<PAGE> 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, 1996
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
601 EAST BEARDSLEY AVENUE, ELKHART, INDIANA 46514
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 219-262-0123
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
At October 16, 1996:
Common Shares, without par value 15,103,780 shares outstanding
including an equivalent number of common share purchase rights.
- --------------------------------------------------------------------------------
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COACHMEN INDUSTRIES, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Financial Statements:
Condensed Consolidated Balance Sheets-
September 30, 1996 and December 31, 1995................3-4
Condensed Consolidated Statements of Income-
Three and Nine Months Ended September 30, 1996 and 1995. 5
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1996 and 1995........... 6
Notes to Condensed Consolidated Financial Statements....7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................9-12
PART II. OTHER INFORMATION....................................... 13
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES........................................................ 13
2
<PAGE> 3
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 26,853,025 $ 17,020,744
Certificates of deposit 500,000 500,000
Trade receivables and current portion of
notes receivable, less allowance for
doubtful receivables 1996 - $1,048,000 and
1995 - $863,000 30,864,067 19,780,160
Other receivables 1,883,291 4,244,387
Refundable income taxes - 507,000
Inventories 64,352,179 55,434,497
Prepaid expenses and other 1,366,374 1,570,492
Deferred income taxes 2,665,000 2,665,000
------------ ------------
Total current assets 128,483,936 101,722,280
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Land and improvements 6,770,639 5,537,033
Buildings and improvements 33,632,165 27,405,744
Machinery and equipment 13,133,044 10,524,486
Transportation equipment 10,330,812 11,307,747
Office furniture and fixtures 4,761,627 4,269,837
------------ ------------
Total property and equipment, at cost 68,628,287 59,044,847
Less, Accumulated depreciation 28,520,970 27,297,851
------------ ------------
Net property and equipment 40,107,317 31,746,996
------------ ------------
OTHER ASSETS
Real estate held for sale 3,627,322 3,458,539
Rental properties 879,715 925,538
Intangibles, less accumulated amortization
1996 - $346,849 and 1995 - $244,771 5,097,427 5,199,505
Deferred income taxes 875,000 875,000
Other 8,847,827 6,320,899
------------ ------------
Total other assets 19,327,291 16,779,481
------------ ------------
TOTAL ASSETS $187,918,544 $150,248,757
============ ============
</TABLE>
The accompanying notes are part of the condensed consolidated financial
statements.
3
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COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONT'D)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,108,979 $ 2,094,472
Accounts payable, trade 29,297,459 18,435,562
Accrued wages, salaries and commissions 5,201,283 3,583,423
Accrued dealer incentives 2,046,807 2,289,376
Accrued warranty expense 4,417,314 3,784,712
Accrued income taxes 2,645,340 981,800
Other liabilities 12,257,440 9,965,433
------------ ------------
Total current liabilities 57,974,622 41,134,778
LONG-TERM DEBT 10,260,075 12,117,756
OTHER 6,363,202 5,958,995
------------ ------------
Total liabilities 74,597,899 59,211,529
------------ ------------
SHAREHOLDERS' EQUITY
Common shares, without par value: authorized
60,000,000 shares; issued 1996 - 18,441,624
shares and 1995 - 18,282,672 shares 38,139,317 37,151,202
Additional paid-in capital 1,693,312 1,664,889
Retained earnings 89,064,453 67,824,816
------------ ------------
128,897,082 106,640,907
Less, Cost of shares reacquired for the
treasury 1996 - 3,340,996 shares and
1995 - 3,345,004 shares 15,576,437 15,603,679
------------ ------------
Total shareholders' equity 113,320,645 91,037,228
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $187,918,544 $150,248,757
============ ============
</TABLE>
The accompanying notes are part of the condensed consolidated financial
statements.
4
<PAGE> 5
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 154,244,238 $130,973,395 $469,599,312 $390,936,444
Cost of goods sold 130,087,358 112,311,937 401,328,935 337,751,916
------------ ------------ ------------- ------------
Gross profit 24,156,880 18,661,458 68,270,377 53,184,528
------------ ------------ ------------- ------------
Operating expenses:
Selling and delivery 6,572,380 6,753,034 20,545,700 19,586,516
General and administrative 4,888,141 4,308,232 16,151,897 14,428,916
------------ ------------ ------------- ------------
Total operating expenses 11,460,521 11,061,266 36,697,597 34,015,432
------------ ------------ ------------- ------------
Operating income 12,696,359 7,600,192 31,572,780 19,169,096
------------ ------------ ------------- ------------
Nonoperating income (expense):
Interest expense (398,520) (793,353) (1,239,555) (2,306,449)
Interest income 374,114 372,889 979,056 891,010
Gain on sale of properties, net 1,979 13,394 728,548 786,540
Other, net 509,631 265,304 958,430 713,779
------------ ------------ ------------- ------------
Total nonoperating income: 487,204 (141,766) 1,426,479 84,880
------------ ------------ ------------- ------------
Income before income taxes
and cumulative effect of
accounting change 13,183,563 7,458,426 32,999,259 19,253,976
Income taxes 4,851,000 2,775,000 12,024,000 7,155,000
------------ ------------ ------------- ------------
Income before cumulative
effect of accounting change 8,332,563 4,683,426 20,975,259 12,098,976
Cumulative effect of accounting
change for Company-owned life
insurance policies - - 2,293,983 -
------------ ------------ ------------- ------------
Net income $ 8,332,563 $ 4,683,426 $ 23,269,242 12,098,976
============ ============ ============= ============
Earnings per common share:
Income before cumulative
effect of accounting
change $ .55 $ .31 $ 1.40 $ .81
Cumulative effect of
accounting change - - .15 -
------------ ------------ ------------- ------------
Net income $ .55 $ .31 $ 1.55 $ .81
============ ============ ============= ============
Weighted average number of
common shares outstanding 15,070,652 14,895,930 15,028,672 14,871,300
------------ ------------ ------------- ------------
Cash dividends per common share $ .05 $ .035 $ .135 $ .105
------------ ------------ ------------- ------------
</TABLE>
The accompanying notes are part of the condensed consolidated financial
statements.
5
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COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating
activities $ 22,764,705 $ 18,707,227
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of property and equipment, real
estate held for sale and rental
properties 1,380,557 2,899,362
Sale of investments - 263,888
Acquisitions of property and equipment (12,066,649) (10,162,117)
Acquisition of a business, net of
cash acquired - (4,313,046)
Unexpended industrial revenue bond proceeds - 3,337,122
Proceeds from life insurance death benefit 171,770 -
Other 466,562 (92,417)
------------ ------------
Net cash (used in) investing
activities (10,047,760) (8,067,208)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of short-term borrowings - (900,000)
Payments of long-term debt (1,843,174) (1,598,786)
Cash dividends paid (2,029,605) (1,561,372)
Proceeds from sale of common shares 988,115 352,687
------------ ------------
Net cash (used in) financing activities (2,884,664) (3,707,471)
------------ ------------
Increase in cash and temporary
cash investments 9,832,281 6,932,548
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 17,020,744 19,534,385
------------ ------------
End of period $ 26,853,025 $ 26,466,933
============ ============
Noncash investing and financing activities:
Liabilities assumed in acquisition
of a business - $ 8,757,472
Long-term debt issued in conjunction
with acquisition of a business - 6,141,129
</TABLE>
The accompanying notes are part of the condensed consolidated financial
statements.
6
<PAGE> 7
COACHMEN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet data as of December 31, 1995 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-month periods ended
September 30, 1996 are not necessarily indicative of the results to
be expected for the full year.
3. Inventories consist of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
Raw material $ 23,423,558 $ 16,580,013
Work in-process 7,867,030 7,268,705
Finished goods 33,061,591 31,585,779
------------ ------------
Total $ 64,352,179 $ 55,434,497
============ ============
4. Effective January 1, 1996, the Company changed its method of
accounting for its investments in life insurance contracts which
were purchased to fund liabilities under deferred compensation
agreements with executives and other key employees. Prior to
January 1, 1996, the Company accounted for its investments in life
insurance contracts by capitalizing premiums under the ratable
charge method (a method of accounting which was acceptable when the
insurance contracts were originally acquired and continued to be
acceptable for contracts acquired prior to November 14, 1985).
Effective January 1, 1996, the Company changed to the cash surrender
value method of accounting which is the preferred method under
generally accepted accounting principles, as this method more
accurately reflects the economic value of the contracts.
On January 1, 1996, the Company recorded a $2.3 million noncash
credit for the cumulative effect of this accounting change. This
accounting method change also increased net income for the nine
months ended September 30, 1996 by $749,970 or $.05 per share. On a
pro forma basis, net income and net income per share for the nine
months ended September 30, 1995 would have been $12,656,520 and
$.85, respectively, if this accounting change had been made prior to
1995.
5. On July 17, 1996, the Board of Directors declared a two-for-one
stock split of the Company's common shares, which was paid on
August 28, 1996 to shareholders of record on August 7, 1996.
All share and per share data appearing in the condensed consolidated
financial statements and notes thereto have been retroactively
restated to reflect this stock split.
Also on July 17, 1996, the Board of Directors adopted a resolution
to amend the Company's Articles of Incorporation to increase the
authorized common shares from 30,000,000 shares to 60,000,000
shares.
6. The Company was contingently liable at September 30, 1996 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
7
<PAGE> 8
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.
7. On October 18, 1996, the Company's Board of Directors approved a resolution
to cancel the Company's stock repurchase program.
8
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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
consolidated financial statements.
A summary of the changes in the principal items included in the consolidated
statements of income is shown below.
<TABLE>
<CAPTION>
COMPARISON OF
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
INCREASES (DECREASES)
---------------------
<S> <C> <C> <C> <C>
Net sales $ 23,270,843 17.8% $ 78,662,868 20.1%
Cost of goods sold 17,775,421 15.8 63,577,019 18.8
Selling and
delivery expenses (180,654) (2.7) 959,184 4.9
General and
administrative expenses 579,909 13.5 1,722,981 11.9
Interest expense (394,833) (49.8) (1,066,894) (46.3)
Interest income 1,225 .3 88,046 9.9
Gain on sale of
properties, net (11,415) (85.2) (57,992) (7.4)
Other, net 244,327 92.1 244,651 34.3
Income before income taxes and
cumulative effect of
accounting change 5,725,137 76.8 13,745,283 71.4
Income taxes 2,076,000 74.8 4,869,000 68.1
Cumulative effect of accounting
change for Company-owned
life insurance policies - - 2,293,983 *
Net income 3,649,137 77.9 11,170,266 92.3
</TABLE>
* Not meaningful
9
<PAGE> 10
NET SALES
Consolidated net sales for the quarter ended September 30, 1996 were
$154,244,238 an increase of 17.8% over the $130,973,395 reported for the
corresponding quarter last year. Net sales for the nine months were
$469,599,312 representing an increase of 20.1% over the $390,936,444 reported
for the same period in 1995. The Company's vehicle segment, which includes the
parts and supply group of companies, experienced net sales increases of 16.4%
and 19.8% for the quarter and nine months, respectively. The Company's housing
segment had a net sales increase for the 1996 quarter of 23.7% and 22.0% for
the nine months. Both vehicles and housing experienced increases in unit sales
and in the average sales price per unit.
COST OF GOODS SOLD
Cost of goods sold increased 15.8% or $17,775,421 for the three months and
18.8% or $63,577,019 for the nine months ended September 30, 1996. The
increase for both periods is generally in line with the increase in net sales.
The increase in gross margins was attributable to the spreading of fixed
costs over higher production volume. The housing segment continued experiencing
lower gross margins associated with the recent expansions into North Carolina
and Tennessee.
OPERATING EXPENSES
As a percentage of net sales, operating expenses, which include selling,
delivery, general and administrative expenses, were 7.4% and 8.4% for the 1996
and 1995 quarter and 7.8% and 8.7% for the comparable nine-month periods.
Selling expense decreased by .9% for the quarter and .6% for the nine months,
primarily due to increased demand for the Company's products. As a percentage
of net sales, delivery expenses remained relatively unchanged. General and
administrative expenses were 3.2% of net sales for the third quarter compared
to 3.3% for the 1995 corresponding three months and 3.4% of net sales for the
nine months compared to 3.7% for the 1995 nine months due to an increase in net
sales. General and administrative expenses increased during the nine months
of 1996 due to increased incentive compensation earned as a result of increased
profits.
INTEREST EXPENSE
Interest expense was $398,520 and $1,239,555 for the three and nine-month
periods in 1996 compared to $793,353 and $2,306,449 in the same periods last
year. These decreases are primarily the result of a change to the cash
surrender value method of accounting 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 now partially offset by the increases in cash surrender values
each accounting period. Previously, the increases in cash surrender values
were not recognized, since the investment in life insurance contracts consisted
only of the capitalized insurance premiums.
10
<PAGE> 11
INTEREST INCOME
Interest income increased $1,225 and $88,046 respectively, for the 1996 three
and nine-month periods. The amounts are indicative of the amounts of cash and
temporary cash investments in 1996 in comparison to 1995. Increases in cash and
temporary cash investments were primarily generated from operating activities
throughout 1995 and the first nine months of 1996.
GAIN ON THE SALE OF PROPERTIES, NET
The net gain on the sale of properties for the third quarter of 1996 was
$11,415 lower and for the nine months was $57,992 lower than in the same
periods in 1995. These variances are the result of the amount of gain
recognized upon the disposition of various small properties. Assets are
continually analyzed and every effort is made to sell or dispose of properties
that are determined to be unproductive.
OTHER, NET
Other income, net, represents income of $509,631 for the third quarter and
$958,430 for the nine months compared to income of $265,304 and $713,779 for
the 1995 third quarter and nine months, respectively. The most significant
variance for the three and nine month periods was due to a final determination
of insurance proceeds from assets destroyed in a fire which consumed the
Company's Prodesign production facility in August 1995.
INCOME TAXES
For the third quarter ended September 30, 1996, the effective tax rate was
36.8% and a year-to-date rate of 36.4% compared to a third quarter and
year-to-date effective tax rate in 1995 of 37.2%. The decrease in the
effective tax rate is attributable to an increase in nontaxable income.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
COMPANY-OWNED LIFE INSURANCE POLICIES
See Note 4 of Notes to Condensed Consolidated Financial Statements
on page 7 herein.
11
<PAGE> 12
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, 1996, to meet its seasonal
working capital needs. At September 30, 1996, there were no borrowings against
this line of credit. For the nine months, the major source of cash was from
operating activities. The most significant items in this category were net
income and depreciation. Significant increases in receivables and inventories
were largely offset by increases in accounts payable and accrued expenses,
including income taxes. Investing activities reflected a net cash use of
$10,047,760. The principal use of cash in investing activities was the
acquisition of property and equipment. This investment included construction
in progress of $5.1 million, principally for the construction of the new All
American Homes facility in North Carolina, $2.0 million for the new
recreational vehicle manufacturing facility in Oregon and $1.6 million in new
machinery and equipment for the Viking Formed Products division. The
negative cash flow from financing activities was primarily for cash dividends
and repayment of long-term debt.
The Company's profitability has strengthened its financial position during the
first nine months of 1996. At September 30, 1996, working capital
increased $9.9 million over December 31, 1995 to $70.5 million. The $26.8
million increase in current assets at September 30, 1996 versus December 31,
1995, was primarily due to increased cash, receivables and inventories. The
$16.8 million increase in liabilities is substantially due to increased trade
payables as well as insurance accruals.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter the Company filed a Form 8-K dated August 6,
1996, reporting an Item 5 event.
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: October 21, 1996 /s/ Gary L. Groom
--------------------------------
Gary L. Groom, Executive Vice
President - Finance (Principal
Financial Officer)
Date: October 21, 1996 /s/ William M. Angelo
--------------------------------
William M. Angelo, Corporate
Controller (Principal Accounting
Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,853
<SECURITIES> 500
<RECEIVABLES> 33,795
<ALLOWANCES> 1,048
<INVENTORY> 64,352
<CURRENT-ASSETS> 128,484
<PP&E> 68,628
<DEPRECIATION> 28,521
<TOTAL-ASSETS> 187,919
<CURRENT-LIABILITIES> 57,975
<BONDS> 10,260
0
0
<COMMON> 22,563
<OTHER-SE> 90,758
<TOTAL-LIABILITY-AND-EQUITY> 187,919
<SALES> 469,599
<TOTAL-REVENUES> 469,599
<CGS> 401,329
<TOTAL-COSTS> 438,027
<OTHER-EXPENSES> (1,426)
<LOSS-PROVISION> 244
<INTEREST-EXPENSE> 1,240
<INCOME-PRETAX> 32,999
<INCOME-TAX> 12,024
<INCOME-CONTINUING> 20,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,294
<NET-INCOME> 23,269
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
</TABLE>
