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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE
NUMBER 0-24354
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
DORSEY TRAILERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2110729
(State or jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
ONE PACES WEST, SUITE 1700
2727 PACES FERRY ROAD
ATLANTA, GEORGIA
30339
(Address of principal executive offices)
(770) 438-9595
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
COMMON STOCK $.01 PAR VALUE
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 voting stock held by non-affiliates of the
registrant as of March 24, 2000 was $3,248,389, based upon the closing price of
the Company's common stock as quoted on the OTC -- Bulletin Board composite tape
on such date. The Company has no authorized non-voting common equity.
The number of shares outstanding of the registrant's common stock as of
March 24, 2000 was 5,031,191.
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held April 25, 2000 are incorporated in this Form 10-K Part III by reference.
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TABLE OF CONTENTS
DORSEY TRAILERS, INC.
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1999
PAGES
-----
PART I.
Item 1. Business.................................................... 1
Item 2. Properties and Insurance.................................... 5
Item 3. Legal Proceedings........................................... 5
Item 4. Submission of Matters to a Vote of Security Holders......... 6
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 7
Item 6 Selected Financial and Operating Data....................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 14
Item 8. Financial Statements and Supplementary Data................. 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 14
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 14
Item 11. Executive Compensation...................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 15
Item 13. Certain Relationships and Related Transactions.............. 15
PART IV.
Item 14. Exhibits, Financial Statements Schedules and Reports on Form
8-K......................................................... 16
SIGNATURES............................................................. 17
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PART I
ITEM 1 - BUSINESS
Dorsey Trailers, Inc. ("the Company" or "Dorsey") designs, manufactures and
markets a broad line of high-quality, customized truck trailers, including dry
freight van trailers, refrigerated van trailers, flatbed trailers and dump
trailers. The Company competes in the customized segment of the truck trailer
industry through its authorized independent new trailer dealers ("the
Dealer(s)") and on a direct basis. The Company was organized as a Delaware
corporation in 1994.
PRODUCTS
The Company's broad line of product offerings includes:
- Dry Freight Van Trailers. These trailers are the most popular type of
truck trailers and are purchased by most segments of the trucking
industry. The Company produces the standard aluminum sheet and interior
post trailers, as well as aluminum plate-side and fiberglass reinforced
plywood ("FRP") trailers. Other models offered include shorter "pup" vans
that are used in doubles or triples operation and "piggybacks" that are
used in domestic intermodal transportation. Dry freight van trailers
represented 53.0% and 58.3% of net sales in 1999 and 1998, respectively.
Additional specialized dry freight van trailers produced by the Company
include:
- CargoGuard(R). The CargoGuard(R) trailer was introduced by the
Company in 1994. These trailers are proprietary, high-capacity,
aluminum sheet and post vans with one-piece, seamless plastic interior
liners. The Company believes that CargoGuard(R) is superior to
traditional dry freight vans because of its greater cubic capacity and
because its seamless liner is less expensive to maintain than plywood
lining. The Company also believes that CargoGuard(R) offers certain
advantages over aluminum plate-side trailers, including the capability
of bulk loading due to greater sidewall stiffness, and decreased
aluminum content, thereby lessening exposure to the volatility of
commodity aluminum prices.
- Package Carrier Van Trailers. The Company has worked closely with the
small package carrier industry to develop lightweight, durable,
high-capacity trailers. These trailers frequently include specialized
design features such as integrated interior shelving and roller
systems for efficient loading and unloading.
- Other Products. The Company's other dry freight products include drop
frame vans, open top trailers, chip haul trailers, exterior post vans,
bulk fruit trailers and converter dollies.
- Refrigerated Van Trailers. These trailers are used to transport
temperature sensitive products. The Company's refrigerated vans are
thermally efficient and were among the first to employ insulation
material that is not harmful to the ozone layer of the atmosphere. The
Company builds refrigerated vans of various lengths including both full
size and "pup" refrigerated trailers. Dorsey's food service delivery
trailers are highly customized and may include such features as multiple
compartments with different temperatures, center partition systems, side
doors, and steps for side and rear entry. Refrigerated van trailers
represented 23.7% and 18.5% of net sales in 1999 and 1998, respectively.
- Flatbed Trailers. Flatbed trailers, also known as platform trailers, are
used to carry loads such as steel and building materials. The Company
produces a wide variety of platform trailers, including straight frames,
drop frames and multi-axle units for specialized loads. All steel, as
well as composite steel, and aluminum designs are produced to satisfy
specific customer requirements. Flatbed trailers represented 16.0% and
15.6% of net sales in 1999 and 1998, respectively.
- Dump Trailers. Dump trailers are used to haul bulk products such as
dirt, sand, rock, gravel, refuse, scrap and demolition by-products. The
Company builds a variety of dump trailers, including double trailers with
frame and frameless designs, of aluminum and steel construction. Dump
trailers represented 4.1% and 4.2% of net sales in 1999 and 1998,
respectively.
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- Used Trailers. Infrequently, the Company is involved in the sale of used
trailers, which are supplied primarily by trade-ins from its new trailer
customers. Used trailers represented 0.1% and 0.2% of net sales in 1999
and 1998, respectively.
- Parts and Accessories. Replacement parts and accessories are sold
primarily to Dorsey Dealers. Parts and accessories represented 3.1% and
3.2% of net sales in 1999 and 1998, respectively.
The Company provides a limited five-year warranty against defects in
material and workmanship on van trailers, refrigerated van trailers and platform
trailers. The Company provides a similar two-year warranty on dump trailers. The
Company's warranty costs historically have been approximately one percent of net
sales per year.
SALES AND MARKETING
The Company's marketing strategy is to offer a broad line of high quality
trailers manufactured to the design specifications of its customers. The Company
markets and distributes its products in two principal ways: through authorized
Dealers and directly to national accounts. Dorsey's Dealers primarily serve
smaller and medium-sized carriers, owner-operators and private fleets in the
region where the Dealer is located. Dorsey's national accounts typically include
the larger truckload and less-than-truckload common carriers, large private
carriers, leasing companies, third party logistics companies and package
carriers.
During 1999, the Company continued its focus on its Dealer network and
direct customized niche markets, such as fruit haul trailers, dumps,
refrigerated vans, and package carrier vans. Management believes the Company is
best suited to serve the Dealer network and the direct customized markets due to
the skilled labor force, design engineering resources, diverse trailer models
and option portfolio, and plant layouts. Additionally, management believes that
these markets provide a higher return on the Company's investment than do the
large fleet orders of standard dry freight vans. Management will continue to
focus on the Dealer network and customized niche markets in 2000 with the goal
of increasing the amount of sales derived from these markets.
CUSTOMERS
Dealer Sales. Smaller and medium-sized customers are served through
Dorsey's Dealer network. Dealer sales account for a substantial percentage of
sales of refrigerated, flatbed and dump trailers. The Company's Dealers are
highly responsive to customers in their service areas, allowing the Company to
access these regional markets. Dealer sales accounted for approximately 61.9% in
1999, 65.5% in 1998 and 38.5% in 1997 of total new trailer sales for each of the
respective years. Dorsey has 81 authorized new trailer Dealers located in 36
states and 4 Canadian provinces. During 1999, the Company added 9 new Dealers.
All Dealers are independently owned and operated. Most Dealers sell parts,
provide general and warranty repair service for trailers, and sell used
trailers, thereby providing a sales outlet for trailers taken in trade by the
Company. The Company has no ownership interest in any Dorsey dealership and owns
no branch retail stores. Management believes that independently owned
dealerships are a more cost efficient distribution system than Company-owned
branches. The Company has no plans to develop any Company-owned retail stores.
The Company's relationships with its Dealers are governed by non-exclusive
agreements that are terminable by either party upon 30 days' notice. These
agreements generally provide that the Dealer's primary responsibility is to
promote the sale of the Company's products in the geographic area the Dealer
serves.
National Account Sales. The Company strives to establish and maintain
close, long-term relationships with its national account customers. Dorsey
involves manufacturing and engineering personnel in its team approach to
developing relationships with customers. National account sales represented
approximately 38.1% in 1999, 34.5% in 1998, and 61.5% in 1997 of total new
trailer sales revenue for each of the respective years. The Company has been
successful in developing significant relationships as a supplier to many large,
growth-oriented customers including:
- Dry Freight Van Trailers: Coca-Cola Bottling Co. Consolidated, J.B. Hunt
Transport, Inc., Landair Transport, Inc., Landstar System, Inc., Penske
Truck Leasing, FedEx Ground (formerly RPS, Inc.), Ryder Truck Rental,
Inc., United Parcel Service, USF Holland, Watkins Motor Lines, Inc., and
Westpoint Stevens.
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- Refrigerated Van Trailers: Ryder Truck Rental, Inc., Food Service
Companies, and XTRA, Inc.
- Flatbed Trailers: Caterpillar, Inc., J.B. Hunt Transport, Inc., Penske
Truck Leasing, Ryder Truck Rental, Inc., and Timberline Transportation.
For the year ended 1999 and 1998, no customer or Dealer represented greater
than 10% of the Company's total sales. For the year ended 1997, sales to United
Parcel Service were $ 21.3 million, which exceeded 10% of the Company's total
sales.
ENGINEERING AND MANUFACTURING
Dorsey considers its engineering expertise, combined with the manufacturing
experience of its work force, key competitive advantages. The Company utilizes
this experience and expertise in its marketing by including engineering and
manufacturing personnel in meetings with potential Dorsey customers to assist in
defining and meeting the customer's objectives. This team approach often results
in new and unique ways of satisfying the customer's needs. The process also
ensures effective communication throughout the organization.
In response to customer demands and to reduce costs, the Company seeks ways
to reduce trailer weight and material content while producing a product that
meets all safety requirements that our customers and the general public demand.
The Company also seeks to improve its manufacturing methods to reduce the labor
required to build its products. These efforts involve teams from all
disciplines, including marketing and sales, product and industrial engineering,
operations management, finance, and the manufacturing work force.
Each of the Company's trailers is manufactured from customized designs
based on detailed customer specifications of each aspect of the trailer,
including dimensions, structural requirements, fabrication materials, component
parts and accessories. Examples of some of the custom design features available
include extra floor support for heavy loads, specialized door placements, pull
out steps and platforms at doors, fluorescent interior lighting systems,
multi-axle systems, specialized braking systems, and specialized placement of
cargo tie downs. The manufacturing process involves the fabrication of
components. Additional materials, which need no modification prior to assembly,
are also utilized in the manufacturing process. These materials include wood
floors, tires, wheels, axles and support gear. The Company is not reliant on a
single source or supplier for raw materials. In addition, the Company believes
that there are multiple sources and suppliers available to provide raw materials
used in the manufacturing process.
BACKLOG
The Company's backlog of orders was approximately $49.5 million, $34.7
million, and $25.0 million at December 31, 1999, 1998 and 1997, respectively.
Dorsey includes in backlog only those orders for trailers for which a confirmed
customer order has been received. Dorsey expects to fill all of these orders by
the end of 2000. The Company manufactures trailers only to customer order and
does not generally maintain an inventory of "stock" trailers in anticipation of
future orders. However, many of Dorsey's Dealers do maintain an inventory of
stock trailers.
The current industry demand remains healthy as a strong freight market
continues to require more equipment. However, in the event of a major economic
downturn, the demand for equipment may see a significant decrease. The Company
has added several new key Dealers during the year and expects to see improvement
in its Dealer distribution as this network matures, and the Company obtains
deeper penetration in its targeted customized markets. Management believes that
a strong Dealer network provides a more stable and diverse customer base less
susceptible to industry swings. However, no assurances can be given that the
Company will not incur a decrease in demand for product if the industry demand
for product diminishes.
EMPLOYEES
As of December 31, 1999, the Company employed 1,073 persons, of whom 1,042
were employed in engineering, manufacturing, and materials, 15 in sales and
marketing and 16 in administration, finance and general management.
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As of December 31, 1999, approximately 75% of the Company's hourly
manufacturing employees at the Elba, Alabama plant are represented by the
International Association of Machinists and Aero Space Workers ("IAM") under a
three year collective bargaining agreement that expires May 3, 2002. The
Cartersville, Georgia and Dillon, South Carolina plants are non-union.
The Company considers its relationship with its employees to be
satisfactory.
COMPETITION
The truck trailer manufacturing industry is highly competitive and barriers
to entry are relatively low. Dorsey faces competition from numerous truck
trailer manufacturers of various sizes and financial strength. Dorsey is one of
the larger manufacturers of truck trailers. Some of the other large
manufacturers are Wabash National Corporation, Great Dane Limited Partnership,
Utility Trailer Manufacturing Company, Trailmobile Corporation, Stoughton
Trailers, Inc., Strick Corporation, HPA Monon Corporation, Lufkin Trailers and
Fontaine Trailer Company. The Company competes on the basis of product
availability and delivery time, design and engineering innovations and
capabilities, product quality and durability, warranties, service, customer
relationships and price.
The truck trailer industry faces competition from other types of products
in markets, such as the domestic intermodal container and chassis market, in
which the Company currently does not compete. The Company currently has chosen
not to participate in the intermodal container market based upon its belief that
the opportunity for container differentiation is minimal and industry
manufacturing supply is more than adequate. However, Dorsey's engineering and
marketing teams remain current on developments in this industry segment and
could quickly produce containers and container chassis if the market dynamics
were to become more favorable.
REGULATION
Truck trailer length, height, width, gross vehicle weight and other
specifications are regulated by the National Highway Traffic Safety
Administration and individual states. Changes and anticipated changes in these
regulations have resulted in significant fluctuations in demand for new
trailers, thereby contributing to industry cyclicality. The Company also is
governed by a variety of regulations established by various federal, state and
local agencies governing such matters including employee safety and working
conditions, environmental protection and other activities.
ENVIRONMENTAL MATTERS
The Company is engaged in a project to obtain an ACT II "release from
liability" from the state of Pennsylvania for the property located in
Northumberland, Pennsylvania. The ACT II process was initiated in October 1999
and is anticipated to conclude in August 2000. The Company sold the property in
January 2000 (see Note 9 of Notes to Financial Statements).
Subsequent to the closing of the Company's Edgerton, Wisconsin plant in
1989, the Wisconsin Department of Natural Resources ("WDNR") conducted an
environmental inspection that identified certain environmental response
requirements. The Company entered into an agreement with the two prior owners of
the Edgerton plant, limiting the Company's allocation of future expense to 4%.
In 1998, the Company sold this facility, and management believes that any future
expense will be diminimus and not have a material impact on the Company's
financial position, results of operations or cash flows.
In December 1990, a leak was detected in an underground storage tank
containing an industrial solvent at the Elba, Alabama facility. The Company
notified the Alabama Department of Environmental Management ("ADEM") of the leak
and hired an environmental consulting firm to investigate the problem and
recommend corrective action. A remediation system, approved by ADEM, was
installed and is performing according to expectations. The Company does not
expect the costs of remediation maintenance to exceed the reserves it has
established for this purpose.
PATENTS AND TRADEMARKS
The Company has been issued a patent in the United States to protect the
design concept and manufacturing method of the Company's CargoGuard(R) van
trailer. The Company has been granted a trademark registration for the
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Dorsey(TM), CargoGuard(TM) , and Liteguard(TM) names in the United States. The
Company does not consider its business to be materially dependent on one
particular patent or trademark.
ITEM 2 - PROPERTIES AND INSURANCE
The Company's design and manufacture of truck trailers are performed at
three facilities. Dry freight vans and refrigerated vans are produced at a
400,000 square foot facility on 74 acres in Elba, Alabama. Flatbed trailers are
produced at a 150,000 square foot facility on 16 acres in Cartersville, Georgia.
Dump trailers are produced at a 45,100 square foot facility on 10 acres in
Dillon, South Carolina. Management believes these facilities have sufficient
manufacturing capacity to produce the Company's forecasted market requirements.
The Company's principal executive offices are located in an approximately 7,000
square foot office in Atlanta, Georgia, which is leased by the Company.
In December 1999 the Company entered into an agreement for the sale of an
inactive 144,000 square foot facility in Northumberland, Pennsylvania. In
January 2000, the Company completed the sale and received net proceeds on the
sale of $0.6 million and recognized a net loss on the sale of the property of
$0.1 million in 1999. In March 1998, the Company completed the sale of two
closed facilities in Edgerton, Wisconsin and Griffin, Georgia to separate
private real estate investors. The Company received aggregate net proceeds on
the sales of $0.7 million and recognized a net gain on the sale of these
properties of $0.6 million.
The Company maintains insurance to limit certain risks associated with its
business activities. The Company's comprehensive property policy insures
business interruption losses in addition to the Company's buildings, machinery
and inventory. The property insurance has a total limit of $75 million and a
flood sub-limit of $16 million, subject to a $100,000 deductible per occurrence.
In addition, the Company maintains insurance covering general and product
liability subject to a self-insured retention of $250,000 for each occurrence
and an annual aggregate limit of $21 million. The Company maintains insurance
covering workers' compensation liabilities subject to a self-insured retention
of $350,000 per occurrence.
ITEM 3 - LEGAL PROCEEDINGS
In December 1997, an Administrative Law Judge of the National Labor
Relations Board ("NLRB") ordered the Company to reinstate operations at the
Company's closed Northumberland, Pennsylvania facility, reinstate striking
employees and compensate affected employees for any loss of earnings. In March
1999, a three-member panel of the NLRB affirmed the Administrative Law Judge's
decision. Unsuccessful mediation efforts took place in February 2000, between
the Company and the NLRB. The Company will now continue the appeal process in
the Federal Courts, a procedure that could take up to several years. No part of
this order will take effect during the appeal process. The Company does not have
sufficient information to estimate the cost that would be incurred if the
Company was required to carry out this order.
In November 1997, a declaratory judgment action was filed by an insurance
company (GAN North American Insurance Co. v. Dorsey Trailers, Inc.) in United
States District Court for the Northern District of Georgia, Atlanta Division, as
to coverage of a previously paid claim of $1.0 million by that insurance company
in the settlement of product liability litigation. The Company filed a motion
for summary judgment and in September 1999, the trial court granted the
Company's motion for summary judgment. GAN filed a notice of appeal, but in
March 2000, GAN ceased the appeal process and settled the action with the
Company. The amount of the settlement to be paid to the Company will not have a
material impact on the Company's financial position, results of operations or
cash flows.
In April 1995, a class action lawsuit (James Starks et al. v. Dorsey
Trailers, Inc. et al.) alleging racial discrimination was filed in the United
States District Court for the Middle District of Alabama against the Company.
The Court has not issued a class certification as of this date. Due to the lack
of a class certification, management is unable to determine the potential
damages, if any, associated with this litigation. Management intends to
vigorously defend such litigation and believes that the ultimate resolution of
the litigation will not have a material impact on the Company's financial
position, results of operations, or cash flows.
In the normal course of business, the Company is a defendant in certain
other litigation, in addition to the matters discussed above. Management after
reviewing available information relating to these matters and consulting
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with legal counsel, has determined with respect to each such matter either that
it is not reasonably possible that the Company has incurred liability in respect
thereof or that any liability ultimately incurred will not exceed the amount, if
any, recorded at December 31, 1999 in respect thereof, by an amount which would
have a materially adverse impact on the Company's financial position, results of
operations, or cash flows. However, in the event of an unanticipated adverse
final determination in respect to these matters, the Company's financial
position, results of operations, and its cash flows could be materially
affected.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the period indicated, the high and low
sales prices per share of the Common Stock as reported on The Nasdaq Stock
Market and OTC -- Bulletin Board:
HIGH LOW
------- -------
1998
First Quarter.......................................... $ 3.625 $ 2.375
Second Quarter......................................... $ 4.625 $ 2.875
Third Quarter.......................................... $ 3.250 $ 1.250
Fourth Quarter......................................... $ 1.375 $ 0.875
1999
First Quarter.......................................... $ 2.875 $ 0.875
Second Quarter......................................... $ 2.750 $ 1.625
Third Quarter.......................................... $ 2.500 $ 0.969
Fourth Quarter......................................... $ 2.188 $ 1.094
2000
First Quarter (through March 24, 2000)................. $ 1.438 $ 0.938
Source: Dow Jones Interactive Quotes & Market Data
As of March 24, 2000, the Common Stock was held by approximately 90 holders
of record and approximately 1,000 beneficial owners.
STOCK TRADING
Effective August 8, 1997, the Company's shares were conditionally listed on
the Nasdaq SmallCap Market under the trading symbol DSYTC and were no longer
listed on the Nasdaq National Market. Effective October 1, 1997, quotations for
the Company's shares began to be published on the OTC-Bulletin Board under the
symbol DSYT and the Company's shares were no longer listed on the Nasdaq
SmallCap Market. These actions resulted from the Company's inability to meet one
or more of the continued listing standards of the Nasdaq SmallCap Market.
DIVIDEND POLICY
The Company has not paid cash dividends since its initial public offering.
The Company intends to retain any future earnings to provide funds for the
operation and expansion of its business and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. In addition, the
Company has entered into a loan agreement that contains, among other things,
restrictions on the payment of dividends by the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ITEM 6 - SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial and operating data of the
Company. The selected financial data as of December 31, 1999, 1998, 1997, 1996
and 1995 and for each of the years then ended have been derived from the
Financial Statements of the Company which have been audited by
PricewaterhouseCoopers LLP, the Company's independent accountants. The
information set forth below should be read in conjunction with the Financial
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Statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND OPERATING DATA)
Statement of Operations Data:
Net sales................................. $172,648 $150,328 $156,966 $157,366 $227,944
Cost of sales............................. 163,884 143,508 158,514 156,214 215,048
-------- -------- -------- -------- --------
Gross profit (loss).................... 8,764 6,820 (1,548) 1,152 12,896
Selling, general and administrative
expenses............................... 6,266 5,975 7,372 8,753 7,349
Provision for plant closing (1)........... -- -- -- -- 350
-------- -------- -------- -------- --------
Operating income (loss)................... 2,498 845 (8,920) (7,601) 5,197
Interest expense, net..................... (2,034) (1,900) (1,649) (408) (62)
(Loss) gain on property sales............. (100) 568 -- -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................... 364 (487) (10,569) (8,009) 5,135
Benefit from (provision for) income
taxes.................................. 2,056 387 3,084 (891)
-------- -------- -------- -------- --------
Comprehensive income (loss)....... $ 2,420 $ (487) $(10,182) $ (4,925) $ 4,244
======== ======== ======== ======== ========
Basic earnings (loss) per share... $ 0.48 $ (0.10) $ (2.03) $ (0.99) $ 0.85
Average shares outstanding -- basic....... 5,030 5,020 5,007 4,995 4,990
Operating Data:
Number of new trailers sold....... 9,486 8,408 7,934 8,595 12,276
Sales per employee................ $160,902 $149,283 $152,839 $160,251 $174,938
Balance Sheet Data (at December 31 of each
year):
Total assets...................... $ 42,273 $ 32,934 $ 33,367 $ 45,019 $ 47,449
Long-term debt, including current
portion.............................. 17,965 12,790 14,935 9,876 10,315
Total stockholders' equity
(deficit)....................... (2,184) (4,711) (4,310) 5,615 10,193
- ---------------
(1) For 1997 and 1996, the provision for plant closing has been reclassed to
selling, general and administrative expenses.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's sales are derived primarily from the sale of new truck
trailers and, to a lesser extent, replacement parts and accessories, and used
trailers. The Company recognizes revenue from the sale of trailers when title
and risks of ownership are transferred to the customer, which generally is upon
shipment or customer pick-up. Materials represent approximately 75% of cost of
sales, with the remainder consisting of labor and factory overhead.
INCLUSION OF FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, including
"Business," "Legal Proceedings" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and statements in the "Letter To
Our Stockholders" contained in the Company's Annual Report to Stockholders, may
be deemed to be forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995. Any forward-looking statements included herein
have been included based upon facts available to management as of the date of
the statement. Any forward-looking statement is, however, inherently subject to
the uncertainty of future events, whether economic, competitive or otherwise,
many of which are beyond the control of the Company, or which may involve
determinations which may be made by management in the future. There can,
therefore, be no assurances that the events or results described in such
forward-looking statements will occur, and actual events or results may vary
materially from those included herein. The following are some of the factors
which may affect whether the events or results described in such forward-looking
statements will occur: increased competition, dependence on key
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management, continued availability of credit from vendors, continued advancement
of funds from lender, reliance on certain customers, shortages of raw materials,
component prices, labor shortages or work stoppage, dependence on current
industry trends and demand for product, manufacturing interruption due to
unfavorable natural events, unfavorable results of outstanding litigation,
government regulations and new technologies or products. Readers should review
and consider the various disclosures included elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of expense items
to net sales for the periods indicated:
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
Net sales............................................. 100.0% 100.0% 100.0%
Cost of sales......................................... 94.9 95.5 101.0
----- ----- -----
Gross profit (loss)................................... 5.1 4.5 (1.0)
Selling, general and administrative expenses.......... 3.6 3.9 4.7
----- ----- -----
Income (loss) from operations......................... 1.5 0.6 (5.7)
Interest expense, net................................. 1.2 1.3 1.0
(Loss) gain on property sales......................... (0.1) 0.4 --
----- ----- -----
Income (loss) before benefit from income taxes........ 0.2 (0.3) (6.7)
Benefit from income taxes............................. 1.2 -- 0.2
----- ----- -----
Net income (loss)..................................... 1.4% (0.3)% (6.5)%
===== ===== =====
Net Sales
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
------------- ------------- -------------
(IN THOUSANDS OF DOLLARS, EXCEPT PERCENTAGE DATA)
Net sales........................ $172,648 $150,328 $156,966
Percentage increase (decrease) in
sales from prior period........ 14.8% (4.2)% (0.2)%
Net sales for 1999 increased by $22.3 million, or 14.8%, to $172.6 million
from $150.3 million for 1998. This increase in net sales is due primarily to an
increase in volume of new trailers sold and product mix. The improvement in
product mix comes from the Company targeting higher unit priced products such as
refrigerated vans, customized vans, and dump trailers, as compared to lower unit
priced products, such as standard dry freight vans. Management attributes the
improved product mix to focusing on customized trailers and niche markets
through the Company's independent dealer organization. New trailer sales for
1999 were $167.2 million, a 15.2% increase over new trailer sales for 1998 of
$145.2 million. The volume of new trailers sold in 1999 increased by 12.8% over
new trailers sold in 1998. New trailers sold in 1999 were 9,486 units, as
compared to 8,408 units sold in 1998. The increase in new trailer sales
corresponds with the increase reflected in the industry as a whole.
Net sales for 1998 decreased by $6.6 million, or 4.2%, to $150.3 million
from $157.0 million for 1997. The decrease in sales was due to the decrease in
used trailer sales. Used trailer sales for 1998 were $0.3 million compared to
$15.7 million for 1997. This reduction in used trailer sales corresponds to the
reduction in the Company's used trailer inventory during each year. The
reduction in used trailer inventory and corresponding decline in used trailer
sales can be attributed to the strong demand for equipment by the trucking
industry. As a result, the pressure on a manufacturer to take used equipment in
order to obtain new trailer sales orders had diminished; however, at any time
that the demand for equipment should decrease, the pressure on manufacturers to
take used equipment could increase. The Company's strategy of focusing on its
independent dealer network and customized niche markets should diminish the
Company's pressure to take used trailers because the used trailer pressures are
primarily a focus of the large fleet business. The Company is reducing its focus
on those large fleets requiring the trade-in of their used trailers. The Company
believes that its strategy of developing its independent dealer market will also
assist in diminishing the requirements of the Company to take used trailers as
these independent dealers will accept and
9
12
market the majority of used trailer equipment for resale. However, no assurances
can be given that the Company will not be pressured to take on used trailers as
part of a new sales order.
New trailer sales for 1998 were $145.2 million, a 6.2% increase, over new
trailer sales for 1997 of $136.7 million. The volume of new trailers sold in
1998 increased by 5.9% over new trailers sold in 1997. Besides the improvement
in the volume of trailers sold, the Company also experienced improvement in
product mix as the volume of higher unit priced equipment such as refrigerated
vans, dumps, and highly customized trailers increased in 1998. Although the
Company had an increase in new trailer sales revenue in 1998 as compared to
1997, new trailer sales were negatively impacted by the flood at the Elba,
Alabama plant discussed below, as well as, a one-week vacation shutdown taken
during July 1998 at this plant. During that week, in addition to addressing
routine maintenance issues, the Company reconfigured and consolidated the dry
freight manufacturing production lines for more efficient production, and added
subassembly capabilities. These related process changes are resulting in lower
manufacturing costs and more efficient operations.
Gross Profit
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
------- ------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT
PERCENTAGE DATA)
Gross profit (loss)......... $8,764 $6,820 $(1,548)
As a percentage of net
sales..................... 5.1% 4.5% (1.0)%
Gross profit as a percentage of net sales, or gross margin, increased to
5.1% in 1999 from 4.5% in 1998 and gross profit increased to $8.8 million from
$6.8 million. This level of gross margin and gross profit is the highest the
Company has reported since 1995 and its second consecutive year over year
increase since 1995. As discussed above, the improvement in the gross profit for
1999 was due to the Company's focus on more profitable product mix, improved
pricing and increased volume of new trailer sales. Management believes the
Company's strategy of emphasizing its independent dealer organization and
targeting customized niche markets has contributed to the increased gross
profit.
Gross profit as a percentage of net sales, or gross margin, increased to
4.5% in 1998 from (1.0%) in 1997 and gross profit increased to $6.8 million from
($1.5) million. The improvement in the gross profit for 1998 was due to the
Company's more profitable product mix, improved pricing and increased volume of
new trailer sales, which management believes was primarily a result of the
Company's strategy of building its independent dealer organization and targeting
customized niche markets. Although the Company showed significant improvement in
its gross profit in 1998, the gross profit in 1998 was negatively impacted by
certain flood related costs, and the one-week vacation shutdown, as discussed
previously.
Selling, General and Administrative Expenses
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT
PERCENTAGE DATA)
Selling, general and
administrative expenses.... $6,266 $5,975 $7,372
As a percentage of net
sales...................... 3.6% 3.9% 4.7%
Selling, general and administrative ("SG&A") expenses increased by $0.3
million to $6.3 million for 1999 from $6.0 million for 1998. SG&A as a
percentage of sales decreased to 3.6% in 1999 from 3.9% in 1998. While the
Company has experienced a 14.8% increase in sales in 1999 as compared to 1998,
the relative decrease in SG&A expenses between years is reflective of
management's continued focus on cost containment. No single component of SG&A
expenses had a significant change between periods.
Selling, general and administrative ("SG&A") expenses decreased by $1.4
million to $6.0 million for 1998 from $7.4 million for 1997. SG&A as a
percentage of sales decreased to 3.9% in 1998 from 4.7% in 1997. The decrease in
SG&A expenses between years is reflective of management's plan of overall cost
reductions. The decrease
10
13
primarily is a result of a 22.7% reduction in salaries and benefits, a 25.2%
reduction in consulting fees and a 53.3% reduction in professional fees related
to fees incurred in 1997 with the Company's unsuccessful acquisition efforts and
a reduction in litigation expense.
(Loss) Gain On Property Sales
In December 1999, the Company entered into an agreement for the sale of its
closed facility in Northumberland, Pennsylvania to a private manufacturer. The
Company closed the transaction in January 2000 and received aggregate net
proceeds on the sales of $0.6 million and recognized a net loss on the sale of
these properties of $0.1 million during 1999.
In March 1998, the Company completed the sale of its closed facilities in
Edgerton, Wisconsin and Griffin, Georgia to separate private real estate
investors. The Company received aggregate net proceeds on the sales of $0.7
million and recognized a net gain on the sale of these properties of $0.6
million during 1998.
Interest Expense, Net
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT
PERCENTAGE DATA)
Interest expense, net.................. $2,034 $1,900 $1,649
As a percentage of net sales........... 1.2% 1.3% 1.0%
Net interest expense increased to $2.0 million for 1999 from $1.9 million
for 1998. The increase in net interest expense for 1999 is due primarily to an
increase in the prime lending rate. During 1999, the Federal Reserve increased
the Federal Funds rate by 0.75%. The increase in the rate was passed directly to
the Company in the form of an increased interest rate charged on the Company's
long-term revolving line of credit. The Company's interest expense is generated
mainly from the usage of its long-term revolving line of credit.
Net interest expense increased to $1.9 million for 1998 from $1.6 million
for 1997. The 1997 interest expense of $1.6 million is reduced by $0.4 million
in interest income received upon renegotiation of the Company's retail finance
agreement (See Note 9 of Notes to Financial Statements). The Company's interest
expense primarily was the result of the usage of its long-term revolving line of
credit.
OVERALL
On March 8, 1998, the Company's manufacturing facility in Elba, Alabama,
which accounts for approximately 80% of the Company's new trailer production,
was affected by flooding in the plant and surrounding area. The Company lost
approximately two weeks of new trailer production in 1998 due to the flood. The
Elba facility has fully recovered from the effects of the flood.
BENEFIT FROM INCOME TAXES AND NET INCOME
The Company reported net income of $2.4 million or $0.48 per share for
1999, as compared to a net loss of $0.5 million or $0.10 loss per share for
1998. The Company recorded a benefit from income taxes in the third quarter of
the year, as result of the reversal of a portion of the valuation allowance
associated with the Company's deferred tax assets. The Company is continually
assessing its income tax situation and management believes that it is more
likely than not that the net carrying value of the deferred tax assets will be
realized in the future. The benefit from income tax recorded in 1999 was $2.1
million or $0.41 per share. The Company reported a quarterly net profit in the
first three quarters of 1999. The Company recorded a net loss in the fourth
quarter of 1999, primarily due to operational issues associated with the
Company's computer system conversion. The net profit recorded for 1999 is the
first the Company has recorded since 1995.
The Company reported a net loss of $0.5 million or $0.10 loss per share for
1998, as compared to a net loss of $10.2 million or $2.03 loss per share for
1997. The Company reported a quarterly net profit in the second and fourth
quarters of 1998. The Company reported a net loss in the first and third
quarters of 1998. The loss in the
11
14
first quarter was attributable to the two-week shutdown in Elba, Alabama due to
the flood, and the loss in the third quarter of 1998 was due in part to the
one-week vacation shutdown and start-up after the shutdown in the Elba, Alabama
plant, both previously discussed. The Company reported no benefit from income
taxes for 1998 as the Company increased its valuation reserve for certain income
tax benefits by $0.2 million to $3.6 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7,000 at December 31, 1999 and December 31,
1998.
Net cash used in operating activities was $3.5 million for 1999 as compared
to net cash provided by operating activities of $2.1 million for 1998 and net
cash used in operating activities of $4.9 million for 1997. Cash used in
operating activities for 1999 was primarily from a $4.4 million increase in
accounts receivable, a $3.0 million increase in inventory and a $2.1 million
reversal of the valuation reserve against deferred tax assets, discussed above.
Both the increase in accounts receivable and inventory are attributable to the
growth in sales the Company experienced during 1999. These uses of cash were
offset by a $2.1 million increase in accounts payable and $1.8 million in
depreciation and amortization. The $2.1 million increase in accounts payable is
also attributable to the growth the Company experienced during 1999. The $3.0
million increase in inventory is due to the following: change in product mix has
resulted in higher raw material content and increased production in certain
types of customized vans and trailers resulted in a $2.6 million increase in raw
materials. Cash provided by operating activities for 1998 was primarily from a
$4.2 million increase in accounts payable and depreciation and amortization of
$1.8 million. The increase in accounts payable is due to improved supplier
credit terms as the Company's financial results have improved. These sources of
cash were offset by a $1.9 million decrease in accrued expenses and a $1.6
million increase in inventory. The $1.9 million decrease in accrued expenses was
the result of a decrease in reserve for closed plants which were sold in 1998,
decrease in accrued interest expense, decrease in accrued warranty expense,
decrease in self-insurance reserve, and a decrease in accrued liability for
parts prepaid by a customer. The $1.6 million increase in inventory is due to
the following: change in product mix has resulted in higher raw material content
and increased production in certain types of customized vans and trailers
resulted in a $1.3 million increase in raw materials and a higher monetary value
of work in process. Cash used in operating activities for 1997 was primarily
used to fund the Company's loss of $10.2 million and a $5.5 million decrease in
accounts payable. This cash used was offset by a $7.5 million decrease in
inventories, primarily used trailers; a $1.5 million decrease in accounts
receivable and a $2.5 million decrease in prepaid and other current assets,
primarily receipt of the tax refund from 1996.
Net cash used in investing activities was $1.7 million in 1999, as compared
to net cash provided by investing activities of $24,000 in 1998 and net cash
used in investing activities of $0.3 million for 1997. Net cash used in
investing activities of $1.7 million was for capital expenditures. The capital
expenditures included all costs associated with the purchase and installation of
a fully integrated information system. Net cash provided by investing activities
in 1998 was the result of the Company's sale of two closed facilities in
Edgerton, Wisconsin and Griffin, Georgia for net proceeds of $0.7 million. The
net cash proceeds were almost completely offset by capital expenditures in 1998.
Net cash used in investing activities for 1997 was used for capital
expenditures.
Net cash provided by financing activities was $5.2 million in 1999, as
compared to net cash used in financing activities of $2.1 million for 1998, and
net cash provided by financing activities of $5.1 million for 1997. Net cash
provided by financing activities was primarily from advances on the Company's
long-term revolving line of credit. The advances were used to fund the net cash
used in operating and financing activities. The net cash used in financing
activities of $2.1 million in 1998, was primarily the result of net payments of
$1.8 million made on the Company's long-term revolving line of credit. Net cash
provided in 1997 was from advances under the Company's long-term revolving line
of credit of $5.6 million which funded the net cash used in operating activities
of $5.1 million in 1997.
On March 28, 1997 the Company entered into a $14 million five-year working
capital line of credit ("Financing Agreement") with an asset-based lender. The
Company's availability under the Financing Agreement changes daily based on the
level of eligible accounts receivable and inventories. As of March 24, 2000, the
Company had $9.3 million in borrowings and $2.1 million in letters of credit
outstanding under the Financing Agreement and had $1.6 million in availability
under the Financing Agreement. In August and November of 1997, the Company's
12
15
$4.0 million term loan included as part of the Financing Agreement was revised.
With the revisions, the term loan at August 1, 1997 was $2 million with interest
only for sixty days. The revised term loan was paid in eight installments with
the final payment being made on July 1, 1998. On December 31, 1998, the
Company's Financing Agreement was amended to provide an over advance facility of
$2.0 million through January 31, 1999, $1.5 million through February 28, 1999;
and $1.0 million through March 31, 1999. In June 1999, the Company amended the
Financing Agreement, to increase the advance rates for the eligible accounts.
The advance rates increased from 80% to 85% of eligible accounts receivable;
from 30% to 35% of eligible raw material; and from 60% to 70% of eligible
finished goods inventory. The amended agreement permits interest rate
concessions for meeting certain net income and net worth benchmarks. The amended
agreement improved certain net worth covenants. In addition, the agreement was
extended for an additional two-year term, expiring on March 28, 2004. As of
March 24, 2000, the Company was in compliance with the continuous financial and
operational covenant requirements of the Financing Agreement.
In addition to the amendments of its Financing Agreement described above,
the United States Small Business Administration modified the Company's term
loan, deferred all payments for six months which ended December 31, 1997 and
re-amortized the balance of the term loan as of January 1998, which reduced the
Company's monthly payments from $69,326 to $40,500. The Company has other
long-term obligations consisting of a mortgage on its Cartersville, Georgia
location and an unsecured loan for the acquisition of its Dillon, South Carolina
operation. The current portion of these three long-term obligations as of
December 31, 1999 was $0.5 million with a remaining balance of $7.9 million.
Management believes that the Company will continue to meet these obligations
through the cash flow generated through operations and availability under its
Financing Agreement.
The $14.0 million Financing Agreement allowed the Company to improve
payment conditions with its vendors and provided the liquidity necessary for a
consistent production flow. However, with the growth the Company has experienced
during 1999, and the significant investments made in a new operating system, the
Company's liquidity position continued to remain tight. The Company has seen
improvement in its liquidity position in comparison to the prior year. Earnings
before interest, taxes, depreciation and amortization have improved by $1.0
million from the $3.2 million for 1998 to $4.2 million for 1999. Management
believes that the Company can generate some additional liquidity by reducing
inventories, continuing to improve product mix and reduce manufacturing costs,
and improving credit limits and terms with vendors as the Company continues to
show improved financial performance. No assurances can be given that the Company
will be successful in these efforts.
ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." FAS No. 131 establishes
disclosure requirements for operating segments of an enterprise. The Company
adopted FAS No. 131 for the year ended December 31, 1998.
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." FAS No. 132
establishes disclosure requirements for pensions and other postretirement
benefits. The Company adopted FAS No. 132 for the year ended December 31, 1998.
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." FAS No. 133 establishes accounting methods
and disclosure requirements for derivatives and hedging activities. The Company
does not currently have any derivatives or derivatives that qualify as hedges.
Thus, management does not believe that the adoption of FAS No. 133 will have any
impact on the Company's financial position or results of operations or require
any changes in disclosures. FAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. However, subsequent to June 15,
1999, the FASB issued FAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the effective date of FAS No. 133, an
Amendment of FAS No. 133," which deferred the effective date for all fiscal
quarters of fiscal years beginning after June 15, 2000.
13
16
SEASONALITY AND INFLATION
Unit sales of new trailers are generally not affected by seasonal factors.
However, new trailer unit sales have historically been subject to cyclical
variation based upon general economic conditions. The federal government also
regulates certain trailer features, particularly with respect to safety. Any
changes in these regulations apply generally to all manufacturers in the
industry and can have a significant impact on industry sales. Long-term domestic
growth in demand for truck trailers has generally been in line with increases in
the United States Gross Domestic Product. However, in the short to intermediate
term, new trailer sales can be very cyclical. The short to intermediate term
cycle of trailer sales is also impacted by the environment for new business
investment in equipment; particularly in the trucking industry.
The Company has not been materially impacted by inflation in the past three
years.
YEAR 2000
The Year 2000 issue is the result of computer hardware and programs being
designed to use two digits rather than four digits to define the applicable
year. The Company conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 issue and developed
an implementation plan to resolve the issue. Maintenance and modification costs
were expensed as incurred, while the costs of new hardware and software were
capitalized and amortized over the assets' useful lives. During October 1999,
the Company converted to its new operating system. The total cost of the
conversion and modification was $0.9 million, which was incorporated in the
Company's 1999 capital expenditure and operating budget. With the timely
completion of the modifications and conversion, the Company is now Year 2000
compliant. The Year 2000 issue did not have a material impact on the operations
of the Company.
Year 2000 related issues might also adversely affect the operations and
financial performance of one or more of the Company's customers or suppliers.
The failure of the Company's customers or suppliers to be Year 2000 ready could
have a materially adverse effect on the operations of the Company. Other than
utilities, the third parties on which the Company relies most heavily are its
suppliers of raw materials and customers. As of March 24, 2000, the Company has
not experienced any significant Year 2000 issues as they relate to suppliers or
customers that would have a material impact on the operations of the Company.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject the Company
to material market risk exposures. With respect to the Company's Long-term
revolving line of credit, the Company is subject to market risk exposure related
to changes in interest rates (see Note 4 to Notes to Financial Statements).
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in Part IV, Item 14 of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company hereby incorporates by reference the information under the
headings "Proposal I -- Election of Directors -- Director and Director Nominee
Information" and "-- Executive Officers of the Company" from its definitive
Proxy Statement to be delivered to the stockholders of the Company in connection
with the 2000 Annual Meeting of Stockholders to be held April 25, 2000.
14
17
ITEM 11 - EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the information contained
under the headings "Proposal I -- Election of Directors -- Executive
Compensation" from its definitive Proxy Statement to be delivered to the
stockholders of the Company in connection with the 2000 Annual Meeting of
Stockholders to be held April 25, 2000. In no event shall the information
contained in the Proxy Statement under the headings "Stockholder Return
Comparison" and "Report of the Compensation Committee of the Board of Directors"
be incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company hereby incorporates by reference the information contained
under the heading "Proposal I -- Election of Directors -- Principal Stockholders
of the Company" from its definitive Proxy Statement to be delivered to the
stockholders of the Company in connection with the 2000 Annual Meeting of
Stockholders to be held April 25, 2000.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the information contained
under the headings "Proposal I -- Election of Directors -- Executive
Compensation -- Compensation Committee Interlocks and Insider Participation" and
"-- Certain Transactions" from its definitive Proxy Statement to be delivered to
the stockholders of the Company in connection with the 2000 Annual Meeting of
Stockholders to be held April 25, 2000. Additionally, see Note 10 of the Notes
to Financial Statements for related party transactions.
15
18
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of Dorsey Trailers, Inc., incorporated
by reference into Item 8, are attached hereto:
PAGE
NUMBER
------
Report of Independent Accountants........................... F-1
Balance Sheets as of December 31, 1999 and 1998............. F-2
Statements of Operations and Comprehensive Income for the F-3
years ended December 31, 1999, 1998 and 1997..............
Statements of Changes in Stockholders' Equity (Deficit) for F-4
the years ended December 31, 1999, 1998 and 1997..........
Statements of Cash Flows for the years ended December 31, F-5
1999, 1998 and 1997.......................................
Notes to Financial Statements............................... F-6
2. Financial Statement Schedules
Schedule VIII -- Valuation and Qualifying Accounts........ F-21
All other schedules have been omitted because the
schedules are either inapplicable or the information
required is included in the financial statements or
notes thereto.
3. Exhibits................................................. F-22
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1999.
16
19
SIGNATURES
Pursuant to 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 on March 28, 2000.
DORSEY TRAILERS, INC.
By: /s/ JOHN L PUGH
--------------------------------------
John L. Pugh
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15 (d) 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 indicated on March 28, 2000.
SIGNATURE TITLE
--------- -----
/s/ MARILYN R. MARKS Chairman of the Board of Directors
- -----------------------------------------------------
Marilyn R. Marks
/s/ JOHN L. PUGH Chief Executive Officer and Director
- -----------------------------------------------------
John L. Pugh
/s/ CHARLES A. CHESNUTT Vice President -- Finance (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
Charles A. Chesnutt
/s/ LAWRENCE E. MOCK, JR. Director
- -----------------------------------------------------
Lawrence E. Mock, Jr.
/s/ J. HOYLE RYMER Director
- -----------------------------------------------------
J. Hoyle Rymer
17
20
ANNUAL REPORT ON FORM 10-K
Item 14(a) 1.
Financial Statements
21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Dorsey Trailers, Inc.
In our opinion, the financial statements listed in the index appearing
under Item 14(a) (1) on page 16 present fairly, in all material respects, the
financial position of Dorsey Trailers, Inc. at December 31, 1999 and 1998, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedules listed in the index appearing under Item 14(a)(2)
on page 16 present fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
January 25, 2000
F-1
22
DORSEY TRAILERS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
------------------
1999 1998
------- -------
ASSETS
Current assets
Cash and cash equivalents................................. $ 7 $ 7
Accounts receivable, less allowance for doubtful accounts
of $100 and $145....................................... 10,690 6,284
Inventories............................................... 16,058 13,090
Deferred income taxes..................................... 3,374 2,863
Prepaid expenses and other assets......................... 133 133
------- -------
Total current assets.............................. 30,262 22,377
Property, plant and equipment, net........................ 7,794 7,562
Deferred income taxes..................................... 2,917 1,372
Other assets.............................................. 1,300 1,623
------- -------
Total assets...................................... $42,273 $32,934
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt......................... $ 524 $ 496
Accounts payable.......................................... 18,943 16,815
Accrued wages and employee benefits....................... 4,367 4,204
Accrued expenses.......................................... 1,066 1,236
------- -------
Total current liabilities......................... 24,900 22,751
Long-term revolving line of credit.......................... 9,503 3,807
Long-term debt.............................................. 7,938 8,487
Accrued pension liability................................... 1,600 1,600
Accrued warranty............................................ 516 1,000
------- -------
Total liabilities................................. 44,457 37,645
------- -------
Commitments and contingencies (Note 9)...................... -- --
Stockholders' deficit
Preferred stock, $.01 par value, 500,000 shares
authorized; none issued or outstanding................. -- --
Common stock, $.01 par value, 30,000,000 shares
authorized; 5,031,191 and 5,020,280 shares issued and
outstanding............................................ 50 50
Additional paid-in capital................................ 2,711 2,681
Accumulated deficit....................................... (4,945) (7,365)
Accumulated other comprehensive loss...................... -- (77)
------- -------
Total stockholders' deficit....................... (2,184) (4,711)
------- -------
Total liabilities and stockholders' deficit....... $42,273 $32,934
======= =======
The accompanying notes are an integral part of these financial statements.
F-2
23
DORSEY TRAILERS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Net sales................................................... $172,648 $150,328 $152,309
Net sales -- related party.................................. -- -- 4,657
-------- -------- --------
Total net sales................................... 172,648 150,328 156,966
Cost of sales............................................... 163,884 143,508 153,038
Cost of sales -- related party.............................. -- -- 5,476
-------- -------- --------
Total cost of sales............................... 163,884 143,508 158,514
Gross profit (loss)......................................... 8,764 6,820 (729)
Gross (loss) -- related party............................... -- -- (819)
-------- -------- --------
Total gross profit (loss)......................... 8,764 6,820 (1,548)
Selling, general and administrative expenses................ 6,266 5,975 7,372
-------- -------- --------
Income (loss) from operations............................... 2,498 845 (8,920)
Interest expense, net....................................... (2,034) (1,900) (1,649)
(Loss) gain on property sales............................... (100) 568 --
-------- -------- --------
Income (loss) before income taxes...................... 364 (487) (10,569)
Benefit from income taxes................................... 2,056 -- 387
-------- -------- --------
Net income (loss)......................................... $ 2,420 $ (487) $(10,182)
-------- -------- --------
Other comprehensive income, net of taxes:
Unrecognized pension liability......................... 48 -- --
-------- -------- --------
Comprehensive income (loss)................................. $ 2,468 $ (487) $(10,182)
======== ======== ========
Basic income (loss) per share............................. $ 0.48 $ (0.10) $ (2.03)
======== ======== ========
Average shares outstanding
Basic.................................................. $ 5,030 $ 5,020 $ 5,007
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-3
24
DORSEY TRAILERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS OTHER
------------------ PAID-IN (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) LOSS TOTAL
--------- ------ ---------- ------------ ------------- --------
Balance, December 31, 1996............ 4,997,422 $49 $2,339 $ 3,304 $(77) $ 5,615
Net loss.............................. (10,182) (10,182)
Record unrecognized tax benefit of
stock option compensation........... 226 226
Issuance of common stock to
non-employee directors.............. 16,000 1 30 31
--------- --- ------ -------- ---- --------
Balance, December 31, 1997............ 5,013,422 50 2,595 (6,878) (77) (4,310)
Net loss.............................. (487) (487)
Record unrecognized tax benefit of
stock option compensation........... 56 56
Issuance of common stock to
nonemployee directors............... 6,858 30 30
--------- --- ------ -------- ---- --------
Balance, December 31, 1998............ 5,020,280 50 2,681 (7,365) (77) (4,711)
Net income............................ 2,420 2,420
Reversal of accumulated other
comprehensive loss.................. 77 77
Issuance of common stock to
nonemployee directors............... 10,911 30 30
--------- --- ------ -------- ---- --------
Balance, December 31, 1999............ 5,031,191 $50 $2,711 $ (4,945) $ -- $ (2,184)
========= === ====== ======== ==== ========
The accompanying notes are an integral part of these financial statements.
F-4
25
DORSEY TRAILERS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities
Net income (loss)......................................... $ 2,420 $ (487) $ (10,182)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities
Depreciation and amortization.......................... 1,770 1,784 1,782
Loss (gain) on property sales.......................... 100 (568) --
Unrecognized pension liability......................... 77 -- --
Deferred income taxes.................................. (2,056) -- --
Issuance of common stock to non-employee directors..... 30 30 31
Change in assets and liabilities
(Increase) decrease in accounts receivable........... (4,406) 527 1,485
(Increase) decrease in inventories................... (2,968) (1,611) 7,523
Decrease in prepaid expenses and other current
assets............................................ -- 407 2,450
Increase (decrease) in accounts payable.............. 2,128 4,177 (5,488)
Increase (decrease) in accrued wages and employee
benefits.......................................... 163 (144) (55)
Decrease in accrued expenses......................... (270) (1,920) (1,143)
Increase in other assets............................. -- (75) (1,155)
Decrease in other liabilities........................ (484) -- (100)
--------- --------- ---------
Net cash (used in) provided by operating
activities...................................... (3,496) 2,120 (4,852)
--------- --------- ---------
Cash flows from investing activities
Net proceeds from property sales.......................... -- 739 --
Capital expenditures...................................... (1,678) (715) (300)
--------- --------- ---------
Net cash (used in) provided by investing
activities...................................... (1,678) 24 (300)
--------- --------- ---------
Cash flows from financing activities
Advances on long-term revolving line of credit............ 182,908 159,416 130,852
Payments on long-term revolving line of credit............ (177,213) (161,180) (125,281)
Payments of long-term debt................................ (521) (482) (512)
Deferred interest capitalized to long-term debt........... -- 101 --
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... 5,174 (2,145) 5,059
--------- --------- ---------
Decrease in cash and cash equivalents....................... -- (1) (93)
Cash and cash equivalents at beginning of year.............. 7 8 101
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 7 $ 7 $ 8
========= ========= =========
Supplemental disclosures of cash flow information
Cash paid during the year for interest.................... $ 1,871 $ 1,958 $ 1,600
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-5
26
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company designs, manufactures and markets truck trailers. Significant
accounting policies followed by the Company are summarized below:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investment instruments
with an original maturity of three months or less.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
The Company recognizes revenue from the sale of trailers when title and
risks of ownership are transferred to the customer, which generally is upon
shipment or customer pick-up. A customer may be invoiced for and receive title
to trailers prior to taking physical possession when the customer has made a
fixed, written commitment to purchase, trailers have been completed and are
available for pick-up or delivery, and the customer has requested the Company to
hold the trailers until the customer determines the most economical means of
taking physical possession. Upon such a request, the Company has no further
obligation except to segregate the trailers, invoice them under normal billing
and credit terms, and hold them for a short period of time as is customary in
the industry, until pick-up or delivery. Trailers are built to customer
specification and no right of return or exchange privileges are granted.
Accordingly, no provision for sales allowances or returns is recorded.
For the year ended 1999 and 1998, no one customer represented greater than
10% of total sales of the Company. For the year ended 1997, sales to United
Parcel Services and a related company were $21.3 million, which exceeded 10% of
the Company's total sales. The Company markets its products directly to a
nationwide network of Dealers and directly to national accounts into all of the
major segments of the trucking industry. The diverse customer base reduces the
risk of concentration in any market segment or geographical area. Although the
Company is affected by the credit worthiness of its customers, management does
not believe significant credit risk exists at December 31, 1999. The Company
generally does not require collateral or maintain reserves for potential credit
losses.
INVENTORIES
Inventories are stated primarily at the lower of first-in, first-out (FIFO)
cost or market values. Used trailers are carried at the lower of their estimated
net realizable value or cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
using the straight-line method over the estimated lives of the assets.
Maintenance and repairs are charged to expense as incurred; expenditures for
renewals and betterments are capitalized. When assets are retired or otherwise
disposed of, the proper accounts are relieved of costs and accumulated
depreciation and any resulting gain or loss is credited or charged to income.
ASSET CATEGORY ESTIMATED USEFUL LIVES
- -------------- ----------------------
Computer Hardware & Software............................. 3 - 5 years
Furniture & Fixtures..................................... 5 years
Machinery & Equipment.................................... 5 years
Buildings................................................ 20 years
F-6
27
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
ACCRUED WARRANTY
The Company provides a limited five-year warranty against defects in
material and workmanship on van trailers and flatbed trailers. The Company
provides a similar two-year warranty on dump trailers. The Company provides for
warranty costs at the time of sale based on experience and management's
judgment. The portion of the warranty reserve expected to be paid beyond one
year is classified as noncurrent in the accompanying financial statements.
ENVIRONMENTAL ACCRUAL
The Company accrues environmental costs when it is probable that the
Company has incurred a liability and the amount can be reasonably estimated.
Accruals for environmental liabilities are included in accrued expenses at
undiscounted amounts and exclude claims for recoveries from insurance companies
or other third parties. Environmental costs are capitalized if they extend the
life of the related property, increase its capacity or mitigate or prevent
future contamination.
GOODWILL
Goodwill represents the excess of the aggregate price paid by the Company
in acquisitions accounted for as purchases over the fair market value of the net
tangible assets acquired. Goodwill is being amortized on a straight-line basis
over 15 years. The carrying value of the goodwill is evaluated for indications
of possible impairment whenever events or changes in circumstances indicate that
the carrying value of an intangible asset may not be recoverable.
Goodwill was $786,000 at December 31, 1999 net of accumulated amortization
of $239,000. Goodwill was $854,000 at December 31, 1998 net of accumulated
amortization of $171,000. Goodwill was $922,000 at December 31, 1997 net of
accumulated amortization of $103,000.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME
The Company adopted the standards of Statement of Financial Accounting
Standard ("FAS") No. 130, "Reporting Comprehensive Income" in January 1998. The
only other comprehensive income item the Company has is the difference between
the underfunded liability of a pension plan and the accrued pension cost which
is shown as a reduction to stockholders' equity.
EARNINGS PER SHARE ("EPS")
Basic Earnings Per Share ("EPS") is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS includes the effect of all
potentially dilutive stock options outstanding during the year. Common stock
equivalents consist of the Company's common shares issuable upon the exercise of
stock options using the treasury stock method.
In 1999 and 1998 there were no potentially dilutive securities which were
not included in the calculation of basic earnings per share. In 1997,
potentially dilutive securities not included in the calculation of basic
earnings per share and dilutive earnings per share consisted of options to
purchase 187,000 shares of the Company's common stock. These options were not
included due to the Company reporting a net loss for the periods.
F-7
28
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. INVENTORIES
Inventories are summarized as follows:
DECEMBER 31,
-------------------------
1999 1998
---------- ----------
(IN THOUSANDS OF DOLLARS)
Raw materials............................................... $11,648 $ 9,065
Work-in-process............................................. 3,005 3,127
Finished trailers........................................... 1,189 449
Used trailers............................................... 216 449
------- -------
$16,058 $13,090
======= =======
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
DECEMBER 31,
-------------------------
1999 1998
---------- ----------
(IN THOUSANDS OF DOLLARS)
Land........................................................ $ 637 $ 637
Building.................................................... 5,990 6,011
Equipment................................................... 12,821 11,124
------- -------
19,448 17,772
Less -- Accumulated depreciation............................ 11,654 10,210
------- -------
$ 7,794 $ 7,562
======= =======
Property, plant and equipment include land and building held for sale as
idle facility of $657,000 in Northumberland, Pennsylvania at December 31, 1999
and 1998. In December 1999, the Company entered into an agreement to sell the
Northumberland facility. The sale was completed on the 27th day of January 2000,
with a net sales price of $630,000.
4. REVOLVING LINE OF CREDIT
On March 28, 1997, the Company entered into a $14.0 million, five-year line
of credit ("Financing Agreement"), including a $4.0 million term loan and a
letter of credit facility of up to $3.0 million, with an asset-based lender. The
term loan was paid with the final payment being made on July 1, 1998. On
December 31, 1998, the Company's Financing Agreement was amended. The amendment
provided for an overadvance facility of $2.0 million through January 31, 1999;
$1.5 million through February 28, 1999; and $1.0 million through March 31, 1999.
On June 30, 1999, the Company amended the Financing Agreement. The amended
agreement increased the advance rates for the eligible accounts. The advance
rates increased from 80% to 85% of eligible accounts receivable; from 30% to 35%
of eligible raw material; and from 60% to 70% of eligible finished goods
inventory. The amended agreement permits interest rate concessions for meeting
certain net income and net worth benchmarks. The amended agreement improved
certain net worth covenants. In addition, the agreement was extended for an
additional two-year term, expiring on March 28, 2004.
In connection with the closing of the original $14.0 million Financing
Agreement, the Company incurred cost of approximately $1.2 million which is
being amortized over the amended life of the Financing Agreement. The Financing
Agreement bears interest at prime plus 2.0% with interest payable monthly. At
December 31, 1999, the interest rate was 10.5% for the Financing Agreement.
Annual commitment fees for the unused portion of the
F-8
29
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Financing Agreement and outstanding letters of credit are .375% and 2.0%,
respectively. Additionally, the Company is required to pay monthly a $5,000
servicing fee and an annual facility fee of $75,000. The Financing Agreement
allows advances of up to the lesser of $14.0 million less the outstanding
letters of credit obligations, or 85% of eligible accounts receivable plus 35%
of eligible raw material, 40% of eligible used trailers (then 0% after December
31, 1999), and 70% of eligible finished goods inventory less the outstanding
letters of credit obligations. The Company has certain limitations on the
maximum amount of advances the Company can receive against inventory. As of
December 31, 1999, the Company had $9.5 million outstanding under the Financing
Agreement and $2.0 million in letters of credit. The Financing Agreement is
collateralized by a first security interest in the Company's accounts receivable
and inventory. The Financing Agreement, as amended, contains certain operational
and financial covenants and other restrictions with which the Company must
comply. The covenants include, but are not limited to, the following: minimum
earnings before interest, income taxes, depreciation, and amortization; minimum
net worth; and maximum amount of capital expenditures. As of December 31, 1999
and March 24, 2000, the Company was in compliance with the covenants of the
Financing Agreement.
5. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
----------------
1999 1998
---- ----
(IN THOUSANDS OF
DOLLARS)
Note payable to Small Business Administration bearing
interest at 4%, payable in equal monthly principal and
interest installments of $40,500, collateralized by
substantially all of the Company's assets (subordinated to
all other notes payable). Due 2020........................ $6,653 $6,909
Note payable bearing interest at 8.5%, payable in quarterly
principal and interest installments of $89,250, due 2005,
collateralized by property, plant and equipment........... 1,611 1,755
Note payable bearing interest at the prime rate, payable in
monthly principal and interest installments of $11,779,
due 2001, unsecured....................................... 198 319
------ ------
8,462 8,983
Less -- Current portion of long-term debt................... 524 496
------ ------
$7,938 $8,487
====== ======
In August of 1997, the SBA modified the Company's term loan, deferred all
payments for six months, which ended December 31, 1997 and re-amortized the
balance of the term loan as of January 1998, which reduced the Company's monthly
payment from $69,326 to $40,500.
In addition to the monthly principal and interest installments to the Small
Business Administration, the Company is required to make supplemental annual
payments equal to 50% of the Company's net operating income, as defined in the
agreement, in excess of $3.0 million. For the years ended December 31, 1999 and
1998, no supplemental payment was required.
F-9
30
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
As of December 31, 1999, aggregate principal maturities of long-term debt
are as follows (in thousands of dollars):
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------
2000........................................................ $ 524
2001........................................................ 542
2002........................................................ 506
2003........................................................ 539
2004........................................................ 574
Thereafter.................................................. 5,777
------
$8,462
======
6. RETIREMENT AND EMPLOYEE BENEFIT PLANS
PENSION PLANS AND POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
The Company has a noncontributory defined-benefit retirement plan covering
certain salaried employees and two noncontributory defined-benefit plans
covering certain former hourly employees who have met certain plan eligibility
provisions. Benefits under the hourly employees' plans are based on years of
service while benefits under the salaried employees' plan are based on years of
service and the employee's compensation during the five consecutive calendar
years prior to retirement. The Company makes contributions as required to
maintain the plans on an actuarially sound basis.
Additionally, the Company provides certain medical and life insurance
benefits to substantially all salaried employees upon retirement. Salaried
employees are eligible for these postretirement benefits after attaining the age
of 60 and providing five years of service. The Company pays for claims when
submitted by the retirees. The accounting for the postretirement plan assumes
future increases in annual costs will be divided equally between the Company and
retirees.
F-10
31
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The following tables provide a reconciliation of the changes in the plans'
benefit obligation and fair value over assets over the two-year period ending
December 31, 1999, and a statement of the funded status as of December 31 of
both years:
PENSION BENEFIT PLANS
1999 1998
------- -------
(IN THOUSANDS OF
DOLLARS)
Reconciliation of benefit obligation
Benefit obligation at beginning of year................... $ 7,104 $ 6,663
Service cost.............................................. 252 204
Interest cost............................................. 513 488
Actuarial loss (gain)..................................... (557) 35
Benefit payments.......................................... (296) (286)
------- -------
Obligation at end of year................................. $ 7,016 $ 7,104
======= =======
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year............ $ 6,090 $ 5,450
Actual return on plan assets.............................. 276 577
Employer contributions.................................... 241 349
Benefit payments.......................................... (296) (286)
------- -------
Fair value of plan assets at end of year.................. $ 6,311 $ 6,090
======= =======
Funded status
Funded status at December 31.............................. $ (705) $(1,014)
Unrecognized net gain..................................... (1,091) (784)
Unrecognized prior service cost........................... 79 93
------- -------
Net accrued............................................... $(1,717) $(1,705)
======= =======
F-11
32
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFIT PLAN
1999 1998
------- -------
(IN THOUSANDS OF
DOLLARS)
Reconciliation of benefit obligation
Benefit obligation at beginning of year................... $ 386 $ 337
Service cost.............................................. 28 25
Interest cost............................................. 28 30
Plan participant contributions............................ 76 70
Actuarial loss............................................ 136 82
Benefit payments.......................................... (199) (159)
----- -----
Obligation at end of year................................. $ 455 $ 385
===== =====
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year............ $ -- $ --
Employer contributions.................................... 123 89
Plan participant contributions............................ 76 70
Benefit payments.......................................... (199) (159)
----- -----
Fair value of plan assets at end of year.................. $ -- $ --
===== =====
Funded status
Funded status at December 31.............................. $(455) $(385)
Unrecognized transition net obligation.................... 238 256
Unrecognized net loss..................................... 164 28
----- -----
Net accrued............................................... $ (53) $(101)
===== =====
Each of the Company's two noncontributory defined-benefit retirement plans
covering certain former hourly employees had plan assets which exceed each of
the plans' accumulated benefit obligations. As of December 31, 1999 and 1998,
the combined accumulated benefit obligation for these two plans was $1.8
million. The Company's noncontributory defined-benefit retirement plan covering
certain salaried employees plan assets was less than the accumulated benefit
obligation for the plan. The salary pension plan's accumulated benefit
obligation was $4.4 million and $4.5 million at December 31, 1999 and 1998,
respectively. The Company's plan for postretirement benefits other than pension
plans has no plan assets due to the nature of this plan. The accumulated benefit
obligation for this postretirement benefit plan was $455,000 and $385,000 at
December 31, 1999 and 1998, respectively. For financial reporting purposes, a
pension plan is considered underfunded when the fair value of the plan assets is
less than the accumulated benefit obligation. The difference between the
underfunded liability of the pension plan and the accrued pension costs is
recorded net of deferred taxes as a reduction to stockholders equity. As of
December 31, 1999, the Company was overfunded. As of December 31, 1998, the
underfunded difference was $126,000 with a reduction to stockholders' equity of
$77,000.
F-12
33
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The following table provides the components of net periodic benefit cost
for the plans:
PENSION PLANS
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS OF DOLLARS)
Service costs............................................... $ 252 $ 204 $ 200
Interest cost............................................... 513 488 461
Expected return on plan assets.............................. (514) (479) (394)
Amortization of net gain.................................... (12) (57) (14)
Amortization of prior-service cost.......................... 14 14 14
----- ----- -----
Net pension cost.......................................... $ 253 $ 170 $ 267
===== ===== =====
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFIT PLAN
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS OF DOLLARS)
Service costs............................................... $28 $25 $20
Interest cost............................................... 28 30 27
Amortization of transition obligation....................... 18 18 18
Amortization of net gain.................................... -- -- (2)
--- --- ---
Net pension cost.......................................... $74 $73 $63
=== === ===
Gains and losses in excess of 10% of the greater of the benefit obligation
and the fair value of assets are amortized over the average remaining service
period of active participants.
The assumptions used in accounting for the Company's benefit obligations,
where applicable, are as follows:
PENSION PLANS
1999 1998 1997
---- ---- ----
Discount rate............................................... 7.75% 7.00% 7.25%
Rate of increase in compensation levels..................... 4.75% 4.00% 4.00%
Expected long-term rate of return on assets................. 8.50% 8.50% 8.50%
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFIT PLAN
1999 1998 1997
---- ---- ----
Discount rate............................................... 7.75% 7.00% 7.25%
The accrued medical trend rate used in 1999 was 6%, in 1998 was 7%, and in
1997 was 8%, decreasing 1% per year until the ultimate rate of 5% is reached. If
the medical trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation as of December 31, 1999 would be increased by
approximately $76,000. The effect of this change on the service and interest
components of net periodic postretirement benefit cost for the year would be an
increase of approximately $12,000. If the medical trend rate assumptions were
decreased by 1%, the accumulated postretirement benefit obligation as of
December 31, 1999 would be decreased by approximately $60,000. The effect of
this change on the service and interest components of net periodic
postretirement benefit cost for the year would be a decrease of approximately
$10,000.
F-13
34
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
For the years ended December 31, 1999, 1998 and 1997, the Company
contributed $704,000, $493,000 and $416,000, respectively, to a multi-employer
retirement plan sponsored by the I.A.M. National Pension Fund covering the Elba,
Alabama facility's hourly employees.
SUPPLEMENTAL RETIREMENT PLAN
The Company also maintains a 401(k) supplemental retirement plan for
salaried employees. The Company, at the discretion of the Board of Directors,
may match up to one-half of an employee's contributions of up to twenty percent
of gross salary. The Company made no accrual for matching contributions to the
plan in 1999, 1998 and 1997.
Effective January 1, 1997, the Company established the "Dorsey Trailers,
Inc. Hourly Employee Savings Incentive Plan" which is a 401(k) retirement plan
for hourly employees not covered by the union contract. The Company, at the
discretion of the Board of Directors, may match up to one-half of an employee's
contributions of up to twenty percent of gross salary. The Company made no
accrual for matching contributions to the plan in 1999, 1998, and 1997.
7. INCOME TAXES
The components of the benefit from income taxes for the years ended
December 31, 1999, 1998 and 1997 are as follows:
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
-------- ------- ------
(IN THOUSANDS OF DOLLARS)
Current
Federal................................................... $ -- $ -- $(387)
State..................................................... -- -- --
------- ------ -----
$ -- $ -- $(387)
------- ------ -----
Deferred
Federal................................................... (1,824) -- --
State..................................................... (232) -- --
------- ------ -----
(2,056) -- (387)
------- ------ -----
$(2,056) $ -- $(387)
======= ====== =====
The Company's benefit from income taxes differs from the amount computed by
applying the statutory federal income tax rate of 34% to income (loss) before
income taxes of $364,000, $(487,000), and $(10,569,000) for the years ended
December 31, 1999, 1998 and 1997 as a result of the following:
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------- ----- -------
(IN THOUSANDS OF DOLLARS)
Tax at federal statutory rate............................... $ 124 $(166) $(3,593)
State income taxes expense/(benefit), net of federal
benefit................................................... 17 (19) (403)
(Decrease) increase in valuation reserve.................... (2,197) 172 3,448
Other....................................................... -- 13 161
------- ----- -------
$(2,056) $ -- $ (387)
======= ===== =======
F-14
35
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Deferred income taxes were recorded to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1999 and 1998 are as follows:
DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS OF
DOLLARS)
Deferred assets
Employee benefits......................................... $1,291 $1,046
Pension benefit........................................... 768 753
Accrued warranty.......................................... 372 600
Provision for plant closing............................... 291 122
Net operating loss carryforward........................... 4,204 4,366
Other..................................................... 162 430
------ ------
7,088 7,317
------ ------
Deferred liabilities
Depreciation.............................................. -- (88)
------ ------
7,088 7,229
Valuation reserve........................................... (797) (2,994)
------ ------
$6,291 $4,235
====== ======
The Company recorded a benefit from income taxes during 1999 as a result of
the reversal of a portion of the valuation allowance associated with the
Company's deferred tax assets. The Company is continually assessing its income
tax situation and management believes that it is more likely than not that the
net deferred tax assets will be realized in the future.
The tax effected net operating loss carryforward will expire in the amount
of $3.8 million and $0.4 million in 2012 and 2018, respectively.
8. COMMON STOCK, OPTIONS AND WARRANTS
1993 STOCKHOLDER PLAN
In 1993, the Company's then majority stockholder sponsored a stock option
plan ("1993 Stockholder Plan") for the benefit of the Company and its employees.
The exercise price of the options is not less than the estimated fair market
value of the common stock on the date of grant as determined by the Company's
majority stockholder or, in the case of the January 12, 1993 grant, by
comparison to a third-party transaction. Current options granted are fully
vested.
LONG-TERM INCENTIVE PLAN
During 1994, the Board of Directors adopted the Long-Term Incentive Plan
and reserved 250,000 shares of common stock for future issuance under the plan.
In April 1998, the shareholders of the Company approved an amendment to the
Company's Long-Term Incentive Plan to increase the number of shares authorized
for issuance under the Long-Term Incentive Plan from 250,000 to 500,000.
Pursuant to the terms of the Long-Term Incentive Plan, the Board of Directors or
a committee thereof is authorized to identify officers and key employees of the
Company eligible to receive incentive stock options, non-qualified stock
options, or similar stock based awards under the plan. Grants have been awarded
at option prices equal to the fair market value of the common stock as of the
date of grant. Options vest equally over three years based on the date of grant
and expire ten years after date of grant.
F-15
36
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
A summary of the status of the Company's stock option plans as of December
31, 1999, 1998 and 1997, and changes during the years ending on those dates is
presented below:
1999 1998 1997
--------------------------- -------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- ---------------- ------- ---------------- -------- ----------------
1993 Stockholder Plan
Outstanding at beginning of
year......................... 265,485 $0.293 324,216 $0.290 592,149 $0.273
Exercised.................... (122,379) 0.295 (58,731) 0.265 (232,124) 0.235
Forfeited/canceled........... -- -- (35,809) 0.320
-------- ------- --------
Outstanding at end of year..... 143,106 $0.291 265,485 $0.293 324,216 $0.290
======== ======= ========
Available for grant at end of
year......................... 41,690 41,690 41,690
Options exercisable at
year-end..................... 143,106 265,485 324,216
1999 1998 1997
-------------------------- -------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- ------- ---------------- -------- ----------------
Long-Term Incentive Plan
Outstanding at beginning of
year.......................... 207,000 $3.03 200,333 $3.30 110,000 $5.59
Granted....................... 193,750 1.97 70,000 2.69 217,000 2.85
Forfeited/canceled............ (91,000) 2.86 (63,333) 3.49 (126,667) 4.52
------- ------- --------
Outstanding at end of year...... 309,750 $2.41 207,000 $3.03 200,333 $3.30
======= ======= ========
Available for grant at end of
year.......................... 190,250 293,000 49,667
Options exercisable at
year-end...................... 88,167 65,667 23,333
Weighted-average fair value of
options granted during the
year.......................... $1.96 $2.37 $2.58
The following table summarizes information about stock options outstanding
at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED- EXERCISABLE WEIGHTED-
RANGE OF AT CONTRACTUAL LIFE AVERAGE AT AVERAGE
EXERCISE PRICES 12/31/99 (YEARS) EXERCISE PRICE 12/31/99 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
1993 Stockholder Plan
$0.256 -- $0.32............................. 143,106 2.46 $0.29 143,106 $0.29
Long-Term Incentive Plan
$1.25 -- $5.625............................. 309,750 8.35 $2.41 88,167 $3.27
The Company has adopted FAS No. 123, "Accounting for Stock-Based
Compensation". In accordance with the provisions of FAS 123, the Company applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its Long-term
Incentive Plan. If the Company had elected to recognize compensation expense
based upon the fair value at the grant dates for awards under this plan
consistent with the methodology prescribed by FAS 123, the Company's net loss
and basic loss per share would be increased to the unaudited pro forma amounts
indicated below:
1999 1998 1997
-------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As
Net income (loss)..................... reported... $2,420 $ (487) $(10,182)
Pro forma 2,358 (537) (10,235)
As
Basic income (loss) per share......... reported... 0.48 (0.10) (2.03)
Pro forma 0.47 (0.11) (2.04)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively, expected
F-16
37
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
volatility of 100%, 100%, and 100%; and risk-free interest rates of 5.75%, 5.0%,
and 6.0%. An expected option term of 6 years for all periods was developed based
on historical grant information.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
During 1994, the Board of Directors adopted the Stock Plan for Non-Employee
Directors. Pursuant to the Directors' Plan, each director (other than employees,
former employees or immediate family members of current or former employees)
automatically will receive on the day following each annual meeting of
stockholders a grant of shares of common stock with a fair market value of
$10,000 for 1999 and 1998, and $7,500 for 1997 on the date of issuance. During
1999, 1998 and 1997, 10,911, 6,858, and 16,000 shares, respectively, were issued
to eligible directors.
In April 1998, the shareholders of the Company approved an amendment to the
Directors' Plan to increase the number of shares of common stock authorized for
issuance from 30,000 to 295,000, to increase the amount of the annual award from
$7,500 to $10,000, and to extend the term of the Directors' Plan from August 4,
1999 to August 4, 2019.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases office facilities and certain equipment under
noncancelable lease agreements which expire at various times through 2004.
Minimum annual rentals under these agreements at December 31, 1999 are
summarized as follows (in thousands of dollars):
YEAR ENDING DECEMBER 31,
- ------------------------
2000...................................................... $ 468
2001...................................................... 470
2002...................................................... 429
2003...................................................... 344
2004...................................................... 342
2005 and thereafter....................................... 534
------
$2,587
======
Rent expense under these and other lease agreements approximated $458,000,
$480,000, and $465,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
WORKERS' COMPENSATION INSURANCE AND LETTERS OF CREDIT
The Company is self-insured for workers' compensation claims up to $350,000
per occurrence. In order to secure the Company's obligation to fund its
self-insured retention, the Company has obtained standby letters of credit of
$2.0 million under its Financing Agreement (See Note 4 above). The accompanying
financial statements include an accrual based upon third party administrators'
and management's evaluations of estimated future ultimate costs of outstanding
claims and an estimated liability for claims incurred, but not reported, on an
undiscounted basis. The ultimate cost of these claims will depend on the
individual claims given the potential for these claims to increase or decrease
over time.
F-17
38
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
GROUP HEALTH INSURANCE
The Company is self-insured for group health insurance. The accompanying
financial statements include an accrual based upon third party administrators'
and management's evaluations of estimated future ultimate costs of outstanding
claims and an estimated liability for claims incurred, but not reported, on an
undiscounted basis. The ultimate cost of these claims will depend on the
individual claims given the potential for these claims to increase or decrease
over time.
CUSTOMER FINANCING
Effective December 31, 1997, the Company terminated its agreement with a
finance company that provided retail financing to certain end users for some
trailers sold through the Company's independent dealer network. Under this
agreement, the Company was contingently liable to repurchase trailers from the
finance company. Effective January 1, 1998, the Company entered into a new
agreement which does not require the Company to be contingently liable for such
retail repurchases. The new agreement does not contain any material terms or
commitments by the Company.
The Company has maintained an agreement with the same finance company,
which provides wholesale floor plans for certain of the Company's independent
dealers. The Company is contingently liable under repurchase agreements with the
finance company for approximately $7.4 million at December 31, 1999. In the
event of a repurchase, the Company would receive ownership of the trailer(s). In
the opinion of management, it is not probable that the Company will be required
to satisfy this contingent liability.
LITIGATION
In December 1997, an Administrative Law Judge of the National Labor
Relations Board ("NLRB") ordered the Company to reinstate operations at the
Company's closed Northumberland, Pennsylvania facility, reinstate striking
employees and compensate effected employees for any loss of earnings. In March
1999, a three-member panel of the NLRB affirmed the Administrative Law Judge's
decision. Unsuccessful mediation efforts took place in February 2000, between
the Company and the NLRB. The Company will now continue the appeal process in
the Federal Courts, a procedure that could take up to several years. No part of
this order will take effect during the appeal process. The Company does not have
sufficient information to estimate the cost that would be incurred if the
Company was required to carry out this order.
In November 1997, a declaratory judgment action was filed by an insurance
company (GAN North American Insurance Co. v. Dorsey Trailers, Inc.) in United
States District Court for the Northern District of Georgia, Atlanta Division, as
to coverage of a previously paid claim of $1.0 million by that insurance company
in the settlement of product liability litigation. The Company filed a motion
for summary judgment and in September 1999, the trial court granted the
Company's motion for summary judgment. GAN filed a notice of appeal but, in
March 2000, GAN ceased the appeal process and settled the action with the
Company. The amount of the settlement to be paid to the Company will not have a
material impact on the Company's financial position, results of operations or
cash flows.
In April 1995, a class action lawsuit (James Starks et al. v. Dorsey
Trailers, Inc. et al.) alleging racial discrimination was filed in the United
States District Court for the Middle District of Alabama against the Company.
The Court has not issued a class certification as of this date. Due to the lack
of a class certification, management is unable to determine the potential
damages, if any, associated with this litigation. Management intends to
vigorously defend such litigation and believes that the ultimate resolution of
the litigation will not have a material impact on the Company's financial
position, results of operations, or cash flows.
In the normal course of business, the Company is a defendant in certain
other litigation, in addition to the matters discussed above. Management after
reviewing available information relating to these matters and consulting with
legal counsel, has determined with respect to each such matter either that it is
not reasonably possible that the Company has incurred liability in respect
thereof or that any liability ultimately incurred will not exceed the amount,
F-18
39
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
if any, recorded at December 31, 1999 in respect thereof, by an amount which
would have a materially adverse impact on the Company's financial position,
results of operations, or cash flows. However, in the event of an unanticipated
adverse final determination in respect to these matters, the Company's financial
position, results of operations, and its cash flows in which period such
determination occurs could be materially affected.
ENVIRONMENTAL MATTERS
The Company is engaged in a project to obtain an ACT II "release from
liability" from the state of Pennsylvania for the property located in
Northumberland, Pennsylvania. The ACT II process was initiated in October 1999
and is anticipated to conclude in August 2000. The Company sold the property in
January 2000 (See Note 3 above).
Subsequent to the closing of the Company's Edgerton, Wisconsin plant in
1989, the Wisconsin Department of Natural Resources ("WDNR") conducted an
environmental inspection that identified certain environmental response
requirements. The Company entered into an agreement with the two prior owners of
the Edgerton plant, limiting the Company's allocation of future expense to 4%.
In 1998, the Company sold this facility, and management believes that any future
expense will be diminimus and not have a material impact on the Company's
financial position, results of operations or cash flows.
In December 1990, a leak was detected in an underground storage tank
containing an industrial solvent at the Elba, Alabama facility. The Company
notified the Alabama Department of Environmental Management ("ADEM") of the leak
and hired an environmental consulting firm to investigate the problem and
recommend corrective action. A remediation system, approved by ADEM, was
installed and is performing according to expectations. The Company does not
expect the costs of remediation maintenance to exceed the reserves it has
established for this purpose.
STOCK PURCHASE WARRANT
The Company was granted a warrant giving the Company the right to purchase
4,250,000 shares of common stock for $0.00021 per share of TruckBay.com, Inc., a
Georgia Corporation. The warrant was granted as of June 21, 1999 and expires on
June 21, 2004. The Company was granted the warrant due to its contribution of
intellectual capital to TruckBay.com, Inc. Marilyn R. Marks, Chairman of the
Board of Directors of the Company, is a founder and principal shareholder of
TruckBay.com, Inc. The current or future value of the warrant is not
determinable at this time.
10. RELATED PARTY TRANSACTIONS
During the first quarter of 1997, the Company sold used trailers at various
dates, upon the approval of the Board of Directors of the Company, in the amount
of approximately $4.7 million to TYM, Inc. TYM, Inc. is a corporation
wholly-owned by Marilyn R. Marks, Chairman of the Board of Directors of the
Company. The Company incurred losses of approximately $0.8 million on the sales
to TYM, Inc. In the opinion of management, based upon actual third-party offers,
the terms of the sale of these used trailers were no less favorable than terms
that could have been obtained from unaffiliated parties. There were no such
transactions subsequent to March 28, 1997.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
In preparing disclosures about the fair value of financial instruments, the
Company has reasonably assumed that the carrying amount approximates the
estimated fair value for cash and cash equivalents, accounts and other
receivables, accounts payable and other accrued expenses. The estimated fair
value of long-term debt instruments is based upon the current interest rate
environment and remaining term to maturity. The carrying value and estimated
F-19
40
DORSEY TRAILERS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
fair value for long-term debt instruments as of December 31, 1999 and 1998 are
as follows (in thousands of dollars):
1999 1998
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Long-term revolving line of credit........................ $9,503 $9,503 $3,807 $3,807
Long-term debt............................................ $8,462 $5,743 $8,983 $6,830
In addition, the Company has certain off-balance sheet items such as
letters of credit and contingent liabilities. In the opinion of management, the
estimated fair value of the fees associated with these commitments is not
material to the Company.
12. SEGMENT INFORMATION
The Company adopted Statement of Financial Standard ("FAS") No. 131,
"Disclosure about Segments of an Enterprise and Related Information" during
1998. FAS No. 131 established standards for reporting information about
operating segments in financial statements. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance.
The Company's reportable segments are strategic business units that offer
similar products with similar economic characteristics, production processes,
customers and distribution methods. All products fall within the category of
customized truck trailers. Accordingly the reporting segments have been
aggregated into one operating segment. In addition, the Company offers its
product in one geographic operating segment, North America.
F-20
41
DORSEY TRAILERS, INC.
SCHEDULE VIII: VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS END OF
DESCRIPTION PERIOD EXPENSES WRITTEN OFF PERIOD
- ----------- ------------------- ---------- ----------- ----------
(IN THOUSANDS OF
DOLLARS)
Year ended December 31, 1999
Allowance for Doubtful Accounts............... $145 $(21) $(24) $100
==== ==== ==== ====
Year ended December 31, 1998
Allowance for Doubtful Accounts............... $129 $ 52 $(36) $145
==== ==== ==== ====
Year ended December 31, 1997
Allowance for Doubtful Accounts............... $168 $ -- $(39) $129
==== ==== ==== ====
BALANCE AT INCREASE BALANCE AT
BEGINNING OF (DECREASE) END OF
DESCRIPTION PERIOD TO RESERVE PERIOD
- ----------- ------------ ---------- ----------
(IN THOUSANDS OF DOLLARS)
Year ended December 31, 1999
Deferred income tax valuation reserve..................... $2,994 $(2,197) $ 797
====== ======= ======
Year ended December 31, 1998
Deferred income tax valuation reserve..................... $2,822 $ 172 $2,994
====== ======= ======
Year ended December 31, 1997
Deferred income tax valuation reserve..................... $ (626) $ 3,448 $2,822
====== ======= ======
F-21
42
PART IV
ITEM 14 EXHIBITS
The exhibits indicated below are either incorporated by reference herein or
are bound separately and accompany the copies of this report filed with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. Copies of such exhibits will be furnished to any requesting
stockholder of the Company upon payment of the costs of copying and transmitting
the same.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.**
4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation and the Bylaws of the Company defining the
rights of holders of Common Stock.
4.2 Form of Common Stock certificate of the Company.**
10.1 Accounts Financing Agreement between Congress Financial
Corporation and the Company, dated August 8, 1990.*
10.2 First Consolidated Amendment to Accounts Financing Amendment
by and between the Company and Congress Financial
Corporation, dated June 28, 1993.*
10.3 Intercreditor Agreement by and between the U.S. Small
Business Administration and Congress Financial Corporation,
dated August 8, 1990.*
10.4 First Amendment to the Intercreditor Agreement by and
between the U.S. Small Business Administration and Congress
Financial Corporation, dated June 28, 1993.*
10.5 Limited Guarantee and Waiver by Marilyn R. Marks dated June
28, 1993.*
10.6 Trademark Security Agreement between Congress Financial
Corporation and the Company, dated June 28, 1993.*
10.7 Blocked Account Agreement by and among Citizens and Southern
National Bank, Congress Financial Corporation and the
Company, dated March 5, 1991.*
10.8 Loan Authorization and Agreement between the U.S. Small
Business Administration and the Company, dated May 3, 1990.*
10.9 Letter amending the Loan Authorization and Agreement between
the U.S. Small Business Administration and the Company,
dated August 6, 1990.*
10.10 Letter amending the Loan Authorization and Agreement between
the U.S. Small Business Administration and the Company,
dated May 4, 1992.*
10.11 Letter amending the Loan Authorization and Agreement between
the U.S. Small Business Administration and the Company,
dated May 18, 1994.*
10.12 Agreement between the Company and International Association
of Machinists and Aero Space Workers, Local Lodge No. 1769,
dated May 1, 1993.*
10.13 Agreement between the Company and International Union,
United Automobile Aerospace and Agricultural Implement
Workers of America for and on behalf of, UAW Local 1868,
dated March 4, 1992.*
10.14 Shareholder Agreement by and among Trailers Acquisition
Corp. (a predecessor of the Company) and certain
stockholders of the Company, dated March 16, 1987.*
10.15 First Amendment to Shareholder Agreement and Agreement with
Former Shareholder by and among the Company, the
stockholders of the Company and a former stockholder of the
Company, dated April 11, 1988.*
10.16 Dorsey Trailers, Inc. Marks/Rymer Shareholders Agreement by
and among the Company, Marilyn R. Marks and Hoyle Rymer,
dated January 12, 1993.*
10.17 Dorsey Trailers, Inc. Shareholder Agreement by and among the
Company and certain stockholders of the Company, dated
February 25, 1994.*
10.18 Form of Stock Option Agreement by and among the Company,
Marilyn R. Marks and each of T. Charles Chitwood, Charles W.
Mudd, David A. Kemp and H. Douglas Allgood.*
F-22
43
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.19 Dorsey Trailers, Inc. 1994 Long-Term Incentive Plan.**
10.20 Dorsey Trailers, Inc. 1994 Profit Plan.*
10.21 Dorsey Trailers, Inc. Amended and Restated Salaried
Employees' Retirement Plan, effective January 1, 1989.**
10.22 Dorsey Trailers, Inc. Amended and Restated Salaried
Employees' Savings Incentive Plan, effective January 1,
1989.*
10.23 Dorsey Trailers, Inc. (Edgerton Wisconsin Division) Amended
and Restated International Union Workers of America Local
#786 Employees' Pension Plan, effective January 1, 1989.*
10.24 Dorsey Trailers, Inc. Northumberland, Pennsylvania Plant
Revised and Restated UAW Local #1868 Hourly Employees'
Retirement Plan, effective January 1, 1989.*
10.25 Form of the Dorsey Trailers, Inc. 1994 Stock Plan for
Non-Employee Directors.**
10.25 (a) Registration Agreements between the Company and T. Charles
Chitwood, Charles W. Mudd, David A. Kemp and H. Douglas
Allgood, respectively, dated January 1995.***
10.26 Promissory Note between the Company and Marilyn R. Marks,
dated January 12, 1993.*
10.27 Promissory Note between the Company and Marilyn R. Marks,
dated June 10, 1988.*
10.28 First Amendment to Promissory Note between the Company and
Marilyn R. Marks, dated June 10, 1991.*
10.29 Second Amendment to Promissory Note between the Company and
Marilyn R. Marks, dated June 6, 1994.**
10.30 Non-Negotiable Promissory Note between the Company and
Marilyn R. Marks, dated April 14, 1994.**
10.31 Dorsey Trailers, Inc. Excess Benefit Plan, effective May 1,
1994.**
10.32 Form of Indemnity Agreement between the Company and each
director and executive officer of the Company.**
10.33 Fifth Amendment to Accounts Financing Agreement by and
between the Company and Congress Financial Corporation,
dated May 3, 1994.**
10.34 Collateral Assignment of Certificate of Deposit by and
between the Company and Congress Financial Corporation,
dated May 3, 1994.**
10.35 Sixth Amendment to Accounts Financing Agreement by and
between the Company and Congress Financial Corporation,
dated November 1, 1994.***
10.36 Revolving Credit and Reimbursement Agreement by and between
the Company and NationsBank of Georgia, National
Association, dated August 11, 1995.***
10.37 Real Estate and Deed to Secure Debt by and between the
Company and Glenn T. Taylor and Bankhead Enterprises, Inc.,
dated November 14, 1995.***
10.38 First Amendment to Revolving Credit and Reimbursement
Agreement by and between the Company and NationsBank of
Georgia, National Association, dated June 11, 1996.***
10.39 Agreement between the Company and International Association
of Machinists and Aerospace Workers, Local Lodge No. 1769,
dated May 1, 1996.***
10.40 Asset Purchase Agreement by and among Dorsey Trailers, Inc.,
Carolina Coastal Investors, Inc. and David Cottingham, dated
as of July 1, 1996.***
10.41 Loan and Security Agreement by and between Dorsey Trailers,
Inc. and Foothill Capital Corporation dated as of March 28,
1997.***
10.42 Amendment No. 1 dated as of April 10, 1997 to the Loan and
Security Agreement dated as of March 28, 1997 between
Foothill Capital Corporation and Dorsey Trailers, Inc.***
10.43 Amendment No. 2 dated as of July 1, 1997 to the Loan and
Security Agreement dated as of March 28, 1997 between
Foothill Capital Corporation and Dorsey Trailers, Inc.***
10.44 Amendment No. 3 dated as of August 1, 1997 to the Loan and
Security Agreement dated as of March 28, 1997 between
Foothill Capital Corporation and Dorsey Trailers, Inc.***
10.45 Amendment No. 4 dated as of November 22, 1997 to the Loan
and Security Agreement dated March 28, 1997 between Foothill
Capital Corporation and Dorsey Trailers, Inc.***
F-23
44
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.46 Amendment No. 5 dated as of July 10, 1998 to the Loan and
Security Agreement dated March 28, 1997 between Foothill
Capital Corporation and Dorsey Trailers, Inc.****
10.47 Amendment No. 6 dated as of August 31, 1998 to the Loan and
Security Agreement dated March 28, 1997 between Foothill
Capital Corporation and Dorsey Trailers, Inc.*****
10.48 Amendment No. 7 dated as of December 31, 1998 to the Loan
and Security Agreement dated March 28, 1997 between Foothill
Capital Corporation and Dorsey Trailers, Inc.********
10.49 Amendment No. 8 dated as of May 7, 1999 to the Loan and
Security Agreement dated March 28, 1997 between Foothill
Capital Corporation and Dorsey Trailers, Inc.******
10.50 Amendment No. 9 dated as of June 30, 1999 to the Loan and
Security Agreement dated March 28, 1997 between Foothill
Capital Corporation and Dorsey Trailers, Inc*******
10.51 Employment Agreement dated as of November 17, 1997 between
Lorri M. Palko and Dorsey Trailers, Inc.
10.52 Amendment to Employment Agreement dated as of January 1,
2000 between Lorri M. Palko and Dorsey Trailers, Inc.
10.53 Stock Purchase Warrant issued to the Company by
TruckBay.com, Inc. on June 21, 1999.
27 Financial Data Schedule (For SEC Use Only)
- ---------------
* Incorporated by reference from the exhibit of the same number in the
Registrant's Registration Statement on Form S-1 (File No. 33-79404)
dated May 26, 1994.
** Incorporated by reference from the exhibit of the same number in the
Registrant's Registration Statement on Form S-1 (File No. 33-79404)
dated May 26, 1994, as amended on July 8, 1994.
*** Incorporated by reference from the Registrant's Form 10-K for the year
ended December 31, 1997.
**** Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended July 4, 1998.
***** Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended October 3, 1998.
****** Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended April 3, 1999.
******* Incorporated by reference from the Registrant's Form 10-Q for the
quarter-ended July 3, 1999.
******** Incorporated by reference from the Registrant's Form 10-K for the year
ended December 31, 1998.
F-24