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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NO.: 0-24804
DECEMBER 31, 2001
FEATHERLITE, INC.
(Exact Name of Registrant as Specified in its Charter)
MINNESOTA 41-1621676
(State of Incorporation) (IRS Employer Identification Number)
HIGHWAYS 63 AND 9
CRESCO, IOWA 52136
(563) 547-6000
(Address of principal executive offices;
Issuer's telephone number)
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of March 20, 2002, was $2,847,000 (based on the last sale price of
the registrant's Common Stock on such date).
Number of shares of Common Stock, no par value, outstanding at March 20, 2002:
6,535,104.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the indicated Part of
this Form 10-K: (1) Annual report to shareholders for the fiscal year ended
December 31, 2001 - Part II; (2) Proxy statement for 2002 Annual Meeting - Part
III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Featherlite, Inc. is a Minnesota corporation formed in 1988 to acquire
the assets of a non-affiliated business that had manufactured trailers since the
early 1970s under the FEATHERLITE(R) brand name. Our principal operations have
historically involved designing, manufacturing and marketing over 400 models of
both custom-made and standard model specialty aluminum and steel trailers. We
market our trailers primarily through a network of over 240 full-line dealers
located in the United States and Canada. The Company markets its trailers
primarily under the FEATHERLITE(R) brand name.
In 1996, the Company also began designing, manufacturing and marketing
custom luxury motorcoaches primarily through the acquisition of the assets of
Vantare International, Inc. In 1998, the Company expanded its presence in this
market by acquiring the assets of Mitchell Motorcoach Sales, Inc. Entry into the
luxury motorcoach market was consistent with Featherlite's long-term growth and
product diversification strategy. Our motorcoaches are marketed under the trade
names "FEATHERLITE VANTARE(R) and FEATHERLITE LUXURY COACHES(R). Production of
the FEATHERLITE VOGUE(R) model was suspended in 2001, although new models still
in inventory are continuing to be sold under this trade name.
FEATHERLITE(R) trailers are made of aluminum, which differentiates the
Company from most of its competitors which primarily make steel trailers.
Aluminum trailers are superior to steel in terms of weight, durability,
corrosion resistance, maintenance and weight-to-load ratio. Although the
Company's focus is on manufacturing and marketing aluminum trailers, it also
markets a line of composite steel and aluminum trailers under the
FEATHERLITE-STL(R) series and DIAMOND D(R) brands in order to provide dealers
and customers with a high quality, but less expensive, alternative to our
aluminum trailers.
Management believes that growth in the demand for the Company's
trailers has historically coincided with an overall market expansion for
trailers generally, particularly in uses related to entertainment and leisure.
Demand for the Company's trailers has been significantly driven by the
lifestyles, hobbies and events that are important to Featherlite's target
customers. In particular, growth in independent product and service markets that
also could use or require a high quality specialty trailer has created increased
demand for the Company's trailers as the Company seeks to design and develop
trailers that address the needs of customers in niche markets. Those categories
and uses include pickup trucks, sport utility vehicles, all-terrain-vehicles,
and snowmobiles; auto races, classic car shows and motorcycle rallies; hobby
farming and raising and showing horses; art and craft fairs and expositions; and
vending trailers for selling crafts, food and other concessions, such as
T-shirts, souvenirs, apparel or novelty items. Examples of other users of the
Company's trailers include lawn care services, house painters, construction
crews, traveling museum exhibitions, concert tours, musical groups and fiber
optic utility crews that require clean environments in which to splice and store
cable. The Company's mobile marketing transporter trailers serve a wide variety
of sales and marketing needs for Fortune 500 companies, as well as medical,
larger non-profit and governmental clients and event and sports promotions
The target market for the Company's motorcoaches is typically affluent
business owners, retirees, professionals and those in the entertainment and
sports industries. The number of affluent retirees and business owners who
represent the target market for luxury motorcoaches produced by Featherlite is
also continuing to grow as the "baby boomer" generation ages.
Economic uncertainty in the early months of 2001 combined with the
tragic events of September 11 had an adverse impact on sales in 2001,
particularly the fourth quarter, when sales were down 30 percent from the same
quarter in 2002. However, the Company is again experiencing positive signs of a
recovery in the initial stages of 2002 as trailer backlog is increasing and
motorcoach sales are returning to more historic levels. Management believes
Featherlite is positioned to continue as a leader in the leisure, recreation and
entertainment categories, including motorsports, and is hopeful that the
Company's sales will continue their overall historical growth trend after a
decline in 2001.
- 1 -
The Company continually monitors the market for opportunities to
leverage the FEATHERLITE(R) brand name and its expertise. Featherlite pioneered
the introduction of standard model aluminum horse and livestock trailers, which
traditionally had been custom made. It has also responded to the increasing
demand for customizing the interiors of trailers and motorcoaches, a capability
which helps distinguish the Company from its competition. Typical interiors
range from a simple interior, such as a dressing room, closet and mirror in the
nose of a horse trailer, to upscale interiors such as upholstered seating and
sleeping areas, kitchens, bathrooms and modern electronics, including fax
machines, cellular phones and satellite dishes, in race car transporters and
luxury custom motorcoaches. In addition, Featherlite refines the products it
already offers by introducing new features to satisfy the increasing demands of
its customers. In 2001, more than 60 new models or existing model changes were
introduced.
The Company pays special attention to its target customers and attempts
to reach them through a variety of media. Featherlite benefits from national
advertising and sponsorship of major events which are visible to its customers.
These sponsorships include Featherlite's designation as the "Official Trailer"
of NASCAR, Championship Auto Racing Teams (CART), Indy Racing League (IRL), Auto
Racing Club of America (ARCA), American Speed Association (ASA), World of
Outlaws (W.O.O.), and National Hot Rod Association (NHRA). Featherlite has an
association with the Ohio All American Quarter Horse Congress, the National
Western Livestock Show, Appaloosa Horse Club, United States Team Roping
Competition, the National High School Rodeo Association and the World's Toughest
Rodeo. The Company's luxury motorcoach is the "Official Coach" of NASCAR, NHRA,
and IRL. In 2001, the Company began a three-year agreement with NBC and TNT
networks to broadcast Featherlite TV commercials as part of their nationwide
telecasts of certain NASCAR races. In early 2002, a similar agreement was
reached with FOX Sports.
The Report of Independent Public Accountants accompanying the Company's
consolidated statements as of December 31, 2001 and 2000 and the years then
ended state the Company is unable to ascertain whether it will have sufficient
liquidity available under existing credit lines to fund operations or whether
the Company will meet various covenant requirements contained in its financing
agreements as discussed in Notes 2 and 9 to the consolidated financial
statements. The Report of Independent Auditors states these matters raise
substantial doubt about the Company's ability to continue as a going concern.
SPECIALTY TRAILER AND MOTORCOACH INDUSTRIES
The Company operates in two principal industries and business segments:
specialty trailers and motorcoaches.
SPECIALTY TRAILER INDUSTRY
Specialty trailers are designed for specific hauling purposes rather
than for general commercial freight. The customers of the specialty trailer
industry consist of broad segments of the general public, such as hobbyists,
sports enthusiasts, farmers and ranchers, engaged in the activities for which
particular trailers are designed. In contrast, commercial freight trailers are
generally made for non-specific purposes and the customers are typically
trucking companies and manufacturers with fleets of trucks and trailers. Unlike
the commercial freight trailer industry, which is dominated by a few large
manufacturers, the specialty trailer industry is comprised of many small
manufacturers. No published statistics are available on the size of the
specialty trailer industry or its subcategories. However, the Company believes
that there may be as many as 500 manufacturers of specialty steel trailers in
the United States, of which approximately 30 manufacture specialty aluminum
trailers.
Historically, specialty trailers were made of steel, principally
because they cost approximately 30% to 40% less than trailers made primarily of
aluminum. Entry into the production of steel trailers is relatively easy and
inexpensive because of the widespread availability of steel components and
simple production techniques. The relative lack of barriers to entry into the
steel trailer industry, differing regional demands for trailer types and the
relatively high cost of long distance delivery have contributed to the
fragmented status of the specialty steel trailer industry. As a result,
specialty steel trailer manufacturers generally produce relatively small numbers
of trailers for sale in limited geographical markets without the efficiencies of
high volume production, quality controls, significant warranty and service
capabilities, substantial dealer networks, or national advertising and marketing
programs. In comparison, production of aluminum trailers requires larger capital
investment in dies, extrusion molds and equipment, more sophisticated welding
and production techniques, and greater design capabilities to maximize the
strength-to-weight ratio advantage of aluminum over steel.
- 2 -
In dollar sales, the Company estimates that aluminum trailers presently
constitute five to ten percent of the total market for specialty trailers, but
that this percentage is increasing. The Company believes that an increase in
demand for aluminum rather than steel trailers will be driven by a number of
factors. Aluminum trailers offer substantial advantages over steel trailers in
weight, ease of maintenance, durability and useful life. Aluminum trailers
resist rust and corrosion, and weigh 30% to 40% less than comparable steel
models. Maintenance is substantially less on aluminum trailers because of the
absence of rust and because they typically are not painted or are pre-painted
with a baked-on enamel. As a result, aluminum trailers can be offered with
superior warranties and provide greater customer satisfaction. The lighter
weight of aluminum trailers reduces the demands on the towing vehicle, affords
better gas mileage and allows a greater percentage of gross trailer weight for
carrying cargo.
MOTORCOACH INDUSTRY
Motorcoaches are the most luxurious of all recreational vehicles. They
represent a unique market niche, with selling prices ranging from $800,000 to
$1,000,000 or more. These motorcoaches are primarily converted from a bus shell
that is purchased and completed to provide an interior area designed to the
customer's specifications. The target market for these motorcoaches is typically
affluent business owners, retirees, professionals and those in the entertainment
and sports industries. The Company believes that there are presently seven or
more companies in this industry. [Any information on market differentiations,
segments or focuses?]
PRODUCTS AND SERVICES
The Company's primary business activity is the manufacture and sale of
specialty aluminum trailers and motorcoaches under the FEATHERLITE(R) brand
name. In addition, the Company manufactures and sells combination steel and
aluminum trailers under its FEATHERLITE-STL(R) series AND DIAMOND D(R) brand
names, sells replacement and specialty parts, and coordinates delivery of
completed trailers to customers. In 1996, the Company also began manufacturing
and marketing custom motorcoaches under the name "VANTARE BY FEATHERLITE(R)". In
1998, the FEATHERLITE VOGUE(R) brand of motorcoaches was added when the Company
purchased the assets of Mitchell Motorcoach Sales, Inc. In 2001, the Company
suspended production of this brand, and closed the manufacturing facility in
Pryor, Oklahoma. The Company's motorcoaches are now marketed under the trade
names FEATHERLITE VANTARE(R) and FEATHERLITE LUXURY COACHES(R). The FEATHERLITE
VOGUE(R) brand is continuing to be marketed until existing new models in
inventory are sold, which the Company believes will occur in 2002. Rework and
warranty services are also provided for Company-built trailers and motorcoaches
at the Company's facilities and dealer locations. For 2001, approximately 95% of
the Company's revenues were derived from trailer and motorcoach sales.
The following data illustrate the percentage of the Company's net sales
in 1999, 2000 and 2001 (dollars in thousands):
Years ended December 31,
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1999 2000 2001
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Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Trailers $ 108,961 48.5% $ 121,376 50.1% $ 97,348 45.7%
Motorcoaches 105,890 47.1 108,866 44.9 103,911 48.8
Other 9,962 4.4 12,244 5.0 11,527 5.4
--------- ----- --------- ----- --------- -----
Net Sales $ 224,813 100.0% $ 242,486 100.0% $ 212,786 100.0%
========= ===== ========= ===== ========= =====
- 3 -
TRAILERS
The Company is unique among trailer manufacturers because of the many
types of trailers it manufactures and markets. The Company's FEATHERLITE(R),
FEATHERLITE-STL(R) series and DIAMOND D(R) trailers may be broadly classified
into several trailer types, which can be further subdivided into over 400 models
depending on their intended use and resulting design. The Company's primary
trailer types are horse, livestock, utility recreational, commercial and car
trailers as well as race car and specialty transporters, including mobile
marketing, mobile office, mobile classroom, vending and command centers. Within
these broad product categories, the Company generally offers different features,
such as various lengths, heights and widths, open and enclosed models, gooseneck
and bumper pulls, straight and slant loaders, and aluminum, steel, fiberglass
and wood frames, floors, sides and roofs. The Company believes FEATHERLITE(R)
brand trailers, which are "all aluminum" with the exception of steel axle and
hitch parts, enjoy a premier image in the industry. Sales of FEATHERLITE(R)
brand trailers currently represent approximately 90% of the Company's total
trailer sales. FEATHERLITE-STL(R) series and DIAMOND D(R) brand trailers, which
generally are a composite of steel frame, aluminum skin and galvanized roof,
allow the Company to place its product line at the lower-priced end of the
market.
FEATHERLITE(R), FEATHERLITE-STL(R) series and DIAMOND D(R) trailers are
built as standard models or to customer order from selected options. Depending
on the model, the Company's trailers generally include name brand tires,
reflectors and exterior running and license plate lights, sealed and enclosed
wires, and safety chains and breakaway switches. Popular options to standard
designs include paint schemes, logos, lettering and graphics, winches and
generators, viewing platforms, workbenches and cabinets, vents and other airflow
designs, roll-up doors, access and side doors and windows, aluminum wheels and
hubcaps, and hydraulic or air brakes.
Trailer design traditionally has been utilitarian. Recently, however,
the demand for trailers with special amenities and custom designed features has
increased dramatically. For that reason, the Company's Interiors Division offers
options ranging from simple shelves, cupboards, lockers and dressing rooms to
complete living quarters, including upholstered furniture, electronics, wood or
laminated Formica finishes, air conditioning, refrigerators, dinettes and bath
packages. The Company stresses its ability and willingness to build trailers
"from the ground up" with unique, even luxurious, custom designed features and
amenities tailored to customer specifications. This distinguishes the Company
from many other trailer manufacturers.
In addition to custom designed trailers, the Company manufactures
standard model trailers for inventory, which are available for immediate
delivery to dealers. In an industry consisting primarily of manufacturers who
custom build trailers, the Company's introduction in 1991 of standard model
aluminum trailers represented an innovative step. Standard model trailer sales
now represent approximately 60% of the Company's total trailer sales. The
Company's dealer network has enthusiastically endorsed and supported the
standard model concept.
Retail prices for the Company's aluminum model trailers range from
approximately $1,200 for the least expensive snowmobile trailer to over $300,000
for a custom built race car transporter and hospitality trailer. Representative
FEATHERLITE(R) aluminum trailer retail prices are approximately $7,200 for a
bumper pull livestock trailer, $8,200 for a two horse trailer, and $16,000 for a
gooseneck car trailer.
MOTORCOACHES
The Company offers different motorcoach conversion body styles based on
the XL and the H models made by a single bus shell manufacturer (Prevost Car
Company). Even though the "H" body style is much taller and the layout is
considerably different than a typical XL motorcoach, it has become the model
most requested by customers. The Company offers a "slide-out" model that expands
the livable space within the motorcoach. The Company also offered a high quality
Class A series motorcoach, a living unit entirely constructed by Featherlite
from the ground up on a specially designed motor vehicle chassis, under the
FEATHERLITE VOGUE(R) brand. In 2000, the Company introduced two new luxury coach
models to its product line, the Featherlite XLII model, which is a Prevost bus
conversion, and the Featherlite Vogue 6000LX which is a Class A series
motorcoach. In 2001, the Company discontinued the FEATHERLITE VOGUE(R) brand,
including the Vogue 6000 model and adopted a plan to shut-down its Pryor,
Oklahoma manufacturing facility. The Company's motorcoaches are now marketed
under the trade names FEATHERLITE VANTARE(R), FEATHERLITE VOGUE(TM) and
FEATHERLITE LUXURY COACHES(R).
- 4 -
The Company's goal is to produce the best performing and most reliable
motorcoach while keeping a low overall gross weight and extremely low ambient
noise level. It incorporates into motorcoaches many of the good features and
quality often present in luxury yachts that were previously developed by Vantare
International, Inc. when it was in the business of building yachts.
The Company builds a number of luxury motorcoaches on a speculative
basis (84 percent of work in process at December 31, 2001). While it is the
Company's expectation that substantially all of these motorcoaches will be sold
to specific customers before production is completed or shortly thereafter at
retail prices range from about $800,000 to $1,000,000 or more, there is no
assurance they will be sold on a timely basis or at normal profit margins. This
may require additional working capital investment and cause the Company to incur
additional interest and inventory carrying costs, which would have an adverse
impact on operating results and liquidity.
The Company also sells used motorcoaches that are taken as trade-ins
from customers on sales of new motorcoaches as well as other used coach sales.
There is a risk that the market value of these trade-ins will be reduced before
they are resold and adversely impact the Company's operating results. In the
year 2001, the Company recorded motorcoach inventory write-downs of $3.0
million, primarily related to used motorcoaches.
Repair services for motorcoaches of customers and others are provided
at the Vantare facility in Sanford, Florida , as well as at a Company service
centers in Mocksville, North Carolina and Cresco, Iowa.
OTHER BUSINESS ACTIVITIES
In addition to the manufacture and sale of specialty trailers and
motorcoaches, the Company sells replacement and specialty trailer and motorcoach
parts to its dealers and to others. It coordinates delivery of completed
trailers to customers and to dealers for a fee and in 2001 delivered
approximately 50% of the trailers sold to dealers, with the remainder picked up
at its Iowa facilities. The Company owns and maintains a fleet of trucks and
leases semi tractors for this purpose.
The Company is a licensed aircraft dealer and believes that dealing in
used aircraft is complementary to its principal business. Featherlite Aviation
Company, a wholly-owned subsidiary of the Company, conducts such aircraft dealer
activities. Featherlite Aviation Company held for resale one used aircraft at
December 31, 2001. The purchase, sale, use and operation of aircraft and the
volatility in the sales volume and value of aircraft create risks to the Company
and its operating results. In 2001, the Company recorded a $690,000 write-down
in the carrying value of the aircraft to reflect a decline in its value during
the year. Gains or losses on aircraft sales and valuation are included in the
"Other income" caption in the Company's Consolidated Statements of Operations.
The Company's other business activities, excluding aircraft, in the
aggregate, accounted for approximately 4.4%, 5.0% and 5.4% of the Company's net
sales for 1999, 2000 and 2001, respectively. These activities are included as
part of the trailer and motorcoach segments in Note 16 to the Company's
Consolidated Financial Statements.
MARKETING AND SALES
TRAILERS
The Company markets its trailers primarily through a network of over
240 full-line and limited-line dealers located in the United States and Canada.
The Company also sells trailers directly at its sales and service center in
Sanford, Florida. Dealers typically handle only a portion of the entire
FEATHERLITE(R), FEATHERLITE-STL(R) series and DIAMOND D(R) product lines and may
sell other steel trailer brands. FeatherlIte dealers are prohibited by their
agreements with the Company from selling other brands of aluminum trailers. No
single dealer represents more than 10% of the Company's net sales. The Company's
top 50 dealers accounted for approximately 50% of the Company's net trailer
sales for 1999, 2000 and 2001. For these periods, 76% or more of the Company's
trailer sales were made by its dealer network, with the remainder representing
direct Company sales to end users. Company sales to end users are primarily drop
deck trailers, specialty mobile marketing trailers and race car transporters.
For these periods, approximately 96% of the number of units sold were sold by
the dealer network.
- 5 -
Dealers and distributors sell FEATHERLITE(R), FEATHERLITE-STL(R) series
and DIAMOND D(R) products Under contractual arrangements with the Company, which
can be terminated by either party on specified notice. Laws in certain states
govern terms and conditions under which dealers and distributors may be
terminated. Such laws have not materially adversely affected the Company to
date. Changes in dealers and distributors take place from time to time. The
Company believes that a sufficient number of prospective dealers exists across
the United States and Canada to permit orderly transitions whenever necessary.
The Company is continually seeking to expand the size and upgrade the quality of
its dealer network. The Company believes that significant areas of the United
States and Canada are not served by a sufficient number of dealers and the
Company intends to increase substantially its number of dealers over the next
several years in underserved markets.
The Company employs territory managers to assist in the marketing and
sales process. These managers assist the Company's dealers in coordinating the
selection of custom options by customers and the production of orders. They also
participate with the dealers at trade shows, fairs, rodeos, races and other
events to promote the FEATHERLITE(R) brand. Factory representatives also
actively seek out potential new dealers and provide saleS and product training
to dealers and their staff.
MOTORCOACHES
Substantially all motorcoaches are sold directly by Company personnel
to end user customers. In 1999, the Company established an exclusive
relationship with a dealer in seven Western states for sale of the FEATHERLITE
VOGUE(R) 5000 line of luxury motorcoaches. This dealer relationship was
terminated in June 2000. IN September 1999 the Company opened a new sales and
service center in Sanford, Florida and in May 2001 the Company opened a sales
facility in Coburg, Oregon, supporting the FEATHERLITE LUXURY COACHES(TM)
product line. Company sales representatives participate in trade shows, fairs,
motorsports races and other events to promote FEATHERLITE VANTARE(TM) and
FEATHERLITE VOGUE(R) motorcoaches.
FINANCING
A substantial portion of the Company's sales of motorcoaches and
trailers are paid for within 10 days of invoicing. The Company has arrangements
with Nations Credit Commercial Corporation, Deutsche Financial Services
Corporation (Deutsche), Bombardier Capital, Conseco Finance, Inc. and
TransAmerica Commercial Finance Corp. to provide trailer floor plan financing
for its dealers. Under these floor plan arrangements, the Company may be
required to repurchase trailers repossessed from a Featherlite trailer dealer by
these financial institutions, for the remaining unpaid balance, including
finance charges plus costs and expenses if the trailers are in salable
condition. At December 31, 2001, the Company is contingently liable for $9.3
million under these repurchase arrangements. Although the Company has not been
required to make any significant payments or repurchases to date from its
trailer dealers (approximately $80,000 in 2000 and $235,000 in 2001), there can
be no assurance that such obligations will not, in the future, adversely impact
the Company. The Company has a wholesale floor plan agreement with Deutsche to
finance a portion of the new and used motorcoaches held in inventory. In 2000,
the Company was required to repurchase motorcoaches for $2.2 million from a
financial institution when its sole motorcoach dealer defaulted on its financing
agreement. There are no other repurchase agreements for wholesale financing of
motorcoaches with dealers at December 31, 2001.
Featherlite Credit Corporation, a corporation owned by certain of the
Company's officers and directors, provides retail financing to end user
customers of the Company's dealers through financing companies such as Conseco
Finance, Inc. and Deutsche. The Company has arrangements with several companies
to provide motorcoach retail financing to end user customers. There is no
recourse to the Company on these retail financing arrangements.
- 6 -
PROMOTIONS
The Company's marketing is designed to advance consumer awareness of
the Featherlite brand and position it so that the unique strengths and benefits
of Featherlite products are clearly known. Furthermore, the Company's national
advertising campaigns are designed to motivate customers into action: to call a
toll-free number for free product information and the location of their nearest
Featherlite dealers and/or visit the Company's website for more comprehensive
description of product features and benefits. Market intelligence is gathered
which assists the Company craft its message and reach the most productive target
constituencies. Benefit and demographic segmentation are utilized to more
accurately target specific groupings of people within each product cluster.
Quarter Horse Journal, Western Horseman, Horse & Rider, Thoroughbred Times and
Horse Illustrated are some of the various publications utilized to reach a
diverse customer base in the horse market. Similar selected groupings of
publications are utilized to target the Company's various markets: automotive,
livestock/farm, recreational and utility, and mobile marketing. Over 100
publications in various product segments are advertising vehicles for the
Company. In addition, the Company utilizes television advertising, primarily on
racing programs carried on major broadcast and cable networks. The Company also
sponsors a nationally syndicated radio program, which is broadcast over nearly
100 stations in 30 states targeting the equine markets. Featherlite video is
supplied to large arenas for use on sponsor jumbotrons and electronic message
boards.
The Company produces approximately 40 different brochures, catalogues
and flyers that support direct mail initiatives and help satisfy consumer
inquiries, as well as the premier web site www.featherliteusa.com.
The Company also promotes its motorcoach segment directly in user group
publications such as Family Motorcoaching magazine and RV Trader, which can
target specific high potential markets for pre-owned motorcoaches. In addition,
the Company places classified and display advertising into high sales-potential
periods in the Wall Street Journal and selected regional metropolitan newspapers
near the Company's sales centers. Outdoor advertising is also used along
high-traffic interstate corridors. In addition, the Company participates in the
Family Motor Coach Association rallies twice each year, the Tampa RV Show and
numerous other shows and rallies. The Company's motorcoach products are also
represented at motorsports events where other Featherlite products are promoted
and where Featherlite already has a customer base. The Company also sponsors the
Featherlite VIP Club and recently introduced the Featherlite VIP Bikers' Club.
These clubs are an excellent marketing platform to introduce people around
America to new coach and trailer products.
The Company expanded its public and media relations focus in the last
quarter of 2000 and actively pursues regional and national media coverage of the
uniqueness of the Company as well as its new product introductions. . In 2001,
the Company began a three-year agreement with NBC and TNT networks to broadcast
Featherlite TV commercials as part of their nationwide telecasts of certain
NASCAR races. In early 2002, a similar agreement was reached with FOX Sports.
An example of the Company's specialized niche market promotional
efforts is the motor sports industry. Featherlite currently is the "Official
Trailer" of NASCAR, Championship Auto Racing Teams (CART), National Hot Rod
Association (NHRA), Indy Racing League (IRL), Auto Racing Club of America
(ARCA), American Speed Association (ASA), National Hot Road Association (NHRA),
World of Outlaws (W.O.O.), the Indianapolis Motor Speedway and Speedway Motor
Corporation's race tracks and the "Official Coach" of NASCAR, IRL, and NHRA .
Featherlite is the title sponsor of the NASCAR Featherlite Southwest Tour and
the NASCAR Featherlite Modified Tour. The 2001 NASCAR Featherlite Southwest Tour
is comprised of nineteen events in various cities in Arizona, California, Utah,
New Mexico, Nevada and Colorado. The NASCAR Featherlite Modified Tour schedule
takes place primarily in the northeastern United States. The Company expects to
continue to design and build trailers to fit the needs of all types of racing,
including NASCAR, NHRA, ARCA, IndyCar, nostalgic, sprint car, off road,
motorcycle and motocross.
In addition to the racing industry, the Company sponsors or is
associated with the All American Quarter Horse Congress, the Professional Bull
Riders Association, United States Team Roping Championship, Appaloosa Horse
Club, United States Combined Training Association, National High School Rodeo
Association and the National Western Livestock Show, as well as various rodeos
and state and local fairs and expos. Annually, Featherlite territory managers
attend in excess of 250 races, rodeos, fairs, trade shows and other special
events. The Company's dealers attend approximately 1,200 such events each year
staffing display and sales booths and meeting with the public.
- 7 -
COMPETITION
SPECIALTY TRAILERS
The specialty trailer industry is highly competitive, especially with
respect to the most commonly sold models, such as one and two horse trailers.
Competition is based upon a number of factors, including brand name recognition,
quality, price, reliability, product design features, breadth of product line,
warranty and service. The Company believes it competes favorably with its
competitors with respect to each of these factors. The primary competition to
FEATHERLITE(R) aluminum trailers is steel trailers, which typically sell for
approximately 30% to 40% less but are subject to rust and corrosion and are
heavier. There are no significant technological or manufacturing barriers to
entry into the production of steel trailers and only moderate barriers to the
production of aluminum trailers. Because the Company has a broad based product
line, its competition varies by product category. There is no single company
that provides competition in all product lines. Certain of the Company's
competitors and potential competitors are more established in segments of the
Company's business. The Company's principal competitors, all of which are
located domestically, include the following:
Trailer Types Principal Competitors' Brands
- ------------- -----------------------------
Horse and Livestock........ 4 Star, Barrett, Sooner, Wilson, Sundowner, Kiefer
Built, W-W, Exiss
Utility.................... Wells Cargo, PACE, Haulmark, US Cargo, Cargo Mate
Car Trailers and HighTech, Competition, Wells Cargo, Haulmark, PACE,
Race Car Transporters...... Goldrush, Champion, Ultra Comp
MOTORCOACHES
The motorcoach industry is highly competitive, particularly in XL and
high-end Class A models, with seven or more manufacturers. Featherlite is the
dominant producer of H model bus conversion motorcoaches. Competition is based
primarily on quality and price although other factors such as brand name,
reliability, design features, warranty and service are also important. The
Company believes it competes favorably with its competitors with respect to each
of these factors. The brand names of the Company's principal competitors in this
industry, all of which are located domestically, include, among others:
Marathon, Liberty, Royale, and Angola.
MANUFACTURING
TRAILERS
The Company manufactures substantially all of its trailers at plants
located in Cresco, and Shenandoah, Iowa. In April 2001, the Company closed its
Nashua, Iowa trailer production facility and consolidating some or all of this
production into the Cresco, Iowa facility. Approximately 110 employees were
either terminated or reassigned elsewhere in the Company.
Featherlite has an agreement with one independent company to
manufacture certain trailers. Under the agreement, the Company supplies
specifications to the manufacturer. The manufacturer, which is prohibited from
manufacturing trailers for any other entities without Featherlite's consent,
purchases the materials and provides labor and overhead expenses to manufacture
the trailers for contractually agreed upon prices. Such trailers constituted
less than 1% of net trailer sales for 2001.
Except for tires, brakes, couplers, axles and various other purchased
items, the Company fabricates its component parts for its trailers. Most raw
materials and standard parts, including aluminum extrusions and sheet metal, are
available from multiple sources. Prices of aluminum, the principal commodity
used in the Company's business, fluctuate daily in the open market. As discussed
below, the Company has obtained fixed price contracts from suppliers to reduce
the risk related to fluctuations in the cost of aluminum for 2002. There is a
risk to future operating results if the Company is unable to obtain fixed
contracts to reduce the effect of fluctuations in the price of aluminum for the
remainder of its 2002 requirements.
- 8 -
The Company purchases substantial amounts of aluminum extrusions from a
number of major suppliers, including: Alcoa Extrusions, Inc., INDALEX, Inc., and
Aluminum Shapes, LLC and the majority of its sheet metal from two large
suppliers, Integris Metals and Owens Corning Fabication Solutions. The identity
of particular suppliers and the quantities purchased from each varies from
period to period. The Company has not engaged in hedging or the purchase and
sale of future contracts other than contracts for delivery to fill its own
needs. The Company has contracts with certain of the above suppliers to fill
about 50 percent of its projected needs for aluminum in 2002. In the event that
one or more of the Company's suppliers were unable to deliver raw materials to
the Company for an extended period of time, the Company's production and profits
could be materially and adversely affected if an adequate replacement supplier
could not be found within a reasonable amount of time. Increases in the prices
of aluminum and other supplies may adversely affect margins on the Company's
products.
In addition to obtaining long-term contracts from suppliers, the
Company may in the future also try to reduce the price risk associated with
aluminum by buying London Metal Exchange hedge contracts or options for future
delivery. These contracts would "lock in" the aluminum cost for the Company for
anticipated aluminum requirements during the periods covered by the contracts.
There is a potential risk of loss related to such contracts if the quantity of
materials hedged significantly exceeds the Company's actual requirements and the
contract is closed without taking physical delivery of the aluminum or if there
is a substantial drop in the actual cost of aluminum in relation to the hedge
contract price which would affect the competitive price of the Company's
product. The Company had no such contracts in effect at December 31, 2001.
In the manufacturing process, the Company seeks to maximize production
efficiency by using weekly production schedules which allocate scheduled
trailers to specific production lines within each plant. The Company generally
follows a build-to-order policy to control inventory levels. Inventory pool
trailers may be scheduled to maximize the efficiency of the production lines.
Lean manufacturing concepts and principles are being taught and implemented in
all areas of manufacturing. Lean manufacturing is a systematic approach to
identifying and eliminating waste through continuous improvement techniques. If
successfully implemented, benefits of Lean manufacturing can include reduction
in work in process, shorter lead times, productivity increases, quality
improvement and better utilization of space. There is no assurance the Company
will be successful in achieving any of these benefits.
The Company also utilizes certain production lines solely for standard
model trailers. The Company utilizes an independent outside contractor to
provide customer specified paint and graphic designs on specialty trailers.
There is a risk related to delays in completing trailer delivery to the customer
due to delays by the subcontractor. This could adversely affect reported sales
and operating income.
MOTORCOACHES
The Company manufactures all of its motorcoaches at a plant located
in Sanford, Florida. The manufacturing facility in Pryor, Oklahoma, was closed
in 2001. Except for the coach shell and electronic equipment, various kitchen
and bathroom fixtures and accessories and other purchased items, the Company
fabricates most of the components for its motorcoaches. The Company completes
the conversion by finishing the interior of the purchased shell to the layout
and design requirements of the customer or its specifications. All design
engineering, plumbing, cabinetry and upholstery required to complete the coach
are done by Company personnel. In 2001, the Company transferred production of
certain bus conversion models from its Pryor, Oklahoma facility to its Sanford,
Florida facility. In June 2001, the Company adopted a plan to shut down its
Pryor, Oklahoma, manufacturing facility and suspend development and
manufacturing of the Vogue 6000 motorcoach because of unacceptable delays
experienced in obtaining materials essential to the manufacture of this coach.
The Company closed this facility in August 2001, and approximately 80 employees
were either terminated or reassigned elsewhere in the Company.
The Company purchases its motorcoach shells from one manufacturer,
Prevost Car Company, Inc. of Sainte-Claire, Quebec, Canada, although the Company
could purchase certain shells from other manufacturers. The Company does not
have any long or short-term manufacturing contracts with Prevost. However, the
Company provides Prevost with its estimated yearly motorcoach requirements. Once
Prevost releases an order to production, Prevost becomes obligated to fill the
order and the Company becomes obligated to take delivery of the order. In the
event Prevost was unable to deliver motorcoach shells to the Company, the
Company's revenues and profits could be materially and adversely affected.
- 9 -
BACKLOG
At December 31, 2001 the Company had unfilled confirmed orders from its
customers in the amount of approximately $15.8 million, including $3.1 million
in motorcoach orders, compared with $30.7 million, including $15.9 million in
motorcoaches, at December 31, 2000. All orders in backlog at December 31, 2001
are expected to be filled during 2002.
QUALITY ASSURANCE
The Company monitors quality at various points of the manufacturing
process. Due to the variety of custom products that the Company builds, employee
skill training and individual responsibility for workmanship are emphasized.
Inventory specialists assess the overall quality, physical dimensions, and
imperfections or damage to the raw materials. Extruded and sheet aluminum which
is outside of specified tolerances is rejected and replaced by the vendor. Line
foremen train and monitor work cells of employees. Quality control inspectors
inspect trailers for quality of workmanship, material quality and conformity of
options to order specifications.
GOVERNMENT AND INDUSTRY REGULATION
The Company and its products are subject to various foreign, federal,
state and local laws, rules and regulations. The Company builds its trailers and
motorcoaches to standards of the federal Department of Transportation. The
Company is a member of the National Association of Trailer Manufacturers
("NATM") and manufactures its trailers to NATM standards. The Company is also
governed by regulations relating to employee safety and working conditions and
other activities. A change in any such laws, rules, regulations or standards, or
a mandated federal recall by the National Highway Transportation Safety Board,
could have a material adverse effect on the Company.
PATENTS AND TRADEMARKS
The Company has registered FEATHERLITE(R) as a trademark for use in
conjunction with trailers in thE United States, Canada and Germany. It has also
registered this trademark for a variety of promotional items. In general, such
registrations are effective through the year 2001, with continuous ten-year
renewal periods thereafter. The Company has a United States trademark with
respect TO FEATHERLITE-STL(R) series. In October 1995, the Company acquired the
rights to the DIAMOND D(R) trademark and has registered it as a trademark in the
UniteD States and has a trademark application pending in Canada. In 1993, the
Company purchased the rights to two design patents, which expired in 1997,
relating to the V-nose design of certain of its horse, livestock and snowmobile
trailers. The Company believes that the patented designs are useful, but that
the expiration of the patents will not have a material effect on the Company. In
addition, the Company has obtained certain trailer design and utility patents
relating to race car transporters, snowmobile trailers and horse trailers. The
Company considers these patents, which have expiration dates ranging from 2011
to 2014, to be important to the trailer business.
The Company has a United States registered trademark for VANTARE BY
FEATHERLITE(R) for use in conjunction with motorcoaches and yachts in the United
States and FEATHERLITE VOGUE(R) "FEATHERLITE VANTARE(R)" and "FEATHERLITE LUXURY
COACHES(R)", for motorcoaches in the United States.
- 10 -
WARRANTY
The Company warrants the workmanship and materials of certain parts of
the main frame of its aluminum trailers under a limited warranty for a period of
six years and such parts of certain other Company trailers as well as other
products manufactured by the Company for periods of one to four years. The
limited warranty does not include normal wear items, such as brakes, bearings
and tires. The Company's warranty obligations are expressly limited to repairs
and replacement of parts. Historically, there have been no recalls of the
Company's trailers for replacement of major components or parts and the expense
of warranty claims for repairs or replacement of parts has been less than 1% of
the Company's net sales.
The Company warrants for one year the workmanship and materials related
to certain parts of its motorcoaches. Otherwise, warranties applicable to
components purchased from vendors are applicable. The warranty of the
manufacturer of the shell, transmission and engine generally is for two years.
In August 2000, the Company began offering a limited warranty on certain
specified components of the FEATHERLITE VANTARE(TM) motorcoach for 36 months.
PRODUCT LIABILITY
Although the Company has never been required to pay any significant
amount in a product liability action, as a manufacturing company it is subject
to an inherent risk of product liability claims. The Company maintains product
liability insurance policies in an amount it believes is adequate, but there is
no assurance that its coverage will continue to be available at an acceptable
price or be sufficient to protect the Company from adverse financial effects in
the event of product liability claims.
EMPLOYEES
As of December 31, 2001, the Company had 1,221 employees, of whom 1,191
are full-time and 30 are part-time as follows: Production and production support
- - 1,027, Sales and Marketing - 100, and Administration - 94.
The Company is not a party to any collective bargaining agreements and
believes that it has good working relationships with its employees.
The Company's success is highly dependent on its senior management,
including Conrad D. Clement, President and Chief Executive Officer. The loss of
Mr. Clement's services could have a material adverse effect on the Company's
business and development. There can be no assurance that an adequate replacement
could be found for Mr. Clement in the event of his departure. The Company
carries a $10 million term life insurance policy on Mr. Clement.
The Company has three agreements with two Iowa community colleges which
provided the Company approximately $870,000 for job training purposes over a
period from 1992 to 1999. The amounts are to be repaid, together with interest,
over a ten year period from state withholding taxes on employees at the
Company's Iowa facilities. Two of these agreements in an aggregate amount of
$620,000 are complete and have been repaid in full. The remaining agreement
began in 1998 and is partially repaid. The Company may be required to provide
funds for the repayment of this training credit if sufficient withholding and
unused training funds are not available.
CAUTIONARY STATEMENTS
Forward-looking statements provide current expectations or forecasts of future
events and can be identified by the use of terminology such as "believe,"
"estimate," "expect," "intend," "may," "could," "will," "plan," "anticipate,"
and similar words or expressions. The Company's forward-looking statements
generally relate to its financial results, growth strategy, sales levels,
competitive strengths, product development, market trends, financing
availability, cost structure, manufacturing processes, dealer financial
- 11 -
solvency, and the impact of general economic conditions on industry trends.
Forward-looking statements cannot be guaranteed and actual results may vary
materially due to the uncertainties and risks, known and unknown, associated
with such statements. The Company undertakes no obligations to update any
forward-looking statements other than as required by law. Featherlite wishes to
caution readers that the following important factors, among others, in some
cases have affected, and in the future could affect, Featherlite's actual
results and could cause Featherlite's actual consolidated results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, Featherlite:
* Availability of increased levels of financing and cash from operations
necessary to improve the company's net liquidity deficiency, which has
raised substantial doubt about the Company's ability to continue as a going
concern.
* A moderating growth rate or decline in the overall demand or in specific
market segment demand, in the US and to some extent Canada, for existing
models of aluminum or steel specialty trailers and motorcoaches
manufactured by Featherlite and in acceptance by the market of new trailer
models and luxury motorcoaches introduced by Featherlite; and general or
specific economic conditions, pricing, purchasing, operational, advertising
and promotional decisions by intermediaries in the distribution channels,
which could affect their supply or end user demand for Featherlite
products.
* Increased competition from competitors and potential competitors which have
greater financial and other resources than Featherlite; and competitors
that are better established in segments of Featherlite's business.
* Fluctuation in aluminum prices; inability of a major supplier of aluminum
extrusion or sheets utilized by Featherlite to deliver raw materials on a
timely basis.
* Inability of graphics/paint subcontractor to complete custom specified
paint and graphic designs delaying delivery of specialty trailers.
* Inability of motorcoach shell manufacturer to deliver shells on a timely
basis; inability to sell motorcoaches made on a spec basis at normal profit
margins.
* Declines in market value of motorcoaches taken as trade-in on new
motorcoach or used motorcoach held for resale.
* Inability of engine and transmission manufacturers to deliver
engines/transmissions on a timely basis.
* Effects of changes within Featherlite's organization, including the loss of
the services of key management personnel, particularly Mr. Conrad Clement,
President and Chief Executive Officer.
* Continued pressure to increase the selling prices for Featherlite's
products to reduce the impact on margins of increasing aluminum and other
materials costs, labor rates and overhead costs related to the expanded
production facilities and organization to support expected increases in
sales; underutilization of Featherlite's manufacturing facilities,
resulting in production inefficiencies and higher costs.
* The inability to obtain adequate insurance coverage at an acceptable price
or in a sufficient amount to protect Featherlite from the adverse effects
of product and other liability claims.
* The risks related to being a licensed aircraft dealer which deals in used
business aircraft, including the purchase, sales, use and operation of
aircraft and the volatility in the sales volume and value of aircraft.
* Payments or repurchases by Featherlite related to guarantees of debt or the
repurchase of trailers under certain circumstances in connection with
dealer and retail product financing arrangements.
* The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as environmental and product-related, or
criminal), settlements and investigations, claims and changes in those
items.
- 12 -
* A change in foreign, federal, state and local laws, rules and regulations
related to Featherlite, its products, or activities.
The Company lists these factors as permitted by the Private Securities
Litigation Reform Act of 1995. It is not possible to foresee or identify all
factors that could cause actual results to differ from expected or historic
results. As such, investors should not consider any list of such factors to be
an exhaustive statement of all risks, uncertainties or potentially inaccurate
assumptions.
ITEM 2. PROPERTIES
The Company's principal sales, marketing and executive offices are
located in a 20,000 square foot building owned by the Company near Cresco, Iowa.
Adjacent to it is a Company-owned 50,000 square foot (including 20,000 added in
1997) parts distribution center and a custom, maintenance and trailer
distribution facility, from which substantially all trailer deliveries to
dealers are made.
The Company has trailer production and warehouse facilities in Cresco
and Shenandoah, Iowa. The Cresco facilities presently consist of five buildings
and include approximately 258,000 square feet including a 140,000 square foot
expansion completed in March 1995 and a 20,000 square foot expansion in 1998.
Three buildings, totaling approximately 156,000 square feet of Company owned
space and 30,000 square feet of leased space, are used for production of
trailers and fabrication of components. A 58,000 square foot building is used,
pursuant to a lease, for custom interior finishing and a 14,000 square foot
building, which the Company owns, is used for storage of raw materials. In 1998
and again in 2000, the Company indefinitely deferred plans to build a warehouse
facility for raw material storage at its Cresco location.
The Shenandoah facilities include a 117,000 square foot manufacturing
facility purchased in October 1995 in connection with the DIAMOND D(R)
acquisition. The Company-owned Nashua facilities include a 51,000 square fooT
manufacturing plant and an 18,000 square foot plant/office building. This
property is now idle and no longer used for production. The Company is
attempting to sell or lease the facility. In 1998, the Company sold two of the
three buildings owned in Grand Meadow, Minnesota that were used as the Company's
corporate office and rework/distribution center prior to the relocation of these
activities to Iowa in 1993. The Company currently has buyers for the remaining
Grand Meadow facility, which consists of about 11 acres of land and a small
warehouse facility and expects to complete this sale in the second quarter of
2002.
In July 1996, the Company acquired office and production facilities and
other assets of Vantare International, Inc. in Sanford, Florida. This facility
includes approximately 55,000 square feet of production and office space and is
used for the conversion of luxury motorcoaches. This facility is owned by
Seminole Port Authority and is being leased by the Company at an approximate
annual cost of $388,000 under the terms of an operating lease which expires in
2007. These facilities were expanded in 1997 to add 24,000 square feet to the
production and office space as well as 6,000 square feet for outside service
bays. In 1997, vacant land near the Vantare' facilities was purchased for
future expansion and in October 1999, the Company completed construction of an
18,000 square foot sales office and a 21,000 square foot service center with
seventeen service bays. The cost of this entire project including land and
development costs was approximately $5.5 million.
In September 1996, the Company leased property in Mocksville, North
Carolina, under the provisions of an operating lease which has an initial term
of ten years with options to extend the initial term up to an additional ten
years. These facilities are being used to provide service for Featherlite
trailers and transporters and for the retail sale of Featherlite luxury
motorcoaches. The Company was planning to lease a new sales and service center
in North Carolina from an entity owned by certain of its shareholders. These
plans were terminated in December 2001 and will no longer be pursued. In this
connection, the Company agreed to pay $302,000 to Clement Properties, an entity
owned by the majority shareholders of the Company for costs incurred related to
the acquisition and development of land related to this project. This amount
will be paid in equal monthly installments over a three year period without
interest beginning in March 2002.
- 13 -
In May 1998, the Company acquired office and production facilities and
other assets of Mitchell Motorcoach Sales, Inc. in Pryor, Oklahoma. This
facility includes approximately 150,000 square feet of production and office
space and is used to manufacture luxury motorcoaches. It is owned by Oklahoma
Ordnance Works Authority and is being leased to the Company at an approximate
annual cost of $299,000 under the terms of an operating lease which expires in
March, 2011. In September 2000, the Company leased approximately 15 acres of
land adjacent to this facility at an approximate annual cost of $27,000 for a
period expiring in March 2011. This land will be used for trailer sales and
additional parking space. In June 2001, the Company adopted a plan to shut down
its Pryor, Oklahoma, manufacturing facility and suspend development and
manufacturing of the Vogue 6000 motorcoach. The Company expects to sublease this
facility in 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company, in the course of its business, has been named as a
defendant in various legal actions that arise in the ordinary course of the its
business. Most, but not all, of such actions are product liability or workers'
compensation claims for 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 consultation
with counsel, that the resolution of such suits will not have a material adverse
effect on the Company's business or financial position .
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
executive officers of the Company:
Name of Age Present Position with Company
Executive Officer --- -----------------------------
-----------------
Conrad D. Clement 58 President, Chief Executive Officer and
Director
Jeffery A. Mason 61 Chief Financial Officer and Director
Tracy J. Clement 35 Executive Vice President and Director
Gary H. Ihrke 55 Vice President of Operations & Secretary
Eric P. Clement 32 Vice President of Sales
Larry D. Clement 55 Treasurer
The term of office of each executive officer is from one annual meeting
of directors until the next annual meeting of directors or until a successor is
elected.
The business experience of the executive officers during the past five
years is as follows:
CONRAD D. CLEMENT has been the Chairman, President and Chief Executive
Officer and a director of the Company since its inception in 1988. From 1969 to
1988, Mr. Clement was the President and principal owner of several farm
equipment and agricultural businesses. Mr. Clement is also the President and
Chief Executive Officer and a shareholder of Featherlite Credit Corporation, an
affiliate of the Company ("Featherlite Credit"). Mr. Clement is the brother of
Larry D. Clement and the father of Tracy J. Clement and Eric P. Clement.
JEFFERY A. MASON has been the Chief Financial Officer of the Company
since August 1989 and has been a director of the Company since June 1993. From
1969 to 1989, Mr. Mason served in various financial management capacities with
several companies, including Arthur Andersen LLP and Carlson Companies. Mr.
Mason is a certified public accountant.
- 14 -
TRACY J. CLEMENT has been Executive Vice President and a director of the
Company since 1988. Prior to 1988, Mr. Clement was a shareholder and manager of
several farm equipment and agricultural businesses with his father, Conrad D.
Clement. Mr. Clement is also an officer and shareholder of Featherlite Credit
Corporation.
GARY H. IHRKE was appointed Secretary in August 1996 and Vice President
of Operations in March 1996 after service as Vice President of Manufacturing
since June 1993 and was previously a director of the Company. From January 1989
to June 1993, Mr. Ihrke was the General Manager of the Company's Cresco, Iowa
facilities. From 1969 to 1989, he served as general manager and branch manager
of an agricultural equipment manufacturing company.
ERIC P. CLEMENT has been Vice President of Sales since March 1996 after
service as Vice President of Operations since January 1991 and was previously a
director of the Company. Prior to that time, Mr. Clement attended college and
worked part time for businesses owned by his father, Conrad D. Clement. Mr.
Clement is also an officer and shareholder of Featherlite Credit Corporation.
LARRY D. CLEMENT has been Treasurer of the Company since 1988 and was
previously secretary and a director of the Company. He has also been the owner
and President of several auto and truck dealerships since 1971. Mr. Clement is
the President and Secretary of Clement Auto & Truck, Inc., a
FEATHERLITE(R)dealer. Mr. Clement is the brother of Conrad D. Clement.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference
to the section labeled "Selected Financial Information" which appears in the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
2001.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference
to "Selected Financial Information" which appears in the Company's Annual Report
to Shareholders for the fiscal year ended December 31, 2001.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 7 is incorporated herein by reference
to the section labeled "Management's Discussion and Analysis" which appears in
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 2001.
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by Item 7A is incorporated herein by reference
to the section labeled "Management's Discussion and Analysis" which appears in
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Except for the report of the Company's independent public accountants,
which is set forth below, the information required by Item 8 is incorporated
herein by reference to the consolidated financial statements and notes thereto
which appear in the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 2001.
- 15 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Featherlite, Inc.
We have audited the accompanying consolidated balance sheets of Featherlite,
Inc. (a Minnesota corporation) and subsidiary as of December 31, 2001 and 2000,
and the related consolidated statements of operations, shareholders' investment
and cash flows for the years then ended.. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Featherlite, Inc. and
Subsidiary as of December 31, 2001 and 2000, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company is unable to ascertain whether it
will have sufficient liquidity available under its existing lines of credit to
fund operations or whether the Company will meet various covenant requirements
contained in its revolving loan and security agreement. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
accompanying consolidated financial statements do not include adjustments that
might result from the outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The information in this schedule has been
subjected to the auditing procedures applied in our audit of the basic
consolidated financial statements and, in our opinion, the information is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Minneapolis, Minnesota
February 19, 2002
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Other than "Executive Officers of the Registrant" which is set forth at
the end of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the sections labeled "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" which appear in
the Company's definitive Proxy Statement for its 2002 Annual Meeting of
Shareholders.
- 16 -
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the section labeled "Executive Compensation" which appears in the Company's
definitive Proxy Statement for its 2002 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the sections labeled "Principal Shareholders" and "Management Shareholdings"
which appear in the Company's definitive Proxy Statement for its 2002 Annual
Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section labeled "Certain Transactions" which appears in the Company's
definitive Proxy Statement for its 2002 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) CONSOLIDATED FINANCIAL STATEMENTS: Page
----
Index to Consolidated Financial Statements
Report of Independent Public Accountants................16
Balance Sheets at December 31, 2001 and 2000..............*
Statements of Operations for the years
ended December 31, 2001, 2000 and 1999..................*
Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999..................*
Statements of Shareholders' Investment for
the years ended December 31, 2001, 2000 and 1999........*
Notes to Consolidated Financial Statements................*
(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II--Valuation and Qualifying Accounts...........**
(3) EXHIBITS. See Exhibit Index on page following signatures.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed during
the last quarter of the period covered by this report.
- --------------
* Incorporated by reference to the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 2001, portions of
which are included with this Form 10-K as Exhibit 13.
** Follows Exhibit Index.
- 17 -
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) 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.
By:/s/ Conrad D. Clement
----------------------------------------
Conrad D. Clement
Date: April 15, 2002 President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes CONRAD D. CLEMENT
and TRACY J. CLEMENT his true and lawful attorneys-in-fact and agents, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
- 18 -
Signature Title Date
President, Chief April 15, 2002
Executive Officer and
/s/ Conrad D. Clement Director (Principal
- --------------------------------- Executive Officer)
Conrad D. Clement
Chief Financial Officer April 15, 2002
/s/ Jeffery A. Mason and Director (Principal
- --------------------------------- Financial and Accounting
Jeffery A. Mason Officer)
/s/ Tracy J. Clement Executive Vice President April 15, 2002
- --------------------------------- and Director
Tracy J. Clement
/s/ Charles A. Elliott Director April 15, 2002
- ---------------------------------
Charles A. Elliott
/s/ Thomas J. Winkel Director April 15, 2002
- ---------------------------------
Thomas J. Winkel
/s/ Kenneth D. Larson Director April 15, 2002
- ---------------------------------
Kenneth D. Larson
/s/ Terry E. Branstad Director April 15, 2002
- ---------------------------------
Terry E. Branstad
- 19 -
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
EXHIBIT INDEX
TO
FORM 10-K FOR FISCAL YEAR ENDED
DECEMBER 31, 2001
-------------------------
FEATHERLITE, INC.
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3.1 The Company's Articles of Incorporation, as amended --
incorporated by reference to Exhibit 3.1 to Company's 10-Q for the
quarter ended March 31, 1998*
3.2 The Company's Bylaws, as amended -- incorporated by reference to
Exhibit 3.2 to Company's S-1 Registration Statement, Reg. No.
33-82564*
4.1 Specimen Form of the Company's Common Stock Certificate --
incorporated by reference to Exhibit 4.1 to Company's S-1
Registration Statement, Reg. No. 33-82564*
10.1 Revolving Loan and Security Agreement between the Company and
Firstar Financial Services, Division of Firstar Bank, Milwaukee,
Wisconsin -- incorporated by reference to Exhibit 10.1 to
Company's 10-Q for the quarter ended September 30, 1998.*
10.2 Amendment to Revolving Loan and Security Agreement between the
Company and Firstar Financial Services dated February 8, 1999 --
incorporated by reference to Exhibit 10.8 to Company's 10-K for
the year ended December 31, 1998*
10.3 **1994 Stock Option Plan, including Form of Incentive Stock Option
Agreement -- incorporated by reference to Exhibit 10.2 to
Company's S-1 Registration Statement, Reg. No. 82564*
10.4 Industrial New Jobs Training Agreement between the Company and
Northeast Iowa Community College -- incorporated by reference to
Exhibit 10.10 to Company's S-1 Registration Statement, Reg. No.
33-82564*
10.5 Inventory Repurchase Agreement, dated September 12, 1990, between
the Company and NationsCredit Commercial Corporation (formerly
Chrysler First Commercial Corporation Limited) -- incorporated by
reference to Exhibit 10.12 to Company's S-1 Registration
Statement, Reg. No. 33-82564*
10.6 Floorplan Agreement, dated March 27, 1992, between the Company and
ITT Commercial Finance Corp. -- incorporated by reference to
Exhibit 10.13 to Company's S-1 Registration Statement, Reg. No.
33-82564*
10.7 Inventory Repurchase Agreement, dated February 27, 1995, between
the Company and TransAmerica Commercial Finance Corporation --
incorporated by reference to Exhibit 10.23 to Company's Form 10-K
for the fiscal year ended December 31, 1995*
10.8 Agreement for wholesale financing dated October 3, 1996 between
the Company and Deutsche Financial Services -- incorporated by
reference to Exhibit 10.22 to Company's 10-K for the fiscal year
ended December 31, 1996*
10.9 **Amendment to 1994 Stock Option Plan dated May 14, 1996 --
incorporated by reference to Exhibit 10.23 to Company's 10-K for
the fiscal year ended December 31, 1996*
10.10 Real Estate Promissory Note, dated November 30, 1998 in the amount
of $4,000,000 to First Union Bank -- incorporated by reference to
Exhibit 10.19 to the Company's 10-K for the year ended December
31, 1998*
10.11 Swap Transaction Confirmation dated November 30, 1998 between the
Company and First Union Bank -- incorporated by reference to
Exhibit 10.20 to the Company's 10-K for the year ended December
31, 1998*
10.12 Amendment dated January 5, 2000 to Revolving Loan and Security
Agreement between Firstar Financial Services and the Company --
incorporated by reference to Exhibit 10.33 to the Company's 10-K
for the year ended December 31, 1999*
10.13 Mortgage and Security Agreement dated October 15, 1999 between the
Company and First Union National Bank in the amount of $1,140,640
-- incorporated by reference to Exhibit 10.34 to the Company's
10-K for the year ended December 31, 1999*.
10.14 Amendment No. 3 to Amended and Restated Agreement for Wholesale
Financing with Deutsche Financial Services Corporation
-- incorporated by reference to Exhibit 10.1 to the Company's Form
10-Q for the quarter ended March 31, 2000*
10.15 Amendment No. 4 dated September 29, 2000 to Amended and Restated
Agreement for Wholesale Financing with Deutsche Financial Services
Corporations -- incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended September 30, 2000.*
10.16 Letter dated October 17, 2000 amending Revolving Loan and Security
Agreement with Firstar Financial Services, Inc -- incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 2000.*
10.17 Letter agreement with Reynolds Aluminum Supply Company dated
October 30, 2000 -- incorporated by reference to Exhibit 10.26 to
the Company's Form 10-K for the year ended December 31, 2000.***
10.18 Letter agreement with Aluminum Shapes L.L.C. dated October 26,
2000 -- incorporated by reference to Exhibit 10.27 to the
Company's Form 10-K for the year ended December 31, 2000.***
10.19 Letter agreement with Alcoa Extrusions, Inc. dated October 27,
2000 -- incorporated by reference to Exhibit 10.28 to the
Company's Form 10-K for the year ended December 31, 2000.***
10.20 Fixed-Price Purchase and Sales Agreement with INDALEX, Inc dated
March 20, 2001 -- incorporated by reference to Exhibit 10.29 to
the Company's Form 10-K for the year ended December 31, 2000.***
10.21 Fixed-Price Purchase and Sales Agreement with INDALEX, Inc dated
March 20, 2001 -- incorporated by reference to Exhibit 10.30 to
the Company's Form 10-K for the year ended December 31, 2000.***
10.22 Letter agreement with Aluminum Shapes LLC dated March 23, 2001 --
incorporated by reference to Exhibit 10.31 to the Company's Form
10-K for the year ended December 31, 2000.***
10.23 Letter agreement with Alcoa Extrusions, Inc dated March 14, 2001
-- incorporated by reference to Exhibit 10.32 to the Company's
Form 10-K for the year ended December 31, 2000.***
10.24 Letter agreement with Alcoa Extrusions, Inc. dated March 14, 2001
-- incorporated by reference to Exhibit 10.33 to the Company's
Form 10-K for the year ended December 31, 2000.***
10.25 Letter agreement with Alcoa Extrusions, Inc. dated March 6, 2001
-- incorporated by reference to Exhibit 10.34 to the Company's
Form 10-K for the year ended December 31, 2000.***
10.26 Third Amendment to Revolving Loan and Security Agreement with
Firstar Bank,N.A. dated as of March 31, 2001 -- incorporated by
reference to Exhibit 10.35 to the Company's Form 10-K for the year
ended December 31, 2000.*
10.27 Amendment No. 4 dated May 31, 2001 to Revolving Loan and Security
Agreement with Firstar Bank, N.A. -- incorporated by reference to
Exhibit 10.1 to Company's 10-Q for the quarter ended June 30,
2001*
10.28 Loan Modification and Forbearance Agreement dated October 1, 2001
between Featherlite, Inc. and First Union National Bank --
incorporated by reference to Exhibit 10.1 to Company's 10-Q for
the quarter ended September 30, 2001*
10.29 Standstill Agreement dated January 31, 2002 between Company and
U.S. Bank National Association
10.30 Agreement to Make Secured Loan dated January 31, 2002 between
Company and Bulk Resources, Inc.
10.31 Consignment Agreement dated January__,2002 between the Company and
Prevost Car, Inc.
10.32 Fixed-Price Purchase and Sale Agreement dated February 18, 2002
between the Company and Indalex Aluminum Solutions***
10.33 Letter agreement dated December 13, 2001 between Company and Alcoa
Extruded Construction Products***
10.34 Fixed-Price Purchase and Sale Agreement dated March 4, 2002
between the Company and Indalex Aluminum Solutions***
10.35 Letter agreement dated March 4, 2002 between Company and Alcoa
Extruded Construction Products***
10.36 Settlement Agreement dated March 14, 2002 between the Company and
Clement Properties, LLC.
10.37 Letter agreement with Bulk Resources dated March 15, 2002
10.38 First Modification and Amendment to Loan Modification and
Forbearance Agreement as of April 1, 2002 between the Company and
Wachovia Bank, N.A.
13 Portions of annual report to shareholders for the fiscal year
ended December 31, 2001 incorporated by reference in this Form
10-K
21 Subsidiaries of the Company:
State of
Name Incorporation
---- -------------
Featherlite Aviation Company Minnesota
23.1 Consent of Arthur Andersen LLP
24 Powers of Attorney of directors -- included under the "Signatures"
section of this Form 10-K
99.1 Letter to Securities and Exchange Commission, Pursuant to
Temporary Note 3T, dated March 25, 2002.
* Incorporated by reference to a previously filed document or report (File
#0-24804, unless otherwise indicated)
** Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form 10-K
***Portions of these documents have been omitted pursuant to a request for
confidential treatment.
SCHEDULE II - SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Additions
--------------------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other (1) at End
Description of Period Expenses Accounts Deductions of Period
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999
Allowance for doubtful accounts $64 $49 $48 $65
Year ended December 31, 2000
Allowance for doubtful accounts 65 163 48 180
Year ended December 31, 2001
Allowance for doubtful accounts 180 133 128 185
- --------------------------------------------------
(1) Write off of doubtful accounts