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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number : 0-24354
---------------------------------------------
DORSEY TRAILERS, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 58-2110729
- ---------------------------------------- ----------------------
(State of incorporation or organization) (IRS Employer
Identification Number)
One Paces West, Suite 1700
2727 Paces Ferry Road
Atlanta, Georgia 30339
- --------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 438-9595
----------------------
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 [ ]
The number of shares of common stock outstanding on August 14, 2000, was
5,054,049.
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DORSEY TRAILERS, INC.
FORM 10-Q
Quarter ended July 1, 2000
Index
Page
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Part I. Financial Information
Item 1. Condensed Financial Statements
Balance Sheets - July 1, 2000, and December 31, 1999 3
Statements of Operations - For the thirteen weeks and twenty-six
weeks ended July 1, 2000, and July 3, 1999, respectively 4
Statements of Cash Flows - For the twenty-six weeks ended
July 1, 2000, and July 3, 1999, respectively 5
Statement of Changes in Stockholders' Deficit -
For the twenty-six weeks ended July 1, 2000 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matter to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
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PART I - FINANCIAL INFORMATION
ITEM I. - CONDENSED FINANCIAL STATEMENTS
DORSEY TRAILERS, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
JULY 1, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 7 $ 7
Accounts receivable, net 9,275 10,690
Inventories, net 17,756 16,058
Deferred income taxes 3,374 3,374
Prepaid expenses and other assets 140 133
-------- --------
Total current assets 30,552 30,262
Property, plant and equipment, net 7,060 7,794
Deferred income taxes 2,860 2,917
Other assets, net 1,766 1,300
-------- --------
TOTAL ASSETS $ 42,238 $ 42,273
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt $ 538 $ 524
Accounts payable 19,123 18,943
Accrued wages and employee benefits 3,818 4,367
Accrued expenses 997 1,066
-------- --------
Total current liabilities 24,476 24,900
Long-term revolving line of credit 11,573 9,503
Long-term debt, net of current maturities 7,637 7,938
Accrued pension liability 1,600 1,600
Accrued warranty 516 516
-------- --------
TOTAL LIABILITIES 45,802 44,457
-------- --------
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; 5,054,049 amd 5,031,191 shares issued
and outstanding respectively 50 50
Additional paid-in capital 2,731 2,711
Accumulated deficit (6,345) (4,945)
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (3,564) (2,184)
-------- --------
Commitments and contingencies -- --
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 42,238 $ 42,273
======== ========
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENTS OF OPERATIONS -- UNAUDITED
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(13 WEEKS) (13 WEEKS) (26 WEEKS) (26 WEEKS)
Net sales $ 31,780 $ 44,181 $ 76,908 $ 89,028
Cost of sales 31,076 41,830 73,898 84,060
-------- -------- -------- --------
Gross profit 704 2,351 3,010 4,968
Selling, general and
administrative expenses 1,708 1,677 3,361 3,267
-------- -------- -------- --------
Income (loss) from operations (1,004) 674 (351) 1,701
Interest expense, net (490) (492) (991) (1,007)
-------- -------- -------- --------
Income (loss) before income taxes (1,494) 182 (1,342) 694
Provision for income taxes -- -- 58 --
-------- -------- -------- --------
Net income (loss) $ (1,494) $ 182 $ (1,400) $ 694
======== ======== ======== ========
Basic income (loss) per share $ (.30) $ .04 $ (.28) $ .14
======== ======== ======== ========
Weighted average number of
common and common share
equivalents - basic 5,047 5,028 5,051 5,024
======== ======== ======== ========
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
JULY 1, JULY 3,
2000 1999
---------- ----------
(26 WEEKS) (26 WEEKS)
Cash flows from operating activities:
Net income (loss) $(1,400) $ 694
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 928 862
Deferred income taxes 58 --
Issuance of common stock to non-employee directors 20 30
Change in assets and liabilities-
Decrease (increase) in accounts receivable 1,415 (7,547)
(Increase) decrease in inventories, net (1,698) 843
(Increase) decrease in prepaid expenses
and other current assets (7) 20
Decrease in other assets 48 --
Increase in accounts payable 180 2,190
Decrease in accrued expenses (586) (1,060)
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Net cash used in operating activities (1,042) (3,968)
------- -------
Cash flows from investing activities:
Capital expenditures (749) (558)
Net proceeds from property sales 45 --
------- -------
Net cash used in investing activities (704) (558)
------- -------
Cash flows from financing activities:
Net borrowings under line of credit agreement 2,032 4,780
Payments on long-term debt (286) (254)
------- -------
Net cash provided by financing activities 1,746 4,526
------- -------
Decrease in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period 7 7
------- -------
Cash and cash equivalents at end of period $ 7 $ 7
======= =======
Supplemental schedule of noncash investing and financing activities:
The Company sold its Northumberland idle plant facility in January, 2000. In
conjunction with the disposition notes receivable and commissions payable were
recorded as follows:
Note receivable $ 580
=======
Commission payable $ 31
=======
See notes to condensed financial statements
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DORSEY TRAILERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS EXCEPT SHARE DATA)
Common Stock Additional
------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------- ---------- ----------- -------
Balance, December 31, 1999 5,031 $ 50 $2,711 $(4,945) $(2,184)
Net income (1,400) (1,400)
Issuance of common stock to
non-employee directors 23 20 20
------ ------- ------ ------- -------
Balance, July 1, 2000 (Unaudited) 5,054 $ 50 $2,731 $(6,345) $(3,564)
====== ======= ====== ======= =======
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. GENERAL
The financial statements included herein have been prepared by Dorsey Trailers,
Inc. (the "Company") without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading. The condensed
financial statements included herein should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
In the opinion of the Registrant, the accompanying financial statements contain
all material adjustments (consisting only of normal recurring adjustments),
necessary to present fairly the financial position of the Company at July 1,
2000, and December 31, 1999, and its results of operations for the thirteen and
twenty-six weeks ended July 1, 2000 and July 3, 1999 and its cash flows for the
twenty-six weeks ended July 1, 2000, and July 3, 1999, respectively. All dollar
amounts included in these footnotes contained herein are in thousands.
NOTE 2. INVENTORIES, NET
Inventories, net consisted of the following:
July 1, December 31,
2000 1999
------- ------------
(In thousands)
Raw material $ 8,816 $11,648
Work-in-process 1,595 3,005
Finished trailers 6,922 1,189
Used trailers 423 216
------- -------
$17,756 $16,058
======= =======
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NOTE 3. REVOLVING LINE OF CREDIT
On March 28, 1997, the Company entered into a $14,000, five-year line of credit
("Financing Agreement"), including a $4,000 term loan and a letter of credit
facility of up to $3,000, 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 over
advance facility of $2,000 through January 31, 1999; $1,500 through February 28,
1999; and $1,000 through March 31, 1999.
On June 30, 1999, the Company obtained an amendment to the Financing Agreement.
The amendment 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 Financing 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. On August 1, 2000, the Company obtained an
amendment to the Financing Agreement. The amendment provides an over advance
facility of $1,000 through August 31, 2000 with the option to renew the over
advance at the lender's discretion.
In connection with the closing of the original $14,000 Financing Agreement, the
Company incurred costs of approximately $1,150, which are being amortized over
the amended life of the Financing Agreement. The Financing Agreement bears
interest at prime plus 1.5% with interest payable monthly. At July 1, 2000, the
interest rate was 11% for the Financing Agreement. Annual commitment fees for
the unused portion of the Financing Agreement and outstanding letters of credit
are .375% and 2.0%, respectively. Additionally, the Company is required to pay
monthly a $5 servicing fee and an annual facility fee of $75. The Financing
Agreement allows advances of up to the lesser of $14,000 less the outstanding
letters of credit obligations, or 85% of eligible accounts receivable plus 35%
of eligible raw material, 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 July 1, 2000, the Company had $11,573 outstanding under the Financing
Agreement and $1,775 in letters of credit (See Note 4). As of August 11, 2000,
the Company had $7,215 outstanding under the Financing Agreement and $1,755 in
letters of credit. The Financing Agreement is collateralized by a first security
interest in the Company's accounts receivable and inventory. The amendment on
August 1, 2000 provided the lender with a second mortgage interest in the
Company's Cartersville, Georgia location. The Financing Agreement 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 August 14, 2000, the Company obtained amended covenant requirements from its
lender for the period ending July 1, 2000 and subsequent reporting periods. With
the amended covenant requirements, the Company was in compliance with its
covenants as of July 1, 2000 and as of August 14, 2000.
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NOTE 4. COMMITMENTS AND CONTINGENCIES
Workers' compensation insurance and letters of credit
The Company is self-insured for workers' compensation claims up to $350 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 $1,755 as of
July 1, 2000, under its Financing Agreement (See Note 3). In connection with the
Company's renewal of its workers compensation insurance policy, the Company
obtained an aggregate limit of $2,000 for the policy period beginning June 1,
2000. The accompanying condensed financial statements include an insurance
accrual based upon third party administrators' and management's evaluation of
estimated future costs of outstanding claims and an estimated liability for
claims incurred, but not reported, on an undiscounted basis. The ultimate cost
arising from these claims is dependent upon the nature of the individual claims,
given their potential to increase or decrease over time. Management believes
that any claims as of July 1, 2000, arising under this self-insurance program
will not have a material adverse effect on the financial position, results of
operations, or cash flows of the Company.
Customer Financing
The Company maintains an agreement with finance companies, which provides
wholesale floor plans for certain of the Company's independent dealers. The
Company is contingently liable under repurchase agreements with the finance
companies for approximately $10.9 million at July 1, 2000. In the opinion of
management, it is not probable that the Company will be required to satisfy
these contingent liabilities.
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 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 were
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
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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 has been paid to the Company, but did 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 the above 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 by an amount or that any liability ultimately incurred will not exceed
the amount, if any, recorded at July 1, 2000, in respect thereof which would
have a material 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 the 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 October 2000. The Company sold the property in
January 2000.
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
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
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ADEM, was installed and is performing according to expectations. Management does
not believe that the costs of remediation maintenance will not exceed the
reserves it has established for this purpose.
Labor Relations
On May 3, 1999, the Company reached agreement with the International Association
of Machinists and Aerospace Workers Local Lodge No. 1769 (the "Union"), which
represents the hourly employees of the Company's Elba, Alabama plant. The Union
membership ratified the three-year collective bargaining agreement, which
expires May 4, 2002.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the Condensed
Financial Statements of the Company and the related Notes thereto appearing
elsewhere in this Quarterly Report:
INCLUSION OF FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," may be deemed to be
forward-looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. Any forward-looking statements 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 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 management, continued availability of credit from vendors, continued
advancement of funds from lender, reliance on certain customers, shortages of
new materials, component prices, labor shortages or work stoppage, dependence on
current industry trends and demand for product, manufacturing interruption due
to unfavorable natural events, government regulations, unfavorable results of
outstanding litigation, and new technologies or products. Readers should review
and consider the various disclosures included in this Quarterly Report and in
the Company's 1999 Annual Report on Form 10-K and other reports to stockholders
and public filings.
RESULTS OF OPERATIONS
NET SALES Net sales for the quarter ended July 1, 2000, were $31,780,000 a 28.1%
decrease from $44,181,000 for the quarter ended July 3, 1999. New trailer sales
unit volume for the quarter declined 31.6% from the same period in the prior
year. The trailer industry has seen four consecutive months of reduced net new
orders. Net new orders for trailers during the second quarter of 2000 were 44.6%
less than during the second quarter of 1999. Additionally, the dry freight and
reefer segments of the trailer industry showed an even higher decline in net new
orders. The decline in net new orders is primarily related to trucking
companies' profitability. The trucking industry has been affected by eight
straight quarters of rising fuel cost, the decline in the valuations of trucks
and fleets, rising interest rates and tightened lending standards, and driver
recruiting have all caused a decline in capital expenditures by trucking
companies. Based on current industry conditions, the Company does not foresee a
significant increase in trailers purchased during the remainder of the year.
Management does expect that the Company's sold unit volumes for the third
quarter of 2000 will exceed those obtained during the
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second quarter of 2000. Subsequent to the end of the second quarter of 2000, the
Company received an order for approximately 1,200 units that are to begin
production during the middle of the third quarter and continue through the first
part of the fourth quarter. Additionally, the Company produced approximately 500
units due to cancellations and to maintain production levels during the second
quarter of 2000. The majority of these units are to be sold during the third
quarter of 2000, although the Company may suffer a loss on these units due to
the low industry demand for dry freight vans.
Net sales for the six months ended July 1, 2000 decreased 13.6% to $76,908,000
from $89,028,000 for the six months ended July 3, 1999. New trailer sales unit
volume decreased by 12.4% for the first six months of 2000 as compared to the
same period in 1999. The decline in both revenue and unit volume sales occurred
during the second quarter of 2000. The decline was due to the reasons discussed
above.
GROSS PROFIT Gross profit was $704,000 for the second quarter of 2000, or 2.2%
of sales, compared to a gross profit of $2,351,000 for the second quarter of
1999, or 5.3% of sales. The decrease in gross profit for the second quarter of
2000 was primarily due to a decrease in sold units that occurred during the
second quarter of 2000. Although the Company's number of sold units declined
during the second quarter, pricing and productivity for the manufacturing
facilities remained consistent with the productivity and pricing achieved during
prior quarters.
Gross profit for the six months-ended July 1, 2000 was $3,010,000, or 3.9% of
sales, compared to $4,968,000, or 5.6% of sales for the corresponding period in
1999. The decline in gross profit occurred primarily during the second quarter
of 2000 due to the reasons stated above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
("SG&A") expenses for the second quarter of 2000 increased approximately $31,000
or 1.8% to $1,708,000 as compared to $1,677,000 for the second quarter of 1999.
SG&A expenses as a percent of net sales increased to 5.4% for the quarter ended
July 1, 2000, as compared to 3.8% for the quarter ended July 3, 1999. The
increase in SG&A expenses as a percent of sales was primarily due to the reduced
sales volume with a modest increase in professional fees and increased
depreciation expense related to the Company's new information system.
SG&A for the six months ended July 1, 2000 increased approximately $94,000 or
2.9%, to $3,361,000 as compared to $3,267,000 for the six months ended July 3,
1999. SG&A as a percent of sales was 4.4% for the first six months of 2000 as
compared to 3.7% for the comparable period in 1999. The increase was primarily
related to increased legal and accounting accruals of approximately $180,000 and
environmental accruals of approximately $120,000. The Company's wages and
benefits decreased by approximately $180,000 from the first six months of 2000
as compared to the first six months of 1999. The primary components of SG&A
expense were salaries and benefits for 53.8% and 53.0% and professional fees for
21.9% and 13.0% for the six months ended July 1, 2000 and July 3, 1999,
respectively.
INTEREST EXPENSE, NET Interest expense, net for the quarter ended July 1, 2000,
was $490,000 as compared to interest expense, net of $492,000 for the quarter
ended July 3, 1999. The decrease in interest expense was attributable to a
reduction in deferred financing costs related to the Company's
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long-term revolving line of credit and a reduction in other miscellaneous
interest expense. The decreases were offset by an increase in interest expense
related to the Company's long-term revolving line of credit, which was due to
higher interest rates and higher level of usage of the line of credit.
Interest expense, net declined by $16,000 to $991,000 for the six months ended
July 1, 2000 as compared to $1,007,000 for the six months ended June 3, 1999.
The decrease in interest expense was primarily related to reduced interest
expense related to the Company's note payable on its Cartersville, Georgia
location and lower interest expense related to a note payable to an outside
party that was paid off in 1999. These decreases were offset by an increase in
interest expense related to the Company's long-term revolving line of credit due
to increases in the interest rates and increase usage of the line of credit.
NET LOSS Net loss for the quarter ended July 1, 2000, was $1,494,000, or $0.30
per share, as compared to a net income of $182,000 or $0.04 per share, for the
quarter ended July 3, 1999. The decrease in net income for the second quarter of
2000 is due primarily to the steep decrease in sales volume caused by the truck
and trailer industry decline. Our dealers' customer base has been impacted
significantly by these industry conditions, especially higher fuel prices,
interest rates, driver shortages and low used truck values. Management believes
that concerns regarding the impact of these industry factors have caused our
customers to be unable, or very hesitant, to make major capital expenditures for
truck trailers. Management does not expect these trends to change for the
remainder of this year.
Net loss for the six months ended July 1, 2000 was $1,400,000 or $0.28 per
share, as compared to net income of $694,000 or $0.14 per share for the six
months ended July 3, 1999. The net loss for the first six months of 2000 was due
to the loss the Company experienced in the second quarter of 2000 as discussed
above. Although Management believes that sold unit volume will increase during
the third quarter of 2000, Management does not expect the Company to return to
profitability during the third quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at July 1, 2000, and July 3, 1999 were $7,000.
Net cash used in operating activities was $1,042,000 for the period ended July
1, 2000, as compared to net cash used in operating activities of $3,968,000 for
the period ended July 3, 1999. The cash used by operating activities during the
first six months of 2000 primarily resulted from the net loss for the first six
months of 2000 and an increase in inventories of $1,698,000. The inventory
buildup was attributable to second quarter production of units due to
cancellations and low order intake during the second quarter of 2000. Inventory
levels will be reduced in the third quarter with the sale of these units, which
may cause the Company to suffer a loss on these units so as to liquidate them
during a low industry demand period. The cash used in operating activities
during the first six months of 1999 primarily resulted from an increase in
accounts receivable of $7,547,000.
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Net cash used in investing activities was $704,000 for the period ended July 1,
2000, as compared to net cash used in investing activities of $558,000 for the
period ended July 3, 1999. The net cash used in investing activities for the
first six months of 2000 and 1999 was due to capital expenditures.
Net cash provided by financing activities was $1,746,000 for the period ended
July 1, 2000, as compared to net cash provided by financing activities of
$4,526,000 for the period ended July 3, 1999. Net cash provided by financing
activities in the first six months of 2000 primarily came from net borrowings of
$2,032,000 under the Company's line of credit agreement. Net cash provided by
financing activities in the first six months of 1999 was due to the Company
making net borrowings on its long-term revolving line of credit of $4,780,000.
On March 28, 1997, the Company entered into a $14,000,000 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 August 11, 2000,
the Company had $7,215,000 outstanding under the Financing Agreement and $1,755
in letters of credit, and had $1,416,000 in availability under the Financing
Agreement.
On June 30, 1999, the Company obtained an amendment to the Financing Agreement,
which increased the advance rates allowed under the Finance Agreement. On August
1, 2000, the Company obtained an amendment on its Financing Agreement which
provides for an over advance of $1,000,000 through August 31, 2000, with the
option to renew the over advance at the lender's discretion. In addition, the
agreement was extended for an additional two-year term. As of August 14, 2000,
the Company obtained restated covenant requirements from its lender for
subsequent reporting periods. With the amended covenant requirements, the
Company was in compliance with its covenants as of July 1, 2000 and as of August
14, 2000.
With the net loss for the first six months of 2000 and the reduced production
levels during the remainder of the year, the Company's liquidity has been
reduced. With the over advance facility provided by the Company's lender and
sold production through the third quarter, the Company's liquidity is expected
to improve during the third quarter. However, with the continued reduction in
demand for product the Company's liquidity position could continue to be
restrained.
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BACKLOG
The Company's backlog of orders was approximately $16,585,000 at July 1, 2000
and $49,500,000 at December 31, 1999. Shortly after the close of the second
quarter, the Company received an order from a customer for approximately
$20,000,000, which increased the Company's backlog to over $36,000,000. The
backlog includes only those orders for trailers for which a confirmed customer
order has been received. The Company expects to fill these orders by the end of
2000. The Company manufactures trailers primarily to customer or dealer order
and does not generally maintain an inventory of "stock" trailers in anticipation
of future orders. However, many of the Company's dealers do maintain an
inventory of stock trailers.
Current industry demand for product has declined significantly. Management
believes that this downturn was caused by rising fuel costs, increasing interest
rates and driver shortages. The demand for product is generally driven by
economic conditions. With a major economic downturn or a prolonged softening in
the industry, the Company is susceptible to a decrease in the demand for its
products.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
A. The Company's annual meeting of stockholders was held on April
25, 2000.
B. Marilyn R. Marks and John L. Pugh were elected as Directors.
The term of office J. Hoyle Rymer, and Lawrence E. Mock, Jr.
continued after the meeting.
C. Stockholders voted on the matters disclosed in the following
table:
Ratification of Independent
Election of Directors* Certified Public Accountants
----------------------------------- ----------------------------
Marilyn R. Marks John L. Pugh
---------------- ------------
Votes Cast:
For 4,543,627 4,544,582 4,543,092
Against 0 0 24,650
Abstentions 0 0 56,850
Withheld 80,965 80,010 0
Non Votes 0 0 0
* For a term of three years
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a. The exhibits filed as a part of this report are as follows:
27 Financial Data Schedule [For SEC Purposes Only]
b. No reports on Form 8-K were filed during the period.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DORSEY TRAILERS, INC.
Date: August 14, 2000 By: /s/ G. Allen Cain
--------------- --------------------
G. Allen Cain
Chief Financial Officer
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