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 March 31, 1999
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, Inc.
(Exact name of registrant as specified in its charter)
Minnesota 41-1621676
(State or other jurisdiction of (I.R.S. Employer
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.
6,500,051 Shares as of May 13, 1999
<PAGE>
FEATHERLITE, INC.
INDEX
Page No.
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets
March 31, 1999 and December 31, 1998 . . . . . . . . . . . . . . . . 3
Condensed Statements of Income
Three Months Ended March 31, 1999 and 1998. . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows
Three months Ended March 31, 1999 and 1998 . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 11
Item 3. Quantitative and Qualitative Disclosures about Market Risks . . 15
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 17
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 18
2
<PAGE>
Part I: FINANCIAL INFORMATION
Item 1:
Featherlite, Inc.
Condensed Balance Sheets
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
-------- -----------
<S> <C> <C>
Current Assets
Cash $ 297 $ 188
Receivables 12,588 10,332
Inventories
Raw Materials 12,738 12,571
Work in process 18,255 18,817
Finished trailers 31,362 29,985
--------- -----------
Total inventories 62,355 61,373
Prepaid expenses 1,805 1,522
Deferred taxes 1,107 1,107
--------- -----------
Total current assets 78,152 74,522
--------- -----------
Property and equipment 24,699 23,692
Less accumulated depreciation (8,263) (7,824)
--------- -----------
Property and equipment, net 16,436 15,868
Goodwill and other assets 12,793 16,398
--------- -----------
$ 107,381 $ 106,788
========= ===========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long term debt $ 1,216 $ 1,241
Other notes payable 19,075 17,936
Accounts payable 20,287 18,221
Accrued liabilities 7,417 5,720
Customer deposits 3,004 2,241
--------- -----------
Total current liabilities 50,999 45,359
--------- -----------
Long Term Debt, net of current maturities 24,186 30,914
Deferred Grant Income 153 164
Deferred taxes 808 808
Commitments and Contingencies (Note 5)
Shareholders' Equity 31,235 29,543
--------- -----------
$ 107,381 $ 106,788
========= ===========
See Notes to financial statements
</TABLE>
3
<PAGE>
Featherlite, Inc.
Condensed Statements of Income
(Unaudited)
(In thousands, except for per share data)
<TABLE>
<CAPTION>
Three months Ended
March 31
------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Net Sales $ 59,422 $ 41,742
Cost of Sales 49,725 34,825
-------- --------
Gross profit 9,697 6,917
Selling and administrative expenses 6,635 4,661
-------- --------
Income from operations 3,062 2,256
Other income (expense)
Interest (897) (576)
Gain on aircraft and property sales 211 --
Other, net 217 221
-------- --------
Total other expense (469) (355)
-------- --------
Income before taxes 2,593 1,901
Provision for income taxes 1,050 760
-------- --------
Net income 1,543 1,141
======== ========
Net income per share - basic and diluted $ 0.24 $ 0.18
-------- --------
Weighted average shares outstanding - basic 6,501 6,255
-------- --------
Weighted average shares outstanding - diluted 6,506 6,340
-------- --------
See Notes to financial statements
</TABLE>
4
<PAGE>
Featherlite, Inc.
Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months Ended
March 31
-------------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
Cash provided (used) by operating activities
Net income $ 1,543 $ 1,141
Depreciation & amortization 571 406
Other non cash adjustments, net (380) 9
Decrease (increase) in working capital, net 1,005 (938)
------- -------
Net cash provided by operating activities 2,739 618
------- -------
Cash provided by (used for) investing activities
Additions to property and equipment, net (994) (487)
Investment in joint venture, net and other 11 --
Purchase of aircraft, net 3,968 --
------- -------
Net cash provided by (used for) investing activities 2,985 (487)
------- -------
Cash provided by (used for) Financing Activities
Change in short term debt 1,759 (557)
Change in long term debt and grants (7,374) (775)
------- -------
Net cash used for financing activities (5,615) (1,332)
------- -------
Net cash increase (decrease) 109 (1,201)
Cash, begin of period 188 1,632
------- -------
Cash, end of period $ 297 $ 431
======= =======
See Notes to financial statements
</TABLE>
5
<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, 1998 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 three month periods
ended March 31, 1999 and 1998. 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, 1998.
Note 2: Property and Equipment
Property and equipment consists of the following at March 31, 1999 and
December 31, 1998 (in thousands):
1999 1998
---- ----
Land and improvements $ 3,718 $ 3,042
Building and improvements 8,942 8,887
Machinery and equipment 12,038 11,763
Accumulated depreciation (8,262) (7,824)
------- -------
Net Property and equipment $16,436 $ 15,868
------ -------
Note 3: Goodwill and Other Assets
Goodwill and other consists of the following at March 31, 1999 and
December 31, 1998 (in thousands):
March 31, December 31,
1999 1998
Goodwill, net $ 9,145 $ 9,126
Aircraft held for resale 2,901 6,726
Idle facilities 230 231
Advertising and other 523 363
Investment in joint venture (6) 2
-------- ---------
Total $ 12,793 $ 16,398
-------- ---------
In March 1999, the Company sold an aircraft and realized a gain of
$200,000 on the sale of an aircraft.
Note 4: Financing Arrangements
Other notes payable primarily include borrowings under a wholesale
finance agreement with a financial services company for a $23.7 million line of
credit to finance completed new and used motorcoaches held in inventory. The
agreement includes covenants requiring maintenance of defined levels of tangible
net worth, leverage and working capital. It is subject to renewal on October 31,
1999. At March 31, 1999, $18.8 million was borrowed against this line.
6
<PAGE>
Long-term debt consists of the following at March 31, 1999 and December
31, 1998 (In thousands):
March 31, December 31,
1999 1998
Working Capital line of credit; interest at
prime less .75* $ 14,823 $ 17,939
Bank notes; interest at prime less .75%,
payable in varying monthly installments
through 2008; same collateral and covenant
provisions as working capital line of credit * 7,542 7,817
Bank notes; interest at prime plus .75%;
payable in vary monthly installments
through Januanry,2001; collateralized by aircraft 1,278 5,215
Notes and capitalized leases, interest to
11.5%, payable in varying monthly
installments to 2003; collateralized by real estate 373 1,184
Bank note, interest at 7.34%; payable in
monthly installments to 2004;
collateralized by Sanford, Florida real estate.** 1,386 -
-------- -------
Total long-term debt 25,402 32,155
Less current maturities (1,216) (1,241)
-------- --------
Long-term debt, net of current maturities 24,186 $ 30,914
-------- --------
* Long-term debt includes borrowing under a credit agreement with a
bank that provides a working capital line of credit equal to the lesser of $23
million or a defined percentage of eligible trade receivables and inventory. The
agreement includes covenants requiring maintenance of defined levels of tangible
net worth, earnings before interest, taxes, depreciation and amortization
(EBITDA) and fixed charge coverage ratio.
** Long-term debt also includes borrowings to refinance the land
acquisition and construction cost of a sales and service center as discussed in
Note 5 below. The aggregate borrowings on this project will total approximately
$4.0 million and will be repayable in equal monthly installments based on a 15
year amortization with the remaining balance due in November, 2003. The Company
also entered into an interest rate swap for the notional amount of the financing
on this project to fix the effective interest rate on this borrowing at 7.34%
over a five-year term.
Note 5: 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 $15.7
million at March 31, 1999 and $17.2 million at December 31, 1998.
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 $4.0 million, including
$1.2 million accrued for estimated unpaid claims at March 31, 1999 and $1.1
million at December 31, 1998. The Company has obtained an irrevocable standby
letter of credit in the amount of $1.2 million in favor of the workers
compensation claim administrator to guaranty settlement of claims.
7
<PAGE>
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, in the course of its business, has been named as a
defendant in various legal actions. Most, but not all, of such actions are
product liability or workers' compensation claims in which the Company is
covered by insurance subject to applicable deductibles. Although the ultimate
outcome of such claims cannot be ascertained at this time, it is the opinion of
management, after consulting with counsel, that the resolution of such suits
will not have a material adverse effect on the financial position of the
Company, but may be material to the Company's operating results for any
particular period.
In November 1998 the Company entered into a contract in the aggregate
amount of $2.9 million for the development and construction of a sales facility
on land near the Company's Sanford location. In 1999, this project was expanded
to include a service center at an additional approximate cost of $800,000. This
project will be substantially completed by the end of the second quarter of
1999. It is being financed with borrowed funds from First Union Bank.
Note 6: Shareholders' Equity
Shareholders' equity may be further detailed as follows (in thousands):
March 31, Dec 31,
1999 1998
-------- --------
Common stock - without par value;
Authorized- 40,000,000 shares;
issued- 6,500,051 shares $ 16,385 $ 16,236
Additional paid-in capital 4,062 4,062
Retained earnings 10,788 9,245
-------- --------
Total Shareholders' equity $ 31,235 $ 29,543
======== ========
In 1994, the Company completed an initial public offering of 1,955,000
shares of Company common stock and granted an option to the Underwriter to
purchase 120,000 shares at a price of 120% of the initial public offering price
of $6.00 per share. This option, which expires in September 1999, has not yet
been exercised.
In 1999, the Company issued 25,000 additional shares of common stock to
the former owner of Vantare International, Inc. These additional shares were
earned under the terms of the purchase agreement for this 1996 asset acquisition
for the achievement of defined earnings levels through December 31, 1998. An
additional 75,000 shares may still be earned under this agreement for the
performance of the Vantare Division through December 31, 2000. Goodwill related
to this acquisition was increased by $150,000 for this stock issue.
Note 7: Stock Option Plan
In accordance with the stock option plan established by the Company in
July 1994, as amended in May, 1998, the Board of Directors has granted options
to purchase Company common stock to certain employees and directors in the total
amount of 544,380 shares at March 31, 1999 and 529,380 at December 31,1998.
These options were granted at a prices ranging from $5.50-$10.00 per share, and
are exercisable at varying dates not to exceed 10 years from the date of grant.
Options totaling 15,000 shares have been granted in 1999. No options have been
exercised in 1999.
Note 8: Earnings per Share
The weighted-average number of shares of common stock used to compute
the basic earnings per share was increased by 5,518 at March 31,1999 and 85,322
at March 31,1998 for the assumed exercise of options and warrants in computing
8
<PAGE>
the diluted earnings per share data. Basic and diluted earnings per share, as
calculated under FAS statement No. 128, are not materially different than the
primary and fully diluted earnings per share as previously reported in prior
periods.
Note 9: Segment Reporting
The Company has two principal business segments, trailers and
motorcoaches. The accounting policies applied to determine segment information
are the same as described in the summary of significant accounting policies in
the Company's annual report for the year ended December 31, 1998, except that in
1999, the Company allocated $321,000 of selling, general and administrative
expenses from general corporate to the motorcoach division. Management evaluates
the performance of each segment based on profit or loss from operations before
income taxes, excluding non-recurring gains or losses.
The Company's sales are not materially dependent on a single customer
or small group of customers.
Information on business segments and geographic information is as
follows as of March 31, 1999 and 1998 and for the three month periods then ended
(in 000's):
1999 1998
----- -----
Net Sales to unaffiliated customers
Trailers $ 30,510 $ 28,581
Motorcoaches 28,912 13,161
-------- --------
Total net sales 59,422 41,742
-------- --------
Income (loss) from operations
Trailers 3,259 2,420
Motorcoach 1,017 1,315
General corporate (1,214) (1,479)
Other income (expense) (469) (355)
-------- --------
Income before income taxes $ 2,593 $ 1,901
-------- --------
Interest expense
Trailers $ 169 $ 241
Motorcoaches 612 237
General corporate 116 98
-------- --------
Total interest expense $ 897 $ 576
-------- --------
Provision for income taxes
Trailers $ 1,251 $ 872
Motorcoaches 205 452
General corporate (406) (564)
-------- --------
Total provision for income taxes $ 1,050 $ 760
-------- --------
Identifiable assets
Trailers $ 41,873 $ 39,199
Motorcoaches 58,964 23,904
General corporate 6,544 12,360
-------- --------
Total assets as reported $107,381 $ 75,463
-------- --------
Capital expenditures
Trailers $ 51 $ 166
Motorcoaches 817 73
General corporate 126 248
-------- --------
Total capital expenditures $ 994 $ 487
-------- --------
9
<PAGE>
1999 1998
----- -----
Depreciation and amortization
Trailers $ 241 $ 209
Motorcoaches 200 80
General corporate 130 117
------- -----------
Total depreciation and amortization $ 571 $ 406
------- -----------
Geographic Information
Revenues
United States $58,313 $ 40,312
Canada and other regions 1,109 1,430
------- -----------
Consolidated revenues $59,422 $ 41,472
------- -----------
Long-lived assets
United States $29,229 $ 25,282
Canada and other regions - ---
------- -----------
Consolidated long-lived assets $29,229 $ 25,282
-------- -----------
10
<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 three-month periods ended March 31,
1999 and 1998.
Results of Operations
Three months ended March 31, 1999 and 1998
Net sales of $59.4 million for the quarter ended March 31, 1999
increased by 42.4% from net sales of $41.7 in last year's first quarter. This
increase of $17.7 million over 1998 included $11.4 million from the Featherlite
Vogue line of motorcoaches acquired in May 1998. The balance of the sales
increase over the first quarter of 1998, $6.3 million, resulted from growth in
established product categories, including a $4.1 million or 30% increase in
sales of Featherlite Vantare luxury motorcoaches. Sales of Featherlite aluminum
and steel brand trailers and other products increased by $2.2 million or 6.8%.
Gross profit increased to $9.7 million in the first quarter of 1999
from $6.9 million in 1998 as a result of the increased levels of sales. As a
percentage of sales, gross margin for the quarter decreased to 16.3% in 1999
from 16.7% in 1998. The gross profit percentage decrease primarily reflects the
change in sales mix between trailers and motorcoaches as well as changes in the
gross margin percentage of each business segment. Trailer segment gross profit
percentage improved by 2.9 percentage points during the quarter compared to 1998
due to reduced aluminum costs and a higher percentage of transporter sales in
1999. Motorcoach segment gross profit percentage declined 3.8 percentage points
compared to last year as a result of a greater percentage of used coach sales in
1999 than 1998.
Selling and administrative expenses increased in 1999 by $2.0 million
over 1998 but remained unchanged at 11.2% as a percentage of sales. The increase
in the total cost of this category primarily reflects additional advertising,
personnel and other costs related to Company growth, including $1.3 million
related to the Vogue division that was acquired in May 1998.
Interest expense increased in 1999 compared to 1998 due to higher
levels of debt. The provision for income taxes reflects an effective federal and
state income tax rate of about 40% in 1999 and 1998. Other income increased by
$207,000 primarily as the result of an aircraft sale in 1999, which realized a
gain of $200,000.
Segment Information
The following discussion pertains to information on the Company's two
principal business segments as set forth in Note 9 to the financial statements
for the quarters ended March 31, 1999 and 1998.
Trailer segment
1999 1998
------- -------
Net sales (000's) $30,510 $28,581
Segment income (000's) 3,259 2,420
Segment income percent 10.7% 8.5%
Trailer segment sales increased by 6.8% in the first quarter of 1999
over 1998. On a product line basis, horse trailer sales remained unchanged,
livestock trailer sales decreased by 30%, car/racecar and specialty transporter
sales were up 40%, utility trailer sales decreased by 22% and commercial
11
<PAGE>
trailers sales were up by 15%. Sales of specialized car haulers and race car
tranporters set a sales record for the quarter. Motorsports continues to be a
booming entertainment category with a record number of competitors, many of whom
use Featherlite products. The decrease in livestock trailer sales is a result of
the economic difficulties in the farm and agricultural economy that began in
1998, particularly in the Midwest.
Trailer segment income increased in 1999 as the result of a greater
sales volume as well as an increased gross margin percentage. The gross margin
percentage increased by 2.9% as the result of lower material costs due to a
lower average cost per pound of aluminum used as well as a higher percentage of
transporter sales which have a lower material cost as a percentage of the
selling price. This improvement was partially offset by increased marketing and
delivery costs, which increased as a percentage of sales to 8.7% in 1999 from
8.0% in 1998.
Motorcoach Segment
1999 1998
-------- ---------
Net Sales (000's) $28,912 $13,161
Segment income (000's) 1,017 1,315
Segment income percent 3.5% 10.0%
Motorcoach segment sales increased by $15.7 million, or 120%, in the
first quarter compared the same quarter last year, including $11.4 million,
which was contributed by the addition of the Featherlite Vogue line of
motorcoaches acquired in May 1998. Excluding Featherlite Vogue, the sales of
Featherlite Vantare increased by about 30%.
Motorcoach segment income percentage decreased in 1999 by 6.5
percentage points compared to 1998 due to a decrease of 3.9 percentage points in
the segment gross margin percentage and an increase of 2.6 percentage points in
segment operating expenses. The decline in gross margin percentage is primarily
due to an increased level of used motorcoach sales in 1999 compared to 1998.
Segment operating expenses increased by approximately $1.3 million in 1999 due
to the Featherlite Vogue acquisition in May 1998 and an allocation of $321,000
of corporate marketing and administrative expenses in 1999, which decreased
segment income as a percent of sales by 1.1 percentage points in 1999.
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.
We expect consolidated sales to be strong in 1999 due primarily to
continued growth in the motorcoach segment. Trailer segment growth may be
reduced compared to recent years due to continued economic difficulties in
agribusiness. The Company believes its name recognition and close affiliation
with the motorsports industry will continue to have a positive impact on its
sales of specialty trailers and luxury motorcoaches as well as other trailers
used for leisure and entertainment purposes. With more than 75% of its revenue
from end users in motorsports and 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
respond to competitive pressures and to benefit from growth in these markets.
The total sales backlog at March 31, 1999 was $34 million compared with $31
million at December 31, 1998 and $27 million at March 31, 1998. The backlog
includes motorcoach order backlog of $23 million, $19 million and $15 million at
March 31, 1999, December 31, 1998 and March 31, 1998, respectively.
The Company has obtained commitments from suppliers to provide, at an
agreed upon fixed price, substantially all of its anticipated aluminum
requirements for 1999 at an average cost which is about 5% lower than 1998
levels. It has also obtained commitments for a substantial portion of its
12
<PAGE>
anticipated requirements for 2000 at an average cost which is about 8% lower
than 1999. This should have a positive impact on trailer segment income.
Motorcoach segment margins should continue to improve but can be adversely
affected by the impact of used motorcoach sales which normally have a margin
percentage which is substantially below the margin percentage on new coach
sales. On an overall basis, gross margins should remain at about the same level
as last year's year-end margin percentage but could trend slightly lower as the
motorcoach segment becomes a larger percentage of the consolidated totals.
Sales and administrative expenses for 1999 are expected to increase but
at a lower rate than sales growth as much of the organizational growth occurred
in prior years. Interest expense will likely remain higher in 1999 than 1998 as
the average level of debt is expected to be greater due to working capital
growth as well as facilities expansion as discussed further below.
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. There is also a risk related to the timely
delivery of certain custom trailers and specialty transporters in the event the
Company's sole supplier is interrupted from providing these services due to
unforeseen circumstances or customer delays in providing specifications to the
subcontractor.
The Company has made increased use of leverage and incurred interest
and related expenses in the three years ended December 31, 1998 and quarter
ended March 31, 1999. Increased debt has been incurred in connection with
financing the operations of the Vantare and Vogue Divisions and in financing
additional working capital requirements. In 1999, additional debt will be
incurred to finance construction of a sales and service center at the Company's
Sanford, Florida location. Increased leverage and related expenses create risk
to future operating results of the Company.
The Company continues to make progress in readying its hardware and
software systems information technology (IT) and non-IT systems for the year
2000. It is estimated that these activities will be completed by June 30, 1999
at a cost ranging from $75,000-100,000 which will not have a material impact on
the Company's business, financial condition or results of operation. The Company
is continuing to contact vendors who provide it production materials and
supplies to determine the status of their Year 2000 assessment and readiness
programs. We are substantially completed with this survey and are not aware of
any significant problems that would adversely impact the Company. We are unaware
of any material risk to the Company associated with Year 2000 issues at this
time. We are developing contingency plans to address potential hardware and
software systems failures that may arise. We believe the most reasonably likely
worst case year 2000 scenario would be a decrease in the efficiency with which
the Company is able to procure materials and supplies from vendors and produce
its products. This could have an adverse effect on the Company's results of
operations and financial condition if prolonged.
Liquidity and Capital Resources
During the first quarter of 1999, the Company's operations provided net
cash of $109,000, including $2.7 million provided from operating activities and
$3.0 million from investing activities, net of $5.6 million used for debt
reductions.
Operating activities in the first quarter of 1999 provided net cash of
$2.7 million. Net income from operations provided cash of $1.5 million. This
amount was increased by adjustments for depreciation and amortization of
$571,000 and decreased by other non-cash items in an aggregate amount of
$380,000. Net changes in receivables, inventories and other working capital
13
<PAGE>
items provided cash of $1.0 million. Inventories increased by $1.0 million
primarily to support the increased level of sales in the motorcoach segment.
Increased expenditures for working capital items may be required to support
increased sales levels throughout 1999. Additional increases in working capital
may be required in future quarters to support higher levels of sales. Cash
generated from operations as well as the Company's available lines of credit
will fund these increases.
Investing activities for the current quarter provided net cash of $3.0
million, including $4.0 million provided from the sale of aircraft and $1.0 used
for plant and other improvements, including $620,000 related to the sales and
service expansion at the Company's location in Sanford, Florida as discussed
further below. The Company anticipates replacing the aircraft at a comparable
amount before the end of 1999.
Financing activities used net cash of $5.6 million including a
reduction of aircraft debt of $3.9 million and other net reductions of $1.7
million primarily related to changes in the wholesale floor plan and revolving
line of credit. The Company borrowed $620,000 related to the Sanford expansion
during the quarter.
The Company has a working capital line of credit with its primary
lender, Firstar Bank. This line has a borrowing limit of $23.0 million based on
levels of eligible receivables and inventory and an interest rate of prime less
.75% (7.00% at March 31, 1999). The maturity date of borrowings under this line
is September 24, 2002, subject to renewal and extension. The agreement contains
covenants that limit annual capital expenditures, total liabilities in relation
to defined tangible net worth and total fixed charges in relation to defined
EBITDA. Borrowings under the line are secured by substantially all assets of the
Company. There was $14.8 million borrowed against this line as of March 31,
1999. The Company also has available through Firstar various term notes totaling
$3 million as future borrowings for real estate projects and equipment. There
were no borrowings on these notes at March 31, 1999.
The Company also has a wholesale floor plan agreement with Deutsche
Financial Services to borrow up to $23 million for financing new and used
motorcoaches held in inventory, with interest at prime (7.75% at March 31, 1999)
on borrowed funds. This agreement includes covenants requiring maintenance of
defined levels of tangible net worth, leverage and working capital. At March 31,
1999, $18.8 million was borrowed on this line.
In November 1998, the Company entered into a construction contract in
the amount of $2.9 million for the development and construction of a sales
facility near the Company's Sanford, Florida location. This project was
subsequently expanded by about $800,000 to include a service center. It is
expected these facilities will be completed in about mid-1999. The construction
and long-term mortgage financing for this project are being provided by First
Union Bank. At March 31, 1999, $620,000 was borrowed on this note. The interest
rate on this facility is based on one-month LIBOR rate plus 1.8% (6.76% at March
31, 1999). The Company has reduced the long-term risk related to unfavorable
fluctuations in this floating interest rate by entering into an interest rate
swap with First Union in notional amount of the financing provided, which fixed
the effective rate on this loan at 7.34% over a five year term. Interest only is
payable on this facility during the construction period; thereafter it will be
repayable in equal monthly installments of principal and interest based on a 15
year amortization, with the remaining balance due November, 2003.
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 plan and retail financing
arrangements. These contingent liabilities total approximately $15.7 million at
March 31, 1999. Also, the Company is self-insured for a portion of certain
health benefit and workers' compensation insurance claims. At March 31, 1999,
14
<PAGE>
the Company's maximum annual claim exposure under these programs is
approximately $4 million, including $1.2 million accrued for unpaid claims. The
Company has obtained an irrevocable standby letter of credit in the amount of
$1.2 million in favor of the workers compensation claim administrator to
guarantee payment of claims.
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 to be completed in 1999 or 2000. These programs would be
financed with new borrowings from banks or other financial institutions.
In October 1997, the Company signed a joint venture agreement with GMR
Marketing to form Featherlite/GMR Sports Group, LLC. The joint venture is
focusing 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 from the Company to maintain its
operations.
The Company leases certain office and production facilities under
various leases that expire at varying dates through fiscal year 2011. Minimum
lease payments for 1999 are expected to total $828,000.
Item 3:
Quantitative and Qualitative Disclosures about Market Risk
Featherlite is exposed to market risks related to changes in U.S. and
International interest rates. Substantially all of the Company's debt bears
interest at a variable rate. To a limited extent, the Company manages its
interest rate risk through the use of interest rate swaps. As of December 31,
1998 and March 31, 1999, the fair value of interest rate swaps was not material.
A 10% increase in interest rates would reduce the Company's future annual
earnings by approximately $385,000 at current levels.
The Company uses substantial quantities of aluminum in its
manufacturing of trailers. The Company generally seeks to limit its exposure to
the risk of fluctuations in the price of aluminum by entering into fixed-price
contracts with suppliers for quantities sufficient to satisfy its requirements
for up to one year in advance. The Company does not engage in hedging
transactions or other use of derivatives in connection with its operations.
15
<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 March 31, 1999.
16
<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, INC.
(Registrant)
Date: May 12, 1998 /S/ CONRAD D. CLEMENT
---------------------
Conrad D. Clement
President & CEO
Date: May 12, 1998 /S/ JEFFERY A. MASON
--------------------
Jeffery A. Mason
Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.1* Agreement with Western Extrusions for aluminum purchases
for the year 2000.
10.2* Agreement with Edgcomb Metals for aluminum purchases for
the year 2000.
10.3* Agreement with Reynolds Aluminum Supply Company for aluminum
purchases for the year 2000.
10.4* Agreement with Vincent Metal Goods for aluminum purchases
for the year 2000.
10.5* Agreement with Aluminum Shapes for aluminum purchases for the
year 2000.
10.6* Agreement with Reyonlds Aluminum Supply Company for
aluminum purchases from November 1, 1999 through December
31, 2000.
27 Financial Data Schedule (filed in electronic format only)
* Portions of these documents have been omitted pursuant to a request for
confidential treatment
18
Exhibit 10.1
Confidential portions of this document indicated by "*****" have been omitted
and filed separately with the Commission
WESTERN EXTRUSIONS
DATE: March 24, 1999
TO: FEATHERLITE
P.O. Box 320, Highway 63 & 9
Cresco, IA 52136
ATTN: Craig Lepa
RE: Forward Buying Agreement - January 1, 2000 through December 31, 2000
$***** per pound on Solids
$***** per pound on Hollows
Dear Mr. Lepa:
Per our agreement, Western Extrusions has offered Forward Pricing for the period
above to Featherlite and it has been accepted.
Details are as follows:
1. Period: January 1, 2000 through December 31, 2000
2. Volume: ***** Lbs. Alloy 6061 & 6063 (Shipping
tolerance + or - 10% per monthly line item.)
3. Western Standard Terms and Conditions of Sale will apply.
4. This Forward Price Agreement constitutes an irrevocable Must Take
Agreement, and may not be deferred or cancelled unless by mutual
agreement of both parties. It is also understood that no force majeure
can be invoked by either party against this contract.
5. Western reserves the right to invoice any product not released in
accordance with this agreement.
6. This agreement is not assignable unless by mutual written agreement
of both parties.
7. All other pricing, such as, anodizing, fabrication or paint are subject
to change, and are not applicable in this contract.
I would appreciate your signing and returning our Letter of Agreement, and if
you should have any questions, please give me a call.
Sincerely,
WESTERN EXTRUSIONS CORPORATION
Company Featherlite, Inc.
Name /s/ Gary Ihrke
/s/ Lyle A. Williams
Lyle A. Williams Title VP - Operations
Vice President
Sales & Marketing Date 3/25/99
Note 45 day terms on payment C. Lepa
Exhibit 10.2
Confidential portions of this document indicated by "*****" have been omitted
and filed separately with the Commission
EDGCOMB METALS
THE SPIRIT OF EXCELLENCE
Quotation
Date: March 5, 1999
To: Craig Lepa From: Mary Anderson
Purchasing Agent District Manager
Featherlite Mfg Inc.
319-547-6000 612-331-4000
F.O.B. Your Plant
<TABLE>
<CAPTION>
- ----------------------------------- -------------------------------- ---------------- ---------------- ---------------
Grade Size Quantity Delivery Price
- ----------------------------------- -------------------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
0.95 (p/m.002) x
3105-H14 38.25, 41.5, 48 x 75-96" lgths
Spec Featherlite finish ***** lbs per release *****/clb
- ----------------------------------- -------------------------------- ---------------- ---------------- ---------------
ditto .120 (p/m.003) x
34.75, 40.25, 48, 53 x ***** lbs per release *****/clb
75-96" lgths
- ----------------------------------- -------------------------------- ---------------- ---------------- ---------------
3004-H291 MF .040 x 37, 41, 48 x
75-96" lgths ***** lbs per release *****/clb
- ----------------------------------- -------------------------------- ---------------- ---------------- ---------------
</TABLE>
Material quoted for year 2,000. Per Featherlite, any tonnage carried into 2001 a
1% carrying cost would apply.
All material paper-interleaved with the exception of printed products. It would
be Edgcomb's discretion to apply. Material billed on theoretical weight, 2,500
lb max skids. Forklift rear unload. Terms: 45 days.
Pricing based on forward ingot of *****/clb and would have to be reconfirmed at
time of commitment.
REVISION 3/5/99: Revised pricing on first three items are firm if ingot future
for 2000 opens Monday 3/8/99 at $***** or below.
THANK YOU FOR THE OPPORTUNITY TO
QUOTE YOUR METAL REQUIREMENTS
/s/ Craig Lepa
Purchasing Agent
* Quoted pricing is subject to prior sale.
Exhibit 10.3
Confidential portions of this document indicated by "*****" have been omitted
and filed separately with the Commission
REYNOLDS ALUMINUM SUPPLY COMPANY
A Division of
REYNOLDS METALS COMPANY SUPPLY AGREEMENT NO. 0099
- --------------------------------------------------------------------------------
SHIP TO DESTINATION(S) CITY AND STATE
FEATHERLITE MFG CO
HWY 63 & 9 SAME
CRESCO, IA 52136
ATTN: MR. GARY IRHKE-V.P.
("Buyer")
- --------------------------------------------------------------------------------
Reynolds Aluminum Supply Co. ("Seller") hereby agrees to sell to Buyer and Buyer
hereby agrees to purchase from Seller the following products:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Item No. PRODUCT DESCRIPTION PRICE PER LBS TOTAL QUANTITY
- ---------- -------------------------------------------------------------------- ------------------- ------------------
<S> <C> <C> <C>
1 3004-H291 PAINTED WHITE/CLEAR WASH COAT
.030 AND .040 X 41-48-49 X CTL WITH PAPER INTERLEAVE $***** *****
COMBINED ITEMS
2 3105-H18 PAINTED WHITE/CLEAR WASH COAT $***** 1&2
.040 49 X CTL WITH PAPER INTERLEAVE
3 3004-H291 MILL FINISH WITH PAPER INTERLEAVE $***** ***** LBS
.040 X 37-41-48 X CTL
4 3105-H14 MILL FINISH WITH PAPER INTERLEAVE $***** ***** LBS
.095 X 48 X CTL
5 3105-H14 MILL FINISH WITH PAPER INTERLEAVE $***** ***** LBS
.120 X 48 X CTL
- ---------- -------------------------------------------------------------------- ------------------- ------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SHIPMENTS BEGINNING SHIPMENTS ENDING
JANUARY 2000 DECEMBER 2000 2500 LB SKIDS
- ----------------------------------------------------- -------------------------
MINIMUM ORDER QUANTITIES MINIMUM ITEM QUANTITIES MINIMUM SHIPMENT QUANTITIES
N/A 2500 LBS N/A
- ---------------------------------------- ---------------------------------------
PAYMENT TERMS (SEE PARAGRAPH 4 REVERSE SIDE) DELIVERY TERMS
NET 45 DAYS FOB CRESCO, IA
- --------------------------------------------------------------------------------
PRICE, TERM AND CONDITIONS: The prices of the foregoing products, including
delivery and payment terms, shall be those regularly established by Seller and
in effect on the date of each shipment. THE TERMS AND CONDITIONS ON THE REVERSE
HEREOF CONSTITUTE A PART OF THIS AGREEMENT.
- --------------------------------------------------------------------------------
EXCEPTIONS TO THE FOREGOING PROVISIONS ARE AS FOLLOWS:
FEATHERLITE MFG PURCHASE ORDER: L2000
- --------------------------------------------------------------------------------
BUYER: REYNOLDS ALUMINUM SUPPLY COMPANY
BY /s/ Gary Irhke 3/9/99 By /s/ J. Wright 3/9/99
AUTHORIZED SIGNATURE DATE AUTHORIZED SIGNATURE DATE
Exhibit 10.4
Confidential portions of this document indicated by "*****" have been omitted
and filed separately with the Commission
VINCENT METAL GOODS
1100 Shaver Road NE
P.O. Box 74918
Cedar Rapids, IA 52407-4918
(319) 366-6251
1-800-332-5471
(319) 366-6255 fax
To: FEATHERLITE 3/9/99
Attn: Shar & Craig
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------- ---------------- --------------
Item Description Price Unit
- -------------------------------------------------------------------------------------- ---------------- --------------
<S> <C> <C>
3003H16 Roofing Coil
475,000# Year 2000
3003H16 .040 ***** cwt
64-5/8, 75-1/2, 76-3/4, 86-1/4, 88-1/4, 93-1/2, 96-5/8 x Coil
3003H16. 040 ***** cwt
103 x Coil
3003H16 .032 ***** cwt
98 x Coil
3500# max coils
20" to 24" ID
Quote valid for six days
Thanks Mike Evans
/s/Gary Ihrke 3/11/99
- -------------------------------------------------------------------------------------- ---------------- --------------
</TABLE>
Delivery
Terms FOB Delv.
- --------------------------------------------------------------------------------
This quotation is offered for acceptance within 6 days and is subject
to material availability and price in effect at time of shipment unless
otherwise noted. Your order must conform to this quote. Cancellation or
suspension of orders will be accepted only upon terms that indemnify
the seller of loss. Subject to credit approval.
Your salesman is: Thank you, your order is appreciated.
Mike Burger
Mike Evans
Exhibit 10.5
Confidential portions of this document indicated by "*****" have been omitted
and filed separately with the Commission
ALUMINUM SHAPES
An Arch America Company
March 16, 1999
Mr. Gary Ihrke
Featherlite Mfg.
Hwy. 63 & 9
Cresco, IA 52136
Dear Gary:
Thank you for your commitment to purchase aluminum extrusions for the
year 2000. Below please find agreement per our conversation March 16, 1999:
Quantity: *****# (equal shipments of *****/month)
Delivery: Jan.(00) - Dec.(00)
Price:
Solids: Based on $***** per pound
Hollow(std.): " " ***** per pound
Notes: -Price firm Jan.(00) - Dec.(00)
-Price F.O.B. Cresco, IA (truckload qty's)
-Terms Net 30 Days
Please sign and return copy to my attention.
Regards,
ALUMINUM SHAPES L.L.C.
/s/Scott Kendall
Scott Kendall
President
Accepted by:
/s/Gary Irhke 3/16/99
Gary Ihrke, Vice President Date
Exhibit 10.6
Confidential portions of this document indicated by "*****" have been omitted
and filed separately with the Commission
QUOTATION
REYNOLDS ALUMINUM SUPPLY COMPANY
A DIVISION OF
REYNOLDS METALS COMPANY
- ---------------------------------------
Featherlite Mfg. DATE: 4/22/99
Hwy 63 & 9
Cresco, IA 52136
SUBJECT:
Mr. Craig Lepa REYNOLDS REF.NO: 99-04-011
- ---------------------------------------
REYNOLDS ALUMINUM SUPPLY COMPANY ("SELLER") IS PLEASED TO SUBMIT ITS QUOTATION
TO BUYER AS FOLLOWS:
<TABLE>
<CAPTION>
- ------------ --------------------------------------------------- ----------------- ----------------- -----------------
ITEM DESCRIPTION QUANTITY UNIT PRICE AMOUNT
- ------------ --------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
6061 T6 IMP TREAD PLATE
1 .125 x 48 x C-T-L ***** LBS $*****/LB
2 .125 x 60 x C-T-L ***** LBS $*****/LB
Notes: A) PRICE FIRM FOR DURATION OF CONTRACT
B) MATERIAL TO BE RELEASED NOVEMBER 1, 1999 THROUGH DECEMBER 31, 2000.
- ------------ --------------------------------------------------------------------------------------- -----------------
</TABLE>
<PAGE>
THIS QUOTATION IS SUBJECT TO CHANGE OR CANCELLATION AT ANY TIME WITHOUT NOTICE
AND SHOULD THEREFORE BE RECONFIRMED PRIOR TO PLACEMENT OF ORDER
PACKING: 2500# max skid
ESTIMATED SHIPMENT AFTER RECEIPT OF ORDER: 2 TO 3 DAYS
PAYMENT TERMS (FROM INVOICE DATE) SUBJECT TO APPROVAL OF TREASURER: Net 45 days
DELIVERY TERMS: (SEE PAR. 11 REVERSE SIDE) as needed
END USE: Trailers
SHOULD YOU HAVE ANY QUESTIONS CONCERNING THIS QUOTATION OR SHOULD YOU WISH TO
PLACE AN ORDER PLEASE CONTACT THE UNDERSIGNED
/s/STEVE MERRYMAN /s/FRANK GUARINO /s/GARY IHRKE
Steve Merryman Frank Guarino 4/26/99
QUOTATION TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
1. ACCEPTANCE - NO ORDER SUBMITTED PURSUANT TO THIS QUOTATION WILL BE BINDING ON
SELLER UNLESS ACCEPTED BY THE ISSUANCE OF SELLER'S ACKNOWLEDGMENT AND SALES
ORDER.
2. ERRORS - ANY ERRORS INCORPORATED IN OR APPEARING ON THIS QUOTATION ARE
SUBJECT TO CORRECTION.
3. MANUFACTURING TOLERANCES - UNLESS OTHERWISE INDICATED,
PRICE DATA COVERS ONLY MATERIAL CONFORMING TO SELLER'S STANDARD
MANUFACTURING LIMITS AS TO SIZES, TOLERANCES, FINISHES AND PROPERTIES.
4. REVISION OF TERMS AND CONDITIONS - NONE OF SELLER'S REPRESENTATIVES HAS
AUTHORITY TO MODIFY, RESCIND OR REVISE ANY OF THESE TERMS AND CONDITIONS OR
ANY OF THE TERMS AND CONDITIONS APPEARING ON SELLER'S ACKNOWLEDGMENT AND
SALES ORDER. TO BE EFFECTIVE, ANY WAIVER OR REVISION OF SUCH TERMS AND
CONDITIONS SHALL BE IN WRITING AND SIGNED BY AN OFFICER OF SELLER.
5. CHANGE IN PRICES - THE PRICES QUOTED HEREIN ARE BASED UPON EXISTING
CONDITIONS AND ARE SUBJECT TO CHANGE AT ANY TIME AT SELLER'S DISCRETION PRIOR
TO ACCEPTANCE OF ORDERS AND THEREAFTER AS PROVIDED IN SELLER'S ACKNOWLEDGMENT
AND SALES ORDER.
6. TERMS OF SALE, BUYER'S SUBMISSION OF AN ORDER IN RESPONSE TO THIS QUOTATION
SHALL CONSTITUTE BUYER'S ACCEPTANCE OF SELLER'S TERMS AND CONDITIONS - THE
RESULTING AGREEMENT FOR SALE SHALL BE INCORPORATED IN SELLER'S ACKNOWLEDGMENT
AND SALES ORDER CONTAINING SELLER'S TERMS AND CONDITIONS. IF A COPY OF
SELLER'S TERMS AND CONDITIONS IS NEEDED PRIOR TO PLACING AN ORDER, CONTACT
SELLER'S REPRESENTATIVE.
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-Q FOR THE QUARTER ENDED
3/31/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 297
<SECURITIES> 0
<RECEIVABLES> 12,588
<ALLOWANCES> 0
<INVENTORY> 62,355
<CURRENT-ASSETS> 78,152
<PP&E> 24,699
<DEPRECIATION> (8,263)
<TOTAL-ASSETS> 107,381
<CURRENT-LIABILITIES> 50,999
<BONDS> 24,186
0
0
<COMMON> 16,235
<OTHER-SE> 15,000
<TOTAL-LIABILITY-AND-EQUITY> 107,381
<SALES> 59,422
<TOTAL-REVENUES> 59,850
<CGS> 49,725
<TOTAL-COSTS> 6,635
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 897
<INCOME-PRETAX> 2,593
<INCOME-TAX> 1,050
<INCOME-CONTINUING> 1,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,543
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
