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, 1998
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, 1998:
Common Shares, without par value 16,575,427 shares outstanding
including an equivalent number of common share purchase rights.
<PAGE> 1
COACHMEN INDUSTRIES, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Financial Statements:
Condensed Consolidated Balance Sheets-
September 30, 1998 and December 31, 1997................ 3-4
Condensed Consolidated Statements of Income-
Three and Nine Months Ended September 30, 1998 and 1997. 5
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1998 and 1997........... 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES..................................................... 13
This Report 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. Those statements may
include, but are not limited to statements related to the availability of
gasoline, which can impact sales of recreational vehicles; availability of
chassis, which are used in the production of many of the Company's
recreational vehicle products; interest rates, which affect the affordability
of the Company's products; 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
the profitability whether there are or are not increased sales; and the
Company's ability to make its software and equipment year 2000 compliant.
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. 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.
<PAGE> 2
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 46,968,317 $ 71,427,918
Short-term investments 24,912,385 15,852,718
Trade receivables, less allowance for
doubtful receivables 1998 - $1,032,000
and 1997 - $1,354,000 36,688,167 25,212,595
Other receivables 2,153,072 2,980,257
Refundable income taxes 625,000 1,761,000
Inventories 85,365,546 68,416,006
Prepaid expenses and other 1,717,525 1,247,973
Deferred income taxes 3,040,000 3,040,000
Total current assets 201,470,012 189,938,467
PROPERTY AND EQUIPMENT, at cost
Land and improvements 10,861,356 9,041,817
Buildings and improvements 50,729,035 39,950,161
Machinery and equipment 19,075,960 16,874,788
Transportation equipment 13,272,360 10,159,168
Office furniture and fixtures 8,337,452 5,712,961
102,276,163 81,738,895
Less, Accumulated depreciation 40,084,026 35,137,268
Net property and equipment 62,192,137 46,601,627
OTHER ASSETS
Real estate held for sale 2,622,218 4,188,063
Rental properties 1,380,539 2,000,218
Intangibles, less accumulated amortization
1998 - $618,556 and 1997 - $516,469 4,825,720 4,927,807
Deferred income taxes 569,000 569,000
Other 10,627,845 10,836,844
Total other assets 20,025,322 22,521,932
TOTAL ASSETS $283,687,471 $259,062,026
The accompanying notes are part of the condensed
consolidated financial statements.
<PAGE> 3
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONT'D)
SEPTEMBER 30, DECEMBER 31,
1998 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,125,175 $ 2,258,519
Accounts payable, trade 35,567,702 22,818,303
Accrued wages, salaries and commissions 7,532,123 4,876,790
Accrued dealer incentives 2,931,815 3,226,255
Accrued warranty expense 6,362,494 6,013,528
Accrued income taxes 1,442,904 1,529,543
Accrued insurance 2,673,631 2,319,518
Other accrued liabilities 7,349,584 6,633,762
Total current liabilities 65,985,428 49,676,218
LONG-TERM DEBT 10,599,874 12,591,144
OTHER 6,939,371 6,658,872
Total liabilities 82,899,673 68,926,234
SHAREHOLDERS' EQUITY
Common shares, without par value: authorized
60,000,000 shares; issued 1998 - 20,827,157
shares and 1997 - 20,689,214 shares 88,904,712 87,519,740
Additional paid-in capital 3,050,744 3,012,596
Retained earnings 139,184,377 115,984,289
Treasury shares, at cost:
1998 - 4,135,274 shares and
1997 - 3,387,648 shares (30,977,035) (16,380,833)
Total shareholders' equity 200,162,798 190,135,792
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $283,687,471 $259,062,026
The accompanying notes are part of the condensed
consolidated financial statements.
<PAGE> 4
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
Net sales $202,593,063 $174,885,358 $579,299,844 $502,359,402
Cost of goods sold 171,577,920 148,461,929 494,713,422 432,361,204
Gross profit 31,015,143 26,423,429 84,586,422 69,998,198
Operating expenses:
Selling and delivery 9,626,676 8,102,059 27,516,178 24,113,819
General and
administrative 6,451,967 7,472,979 21,262,244 20,003,278
Total operating
expenses 16,078,643 15,575,038 48,778,422 44,117,097
Operating income 14,936,500 10,848,391 35,808,000 25,881,101
Nonoperating income
(expense):
Interest expense (641,340) (369,581) (1,444,014) (1,164,643)
Investment income 1,182,420 1,221,473 3,615,284 3,373,051
Gain (loss) on sale of
properties, net (11,499) (87,913) (55,708) 45,379
Other income, net 192,463 187,882 1,127,421 368,027
Total nonoperating
income 722,044 951,861 3,242,983 2,621,814
Income before
income taxes 15,658,544 11,800,252 39,050,983 28,502,915
Income taxes 5,472,000 4,207,000 13,242,000 10,061,000
Net income $ 10,186,544 $ 7,593,252 $ 25,808,983 $ 18,441,915
Earnings per common share:
Basic $ .59 $ .44 $ 1.49 $ 1.07
Diluted $ .59 $ .44 $ 1.48 $ 1.06
Number of common shares used in
the computation of earnings
per share:
Basic 17,198,730 17,233,378 17,312,497 17,225,930
Diluted 17,304,097 17,382,321 17,429,829 17,395,703
Cash dividends per
common share $ .05 $ .05 $ .15 $ .15
The accompanying notes are part of the condensed
consolidated financial statements.
<PAGE> 5
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS
ENDED SEPTEMBER 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating
activities $ 24,240,421 $ 36,239,934
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of short-term investments 104,023,193 16,809,392
Sale of properties 2,019,713 1,213,142
Acquisitions of:
Short-term investments (113,652,335) (16,396,715)
Property and equipment (15,180,692) (11,193,626)
Businesses (9,001,812) -
Other 299,803 (34,819)
Net cash (used in) investing
activities (31,492,130) (9,602,626)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (2,124,614) (1,828,095)
Issuance of common shares under stock
option and stock purchase plans 1,384,972 829,726
Tax benefit from stock options exercised 753,251 395,264
Purchases of common shares for treasury (14,612,606) (827,500)
Cash dividends paid (2,608,895) (2,585,091)
Net cash (used in) financing activities (17,207,892) (4,015,696)
Increase (decrease)in cash and temporary
cash investments (24,459,601) 22,621,612
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 71,427,918 66,448,901
End of period $ 46,968,317 $ 89,070,513
Noncash investing and financing
activities:
Liabilities assumed in acquisitions
of businesses $ 795,000 $ -
The accompanying notes are part of the condensed
consolidated financial statements.
<PAGE> 6
COACHMEN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet data as of December 31, 1997 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,
1998 are not necessarily indicative of the results to be expected
for the full year.
3. Inventories consist of the following:
September 30, December 31,
1998 1997
Raw material $ 31,646,099 $ 19,437,977
Work-in-process 11,797,622 9,327,308
Finished goods 41,921,825 39,650,721
Total $ 85,365,546 $ 68,416,006
4. The Company was contingently liable at September 30, 1998 to banks
and other financial institutions on repurchase agreements in
connection with financing provided by such institutions to most of
the Company's independent dealers in connection with their purchase
of the Company's recreational vehicle products. These agreements
provide for the Company to repurchase its products from the
financing institution in the event that they have repossessed them
upon a dealer's default. The risk of loss resulting from these
agreements is spread over the Company's numerous dealers and is
further reduced by the resale value of the products repurchased.
The Company is involved in various legal proceedings which are
ordinary litigations incidental to the industry and which are
covered in whole or in part by insurance. Management believes that
any liability which may result from these proceedings will not be
significant.
5. On February 3, 1998, the Company acquired certain assets and the
operations of three retail recreational vehicle dealerships, two located
in Florida and one in Georgia. The assets acquired consisted of new and
used unit inventories, real and personal property, parts inventories,
tools and supplies and other miscellaneous items. The purchase price,
which aggregated $9.8 million and approximated the fair value of the
acquired assets, consisted of $9.0 million in cash and the balance in the
assumption of certain liabilities of the sellers. The acquisitions were
accounted for as a purchase and the operating results of the acquired
businesses are included in the Company's consolidated financial
statements from the date of acquisition. Pro forma financial information
has not been presented as it is not materially different from the
Company's historical results.
6. On May 1, 1997 the Board of Directors authorized the repurchase of up to
one million shares of the Company's outstanding common stock and on
October 19, 1998 the Board of Directors authorized the repurchase of an
additional one million shares. Shares may be purchased from time to
time, depending on market conditions and other factors, on the open
market or through privately negotiated
<PAGE> 7
transactions at the then prevailing market prices. As of September 30,
1998, the Company repurchased 800,000 shares of its common stock on the
open market pursuant to the above authorizations.
<PAGE> 8
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, 1998 and 1997
Increases (Decreases)
Net sales $ 27,707,705 15.8% $ 76,940,442 15.3%
Cost of goods sold 23,115,991 15.6 62,352,218 14.4
Selling and
delivery expenses 1,524,617 18.8 3,402,359 14.1
General and
administrative expenses (1,021,012) (13.7) 1,258,966 6.3
Interest expense 271,759 73.5 279,371 24.0
Investment income (39,053) (3.2) 242,233 7.2
Gain (loss) on sale of
properties, net 76,414 * (101,087) *
Other income, net 4,581 * 759,394 *
Income before income taxes 3,858,292 32.7 10,548,068 37.0
Income taxes 1,265,000 30.1 3,181,000 31.6
Net income 2,593,292 34.2 7,367,068 39.9
* Not meaningful
<PAGE> 9
NET SALES
Consolidated net sales for the quarter ended September 30, 1998 were
$202,593,063 an increase of 15.8% over the $174,885,358 reported for the
corresponding quarter last year. Net sales for the nine months were
$579,299,844 representing an increase of 15.3% over the $502,359,402 reported
for the same period in 1997. The Company's vehicle segment experienced net
sales increases of 15.1% and 15.9% for the quarter and nine months,
respectively. These increases are attributed to improvements in capacity
utilization as well as additions to capacity and overall increases in the
recreational vehicle market. The Company's housing segment had a net sales
increase for the 1998 quarter of 19.3% and 12.5% for the nine months as
demand for the Company's modular housing products continued its upswing and
also as the result of increased capacity. Both the vehicle and housing
segments experienced increases in the number of units sold and in the average
sales price per unit.
COST OF GOODS SOLD
Cost of goods sold increased 15.6% or $23,115,991 for the three months and
14.4% or $62,352,218 for the nine months ended September 30, 1998. The
increase for both periods is lower than the increase in net sales. As a
percentage of net sales, cost of goods sold decreased .2% and .7% for the
quarter and nine months, respectively, from the comparable prior year
periods. These percentages reflect improvements over the higher 1997
expenses associated with capacity start-up costs incurred in the vehicle
segment and costs associated with the implementation of a 7-day work week
production schedule at the Company's largest housing facility.
OPERATING EXPENSES
As a percentage of net sales, operating expenses, which include selling,
delivery, general and administrative expenses, were 7.9% and 8.9% for the
1998 and 1997 quarter, respectively, and 8.4% for the 1998 nine months
compared to 8.8% for the comparable period last year. Selling expense, as a
percentage of net sales, increased by .2% for the quarter while staying the
same for the nine months and delivery expense stayed substantially the same
for both comparable periods. General and administrative expenses were 3.2% of
net sales for the third quarter compared to 4.3% for the 1997 corresponding
quarter and 3.7% of net sales for the nine-month period compared to 4.0% for
1997. The administrative cost percentage decreases for both periods is
primarily the result of increasing the Company's bad debt expense in the 1997
quarter by approximately $1.5 million to reflect a slowdown in the overall van
conversion industry. The higher administrative cost dollars for the nine
month period is associated with three acquired dealerships and to the ongoing
implementation of an enterprise computer system.
INTEREST EXPENSE
Interest expense was $641,340 and $1,444,014 for the three and nine-month
periods in 1998 compared to $369,581 and $1,164,643 in the same periods last
year. Interest expense varies with the amount of long-term debt and the
increase in cash surrender value for the Company's investment in life
insurance contracts. These life insurance contracts were purchased to fund
obligations under deferred compensation agreements with executives and other
key employees. The interest costs associated with deferred compensation
obligations and with the borrowings against the cash value of the insurance
policies are partially offset by increases in cash surrender values.
<PAGE> 10
INVESTMENT INCOME
Investment income decreased $39,053 and increased $242,233 respectively, for
the 1998 three and nine-month periods. Investment income is indicative of the
amounts of cash and temporary cash investments, as well as, short-term
investment activity in 1998 in comparison to 1997.
GAIN (LOSS) ON THE SALE OF PROPERTIES, NET
There was a net loss on the sale of properties for the third quarter of 1998
of $(11,499) compared with a loss of $(87,913) in the same quarter of 1997.
The net gain (loss) on the sale of properties for the first nine months was
$(55,708) and $45,379 for 1998 and 1997, respectively. These amounts
represent the net result of gains or loses 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 INCOME, NET
Other income, net, represents income of $192,463 for the third quarter and
$1,127,421 for the nine months compared to income of $187,882 and $368,027
for the 1997 third quarter and nine months, respectively. The most
significant variance for the 1998 nine-months was due to the receipt of
nontaxable proceeds from corporate owned life insurance.
INCOME TAXES
For the third quarter ended September 30, 1998, the effective tax rate was
34.9% and a year-to-date rate of 33.9% compared with a 1997 third quarter and
year-to-date effective tax rate of 35.7% and 35.3%, respectively. The
Company's effective tax rate fluctuates based upon the states where sales
occur and also with the level of export sales. The first nine months of 1998
was also impacted by the amount of nontaxable income realized from the
recognition of corporate owned life insurance proceeds.
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, 1998, to meet its
seasonal working capital needs. At September 30, 1998, there were no
borrowings against this line of credit. For the nine months ended September
30, 1998, the major source of cash was from operating activities. The
significant items in operating activities were net income, depreciation and
an increase in trade accounts payable. The positive cash flow from these
items was partially offset by an increase in inventories and accounts
receivable. Investing activities reflected a net cash use of $31,492,130.
The principal use of cash in investing activities was the acquisition of
capital equipment, short-term investments and the acquisition of three
businesses (recreational vehicle retail stores). Property and equipment
acquisitions consisted principally of the construction of an All American
Homes manufacturing facility in the state of Ohio and the purchase of an
existing recreational vehicle manufacturing facility in Indiana. Software and
additional hardware requirements in connection with the Company's
implementation of a new enterprise computer system were also significant
capital expenditures. The negative cash flow from financing activities was
primarily for purchases of common shares for the treasury, cash dividends and
the repayment of long-term debt.
<PAGE> 11
At September 30, 1998, working capital decreased to $135.5 million from
$140.3 million at December 31, 1997. The $10.9 million increase in current
assets at September 30, 1998 versus December 31, 1997, was primarily due to
increased inventories, trade receivables and short-term investments,
partially offset by a decrease in cash. The $19.6 million increase in
current liabilities was substantially due to increased trade accounts
payable. The increases in inventories and trade accounts payable are
directly related to the increased sales activity.
OTHER MATTERS
The Year 2000 issue relates to the way computer systems, software and some
equipment define calendar dates; they could fail or make miscalculations due
to interpreting a date including "00" to mean 1900, not 2000. The Company
has determined that certain of its computer software was originally
programmed using two digits rather than four to define the applicable year.
As a result, this software may be unable to process transactions beyond
December 31, 1999. In 1997, the Company began devoting significant resources
to replace the affected software with a new enterprise computer system. The
total cost of the project, including hardware, software and consulting related
costs, is currently estimated to be in excess of $4.0 million, of which $2.5
million has been incurred as of September 30, 1998. These costs do not
include any costs associated with the implementation of contingency plans,
which are in the process of being developed.
Due to the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is currently unable to determine whether the
consequences of Year 2000 failures will have a material impact on the
Company's operations. The failure to correct a material Year 2000 problem
could result in an interruption in, or failure of, certain normal business
activities or operations. The Company has initiated a senior management
focus team to review possible business system failures that may occur and
to design and implement contingency plans. Those business systems considered
most critical to continued operations are being given the highest priority.
The focus team has begun the process of identifying and communicating with
third-party suppliers and customers about their plans and progress in
addressing their potential Year 2000 problems. Detailed evaluations will
be made and integrated in the overall contingency plans.
The objective of the Company and each of its operating subsidiaries is to
have all of their significant business systems, including those that effect
facilities and manufacturing activities, functioning properly with respect to
Year 2000, before January 1, 2000.
<PAGE> 12
PART II. OTHER INFORMATION
Item 5. Other Information
At its regular meeting on July 24, 1998, the Board of Directors
Elected Robert J. Deputy as the tenth member of the Board.
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)
s/s: GARY L. GROOM
Date: November 13, 1998 _______________________________
Gary L. Groom, Executive Vice
President - Finance (Principal
Financial Officer)
S/S: WILLIAM M. ANGELO
Date: November 13, 1998 _______________________________
William M. Angelo, Corporate
Controller (Principal Accounting
Officer)
<PAGE> 13
<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> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 46,968 79,472
<SECURITIES> 24,912 9,599
<RECEIVABLES> 38,841 37,619
<ALLOWANCES> 1,032 1,477
<INVENTORY> 85,366 35,446
<CURRENT-ASSETS> 201,470 191,432
<PP&E> 102,276 80,900
<DEPRECIATION> 40,084 33,917
<TOTAL-ASSETS> 283,687 261,046
<CURRENT-LIABILITIES> 65,985 57,788
<BONDS> 10,600 13,027
<COMMON> 57,928 70,697
0 0
0 0
<OTHER-SE> 142,235 112,885
<TOTAL-LIABILITY-AND-EQUITY> 283,687 261,046
<SALES> 579,300 502,359
<TOTAL-REVENUES> 579,300 502,359
<CGS> 494,713 432,361
<TOTAL-COSTS> 543,492 476,478
<OTHER-EXPENSES> (3,243) (2,622)
<LOSS-PROVISION> (27) 1,682
<INTEREST-EXPENSE> 1,444 1,165
<INCOME-PRETAX> 39,051 28,503
<INCOME-TAX> 13,242 10,061
<INCOME-CONTINUING> 25,809 18,442
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 25,809 18,442
<EPS-PRIMARY> 1.49 1.07
<EPS-DILUTED> 1.48 1.06
<FN>
<F1> RESTATED FOR 1997
</FN>
</TABLE>
