-----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, OE65w2hpXvG9K0XTOVaNQTY1dcCPdsKXgCbb+U/6qZgOPgrX/XHUAB1yxGRUJrL7 rseC5CVeJI70kMHuBZCXww== 0000940397-02-000070.txt : 20021113 0000940397-02-000070.hdr.sgml : 20021113 20021113121743 ACCESSION NUMBER: 0000940397-02-000070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 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: 1934 Act SEC FILE NUMBER: 001-07160 FILM NUMBER: 02819025 BUSINESS ADDRESS: STREET 1: 2831 DEXTER DR CITY: ELKHART STATE: IN ZIP: 46514 BUSINESS PHONE: 2192620123 MAIL ADDRESS: STREET 1: 2831 DEXTER DR CITY: ELKHART STATE: IN ZIP: 46514 10-Q 1 coach10q3.txt THIRD QUARTER 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 SEPTEMBER 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 October 31, 2002: Common Shares, without par value 15,830,409 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- September 30, 2002 and December 31, 2001 3-4 Consolidated Statements of Operations- Three and Nine Months Ended September 30, 2002 and 2001 5 Consolidated Statements of Cash Flows- Nine Months Ended September 30, 2002 and 2001 6 Notes to Consolidated Financial Statements 7-11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 Quantitative and Qualitative Disclosures About Market Risk 16 Controls and Procedures 17 PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 Certifications 20-21 2 3 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 2002 2001 ---- ---- (Unaudited) ASSETS Current assets: Cash and temporary cash investments $ 29,297 $ 28,416 Marketable securities 10,975 12,180 Trade receivables, less allowance for doubtful receivables 2002 - $905 and 2001 - $972 37,446 23,756 Other receivables 1,972 2,162 Refundable income taxes 1,245 2,241 Inventories 86,553 80,477 Prepaid expenses and other 4,183 4,656 Deferred income taxes 7,183 7,319 -------- -------- Total current assets 178,854 161,207 -------- -------- Property, plant and equipment, at cost 142,059 141,040 Less, Accumulated depreciation 65,823 60,807 -------- -------- Property, plant and equipment, net 76,236 80,233 -------- -------- Goodwill, net of accumulated amortization 2002 and 2001 - $2,096 18,954 18,954 Cash value of life insurance 32,749 13,454 Real estate held for sale 5,321 11,129 Other 5,842 3,583 -------- -------- Total assets $317,956 $288,560 ======== ======== See Notes to Consolidated Financial Statements. 3 4 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 2002 2001 ---- ---- (Unaudited) LIABILITIES Current liabilities: Accounts payable, trade $ 38,625 $ 18,944 Accrued income taxes 2,668 494 Accrued expenses and other liabilities 42,896 38,846 Current maturities of long-term debt 908 917 -------- -------- Total current liabilities 85,097 59,201 Long-term debt 10,620 11,001 Deferred income taxes 2,158 1,257 Other 8,661 8,461 -------- -------- Total liabilities 106,536 79,920 -------- -------- SHAREHOLDERS' EQUITY Common shares, without par value: authorized 60,000 shares; issued 2002 - 21,058 shares and 2001 - 21,046 shares 91,228 91,072 Additional paid-in capital 5,966 5,755 Accumulated other comprehensive loss (625) (931) Retained earnings 167,339 162,646 Treasury shares, at cost: 2002 - 5,150 shares and 2001 - 5,110 shares (52,488) (49,902) -------- -------- Total shareholders' equity 211,420 208,640 -------- -------- Total liabilities and shareholders' equity $317,956 $288,560 ======== ======== 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 Nine Months Ended September 30, Ended September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales $179,164 $149,577 $506,326 $464,860 Cost of sales 148,013 123,436 426,773 394,538 -------- -------- -------- -------- Gross profit 31,151 26,141 79,553 70,322 -------- -------- -------- -------- Operating expenses: Delivery 8,022 8,023 23,440 24,366 Selling 8,247 7,882 21,948 21,983 General and administrative 8,153 8,022 23,932 25,707 -------- -------- -------- -------- Total operating expenses 24,422 23,927 69,320 72,056 -------- -------- -------- -------- Operating income (loss) 6,729 2,214 10,233 (1,734) -------- -------- -------- -------- Nonoperating (income) expense: Interest expense 424 711 1,385 2,262 Investment (income) loss (321) 117 (363) 6 Gain on sale of properties, net (22) (147) (1,371) (209) Other (income) expense, net 8 (76) (569) 143 -------- -------- -------- -------- Total nonoperating (income) expense, net 89 605 (918) 2,202 -------- -------- -------- -------- Income (loss) before income taxes 6,640 1,609 11,151 (3,936) Income taxes (benefit) 2,344 604 3,882 (1,425) -------- -------- -------- -------- Net income (loss) $ 4,296 $ 1,005 $ 7,269 $ (2,511) ======== ======== ======== ======== Earnings (loss) per common share: Basic $ .27 $ .06 $ .45 $ (.16) Diluted $ .27 $ .06 $ .45 $ (.16) Number of common shares used in the computation of earnings (loss) per common share: Basic 16,080 15,815 16,070 15,811 ------ ------ ------ ------ Diluted 16,175 15,875 16,186 15,811 ------ ------ ------ ------ Cash dividends per common share $ .06 $ .05 $ .16 $ .15 See Notes to Consolidated Financial Statements. 5 6 COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Nine Months Ended September 30, 2002 2001 ----- ---- Cash flows from operating activities: Net income (loss) $ 7,269 $ (2,511) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 7,244 8,188 Amortization of intangibles - 869 Provision for doubtful receivables 167 193 Provision for write-down of property to net realizable value - 400 Gain on sale of properties, net (1,371) (209) Increase in cash surrender value of life insurance policies (1,066) (600) Net realized and unrealized losses on marketable securities and derivatives 868 1,772 Deferred income taxes 1,037 (1,275) Other 695 1,232 Changes in certain assets and liabilities, net of effects of acquisitions and dispositions: Receivables (13,667) 4,911 Inventories (6,076) 15,992 Prepaid expenses and other 473 (3,184) Accounts payable, trade 19,681 9,027 Income taxes - accrued and refundable 3,170 5,553 Accrued expenses and other liabilities 4,050 2,233 -------- -------- Net cash provided by operating activities 22,474 42,591 -------- -------- Cash flows from investing activities: Proceeds from sales of marketable securities 24,776 40,975 Proceeds from sale of properties 5,941 1,583 Proceeds from payments received on notes receivable - 3,244 Investments in marketable securities (24,133) (37,633) Purchases of property and equipment (3,396) (3,968) Acquisition of businesses, net of cash acquired - (7,273) Other (435) (578) -------- -------- Net cash provided by (used in) investing activities 2,753 (3,650) -------- -------- Cash flows from financing activities: Proceeds from long-term debt - 13,500 Payments of long-term debt (390) (21,765) Repay borrowings against cash value of life insurance policies (18,458) - Issuance of common shares under stock incentive plans 804 717 Tax benefit from stock options exercised 124 - Purchases of common shares for treasury (3,850) - Cash dividends paid (2,576) (2,373) -------- -------- Net cash provided by (used in) financing activities (24,346) (9,921) -------- -------- Increase in cash and temporary cash investments 881 29,020 Cash and temporary cash investments Beginning of period 28,416 2,614 -------- -------- End of period $ 29,297 $ 31,634 ======== ======== 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. The interim financial statements should be read in connection with the financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 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 month periods ended September 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 nine month periods ended September 30, 2002 and 2001: Three Months Nine Months Ended September 30, Ended September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales: Recreational vehicles $114,588 $ 78,527 $335,491 $278,705 Modular housing and building 64,576 71,050 170,835 186,155 -------- -------- -------- -------- Consolidated total $179,164 $149,577 $506,326 $464,860 ======== ======== ======== ======== Pretax income (loss): Recreational vehicles $ 2,578 $ (1,551) $ 3,115 $ (9,060) Modular housing and building 3,550 6,288 7,008 12,486 Other reconciling items 512 (3,128) 1,028 (7,362) ------- -------- -------- -------- Consolidated total $ 6,640 $ 1,609 $ 11,151 $ (3,936) ======== ======== ======== ======== 7 8 2. SEGMENT INFORMATION, Continued. As of As of September 30, December 31, 2002 2001 ---- ---- Total assets: Recreational vehicles $101,780 $ 88,629 Modular housing and building 101,207 97,578 Other reconciling items 114,969 102,353 -------- -------- Consolidated total $317,956 $288,560 ======== ======== 3. INVENTORIES Inventories consist of the following: September 30, December 31, 2002 2001 ---- ---- Raw materials $ 30,176 $ 24,224 Work in process 13,601 7,866 Finished goods 42,776 48,387 -------- -------- Total $ 86,553 $ 80,477 ======== ======== 4. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consist of the following: September 30, December 31, 2002 2001 ---- ----- Wages, salaries, bonuses and commissions $ 6,227 $ 3,860 Dealer incentives 3,042 4,443 Warranty 8,701 8,391 Insurance-products and general liability, workers compensation, group health and other 7,832 7,148 Customer deposits and unearned revenues 7,766 7,318 Other current liabilities 9,328 7,686 -------- -------- Total $ 42,896 $ 38,846 ======== ======== 8 9 5. EARNINGS PER SHARE Basic earnings per share is based on the weighted average number of shares outstanding during the period. Diluted earnings per common share is based on the weighted average number of shares outstanding during the period, after consideration of the dilutive effect of stock options and awards. Basic and diluted earnings per share were calculated as follows: Three Months Nine Months Ended Ended September 30, September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Numerator: Net income (loss) available to common stockholders $ 4,296 $ 1,005 $ 7,269 $(2,511) Denominator: Number of shares outstanding, end of period: Common stock 15,908 15,936 15,908 15,936 Effect of weighted average shares outstanding during period 172 (121) 162 (125) ------ ------ ------ ------ Weighted average number of common shares used in basic EPS 16,080 15,815 16,070 15,811 Effect of dilutive securities Stock options and awards 85 60 106 - Deferred compensation plans 10 - 10 - ------ ------ ------ ------ Weighted average number of common shares used in diluted EPS 16,175 15,875 16,186 15,811 ====== ====== ====== ====== As the Company reported a net loss for the nine months ended September 30, 2001, 56 common stock equivalents related to stock options did not enter into the computation of diluted earnings per share because their inclusion would have been antidilutive. For the periods ended September 30, 2002 and 2001, 335 and 508 shares of outstanding stock options were not included in the computation of diluted earnings per share because their exercise price was greater than the average market prices for the periods and their inclusion would have been antidilutive. The sum of quarterly earnings per share for the three quarters may not equal year-to-date earnings per share due to rounding and changes in diluted potential common shares. 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 nine months ended September 30, 2002 was $(101) and $306, respectively and $382 and $(824) for the quarter and nine months ended September 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 nine months ended September 30, 2002 was $4,195 and $7,575, respectively and $1,387 and $(3,335) for the quarter and nine months ended September 30, 2001, respectively. 9 10 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: NINE MONTHS Ended September 30, 2002 2001 ---- ---- Net sales $506,326 $468,383 Net income (loss) 7,269 (2,423) Earnings (loss) per share: Basic $ .45 $ (.15) Diluted .45 (.15) 8. COMMITMENTS AND CONTINGENCIES The Company was contingently liable at September 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. Products repurchased from dealers under these agreements are accounted for as a reduction in revenue at the time of repurchase. 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. As market conditions deteriorated in the latter half of 2000, the Company experienced losses under these agreements and, accordingly, established a reserve for estimated losses under repurchase agreements. Due to a lower than anticipated level of losses from repossessions in 2002 resulting from improved market conditions within the Recreational Vehicle Industry, the Company has reduced its estimate of anticipated losses. The favorable change in estimate exceeded actual losses incurred by $248 and $139 for the three and nine months ended September 30, 2002, respectively. This compares to losses of $261 and $635 for the same periods in 2001. 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-insurance accruals will not have a material adverse 10 11 impact on the Company's consolidated financial position, future business operations or cash flows. 9. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued 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. During the second quarter of 2002, the Company performed its initial impairment analysis under SFAS No. 142. Based on the estimated fair values of the Company's reporting units using a discounted cash flows valuation, no goodwill for any unit was evaluated as impaired. Effective January 1, 2002, the Company is not recording goodwill amortization expense. Application of the nonamortizaton provisions of Statement No. 142 in the prior year would have resulted in an increase in 2001 third quarter net earnings of $195 ($.01 per diluted share) and an increase in 2001 year-to-date earnings of $555 ($.04 per diluted share). The Company will perform its annual impairment analysis under SFAS 142 during the fourth fiscal quarter of each fiscal year. The Company evaluates indicators of impairment, including the general business climate, on an ongoing basis. Any impairment charge would not affect cash flow. 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 to its fair value. 11 12 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 operations is shown below. Comparison of Three Months Nine Months Ended September 30, 2002 and 2001 Increases (Decreases) --------------------- Amount Percentage Amount Percentage ----------------- ----------------- Net sales $ 29,587 19.8 % $ 41,466 8.9 % Cost of sales 24,577 19.9 32,235 8.2 Delivery expense (1) n/m (926) (3.8) Selling expenses 365 4.6 (35) (.2) General and administrative expenses 131 1.6 (1,775) (6.9) Interest expense (287) (40.4) (877) (38.8) Investment (income) loss 438 374.4 369 n/m Gain on sale of properties, net (125) (85.0) 1,162 556.0 Other income, net 84 n/m 712 n/m Income before income taxes 5,031 312.7 15,087 383.3 Income taxes 1,740 288.1 5,307 372.4 Net income 3,291 327.5 9,780 389.5 n/m - not meaningful 12 13 NET SALES Consolidated net sales for the quarter ended September 30, 2002 were $179.2 million, an increase of $29.6 million, or 19.8%, from the $149.6 million reported for the corresponding quarter last year. Net sales for the nine months were $506.3 million, representing an increase of 8.9% from the $464.9 million reported for the same period in 2001. The Company's recreational vehicle segment experienced a net sales increase of 45.9% for the quarter and an increase of 20.4% for the nine 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 began in the latter half of 2000 and continued through 2001 in the recreational vehicle industry. The Company's modular housing and building segment experienced a net sales decrease for the 2002 quarter of 9.1% and a decrease of 8.2% for the nine months. This decrease was principally attributable to decreased demand for commercial structures in the telecommunications industry. However, shipments for housing and non-telecom structures continued to strengthen during the third quarter, with September shipments reaching their highest level for the year. COST OF SALES Cost of sales increased 19.9%, or $24.6 million, for the three months and 8.2%, or $32.2 million, for the nine months ended September 30, 2002. The increase in cost of sales of 19.9% was slightly greater than the 19.8% increase in net sales for the quarter. For the nine-month period, the increase in cost of sales of 8.2% was less than the 8.9% 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 64.0% of net sales in 2002 as compared to 52.5% in the comparable three-month period for 2001. The recreational vehicle segment typically operates on smaller profit margins than the modular housing and building segment. However, for the nine-month period, overall cost of sales was 84.3% of net sales in 2002 as compared to 84.9% in 2001. This improvement was directly related to expanding production rates in the recreational vehicle segment and improved absorption of fixed manufacturing costs. 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 nine-month period compared to 16.0% and 15.5% for the quarter and nine-month period of 2001. As a percentage of net sales, delivery expenses decreased by .9 percentage points for the three-month period and .6 percentage points for the nine-month period as compared to the prior year three- and nine-month periods. This decrease was mainly attributable to the change in sales mix. Recreational vehicles typically have lower delivery costs as a percentage of sales as compared to modular buildings. Also, higher sales volumes resulted in better utilization of Company-owned transportation equipment. Selling expenses, at 4.6% of net sales for the quarter ended September 30, 2002, were ..7% lower than the comparable quarter of the previous year. This was mainly due to increased selling expenses in 2001 in the recreational vehicle segment necessitated by the challenging sales environment at that time. For the nine-month period, selling expenses in 2002, as a percentage of net sales of 4.3%, were .4 percentage points lower than the 4.7% in 2001. Selling expenses were down .2% for the nine-month period while revenue increased 8.9%. General and administrative expenses were 4.6% of net sales for the third quarter compared to 5.4% for the 2001 corresponding quarter and 4.7% of net sales for the nine-month period compared to 5.5% for 2001. 13 14 These decreases in both the quarter and nine-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. INTEREST EXPENSE Interest expense was $424 and $1,385 for the quarter and nine-month periods in 2002 compared to $711 and $2,262 in the same periods last year. Interest expense varies with the amount of long-term debt and the amounts borrowed against the cash value of 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. In September of 2002, as a better utilization of the Company's available cash, $18.5 million in loans against the cash value of life insurance policies were repaid. The resulting reduction in interest expense is expected to approximate $1.0 million annually. The decrease in interest expense for the current period 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 investment income of $321 for the quarter ended September 30, 2002 compared to an investment loss of $117 for the third quarter of 2001. For the nine-month period, investment income in 2002 was $363 compared to an investment loss of $6 the previous year. Investment income in the current quarter is primarily from interest earned on invested cash. 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 third quarter of 2002 of $22 compared with a gain of $147 in the same quarter of 2001. The net gain on the sale of properties for the first nine months of 2002 and 2001 was $1,371 and $209, respectively. No significant properties were sold during the quarter ended September 30, 2002. However, 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 an expense of $8 for the third quarter of 2002 and income of $76 for the same period of the previous year. For the nine-month period, other income, net for 2002 was $569 compared to an expense of $143 in 2001. The were no significant items for the most recent quarter. The most significant item of income for 2002 was a gain of $208 on the redemption of a life insurance policy in the second quarter. In 2001, there was a second quarter charge of $400 to write-down the carrying value of property held for sale to estimated fair value less cost to sell. 14 15 INCOME TAXES For the third quarter ended September 30, 2002, the effective tax rate was 35.3% and the year-to-date rate was 34.8% compared with a 2001 third quarter and year-to-date rate of 37.5% and 36.2%, 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 amount of nontaxable dividend income on investments. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION 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 September 30, 2002, there were no borrowings against this bank line of credit. For the nine months ended September 30, 2002, the major source of cash was from operating activities. Net cash provided by operating activities aggregated $22,474 and $42,591 for the nine months ended September 30, 2002 and 2001, respectively. The significant items in operating activities for the nine months ended September 30, 2002 were net income, depreciation and increases in trade accounts payable, accrued income taxes and accrued expenses and other liabilities. The positive cash flow from these items was offset by increases in inventories and 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 and repayment of loans against the cash value of life insurance policies. Also, $3,850 in common shares were repurchased for the treasury. This was slightly offset by the issuance of common shares under stock incentive plans. At September 30, 2002, working capital decreased to $93.8 million from the $102.0 million at December 31, 2001. The $17.6 million increase in current assets at September 30, 2002 versus December 31, 2001 was primarily due to increases in net trade receivables of $13.7 million and increases in inventories of $6.1 million during the nine-month period. The increase in current liabilities of $25.9 million was primarily due to increases in accounts payable 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 potential fluctuations in the Company's operating results; the condition of the telecommunications industry which purchases modular structures; 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; 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 15 16 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 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 September 30, 2002, the Company had $11.5 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 September 30, 2002, the Company had $11.0 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 September 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 September 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. 16 17 ITEM 4. CONTROLS AND PROCEDURES Within 90 days prior to the date of filing this quarterly report on Form 10-Q, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on and as of the time of such evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filing with the Securities and Exchange Commission. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the time of such evaluation. 17 18 PART II. OTHER INFORMATION 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, 2002 Form 8-K, dated July 30, 2002, reporting an Item 5 event (a press release announcing second quarter results). Form 8-K, dated August 6, 2002, reporting an Item 5 event(a press release announcing a 20% increase in quarterly dividend and resumption of share repurchase program). 18 19 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: November 13, 2002 By: /s/ CLAIRE C. SKINNER ------------------------------------ Claire C. Skinner, Chairman of the Board and Chief Executive Officer Date: November 13, 2002 By: /s/ JOSEPH P. TOMCZAK ----------------------------------- Joseph P. Tomczak, Executive Vice President and Chief Financial Officer Date: November 13, 2002 By: /s/ GARY L. NEAR ----------------------------------- Gary L. Near, Vice President and Controller 19 20 CERTIFICATION I, Claire C. Skinner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Coachmen Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 By: /s/ CLAIRE C. SKINNER -------------------------------------- Claire C. Skinner Chairman of the Board and Chief Executive Officer 20 21 CERTIFICATION I, Joseph P. Tomczak, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Coachmen Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 By: /s/ JOSEPH P. TOMCZAK -------------------------------------- Joseph P. Tomczak Executive Vice President and Chief Financial Officer 21 22 INDEX TO EXHIBITS Number Assigned In Regulation S-K, Item 601 Description of Exhibit 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 22 EX-99 3 coach10q3991.txt CERTIFICATION 23 EXHIBIT 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report on Form 10-Q of Coachmen Industries, Inc. (the "Company") for the quarterly period ended September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report") I, Claire C. Skinner, Chairman of the Board and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period(s) covered in the Report. By: /s/ CLAIRE C. SKINNER ------------------------------------------------- Claire C. Skinner Chairman of the Board and Chief Executive Officer Date: November 13, 2002 EX-99 4 coach10q3992.txt CERTIFICATION 24 EXHIBIT 99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report on Form 10-Q of Coachmen Industries, Inc. (the "Company") for the quarterly period ended September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report") I, Joseph P. Tomczak, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period(s) covered in the Report. By: /s/ JOSEPH P. TOMCZAK ---------------------------------------------------- Joseph P. Tomczak Executive Vice President and Chief Financial Officer Date: November 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----