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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 March 31, 2003
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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
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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). 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, 2003:
Common Shares, without par value 15,493,722 shares outstanding including an
equivalent number of common share purchase rights.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
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Financial Statements:
Consolidated Balance Sheets-
March 31, 2003 and December 31, 2002 3-4
Consolidated Statements of Operations-
Three Months Ended March 31, 2003 and 2002 5
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 2003 and 2002 6
Notes to Consolidated Financial Statements 7-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
Quantitative and Qualitative Disclosures About Market Risk 18
Controls and Procedures 19
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Certifications 22-23
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2003 2002
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and temporary cash investments $ 4,933 $ 16,549
Marketable securities 6,925 7,641
Trade receivables, less allowance for
doubtful receivables 2003 - $860
and 2002 - $861 35,443 29,408
Other receivables 2,265 1,572
Refundable income taxes 1,610 2,878
Inventories 101,658 85,010
Prepaid expenses and other 4,382 4,412
Deferred income taxes 6,902 6,885
-------- --------
Total current assets 164,118 154,355
-------- --------
Property, plant and equipment, at cost 149,780 148,439
Less, Accumulated depreciation 71,812 69,550
-------- --------
Property, plant and equipment, net 77,968 78,889
-------- --------
Goodwill 18,954 18,954
Cash value of life insurance 34,711 33,155
Real estate held for sale 276 276
Other 7,706 7,656
-------- --------
Total assets $303,733 $293,195
======== ========
See Notes to Consolidated Financial Statements.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
March 31, December 31,
2003 2002
---- ----
(Unaudited)
LIABILITIES
Current liabilities:
Accounts payable, trade $ 32,619 $ 18,801
Accrued income taxes 239 1,222
Accrued expenses and other liabilities 39,398 39,856
Short-term borrowings and current portion
of long-term debt 5,896 902
-------- --------
Total current liabilities 78,152 60,781
Long-term debt 10,090 10,097
Deferred income taxes 4,123 4,123
Other 9,391 8,768
-------- --------
Total liabilities 101,756 83,769
-------- --------
SHAREHOLDERS' EQUITY
Common shares, without par value: authorized
60,000 shares; issued 2003 - 21,068
shares and 2002 - 21,062 shares 91,338 91,283
Additional paid-in capital 6,753 6,133
Unearned compensation (892) -
Accumulated other comprehensive loss (689) (661)
Retained earnings 165,309 169,054
Treasury shares, at cost: 2003 - 5,556
shares and 2002 - 5,395 shares (59,842) (56,383)
-------- --------
Total shareholders' equity 201,977 209,426
--------- --------
Total liabilities and shareholders' equity $303,733 $293,195
======== ========
See Notes to Consolidated Financial Statements.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months
Ended March 31,
2003 2002
---- ----
Net sales $146,387 $152,846
Cost of goods sold 129,353 134,576
-------- --------
Gross profit 17,034 18,270
-------- --------
Operating expenses:
Delivery 6,989 6,989
Selling 5,719 5,034
General and administrative 8,723 7,658
-------- --------
21,431 19,681
-------- --------
Operating loss (4,397) (1,411)
-------- --------
Nonoperating (income) expense:
Interest expense 362 540
Investment income (395) (232)
Gain on sale of properties, net (5) (665)
Other, net (62) (158)
-------- --------
Total nonoperating income, net (100) (515)
-------- --------
Loss before income taxes (4,297) (896)
Income taxes (benefit) (1,477) (306)
-------- --------
Net loss $ (2,820) $ (590)
======== ========
Loss per common share:
Basic $ (.18) $ (.04)
Diluted $ (.18) $ (.04)
Number of shares used in the
computation of loss per common share:
Basic 15,473 16,040
Diluted 15,473 16,040
Cash dividends per common share $ .06 $ .05
See Notes to Consolidated Financial Statements.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months
Ended March 31,
2003 2002
---- ----
Cash flows from operating activities:
Net loss $ (2,820) $ (590)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 2,384 2,538
Provision for doubtful receivables 47 30
Provision for write-down of property to
net realizable value - (469)
Gain on sale of properties, net (5) (665)
Increase in cash surrender value of
life insurance policies (451) (451)
Net realized and unrealized (gains) losses
on marketable securities and derivatives (169) 265
Deferred income taxes (17) (74)
Tax benefit from stock options exercised - 102
Other 954 480
Changes in certain assets and liabilities, net
of effects of acquisitions and dispositions:
Receivables (6,775) (13,465)
Inventories (16,648) 4,553
Prepaid expenses and other 30 (4)
Accounts payable, trade 13,818 14,235
Income taxes - accrued and refundable 285 53
Accrued expenses and other liabilities (458) 4,904
-------- --------
Net cash provided by (used in)
operating activities (9,825) 11,442
-------- --------
Cash flows from investing activities:
Proceeds from sales of marketable securities 6,880 11,415
Proceeds from sale of property and equipment 10 2,137
Investments in marketable securities (7,432) (11,711)
Purchases of property and equipment (1,450) (1,079)
Other 146 35
-------- --------
Net cash provided by (used in)
investing activities (1,846) 797
-------- --------
Cash flows from financing activities:
Proceeds from short-term debt 7,000 -
Payments of short-term debt (2,000) -
Payments of long-term debt (13) (14)
Issuance of common shares under stock
incentive plans 89 390
Purchases of common shares for treasury (4,096) (10)
Cash dividends paid (925) (802)
-------- --------
Net cash provided by (used in)
financing activities 55 (436)
-------- --------
Increase (decrease) in cash and temporary
cash investments (11,616) 11,803
Cash and temporary cash investments
Beginning of period 16,549 28,416
-------- --------
End of period $ 4,933 $ 40,219
======== ========
See Notes to Consolidated Financial Statements.
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COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated balance sheet data as of December 31, 2002 was derived
from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States.
In the opinion of management, the information furnished herein includes all
adjustments of a normal and recurring nature necessary to reflect a fair
presentation of the statements of the interim periods reported. The results
of operations for the three months ended March 31, 2003 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 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 months ended March
31, 2003 and 2002:
2003 2002
---- ----
Net sales:
Recreational vehicles $107,396 $108,333
Modular housing
and building 38,991 44,513
-------- --------
Consolidated total $146,387 $152,846
======== ========
Pretax income (loss):
Recreational vehicles $ (1,521) $ (573)
Modular housing
and building (2,038) (512)
Other reconciling items (738) 189
-------- --------
Consolidated total $ (4,297) $ (896)
======== ========
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2. SEGMENT INFORMATION, Continued.
March 31, December 31,
2003 2002
---- ----
Total assets:
Recreational vehicles $112,524 $ 93,571
Modular housing and building 103,921 97,765
Other reconciling items 87,288 101,859
-------- --------
Consolidated total $303,733 $293,195
======== ========
3. INVENTORIES
Inventories consist of the following:
March 31, December 31,
2003 2002
---- ----
Raw materials $ 31,992 $ 28,432
Work in process 14,519 11,054
Finished goods 55,147 45,524
-------- ---------
Total $101,658 $ 85,010
======== ========
4. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
March 31, December 31,
2003 2002
---- ----
Wages, salaries, bonuses and
commissions $ 3,553 $ 5,661
Dealer incentives, including volume
bonuses, dealer trips, interest
reimbursement, co-op advertising and
other rebates 4,454 4,368
Warranty 7,868 8,796
Insurance-products and general liability,
workers compensation, group health and
other 7,605 7,434
Customer deposits and unearned revenues 6,302 5,598
Other current liabilities 9,616 7,999
-------- --------
Total $ 39,398 $ 39,856
======== ========
Changes in the Company's warranty liability during the quarter ended
March 31, 2003 were as follows:
Balance of accrued warranty at January 1, 2003 $ 8,796
Warranties issued during the period and changes
in liability for pre-existing warranties 2,992
Cash settlements made during the quarter (3,920)
------
Balance of accrued warranty at March 31, 2003 $ 7,868
=======
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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 for the three months ended March 31,
2003 and 2002 were calculated as follows:
2003 2002
---- ----
Numerator:
Net loss applicable to common stock $(2,820) $ (590)
Denominator:
Number of shares outstanding, end of period:
Common stock 15,512 16,079
Effect of weighted average shares
outstanding during period (39) (39)
------ ------
Weighted average number of common
shares used in basic EPS 15,473 16,040
====== ======
As the Company reported net losses for the three months ended March 31,
2003 and 2002, 66 and 139 common stock equivalents related to stock options
and awards, respectively, did not enter into the computation of diluted
earnings per share because their inclusion would have been antidilutive.
For the periods ended March 31, 2003 and 2002, 314 and 370 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.
During the quarter ended March 31, 2003, the Company repurchased 272 shares
of common stock at a cost of $4,096.
6. OTHER COMPREHENSIVE INCOME (LOSS)
The changes in components of other comprehensive income (loss) for the
three months ended March 31, 2003 and 2002 are as follows:
2003 2002
---- ----
Net loss $(2,820) $ (590)
Unrealized gains on securities held
for sale, net of taxes 96 54
Unrealized losses on cash flow hedges,
net of taxes (124) -
------- -------
Other comprehensive loss $(2,848) $ (536)
======= =======
As of March 31, 2003 and 2002, the accumulated other comprehensive income
(loss), net of tax, relating to unrealized losses on securities held for
sale was ($565) and ($661), respectively, and relating to deferred losses
on cash flow hedges was ($124) and $0, respectively.
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7. RECLASSIFICATION
Certain information in the accompanying consolidated statements of
operations for the three months ended March 31, 2002 has been reclassified
to conform to the 2003 presentation. The reclassifications had no effect on
net income (loss) as previously reported.
8. COMMITMENTS, CONTINGENCIES AND GUARANTEES
The Company was contingently liable under guarantees to financial
institutions of their loans to independent dealers for amounts totaling
approximately $.7 million at March 31, 2003.
The Company was contingently liable at March 31, 2003 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. Although the estimated guarantee
approximates $209 million at March 31, 2003, 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.
Historically, the Company has experienced losses under these agreements and
accordingly, has recorded an accrual for the fair value of the guarantees
of $.3 million for estimated losses under repurchase agreements.
The Company obtains vehicle chassis for its recreational and specialized
vehicle products directly from automobile manufacturers under converter
pool agreements. The agreements generally provide that the manufacturer
will provide a supply of chassis at the Company's various production
facilities under the terms and conditions as set forth in the agreement.
Chassis are accounted for as consigned inventory until either assigned to a
unit in the production process or 90 days have passed. At the earlier of
these dates, the Company is obligated to purchase the chassis and it is
recorded as inventory. At March 31, 2003, chassis inventory, accounted for
as consigned inventory, approximated $18.3 million.
During the first quarter of 2003, the Company made commitments for the
construction of a new Class C manufacturing facility to be located on its
complex in Middlebury, Indiana. The estimated completed cost of this
project is $4.0 million. As of March 31, 2003, the Company made commitments
to this project totaling $2.9 million, of which $2.6 million remained
outstanding as of the end of the period. The Company also entered into a
commitment for a facility located in Fitzgerald, Georgia to be used for
towable recreational vehicle production. Total cost to convert this
facility to towable production is estimated at $1.5 million. The Company
had $.9 million in outstanding commitments as of March 31, 2003 related to
this project.
The Company is involved in various legal proceedings, most of which are
ordinary disputes incidental to the industry and most of which are covered
in whole or in part by insurance. Management believes
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8. COMMITMENTS, CONTINGENCIES AND GUARANTEES, Continued
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 impact on the Company's consolidated financial position, future
business operations or cash flows.
9. STOCK-BASED COMPENSATION
The Company has stock option plans and an employee stock purchase plan. The
Company accounts for these plans under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. No stock-based employee
compensation cost is reflected in net earnings for these plans, as all
options granted under these plans have an exercise price equal to the
market value of the underlying common stock at the date of grant. The
following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," to stock-based
compensation.
Had the Company adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's pro forma net income (loss) and
net income (loss) per share for the periods ended March 31, 2003 and 2002
would have been:
2003 2002
---- ----
Net loss, as reported $(2,820) $ (590)
Deduct total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of taxes (110) (161)
------- -------
Pro forma net loss $(2,930) $ (751)
======= =======
Loss per share:
Basic - as reported (.18) (.04)
Basic - pro forma (.19) (.05)
Diluted - as reported (.18) (.04)
Diluted - pro forma (.19) (.05)
On March 1, 2003, the Company adopted the Performance Based Restricted
Stock Plan initiated to motivate and reward participants for superior
achievement of the Company's pre-established long-term financial
performance goals. This new plan, effective as of January 1, 2003, utilizes
variable plan accounting, meaning that awards are expensed based upon the
fair value of shares awarded throughout the vesting period. During the
quarter ended March 31, 2003, a total of 88.5 shares were awarded under the
plan. The amount expensed during the quarter ended March 31, 2003 was $97.
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10. NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." Statement No. 146 addresses the timing
of recognition and related measurement of the costs of one-time termination
benefits. SFAS 146 was adopted on January 1, 2003 and did not have a
significant impact on the Company's consolidated financial position or
results of operations.
FASB Interpretation No. (FIN) 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others," changes current practice in accounting for, and disclosure of,
guarantees. FIN 45 will require certain guarantees to be recorded as
liabilities at fair value on the Company's balance sheet. Current practice
requires that liabilities related to guarantees be recorded only when a
loss is probable and reasonably estimable, as those terms are defined in
FASB Statement No. 5, "Accounting for Contingencies." FIN 45 also requires
a guarantor to make significant new disclosures, even when the likelihood
of making any payments under the guarantee is remote, which is another
change from current practice. The disclosure requirements of FIN 45 are
effective immediately and are included in Notes 4 and 8. The initial
recognition and measurement provisions are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The
recognition and measurement provisions were adopted, prospectively, as of
January 1, 2003 and did not have a significant impact on the Company's
consolidated financial position or results of operations.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement
No. 123." SFAS 148 amends SFAS. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair-value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure
requirements of Statement No. 123 to require disclosure in interim
financial statements regarding the method used on reported results. The
Company does not intend to adopt a fair-value based method of accounting
for stock-based employee compensation until a final standard is issued by
the FASB that requires this accounting. Pro forma disclosures of quarterly
earnings are included in Note 9 of this quarterly statement.
In November 2002, the Emerging Issues Task Force reached a consensus on
Issue 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables," which addresses how to account for arrangements that may
involve the delivery or performance of multiple products, services, and/or
rights to use assets. Revenue arrangements with multiple deliverables
should be divided into separate units of accounting if the deliverables in
the arrangement meet the following criteria: (1) value to the customer
exists on a stand alone basis,(2) there is objective and reliable evidence
of the fair value of the undelivered items and (3) the arrangement includes
a general right of return, where delivery or performance of the undelivered
items is considered probable and substantially in the control of the
vendor. Arrangement consideration should be allocated among the separate
deliverables based on their relative fair values. The accounting for
revenue arrangements under EITF 00-21 is applicable for all new agreements
entered into in periods beginning after June 15, 2003. The Company has not
yet determined what effect, if any, the new recognition and measurement
provisions will have on the Company's
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10. NEW ACCOUNTING PRONOUNCEMENTS, Continued
recognition and measurement provisions will have on the Company's future
financial results.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities". This standard clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements", and
addresses consolidation by business enterprises of variable interest
entities (more commonly known as Special Purpose Entities or SPE's). FIN 46
requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not
effectively disperse risk among the parties involved. FIN 46 also enhances
the disclosure requirements related to variable interest entities. This
statement is effective for variable interest entities created or in which
an enterprise obtains an interest after January 31, 2003. FIN 46 will be
effective for the Company beginning January 1, 2004 for all interest in
variable interest entities acquired before February 1, 2003. The adoption
of FIN 46 is not expected to have a material impact on the Company's
consolidated financial statements.
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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 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
consolidated financial statements.
A summary of the changes in the principal items included in the consolidated
statements of operations is shown below.
Comparison of
Three Months
Ended March 31, 2003 and 2002
Increases (Decreases)
---------------------
Amount Percentage
------ ----------
Net sales $ (6,459) (4.2)%
Cost of goods sold (5,223) (3.9)
Delivery - -
Selling 685 13.6
General and administrative 1,065 13.9
Interest expense (178) (33.0)
Investment income 163 70.3
Gain on sale of
properties, net (660) (99.2)
Other, net (96) (60.8)
Loss before income taxes 3,401 379.6
Income tax benefit 1,171 382.7
Net loss 2,230 378.0
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NET SALES
Consolidated net sales for the quarter ended March 31, 2003 were $146.4 million,
a decrease of 4.2% from the $152.8 million reported in the same quarter of 2002.
The Company's recreational vehicle segment experienced a sales decrease of .9%.
Sales dollars for motorized products increased slightly while revenue for
towable products posted a slight decrease. However, unit shipments of both
motorized and towable products were down from the prior year. Product mix
accounted for higher sales dollars on fewer units for motorized products. For
towable products, camping trailers experienced the most significant decline in
unit shipments, off 17.2% while shipments of other towable products increased or
were off only slightly. Compared to 2002, there was a decrease in unit shipments
of approximately 3.0% in the recreational vehicle segment. The Company's modular
housing and building segment experienced a 12.4% decrease in net sales for the
quarter compared to last year's first quarter. A significant factor for this
decrease was the result of delivery delays caused by unusually bad weather in
several of the regions.
COST OF GOODS SOLD
Cost of goods sold decreased 3.9% or $5.2 million for the three months ended
March 31, 2003 compared to the same quarter for 2002. As a percentage of net
sales, cost of goods sold was 88.4% for the 2003 quarter compared to 88.0% for
the 2002 quarter. The decrease in the dollar amount of cost of goods sold in the
current quarter is attributable to lower variable expenses as a result of the
decrease in sales. The increase in the cost of goods sold percentage to net
sales for the 2003 quarter is primarily related to sales mix, with sales from
the recreational vehicle segment comprising 73.4% of total sales in 2003 as
compared to 70.9% in 2002. Sales from recreational vehicle segment are typically
at lower profit margins as compared to sales from the modular housing and
building segment.
OPERATING EXPENSES
As a percentage of net sales, operating expenses, which include delivery,
selling, general and administrative expenses, were 14.6% and 12.9% for the
quarters ended March 31, 2003 and 2002, respectively. The percentage of delivery
expense to net sales increased .2 percentage points and the percentage of
selling expense to net sales increased .6 percentage points. Dollars spent for
delivery were unchanged while selling expenses increased $.7 million in 2003 as
compared to the same period for 2002. The increase in delivery expense as a
percentage of net sales was mainly due to higher fuel costs and resulting
increased rates from outside carriers. The increase in selling expenses was
primarily related to increased payroll costs and travel-related expenses.
General and administrative expenses were 6.0% of net sales for the first quarter
of 2003 and 5.0% of net sales for the first quarter of 2002, representing an
increase of $1.1 million. Most of this increase is the result of personnel-
related expenses and professional services that are not expected to occur in
future periods.
INTEREST EXPENSE
Interest expense was $362 and $540 for the quarters ended March 31, 2003 and
2002, respectively. Interest expense varies with the amount of long-
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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. In September of 2002, as a better
utilization of the Company's available cash at that time, $18.5 million in loans
against the cash value of life insurance policies were repaid. The resulting
reduction in interest expense for the current period is the direct result of
paying off those loans. This reduction in expense was somewhat offset by
interest charges incurred from borrowings against the Company's credit facility
during the current quarter.
INVESTMENT INCOME
Investment income was $395 for the 2003 quarter compared with $232 for the 2002
comparable quarter. The increase was principally attributable to the improved
performance of the Company's investments in marketable securities.
GAIN (LOSS) ON THE SALE OF PROPERTIES, NET
There were no significant gains or losses from property transactions for the
quarter ended March 31, 2003. For the quarter ended March 31, 2002, the gain on
the sale of properties was $665. The major component of the gain in 2002 was
from the sale of a previously closed manufacturing facility located in
Middlebury, Indiana.
OTHER INCOME, NET
Other income, net, represents income of $62 for the 2003 first quarter and $158
for the 2002 first quarter. No items of significance caused the variances
between the comparable quarters.
INCOME TAXES
For the first quarter ended March 31, 2003, the effective tax rate was a 34.4%
benefit compared to a first quarter tax benefit rate of 34.2% in 2002. 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, 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. At March 31, 2003,
primarily due to increases in inventories, there were outstanding borrowings of
$5.0 million against this bank line of credit. At March 31, 2002, there were no
borrowings against credit facilities. For the three months ended March 31, 2003,
the major use of cash was from operating activities, which primarily consisted
of increases in receivables and inventories offset by an increase in accounts
payable. The cash used in investing activities included investments in
marketable securities and cash value life insurance policies and purchases of
property and equipment. The cash used in financing activities included the
purchase of common shares for the
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treasury and payment of cash dividends, offset by borrowings against credit
facilities.
At March 31, 2003, working capital decreased to $86.0 million from $93.6 at
December 31, 2002. The $9.8 million increase in current assets at March 31, 2003
versus December 31, 2002 was primarily due to increased trade receivables and
inventories, offset by an $11.6 million decrease in cash. The increase in
current liabilities of $17.4 million was substantially due to increased trade
payables and borrowings against credit facilities.
During the first quarter of 2003, the Company entered into an agreement for the
construction of a new Class C manufacturing facility to be located on its
complex in Middlebury, Indiana. The expected completion date is July 2003 and
the estimated completed cost of the project is $4.0 million. The Company also
entered into a commitment for a facility located in Fitzgerald, Georgia to be
used for towable recreational vehicle production. Total cost to convert this
facility to towable production is estimated at $1.5 million and the Company
expects to begin manufacturing in this facility in June 2003.
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 and diesel
products, 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 accounting standards and government regulations,
such as those covering accounting practices, 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 demand for commercial structures
in the various industries that the modular housing and building segment serves;
the ability of the housing and building segment to perform in new market
segments where it has limited experience; 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,
the Company's ability to maintain or increase gross margins which are critical
to profitability whether there are or are not increased sales, further
developments in the war on terrorism and related international crises; and other
risks and uncertainties.
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
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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. The Company utilized its short-term credit
facility during the first quarter of 2003 for working capital needs resulting
from an increase in inventories. Under normal conditions, changes in interest
rates would primarily impact the Company's long-term debt. At March 31, 2003,
the Company had $11.0 million of long-term debt, including current maturities.
Long-term debt consists mainly of industrial development revenue bonds that have
variable or floating rates. In January of 2003, the Company entered into various
interest rate swap agreements that become effective beginning in October of
2003. These swap agreements, which are designated as cash flow hedges for
accounting purposes, effectively convert a portion of the Company's
variable-rate borrowings to a fixed-rate basis through November of 2011, thus
reducing the impact of changes in interest rates on future interest expense. The
fair value of the Company's interest rate swap agreements represents the
estimated receipts or payments that would be made to terminate the agreements.
A loss of $.1 million, net of taxes, attributable to changes in the fair value
of interest rate swap agreements was recorded as a component of accumulated
other comprehensive gain (loss) in the first quarter of 2003. If in the future
the interest rate swap agreements were determined to be ineffective or were
terminated before the contractual termination dates, or if it became probable
that the hedged variable cash flows associated with the variable-rate borrowings
would stop, the Company would be required to reclassify into earnings all or a
portion of the unrealized losses on cash flow hedges included in accumulated
other comprehensive gain (loss).
At March 31, 2003, the Company had $7.0 million invested in short-term and $4.5
million in long-term 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 March 31, 2003, 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
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interest rates applied to the fair value of the financial instruments as of
March 31, 2003, would have no material impact on earnings, cash flows or fair
values of interest rate risk sensitive instruments over a one-year period.
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 March 31, 2003
Form 8-K filed on January 21, 2003, reporting an item 5 event (a press
release dated January 20, 2003 reporting an expectation of gain in
fourth quarter and full year 2002 earnings).
Form 8-K filed on February 5, 2003, reporting an item 5 event (a press
release dated February 5, 2003 declaring a regular quarterly dividend
and appointment of a new board member).
Form 8-K filed on February 10, 2003, reporting an item 5 event (a press
release dated February 6, 2003 announcing a partnership between All
American Homes(R) and Town & Country Cedar Homes).
Form 8-K filed on February 12, 2003 (and 2 Forms 8-K/A filed on
February 13, 2002), reporting an item 5 event (a press release dated
February 11, 2003 announcing confirmation of a strong gain in fourth
quarter and full year earnings).
Form 8-K filed on March 14, 2003, reporting an item 5 event (a press
release dated March 13, 2003 announcing a major expansion at the
Indiana and Georgia facilities).
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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: May 14, 2003 By: /s/ Claire C. Skinner
-----------------------------------------
Claire C. Skinner, Chairman of the
Board and Chief Executive Officer
Date: May 14, 2003 By: /s/ Joseph P. Tomczak
-----------------------------------------
Joseph P. Tomczak, Executive Vice
President and Chief Financial Officer
Date: May 14, 2003 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: May 14, 2003
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: May 14, 2003
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
*10(a) Supplemental Deferred Compensation Plan amended and restated as
of January 1, 2003 (filed herewith)
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
* Management Contract or Compensatory Plan.
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