<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 3, 1999
OR
[x] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-24354
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DORSEY TRAILERS, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 58-2110729
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(State of Incorporation) (IRS Employer
Identification Number)
2727 Paces Ferry Road
One Paces West, Suite 1700
Atlanta, Georgia 30339
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Registrant's telephone number, including area code: (770) 438-9595
--------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of common stock outstanding at August 13, 1999, was
5,031,191.
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DORSEY TRAILERS, INC.
FORM 10-Q
Quarter ended July 3, 1999
Index
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Page
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<S> <C> <C> <C>
Part I. Financial Information
Item 1. Condensed Financial Statements
Balance Sheets - July 3, 1999 and December 31, 1998 3
Statements of Operations - For the thirteen weeks and twenty-six weeks
ended July 3, 1999 and July 4, 1998, respectively 4
Statements of Cash Flows - For the twenty-six weeks
ended July 3, 1999 and July 4, 1998, respectively 5
Statements of Changes in Stockholders' Deficit-
For the twenty-six weeks ended July 3, 1999 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
DORSEY TRAILERS, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 3, DECEMBER 31,
1999 1998
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7 $ 7
Accounts receivable, net 13,831 6,284
Inventories 12,247 13,090
Prepaid expenses and other assets 112 133
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Total current assets 26,197 19,514
Property, plant and equipment, net 7,445 7,562
Deferred income taxes 4,235 4,235
Other assets, net 1,437 1,623
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Total assets $ 39,314 $ 32,934
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt $ 508 $ 496
Accounts payable 19,004 16,815
Accrued wages and employee benefits 3,555 4,204
Accrued expenses 825 1,236
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Total current liabilities 23,892 22,751
Long-term revolving line of credit 8,588 3,807
Long-term debt, net of current maturities 8,221 8,487
Accrued pension liability 1,600 1,600
Accrued warranty 1,000 1,000
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Total liabilities 43,301 37,645
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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; 5,031,191 and 5,020,280 shares issued
and outstanding 50 50
Additional paid-in capital 2,711 2,681
Accumulated deficit (6,671) (7,365)
Accumulated other comprehensive loss (77) (77)
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Total stockholders' deficit (3,987) (4,711)
-------- --------
Commitments and contingencies -- --
-------- --------
Total liabilities and stockholders' deficit $ 39,314 $ 32,934
======== ========
</TABLE>
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENT OF OPERATIONS -- UNAUDITED
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(13 WEEKS) (13 WEEKS) (26 WEEKS) (26 WEEKS)
<S> <C> <C> <C> <C>
Net sales $ 44,181 $ 39,911 $ 89,028 $ 75,266
Cost of sales 41,830 37,828 84,060 72,472
-------- -------- -------- --------
Gross profit 2,351 2,083 4,968 2,794
Selling, general and
administrative expenses 1,677 1,625 3,267 3,127
-------- -------- -------- --------
Income (loss) from operations 674 458 1,701 (333)
Interest expense, net (492) (352) (1,007) (776)
Gain on property sales -- -- -- 568
-------- -------- -------- --------
Income (loss) before income taxes 182 106 694 (541)
Benefit from income taxes -- -- -- --
-------- -------- -------- --------
Net income (loss) $ 182 $ 106 $ 694 $ (541)
======== ======== ======== ========
Basic income (loss) per share $ .04 $ .02 $ .14 $ (.11)
======== ======== ======== ========
Weighted average number of
common and common share
equivalents - basic 5,028 5,017 5,024 5,015
======== ======== ======== ========
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DORSEY TRAILERS, INC.
STATEMENTS OF CASH FLOWS -- UNAUDITED
(IN THOUSANDS)
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<CAPTION>
JULY 3, JULY 4,
1999 1998
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(26 WEEKS) (26 WEEKS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 694 $ (541)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization 862 808
Gain on property sales -- (568)
Issuance of common stock to non-employee directors 30 30
Change in assets and liabilities-
(Increase) in accounts receivable (7,547) (4,609)
Decrease (increase) in inventories 843 (2,910)
Decrease in prepaid expenses
and other current assets 20 423
Increase (decrease) in accounts payable 2,190 4,994
(Decrease) in accrued expenses (1,060) (1,460)
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Net cash used in operating activities (3,968) (3,833)
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Cash flows from investing activities:
Capital expenditures (558) (168)
Net proceeds from property sales -- 739
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Net cash provided by (used in) investing activities (558) 571
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Cash flows from financing activities:
Net borrowings under line of credit agreement 4,780 3,370
Payments on long-term debt (254) (210)
Deferred interest capitalized to long-term debt -- 101
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Net cash provided by financing activities 4,526 3,261
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Decrease in cash and cash equivalents -- (1)
Cash and cash equivalents at beginning of period 7 8
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Cash and cash equivalents at end of period $ 7 $ 7
======= =======
</TABLE>
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS EXCEPT SHARE DATA)
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<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Loss Total
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<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 5,020,280 $ 50 $2,681 $(7,365) $(77) $(4,711)
Net income 694 694
Issuance of common stock to
non-employee directors 10,911 -- 30 -- -- 30
--------- ---- ------ ------- ---- -------
Balance, July 4, 1999 (Unaudited) 5,031,191 $ 50 $2,711 $(6,671) $(77) $(3,987)
========= ==== ====== ======= ==== =======
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DORSEY TRAILERS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited, in thousands)
NOTE 1. GENERAL
The financial statements included herein have been prepared by Dorsey Trailers,
Inc. (the "Company") without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading. The condensed
financial statements included herein should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
In the opinion of the Registrant, the accompanying financial statements contain
all material adjustments (consisting only of normal recurring adjustments),
necessary to present fairly the financial position of the Company at July 3,
1999, and December 31, 1998, and its results of operations for the thirteen and
twenty-six weeks ended July 3, 1999 and July 4, 1998, and its cash flows for the
twenty-six weeks ended July 3, 1999, and July 4, 1998, respectively.
NOTE 2. INVENTORIES
Inventories consisted of the following:
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<CAPTION>
July 3, December 31,
1999 1998
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(In thousands)
<S> <C> <C>
Raw material $ 9,754 $ 9,065
Work-in-process 1,861 3,127
Finished trailers 339 449
Used trailers 293 449
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$12,247 $13,090
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NOTE 3. REVOLVING LINE OF CREDIT
On March 28, 1997, the Company entered into a $14,000, five-year line of credit
("Financing Agreement"), including a $4,000 term loan and a letter of credit
facility of up to $3,000, with an asset-based lender. The term loan was paid
with the final payment being made on July 1, 1998. On December 31, 1998, the
Company's Financing Agreement was amended. The amendment provided for an
overadvance facility of $2,000 through January 31, 1999; $1,500 through February
28, 1999; and $1,000 through March 31, 1999. The Company does not plan to renew
the overadvance facility.
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On June 30, 1999 the Company amended the Financing Agreement. The amended
agreement allows increases in the advance rates for the eligible accounts. The
advance rates increased from 80% to 85% of eligible accounts receivable; from
30% to 35% of eligible raw material; and from 60% to 70% of eligible finished
goods inventory. The amended agreement permits interest rate concessions for
meeting certain net income and net worth bench marks. The amended agreement
improved certain net worth covenants. In addition, the agreement was extended
for an additional two year term.
In connection with the closing of the original $14,000 Financing
Agreement, the Company incurred cost of approximately $1,150 which is being
amortized over the amended life of the Financing Agreement. The Financing
Agreement bears interest at prime plus 2.0% with interest payable monthly. At
July 3, 1999, the interest rate was 10.0% 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 monthly a $5 servicing fee and an annual facility
fee of $75. The Financing Agreement allows advances of up to the lesser of
$14,000 less the outstanding letters of credit obligations, or 85% of eligible
accounts receivable plus 35 % of eligible raw material, 40 % of eligible used
trailers, and 70% of eligible finished goods inventory less the outstanding
letters of credit obligations. The Company has certain limitations on the
maximum amount of advances the Company can receive against inventory. As of July
3, 1999, the Company had $8,588 outstanding under the Financing Agreement and
$1,990 in letters of credit (See note 4). The Financing Agreement is
collateralized by a first security interest in the Company's accounts receivable
and inventory. The Financing Agreement contains certain operational and
financial covenants and other restrictions with which the Company must comply.
The covenants include, but are not limited to, the following: minimum earnings
before interest, income taxes, depreciation, and amortization; minimum net
worth; and maximum amount of capital expenditures. As of July 3, 1999 and August
13, 1999, the Company was in compliance with the covenants of the Financing
Agreement.
NOTE 4. COMMITMENTS AND CONTINGENCIES
Workers' Compensation Insurance and Letters of Credit
The Company is self-insured for workers' compensation claims up to $350
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
$1,990 as of July 3, 1999 under its Financing Agreement (See Note 3). The
accompanying condensed financial statements include an insurance accrual based
upon third party administrators' and management's evaluation 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
July 3, 1999 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
The Company maintains an agreement with a 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 $14,423 at July 3, 1999. In the opinion of management,
it is not probable that the Company will be required to satisfy this contingent
liability.
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Litigation
In December 1997, an Administrative Law Judge of the National Labor
Relations Board ordered the Company to reinstate operations at the Company's
closed Northumberland, Pennsylvania facility, 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 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 $1,000 by that insurance
company in the settlement of product liability litigation. The documentary
discovery phase is now complete. The Company expects to file 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 its 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 its 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 the 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 July 3, 1999 in respect thereof 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 in which period such
determination occurs 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 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 the first quarter of 1998, the Company sold this facility, and
management believes that it has no additional environmental liability related to
this site.
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Labor Relations
On May 3, 1999 the Company reached agreement with the International
Association of Machinists and Aerospace Workers Local Lodge No. 1769 (the
"Union"), which represents the hourly employees of the Company's Elba, Alabama
plant. The Union membership ratified the three-year collective bargaining
agreement, which expires May 4, 2002.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the Condensed
Financial Statements of the Company and the related Notes thereto appearing
elsewhere in this Quarterly Report.
INCLUSION OF FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," may be deemed to be
forward-looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. Any forward-looking 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, government regulations, unfavorable results of
outstanding litigation, and new technologies or products. Readers should review
and consider the various disclosures included in this Quarterly Report and in
the Company's 1998 Annual Report on Form 10-K and other reports to stockholders
and public filings.
RESULTS OF OPERATIONS
NET SALES Net sales for the quarter ended July 3, 1999 increased 10.7% to
$44,181 from $39,911 for the quarter ended July 4, 1998. This increase in
trailer sales revenue is primarily due to product mix and to a lesser extent an
increase in the volume of units sold. The improvement in product mix comes from
the Company targeting higher unit priced products such as refrigerated vans,
customized vans, and dump trailers as compared to lower priced unit product such
as standard dry freight vans. Management attributes the improved product mix to
focusing on customized trailers and niche markets through the Company's
independent dealer organization.
Net sales for the six months ended July 3, 1999 increased 18.3% to $89,028 from
$75,266 for the six months ended July 4, 1998. The unit volume of new trailers
sold increased 6.5% during the first six months of 1999 as compared to the same
period in 1998. The increase in new trailer sales corresponds with the increase
reflected in the industry as a whole. Additionally, with the increased demand,
the Company has seen improved product mix in its targeted customer markets of
independent dealers and customized trailers, as discussed above.
GROSS PROFIT Gross profit was $2,351 for the second quarter of 1999 or 5.3% of
sales compared to a gross profit of $2,083 for the second quarter of 1998 or
5.2% of sales. The improvement in gross profit for the second quarter of 1999
was due to the Company's more profitable product mix, which
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management believes was primarily a result of the Company's strategy of focusing
sales to its independent dealer organization and targeting profitable customized
niche markets.
Gross profit for the six months ended July 3, 1999 was $4,968 or 5.6% of sales
as compared to a gross profit of $2,794 or 3.7% of sales for the corresponding
period in 1998. The improvement in the gross profit margin during the first six
months of the year as stated above, is due to improved product mix, an increase
in the volume of units sold and improved productivity. Gross profit on new
trailers has improved $2,311 or 92.3% for the six months ended July 3, 1999, as
compared to the six months ended July 4, 1998. The Company's gross profit was
negatively impacted by certain flood-related costs in the first quarter of 1998
in the Elba, Alabama facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
("SG&A") expenses for the second quarter of 1999 increased approximately 3.2% to
$1,677 as compared to $1,625 for the second quarter of 1998. SG&A expenses as a
percent of net sales declined to 3.8% for the quarter ended July 3, 1999 as
compared to 4.1% for the quarter ended July 4, 1998. While the Company
experienced a 10.7% increase in sales in the second quarter of 1999, as compared
to the second quarter of 1998, the decrease in SG&A as a percent of sales is
reflective of management's continued focus on cost containment. No single
component of SG&A expenses had a significant change between periods.
SG&A expenses for the first six months of 1999 increased approximately 4.5% to
$3,267 as compared to $3,127 for the first six months of 1998. SG&A as a percent
of sales was 3.7% for the six months ended July 3, 1999 as compared to 4.2% for
the six months ended July 3, 1999. While the Company has experienced an 18.3%
increase in sales in the first six months of 1999 as compared to the first six
months of 1998, the decrease in SG&A as a percent of sales is reflective of
management's continued focus on cost containment. The primary components of SG&A
expense were salaries and employee benefits for 53% and 49% and professional
fees for 13.0% and 17.6% of total SG&A expenses for the six months ended July 3,
1999 and July 4, 1998, respectively.
INTEREST EXPENSE, NET Interest expense, net for the quarter ended July 3, 1999
was $492 as compared to interest expense, net of $352 for the quarter ended July
4, 1998. The increase in interest expense between quarters is due to the Company
maintaining a higher average balance on its revolving line of credit during the
second quarter of 1999 as compared to the same period in 1998. The increase in
the revolving line of credit was used to fund the Company's growth, which
included a higher than normal level of national account business, during the
second quarter of 1999. National account business normally require longer
payment terms than independent dealers.
Interest expense, net for the first six months of 1999 was $1,007 as compared to
$776 for the same period in 1998. The increase in interest expense is due to the
Company maintaining a higher average balance on its revolving line of credit
during the first six months of 1999 as compared to the same period in 1998. As
stated above, the increase in the revolving line of credit was used to fund the
Company's growth.
NET INCOME (LOSS) Net income for the quarter ended July 3, 1999 was $182, or
$0.04 per share on both a basic and diluted per share basis, as compared to net
income of $106, or $0.02 per share, for the quarter ended July 4, 1998. The
improved net income is attributable to the improved gross profit and a decrease
in SG&A expenses as a percentage of sales, each of which is described above.
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Net income for the six months ended July 3, 1999 was $694, or $0.14 per share on
both a basic and diluted per share basis, as compared to a net loss of ($541),
or $0.11 per share, for the six months ended July 4, 1998. The Company's net
loss in the first six months of 1998 is attributed primarily to the impact of
the Elba flood on the Company's profitability. Management estimates that the
Elba flood resulted in approximately a $6,000 reduction in new trailer sales
revenue.
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 the first quarter of 1998
due to the flood.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7 at July 3, 1999 and July 4, 1998,
respectively.
Net cash used in operating activities was $3,968 for the period ended July 3,
1999 as compared to net cash used in operating activities of $3,833 for the
period ended July 4, 1998. The cash used in operating activities for the first
six months of 1999 primarily resulted from an increase in accounts receivable of
$7,547. The increase in accounts receivable primarily relates to an increase in
volume with certain customers that were paid subsequent to July 3, 1999. The
uses of cash were primarily funded through a $2,190 increase in accounts payable
and a $843 decrease in inventories. Net cash used for the first six months of
1998 was $3,833, which resulted from an increase in accounts receivable of
$4,609 and in inventory of $2,910.
Net cash used in investing activities was $558 for the period ended July 3, 1999
as compared to net cash provided by investing activities of $571 for the period
ended July 4, 1998. Net cash used in investing activities in 1999 was for
capital expenditures. The 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 $739 in the first quarter of 1998. The
net cash proceeds were offset by capital expenditures of $168.
Net cash provided by financing activities was $4,526 for the period ended July
3, 1999 as compared to net cash provided by financing activities of $3,261 for
the period ended July 4, 1998. Net cash provided by financing activities for
1999 primarily came from net borrowings of $4,780 under the Company's line of
credit agreement. Net cash provided by financing activities in 1998 came from
net borrowing of $3,261 from the Company's line of credit agreement.
On March 28, 1997 the Company entered into a $14,000 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 August 4, 1999, the Company
had $7,710 outstanding under the Financing Agreement and $2,012 in letters of
credit, and had $2,070 in availability under the Financing Agreement. On June
30, 1999 the Company amended the Financing Agreement increasing the advance rate
allowed under the agreement. The Company estimates that the increase in advance
rates will provide approximately $1,000 in increased availability, based on the
asset balances as of July 3, 1999. In addition, the agreement was extended for
an additional two year term. As of July 3, 1999 and August 13, 1999, the Company
was in compliance with the covenant requirements of the Financing Agreement.
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The $14,000 Financing Agreement allowed the Company to improve payment
conditions with its vendors and provide the liquidity necessary for a consistent
production flow. However, with the 18.3% growth in sales the Company has
experienced in the first six months of 1999, coupled with prior years' losses,
the Company's liquidity position has remained constrained. As stated above, the
Company has amended its Financing Agreement which increased the advance rates on
eligible assets. Management estimates that the increased advance rates will
provide an additional $1,000 in availability under the Financing Agreement,
based on asset balances as of July 3, 1999, which will assist in funding the
growth of the Company. Additionally, the improved financial performance of the
Company will aid in supporting the Company's growth. Earnings before interest,
taxes, depreciation and amortization have increased $1,500 to $2,563 for the six
months ended July 3, 1999 as compared to the six months ended July 4, 1998. The
Company continues to negotiate with vendors to obtain appropriate credit limits,
based on the current growth of the Company and its improved financial
performance. As stated above, the Company's growth and prior year losses
continue to constrain the Company's liquidity position. However, management
believes, based on the improved financial results, that the Company's liquidity
position has improved during the first six months of 1999, as compared to the
first six months of 1998.
BACKLOG
The Company's backlog of orders was approximately $33,585 at July 3, 1999 and
$34,745 at December 31, 1998. The backlog includes only those orders for
trailers for which a confirmed customer order has been received. Subsequent to
July 3, 1999, the Company received confirmation on two large orders that had
been anticipated. These two orders increased the Company's backlog at July 31,
1999 to $48,215. The Company expects to fill these orders over the next twelve
months. The Company manufactures trailers primarily to customer or dealer order
and does not generally maintain an inventory of "stock" trailers in anticipation
of future orders. However, many of the Company's dealers do maintain an
inventory of stock trailers.
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
$830, 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 estimated that $400 of the
- 14 -
<PAGE> 15
total cost will be financed, with the remainder funded through operating cash
flows. It is anticipated that testing all modifications and conversion will
occur in third quarter 1999. 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 material
adverse effect on the Company's operations and that such systems which currently
rely on time sensitive information could be performed by other methods, i.e.,
personal computer 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
material 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 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.
- 15 -
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a. The exhibits filed as part of this Report are as follows:
10.50 Amendment No. 9 dated as of June 30, 1999 to the Loan
and Security Agreement dated March 28, 1997 between Foothill
Capital Corporation and Dorsey Trailers, Inc.
27 Financial Data Schedule [ For SEC Purposes Only]
b. No reports on Form 8-K were filed during the period.
- 16 -
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DORSEY TRAILERS, INC.
Date: August 13, 1999 By: /s/ Charles A. Chesnutt
----------------------- ---------------------------------------
Charles A. Chesnutt
Director of Finance
(Principal Financial Officer and
Principal Accounting Officer)
- 17 -
<PAGE> 18
DORSEY TRAILERS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.50 Amendment No.9 dated as of June 30, 1999 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>
- 18 -
<PAGE> 1
EXHIBIT 10.50
AMENDMENT NO. 9 TO
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 9, dated as of June 30, 1999, 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, the SIXTH AMENDMENT
dated as of August 31, 1998, the SEVENTH AMENDMENT dated as of December 31,
1998 and the EIGHTH AMENDMENT dated as of May 7, 1999 (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, among other things, (i) adjust the advance rate with respect to
Eligible Accounts and Eligible Inventory as described below, (ii) amend the Net
Worth financial covenant for the fiscal quarter ended June 30, 1999 and for
each fiscal quarter thereafter, (iii) provide for an adjustment of the interest
rate if the Borrower satisfies certain financial tests, (vi) extend the Renewal
Date from March 28, 2002 to March 28, 2004, and (v) adjust the early
termination premium as described below. 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. Appraised Inventory Liquidation Value. The definition of
"Appraised Inventory Liquidation Value" is hereby amended in its entirety to
read as follows:
"Appraised Inventory Liquidation Value" means (i) in the case of Used
Trailer Inventory, the appraised orderly liquidation value of such Used
Trailer Inventory determined by Taylor & Martin, Incorporated or another
appraiser reasonably acceptable to Foothill and (ii) in the case of
Inventory (including raw materials, work-in-process and finished goods)
other than Used Trailer Inventory, the appraised orderly liquidation value
of such Inventory, determined by MB Valuation Services, Inc. or another
appraiser reasonably acceptable to Foothill. The Appraised Inventory
Liquidation Value shall be based on the most recent appraisal obtained by
Foothill or by Borrower."
1
<PAGE> 2
3. Borrowing Base. Clauses (x) and (y) of Section 2.1(a) of the
Loan and Security Agreement are hereby amended in their entirety to read as
follows:
"(x) the sum of (I) the lesser of (i)(A) 85% of Eligible Accounts
other than that portion of any Eligible Accounts that (1) is or will
be satisfied by the transfer to the Borrower of Used Trailer
Inventory or (2) is subject to a Contra Obligation, less (B) the
amount, if any, of the Dilution Reserve, and (ii) on and after June
1, 1997, an amount equal to Borrower's Collections with respect to
Accounts for the immediately preceding 30 day period, and (II) the
Overadvance Amount if any, plus
(y) the lowest of (i) $7,000,000, (ii) the sum of (A) the lesser of
(1) 35% of the value and (2) 100% of the Appraised Inventory
Liquidation Value, of Eligible Inventory constituting raw materials
Inventory, (B) prior to January 1, 2000, 40% of the value of Eligible
Used Trailer Inventory, provided, that, the amount of this subclause
(ii)(B) shall not, without the prior written consent of Foothill,
exceed $200,000, and (C) the lesser of (1) 70% of the value, and (2)
100% of the Appraised Liquidation Value, of Eligible Inventory
constituting finished goods Inventory, and (iii) 250% of the amount
of credit availability created by clause (x) above; minus"
4. Term Loan. Section 2.3 of the Loan and Security Agreement is
hereby amended in its entirety to read as follows:
"Foothill made a term loan (the "Term Loan") to Borrower on or about
May 7, 1999 in the original principal amount of $200,000. The Term Loan
shall be repaid in full on June 30, 1999. All amounts outstanding under
the Term Loan shall constitute Obligations."
5. Interest Rate. Section 2.5(a) of the Loan and Security Agreement
is hereby amended in its entirety to read as follows:
"(a) Interest Rate. Except as provided in clause (b)
below, all obligations (except for undrawn letters of Credit) shall bear
interest at a per annum rate of 2.0 percentage points above the Reference
Rate; provided, however, (i) if the Net Income of the Borrower for the
fiscal year ended December 31, 1999, as reported in the year-end audited
financial statements of the Borrower delivered to Foothill pursuant to
Section 6.3, is in excess of $1,500,000, such per annum rate of interest
shall be permanently reduced by 0.5 percentage points, (ii) if the Net
Income of the Borrower for the fiscal year ended December 31, 2000, as
reported in the year-end audited financial statements of the Borrower
delivered to Foothill pursuant to Section 6.3, is in excess of $2,000,000,
such per annum rate of interest shall be permanently reduced by 0.5
percentage points, (iii) if the Net Worth of the Borrower as of any fiscal
year-end of the Borrower occurring on or after December 31, 1999, as
reported in the year-end audited financial statements of the Borrower
delivered to Foothill pursuant to Section 6.3, is in excess of $2,500,000,
such per annum rate of interest shall be permanently reduced by 0.5
percentage points, and (iv) if the Net Worth of the Borrower as of any
fiscal year-end of the Borrower occurring on or after December 31, 1999,
as reported in the year-end audited financial statements of
2
<PAGE> 3
the Borrower delivered to Foothill pursuant to Section 6.3, is in excess
of $4,000,000, such per annum rate of interest shall be permanently
reduced by 0.5 percentage points. The reductions in subsections (i)
through (iv) above shall be calculated on a cumulative basis (for example
if the Borrower satisfies each of the conditions set forth in subsections
(i) through (iv) above, the interest rate shall be reduced to an amount
equal to the Reference Rate), and any such reductions shall be effective
as of the date the relevant year-end audited financial statements descried
above are delivered to Foothill."
6. Term; Automatic Renewal. Section 3.4 of the Loan and Security
Agreement is hereby amended in its entirety to read as follows:
"3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become effective
upon the execution and delivery hereof by Borrower and Foothill and shall
continue in full force and effect for a term ending on the date (the
"Renewal Date") that is seven (7) years from the Closing Date and
automatically shall be renewed for successive two (2) year periods
thereafter, unless sooner terminated pursuant to the terms hereof. Either
party may terminate this Agreement effective on the renewal Date or on any
two (2) year anniversary of the renewal Date by giving the other party at
least 90 days prior written notice. The foregoing notwithstanding,
Foothill shall have the right to terminate its obligations under this
Agreement immediately and without notice upon the occurrence and during
the continuation of an Event of Default."
7. Section 3.6 of the Loan and Security Agreement. Section 3.6 of
the Loan and Security Agreement is hereby amended in its entirely to read as
follows:
"3.6 EARLY TERMINATION BY BORROWER. The provisions of Section 3.4
that allow termination of this Agreement by Borrower only on the Renewal
Date and certain anniversaries thereof notwithstanding, Borrower has the
option, at any time upon 30 days prior written notice to Foothill, to
terminate this Agreement by paying to Foothill, in cash, the Obligations
(including an amount equal to 102% of the undrawn amount of the Letters of
Credit, such amount to be held as cash collateral and applied to the
Obligations and/or returned to the Borrower in accordance with Section 2.2
(e)), in full, together with a premium (the "Early Termination Premium")
equal to (i) if such date is on or prior to March 28, 2000, three percent
(3.00%) of the Maximum Amount, (ii) if such date is after March 28, 2000
and on or prior to March 28, 2002, two percent (2%) and (ii) if such date
is after March 28, 2002, one percent (1%)."
3
<PAGE> 4
8. Financial Covenants. Section 7.20(b) of the Loan and Security
Agreement is hereby amended in its entirety to read as follows:
"(b) Net Worth. Net Worth of at least the amount indicated
below for each date set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Net Worth
-------------------- ---------
<S> <C>
June 30, 1997 ($3,000,000)
September 30, 1997 ($5,500,000)
December 31, 1997 ($7,500,000)
March 31, 1998 ($7,000,000)
June 30, 1998 ($6,500,000)
September 30, 1998 ($6,000,000)
December 31, 1998 ($5,500,000)
March 31, 1999 ($4,500,000)
June 30, 1999 ($4,250,000)
September 30, 1999 ($3,750,000)
December 31, 1999 ($3,250,000)
March 31, 2000 ($2,750,000)
June 30, 2000 ($2,000,000)
September 30, 3000 ($1,250,000)
December 31, 2000 ($500,000)
March 31, 2001 $250,000
June 30, 2001 $1,000,000
September 30, 2001 $1,750,000
December 31, 2001 $2,500,000
March 31, 2001 and thereafter $3,250,000"
</TABLE>
4
<PAGE> 5
9. Conditions. This Amendment shall become effective only upon
satisfaction in full of the following conditions precedent (the first date upon
which all such conditions have been satisfied being herein called the
"Effective Date"):
(a) The representations and warranties contained in this Amendment
and in Section 5 of the Loan and Security Agreement and each other Loan
Document shall be correct on and as of the Effective Date as though made on and
as of such date (except where such representations and warranties relate to an
earlier date in which case such representations and warranties shall be true
and correct as of such earlier date); no Default or Event of Default shall have
occurred and be continuing on the Effective Date or result from this Amendment
becoming effective in accordance with its terms.
(b) Foothill shall have received a counterpart of this Amendment,
duly executed by the Borrower.
(c) The Borrower shall have repaid the Term Loan in full.
(d) All legal matters incident to this Amendment shall be
satisfactory to Foothill and its counsel; provided, however, that the Borrower
shall provided to Foothill, within 30 days of the Effective Date, updated
certified copies of its organizational documents, an incumbency certificate,
resolutions authorizing this Amendment and an opinion of counsel as to
Borrower's representations set forth in Section 10(a) through (d) hereof, all
in form and substance satisfactory to Foothill and its counsel; the failure of
Borrower to so timely provide such documents, certificates and opinion shall
constitute an Event of Default under the Loan and Security Agreement.
10. 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.
5
<PAGE> 6
(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 5 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.
11. 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.
12. 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.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered.
DORSEY TRAILERS, INC.,
a Delaware corporation
By: /s/ Charles A. Chesnutt
--------------------------
Name: Charles A. Chesnutt
Title: Treasurer
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /S/ Victor Barwig
--------------------------
Name: Victor Barwig
Title: Vice President
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DORSEY TRAILERS INC. FOR THE SIX MONTHS ENDED JULY 3,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-03-1999
<EXCHANGE-RATE> 1
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 13,966
<ALLOWANCES> (135)
<INVENTORY> 12,247
<CURRENT-ASSETS> 26,197
<PP&E> 18,330
<DEPRECIATION> (10,885)
<TOTAL-ASSETS> 39,314
<CURRENT-LIABILITIES> 23,892
<BONDS> 16,809
0
0
<COMMON> 50
<OTHER-SE> (4,037)
<TOTAL-LIABILITY-AND-EQUITY> 39,314
<SALES> 89,028
<TOTAL-REVENUES> 89,028
<CGS> 84,060
<TOTAL-COSTS> 84,060
<OTHER-EXPENSES> 3,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,007
<INCOME-PRETAX> 694
<INCOME-TAX> 0
<INCOME-CONTINUING> 694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 694
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
