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, 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 CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
6,510,104 Shares as of November 12, 1999
<PAGE>
FEATHERLITE, INC.
INDEX
Page No.
Index . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . 2
Part I. Financial Information:
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance sheets
September 30, 1999 and December 31, 1998. . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income
Three and Nine Month Periods Ended September 30, 1999 and 1998. . 4
Condensed Consolidated Statements of Cash Flows
Three and Nine Month Periods Ended September 30, 1999 and 1998 . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 11
Item 3. Quantitative & Qualitative Disclosures about Market Risk . 17
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 18
Exhibit Index . . . . . . . . . . . . . . . .. . . . . . . . . . . . 19
2
<PAGE>
Part I: FINANCIAL INFORMATION
Item 1:
Featherlite, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------------- ------------
<S> <C> <C>
Current assets
Cash $ 127 $ 188
Receivables 12,358 10,332
-------- --------
Inventories
Raw materials 13,405 12,571
Work in process 22,180 18,817
Finished trailers/motorcoaches 31,824 29,985
-------- --------
Total inventories 67,409 61,373
-------- --------
Prepaid expenses 1,187 1,522
Deferred taxes 1,107 1,107
-------- --------
Total current assets 82,188 74,522
-------- --------
Property and equipment,net 19,343 15,868
Goodwill and other assets 16,310 16,398
-------- --------
$ 117,841 $ 106,788
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,514 $ 1,241
Other notes payable 21,277 17,936
Accounts payable 20,019 18,221
Accrued liabilities 5,315 5,720
Customer deposits 3,666 2,241
-------- --------
Total current liabilities 51,791 45,359
Long-term debt, net of current maturities 31,759 30,914
Other long term liabilities 938 972
Commitments and contingencies (Note 6)
Shareholders' equity 33,353 29,543
-------- --------
$ 117,841 $ 106,788
======== ========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
Featherlite, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except for per share data)
<TABLE>
<CAPTION>
Three months Ended Nine months Ended
September 30 September 30
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 53,939 $ 48,895 $ 169,656 $139,931
Cost of sales 44,808 41,366 142,008 118,096
-------- -------- ---------- --------
Gross profit 9,131 7,529 27,648 21,835
Selling and administrative expenses 7,029 5,899 20,113 15,835
-------- -------- ---------- --------
Income from operations 2,102 1,630 7,535 6,000
Other income (expense)
Interest (893) (863) (2,665) (2,124)
Gain on aircraft and property sales 179 --- 408 140
Other, net 143 103 529 433
-------- -------- ---------- --------
Total other expense (571) (760) (1,728) (1,551)
-------- -------- ---------- --------
Income before income taxes 1,531 870 5,807 4,449
Provision for income taxes 485 346 2,207 1,779
-------- -------- ---------- --------
Net income $ 1,046 $ 524 $ 3,600 $ 2,670
======== ======== ========== ========
Net income per share - basic $ 0.16 $ 0.08 $ 0.55 $ 0.42
-------- -------- ---------- --------
Net income per share - diluted $ 0.16 $ 0.08 $ 0.55 $ 0.41
-------- -------- ---------- --------
Average common shares outstanding-basic 6,507 6,493 6,502 6,382
-------- -------- ---------- --------
Average common shares outstanding-diluted 6,530 6,643 6,520 6,512
-------- -------- ---------- --------
</TABLE>
4
See notes to consolidated financial statements
<PAGE>
Featherlite, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months Ended
September 30
------------------
1999 1998
---- ----
<S> <C> <C>
Cash provided (used) by operating activities
Net income $ 3,600 $ 2,670
Depreciation & amortization 1,736 1,369
Other non cash adjustments, net (475) (260)
Increase in working capital, net (4,909) (8,025)
-------- --------
Net cash (used for) operating activities (48) (4,246)
-------- --------
Cash provided (used for) investing activities
Acquisition of business - (310)
Additions to property and equipment, net (4,608) (1,889)
Sale of aircraft and other property, net 77 461
-------- --------
Net cash (used for) investing activities (4,531) (1,738)
-------- --------
Cash provided by (used for) financing activities
Change in short term debt 3,342 (45)
Change in long term debt 1,118 6,176
Exercise of stock options 60 3
-------- --------
Net cash provided by financing activities 4,520 6,134
-------- --------
Net cash increase (decrease) (59) 150
Cash, beginning of period 188 1,632
-------- --------
Cash, end of period $ 127 $ 1,782
======== ========
Non-cash investing and financing activities:
Fair market value of assets acquired $ 12,434
Excess of purchase price over net assets acquired 6,310
Liabilities assumed (16,255)
Issuance of common stock (2,179)
--------
Cash used for business acquisition $ (310)
========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
FEATHERLITE,INC.
NOTES TO CONSOLIDATED 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 and nine month
periods ended September 30, 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 September 30, 1999 and
December 31, 1998 (in thousands):
1999 1998
Land and improvements $ 3,119 $ 3,042
Building and improvements 12,328 8,887
Machinery and equipment 12,980 11,763
Accumulated depreciation (9,084) (7,824)
------- --------
Net Property and equipment $19,343 $ 15,868
------- --------
Note 3: Goodwill and Other Assets
Goodwill and other consists of the following at September 30, 1999 and December
31, 1998 (in thousands):
1999 1998
Goodwill, net $ 9,092 $ 9,126
Aircraft held for resale 6,951 6,676
Idle facilities 76 231
Advertising and other 215 363
Investment in joint venture (24) 2
--------- ---------
Total $ 16,310 $ 16,398
--------- ---------
Note 4: Income taxes
The Company is the subject of an Internal Revenue Service examination for the
years ended December 31, 1995, 1996 and 1997. The IRS has proposed adjustments
related to the treatment of various incentive grants received in connection with
the Company's building expansion in prior years. The Company believes its
position is valid and intends to vigorously defend it. No assurance can be given
that the Company will be successful in sustaining its treatment of these grants.
Any additional tax due will result in the creation of a current income tax
liability and a reduction in deferred income tax liabilities.
In the third quarter, the Company adjusted its effective tax used to calculate
the current year tax provision from 40 percent to 38 percent to give
consideration to certain employment related tax credits that will be realized in
1999. This adjustment reduced the current period tax provision by $97,000.
6
<PAGE>
Note 5: 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. Either party may terminate this agreement
on thirty days written notice after October 31, 1999. At September 30, 1999,
$21.3 million was borrowed against this line.
Long-term debt consists of the following at September 30, 1999 and December 31,
1998 (In thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------- --------------------- ---------------------
September 30, December 31,
1999 1998
- ----------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Working Capital line of credit; interest at
prime less .75* $16,053 $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 * 7,875 7,817
- ----------------------------------------------------- --------------------- ---------------------
Bank notes; interest at prime plus .75%;
payable in vary monthly installments through
January,2001; collateralized by aircraft 5,329 5,215
- ----------------------------------------------------- --------------------- ---------------------
Notes and capitalized leases, interest to
11.5%, payable in varying monthly installments
to 2003; collateralized by real estate 322 1,184
- ----------------------------------------------------- --------------------- ---------------------
Bank note, interest at 7.34%; payable in
monthly installments to 2004; collateralized by
Sanford, Florida real estate.** 3,694 -
- ----------------------------------------------------- --------------------- ---------------------
Total long-term debt 33,273 32,155
- ----------------------------------------------------- --------------------- ---------------------
Less current maturities (1,514) (1,241)
- ----------------------------------------------------- --------------------- ---------------------
Long-term debt, net of current maturities $31,759 $30,914
- ----------------------------------------------------- --------------------- ---------------------
</TABLE>
* 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. The maturity date of the borrowings
under this agreement is September 24, 2002.
** Long-term debt also includes borrowings to refinance the land
acquisition and construction cost of a sales and service center as discussed in
Note 6 below. The aggregate borrowings on this project will consist of a $4
million note and a $1.2 million note. These notes will bear interest at a
variable rate based on the one month LIBOR plus 1.8 percent. They are repayable
as follows: the $4.0 million note is repayable in monthly installments based on
a 15 year amortization until November, 2003 when the remaining unpaid balance is
due and the $1.2 million note will be payable in monthly installments over a
sixty month period beginning November, 1999. The Company also entered into an
interest rate swap on the $4.0 million portion of this financing to fix the
effective interest rate on this note at 7.34 percent over a five-year term.
7
<PAGE>
Note 6: 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 $14.1 million at
September 30, 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 September 30, 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.
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, Florida location. In 1999, this project was expanded
to include a service center, which together with the equipment and furnishings
related to this total facility increased the total cost of the project by an
additional $1.5 million. This project was substantially completed by the end of
the third quarter of 1999.
Note 7: Related Party Transactions
In June 1999, the Company entered into an operating lease for an aircraft with
Clement Enterprises, Inc., a Company owned by certain shareholders. The lease
requires monthly rental payments of $28,698 through December 31, 2000. As of
September 1, 1999, the Company exercised its option to purchase this aircraft
from Clement Enterprises for $4.1 million, the cost of the aircraft to Clement
Enterprises. The purchase was financed by the assumption of underlying debt to a
bank in the same amount.
8
<PAGE>
Note 8: Shareholders' Equity
Shareholders' equity may be further detailed as follows (in thousands)
Sept. 30, Dec 31,
1999 1998
-------- --------
Common stock - without par value;
Authorized- 40,000,000 shares;
Issued- 6,510,104 shares $16,446 $16,236
Additional paid-in capital 4,062 4,062
Retained earnings 12,845 9,245
------- -------
Total Shareholders' equity $33,353 $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 percent of the initial public offering price of
$6.00 per share. This option expired in September 1999 and was not exercised.
In 1999, the Company issued an additional 25,000 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 9: 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 536,160 shares at September 30, 1999 and 529,380 at December 31,1998.
These options were granted at 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 27,000 shares have been granted in 1999. In the third quarter
of 1999, options for 10,053 shares were exercised at prices ranging from $5.875
to $6.00 in an aggregate amount of $60,000 and options for 10,167 shares were
forfeited.
Note 10: Earnings per Share
Following is a reconciliation of the weighted average shares outstanding used to
determine basic and diluted EPS for the three months and nine months ended
September 30, 1999 and 1998 (in 000's):
<TABLE>
<CAPTION>
--Three Months ended-- --Nine Months ended--
September 30 September 30
- ----------------------------------- ----------------- --------------- --------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
- ----------------------------------- ----------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares used for basic EPS 6,507 6,493 6,502 6,382
- ----------------------------------- ----------------- --------------- --------------- ----------------
Dilutive effect of:
- ----------------------------------- ----------------- --------------- --------------- ----------------
Stock Options 23 119 18 104
- ----------------------------------- ----------------- --------------- --------------- ----------------
Warrants - 31 - 26
- ----------------------------------- ----------------- --------------- --------------- ----------------
Shares used for diluted EPS 6,530 6,643 6,520 6,512
- ----------------------------------- ----------------- --------------- --------------- ----------------
</TABLE>
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.
9
<PAGE>
Note 11: 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 began allocating certain expenses previously classified as corporate to
the motorcoach segment to better reflect the cost of administering that segment.
Allocations in the amount of $321,000 were made for the quarter ended September
30, 1999 and $963,000 for the nine months ended September 30, 1999. No such
allocation was made in 1998. 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 segment sales, income before income taxes and assets are
as follows for the three month and nine month periods ended September 30, 1999
and 1998 (in 000's):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -----------------
1999 1998 1999 1998
------ ------ ------- ------
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net Sales to unaffiliated customers
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Trailers $ 26,392 $ 27,390 $ 85,943 $ 85,600
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Motorcoaches 27,547 21,505 83,713 54,331
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Total net sales $ 53,939 $ 48,895 $ 169,656 $ 139,931
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Income before income taxes
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Trailers $ 2,521 $ 2,004 $ 8,598 $ 7,623
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Motorcoach 1,048 1,142 2,891 2,907
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
3,569 3,146 11,489 10,530
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
General corporate (1,467) (1,516) (3,954) (4,531)
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Interest expense ( 893) ( 863) (2,665) (2,124)
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Other income (expense),net 322 103 932 574
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
Income before income taxes $ 1,531 $ 870 $ 5,807 $ 4,449
- ------------------------------------------------------- ----------------- ---------------- ---------------- -----------------
- ------------------------------------------------------- ----------------- ----------------
Identifiable assets
- ------------------------------------------------------- ----------------- ----------------
Trailers $ 41,244 $42,155
- ------------------------------------------------------- ----------------- ----------------
Motorcoaches 67,501 44,541
- ------------------------------------------------------- ----------------- ----------------
General corporate 9,096 13,552
- ------------------------------------------------------- ----------------- ----------------
Total assets as reported $ 117,841 $100,248
- ------------------------------------------------------- ----------------- ----------------
</TABLE>
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 and nine-month periods ended September
30, 1999 and 1998.
Results of Operations
Three months ended September 30, 1999 and 1998
On a consolidated basis, the Company's net income for the third quarter ended
September 30, 1999 was $1,046,000 or 16 cents per diluted share, compared with $
524,000, or 8 cents per diluted share, in the third quarter of 1998.
Net sales for the quarter increased by 10.3 percent to $53.9 million in 1999
compared with $48.9 million in 1998. This increase was led by a 28 percent, or
$6 million, increase in sales of Featherlite Vantare and Featherlite Vogue
motorcoaches. Sales of specialty trailers and transporters were down about 6
percent compared to 1998.
Gross profit margin increased by $1.6 million to $9.1 million in the third
quarter of 1999 from $7.5 million in 1998. As a percentage of sales, gross
profit margin for the quarter was 16.9 percent compared to 15.4 percent in 1998.
This improvement reflects higher margins realized in both the trailer and the
luxury motorcoach segments.
Selling and administration expenses increased in 1999 by $1.1 million, a 19.2
percent increase over 1998. As a percentage of sales, these expenses increased
to 13.0 percent in 1999 from 12.1 percent in 1998. This increase relates
primarily to growth in the motorcoach segment as discussed further below.
Interest expense increased slightly in 1999 compared to 1998 due to higher
levels of debt in 1999 and a slightly higher interest rate. An aircraft and
certain other property items were sold during the third quarter in 1999; no such
sales were made in the third quarter of 1998.
The provision for income taxes was 32 percent in 1999 compared to 40 percent in
1998. The reduced provision rate in 1999 reflects a reduction of $97,000 to
consider Federal and state tax credits that will be available to the Company on
its 1999 Federal and state income tax returns.
Segment Information
The following discussion pertains to information on the Company's two principal
business segments as set forth in Note 11 to the consolidated financial
statements for the three months ended September 30, 1999 and 1998.
Trailer segment
- ---------------------------------------- -------------- ---------------
1999 1998 Inc(dec)
------- ------- --------
- ---------------------------------------- -------------- ---------------
Net sales (000's) $ 26,392 $ 27,390 (3.6%)
- ---------------------------------------- -------------- ---------------
Segment income (000's) 2,521 2,004 25.8%
- ---------------------------------------- -------------- ---------------
Segment income percent 9.6% 7.3%
- ---------------------------------------- -------------- ---------------
Trailer segment sales decreased about 4 percent in the third quarter of 1999
over 1998. Sales of specialty trailers and transporters were down by 6 percent,
which was partially offset by an increase of almost 30 percent in sales of
11
<PAGE>
parts, delivery and other items. On a product group basis, horse trailer sales
decreased by 2 percent, livestock trailer sales were down 25 percent,
car/racecar transporter sales increased by 29 percent, utility trailer sales
were down 35 percent and commercial trailer sales were down by 18 percent.
Livestock trailer sales have been adversely impacted since the third quarter of
1998 by overall difficulties in the agribusiness economy. Utility trailers sales
were lower due to decreased sales of snowmobile trailers due in part to poor
snow conditions in prior years. Commercial trailer sales continue to reflect
Company's de-emphasis of this category. There have been no overall increases in
trailer model prices in 1999.
Trailer segment income increased in 1999 by 2.3 percentage points as the result
of a higher gross margin percent, which was partially offset by increased
marketing and selling expenses. The gross margin percentage increased by 3.1
percentage points primarily as the result of reduced aluminum and other material
costs. Segment income was partially decreased by marketing and delivery costs,
which increased as a percentage of sales to 10.6 percent in 1999 from 9.8
percent in 1998.
Motorcoach Segment
- --------------------------------------------- ------------------ --------------
1999 1998 Inc (dec)
-------- --------- ----------
- --------------------------------------------- ------------------ --------------
Net Sales (000's) $ 27,547 $ 21,505 28.1 %
- --------------------------------------------- ------------------ --------------
Segment income (000's) 1,048 1,142 (8.2)%
- --------------------------------------------- ------------------ --------------
Segment income percent 3.8% 5.3%
- --------------------------------------------- ------------------ --------------
Motorcoach segment sales increased by $6.0 million, or 28.1 percent, in the
third quarter compared with the same quarter last year. Sales of new Featherlite
luxury motorcoaches increased by about 12.5 percent over 1998 while sales of
used motorcoaches, which produced about 38 percent of the segment's sales
volume, increased by 65 percent.
Motorcoach segment income percentage decreased in 1999 by 1.5 percentage points
compared to 1998 due to an increase of .6 percentage points in the segment gross
margin percentage and a larger offsetting increase of 2.1 percentage points in
segment operating expenses. The improvement in the gross margin percentage is
due to improved gross margin percentages on both new and used motorcoach sales
in 1999 compared to 1998. Segment operating expenses increased by approximately
$1.0 million in 1999, including an allocation of $321,000 of corporate marketing
and administrative expenses in 1999, which decreased segment income as a percent
of sales by 1.2 percentage points. Increases in other segment operating expenses
relate to an expanded sales staff and promotional activities in 1999.
Nine months ended September 30, 1999 and 1998
Net sales of $169.7 million for the nine months ended September 30, 1999
increased by 21.2 percent from net sales of $139.9 million in last year's first
nine months. The 1999 increase of $29.7 million over 1998 reflects, in part, the
addition of the Vogue line of products acquired in May 1998. On a comparable
basis, adjusting for the pre-acquisition sales of Vogue, overall sales for the
nine month period increased by 11 percent over last year, including a sales gain
of 25 percent by the Featherlite Luxury Coach Division. Sales of Featherlite
aluminum and steel brand trailers and other products decreased by less than 1
percent.
Gross profit increased to $27.6 million in the first nine months of 1999 from
$21.8 million in 1998 primarily as a result of the increased levels of sales. As
a percentage of sales, gross margin for the nine months increased to 16.3% in
1999 from 15.6% in 1998. The gross profit percentage increase primarily reflects
the change in sales mix between trailers and motorcoaches as well as changes in
the gross margin percentage of each business segment.
12
<PAGE>
Selling and administrative expenses increased in 1999 by $4.3 million over 1998
and increased as a percentage of sales to 11.9 percent from 11.3 percent in
1998. The increase in the total cost of this category primarily reflects
additional advertising, personnel and other costs related to Company growth,
including $2.0 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
primarily related to increased working capital needs of the motorcoach segment.
Other income increased by $364,000 due to increased gains on aircraft sales in
1999.
The provision for income taxes reflects an effective federal and state income
tax rate of 38 percent in 1999 and 40% 1998. This reduction reflects certain
employment related Federal and state tax credits available to the Company in
1999, which reduce its effective tax rate for the year.
Segment Information
The following discussion pertains to information on the Company's two principal
business segments as set-forth in Note 11 to the consolidated financial
statements for the nine months ended September 30, 1999 and 1998:
Trailer segment
-------------------------- --------------- -------------- -----------------
1999 1998 % Inc(dec)
------- ------- ----------
-------------------------- --------------- -------------- -----------------
Net sales (000's) $85,943 $85,600 0.4 %
-------------------------- --------------- -------------- -----------------
Segment income (000's) 8,598 7,623 12.7 %
-------------------------- --------------- -------------- -----------------
Segment income percent 10.0% 8.9%
-------------------------- --------------- -------------- -----------------
Trailer segment sales increased by .4 percent in the first nine months of 1999
over 1998, including a decrease in trailer sales of 1.4 percent and increase in
parts, delivery and other sales of 29.7 percent. On a trailer product category
basis, horse trailer sales increased 2 percent, livestock trailer sales
decreased by 26 percent, car/racecar and specialty transporter sales were up 24
percent, utility trailer sales decreased by 22 percent and commercial trailers
sales were down by 18 percent. The decrease in livestock trailer sales was due
to the economic difficulties in the farm and agricultural economy that began in
1998, particularly in the Midwest. Utility sales were down due to decreased
deliveries of snowmobile trailers resulting from poor snow seasons in recent
years. The decrease in sales of commercial trailers reflects the Company's
de-emphasis of this product category.
Trailer segment income increased in 1999 by 1.1 percentage points due primarily
to an increased gross margin percentage on the sales. The gross margin
percentage increased by 1.7 percentage points due to lower costs of aluminum and
other materials. This improvement was partially offset by greater marketing and
delivery costs, which increased as a percentage of sales to 9.2 percent in 1999
from 8.6 percent in 1998.
Motorcoach Segment
- --------------------------- -------------------------------- -----------------
1999 1998 % Inc (dec)
-------- --------- ------------
- --------------------------- -------------------------------- -----------------
Net Sales (000's) $83,713 $54,331 54.3 %
- --------------------------- -------------------------------- -----------------
Segment income (000's) 2,891 2,907 (.4)%
- --------------------------- -------------------------------- -----------------
Segment income percent 3.5% 5.4%
- --------------------------- -------------------------------- -----------------
Motorcoach segment sales increased by $29.4 million, or 54 percent, in the first
nine months of 1999 compared to the same period last year. Sales of new
Featherlite luxury motorcoaches increased by about 42 percent over 1998 while
sales of used motorcoaches, which produced about 35 percent of the segment's
sales volume, increased by 80 percent. On a comparable basis, if the
preacquisition sales of Vogue are included in 1998, new motorcoach sales would
have increased by 18 percent and used sales by 41 percent.
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Motorcoach segment income percentage decreased in 1999 by 1.9 percentage points
compared to 1998 due to an increase of .7 percentage points in the segment gross
margin percentage which was offset by an increase of 2.5 percentage points in
segment operating expenses. The improvement in gross margin percentage is
primarily due to improved gross margin percentages on both new and used
motorcoaches in 1999 compared to 1998. Segment operating expenses increased by
approximately $2.1 million in 1999 due to the Featherlite Vogue acquisition in
May 1998 and an allocation of $963,000 of corporate marketing and administrative
expenses in 1999, which decreased segment income as a percent of sales by 1.2
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,
aircraft purchases and sales and the availability of additional capital required
for growth.
The Company expects consolidated sales to remain strong in the fourth quarter of
1999 and into the year 2000. 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
percent 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 benefit from growth in these markets.
Trailer segment growth should improve in the fourth quarter. This belief is
based on a number of factors, including the overall strength and quality of our
dealer network and the positive reponse from dealers and retail customers to
nine new models of trailers introduced throughout 1999. Dealer inventories
continue to turn well and inventory levels they maintain have declined since the
beginning of the year. Trailer segment order backlog remains strong at September
30, 1999 at a level of $16.6 million, which is 22 percent higher than June 30,
1999 and 64 percent higher than September 30, 1998. This business segment is
well situated for continued growth and profitability.
The Company also believes the motorcoach segment of the business is well
positioned for strong growth. This segment's position in the luxury motorcoach
market has been strengthened with the addition of Destinations RV, Inc. as a
dealer during the second quarter of 1999. Destinations RV with locations in
Coburg and Bend, Ore., is the Company's exclusive West Coast dealer for the
high-end Featherlite Vogue 5000 line of luxury motorcoaches. This dealership was
granted exclusive sales rights to cover a number of states in the western United
States, an area where there were limited sales for this product previously. The
Company also is consolidating certain functions of the Featherlite Vantare and
Featherlite Vogue organizations into the Featherlite Luxury Motorcoach Division.
This consolidation will achieve a unified sales and marketing thrust as well as
the benefits of unified operational control. The new Featherlite Luxury
Motorcoach Sales and Service Center in Sanford, Florida, has been completed and
is now open. This facility should provide excellent brand exposure and customer
convenience from its high-visibility and high-traffic location on Interstate 4.
The motorcoach segment backlog was $22.9 million at September 30, 1999 compared
with $19.2 million at December 31, 1998 and $18.5 million at September 30, 1998.
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 substantially all of its anticipated requirements for
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2000 at an average cost which is 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 present levels but could trend slightly lower as the motorcoach
segment becomes a larger percentage of the consolidated totals.
Sales and administration expenses for 1999 are expected to increase. These
expenses are expected to be reduced as a percentage of sales as benefits related
to the luxury motorcoach segment consolidation are realized. 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 the facilities
expansion 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 of custom paint and graphics 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 the nine months ended
September 30, 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 was 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.
Substantially all of these changes to hardware and software systems have been
completed at a cost of approximately $70,000. An overall readiness test will be
performed during the fourth quarter to ensure all the Company's hardware and
software will work properly using year 2000 dates. The Company is continuing to
contact vendors and customers to determine the status of their Year 2000
assessment and readiness programs. We are not aware of any significant problems
that would adversely impact the Company or of any other material risk to the
Company associated with Year 2000 issues. We are developing contingency plans to
address potential hardware and software systems failures that may arise
unexpectedly. 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 and 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 nine months of 1999, the Company's operations used net cash of
$59,000, including $48,000 used by operating activities, $4,531,000 used by
investing activities and $4,520,000 provided by financing activities.
Operating activities in the first nine months of 1999 used net cash of $48,000.
Net income from operations provided cash of $3,600,000. This amount was
increased by adjustments for depreciation and amortization of $1,736,000 million
and decreased by other non-cash items in an aggregate amount of $475,000. Net
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changes in receivables, inventories and other working capital items used cash of
$4,909,000. Inventories increased by $6,035,000 primarily to support an
anticipated increase in motorcoach segment sales. Increased expenditures for
working capital items may be required to support increased sales levels.
Investing activities in the first nine months of 1999 used net cash of
$4,531,000, including $3,346,000 used for the expansion of the sales and service
facility at the Company's location in Sanford, Florida as discussed further
below, $1,262,000 used for other property improvements, and net of $77,000
provided from aircraft sale and purchase transactions.
Financing activities provided net cash of $4,520,000 including new borrowings of
$932,000 for equipment and $2,929,000 related to the Sanford expansion, and a
net increase of $1,910,000 in borrowings on the wholesale floor plan and
revolving line of credit and $115,000 in aircraft debt and net other debt
reductions of $1,426,000. The exercise of stock options provided cash of
$60,000.
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%
(7.5 percent at September 30, 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 $16.1 million borrowed against this line as of
September 30, 1999. The Company also has available through Firstar various term
notes totaling $3 million as future borrowings for real estate projects and
equipment. There was $932,000 borrowed on these notes at September 30, 1999.
The Company also has a wholesale floor plan agreement with Deutsche Financial
Services to borrow up to $23.7 million for financing new and used motorcoaches
held in inventory, with interest at prime (8.25% at September 30, 1999) on
borrowed funds. This agreement includes covenants requiring maintenance of
defined levels of tangible net worth, leverage and working capital. At September
30, 1999, $21.3 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 on land
near the Company's Sanford, Florida location. This project was expanded to
include a service center, which together with the equipment and furnishings
related to this entire facility increased the total cost of the project by an
additional $1.5 million. These facilities were substantially completed in
September 1999. Construction and long-term mortgage financing for this project
totaling $5.2 million is being provided by First Union Bank on separate $4
million and $1.2 million notes. The interest rate on these notes is based on the
one-month LIBOR rate plus 1.8 percent (7.2 percent at September 30, 1999).
Interest only was payable on the $4.0 million note until July 1, 1999 when equal
monthly installments of principal and interest began based on a 15 year
amortization, until November, 2003 when the unpaid remaining balance is due.
Amortization of the $1,200,000 note will be in equal monthly installments based
on a sixty month repayment, beginning in November 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 a notional
amount equal to the $4 million note, which fixed the effective rate on this note
at 7.34 percent over a five year term. As of September 30, 1999, $3.6 million
was borrowed on the $4 million note and there were no borrowings on the $1.2
million note.
The Company believes that its current cash balances, cash flow generated from
operations and available borrowing capacity will be sufficient to fund continued
operations and capital requirements consistent with past levels. Significant
future growth of the Company may necessitate additional sources of financing if
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such funding cannot be arranged with the Company's current lenders. Such
financing may be in the form of debt, debt with equity features or a secondary
offering of common stock. No assurance can be given that such financing will be
available to the Company.
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 $14.1 million at September 30, 1999.
Also, the Company is self-insured for a portion of certain health benefit and
workers' compensation insurance claims. At September 30, 1999, the Company's
maximum annual claim exposure under these programs is approximately $4 million.
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
that may be completed in 2000. This expansion would be financed with new
borrowings from banks or other financial institutions.
In 1997, the Company entered into 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. Since inception, the Company has made
capital contributions totaling $56,000 to the joint venture. It is not expected
that this venture will require significant future 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.
In June, 1999, the Company entered into an operating lease for an aircraft with
Clement Enterprises, Inc., a Company owned by certain shareholders. In
September, the Company exercised an option to purchase this aircraft at cost
from Clement Enterprises, and assumed underlying indebtedness with a bank in the
same amount.
The Company is the subject of an Internal Revenue Service examination for the
years ended December 31, 1995, 1996 and 1997. The IRS has proposed adjustments
related to the treatment of various incentive grants received in connection with
the Company's building expansion in prior years. The Company believes its
position is valid and intends to vigorously defend it. No assurance can be given
that the Company will be successful in sustaining its treatment of these grants.
Any additional tax due will result in the creation of a current income tax
liability and a reduction in deferred income tax liabilities.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
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 September 30, 1999, the fair value of interest rate swaps was not
material. A 25 basis point increase in interest rates would reduce the Company's
future income before income taxes by approximately $126,000 at current levels of
debt.
The Company uses substantial quantities of aluminum in the 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 derivatives in connection with its operations.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Exhibit Index on Page 18 following signatures.
(b) Form 8-K. The Registrant filed one Form 8-K during the three months
ended September 30, 1999 to report a change in the Registrant's certifying
accountant.
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: November 12, 1999 /S/ CONRAD D. CLEMENT
Conrad D. Clement
President & CEO
Date: November 12, 1999 /S/ JEFFERY A. MASON
Jeffery A. Mason
Chief Financial Officer
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EXHIBIT INDEX
Form 10Q
Quarter Ended September 30, 1999
Exhibit No. Description
10.1 Agreement with Clement Enterprises to Purchase Aircraft
27 Financial Data Schedule (filed in electronic format only)
19
AIRCRAFT PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") made and entered into this 31st
day of August, 1999 by and between Featherlite Aviation Company, a Minnesota
corporation, with principal offices located at U.S. Hwy 63 & Hwy 9, Cresco, IA
52136 (hereinafter referred to as "Purchaser") and Clement Enterprises, Inc., a
Minnesota corporation with principal offices located 105 E. Oakland Avenue,
Austin, MN 55912, (hereinafter referred to as the "Seller").
RECITALS
WHEREAS, Purchaser desires to purchase and Seller desires to sell that
certain Aircraft identified as a 1995 Raytheon Beechjet 400A with Serial Number
RK-101 and Registration Number N400FT Together with (2) (Pratt & Whitney
JT-15D-5 engines with Serial Numbers PCE100382 (Left) and PCE100380 (Right)
including avionics, components, manuals and records in Sellers possession
(hereinafter the "Aircraft".)
NOW THEREFORE, in consideration of the mutual representation, covenants
and undertaking herein contained, and subject to and on the terms and conditions
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto warrant,
covenant and agree as follows:
ARTICLE I.
PURCHASER AND SALE OF THE PROPERTY
Section 1.01 Purchase and Sale of the Aircraft. Seller agrees to sell,
transfer, convey and assign to Purchaser all rights to and interest in the above
referenced Aircraft, and Purchaser agrees to purchase and acquire from Seller,
at the Closing (as hereinafter defined in Article V hereof), the Aircraft, for
and in consideration of the payment by Purchaser to Seller the purchase price
set forth herein.
Section 1.02 Instruments of Conveyance and Transfer. Seller agrees to
execute, acknowledge and deliver to Purchaser at the Closing such good and
sufficient instruments of sale, conveyance, transfer and assignments as shall be
effective to vest in the Purchaser all rights, title and interest in and to the
Aircraft, free and clear of all liens, encumbrances, security interests,
leaseholder interests, except the liens of Purchaser's lender (if any). At
Closing, Seller will take all steps necessary to put Purchaser in actual
possession and operating controls of the Aircraft. Such instruments of sale,
conveyance, transfer and assignment shall include (a) an executed bill of Sale
on FAA Forms (8050-2), and (b) an executed Delivery and Acceptance Receipt per
Appendix 2.
Section 1.03 Title and Risk of Loss. Title to and risk of loss, injury,
destruction or damage to said Aircraft by the occurrence of fire and other
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casualty shall be assumed by Purchaser at the time of delivery thereof or upon
transfer of such title documents, whichever event shall first occur.
ARTICLE II
CONSIDERATION FOR SALE OF ASSETS
Section 2.01 Consideration. The entire consideration to be delivered by
the Purchaser for the Aircraft and the agreements and covenants of the Seller
set forth herein shall be Four Million Fifty One Thousand Five Hundred U.S.
Dollars ($4,051,500.00) (USD) (the "Purchase Price").
Section 2.02 Payment. Subject to the terms and conditions of this
Agreement and in full consideration for the sale, conveyance, transfer,
assignment and delivery of the Aircraft and the agreements and covenants of
Seller set forth herein, pursuant to Article II hereof:
(a) at the Closing, Purchaser shall deliver to Seller
immediately available funds by wire transfer in the amount of $4,051,500.00
inclusive of the Earnest Money (as hereinafter defined).
(b) at the Closing, Seller shall execute and deliver to
Purchaser the various documents of sale, conveyance, transfer and assignments as
requested by Purchaser.
ARTICLE III
EARNEST MONEY
Section 3.01 Earnest Money. There is no Earnest Money involved in this
transaction. All further references to same shall be disregarded.
ARTICLE IV
CONDITION OF AIRCRAFT
Section 4.01 Aircraft Delivery. Seller shall deliver aircraft in an
airworthy condition, with no damage history. All aircraft systems functioning
within normal limits and current on its maintenance with all Advisory Directives
(AD's) and mandatory Service Bulletins (SB's) accomplished, at a mutually
agreeable location in the United States. Aircraft shall be delivered free and
clear of all liens or other encumbrances, with all engine and airframe logbooks,
and any associated accessories. Aircraft shall be delivered to Rochester, MN at
Seller's expense.
Section 4.01 Pre-Purchase Inspection. Purchaser waives all rights to a
pre-purchase inspection as it is responsible for all maintenance performed on
the Aircraft under the terms of a previous Lease Agreement between the parties.
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ARTICLE V
CLOSING
Section 5.01 Closing and Delivery. The sale, transfer, conveyance,
delivery and assignment of the Aircraft shall be consummated at a closing
(herein referred to as the "Closing") after acceptance of the Aircraft by
Purchaser. Such closing may be conducted via Fax and telephone and shall be
completed no later than August 20, 1999.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Notices. All notices, claims, certificates, requests,
demands, and other communications required or permitted to be delivered
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered personally or mailed or faxed as follows:
If to Seller, to: If to Purchaser, to:
Clement Enterprises, Inc. Featherlite Aviation Company
105 East Oakland Avenue P.O. Box 320
Austin, MN 55912 Cresco, IA 52136-0320
Attn: Conrad Clement Attn: Norm Helmke
Fax: 507-433-8890 Fax: 319-547-6099
or to such other address as the person to whom notice is to be given may have
previously provided to the other in writing in the manner set forth above.
Section 6.02 Finders and Brokers. The parties agree that no third
person has in any way brought the parties together or been instrumental in the
making of this Agreement.
Section 6.03 Expenses. Except as otherwise provided in this Agreement,
each party hereto shall pay all fees and expenses incurred by it in connection
with this Agreement, including without limitation, expenses of attorneys and
accountants. Purchaser agrees to pay one half the escrow fees directly
associated with this transaction.
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Section 6.04 Successors and Assigns. This Agreement may not be assigned
by any party hereto without the written consent of each other party. This
Agreement will be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective permitted successors and assigns, and
this Agreement is to intended to confer upon any other person other than the
parties hereto and their respective permitted successors and assigns any rights
or remedies under or by reason of this Agreement.
Section 6.05 Confidentiality. Subject to any requirement by law to do
so, the terms and conditions of this Agreement shall remain confidential and
Seller and Purchaser will not divulge any terms or conditions of this Agreement
to any third parties either prior to or subsequent to delivery of the Aircraft.
Section 6.06 Headings, Gender and Person. The article, section and
other headings contained in this Agreement have been added for convenience only
and will not affect in any way the meaning or interpretation of this Agreement.
Words used herein, regardless of the number or gender specifically used, shall
be deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context shall require.
Section 6.07 Severability. Any provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall be ineffective to
the extent of such invalidity, illegality or unenforceability without
invalidating or rendering unenforceable the remaining provisions of this
Agreement, and to the extent permitted by law, any determination of invalidity,
illegality or unenforceability in any jurisdiction shall not invalidate or
render illegal or unenforceable such provision in any other jurisdiction.
Section 6.08 Warranties. To the extent that any manufacturer's
warranties are still in effect with respect to the Aircraft (other than
warranties which by their terms are unassignable), Seller will reasonably assist
Purchaser to maintain continuity of the warranties and take such other
reasonable steps to assist Purchaser to process warranty claims directly with
the manufacturers.
Section 6.09 Non- Assumption of Liabilities. Purchaser shall not be
deemed in any manner to have assumed or agreed to perform or pay any debts,
accounts payable, liabilities, obligations, or contracts to perform repairs of
Seller of any nature, whether or not known, presently existing, absolute,
accrued, contingent or otherwise which relate to the Aircraft, other than those
liabilities as specified in Section 6.03.
Section 6.10 Taxes. Purchaser shall pay all taxes, which relate to the
Aircraft as a result of this transaction. Seller shall not be liable for the
payment of collection of any transfer, sales, or use taxes incurred as a result
of this transaction. Purchaser hereby agrees to execute any and all exemption
forms required by the state in which closing is effected.
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Section 6.11 Force Majeure. Seller shall not be liable for any failure
of or delay in delivery of the Aircraft for the period that such failure or
delay is due to acts of God or public enemy; civil war; insurrection or riots,
fire, floods, earthquakes, epidemics or quarantine restrictions, explosions or
serious accidents; governmental priorities or allocations; strikes or labor
disputes; inability to obtain Aircraft materials, accessories, equipment or
parts from the vendors on terms anticipated; or any cause beyond Seller's
control. Seller agrees to notify Purchaser promptly of the occurrence of any
such cause. In such notice, Seller will advise Purchaser either (a) of its
inability to deliver, in which event it shall promptly return the deposit of
Earnest Money, where applicable, and upon such notice and return, this Agreement
shall terminate without further force or effect, or (b) Seller's intention that
it can deliver within thirty (30) days of such notice in which event, Purchaser
agrees to extend the time for delivery by Seller for such (30) day period.
Section 6.12 Remedies. In the event Purchaser fails to consummate the
transaction contemplated herein and Seller is not in default of any warranty,
representation or condition hereof, Seller is entitled to the Earnest Money as
liquidated damages. In the event Seller fails to consummate the transaction
contemplated herein and Purchaser is not in default of any warranty,
representation or condition hereof, Purchaser is entitled to return of the
Earnest Money which shall be Purchaser's sole remedy.
Section 6.13 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of Minnesota.
The courts of Minnesota shall have exclusive jurisdiction to hear an determine
all claims, disputes and actions or suits which may arise hereunder and
Purchaser hereby consents to such exclusive jurisdiction and appoints the clerk
of any such court as Purchaser's agent for service of process.
Section 6.14 Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which will be deemed an
original, but all of which together shall constitute one and the same
instrument.
Section 6.15 Hold Harmless. Purchaser hereby agrees to hold Seller
harmless from and against any and all liabilities or responsibility whatsoever
in any manner arising out of or attributed to this Purchase Agreement or the
ownership, custody, movement, sale, use, operation or disposition of the
Aircraft or materials subsequent to purchase and delivery pursuant to this
Purchase Agreement, regardless of whether such liabilities or responsibility are
caused in whole or part by the negligence of the Seller or imposed under the
doctrine of strict liability.
Section 6.16 Condition of Aircraft. EXCEPT FOR THE ITEMS TO BE
RECTIFIED PURSUANT TO SECTION 4.03 OF THIS AGREEMENT, THE AIRCRAFT IS BEING
DELIVERED TO PURCHASER IN AN "AS IS" CONDITION AND SELLER MAKES NO OTHER
WARRANTIES, GUARANTEES OR REPRESENTATION OF ANY KIND, EITHER EXPRESSED OR
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IMPLIED, ARISING BY LAW OR OTHERWISE, INCLUDING BUT NOT LIMITED TO ANY
OBLIGATION OR LIABILITY OF SELLER WITH RESPECT TO ANY IMPLIED WARRANTY OF
MERCHANTABILITY, ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE
OF DEALING OR USAGE OF TRADE, AND ANY IMPLIED WARRANTY OF FITNESS AND ANY
OBLIGATION OR LIABILITY OF SELLER ARISING IN TORT, WHETHER OR NOT ARISING FROM
THE NEGLIGNECE OF SELLER OR UNDER THE DOCTRINE OF STRICT LIABILITY, ACTUAL OR
IMPUTED, OR FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE AIRCRAFT, FOR
ANY LIABILITY OF PURCHASER TO ANY THIRD PARTY OR ANY OTHER DIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGE.
Section 6.17 Authority. Purchaser and Seller warrant that each has full
power, authority and legal right to execute, deliver and perform their
obligations under this Agreement. The execution by each party will not violate
and does not require the consent of, any party under Purchaser's or Seller's
corporate charter, by-law, order, judgement or agreement.
Section 6.18 Original Signature. For the purpose of negotiating and
finalizing this Agreement, any signed document transmitted by fax machine shall
be treated in all manner and respects as an original document. The signature of
any party shall be considered for these purposes as an original signature. Any
such fax document shall be considered to have the same binding legal effect as
an original document. At the request of either party, any fax document shall be
re-executed by both parties in an original form.
Section 6.19 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto and supersedes all previous writings
delivered with respect to the subject matter hereof. There are no restrictions,
promises, representations, warranties or undertakings governing the subject
matter of this Agreement, other than those expressly set fort or referred to
herein or therein. Purchaser warrants that the terms and conditions of this
Agreement were not fully read and understood and that they constitute the entire
Agreement between the parties.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be duly
executed as the day and year first written above.
PURCHASER: SELLER:
Featherlite Aviation Company Clement Enterprises, Inc.
By: _______________________ By: _______________________
Title: ______________________ Title: _____________________
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Appendix 1
1995 Beechjet 400A
S/N RK- 101
N400FT
AIRFRAME: 1250 Hours Since New
No Damage History
ENGINES: Left S/N PCE100380 1250 Hours Since New
Right S/N PCE100382 1250 Hours Since New
AVIONICS:
Audio Panel: Dual DB System #438 Audio w/Dual Auto Comm & Audio Switches
Marker Beacon: Dual VIR-432 Displayed in Pilot EFD-871 & Copilot Panel, &
Antenna
#1 & #2 Comms: Dual Collins VHF-422A w/Dual Antennas
#1 Nav: Collins VIR-432 w/Display in Pilot EFD-871 Indicator & Nav
Antenna
#2 Nav: Collins VIR-432 w/Display in Co-Pilot SDU-640A Indicator
& Nav Antenna
Glideslope: Dual VIR-432 w/Display in Pilot EFD-871 & Co-pilot SDU-640A
Indicator, & Antenna
EFIS System: Collins Proline 4 Tube EFIS
ADF: Collins ADF-462 w/Display in SDU-640 & ANT-462A Antenna
DME: Dual Collins DME-442 Displayed in Pilot EFD-871 & Co-Pilot
IND-42A Indicator, & Dual Antennas
RMI: Collins SDU-640A in Pilot Panel Bearing from
VOR-1/VOR-2/ADF/FMS & Data from DME/VOR/ILS/LRN
Compass: #1 - Collins AHC-85E, #2 - Collins AHC-85E
Transponder: Dual Collins TDR-94 w/Dual ATC Ident Buttons & Dual
Antennas
Encoding Altimeter: Collins ADC-850 Air Data Computer & Altitude Encoder
Radar Altimeter: Collins ALT-55B w/Readout in Pilot EFD-871 Indicator &
Co-Pilot DRI-55 Indicator & Dual Antennas
Autopilot/FD: Collins APS-850A Autopilot w/APP-85 Autopilot Controller
& Dual FCC-850B Computer Modules & FCS-850 Flight Director
Long Range Nav: FND-871 FMS 850 w/RNAV/GPS
High Freq. King KHF-950
Weather Radar: Collins WXR-850 Doppler Four Color w/Display in MFD
Indicator & 14" RTA-844 Antenna/RT Unit
Paging: Four Speakers for Cabin Paging
CVR: Fairchild A100A
FDR: Fairchild Digital
7
<PAGE>
Intercom: Crew Interphone, Ground Comm Power Switch for Comm 1, Dual
Cockpit Speakers, Mic Key Button on Pilot/Co-Pilot Control
Wheels, Dual Handheld Mics, Dual Boom Mic Headsets, Voice
& Ident Filters
Telephone: Wulfsberg Flitefone VI w/C-118E Control & Ha-4 Handset
Adjacent to Copilot Seat
TCAS II Collins TCAS II
Dual Avionics Master Switches, White Lighting, Beech Radio Accessories
OPTIONAL EQUIPMENT INSTALLED:
Freon Cabin Air Conditioning (Std) Rohr Thrust Reversers
Tail De-Ice Mod Avionics Bravo Mod Digital Clocks
Aft Fuselage Baggage Ski Tube Collins
NPA GPS Mod Scheduled
Flaps 20 Improved Take Off (Std)
EXTERIOR: New July 99: Over All Matterhorn White with Red Mahogany (Vendeta Red)
and Las Vegas Pale Gold Metallic Accent Striping done in 1999 paint
scheme.
INTERIOR: Partial Refurb July 99: 8 - Place Cabin Seating, with 7 Chairs in
Double Club Arrangement and Canted Aisle Facing Lav Seat, Mushroom
Leather Seats and Sidewalls, New Taupe Carpet, Birdseye Maple
Cabinetry. Fwd LS Pyramid Cabinet with Baggage, Cloak, Storage
Drawers, Prepco, Cup Dispensers, Drip Pan & Work Surface, Waste
Container, Ice Chest Drawer. Center LS Pyramid Cabinet with Two
Storage Drawers, Removable Ice Chest. Center RS Pyramid with 2
Storage drawers, Removable Ice Chest. Two Aft Club Tables. Aft RS
Baggage Area.
REMARKS: No Known Damage History, Raytheon Service Center Maintained Since New,
Aircraft total hours are subject to change. Aircraft specifications are subject
to verification and do not constitute a warranty by Clement Enterprises, Inc.
Aircraft subject to removal from the market
8
<PAGE>
APPENDIX 2
AIRCRAFT DELIVERY AND ACCEPTANCE RECEIPT
To:
Name: _________________
Company: _________________
Via Fax: _________________
Aircraft: _______________ Serial No: __________ Registration No: ____________
Total Times @ Delivery: Airframe: ________ hrs. Left Engine: _______ hrs
Right Engine _____ hrs.
I, the undersigned, certify that I am the Purchaser named herein and
acknowledge full and satisfactory delivery of the Aircraft referred to above. I
have examined the Aircraft and all pertinent logs and manuals pertaining
thereto, accepted the pre-purchase inspection performed at Raytheon Aircraft
Services at Rockford, IL when the Aircraft was purchased by Seller, and have
found the Aircraft to be in all respects satisfactory.
Seller shall:
1. No Additional Items noted.
2. ___________________________________________________________________
3. ___________________________________________________________________
4. __________________________________________________________________
5. __________________________________________________________________
(Attach additional pages as necessary)
Featherlite Aviation Company (Purchaser) hereby agrees to indemnify and
hold Clement Enterprises, Inc. (Seller) harmless from and against any and all
liabilities or responsibility relating to the ownership custody, movement, sale,
use, operation or disposition of the Aircraft subsequent to delivery.
I accept the Aircraft subject only to the items noted herein, and I
acknowledge that I have conducted an acceptance flight of the Aircraft or that I
waive any rights to such acceptance flight. Purchaser hereby acknowledges that
delivery of the Aircraft is accepted at:
City: ______________________ Airport: ______
State: ______ on this ____ day of _________, 1999.
PURCHASER: SELLER:
__________________________________ __________________________________
BY: _____________________________ BY: _____________________________
TITLE: ___________________________ TITLE: __________________________
10
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 127
<SECURITIES> 0
<RECEIVABLES> 12,358
<ALLOWANCES> 0
<INVENTORY> 67,049
<CURRENT-ASSETS> 82,188
<PP&E> 28,427
<DEPRECIATION> (9,084)
<TOTAL-ASSETS> 117,841
<CURRENT-LIABILITIES> 51,803
<BONDS> 31,747
0
0
<COMMON> 16,445
<OTHER-SE> 16,908
<TOTAL-LIABILITY-AND-EQUITY> 117,841
<SALES> 169,656
<TOTAL-REVENUES> 169,656
<CGS> 142,008
<TOTAL-COSTS> 20,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,665
<INCOME-PRETAX> 5,807
<INCOME-TAX> 2,207
<INCOME-CONTINUING> 3,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,600
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.55
</TABLE>
