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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2003.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission file number 1-7160
COACHMEN INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Indiana 35-1101097
(STATE OF INCORPORATION (IRS EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
2831 Dexter Drive, Elkhart, Indiana 46514
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(574) 262-0123
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Without Par Value, New York Stock Exchange
and associated Common Share Purchase Rights (NAME OF EACH EXCHANGE ON
(TITLE OF EACH CLASS) WHICH REGISTERED)
Securities registered pursuant to Section 12(g) of the Act: NONE
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. X Yes _ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment hereto. X
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). X Yes _ No
The aggregate market value of Common Stock held by non-affiliates of the
registrant on June 30, 2003 (the last business day of the registrant's most
recently completed second fiscal quarter) was $165.6 million (based upon the
closing price on the New York Stock Exchange and that 90.0% of such shares
are owned by non-affiliates).
As of February 27, 2004, 15,559,062 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Form 10-K into which
DOCUMENT THE DOCUMENT IS INCORPORATED
Portions of the Proxy Statement for
the Annual Meeting of Shareholders
to be held on April 29, 2004 Part III
2
Part I
ITEM 1. BUSINESS
Coachmen Industries, Inc. (the "Company" or the "Registrant") was incorporated
under the laws of the State of Indiana on December 31, 1964, as the successor to
a proprietorship established earlier that year. All references to the Company
include its wholly owned subsidiaries and divisions.
The Company is one of America's leading manufacturers of recreational vehicles
with well-known brand names including Coachmen(R), Georgie Boy(R),
Sportscoach(R), and Viking(R). Through its housing and building group, Coachmen
Industries also comprises one of the nation's largest producers of both
systems-built homes and commercial structures with its All American Homes(R),
Mod-U-Kraf(R), All American Building Systems(TM), and Miller Building
Systems(TM) products. Prodesign, LLC is a subsidiary that produces custom
composite and thermoformed plastic parts for numerous industries under the
Prodesign(R) brand. Coachmen Industries, Inc. is a publicly held company with
stock listed on the New York Stock Exchange (NYSE) under the COA ticker symbol.
The Company operates in two primary business segments, recreational vehicles and
housing and buildings (formerly modular housing and buildings). The Recreational
Vehicle ("RV") Segment manufactures and distributes Class A and Class C
motorhomes, travel trailers, fifth wheels, camping trailers and related parts
and supplies. The Housing and Building Segment manufactures and distributes
factory-built modules for residential and commercial buildings.
The Company's annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to those reports are made
available free of charge through the Financial Information section of the
Company's Internet website (http://www.coachmen.com) as soon as practicable
after such material is electronically filed with or furnished to the Securities
and Exchange Commission.
RECREATIONAL VEHICLE SEGMENT
PRODUCTS
The RV Segment consists of recreational vehicles and parts and supplies. This
group consists of five operating companies: Coachmen RV Company, LLC; Coachmen
RV Company of Georgia, LLC; Georgie Boy Manufacturing, LLC; Viking Recreational
Vehicles, LLC; and Prodesign, LLC (a producer of composite and plastic parts)
and two Company-owned retail dealerships located in Indiana and North Carolina.
The principal brand names for the RV group are Aurora(TM), Bellagio(TM),
Capri(TM), Captiva(TM), Cascade(TM), Catalina(R), Chaparral(TM), Cheyenne(TM),
Clipper(R), Coachmen(R), Concord(TM), Cross Country(R), Cruise Air(R), Cruise
Master(R), Epic(TM), Freedom by Coachmen(TM), Freelander by Coachmen(TM),
Georgie Boy(R), Landau(R), Legend(TM), Leprechaun(R), Mirada(TM), Oasis(TM),
Pursuit(R), Saga(TM), Santara(R), Shasta(R), Somerset Dream Catcher(TM), Spirit
of America(TM), Sportscoach(R), Velocity(TM) and Viking(R).
In January 2004, the Company entered into a long-term exclusive licensing
agreement with The Coleman Company, Inc. to design, produce and market a full
line of new Coleman(R) brand recreational vehicles. The initial product
offerings will be a line of camping trailers, beginning in the third quarter of
2004, with other product offerings to follow.
Recreational vehicles are either driven or towed and serve as temporary living
quarters for camping, travel and other leisure activities. Recreational vehicles
manufactured by the Company may be categorized as motorhomes, travel trailers or
camping trailers. A motorhome is a self-powered mobile dwelling built on a
special heavy-duty motor vehicle chassis. A travel trailer is a non-motorized
mobile dwelling designed to be towed behind another vehicle.
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Camping trailers are smaller towed units constructed with sidewalls that may be
raised up and folded out.
The RV group currently produces recreational vehicles on an assembly line basis
in Indiana, Michigan, and Georgia. Components used in the manufacturing of
recreational vehicles are primarily purchased from outside sources. However, in
some cases (such as fiberglass products) where it is profitable for the RV group
to do so, or where it has experienced shortages of supplies, the RV group has
undertaken to manufacture its own components. The RV group depends on the
availability of chassis from a limited number of manufacturers. Occasionally,
chassis availability has limited the group's production (see Note 12 of Notes to
Consolidated Financial Statements for information concerning the use of
converter pool agreements to purchase vehicle chassis).
Prodesign, LLC, located in Indiana, is a custom manufacturer of diversified
thermoformed and composite products for the automotive, marine, recreational
vehicle, medical and heavy truck industries.
MARKETING
Recreational vehicles are generally manufactured against orders received from RV
dealers, who are responsible for the retail sale of the product. These products
are marketed through approximately 700 independent dealers located in 48 states
and internationally and through the two Company-owned dealerships. Subject to
applicable laws, agreements with most of its dealers are cancelable on short
notice, provide for minimum inventory levels and establish sales territories. No
dealer accounts for 10% or more of the Company's net sales.
The RV group considers itself customer driven. Representatives from sales and
service regularly visit dealers in their regions, and respond to questions and
suggestions. Divisions host dealer advisory groups and conduct informative
dealer seminars and specialized training classes in areas such as sales and
service. Open forum meetings with owners are held at campouts, providing ongoing
focus group feedback for product improvements. Engineers and product development
team members are encouraged to travel and vacation in Company recreational
vehicles to gain a complete understanding and appreciation for the products.
As a result of these efforts, the RV group believes it has the ability to
respond promptly to changes in market conditions. Most of the manufacturing
facilities can be changed over to the assembly of other existing products in two
to six weeks. In addition, these facilities may be used for other types of light
manufacturing or assembly operations. This flexibility enables the RV group to
adjust its manufacturing capabilities in response to changes in demand for its
products.
Most dealers' purchases of RV's from the RV group are financed through
"floor plan" arrangements. Under these arrangements, a bank or other financial
institution agrees to lend the dealer all or most of the purchase price of its
recreational vehicle inventory, collateralized by a lien on such inventory. The
RV group generally executes repurchase agreements at the request of the
financing institution. These agreements typically provide that, for up to twelve
months after a unit is financed, the Company will repurchase a unit that has
been repossessed by the financing institution for the amount then due to the
financing institution. This is usually less than 100% of the dealer's cost. 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
(see Note 12 of Notes to Consolidated Financial Statements). Resulting mainly
from periodic business conditions negatively affecting the recreational vehicle
industry, the Company has previously experienced some losses under repurchase
agreements. Accordingly, the Company has recorded an accrual for estimated
losses under repurchase agreements. In addition, at December 31, 2003, the group
was contingently liable under guarantees to financial institutions of their
loans to independent dealers for amounts totaling approximately $4.6 million, an
increase of approximately $3.7 million from the $.9 million in guarantees at
December 31, 2002. The RV group does not finance retail consumer purchases of
its products, nor does it generally guarantee consumer financing.
4
BUSINESS FACTORS
Many recreational vehicles produced by the RV group require gasoline for their
operation. Gasoline has, at various times in the past, been difficult to obtain,
and there can be no assurance that the supply of gasoline will continue
uninterrupted, that rationing will not be imposed or that the price of, or tax
on, gasoline will not significantly increase in the future. Shortages of
gasoline and significant increases in gasoline prices have had a substantial
adverse effect on the demand for recreational vehicles in the past and could
have a material adverse effect on demand in the future.
Recreational vehicle businesses are dependent upon the availability and terms of
financing used by dealers and retail purchasers. Consequently, increases in
interest rates and the tightening of credit through governmental action,
economic conditions or other causes have adversely affected recreational vehicle
sales in the past and could do so in the future.
Recreational vehicles are high-cost discretionary consumer durables. In the
past, recreational vehicle sales have fluctuated in a generally direct
relationship to overall consumer confidence.
COMPETITION AND REGULATION
The RV industry is highly competitive, and the RV group has numerous competitors
and potential competitors in each of its classes of products, some of which have
greater financial and other resources than the Company. Initial capital
requirements for entry into the manufacture of recreational vehicles,
particularly towables, are comparatively small; however, codes, standards, and
safety requirements enacted in recent years may act as deterrents to potential
competitors.
The RV group's recreational vehicles generally compete at all price points
except the ultra high-end. The RV group strives to be a quality and value leader
in the RV industry. The RV group emphasizes a quality product and a strong
commitment to competitive pricing in the markets it serves. The RV group
estimates that its current overall share of the recreational vehicle market is
approximately six percent, on a unit basis.
The recreational vehicle industry is fairly heavily regulated. The National
Highway Traffic Safety Administration (NHTSA), the Transportation Recall
Enhancement, Accountability, and Documentation Act (TREAD), state lemon law
statutes, laws regulating the operation of vehicles on highways, state and
federal product warranty statutes and state legislation protecting motor vehicle
dealerships all impact the way the RV group conducts its recreational vehicle
business.
State and federal environmental laws also impact both the production and
operation of the Company's products. The Company has an Environmental Department
dedicated to efforts to comply with applicable environmental regulations. To
date, the RV group has not experienced any material adverse effect from existing
federal, state, or local environmental regulations.
HOUSING AND BUILDING SEGMENT
PRODUCTS
The Housing and Building Segment consists of residential and commercial
buildings. The Company's housing and building subsidiaries (the All American
Homes group, Mod-U-Kraf Homes, LLC and Miller Building Systems, Inc.) produce
factory-built modules for single-family residences, multi-family duplexes,
apartments, condominiums, hotels and specialized structures for municipal and
commercial use.
5
All American Homes and Mod-U-Kraf design, manufacture and market factory-built
modular housing and modular commercial structures. All American Homes is the
largest producer of modular homes in the United States and has seven operations
strategically located in Colorado, Indiana, Iowa, Kansas, North Carolina, Ohio
and Tennessee. Mod-U-Kraf operates from a plant in Virginia. Together these
plants serve approximately 470 independent builders in 36 states and three
Company-owned builders located in Indiana, Kansas and Tennessee. Modular homes
are built to the same local building codes as site-built homes by skilled
craftsmen in a factory environment unaffected by weather conditions during
production. Production takes place on an assembly line, with components moving
from workstation to workstation for framing, electrical, plumbing, drywall,
roofing, and cabinet setting, among other operations. An average two-module home
can be produced in just a few days. As nearly completed homes when they leave
the plant, home modules are delivered to their final locations, typically in two
to seven sections, and are crane set onto a waiting basement or crawl space
foundation.
Miller Building Systems, Inc. ("Miller Building") designs, manufactures and
markets factory-built modular buildings for commercial use such as office
buildings, permanent housing, temporary housing, classrooms, telecommunication
shelters and other forms of shelter. Miller Building specializes in the
education and medical fields with its commercial modular buildings. It is also a
major supplier of shelters to house sophisticated telecommunications equipment
for cellular and digital telephones, data transmission systems and two-way
wireless communications. Miller Building also offers site construction services,
which range from site management to full turnkey operations. Depending on the
specific requirements of its customers, Miller Building uses wood, wood and
steel, concrete and steel, cam-lock panels or all concrete to fabricate its
structures. Miller Building manufactures its buildings in a factory, and the
assembled modules are delivered to the site location for final installation.
Miller Building has manufacturing facilities located in Indiana, Pennsylvania
and Vermont.
MARKETING
The Housing and Building group participates in an expanding market for the
factory-built residential and commercial buildings. Housing is marketed directly
to approximately 470 builders in 36 states who will sell, rent or lease the
buildings to the end-user. Commercial buildings are marketed to approximately
135 companies in 35 states. Customers may be national, regional or local in
nature.
The housing group regularly conducts builder meetings to review the latest in
new design options and component upgrades. These meetings provide an opportunity
for valuable builder input and suggestions at the planning stage. The modular
homes business is currently concentrated in the rural, scattered lot markets in
the geographic regions served. The Company has launched initiatives to supply
product into additional markets, including residential subdivisions in lower
tier metropolitan areas, group living facilities, motels/hotels, professional
office buildings and other commercial structures.
The success of modular buildings in the commercial market is the result of
innovative designs that are created by listening to customer needs and taking
advantage of advancements in technology. While price is often a key factor in
the purchase decision, other factors may also apply, including delivery time,
quality and prior experience with a certain manufacturer. A significant benefit
to the customer is the speed with which factory-built buildings can be made
available for use compared to on-site construction, and, in the commercial area,
the ability to relocate the building to another location if the end-user's
utilization requirements change. The sales staff calls on prospective customers
in addition to maintaining continuing contact with existing customers and
assists its customers in developing building specifications to facilitate the
preparation of a quotation. The sales staff, in conjunction with the engineering
staff, maintains ongoing contact with the customer for the duration of the
building project.
6
To further develop its initiatives to expand into additional markets, the
Company formed a new subsidiary during the year called All American Building
Systems, LLC. This new subsidiary will integrate direct sales and marketing for
both the All American Homes facilities and the Miller Building Systems
facilities. The Company anticipates that by combining the high volume production
capacity of All American Homes with Miller's custom building orientation they
will be able to provide a building solution without match in the market place.
Ultimately, this new entity will be dedicated to identifying new markets for the
Company's products through channels other than the traditional builder/dealer
network. All American Building Systems, LLC will become the primary, if not
sole, sales group for Miller Building Systems. Miller's technical sales
personnel will become part of the new entity in order to provide estimating
capability and support the sales efforts. Miller's existing engineering
department will form the nucleus of the combined engineering effort. This will
all but eliminate the need for out-sourced design services for All American
Homes and ensure commonality of the products manufactured by the various plants.
The operating business model for both Miller Building Systems and All American
Homes is being revised to reflect the evolving growth opportunities that exist
within the modular industry.
BUSINESS FACTORS
As a result of transportation costs, the effective distribution range of
factory-built homes and commercial buildings is limited. The shipping area from
each manufacturing facility is typically 200 to 300 miles for modular homes and
600 miles for commercial buildings. The potential shipping radius of the
telecommunication shelters is not as restricted as that of factory-built homes
and commercial buildings; however, the marketing of these shelters is
concentrated in geographic areas where there is a freight advantage over a large
portion of the competitors.
The overall strength of the economy and the availability and terms of financing
used by builders, dealers and end-users have a direct impact on the sales of the
Housing and Building group. Consequently, increases in interest rates and the
tightening of credit due to government action, economic conditions or other
causes have adversely affected the group's sales in the past and could do so in
the future.
COMPETITION AND REGULATION
Competition in the factory-built building industry is intense and the Housing
and Building group competes with a number of entities, some of which may have
greater financial and other resources than the Company. The demand for modular
homes may be impacted by the ultimate purchaser's acceptance of factory-built
homes as an alternative to site-built homes. To the extent that factory-built
buildings become more widely accepted as an alternative to conventional on-site
construction, competition from local contractors and manufacturers of other
pre-engineered building systems may increase. In addition to the competition
from companies designing and constructing on-site buildings, the Housing and
Building group competes with numerous factory-built building manufacturers that
operate in particular geographical regions.
The Housing and Building group competes for orders from its customers primarily
on the basis of quality, timely delivery, engineering capability, reliability
and price. The group believes that the principal basis on which it competes with
on-site construction is the combination of: the timeliness of factory versus
on-site construction, the cost of its products relative to on-site construction,
the quality and appearance of its buildings, its ability to design and engineer
buildings to meet unique customer requirements, and reliability in terms of
completion time. Manufacturing efficiencies, quantity purchasing and generally
lower wage rates of factory construction, even with the added transportation
expense, result in the cost of factory-built buildings being equal to or lower
than the cost of on-site construction of comparable quality. With manufacturing
facilities strategically located throughout the country, the Housing and
Building group provides a streamlined
7
construction process. This process of manufacturing the building modules in a
weather-free, controlled environment, while the builder prepares the site,
significantly reduces the time to completion on a customer's project.
Customers of the Housing and Building group are generally required to obtain
building installation permits from applicable governmental agencies. Buildings
completed by the group are manufactured and installed in accordance with
applicable building codes set forth by the particular state or local regulatory
agencies.
State building code regulations applicable to factory-built buildings vary from
state to state. Many states have adopted codes that apply to the design and
manufacture of factory-built buildings, even if the buildings are manufactured
outside the state and delivered to a site within that state's boundaries.
Generally, obtaining state approvals is the responsibility of the manufacturer.
Some states require certain customers to be licensed in order to sell or lease
factory-built buildings. Additionally, certain states require a contractor's
license from customers for the construction of the foundation, building
installation, and other on-site work. On occasion, the Housing and Building
group has experienced regulatory delays in obtaining the various required
building plan approvals. In addition to some of its customers, the group
actively seeks assistance from various regulatory agencies in order to
facilitate the approval process and reduce the regulatory delays.
8
GENERAL
(APPLICABLE TO ALL OF THE COMPANY'S PRINCIPAL MARKETS)
BUSINESS SEGMENTS
The table below sets forth the composition of the Company's net sales for each
of the last three years (dollar amounts in millions):
2003 2002 2001
Amount % Amount % Amount %
------------- ------------- -------------
Recreational Vehicles $488.2 68.7 $435.6 65.5 $344.6 58.7
Housing and Buildings 222.9 31.3 229.6 34.5 242.6 41.3
------ ----- ------ ----- ------ -----
Total $711.1 100.0 $665.2 100.0 $587.2 100.0
====== ===== ====== ===== ====== =====
Additional information concerning business segments is included in Note 2 of the
Notes to Consolidated Financial Statements.
SEASONALITY
Historically, the Company has experienced greater sales during the second and
third quarters with lesser sales during the first and fourth quarters. This
reflects the seasonality of RV sales for products used during the summer camping
season and also the adverse impact of weather on general construction for the
modular building applications.
EMPLOYEES
At December 31, 2003, Coachmen employed 4,490 persons, 945 of whom are salaried
and involved in operations, engineering, purchasing, manufacturing, service and
warranty, sales, distribution, marketing, human resources, accounting and
administration. The Company provides group life, dental, vision services,
hospitalization, and major medical plans under which the employee pays a portion
of the cost. In addition, employees can participate in a 401(k) plan and a stock
purchase plan. Certain employees can participate in a stock option plan and in
deferred and supplemental deferred compensation plans (see Notes 8 and 9 of
Notes to Consolidated Financial Statements). The Company considers its relations
with employees to be good.
RESEARCH AND DEVELOPMENT
During 2003, the Company spent approximately $7.2 million on research related to
the development of new products and improvement of existing products. The
amounts spent in 2002 and 2001 were approximately $6.4 million and $6.6 million,
respectively.
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ITEM 2. PROPERTIES
The Registrant owns or leases 3,517,522 square feet of plant and office space,
located on 1,144.0 acres, of which 2,937,074 square feet are used for
manufacturing, 243,296 square feet are used for warehousing and distribution,
46,024 square feet are used for research and development, 70,844 square feet are
used for customer service and 220,284 square feet are offices. Included in these
numbers are 71,310 square feet leased to others and 86,310 square feet available
for sale or lease. The Registrant believes that its present facilities,
consisting primarily of steel clad, steel frame or wood frame construction and
the machinery and equipment contained therein, are well maintained and in good
condition.
The following table indicates the location, number and size of the Registrant's
properties by segment as of December 31, 2003:
No. of Building Area
Location Acreage Buildings (Sq. Ft.)
-------- ------- --------- ---------
Properties Owned and Used by Registrant:
Recreational Vehicle Group
Elkhart, Indiana 46.1 11 318,094
Middlebury, Indiana 490.5 27 888,993
Fitzgerald, Georgia 29.6 4 167,070
Centreville, Michigan 105.0 4 84,865
Edwardsburg, Michigan 83.1 12 303,254
Colfax, North Carolina 7.1 3 15,200
Goshen, Indiana 18.0 1 80,000
------ --- ---------
Subtotal 779.4 62 1,857,476
------ --- ---------
Housing and Building Group
Decatur, Indiana 40.0 1 202,870
Elkhart, Indiana 20.0 4 132,300
Dyersville, Iowa 20.0 1 168,277
Leola, Pennsylvania 20.0 2 113,100
Springfield, Tennessee 45.0 1 132,603
Rutherfordton, North Carolina 37.7 1 169,177
Zanesville, Ohio 23.0 2 139,753
Bennington, Vermont 5.0 1 28,900
Rocky Mount, Virginia 39.6 4 129,293
Osage City, Kansas 29.2 3 130,818
Wichita, Kansas 3.0 - -
Milliken, Colorado 23.0 1 141,675
------- --- ---------
Subtotal 305.5 21 1,488,766
------- --- ---------
Total owned and used 1,084.9 83 3,346,242
------- --- ---------
Properties Leased and Used by Registrant:
Recreational Vehicle Group
Elkhart, Indiana 6.6 1 8,000
------ --- ---------
Subtotal 6.6 1 8,000
------ --- ---------
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Properties (Continued)
Properties Leased and Used by Registrant
Housing and Building Group
Vestal, New York - 1 5,660
Sioux Falls, South Dakota 2.0 - -
------- --- ---------
Subtotal 2.0 1 5,660
------- --- ---------
Total leased and used 8.6 2 13,660
------- --- ---------
Properties Owned by Registrant and Leased to Others:
Recreational Vehicle Group
Crooksville, Ohio 10.0 2 39,310
Melbourne, Florida 7.5 1 32,000
------- --- ---------
Total owned and leased 17.5 3 71,310
------- --- ---------
Properties Owned by Registrant and Available for Sale or Lease:
Recreational Vehicle Group
Perris, California 2.2 - -
Grapevine, Texas 8.6 - -
Longview, Texas 9.2 - -
----- --- -------
Subtotal 20.0 - -
----- --- -------
Housing and Building Group
Decatur, Indiana 3.3 2 86,310
Rocky Mount, Virginia 9.7 - -
----- --- -------
Subtotal 13.0 2 86,310
----- --- --------
Total owned and available
for sale or lease 33.0 2 86,310
----- --- --------
Total Company 1,144.0 90 3,517,522
======= === =========
ITEM 3. LEGAL PROCEEDINGS
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 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the quarter ended December 31, 2003 to a vote
of security holders, through the solicitation of proxies or otherwise.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the executive officers of the Company, as of
December 31, 2003:
Name Position
Claire C. Skinner Chairman of the Board and Chief Executive Officer
Matthew J. Schafer President and Chief Operating Officer
Richard M. Lavers Executive Vice President and General Counsel and
Secretary
Joseph P. Tomczak Executive Vice President and Chief Financial Officer
Michael R. Terlep, Jr. President, CLI dba Coachmen RV Group and President,
Coachmen Recreational Vehicle Company, LLC
Steven E. Kerr President, All American Homes, LLC
William G. Lenhart Senior Vice President, Human Resources
CLAIRE C. SKINNER (age 49) served as Chairman of the Board and Chief Executive
Officer since August 1997 while assuming the position of President of the
Company from September 2000 through November 2003. Before that, she served as
Vice Chairman of the Company since May 1995, and as Executive Vice President
from 1990 to 1995. From 1987 through July 1997, Ms. Skinner served as the
President of Coachmen RV, the Company's largest division. Prior to that, she
held several management positions in operations and marketing since 1983. She
received her B.F.A. degree in Journalism/Marketing from Southern Methodist
University and her J.D. degree from the University of Notre Dame Law School.
MATTHEW J. SCHAFER (age 43) joined Coachmen Industries in December 2003 as
President and Chief Operating Officer. Before joining Coachmen, Mr. Schafer
served for more than 19 years in various executive positions with General
Electric Company. From 2002 to 2003, he was Chief Operating Officer, GE
Equipment Management, TIP & Modular Space, a full-line leasing, sales and
service company of trailers, modular space units, containers and storage
products. From 1999 to 2002, Schafer served as President, GE Equipment
Management, Modular Space North America, a leading leasing, sales, turnkey
construction and service business of modular units. From 1995 through 1998, he
served as the General Manager for three businesses of General Electric
Industrial Systems, a global manufacturer of AC/DC motors, controls, security
equipment, and software for the HVAC, commercial, appliance, and industrial
markets. Schafer also held several other management positions with General
Electric from 1984 through 1994. Schafer holds a Bachelor of Science degree in
mechanical engineering from Union College in Schenectady, New York, and an
Associates of Science degree in engineering science from Hudson Valley College
in Troy, New York.
RICHARD M. LAVERS (age 56) assumed the position of Executive Vice President of
the Company in May 2000 and has served as Secretary of the Company since March
1999. He joined the Company in October 1997 as General Counsel. From 1994
through 1997, Mr. Lavers was Vice President, Secretary and General Counsel of
RMT, Inc. and Heartland Environmental Holding Company. Mr. Lavers earned both
his B.A. degree and his J.D. degree from the University of Michigan.
JOSEPH P. TOMCZAK (age 48) joined Coachmen Industries in July 2001 as Executive
Vice President and Chief Financial Officer. Before joining Coachmen, Mr. Tomczak
served in that same capacity at Kevco, Inc. from January 2000 through June 2001.
In February 2001, Kevco and all of its wholly owned subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code. Prior to that, he held the positions at Outboard Marine Corporation of
Vice President of Finance for the Engine Operations Group and Vice President and
Corporate Controller. Prior to that, Mr. Tomczak was Vice President and
Corporate Controller at Alliant Foodservice, Inc. He received his Masters of
Management degree from Northwestern University's Kellogg Graduate School of
Management and his B.A.
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degree in Accounting and Business Administration from Augustana College. Mr.
Tomczak is a Certified Public Accountant.
MICHAEL R. TERLEP, JR. (age 42) was appointed President of CLI, dba Coachmen RV
Group in March 2003 and appointed President of Coachmen Recreational Vehicle
Company (RV) in June 1997. Prior to that, he was Executive Vice President of
Coachmen RV, with retained responsibility for product development, among other
duties, since 1993. He was given the additional responsibility of General
Manager of the Indiana Division in 1995. Prior to his promotion to Executive
Vice President, Mr. Terlep served as Vice President of Sales and Product
Development from 1990 to 1993. He has held several other management positions
with the Company since joining Coachmen in 1984. He received his B.A. degree
from Purdue University.
STEVEN E. KERR (age 55) joined Coachmen Industries in February 1999. He served
as Vice President/General Manager of All American Homes from February 1999 to
July 2000, when he was appointed President of All American Homes. Prior to
joining the Company, Mr. Kerr served as Vice President, Marketing of Unibilt
Industries, Inc. Prior to that, he served as Vice President/General Manager of
New England Homes, Inc. Mr. Kerr received his B.A. degree from Indiana
University.
WILLIAM G. LENHART (age 55) joined Coachmen Industries in June 2001 as Senior
Vice President of Human Resources. Prior to that, he held the position of Vice
President of Human Resources for Svedala Industries, Inc., an international
mining and mineral processing equipment manufacturing company. Prior to that, he
held senior human resources positions with Arandel Corporation and St. Mary's
Medical Center. Mr. Lenhart holds a B.S. degree in Business Administration from
Defiance College.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The following table discloses the high and low sales prices for Coachmen's
common stock during the past two years as reported on the New York Stock
Exchange, along with information on dividends paid per share during the same
periods.
High & Low Sales Prices Dividends Paid
2003 2002 2003 2002
---- ---- ---- ----
1st Quarter $16.54 - $10.00 $19.20 - $12.00 $.06 $.05
2nd Quarter 13.82 - 10.50 19.50 - 13.75 .06 .05
3rd Quarter 14.30 - 11.45 17.35 - 11.30 .06 .06
4th Quarter 19.20 - 11.96 17.15 - 12.60 .06 .06
The Company's common stock is traded on the New York Stock Exchange: Stock
symbol COA. The number of shareholders of record as of January 31, 2004 was
1,910.
See Item 12 for the Equity Compensation Table.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data
-Year Ended December 31-
(in thousands, except per share amounts)
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net sales $711,145 $665,192 $587,212 $728,018 $868,334
Gross profit 104,701 99,219 83,445 96,409 128,971
Net income (loss) 7,365 9,929 (3,951) 2,164 29,502
Net income (loss) per share:
Basic .48 .62 (.25) .14 1.80
Diluted .48 .62 (.25) .14 1.80
Cash dividends per share .24 .22 .20 .20 .20
At year end:
Working capital 95,963 93,574 102,006 116,237 135,103
Total assets 310,688 293,195 288,560 296,446 285,766
Long-term debt 9,419 10,097 11,001 11,795 8,346
Shareholders' equity 211,151 209,426 208,640 214,949 213,646
Book value per share 13.58 13.37 13.09 13.69 13.76
Number of employees 4,490 4,233 3,788 4,149 4,942
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The analysis of the Company's financial condition and results of operations
should be read in conjunction with the Selected Financial Data and the
Consolidated Financial Statements.
OVERVIEW
The Company was founded in 1964 as a manufacturer of recreational vehicles and
began manufacturing modular homes in 1982. Since that time, the Company has
evolved into a leading manufacturer in both the recreational vehicle ("RV") and
housing and building business segments through a combination of internal growth
and strategic acquisitions.
The Company's new plant openings have been an important component of its
internal growth strategy. In 1995, the Company opened a new modular housing
plant in Tennessee and in 1996, the Company expanded its modular housing
production capacity with the construction of a new facility for the North
Carolina housing operation. The construction of a new modular housing facility
in Ohio became fully operational in 1998. Increases in production capacity also
included additions to the modular housing plant in Iowa with an addition
completed in 1998. New additions to expand the North Carolina and Iowa modular
housing production facilities were completed in 2000. Additional travel trailer
plants in Indiana became operational in 1996 and 1997. These additional plants
helped capitalize on the growing market share of value-priced travel trailers.
In 1999, a new service building was constructed at the RV production facility in
Georgia and construction was completed in 1999 for a new manufacturing facility
in Indiana for Class A motorhomes. During 2003, the Company completed
construction of a new Class C motorhome manufacturing facility in Indiana and
purchased an existing facility in Georgia to expand its manufacturing capacity
for travel trailers and fifth wheels. The Company is also in the final stages of
completing a new service facility located at its Company-owned dealership in
North Carolina. For 2004, the Company is planning for a new manufacturing
facility to support anticipated production requirements associated with the
exclusive licensing arrangement with The Coleman Company, Inc.
Acquisitions have also played an important role in the Company's growth
strategy, particularly in the housing and building segment. In 2001, the Company
acquired Kan Build, Inc. ("Kan Build"), a manufacturer of modular buildings with
facilities in Kansas and Colorado. During 2000, the Company significantly
expanded its housing and building segment with the acquisitions of Mod-U-Kraf
Homes, Inc. ("Mod-U-Kraf Homes") and Miller Building Systems, Inc. ("Miller
Building"). For further details, including unaudited pro forma financial
information, see Note 11 of Notes to Consolidated Financial Statements. While
continuing to consider potential candidates for acquisition, none were completed
in 2003.
The Company's business segments are cyclical and subject to certain seasonal
demand cycles and changes in general economic and political conditions. Demand
in the RV and certain portions of the housing and building segments generally
declines during the winter season, while sales and profits are generally highest
during the spring and summer months. Inflation and changing prices have had
minimal direct impact on the Company in the past in that selling prices and
material costs have generally followed the rate of inflation. Changes in
interest rates impact both the RV and housing and building segments, with rising
interest rates potentially dampening sales.
15
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of net
sales represented by certain items reflected in the Consolidated Statements of
Operations expressed as a percentage of sales and the percentage change in the
dollar amount of each such item from that in the indicated previous year:
Percentage of Net Sales Percent Change
Years Ended December 31 2003 2002
to to
2003 2002 2001 2002 2001
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 6.9% 13.3%
Cost of sales 85.3 85.1 85.8 7.2 12.3
---- ---- ----
Gross profit 14.7 14.9 14.2 5.5 18.9
Operating expenses:
Delivery 4.7 4.6 5.4 11.5 (3.3)
Selling 3.8 3.6 3.7 13.2 9.4
General and administrative 4.7 4.8 5.7 4.0 (4.7)
Amortization of goodwill - - .2 n/m (100.0)
---- ---- ----
Total operating expenses 13.2 13.0 15.0 9.2 (2.0)
---- ---- ----
Operating income (loss) 1.5 1.9 (.8) (18.7) n/m
Nonoperating (income) expense:
Interest expense .2 .2 .4 (9.8) (35.8)
Investment income (.1) (.1) (.1) 125.7 (2.7)
Gain on sale of properties, net (.1) (.4) (.1) (79.9) 673.3
Other (income) expense (.1) (.1) - (46.5) n/m
---- ---- ----
Total nonoperating
(income) expense (.1) (.4) .2 (73.2) n/m
---- ---- ----
Income (loss) before income taxes 1.6 2.3 (1.0) (25.8) n/m
Income taxes (benefit) .6 .8 (.3) (25.9) n/m
---- ---- ----
Net income 1.0 1.5 (.7) (25.8) n/m
==== ==== ====
n/m - not meaningful
COMPARISON OF 2003 TO 2002
Consolidated net sales increased $45.9 million, or 6.9% to $711.1 million in
2003 from $665.2 million in 2002. After a slow start at the beginning of 2003,
hindered by the anticipation of war in Iraq, industry trends improved,
particularly in the RV segment. The Company's RV segment experienced a net sales
increase of $52.6 million, or 12.1%, over 2002. During 2003, the Company saw a
shift in demand towards higher end products in the RV segment resulting in a
sales dollar increase over 2002 while unit shipments declined. Full-year
recreational vehicle wholesale unit shipments for the Company were down 4.0%
compared to 2002, while the industry was up 3.9% in the same categories. In the
various product categories, the Company's Class A market share increased to 7.1%
in 2003 as compared to 6.6% in 2002. Class C market share declined to 11.6%
compared to 13.3% in 2002. Travel trailer market share declined .9 percentage
points to 5.0% from 5.9% in 2002. Fifth wheel market share increased to 3.1% in
2003 from 2.4% in 2002 and camping trailer market share increased to 12.0% from
11.9% the previous year. The increase in Class A market share is attributable to
the improved performance of the Company's Georgie Boy subsidiary during 2003
coupled with the increased emphasis on rear diesel products at Coachmen
Recreational Vehicle Company. Travel trailer market share decreased mainly due
to the lower volumes achieved from Coachmen RV's Spirit of America entry-level
trailer. Also, more of the Company's towable business shifted to fifth wheels,
with unit shipments increasing 34.8% as compared to 2002. Fifth wheel market
share increased 29.2% as a result of several successful new floor plan
introductions during 2003. Camping trailers saw an industry-wide decline in
wholesale shipments of over 20% during 2003, The Company did slightly better,
resulting in a .1 percentage point market share gain. Because of this overall
decrease in unit shipments when compared to the industry, Coachmen's share of
recreational vehicle wholesale shipments for the year declined to 6.0%, a .6
percentage point decline from its 2002
16
full-year share of 6.6%. The 12.1% increase in sales dollars for the
recreational vehicle segment coupled with a 4.0% decrease in unit shipments
resulted in an increase of 16.7% in the average sales price per unit for
products sold by the Company in 2003. RV backlogs were a positive sign at the
end of 2003, being 26.6% higher at the end of 2003 as compared to the end of
2002. The housing and building segment had a net sales decrease in 2003 of $6.7
million, or 2.9%. Due to weather related problems, deliveries were hampered
throughout much of the year at several of the Company's locations, as builders
were unable to complete the foundations and site-preparation. As a result,
finished goods for the housing and building segment were 23.9% higher at
December 31, 2003 as compared to December 31, 2002. On a positive note, 2003
year-end residential backlogs were 16.1% higher than year-end 2002. With
cooperative weather conditions, these products should be delivered during the
first quarter of 2004. For 2003, the housing and building segment experienced an
increase in the average sales price per unit but a decrease in unit sales. The
increase was mainly the result of sales price increases and surcharges related
to increased cost of raw materials, particularly lumber. Historically, the
Company's first and fourth quarters are the slowest for sales in both segments.
Gross profit was $104.7 million, or 14.7% of net sales, in 2003 compared to
$99.2 million, or 14.9% of net sales, in 2002. For the RV segment, gross profit
in dollars improved in 2003 while the gross profit percentage declined. Gross
profit in dollars and as a percentage of net sales was negatively affected in
2003 for the RV segment as a result of major material shortages experienced
throughout the year, including ovens and ranges during the fourth quarter.
Initial startups at the Company's two new RV manufacturing facilities located in
Indiana and Georgia also affected production efficiencies. However, as
production rates increased in these new plants, efficiencies steadily improved.
For the housing and building segment, gross profit in dollars and as a
percentage of net sales improved slightly in 2003 when compared to the previous
year. The overall increase in gross profit dollars was primarily attributable to
the continued recovery of the RV segment while the decrease in gross profit as a
percentage of sales was primarily the result of manufacturing inefficiencies in
the RV segment previously discussed.
Operating expenses, consisting of selling, delivery, general and administrative
expenses, were $94.1 million and $86.2 million, or as a percentage of net sales,
13.2% and 13.0% for 2003 and 2002, respectively. Delivery expenses were $33.8
million in 2003, or 4.7% of net sales, compared with $30.3 million, or 4.6% of
net sales in 2003. Delivery expense is affected by product mix, delivery
distance as well as operating expenses and outsourcing costs. For 2003, delivery
expense increased $3.5 million as compared to 2002. However, revenue generated
from delivery, included in sales revenue, increased $4.9 million, more than
offsetting the increase in expenses for the year. Selling expenses for 2003 were
$27.0 million, or 3.8% of net sales, a .2 percentage point increase over the
$23.8 million, or 3.6% of net sales, experienced in 2002. The $3.2 million
increase in selling expense came primarily from the RV segment and was related
to increased sales staffing and travel-related expenses along with increased
expenses associated with new product shows. General and administrative expenses
were $33.3 million in 2003, or 4.7% of net sales, compared with $32.0 million,
or 4.8% of net sales, in 2002. The increase, while less as a percentage of sales
than 2002, was primarily related to increases in insurance costs and
professional services.
Operating income in 2003 of $10.6 million compared with operating income of
$13.0 million in 2002, a decrease of $2.4 million. This decrease is consistent
with the $5.5 million increase in gross profit coupled with the $7.9 million
overall increase in operating expenses.
Interest expense for 2003 and 2002 was $1.3 million and $1.5 million,
respectively. Interest expense varies with the amount of short- and long-term
borrowings incurred by the Company. The Company periodically borrows from its
line of credit to meet working capital needs, as indicated by the $5.0 million
outstanding balance at December 31, 2003. These borrowings were generally
associated with the increased inventory levels maintained by the Company
17
during 2003, along with the investment in two new manufacturing facilities
during 2003 that were funded primarily from available cash and marketable
securities. Investment income for 2003 of $1.0 million was $.5 million higher
than 2002 (see Note 1 of Notes to Consolidated Financial Statements).
The gain on sale of properties decreased to $.5 million in 2003 from $2.3
million in 2002. The gains for 2003 resulted primarily from the sale of vacant
lots located in California. Assets are continually analyzed and every effort is
made to sell or dispose of properties that are determined to be excess or
unproductive.
Pretax income for 2003 was $11.1 million compared with pretax income of $15.0
million for 2002. The Company's RV segment generated pretax income of $2.1
million, or .4% of recreational vehicle net sales in 2003, compared with pretax
income of $1.9 million, or .4% of the RV segment's net sales in 2002. The
housing and building segment recorded 2003 pretax income of $10.0 million and in
2002, $10.1 million, or 4.5% and 4.4%, respectively, of segment net sales (see
Note 2 of Notes to Consolidated Financial Statements).
The provision for income taxes was an expense of $3.8 million for 2003 versus an
expense of $5.1 million for 2002, representing an effective tax rate of 33.8%
for both periods. The Company's effective tax rate fluctuates based upon the
states where sales occur, the level of export sales, the mix of nontaxable
investment income and other factors (see Note 10 of Notes to Consolidated
Financial Statements).
Net income for the year ended December 31, 2003 was $7.4 million ($.48 per
diluted share) compared to net income of $9.9 million ($.62 per diluted share)
for 2002.
COMPARISON OF 2002 TO 2001
Consolidated net sales for 2002 were $665.2 million, an increase of 13.3% from
the $587.2 million reported in 2001. The Company's RV segment experienced a
sales increase of 26.4%, while the housing and building segment's sales
decreased by 5.3%. Improving industry trends, as well as the Company's extensive
branding and design improvements, resulted in increased dealer and consumer
demand for products in the RV segment. Full-year recreational vehicle wholesale
shipments for the Company were up 29.7% compared to 2001, while the industry was
up 22.1% in the same categories. Because the Company outperformed the industry,
Coachmen's share of recreational vehicle wholesale shipments for the year was
6.6%, a 6.5% increase from its 2001 full-year share. The recreational vehicle
segment experienced an increase in unit sales and a slight increase in the
average sales price per unit. The housing and building segment experienced an
increase in the average sales price per unit, but a decrease in unit sales. The
poor sales performance for less expensive commercial structures to the telecom
industry during 2002 as compared to 2001 was a major factor impacting both the
unit sales decrease and the average sales price per unit increase in the housing
and building segment. Historically, the Company's first and fourth quarters are
the slowest for sales in both segments.
Gross profit for 2002 increased to $99.2 million, or 14.9% of net sales, from
$83.4 million, or 14.2% of sales, in 2001. Gross profit in dollars and as a
percentage of net sales improved significantly in 2002 for the RV segment. For
the housing and building segment, gross profit in dollars and as a percentage of
net sales decreased in 2002 when compared to the previous year. The overall
improvement in gross profit was primarily attributable to the sales recovery of
the RV industry coupled with the realized benefit of cost reduction efforts in
the RV segment. Such efforts included the improved utilization of manufacturing
facilities resulting from plant consolidations that took place in 2001. The
housing and building segment's gross profit as a percentage of net sales
decreased mainly due to reduced sales volume, resulting in less efficient
utilization of manufacturing facilities.
18
Operating expenses, which include selling, delivery and general and
administrative expenses, were $86.2 million, or 13.0% of net sales in 2002,
compared with $87.9, or 15.0% of sales in 2001. Delivery expenses were $30.3
million, or 4.6% of net sales in 2002, compared with $31.4 million, or 5.4% of
net sales in 2001. Delivery expenses as a percentage of sales are considerably
higher for the housing and building segment as compared to the recreational
vehicle segment. With the recovery of the RV industry in 2002, the recreational
vehicle segment contributed a greater percentage of overall Company sales in
2002 as compared to 2001, resulting in a decrease in delivery expense as a
percentage of net sales. Selling expenses for 2002, at $23.8 million or 3.6% of
net sales, improved slightly as a percentage of sales from the $21.8 million or
3.7% of net sales in 2001. General and administrative expenses were $32.0
million, or 4.8%, of net sales in 2002, compared with $34.8 million, or 5.9%, of
net sales in 2001. This decrease was primarily the result of the discontinuation
of goodwill amortization in 2002 resulting from the adoption of SFAS No. 142. If
nonamortization provision of SFAS No. 142 had been applied in 2001, general and
administrative expense would have decreased by $1.2 million, or .2% of net sales
(see Note 1 of Notes to Consolidated Financial Statements).
Operating income was $13.0 million in 2002 compared with an operating loss of
$4.5 million in 2001, an improvement of $17.5 million. This increase was
consistent with the $15.8 million increase in gross profit coupled with the
decrease of $1.7 million in operating expenses.
Interest expense for 2002 and 2001 was $1.5 million and $2.3 million,
respectively. Interest expense varies with the amount of long-term debt and the
amount of premiums borrowed by the Company against the cash surrender value of
the Company's investment in life insurance contracts. Such outstanding borrowing
amounts declined in 2002. Interest expense also was higher in 2001 as a result
of assumed debt obligations in the acquisitions of Mod-U-Kraf Homes, Miller
Building and Kan Build. Investment income for 2002 of $.5 million was consistent
with 2001. Cash and temporary cash investments were used to reduce debt
obligations, particularly the borrowings against life insurance policies of
$18.5 million (see Note 1 of Notes to Consolidated Financial Statements).
The gain on sale of properties increased to $2.3 million in 2002 from $.3
million in 2001. These gains resulted primarily from the sale of the two idle
Shasta facilities in Indiana and the closed Coachmen facility located in Oregon.
In addition, two of the previously closed Company-owned dealerships were sold in
2002. Other gains resulted from the sale of real estate in California and other
smaller properties. There were no significant gains on the sale of properties in
2001. Assets are continually analyzed and every effort is made to sell or
dispose of properties that are determined to be excess or unproductive.
Pretax income for 2002 was $15.0 million compared with a pretax loss of $6.1
million for 2001. The Company's RV segment generated pretax income of $1.9
million, or .4% of recreational vehicle net sales in 2002, compared with a
pretax loss of $11.6 million, or (3.4)% of the RV segment's net sales in 2001.
The housing and building segment produced 2002 pretax income of $10.1 million
and in 2001, $15.5 million, or 4.4% and 6.4%, respectively, of segment net sales
(see Note 2 of Notes to Consolidated Financial Statements).
The provision for income taxes was an expense of $5.1 million for 2002 versus a
benefit of $2.2 million for 2001, representing an effective tax rate of 33.8%
and (35.4%), respectively. The Company's effective tax rate fluctuates based
upon the states where sales occur, the level of export sales, the mix of
nontaxable investment income and other factors (see Note 10 of Notes to
Consolidated Financial Statements).
Net income for the year ended December 31, 2002 was $9.9 million ($.62 per
diluted share) compared to a net loss of $4.0 million ($(.25) per diluted share)
for 2001.
19
LIQUIDITY AND CAPITAL RESOURCES
The Company generally relies on funds from operations as its primary source of
working capital and liquidity. In addition, the Company maintains a $35 million
secured line of credit to meet its seasonal working capital needs (see Note 5 of
Notes to Consolidated Financial Statements). This credit line was periodically
utilized in 2003 and there were $5.0 million in outstanding borrowings at
December 31, 2003. The credit line was not utilized during 2002. During 2001,
there were borrowings of $13.5 million under the credit facilities to finance
the cash purchase price of Kan Build and such borrowings were subsequently
repaid.
For 2002 and 2001, the Company's operating activities had been the principal
source of cash flows. However, during 2003, mainly as a result of increased
inventories and receivables, offset somewhat by an increase in trade payables,
the Company generated a negative cash flow from operations. Cash used in
operations in 2003 was $3.6 million while operating cash flows were $13.1
million and $41.3 million for 2002 and 2001, respectively. For the year 2003,
net income, adjusted for depreciation, and an increase in trade payables, were
the significant factors in generating operating cash flows, which were offset by
increases in trade receivables and inventories. The increase in receivables was
related to the 15.8% increase in fourth quarter sales as compared to the
previous year and particularly by the RV segment's strong sales effort during
the final two weeks of December. For the year 2002, net income, adjusted for
depreciation, was a significant factor in generating operating cash flows,
offset by increases in trade receivables and inventories. The increase in
receivables was related to the 28.5% increase in fourth quarter sales volume. In
2001, depreciation and the decreases in receivables and inventories, offset
somewhat by decreases in trade accounts payable, were the major sources of cash
flows. The decrease in receivables was directly related to the decrease in total
net sales for the fourth quarter of 2001 compared to the same period in 2000.
Investing activities used cash of $3.4 million in 2003, provided cash of $4.8
million in 2002 and used cash of $4.4 million in 2001. In 2003, the investment
in two additional manufacturing facilities for the RV segment represented a
major use of cash. In 2002, the sale of property and equipment, including real
estate held for sale and rental properties provided cash flows of $10.0 million.
In 2001, investment activities were mainly attributable to the acquisition of
Kan Build. The sale of marketable securities, net of purchases, provided cash
flows of $4.9 million, $.4 million and $3.9 million for 2003, 2002 and 2001,
respectively. These proceeds were used in part to fund the investment in the two
additional manufacturing facilities in 2003. Acquisitions of businesses consumed
cash of $7.7 million in 2001 (see Note 11 of Notes to Consolidated Financial
Statements). Other than the two additional manufacturing facilities, capital
expenditures of $12.1 million during 2003 included a new service facility
currently under construction at the Company-owned dealership in North Carolina
and investments in machinery and equipment and transportation equipment for both
the recreational vehicle segment and the housing and building segment. Capital
expenditures during 2002 consisted mainly of completion of a new office building
for Mod-U-Kraf Homes and investments in machinery and equipment and
transportation equipment for both operating segments. Major capital expenditures
during 2001 included the completion of the Milliken, Colorado facility which was
under construction at the time of the Kan Build acquisition.
In 2003, cash flows from financing activities reflected the Company's short-term
borrowing activity. The principal use of cash flows from financing activities
was $4.4 million used to purchase common shares under the Company's share
repurchase program during the first quarter. In 2002, the principal use of cash
flows from financing activities was the $18.5 million used to repay borrowings
against life insurance policies, and $7.9 million used to purchase common shares
under the Company's share repurchase program. In 2001, cash flows from financing
activities reflected borrowings of $13.5 million, which were used for the
purchase of Kan Build. This was subsequently repaid during the year along with
$7.9 million of long-term debt acquired with the purchase.
20
Other financing activities for 2003, 2002 and 2001, which used cash in each of
the years, were payments of long-term debt and cash dividends. These negative
cash flows were partially offset by the issuance of common shares under stock
option and stock purchase plans. For a more detailed analysis of the Company's
cash flows for each of the last three years, see the Consolidated Statements of
Cash Flows.
The Company's cash and temporary cash investments at December 31, 2003 were $6.4
million, or a decrease of $10.1 million from 2002. The Company anticipates that
available funds, together with anticipated cash flows generated from future
operations and amounts available under its existing credit facilities, will be
sufficient to fund future planned capital expenditures and other operating cash
requirements through the end of 2004. In addition, the Company has $5.7 million
of marketable securities available, if needed, for operations.
A downturn in the U.S. economy, lack of consumer confidence and other factors
adversely impact the RV industry. This has a negative impact on the Company's
sales of recreational vehicles and also increases the Company's risk of loss
under repurchase agreements with lenders to the Company's independent dealers
(see Note 12 of Notes to Consolidated Financial Statements and Critical
Accounting Policies below).
In 2003, working capital increased $2.4 million, to $96.0 million from $93.6
million. The $18.2 million increase in current assets at December 31, 2003
versus December 31, 2002 was primarily due to increases in trade receivables and
inventories. The $15.8 million increase in current liabilities is substantially
due to increases in trade payables and short-term borrowings.
The Company anticipates capital expenditures in 2004 of approximately $12
million. The major planned expenditures include a new manufacturing facility to
provide increased capacity for camping trailer production and other product
offerings associated with the exclusive licensing agreement signed with The
Coleman Company, Inc. in January 2004. The balance of the planned capital
expenditures for 2004 will be for purchase or replacement of machinery and
equipment and transportation equipment to be used in the ordinary course of
business. The Company plans to finance these expenditures with funds generated
from operating cash flows.
PRINCIPAL CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The Company's future contractual obligations for agreements with initial terms
greater than one year are summarized as follows (in thousands):
Payment Period
--------------
2004 2005 2006 2007 2008 Thereafter
---- ---- ---- ---- ---- ----------
Credit facility
borrowings $5,000.0 $ - $ - $ - $ - $ -
Long-term debt 990.2 1,265.8 1,221.0 1,581.7 1,462.1 3,888.0
Operating leases 166.5 96.0 84.9 70.7 31.7 -
The Company's commercial commitments, along with the expected expiration period
of the commitment, is summarized as follows (in thousands):
Amount of Commitment
Total Expiration Per Period
Amounts Less Than In Excess of
Committed One Year One Year
--------- -------- --------
Letters of credit $ 3,229.8 $ 3,229.8 $ -
Guarantees 6,042.6 4,594.3 1,448.3
Standby repurchase obligations 238,000.0 238,000.0 -
Chassis pool obligations 11,638.9 11,638.9 -
21
CRITICAL ACCOUNTING POLICIES
The following discussion of accounting policies is intended to supplement the
summary of significant accounting policies presented in Note 1 of Notes to
Consolidated Financial Statements. These policies were selected because they are
broadly applicable within our operating units and they involve additional
management judgment due to the sensitivity of the methods, assumptions and
estimates necessary in determining the related income statement, asset and/or
liability amounts.
INVESTMENTS - The Company regularly reviews its investment portfolio for any
unrealized losses that would be deemed other-than-temporary and require the
recognition of an impairment loss in earnings. The Company recognizes other than
temporary losses for investments when cost has exceeded fair market value for
nine or more months. At December 31, 2003, Management considers $457,800 of
unrealized losses to be other than temporary and, accordingly, has recorded a
charge against earnings for the year ended December 31, 2003.
IMPAIRMENT OF GOODWILL - INDEFINITE-LIVED INTANGIBLES - The Company evaluates
the carrying amounts of goodwill and indefinite-lived intangible assets annually
to determine if they may be impaired. If the carrying amounts of the assets are
not recoverable based upon discounted cash flow analysis, they are reduced by
the estimated shortfall of fair value compared to the recorded value. The
Company completed the annually required valuation process and no impairment
losses were recognized in 2003. However, should actual results or changes in
future expectations differ from those projected by management, goodwill
impairment may be required and may be material.
WARRANTY RESERVES - The Company provides customers of its products with a
warranty covering defects in material or workmanship for periods generally
ranging from one to two years in length and up to ten years on certain
structural components. The Company records a liability based on its estimate of
the amounts necessary to settle future and existing claims on products sold as
of the balance sheet date. Estimated costs related to product warranty are
accrued at the time of sale and included in cost of sales. Average per unit
costs are estimated based upon past warranty claims and unit sales history and
adjusted as required to reflect actual costs incurred, as information becomes
available. Warranty expense totaled $16.3 million, $16.6 million and $16.8
million in 2003, 2002 and 2001, respectively. Accrued liabilities for warranty
expense at December 31, 2003 and 2002 were $8.7 million and $8.8 million,
respectively.
LITIGATION AND PRODUCT LIABILITY RESERVES - At December 31, 2003 the Company had
reserves for certain other loss exposures, such as product liability ($2.9
million) and litigation ($1.6 million)(see Note 12 of Notes to Consolidated
Financial Statements). The Company litigation reserve is determined based on an
individual case evaluation process. The Company's estimated loss reserves for
product liability are determined using loss triangles established by the
Company's management reflecting historical claims incurred by the Company. While
the Company believes this method to be consistent and appropriate, changes in
estimates based on historical trends could materially affect the Company's
recorded liabilities for loss.
NEW AND PENDING ACCOUNTING POLICIES
(See New Accounting Pronouncements in Note 1 of Notes to Consolidated Financial
Statements).
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain statements that are "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are based on management's expectations and beliefs
concerning future events. Forward-looking statements are necessarily subject
22
to risks, uncertainties and other factors, many of which are outside the control
of the Company that could cause actual results to differ materially from such
statements. These uncertainties and other factors include, but are not limited
to, the potential fluctuations in the Company's operating results; the
availability and price of gasoline, which can impact the sale of recreational
vehicles; the availability and cost of real estate for residential housing; the
Company's dependence on chassis and appliance suppliers; the condition of the
telecommunications industry which purchases modular structures; interest rates,
which affect the affordability of the Company's products; potential liabilities
under repurchase agreements and guarantees; 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 demand for commercial structures
in the various industries that the housing and building segment serves; the
impact of performance on the valuation of intangible assets; 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
building industries in the United States. Other factors affecting
forward-looking statements include the cyclical and seasonal nature of the
Company's businesses, adverse weather conditions affecting home deliveries,
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. The foregoing list is not exhaustive,
and the Company disclaims any obligation to subsequently revise any
forward-looking statements to reflect events or circumstances after the date of
such statements.
At times, the Company's actual performance differs materially from its
projections and estimates regarding the economy, the recreational vehicle 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.
ITEM 7A. 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. In 2003, the Company periodically utilized its
credit facility to meet short-term working capital needs and these borrowings
were typically repaid in the near-term. The Company had borrowings of $5.0
million outstanding against its credit facility at December 31, 2003. The
Company did not utilize its credit facility in 2002. In 2001, the Company
utilized its credit facility in connection with the acquisition of Kan Build and
such borrowings were repaid within six months. Accordingly, changes in interest
rates would primarily impact the Company's long-term debt. At December 31, 2003,
the Company had $10.4 million of long-term debt, including current maturities.
Long-term debt consists mainly of industrial development revenue bonds. In
January of 2003, the Company entered into various interest rate swap agreements
that became effective beginning in October of 2003. These swap agreements, which
are designated as cash flow hedges for accounting
23
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 $160,000,
net of taxes, attributable to changes in the fair value of interest rate swap
agreements was recorded as a component of accumulated other comprehensive income
(loss) in 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 income (loss).
At December 31, 2003, the Company had four interest rate swap agreements with
notional amounts of $2,000,000, $580,000, $3,600,000, and $2,200,000,
respectively, that were used to convert the variable interest rates on certain
industrial development revenue bonds to fixed rates. In accordance with the
terms of the swap agreements, the Company pays 3.39%, 3.12%, 3.71%, and 3.36%
interest rates, respectively, and receives the Bond Market Association Index
(BMA), calculated on the notional amounts, with net receipts or payments being
recognized as adjustments to interest expense.
At December 31, 2003, the Company had $5.7 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. As discussed in Note 1 of Notes to Consolidated
Financial Statements, 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
December 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 interest rates applied to the fair value of the financial
instruments as of December 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.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS PAGE
Financial Statements:
Report of Independent Auditors 26
Consolidated Balance Sheets at December 31, 2003 and 2002 27
Consolidated Statements of Operations
for the years ended December 31, 2003, 2002 and 2001 28
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2003, 2002 and 2001 29
Consolidated Statements of Cash Flows for the years
ended December 31, 2003, 2002 and 2001 30-31
Notes to Consolidated Financial Statements 32-55
Financial Statement Schedule:
II - Valuation and Qualifying Accounts for the years
ended December 31, 2003, 2002 and 2001 58
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
25
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Coachmen Industries, Inc.
We have audited the accompanying consolidated balance sheets of Coachmen
Industries, Inc. (the Company) and subsidiaries as of December 31, 2003 and
2002, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2003. Our audits also included the financial statement schedule listed in
the Index at Item 15(a)(2). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Coachmen Industries, Inc. and subsidiaries at December 31, 2003 and 2002, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 2002 the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets."
/s/ Ernst & Young LLP
Grand Rapids, Michigan
January 29, 2004
26
COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31
(in thousands)
ASSETS
2003 2002
---- ----
CURRENT ASSETS
Cash and temporary cash investments $ 6,408 $ 16,549
Marketable securities 5,667 7,641
Trade receivables, less allowance for
doubtful receivables 2003 - $1,208
and 2002 - $861 46,232 29,408
Other receivables 1,906 1,572
Refundable income taxes 642 2,878
Inventories 101,100 85,010
Prepaid expenses and other 4,622 4,412
Deferred income taxes 5,959 6,885
-------- -------
Total current assets 172,536 154,355
Property, plant and equipment, net 79,225 78,889
Goodwill 18,954 18,954
Cash value of life insurance, net of loans 36,506 33,155
Real estate held for sale - 276
Other 3,467 7,566
-------- --------
TOTAL ASSETS $310,688 $293,195
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 30,486 $ 18,801
Accrued income taxes 2,511 1,222
Accrued expenses and other liabilities 37,586 39,856
Short-term borrowings and current
maturities of long-term debt 5,990 902
-------- --------
Total current liabilities 76,573 60,781
Long-term debt 9,419 10,097
Deferred income taxes 4,089 4,123
Postretirement deferred compensation benefits 9,172 8,729
Other 284 39
-------- --------
Total liabilities 99,537 83,769
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY
Common shares, without par value: authorized
60,000 shares; issued 2003 - 21,086
shares and 2002 - 21,062 shares 91,539 91,283
Additional paid-in capital 7,616 6,133
Retained earnings 172,700 169,054
Treasury shares, at cost, 2003 - 5,533
shares and 2002 - 5,395 shares (59,858) (56,383)
Unearned compensation (1,136) -
Accumulated other comprehensive income (loss) 290 (661)
-------- --------
Total shareholders' equity 211,151 209,426
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $310,688 $293,195
======== ========
See Notes to Consolidated Financial Statements.
27
COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31
(in thousands, except per share amounts)
2003 2002 2001
---- ---- ----
Net sales $711,145 $665,192 $587,212
Cost of sales 606,444 565,973 503,767
-------- -------- --------
Gross profit 104,701 99,219 83,445
-------- -------- --------
Operating expenses:
Delivery 33,814 30,324 31,354
Selling 26,983 23,828 21,786
General and administrative 33,312 32,046 34,794
-------- -------- --------
94,109 86,198 87,934
-------- -------- --------
Operating income (loss) 10,592 13,021 (4,489)
-------- -------- --------
Nonoperating (income) expense:
Interest expense 1,332 1,476 2,298
Investment income (1,045) (463) (476)
Gain on sale of properties, net (471) (2,343) (303)
Other (income) expense, net (345) (645) 110
-------- -------- --------
(529) (1,975) 1,629
-------- -------- --------
Income (loss) before income taxes 11,121 14,996 (6,118)
Income taxes (benefit) 3,756 5,067 (2,167)
-------- -------- --------
Net income (loss) $ 7,365 $ 9,929 $ (3,951)
======== ======== ========
Earnings (loss) per common share:
Basic $ .48 $ .62 $ ( .25)
Diluted .48 .62 ( .25)
Shares used in the computation of earnings per common share:
Basic 15,437 15,996 15,835
Diluted 15,487 16,107 15,835
See Notes to Consolidated Financial Statements.
28
COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 2003, 2002 and 2001
(in thousands, except per share amounts)
Additional
Comprehensive Common Shares Paid-In Retained
Income(Loss) Number Amount Capital Earnings
------------ ------ ------ ------- --------
Balance at January 1, 2001 ....... $ - 21,020 $90,861 $5,563 $169,766
Net loss ........................ (3,951) - - - (3,951)
Net unrealized loss on securities
net of tax benefit of $510 .... (931) - - - -
-------
Total comprehensive loss ........ $(4,882)
=======
Issuance of common shares upon
the exercise of stock options
net of tax benefit of $10 ..... - - (258) -
Issuance of common shares under
employee stock purchase plan .. 26 211 - -
Issuance of common shares from
treasury ...................... - - 450 -
Acquisition of common shares
for treasury .................. - - - -
Cash dividends of $.20 per
common share .................. - - - (3,169)
------ ------- ------ --------
Balance at December 31, 2001 ...... 21,046 91,072 5,755 162,646
Net income ...................... $ 9,929 - - - 9,929
Reduction in unrealized losses on
securities net of taxes of $105 270 - - - -
-------
Total comprehensive income ...... $10,199
=======
Issuance of common shares upon
the exercise of stock options
net of tax benefit of $121 .... - - (222) -
Issuance of common shares under
employee stock purchase plan .. 16 211 - -
Issuance of common shares from
treasury ...................... - - 600 -
Acquisition of common shares
for treasury .................. - - - -
Cash dividends of $.22 per
common share .................. - - - (3,521)
------ ------- ------ --------
Balance at December 31, 2002 ...... 21,062 91,283 6,133 169,054
Net income ...................... $ 7,365 - - - 7,365
Net unrealized gain on securities
net of taxes of $681 .......... 1,111 - - - -
Net unrealized loss on cash flow
hedges net of taxes of $98 .... (160) - - - -
-------
Total comprehensive income ...... $ 8,316
=======
Issuance of common shares upon
the exercise of stock options
net of tax benefit of $37 .... - - 112 -
Issuance of common shares under
employee stock purchase plan .. 24 256 - -
Issuance of common shares from
treasury ...................... - - 1,371 -
Acquisition of common shares
for treasury .................. - - - -
Cash dividends of $.24 per
common share .................. - - - (3,719)
------ ------- ------ --------
Balance at December 31, 2003 ...... 21,086 $91,539 $7,616 $172,700
====== ======= ====== ========
Accumulated
Other Total
Treasury Shares Unearned Comprehensive Shareholders'
Number Amount Compensation Income(Loss) Equity
------ ------ ------------ ------------ ------
Balance at January 1, 2001 ....... (5,317) $(51,$41) $ - $ - $ 214,949
Net loss ........................ - - - - (3,951)
Net unrealized loss on securities
net of tax benefit of $510 .... - - - (931) (931)
Total comprehensive loss ........
Issuance of common shares upon
the exercise of stock options
net of tax benefit of $10 ..... 176 1,414 - - 1,156
Issuance of common shares under
employee stock purchase plan .. - - - - 211
Issuance of common shares from
treasury ...................... 84 588 - - 1,038
Acquisition of common shares
for treasury .................. (53) (663) - - (663)
Cash dividends of $.20 per
common share .................. - - - - (3,169)
------ -------- ------- -------- ----------
Balance at December 31, 2001 ...... (5,110) (49,902) - (931) 208,640
Net income ...................... - - - - 9,929
Reduction in unrealized losses on
securities net of taxes of $105 - - - 270 270
Issuance of common shares upon
the exercise of stock options
net of tax benefit of $121 .... 164 1,044 - - 822
Issuance of common shares under
employee stock purchase plan .. - - - - 211
Issuance of common shares from
treasury ...................... 58 332 - - 932
Acquisition of common shares
for treasury .................. (507) (7,857) - - (7,857)
Cash dividends of $.22 per
common share .................. - - - - (3,521)
------ -------- ------- -------- ----------
Balance at December 31, 2002 ...... (5,395) (56,383) - (661) 209,426
Net income ...................... - - - - 7,365
Net unrealized gain on securities
net of taxes of $681 .......... - - - 1,111 1,111
Net unrealized loss on cash flow
hedges net of taxes of $98 .... - - - (160) (160)
Total comprehensive income ......
Issuance of common shares upon
the exercise of stock options
net of tax benefit of $37 ..... 25 143 - - 255
Issuance of common shares under
employee stock purchase plan .. - - - - 256
Issuance of common shares from
treasury ...................... 130 736 (1,136) - 991
Acquisition of common shares
for treasury .................. 293 (4,354) - - (4,354)
Cash dividends of $.24 per
common share .................. - - - - (3,719)
------ -------- ------- -------- ----------
Balance at December 31, 2003 ...... (5,533) $(59,858) $(1,136) $ 290 $ 211,151
====== ======== ======= ======== ==========
See Notes to Consolidated Financial Statements.
29
COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31
(in thousands)
2003 2002 2001
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,365 $ 9,929 $ (3,951)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation 9,678 9,927 10,890
Amortization and write-off of
intangibles - - 1,179
Provision for doubtful receivables 574 183 379
Provision for write-down of property to
net realizable value - - 869
Net realized and unrealized losses on
marketable securities and derivatives (74) 1,048 1,759
Gain on sale of properties, net of losses (471) (2,343) (303)
Increase in cash surrender value of
life insurance policies (2,055) (1,472) (1,203)
Deferred income tax provision (109) 2,802 (1,035)
Tax benefit from stock options exercised 37 121 10
Other 2,588 1,529 901
Changes in certain assets and liabilities, net
of effects of acquisitions and dispositions:
Trade receivables (17,732) (5,245) 14,572
Inventories (16,090) (4,533) 21,365
Prepaid expenses and other (210) 244 (2,378)
Accounts payable, trade 11,685 (143) (5,744)
Income taxes - accrued and refundable 3,525 91 1,998
Accrued expenses and other liabilities (2,270) 1,010 1,996
--------- -------- --------
Net cash provided by (used in)
operating activities (3,559) 13,148 41,304
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable securities 30,975 32,157 51,672
Proceeds from sale of properties 2,869 10,004 1,800
Proceeds from notes receivable - - 3,244
Investments in marketable securities (26,072) (31,756) (47,752)
Purchases of property and equipment (12,067) (5,283) (4,719)
Acquisitions of businesses, net of cash acquired - - (7,707)
Other 902 (294) (922)
--------- -------- --------
Net cash provided by (used in)
investing activities (3,393) 4,828 (4,384)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 32,000 - -
Payments of short-term borrowings (27,000) - -
Proceeds from long-term debt 571 - 13,500
Payments of long-term debt (1,161) (919) (22,143)
Repay borrowings against cash value of life
insurance policies - (18,458) -
Issuance of common shares under stock
incentive plans 474 912 1,357
Cash dividends paid (3,719) (3,521) (3,169)
Purchases of common shares for treasury (4,354) (7,857) (663)
--------- -------- --------
Net cash used in
financing activities (3,189) (29,843) (11,118)
--------- -------- --------
30
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended December 31
(in thousands)
2003 2002 2001
---- ---- -----
Increase (decrease) in cash and temporary cash
investments (10,141) (11,867) 25,802
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of year 16,549 28,416 2,614
-------- -------- --------
End of year $ 6,408 $ 16,549 $ 28,416
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,109 $ 1,153 $ 2,624
Income taxes 2,130 4,626 1,480
See Notes to Consolidated Financial Statements.
31
COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES.
NATURE OF OPERATIONS - Coachmen Industries, Inc. and its subsidiaries (the
"Company") manufacture a full array of recreational vehicles and modular
housing and buildings. Recreational vehicles are sold through a nationwide
dealer network. The modular products (modular homes, townhouses and
specialized structures) are sold to builders/dealers or directly to the end
user for certain specialized modular structures.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Coachmen Industries, Inc. and its
subsidiaries, all of which are wholly or majority owned. All intercompany
transactions have been eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
REVENUE RECOGNITION - For the recreational vehicle segment, the shipping
terms are free on board ("FOB") shipping point and title and risk of
ownership are transferred to the independent dealers at that time.
Accordingly, sales are recognized as revenue at the time the products are
shipped. For the housing and building segment, the shipping terms are
generally FOB destination. Title and risk of ownership are transferred when
the Company completes installation of the product. The Company recognizes
the revenue at the time delivery and installation are completed. Revenue
from final set-up procedures, which are perfunctory, is deferred and
recognized when such set-up procedures are completed.
CASH FLOWS AND NONCASH ACTIVITIES - For purposes of the consolidated
statements of cash flows, cash and temporary cash investments include cash,
cash investments and any highly liquid investments purchased with original
maturities of three months or less.
Noncash investing and financing activities are as follows:
2003 2002 2001
---- ---- ----
Issuance of common shares, at market
value, in lieu of cash compensation $ 991 $ 932 $ 1,038
Liabilities assumed in business
acquisitions - - 12,728
CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially
subject the Company to credit risk consist primarily of cash and temporary
cash investments and trade receivables.
At December 31, 2003, cash and temporary cash investments invested in money
market accounts and short-term bond funds were less than $.1 million versus
$12.7 million at December 31, 2002.
32
COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
The Company has a concentration of credit risk in the recreational vehicle
industry, although there is no geographic concentration of credit risk. The
Company performs ongoing credit evaluations of its customers' financial
condition and sales to its recreational vehicle dealers are generally
subject to pre-approved dealer floor plan financing whereby the Company is
paid upon delivery or shortly thereafter. The Company generally requires no
collateral from its customers. Future credit losses are provided for
currently through the allowance for doubtful receivables and actual credit
losses are charged to the allowance when incurred.
MARKETABLE SECURITIES - Marketable securities consist of public utility
preferred stocks which pay quarterly cash dividends. The preferred stocks
are part of a dividend capture program whereby preferred stocks are bought
and held for the purpose of capturing the preferred dividend. The
securities are available to be sold after exceeding the minimum 45 or
90-day holding period required for favorable tax treatment and the proceeds
are reinvested again in preferred stocks. The Company's dividend capture
program is designed to maximize dividend income which is 70% excludable
from taxable income under the Internal Revenue Code and related state tax
provisions. The Company accounts for its marketable securities under
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," which requires
certain securities to be categorized as either trading, available-for-sale
or held-to-maturity. Based on the Company's intent to invest in the
securities at least through the minimum holding period, the Company's
marketable securities at December 31, 2003 and 2002 are classified as
available-for-sale and, accordingly, are carried at fair value with net
unrealized appreciation (depreciation) recorded as a separate component of
shareholders' equity. During 2003, the Company concluded that certain
marketable securities which had been in a loss position for nine or more
months were other than temporarily impaired and the loss position on those
securities were charged against earnings. At December 31, 2003, there were
unrealized losses of $457.8 that were considered other than temporary. The
cost of securities sold is determined by the specific identification method
and are classified as both short-term marketable securities and long-term
other assets, depending on the intended holding period.
The cost, unrealized gains and losses, and market value of securities
available for sale as of December 31, 2003 and 2002 are as follows:
2003 2002
---- ----
Cost $5,399 $12,101
Other than temporary impairment of
unrealized losses ( 458) -
Unrealized gains 726 360
Unrealized losses - (1,460)
------ -------
Market value $5,667 $11,001
====== =======
The Company utilizes U.S. Treasury bond futures options to mitigate the
impact of increases in interest rates on the fair value of the Company's
investments in marketable securities (fixed rate preferred stocks). The
options are marked to market with market value changes recognized in the
consolidated statements of operations in the period of change. At December
31, 2003 and 2002, the carrying amounts of U.S. Treasury bond futures
options, which are derivative instruments, aggregated $10 and $11,
respectively.
33
COACHMEN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
Investment income consists of the following for the years ended December
31:
2003 2002 2001
---- ---- ----
Interest income $ 107 $ 818 $1,079
Increase in cash value of life insurance
policies 1,241 - -
Dividend income on
preferred stocks 415 839 646
Net realized losses on sale of
preferred stocks and bond funds (342) (920) (1,252)
Net realized gains (losses) on closed
U.S. Treasury bond futures options 82 (240) 55
Other than temporary unrealized losses on
preferred stocks (458) - -
Unrealized gains (losses) on open
U.S. Treasury bond futures options - (34) (52)
------ ------ ------
Total $1,045 $ 463 $ 476
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FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and
temporary cash investments, receivables and accounts payable approximated
fair value as of December 31, 2003 and 2002, because of the relatively
short maturities of these instruments. The carrying amount of long-term
debt, including current maturities, approximated fair value as of December
31, 2003 and 2002, based upon terms and conditions currently available to
the Company in comparison to terms and conditions of the existing long-term
debt. The Company has investments in life insurance contracts principally
to fund obligations under deferred compensation agreements (see Note 9). At
December 31, 2003 and 2002, the carrying amount of life insurance policies,
which equaled their fair value, was $36.5 million and $33.2 million,
respectively.
Prior to 2003, increases in the cash value of life insurance policies were
offset by interest paid on the borrowings against those policies. In 2002,
all borrowings against these polices, totaling $18.5 million, were repaid.
Because there is no longer any interest expense associated with these
policies, increases in the cash value are now treated as investment income.
As required by SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," the Company adopted the requirement