1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 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 July 28, 1997, was
5,013,422.
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DORSEY TRAILERS, INC.
FORM 10-Q
Quarter ended June 28, 1997
Index
Page
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Part I. Financial Information
Item 1. Condensed Financial Statements
Balance Sheet - June 28, 1997 and December 31, 1996 3
Statement of Operations - For the three months and six months
ended June 28, 1997 and June 29, 1996 4
Statement of Cash Flows - For the six months ended
June 28, 1997 and June 29, 1996 5
Statement of Changes in Stockholders' Equity -
For the six months ended June 28, 1997 6
Notes to Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Part II. Other Information 13
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PART 1 - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
DORSEY TRAILERS, INC.
BALANCE SHEETS
(In thousands except share data)
June 28, December 31,
1997 1996
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(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 11 $ 101
Accounts receivable, net 7,574 8,296
Inventories 15,469 19,002
Prepaid expenses and other assets 287 2,990
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Total current assets 23,341 30,389
Property, plant and equipment, net 9,019 9,681
Deferred income taxes 3,953 3,953
Other assets, net 2,052 996
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$38,365 $45,019
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt $ 719 $ 705
Accounts payable 14,175 18,126
Accrued wages and employee benefits 5,368 4,403
Accrued expenses 3,409 4,299
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Total current liabilities 23,671 27,533
Long-term debt, net of current maturities 14,801 9,171
Accrued pension liability 1,600 1,600
Accrued warranty 1,100 1,100
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41,172 39,404
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Stockholders' equity (deficit)
Preferred stock, $.01 par value, 500,000 shares
authorized; none issued or outstanding
Common stock, $.01 par value, 30,000,000 shares
authorized; 5,013,422 and 4,997,422 shares issued
and outstanding 50 49
Additional paid-in capital 2,368 2,339
Retained earnings (accumulated deficit) (5,148) 3,304
Unrecognized pension liability (77) (77)
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Total stockholders' equity (deficit) (2,807) 5,615
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Commitments and contingencies - -
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$38,365 $45,019
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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 Six months ended
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June 28, June 29, June 28, June 29,
1997 1996 1997 1996
-------- -------- -------- --------
Net sales $40,032 $38,891 $80,993 $79,919
Cost of sales 40,696 38,820 85,025 79,546
------- ------- ------- -------
Gross profit (664) 71 (4,032) 373
Selling, general and
administrative expenses 1,770 2,009 3,515 4,064
Provision for plant closing 35 185 83 427
------- ------- ------- -------
Loss from operations (2,469) (2,123) (7,630) (4,118)
Interest expense, net 505 89 1,022 174
------- ------- ------- -------
Loss before income taxes (2,974) (2,212) (8,652) (4,292)
Benefit from income taxes 0 (852) (200) (1,652)
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Net loss ($2,974) ($1,360) ($8,452) ($2,640)
======= ======= ======= =======
Net loss per share ($ 0.60) ($ 0.27) ($ 1.70) ($ 0.53)
======= ======= ======= =======
Weighted average number of
common and common share
equivalents used in the net loss
per share calculation 4,971 4,952 4,978 4,949
======= ======= ======= =======
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Six months ended
-------------------------------
June 28, June 29,
1997 1996
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Cash flows from operating activities:
Net loss ($8,452) ($2,640)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities
Depreciation and amortization 793 672
Insuance of common stock to non-employee directors 30 30
Change in assets and liabilities-
Decrease (increase) in accounts receivable 722 (628)
Decrease in inventories 3,533 2,431
Decrease (increase) in prepaid expenses
and other current assets 2,703 (1,388)
(Decrease) increase in accounts payable (3,951) 2,081
Increase (decrease) in accrued expenses 75 (448)
(Increase) decrease in other assets (1,081) 1
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Net cash (used in) provided by operating activities (5,628) 111
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Cash flows from investing activities:
Capital expenditures (106) (806)
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Net cash used in investing activities (106) (806)
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Cash flows from financing activities:
Net borrowings under line of credit agreement 5,963 -
Payments on long-term debt (319) (705)
Tax benefit from exercise of stock options - 77
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Net cash provided by (used in) financing activities 5,644 (628)
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Decrease in cash and cash equivalents (90) (1,323)
Cash and cash equivalents at beginning of period 101 7,738
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Cash and cash equivalents at end of period $ 11 $ 6,415
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See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(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 (8,452) (8,452)
Issuance of common stock to
non-employee directors 16,000 1 29 - - 30
--------- --- ------ ------- ---- -------
Balance, June 28, 1997 (Unaudited) 5,013,422 $50 $2,368 ($5,148) ($77) ($2,807)
========= === ====== ======= ==== =======
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 June 28,
1997, and December 31, 1996, and its results of operations for the three months
and six months ended June 28, 1997, and June 29, 1996, and its cash flows for
the six months ended June 28, 1997 and June 29, 1996.
NOTE 2. INVENTORIES
Inventories consisted of the following:
June 28, December 31,
1997 1996
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(In thousands)
Raw material $ 6,590 $ 8,376
Work-in-process 4,047 5,833
Finished trailers 741 981
Used trailers 4,091 3,812
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$15,469 $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. Effective August 1, 1997, the
term loan was amended and increased to $2 million with interest only payments
for 60 days and amortizes evenly over eight months beginning October 1, 1997.
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 costs 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 June 28, 1997 the
interest rate was 10.25%, and interest is payable monthly. Effective July 1,
1997, the Financing Agreement was amended to increase the interest rate to prime
plus 2.0%. 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 June 28, 1997, the
Company had $8.2 million outstanding under the Financing Agreement including
$2.2 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 June 28, 1997, the Company was
in compliance with the covenants of the Financing Agreement.
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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
raw 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 second quarter ended June 28, 1997 increased by
2.9% or $1.1 million to $40.0 million from $38.9 million for the quarter ended
June 29, 1996. New trailers sales for the quarter ended June 28, 1997 were
$35.2 million compared to new trailers sales of $37.1 million for the quarter
ended June 29, 1996. The 5.0% decrease in new trailer sales was due to a 10.7%
decrease in the number of new trailers sold. Used trailer sales were $3.7
million for the quarter ended June 28, 1997 compared to $0.3 million for the
quarter ended June 29, 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.
Net sales for the six months ended June 28, 1997 increased 1.3% or $1.1 million
to $81.0 million from $79.9 million for the six months ended June 29, 1997.
New trailer sales for the six months ended June 28, 1997 were $67.3 million
compared to $74.9 million for the same period last year. The 10.2% decrease in
new trailer sales was due to a 15.2% decrease in the number of new trailers
sold. Used trailer sales were $11.3 million for the six months ended June 28,
1997 compared to $1.8 million for the same period last year.
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GROSS PROFIT Gross profit as a percentage of sales totaled (1.7%) for the
second quarter of 1997 compared to .2% for the same period in 1996. The
negative gross profit for the second quarter of 1997 was primarily due to a
heavy mix of low margin large fleet business and the industry wide shortage of
wood flooring, which caused cost increases of approximately $400,000 which
could not be recovered in the market.
Gross profit as a percentage of sales totaled (5.0%) for the six months ended
June 28, 1997 as compared to .5% for the same period last year. The negative
gross profit for the six months of 1997 was 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 taken in the first
quarter of 1997 and the approximately $400,000 increase in the cost of wood
incurred in the second quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative ("S, G, & A") expenses for the second quarter of 1997 decreased
$239,000 or 11.9% to $1.8 million as compared to $2.0 million for the second
quarter of 1996. S, G, & A as a percent of net sales declined to 4.4% for the
quarter ended June 28, 1997 as compared to 5.2% for the quarter ended June 29,
1996. The reduction in S, G, & A expenses is a result of management's plan of
cost reduction.
S, G, & A for the six months ended June 28, 1997 decreased $549,000 or 13.5% to
$3.5 million as compared to $4.1 million for the same period in 1996. S, G, &
A as a percent of net sales declined to 4.3% for the six months ended June 28,
1997 as compared to 5.1% for the six months ended June 29, 1996.
PROVISION FOR PLANT CLOSING Costs related to the Company's closed facilities
decreased in the second quarter of 1997 and for the six months ended June 28,
1997 over the second quarter of 1996 and the six months ended June 29, 1996.
The provision for plant closing 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 months ended June
28, 1997 was $505,000 as compared to interest expense, net of $89,000 for the
three months ended June 29, 1996. The increase is a result of an increase in
the average outstanding debt of $6.9 million between the second quarter of 1997
and second quarter of 1996. The increase in the average outstanding debt is
due to the use of the revolving line of credit in 1997 in addition to the
interest on the notes payable for the purchases of the Cartersville, Georgia
and Dillon, South Carolina facilities.
Interest expense, net for the six months ended June 28, 1997 was $1.0 million
as compared to interest expense, net of $174,000 for the six months ended June
29, 1996. The increase is a result of an increase in the average outstanding
debt in addition to the interest on the notes payable for the purchases of the
Cartersville, Georgia and Dillon, South Carolina facilities. Also, the
increase is due a $300,000 write-off taken in the first quarter of 1997 of
unamortized financing costs in connection with entering the new working capital
line of credit.
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NET LOSS Net loss for the three months ended June 28, 1997 was $3.0 million
as compared to a net loss of $1.4 million for the three months ended June 29,
1996 which included a benefit from income taxes of $.9 million. No tax benefit
was taken in the second quarter of 1997 due to the benefit from income taxes
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 June 28, 1997 was $.60 and the net loss per share for the three
months ended June 29, 1996 was $.27 per share.
Net loss for the six months ended June 28, 1997 was $8.5 million, which
included a benefit from income taxes of $.2 million recorded in the first
quarter of 1997, as compared to a net loss of $2.6 million for the six months
ended June 29, 1996, which included a tax benefit of $1.7 million. The net
loss per share for the six months ended June 28, 1997 was $1.70 compared to a
net loss of $.53 for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $5.6 million for the six months ended
June 28, 1997 as compared to net cash provided by operating activities of
$111,000 for the six months ended June 29, 1996. The cash used in operating
activities for the six months of 1997 was primarily used to fund net losses of
the Company
Net cash provided by financing activities was $5.6 million for the six months
ended June 28, 1997 compared to net cash used in financing activities of
$628,000 for the six months ended June 29, 1996. The $5.6 million cash
provided by financing activities consisted of the Company's advances under its
revolving working capital line of credit.
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 July 28,
1997, the Company had $7.6 million outstanding, including $2.2 million in
letters of credit and had $1.6 million in availability under the Financing
Agreement. On August 1, 1997, the Company's $4 million term loan included as
part of the Financing Agreement was revised. Prior to the revision, the term
loan was to be completely amortized at August 1, 1997. With the revision, the
term loan at August 1, 1997 will be $2 million with interest only for sixty
days and amortizes equally over eight months beginning October 1, 1997. As of
July 28, 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 at each quarterly reporting
period.
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
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subsequent sale of the used trailers. As of June 28, 1997, the Company's
inventory of used trailers was $4.2 million with purchase commitments for used
trailers of $4.6 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.
The closing of the $14 million Financing Agreement has allowed the Company to
improve its conditions with vendors and provided the liquidity necessary to
have a consistent production flow. However, with the continued losses, the
Company's liquidity position continues to remain tight. The Company currently
has minimal availability under its Financing Agreement. In addition to the
amendment to its Financing Agreement described above, the Company received
notification that the United States Small Business Administration had agreed to
modify the Company's term loan and defer all payments for six months beginning
in August 1997 and to re-amortize the balance of the term loan as of January
1998, which should reduce the Company's monthly payments from $69,326 to
$40,500. Management believes that it can generate some additional liquidity by
reducing inventories and actions are underway to implement its plan. No
assurances can be given that the Company will be successful in these efforts.
BACKLOG
The Company's backlog of orders was approximately $26 million at December 31,
1996 and $46.7 million at June 28, 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.
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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
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
a. The exhibits filed as part of this Report are as follows:
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.
27 Financial Data Schedule (for SEC use 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: July 28, 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
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10.43 Amendment No. 2 to Loan and Security Agreement
27 Financial Data Schedule (for SEC use only).
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