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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, 1998 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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ONE PACES WEST, SUITE 1700
2727 PACES FERRY ROAD
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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 18, 1999 was $ 4,949,004, based upon the closing price of
the Company's common stock as quoted on the OTC -- Bulletin Board composite tape
on such date.
The number of shares outstanding of the registrant's common stock as of
March 18, 1999 was 5,020,280.
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held April 26, 1999 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, 1998
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PART I.
Item 1. Business.................................................... 1
Item 2. Properties and Insurance.................................... 5
Item 3. Legal Proceedings........................................... 5
Item 4. Submission of Matters to a Vote of Security Holders......... 6
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 7
Item 6. Selected Financial and Operating Data....................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 15
Item 8. Financial Statements and Supplementary Data................. 15
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 15
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 15
Item 11. Executive Compensation...................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 15
Item 13. Certain Relationships and Related Transactions.............. 15
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 16
SIGNATURES............................................................. 17
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PART I
ITEM 1 - BUSINESS
Dorsey Trailers, Inc. ("the Company" or "Dorsey") designs, manufactures and
markets a broad line of high-quality, customized truck trailers, including dry
freight van trailers, refrigerated van trailers, flatbed trailers and dump
trailers. The Company competes in the customized segment of the truck trailer
industry through its authorized independent new trailer dealers ("the
Dealer(s)") and on a direct basis. The Company's customers include many large,
highly regarded and growth-oriented customers, including Caterpillar, Inc.,
Coca-Cola Bottling Co. Consolidated, J.B. Hunt Transport, Inc., Landstar System,
Inc., RPS, Inc., Ryder Truck Rental, Inc., Southeastern Freight Lines, United
Parcel Service, Watkins Motor Lines, Inc., Westpoint Stevens and XTRA, Inc.
PRODUCTS
The Company's broad line of product offerings includes:
- Dry Freight Van Trailers. These trailers are the most popular type of
truck trailers and are purchased by most segments of the trucking
industry. The Company produces the standard aluminum sheet and interior
post trailers, as well as aluminum plate-side and fiberglass reinforced
plywood (FRP) trailers. Other models offered include shorter "pup" vans
that are used in doubles or triples operation and "piggybacks" that are
used in domestic intermodal transportation. Dry freight van trailers
represented 58.3% of net sales in 1998.
Additional specialized dry freight van trailers produced by the Company
include:
- 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.
- Package Carrier Van Trailers. 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.
- Other Products. The Company's other dry freight products include drop
frame vans, open top trailers, chip haul trailers, exterior post vans,
bulk fruit trailers and converter dollies.
- Refrigerated Van Trailers. 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, center partition systems, side
doors, and steps for side and rear entry. Refrigerated van trailers
represented 18.5% of net sales in 1998.
- 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. Flatbed trailers represented 15.6% of net sales in
1998.
- Dump Trailers. Dump trailers are used to haul bulk products such as
dirt, sand, rock, gravel, refuse, scrap and demolition by-products. The
Company builds a variety of dump trailers, including double trailers with
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frame and frameless designs, of aluminum and steel construction. Dump
trailers represented 4.2% of net sales in 1998.
- Used Trailers. 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. Used trailers represented 0.2% of net sales in 1998.
- Parts and Accessories. Replacement parts and accessories are sold
primarily to Dorsey Dealers. Parts and accessories represented 3.2% of
net sales in 1998.
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.
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 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 and package
carriers.
During 1998, the Company increased its focus on its Dealer network and
direct customized niche markets, such as fruit haul trailers, dumps,
refrigerated vans, and package carrier vans. Management believes the Company is
best suited to serve the Dealer network and the direct customized markets due to
the skilled labor force, design engineering resources, diverse trailer models
and option portfolio, and plant layouts. Additionally, management believes that
these markets provide a higher return on the Company's investment than do the
large fleet orders of standard dry freight vans. Management will continue to
focus on the Dealer network and customized niche markets in 1999 with the goal
of increasing the amount of sales derived from these markets.
CUSTOMERS
Dealer Sales. Smaller and medium-sized customers are served through
Dorsey's Dealer network. Dealer sales account for a substantial percentage of
sales of refrigerated, flatbed and dump trailers. The Company's Dealers are
highly responsive to customers in their service areas, allowing the Company to
access these regional markets. Dealer sales accounted for approximately 65.5% in
1998, 38.5% in 1997 and 48.6% in 1996 of total new trailer sales revenue for
each of the respective years. Dorsey has 95 authorized Dealers located in 36
states and 4 Canadian provinces. During 1998, the Company added 13 new Dealers.
All Dealers are independently owned and operated. Most 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 branch retail stores. 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 retail stores.
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.
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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. National account sales represented
approximately 34.5% in 1998, 61.5% in 1997, and 51.4% in 1996 of total new
trailer sales revenue for each of the respective years. The Company has been
successful in developing significant relationships as a supplier to many large,
growth-oriented customers including:
- Dry Freight Van Trailers: Coca-Cola Bottling Co. Consolidated, J.B. Hunt
Transport, Inc., Landstar System, Inc., Penske Truck Leasing, RPS, Inc.,
Ryder Truck Rental, Inc., Southeastern Freight Lines, Transit Group,
Inc., United Parcel Service, Watkins Motor Lines, Inc., and Westpoint
Stevens.
- Refrigerated Van Trailers: MARTRAC (a subsidiary of UPS), Ryder Truck
Rental, Inc., J & R Schugel and XTRA, Inc.
- Flatbed Trailers: D.M. Bowman, J.B. Hunt Transport, Inc., Landstar
System, Inc., Schilli Leasing, and XTRA, Inc.
For the year ended 1998, no customer or Dealer represented greater than 10%
of the Company's total sales. For the year ended 1997, sales to United Parcel
Service 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.
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 engineering and
manufacturing personnel in 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 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 is not reliant on a
single source or supplier for raw materials. In addition, the Company believes
that there are multiple sources and suppliers available to provide raw materials
used in the manufacturing process.
BACKLOG
The Company's backlog of orders was approximately $34.7 million, $25.0
million and $26.0 million at December 31, 1998, 1997 and 1996, respectively.
Dorsey includes in 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 1999. The Company manufactures trailers only to customer order and
does not generally maintain an inventory of "stock" trailers in anticipation of
future orders. However, many of Dorsey's Dealers do maintain an inventory of
stock trailers.
The current industry demand remains healthy, as a strong freight market
continues to require more equipment. However, in the event of a major economic
downturn, the demand for equipment may see a significant decrease. The
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Company has added several new key Dealers during the year and expects to see
improvement in its Dealer distribution as this network matures and the Company
obtains deeper penetration in its targeted customized markets. Management
believes that a strong Dealer network provides a more stable and diverse
customer base less susceptible to industry swings. Additionally, the Company has
restructured its sales organization to focus on the needs of its Dealer network
and customized markets. However, no assurances can be given that the Company
will not incur a decrease in demand for product if the industry demand for
product diminishes.
EMPLOYEES
As of December 31, 1998, the Company employed 1,007 persons, of whom 960
were employed in engineering, manufacturing, and materials, 19 in sales and
marketing and 28 in administration, finance and general management.
As of December 31, 1998, approximately 75% of the Company's hourly
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.
Management has begun negotiations with the IAM on a renewal of the collective
bargaining agreement. Management believes that there will be no interruptions
from this negotiation and that a collective bargaining agreement will be
completed. 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 large
manufacturers are Wabash National Corporation, Great Dane Limited Partnership,
Utility Trailer Manufacturing Company, Trailmobile Corporation, Stoughton
Trailers, Inc., Strick Corporation, HPA Monon Corporation, Lufkin Trailers and
Fontaine Trailer Company. The Company competes on the basis of product
availability and delivery time, design and engineering innovations and
capabilities, product quality and durability, warranties, service, customer
relationships and price.
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, 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 paid its appropriate share of the total costs needed to finalize the
redemption work at the site. In 1998, the Company sold this facility, and
management believes that it has no additional environmental liability related to
this site.
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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 reserve established,
or to have a material impact on the Company's financial position, results of
operations or cash flows.
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. The
Company does not consider its business to be materially dependent on one
particular patent or trademark.
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. Flatbed 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 forecasted market requirements. 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 owns an inactive 144,000 square foot facility in
Northumberland, Pennsylvania, being held for sale. In March 1998, the Company
completed the sale of two closed facilities in Edgerton, Wisconsin and Griffin,
Georgia to private real estate investors. The Company received aggregate net
proceeds on the sales of $0.7 million and recognized a net gain on the sale of
these properties of $0.6 million.
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).
ITEM 3 - LEGAL PROCEEDINGS
In December 1997, an Administrative Law Judge of the National Labor
Relations Board ("NLRB") ordered the Company to reinstate operations at the
Company's closed Northumberland, Pennsylvania facility, reinstate striking
employees and compensate affected employees for any loss of earnings. In March
1999, a three-member panel of the NLRB affirmed the Administrative Law Judge's
decision. The Company will now continue the appeal process in the Federal
Courts, a procedure that could take up to several years. No part of this order
will take effect during the appeal process. The Company does not have sufficient
information to estimate the cost that would be incurred if the Company was
required to carry out this order. 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 (GAN North American Insurance Co. v. Dorsey Trailers, Inc.) in United
States District Court for the Northern District of Georgia, Atlanta Division, as
to coverage of a previously paid claim of $1.0 million by that insurance company
in the settlement of product liability litigation. The Company has filed a
motion for summary judgment. 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, results of
operations or cash flows.
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In April 1995, a class action lawsuit (James Starks et al. v. Dorsey
Trailers, Inc. et al.) alleging racial discrimination was filed in the United
States District Court for the Middle District of Alabama against the Company.
The Court has not issued a class certification as of this date. Due to the lack
of a class certification, management is unable to determine the potential
damages, if any, associated with this 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, results of operations, or cash flows.
In the normal course of business, the Company is a defendant in certain
other litigation, in addition to the matters discussed above. Management after
reviewing available information relating to the above matters and consulting
with legal counsel, has determined with respect to each such matter either that
it is not reasonably possible that the Company has incurred liability in respect
thereof or that any liability ultimately incurred will not exceed the amount, if
any, recorded at December 31, 1998 in respect thereof, by an amount which would
have a materially adverse impact on the Company's financial position, results of
operations, or cash flows. However, in the event of an unanticipated adverse
final determination in respect to these matters, the Company's financial
position, results of operations, and its cash flows, could be materially
affected.
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 April 4, 1998.
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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
bid prices per share of the Common Stock as reported on The Nasdaq Stock Market
and OTC -- Bulletin Board:
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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............................................ $3.625 $2.375
Second Quarter........................................... $4.625 $2.875
Third Quarter............................................ $3.250 $1.250
Fourth Quarter........................................... $1.375 $0.875
1999
First Quarter (through March 18, 1999)................... $2.875 $0.875
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Source: Dow Jones Interactive Quotes & Market Data
As of March 18, 1999, the Common Stock was held by approximately 93 holders
of record and approximately 1,100 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 has not paid cash dividends since its initial public offering.
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. In addition, the
Company has entered into a loan agreement that contains, among other things,
restrictions on the payment of dividends by the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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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, 1998, 1997, 1996, 1995 and 1994 and for each of the five
years then ended have been derived from the Financial Statements of the Company
which have been audited by PricewaterhouseCoopers LLP, the Company's independent
accountants. Unaudited pro forma adjustments for 1994 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. The information set forth below
should be read in 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,
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1998 1997 1996 1995 1994
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(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND OPERATING DATA)
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Statement of Operations Data:
Net sales................................. $150,328 $156,966 $157,366 $227,944 $205,625
Cost of sales............................. 143,508 158,514 156,214 215,048 189,474
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Gross profit........................... 6,820 (1,548) 1,152 12,896 16,151
Selling, general and administrative
expenses............................... 5,975 7,372 8,753 7,349 6,774
Provision for plant closing (1)........... 350
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Operating income (loss)................... 845 (8,920) (7,601) 5,197 9,377
Interest expense, net..................... (1,900) (1,649) (408) (62) (647)
Gain on property sales.................... 568
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Income (loss) before income taxes...... (487) (10,569) (8,009) 5,135 8,730
Provision for (benefit from) income
taxes.................................. (387) (3,084) 891
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Net income (loss)...................... $ (487) $(10,182) $ (4,925) $ 4,244 $ 8,730
======== ======== ======== ======== ========
Basic earnings (loss) per share........ $ (0.10) $ (2.03) $ (0.99) $ 0.85
Average shares outstanding -- basic....... 5,020 5,007 4,995 4,990
Unaudited Pro Forma Data (2):
Pro forma income taxes.................... $ 1,805
Pro forma net income...................... 6,925
Pro forma net income per share............ 1.53
Pro forma weighted average shares
outstanding............................ 4,516
Operating Data:
Number of new trailers sold............... 8,408 7,934 8,595 12,276 12,010
Sales per employee........................ $149,283 $152,839 $160,251 $174,938 $155,306
Balance Sheet Data (at December 31 of each
year):
Total assets.............................. $ 32,934 $ 33,367 $ 45,019 $ 47,449 $ 47,516
Long-term debt, including current
portion................................ 12,790 14,935 9,876 10,315 8,755
Total stockholders' (deficit) equity...... (4,711) (4,310) 5,615 10,193 5,248
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(1) For 1997 and 1996, the provision for plant closing has been reclassed to
selling, general and administrative expenses.
(2) 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.
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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 on Form 10-K, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" may be deemed to be forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995. Any forward-looking statements
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, continued availability of credit from vendors, continued advancement
of funds from lender, reliance on certain customers, shortages of raw materials,
component prices, labor shortages or work stoppage, dependence on current
industry trends and demand for product, manufacturing interruption due to
unfavorable natural events, unfavorable results of outstanding litigation,
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 95.5 101.0 99.3
----- ----- -----
Gross profit................................................ 4.5 (1.0) 0.7
Selling, general and administrative expenses................ 3.9 4.7 5.6
----- ----- -----
Income (loss) from operations............................... 0.6 (5.7) (4.9)
Interest expense, net....................................... 1.3 1.0 0.2
Gain on property sales...................................... 0.4 -- --
----- ----- -----
Loss before benefit from income taxes....................... (0.3) (6.7) (5.1)
Benefit from income taxes................................... -- 0.2 2.0
----- ----- -----
Net loss.................................................... (0.3)% (6.5)% (3.1)%
===== ===== =====
</TABLE>
Net Sales
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT
PERCENTAGE DATA)
<S> <C> <C> <C>
Net sales................................... $150,328 $156,966 $157,366
Percentage decrease in sales from prior
period.................................... (4.2)% (0.2)% (31.0)%
</TABLE>
9
<PAGE> 12
Net sales for 1998 decreased by $6.6 million or 4.2% to $150.3 million from
$157.0 million for 1997. The decrease in sales is due to the decrease in used
trailer sales. Used trailer sales for 1998 were $0.3 million compared to $15.7
million for 1997. This reduction in used trailer sales corresponds to the
reduction in the Company's used trailer inventory during each year. The
reduction in used trailer inventory and corresponding decline in used trailer
sales can be attributed to the strong demand for equipment by the trucking
industry. As a result, the requirement on a manufacturer to take used equipment
in order to obtain new trailer sales orders has diminished; however, if the
demand for equipment should decrease, the requirement on manufacturers to take
used equipment could increase. The Company's strategy of focusing on its
independent dealer network and customized niche markets should diminish the
Company's requirement to take used trailers as the used trailer requirements are
primarily a focus of the large fleet business. The Company is reducing its focus
on those large fleets requiring the trade-in of their used trailers. The Company
believes that its strategy of developing its independent dealer market will also
assist in diminishing the requirements of the Company to take used trailers as
these independent dealers will accept and market the majority of used trailer
equipment for resale. However, no assurances can be given that the Company will
not be required to take on used trailers as part of a new sales order.
New trailer sales for 1998 were $145.2 million, a 6.2% increase over new
trailer sales revenue for 1997 of $136.7 million. The volume of new trailers
sold in 1998 increased by 5.9% over new trailers sold in 1997. Besides the
improvement in the volume of trailers sold, the Company also experienced
improvement in product mix as the volume of higher unit priced equipment such as
refrigerated vans, dumps, and highly customized trailers increased in 1998.
Although the Company had an increase in new trailer sales revenue in 1998 as
compared to 1997, new trailer sales revenues were negatively impacted by the
flood at the Elba, Alabama plant discussed below, as well as a one-week vacation
shutdown taken during July 1998 at this plant. During that week, in addition to
addressing routine maintenance issues, the Company reconfigured and consolidated
the dry freight manufacturing production lines for more efficient production,
and added subassembly capabilities. These related process changes are resulting
in lower manufacturing costs and more efficient operations.
Net sales decreased $0.4 million to $157.0 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 although the number of new trailers sold
between years decreased 8.0%, 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 8.0% 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
$3.0 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.
Gross Profit
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
------- -------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT
PERCENTAGE DATA)
<S> <C> <C> <C>
Gross profit.............................. $6,820 $(1,548) $1,152
As a percentage of net sales.............. 4.5% (1.0)% 0.7%
</TABLE>
Gross profit as a percentage of net sales, or gross margin, increased to
4.5% in 1998 from (1.0%) in 1997 and gross profit increased to $6.8 million from
($1.5) million. This level of gross margin and gross profit is the highest the
Company has reported since 1995. The improvement in the gross profit for 1998
was due to the Company's more profitable product mix, improved pricing and
increased volume of new trailer sales, which management believes was primarily a
result of the Company's strategy of rebuilding its independent dealer
organization and targeting customized niche markets. Although the Company showed
significant improvement in its gross profit in 1998, the gross profit in 1998
was negatively impacted by certain flood related costs, and the one-week
vacation shutdown, as discussed previously.
Gross profit as a percentage of net sales, or gross margin, decreased to
(1.0%) in 1997, from 0.7% 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 1997, losses on used
10
<PAGE> 13
trailers of $3.3 million, and an increase of approximately $0.4 million in wood
floor prices in the first half of 1997 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.
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT
PERCENTAGE DATA)
<S> <C> <C> <C>
Selling, general and administrative
expenses................................. $5,975 $7,372 $8,753
As a percentage of net sales............... 3.9% 4.7% 5.6%
</TABLE>
Selling, general and administrative ("SG&A") expenses decreased by $1.4
million to $6.0 million for 1998 from $7.4 million for 1997. SG&A as a
percentage of sales decreased to 3.9% in 1998 from 4.7% in 1997. The decrease in
SG&A expenses between years is reflective of management's plan of overall cost
reductions. The decrease primarily is a result of a 22.7% reduction in salaries
and benefits, a 25.2% reduction in consulting fees and a 53.3% reduction in
professional fees related to fees incurred in 1997 in connection with the
Company's unsuccessful acquisition efforts and a reduction in litigation
expense.
SG&A expenses decreased $1.4 million to $7.4 million for 1997 from $8.8
million for 1996. SG&A expenses decreased between years primarily from a
reduction in professional fees and an overall reduction in SG&A expenses as a
result of management's plan of cost reduction. SG&A, as a percentage of sales,
decreased to 4.7% in 1997 from 5.6% for 1996.
Gain On Property Sales
In March 1998, the Company completed the sale of its closed facilities in
Edgerton, Wisconsin and Griffin, Georgia to private real estate investors. The
Company received aggregate net proceeds on the sales of $0.7 million and
recognized a net gain on the sale of these properties of $0.6 million during
1998.
Interest Expense, Net
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT
PERCENTAGE DATA)
<S> <C> <C> <C>
Interest expense, net...................... $1,900 $1,649 $ 408
As a percentage of net sales............... 1.3% 1.0% 0.2%
</TABLE>
Net interest expense increased to $1.9 million for 1998 from $1.6 million
for 1997. The 1997 interest expense of $1.6 million is reduced by $0.4 million
in interest income received upon renegotiation of the Company's retail finance
agreement (See Note 9). The Company's interest expense primarily was the result
of the usage of its long-term revolving line of credit.
Net interest expense increased $1.2 million to $1.6 million for 1997 as
compared to $0.4 million 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
$0.3 million in unamortized financing costs associated with replacing the
Company's previous line of credit, partially offset by $0.4 million in interest
income received upon renegotiation of the Company's retail financing agreement
(See Note 9).
OVERALL
On March 8, 1998, the Company's manufacturing facility in Elba, Alabama,
which accounts for approximately 80% of the Company's new trailer production,
was affected by flooding in the plant and surrounding area. The Company lost
approximately two weeks of new trailer production in 1998 due to the flood. The
Elba facility has fully recovered from the effects of the flood.
11
<PAGE> 14
BENEFIT FROM INCOME TAXES AND NET LOSS
The Company reported a net loss of $0.5 million or $0.10 loss per share for
1998, as compared to a net loss of $10.2 million or $2.03 loss per share for
1997. The Company reported a quarterly net profit in the second and fourth
quarters of 1998. The net profit reported in the fourth quarter of 1998 was the
highest quarterly profit that the Company reported since 1995. The Company
reported a net loss in the first and third quarters of 1998. The loss in the
first quarter was attributable to the two-week shutdown in Elba, Alabama due to
the flood, and the loss in the third quarter of 1998 was due in part to the
one-week vacation shutdown and start-up after the shutdown in the Elba, Alabama
plant, both previously discussed. The Company reported no benefit from income
taxes for 1998 as the Company increased its valuation reserve for certain income
tax benefits by $0.2 million to $3.6 million, which the Company may ultimately
use to offset against future taxable income.
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. The Company recorded a benefit from income taxes of $0.4 million 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 expects to ultimately use to offset against future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1998 were $7,000 as compared to
$8,000 at December 31, 1997.
Net cash provided by operating activities was $2.1 million for 1998 as
compared to net cash used in operating activities of $5.1 million for 1997 and
$4.3 million for 1996. Cash provided by operating activities for 1998 was
primarily from a $4.2 million increase in accounts payable and depreciation and
amortization of $1.8 million. The increase in accounts payable is due to
improved supplier credit terms as the Company's financial results have improved.
These sources of cash were offset by a $1.9 million decrease in accrued expenses
and a $1.6 million increase in inventory. The $1.9 million decrease in accrued
expenses was the result of a decrease in reserve for closed plants which were
sold in 1998, decrease in accrued interest expense, decrease in accrued warranty
expense, decrease in self-insurance reserve, and a decrease in accrued liability
of parts prepaid by a customer. The $1.6 million increase in inventory is due to
the following: change in product mix has resulted in higher raw material content
and increased production in certain types of customized vans and trailers
resulted in a $1.3 million increase in raw materials and a higher monetary value
of work in process. 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.
Net cash provided by investing activities was $24,000 as compared to net
cash used in investing activities of $0.3 million and $2.5 million for 1997 and
1996, respectively. Net cash provided by investing activities in 1998 was the
result of the Company's sale of two closed facilities in Edgerton, Wisconsin and
Griffin, Georgia for net proceeds of $0.7 million. The net cash proceeds were
almost completely offset by capital expenditures in 1998. 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 $0.6 million was issued to the seller at a floating prime interest
rate.
Net cash used in financing activities was $2.1 million for 1998 as compared
to net cash provided by financing activities of $5.3 million for 1997 and net
cash used in financing activities of $0.8 million for 1996. Net cash used in
financing activities of $2.1 million was primarily the result of net payments of
$1.8 million made on the Company's
12
<PAGE> 15
long-term revolving line of credit. Net cash provided in 1997 was from net
advances under the Company's long-term revolving line of credit of $5.6 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.
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 18, 1999, the
Company had $4.9 million and $1.9 million in letters of credit outstanding under
the Financing Agreement and had $2.3 million in availability under the Financing
Agreement. In August and November of 1997, the Company's $4.0 million term loan
included as part of the Financing Agreement was revised. With the revisions, the
term loan at August 1, 1997 was $2 million with interest only for sixty days.
The revised term loan was paid in eight installments with the final payment
being made on July 1, 1998. On December 31, 1998, the Company's Financing
Agreement was amended to provide an overadvance facility of $2.0 million through
January 31, 1999; $1.5 million through February 28, 1999; and $1.0 million
through March 31, 1999. It is the Company's intent and expectation to not have a
requirement for an overadvance facility after March 31, 1999. As of March 18,
1999, the Company was in compliance with the continuous financial and
operational covenant requirements of the Financing Agreement.
The Company experienced a significant tightening of its liquidity beginning
in the fourth quarter of 1996. The situation resulted primarily from operating
losses in 1996 and 1997 and an abnormally high level of used trailer inventory
in the first half of 1997. 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 new trailer orders. By accepting trade-ins, cash was not received until
after the subsequent sale of the used trailers. As of December 31, 1998, the
Company's inventory of used trailers was $0.4 million with no purchase
commitments for used trailers. This level of used trailer inventory represents a
$10.5 million decline in used trailer inventory and commitments from the
Company's high of $10.9 million in March 1997. With the current strong demand
for equipment by the trucking industry, the requirement on manufacturers to take
used equipment has diminished. However, if the demand for equipment decreases,
manufacturers may be required to take used equipment in order to obtain new
trailer sales orders. The Company's strategy of developing its independent
dealer network, focusing on customized niche markets, and reducing its reliance
on large fleet orders should diminish the Company's requirements to participate
in the used trailer market.
In addition to the amendments 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 Company has other
long-term obligations consisting of a mortgage on its Cartersville, Georgia
location and an unsecured loan for the acquisition of its Dillon, South Carolina
operation. The current portion of these three long-term obligations as of
December 31, 1998 was $0.5 million with a remaining balance of $8.5 million.
Management believes that the Company will continue to meet these obligations
through the cash flow generated through operations and availability under its
Financing Agreement.
The $14.0 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 shutdown of the Elba, Alabama
facility production for two weeks due to flooding and the one-week vacation
shutdown and the resulting losses, the Company's liquidity position continued to
remain tight. However, the Company has seen improvement in its liquidity
position in comparison to the prior year. Earnings before interest, taxes,
depreciation and amortization have improved by $10.3 million from the ($7.1)
million for 1997 to $3.2 million for 1998. Management believes that the Company
can generate some additional liquidity by reducing inventories, continuing to
improve product mix and reduce manufacturing costs, and improve credit limits
and terms with vendors as the Company continues to show improved financial
performance. No assurances can be given that the Company will be successful in
these efforts.
13
<PAGE> 16
ACCOUNTING STANDARDS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." FAS No. 132
establishes disclosure requirements for pensions and other postretirement
benefits. The Company adopted FAS No. 132 for the year ended December 31, 1998.
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." FAS No. 133 establishes accounting methods
and disclosure requirements for derivatives and hedging activities. The Company
does not currently have any derivatives or derivatives that qualify as hedges.
Thus, management does not believe that the adoption of FAS No. 133 will have any
impact on the Company's financial position or results of operations or require
any changes in disclosures. FAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.
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 has
developed 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 recognize a date using "00" as the year 1900 rather
than the year 2000. This factor could result in system failure or
miscalculations. The Company does not currently have significant manufacturing
operation systems which would be affected by the Year 2000 issue. The Company's
systems which rely on time sensitive information include primarily the
accounting and purchasing systems. 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.
Management estimates the total cost of the conversion and modification to be
$0.9 million, which has been approved by the Board of Directors of the Company
and has been incorporated in the Company's 1999 capital expenditure and
operating budget. It is anticipated that testing all modifications will occur in
late spring 1999, with conversion mid-summer. This timing allows management
sufficient time to implement a contingency plan, should problems arise during
testing or modification. With limited reliance on time sensitive computer
systems, management does not believe that the Year 2000 issue will have a
materially adverse affect on the Company's operations and that such systems
which currently rely on time sensitive information could be performed by other
methods, i.e. PC based solutions. 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.
Year 2000 related issues may also adversely affect the operations and
financial performance of one or more of the Company's customers or suppliers.
The failure of the Company's customers or suppliers to be Year 2000 ready could
have a materially adverse effect on the operations of the Company. Other than
utilities, the third parties on which the Company relies most heavily are its
suppliers of raw materials and customers. The Company is in the process of
obtaining information from key suppliers and customers on their company's
computer systems compliance
14
<PAGE> 17
with the Year 2000 issue. While the Company obtains its materials from a number
of vendors and sells its products to a number of customers, if a sufficient
number of these vendors or customers experience Year 2000 problems that prevent
or substantially impair their ability to continue to transact business with the
Company as they currently do, the Company would be required to find alternative
sources of these materials or customers. The inability to find or delay in
finding such alternatives could have a material adverse effect on the Company's
operations.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject the Company
to material market risk exposures.
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 a Director -- Director and Director Nominee
Information," -- "Executive Officers of the Company" and -- "Section 16(a)
Beneficial Ownership Reporting Compliance" from its definitive Proxy Statement
to be delivered to the stockholders of the Company in connection with the 1999
Annual Meeting of Stockholders to be held April 26, 1999.
ITEM 11 - EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the information contained
under the headings "Proposal I -- Election of a Director" from its definitive
Proxy Statement to be delivered to the stockholders of the Company in connection
with the 1999 Annual Meeting of Stockholders to be held April 26, 1999. 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 "Proposal I -- Election of a Director -- Principal
Stockholders of the Company" from its definitive Proxy Statement to be delivered
to the stockholders of the Company in connection with the 1999 Annual Meeting of
Stockholders to be held April 26, 1999.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the information contained
under the headings "Proposal I -- Election of a Director -- 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 1999 Annual Meeting of Stockholders to be held
April 26, 1999. Additionally, see Note 11 of the Notes to Financial Statements
for related party transactions.
15
<PAGE> 18
PART IV
ITEM 14 - FINANCIAL STATEMENTS
(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, 1998 and 1997............. F-2
Statements of Operations for the years ended December 31, F-3
1998, 1997 and 1996.......................................
Statements of Changes in Stockholders' Equity (Deficit) for F-4
the years ended December 31, 1998, 1997 and 1996..........
Statements of Cash Flows for the years ended December 31, F-5
1998, 1997 and 1996.......................................
Notes to Financial Statements............................... F-6
2. Financial Statement Schedules
Schedule VIII -- Valuation and Qualifying Accounts........ F-21
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-22
</TABLE>
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1998.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 18, 1999.
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 18, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ MARILYN R. MARKS Chief Executive Officer and Chairman of the Board
- ----------------------------------------------------- of Directors
Marilyn R. Marks
/s/ KURT HERBST Vice President -- Finance (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
Kurt Herbst
/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>
17
<PAGE> 20
ANNUAL REPORT ON FORM 10-K
Item 14(a) 1.
Financial Statements
<PAGE> 21
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 16 present fairly, in all material
respects, the financial position of Dorsey Trailers, Inc. at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
January 25, 1999
F-1
<PAGE> 22
DORSEY TRAILERS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 7 $ 8
Accounts receivable, less allowance for doubtful accounts
of $145 and $129....................................... 6,284 6,811
Inventories............................................... 13,090 11,479
Prepaid expenses and other assets......................... 133 540
------- -------
Total current assets.............................. 19,514 18,838
Property, plant and equipment, net........................ 7,562 8,447
Deferred income taxes..................................... 4,235 4,179
Other assets.............................................. 1,623 1,903
------- -------
Total assets...................................... $32,934 $33,367
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt......................... $ 496 $ 350
Accounts payable.......................................... 16,815 12,638
Accrued wages and employee benefits....................... 4,204 4,348
Accrued expenses.......................................... 1,236 3,156
------- -------
Total current liabilities......................... 22,751 20,492
Long-term revolving line of credit.......................... 3,807 5,571
Long-term debt.............................................. 8,487 9,014
Accrued pension liability................................... 1,600 1,600
Accrued warranty............................................ 1,000 1,000
------- -------
Total liabilities................................. 37,645 37,677
------- -------
Stockholders' deficit
Preferred stock, $.01 par value, 500,000 shares
authorized; none issued or outstanding.................
Common stock, $.01 par value, 30,000,000 shares
authorized; 5,020,280 and 5,013,422 shares issued and
outstanding............................................ 50 50
Additional paid-in capital................................ 2,681 2,595
Accumulated deficit....................................... (7,365) (6,878)
Unrecognized pension liability............................ (77) (77)
------- -------
Total stockholders' deficit....................... (4,711) (4,310)
Commitments and contingencies (Note 9)...................... -- --
------- -------
Total liabilities and stockholders' deficit....... $32,934 $33,367
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 23
DORSEY TRAILERS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $150,328 $152,309 $157,366
Net sales -- related party.................................. 4,657
-------- -------- --------
Total net sales................................... 150,328 156,966 157,366
Cost of sales............................................... 143,508 153,038 156,214
Cost of sales -- related party.............................. 5,476
-------- -------- --------
Total cost of sales............................... 143,508 158,514 156,214
Gross profit................................................ 6,820 (729) 1,152
Gross profit -- related party............................... (819)
-------- -------- --------
Total gross profit................................ 6,820 (1,548) 1,152
Selling, general and administrative expenses................ 5,975 7,372 8,753
-------- -------- --------
Income (loss) from operations............................... 845 (8,920) (7,601)
Interest expense, net....................................... (1,900) (1,649) (408)
Gain on property sales...................................... 568
-------- -------- --------
Loss before income taxes............................... (487) (10,569) (8,009)
Benefit from income taxes................................... (387) (3,084)
-------- -------- --------
Net loss.................................................. $ (487) $(10,182) $ (4,925)
======== ======== ========
Basic loss per share...................................... $ (0.10) $ (2.03) $ (0.99)
======== ======== ========
Average shares outstanding
Basic.................................................. 5,020 5,007 4,995
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 24
DORSEY TRAILERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS UNRECOGNIZED
------------------ PAID-IN (ACCUMULATED PENSION
SHARES AMOUNT CAPITAL DEFICIT) LIABILITY TOTAL
--------- ------ ---------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 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 non-employee
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)
Net loss................................ (487) (487)
Record unrecognized tax benefit of stock
option compensation................... 56 56
Issuance of common stock to nonemployee
directors............................. 6,858 30 30
--------- --- ------ -------- ----- -------
Balance, December 31, 1998.............. 5,020,280 $50 $2,681 $ (7,365) $ (77) $(4,711)
========= === ====== ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 25
DORSEY TRAILERS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.................................................. $ (487) $ (10,182) $(4,925)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation and amortization.......................... 1,784 1,782 1,440
Gain on property sales................................. (568)
Issuance of common stock to non-employee directors..... 30 31 30
Change in assets and liabilities
Decrease in accounts receivable...................... 527 1,485 1,098
(Increase) decrease in inventories................... (1,611) 7,523 (1,771)
Decrease (increase) in prepaid expenses and other
current assets.................................... 407 2,450 (2,327)
Increase (decrease) in accounts payable.............. 4,177 (5,488) 2,558
Decrease in accrued wages and employee benefits...... (144) (55) (449)
(Decrease) increase in accrued expenses.............. (1,920) (1,143) 630
(Increase) decrease in other assets.................. (75) (1,155) 1
Increase in deferred income taxes.................... (56) (226) (593)
Decrease in other liabilities........................ (100)
--------- --------- -------
Net cash provided by (used in) operating
activities...................................... 2,064 (5,078) (4,308)
--------- --------- -------
Cash flows from investing activities
Net proceeds from property sales.......................... 739
Purchase of business assets............................... (1,198)
Capital expenditures...................................... (715) (300) (1,338)
--------- --------- -------
Net cash provided by (used in) investing
activities...................................... 24 (300) (2,536)
--------- --------- -------
Cash flows from financing activities
Advances on long-term revolving line of credit............ 159,416 130,852
Payments on long-term revolving line of credit............ (161,180) (125,281)
Payments of long-term debt................................ (482) (512) (1,016)
Tax benefit from exercise of stock options................ 56 226 223
Deferred interest capitalized to long-term debt........... 101
--------- --------- -------
Net cash (used in) provided by financing
activities...................................... (2,089) 5,285 (793)
--------- --------- -------
Decrease in cash and cash equivalents....................... (1) (93) (7,637)
Cash and cash equivalents at beginning of year.............. 8 101 7,738
--------- --------- -------
Cash and cash equivalents at end of year.................... $ 7 $ 8 $ 101
========= ========= =======
Supplemental disclosures of cash flow information
Cash paid during the year for interest.................... $ 1,958 $ 1,600 $ 384
========= ========= =======
Cash paid during the year for income taxes................ $ 36
=======
Disclosure of non-cash investing and financing activities
Issuance of note payable for acquisition of property...... $ 577
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 26
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:
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, 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 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 1998, no one customer represented greater than 10% of
total sales of the Company. For the year ended 1997, sales to United Parcel
Services and a related company 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. The Company markets its products directly to a
nationwide network of Dealers and directly to national accounts 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, 1998. 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 (see
table). 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 proper accounts are relieved of costs and accumulated
depreciation and any resulting gain or loss is credited or charged to income.
<TABLE>
<CAPTION>
ASSET CATEGORY ESTIMATED USEFUL LIVES
-------------- ----------------------
<S> <C>
Computer Hardware & Software................................ 3 - 5 years
Furniture & Fixtures........................................ 5 years
Machinery & Equipment....................................... 5 years
Buildings................................................... 20 years
</TABLE>
F-6
<PAGE> 27
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
ACCRUED WARRANTY
The Company provides a limited five-year warranty against defects in
material and workmanship on van trailers and flatbed 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 $854,000 at December 31, 1998 net of accumulated amortization
of $171,000. 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.
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.
COMPREHENSIVE INCOME
The Company adopted the standards of Statement of Financial Accounting
Standard ("FAS") No. 130, "Reporting Comprehensive Income" in January 1998. The
Company had no changes in other comprehensive income for the periods presented.
The only other comprehensive income item the Company has is the difference
between the underfunded liability of a pension plan and the accrued pension cost
which is shown as a reduction to shareholders' equity.
EARNINGS PER SHARE ("EPS")
Basic Earnings Per Share ("EPS") is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding during the 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 1998 there were no potentially dilutive securities which were not
included in the calculation of basic earnings per share. 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
F-7
<PAGE> 28
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
187,000 and 30,000, respectively. These options were not included due to the
Company reporting a net loss for the periods.
RECLASSIFICATION
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation. Neither total assets or the net loss reported for these periods
changed from their previously reported amounts.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Raw materials............................................... $ 9,065 $ 7,781
Work-in-process............................................. 3,127 2,760
Finished trailers........................................... 449 321
Used trailers............................................... 449 617
------- -------
$13,090 $11,479
======= =======
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Land........................................................ $ 637 $ 688
Building.................................................... 6,011 6,270
Equipment................................................... 11,124 10,816
------- -------
17,772 17,774
Less -- Accumulated depreciation............................ 10,210 9,327
------- -------
$ 7,562 $ 8,447
======= =======
</TABLE>
Property, plant and equipment include land and building held for sale as
idle facility of $657,000 and $706,000 in Northumberland, Pennsylvania at
December 31, 1998 and 1997, 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 $14.0 million, five year line
of credit ("Financing Agreement"), including a $4.0 million term loan which was
to amortize evenly over the next four months and a letter of credit facility of
up to $3.0 million, with an asset-based lender. In August and November of 1997,
the Company's term loan was revised. With the revisions, the term loan at August
1, 1997 was $2.0 million with interest only for sixty days. The revised term
loan was paid in eight installments with the final payment being on July 1,
1998. On December 31, 1998, the Company's Financing Agreement was amended. The
amendment provides for an overadvance facility of $2.0 million through January
31, 1999; $1.5 million through February 28, 1999; and $1.0 million through March
31, 1999. It is the Company's intent and expectation to not have a requirement
for an overadvance facility after March 31, 1999.
F-8
<PAGE> 29
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
In connection with the closing of the $14.0 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 2.0% with interest payable monthly. The term loan accrued interest
at prime plus 2.0% until April 30, 1998 and prime plus 3.0% thereafter, with the
final payment being made on July 1, 1998. At December 31, 1998, the interest
rate was 9.75% for the Financing Agreement. 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 $14.0
million less the outstanding principal amount of the term loan and letters of
credit obligations, or 80.0% of eligible accounts receivable plus 30.0% of
eligible raw materials, 40.0% of eligible used trailers, and 60.0% 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, 1998, the Company had $3.8 million in borrowings and
$1.9 million in letters of credit outstanding under the Financing Agreement. The
Financing Agreement is secured by a first security interest in the Company's
accounts receivable and inventory. The Financing Agreement, as amended, 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, 1998,
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,
-----------------
1998 1997
---- ----
(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, collateralized by
substantially all of the Company's assets (subordinated to
all other notes payable). Due 2020........................ $6,909 $6,984
Note payable bearing interest at 8.5%, payable in quarterly
principal and interest installments of $89,250, due 2005,
collateralized by property, plant and equipment........... 1,755 1,950
Note payable bearing interest at the prime rate, payable in
monthly principal and interest installments of $11,779,
due 2001, unsecured....................................... 319 430
------ ------
8,983 9,364
Less -- Current portion of long-term debt................... 496 350
------ ------
$8,487 $9,014
====== ======
</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 $3.0 million. For the years ended December 31, 1998 and
1997, no supplemental payment was required.
F-9
<PAGE> 30
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
As of December 31, 1998, aggregate principal maturities of long-term debt
are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999...................................................... $ 496
2000...................................................... 516
2001...................................................... 499
2002...................................................... 447
2003...................................................... 475
Thereafter................................................ 6,550
------
$8,983
======
</TABLE>
6. RETIREMENT AND EMPLOYEE BENEFIT PLANS
PENSION PLANS AND POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
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.
Additionally, 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
retirees.
F-10
<PAGE> 31
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The following tables provide a reconciliation of the changes in the plans'
benefit obligation and fair value over assets over the two-year period ending
December 31, 1998, and a statement of the funded status as of December 31 of
both years:
PENSION BENEFIT PLANS
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Reconciliation of benefit obligation
Benefit obligation at beginning of year................... $ 6,663 $ 6,280
Service cost.............................................. 204 200
Interest cost............................................. 488 461
Actuarial loss (gain)..................................... 35 (26)
Benefit payments.......................................... (286) (252)
------- -------
Obligation at end of year................................. $ 7,104 $ 6,663
======= =======
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year............ $ 5,450 $ 4,663
Actual return on plan assets.............................. 577 718
Employer contributions.................................... 349 321
Benefit payments.......................................... (286) (252)
------- -------
Fair value of plan assets at end of year.................. $ 6,090 $ 5,450
======= =======
Funded status
Funded status at December 31.............................. $(1,014) $(1,212)
Unrecognized net gain..................................... (784) (778)
Unrecognized prior service cost........................... 93 106
------- -------
Net accrued............................................... $(1,705) $(1,884)
======= =======
</TABLE>
F-11
<PAGE> 32
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFIT PLAN
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Reconciliation of benefit obligation
Benefit obligation at beginning of year................... $ 337 $ 451
Service cost.............................................. 25 20
Interest cost............................................. 30 28
Plan participant contributions............................ 70 70
Actuarial loss (gain)..................................... 82 (87)
Benefit payments.......................................... (159) (145)
----- -----
Obligation at end of year................................. $ 385 $ 337
===== =====
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year............ $ 0 $ 0
Employer contributions.................................... 89 75
Plan participant contributions............................ 70 70
Benefit payments.......................................... (159) (145)
----- -----
Fair value of plan assets at end of year.................. $ 0 $ 0
===== =====
Funded status
Funded status at December 31.............................. $(385) $(337)
Unrecognized transition net obligation.................... 256 275
Unrecognized net loss (gain).............................. 28 (55)
----- -----
Net accrued............................................... $(101) $(117)
===== =====
</TABLE>
Each of the Company's two noncontributory defined-benefit retirement plans
covering certain former hourly employees had plan assets which exceed each of
the plans' accumulated benefit obligations. As of December 31, 1998 and 1997,
the combined accumulated benefit obligation for these two plans was $1.9
million. The Company's noncontributory defined-benefit retirement plan covering
certain salaried employees plan assets was less than the accumulated benefit
obligation for the plan. The salary pension plan's accumulated benefit
obligation was $4.5 million and $4.0 million at December 31, 1998 and 1997,
respectively. The Company's plan for postretirement benefits other than pension
plans has no plan assets due to the nature of this plan. The accumulated benefit
obligation for this postretirement benefit plan was $385,000 and $337,000 at
December 31, 1998 and 1997, respectively. 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, 1998 and 1997, the difference was $126,000 with a reduction to
stockholders' equity of $77,000.
F-12
<PAGE> 33
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The following table provides the components of net periodic benefit cost
for the plans:
PENSION PLANS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service costs............................................... $204 $200 $254
Interest cost............................................... 488 461 458
Expected return on plan assets.............................. (479) (394) (327)
Amortization of net (gain) loss............................. (57) (14) 3
Amortization of prior-service cost.......................... 14 14 13
---- ---- ----
Net pension cost.................................. $170 $267 $401
==== ==== ====
</TABLE>
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFIT PLAN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service costs............................................... $25 $20 $31
Interest cost............................................... 30 27 33
Amortization of transition obligation....................... 18 18 18
Amortization of net gain.................................... (2)
--- --- ---
Net pension cost.................................. $73 $63 $82
=== === ===
</TABLE>
Gains and losses in excess of 10% of the greater of the benefit obligation
and the fair value of assets are amortized over the average remaining service
period of active participants.
The assumptions used in accounting for the Company's benefit obligations,
where applicable, are as follows:
PENSION PLANS
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.00% 7.25% 7.25%
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%
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFIT PLAN
Discount rate............................................... 7.00% 7.25% 7.25%
</TABLE>
The accrued medical trend rate used in 1998 was 7%, in 1997 was 8%, and in
1996 was 9%, decreasing 1% per year until the ultimate rate of 5% is reached. If
the medical trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation as of December 31, 1998 would be increased by
approximately $79,000. 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 $12,000. If the medical trend rate assumptions were
decreased by 1%, the accumulated postretirement benefit obligation as of
December 31, 1998 would be decreased by approximately $62,000. The effect of
this change on the service and interest components of net periodic
postretirement benefit cost for the year would be a decrease of approximately
$10,000.
For the years ended December 31, 1998, 1997 and 1996, the Company
contributed $493,000, $416,000 and $409,000, respectively, to a multi-employer
retirement plan sponsored by the I.A.M. National Pension Fund covering the Elba,
Alabama facility's hourly employees.
F-13
<PAGE> 34
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 twenty percent
of gross salary. The Company made no accrual for matching contributions to the
plan in 1998, 1997 and 1996.
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 twenty percent of gross salary. The Company made no
accrual for matching contributions to the plan in 1998 and 1997.
7. INCOME TAXES
The components of the benefit from income taxes for the years ended
December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
----- ------ --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current
Federal................................................... $0 $(387) $(2,774)
State..................................................... (45)
-- ----- -------
(2,819)
-- ----- -------
Deferred
Federal...................................................
State..................................................... (265)
-- ----- -------
(265)
-- ----- -------
$0 $(387) $(3,084)
== ===== =======
</TABLE>
The Company's benefit from income taxes differs from the amount computed by
applying the statutory federal income tax rate of 34% to loss before income
taxes of $(487,000), $(10,569,000) and $(8,009,000) for the years ended December
31, 1998, 1997 and 1996 as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
----- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Tax at federal statutory rate............................... $(166) $(3,593) $(2,723)
State income taxes, net of federal benefit.................. (19) (403) (317)
Increase in valuation reserve............................... 172 3,448
Tax exempt interest income.................................. (48)
Other....................................................... 13 161 4
----- ------- -------
$ 0 $ (387) $(3,084)
===== ======= =======
</TABLE>
F-14
<PAGE> 35
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred assets
Employee benefits......................................... $ 1,046 $ 1,214
Pension benefit........................................... 753 790
Accrued warranty.......................................... 600 781
Provision for plant closing............................... 122 151
Net operating loss carryforward........................... 4,992 4,462
Other..................................................... 430 322
------- -------
7,943 7,720
------- -------
Deferred liabilities
Depreciation.............................................. (88) (93)
------- -------
7,855 7,627
Valuation reserve........................................... (3,620) (3,448)
------- -------
$ 4,235 $ 4,179
======= =======
</TABLE>
8. COMMON STOCK, OPTIONS AND WARRANTS
1993 STOCKHOLDER PLAN
In 1993, the Company's then majority stockholder sponsored a stock option
plan ("1993 Stockholder 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 Long-Term Incentive Plan
and reserved 250,000 shares of common stock for future issuance under the plan.
In April 1998, the shareholders of the Company approved an amendment to the
Company's Long-Term Incentive Plan to increase the number of shares authorized
for issuance under the Long-Term Incentive Plan from 250,000 to 500,000.
Pursuant to the terms of the Long-Term 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-15
<PAGE> 36
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
A summary of the status of the Company's stock option plans as of December
31, 1998, 1997 and 1996, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- --------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- -------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1993 Stockholder Plan
Outstanding at beginning of
year......................... 324,216 $0.290 592,149 $0.273 738,389 $0.273
Exercised.................... (58,731) 0.265 (232,124) 0.235 (146,240) 0.275
Forfeited/canceled........... (35,809) 0.320
------- -------- --------
Outstanding at end of year..... 265,485 0.293 324,216 0.290 592,149 0.268
======= ======== ========
Available for grant at end of
year......................... 41,690 41,690 5,881
Options exercisable at
year-end..................... 265,485 324,216 592,419
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- --------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- -------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Long-Term Incentive Plan
Outstanding at beginning of
year......................... 200,333 $3.30 110,000 $5.59 75,000 $7.54
Granted...................... 70,000 2.69 217,000 2.85 60,000 5.59
Forfeited/canceled........... (63,333) 3.49 (126,667) 4.52 (25,000) 11.25
------- -------- --------
Outstanding at end of year..... 207,000 3.03 200,333 3.30 110,000 5.59
======= ======== ========
Available for grant at end of
year......................... 293,000 49,667 140,000
Options exercisable at
year-end..................... 65,667 23,333 16,667
Weighted-average fair value of
options granted during the
year......................... $0.97 $0.85 $1.66
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998, 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 12/31/98 (YEARS) EXERCISE PRICE 12/31/98 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1993 Stockholder Plan
$0.256 - $0.32........................ 265,485 4.43 $0.29 265,485 $0.29
Long-Term Incentive Plan
$1.75 - $5.625........................ 207,000 9.05 $3.03 65,667 $3.95
</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 12/31/97 (YEARS) EXERCISE PRICE 12/31/97 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1993 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>
F-16
<PAGE> 37
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
<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>
1993 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>
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 loss
and basic loss per share would be increased to the unaudited pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net loss.............................. As reported $(487) $(10,182) $(4,925)
Pro forma (510) (10,309) (4,989)
Basic loss per share.................. As reported (0.10) (2.03) (0.99)
Pro forma (0.10) (2.06) (1.01)
</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 1998, 1997 and 1996, respectively, expected
volatility of 25%, 25% and 47%; and risk-free interest rates of 5.0%, 6.0% and
5.50%. 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
During 1994, the Board of Directors adopted the 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
$10,000 for 1998, and $7,500 for 1997 and 1996 on the date of issuance. During
1998, 1997 and 1996, 6,858, 16,000 and 8,568 shares, respectively, were issued
to eligible directors.
In April 1998, the shareholders of the Company approved an amendment to the
Directors' Plan to increase the number of shares of common stock authorized for
issuance from 30,000 to 295,000, to increase the amount of the annual award from
$7,500 to $10,000, and to extend the term of the Directors' Plan from August 4,
1999 to August 4, 2019.
F-17
<PAGE> 38
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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, 1998 are
summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999...................................................... $ 420
2000...................................................... 371
2001...................................................... 360
2002...................................................... 214
2003 and thereafter......................................... 659
------
$2,024
======
</TABLE>
Rent expense under these and other lease agreements approximated $480,000,
$465,000, and $289,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
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
$1.9 million under its Financing Agreement (See Note 4). The accompanying
financial statements include an insurance accrual based upon third party
administrators' 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,
1998, 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 agreement with a
finance company that provided retail financing to certain end users for some
trailers sold through the Company's independent dealer network. Under this
agreement, the Company was contingently liable to repurchase trailers from the
finance company. Effective January 1, 1998, the agreement does not require the
Company to be contingently liable for such retail repurchases. The new agreement
does not contain any material terms or commitments by the Company.
The Company has maintained an agreement with the same finance company,
which provides wholesale floor plans for certain of the Company's independent
dealers. The Company is contingently liable under repurchase agreements with the
finance company for approximately $20.7 million at December 31, 1998. In the
event of a repurchase, the Company would receive ownership of the trailer(s). In
the opinion of management, it is not probable that the Company will be required
to satisfy this contingent liability.
LITIGATION
In December 1997, an Administrative Law Judge of the National Labor
Relations Board ("NLRB") ordered the Company to reinstate operations at the
Company's closed Northumberland, Pennsylvania facility, reinstate striking
employees and compensate affected employees for any loss of earnings. In March
1999, a three-member panel of the NLRB affirmed the Administrative Law Judge's
decision. The Company will now continue the appeal process in the Federal
Courts, a procedure that could take up to several years. No part of this order
will take effect
F-18
<PAGE> 39
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
during the appeal process. The Company does not have sufficient information to
estimate the cost that would be incurred if the Company was required to carry
out this order. 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 (GAN North American Insurance Co. v. Dorsey Trailers, Inc.) in United
States District Court for the Northern District of Georgia, Atlanta Division, as
to coverage of a previously paid claim of $1.0 million by that insurance company
in the settlement of product liability litigation. The Company has filed a
motion for summary judgment. 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, results of
operations or cash flows.
In April 1995, a class action lawsuit (James Starks et al. v. Dorsey
Trailers, Inc. et al.) alleging racial discrimination was filed in the United
States District Court for the Middle District of Alabama against the Company.
The Court has not issued a class certification as of this date. Due to the lack
of a class certification, management is unable to determine the potential
damages, if any, associated with this 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, results of operations, or cash flows.
In the normal course of business, the Company is a defendant in certain
other litigation, in addition to the matters discussed above. Management after
reviewing available information relating to the above matters and consulting
with legal counsel, has determined with respect to each such matter either that
it is not reasonably possible that the Company has incurred liability in respect
thereof or that any liability ultimately incurred will not exceed the amount, if
any, recorded at December 31, 1998 in respect thereof, by an amount which would
have a materially adverse impact on the Company's financial position, results of
operations, or cash flows. However, in the event of an unanticipated adverse
final determination in respect to these matters, the Company's financial
position, results of operations, and its cash flows could be materially
affected.
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 paid its appropriate share of the total costs needed to finalize the
remediation work at this site. In 1998, the Company sold this facility, and
management believes that it has no additional environmental liability related to
this site.
10. 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 a 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.
F-19
<PAGE> 40
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
11. RELATED PARTY TRANSACTIONS
During the first quarter of 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 $0.8 million 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.
12. 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, 1998 and 1997 are
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Long-term revolving line of credit........................ $3,807 $3,807 $5,571 $5,571
Long-term debt............................................ $8,983 $6,830 $9,364 $7,166
</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-20
<PAGE> 41
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, 1998
Allowance for Doubtful Accounts.................. $129 $52 $(36) $145
==== === ==== ====
Year ended December 31, 1997
Allowance for Doubtful Accounts.................. $168 $-- $(39) $129
==== === ==== ====
Year ended December 31, 1996
Allowance for Doubtful Accounts.................. $250 $-- $(82) $168
==== === ==== ====
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT INCREASE BALANCE AT
BEGINNING OF (DECREASE) END OF
DESCRIPTION PERIOD TO RESERVE PERIOD
- ----------- ------------ ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Year ended December 31, 1998
Deferred income tax valuation reserve..................... $3,448 $ 172 $3,620
====== ====== ======
Year ended December 31, 1997
Deferred income tax valuation reserve..................... $ -- $3,448 $3,448
====== ====== ======
Year ended December 31, 1996
Deferred income tax valuation reserve..................... $ -- $ -- $ --
====== ====== ======
</TABLE>
F-21
<PAGE> 42
PART IV
ITEM 14 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
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <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.*
10.17 Dorsey Trailers, Inc. Shareholder Agreement by and among the Company and
certain stockholders of the Company, dated February 25, 1994.*
</TABLE>
F-22
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
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 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.***
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.***
</TABLE>
F-23
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
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.***
10.46 Amendment No. 5 dated as of July 10, 1998 to the Loan and Security
Agreement dated March 28, 1997 between Foothill Capital Corporation and
Dorsey Trailers, Inc.****
10.47 Amendment No. 6 dated as of August 31, 1998 to the Loan and Security
Agreement dated March 28, 1997 between Foothill Capital Corporation and
Dorsey Trailers, Inc.*****
10.48 Amendment No. 7 dated as of December 31, 1998 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, 1997.
**** Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended July 4, 1998.
***** Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended October 3, 1998.
F-24
<PAGE> 1
EXHIBIT 10.48
AMENDMENT NO. 7 TO
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 7, dated as of December 31, 1998, 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, the THIRD
AMENDMENT dated as of August 1, 1997, the FOURTH AMENDMENT dated as of November
22, 1997, the FIFTH AMENDMENT dated as of July 10, 1998 and the SIXTH
AMENDMENT, dated as of August 31, 1998 (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 provide for a permitted overadvance in an amount not to exceed (i)
$2,000,000, through and including January 31, 1999, (ii) $1,500,000, from
February 1, 1999 through and including February 28, 1999, and (iii) $1,000,000,
from March 1, 1999 through and including March 31, 1999. 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. Definition of Overadvance Amount. The definition of the term
"Overadvance Amount" in Section 1.1 of the Loan and Security Agreement is hereby
amended in its entirety to read as follows:
"Overadvance Amount" means (i) $2,000,000, from September 1, 1998
through and including January 31, 1999, (ii) $1,500,000, from February 1, 1999
through and including February 28, 1999, (iii) $1,000,000, from March 1, 1999
through and including March 31, 1999, and (iv) $0.00, after March 31, 1999."
1
<PAGE> 2
3. Section 2.10(g) of the Loan and Security Agreement. Section 2.10(g)
of the Loan and Security Agreement is hereby amended in its entirety to read as
follows:
"(g) Overadvance Fee. (i) On each of February 1, 1999, March 1, 1999
and April 1, 1999, the Borrower will pay to Foothill a monthly fee equal
to the greater of (A) $15,000 and (B) the product of (y) $1,000 and (z)
the aggregate number of days during the immediately previous calendar
month in which an Overadvance existed or would have existed if the
Overadvance Amount was zero as of such date.
(ii) If, 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."
4. Section 7.20(c) of the Loan and Security Agreement. Section 7.20(c)
of the Loan and Security Agreement is hereby amended in its entirety to read as
follows.
"(c) EBTDA. EBTDA for each period of two consecutive preceding months
on the date set forth below of at least the amount set forth opposite such
date:
<TABLE>
<CAPTION>
Two Months Period Ending EBTDA
------------------------ --------
<S> <C>
December 31, 1998 $500,000
February 28, 1999 $300,000
</TABLE>
5. 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) All legal matters incident to this Amendment shall be satisfactory
to Foothill and its counsel.
2
<PAGE> 3
6. Representations and Warranties. The Borrower hereby represents and
warrants to Foothill as follows:
(a) The Borrower (i) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and (ii) has all
requisite corporate power, authority and legal right to execute, deliver and
perform this Amendment, and to perform the Loan and Security Agreement, as
amended hereby.
(b) The execution, delivery and performance of this Amendment by the
Borrower, and the performance by the Borrower of the Loan and Security
Agreement, as amended hereby (i) have been duly authorized by all necessary
corporate action, (ii) do not and will not contravene its charter or by-laws or
any applicable law, and (iii) except as provided in the Loan Documents, do not
and will not result in the creation of any Lien upon or with respect to any of
its respective properties.
(c) This Amendment and the Loan and Security Agreement, as amended
hereby, constitute the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with its terms.
(d) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required in connection with the due
execution, delivery and performance by the Borrower of this Amendment and the
performance by the Borrower of the Loan and Security Agreement as amended
hereby.
(e) The representations and warranties contained in Section 7 of the
Loan and Security Agreement and each other Loan Document are correct on and as
of the Effective Date as though made on and as of the Effective Date (except to
the extent such representations and warranties expressly relate to an earlier
date in which case such representations and warranties shall be true and
correct as of such earlier date), and no Default or Event of Default has
occurred and is continuing on and as of the Effective Date or will result from
this Amendment becoming effective in accordance with its terms.
7. 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.
3
<PAGE> 4
8. Miscellaneous.
(a) This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
(b) Section and paragraph headings herein are included for convenience of
reference only and shall not constitute a part of this Amendment for any other
purpose.
(c) This Amendment shall be governed by, and construed in accordance
with, the laws of the State of California.
(d) The Borrower will pay on demand all reasonable fees, costs and
expenses of Foothill in connection with the preparation, execution and delivery
of this Amendment including, without limitation, reasonable fees disbursements
and other charges of Schulte Roth & Zabel LLP, counsel to Foothill.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered.
DORSEY TRAILERS, INC.,
a Delaware corporation
By: /s/ Kurt Herbst
---------------------------------
Name: Kurt Herbst
Title: Vice-President - Finance
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Victor Barwig
---------------------------------
Name: Victor Barwig
Title: Vice President
5
<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 ENDED DECEMBER 31,
1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 6,429
<ALLOWANCES> 145
<INVENTORY> 13,090
<CURRENT-ASSETS> 19,514
<PP&E> 17,772
<DEPRECIATION> 10,210
<TOTAL-ASSETS> 32,934
<CURRENT-LIABILITIES> 22,751
<BONDS> 12,294
0
0
<COMMON> 50
<OTHER-SE> (4,761)
<TOTAL-LIABILITY-AND-EQUITY> 32,934
<SALES> 150,328
<TOTAL-REVENUES> 150,328
<CGS> 143,508
<TOTAL-COSTS> 143,508
<OTHER-EXPENSES> 5,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,900
<INCOME-PRETAX> (487)
<INCOME-TAX> 0
<INCOME-CONTINUING> (487)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (487)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
