working capital increased to $112.5 million from the $102.0 million at December 31, 2001. The $28.8 million increase in current assets at June 30, 2002 versus December 31, 2001 was primarily due to increases in cash and marketable securities of $23.3 million and an increase in net trade receivables of $10.2 million during the six month period. This was partially offset by decreases in inventories and refundable income taxes. The increase in current liabilities of $18.3 million was primarily due to increases in accounts payable, customer deposits and accrued expenses. FORWARD-LOOKING STATEMENTS 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, which can impact the sale 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 condition of the telecommunications industry which purchases modular structures; changing government regulations, such as those covering accounting standards, environmental matters or product warranties and recalls, which may affect costs of operations, revenues, product acceptance and profitability; 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; the impact of economic uncertainty on high-cost discretionary product purchases, which can hinder the sales of recreational vehicles; the demand for commercial structures in the various industries that the modular housing and building segment serves; 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 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. At times, the Company's actual performance differs materially from its projections and estimates regarding the economy, the recreational vehicle and modular 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 14 15 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 notes and other materials included with the Company's latest Annual Report on Form 10-K. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, operations of the Company are exposed to fluctuations in interest rates. These fluctuations can vary the costs of financing and investing yields. Because the Company has not utilized its short-term credit facilities during 2002, changes in interest rates would primarily impact the Company's long-term debt. At June 30, 2002, the Company had $11.7 million of long-term debt, including current maturities. Long-term debt consists mainly of industrial development revenue bonds that have variable or floating rates. At June 30, 2002, the Company had $11.2 million invested in marketable securities. The Company's marketable securities consist of public utility preferred stocks which typically pay quarterly fixed rate dividends. These financial instruments are subject to market risk in that available energy supplies and changes in available interest rates would impact the market value of the preferred stocks. The Company utilizes U.S. Treasury bond futures options as a protection against the impact of increases in interest rates on the fair value of the Company's investments in these fixed rate preferred stocks. Outstanding options are marked to market with market value changes recognized in current earnings. The U.S. Treasury bond futures options generally have terms ranging from 90 to 180 days. Based on the Company's overall interest rate exposure at June 30, 2002, including variable or floating rate debt and derivatives used to hedge the fair value of fixed rate preferred stocks, a hypothetical 10 percent change in interest rates applied to the fair value of the financial instruments as of June 30, 2002, would have no material impact on earnings, cash flows or fair values of interest rate risk sensitive instruments over a one-year period. 15 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of the shareholders of Coachmen Industries, Inc. was held on May 2, 2002. (b) The following nominees were elected Directors for the following terms: One-year term expiring in 2003: Claire C. Skinner Donald W. Hudler Philip G. Lux Two-year term expiring in 2004: Keith D. Corson Robert J. Deputy Edwin W. Miller Three-year term expiring in 2005: Thomas H. Corson Geoffrey B. Bloom William P. Johnson Fredrick M. Miller* (c) The tabulation of votes for each Director nominee was as follows: For Withheld ---- -------- Election of Directors: Claire C. Skinner 15,305,769 137,977 Donald W. Hudler 15,307,136 136,610 Philip G. Lux 15,305,197 138,549 Keith D. Corson 15,304,823 138,923 Robert J. Deputy 15,307,784 135,962 Edwin W. Miller 15,271,787 171,959 Thomas H. Corson 15,305,023 138,723 Geoffrey B. Bloom 15,306,842 136,904 William P. Johnson 15,307,143 136,603 Fredrick M. Miller* 13,004,771 2,438,975 *Deceased July 30, 2002 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Index to Exhibits (b) Reports on Form 8-K during the quarter ended September 30, 2001 Form 8-K, dated May 2, 2002, reporting an Item 5 event (a press release announcing expected continued improvement in the first quarter). Form 8-K, dated May 2, 2002, reporting an Item 5 event (a press release announcing first quarter results). 16 17 Form 8-K, dated May 6, 2002, reporting an Item 5 event(a press release announcing the declaration of the 79th consecutive quarterly dividend). 17 18 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: August 14, 2002 By: /S/ CLAIRE C. SKINNER ------------------------------------------ Claire C. Skinner, Chairman of the Board and Chief Executive Officer Date: August 14, 2002 By: /S/ JOSEPH P. TOMCZAK ------------------------------------------ Joseph P. Tomczak, Executive Vice President and Chief Financial Officer Date: August 14, 2002 By: /S/ GARY L. NEAR ------------------------------------------ Gary L. Near, Vice President and Controller 18 19 INDEX TO EXHIBITS Number Assigned In Regulation S-K, Item 601 Description of Exhibit 10 Amendment No. 2 to Amended and Restated Credit Agreement dated as of June 28, 2002 (filed herewith). 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 19