<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1997
OR
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24354
------------------------------------------
DORSEY TRAILERS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-2110729
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(State of Incorporation) (IRS Employer
Identification Number
2727 Paces Ferry Road
One Paces West, Suite 1700
Atlanta, Georgia 30339
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Registrant's telephone number, including area code: (770) 438-9595
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of common stock outstanding at October 28, 1997, was
5,013,422.
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DORSEY TRAILERS, INC.
FORM 10-Q
Quarter ended September 27, 1997
Index
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I. Financial Information
Item 1. Condensed Financial Statements
Balance Sheet - September 27, 1997 and December 31, 1996 3
Statement of Operations - For the three months and nine months
ended September 27, 1997 and September 28, 1996 4
Statement of Cash Flows - For the nine months ended
September 27, 1997 and September 28, 1996 5
Statement of Changes in Stockholders' Equity -
For the nine months ended September 27, 1997 6
Notes to Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Part II. Other Information 14
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
DORSEY TRAILERS, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7 $ 101
Accounts receivable, net 9,228 8,296
Inventories 12,870 19,002
Prepaid expenses and other assets 422 2,990
-------- --------
Total current assets 22,527 30,389
Property, plant and equipment, net 8,673 9,681
Deferred income taxes 3,953 3,953
Other assets, net 1,977 996
-------- --------
$ 37,130 $ 45,019
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt $ 282 $ 705
Accounts payable 13,112 18,126
Accrued wages and employee benefits 5,651 4,403
Accrued expenses 3,445 4,299
-------- --------
Total current liabilities 22,490 27,533
Long-term debt, net of current maturities 16,692 9,171
Accrued pension liability 1,600 1,600
Accrued warranty 1,100 1,100
-------- --------
41,882 39,404
-------- --------
Stockholders' equity (deficit)
Preferred stock, $.01 par value, 500,000 shares
authorized; none issued or outstanding
Common stock, $.01 par value, 30,000,000 shares
authorized; 5,013,422 and 4,997,422 shares issued
and outstanding 50 49
Additional paid-in capital 2,368 2,339
Retained earnings (accumulated deficit) (7,093) 3,304
Unrecognized pension liability (77) (77)
-------- --------
Total stockholders' equity (deficit) (4,752) 5,615
-------- --------
Commitments and contingencies -- --
-------- --------
$ 37,130 $ 45,019
======== ========
</TABLE>
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENTS OF OPERATIONS - UNAUDITED
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------- ---------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 37,598 $ 39,653 $118,591 $119,572
Cost of sales 37,392 38,930 122,417 118,476
-------- -------- -------- --------
Gross profit 206 723 (3,826) 1,096
Selling, general and
administrative expenses 1,666 2,168 5,181 6,232
Provision for (benefit from) plant closing (43) 84 40 511
-------- -------- -------- --------
Loss from operations (1,417) (1,529) (9,047) (5,647)
Interest expense, net 528 112 1,550 286
-------- -------- -------- --------
Loss before income taxes (1,945) (1,641) (10,597) (5,933)
Benefit from income taxes -- (631) (200) (2,283)
-------- -------- -------- --------
Net loss $ (1,945) $ (1,010) $(10,397) $ (3,650)
======== ======== ======== ========
Net loss per share $ (.39) $ (.20) $ (2.09) $ (.73)
======== ======== ======== ========
Weighted average number of
common and common share
equivalents used in the net loss
per share calculation 4,986 4,956 4,981 4,951
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,397) $ (3,650)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 1,310 1,022
Issuance of common stock to non-employee directors 30 30
Change in assets and liabilities-
Increase in accounts receivable (932) (3,150)
Decrease (increase) in inventories 6,132 (819)
Decrease (increase) in prepaid expenses
and other current assets 2,568 (2,130)
(Decrease) increase in accounts payable (5,014) 6,227
Increase (decrease) in accrued expenses 394 (335)
(Increase) decrease in other assets (1,153) 1
-------- --------
Net cash used in operating activities (7,062) (2,804)
-------- --------
Cash flows from investing activities:
Purchase of business assets -- (1,198)
Capital expenditures (130) (1,156)
-------- --------
Net cash used in investing activities (130) (2,354)
-------- --------
Cash flows from financing activities:
Net borrowings under line of credit agreement 7,492 --
Payments on long-term debt (394) (854)
Tax benefit from exercise of stock options -- 107
-------- --------
Net cash provided by (used in) financing activities 7,098 (747)
-------- --------
Decrease in cash and cash equivalents (94) (5,905)
Cash and cash equivalents at beginning of period 101 7,738
-------- --------
Cash and cash equivalents at end of period $ 7 $ 1,833
======== ========
</TABLE>
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Unrecognized
------------ Paid-in (Accumulated Pension
Shares Amount Capital Deficit) Liability Total
---------- -------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,997,422 $ 49 $2,339 $ 3,304 $(77) $ 5,615
Net loss (10,397) (10,397)
Issuance of common stock to
non-employee directors 16,000 1 29 -- -- 30
---------- -------- ------ ------- ---- -------
Balance, September 27, 1997 (Unaudited) 5,013,422 $ 50 $2,368 $(7,093) $(77) $(4,752)
========== ======== ====== ======= ==== =======
</TABLE>
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. GENERAL
The financial statements included herein have been prepared by Dorsey Trailers,
Inc. (the Company) without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading. The condensed
financial statements included herein should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
In the opinion of the Registrant, the accompanying financial statements contain
all material adjustments (consisting only of normal recurring adjustments),
necessary to present fairly the financial position of the Company at September
27, 1997, and December 31, 1996, and its results of operations for the three
months and nine months ended September 27, 1997, and September 28, 1996, and its
cash flows for the nine months ended September 27, 1997 and September 28, 1996.
NOTE 2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 27, December 31,
1997 1996
------------- ------------
(In thousands)
<S> <C> <C>
Raw material $ 6,880 $ 8,376
Work-in-process 3,523 5,833
Finished trailers 609 981
Used trailers 1,858 3,812
------- -------
$12,870 $19,002
======= =======
</TABLE>
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NOTE 3. REVOLVING LINE OF CREDIT
On March 28, 1997, the Company entered into a $14 million, five year line of
credit (Financing Agreement), including a $4 million term loan which was to
amortize evenly over the next four consecutive months and a letter of credit
facility of up to $3 million, with an asset-based lender. Effective August 1,
1997, the term loan was amended. The remaining balance of $1 million on the
original term loan was increased to $2 million with interest only payments for
60 days. Thereafter, the term loan amortizes evenly over eight months beginning
October 1, 1997. This Financing Agreement replaces a $10 million revolving
credit agreement that the Company had with a financial institution. In
connection with the closing of the $14 million Financing Agreement, the Company
incurred costs of approximately $1.2 million which will be amortized over the
life of the Financing Agreement. The Financing Agreement bears interest at prime
plus 2.0% with interest payable monthly. At September 27, 1997, the interest
rate was 10.50%, and interest is payable monthly. Annual commitment fees for the
unused portion of the Financing Agreement and outstanding letters of credit are
.375% and 2.0%, respectively. Additionally the Company is required to pay a
monthly servicing fee of $5,000 and an annual facility fee of .50% of the $14
million. The Financing Agreement allows advances of up to the lesser of $14
million less the outstanding principal amount of the term loan and letters of
credit obligations, or 80% of eligible accounts receivable plus 30 % of eligible
raw material, 40 % of eligible used trailers, and 60% of eligible finished goods
inventory less the outstanding principal amount of the term loan and letters of
credit obligations. The Company has certain limitations on the maximum amount of
advances the Company can receive against inventory. As of September 27, 1997,
the Company had $9.7 million outstanding under the Financing Agreement including
$2.2 million in letters of credit. The Financing Agreement is secured by a first
security interest in the Company's accounts receivable and inventory. The
Financing Agreement contains certain operational and financial covenants and
other restrictions with which the Company must comply. The covenants include,
but are not limited to, minimum earnings before interest, income taxes,
depreciation, and amortization; minimum net worth; and maximum amount of capital
expenditures. As of September 27, 1997, the Company was in compliance with the
covenants of the Financing Agreement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the Condensed
Financial Statements of the Company and the related Notes thereto appearing
elsewhere in this Quarterly Report.
INCLUSION OF FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," may be deemed to be
forward-looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. Any forward-looking statement included herein has been
included based upon facts available to management as of the date of the
statement. Any forward-looking statement is, however, inherently subject to the
uncertainty of future events, whether economic, competitive or otherwise, many
of which are beyond the control of the Company, or which may involve
determinations which may be made by management in the future. There can,
therefore, be no assurances that the events or results described in such
forward-looking statements will occur, and actual events or results may vary
materially from those included herein. Without limitation, the following are
some of the factors which may affect whether the events or results described in
such forward-looking statements will occur: increased competition, dependence on
key management, continued availability of credit from vendors, continued
advancement of funds from lender, reliance on certain customers, shortages of
raw materials, labor shortages or work stoppages, dependence on industry trends,
government regulations and new technologies or products. Readers should review
and consider the various disclosures included in this Quarterly Report and in
the Company's 1996 Annual Report and other reports to stockholders and public
filings.
RESULTS OF OPERATIONS
NET SALES Net sales for the third quarter ended September 27, 1997 decreased by
5.2% or $2.1 million to $37.6 million from $39.7 million for the quarter ended
September 28, 1996. New trailer sales for the quarter ended September 27, 1997
were $33.7 million compared to new trailer sales of $37.8 million for the
quarter ended September 28, 1996. The 10.8% decrease in new trailer sales was
primarily due to a 6.5% decrease in the number of new trailers sold. Used
trailer sales were $2.8 million for the quarter ended September 27, 1997
compared to $500,000 for the quarter ended September 28, 1996. The increase in
used trailer sales was due to the increased level of used trailers being taken
in as trades on new trailer orders accepted in prior quarters. Current market
conditions appear to have reduced the necessity to accept used trailers on trade
as a condition to the awarding of new trailer contracts.
Net sales for the nine months ended September 27, 1997 decreased .8% or $1
million to $118.6 million from $119.6 million for the nine months ended
September 28, 1996. New trailer sales for the nine months ended September 27,
1997 were $101.0 million compared to $112.7 million for the same period last
year. The 10.4% decrease in new trailer sales was due to a 12.3% decrease in the
number of new trailers sold. Used trailer sales were $14.2 million for the nine
months ended September 27, 1997 compared to $2.3 million for the same period
last year.
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<PAGE> 10
GROSS PROFIT Gross profit as a percentage of sales totaled .5% for the third
quarter of 1997 compared to 1.8% for the same period in 1996. Margins continued
to be severely depressed in the third quarter due to the continued heavy mix of
low margin fleet orders booked in prior quarters. The third quarter saw the
completion of most of these low margin fleet orders. The gross profit for the
third quarter of 1997 represents the first positive quarterly gross profit the
Company has recorded this year. Current order intake is priced at somewhat
better margins, as the industry is experiencing improved demand and more stable
component prices.
Gross profit as a percentage of sales totaled (3.2%) for the nine months ended
September 27, 1997 as compared to .92% for the same period last year. The
negative gross profit for the nine months of 1997 was due to actual losses on
the sale of used trailers in the first quarter of 1997 of $1.5 million and $1.8
million in an accrual for expected losses on the sale of the remaining used
trailer inventory and the approximately $400,000 increase in the cost of wood
flooring incurred in the second quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
("S, G, & A") expenses for the third quarter of 1997 decreased $502,000 or 23.2%
to $1.7 million as compared to $2.2 million for the third quarter of 1996. S, G,
& A as a percent of net sales declined to 4.4% for the quarter ended September
27, 1997 as compared to 5.5% for the quarter ended September 28, 1996. The
reduction in S, G, & A expenses is a result of management's plan of cost
reduction.
S, G, & A expenses for the nine months ended September 27, 1997 decreased $1.0
million or 16.9% to $5.2 million as compared to $6.2 million for the same period
in 1996. S, G, & A as a percent of net sales declined to 4.4% for the nine
months ended September 27, 1997 as compared to 5.2% for the nine months ended
September 28, 1996.
PROVISION FOR PLANT CLOSING Costs related to the Company's closed facilities
decreased in the third quarter of 1997 and for the nine months ended September
27, 1997 over the third quarter of 1996 and the nine months ended September 28,
1996. The provision for plant closing includes costs related to the closing of
the Northumberland, Pennsylvania plant which occurred during the fourth quarter
of 1995.
LOSS FROM OPERATIONS Loss from operations for the three months ended September
27, 1997 was $1.4 million compared to a loss from operations of $1.5 million for
the third quarter of 1996. The loss from operations for the third quarter of
1997 of $1.4 million represents the lowest quarterly loss from operations the
Company has incurred during 1997 to date and during all of 1996. The improvement
in the loss from operations in the third quarter of 1997 was due to an
improvement in production efficiencies, a reduction in manufacturing costs, and
a reduction in the Company's S, G, & A costs during the quarter.
Loss from operations for the nine months ended September 27, 1997 was $9.0
million as compared to $5.6 million for the nine months ended September 28,
1996.
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INTEREST EXPENSE, NET Interest expense, net for the three months ended September
27, 1997 was $528,000 as compared to interest expense, net of $112,000 for the
three months ended September 28, 1996. The increase is a result of an increase
in the average outstanding debt of $6.5 million between the third quarter of
1997 and third quarter of 1996. The increase in the average outstanding debt is
due to the use of the revolving line of credit in 1997.
Interest expense, net for the nine months ended September 27, 1997 was $1.6
million as compared to interest expense, net of $286,000 for the nine months
ended September 28, 1996. The increase is a result of an increase in the average
outstanding debt in addition to the interest on the notes payable for the
purchases of the Cartersville, Georgia and Dillon, South Carolina facilities.
Also, the increase is due to a $300,000 write-off taken in the first quarter of
1997 of unamortized financing costs in connection with entering the new working
capital line of credit.
NET LOSS Net loss for the three months ended September 27, 1997 was $1.9 million
as compared to a net loss of $1.0 million for the three months ended September
28, 1996 which included a benefit from income taxes of $631,000. No tax benefit
was taken in the third quarter of 1997 due to the benefit from income taxes
being limited to the portion of pretax loss that could be carried-back to
recapture taxes paid in prior years. The $1.9 million quarterly pretax loss is
the lowest quarterly loss the Company has recorded in three quarters. The net
loss per share for the three months ended September 27, 1997 was $.39 and the
net loss per share for the three months ended September 28, 1996 was $.20 per
share.
Net loss for the nine months ended September 27, 1997 was $10.4 million, which
included a benefit from income taxes of $200,000 recorded in the first quarter
of 1997, as compared to a net loss of $3.7 million for the nine months ended
September 28, 1996, which included a tax benefit of $2.3 million. The net loss
per share for the nine months ended September 27, 1997 was $2.09 compared to a
net loss of $.73 for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $7.1 million for the nine months ended
September 27, 1997 as compared to net cash used in operating activities of $2.8
for the nine months ended September 28, 1996. The cash used in operating
activities for the nine months of 1997 was primarily used to fund net losses of
the Company.
Net cash provided by financing activities was $7.1 million for the nine months
ended September 27, 1997 compared to net cash used in financing activities of
$747,000 for the nine months ended September 28, 1996. The $7.1 million cash
provided by financing activities consisted of the Company's advances under its
revolving working capital line of credit.
On March 28, 1997 the Company entered into a $14 million five year working
capital line of credit ("Financing Agreement") with an asset-based lender. The
Company's availability under the Financing Agreement changes daily based on the
level of eligible accounts receivable and inventories. As of October 28, 1997,
the Company had $7.2 million outstanding, including $2.2 million in letters of
credit and had $2.0 million in availability under the Financing Agreement. On
August 1, 1997, the Company's $4 million term loan included as part of the
Financing Agreement was revised. Prior to the
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<PAGE> 12
revision, the term loan was to be completely amortized at August 1, 1997. With
the revision, the term loan at August 1, 1997 was $2 million with interest only
for sixty days. The revised term loan amortizes equally over eight months
beginning October 1, 1997. As of October 28, 1997, the Company was in compliance
with the covenant requirements of the Financing Agreement. The Financing
Agreement has continuous financial and operational covenants. The financial
covenants are required to be measured on a quarterly basis and require specific
thresholds at each quarterly reporting period.
The Company experienced a significant tightening of its liquidity beginning in
the fourth quarter of 1996. The situation resulted primarily from continuing
operating losses and an abnormally high level of used trailer inventory. This
reduced cash position caused the Company to incur production downtime during the
first half of 1997 which negatively affected operating results during the first
half of 1997. With many customers purchasing replacement trailers only during
the first quarter of 1997, the Company had to increase its acceptance of used
trailers as trade-ins to obtain certain prior new trailer orders. By accepting
trade-ins, cash was not received until after the subsequent sale of the used
trailers. As of September 27, 1997, the Company's inventory of used trailers was
$1.9 million with purchase commitments for used trailers of $340,000. This level
of used trailer inventory is at its lowest since September 28, 1996 and
represents an $8.7 million decline in used trailer inventory and commitments
from the Company's high of $10.9 million in March of 1997. During the first
quarter of 1997, management decided to sell certain used trailers quickly at
lower than normal pricing in order to generate cash to meet its obligations. As
a result, the Company incurred losses on the sale of used trailers of $1.5
million during the first quarter of 1997. Additionally, as a result of
management's decision to sell the Company's used trailer inventory as quickly as
possible and the effect thereon on used trailer values, the Company reduced the
value of its remaining used trailer inventory by $1.8 million.
The closing of the $14 million Financing Agreement allowed the Company to
improve payment conditions with its vendors and provided the liquidity necessary
for a consistent production flow. However, with the continued losses, the
Company's liquidity position continues to remain tight. In addition to the
amendment to its Financing Agreement described above, the United States Small
Business Administration has modified the Company's term loan, deferred all
payments for six months beginning in August 1997 and re-amortized the balance of
the term loan as of January 1998, which will reduce the Company's monthly
payments from $69,326 to $40,500. Management believes that the Company can
generate some additional liquidity by reducing inventories and actions are
underway to implement its plan. No assurances can be given that the Company will
be successful in these efforts.
BACKLOG
The Company's backlog of orders was approximately $26 million at December 31,
1996 and $21.4 million at September 27, 1997. The backlog includes only those
orders for trailers for which a confirmed customer order has been received. The
Company manufactures trailers to customer or dealer order and does not generally
maintain an inventory of new trailers.
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<PAGE> 13
STOCK TRADING
Effective August 8, 1997, the Company's shares were conditionally listed on the
Nasdaq SmallCap Market under the trading symbol DSYTC and were no longer listed
on the Nasdaq National Market. Effective October 1, 1997, the Company's shares
began trading on the OTC-Bulletin Board under the trading symbol DSYT and were
no longer listed on the Nasdaq SmallCap Market. These actions resulted from the
Company's inability to meet the terms of an exception which was granted to bring
its capital and surplus up to $2.0 million by September 30, 1997. The Company
has been informed that its shares no longer meet the requirements for marginable
over-the-counter securities and that effective November 10, 1997, its shares
will be removed from the List of Marginable OTC Stocks.
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<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
a. The exhibits filed as part of this Report are as follows:
10.44 Amendment No. 3 dated August 1, 1997 to the Loan and Security
Agreement dated as of March 28, 1997 between Foothill Capital
Corporation and Dorsey Trailers, Inc.
27 Financial Data Schedule
b. No reports on Form 8-K were filed during the period.
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DORSEY TRAILERS, INC.
Date: October 28, 1997 By: /s/ James E. Clements
--------------------- ----------------------------------------
James E. Clements
Vice President - Finance
(Principal Financial Officer and
Principal Accounting Officer)
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<PAGE> 16
DORSEY TRAILERS, INC.
INDEX TO EXHIBITS
Exhibit Number Description
10.44 Amendment No. 3 dated as of August 1, 1997 to the
Loan and Security Agreement dated as of March 28,
1997 between Foothill Capital Corporation and Dorsey
Trailers, Inc.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.44
AMENDMENT NO. 3 TO
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 3, dated as of August 1, 1997, to the LOAN AND
SECURITY AGREEMENT, dated as of March 28, 1997, as amended by the FIRST
AMENDMENT dated as of April 10, 1997 and the SECOND AMENDMENT dated as of July
1, 1997 (the "Loan and Security Agreement"), between FOOTHILL CAPITAL
CORPORATION, a California corporation, with a place of business located at 11111
Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and
DORSEY TRAILERS, INC., a Delaware corporation, with its chief executive offices
located at 2727 Paces Ferry Road, One Paces Ferry West, Suite 1700, Atlanta,
Georgia 30339.
Preamble
The Borrower has requested Foothill to amend the Loan and
Security Agreement to (i) eliminate Eligible Accounts subject to a Contra
Obligation from the Borrowing Base, (ii) increase the amount of the term loan
and amend the amortization schedule of the term loan, (iii) increase the
concentration limit on Eligible Accounts with respect to which Ryder System Inc.
is the Account Debtor, and (iv) increase the default interest rate from 3.75
percentage points above the Reference Rate to 4.0 percentage points above the
Reference Rate. Accordingly, the Borrower and Foothill hereby agree as follows:
1. Definitions. All terms used herein which are defined
in the Loan and Security Agreement and not otherwise defined herein are used
herein as defined therein.
2. Eligible Accounts. Paragraph (h) of the definition of
the term "Eligible Accounts" in Section 1.1 of the Loan and Security Agreement
is hereby amended in its entirety to read as follows:
"(h) Accounts with respect to an Account Debtor,
whose total obligations owing to Borrower exceed 20% of all
Eligible Accounts (other than (i) from August 1, 1997 through
September 30, 1997, Accounts with respect to which the Account
Debtor is Ryder System Inc. where the total obligations owing
by Ryder System Inc. to Borrower do not exceed 40% of all
Eligible Accounts, (ii) from August 1, 1997 through October
31, 1997, Accounts with respect to which the Account Debtor is
Averitt Express, Inc. where the total obligations owing by
Averitt Express, Inc. to Borrower do not exceed 40% of all
Eligible Accounts, and (iii) prior to November 1, 1997,
Accounts with respect to which the Account Debtor is United
Parcel Service, Inc.), to the extent of the obligations owing
by such Account Debtor in excess of such percentages, provided
that, upon the request of Borrower, Foothill may waive or
increase the limitation if in its
<PAGE> 2
reasonable credit judgment, the Account Debtor is considered
credit worthy, such waiver and/or increase by Foothill not to
be unreasonably withheld or delayed;"
3. Borrowing Base. (a) Clause (x) of Section 2.1(a) of
the Loan and Security Agreement is hereby amended in its entirety to read as
follows:
"(x) the lesser of (i) (A) 80% of Eligible
Accounts other than that portion of any Eligible Accounts that
(1) is or will be satisfied by the transfer to the Borrower of
Used Trailer Inventory or (2) is subject to a Contra
Obligation, less (B) the amount, if any, of the Dilution
Reserve, and (ii) on and after June 1, 1997, an amount equal
to Borrower's Collections with respect to Accounts for the
immediately preceding 30 day period, plus"
(b) Subclause (ii)(B) of Section 2.1(a)(y) of the Loan
and Security Agreement is hereby amended in its entirety to read as follows:
"(B) 40% of the value of Eligible Used Trailer Inventory
other than U.S. Xpress Used Trailer Inventory, provided, that,
the amount of this subclause (ii) (B) shall not, without the
prior written consent of Foothill, exceed (1) $1,500,000, from
March 28, 1997 through and including November 30, 1997, (2)
$1,400,000, from December 1, 1997 through and including
December 31, 1997, (3) $1,300,000, from January 1, 1998
through and including January 31, 1998, (4) $1,200,000, from
February 1, 1998 through and including February 28, 1998, (5)
$1,100,000, from March 1, 1998 through and including March 31,
1998, and (6) $1,000,000 on and after April 1, 1998."
(c) Subclause (ii)(C) of Section 2.1(a)(y) of the Loan
and Security Agreement is hereby amended in its entirety to read as follows:
"(C) prior to January 1, 1997, 40% of the value
of U.S. Xpress Used Trailer Inventory, provided that, the
amount of this subclause (ii)(C) shall not at any time exceed
the amount obtained by multiplying the number of units of U.S.
Xpress Used Trailer Inventory at such time by $4,000, without
the prior written consent of Foothill, and"
4. Term Loan. Section 2.3 of the Loan and Security
Agreement is hereby amended in its entirety to read as follows:
"2.3 TERM LOAN. On the Closing Date, Foothill
made a term loan (the "Initial Term Loan") to Borrower in the
original principal amount of $4,000,000, of which $1,000,000
is outstanding as of August 1, 1997. On August 1, 1997,
Foothill will make an additional term loan (the "Additional
Term Loan" and together with the Initial Term Loan, the "Term
Loan") to Borrower in the original principal amount of
$1,000,000, which results in a principal amount of the Term
Loan outstanding on August 1, 1997 of $2,000,000. The
Additional Term Loan will be made upon the simultaneous
payment (which shall be from the proceeds of the
-2-
<PAGE> 3
Additional Term Loan) of $1,000,000 of Advances. The Term Loan
shall be repaid in eight (8) installments of principal in the
following amounts:
<TABLE>
<CAPTION>
================================================================================
DATE INSTALLMENT AMOUNT
================================================================================
<S> <C>
October 1, 1997 $250,000
- --------------------------------------------------------------------------------
November 1, 1997 $250,000
- --------------------------------------------------------------------------------
December 1, 1997 $250,000
- --------------------------------------------------------------------------------
January 1, 1998 $250,000
- --------------------------------------------------------------------------------
February 1, 1998 $250,000
- --------------------------------------------------------------------------------
March, 1, 1998 $250,000
- --------------------------------------------------------------------------------
April 1, 1998 $250,000
- --------------------------------------------------------------------------------
May 1, 1998 $250,000
================================================================================
</TABLE>
The outstanding principal balance and all accrued and unpaid
interest under the Term Loan shall be due and payable upon the
termination of this Agreement, whether by its terms, by
prepayment, by acceleration, or otherwise. The unpaid
principal balance of the Term Loan may be prepaid in whole or
in part without penalty or premium at any time during the term
of this Agreement upon ten (10) days prior written notice by
Borrower to Foothill, all such prepaid amounts to be applied
to the installments due on the Term Loan in the inverse order
of their maturity. All amounts outstanding under the Term Loan
shall constitute Obligations."
5. Default Interest Rate. Section 2.5(c) of the Loan and
Security Agreement is hereby amended in its entirety to read as follows:
"(c) Default Rate. Upon the occurrence and during
the continuation of an Event of Default, (i) all Obligations
(except for undrawn Letters of Credit) shall bear interest at
a per annum rate equal to 4.00 percentage points above the
Reference Rate, and (ii) the Letter of Credit fee provided in
Section 2.5(b) shall be increased to 4% per annum times the
amount of the undrawn Letters of Credit that were outstanding
during the immediately preceding month."
6. Conditions. This Amendment shall become effective
only upon satisfaction in full of the following conditions precedent (the first
date upon which all such conditions have been satisfied being herein called the
"Effective Date"):
(a) The representations and warranties contained
in this Amendment and in Section 5 of the Loan and Security Agreement and each
other Loan Document shall be
-3-
<PAGE> 4
correct on and as of the Effective Date as though made on and as of such date
(except where such representations and warranties relate to an earlier date in
which case such representations and warranties shall be true and correct as of
such earlier date); no Default or Event of Default shall have occurred and be
continuing on the Effective Date or result from this Amendment becoming
effective in accordance with its terms.
(b) Foothill shall have received a counterpart
of this Amendment, duly executed by the Borrower.
(c) The Borrower shall pay to Foothill a
non-refundable amendment fee of $25,000, which fee is earned in full on the date
hereof.
(d) All legal matters incident to this Amendment
shall be satisfactory to Foothill and its counsel.
7. Representations and Warranties. The Borrower hereby
represents and warrants to Foothill as follows:
(a) The Borrower (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and (ii) has all requisite corporate power, authority and legal right
to execute, deliver and perform this Amendment, and to perform the Loan and
Security Agreement, as amended hereby.
(b) The execution, delivery and performance of
this Amendment by the Borrower, and the performance by the Borrower of the Loan
and Security Agreement, as amended hereby (i) have been duly authorized by all
necessary corporate action, (ii) do not and will not contravene its charter or
by-laws or any applicable law, and (iii) except as provided in the Loan
Documents, do not and will not result in the creation of any Lien upon or with
respect to any of its respective properties.
(c) This Amendment and the Loan and Security
Agreement, as amended hereby, constitute the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
its terms.
(d) No authorization or approval or other action
by, and no notice to or filing with, any Governmental Authority is required in
connection with the due execution, delivery and performance by the Borrower of
this Amendment and the performance by the Borrower of the Loan and Security
Agreement as amended hereby.
(e) The representations and warranties contained
in Section 7 of the Loan and Security Agreement and each other Loan Document are
correct on and as of the Effective Date as though made on and as of the
Effective Date (except to the extent such representations and warranties
expressly relate to an earlier date in which case such representations and
warranties shall be true and correct as of such earlier date), and no Default or
Event of Default has occurred and is continuing on and as of the Effective Date
or will result from this Amendment becoming effective in accordance with its
terms.
-4-
<PAGE> 5
8. Continued Effectiveness of the Loan and Security
Agreement and Loan Documents. The Borrower hereby (i) confirms and agrees that
each Loan Document to which it is a party is, and shall continue to be, in full
force and effect and is hereby ratified and confirmed in all respects except
that on and after the Effective Date of this Amendment all references in any
such Loan Document to "the Loan and Security Agreement", the "Agreement",
"thereto", "thereof", "thereunder" or words of like import referring to the Loan
and Security Agreement shall mean the Loan and Security Agreement as amended by
this Amendment; and (ii) confirms and agrees that to the extent that any such
Loan Document purports to assign or pledge to Foothill, or to grant a security
interest in or Lien on, any collateral as security for the obligations of the
Borrower from time to time existing in respect of the Loan and Security
Agreement and the Loan Documents, such pledge, assignment and/or grant of the
security interest or Lien is hereby ratified and confirmed in all respects.
9. Miscellaneous.
(a) This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
(b) Section and paragraph headings herein are
included for convenience of reference only and shall not constitute a part of
this Amendment for any other purpose.
(c) This Amendment shall be governed by, and
construed in accordance with, the laws of the State of California.
(d) The Borrower will pay on demand all
reasonable fees, costs and expenses of Foothill in connection with the
preparation, execution and delivery of this Amendment including, without
limitation, reasonable fees disbursements and other charges of Schulte Roth &
Zabel LLP, counsel to Foothill.
DORSEY TRAILERS, INC.,
a Delaware corporation
By: /s/ James E. Clements
----------------------------------------
Name: James E. Clements
Title: Vice President Finance
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Anthony Aloi
----------------------------------------
Name: Anthony Aloi
Title: Assistant Vice President
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DORSEY TRAILERS, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-27-1997
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 9,423
<ALLOWANCES> (195)
<INVENTORY> 12,870
<CURRENT-ASSETS> 22,527
<PP&E> 17,604
<DEPRECIATION> (8,931)
<TOTAL-ASSETS> 37,130
<CURRENT-LIABILITIES> 22,490
<BONDS> 16,692
0
0
<COMMON> 50
<OTHER-SE> (4,802)
<TOTAL-LIABILITY-AND-EQUITY> 37,130
<SALES> 37,598
<TOTAL-REVENUES> 37,598
<CGS> 37,392
<TOTAL-COSTS> 37,392
<OTHER-EXPENSES> 1,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 528
<INCOME-PRETAX> (1,945)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,945)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,945)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
