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 June 30, 2000
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.
6,535,104 Shares as of August 9, 2000
<PAGE>
FEATHERLITE, INC.
INDEX
Page No.
Index . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance sheets
June 30, 2000 and December 31, 1999. . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income
Three and Six Month Periods Ended June 30, 2000 and 1999 . . . . . . 4
Condensed Consolidated Statements of Cash Flows
Six Month Periods Ended June 30, 2000 and 1999 . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . 10
Item 3. Quantitative & Qualitative Disclosures about Market Risk . . . 15
Part II. Other Information:
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 16
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 Consolidated Balance Sheets
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
-------- -----------
<S> <C> <C>
Current assets
Cash $ 179 $ 248
Receivables 9,385 8,915
-------- --------
Inventories
Raw materials 12,008 14,195
Work in process 24,268 21,476
Finished trailers/motorcoaches 46,133 38,961
-------- --------
Total inventories 82,409 74,632
-------- --------
Prepaid expenses 1,484 1,547
Deferred taxes 1,665 1,159
-------- --------
Total current assets 95,122 86,501
-------- --------
Property and equipment,net 20,381 19,880
Goodwill and other assets, net 13,304 13,403
-------- --------
$ 128,807 $ 119,784
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 2,030 $ 1,770
Other notes payable 17,634 22,919
Accounts payable 24,104 18,664
Accrued liabilities 11,898 6,405
Customer deposits 3,028 4,678
-------- --------
Total current liabilities 58,694 54,436
Long-term debt, net of current maturities 33,394 30,563
Other long-term liabilities 1,054 1,059
Commitments and contingencies (Note 5)
Shareholders' equity 35,665 33,726
-------- --------
$ 128,807 $ 119,784
======== ========
</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 Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 66,527 $ 55,987 $ 135,561 $115,195
Cost of sales 56,838 48,073 116,586 98,306
--------- --------- --------- --------
Gross profit 9,689 7,914 18,975 16,889
Selling and administrative expenses 6,856 5,544 14,336 11,456
--------- --------- --------- --------
Income from operations 2,833 2,370 4,639 5,433
Other(expense), net
Interest (1,238) (839) (2,315) (1,737)
Other, net 269 151 609 580
--------- --------- --------- --------
Total other expense ( 969) (688) (1,706) (1,157)
---------- --------- ---------- ---------
Income before income taxes 1,864 1,682 2,933 4,276
Provision for income taxes 728 672 1,144 1,722
--------- --------- --------- --------
Net income $ 1,136 $ 1,010 $ 1,789 $ 2,554
========= ========= ========= ========
Net income per share - basic and diluted $ 0.17 $ 0.15 $ 0.27 $ 0.39
----- ------ ------ ------
Average common shares outstanding-basic 6,535 6,500 6,535 6,500
----- ------ ----- ------
Average common shares outstanding-diluted 6,535 6,525 6,535 6,515
------ ------- ------- ------
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
Featherlite, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months ended
June 30
2000 1999
---- ----
<S> <C> <C>
Cash provided by (used for) operating activities
Net income $ 1,789 $ 2,554
Depreciation & amortization 1,424 1,146
Other non-cash adjustments, net (61) (360)
Decrease (increase) in working capital, net 483 (1,326)
-------- -------
Net cash provided by operating activities 3,635 2,014
-------- -------
Cash provided by (used for) investing activities
Purchases of property and equipment, net (1,609) (2,605)
Purchases of aircraft (2,912) (3,425)
Proceeds from sale of aircraft and other property 3,010 3,968
-------- -------
Net cash used for investing activities (1,511) (2,062)
-------- --------
Cash provided by (used for) financing activities
Decrease(increase) in short-term debt (5,285) 1,273
Decrease (increase) in long-term debt 3,092 (1,203)
-------- -------
Net cash provided by (used for)financing activities (2,193) 70
-------- -------
Net cash increase (decrease) for period (69) 22
Cash balance, beginning of period 248 188
-------- -------
Cash balance, end of period $ 179 $ 210
======== =======
</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 consolidated 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, 1999 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 consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, necessary to fairly state the results of operations for the three
month and six months ended June 30, 2000 and 1999. The results of interim
periods may not be indicative of results to be expected for the year. For
further information refer to the consolidated financial statements and notes to
consolidated financial statements included in the Company's Form 10-K Annual
Report for the year ended December 31, 1999.
Financial Accounting Standards Board Emerging Issues Task Force (EITF) released
a tentative conclusion on Issue No. 00-10, "Accounting for Shipping and Handling
Revenues and Costs," in May 2000. This EITF Issue proposes that revenues related
to shipping and delivery be included as a component of net sales and the related
shipping costs be included as a component of cost of sales. Previously, the
Company included such costs in selling and administrative expenses. The
accompanying condensed consolidated statements of income have been prepared in
accordance with the tentative conclusions of this EITF Issue and amounts
presented for prior periods have been restated to be consistent with the
treatment of current period delivery expenses. This restatement had the effect
of increasing cost of sales and reducing selling and admininstrative expenses by
$1,207,000 and $906,000 for the three months June 30, 2000 and 1999,
respectively, and $2,394,000 and $1,727,000 for the six months ended June 30,
2000 and 1999, respectively. This reclassification had no effect on income
before taxes.
Note 2: Goodwill and Other Assets
During the six month period ended June 30, 2000, an aircraft was purchased at a
cost of $2.9 million and subsequently resold for $3.0 million, with a gain of
$105,000 realized on the sale. During the six month period ended June 30, 1999,
an aircraft was sold for $3.9 million with a gain of $200,000 realized and
another aircraft purchased at a cost of $3.4 million.
Note 3: Income taxes
The Company was the subject of an Internal Revenue Service examination for the
years ended December 31, 1995, 1996 and 1997. In May 2000 the Company settled
this matter with the IRS and adjusted certain previously recorded current and
deferred tax assets and liabilities to reflect this settlement.
Note 4: Financing Arrangements
In March 2000, the Company's line of credit with Deutsche Financial Services
Corporation (DFS) on new and used motorcoach products was increased from $23.7
million to $30 million. The Wholesale Financing Agreement with DFS was also
amended to change the minimum current ratio to be maintained by the Company.
6
<PAGE>
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 these arrangements for a maximum of $15.2 million at
June 30, 2000 and $14.5 million at December 31, 1999. During the six months
ended June 30, 2000, the Company was required to make repurchases totaling
$75,000. In June, 2000, a financial institution requested the Company repurchase
inventory from a defaulting dealer in the aggregate amount of $2.5 million. The
Company is currently negotiating the settlement of this matter.
The Company is partially 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 $6.4 million, including $1.9
million accrued for estimated unpaid claims at June 30, 2000, and $1.3 million
at December 31, 1999. The Company has obtained an irrevocable standby letter of
credit in the amount of $1.7 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.
The Company has obtained fixed price commitments from certain suppliers for a
substantial portion of its expected aluminum requirements in 2000 to reduce the
risk related to fluctuations in the cost of aluminum, the principal commodity
used in the Company's trailer segment. In certain instances there may be a
carrying charge added to the fixed price if the Company requests a deferral of a
portion of its purchase commitment to the following year.
The Company has a commitment to the City of Cresco, Iowa 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.
7
<PAGE>
Note 6: Shareholders' Equity
Shareholders' equity may be further detailed as follows (in thousands)
June 30, Dec. 31,
2000 1999
-------- --------
Common stock - without par value;
Authorized- 40 million shares;
Issued- 6,535 shares at June 30,2000
6,510 shares at Dec. 31,1999 $ 16,595 $16,445
Additional paid-in capital 4,062 4,062
Retained earnings 15,008 13,219
-------- -------
Total Shareholders' equity $ 35,665 $33,726
======== =======
In March 2000, 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, 1999. An
additional 50,000 shares may still be earned under this agreement based on 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 498,159 shares at June 30, 2000 and 536,160 at December 31,1999. 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 32,000 shares have been granted in 2000. Options totaling
70,001 were forfeited during the six months ended June 30, 2000.
Note 8: Net Income Per Share
Following is a reconciliation of the weighted average shares outstanding used to
determine basic and diluted net income per share for the three and six months
ended June 30, 2000 and 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
------------------------------- -----------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- -----------------------
2000 1999 2000 1999
----------------------------------------------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Net income available to common shareholders $ 1,136 $ 1,010 $ 1,789 $ 2,554
----------------------------------------------------- ------------- ------------- ------------- ---------
Weighted average number of shares outstanding-
basic 6,535 6,500 6,535 6,500
----------------------------------------------------- ------------- ------------- ------------- ---------
Dilutive effect of stock options - 25 - 15
----------------------------------------------------- ------------- ------------- ------------- ---------
Weighted average number of shares outstanding-
dilutive 6,535 6,525 6,535 6,515
----------------------------------------------------- ------------- ------------- ------------- ---------
Net income per share - basic and diluted $ .17 $ .15 $ .27 $ .39
----------------------------------------------------- ------------- ------------- ------------- ---------
</TABLE>
8
<PAGE>
Note 9: Segment Reporting
The Company has two principal business segments that manufacture and sell
trailers and luxury motorcoaches to many different markets, including
recreational, entertainment and agriculture. Management evaluates the
performance of each segment based on income before income taxes.
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 and six month periods ended June 30, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
------------------------------------------- ---------------------------------------------------
Corporate
Trailers Motorcoaches and other Total
------------------------------------------- ----------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
Three Months Ended June 30:
------------------------------------------- ----------- --------------- ------------ ----------
2000
------------------------------------------- ----------- --------------- ------------ ----------
Net sales to unaffiliated customers $ 35,315 $ 31,212 $ - $ 66,527
------------------------------------------- ----------- --------------- ------------ ----------
Income (loss) before income taxes 2,991 (794) (333) 1,864
------------------------------------------- ----------- --------------- ------------ ----------
Identifiable assets 38,253 82,532 8,022 128,807
------------------------------------------- ----------- --------------- ------------ ----------
------------------------------------------- ----------- --------------- ------------ ----------
1999
------------------------------------------- ----------- --------------- ------------ ----------
Net sales to unaffiliated customers $ 28,734 $ 27,253 $ - $ 55,987
------------------------------------------- ----------- --------------- ------------ ----------
Income (loss) before income taxes 1,680 184 (182) 1,682
------------------------------------------- ----------- --------------- ------------ ----------
Identifiable assets 39,261 62,365 10,267 111,893
------------------------------------------- ----------- --------------- ------------ ----------
------------------------------------------- ----------- --------------- ------------ ----------
Six Months Ended June 30:
------------------------------------------- ----------- --------------- ------------ ----------
2000
------------------------------------------- ----------- --------------- ------------ ----------
Net sales to unaffiliated customers $ 69,965 $ 65,596 $ - $135,561
------------------------------------------- ----------- --------------- ------------ ----------
Income (loss) before income taxes 5,474 (2,014) (527) 2,933
------------------------------------------- ----------- --------------- ------------ ----------
Identifiable assets 38,253 82,532 8,022 128,807
------------------------------------------- ----------- --------------- ------------ ----------
------------------------------------------- ----------- --------------- ------------ ----------
1999
------------------------------------------- ----------- --------------- ------------ ----------
Net sales to unaffiliated customers $ 59,030 $ 56,165 $ - $115,195
------------------------------------------- ----------- --------------- ------------ ----------
Income (loss) before income taxes 3,825 692 (241) 4,276
------------------------------------------- ----------- --------------- ------------ ----------
Identifiable assets 39,261 62,365 10,267 111,893
------------------------------------------- ----------- --------------- ------------ ----------
</TABLE>
9
<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 and six month periods ended June 30, 2000 and
1999.
Results of Operations
Three months ended June 30, 2000 and 1999
On a consolidated basis, the Company's net income for the three months ended
June 30, 2000, was $1.1 million or 17 cents per diluted share, compared with
$1.0 million, or 15 cents per diluted share, in the second quarter of 1999.
Net sales for the quarter increased by 18.8 percent to $66.5 million in 2000
compared with $56.0 million in 1999. This increase included a 23 percent
increase in sales of specialty trailers and transporters, which were up in all
categories except commercial trailers. Motorcoach segment sales were up 15
percent, including an increase of 14 percent in sales of new bus conversion
coaches and a 38 percent increase in sales of used coaches. Sales of the
Featherlite Vogue Class A motorcoach were lower than last year as the current
model is being replaced by another model to be introduced later in 2000.
Gross profit increased by 22 percent to $9.7 million in the second quarter of
2000 from $7.9 million in 1999. As a percentage of sales, gross profit margin
for the quarter was 14.6 percent compared to 14.1 percent in 1999. These margin
percentages are 1.9 percent and 1.6 percent lower than would have been
previously reported due to a reclassification of delivery expense to cost of
sales from selling expenses as proposed by the FASB's Emerging Issues Task Force
recent pronouncement,"Accounting for Shipping and Handling Revenues and Costs."
This increase for the quarter reflects greater margins realized on sales in the
trailer segment partially offset by lower margins in the motorcoach segment.
Trailer segment margins were 270 basis points higher than 1999 due to the
favorable impact of reduced aluminum costs and improved labor and overhead
utilization. Delivery costs reduced trailer margins in 2000 by 30 basis points
compared to 1999 due to increased fuel costs and changes in delivery loads.
Motorcoach gross profit margins declined by 190 basis points as lower margins
were realized on new and used motorcoach sales due to higher than expected
conversion costs on custom units and lower than expected selling prices on units
sold from inventory.
Selling and administration expenses increased in 2000 by $1.3 million, a 24
percent increase over 1999. As a percentage of sales, these expenses increased
to 10.3 percent in 2000 from 9.9 percent in 1999. As discussed above, these
pecentages are 1.9 percent and 1.6 percent lower than would have been previously
reported due to the inclusion of delivery expense in cost of sales rather than
selling expenses. Trailer segment expenses increased by $757,000 (27 percent)in
2000 due in part to higher marketing costs related to a new coop advertising
program adopted in 2000 and an increase in commissions and other personnel
related costs. Motorcoach segment expenses increased by $556,000 (20 percent)in
2000 compared to 1999 due mainly to increased marketing personnel and selling
costs from a larger sales organization in 2000 as well as increased research and
development costs related to new model motorcoaches being developed in 2000.
Interest expense increased in 2000 compared to 1999 by $399,000 due to higher
levels of working capital related debt in 2000 and a higher variable interest
rate. This increase was offset by increased other income items in 2000.
10
<PAGE>
Income before taxes (IBT) inceased by $182,000 in the second quarter of 2000
compared to this quarter last year. This increase reflects an increase in
trailer segment IBT, including corporate and other, of almost $1.2 million and a
decline of $978,000 in motorcoach segment IBT for the reasons discussed above.
The provision for income taxes was 39 percent in 2000 compared to 40 percent in
1999. The reduced provision rate in 2000 reflects a reduction to consider
Federal and state tax credits that will be available to the Company on its 2000
Federal and state income tax returns.
Six months ended June 30, 2000 and 1999
On a consolidated basis, the Company's net income for the six months ended June
30, 2000, was $1.8 million or 27 cents per diluted share, compared with $2.6
million, or 39 cents per diluted share in the six months ended June 30, 1999.
Net sales for the six months increased by 17.7 percent to $135.6 million in 2000
compared with $115.2 million in 1999. This increase included a 18 percent
increase in sales of specialty trailers and transporters, which were up in all
categories except specialty transporters which were off slightly. Motorcoach
segment sales were up about 17 percent, including an increase of about 3 percent
in sales of new motorcoaches and a 38 percent increase in sales of used coaches.
Gross profit increased by 12.4 percent to $19.0 million in the first six months
of 2000 from $16.9 million in 1999. As a percentage of sales, gross profit
margin for the six month period was 14.0 percent compared to 14.7 percent in
1999. These margins are 1.8 percent and 1.4 percent, respectively, lower than
would have been previously reported due to the reclassification of delivery
expenses to cost of sales from selling expenses as proposed by the FASB's
Emerging Issues Task Force recent procouncement,"Accounting for Shipping and
Handling Revenues and Costs." This decline of 70 basis points in the margin
percentage in 2000 compared to 1999 primarily reflects lower margins realized on
sales in the luxury motorcoach segment. Trailer margins were 120 basis points
higher than 1999 due to the favorable impact of reduced aluminum costs and
improved labor and overhead utilization. Trailer margins were adversely impacted
by a 40 basis point increase in delivery costs in 2000 related to increased fuel
costs as well as an increase in the number of deliveries. Motorcoach gross
profit margins declined by almost 240 basis points as lower margins were
realized on new motorcoach sales due to higher than expected conversion costs on
custom units and lower than expected selling prices on units sold from
inventory. These declines were partially offset by higher margins realized from
increased prices on sales of used units.
Selling and administration expenses increased in 2000 by $2.9 million, a 25
percent increase over 1999. As a percentage of sales, these expenses increased
to 10.6 percent in 2000 from 9.9 percent in 1999. As discussed above, these
percentages are 1.8 percent and 1.4 percent lower, respectively, than would have
been previously reported due to the inclusion of delivery expense in cost of
sales rather than selling expenses as discussed above. Trailer segment expenses
increased by $1.3 million (22 percent)in 2000, including the following:
increased sales personnel wages and commissions, increased expenses related to a
new advertising program, increased dealer promotion and training costs,
increased legal expenses related to a patent infringement lawsuit and increased
consulting fees related to a review of certain operations. Motorcoach segment
expenses increased by $1.6 million(29 percent) due mainly to increased marketing
personnel and selling costs related to organization growth and increased
research and development costs related to the development of a two new
motorcoach models.
11
<PAGE>
Interest expense increased by $543,000 in 2000 compared to 1999 due to higher
levels of debt in 2000 primarily related to growth in working capital as well as
a higher variable interest rate. Other income, including gains on aircraft and
other property sales, was about the same in both years.
Income before taxes (IBT) deceased by $1.3 million in the first six months of
2000 compared to this period last year. This decrease reflects an increase in
trailer segment IBT, including corporate and other, of almost $1.4 million and a
decline of $2.7 million in motorcoach segment IBT for the reasons discussed
above.
The provision for income taxes was 39 percent in 2000 compared to 40 percent in
1999. The reduced provision rate in 2000 reflects a reduction to consider
Federal and state tax credits that will be available to the Company on its 2000
Federal and state income tax returns.
Liquidity and Capital Resources
Operating activities in the first six months of 2000 provided net cash of $3.6
million. Net income was $1.8 million. This amount was increased by adjustments
for depreciation and amortization of $1.4 million and decreased by other
non-cash items in an aggregate net amount of $61,000. Net changes in
receivables, inventories and other working capital assets used cash of $8.7
million with substantially all the change resulting from increased inventories
at the end of the quarter primarily related to the motorcoach segment where
sales increases have not met expectations. Net increases of accounts payable,
customer deposits and other current liabilities provided cash of $9.1 million.
These changes include, among other reasons: increases of $10.8 million in
accounts payable and accrued liabilities, due in part to an increase in the
number of bus shells held on a consignment basis from the manufacturer,
increased accruals for anticipated health and workers compensation claims,
increased income taxes and increased amounts due to dealers for holdback
discounts. Customer deposits decreased by $1.7 million as previously paid
deposits were applied to invoices for trailers and motorcoaches completed during
the quarter. Increased expenditures for working capital items may be required to
support increased sales levels.
Investing activities in the first six months of 2000 used net cash of $1.5
million, including $1.6 million for property and equipment improvements, $3.0
million provided from an aircraft sale and $2.9 million used for an aircraft
purchase transaction.
Financing activities used net cash of $2.2 million, including new borrowings of
$1.3 million for property and equipment purchases, a net decrease of $2.0
million in borrowings on the wholesale floor plan and revolving line of credit,
a net reduction of $106,000 in aircraft debt and other debt reductions of $1.4
million.
The Company has a working capital line of credit with its primary lender,
Firstar Bank. This line has a borrowing limit of $25.0 million based on levels
of eligible receivables and inventory and an interest rate of prime less .75%
(8.75 percent at June 30, 2000). 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 $20.6 million borrowed against this line as of June 30, 2000.
The Company also has available through Firstar various term notes totaling $3
million as future borrowings for real estate projects and equipment. There was
$1.5 million borrowed on these notes at June 30, 2000.
12
<PAGE>
The Company also has a wholesale floor plan agreement with Deutsche Financial
Services to borrow up to $30.0 million (increased from $23.7 million in March,
2000) for financing new and used motorcoaches held in inventory, with interest
at prime (9.50% at June 30, 2000) on borrowed funds. This agreement includes
covenants requiring maintenance of defined levels of tangible net worth,
leverage and working capital as measured by a current ratio.
At June 30, 2000, $17.4 million was borrowed on this line.
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. At June 30,
2000, the Company had $12.9 million of unused borrowing availability.
Significant future growth of the Company may necessitate additional sources of
financing if 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 5 to consolidated financial statements, the Company is
contingently liable under certain dealer floor plan and retail financing
arrangements. These contingent liabilities total approximately $15.2 million at
June 30, 2000. A lender has requested the Company to repurchase $2.5 million of
inventory from a defaulting dealer under the terms of one of these financing
arrangements. The Company is negotiating the settlement of this claim. However,
any amount repurchased will be financed under existing wholesale floor plan
financing arrangements. Also, the Company is self-insured for a portion of
certain health benefit and workers' compensation insurance claims. At June 30,
2000, the Company's maximum annual claim exposure under these programs is
approximately $6.4 million. The Company has obtained an irrevocable standby
letter of credit in the amount of $1.7 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, Iowa 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.
The Company leases certain office and production facilities under various leases
that expire at varying dates through fiscal year 2011. Minimum lease payments
for 2000 are expected to total $1.1 million. The Company may lease a new sales
and service center in North Carolina from an entity owned by certain of its
principal shareholders. This would be used for selling new and used motorcoaches
and to provide maintenance services for motorcoaches and Featherlite trailers
and transporters. The terms and conditions of this lease have not yet been
finanalized but are expected to comparable to those of the existing facility
lease. It is expected this facility will be completed in the fourth quarter of
2000.
The Company was the subject of an Internal Revenue Service examination for the
years ended December 31, 1995, 1996 and 1997. In May, 2000 the Company settled
this matter with the IRS and adjusted previously recorded current and deferred
tax assets and liabilities to reflect this settlement.
Looking Forward and Risk Factors
The statements made in this Form 10-Q quarterly report which are forward looking
in time involve risks and uncertainties discussed here and in the Company's Form
10-K 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,
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fluctuations in the price of aluminum, competition, facilities utilization,
aircraft purchases and sales and the availability of additional capital required
for growth.
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 remain strong. 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 and more changes planned in 2000. Dealer
inventories continue to turn well and inventory levels they maintain have
remained relatively stable since the beginning of the year. Trailer segment
order backlog remains strong at June 30, 2000 at a level of $25.4 million, which
is 59 percent higher than December 31, 1999 and 86 percent higher than June 30,
1999. This business segment is well situated for continued growth and
profitability.
We are cautious concerning growth in the motorcoach segment for the remainder of
2000. The motorcoach division order backlog was $15.1 million at June 30, 2000
compared with $17.2 million at December 31, 1999 and $23.7 million at June 30,
1999. Motorcoach order backlog is below last year in part due to the replacement
of the Vogue 5000 model with the 6000 model and there are no orders for either
of these models in the June 30, 2000 backlog. Also, recent order volume for
other luxury motorcoach models has been weaker than anticipated. As a result,
there has been an increase in available finished motorcoach inventory for
certain of these models. We continue to work toward improving production
efficiency and controlling costs in the motorcoach segment. In the first half of
2000 we launched our new Featherlite XLII motorcoach and will introduce a
slide-out version of this new model in the second half of the year. We are on
track toward introducing a new Featherlite Vogue 6000 motorcoach in the second
half of the year. In support of our focus on direct sales of Featherlite luxury
motorcoaches, we plan to open a new sales and service center at the end of the
year. This new service center will be in Statesville, N.C. and will further
increase Featherlite's brand visability, direct sales and proximity of our
motorcoach service capabilities to our many customers in this growing region.
The Company discontinued its motorcoach dealer relationship with Oregon based
Destinations RV, Inc.
There are a number of risk factors related to the future operating results of
the Company, including the following:
1. The Company has obtained commitments from suppliers to provide, at an agreed
upon fixed price, substantially all of its anticipated aluminum requirements for
2000. If the Company is unable to obtain such commitments from suppliers or
otherwise reduce the price risk related to the purchases of aluminum in years
beyond 2000, this could have an adverse impact on the Company's operating
results if the cost of alumimum increases significantly above levels "locked-in"
for 2000 and the Company is not able to increase prices to cover the higher
costs. The Company does not engage in hedging transactions or other use of
derivatives in connection with its operations.
2. 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.
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3. 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.
4. 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.
5. The Company has made increased use of leverage and incurred increased
interest and related expenses in the three years ended December 31, 1999 and the
six months ended June 30, 2000. Increased debt has been incurred in connection
with financing the operations and facilities expansion at the Featherlite Luxury
Division and in financing its inventory and other working capital requirements.
The Company may not be able to increase its current borrowing limits for working
capital or obtain additional funding for future capital expenditures without the
consent of its primary lender due to certain loan covenants related to leverage
and fixed charge coverage. Increased leverage and related expenses create risk
to future operating results of the Company.
6. The Company 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. An increase in
interest rates by one percentage point would reduce the Company's future annual
net income by approximately $300,000 at current debt levels.
7. The Company is introducing two models of motorcoaches in the second half of
2000 and has available finished inventory in one of the models being phased out.
There is a risk that the sale of this inventory will not realize normal margins
and that there will be unabsorbed labor and overhead costs related to
inefficiencies in the production of the new models which could adversely impact
the Company's future operating results.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
The information required by this item is incorporated by reference to
"Management Discussion and Analysis-Looking Forward and Risk Factors" section of
this Form 10-Q for the quarterly period ended June 30, 2000.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
In March, 2000, the Registrant issued 25,000 shares of Common Stock to the
former owner of Vantare International, Inc. ("Vantare"). These were additional
shares earned pursuant to the terms of the purchase agreement for the
Registrant's 1996 acquisition of Vantare, for the achievement of defined
earnings levels through December 31, 1999. Goodwill related to this acquisition
was increased by $150,000 for this stock issue. The Company relied on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. The certificate representing the shares contains a restrictive securities
legend.
Item 4. Submission of Matters to a Vote of Security-Holders.
(a)The Annual Meeting of the Registrant's shareholders was held on Wednesday,
May 3, 2000.
(b) At the Annual Meeting a proposal to set the number of directors at seven was
adopted by a vote of 6,209,832 shares in favor, with 36,721 shares against,
20,290 shares abstaining and no shares represented by broker non-votes.
(c) Proxies for the Annual Meeting were solicited pursuant to Regulation 14A
under the Securities Act of 1934. The following persons were elected directors
of the Registrant to serve until the next annual meeting of shareholders and
until their successors shall have been duly elected and qualified:
-------------------- -------------------- --------------------------
Nominee Number of Votes For Number of Votes Withheld
-------------------- -------------------- --------------------------
Conrad D. Clement 6,237,337 29,506
-------------------- -------------------- --------------------------
Jeffery A. Mason 6,242,937 23,906
-------------------- -------------------- --------------------------
Tracy J. Clement 6,233,037 33,806
-------------------- -------------------- --------------------------
Thomas J. Winkel 6,243,187 23,656
-------------------- -------------------- --------------------------
Kenneth D. Larson 6,243,187 23,656
-------------------- -------------------- --------------------------
Terry E. Branstad 6,241,587 25,256
-------------------- -------------------- --------------------------
Charles A. Elliott 6,236,087 30,756
-------------------- -------------------- --------------------------
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 no Form 8-K reports during the three months
ended June 30, 2000.
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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: August 9, 2000 /S/ CONRAD D. CLEMENT
Conrad D. Clement
President & CEO
Date: August 9, 2000 /S/ JEFFERY A. MASON
Jeffery A. Mason
Chief Financial Officer
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EXHIBIT INDEX
Form 10-Q
Quarter Ended June 30, 2000
Exhibit No. Description
27 Financial Data Schedule (filed in electronic format only)
