UNITED STATES
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 September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission File Number: 0-24804
Featherlite Mfg., Inc.
(Exact name of registrant as specified in its charter)
Minnesota 41-1621676
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Highways 63 & 9, P.O. Box 320, Cresco, IA 52136
(Address of principal executive offices) (Zip Code)
319/547-6000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
6,255,000 Shares as of November 11, 1997
<PAGE>
FEATHERLITE MFG., INC.
INDEX
Page No.
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Balance sheets
September 30, 1997 and December 31, 1996 . . . . . . . . . 3
Statements of Income
Three Months and Nine Months
Ended September 30, 1997 and 1996 . . . . . . . . . . . 4
Condensed Statements of Cash Flows
Nine months Ended September 30, 1997 and 1996 . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . 9
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
Part I: FINANCIAL INFORMATION
Item 1:
Featherlite Mfg., Inc.
Condensed Balance Sheets
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------- ------------
<S> <C> <C>
Current Assets
Cash $ 673 $ 256
Trade receivables 7,947 6,783
Inventories
Raw Materials 9,667 8,053
Work in process 9,215 8,410
Finished trailers 11,780 8,772
-------- --------
Total inventories 30,662 25,235
Prepaid expenses 768 1,094
Deferred taxes 481 481
-------- --------
Total current assets 40,531 33,849
-------- --------
Property and equipment 19,619 17,687
Less accumulated depreciation (5,936) (4,914)
--------- ----------
Property and equipment, net 13,683 12,773
--------- ----------
Goodwill and Other assets 6,943 6,912
-------- --------
$ 61,157 $ 53,534
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Current maturities of long term debt $ 1,073 $ 1,146
Other notes payable 3,960 2,255
Accounts payable 10,808 9,776
Accrued liabilities 4,704 3,110
Customer deposits 1,898 2,157
Accrued income taxes 410 240
-------- --------
Total current liabilities 22,853 18,684
-------- --------
Long Term Debt, net of current maturities 14,596 13,346
Deferred grant income 255 310
Deferred taxes 599 599
Commitments and contingencies (Note 4)
Shareholders' equity 22,854 20,595
-------- --------
$ 61,157 $ 53,534
======== ========
See Notes to financial statements
</TABLE>
<PAGE>
Featherlite Mfg., Inc.
Condensed Statements of Income
(Unaudited)
(In thousands, except for per share data)
<TABLE>
<CAPTION>
Three months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 32,728 $ 28,384 $ 99,414 $ 69,528
Cost of Sales 26,926 24,446 83,315 59,869
-------- -------- -------- --------
Gross profit 5,802 3,938 16,099 9,659
Selling and administrative expenses 4,215 3,248 11,632 8,582
-------- -------- -------- --------
Income from operations 1,587 690 4,467 1,077
Other income (expense)
Interest (445) (395) (1,220) (1,052)
Gain on aircraft and property sales 275 - 269 -
Grant and other income, net 66 44 250 419
-------- -------- -------- --------
Total Other income, net (104) (351) (701) (633)
-------- -------- -------- --------
Income before taxes 1,483 339 3,766 444
Provision for income taxes 594 133 1,507 173
-------- -------- -------- --------
Net income 889 206 2,259 271
======== ======== ======== ========
Net income per share $ 0.14 $ 0.03 $ 0.36 $ 0.04
-------- -------- -------- --------
Weighted average shares outstanding 6,305 6,255 6,309 6,055
-------- -------- -------- --------
See Notes to financial statements
</TABLE>
<PAGE>
Featherlite Mfg., Inc.
Condensed Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months Ended
September 30
1997 1996
---- ----
<S> <C> <C>
Cash provided (used) by operating activities
Net income $ 2,259 $ 271
Non cash adjustments, net 547 984
Decrease (increase) in working capital, net (3,729) (840)
-------- --------
Net cash provided by (used for) operating activities (923) 415
-------- --------
Cash provided by (used for) investing activities
Acquisition of business 317
Additions to property and equipment, net (2,062) (965)
Additions to aircraft for resale (2,650) -
Proceeds from sale of aircraft 3,169 -
-------- --------
Net cash provided by (used for) investing activities (1,543) (648)
-------- --------
Cash provided (used for) Financing Activities
Change in short term debt 1,711 (766)
Change in long term debt and grants 1,172 931
------- --------
Net cash provided by (used for) financing activities 2,883 165
------- --------
Net cash increase (decrease) 417 (68)
Cash, begin of period 256 811
------- --------
Cash, end of period $ 673 $ 743
======= ========
Non-cash Investing and Financing Activities
Fair market value of assets acquired, excluding cash $ (6,186)
Excess of purchase price over net assets acquired (3,139)
Liabilities assumed 7,842
Issuance of common stock 1,800
--------
Cash acquired $ 317
=========
See Notes to financial statements
</TABLE>
<PAGE>
FEATHERLITE MFG., INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1: Basis of Presentation
The accompanying condensed financial statements have been prepared, without
audit, in accordance with the instructions of Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Financial information as of December
31, 1996 has been derived from the audited financial statements of the Company,
but does not include all disclosures required by generally accepted accounting
principles.
It is the opinion of management that the unaudited condensed financial
statements include all adjustments, consisting of normal recurring accruals,
necessary to fairly state the results of operations for the nine month periods
ended September 30, 1997 and 1996. The results of interim periods are not
necessarily indicative of results to be expected for the year. For further
information refer to the financial statements and notes to financial statements
included in the Company's Form 10-K Annual Report for the year ended December
31, 1996.
Note 2: Goodwill and other assets
Goodwill and other assets consists of the following at September 30,
1997 and December 31, 1996 (in thousands)
Sept. 30, December 31,
1997 1996
--------- -------------
Goodwill, net $ 3,510 $ 3,536
Aircraft held for resale 2,539 2,815
Idle facilities 522 522
Advertising and other 372 39
--------- --------------
Total Other $ 6,943 $ 6,912
========= ==============
Note 3: Financing Arrangements
Other notes payable primarily include borrowings under a wholesale
finance agreement with a financial services company for a $5.0 million line of
credit (was increased from $3.5 million during the quarter) to finance completed
new and used motorcoaches. At September 30, 1997, $3.9 million was borrowed
against this line.
Long-term debt includes a credit agreement with Firstar Bank Iowa,
N.A., that provides a working capital line of credit. The agreement includes
covenants requiring maintenance of defined levels of working capital, tangible
net worth and cash flow and limits leverage and capital expenditures. There was
$6.8 million borrowed against this line of credit as of September 30, 1997. In
November, 1997, the credit agreement was extended until July, 1999 and the
interest rate on borrowings was reduced from prime to prime less one-half
percent.
In June, 1997, the Company borrowed $5 million dollars under a term
note agreement with Firstar Bank, N.A. This note bears interest at 8.25% fixed
and is payable in monthly installments based on a 12 year term and it has a five
year maturity. The proceeds from this note were used to reduce the outstanding
balance on the line of credit.
In September, 1997, the Company entered into an operating lease agreement with
the Seminole Port Authority covering the existing and expanded production and
office facilities at its Vantare location in Florida. This lease has a minimum
ten year term and requires varying payments monthly, which average $275,000 on
an annual basis over the life of the lease. Borrowings from a bank by the
Company to provide interim financing for the expansion project were repaid from
proceeds of the sale to the Port Authority.
<PAGE>
Note 4: Commitments and Contingencies.
Pursuant to dealer inventory floor plan financing arrangements, the Company may
be required, in the event of default by a financed dealer, to repurchase
products from financial institutions or to reimburse the institutions for unpaid
balances including finance charges plus costs and expenses. The Company was
contingently liable under the arrangement for a maximum of $ 13,028,000 at
September 30, 1997 and $6,059,000 at December 31, 1996.
Also, the Company is self-insured for a portion of certain health benefit and
workers' compensation insurance claims. The Company's maximum annual claim
exposure under these programs is approximately $2.2 million, including $938,000
accrued for estimated unpaid claims at September 30, 1997 and $634,000 at
December 31, 1996. The Company has obtained an irrevocable standby letter of
credit in the amount of $1,225,000 in favor of the workers compensation claim
administrator.
There is a risk to future operating results if the Company were to lose its sole
supplier of motorcoach conversion shells, Prevost Car Company, although the
Company could purchase certain shells from other manufacturers. The Company does
have business interruption insurance to cover all or a portion of the losses it
may sustain if Prevost's plant is destroyed by fire or certain other
catastrophes.
The Company has made an offer to purchase land for future expansion at its
Vantare location in Florida. A commitment letter has been obtained from a bank
to fund a substantial portion of the $900,000 purchase price for this land,
which is expected to be completed in the fourth quarter of 1997.
Note 5: Shareholders' Equity
Shareholders' equity is further detailed as follows: (Dollars in thousands)
Sept.30, Dec 31,
1997 1996
-------- --------
Common stock - without par value;
authorized- 40,000,000 shares;
issued- 6,255,000 shares $ 14,220 $14,220
Additional paid-in capital 4,061 4,061
Retained earnings 4,573 2,314
-------- -------
Total Shareholders' equity $ 22,854 $20,595
====== ======
<PAGE>
Note 6: Stock Option Plan
The Board of Directors granted stock options to certain employees and directors
in the total amount of 305,710 shares and 249,380 shares at September 30, 1997
and December 31, 1996, respectively, pursuant to the stock option plan
established by the Company in July, 1994. These shares were granted at prices
ranging from $5.50 to $9.00 per share, and are exercisable at varying dates not
to exceed 10 years from the date of grant. There is also an outstanding five
year warrant that was granted to the Underwriter in connection with the initial
public offering of the Company's stock in September, 1994, to purchase 120,000
shares of the Company's stock at 120% of the public offering price of $6.00 per
share.
Note 7: Earnings per Share
The FASB has issued Statement No. 128, Earnings per Share, which supersedes APB
No. 15. Statement 128 requires the presentation of earnings per share by all
entities that have common stock or potential common stock, such as options,
warrants and convertible securities outstanding that trade in a public market.
Those entities that have only common stock outstanding are required to present
basic earnings per share amounts. All other entities are required to present
basic and diluted per share amounts. Diluted per share amounts assume the
conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce a loss or increase the income per common share
from continuing operations. All entities required to present per share amounts
must initially apply Statement No. 128 for annual and interim periods after
December 15, 1997. Earlier application is not permitted.
Because the Company has potential common stock outstanding (stock options and
warrants as discussed in Note 6), the Company will be required to present basic
and diluted earnings per share. If the Company had applied Statement No 128 in
the accompanying financial statements, the following per share amounts would
have been reported:
Three months ended Nine Months Ended
September 30 September 30
--------------------- --------------------
1997 1996 1997 1996
---- ----- ----- ----
Basic earnings per share .14 .03 .36 .04
--- ---- --- ---
Diluted earnings per share .14 .03 .36 .04
--- ---- --- ---
The weighted-average number of shares of common stock used to compute the basic
earnings per share was increased by 50,247 and 54,246 for the three months and
nine months ended September 30, 1997, respectively, for the assumed exercise of
the employee and director stock options and warrants in computing the diluted
per share data. There was no increase for the same periods in 1996 because the
exercise price of those options and warrants exceeded the average market price
of the common stock during those periods.
Note 8: Joint Venture Agreement
On October 1, the Company signed a joint venture agreement with GMR Marketing to
form the Featherlite/GMR Sports Group, LLC. The joint venture will focus on
developing promotional events and implementing marketing strategies in the
rapidly growing motorsports industry. It is not expected that this venture will
require significant capital to begin and maintain its operations.
<PAGE>
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion pertains to the Company's results of
operations and financial condition for the nine month period ended September 30,
1997 and 1996:
Results of Operations
Three months ended September 30, 1997 and 1996
Net sales of $32.7 million for the quarter ended September 30, 1997
increased by 15.3% over the same period in 1996, including an increase of 17.5%
in sales of Featherlite aluminum and steel brand trailers and an increase of
1.4% in sales of luxury motorcoaches. On a product group basis, horse trailer
sales increased by 8.2%, livestock trailers increased by 20.0%, car/race car and
specialty transporter sales were up 63.2%, utility trailer increased by 8.6% and
commercial trailers sales were down by 8.6%. These increases are reflective of
the strong order backlog ($32 million) carried into the third quarter from the
second quarter as well as continued backlog growth in certain product lines
during the quarter. Commercial sales were down in 1997 compared to 1996 due
to lower levels of orders for drop frame specialty trailers during the current
quarter compared to 1996.
Gross margin increased to $5.8 million in 1997 from $3.9 million in
1996 as a result of the increased levels of sales and an improved margin
percentage. As a percentage of sales, gross margin for the quarter increased to
17.7% compared to 13.9% in 1996 which was adversely impacted by higher material
costs than in 1997. The 1997 gross margin percentage benefited from changes in
product mix, reduced aluminum costs and improved labor efficiencies resulting
from a strong order backlog. These increases were partially offset by the effect
of the sale of certain slide-out model new coaches and used motorcoaches which
had a lower than normal gross margin. If motorcoach sales are excluded, gross
margin would have increased to 20.0% in the third quarter.
Selling and administrative expenses increased in 1997 by $967,000 over
1996 and increased as a percentage of sales to 12.9% in 1997 from 11.4% in the
same period in 1996. This increase reflects the additional operating expenses at
Vantare. Excluding Vantare's selling and administrative expenses, these costs
increased by about 21.7% which is slightly higher than the increase in trailer
sales during the quarter.
Interest expense was about $50,000 greater in 1997 than 1996 due to an
increased level of borrowings for working capital in 1997 as well as higher
interest rates. Gains on aircraft and other property sales were $275,000 greater
in 1997 than 1996 which had no such sales during the quarter. Other income was
$21,000 greater in 1997 than 1996.
The provision for income taxes reflects an effective federal and state
income tax rate of 40% in 1997 and 39% in 1996.
Nine months ended September 30, 1997 and 1996
Net sales of $99.4 million for the nine months ended September 30, 1997
increased by 43.0% over the same period in 1996, including an increase of 18.6%
in sales of Featherlite aluminum and steel brand trailers. Vantare luxury
motorcoaches, which was acquired in the 3rd quarter of 1996, added sales of
$25.8 million during this period. On a product group basis, horse trailer sales
were unchanged, livestock trailers increased by 26.7%, car/race car and
specialty transporter sales were up 69.7%, utility trailers increased by 37.9%
<PAGE>
and commercial trailers sales were down by 18.1%. These increases were a result
of the strong order backlog ($28 million) carried into 1997 from 1996 as well as
continued strong backlog in all product lines during the period. Horse trailer
sales have not shown an increase in 1997 due to reduced sales from dealer pool
inventory which is at a lower level than in 1996 and adjustments in the
production schedule due to product mix. Commercial sales are down in 1997
compared to 1996 due to discontinuation of semi-flatbed models during 1996 and
lower levels of orders for dropframe specialty trailers during the current
period compared to 1996. There was also a 2 percent increase in trailer models
prices in the first quarter of 1997, which was partially effective on sales
during this period.
Gross margin increased to $16.1 million in the first nine months of
1997 from $9.7 million in 1996 as a result of the increased levels of sales and
a higher gross margin percentage. As a percentage of sales, gross margin for the
period improved to 16.2% compared to 13.9% in 1996. The 1997 gross margin
percentage benefited from reduced aluminum costs, which were approximately 7%
lower than in 1996, changes in product mix and improved labor efficiency. This
increase was partially offset by the effect of used and certain slideout model
new motorcoach sales which had a lower than normal gross margin. If motorcoach
sales are excluded, gross margin would have increased to 19.2% in 1997 compared
to 14.5% in 1996.
Selling and administrative expenses increased in 1997 by $3,049,000
over 1996 but decreased as a percentage of sales to 11.7% in 1997 from 12.3% in
the same period in 1996. This decrease reflects the additional operating expense
leverage obtained through the acquisition of Vantare in 1996. Excluding
Vantare's selling and administrative expenses, these costs increased by 21.2%,
which is slightly higher than the rate of increase in trailer sales.
Interest expense increased by $168,000 over 1997 due to increased
borrowings and higher interest rates and other income decreased by $169,000,
primarily due to the non-recurrence of a $245,000 litigation settlement during
1996. Gains on aircraft and other property sales were $275,000 greater in 1997
than 1996 as there were no such sales in 1996.
The provision for income taxes reflects an effective federal and state
income tax rate of 40% in 1997 and 39% in 1996. The rate increase reflects
anticipated higher state income tax accruals in 1997.
Looking Forward
The statements made in this Form 10Q quarterly report which are forward
looking in time involve risks and uncertainties discussed here and in the
Company's Form 10K and other filings with the SEC, including but not limited to:
product demand and acceptance of new products in each segment of the Company's
markets, fluctuations in the price of aluminum, competition, facilities
utilization and aircraft purchases and sales.
Sales are expected to remain strong in most product lines for the
balance of 1997. The Company believes its close affiliation with the motorsports
industry will continue to have a positive impact on its sales of specialty
trailers, transports and motorcoaches. With more than 75% of its revenues now
from end users in the motorsports, leisure and entertainment categories, which
also includes horse trailers, and with its strong position in the livestock
trailer market, the Company believes it is strategically well-situated to
benefit from the very strong growth in these markets. The Company will continue
to put strong emphasis on its horse and livestock product lines, through the
introduction of new models and offering new features for existing trailers. The
total trailer and motorcoach backlog at September 30, 1997 was $33 million
compared with $28 million at December 31, 1996 and $32 million at September 30,
1996. The sales backlog at September 30, 1997 and December 31, 1996 included
luxury motorcoach order backlog of $16 million and $16 million, respectively,
including approximately $10 million ordered for 1998 delivery at September 30,
1997.
<PAGE>
Gross margins are expected to continue to benefit from changes in
product mix as well as lower average costs of aluminum. The Company has
obtained commitments from suppliers to provide, at an agreed upon fixed price,
substantially all of its aluminum requirements for 1997 and 1998. Development
costs related to the slide-out motorcoaches are not expected to adversely impact
margin improvement in the future. Labor and overhead costs are expected to
increase but remain unchanged or be less, as a percentage of sales, as
operational efficiencies improve and price increases become fully effective.
Sales and administration expenses for the remainder of 1997 are
expected to increase but at about the same rate as sales. Interest expense will
likely remain higher than 1996 as the average level of debt is expected to be
greater due to working capital growth and capital addition projects.
There is a risk to future operating results related to losing a major
supplier of aluminum. This risk is relatively nominal as there are alternate
sources of supply. There is also a risk to future operating results if the
Company were to lose its sole supplier of motorcoach shells, Prevost Car
Company, although the Company could purchase certain shells from other
manufacturers. The Company does have business interruption insurance to cover
all or a portion of the losses it may sustain if Prevost's plant is destroyed by
fire or certain other catastrophes.
Liquidity and Capital Resources
During the first half of 1997, the Company's operations provided net cash of
$417,000, including $1,085,000 used for operating activities, $2,883,000
provided by increased debt, and $1,381,000 used for capital expenditures for
property, equipment and aircraft.
Operating activities in the first nine months of 1997 used cash of $1,085,000.
Net income from operations provided cash of $2,259,000. This amount was
increased by adjustments for depreciation and amortization of $1,214,000 and
reduced by other non-cash items in an aggregate amount of $667,000. Increases in
receivables, inventories and other working capital items used cash of
$3,729,000. Inventory and receivable increases of $6,590,000, which were
required to support increased sales in 1997, were partially offset by a net
increase of $2,861,000 in prepaid expenses, accounts payable and accruals.
Increased expenditures for working capital items may be required to support
increased sales levels throughout 1997. These increases will be funded by cash
generated from operations as well as the Company's available lines of credit.
Investing activities for the first nine months of 1997 used cash of $1,381,000,
including $2,062,000 used for plant and other capital improvements and $519,000
provided by aircraft transactions. Plant additions include $1,155,000 for
various machinery and equipment additions and $907,000 for luxury motorcoaches
leased to outsiders. The Vantare production facility expansion was completed and
sold to the Seminole Port Authority at its cost of $975,000 and was then leased
back by the Company under the terms of a ten year operating lease. The proceeds
from the sale were used to repay interim bank borrowings for the project.
Aircraft transactions of $519,000 include net proceeds of $3,700,000 from sale
of aircraft and the purchase of aircraft for $2,651,000. In October, the Company
purchased aircraft at a cost of $3,700,000 which were fully financed by
additional borrowings. The Company is in the process of adding 20,000 square
feet to its parts and rework facility at a cost of approximately $450,000. This
project will be completed in the fourth quarter and substantially funded with
available borrowing capacity.
Financing activities during the first nine months of 1997 provided net cash of
$2,883,000, after borrowings of $15,665,000 and payments of $12,782,000.
Borrowings included $2,601,000 for the purchase of aircraft, $12,419,000 from
term and line of credit notes and $645,000 for plant expansion and other
<PAGE>
projects. Repayments included $7,660,000 on the line of credit notes and
$2,328,000 for the reduction of other debt. In October, the Company borrowed
$3,700,000 to fund aircraft purchases.
The Company has a working capital line of credit with its primary lender,
Firstar Bank Iowa, N.A. This line has a defined borrowing limit equal to the
lesser of $12.0 million or a defined percentage of eligible receivables and
inventory. In November, 1997, the maturity date of borrowings under this line
was extended to July 31, 1999, subject to renewal and extension and the interest
rate on borrowings was reduced from prime rate to one-half percent below prime
rate. The Company is required by the lender to maintain defined levels of
working capital, tangible net worth and cash flow and to limit leverage and
capital expenditures. Borrowings under the line are secured by substantially all
assets of the Company. There was $6.8 million borrowed against this credit line
as of September 30, 1997.
The Company also has a wholesale floor plan agreement with Deutsche Financial
Services to borrow up to $5.0 million (increased from $3.5 million during the
third quarter) for financing new and used motorcoaches held in inventory, with
interest at prime plus one-quarter percent on borrowed funds. At September 30,
1997 $3.9 million was borrowed against this line.
The Company believes that its current cash balances, cash flow generated from
operations and available borrowing capacity will be sufficient to fund
operations and capital requirements for the next year and the foreseeable
future.
As discussed in Note 2 to financial statements, the Company is contingently
liable under certain dealer floor arrangements. These contingent liabilities
total approximately $13 million at September 30, 1997. Also, the Company is
self-insured for a portion of certain health benefit and workers' compensation
insurance claims. At September 30, 1997, the Company's maximum annual claim
exposure under these programs is approximately $2.2 million. The Company has
obtained an irrevocable standby letter of credit in the amount of $1,225,000 in
favor of the workers compensation claim administrator.
The Company is the process of purchasing land near its Sanford facility for
future expansion use at a cost of approximately $900,000. This purchase will be
funded before the end of 1997 by additional borrowings from a Florida bank.
The Company has also made a commitment to the City of Cresco to construct a
hangar facility at a cost of $300,000 as part of an airport expansion project in
1998.
In June, the Company signed a letter of intent to acquire Camp & Associates,
Inc. In July, the Company withdrew its offer as a result of its due diligence
work and this acquisition was not completed.
In October, 1997, the Company signed a joint venture agreement with GMR
Marketing to form Featherlite/GMR Sports Marketing Group, LLC. This joint
venture will focus on developing promotional events and implementing marketing
strategies in the rapidly growing motorsports industry. It is not expected that
this venture will require significant capital to begin and maintain its
operations.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Exhibit Index on page following signatures.
(b) Form 8-K. The Registrant did not file any reports on Form 8-K
during the three months ended September 30, 1997.
<PAGE>
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.
FEATHERLITE MFG., INC.
(Registrant)
Date: November 11, 1997 /S/ CONRAD D. CLEMENT
---------------------
Conrad D. Clement
President & CEO
Date: November 11, 1997 /S/ JEFFERY A. MASON
--------------------
Jeffery A. Mason
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Form 10Q
Quarter Ended September 30, 1997
Exhibit No. Description
10.1 Second Amendment dated July 31, 1997, to Amended and Restated
Credit and Security Agreement
10.2 Agreement dated October 16, 1997 with Tifton Aluminum Company, Inc. *
10.3 Agreement dated October 15, 1997 with EASCO Aluminum, Dolton Works *
10.4 Agreement dated October 22, 1997 with Alumax Transportation Products *
27 Financial Data Schedule (filed in electronic format only)
* Portions of this document have been omitted pursuant to a request for
confidential treatment.
SECOND AMENDMENT TO AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
This Second Amendment to the Amended and Restated Credit and Security
Agreement ("Second Amendment") is dated effective July 31, 1997, and is by and
between the following identified parties:
Featherlite Mfg., Inc., a corporation duly organized and validly
existing under the laws of the State of Minnesota, with its principal
place of business at Hwy. 63 & 9, Cresco, Iowa 52136 ("Borrower");
Conrad Clement, Larry Clement, Kathy Clement, residents of Iowa,
and Tracy Clement and Nancy Clement, residents of Minnesota (the
"Clements"); and
Firstar Bank Iowa, N.A., a national banking institution ("Bank").
RECITALS
A. Borrower, Clements and Bank entered into an Amended and Restated Credit
and Security Agreement dated as of December 30, 1996 ("Restated Agreement"),
which was amended by a First Amendment dated June 18, 1997.
B. Borrower has requested that the Bank review and extend the revolving
line of credit to amend certain terms and conditions in the Restated Agreement,
and waive certain financial covenants.
C. Bank is willing to grant the request subject to the terms of this Second
Amendment.
The parties agree:
1. Amend Definitions and Accounting. Section 1, Definitions and Accounting,
is amended to modify the following definitions:
"Borrowing Base" means an amount equal to the sum of 80
percent of Eligible Receivables of Borrower outstanding from time to
time applicable thereto plus 65 percent of Eligible Finished Inventory
of Borrower and 65 percent of Eligible Raw Material Inventory of
Borrower as Bank shall deem acceptable. Such Borrowing Base shall be
determined by submission of a monthly Accounts Receivable and Loan
Reconciliation Certificate by the end of each month, accurate to the
first of such month.
and to add the following new definitions:
<PAGE>
"Eligible Raw Material Inventory" means raw materials
purchased by Borrower which has not been processed by Borrower valued
at the lower of cost or market value on a "first in-first out" basis
which is acceptable to Bank, in its sole discretion.
"Eligible Finished Inventory" means finished trailers, ready
for sale, which are owned by Borrower and located at Borrower's
facilities, valued at the lower of cost or market value on a "first
in-first out" basis which is acceptable to Bank, in its sole discretion
and excludes inventory that is slow moving or obsolete (as determined
by the Bank in its sole discretion).
2. Amendment to Revolver. Section 5(a) of Revolving Line of Credit and
Payment Provisions, is amended to read as follows:
a) Borrowing. Subject to the terms and conditions of this Restated
Agreement, the Bank shall, in its sole discretion, make loans (each a
"Revolving Loan") to the Borrower in such amounts as the Borrower may
from time to time request in increments of at least $50,000 and at
such intervals as the Bank may from time to time determine, provided
that the aggregate principal amount of Revolving Loans outstanding
hereunder, together with the principal amount of such Revolving Loan
requested, shall not exceed the Borrowing Limit, less the aggregate
face amount of any outstanding letters of credit issued by Bank on
behalf of Borrower.
3. Letters of Credit. A new Section 5A dealing with Letters of Credit is
added after Section 5 as follows:
5A. (a) Letters of Credit. Bank agrees to issue letters of
credit for the account of Borrower from time to time until the
Termination Date in such amounts as Borrower shall request, provided no
letter of credit will be issued in any amount which, after giving
effect to such issuance, would cause the aggregate principal amount of
Revolving Loans plus the face amount of any outstanding letter of
credit to exceed the Borrowing Limit. Each request for a letter of
credit shall be made by the Borrower in writing on the Bank's letter of
credit application and reimbursement agreement form. The Bank shall
charge its reasonable and customary fees for such letters of credit
(which shall be shared prorate with any bank participating in this
credit facility).
(b) Agreement to Repay Letter of Credit Drawings. If the Bank
has received documents that it determines are satisfactory to draw
under a Letter of Credit, Borrower shall reimburse the Bank immediately
in an amount equal to the amount of such drawing. If Borrower fails to
reimburse Bank immediately, Bank is authorized by Borrower to draw on
the Revolving Line of Credit in an amount sufficient to cover the
deficiency, which draw shall be treated as a loan under the Revolving
Line of Credit.
4. Amended Negative Covenant. Section 9, Negative Covenants subpart (b)(iv)
is amended to allow $5,000,000 in floor plan financing for the Vantare division.
<PAGE>
5. Amended Financial Covenant. Section 11, Financial Covenants of Borrower,
as follows:
a) Minimum Working Capital. Maintain at all times an excess of current
assets over current liabilities of not less than $8,000,000.
b) Minimum Tangible Net Worth. Maintain at all times as Tangible Net
Worth of not less than $17,500,000.
c) Capital Expenditures. Refrain from making expenditures for fixed or
capital assets which would cause the aggregate of all such expenditures
made by Borrower to exceed $4,000,000 for fiscal year ending 1997 and
$2,000,000 for fiscal year ending 1998.
d) Current Ratio. Maintain at all times a ratio of current assets to
current liabilities of not less than 1.5 to 1.
e) Leverage Ratio. Maintain at all times a ratio of total liabilities
to Tangible Net Worth of not greater than 2.5 to 1.
f) Cash Flow/Debt Service. Maintain a ratio of 1.5 to 1 measured on a
year to date actual basis of Operating Cash Flow to Total Debt Service and
as of September 30, 1997 and quarterly thereafter, maintain a ratio of 1.5
to 1 measured on a trailing four-quarter average basis.
6. Representations and Warranties. All the representations and warranties
of Borrower as set forth in the Restated Agreement are true and correct in all
material respects as of the date of this Second Amendment.
7. Acknowledgment of Receipt. By their execution of this Second Amendment,
the parties acknowledge receipt of a copy of this document.
8. Savings. All other terms and conditions of the Restated Agreement, not
specifically modified by this Second Amendment, shall remain in full force and
effect.
9. Representation. The Borrower represents that no Event of Default has
occurred and is continuing under the Restated Agreement, as amended, and no
event or circumstance has occurred and is continuing that, with the giving of
notice, the passage of time, or both, would constitute an Event of Default under
the Restated Agreement, as amended. Further, the Borrower represents that the
representations and warranties as contained in the Restated Agreement, as
amended, continue to be true.
<PAGE>
10. Counterparts. This Second Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AMENDMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN AGREEMENT (EXCEPT THE RESTATED
AGREEMENT AS PREVIOUSLY AMENDED AND DOCUMENTS REFERRED TO IN THE RESTATED
AGREEMENT AS PREVIOUSLY AMENDED) MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE
TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
FEATHERLITE MFG., INC.
BY:
Conrad Clement, President
BY:
Tracy J. Clement, Executive Vice President
FIRSTAR BANK IOWA, N.A.
BY:
Mitch McElree, Vice President
Confidential portions of this document have been omitted and filed separately
with the Commission.
Tifton Aluminum Company, Inc. ALCOA
PO.Box 88 Soft Alloy Extrusion Division
250 Southwell Boulevard Alcoa Engineered Products
Tifton, Georgia 31793
- -------------------------------------------------------------------------------
October 16, 1997
Mr. Gary Ihrke
V.P. Operations
Featherlite Manufacturing, Inc.
P O Box 320
Cresco,Iowa 52136
Dear Gary:
This letter will confirm our agreement reached today. Tifton Aluminum has
purchased, with your authorization, ********* pounds of aluminum for your 1998
extrusion requirements. The extrusions will be purchased and delivered at a firm
base price of $**** per pound. Tifton will reserve press tonnage at a level of
****** pounds per week exclusively for Featherlite. The dozen dies we have
reviewed and will supply ********************** as agreed. If you have needs in
December of this year we will be prepared, as dies will be complete by December
1st. I will be in your office again on Monday to meet with Charlie and Craig to
insure packaging and transportation issues are clearly understood.
Gary, we greatly appreciate the opportunity to serve your extrusion needs. We
will work hard to improve your vendor base with quality extrusions delivered in
a reliable pattern.
Yours truly,
/S/ Herb Grubbs
Herb Grubbs
Regional Sales Manager
jw
cc: Jack Leckie
Mike Delf
Ronnie Whitehead
- -------------------------------------------------------------------------------
Main Office: (912) 382-7330 Main Fax: (912) 388-6707
Sales Office: (800) 841-2030 Sales Fax: (912) 388-6727
Confidential portions of this document have been omitted and filed separately
with the Commission.
EASCO ALUMINUM
DOLTON WORKS
14200 COTTAGE GROVE AVENUE
DOLTON, ILLINOIS 60419
FIXED-PRICE PURCHASE AND SALE AGREEMENT
This Agreement ("Agreement") dated October 15, 1997 is between EASCO ALUMINUM,
DOLTON WORKS. ("SELLER") Featherlite Manufacturing, Inc. ("BUYER").
SELLER desires to sell certain goods to BUYER and BUYER desires to purchase
certain goods from SELLER.
NOW, THEREFORE, in consideration of these premises and the following mutual
agreements, the parties agree as follows:
1. SELLER will sell to BUYER, and BUYER will purchase from SELLER, the aluminum
extrusions identified on Schedule A attached hereto ("Product"), subject to the
terms contained in this Agreement and the attached Schedule A. The quantity,
delivery dates, terms, and prices, for Product are also set forth on Schedule A.
2. This Agreement shall have a term from the date hereof to December 31, 1998.
This Agreement may not be canceled by either party prior to the termination date
without the prior written consent of the other. BUYER acknowledges that SELLER
intends to rely on this Agreement in fixing the prices and delivery dates of its
raw material purchases necessary to fulfill this Agreement and as such, BUYER
agrees to pay for the quantity specified on Schedule A whether or not BUYER
places specific orders with SELLER as specified in Item 3 below. If BUYER
cancels this agreement, or otherwise refuses shipments hereunder, seller is
entitled to recover any loss sustained from liquidating a metal position taken
by the seller on behalf of BUYER.
3. BUYER agrees to place specific firm orders with SELLER for the Product at
least twenty-eight (28) days prior to the requested shipment date which shall
specify the number of pounds/ feet/pieces of specific aluminum extrusion shapes.
SELLER will attempt to respond to BUYER's order requests with less than
twenty-eight (28) days lead time, but shall be under no obligation to do so.
SELLER is required to manufacture and ship only product for which SELLER has
timely received specific firm orders.
<PAGE>
4. SELLER's obligations hereunder are subject to SELLER's credit approval with
respect to each shipment and to the availability of financial information on
BUYER which, in the SELLER's opinion, is adequate to demonstrate the BUYER's
financial condition, ability to pay for shipments in accordance with agreed
terms of payment, and ability to support the volume of credit extended by the
SELLER
Payment terms for the Product shall be as set forth in Schedule A. SELLER's
obligation to continue shipments of Product is conditioned upon BUYER satisfying
its payment obligations under this Item 4 in full within the time period
specified.
5. Either party's failure, at any time or times hereafter, to require strict
performance by the other party of any provision of this Agreement shall not
constitute a waiver, or affect or diminish the right thereafter to demand strict
compliance and performance of this Agreement.
6. This Agreement (including Schedule A) shall constitute the entire agreement
between the parties with respect to the subject matter hereof and shall not
apply to any purchases by BUYER in excess of the quantities set forth in
Schedule A. The terms of any such excess purchases will be governed by separate
agreement of the parties. Except as specified in this Agreement, the terms of
sale and rights of the parties with respect to any specific order shall be as
set forth in SELLER's order acknowledgment as provided from time to time.
By: Gary Ihrke By: Drago H. Kahanu
Titlc: Vice President Title VP Sales and Marketing
Corporate Production
Signature: /S/ Gary Ihrke Signature: __________________
FEATHERLITE MFG, INC. EASCO ALUMINUM, DOLTON WORKS
(BUYER) (SELLER)
Dated:10/15/97 Dated:_____________________
2
<PAGE>
EXHIBIT A
EASCO CORPORATION
Dolton Works
14200 Cottage Grove Avenue
Dolton, IL 60419
Phone: 708-841-8613
Fax: 708-841-8675
SCHEDULE A
FIXED-PRICE PURCHASE AND SALE AGREEMENT
MATERIAL DESCRIPTION:
This agreement covers standard extrusions currently being supplied or quoted to
Featherlite Manufacturing, Inc. ("Buyer") by Easco Corporation-Dolton Works,
("Seller") with specific pounds/pieces/feet by specific shape to be supplied by
the Buyer.
DELIVERY
PERIOD: January 1, 1998 through December 31, 1998.
OUANTlTY: ******* pounds per calendar month for a total of
********* pounds.
PRICE: $***** per pound of aluminum extrusion plus an additional
$**** per pound for hollows.
The pricing in this proposal is subject to Easco's ability to hedge the
transaction. Easco will provide confirmation of the hedge immediately upon
execution.
Packaging: Standard - Bare Bundle.
Tolerance: Aluminum Association standards to apply.
FOB: Cresco, Iowa
PAYMENT TERMS: Payment in full within thirty (30) days from date of invoice.
TOTAL DOLLAR VALUE OF CONTRACT: Approximately:
FEATHERLITE MFG, INC. (BUYER) EASCO CORPORATION ("SELLER")
BY: Gary Ihrke BY: Drago H. Kahanu
TITLE: Vice President Corporate Production TITLE: Vice President Sales
& Marketing
SIGNATURE: /S/ Gary Ihrke SIGNATURE: _________________
DATED: 10/16/97 DATED: _____________________
Confidential portions of this document have been omitted and filed separately
with the Commission.
2700 International Drive
Suite 200
West Chicago, IL 60185
630/584-1000
Fax 630/584-1243
ALUMAX
TRANSPORTATION PRODUCTS
October 22, 1998
VIA FACSIMILE 319-547-6099
Mr. Gary Ihrke
Vice President, Operations
Featherlite Manufacturing, Inc.
Box 320
Cresco, IA 52136
Dear Gary:
This letter will confirm that Alumax Transportation Products agrees to supply
and you agree to purchase ********** pounds of aluminum extrusions for delivery
January, 1998 through December, 1998 via our assigned contract number ATP 0201,
Featherlite Contract No. 0004. Pricing during this contract period will be firm
at $***** per pound.
Based upon your commitment, Alumax Transportation Products has taken the
necessary actions, via an established metal position, to provide a firm price
for the duration of this agreement. It is expected that shipments of finished
product will occur in a timely manner, which in this case equates to
approximately ********* pounds on a monthly basis .
In the event you do not fulfill the volume commitment during the contract
period, you will be invoiced for and expected to pay an amount equal to any
financial loss we incurred on the metal position we established in order to
provide you with this firm price contract. The amount you would be invoiced
would be calculated in accordance with the attached Alumax Extrusions, Inc.
terms and conditions regarding firm priced contracts.
We believe the above establishes the essence of our agreement and we request
that you acknowledge receipt and forward a signed copy of this contract for our
files.
We appreciate your confidence in Alumax Transportation Products and look forward
to the successful completion of this contract.
Best regards, ACKNOWLEDGED AND ACCEPTED:
/s/ Ted E. Smothers /s/ Gary Ihrke
Ted E. Smothers Gary Ihrke
Vice President, Sales & Marketing Vice President, Operations
Featherlite Manufacturing, Inc.
cc: M.S. Czachorski S. Kavanaugh
T.A. Horonzy S. Staller
A Business Unit of Alumax Extrusions, Inc.
<PAGE>
TERMS AND CONDITlONS
Contract Cancellation - Entirely or in part for any undershipment quantity.
The loss, if any, incurred by Alumax Extrusions, Inc. will be measured by "the
difference between the Metals Week P1020 Midwest Transaction Price for the month
of scheduled shipment as of the date of this contract over the average of the
Metals Week P1020 Midwest Transaction Price for each of the months in which the
undershipment occurred times the quantity undershipped in each month."
Extension of the Contract - For up to an additional six months.
Calculation of the price per pound to be added to the original contract price
per pound (for the guantity of product equivalent to the undershipped position
at the expiration date of the original contract) shall be measured by "the
difference between the Metals Week P1020 Midwest Transaction Price for the
quarter in which the product is scheduled to be shipped during the extended
contract term, over the average of the Metals Week P1020 Midwest Transaction
Price for each of the months in which the undershipment occurred, "plus $*** per
pound. If no excess metal price exists, the new contract price will be increased
by $*** per pound over the original contract price.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S FORM 10-Q FOR
THE QUARTER ENDED 9/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 928064
<NAME> Featherlite Mfg., Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 673
<SECURITIES> 0
<RECEIVABLES> 7,947
<ALLOWANCES> 0
<INVENTORY> 30,662
<CURRENT-ASSETS> 40,531
<PP&E> 19,619
<DEPRECIATION> (5,936)
<TOTAL-ASSETS> 61,157
<CURRENT-LIABILITIES> 22,853
<BONDS> 14,596
0
0
<COMMON> 14,220
<OTHER-SE> 8,634
<TOTAL-LIABILITY-AND-EQUITY> 61,157
<SALES> 99,414
<TOTAL-REVENUES> 99,414
<CGS> 83,315
<TOTAL-COSTS> 94,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,220
<INCOME-PRETAX> 3,766
<INCOME-TAX> 1,507
<INCOME-CONTINUING> 2,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,259
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
