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, 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 July 31, 1998:
Common Shares, without par value 17,429,058 shares outstanding
including an equivalent number of common share purchase rights.
1
COACHMEN INDUSTRIES, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Financial Statements:
Condensed Consolidated Balance Sheets-
June 30, 1998 and December 31, 1997..................... 3-4
Condensed Consolidated Statements of Income-
Three and Six Months Ended June 30, 1998 and 1997....... 5
Condensed Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1998 and 1997................. 6
Notes to Condensed Consolidated Financial Statements.... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8-11
PART II. OTHER INFORMATION....................................12-13
Item 4. Submission of Matters to a vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES..................................................... 14
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 compliant with the year 2000. 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 based 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.
2
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1998 1997
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 60,224,961 $71,427,918
Short-term investments 21,060,764 15,852,718
Trade receivables, less allowance for
doubtful receivables 1998 - $1,247,000
and 1997 - $1,354,000 26,668,316 25,212,595
Other receivables 1,983,303 2,980,257
Refundable income taxes 625,000 1,761,000
Inventories 81,020,613 68,416,006
Prepaid expenses and other 1,916,553 1,247,973
Deferred income taxes 3,040,000 3,040,000
Total current assets 196,539,510 189,938,467
PROPERTY AND EQUIPMENT, at cost
Land and improvements 10,830,475 9,041,817
Buildings and improvements 48,994,282 39,950,161
Machinery and equipment 18,378,103 16,874,788
Transportation equipment 13,244,326 10,159,168
Office furniture and fixtures 7,075,861 5,712,961
98,523,047 81,738,895
Less, Accumulated depreciation 38,327,771 35,137,268
Net property and equipment 60,195,276 46,601,627
OTHER ASSETS
Real estate held for sale 2,729,221 4,188,063
Rental properties 1,399,066 2,000,218
Intangibles, less accumulated amortization
1998 - $584,527 and 1997 - $516,469 4,859,749 4,927,807
Deferred income taxes 569,000 569,000
Other 10,410,244 10,836,844
Total other assets 19,967,280 22,521,932
TOTAL ASSETS $276,702,066 $259,062,026
The accompanying notes are part of the condensed consolidated
financial statements.
3
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONT'D)
JUNE 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 27,107,453 22,818,303
Accrued wages, salaries and commissions 5,247,507 4,876,790
Accrued dealer incentives 1,737,200 3,226,255
Accrued warranty expense 5,918,560 6,013,528
Accrued income taxes 1,246,282 1,529,543
Accrued insurance 3,186,177 2,319,518
Other accrued liabilities 7,247,688 6,633,762
Total current liabilities 53,816,042 49,676,218
LONG-TERM DEBT 10,799,874 12,591,144
OTHER 6,832,288 6,658,872
Total liabilities 71,448,204 68,926,234
SHAREHOLDERS' EQUITY
Common shares, without par value: authorized
60,000,000 shares; issued 1998 - 20,810,129
shares and 1997 - 20,689,214 shares 88,720,727 87,519,740
Additional paid-in capital 3,035,910 3,012,596
Retained earnings 129,869,579 115,984,289
Treasury shares, at cost:
1998 - 3,386,421 shares and
1997 - 3,387,648 shares (16,372,354) (16,380,833)
Total shareholders' equity 205,253,862 190,135,792
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $276,702,066 $259,062,026
The accompanying notes are part of the condensed consolidated
financial statements.
4
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
Net sales $201,069,322 $169,368,233 $376,706,781 $327,474,044
Cost of goods sold 170,874,432 146,128,835 323,135,502 283,899,275
Gross profit 30,194,890 23,239,398 53,571,279 43,574,769
Operating expenses:
Selling and delivery 8,823,223 7,680,881 17,889,502 16,011,760
General and administrative 8,035,179 6,522,400 14,810,277 12,530,299
Total operating expenses 16,858,402 14,203,281 32,699,779 28,542,059
Operating income 13,336,488 9,036,117 20,871,500 15,032,710
Nonoperating income
(expense):
Interest expense (337,514) (438,806) (802,674) (795,062)
Investment income 1,304,781 1,148,209 2,432,864 2,140,673
Gain (loss) on sale of
properties, net (49,243) 123,836 (44,209) 133,292
Other Income, net 61,512 97,273 934,958 191,050
Total nonoperating income 979,536 930,512 2,520,939 1,669,953
Income before
income taxes 14,316,024 9,966,629 23,392,439 16,702,663
Income taxes 4,993,000 3,537,000 7,770,000 5,854,000
Net income $ 9,323,024 $ 6,429,629 $ 15,622,439 $ 10,848,663
Earnings per common share:
Basic $ .54 $ .37 $ .90 $ .63
Diluted $ .53 $ .37 $ .89 $ .62
Number of common shares
used in the computation
of earnings per share:
Basic 17,400,688 17,242,047 17,370,323 17,222,144
Diluted 17,568,380 17,385,207 17,535,556 17,405,035
Cash dividends per
common share $ .05 $ .05 $ .10 $ .10
The accompanying notes are part of the condensed consolidated
financial statements.
5
COACHMEN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS
ENDED JUNE 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating
activities $ 13,752,389 $23,925,255
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of short-term investments 68,129,470 512,250
Sale of properties
1,649,565 537,476
Acquisitions of:
Short-term investments (73,621,654) (9,521,908)
Property and equipment (10,678,966) (7,049,867)
Businesses (9,001,812) -
Other 342,321 169,527
Net cash (used in) investing
activities (23,181,076) (15,352,522)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (1,924,614) (1,591,349)
Issuance of common shares under stock
Option and stock purchase plans 1,200,987 615,242
Tax benefit from stock options exercised 686,506 330,546
Purchases of common shares for treasury - (827,500)
Cash dividends paid (1,737,149) (1,723,578)
Net cash (used in) financing activities (1,774,270) (3,196,639)
Increase (decrease)in cash and temporary
cash investments (11,202,957) 5,376,094
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 71,427,918 66,448,901
End of period $ 60,224,961 $ 71,824,995
Noncash investing and financing
activities:
Liabilities assumed in acquisitions
of businesses $ 795,000 $ -
The accompanying notes are part of the condensed consolidated
financial statements.
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 six months ended June 30,
1998 are not necessarily indicative of the results to be expected
for the full year.
3. Inventories consist of the following:
June 30, December 31,
1998 1997
Raw material $ 26,795,394 $ 19,437,977
Work-in-process 10,424,839 9,327,308
Finished goods 43,800,380 39,650,721
Total $ 81,020,613 $ 68,416,006
4. The Company was contingently liable at June 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.
7
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 Six Months
Ended June 30, 1998 and 1997
Increases(Decreases)
Net sales $ 31,701,089 18.7% $ 49,232,737 15.0%
Cost of goods sold 24,745,597 16.9 39,236,227 13.8
Selling and
delivery expenses 1,142,342 14.9 1,877,742 11.7
General and
administrative expenses 1,512,779 23.2 2,279,978 18.2
Interest expense (101,292) (23.1) 7,612 1.0
Investment income 156,572 13.6 292,191 13.1
Gain (loss) on sale of
properties, net (173,079) * (177,501) *
Other income, net (35,761) * 743,908 *
Income before income taxes 4,349,395 43.6 6,689,776 40.1
Income taxes 1,456,000 41.2 1,916,000 32.7
Net income 2,893,395 45.0 4,773,776 44.0
* Not meaningful
8
NET SALES
Consolidated net sales for the quarter ended June 30, 1998 were $201,069,322
an increase of 18.7% over the $169,386,233 reported for the corresponding
quarter last year. Net sales for the six months were $376,706,781
representing an increase of 15.0% over the $327,474,044 reported for the same
period in 1997. The Company's vehicle segment experienced net sales increases
of 20.1% and 16.3% for the quarter and six months, respectively. These
increases are attributed to the overall increases in the recreational vehicle
market. The Company's housing segment had a net sales increase for the 1998
quarter of 12.0% and 8.6% for the six 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, as well as, in the average sales price
per unit.
COST OF GOODS SOLD
Cost of goods sold increased 16.9% or $24,745,597 for the three months and
13.8% or $39,236,227 for the six months ended June 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 1.3% and .9% for the quarter and six
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 8.4% for both the 1998
and 1997 quarter, and 8.7% for both of the comparable six-month periods.
Selling expenses, as a percentage of net sales, decreased by .1% for both the
quarter and six months while delivery expense stayed substantially the same
for both comparable periods. General and administrative expenses were 4.0%
of net sales for the second quarter compared to 3.9% for the 1997
corresponding quarter and 3.9% of net sales for the six-month period compared
to 3.8% for 1997. Administrative costs have increased for both periods due
to the higher administrative expenses associated with three acquired
dealerships and to the ongoing implementation of an enterprise computer
system. Many administrative resources are being utilized to resolve any
significant year 2000 issues with the Company's information systems.
INTEREST EXPENSE
Interest expense was $337,514 and $802,674 for the three and six-month
periods in 1998 compared to $438,806 and $795,062 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
9
obligations and with the borrowings against the cash value of the insurance
policies are partially offset by the increases in cash surrender values.
INVESTMENT INCOME
Investment income increased $156,572 and $292,191 respectively, for the 1998
three and six-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 second quarter of 1998
of $(49,243) compared with a gain of $123,836 in the same quarter of 1997.
The net gain (loss) on the sale of properties for the first six months was
$123,836 and $133,292 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 $61,512 for the second quarter and
$934,958 for the six months compared to income of $97,273 and $191,050 for
the 1997 second quarter and six months, respectively. The most significant
variance for the 1998 six-months was due to the receipt of nontaxable income
realized from corporate owned life insurance proceeds.
INCOME TAXES
For the second quarter ended June 30, 1998, the effective tax rate was 34.9%
and a year-to-date rate of 33.2% compared with a 1997 second quarter and
year-to-date effective tax rate of 35.5% and 35.0%, 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 six 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 June 30, 1998, to meet its seasonal
working capital needs. At June 30, 1998, there were no borrowings against
this line of credit. For the six months ended June 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. Investing activities reflected a net cash use of
$23,181,076. The principal use of cash in investing activities was the
10
acquisition of capital equipment and the acquisition of three businesses
(recreational vehicle retail stores). Property and equipment acquisitions
consumed cash primarily from 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 uses of
cash for investing activities. The negative cash flow from financing
activities was primarily for cash dividends and repayment of long-term debt.
At June 30, 1998, working capital increased to $142.7 million from $140.3
million at December 31, 1997. The $6.6 million increase in current assets at
June 30, 1998 versus December 31, 1997, was primarily due to increased
inventories. The $4.1 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 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. The Company has devoted significant
resources to replace the affected software in a timely manner. The total
cost of the project, including hardware, software and training costs, is
estimated to be in excess of $2.5 million, of which $1.4 million has been
incurred as of June 30, 1998. Failure to successfully implement the new
systems, or delays in the implementation could cause disruptions in
operations, including, among other things, a temporary inability to process
transactions, send invoices or pay vendors and employees.
11
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 April 13, 1998.
b) The following nominees were elected Directors for a one-year
term:
Claire C. Skinner
Thomas H. Corson
Keith D. Corson
Gary L. Groom
Philip C. Barker
R. James Harring
William P. Johnson
Philip G. Lux
Edwin W. Miller
c) The tabulation of votes for each Director nominee was as
follows:
For Withheld
Election of Directors:
Claire C. Skinner 16,193,231 499,705
Thomas H. Corson 16,189,031 503,905
Keith D. Corson 16,194,781 498,155
Gary L. Groom 16,203,031 489,905
Philip C. Barker 16,197,031 495,905
R. James Harring 16,195,206 497,730
William P. Johnson 16,199,231 493,705
Philip G. Lux 16,195,831 497,105
Edwin W. Miller 16,202,431 490,505
12
Item 5. Other Information
On July 24, 1998, the Board of Directors approved various
amendments to the Company's By-laws. A complete copy of the
restated By-laws is attached to this Form 10-Q as Exhibit 3.
As one of the changes in the amended By-laws, the Board of
Directors approved a notice provision for stockholder
proposals. Stockholders wishing to bring a proposal before
the 1999 annual meeting of stockholders that is not to be
included in the Company's proxy statement, must cause written
notice of the proposal to be submitted to the Secretary of the
Corporation at its principal offices in Elkhart, Indiana not
later than January 21, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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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: August 13, 1998 _______________________________
Gary L. Groom, Executive Vice
President - Finance (Principal
Financial Officer)
s/s: WILLIAM M. ANGELO
Date: August 13, 1998 _______________________________
William M. Angelo, Corporate
Controller (Principal Accounting
Officer)
14