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 March 31, 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 April 30, 2000:
Common Shares, without par value 15,564,717 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-
March 31, 2000 and December 31, 1999 3-4
Condensed Consolidated Statements of Income-
Three Months Ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows-
Three Months Ended March 31, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II. OTHER INFORMATION 13
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 14
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)
MARCH 31, DECEMBER 31,
2000 1999
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 15,044 $ 4,269
Marketable securities 22,274 32,550
Trade receivables, less allowance for
doubtful receivables 2000 - $549
and 1999 - $550 42,989 39,398
Other receivables 2,422 2,892
Refundable income taxes 2,248 4,748
Inventories 107,651 100,008
Prepaid expenses and other 2,236 2,214
Deferred income taxes 4,743 4,743
Total current assets 199,607 190,822
PROPERTY AND EQUIPMENT, at cost 125,212 122,184
Less, accumulated depreciation 49,854 47,506
Property and equipment, net 75,358 74,678
INTANGIBLES, less accumulated amortization
2000 - $675 and 1999 - $644 4,395 4,426
OTHER 15,980 15,840
TOTAL ASSETS $295,340 $285,766
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE> 3
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
MARCH 31, DECEMBER 31,
2000 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,746 $ 1,543
Accounts payable, trade 29,360 25,041
Accrued income taxes 3,055 1,096
Accrued expenses and other liabilities 27,890 28,039
Total current liabilities 63,051 55,719
LONG-TERM DEBT 7,000 8,346
DEFERRED INCOME TAXES 1,489 1,489
OTHER 6,594 6,566
TOTAL LIABILITIES 78,134 72,120
SHAREHOLDERS' EQUITY
Common shares, without par value: authorized
60,000 shares; issued 2000 - 20,998
shares and 1999 - 20,971 shares 90,652 90,405
Additional paid-in capital 4,639 4,623
Retained earnings 173,964 170,716
Treasury shares, at cost: 2000 - 5,436
Shares and 1999 - 5,443 shares (52,049) (52,098)
TOTAL SHAREHOLDERS' EQUITY 217,206 213,646
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $295,340 $285,766
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE> 4
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
THREE MONTHS
ENDED MARCH 31,
2000 1999
Net sales $195,228 $211,025
Cost of goods sold 171,062 183,452
Gross profit 24,166 27,573
Operating expenses:
Selling and delivery 9,904 10,120
General and administrative 7,818 6,972
17,722 17,092
Operating income 6,444 10,481
Nonoperating income (expense):
Interest expense (429) (434)
Investment income (127) 347
Gain on sale of properties, net 30 3
Other, net 282 332
(244) 248
Income before income taxes 6,200 10,729
Income taxes 2,170 3,512
Net income $ 4,030 $ 7,217
Earnings per common share:
Basic $ .26 $ .43
Diluted .26 .43
Shares used in the computation
of earnings per common share:
Basic 15,551 16,625
Diluted 15,570 16,631
Cash dividends per common share $ .05 $ .05
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE> 5
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS
ENDED MARCH 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by
operating activities $ 2,677 $ 6,842
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of marketable securities 56,604 31,348
Sale of properties 55 -
Sale of businesses 2,351 -
Acquisitions of:
Marketable securities (47,192) (33,086)
Property and equipment (3,316) (5,676)
Other 207 (610)
Net cash provided by (used in)
investing activities 8,709 (8,024)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (143) (1,525)
Issuance of common shares under stock
option and stock purchase plans 247 599
Tax benefit from stock options exercised 67 292
Cash dividends paid (782) (832)
Net cash (used in) financing activities (611) (1,466)
Increase(decrease)in cash and temporary
cash investments 10,775 (2,648)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 4,269 23,009
End of period $ 15,044 $ 20,361
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE>6
COACHMEN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. BASIS OF PRESENTATION
The consolidated balance sheet data as of 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 months ended March 31, 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
months ended March 31, 2000 and 1999:
2000 1999
Net sales:
Vehicles $159,465 $178,795
Housing 35,763 32,230
Consolidated total $195,228 $211,025
Pretax income:
Vehicles $ 5,867 $ 8,996
Housing 1,854 2,344
Other reconciling items (1,521) (611)
Consolidated total $ 6,200 $ 10,729
Total assets:
Vehicles $165,999 $169,622
Housing 41,918 42,511
Other reconciling items 87,423 83,718
Consolidated total $295,340 $295,851
<PAGE> 7
3. INVENTORIES
Inventories consist of the following:
March 31, December 31,
2000 1999
Raw materials $ 36,756 $ 39,926
Work in process 12,741 11,131
Finished goods 58,154 48,951
Total $107,651 $100,008
4. COMMITMENTS AND CONTINGENCIES
The Company was contingently liable at March 31, 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.
On February 3, 2000, the Board of Directors approved a resolution,
Subject to ratification by the Company's shareholders, to adopt the
2000 Omnibus Stock Incentive Program (the "Stock Incentive
Program"). The Stock Incentive Program was ratified by the
shareholders at the annual meeting of shareholders on May 4, 2000.
The resolution for the Stock Incentive Program provided that an
additional one million shares be reserved for grant under the
Company's stock options, appreciation rights and award programs.
Also, under the terms of the Stock Incentive Program, 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.
Also 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 March 31, 2000.
In addition, 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. The Company's obligations under the deferred
compensation plan aggregated $6.5 million at March 31, 2000.
<PAGE> 8
5. SUBSEQUENT EVENT
On May 1, 2000, the Company entered into a definitive agreement to
acquire all the issued and outstanding common shares of Mod-U-Kraf
Homes, Inc. ("Mod-U-Kraf") for $11.75 per share, or approximately
$10 million cash plus the assumption of liabilities. The cash
purchase price will be paid at closing which is expected to occur
in June 2000. Following the consummation of the transaction, Mod-U-
Kraf will operate as a separate subsidiary under the Company's
housing segment. The acquisition will be accounted for as a
purchase.
<PAGE> 9
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
Ended March 31, 2000 and 1999
Increases (Decreases)
Amount Percentage
Net sales $ (15,797) (7.5)%
Cost of goods sold (12,390) (6.8)
Selling and
delivery expenses (216) (2.1)
General and
administrative expenses 846 12.1
Interest expense (5) (1.2)
Investment income (474) (136.6)
Gain on sale of
properties, net (27) *
Other, net (50) (15.1)
Income before income taxes (4,529) (42.2)
Income taxes (1,342) (38.2)
Net income (3,187) (44.2)
* Not meaningful
<PAGE> 10
NET SALES
Consolidated net sales for the quarter ended March 31, 2000 were
$195,228, a decrease of 7.5% from the $211,025 reported in the
same quarter of 1999. The Company's vehicle segment, which includes the
parts and supply businesses, experienced a sales decrease of 10.8%.
For motorized products, both the number of units and sales dollars
reflected decreases from the 1999 period. For towable products, both the
number of units and the sales dollars reflected increases over the 1999
period. The Company's housing segment experienced an 11.0% increase in
net sales for the quarter compared to last year's first quarter. This
increase was both in the number of units and sales dollars. While the RV
segment was slightly down the housing segment had an increase in the
average sales price per unit.
COST OF GOODS SOLD
Cost of goods sold decreased 6.8% or $12,390 for the three months
ended March 31, 2000. As a percentage of net sales, cost of goods sold
was 87.6% for the 2000 quarter and 86.9% for the 1999 quarter. The
higher costs in the current quarter is attributable to the
reconfiguration of the facilities that were formerly occupied by the
Company's van conversion business to build Georgie Boy diesel Class A
motorhomes, and costs related to the growth of the modular housing
segment. These costs include higher labor and overhead costs consistent
with anticipated growth. In addition there were continuing costs
associated with the ongoing implementation of technology system
solutions.
OPERATING EXPENSES
As a percentage of net sales, operating expenses, which include selling,
delivery, general and administrative expenses, were 9.1% and 8.1% for
the quarters ended March 31, 2000 and 1999, respectively. Selling
expense increased .2% as a percentage of net sales and delivery expense
increased .1% as a percentage of net sales over the 1999 quarter, while
total dollars spent in both categories were down. General and
administrative expenses were 4.0% of net sales for the first quarter of
2000 and 3.3% of net sales for the first quarter of 1999. This increase
is primarily due to the increase in depreciation expense with the
capitalization of the new technology system. Also, in the current
quarter there has been a decrease from the comparable quarter in the
salaries that qualify for capitalization related to the implementation
of the new technology system.
INTEREST EXPENSE
Interest expense was $429 and $434 for the quarters ended March
31, 2000 and 1999, respectively. This small decrease reflects the pay-
down of long-term debt, as well as, the amount of current year's
increase in the cash surrender value of the Company's investment
in life insurance contracts. These life insurance contracts have been
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.
<PAGE> 11
INVESTMENT INCOME
Investment income reflects a loss of $127 for the 2000 quarter compared
with income of $347 for the 1999 comparable quarter. The decrease 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 quarter.
GAIN ON THE SALE OF PROPERTIES, NET
The net gain on the sale of properties for the quarter ended March 31,
2000 was $30 while the comparative quarter in 1999 was $3. This
classification represents the net result of the amount of gain or loss
recognized upon the disposition of various small properties.
OTHER, NET
Other income, net, represents income of $282 for the 2000 first
quarter and $332 for the 1999 first quarter. There were no significant
variances for the comparable quarters.
INCOME TAXES
For the first quarter ended March 31, 2000, the effective tax rate was
35.0% compared to a first quarter tax rate of 32.7% in 1999. The
Company's effective tax rate fluctuates based upon the states where
sales occur, the level of export sales and the amount of nontaxable
dividend income on investments.
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 March 31, 2000,
to meet its seasonal working capital needs. At March 31, 2000, there
were no borrowings against this line of credit. For the three months
ended March 31, 2000, the major source of cash was with investing
activities. The main investing activities were sales, net of purchases,
of marketable securities and the sale of a business, partially offset
by the acquisition of property and equipment. The Company liquidated
approximately $10.3 million of its marketable securities in anticipation
of the pending acquisition of Mod-U-Kraf Homes, Inc. (see Note 5 of
Notes to Condensed Consolidated Financial Statements). In addition the
Company is reviewing its overall cash management investing activities.
The cash provided by operating activities was substantially income from
operations and depreciation, as well as, increases in trade payables and
accrued income taxes, partially offset by increases in inventories and
receivables. The negative cash flow from financing activities was
primarily for cash dividends and repayment of long-term debt.
At March 31, 2000, working capital increased to $136.6 million from
$135.1 million at December 31, 1999. The $8.8 million increase in
current assets at March 31, 2000 versus December 31, 1999, was primarily
due to increased receivables and inventories. The increase in current
liabilities of $7.3 million is substantially due to increased trade
payables, accrued income taxes and other accrued liabilities.
<PAGE> 12
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
January 5, 2000, reporting an item 5 event (adoption of
Shareholder Rights Agreement).
<PAGE> 13
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: May 12, 2000 _______________________________
James E. Jack, Executive Vice
President & Chief Financial Officer
/S/ WILLIAM M. ANGELO
Date: May 12, 2000 _______________________________
William M. Angelo, Vice President
& Chief Accounting Officer
<PAGE> 14
<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.
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