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, 1997
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)
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 31, 1997:
Common Shares, without par value 17,273,075 shares outstanding
with an equivalent number of common share purchase rights.
<PAGE>
COACHMEN INDUSTRIES, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Financial Statements:
Condensed Consolidated Balance Sheets-
September 30, 1997 and December 31, 1996.................3-4
Condensed Consolidated Statements of Income-
Three and Nine Months Ended September 30, 1997 and 1996...5
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1997 and 1996.............6
Notes to Condensed Consolidated Financial Statements.....7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................9-13
PART II. OTHER INFORMATION......................................14
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES.......................................................15
Page 2
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COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 89,070,513 $66,448,901
Certificate of deposit - 500,000
Trade receivables, less allowance for
doubtful receivables 1997 - $1,477,000
and 1996 - $919,000 35,446,180 20,575,048
Other receivables 2,173,022 2,103,168
Refundable income taxes - 1,865,000
Inventories 59,634,848 68,311,038
Prepaid expenses and other 1,927,508 930,244
Deferred income taxes 3,180,000 3,180,000
Total current assets 191,432,071 163,913,399
PROPERTY AND EQUIPMENT, at cost
Land and improvements 8,981,865 6,640,920
Buildings and improvements 38,908,218 33,516,736
Machinery and equipment 16,488,384 14,563,955
Transportation equipment 10,800,644 9,619,667
Office furniture and fixtures 5,720,664 4,830,577
Total property and equipment, at cost 80,899,775 69,171,855
Less, Accumulated depreciation 33,916,703 29,314,413
Net property and equipment 46,983,072 39,857,442
OTHER ASSETS
Real estate held for sale 4,128,025 4,902,105
Rental properties 2,018,977 2,530,608
Intangibles, less accumulated amortization
1997 - $482,513 and 1996 - $380,363 4,961,763 5,063,913
Deferred income taxes 600,000 600,000
Other 10,922,465 10,580,105
Total other assets 22,631,230 23,676,731
TOTAL ASSETS $261,046,373 $227,447,572
The accompanying notes are part of the condensed consolidated
financial statements.
Page 3
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COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONT'D)
SEPTEMBER 30, DECEMBER 31,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,264,661 $2,278,519
Accounts payable, trade 29,578,326 14,532,948
Accrued wages, salaries and commissions 5,898,822 4,410,925
Accrued dealer incentives 2,547,739 3,064,437
Accrued warranty expense 5,576,782 4,460,137
Accrued income taxes 1,748,974 628,051
Accrued insurance 3,845,404 3,697,709
Other accrued liabilities 6,326,901 5,449,270
Total current liabilities 57,787,609 38,521,996
LONG-TERM DEBT 13,027,025 14,841,262
OTHER 6,649,897 6,428,373
Total liabilities 77,464,531 59,791,631
SHAREHOLDERS' EQUITY
Common shares, without par value: authorized
60,000,000 shares; issued 1997 - 20,633,144
shares and 1996 - 20,527,644 shares 87,077,768 86,248,042
Additional paid-in capital 2,357,622 2,313,743
Retained earnings 110,527,417 94,670,593
199,962,807 183,232,378
Less, Cost of shares reacquired for the
treasury 1997 - 3,387,667 shares and
1996 - 3,340,996 shares 16,380,965 15,576,437
Total shareholders' equity 183,581,842 167,655,941
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $261,046,373 $227,447,572
The accompanying notes are part of the condensed consolidated
financial statements.
Page 4
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COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
Net sales $174,885,358 $154,244,238 $502,359,402 $469,599,312
Cost of goods sold 148,461,929 130,087,358 432,361,204 401,328,935
Gross profit 26,423,429 24,156,880 69,998,198 68,270,377
Operating expenses:
Selling and delivery 8,102,059 6,572,380 24,113,819 20,545,700
General and administrative 7,472,979 4,888,141 20,003,278 16,151,897
Total operating expenses 15,575,038 11,460,521 44,117,097 36,697,597
Operating income 10,848,391 12,696,359 25,881,101 31,572,780
Nonoperating income (expense):
Interest expense (369,581) (398,520) (1,164,643) (1,239,555)
Interest income 1,048,145 374,114 3,188,818 979,056
Gain (loss) on sale of
properties, net (87,913) 1,979 45,379 728,548
Other income, net 361,210 509,631 552,260 958,430
Total nonoperating income 951,861 487,204 2,621,814 1,426,479
Income before income taxes
and cumulative effect of
accounting change 11,800,252 13,183,563 28,502,915 32,999,259
Income taxes 4,207,000 4,851,000 10,061,000 12,024,000
Income before cumulative
effect of accounting
change 7,593,252 8,332,563 18,441,915 20,975,259
Cumulative effect of accounting
change for Company-owned life
insurance policies - - - 2,293,983
Net income $ 7,593,252 $ 8,332,563 $ 18,441,915 $ 23,269,242
Earnings per common share:
Income before cumulative
effect of accounting
change $ .44 $ .55 $ 1.07 $ 1.40
Net income $ .44 $ .55 $ 1.07 $ 1.55
Weighted average number of
common shares outstanding 17,233,378 15,070,652 17,225,930 15,028,672
Cash dividends per
common share $ .05 $ .05 $ .15 $ .135
The accompanying notes are part of the condensed consolidated
financial statements.
Page 5
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COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS
ENDED SEPTEMBER 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating
activities $ 36,547,875 $22,764,705
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of property and equipment, real
estate held for sale and rental
properties 1,213,142 1,380,557
Certificate of deposit 500,000 -
Acquisitions of property and equipment (11,193,626) (12,066,649)
Proceeds from life insurance death benefit - 171,770
Other (34,819) 466,562
Net cash (used in) investing
activities (9,515,303) (10,047,760)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (1,828,095) (1,843,174)
Proceeds from sale of common shares 829,726 988,115
Purchases of common shares for treasury (827,500) -
Cash dividends paid (2,585,091) (2,029,605)
Net cash (used in) financing activities (4,410,960) (2,884,664)
Increase in cash and temporary
cash investments 22,621,612 9,832,281
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 66,448,901 17,020,744
End of period $ 89,070,513 $ 26,853,025
The accompanying notes are part of the condensed consolidated
financial statements.
Page 6
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COACHMEN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet data as of December 31, 1996 was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
2. In the opinion of management, the information furnished herein includes
all adjustments of a normal and recurring nature necessary to reflect a
fair statement of the interim periods reported. The results of
operations for the three and nine months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full
year.
3. Inventories consist of the following:
September 30, December 31,
1997 1996
Raw material $ 20,504,359 $ 20,951,906
Work-in-process 9,252,700 6,467,066
Finished goods 29,877,789 40,892,066
Total $ 59,634,848 $ 68,311,038
4. Effective January 1, 1996, the Company changed its method of accounting
for its investment 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 that date, the Company
recorded a $2.3 million noncash credit for the cumulative effect of the
accounting change.
6. The Company was contingently liable at September 30, 1997 to banks and
other financial institutions on repurchase agreements in connection with
financing provided by such institutions to most of the Company's
independent dealers in connection with their purchase of the Company's
recreational vehicle products. These agreements provide for the Company
to repurchase its products from the financing institution in the event
that they have repossessed them upon a dealer's default. The risk of
loss resulting from these agreements is spread over the Company's
numerous dealers and is further reduced by the resale value of the
products repurchased. The Company is involved in various legal
proceedings which are ordinary litigations incidental to the industry and
which are covered in whole or in part by insurance. Management believes
that
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any liability which may result from these proceedings will not be
significant.
7. On May 1, 1997 the Board of Directors authorized the repurchase of up to
one million shares of the Company's outstanding common stock. Shares may
be purchased from time to time, depending on market conditions and other
factors, on the open market or through privately negotiated transactions
at the then prevailing market prices. During the second quarter of 1997,
the Company repurchased 50,000 shares of its common stock on the open
market. There were no purchases of common stock by the Company during the
third quarter of 1997.
Page 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
condensed consolidated financial statements.
A summary of the changes in the principal items included in the condensed
consolidated statements of income is shown below.
Comparison of
Three Months Nine Months
Ended September 30, 1997 and 1996
Increases (Decreases)
Net sales $ 20,641,120 13.4% $ 32,760,090 7.0%
Cost of goods sold 18,374,571 14.1 31,032,269 7.7
Selling and
delivery expenses 1,529,679 23.3 3,568,119 17.4
General and
administrative expenses 2,584,838 52.9 3,851,381 23.8
Interest expense (28,939) (7.3) (74,912) (6.0)
Interest income 674,031 180.2 2,209,762 225.7
Gain (loss) on sale of
properties, net (89,892) * (683,169)(93.8)
Other income, net (148,421)(29.1) (406,170)(42.4)
Income before income taxes and
cumulative effect of
accounting change (1,383,311)(10.5) (4,496,344)(13.6)
Income taxes (644,000)(13.3) (1,963,000)(16.3)
Cumulative effect of accounting
change for Company-owned
life insurance policies - - (2,293,983) *
Net income (739,311) (8.9) (4,827,327)(20.7)
* Not meaningful
Page 9
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NET SALES
Consolidated net sales for the quarter ended September 30, 1997 were
$174,885,358 an increase of 13.4% over the $154,244,238 reported for the
corresponding quarter last year. Net sales for the nine months were
$502,359,402 representing an increase of 7.0% over the $469,599,312 reported
for the same period in 1996. The Company's vehicle segment, which includes
the parts and supply group of companies, experienced net sales increases of
16.3% and 5.0% for the quarter and nine months, respectively. Recreational
vehicle ("RV") sales increased in the third quarter as dealers reacted very
favorably to the introduction of 1998 models. RV sales for the nine months
were hampered by difficult and sometimes severe weather in several areas of
the country during the first and second quarters. The Company's housing
segment had a net sales increase for the 1997 third quarter of 1.3% and 17.8%
for the nine months. The smaller increase for the quarter was primarily the
result of reduced production at the Company's largest housing operation to
facilitate the implementation of a seven-day production schedule. While the
RV segment was up in the number of units sold and down slightly in the average
sales price of units sold compared to the first nine months of 1996, the
housing segment was up in both the number of units sold and in the average
sales price per unit.
COST OF GOODS SOLD
Cost of goods sold increased 14.1% or $18,374,571 for the three months and
7.7% or $31,032,269 for the nine months ended September 30, 1997. The
increase for both periods is substantially in line with the increases in net
sales. The slightly higher increase in the cost of goods sold than in the
increase in net sales negatively affected gross margins in the RV group by
the additional capacity added primarily for the production of larger travel
trailers and fifth wheels. This increase in capacity was not utilized to the
extent anticipated as net sales, although a record, were below planned
levels. The housing segment also continued experiencing lower gross margins
attributable to the expansion in North Carolina and the costs associated with
implementing a seven-day work week at the Indiana plant. Production volume
is increasing in these two plants and gross margins are expected to improve.
OPERATING EXPENSES
As a percentage of net sales, operating expenses, which include selling,
delivery, general and administrative expenses, were 8.9% and 7.4% for the
1997 and 1996 quarter, respectively, and 8.8% and 7.8% for the comparable nine-
month periods. Selling expenses, as a percentage of net sales, increased by
.3% for the quarter and .4% for the nine months, primarily due to increased
dealer volume sales incentives attributable to increased sales in the housing
group. As a percentage of net sales, delivery expenses remained relatively
unchanged. General and administrative expenses were 4.3% of net sales for
the third quarter compared to 3.2% for the 1996 corresponding quarter and 4.0%
of net sales for the nine-month period compared to 3.4% for 1996. This
increase for both periods is primarily the result of increasing the
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Company's bad debt expense by approximately $1.5 million reflecting a
slowdown in the overall van conversion industry. The Company's parts &
supply group primarily supplies components to this industry. While the
Company's own van conversion division experienced good performance, many
companies in the industry are experiencing financial difficulties.
INTEREST EXPENSE
Interest expense was $369,581 and $1,164,643 for the three and nine-month
periods in 1997 compared to $398,520 and $1,239,555 in the same periods last
year. The nine-month decrease was primarily the result of a larger increase in
cash surrender value for the Company's investment in life insurance contracts
in 1997 than in 1996. 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.
INTEREST INCOME
Interest income increased $674,031 and $2,209,762, respectively, for the 1997
three and nine-month periods. This is indicative of the amounts of cash and
temporary cash investments in 1997 in comparison to 1996. Increases in cash
and temporary cash investments were primarily generated from operating
activities throughout 1997 and the sale of 2,070,000 shares of common stock
in November 1996.
GAIN (LOSS) ON THE SALE OF PROPERTIES, NET
The net gain (loss) on the sale of properties for the third quarter of 1997
represented a loss of $87,913 and for the nine months a gain of $45,379. For
the same periods in 1996, there was a gain of $1,979 and $728,548,
respectively. Variances in each period reflect the result of the amount of
gain or loss recognized upon the disposition of various properties. Assets
are continually analyzed and every effort is made to sell or dispose of
properties that are determined to be unproductive.
OTHER INCOME, NET
Other income, net, represents income of $361,210 for the third quarter and
$552,260 for the nine months compared to income of $509,631 and $958,430 for
the 1996 third quarter and nine months, respectively. The most significant
variance for the nine-months was due to the receipt of deferred compensation
related life insurance proceeds during the 1996 period.
INCOME TAXES
For the third quarter ended September 30, 1997, the effective tax rate was
35.7% and a year-to-date rate of 35.3% compared with a 1996 third quarter and
year-to-date effective tax rate of 36.8% and 36.4%, respectively. The
Company's effective tax rate fluctuates based upon the
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states where sales occur, with the level of export sales and also with the
amount of nontaxable income realized in each period.
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.
FORWARD LOOKING STATEMENTS
Some matters set forth herein are forward looking statements that are
dependent on certain risks and uncertainties including such factors, among
others, as the availability of gasoline, which can impact sales of
recreational vehicles, availability of chassis, which are used in the
production of many of the Company's recreational vehicle products, interest
rates, which affect the affordability of the Company's products, and also on
the state of the recreational vehicle and modular housing industries in the
United States. Other factors affecting forward looking statements include
competition in these industries and the Company's ability to maintain or
increase gross margins which are critical to profitability whether there are
or are not increased sales. At times, the Company's actual performance
differs materially from its projections and estimates regarding the economy,
the recreational vehicle and housing industries and other key performance
indicators. The Company's actual results could vary significantly from the
performance projected in the forward looking statements.
OTHER MATTERS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") was issued by the Financial Accounting
Standards Board. The Company is required to adopt this pronouncement in its
financial statements for the year ending December 31, 1997. SFAS No. 128
will require the Company to make a dual presentation of basic and diluted
earnings per share on the face of its consolidated statements of income. The
Company does not anticipate SFAS No. 128 will have a significant impact on
the Company's consolidated statements of income. In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" both of
which the Company will be required to adopt in its financial statements for
the year ending December 31, 1998. SFAS No. 130 will require the Company to
report comprehensive income in its financial statements. Comprehensive
income includes net income and certain transactions that are reported as a
separate component of shareholders' equity. SFAS No. 131 specifies revised
guidelines for determining operating segments and the type and level of
information to be disclosed. The Company has not yet determined what changes
in its disclosures, if any, will be required by SFAS No. 131.
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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, 1997, to meet its
seasonal working capital needs. At September 30, 1997, there were no
borrowings against this line of credit. For the nine months, the major source
of cash was from operating activities. The significant items in this
category were net income, depreciation and a decrease in inventories.
Increases in receivables were substantially offset by increases in trade
accounts payable. Investing activities reflected a net cash use of
$9,515,303. The principal use of cash in investing activities was the
acquisition of property and equipment. This investment included the
acquisition of a new recreational vehicle manufacturing facility in Indiana.
The negative cash flow from financing activities was primarily for cash
dividends and repayment of long-term debt.
At September 30, 1997, working capital increased to $133.6 million from
$125.4 million at December 31, 1996. The $8.2 million increase in current
assets at September 30, 1997 versus December 31, 1996, was primarily due to
increased cash and receivables. The $19.3 million increase in current
liabilities was substantially due to increased trade accounts payable.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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 12, 1997 S/S: GARY L. GROOM
_______________________________
Gary L. Groom, Executive Vice
President - Finance (Principal
Financial Officer)
Date: November 12, 1997 S/S: WILLIAM M. ANGELO
_______________________________
William M. Angelo, Corporate
Controller (Principal Accounting
Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of income and consolidated balance sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000021212
<NAME> COACHMEN INDUSTRIES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 89,071
<SECURITIES> 0
<RECEIVABLES> 39,096
<ALLOWANCES> 1,477
<INVENTORY> 59,635
<CURRENT-ASSETS> 191,432
<PP&E> 80,900
<DEPRECIATION> 33,917
<TOTAL-ASSETS> 261,046
<CURRENT-LIABILITIES> 57,788
<BONDS> 13,027
<COMMON> 70,697
0
0
<OTHER-SE> 110,527
<TOTAL-LIABILITY-AND-EQUITY> 261,046
<SALES> 502,359
<TOTAL-REVENUES> 502,359
<CGS> 432,361
<TOTAL-COSTS> 476,478
<OTHER-EXPENSES> 2,622
<LOSS-PROVISION> 1,682
<INTEREST-EXPENSE> 1,165
<INCOME-PRETAX> 28,503
<INCOME-TAX> 10,061
<INCOME-CONTINUING> 18,442
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<NET-INCOME> 18,442
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
