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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 MARCH 29, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24354
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DORSEY TRAILERS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-2110729
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(State of Incorporation) (IRS Employer
Identification Number
2727 Paces Ferry Road
One Paces West, Suite 1700
Atlanta, Georgia 30339
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Registrant's telephone number, including area code: (770) 438-9595
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of shares of common stock outstanding at May 9, 1997, was 4,997,422.
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DORSEY TRAILERS, INC.
FORM 10-Q
Quarter ended March 29, 1997
Index
Page
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Part I. Financial Information
Item 1. Condensed Financial Statements
Balance Sheet - March 29, 1997 and December 31, 1996 3
Statement of Operations - For the three months ended
March 29, 1997 and March 30, 1996 4
Statement of Cash Flows - For the three months ended
March 29, 1997 and March 30, 1996 5
Statement of Changes in Stockholders' Equity -
For the three months ended March 29, 1997 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Part II. Other Information 12-13
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PART 1 - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
DORSEY TRAILERS, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
MARCH 29, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 16 $ 101
Accounts receivable, net 7,399 8,296
Inventories 21,723 19,002
Prepaid expenses and other assets 271 2,990
-------- --------
Total current assets 29,409 30,389
Property, plant and equipment, net 9,365 9,681
Deferred income taxes 3,953 3,953
Other assets, net 2,127 996
-------- --------
$ 44,854 $ 45,019
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 713 $ 705
Accounts payable 19,601 18,126
Accrued wages and employee benefits 5,116 4,403
Accrued expenses 6,408 4,299
-------- --------
Total current liabilities 31,838 27,533
Long-term debt, net of current maturities 10,179 9,171
Accrued pension liability 1,600 1,600
Accrued warranty 1,100 1,100
-------- --------
44,717 39,404
-------- --------
Stockholders' equity
Preferred stock, $.01 par value, 500,000 shares
authorized; none issued or outstanding
Common stock, $.01 par value, 30,000,000 shares
authorized; 4,997,422 shares issued
and outstanding 49 49
Additional paid-in capital 2,339 2,339
Retained earnings (accumulated deficit) (2,174) 3,304
Unrecognized pension liability (77) (77)
-------- --------
Total stockholders' equity 137 5,615
-------- --------
Commitments and contingencies -- --
-------- --------
$ 44,854 $ 45,019
======== ========
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENTS OF OPERATIONS - UNAUDITED
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED
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MARCH 29, MARCH 30,
1997 1996
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Net sales $ 40,961 $ 41,028
Cost of sales 44,329 40,726
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Gross profit (3,368) 302
Selling, general and
administrative expenses 1,745 2,055
Provision for plant closing 48 242
-------- --------
Loss from operations (5,161) (1,995)
Interest expense, net 517 85
-------- --------
Loss before income taxes (5,678) (2,080)
Benefit from income taxes (200) (800)
-------- --------
Net loss $ (5,478) $ (1,280)
======== ========
Net loss per share $ (1.10) $ (.26)
======== ========
Weighted average number of
common and common share
equivalents used in the net loss
per share calculation 4,977 4,937
======== ========
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
THREE MONTHS ENDED
--------------------
MARCH 29, MARCH 30,
1997 1996
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Cash flows from operating activities:
Net loss $(5,478) $(1,280)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 422 327
Change in assets and liabilities-
Decrease (increase) in accounts receivable 897 (263)
Increase in inventories (2,721) (502)
Decrease (increase) in prepaid expenses
and other current assets 2,719 (555)
Increase (decrease) in accounts payable 1,475 (2,208)
Increase (decrease) in accrued expenses 2,822 (690)
(Increase) decrease in other assets (1,155) 1
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Net cash used in operating activities (1,019) (5,170)
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Cash flows from investing activities:
Capital expenditures (82) (414)
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Net cash used in investing activities (82) (414)
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Cash flows from financing activities:
Net borrowings under line of credit agreement 1,175 --
Payments on long-term debt (159) (127)
Tax benefit from exercise of stock options -- 77
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Net cash provided by (used in) financing activities 1,016 (50)
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Decrease in cash and cash equivalents (85) (5,634)
Cash and cash equivalents at beginning of period 101 7,738
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Cash and cash equivalents at end of period $ 16 $ 2,104
======= =======
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
Retained
Common Stock Additional Earnings Unrecognized
------------ Paid-in (Accumulated Pension
Shares Amount Capital Deficit) Liability Total
--------- ------- ---------- ------------ ------------- ------
Balance, December 31, 1996 4,997,422 $ 49 $2,339 $ 3,304 $(77) $5,615
Net loss (5,478) (5,478)
--------- ------- ------ ------- ---- ------
Balance, March 29, 1997 (Unaudited) 4,997,422 $ 49 $2,339 $(2,174) $(77) $ 137
========= ======= ====== ======= ==== ======
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, 1996.
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 March 29,
1997, and December 31, 1996, and its results of operations and its cash flows
for the three months ended March 29, 1997 and March 30, 1996.
NOTE 2. INVENTORIES
Inventories consisted of the following:
March 29, December 31,
1997 1996
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(In thousands)
Raw material $8,100 $8,376
Work-in-process 5,812 5,833
Finished trailers 916 981
Used trailers 6,895 3,812
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$21,723 $19,002
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NOTE 3. REVOLVING LINE OF CREDIT
On March 28, 1997, the Company entered into a $14 million, five year line of
credit (Financing Agreement), including a $4 million term loan which amortizes
evenly over the next four consecutive months and a letter of credit facility of
up to $3 million, with an asset-based lender. This Financing Agreement replaces
a $10 million revolving credit agreement the Company had with a financial
institution. In connection with the closing of the $14 million Financing
Agreement, the Company incurred cost of approximately $1.2 million which will be
amortized over the life of the Financing Agreement. The Financing Agreement
bears interest at prime plus 1.75%, at March 29, 1997 the
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interest rate was 10.25%, and interest is payable monthly. 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 $5,000 servicing fee and an annual facility fee of .50% of the
$14 million. The Financing Agreement allows advances of up to the lesser of $14
million less the outstanding principal amount of the term loan and letters of
credit obligations, or 80% of eligible accounts receivable plus 30 % of eligible
raw material, 40 % of eligible used trailers, and 60% of eligible finished goods
inventory less the outstanding principal amount of the term loan and letters of
credit obligations. The Company has certain limitations on the maximum amount of
advances the Company can receive against inventory. As of March 29, 1997, the
Company had $3.2 million outstanding under the Financing Agreement including
$2.0 million in letters of credit. The Financing Agreement is secured by a first
security interest in the Company's accounts receivable and inventory. 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 March 29, 1997, the Company was in compliance with
the covenants of the Financing Agreement. The Company is currently in the
process of renegotiating certain future requirements of these covenants.
Although there can be no assurance that the proposed changes will be accepted,
management believes that the revised covenants will be in place before the end
of the second quarter of 1997.
NOTE 4. 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 $4.6 million to TYM, Inc. TYM, Inc. is a corporation
wholly-owned by Marilyn R. Marks, Chief Executive Officer of the Company. The
Company has 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 are no less favorable than terms that
could have been obtained from unaffiliated parties.
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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 statement included herein has 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. Without limitation, 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, labor shortages or work stoppage, dependence on industry trends,
government regulations and new technologies or products. Readers should review
and consider the various disclosures included in this Quarterly Report and in
the Company's 1996 Annual Report and other reports to stockholders and public
filings.
RESULTS OF OPERATIONS
NET SALES Net sales for the first quarter ended March 29, 1997 decreased
slightly by .16% or $67,000 to $40,961,000 from $41,028,000 for the quarter
ended March 30, 1996. New trailers sales for the quarter ended March 29, 1997
were $32.1 million compared to new trailers sales of $37.8 million for the
quarter ended March 30, 1996. The 15.1% decrease in new trailer sales was due to
a 19.8% decrease in the number of new trailers sold. Used trailer sales were
$7.7 million for the quarter ended March 29, 1997 compared to $1.6 million for
the quarter ended March 30, 1996. The increase in used trailer sales was due to
the increased level of used trailers being taken in as trades on new trailer
orders.
GROSS PROFIT Gross profit as a percentage of sales totaled (8.2%) for the first
quarter of 1997 compared to .7% for the same period in 1996. The negative gross
profit in 1997 was primarily due to actual losses on the sale of used trailers
of $1.5 million and $1.8 million in an accrual for expected losses on the sale
of the remaining used trailer inventory. Excluding these losses related to used
trailers, the Company's gross margin would have been (.2%). This decline in the
gross profit margin was due to the weak, depressed pricing on new trailer sales
due to the overcapacity in the industry.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
("S, G, & A") expenses for the first quarter of 1997 decreased $310,000 or 15.1%
to $1.7 million as
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compared to $2.1 for the first quarter of 1996. S, G, & A as a percent of net
sales declined to 4.3% for the quarter ended March 29, 1997 as compared to 5.0%
for the quarter ended March 30, 1996. The reduction in S, G, & A expenses is a
result of management's plan of cost reduction.
PROVISION FOR PLANT CLOSING Costs related to the Company's closed facilities
decreased in the first quarter of 1997 over the same period in 1996 which
includes costs related to the closing of the Northumberland, Pennsylvania plant
which occurred during the fourth quarter of 1995.
INTEREST EXPENSE, NET Interest expense, net for the three month period ended
March 29, 1997 was $517,000 as compared to interest expense, net of $85,000 for
the three months ended March 30, 1996. The increase is a result of $300,000 in
write-off of unamortized financing costs in connection with entering a new
working capital line of credit in addition to the interest on the notes payable
for the purchases of the Cartersville, Georgia facility and the Dillon, South
Carolina facility.
NET LOSS Net loss for the three months ended March 29, 1997 was $5.5 million
which included a benefit from income taxes of $.2 million as compared to a net
loss of $1.3 million for the three months ended March 30, 1996 which included a
benefit from income taxes of $.8 million. The Company's effective tax benefit
rate was 3.5% for the quarter ended March 29, 1997 as compared to an effective
tax benefit rate of 38.5% for the quarter ended March 30, 1996. The reduced
effective tax benefit rate for the three months ended March 29, 1997 was due to
the benefit being limited to the portion of pretax loss that could be
carried-back to recapture taxes paid in prior years. The net loss per share for
the three months ended March 29, 1996 was $1.10 and the net loss per share for
the three months ended March 30, 1997 was $.26 per share.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1 million and $5.2 million for the
three month periods ended March 29, 1997 and March 30, 1996, respectively. The
cash used in operating activities for the first quarter 1997 was primarily used
to fund net losses of the Company and the increase in used trailer inventory.
These uses of funds were offset by the receipt of the Company's income tax
refund of $2.7 million and increases in accrued expenses and accounts payable.
Net cash provided by financing activities was $1 million for the three months
ended March 29, 1997 compared to net cash used in financing activities of
$50,000 for the three months ended March 30, 1996. The $1 million cash provided
by financing activities consisted of the Company's advance under its new
revolving working capital line of credit.
On March 28, 1997 the Company entered into a new $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 May 9, 1997, the
Company had $13.2 million outstanding, including $2.2 million in letters of
credit and had $0.8 million in availability under the Financing Agreement. With
the advancement under the Financing Agreement, the Company has been able to
improve its condition with its trade vendors. As of May 9, 1997, the Company was
in compliance with the covenant requirements of the Financing Agreement. The
Financing Agreement has continuous financial and operational covenants. The
financial covenants are required to be measured on a quarterly basis and require
a higher threshold
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at each quarterly reporting period. The Company is currently in the process of
renegotiating certain future requirements of these covenants. Although there can
be no assurance that the proposed changes will be accepted, management believes
that the revised covenants will be in place before the end of the second quarter
of 1997.
The Company experienced a significant tightening of its liquidity beginning in
the fourth quarter of 1996. The situation results primarily from continuing
operating losses and a higher than normal level of used trailer inventory. This
reduced cash position has also caused the Company to incur production downtime
which has negatively affected operating results. With many customers purchasing
replacement trailers only, the Company has had to increase its acceptance of
used trailers as trade-ins in order to obtain certain new trailer orders. By
accepting trade-ins, cash is not received until after the subsequent sale of the
used trailers. As of March 29, 1997, the Company's inventory of used trailers
was $6.9 million with purchase commitments for used trailers of $4 million.
During the first quarter of 1997, management decided to sell certain used
trailers quickly at lower than normal pricing in order to generate cash to meet
its obligations. As a result, the Company incurred losses on the sale of used
trailers of $1.5 million during the first quarter of 1997. Additionally
management's decision to sell the Company's inventory of used trailers as
quickly as possible and the effect thereon on used trailer values, the Company
reduced the value of its remaining inventory of used trailers by $1.8 million.
With the closing of the new $14 million Financing Agreement, management believes
that sufficient funds will be advanced under the Financing Agreement and from
the sale of used trailers in order for the Company to timely meet its
obligations. The Company's projected cash flows assume such, as well as, the
continued receipt of materials from trade vendors on generally the same terms as
the Company is currently receiving and that the Company is able to increase
sales prices moderately during the second half of 1997.
BACKLOG
The Company's backlog of orders was approximately $26 million at December 31,
1996 and $58 million at March 29, 1997. This level of backlog is higher than any
the Company had during 1996. The backlog includes only those orders for trailers
for which a confirmed customer order has been received. The Company manufactures
trailers to customer or dealer order and does not generally maintain an
inventory of trailers.
ACCOUNTING STANDARDS
In February 1997 the Financial Accounting Standards Board ("FASB") issued
"Statement of Financial Accounting Standards ("FAS") No. 128, "Earnings Per
Share", which replaces primary and fully diluted earnings per share amounts with
basic and diluted earnings per share amounts. Management believes that FAS No.
128 will not have a material effect on the Company's earnings per share but may
require additional disclosures. The Company's capital structure would be
considered simple under FAS No. 128 as the Company only has common stock
outstanding at this time. FAS No. 128 is effective for financial statement for
both interim and annual periods ending after December 15, 1997.
In February 1997, the FASB issued FAS No. 129, " Disclosure of Information about
Capital Structure." FAS No. 129
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requires additional disclosure regarding an entities capital structure. FAS No.
129 contains no change in disclosure requirements for entities subject to the
requirements of previous accounting standards. As the Company is subject to
prior accounting requirements, FAS No. 129 will have no effect on the Company's
financial statements.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Changes in Securities
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
30, 1997
B. Marilyn R. Marks and Neil A. Springer were elected as
Directors. The term of office of J. Hoyle Rymer, Lawrence E.
Mock, Jr. and Ernest H. Lorch continued after the meeting.
C. Stockholders voted on the matters disclosed in the following
table:
Ratification of Independent
Election of Directors* Certified Public Accountants
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Votes Cast:
For 3,961,411 3,973,561
Against 0 16,875
Withheld 0 0
Abstentions 32,225 3,400
Broker Non Votes 0 0
* For a term of three years
ITEM 5. Other Information
Not applicable.
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ITEM 6. Exhibits and Reports on Form 8-K
a. The exhibits filed as part of this Report are as follows:
10.41 Loan and Security Agreement by and between Dorsey
Trailer, Inc. and Foothill Capital Corporation dated as of
March 28, 1997 (the Registrant agrees to furnish a copy of any
schedule omitted to the Commission upon request)
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.
27 Financial Data Schedule
b. No reports on Form 8-K were filed during the period.
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: May 9, 1997 By: /s/ T. Charles Chitwood
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T. Charles Chitwood
Vice President - Finance
(Principal Financial Officer and
Principal Accounting Officer)
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DORSEY TRAILERS, INC.
INDEX TO EXHIBITS
Exhibit Number Description
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 to Loan and Security Agreement
27 Financial Data Schedule
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