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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, 2002
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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
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COACHMEN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
INDIANA 35-1101097
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
2831 DEXTER DRIVE, ELKHART, INDIANA 46514
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 574-262-0123
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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, 2002:
Common Shares, without par value 15,830,409 shares outstanding
including an equivalent number of common share purchase rights.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
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Financial Statements:
Consolidated Balance Sheets-
September 30, 2002 and December 31, 2001 3-4
Consolidated Statements of Operations-
Three and Nine Months Ended September 30, 2002 and 2001 5
Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
Quantitative and Qualitative Disclosures About Market Risk 16
Controls and Procedures 17
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Certifications 20-21
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2002 2001
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and temporary cash investments $ 29,297 $ 28,416
Marketable securities 10,975 12,180
Trade receivables, less allowance for
doubtful receivables 2002 - $905
and 2001 - $972 37,446 23,756
Other receivables 1,972 2,162
Refundable income taxes 1,245 2,241
Inventories 86,553 80,477
Prepaid expenses and other 4,183 4,656
Deferred income taxes 7,183 7,319
-------- --------
Total current assets 178,854 161,207
-------- --------
Property, plant and equipment, at cost 142,059 141,040
Less, Accumulated depreciation 65,823 60,807
-------- --------
Property, plant and equipment, net 76,236 80,233
-------- --------
Goodwill, net of accumulated amortization
2002 and 2001 - $2,096 18,954 18,954
Cash value of life insurance 32,749 13,454
Real estate held for sale 5,321 11,129
Other 5,842 3,583
-------- --------
Total assets $317,956 $288,560
======== ========
See Notes to Consolidated Financial Statements.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2002 2001
---- ----
(Unaudited)
LIABILITIES
Current liabilities:
Accounts payable, trade $ 38,625 $ 18,944
Accrued income taxes 2,668 494
Accrued expenses and other liabilities 42,896 38,846
Current maturities of long-term debt 908 917
-------- --------
Total current liabilities 85,097 59,201
Long-term debt 10,620 11,001
Deferred income taxes 2,158 1,257
Other 8,661 8,461
-------- --------
Total liabilities 106,536 79,920
-------- --------
SHAREHOLDERS' EQUITY
Common shares, without par value: authorized
60,000 shares; issued 2002 - 21,058
shares and 2001 - 21,046 shares 91,228 91,072
Additional paid-in capital 5,966 5,755
Accumulated other comprehensive loss (625) (931)
Retained earnings 167,339 162,646
Treasury shares, at cost: 2002 - 5,150
shares and 2001 - 5,110 shares (52,488) (49,902)
-------- --------
Total shareholders' equity 211,420 208,640
-------- --------
Total liabilities and shareholders' equity $317,956 $288,560
======== ========
Notes to Consolidated Financial Statements.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales $179,164 $149,577 $506,326 $464,860
Cost of sales 148,013 123,436 426,773 394,538
-------- -------- -------- --------
Gross profit 31,151 26,141 79,553 70,322
-------- -------- -------- --------
Operating expenses:
Delivery 8,022 8,023 23,440 24,366
Selling 8,247 7,882 21,948 21,983
General and administrative 8,153 8,022 23,932 25,707
-------- -------- -------- --------
Total operating expenses 24,422 23,927 69,320 72,056
-------- -------- -------- --------
Operating income (loss) 6,729 2,214 10,233 (1,734)
-------- -------- -------- --------
Nonoperating (income) expense:
Interest expense 424 711 1,385 2,262
Investment (income) loss (321) 117 (363) 6
Gain on sale of
properties, net (22) (147) (1,371) (209)
Other (income) expense, net 8 (76) (569) 143
-------- -------- -------- --------
Total nonoperating (income)
expense, net 89 605 (918) 2,202
-------- -------- -------- --------
Income (loss) before
income taxes 6,640 1,609 11,151 (3,936)
Income taxes (benefit) 2,344 604 3,882 (1,425)
-------- -------- -------- --------
Net income (loss) $ 4,296 $ 1,005 $ 7,269 $ (2,511)
======== ======== ======== ========
Earnings (loss) per common share:
Basic $ .27 $ .06 $ .45 $ (.16)
Diluted $ .27 $ .06 $ .45 $ (.16)
Number of common shares used in
the computation of earnings (loss)
per common share:
Basic 16,080 15,815 16,070 15,811
------ ------ ------ ------
Diluted 16,175 15,875 16,186 15,811
------ ------ ------ ------
Cash dividends per common share $ .06 $ .05 $ .16 $ .15
See Notes to Consolidated Financial Statements.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited) Nine Months
Ended September 30,
2002 2001
----- ----
Cash flows from operating activities:
Net income (loss) $ 7,269 $ (2,511)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 7,244 8,188
Amortization of intangibles - 869
Provision for doubtful receivables 167 193
Provision for write-down of property to
net realizable value - 400
Gain on sale of properties, net (1,371) (209)
Increase in cash surrender value of
life insurance policies (1,066) (600)
Net realized and unrealized losses on
marketable securities and derivatives 868 1,772
Deferred income taxes 1,037 (1,275)
Other 695 1,232
Changes in certain assets and liabilities, net
of effects of acquisitions and dispositions:
Receivables (13,667) 4,911
Inventories (6,076) 15,992
Prepaid expenses and other 473 (3,184)
Accounts payable, trade 19,681 9,027
Income taxes - accrued and refundable 3,170 5,553
Accrued expenses and other liabilities 4,050 2,233
-------- --------
Net cash provided by
operating activities 22,474 42,591
-------- --------
Cash flows from investing activities:
Proceeds from sales of marketable securities 24,776 40,975
Proceeds from sale of properties 5,941 1,583
Proceeds from payments received on notes receivable - 3,244
Investments in marketable securities (24,133) (37,633)
Purchases of property and equipment (3,396) (3,968)
Acquisition of businesses, net of cash acquired - (7,273)
Other (435) (578)
-------- --------
Net cash provided by (used in)
investing activities 2,753 (3,650)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt - 13,500
Payments of long-term debt (390) (21,765)
Repay borrowings against cash value of
life insurance policies (18,458) -
Issuance of common shares under stock
incentive plans 804 717
Tax benefit from stock options exercised 124 -
Purchases of common shares for treasury (3,850) -
Cash dividends paid (2,576) (2,373)
-------- --------
Net cash provided by (used in)
financing activities (24,346) (9,921)
-------- --------
Increase in cash and temporary
cash investments 881 29,020
Cash and temporary cash investments
Beginning of period 28,416 2,614
-------- --------
End of period $ 29,297 $ 31,634
======== ========
See Notes to Consolidated Financial Statements.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. BASIS OF PRESENTATION
The consolidated balance sheet data as of December 31, 2001 was derived
from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States.
The interim financial statements should be read in connection with the
financial statements in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
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 month periods ended September 30, 2002 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 recreational vehicles, including related parts and supplies, and
modular housing and building. 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, income 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 nine month
periods ended September 30, 2002 and 2001:
Three Months Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales:
Recreational vehicles $114,588 $ 78,527 $335,491 $278,705
Modular housing and building 64,576 71,050 170,835 186,155
-------- -------- -------- --------
Consolidated total $179,164 $149,577 $506,326 $464,860
======== ======== ======== ========
Pretax income (loss):
Recreational vehicles $ 2,578 $ (1,551) $ 3,115 $ (9,060)
Modular housing and building 3,550 6,288 7,008 12,486
Other reconciling items 512 (3,128) 1,028 (7,362)
------- -------- -------- --------
Consolidated total $ 6,640 $ 1,609 $ 11,151 $ (3,936)
======== ======== ======== ========
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2. SEGMENT INFORMATION, Continued.
As of As of
September 30, December 31,
2002 2001
---- ----
Total assets:
Recreational vehicles $101,780 $ 88,629
Modular housing and building 101,207 97,578
Other reconciling items 114,969 102,353
-------- --------
Consolidated total $317,956 $288,560
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3. INVENTORIES
Inventories consist of the following:
September 30, December 31,
2002 2001
---- ----
Raw materials $ 30,176 $ 24,224
Work in process 13,601 7,866
Finished goods 42,776 48,387
-------- --------
Total $ 86,553 $ 80,477
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4. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
September 30, December 31,
2002 2001
---- -----
Wages, salaries, bonuses and
commissions $ 6,227 $ 3,860
Dealer incentives 3,042 4,443
Warranty 8,701 8,391
Insurance-products and general liability,
workers compensation, group health and
other 7,832 7,148
Customer deposits and unearned revenues 7,766 7,318
Other current liabilities 9,328 7,686
-------- --------
Total $ 42,896 $ 38,846
======== ========
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5. EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of
shares outstanding during the period. Diluted earnings per common share
is based on the weighted average number of shares outstanding during the
period, after consideration of the dilutive effect of stock options and
awards. Basic and diluted earnings per share were calculated as follows:
Three Months Nine Months
Ended Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Numerator:
Net income (loss) available
to common stockholders $ 4,296 $ 1,005 $ 7,269 $(2,511)
Denominator:
Number of shares outstanding, end of period:
Common stock 15,908 15,936 15,908 15,936
Effect of weighted average shares
outstanding during period 172 (121) 162 (125)
------ ------ ------ ------
Weighted average number of common
shares used in basic EPS 16,080 15,815 16,070 15,811
Effect of dilutive securities
Stock options and awards 85 60 106 -
Deferred compensation plans 10 - 10 -
------ ------ ------ ------
Weighted average number of common
shares used in diluted EPS 16,175 15,875 16,186 15,811
====== ====== ====== ======
As the Company reported a net loss for the nine months ended September 30,
2001, 56 common stock equivalents related to stock options did not enter
into the computation of diluted earnings per share because their inclusion
would have been antidilutive.
For the periods ended September 30, 2002 and 2001, 335 and 508 shares of
outstanding stock options were not included in the computation of diluted
earnings per share because their exercise price was greater than the
average market prices for the periods and their inclusion would have been
antidilutive.
The sum of quarterly earnings per share for the three quarters may not
equal year-to-date earnings per share due to rounding and changes in
diluted potential common shares.
6. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) represents unrealized depreciation of
available-for-sale securities, net of taxes. Other comprehensive income
(loss) for the quarter and nine months ended September 30, 2002 was $(101)
and $306, respectively and $382 and $(824) for the quarter and nine months
ended September 30, 2001, respectively. Total comprehensive income (loss)
combines reported net income (loss) and other comprehensive income (loss).
Total comprehensive income (loss) for the quarter and nine months ended
September 30, 2002 was $4,195 and $7,575, respectively and $1,387 and
$(3,335) for the quarter and nine months ended September 30, 2001,
respectively.
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7. ACQUISITION OF A BUSINESS
On February 12, 2001, the Company acquired all of the issued and
outstanding shares of capital stock of Kan Build, Inc. ("Kan Build"), a
manufacturer of modular buildings. The purchase price aggregated $21.6
million and consisted of $8.9 million cash paid at closing and the
assumption of $12.7 million of liabilities. The excess of purchase price
over fair value of assets acquired ("goodwill"), approximated $4.1
million. The acquisition was accounted for as a purchase and the operating
results of Kan Build are included in the Company's consolidated financial
statements from the date of acquisition.
Unaudited pro forma financial information as if this acquisition had
occurred at the beginning of each period is as follows:
NINE MONTHS
Ended September 30,
2002 2001
---- ----
Net sales $506,326 $468,383
Net income (loss) 7,269 (2,423)
Earnings (loss) per share:
Basic $ .45 $ (.15)
Diluted .45 (.15)
8. COMMITMENTS AND CONTINGENCIES
The Company was contingently liable at September 30, 2002 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. Products repurchased
from dealers under these agreements are accounted for as a reduction in
revenue at the time of repurchase. 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. As market
conditions deteriorated in the latter half of 2000, the Company
experienced losses under these agreements and, accordingly, established a
reserve for estimated losses under repurchase agreements. Due to a lower
than anticipated level of losses from repossessions in 2002 resulting from
improved market conditions within the Recreational Vehicle Industry, the
Company has reduced its estimate of anticipated losses. The favorable
change in estimate exceeded actual losses incurred by $248 and $139 for
the three and nine months ended September 30, 2002, respectively. This
compares to losses of $261 and $635 for the same periods in 2001.
The Company is involved in various legal proceedings, which are ordinary
disputes incidental to the industry and which are covered in whole or in
part by insurance. Management believes that the ultimate outcome of these
matters and any liabilities in excess of insurance coverage and
self-insurance accruals will not have a material adverse
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impact on the Company's consolidated financial position, future business
operations or cash flows.
9. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 142, "Goodwill and Other Intangible Assets", which revised
the standards for accounting for goodwill and other intangible assets.
SFAS No. 142 requires that goodwill and indefinite lived identifiable
intangible assets no longer be amortized, but be tested for impairment at
least annually based on their estimated fair market values. The provisions
of SFAS No. 142 became effective on January 1, 2002 and require full
implementation of the impairment measurement provisions by December 31,
2002. During the second quarter of 2002, the Company performed its initial
impairment analysis under SFAS No. 142. Based on the estimated fair values
of the Company's reporting units using a discounted cash flows valuation,
no goodwill for any unit was evaluated as impaired. Effective January 1,
2002, the Company is not recording goodwill amortization expense.
Application of the nonamortizaton provisions of Statement No. 142 in the
prior year would have resulted in an increase in 2001 third quarter net
earnings of $195 ($.01 per diluted share) and an increase in 2001
year-to-date earnings of $555 ($.04 per diluted share). The Company will
perform its annual impairment analysis under SFAS 142 during the fourth
fiscal quarter of each fiscal year. The Company evaluates indicators of
impairment, including the general business climate, on an ongoing basis.
Any impairment charge would not affect cash flow.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations" for a disposal of a segment of a business. The
Company was required to adopt Statement No. 144 as of January 1, 2002 and
it did not have a significant impact on operations or financial position
of the Company.
The Company is actively marketing certain real property, which is no
longer being used in the operations of the business. The Company expects
that disposition of such property will be completed within the next year
given current market conditions and the location and condition of the
properties. Under the provisions of SFAS No. 144, such property is being
classified as real estate held for sale in the accompanying consolidated
balance sheets at the lower of cost or estimated net selling price. The
property is no longer being depreciated pending their sale. However, under
the transition rules contained in SFAS No. 144, should these assets no
longer qualify as assets held for sale at December 31, 2002 under the
definition contained in the statement, such assets would be reclassified
as assets held and used at that date and re-measured to the lower of its
original carrying amount adjusted for depreciation had the asset been in
continuous use or to its fair value.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
(in thousands, except per share amounts)
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 operations is shown below.
Comparison of
Three Months Nine Months
Ended September 30, 2002 and 2001
Increases (Decreases)
---------------------
Amount Percentage Amount Percentage
----------------- -----------------
Net sales $ 29,587 19.8 % $ 41,466 8.9 %
Cost of sales 24,577 19.9 32,235 8.2
Delivery expense (1) n/m (926) (3.8)
Selling expenses 365 4.6 (35) (.2)
General and
administrative expenses 131 1.6 (1,775) (6.9)
Interest expense (287) (40.4) (877) (38.8)
Investment (income) loss 438 374.4 369 n/m
Gain on sale of
properties, net (125) (85.0) 1,162 556.0
Other income, net 84 n/m 712 n/m
Income before income taxes 5,031 312.7 15,087 383.3
Income taxes 1,740 288.1 5,307 372.4
Net income 3,291 327.5 9,780 389.5
n/m - not meaningful
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NET SALES
Consolidated net sales for the quarter ended September 30, 2002 were $179.2
million, an increase of $29.6 million, or 19.8%, from the $149.6 million
reported for the corresponding quarter last year. Net sales for the nine months
were $506.3 million, representing an increase of 8.9% from the $464.9 million
reported for the same period in 2001. The Company's recreational vehicle segment
experienced a net sales increase of 45.9% for the quarter and an increase of
20.4% for the nine months. Both the motorized and towable products had increases
in the number of units and sales dollars from the 2001 periods reflecting a
continuing recovery from the softness that began in the latter half of 2000 and
continued through 2001 in the recreational vehicle industry. The Company's
modular housing and building segment experienced a net sales decrease for the
2002 quarter of 9.1% and a decrease of 8.2% for the nine months. This decrease
was principally attributable to decreased demand for commercial structures in
the telecommunications industry. However, shipments for housing and non-telecom
structures continued to strengthen during the third quarter, with September
shipments reaching their highest level for the year.
COST OF SALES
Cost of sales increased 19.9%, or $24.6 million, for the three months and 8.2%,
or $32.2 million, for the nine months ended September 30, 2002. The increase in
cost of sales of 19.9% was slightly greater than the 19.8% increase in net sales
for the quarter. For the nine-month period, the increase in cost of sales of
8.2% was less than the 8.9% increase in net sales. Cost of sales for the most
recent quarter was affected by a higher sales contribution from the recreational
vehicle segment, which accounted for 64.0% of net sales in 2002 as compared to
52.5% in the comparable three-month period for 2001. The recreational vehicle
segment typically operates on smaller profit margins than the modular housing
and building segment. However, for the nine-month period, overall cost of sales
was 84.3% of net sales in 2002 as compared to 84.9% in 2001. This improvement
was directly related to expanding production rates in the recreational vehicle
segment and improved absorption of fixed manufacturing costs.
OPERATING EXPENSES
As a percentage of net sales, operating expenses, which include delivery,
selling, general and administrative expenses, were 13.6% and 13.7% for the 2002
quarter and nine-month period compared to 16.0% and 15.5% for the quarter and
nine-month period of 2001. As a percentage of net sales, delivery expenses
decreased by .9 percentage points for the three-month period and .6 percentage
points for the nine-month period as compared to the prior year three- and
nine-month periods. This decrease was mainly attributable to the change in sales
mix. Recreational vehicles typically have lower delivery costs as a percentage
of sales as compared to modular buildings. Also, higher sales volumes resulted
in better utilization of Company-owned transportation equipment. Selling
expenses, at 4.6% of net sales for the quarter ended September 30, 2002, were
..7% lower than the comparable quarter of the previous year. This was mainly due
to increased selling expenses in 2001 in the recreational vehicle segment
necessitated by the challenging sales environment at that time. For the
nine-month period, selling expenses in 2002, as a percentage of net sales of
4.3%, were .4 percentage points lower than the 4.7% in 2001. Selling expenses
were down .2% for the nine-month period while revenue increased 8.9%. General
and administrative expenses were 4.6% of net sales for the third quarter
compared to 5.4% for the 2001 corresponding quarter and 4.7% of net sales for
the nine-month period compared to 5.5% for 2001.
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These decreases in both the quarter and nine-month periods were primarily the
result of the discontinuation of goodwill amortization in 2002 resulting from
the adoption of SFAS No. 142 as previously discussed.
INTEREST EXPENSE
Interest expense was $424 and $1,385 for the quarter and nine-month periods in
2002 compared to $711 and $2,262 in the same periods last year. Interest expense
varies with the amount of long-term debt and the amounts borrowed against the
cash value of 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 the
increases in cash surrender values. In September of 2002, as a better
utilization of the Company's available cash, $18.5 million in loans against the
cash value of life insurance policies were repaid. The resulting reduction in
interest expense is expected to approximate $1.0 million annually. The decrease
in interest expense for the current period reflects a reduction in debt and
lower rates on variable-rate loans. During the first quarter of 2001, the
Company borrowed $13.5 million from its bank line of credit to finance the
acquisition of Kan Build, Inc. Those borrowings were subsequently paid in full
by the third quarter of 2001.
INVESTMENT INCOME (LOSS)
There was investment income of $321 for the quarter ended September 30, 2002
compared to an investment loss of $117 for the third quarter of 2001. For the
nine-month period, investment income in 2002 was $363 compared to an investment
loss of $6 the previous year. Investment income in the current quarter is
primarily from interest earned on invested cash. The investment losses are
principally attributable to realized losses incurred from the sale of preferred
stocks held by the Company.
GAIN ON THE SALE OF PROPERTIES, NET
There was a net gain on the sale of properties for the third quarter of 2002 of
$22 compared with a gain of $147 in the same quarter of 2001. The net gain on
the sale of properties for the first nine months of 2002 and 2001 was $1,371 and
$209, respectively. No significant properties were sold during the quarter ended
September 30, 2002. However, the Company continues to actively market those
properties included in the balance sheet as real estate held for sale.
OTHER INCOME, NET
Other income, net, represents an expense of $8 for the third quarter of 2002 and
income of $76 for the same period of the previous year. For the nine-month
period, other income, net for 2002 was $569 compared to an expense of $143 in
2001. The were no significant items for the most recent quarter. The most
significant item of income for 2002 was a gain of $208 on the redemption of a
life insurance policy in the second quarter. In 2001, there was a second quarter
charge of $400 to write-down the carrying value of property held for sale to
estimated fair value less cost to sell.
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INCOME TAXES
For the third quarter ended September 30, 2002, the effective tax rate was 35.3%
and the year-to-date rate was 34.8% compared with a 2001 third quarter and
year-to-date rate of 37.5% and 36.2%, 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 amount of nontaxable dividend income on
investments.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
The Company generally relies on funds from operations as its primary source of
liquidity. In addition, the Company maintains a $30 million secured bank line of
credit to meet its seasonal working capital needs. The loan agreement contains
covenants whereby the Company must maintain certain financial ratios. At
September 30, 2002, there were no borrowings against this bank line of credit.
For the nine months ended September 30, 2002, the major source of cash was from
operating activities. Net cash provided by operating activities aggregated
$22,474 and $42,591 for the nine months ended September 30, 2002 and 2001,
respectively. The significant items in operating activities for the nine months
ended September 30, 2002 were net income, depreciation and increases in trade
accounts payable, accrued income taxes and accrued expenses and other
liabilities. The positive cash flow from these items was offset by increases in
inventories and trade receivables. The cash provided by investing activities was
primarily related to proceeds from the sale of properties. The cash used in
financing activities consisted principally of cash dividends paid and the
repayment of long-term debt and repayment of loans against the cash value of
life insurance policies. Also, $3,850 in common shares were repurchased for the
treasury. This was slightly offset by the issuance of common shares under stock
incentive plans.
At September 30, 2002, working capital decreased to $93.8 million from the
$102.0 million at December 31, 2001. The $17.6 million increase in current
assets at September 30, 2002 versus December 31, 2001 was primarily due to
increases in net trade receivables of $13.7 million and increases in inventories
of $6.1 million during the nine-month period. The increase in current
liabilities of $25.9 million was primarily due to increases in accounts payable
and accrued expenses.
FORWARD-LOOKING STATEMENTS
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 potential fluctuations in the Company's
operating results; the condition of the telecommunications industry which
purchases modular structures; the availability and price of gasoline, which can
impact the sale 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;
changing government regulations, such as those covering accounting standards,
environmental matters or product warranties and recalls, which may affect costs
of operations, revenues, product acceptance and profitability; 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; the impact of economic uncertainty on high-cost
discretionary product purchases, which can hinder the sales of recreational
vehicles; the
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demand for commercial structures in the various industries that the modular
housing and building segment serves; and also on the state of the recreational
vehicle and modular housing industries in the United States. Other factors
affecting forward-looking statements include the cyclical and seasonal nature of
the Company's businesses, adverse weather, changes in property taxes and energy
costs, changes in federal income tax laws and federal mortgage financing
programs, changes in public policy, competition in these industries and the
Company's ability to maintain or increase gross margins which are critical to
profitability whether there are or are not increased sales.
At times, the Company's actual performance differs materially from its
projections and estimates regarding the economy, the recreational vehicle and
modular housing and building 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. For further discussion of the elements
involved in this report, see the notes and other materials included with the
Company's latest Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, operations of the Company are exposed to
fluctuations in interest rates. These fluctuations can vary the costs of
financing and investing yields. Because the Company has not utilized its
short-term credit facilities during 2002, changes in interest rates would
primarily impact the Company's long-term debt. At September 30, 2002, the
Company had $11.5 million of long-term debt, including current maturities.
Long-term debt consists mainly of industrial development revenue bonds that have
variable or floating rates. At September 30, 2002, the Company had $11.0 million
invested in marketable securities. The Company's marketable securities consist
of public utility preferred stocks which typically pay quarterly fixed rate
dividends. These financial instruments are subject to market risk in that
available energy supplies and changes in available interest rates would impact
the market value of the preferred stocks. The Company utilizes U.S. Treasury
bond futures options as a protection against the impact of increases in interest
rates on the fair value of the Company's investments in these fixed rate
preferred stocks. Outstanding options are marked to market with market value
changes recognized in current earnings. The U.S. Treasury bond futures options
generally have terms ranging from 90 to 180 days. Based on the Company's overall
interest rate exposure at September 30, 2002, including variable or floating
rate debt and derivatives used to hedge the fair value of fixed rate preferred
stocks, a hypothetical 10 percent change in interest rates applied to the fair
value of the financial instruments as of September 30, 2002, would have no
material impact on earnings, cash flows or fair values of interest rate risk
sensitive instruments over a one-year period.
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ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this quarterly report on Form 10-Q,
an evaluation was performed under the supervision and with the participation of
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on and as of the time of
such evaluation, the Company's management, including the Chief Executive Officer
and Chief Financial Officer, concluded that the Company's disclosure controls
and procedures were effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic filing with the Securities and Exchange
Commission. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the time of such evaluation.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits
(b) Reports on Form 8-K during the quarter ended September 30, 2002
Form 8-K, dated July 30, 2002, reporting an Item 5 event (a press
release announcing second quarter results).
Form 8-K, dated August 6, 2002, reporting an Item 5 event(a press
release announcing a 20% increase in quarterly dividend and
resumption of share repurchase program).
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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)
Date: November 13, 2002 By: /s/ CLAIRE C. SKINNER
------------------------------------
Claire C. Skinner, Chairman of the
Board and Chief Executive Officer
Date: November 13, 2002 By: /s/ JOSEPH P. TOMCZAK
-----------------------------------
Joseph P. Tomczak, Executive Vice
President and Chief Financial Officer
Date: November 13, 2002 By: /s/ GARY L. NEAR
-----------------------------------
Gary L. Near, Vice President
and Controller
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CERTIFICATION
I, Claire C. Skinner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Coachmen Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002
By: /s/ CLAIRE C. SKINNER
--------------------------------------
Claire C. Skinner
Chairman of the Board and Chief Executive Officer
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CERTIFICATION
I, Joseph P. Tomczak, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Coachmen Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002
By: /s/ JOSEPH P. TOMCZAK
--------------------------------------
Joseph P. Tomczak
Executive Vice President and Chief Financial Officer
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INDEX TO EXHIBITS
Number Assigned
In Regulation
S-K, Item 601 Description of Exhibit
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
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