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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 0-24354
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
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DORSEY TRAILERS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 58-2110729
(State or jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
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2727 PACES FERRY ROAD
ONE PACES WEST, SUITE 1700
ATLANTA, GEORGIA
30339
(Address of principal executive offices)
(770) 438-9595
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
COMMON STOCK $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
form 10-K. [X].
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 16, 1998 was $8,540,165, based upon the closing price of
the Company's common stock as quoted on The Nasdaq Stock Market composite tape
on such date.
The number of shares outstanding of the registrant's common stock as of
March 16, 1998 was 5,013,422.
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held April 27, 1998 are incorporated in this Form 10-K Part III by reference.
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TABLE OF CONTENTS
DORSEY TRAILERS, INC.
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997
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PAGES
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PART I.
Item 1. Business.................................................... 1
Item 2. Properties and Insurance.................................... 4
Item 3. Legal Proceedings........................................... 5
Item 4. Submission of Matters to A Vote of Security Holders......... 5
PART II.
Item 5. Market for the Registrant's Common Stock and Related 6
Stockholder Matters.........................................
Item 6. Selected Financial and Operating Data....................... 6
Item 7. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations...................................
Item 8. Financial Statements and Supplementary Data................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting 13
and Financial Disclosure....................................
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 13
Item 11. Executive Compensation...................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and 13
Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 13
PART IV.
Item 14. Financial Statements and Financial Statement Schedule....... 14
SIGNATURES.............................................................. 15
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PART I
ITEM I - BUSINESS
Dorsey Trailers, Inc. ("the Company" or "Dorsey") designs, manufactures and
markets a broad line of high-quality, customized truck trailers, including
aluminum and steel dry freight trailers, refrigerated trailers, flatbed
trailers, package carrier trailers and dump trailers. The Company competes in
the customized segment of the truck trailer industry through its authorized new
trailer dealers and on a direct basis. The Company's direct customers include
many large, highly regarded and growth-oriented customers, including AAA Cooper
Transportation, Averitt Express, Inc., Coca-Cola Bottling Co. Consolidated, JB
Hunt, Inc., Landstar System, RPS, Inc., Ryder Truck Rental, Inc., Shaw
Industries, Southeastern Motor Lines, Tyson Foods, United Parcel Service, U.S.
Xpress, Westpoint Stevens and XTRA, Inc.
PRODUCTS
The Company's broad line of customized products includes:
- Aluminum and Steel Dry Freight Vans. These trailers are also known as
sheet and post trailers and are the trailers purchased by most segments
of the trucking industry. The Company produces both aluminum and steel
full-size vans, shorter 'pup' vans that are used in doubles or triples
operation and piggybacks used in intermodal transportation.
- CargoGuard(R). The CargoGuard(R) trailer was introduced by the Company
in 1994 and has achieved continued success. These trailers are
proprietary, high-capacity, aluminum sheet and post vans with one-piece,
seamless plastic interior liners. The Company believes that CargoGuard(R)
is superior to traditional dry freight vans because of its greater cubic
capacity and because its seamless liner is less expensive to maintain
than plywood lining. The Company also believes that CargoGuard(R) offers
certain advantages over aluminum plate-side trailers, including the
capability of bulk loading due to greater sidewall stiffness, and
decreased aluminum content, thereby lessening exposure to the volatility
of commodity aluminum prices.
- Plate-side Vans. These trailers are similar to aluminum dry freight
vans, but offer increased inside width to allow more interior cubic
capacity for products that completely fill the interior volume before
exceeding the weight capacity of the trailer. The Company builds these
trailers with many customized options to satisfy specific customer
requirements.
- Refrigerated Vans. These trailers are used to transport temperature
sensitive products. The Company's refrigerated vans are thermally
efficient and were among the first to employ insulation material that is
not harmful to the ozone layer of the atmosphere. The Company builds
refrigerated vans of various lengths including both full size and "pup"
refrigerated trailers. Dorsey's food service delivery trailers are highly
customized and may include such features as multiple compartments with
different temperatures.
- Package Carrier Vans. The Company has worked closely with the small
package carrier industry to develop lightweight, durable, high-capacity
trailers. These trailers frequently include specialized design features
such as integrated interior shelving and roller systems for efficient
loading and unloading.
- Flatbed Trailers. Flatbed trailers, also known as platform trailers, are
used to carry loads such as steel and building materials. The Company
produces a wide variety of platform trailers, including straight frames,
drop frames and multi-axle units for specialized loads. All steel as well
as composite steel and aluminum designs are produced to satisfy specific
customer requirements.
- Dump Trailers. Dump trailers are used to haul bulk products such as
dirt, sand, rock and gravel. The Company builds a variety of dump
trailers, including double trailers with frame and frameless designs, of
aluminum and steel construction.
- Other Products. The Company's other products include drop frame vans,
open top trailers, chip haul trailers, exterior post vans, bulk fruit
trailers and converter dollies. The Company has participated in the
international intermodal market by constructing container chassis and
specialized aluminum containers used in the transportation of chemicals
and other bulk products in Australia.
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- Parts and Accessories. Replacement parts and accessories are sold
primarily to authorized Dorsey dealers.
The Company provides a limited five-year warranty against defects in
material and workmanship on van trailers, refrigerated van trailers and platform
trailers. The Company provides a similar two-year warranty on dump trailers. The
Company's warranty costs historically have been approximately one percent of net
sales per year. From time to time, the Company is involved in the sale of used
trailers, which are supplied primarily by trade-ins from its new trailer
customers.
SALES AND MARKETING
The Company's marketing strategy is to offer a broad line of high quality
trailers manufactured to the design specifications of its customers. The Company
markets and distributes its products in two principal ways: through authorized
dealers and directly to national accounts. Dorsey's authorized dealers primarily
serve smaller and medium-sized carriers, owner-operators and private fleets in
the region where the dealer is located. Dorsey's national accounts typically
include the larger truckload and less-than-truckload common carriers, large
private carriers, leasing companies, third party logistics companies, household
moving and storage carriers, package carriers and intermodal carriers.
CUSTOMERS
Dealer Sales. Smaller and medium-sized customers are served through
Dorsey's independent dealer network. Dealer sales account for a substantial
percentage of sales of refrigerated, flatbed and dump trailers. The Company's
independent dealers are highly responsive to customers in their service areas,
allowing the Company to access these regional markets. Dorsey has 92 authorized
dealers located in 36 states and four Canadian provinces. All dealers are
independently owned and operated. Most authorized dealers sell parts, provide
general and warranty repair service for trailers, and sell used trailers,
thereby providing a sales outlet for trailers taken in trade by the Company. The
Company has no ownership interest in any Dorsey dealership and owns no branches.
Management believes that independently owned dealerships are a more cost
efficient distribution system than Company-owned branches. The Company has no
plans to develop any Company-owned dealerships.
The Company's relationships with its dealers are governed by non-exclusive
agreements that are terminable by either party upon 30 days' notice. These
agreements generally provide that the dealer's primary responsibility is to
promote the sale of the Company's products in the geographic area the dealer
serves.
National Account Sales. The Company strives to establish and maintain
close, long-term relationships with its national account customers. Dorsey
involves manufacturing and engineering personnel in its team approach to
developing relationships with customers. The Company has been successful in
developing significant relationships as a supplier to many large,
growth-oriented customers, one of which accounted for more than 10% of Dorsey's
1997 net sales, including:
- Dry Freight Vans: AAA Cooper Transportation, Averitt Express, Coca-Cola
Bottling Co. Consolidated, Southeastern Motor Lines, United Parcel
Services, U.S. Xpress.
- CargoGuard(R): Ryder Truck Rental, Shaw Industries, Stop-n-Shop, U.S.
Xpress and Westpoint Stevens.
- Refrigerated Trailers: KAT, Martrac (a subsidiary of UPS), Pro-Source
Distribution (formerly Burger King Distribution), J & R Schugel,
Stop-n-Shop, Tyson Foods and XTRA.
- Package Carrier Vans: RPS, Inc., Transit Group, Inc. and United Parcel
Service.
- Flatbed Trailers: Boyd Brothers, D M Bowman, JB Hunt, Inc., Landstar
Systems, Schilli Leasing, and XTRA, Inc.
- Piggyback (intermodal) Trailers: United Parcel Service.
ENGINEERING AND MANUFACTURING
Dorsey considers its engineering expertise, combined with the manufacturing
experience of its work force, key competitive advantages. The Company utilizes
this experience and expertise in its marketing by including
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engineering and manufacturing personnel in initial meetings with potential
Dorsey customers to assist in defining and meeting the customer's objectives.
This team approach often results in new and unique ways of satisfying the
customer's needs. The process also ensures effective communication throughout
the organization.
In response to customer demands and to reduce costs, the Company seeks ways
to reduce trailer weight and material content while producing a product that
meets all safety requirements that our customers and the general public demand.
The Company also seeks to improve its manufacturing methods to reduce the labor
required to build its products. These efforts involve teams from all
disciplines, including marketing and sales, product and industrial engineering,
operations management, finance, and the manufacturing work force.
Each of the Company's trailers is manufactured from highly customized
designs based on detailed customer specifications of each aspect of the trailer,
including dimensions, structural requirements, fabrication materials, component
parts and accessories. Examples of some of the custom design features available
include extra floor support for heavy loads, specialized door placements, pull
out steps and platforms at doors, fluorescent interior lighting systems,
multi-axle systems, specialized braking systems, and specialized placement of
cargo tie downs. The manufacturing process involves the fabrication of
components. Additional materials, which need no modification prior to assembly,
are also utilized in the manufacturing process. These materials include wood
floors, tires, wheels, axles and support gear. The Company believes that there
are multiple sources of raw materials used in the manufacturing process.
BACKLOG
The Company's backlog of orders was approximately $25 million, $26 million
and $44 million at December 31, 1997, 1996 and 1995, respectively. Dorsey
includes in its backlog only those orders for trailers for which a confirmed
customer order has been received. Dorsey expects to fill all of these orders by
the end of 1998. The Company manufactures trailers only to customer or dealer
order and does not maintain an inventory of "stock" trailers in anticipation of
future orders. However, many of Dorsey's dealers do maintain an inventory of
stock trailers.
EMPLOYEES
As of December 31, 1997, the Company employed 1,027 persons, of whom 23
were employed in engineering, 931 in manufacturing, 17 in sales and marketing,
20 in materials and 36 in administration, finance and general management.
Substantially all of the Company's manufacturing employees at the Elba,
Alabama plant are represented by the International Association of Machinists and
Aero Space Workers ("IAM") under a three year collective bargaining agreement
that expires April 30, 1999. The Cartersville, Georgia and Dillon, South
Carolina plants are non-union.
The Company considers its relationship with its employees to be
satisfactory.
COMPETITION
The truck trailer manufacturing industry is highly competitive and barriers
to entry are relatively low. Dorsey faces competition from numerous truck
trailer manufacturers of various sizes and financial strength. Dorsey is one of
the larger manufacturers of truck trailers. Some of the other largest
manufacturers are Great Dane Limited Partnership, Wabash National Corporation,
Strick Corporation, Manac- The Canam Manac Group, Inc., Lufkin Trailers,
Trailmobile Corporation, Utility Trailer Manufacturing Company, Stoughton
Trailers, Inc., and Fontaine Trailer Company. The Company competes on the basis
of price, product availability and delivery time, design and engineering
innovations and capabilities, product quality and durability, warranties,
service, manufacturer's financial viability, and customer relationships.
The truck trailer industry faces competition from other types of products
in markets, such as the domestic intermodal container and chassis market, in
which the Company currently does not compete. The Company currently has chosen
not to participate in the intermodal container market based upon its belief that
the opportunity for container differentiation is minimal and industry
manufacturing supply is more than adequate. However,
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Dorsey's engineering and marketing teams remain current on developments in this
industry segment and could quickly produce containers and container chassis if
the market dynamics were to become more favorable.
REGULATION
Truck trailer length, height, width, gross vehicle weight and other
specifications are regulated by the National Highway Traffic Safety
Administration and individual states. Changes and anticipated changes in these
regulations have resulted in significant fluctuations in demand for new
trailers, thereby contributing to industry cyclicality. The Company also is
governed by a variety of regulations established by various federal, state and
local agencies governing such matters including employee safety and working
conditions, environmental protection and other activities.
ENVIRONMENTAL MATTERS
Subsequent to the closing of the Company's Edgerton, Wisconsin plant in
1989, the Wisconsin Department of Natural Resources (WDNR) conducted an
environmental inspection that identified certain environmental response
requirements. The Company and certain prior owners of the Edgerton plant are
cooperating in conducting remediation at the plant site and in joining with
other potentially responsible parties in addressing the landfill site. The
Company has established reserves that it believes to be adequate to address its
environmental liabilities associated with these matters.
In December 1990, a leak was detected in an underground storage tank
containing an industrial solvent at the Elba, Alabama facility. The Company
notified the Alabama Department of Environmental Management ("ADEM") of the leak
and hired an environmental consulting firm to investigate the problem and
recommend corrective action. A remediation system, approved by ADEM, was
installed and is performing according to expectations. The Company does not
expect the costs of remediation maintenance to exceed the reserves it has
established for this purpose.
PATENTS AND TRADEMARKS
The Company has been issued a patent in the United States to protect the
design concept and manufacturing method of the Company's CargoGuard(R) van
trailer. The Company has been granted a trademark registration for the
Dorsey(R), CargoGuard(R), and Liteguard(R) names in the United States.
ITEM 2 - PROPERTIES AND INSURANCE
The Company's design and manufacture of truck trailers are performed at
three facilities. Dry freight vans and refrigerated vans are produced at a
400,000 square foot facility on 74 acres in Elba, Alabama. Platform trailers are
produced at a 150,000 square foot facility on 16 acres in Cartersville, Georgia.
Dump trailers are produced at a 45,100 square foot facility in Dillon, South
Carolina. Management believes these facilities have sufficient manufacturing
capacity to produce the Company's current market share of the estimated industry
shipments for the foreseeable future.
The Company owns an inactive 343,000 square foot plant in Edgerton,
Wisconsin, an inactive 92,000 square foot facility in Griffin, Georgia, and an
inactive 144,000 square foot facility in Northumberland, Pennsylvania. On
February 20, 1998, the Company entered into a contract to sell its Griffin,
Georgia plant for $475,000 to a private real estate investor. The Company
expects the net proceeds from the sale of this vacant plant to exceed its
current basis. The Company's principal executive offices are located in an
approximately 7,000 square foot office in Atlanta, Georgia, which is leased by
the Company.
The Company maintains insurance to limit certain risks associated with its
business activities. The Company's comprehensive property policy insures
business interruption losses in addition to the Company's buildings, machinery
and inventory. The property insurance has a total limit of $75 million and a
flood sub-limit of $16 million, subject to a $100,000 deductible per occurrence.
In addition, the Company maintains insurance covering general, product and
workers' compensation liabilities with a per occurrence and annual aggregate
limit of $21 million, subject to a self-insured retention of $250,000 for each
occurrence ($350,000 for workers' compensation losses).
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ITEM 3 - LEGAL PROCEEDINGS
See "Business -- Environmental Matters" for a description of certain legal
proceedings.
In December 1997, an Administrative Law Judge of the National Labor
Relations Board ordered the Company to reinstate operations at the Company's
closed Northumberland, Pennsylvania facility, reinstate striking employees and
compensate effected employees for any loss of earnings. The Company has appealed
this decision, a procedure that could take up to several years. No part of this
order will take effect during the appeal process. Management intends to
vigorously defend against this order and believes that the Company will prevail
in the appeal process.
In November 1997, a declaratory judgment action was filed by an insurance
company as to coverage of a previously paid claim by that insurance company in
the settlement of product liability litigation. Management intends to vigorously
defend such litigation and believes that the ultimate resolution of the
litigation will not have a material impact on the Company's financial position
or results of operations.
In April, 1995, a class action lawsuit alleging racial discrimination was
filed against the Company, and in the normal course of business, the Company is
a defendant in certain other litigation, in addition to the matters discussed
above. Management intends to vigorously defend such litigation and believes that
the ultimate resolution of the litigation will not have a material impact on the
Company's financial position or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Incorporated by reference from the Registrant's Form 10-Q for the quarter
ended March 29, 1997.
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PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the period indicated, the high and low
sales prices per share of the Common Stock as reported on The Nasdaq Stock
Market and OTC -- Bulletin Board.
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HIGH LOW
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1996
First Quarter............................................ $6.375 $3.000
Second Quarter........................................... $5.375 $2.875
Third Quarter............................................ $5.000 $3.750
Fourth Quarter........................................... $4.125 $3.125
1997
First Quarter............................................ $3.375 $2.375
Second Quarter........................................... $3.375 $1.375
Third Quarter............................................ $4.000 $1.500
Fourth Quarter........................................... $3.500 $2.375
1998
First Quarter (through March 16, 1998)................... $3.500 $2.375
</TABLE>
As of March 16, 1998, the Common Stock was held by approximately 95 holders
of record and approximately 1,300 beneficial owners.
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 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.
DIVIDEND POLICY
The Company intends to retain any future earnings to provide funds for the
operation and expansion of its business and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ITEM 6 - SELECTED FINANCIAL AND OPERATING DATA
The following tables set forth selected financial and operating data of the
Company. The selected financial data, except for the unaudited pro forma data,
as of December 31, 1997, 1996, 1995, 1994 and 1993 and for each of the five
years then ended have been derived from the Financial Statements of the Company
which have been audited by Price Waterhouse LLP, the Company's independent
accountants. Unaudited pro forma adjustments for 1994 and 1993 have been shown
to reflect the income tax provision which would have been made if the Company
had been a taxable corporation throughout such period. In December 1997, the
Company adopted the requirements of Statement of Financial Accounting Standards
("FAS") No. 128 "Earnings Per Share," and as a result, the Company has restated
weighted average shares for the prior years. The information set forth below
should be read in
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conjunction with the Financial Statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
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(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND
OPERATING DATA)
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Statement of Operations Data:
Net sales................................. $156,966 $157,366 $227,944 $205,625 $170,863
Cost of sales............................. 158,514 156,214 215,048 189,474 159,258
-------- -------- -------- -------- --------
Gross profit........................... (1,548) 1,152 12,896 16,151 11,605
Selling, general and administrative
expenses............................... 7,276 8,142 7,349 6,774 6,458
Provision for plant closing............... 96 611 350 500
-------- -------- -------- -------- --------
Operating income (loss)................... (8,920) (7,601) 5,197 9,377 4,647
Interest expense, net..................... 1,649 408 62 647 1,149
-------- -------- -------- -------- --------
Income (loss) before income taxes...... (10,569) (8,009) 5,135 8,730 3,498
Provision for (benefit from) income
taxes.................................. (387) (3,084) 891
-------- -------- -------- -------- --------
Net income (loss)...................... $(10,182) $ (4,925) $ 4,244 $ 8,730 $ 3,498
======== ======== ======== ======== ========
Basic earnings (loss) per share........ $ (2.03) $ (0.99) $ 0.85
Weighted average shares outstanding....... 5,007 4,995 4,990
Unaudited Pro Forma Data (1):
Pro forma income taxes................. $ 1,805 $ 1,332
Pro forma net income (loss)............ 6,925 2,166
Pro forma net income per share......... 1.53 0.52
Pro forma weighted average shares
outstanding.......................... 4,516 4,191
Operating Data:
Number of trailers sold................... 7,934 8,595 12,276 12,010 10,190
Sales per employee........................ $152,839 $160,251 $174,938 $155,306 $154,627
Balance Sheet Data (at end of period):
Total assets.............................. $ 33,367 $ 45,019 $ 47,449 $ 47,516 $ 23,902
Long-term debt, including current
portion................................ 14,935 9,876 10,315 8,755 14,413
Total stockholders' equity (deficit)...... (4,310) 5,615 10,193 5,248 (12,312)
</TABLE>
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(1) From inception of the Company in 1987 until the Company's initial public
offering in July 1994, the Company elected to be treated as an S Corporation
and, accordingly, was not subject to corporate income taxes. Following the
initial public offering, the Company became subject to corporate income tax.
Unaudited pro forma net income has been computed as if the Company were
subject to federal and state income taxes for all periods presented, based
on tax laws in effect during the respective periods.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's sales are derived primarily from the sale of new truck
trailers and, to a lesser extent, replacement parts and accessories, and used
trailers. The Company recognizes revenue from the sale of trailers after
manufacturing is complete, at which time title is transferred to the customer.
Materials represent approximately 75% of cost of sales, with the remainder
consisting of labor and factory overhead.
INCLUSION OF FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the "Letter To Our Stockholders" may be deemed to be forward-looking statements,
as defined in the Private Securities Litigation Reform Act of 1995. Any
forward-looking statements
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included herein have 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. 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, reliance on certain customers, shortages of raw materials, labor
shortages or work stoppage, dependence on industry trends, government
regulations and new technologies or products. Readers should review and consider
the various disclosures included elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of expense items
to net sales for the periods indicated:
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<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
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Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 101.0 99.3 94.3
----- ----- -----
Gross profit................................................ (1.0) 0.7 5.7
Selling, general and administrative expenses................ 4.6 5.2 3.2
Provision for plant closing................................. .1 .4 0.2
----- ----- -----
Income (loss) from operations............................... (5.7) (4.9) 2.3
Interest expense, net....................................... 1.0 .2
----- ----- -----
Income (loss) before income taxes........................... (6.7) (5.1) 2.3
Provision for (benefit from) income taxes................... (.2) (2.0) .4
----- ----- -----
Net income (loss)........................................... (6.5)% (3.1)% 1.9%
===== ===== =====
</TABLE>
Net Sales
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS OF DOLLARS,
EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Net sales................................ $156,966 $157,366 $227,944
Percentage increase (decrease) in sales
from
prior period............................. (.2)% (31.0)% 10.9%
</TABLE>
Net sales for 1997 decreased $400,000 to $157 million for 1997 as compared
to $157.4 million for 1996. The Company was able to maintain sales revenue at
relatively the same level between years even though the number of new trailers
sold between years decreased 8%, because of the increase in used trailers sales.
New trailer sales for 1997 were $136.7 million compared to $148.6 million for
1996, an 8% decrease. The decrease in new trailer sales primarily occurred in
the first nine months of 1997 while the fourth quarter sales between years
remained the same. Used trailer sales were $15.7 million for 1997 compared to $3
million for 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
at the end of 1996. Current market conditions appear to have reduced the
necessity to accept used trailers on trade as a condition to the awarding of new
trailer sales contracts.
Net sales for 1996 decreased 31.0% to $157.4 million from $227.9 million
for 1995. The 31% decrease in net sales represented a 30% decrease in the number
of trailers sold. The decrease in net sales and the number of trailers sold was
a direct result of the decrease in demand for trailers from customers,
overcapacity in the industry and, as a result of these factors, severe pricing
pressure.
Net sales for 1995 increased 10.9% to $227.9 million from $205.6 million
for 1994. The increase in 1995 net sales represented a 2.2% increase in new
trailer units sold. Net sales and number of units sold were adversely
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affected by the labor strike and eventual shutdown of the Pennsylvania plant.
The increase in net sales reflected the strong demand for the product as well as
the increased manufacturing capacity resulting from the 1994 expansion of a dry
freight line at the Elba, Alabama plant.
Gross Profit
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- ------ -------
(IN THOUSANDS OF DOLLARS,
EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Gross profit................................ $(1,548) $1,152 $12,896
As a percentage of net sales................ (1.0)% 0.7% 5.7%
</TABLE>
Gross profit as a percentage of net sales, or gross margin, decreased to
(1.0%) in 1997, from .7% for 1996 and gross profit decreased to ($1.5) million
from $1.2 million for 1996. The negative gross profit was primarily due to the
following: heavy mix of low margin fleet orders completed in the first nine
months of the year, losses on used trailers of $3.3 million, and an increase of
approximately $400,000 in wood floor prices in the first half of the year which
the Company was not able to pass on to its customers. The Company returned to a
positive gross profit in the third quarter of 1997 and recorded its highest
quarterly gross profit margin in eight straight quarters in the fourth quarter
of 1997 at $2.3 million. Current order intake is priced at somewhat better
margins, as the industry is experiencing improved demand and more stable
component prices.
Gross margin decreased to 0.7% in 1996, from 5.7% in 1995, and gross profit
decreased to $1.2 million in 1996. The decrease was largely due to the factors
affecting the decrease in net sales including substantially lower volume of
trailers sold and depressed selling prices resulting from very weak market
demand on excess production capacity in the industry. Also contributing to the
decrease was significant start-up costs at the Company's new flatbed facility in
Cartersville, Georgia.
Gross margin decreased to 5.7% in 1995 from 7.9% in 1994, and gross profit
decreased 20.2% to $12.9 million in 1995. This was largely due to the production
inefficiencies caused by the use of temporary workers to replace certain
striking union employees at the now closed Pennsylvania plant and raw material
shortages.
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS OF DOLLARS,
EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Selling, general and administrative expenses...... $7,276 $8,142 $7,349
As a percentage of net sales...................... 4.6% 5.2% 3.2%
</TABLE>
Selling, general and administrative ("S, G & A") expenses decreased
$866,000 to $7.3 million for 1997 from $8.1 million for 1996. S, G & A expenses
decreased between years primarily from a reduction in professional fees and an
overall reduction in S, G & A expenses as a result of management's plan of cost
reduction. S, G & A as a percentage of sales decreased to 4.6% in 1997 from 5.2%
for 1996.
S, G & A expenses increased 10.8% to $8.1 million for 1996 from $7.3
million for 1995. The increase in expenses was primarily due to professional
fees on certain matters. S, G & A, as a percentage of net sales, increased from
3.2% in 1995 to 5.2% in 1996; this increase was due primarily to the decrease in
net sales.
S, G & A expenses for 1995 increased 8.5% to $7.3 million from $6.8 million
for 1994, but declined as a percentage of net sales to 3.2% from 3.3%. The
reduction in S, G & A expenses as a percentage of net sales in 1995 was due to
efficiencies gained through increased sales volume and the effects of the
Company's cost containment efforts.
9
<PAGE> 12
Provision for Plant Closing
The Company's provision for plant closing decreased by $515,000 to $96,000
for 1997 as compared to $611,000 for 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.
The Company recorded $611,000 and $350,000 in 1996 and 1995, respectively,
for expenses relating to its closed facilities in Edgerton, Wisconsin and
Northumberland, Pennsylvania. The 1996 provision primarily relates to salaries,
repairs, maintenance and depreciation expense at the Northumberland plant. The
1995 provision includes the expenses relating to severance pay due to the 1995
shutdown of the Pennsylvania facility, in addition to depreciation expense on
the Wisconsin facility.
The Company believes it has accrued adequate carrying costs for the period
it expects to hold the Pennsylvania and Wisconsin facilities, this period may be
extended due to the uncertainty involved in the environmental remediation. See
"Business -- Environmental Matters."
Interest Expense, Net
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ----- -----
(IN THOUSANDS OF DOLLARS,
EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Interest expense, net................................. $1,649 $408 $62
As a percentage of net sales.......................... 1.0% 0.2% *
</TABLE>
- ---------------
* Represents less than 0.1%.
Net interest expense increased $1.2 million to $1.6 million for 1997 as
compared to $408,000 for 1996. The increase in interest expense is due to the
use of the long-term revolving line of credit in 1997 and the write-off of
$300,000 in unamortized financing costs associated with replacing the Company's
previous line of credit, partially offset by $400,000 in interest income
received upon renegotiation of the Company's retail financing agreement ( See
Note 9).
Net interest expense increased $346,000 to $408,000 for 1996. The increase
in interest expense is a result of the notes payable for the purchases of the
Cartersville, Georgia facility and the Dillon, South Carolina operation and the
reduction in interest income between the years 1996 and 1995. Net interest
expense decreased from $647,000 in 1994 to $62,000 in 1995. This decrease
primarily reflects a lower principal amount of debt outstanding and an increase
in interest income earned.
PROVISION FOR (BENEFIT FROM) INCOME TAXES AND NET INCOME (LOSS)
The Company reported a net loss of $10.2 million, or $2.03 loss per share,
for 1997 as compared to a net loss of $4.9 million, or $.99 loss per share, for
1996. After eight straight quarters of losses, the Company returned to
profitability in the fourth quarter of 1997. The Company recorded a benefit from
income taxes of $387,000 for 1997 resulting in an effective income tax rate of
3.7% compared to a benefit from income taxes of $3.1 million for 1996 resulting
in an effective income tax rate of 38.5%. The lower effective tax rate is due to
the fact that the Company recorded a $3.4 million valuation reserve for certain
income tax benefits which the Company may ultimately use to offset against
future taxable income.
The Company reported a net loss of $4.9 million, or $.99 loss per share,
for 1996 as compared to net income of $4.2 million, or $0.85 per share for 1995.
The Company recorded a benefit for income taxes of $3.1 million in 1996 for an
effective income tax benefit rate of 38.5% as compared to a provision for income
taxes of $891,000 in 1995 for an effective income tax provision rate of 17.4%.
The lower effective income tax provision rate in 1995 was due to the utilization
of the deferred tax valuation reserve, which reduced the provision for income
taxes by $1.1 million.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1997 were $8,000 as compared to
$101,000 at December 31, 1996.
Net cash used in operating activities was $5.1 million for 1997 and $4.3
million for 1996 as compared to net cash provided by operating activities of
$3.7 million for 1995. Cash used in operating activities for 1997 was primarily
used to fund the Company's loss of $10.2 million and a $5.5 million decrease in
accounts payable. This cash used was offset by a $7.5 million decrease in
inventories, primarily used trailers; a $1.5 million decrease in accounts
receivable and a $2.5 million decrease in prepaid and other current assets,
primarily receipt of the tax refund from 1996. Cash used in operating activities
for 1996 was primarily used to fund the increase in inventory of $1.8 million, a
$2.4 million increase in income tax receivable, and operating losses of $4.9
million. The increase in inventory was due to a $3.6 million increase in used
trailers which was offset by a decrease in raw materials of $1.9 million. The
cash used for 1996 was primarily funded by the Company's cash and cash
equivalents and an increase in accounts payable. Cash provided by operations for
1995 was primarily provided by net income.
Net cash used in investing activities was $300,000, $2.5 million, and
$15,000 for 1997, 1996 and 1995, respectively. Net cash used in investing
activities for 1997 was used for capital expenditures. Net cash used in
investing activities for 1996 was used to fund $1.3 million for capital
expenditures and $1.1 million for the cash payment portion of the purchase of a
dump trailer manufacturing operation. In July 1996, the Company purchased the
operations of a dump trailer manufacturer for $1.8 million. An unsecured note
payable of $577,000 was issued to the seller at a floating prime interest rate.
For 1995 capital expenditures were $4.0 million of which the Company funded $2.0
million with cash. In November 1995, the Company purchased a facility in
Cartersville, Georgia for $2.0 million for the manufacture of flatbed trailers.
A note payable to the seller in the amount of $2.0 million was issued bearing
interest at a fixed rate of 8.5%.
Net cash provided by financing activities was $5.3 million for 1997 as
compared to cash used in financing activities of $800,000 and $5.2 million for
1996 and 1995, respectively. Net cash provided in 1997 was from net advances
under the Company's long-term revolving line of credit of $5.2 million which
funded the net cash used in operating activities of $5.1 million in 1997. Net
cash used in financing activities for 1996 was used for the scheduled repayment
of long-term debt. The net cash used in 1995 was primarily used for the
distribution to stockholders of $5.0 million which represented the previously
taxed and undistributed earnings of the Company as a result of the termination
of the Company's S Corporation election.
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 March 16, 1998, the
Company had $4.7 million outstanding under the Financing Agreement, including $1
million outstanding under the term loan and $2.2 million in letters of credit
and had $1.6 million in availability under the Financing Agreement. In August
and November of 1997, the Company's $4 million term loan included as part of the
Financing Agreement was revised. Prior to the revision, the term loan was to be
completely amortized at August 1, 1997. With the revisions, the term loan at
August 1, 1997 was $2 million with interest only for sixty days. The revised
term loan is to be paid in eight installments with the final payment being on
July 1, 1998. As of March 16, 1998, 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 continued
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 December 31, 1997, the Company's inventory of used trailers was
$617,000 with no purchase commitments for used trailers. This level of used
trailer inventory represents a $10.3 million decline in used trailer inventory
and commitments from the Company's high of $10.9 million in March of 1997.
During the
11
<PAGE> 14
first quarter of 1997, management decided to sell certain used trailers quickly
at lower than normal pricing in order to generate sufficient cash to meet its
obligations. As a result, the Company incurred losses on the sale of used
trailers of $3.3 million during 1997.
In addition to the amendment of its Financing Agreement described above,
the United States Small Business Administration modified the Company's term
loan, deferred all payments for six months which ended December 31, 1997 and
re-amortized the balance of the term loan as of January 1998, which reduced the
Company's monthly payments from $69,326 to $40,500.
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 losses, the Company's
liquidity position continues to remain tight. Management believes that the
Company can generate some additional liquidity by reducing inventories and
improve margins on new trailer sales orders and actions are underway to
implement its plan. No assurances can be given that the Company will be
successful in these efforts.
On February 20, 1998, the Company entered into a contract to sell its idle
Griffin, Georgia plant for $475,000 to a private real estate investor. The
Company expects to close this transaction within 30 days. The Company expects
the net proceeds from the sale of this plant to exceed its current basis.
ACCOUNTING STANDARDS
In June of 1997, the Financial Accounting Standards Board issued FAS No.
130, "Reporting Comprehensive Income." FAS No. 130 establishes presentation and
disclosure requirements and does not address recognition or measurement issues.
FAS No. 130 is effective for fiscal years beginning after December 15, 1997.
In June of 1997, the FASB issued FAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which requires enterprises to report
selected information about operating segments and related disclosures about
products and services, geographic areas, and major customers. The Company
believes that no significant changes to current reporting will be required by
FAS No. 131, which is effective for fiscal years beginning after December 15,
1997.
In February of 1998, the FASB issued FAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. FAS No. 132 revises employers' disclosures
about pension and other postretirement benefit plans but does not change the
measurement or recognition of those plans. The Company believes that no
significant changes to current reporting will result upon the adoption of FAS
No. 132.
SEASONALITY AND INFLATION
Unit sales of new trailers are generally not affected by seasonal factors.
However, new trailer unit sales have historically been subject to cyclical
variation based upon general economic conditions. The federal government also
regulates certain trailer features, particularly with respect to safety. Any
changes in these regulations apply generally to all manufacturers in the
industry and can have a significant impact on industry sales. Long-term domestic
growth in demand for truck trailers has generally been in line with increases in
the United States Gross Domestic Product. However, in the short to intermediate
term, new trailer sales can be very cyclical. The short to intermediate term
cycle of trailer sales is also impacted by the environment for new business
investment in equipment particularly in the trucking industry.
The Company has not been materially impacted by inflation in the past three
years.
YEAR 2000
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 issue and is
developing an implementation plan to resolve the issue. The Company is utilizing
both internal and external resources to identify and correct the Company's
computer systems. The Year 2000 issue is the result of computer hardware and
programs being designed to use two digits rather than four digits to define the
applicable year. Any of the Company's hardware and programs that have
time-sensitive software may
12
<PAGE> 15
recognize a date using "00" as the year 1900 rather than the year 2000. This
factor could result in major system failure or miscalculations. The Company
presently believes that with modification to existing hardware and software and
conversions to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as modified and
converted. Maintenance and modification costs will be expensed as incurred,
while the costs of new hardware and software will be capitalized and amortized
over the assets' useful lives. It is anticipated that all modifications and
conversions will be completed in a timely manner which will allow for proper
testing. However, if such modifications and conversions are not completed
timely, the Year 2000 issue may have a material impact on the operations of the
Company.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in Part IV, Item 14 of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company hereby incorporates by reference the information under the
headings "Proposal I -- Election of Directors -- Director and Director Nominee
Information" and -- "Executive Officers of the Company" from its definitive
Proxy Statement to be delivered to the stockholders of the Company in connection
with the 1998 Annual Meeting of Stockholders to be held April 27, 1998.
ITEM 11 - EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the information contained
under the headings "Executive Compensation" from its definitive Proxy Statement
to be delivered to the stockholders of the Company in connection with the 1998
Annual Meeting of Stockholders to be held April 27, 1998. In no event shall the
information contained in the Proxy Statement under the headings "Stockholder
Return Comparison" and "Report of the Compensation Committee of the Board of
Directors" be incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company hereby incorporates by reference the information contained
under the heading "Principal Stockholders of the Company" from its definitive
Proxy Statement to be delivered to the stockholders of the Company in connection
with the 1998 Annual Meeting of Stockholders to be held April 27, 1998.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the information contained
under the headings "Proposal I -- Executive Compensation", "Compensation
Committee Interlocks and Insider Participation" and "-- Certain Transactions"
from its definitive Proxy Statement to be delivered to the stockholders of the
Company in connection with the 1998 Annual Meeting of Stockholders to be held
April 27, 1998. Additionally, see Note 12 of the Notes to Financial Statements
for related party transactions.
13
<PAGE> 16
PART IV
ITEM 14 - FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
(a) 1. Financial Statements
The following financial statements of Dorsey Trailers, Inc., incorporated
by reference into Item 8, are attached hereto:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Accountants........................... F-1
Balance Sheets as of December 31, 1997 and 1996............. F-2
Statements of Operations for the years ended December 31,
1997, 1996 and 1995....................................... F-3
Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1997, 1996 and 1995.......... F-4
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995....................................... F-5
Notes to Financial Statements............................... F-6
2. Financial Statement Schedules............................ F-19
All other schedules have been omitted because the
schedules are either inapplicable or the information
required is included in the financial statements or
notes thereto.
3. Exhibits................................................. F-20
</TABLE>
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter-ended
December 31, 1997.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant had duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 16, 1998.
DORSEY TRAILERS, INC.
By: /s/ MARILYN R. MARKS
--------------------------------------
Marilyn R. Marks
Chief Executive Officer
and Chairman of the Board of Directors
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities indicated on March 16, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ MARILYN R. MARKS Chief Executive Officer and Chairman of the
- -------------------------------------------------------- Board of Directors
Marilyn R. Marks
/s/ JAMES E. CLEMENTS Vice President -- Finance (Principal Financial
- -------------------------------------------------------- and Accounting Officer)
James E. Clements
/s/ ERNEST H. LORCH Director
- --------------------------------------------------------
Ernest H. Lorch
/s/ LAWRENCE E. MOCK, JR. Director
- --------------------------------------------------------
Lawrence E. Mock, Jr.
/s/ J. HOYLE RYMER Director
- --------------------------------------------------------
J. Hoyle Rymer
/s/ NEIL A. SPRINGER Director
- --------------------------------------------------------
Neil A. Springer
</TABLE>
15
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Dorsey Trailers, Inc.
In our opinion, the financial statements listed in the index appearing
under Item 14(a)(1) and (2) on page 14 present fairly, in all material respects,
the financial position of Dorsey Trailers, Inc. at December 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Atlanta, Georgia
January 28, 1998
F-1
<PAGE> 19
DORSEY TRAILERS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 8 $ 101
Accounts receivable, less allowance for doubtful accounts
of $129 and $168....................................... 6,811 8,296
Inventories............................................... 11,479 19,002
Prepaid expenses and other assets......................... 540 2,990
------- -------
Total current assets.............................. 18,838 30,389
Property, plant and equipment, net.......................... 8,447 9,681
Deferred income taxes....................................... 4,179 3,953
Other assets................................................ 1,903 996
------- -------
Total assets...................................... $33,367 $45,019
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt......................... $ 350 $ 705
Accounts payable.......................................... 12,638 18,126
Accrued wages and employee benefits....................... 4,348 4,403
Accrued expenses.......................................... 3,156 4,299
------- -------
Total current liabilities......................... 20,492 27,533
Long-term revolving line of credit.......................... 5,571
Long-term debt.............................................. 9,014 9,171
Accrued pension liability................................... 1,600 1,600
Accrued warranty............................................ 1,000 1,100
------- -------
Total liabilities................................. 37,677 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................................ 2,595 2,339
Retained earnings (deficit)............................... (6,878) 3,304
Unrecognized pension liability............................ (77) (77)
------- -------
Total stockholders' equity (deficit).............. (4,310) 5,615
Commitments and contingencies (Note 9)...................... -- --
------- -------
Total liabilities and stockholders' equity
(deficit)........................................ $33,367 $45,019
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 20
DORSEY TRAILERS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................. $156,966 $157,366 $227,944
Cost of sales............................................. 158,514 156,214 215,048
-------- -------- --------
Gross profit............................................ (1,548) 1,152 12,896
Selling, general and administrative expenses.............. 7,276 8,142 7,349
Provision for plant closing............................... 96 611 350
-------- -------- --------
Income (loss) from operations............................. (8,920) (7,601) 5,197
Interest expense, net..................................... 1,649 408 62
-------- -------- --------
Income (loss) before income taxes....................... (10,569) (8,009) 5,135
Provision for (benefit from) income taxes................. (387) (3,084) 891
-------- -------- --------
Net income (loss)....................................... (10,182) (4,925) $ 4,244
======== ======== ========
Basic earnings (loss) per share......................... $ (2.03) $ (0.99) $ 0.85
======== ======== ========
Weighted average number of common and common share
equivalents............................................. 5,007 4,995 4,990
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 21
DORSEY TRAILERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL COMMON EARNINGS UNRECOGNIZED
------------------ PAID-IN STOCK (ACCUMULATED PENSION
SHARES AMOUNT CAPITAL WARRANTS DEFICIT) LIABILITY TOTAL
--------- ------ ---------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994..... 5,001,728 $50 $1,265 $ 93 $ 3,985 $(145) $ 5,248
Net income..................... 4,244 4,244
Reversal of accrued
distribution to
stockholders................. 409 409
Exercise of options............ 93 (93)
Record unrecognized tax benefit
of stock option
compensation................. 296 296
Capital contribution of stock
by stockholder and
cancellation by Company...... (14,989) (1) 1
Issuance of common stock to
non-employee directors....... 2,115 22 22
Record unrecognized pension
liability.................... (26) (26)
--------- --- ------ ---- -------- ----- -------
Balance, December 31, 1995..... 4,988,854 49 2,086 8,229 (171) 10,193
Net loss....................... (4,925) (4,925)
Record unrecognized tax benefit
of stock option
compensation................. 223 223
Issuance of common stock to
nonemployee directors........ 8,568 30 30
Record unrecognized pension
liability.................... 94 94
--------- --- ------ ---- -------- ----- -------
Balance, December 31, 1996..... 4,997,422 49 2,339 3,304 (77) 5,615
Net loss....................... (10,182) (10,182)
Record unrecognized tax benefit
of stock option
compensation................. 226 226
Issuance of common stock to
nonemployee directors........ 16,000 1 30 31
--------- --- ------ ---- -------- ----- -------
Balance, December 31, 1997..... 5,013,422 $50 $2,595 $ -- $ (6,878) $ (77) $(4,310)
========= === ====== ==== ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 22
DORSEY TRAILERS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)......................................... $ (10,182) $(4,925) $ 4,244
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities
Depreciation and amortization.......................... 1,782 1,440 1,179
Issuance of common stock to non-employee directors..... 31 30 22
Change in assets and liabilities.......................
Decrease in accounts receivable...................... 1,485 1,098 457
(Increase) decrease in inventories................... 7,523 (1,771) 1,034
Decrease (increase) in prepaid expenses and other
current assets.................................... 2,450 (2,327) (583)
(Decrease) increase in accounts payable.............. (5,488) 2,558 (2,169)
(Decrease) increase in accrued wages and employee
benefits.......................................... (55) (449) 585
(Decrease) increase in accrued expenses.............. (1,143) 630 605
(Increase) decrease in other assets.................. (1,155) 1 281
Increase in deferred income taxes.................... (226) (593) (1,778)
Decrease in other liabilities........................ (100) (198)
--------- ------- -------
Net cash (used in) provided by operating
activities...................................... (5,078) (4,308) 3,679
--------- ------- -------
Cash flows from investing activities
Purchase of business assets............................... (1,198)
Capital expenditures...................................... (300) (1,338) (2,015)
Redeem certificates of deposit............................ 2,000
--------- ------- -------
Net cash used in investing activities............. (300) (2,536) (15)
--------- ------- -------
Cash flows from financing activities
Advances on long-term revolving line of credit............ 130,852
Payments on long-term revolving line of credit............ (125,281)
Payments of long-term debt................................ (512) (1,016) (490)
Tax benefit from exercise of stock options................ 226 223 296
Distribution to stockholders.............................. (5,029)
--------- ------- -------
Net cash (used in) provided by financing
activities...................................... 5,285 (793) (5,223)
--------- ------- -------
Decrease in cash and cash equivalents....................... (93) (7,637) (1,559)
Cash and cash equivalents at beginning of year.............. 101 7,738 9,297
--------- ------- -------
Cash and cash equivalents at end of year.................... $ 8 $ 101 $ 7,738
========= ======= =======
Supplemental disclosures of cash flow information
Cash paid during the year for interest.................... $ 1,600 $ 384 $ 431
========= ======= =======
Cash paid during the year for income taxes................ $ 36 $ 2,686
======= =======
Disclosure of non-cash investing and financing activities
Issuance of note payable for acquisition of property...... $ 577 $ 2,050
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 23
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company designs, manufactures and markets truck trailers. Significant
accounting policies followed by the Company are summarized below:
INITIAL PUBLIC OFFERING
On July 28, 1994, the Company sold 1,400,000 shares of common stock in an
initial public offering (the "Offering") and selling stockholders sold 670,000
shares including the over-allotment option of shares. The net proceeds received
by the Company were $16.2 million and were used to reduce debt, repurchase stock
options from a director, fund capital expenditures and fund a distribution to
the S Corporation stockholders (see Note 7).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investment instruments
with an original maturity of three months or less.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
The Company recognizes revenue from the sale of trailers when title and
risks of ownership are transferred to the customer, which generally is upon
shipment or customer pick-up. A customer may be invoiced for and receive title
to trailers prior to taking physical possession when the customer has made a
fixed, written commitment to purchase, the trailers have been completed and are
available for pick-up or delivery, and the customer has requested the Company to
hold the trailers until the customer determines the most economical means of
taking physical possession. Upon such a request, the Company has no further
obligation except to segregate the trailers, invoice them under normal billing
and credit terms, and hold them for a short period of time as is customary in
the industry, until pick-up or delivery. Trailers are built to customer
specification and no right of return or exchange privileges are granted.
Accordingly, no provision for sales allowances or returns is recorded.
For the year ended 1997, sales to United Parcel Services were $21.3
million, which exceeded 10% of the Company's total sales. For the year ended
1996, sales to U.S. Xpress exceeded 10% of the Company's total sales. For 1995,
no one customer represented greater than 10% of total sales of the Company. The
Company markets its products directly to national accounts and through a
nationwide network of dealers into all of the major segments of the trucking
industry. The diverse customer base reduces the risk of concentration in any
market segment or geographical area. Although the Company is affected by the
credit worthiness of its customers, management does not believe significant
credit risk exists at December 31, 1997. The Company generally does not require
collateral or maintain reserves for potential credit losses.
INVENTORIES
Inventories are stated primarily at the lower of first-in, first-out (FIFO)
cost or market values. Used trailers are carried at the lower of their estimated
net realizable value or cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
using the straight-line method over the estimated lives of the assets ranging
from three to twenty years. Maintenance and repairs are charged to expense as
incurred; expenditures for renewals and betterments are capitalized. When assets
are retired or otherwise disposed of, the property accounts are relieved of
costs and accumulated depreciation and any resulting gain or loss is credited or
charged to income.
F-6
<PAGE> 24
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
The Company accrues the estimated cost of retiree benefit payments, other
than pensions, during employees' active service period in accordance with
Statement of Financial Accounting Standards ("FAS") No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions".
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Using the enacted tax rate in effect for
the year in which the differences are expected to reverse, deferred tax assets
and liabilities are determined based on the differences between the financial
reporting basis and income tax basis of assets and liabilities. A valuation
reserve is recorded when it is more likely than not that all or a portion of all
deferred tax assets may not be realized.
ACCRUED WARRANTY
The Company provides a limited five-year warranty against defects in
material and workmanship on van trailers and platform trailers. The Company
provides a similar two-year warranty on dump trailers. The Company provides for
warranty costs at the time of sale based on experience and management's
judgment. The portion of the warranty reserve expected to be paid beyond one
year is classified as noncurrent in the accompanying financial statements.
ENVIRONMENTAL ACCRUAL
The Company accrues environmental costs when it is probable that the
Company has incurred a liability and the amount can be reasonably estimated.
Estimated costs associated with closure/postclosure are accrued over the
facilities' estimated remaining useful lives. Accruals for environmental
liabilities are included in accrued expenses at undiscounted amounts and exclude
claims for recoveries from insurance companies or other third parties.
Environmental costs are capitalized if they extend the life of the related
property, increase its capacity or mitigate or prevent future contamination.
GOODWILL
Goodwill represents the excess of the aggregate price paid by the Company
in acquisitions accounted for as purchases over the fair market value of the net
tangible assets acquired. Goodwill is being amortized on a straight-line basis
over 15 years. The carrying value of the goodwill is evaluated for indications
of possible impairment whenever events or changes in circumstances indicate that
the carrying value of an intangible asset may not be recoverable.
Goodwill was $922,000 at December 31, 1997 net of accumulated amortization
of $103,000. Goodwill was $991,000 at December 31, 1996 net of accumulated
amortization of $34,000. There was no goodwill in 1995.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE ("EPS")
In December of 1997, the Company adopted the requirements of FAS No. 128
"Earnings Per Share," which replaced primary and fully diluted EPS with basic
and diluted EPS, respectively. Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the
F-7
<PAGE> 25
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
period. Diluted EPS includes the effect of all potentially dilutive stock
options outstanding during the year. Common stock equivalents consist of the
Company's common shares issuable upon the exercise of stock options using the
treasury stock method.
In 1997 and 1996, potentially dilutive securities not included in the
calculation of basic earnings per share and dilutive earnings per share
consisted of options to purchase shares of the Company's common stock of 187,000
and 30,000, respectively. These options were not included due to the Company
reporting a net loss for both periods.
Prior earnings per share amounts have been restated to conform to
requirements of the new accounting standard effective at year-end 1997.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Raw materials............................................... $ 7,781 $ 8,376
Work-in-process............................................. 2,760 5,833
Finished trailers........................................... 321 981
Used trailers............................................... 617 3,812
------- -------
$11,479 $19,002
======= =======
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Land........................................................ $ 688 $ 688
Building.................................................... 6,270 6,270
Equipment................................................... 10,816 10,516
------- -------
17,774 17,474
Less -- Accumulated depreciation............................ 9,327 7,793
------- -------
$ 8,447 $ 9,681
======= =======
</TABLE>
Property, plant and equipment include land and buildings held for sale as
idle facilities of $706,000 and $760,000 in Northumberland, Pennsylvania (see
Note 10), and $186,000 and $280,000 in Edgerton, Wisconsin at December 31, 1997
and 1996, respectively. The assets are recorded at net book value which
management believes is less than net realizable value.
4. 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 months and a letter of credit facility of up
to $3 million, with an asset-based lender. In August and November of 1997, the
Company's term loan was revised. Prior to the revision the term loan was to be
completely amortized at August 1, 1997. With the revisions, the term loan at
August 1, 1997 was $2 million with interest only for sixty days. The revised
term loan is to be paid in eight installments with the final payment being on
July 1, 1998. This Financing Agreement replaced
F-8
<PAGE> 26
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
a $10 million revolving credit agreement the Company had with a financial
institution. The Company had no borrowings outstanding under this facility at
December 31, 1996, although $2.0 million in letters of credit were outstanding
under this facility.
In connection with the closing of the $14 million Financing Agreement, the
Company incurred cost 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% with interest payable monthly. At December 31, 1997, the interest
rate was 10.50% for the Financing Agreement and the interest rate is prime plus
2% until April 30, 1998 and prime plus 3% beginning May 1, 1998 for the term
loan. 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 materials, 40% of eligible
used trailers, and 60% of eligible finished goods 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 December 31, 1997, the Company had $5.6 million
outstanding under the Financing Agreement, including $1.5 million outstanding
under the term loan, and $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 December 31, 1997, the Company was
in compliance with the covenants of the Financing Agreement.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Note payable to Small Business Administration bearing
interest at 4%, payable in equal monthly principal and
interest installments of $40,500, secured by substantially
all of the Company's assets (subordinated to all other
notes payable). Due 2020.................................. $6,984 $7,296
Note payable bearing interest at 8.5%, payable in quarterly
principal and interest installments of $89,250, due 2005,
secured by property, plant and equipment.................. 1,950 2,050
Note payable bearing interest at the prime rate, payable in
monthly principal and interest installments of $11,779,
due 2001, unsecured....................................... 430 530
------ ------
9,364 9,876
Less -- Current portion of long-term debt................... 350 705
------ ------
$9,014 $9,171
====== ======
</TABLE>
In August of 1997, the SBA modified the Company's term loan, deferred all
payments for six months which ended December 31, 1997 and re-amortized the
balance of the term loan as of January 1998, which reduced the Company's monthly
payment from $69,326 to $40,500.
In addition to the monthly principal and interest installments to the Small
Business Administration, the Company is required to make supplemental annual
payments equal to 50% of the Company's net operating income, as defined in the
agreement, in excess of $3,000,000. For the years ended December 31, 1997 and
1996, no supplemental payment was required.
F-9
<PAGE> 27
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
As of December 31, 1997, aggregate principal maturities of long-term debt
are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
1998...................................................... $ 350
1999...................................................... 542
2000...................................................... 582
2001...................................................... 564
2002...................................................... 514
Thereafter................................................ 6,812
------
$9,364
======
</TABLE>
6. RETIREMENT AND EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has a noncontributory defined-benefit retirement plan covering
certain salaried employees and two noncontributory defined-benefit plans
covering certain former hourly employees who have met certain plan eligibility
provisions. Benefits under the hourly employees' plans are based on years of
service while benefits under the salaried employees' plan are based on years of
service and the employee's compensation during the five consecutive calendar
years prior to retirement. The Company makes contributions as required to
maintain the plans on an actuarially sound basis.
The following tables summarize the plans' funded status and amounts
recognized in the Company's financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested.................................................... $ 5,954 $ 5,525
Nonvested................................................. 91 120
------- -------
$ 6,045 $ 5,645
======= =======
Projected benefit obligation for services rendered to
date...................................................... $ 6,663 $ 6,279
Plan assets, primarily common stock and bond funds, at fair
value..................................................... 5,450 4,663
------- -------
Excess of projected benefit obligation over plan assets..... (1,213) (1,616)
Unrecognized prior service cost............................. 106 120
Unrecognized net gain including actual gains and losses not
yet reflected in market-related asset value............... (777) (442)
------- -------
Accrued pension cost included in the accompanying balance
sheet ($284,000 and $411,000 classified as current at
December 31, 1997 and 1996)............................... $(1,884) $(1,938)
======= =======
</TABLE>
For financial reporting purposes, a pension plan is considered underfunded
when the fair value of the plan assets is less than the accumulated benefit
obligation. The difference between the underfunded liability of the pension plan
and the accrued pension costs is recorded net of deferred taxes as a reduction
to stockholders equity. As of December 31, 1997 and 1996, the difference was
$126,000 with a reduction to stockholders' equity of $77,000.
F-10
<PAGE> 28
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Net pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Costs related to services provided by employees............. $ 200 $ 254 $ 233
Interest cost on projected benefit obligations.............. 461 458 445
Actual return on plan assets................................ (788) (540) (614)
Net amortization and deferral............................... 394 229 366
----- ----- -----
Net pension cost.................................. $ 267 $ 401 $ 430
===== ===== =====
</TABLE>
In addition to net pension cost, net losses of $35,000 were recorded in
1995 pursuant to FAS No. 88, "Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits", due
to termination of employees' services earlier than expected with respect to the
closing of the Company's Northumberland, Pennsylvania facility (see Note 10).
The assumptions used in accounting for the pension plans, where applicable,
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.25% 7.25% 7.00%
Rate of increase in compensation levels..................... 4.00% 4.00% 4.00%
Expected long-term rate of return on assets................. 8.50% 8.50% 8.50%
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, the Company
contributed $416,000, $409,000 and $492,000, respectively, to a multi-employer
retirement plan sponsored by the I.A.M. National Pension Fund covering the Elba,
Alabama facility's hourly employees.
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
In addition to providing pension benefits, the Company provides certain
medical and life insurance benefits to substantially all salaried employees upon
retirement. Salaried employees are eligible for these postretirement benefits
after attaining the age of 60 and providing five years of service. The Company
pays for claims when submitted by the retirees. The accounting for the
postretirement plan assumes future increases in annual costs will be divided
equally between the Company and the retirees.
The following tables summarize the plan's obligation and amounts recognized
in the Company's financial statements:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1997 1996
------ ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ 33 $ 65
Fully eligible active participants........................ 43 37
Other active participants................................. 261 349
----- -----
337 451
Unrecognized transition obligation.......................... (275) (293)
Unrecognized net gain (loss)................................ 55 (29)
----- -----
Accrued postretirement benefit cost....................... $ 117 $ 129
===== =====
</TABLE>
F-11
<PAGE> 29
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Net postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Costs related to services provided by employees............. $20 $31 $ 13
Interest cost on accumulated postretirement benefit
obligation................................................ 27 33 24
Amortization of transition obligation....................... 18 18 18
Amortization of unrecognized net gain....................... (2) (16)
--- --- ----
$63 $82 $ 39
=== === ====
</TABLE>
The discount rate used in determining the accumulated benefit obligation
was 7.25% in 1997 and 1996, and 7.0% in 1995. The accrued medical trend rate
used in 1997 was 8%, in 1996 was 9%, and in 1995 was 10%, decreasing 1% per year
until the ultimate rate of 5% is reached.
If the medical trend rate assumptions were increased by 1%, the accumulated
benefit obligation as of December 31, 1997 would be increased by approximately
$75,000. The effect of this change on the service and interest components of net
periodic postretirement benefit cost for the year would be an increase of
approximately $9,000.
SUPPLEMENTAL RETIREMENT PLAN
The Company also maintains a 401(k) supplemental retirement plan for
salaried employees. The Company, at the discretion of the Board of Directors,
may match up to one-half of an employee's contributions of up to ten percent of
gross salary. The Company made no accrual for matching contributions to the plan
in 1997 and 1996 and accrued $139,000 for matching contributions in 1995.
Effective January 1, 1997, the Company established the "Dorsey Trailers,
Inc. Hourly Employee Savings Incentive Plan" which is a 401(k) retirement plan
for hourly employees not covered by the union contract. The Company, at the
discretion of the Board of Directors, may match up to one-half of an employee's
contributions of up to ten percent of gross salary. The Company made no accrual
for matching contributions to the plan in 1997.
7. INCOME TAXES
The components of the provision for (benefit from) income taxes for the
years ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
----- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current
Federal................................................... $(387) $(2,774) $ 2,408
State..................................................... (45) 314
----- ------- -------
(387) (2,819) 2,722
----- ------- -------
Deferred
Federal................................................... (1,533)
State..................................................... (265) (298)
----- ------- -------
(265) (1,831)
----- ------- -------
$(387) $(3,084) $ 891
===== ======= =======
</TABLE>
F-12
<PAGE> 30
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The Company's provision for (benefit from) income taxes differs from the
amount computed by applying the statutory federal income tax rate of 34% to
income (loss) before income taxes of $(10,569,000), $(8,009,000) and $5,135,000
for the years ended December 31, 1997, 1996 and 1995 as a result of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Tax at federal statutory rate............................... $(3,593) $(2,723) $ 1,746
State income taxes, net of federal benefit.................. (403) (317) 203
Increase (decrease) in valuation reserve.................... 3,448 (1,086)
Tax exempt interest income.................................. (48) (81)
Other....................................................... 161 4 109
------- ------- -------
$ (387) $(3,084) $ 891
======= ======= =======
</TABLE>
Deferred income taxes were recorded to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred assets
Employee benefits......................................... $ 1,214 $1,351
Pension benefit........................................... 790 953
Accrued warranty.......................................... 781 814
Provision for plant closing............................... 151 213
Net operating loss carryforward........................... 4,462 265
Other..................................................... 322 481
------- ------
7,720 4,077
======= ======
Deferred liabilities
Depreciation.............................................. (93) (124)
------- ------
(93) (124)
Valuation reserve........................................... (3,448)
------- ------
$ 4,179 $3,953
======= ======
</TABLE>
DISTRIBUTIONS TO STOCKHOLDERS
In connection with the termination of the Company's S Corporation election,
the Company distributed $5,241,000 to the S Corporation stockholders during 1994
and 1995. This amount represented the previously taxed and undistributed
earnings of the Company through the offering date.
8. COMMON STOCK, OPTIONS AND WARRANTS
On March 18, 1987, the Company issued a warrant for the purchase of
1,560,672 shares of common stock to Westinghouse Credit Corporation (WCC) as
part of a financing arrangement. The Company reserved 1,560,672 shares of common
stock for issuance in connection with the warrant.
F-13
<PAGE> 31
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
On January 12, 1993, the Company's majority stockholder borrowed $400,000
from an investor and purchased the warrant from WCC at $0.256 per share.
Simultaneously, the warrant was exchanged by the majority stockholder for
1,560,672 shares of the Company's common stock. As consideration of the majority
stockholder's loan from the investor, the investor held the common shares as
security for repayment of the loan and released the shares as note payments were
made. In addition, the investor was granted an option to purchase 585,252 shares
of the Company's common stock for $0.017 per share through January 12, 2013. In
1994, a portion of these options were repurchased and then canceled by the
Company with some of the net proceeds of the Offering. During 1995, the investor
exercised the remaining options to purchase 375,179 shares of the Company's
common stock. In conjunction with the exercising of the options, the majority
stockholder contributed 14,989 shares of common stock to the Company, which were
immediately canceled by the Company.
Simultaneously, with the warrant repurchase and investor loan, the majority
stockholder executed a loan agreement with the Company whereby the Company
loaned the majority stockholder the principal and interest payments due under
the investor loan at 6.5%. From January 1993 through June 1994, the Company made
payments of $234,000 under this agreement. At December 31, 1993 the $400,000
note payable from the majority stockholder to the investor and the related note
receivable from the majority stockholder were recorded on the Company's
financial statements. The note payable to the investor was discounted to
$260,000 to reflect the fair value of the options granted in connection with the
debt. The note payable to the Company was repaid on December 31, 1994 by the
majority stockholder.
MAJORITY STOCKHOLDER PLAN
The Company's majority stockholder sponsors a stock option plan for the
benefit of the Company and its employees. The exercise price of the options is
not less than the estimated fair market value of the common stock on the date of
grant as determined by the Company's majority stockholder or, in the case of the
January 12, 1993 grant, by comparison to a third-party transaction. Current
options granted are fully vested.
LONG-TERM INCENTIVE PLAN
During 1994, the Board of Directors adopted the 1994 Long-Term Incentive
Plan and reserved 250,000 shares of common stock for future issuance under the
plan. Pursuant to the terms of the 1994 Incentive Plan, the Board of Directors
or a committee thereof is authorized to identify officers and key employees of
the Company eligible to receive incentive stock options, non-qualified stock
options, or similar stock based awards under the plan. Grants have been awarded
at option prices equal to the fair market value of the common stock as of the
date of grant. Options vest equally over three years based on the date of grant
and expire ten years after date of grant.
F-14
<PAGE> 32
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
A summary of the status of the Company's stock option plans as of December
31, 1997 and 1996, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Majority Stockholder Plan
Outstanding at beginning of year............ 592,149 $0.273 738,389 $0.273
Exercised................................. (232,124) 0.235 (146,240) 0.275
Forfeited/canceled........................ (35,809) 0.320
-------- --------
Outstanding at end of year.................. 324,216 0.290 592,149 0.268
======== ========
Available for grant at end of year.......... 41,690 5,881
Options exercisable at year-end............. 324,216 592,149
</TABLE>
<TABLE>
<CAPTION>
1997 1996
--------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Long-Term Incentive Plan
Outstanding at beginning of year............. 110,000 $5.59 75,000 $ 7.54
Granted.................................... 217,000 2.85 60,000 5.59
Forfeited/canceled......................... (126,667) 4.52 (25,000) 11.25
-------- -------
Outstanding at end of year................... 200,333 3.30 110,000 5.59
======== =======
Available for grant at end of year........... 49,667 140,000
Options exercisable at year-end.............. 23,333 16,667
Weighted-average fair value of options
granted during the year.................... $0.85 $ 1.66
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED- EXERCISABLE WEIGHTED-
RANGE OF AT CONTRACTUAL LIFE AVERAGE AT AVERAGE
EXERCISE PRICES 12/31/97 (YEARS) EXERCISE PRICE 12/31/97 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Majority Stockholder Plan
$0.053 - $0.32........................ 324,216 4.35 $ 0.29 324,216 $ 0.29
Long-term Incentive Plan
$1.75 - $5.625........................ 200,333 9.53 $ 3.30 23,333 $ 5.57
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED- EXERCISABLE WEIGHTED-
RANGE OF AT CONTRACTUAL LIFE AVERAGE AT AVERAGE
EXERCISE PRICES 12/31/96 (YEARS) EXERCISE PRICE 12/31/96 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Majority Stockholder Plan
$0.053 - $0.32........................ 592,149 5.35 $0.268 592,149 $0.268
Long-term Incentive Plan
$5.44 - $5.75......................... 110,000 9.50 $ 5.59 16,667 $ 5.75
</TABLE>
F-15
<PAGE> 33
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The Company has adopted FAS No. 123, "Accounting for Stock-Based
Compensation". In accordance with the provisions of FAS 123, the Company applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its Long-term
Incentive Plan. If the Company had elected to recognize compensation expense
based upon the fair value at the grant dates for awards under this plan
consistent with the methodology prescribed by FAS 123, the Company's net income
(loss) and basic earnings (loss) per share would be reduced to the unaudited pro
forma amounts indicated below.
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income (loss).................................... As reported $(10,182) $(4,925) $4,244
Pro forma (10,309) (4,989) 4,210
Basic earnings (loss) per share...................... As reported (2.03) (0.99) 0.85
Pro forma (2.06) (1.01) 0.85
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively, expected
volatility of 25%, 47% and 53%; and risk-free interest rates of 6.0%, 5.50% and
5.55%. An expected option term of 6 years for all periods was developed based on
historical grant information.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Board of Directors adopted the 1994 Stock Plan for Non-Employee
Directors. Pursuant to the Directors' Plan, each director (other than employees,
former employees or immediate family members of current or former employees)
automatically will receive on the day following each annual meeting of
stockholders a grant of shares of common stock with a fair market value of
$7,500 on the date of issuance. During 1997, 1996 and 1995, 16,000, 8,568 and
2,115 shares, respectively, were issued to eligible directors.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases office facilities and certain equipment under
noncancelable lease agreements which expire at various times through 2004.
Minimum annual rentals under these agreements at December 31, 1997 are
summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
1998...................................................... $ 414
1999...................................................... 381
2000...................................................... 346
2001...................................................... 326
2002 and thereafter......................................... 1,142
------
$2,609
======
</TABLE>
Rent expense under these and other lease agreements approximated $465,000,
$289,000, and $209,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
F-16
<PAGE> 34
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
WORKERS' COMPENSATION INSURANCE AND LETTERS OF CREDIT
The Company is self-insured for workers' compensation claims up to $350,000
per occurrence. In order to secure the Company's obligation to fund its
self-insured retention, the Company has obtained standby letters of credit of
$2.2 million under its Financing Agreement (See Note 4). The accompanying
financial statements include an insurance accrual based upon third party
administrator's and management's evaluations of estimated future ultimate costs
of outstanding claims and an estimated liability for claims incurred, but not
reported, on an undiscounted basis. The ultimate cost of these claims will
depend on the individual claims given the potential for these claims to increase
or decrease over time. Management believes that any claims as of December 31,
1997, arising under this self-insurance program will not have a material adverse
effect on the financial position, results of operations, or cash flows of the
Company.
CUSTOMER FINANCING
Effective December 31, 1997 the Company terminated its retail agreement
with a finance company that provides wholesale floor plans for certain Dorsey
dealers and which also provides retail financing to end users for some trailers
sold through such dealers, where the Company was contingently liable under
repurchase agreements with the finance company.
The Company signed a new retail agreement with the finance company which
does not require that the Company be contingently liable under repurchase
agreements.
LITIGATION
In December 1997, an Administrative Law Judge of the National Labor
Relations Board ordered the Company to reinstate operations at the Company's
closed Northumberland, Pennsylvania facility (See Note 10), reinstate striking
employees and compensate effected employees for any loss of earnings. The
Company has appealed this decision, a procedure that could take up to several
years. No part of this order will take effect during the appeal process.
Management intends to vigorously defend against this order and believes that the
Company will prevail in the appeal process.
In November 1997, a declaratory judgment action was filed by an insurance
company as to coverage of a previously paid claim by that insurance company in
the settlement of product liability litigation. Management intends to vigorously
defend such litigation and believes that the ultimate resolution of the
litigation will not have a material impact on the Company's financial position
or results of operations.
In April, 1995, a class action lawsuit alleging racial discrimination was
filed against the Company, and in the normal course of business, the Company is
a defendant in certain other litigation, in addition to the matters discussed
above. Management believes such litigation is without merit and intends to
contest the suits vigorously. Management believes that the ultimate resolution
of the litigation will not have a material impact on the Company's financial
position or results of operations.
ENVIRONMENTAL MATTERS
Subsequent to the closing of the Company's Edgerton, Wisconsin plant in
1989, the Wisconsin Department of Natural Resources (WDNR) conducted an
environmental inspection that identified certain environmental response
requirements. The Company and certain prior owners of the Edgerton plant are
cooperating in conducting remediation at the plant site and in joining with
other potentially responsible parties in addressing the landfill site. The
Company has established reserves that it believes to be adequate to address its
environmental liabilities associated with these matters.
F-17
<PAGE> 35
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
10. CLOSING OF NORTHUMBERLAND, PENNSYLVANIA FACILITY
In December 1995, the Company closed its trailer manufacturing facility in
Northumberland, Pennsylvania. In connection with the plant closing, the Company
recorded a provision of $250,000 for employee termination costs which are
included in income from operations in the accompanying financial statements. The
plan of termination included 20 managerial and administrative employees and was
completed by December 1996.
11. BUSINESS COMBINATIONS
In July 1996, the Company acquired certain assets of a Dillon, South
Carolina based dump trailer manufacturer. The acquisition was accounted for
under the purchase method. As such, the results of operations of the acquired
company are included in the Company's financial statements for the period
subsequent to its acquisition date. The aggregate purchase price was $1.8
million paid in the form of cash and note payable. The excess of the purchase
price over the estimated fair value of the tangible and identifiable intangible
assets acquired was $1,025,000 and is being amortized to earnings on a
straight-line basis over 15 years. In connection with the acquisition, the
Company entered into a ten year lease agreement with the former owner for the
manufacturing facility. The pro forma effect of the acquisition for the years
ending December 31, 1996 and 1995 is not provided since the effect of such
acquisition was not material.
12. RELATED PARTY TRANSACTIONS
Subsequent to year-end 1996 through March 28, 1997, the Company sold used
trailers at various dates, upon the approval of the Board of Directors of the
Company, in the amount of approximately $4.7 million to TYM, Inc. TYM, Inc. is a
corporation wholly-owned by Marilyn R. Marks, Chief Executive Officer of the
Company. The Company incurred losses of approximately $819,000 on the sales to
TYM, Inc. In the opinion of management, based upon actual third-party offers,
the terms of the sale of these used trailers were no less favorable than terms
that could have been obtained from unaffiliated parties. There were no such
transactions subsequent to March 28, 1997.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
In preparing disclosures about the fair value of financial instruments, the
Company has reasonably assumed that the carrying amount approximates the
estimated fair value for cash and cash equivalents, accounts and other
receivables, accounts payable and other accrued expenses. The estimated fair
value of long-term debt instruments is based upon the current interest rate
environment and remaining term to maturity. The carrying value and estimated
fair value for long-term debt instruments as of December 31, 1997 and 1996 are
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Long-term revolving line of credit........................ $5,571 $5,571
Long-term debt............................................ 9,364 7,166 9,876 8,430
</TABLE>
In addition, the Company has certain off-balance sheet items such as
letters of credit and contingent liabilities. In the opinion of management, the
estimated fair value of the fees associated with these commitments is not
material to the Company.
F-18
<PAGE> 36
DORSEY TRAILERS, INC.
SCHEDULE VIII: VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO ACCOUNTS BALANCE AT
BEGINNING OF COSTS AND RECOVERED END OF
DESCRIPTION PERIOD EXPENSES (WRITTEN OFF) PERIOD
- ----------- ------------ ---------- ------------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for Doubtful Accounts............... $168 $ -- $(39) $129
==== ==== ==== ====
Year ended December 31, 1996
Allowance for Doubtful Accounts............... $250 $ -- $(82) $168
==== ==== ==== ====
Year ended December 31, 1995
Allowance for Doubtful Accounts............... $150 $ -- $100 $250
==== ==== ==== ====
</TABLE>
F-19
<PAGE> 37
PART IV
ITEM 14 EXHIBITS
EXHIBITS
The exhibits indicated below are either incorporated by reference herein or
are bound separately and accompany the copies of this report filed with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. Copies of such exhibits will be furnished to any requesting
stockholder of the Company upon payment of the costs of copying and transmitting
the same.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------- ----------------------- -------------
<C> <S> <C> <C>
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.**
4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and the Bylaws of the Company defining the rights of
holders of Common Stock.
4.2 Form of Common Stock certificate of the Company.**
10.1 Accounts Financing Agreement between Congress Financial Corporation and
the Company, dated August 8, 1990.*
10.2 First Consolidated Amendment to Accounts Financing Amendment by and
between the Company and Congress Financial Corporation, dated June 28,
1993.*
10.3 Intercreditor Agreement by and between the U.S. Small Business
Administration and Congress Financial Corporation, dated August 8,
1990.*
10.4 First Amendment to the Intercreditor Agreement by and between the U.S.
Small Business Administration and Congress Financial Corporation, dated
June 28, 1993.*
10.5 Limited Guarantee and Waiver by Marilyn R. Marks dated June 28, 1993.*
10.6 Trademark Security Agreement between Congress Financial Corporation and
the Company, dated June 28, 1993.*
10.7 Blocked Account Agreement by and among Citizens and Southern National
Bank, Congress Financial Corporation and the Company, dated March 5,
1991.*
10.8 Loan Authorization and Agreement between the U.S. Small Business
Administration and the Company, dated May 3, 1990.*
10.9 Letter amending the Loan Authorization and Agreement between the U.S.
Small Business Administration and the Company, dated August 6, 1990.*
10.10 Letter amending the Loan Authorization and Agreement between the U.S.
Small Business Administration and the Company, dated May 4, 1992.*
10.11 Letter amending the Loan Authorization and Agreement between the U.S.
Small Business Administration and the Company, dated May 18, 1994.*
10.12 Agreement between the Company and International Association of
Machinists and Aero Space Workers, Local Lodge No. 1769, dated May 1,
1993.*
10.13 Agreement between the Company and International Union, United
Automobile Aerospace and Agricultural Implement Workers of America for
and on behalf of, UAW Local 1868, dated March 4, 1992.*
10.14 Shareholder Agreement by and among Trailers Acquisition Corp. (a
predecessor of the Company) and certain stockholders of the Company,
dated March 16, 1987.*
10.15 First Amendment to Shareholder Agreement and Agreement with Former
Shareholder by and among the Company, the stockholders of the Company
and a former stockholder of the Company, dated April 11, 1988.*
10.16 Dorsey Trailers, Inc. Marks/Rymer Shareholders Agreement by and among
the Company, Marilyn R. Marks and Hoyle Rymer, dated January 12, 1993.*
</TABLE>
F-20
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------- ----------------------- -------------
<C> <S> <C> <C>
10.17 Dorsey Trailers, Inc. Shareholder Agreement by and among the Company
and certain stockholders of the Company, dated February 25, 1994.*
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.18 Form of Stock Option Agreement by and among the Company,
Marilyn R. Marks and each of T. Charles Chitwood, Charles
W. Mudd, David A. Kemp and H. Douglas Allgood.*
10.19 Dorsey Trailers, Inc. 1994 Loan-Term Incentive Plan.**
10.20 Dorsey Trailers, Inc. 1994 Profit Plan.*
10.21 Dorsey Trailers, Inc. Amended and Restated Salaried
Employees' Retirement Plan, effective January 1, 1989.**
10.22 Dorsey Trailers, Inc. Amended and Restated Salaried
Employees' Savings Incentive Plan, effective January 1,
1989.*
10.23 Dorsey Trailers, Inc. (Edgerton Wisconsin Division) Amended
and Restated International Union Industrial Workers of
America Local #786 Employees' Pension Plan, effective
January 1, 1989.*
10.24 Dorsey Trailers, Inc. Northumberland, Pennsylvania Plant
Revised and Restated UAW Local #1868 Hourly Employees'
Retirement Plan, effective January 1, 1989.*
10.25 Form of the Dorsey Trailers, Inc. 1994 Stock Plan for Non-
Employee Directors.**
10.25(a) Registration Agreements between the Company and T. Charles
Chitwood, Charles W. Mudd, David A. Kemp and H. Douglas
Allgood, respectively, dated January 1995.***
10.26 Promissory Note between the Company and Marilyn R. Marks, dated January
12, 1993.*
10.27 Promissory Note between the Company and Marilyn R. Marks, dated June
10, 1988.*
10.28 First Amendment to Promissory Note between the Company and Marilyn R.
Marks, dated June 10, 1991.*
10.29 Second Amendment to Promissory Note between the Company and Marilyn R.
Marks, dated June 6, 1994.**
10.30 Non-Negotiable Promissory Note between the Company and Marilyn R.
Marks, dated April 14, 1994.**
10.31 Dorsey Trailers, Inc. Excess Benefit Plan, effective May 1, 1994.**
10.32 Form of Indemnity Agreement between the Company and each director and
executive officer of the Company.**
10.33 Fifth Amendment to Accounts Financing Agreement by and between the
Company and Congress Financial Corporation, dated May 3, 1994.**
10.34 Collateral Assignment of Certificate of Deposit by and between the
Company and Congress Financial Corporation, dated May 3, 1994.**
10.35 Sixth Amendment to Accounts Financing Agreement by and between the
Company and Congress Financial Corporation, dated November 1, 1994.***
10.36 Revolving Credit and Reimbursement Agreement by and between the Company
and NationsBank of Georgia, National Association, dated August 11,
1995.****
10.37 Real Estate and Deed to Secure Debt by and between the Company and
Glenn T. Taylor and Bankhead Enterprises, Inc., dated November 14,
1995.****
10.38 First Amendment to Revolving Credit and Reimbursement Agreement by and
between the Company and NationsBank of Georgia, National Association,
dated June 11, 1996.*****
</TABLE>
F-21
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------- ----------------------- -------------
<C> <S> <C> <C>
10.39 Agreement between the Company and International Association of
Machinists and Aerospace Workers, Local Lodge No. 1769, dated May 1,
1996.******
10.40 Asset Purchase Agreement by and among Dorsey Trailers, Inc., Carolina
Coastal Investors, Inc. and David Cottingham, dated as of July 1,
1996.******
10.41 Loan and Security Agreement by and between Dorsey Trailers, Inc. and
Foothill Capital Corporation dated as of March 28, 1997.*******
10.42 Amendment No. 1 dated as of April 10, 1997 to the Loan and Security
Agreement dated as of March 28, 1997 between Foothill Capital
Corporation and Dorsey Trailers, Inc.*******
10.43 Amendment No. 2 dated as of July 1, 1997 to the Loan and Security
Agreement dated as of March 28, 1997 between Foothill Capital
Corporation and Dorsey Trailers, Inc.********
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.*********
10.45 Amendment No. 4 dated as of November 22, 1997 to the Loan and Security
Agreement dated March 28, 1997 between Foothill Capital Corporation and
Dorsey Trailers, Inc.
27 Financial Data Schedule (For SEC Use Only)
</TABLE>
- ---------------
* Incorporated by reference from the exhibit of the same number in the
Registrant's Registration Statement on Form S-1 (File No. 33-79404)
dated May 26, 1994.
** Incorporated by reference from the exhibit of the same number in the
Registrant's Registration Statement on Form S-1 (File No. 33-79404)
dated May 26, 1994, as amended on July 8, 1994.
*** Incorporated by reference from the Registrant's Form 10-K for the
year ended December 31, 1994.
**** Incorporated by reference from the Registrant's Form 10-K for the
year-ended December 31, 1995.
***** Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended June 29, 1996.
****** Incorporated by reference from the Registrant's Form 10-K for the
year-ended December 31, 1996.
******* Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended March 29, 1997.
******** Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended June 28, 1997.
********* Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended September 27, 1998.
F-22
<PAGE> 1
EXHIBIT 10.45
AMENDMENT NO. 4 TO
LOAN AND SECURITY AGREEMENT
---------------------------
AMENDMENT NO. 4, dated as of November 22, 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, the SECOND AMENDMENT dated as of July 1,
1997, and the THIRD AMENDMENT dated as of August 1, 1997 (as so amended, 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) increase the concentration limit on Eligible Accounts
with respect to which Southeast Freight Lines, STI Credit Corporation,
Professional Transportation Group, Roadway Package System and Ryder System Inc.
are Account Debtors, (ii) amend the amortization schedule of the term loan,
(iii) increase the interest rate on the term loan from 2.0 percentage points
above the Reference Rate to 3.0 percentage points above the Reference Rate
commencing on May 1, 1998, and (iv) provide for a $500,000 overadvance through
December 15, 1997 which overadvance may be increased up to $1,000,000 from
December 1, 1997 through December 5, 1997. 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. Section 1.1 of the Loan and Security Agreement. Section
1.1 of the Loan and Security Agreement is hereby amended as follows:
(a) Eligible Accounts. Paragraph (h) of the definition of the
term "Eligible Accounts" 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
June 30, 1998, 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 November 22, 1997 through
January 31, 1998, Accounts with respect to which the
<PAGE> 2
Account Debtor is Southeast Freight Lines where the total
obligations owing by Southeast Freight Lines to Borrower do
not exceed 40% of all Eligible Accounts, (iii) from November
22, 1997 through January 31, 1998, Accounts with respect to
which the Account Debtor is STI Credit Corporation where the
total obligations owing by STI Credit Corporation to Borrower
do not exceed 40% of all Eligible Accounts, (iv) from
November 22, 1997 through January 31, 1998, Accounts with
respect to which the Account Debtor is Professional
Transportation Group where the total obligations owing by
Professional Transportation Group to Borrower do not exceed
40% of all Eligible Accounts, and (v) from November 22, 1997
through June 30, 1998, Accounts with respect to which the
Account Debtor is Roadway Package System where the total
obligations owing by Roadway Package System to Borrower do
not exceed 40% of all Eligible Accounts), 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 reasonable credit judgment, the Account Debtor is
considered credit worthy, such waiver and/or increase by
Foothill not to be unreasonably withheld or delayed;"
(b) Overadvance Amount. The definition of the term
"Overadvance Amount" is hereby added to read as follows:
""Overadvance Amount." means (i) $500,000, from
November 26, 1997 through and including December 15, 1997,
and (ii) $0.00, after December 15, 1997, provided, however,
Foothill may in its sole discretion increase the Overadvance
Amount to $1,000,000 from December 1, 1997 through and
including December 5, 1997."
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 sum of (I) 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, and
(II) the Overadvance Amount, plus"
-2-
<PAGE> 3
4. Term Loan. Section 2.3 of the Loan and Security Agreement
is hereby amended by deleting the following:
"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>
and substituting in lieu thereof:
"The Term Loan shall be repaid in eight (8)
installments of payment in the following amounts:
<TABLE>
<CAPTION>
=================================================================
DATE INSTALLMENT AMOUNT
=================================================================
<S> <C>
October 1, 1997 $250,000
- -----------------------------------------------------------------
November 1, 1997 $250,000
- -----------------------------------------------------------------
December 1, 1997 $ 0
- -----------------------------------------------------------------
January 1, 1998 $ 0
- -----------------------------------------------------------------
February 1, 1998 $250,000
- -----------------------------------------------------------------
March, 1, 1998 $250,000
- -----------------------------------------------------------------
April 1, 1998 $250,000
- -----------------------------------------------------------------
May 1, 1998 $250,000
- -----------------------------------------------------------------
June 1, 1998 $250,000
- -----------------------------------------------------------------
July 1, 1998 $250,000 ."
=================================================================
</TABLE>
-3-
<PAGE> 4
5. Interest Rate. Section 2.5(a) of the Loan and Security
Agreement is hereby amended in its entirety to read as follows:
"(a) Interest Rate. Except as provided in clause (b)
below, all obligations (except for undrawn Letters of
Credit), shall bear interest at a per annum rate of 2.0
percentage points above the Reference Rate, provided that
from and after May 1, 1998, the outstanding payment amount of
the Term Loan shall bear interest at a rate per annum of 3.0
percentage points above the Reference Rate."
6. Section 2.10 of the Loan and Security Agreement. Section
2.10 of the Loan and Security Agreement is hereby amended by adding at the end
thereof a new section 2.10(g) as follows:
"(g) Overadvance Fee. If, on any day after December
15, 1997, an Overadvance exists, at the election of Foothill,
the Borrower will pay Foothill a fee equal $1,000 per day for
each day that an Overadvance exists."
7. 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 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 $20,000, 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.
8. 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.
-4-
<PAGE> 5
(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.
9. 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.
10. 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.
-5-
<PAGE> 6
(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.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered.
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
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF DORSEY TRAILERS, INC. FOR THE YEAR ENDING DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 6,940
<ALLOWANCES> 129
<INVENTORY> 11,479
<CURRENT-ASSETS> 18,838
<PP&E> 17,774
<DEPRECIATION> 9,327
<TOTAL-ASSETS> 33,367
<CURRENT-LIABILITIES> 20,492
<BONDS> 14,585
0
0
<COMMON> 50
<OTHER-SE> (4,360)
<TOTAL-LIABILITY-AND-EQUITY> 33,367
<SALES> 156,966
<TOTAL-REVENUES> 156,966
<CGS> 158,514
<TOTAL-COSTS> 158,514
<OTHER-EXPENSES> 7,372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,649
<INCOME-PRETAX> (10,569)
<INCOME-TAX> (387)
<INCOME-CONTINUING> (10,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,182)
<EPS-PRIMARY> (2.03)
<EPS-DILUTED> (2.03)
</TABLE>
