SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 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 July 31, 2000:
Common Shares, without par value 15,583,513 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-
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income-
Three and Six Months Ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows-
Six Months Ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13-14
SIGNATURES 15
This Form 10-Q contains certain statements that are "forward-looking"
statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements involve risks and
uncertainties, and are dependent on factors which may include, but are
not limited to, the availability and price of gasoline, which can impact
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; the functioning of the Company's enterprise-wide
technology system, which can impact the Company's day-to-day operations;
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; 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.
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
(in thousands)
JUNE 30, DECEMBER 31,
2000 1999
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 13,935 $ 4,269
Marketable securities 21,419 32,550
Trade receivables, less allowance for
doubtful receivables 2000 - $588
and 1999 - $550 30,022 39,398
Other receivables 2,218 2,892
Refundable income taxes 2,622 4,748
Inventories 116,231 100,008
Prepaid expenses and other 3,065 2,214
Deferred income taxes 4,743 4,743
Total current assets 194,255 190,822
PROPERTY AND EQUIPMENT, at cost 131,825 122,184
Less, accumulated depreciation 51,963 47,506
Property and equipment, net 79,862 74,678
INTANGIBLES, less accumulated amortization
2000 - $707 and 1999 - $644 4,363 4,426
OTHER 19,625 15,840
TOTAL ASSETS $298,105 $285,766
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 550 $ 1,543
Accounts payable, trade 33,330 25,041
Accrued income taxes 977 1,096
Accrued expenses and other liabilities 24,715 28,039
Total current liabilities 59,572 55,719
LONG-TERM DEBT 9,250 8,346
DEFERRED INCOME TAXES 1,489 1,489
OTHER 7,572 6,566
TOTAL LIABILITIES 77,883 72,120
SHAREHOLDERS' EQUITY
Common shares, without par value: authorized
60,000 shares; issued 2000 - 21,004
shares and 1999 - 20,971 shares 90,725 90,405
Additional paid-in capital 4,642 4,623
Retained earnings 176,887 170,716
Treasury shares, at cost: 2000 - 5,433
Shares and 1999 - 5,443 shares (52,032) (52,098)
TOTAL SHAREHOLDERS' EQUITY 220,222 213,646
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $298,105 $285,766
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE>3
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
Net sales $187,910 $203,199 $383,138 $414,224
Cost of goods sold 164,184 175,191 335,246 358,643
Gross profit 23,726 28,008 47,892 55,581
Operating expenses:
Selling and delivery 10,270 9,721 20,174 19,841
General and administrative 7,974 7,032 15,792 14,004
Total operating expenses 18,244 16,753 35,966 33,845
Operating income 5,482 11,255 11,926 21,736
Nonoperating income (expense):
Interest expense (626) (543) (1,055) (977)
Investment income 388 937 261 1,284
Gain on sale of
properties, net 6 1,392 36 1,395
Other income, net 105 717 387 1,049
Total nonoperating
income (expense), net (127) 2,503 (371) 2,751
Income before income taxes 5,355 13,758 11,555 24,487
Income taxes 1,655 4,744 3,825 8,256
Net income $ 3,700 $ 9,014 $ 7,730 $ 16,231
Earnings per common share:
Basic $ .24 $ .54 $ .50 $ .98
Diluted $ .24 $ .54 $ .50 $ .97
Number of common shares used in
the computation of earnings
per share:
Basic 15,566 16,665 15,559 16,645
Diluted 15,581 16,744 15,571 16,711
Cash dividends per common share $ .05 $ .05 $ .10 $ .10
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE>4
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS
ENDED JUNE 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by
operating activities $ 12,982 $ 16,402
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of marketable securities 72,844 91,322
Sale of properties 79 1,872
Sale of businesses 2,351 -
Acquisitions of:
Marketable securities (62,794) (93,860)
Property and equipment (6,497) (13,296)
Businesses, net of cash acquired (7,201) -
Other 866 (549)
Net cash used in
investing activities (352) (14,511)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (1,796) (1,525)
Issuance of common shares under stock
option and stock purchase plans 320 904
Tax benefit from stock options exercised 71 358
Cash dividends paid (1,559) (1,662)
Net cash used in financing activities (2,964) (1,925)
Increase(decrease)in cash and temporary
cash investments 9,666 (34)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 4,269 23,009
End of period $ 13,935 $ 22,975
Noncash investing and financing activities:
Liabilities assumed in acquisition
of a business $ 5,275 $ -
Other noncash reduction of
long-term debt $ 693 $ -
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE>5
COACHMEN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. BASIS OF PRESENTATION
The consolidated balance sheet data at December 31, 1999 was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
In the opinion of management, the information furnished herein
includes all adjustments of a normal and recurring nature necessary
to reflect a fair statement of the interim periods reported. The
results of operations for the three and six-month periods ended June
30, 2000 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: Vehicles (recreational, including related
parts and supplies, and Housing (modular). 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 or expenses relating to property
and equipment that are not allocated to segments.
The table below presents information about segments used by the
chief operating decision maker of the Company for the three and
six month periods ended June 30, 2000 and 1999:
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Net sales:
Vehicles $146,218 $164,056 $305,683 $342,851
Housing 41,692 39,143 77,455 71,373
Consolidated total $187,910 $203,199 $383,138 $414,224
Pretax income:
Vehicles $ 3,096 $ 7,084 $ 8,963 $ 16,080
Housing 4,173 5,138 6,027 7,482
Other reconciling items (1,914) 1,536 (3,435) 925
Consolidated total $ 5,355 $ 13,758 $ 11,555 $ 24,487
As of
June 30,
2000 1999
Total assets:
Vehicles $161,686 $171,557
Housing 57,584 41,902
Other reconciling items 78,835 89,062
Consolidated total $298,105 $302,521
3. INVENTORIES
Inventories consist of the following:
<PAGE>6
June 30, December 31,
2000 1999
Raw materials $ 37,378 $ 39,926
Work in process 13,514 11,131
Finished goods 65,339 48,951
Total $116,231 $100,008
4. COMMITMENTS AND CONTINGENCIES
The Company was contingently liable at June 30, 2000 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.
In addition, the Company was contingently liable at June 30, 2000
under guarantees to financial institutions of their loans to
independent dealers for amounts totaling approximately $4.8 million.
On February 3, 2000, the Company entered into Change of Control
Agreements with 25 key executives. Under the terms of these
agreements, in the event of a change in control of the Company, as
defined, the Company would be obligated to pay these key executives
for severance and other benefits aggregating approximately $16
million based on salaries and benefits at June 30, 2000.
Also, on February 3, 2000, the Company established a qualified
rabbi trust, which in the event of a change of control, as defined,
will be funded to cover the Company's obligations under its deferred
compensation plan and the Company's obligation under change of
control agreements. The Company's obligations under the deferred
compensation plan aggregated $6.6 million at June 30, 2000.
On May 4, 2000, shareholders approved the 2000 Omnibus Stock
Incentive Program (the "Stock Incentive Program") which provides an
additional one million shares be reserved for grant under the
Company's stock options, appreciation rights and award programs.
The Stock Incentive Program also provides that, in the event
of a change in control of the Company, as defined, all outstanding
stock options and stock appreciation rights shall become immediately
exercisable, all stock awards shall immediately vest and all
performance goals shall be deemed fully achieved. The Board of
Directors later amended the Stock Incentive Program to make it clear
that the option price of options cannot be changed after the options
are granted.
<PAGE>7
5. ACQUISITION OF A BUSINESS
Effective June 30, 2000, the Company acquired all of the issued and
outstanding capital stock of Mod-U-Kraf Homes, Inc. ("Mod-U-Kraf"),
a manufacturer of modular housing located in Virginia. The purchase
price aggregated $14,975,000 and consisted of $9,700,000 of cash
paid at closing and the assumption of $5,275,000 of liabilities.
The purchase price approximated the fair value of acquired assets.
The acquisition was accounted for as a purchase and, accordingly,
the operating results of Mod-U-Kraf will be included in the
Company's consolidated financial statements from the date of
acquisition. Mod-U-Kraf will operate as a separate subsidiary under
the Company's housing segment.
Unaudited pro forma financial information as if this acquisition had
occurred at the beginning of each period, is not presented as it is
not materially different from the Company's historic results.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 outlines
the basic criteria that must be met to recognize revenue and
provides guidelines for disclosure related to revenue recognition
policies. This guidance is required to be implemented in the fourth
quarter of 2000. The Company is currently reviewing the guidance to
determine the impact, if any, on its consolidated financial
statements.
<PAGE>8
COACHMEN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share data)
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition, results of operations and cash flows during the periods
included in the accompanying condensed consolidated financial
statements.
A summary of the changes in the principal items included in the
condensed consolidated statements of income is shown below.
Comparison of
Three Months Six Months
Ended June 30, 2000 and 1999
($ in thousands)
Increases (Decreases)
Net sales $ (15,289) (7.5)% $(31,086) (7.5)%
Cost of goods sold (11,007) (6.3) (23,397) (6.5)
Selling and
delivery expenses 549 5.6 333 1.7
General and
administrative expenses 942 13.4 1,788 12.8
Interest expense 83 15.3 78 8.0
Investment income (549) (58.6) (1,023) (79.7)
Gain on sale of
properties, net (1,386) (99.6) (1,359) (97.4)
Other income, net (612) (85.4) (662) (63.1)
Income before income taxes (8,403) (61.1) (12,932) (52.8)
Income taxes (3,089) (65.1) (4,431) (53.7)
Net income (5,314) (59.0) (8,501) (52.4)
<PAGE>9
NET SALES
Consolidated net sales for the quarter ended June 30, 2000 were
$187.9 million, a decrease of 7.5% from the $203.2 million reported for
the corresponding quarter last year. Net sales for the six months were
$383.1 million, representing a decrease of 7.5% from the $414.2 million
reported for the same period in 1999. The Company's vehicle segment,
which includes the parts & supply businesses, experienced a net sales
decrease of 10.9% for the quarter and a decrease of 10.8% for the six
months. For motorized products, both the number of units and sales
dollars reflected decreases from the 1999 periods. There has been an
industry-wide decrease in sales of motorized products during the three
and six-month comparable periods. The Company's housing segment had a
net sales increase for the 2000 quarter of 6.5% and 8.5% for the six
months. Although there was a second quarter decrease in the number of
units sold, there was an increase in sales dollars.
COST OF GOODS SOLD
Cost of goods sold decreased 6.3% or $11.0 million for the three months
and 6.5% or $23.4 million for the six months ended June 30, 2000. The
decrease for both periods is less than the decrease in net sales. As a
percentage of net sales, cost of goods sold increased 1.2% and .9% for
the quarter and six months, respectively, from the comparable prior year
periods. Both the RV segment and Housing segment experienced an increase
in cost of sales as a percentage of net sales. Increases in capacity
for both the RV segment and Housing segment were not utilized to the
extent anticipated as net sales were below planned levels. The decrease
in production due to the overall decrease in net sales resulted in
higher fixed costs being spread over lower production volumes.
OPERATING EXPENSES
As a percentage of net sales, operating expenses, which include selling,
delivery, general and administrative expenses, were 9.7% and 9.4% for
the 2000 quarter and six months compared to 8.2% for both the quarter
and six months of 1999. Selling and delivery expenses as a percentage
of net sales increased by .7% for the 2000 quarter and .5% for the six
months. The increase for both periods is primarily due to an overall
increase in dealer sales incentives, as well as, increased dealer volume
sales incentives attributable to increased sales in the Housing segment.
General and administrative expenses were 4.2% of net sales for the
second quarter compared to 3.5% for the 1999 corresponding quarter and
4.1% of net sales for the six-month period compared to 3.4% for 1999.
These increases in both the quarter and six-month periods reflect higher
than normal professional fee expenses in connection with an unsolicited
acquisition proposal from Thor Industries, Inc., and related proxy
contest, increase in depreciation expense of the new technology system
and the substantial decrease in capitalization of compensation and
related costs with the implementation of the new technology system.
INTEREST EXPENSE
Interest expense was $626,000 and $1,055,000 for the three and six-month
periods in 2000 compared to $543,000 and $977,000 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
<PAGE>10
cash value of the insurance policies are partially offset by the
increases in cash surrender values.
INVESTMENT INCOME
Investment income decreased $549,000 and $1,023,000 for the 2000 three
and six-month periods, respectively. This decrease in investment income
is principally attributable to unrealized losses on open US Treasury
bond futures options, as well as, a reduction of interest and dividend
income resulting from less funds being invested in the 2000 periods.
GAIN ON THE SALE OF PROPERTIES, NET
There was a net gain on the sale of properties for the second quarter of
2000 of $6,000 compared with a gain of $1,392,000 in the same quarter
of 1999. The net gain on the sale of properties for the first six
months of 2000 and 1999 was $36,000 and $1,395,000, respectively.
The gains for the 1999 periods were principally related to the sale of
Real estate in Indiana, including the former corporate administrative
building. 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 $105,000 for the second quarter
and $387,000 for the six months compared to income of $717,000 and
$1,049,000 for the 1999 second quarter and six months, respectively. The
most significant item of income for the 1999 quarter was from the sale
of a Company-owned dealership in the state of Georgia. The larger amount
in the 1999 six-month period is principally attributed to the receipt of
nontaxable income realized from Corporate-owned life insurance proceeds.
INCOME TAXES
For the second quarter ended June 30, 2000, the effective tax rate was
30.9% and a year-to-date rate of 33.1% compared with a 1999 second
quarter and year-to-date effective tax rate of 34.5% and 33.7%,
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 level of nontaxable income recognized from investing activities.
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 June 30, 2000, to
meet its seasonal working capital needs. At June 30, 2000, there were
no borrowings against this line of credit. For the six months ended June
30, 2000, the major source of cash was from operating activities. The
significant items in operating activities were net income, depreciation,
a decrease in trade accounts receivable and an increase in trade
accounts payable. The positive cash flow from these items was partially
offset by increases in inventories and other accrued expenses. The main
source of cash with investing activities represented sales, net of
purchases, of marketable securities and the sale of a business. The
Company liquidated approximately $10.1 million of its marketable
securities in anticipation of the acquisition of Mod-U-Kraf,which
occurred in June 2000. This acquisition was a major use of cash during
the second quarter (see Note 5 of Notes to Condensed Consolidated
Financial Statements). The remaining use of cash in investment
activities was the acquisition of property and equipment. The negative
<PAGE>11
cash flow from financing activities was primarily for cash dividends and
repayment of long-term debt.
At June 30, 2000, working capital decreased to $134.7 million from
$135.1 million at December 31, 1999. The $3.4 million increase in
current assets at June 30, 2000 versus December 31, 1999, results from a
$9.4 million decrease in trade receivables and other decreases in
current assets, offset by the $16.2 million increase in inventories of
which $3.8 million is attributable to Mod-U-Kraf. The $3.9 million
increase in current liabilities was primarily due to increased trade
accounts payable, which was partially due to the acquisition of Mod-U-
Kraf.
<PAGE>12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The annual meeting of the shareholders of Coachmen Industries,
Inc. was held on May 4, 2000.
b) The following nominees were elected Directors for a one-year
term:
Claire C. Skinner
Thomas H. Corson
Keith D. Corson
Fredrick M. Miller
William P. Johnson
Philip G. Lux
Edwin W. Miller
Robert J. Deputy
Donald W. Hudler
Geoffrey B. Bloom
c) The tabulation of votes for each Director nominee was as
follows:
For Withheld
Election of Directors:
Claire C. Skinner 7,716,375 5,292,315
Thomas H. Corson 7,716,736 5,291,954
Keith D. Corson 7,716,775 5,291,915
Fredrick M. Miller 7,715,500 5,293,190
William P. Johnson 7,715,875 5,292,815
Philip G. Lux 7,716,498 5,292,192
Edwin W. Miller 7,715,050 5,293,640
Robert J. Deputy 7,715,475 5,293,215
Donald W. Hudler 7,717,150 5,291,540
Geoffrey B. Bloom 7,714,475 5,294,215
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Amended 2000 Omnibus Stock Incentive Program
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K during the quarter ended June 30, 2000
Form 8-K, dated April 20, 2000, reporting an Item 5 event
(a press release confirming receipt of an unsolicited
merger proposal from Thor Industries, Inc.).
Form 8-K, dated April 20, 2000, reporting an Item 5 event
(a press release responding to recent statements made by
Thor Industries, Inc.).
Form 8-K, dated May 2, 2000, reporting an Item 5 event
(a press release announcing the signing of a contract to
acquire Mod-U-Kraf Homes, Inc.).
Form 8-K, dated May 8, 2000, reporting an Item 5 event
<PAGE>13
(a press release announcing first quarter results;
shareholders' election of board; and approval of stock
incentive plan.).
Form 8-K, dated June 28, 2000, reporting an Item 5 event
(a press release announcing the expansion of its modular
home sector through the acquisition of Mod-U-Kraf Homes,
Inc.).
<PAGE>14
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/ JAMES E. JACK
Date: August 14, 2000 _______________________________
James E. Jack, Executive Vice
President & Chief Financial Officer
/S/ WILLIAM M. ANGELO
Date: August 14, 2000 _______________________________
William M. Angelo, Vice President
& Chief Accounting Officer
<PAGE>15
