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 October 2, 1999
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 [ ]
The number of shares of common stock outstanding at November 16, 1999, was
5,031,191.
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DORSEY TRAILERS, INC.
FORM 10-Q
Quarter ended October 2, 1999
Index
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Page
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Part I. Financial Information
Item 1. Condensed Financial Statements
Balance Sheets - October 2, 1999 and December 31, 1998 3
Statements of Operations - For the thirteen weeks and thirty-nine weeks
ended October 2, 1999 and October 3, 1998, respectively 4
Statements of Cash Flows - For the thirty-nine weeks
ended October 2, 1999 and October 3, 1998, respectively 5
Statements of Changes in Stockholders' Deficit -
For the thirty-nine weeks ended October 2, 1999 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
DORSEY TRAILERS, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
OCTOBER 2, DECEMBER 31,
1999 1998
----------- --------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 7 $ 7
Accounts receivable, net 14,304 6,284
Inventories 12,664 13,090
Prepaid expenses and other assets 141 133
-------- --------
Total current assets 27,116 19,514
Property, plant and equipment, net 7,719 7,562
Deferred income taxes 6,066 4,235
Other assets, net 1,379 1,623
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Total assets $ 42,280 $ 32,934
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt $ 516 $ 496
Accounts payable 18,726 16,815
Accrued wages and employee benefits 4,426 4,204
Accrued expenses 589 1,236
-------- --------
Total current liabilities 24,257 22,751
Long-term revolving line of credit 9,240 3,807
Long-term debt, net of current maturities 8,083 8,487
Accrued pension liability 1,600 1,600
Accrued warranty 1,000 1,000
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Total liabilities 44,180 37,645
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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 (4,584) (7,365)
Accumulated other comprehensive loss (77) (77)
-------- --------
Total stockholders' deficit (1,900) (4,711)
-------- --------
Commitments and contingencies -- --
-------- --------
Total liabilities and stockholders' deficit $ 42,280 $ 32,934
======== ========
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENTS OF OPERATIONS - UNAUDITED
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1999 1998 1999 1998
-------- -------- --------- ---------
(13 WEEKS) (13 WEEKS) (39 WEEKS) (39 WEEKS)
Net sales $ 44,393 $ 35,741 $ 133,421 $ 111,007
Cost of sales 42,290 34,064 126,350 106,536
-------- -------- --------- ---------
Gross profit 2,103 1,677 7,071 4,471
Selling, general and
administrative expenses 1,354 1,323 4,620 4,450
-------- -------- --------- ---------
Income from operations 749 354 2,451 21
Interest expense, net (493) (603) (1,501) (1,379)
Gain on property sales -- -- -- 568
-------- -------- --------- ---------
Income (loss) before income taxes 256 (249) 950 (790)
Benefit from income taxes 1,831 -- 1,831 --
-------- -------- --------- ---------
Net income (loss) $ 2,087 $ (249) $ 2,781 $ (790)
======== ======== ========= =========
Basic income (loss) per share $ .41 $ (.05) $ .55 $ (.16)
======== ======== ========= =========
Weighted average number of
common and common share
equivalents - basic 5,031 5,020 5,029 5,017
======== ======== ========= =========
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
OCTOBER 2, OCTOBER 3,
1999 1998
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(39 WEEKS) (39 WEEKS)
Cash flows from operating activities:
Net income (loss) $ 2,781 $ (790)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization 1,272 1,328
Deferred income taxes (1,831) --
Gain on property sales -- (568)
Issuance of common stock to non-employee directors 30 30
Change in assets and liabilities-
Increase in accounts receivable (8,020) (1,701)
Decrease (increase) in inventories 426 (2,215)
(Increase) decrease in prepaid expenses
and other current assets (8) 371
Increase in other assets -- (75)
Increase in accounts payable 1,912 3,303
Decrease in accrued expenses (425) (2,373)
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Net cash used in operating activities (3,863) (2,690)
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Cash flows from investing activities:
Capital expenditures (1,185) (477)
Net proceeds from property sales -- 739
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Net cash (used in) provided by investing activities (1,185) 262
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Cash flows from financing activities:
Net borrowings under revolving line of credit agreement 5,433 2,683
Payments on long-term debt (385) (356)
Deferred interest capitalized to long-term debt -- 101
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Net cash provided by financing activities 5,048 2,428
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Decrease in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period 7 8
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Cash and cash equivalents at end of period $ 7 $ 8
======= =======
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS EXCEPT SHARE DATA)
Accumulated
Additional Other
Common Stock Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Loss Total
------ ------ ------- ------- ---- -----
Balance, December 31, 1998 5,020,280 $ 50 $ 2,681 $ (7,365) $ (77) $ (4,711)
Net income 2,781 2,781
Issuance of common stock to
non-employee directors 10,911 -- 30 -- -- 30
--------- ------ ------- ---------- ------- --------
Balance, October 2, 1999 (Unaudited) 5,031,191 $ 50 $ 2,711 $ (4,584) $ (77) $ (1,900)
========= ====== ======= ========== ======= ========
See notes to condensed financial statements.
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DORSEY TRAILERS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited, in thousands)
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, 1998.
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 October 2,
1999 and December 31, 1998, and its results of operations for the thirteen and
thirty-nine weeks ended October 2, 1999 and October 3, 1998, and its cash flows
for the thirty-nine weeks ended October 2, 1999 and October 3, 1998,
respectively.
NOTE 2. INVENTORIES
Inventories consisted of the following:
October 2, December 31,
1999 1998
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(In thousands)
Raw material $10,470 $ 9,065
Work-in-process 1,367 3,127
Finished trailers 534 449
Used trailers 293 449
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$12,664 $13,090
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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
overadvance facility of $2,000 through January 31, 1999; $1,500 through
February 28, 1999; and $1,000 through March 31, 1999.
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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 bench marks. The amended agreement improved
certain net worth covenants. In addition, the agreement was extended for an
additional two year term.
In connection with the closing of the original $14,000 Financing Agreement, the
Company incurred cost of approximately $1,150 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 October 2, 1999, the
interest rate was 10.0% 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, 40% of eligible used trailers, 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 October 2, 1999, the Company had
$9,240 outstanding under the Financing Agreement and $2,012 in letters of
credit (See note 4). The Financing Agreement is collateralized 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 October 2, 1999 and November 16, 1999, the Company
was in compliance with the covenants of the Financing Agreement.
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
$2,012 as of October 2, 1999 under its Financing Agreement (See Note 3). The
accompanying condensed financial statements include an insurance accrual based
upon third party administrators' and management's evaluation 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. Management believes that any
claims as of October 2, 1999 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 a 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 $13,419 at October 2, 1999. In the opinion of
management, it is not probable that the Company will be required to satisfy
this contingent liability.
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Litigation
In December 1997, an Administrative Law Judge of the National Labor Relations
Board 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. 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. Management intends to vigorously
defend against this order and believes the Company will prevail in the appeal
process.
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 $1,000 by that insurance company
in the settlement of product liability litigation. The documentary discovery
phase is now complete. The Company filed a motion for summary judgment. In
September 1999, the trial court granted the Company's motion for summary
judgment. GAN has filed a notice of appeal. 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 its cash flows.
In April 1995, a class action lawsuit (James Stark 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 its 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 the 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 October 2, 1999 in respect thereof 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
Subsequent to the closing of the Company's Edgerton, Wisconsin plant in 1989,
the Wisconsin Department of Natural Resources conducted an environmental
inspection that identified certain environmental response requirements. The
Company and certain prior owners of the Edgerton plant are cooperating in
conducting remediation at the plant site and in joining with other potentially
responsible parties in addressing the landfill site. The Company has paid its
appropriate share of the total costs needed to finalize the remediation work at
this site. In the first quarter of 1998, the Company sold this facility, and
management believes that it has no additional environmental liability related
to this site.
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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 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
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, 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 1998 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 October 2, 1999 increased 24.2% to
$44,393 from $35,741 for the quarter ended October 3, 1998. This increase in
trailer sales revenue is primarily due to product mix and to a lesser extent an
increase in the volume of units sold. 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 priced unit product
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.
Net sales for the nine months ended October 2, 1999 increased 20.2% to $133,421
from $111,007 for the nine months ended October 3, 1998. The unit volume of new
trailers sold increased 10.9% during the first nine months of 1999 as compared
to the same period in 1998. The increase in new trailer sales corresponds with
the increase reflected in the industry as a whole. Additionally, with the
increased demand, the Company has seen improved product mix in its targeted
customer markets of independent dealers and customized trailers, as discussed
above.
GROSS PROFIT Gross profit was $2,103 for the third quarter of 1999 or 4.7% of
sales compared to a gross profit of $1,677 for the third quarter of 1998 or
4.7% of sales. The increase in gross profit for the third quarter of 1999 was
due to the Company's increase in volume of trailers sold. Gross profit as a
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percent of sales was unchanged between the third quarter of 1999 and the third
quarter of 1998. Gross profit as a percent of sales in the third quarter of
1999 reflects a greater volume of direct sales as compared to sales to its
independent dealer organization, during the quarter. The gross margin in the
third quarter of 1998 was adversely affected by the one-week vacation shutdown
taken at the Company's Elba, Alabama plant.
Gross profit for the nine months ended October 2, 1999 was $7,071 or 5.3% of
sales as compared to a gross profit of $4,471 or 4.0% of sales for the
corresponding period in 1998. The improvement in the gross profit margin during
the first nine months of the year as stated above, is due to improved product
mix, an increase in the volume of units sold and improved productivity. Gross
profit on new trailers has improved $1,042 or 13.1% for the nine months ended
October 2, 1999, as compared to the nine months ended October 3, 1998. The
Company's gross profit was negatively impacted by certain flood-related costs
in the first quarter of 1998 and the one-week vacation shutdown during the
third quarter of 1998 at the Elba, Alabama plant, discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative ("SG&A") expenses for the third quarter of 1999 increased
approximately 2.3% to $1,354 as compared to $1,323 for the third quarter of
1998. SG&A expenses as a percent of net sales declined to 3.1% for the quarter
ended October 2, 1999 as compared to 3.7% for the quarter ended October 3,
1998. While the Company experienced a 24.2% increase in sales in the third
quarter of 1999, as compared to the third quarter of 1998, the decrease in SG&A
as a percent of sales is reflective of management's continued focus on cost
containment. No single component of SG&A expenses had a significant change
between periods.
SG&A expenses for the first nine months of 1999 increased approximately 3.8% to
$4,620 as compared to $4,450 for the first nine months of 1998. SG&A as a
percent of sales was 3.5% for the nine months ended October 2, 1999 as compared
to 4.0% for the nine months ended October 2, 1999. While the Company has
experienced an 20.2% increase in sales in the first nine months of 1999 as
compared to the first nine months of 1998, the decrease in SG&A as a percent of
sales is reflective of management's continued focus on cost containment. The
primary components of SG&A expense were salaries and employee benefits for 56%
and 60% and professional fees for 10% and 11% of total SG&A expenses for the
nine months ended October 2, 1999 and October 3, 1998, respectively.
INTEREST EXPENSE, NET Interest expense, net for the quarter ended October 2,
1999 was $493 as compared to interest expense, net of $603 for the quarter
ended October 3, 1998. The decrease in interest expense between quarters is due
to the Company maintaining a lower average balance on its revolving line of
credit during the third quarter of 1999 as compared to the same period in 1998.
The decrease in interest expense was also due to the Company not incurring fees
for amending its revolving line of credit during the third quarter of 1999. The
Company incurred fees with the amendments to the Company's revolving line of
credit during the third quarter of 1998.
Interest expense, net for the first nine months of 1999 was $1,501 as compared
to $1,379 for the same period in 1998. The increase in interest expense is due
to the Company maintaining a higher average balance on its revolving line of
credit during the first nine months of 1999 as compared to the same period in
1998. The increase in the revolving line of credit was used to fund the
Company's growth.
BENEFIT FROM INOME TAXES The Company recorded a benefit from income taxes for
the quarter
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and nine months ended October 2, 1999, as a result of the removal 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 deferred tax assets will be
realized in the future. For the quarter and nine months ended October 3, 1998,
no income tax benefit was recognized by the Company.
NET INCOME (LOSS) Net income for the quarter ended October 2, 1999 was $2,087,
or $0.41 per share on both a basic and diluted per share basis, as compared to
net loss of ($249), or ($0.05) per share, for the quarter ended October 3,
1998. The improved net income is attributable to the increased volume of
trailers sold and a decrease in SG&A expenses as a percentage of sales, each of
which is described above. In addition, the Company recorded a benefit from
income tax, of $1,831, by reversing a valuation reserve against the Company's
deferred tax assets, described above.
Net income for the nine months ended October 2, 1999 was $2,781, or $0.55 per
share on both a basic and diluted per share basis, as compared to a net loss of
($790), or ($0.16) per share, for the nine months ended October 3, 1998. The
Company recorded a benefit from income tax, of $1,831, by reversing a valuation
reserve against the Company's deferred tax assets, described above. The
Company's net loss in the first nine months of 1998 is attributed primarily to
the impact of the flood and the one-week vacation shut down in the Elba,
Alabama plant, described above.
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 the first
quarter of 1998 due to the flood. Management estimates that the Elba flood
resulted in approximately a $6,000 reduction in new trailer sales revenue.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7 at October 2, 1999 and $8 at October 3, 1998,
respectively.
Net cash used in operating activities was $3,863 for the period ended October
2, 1999 as compared to net cash used in operating activities of $2,690 for the
period ended October 3, 1998. The cash used in operating activities for the
first nine months of 1999 primarily resulted from an increase in accounts
receivable of $8,020. The increase in accounts receivable primarily relates to
an increase in volume with certain customers that were received subsequent to
October 2, 1999 and the overall growth in sales volume. The uses of cash were
primarily funded through a $1,912 increase in accounts payable and a $426
decrease in inventories. Net cash used for the first nine months of 1998 was
$2,690, which resulted from an increase in accounts receivable of $1,701, an
increase in inventory of $2,215, and a decrease in accrued expenses of $2,373.
Net cash used in investing activities was $1,185 for the period ended October
2, 1999 as compared to net cash provided by investing activities of $262 for
the period ended October 3, 1998. Net cash used in investing activities in 1999
was for capital expenditures. The 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 $739 in the first quarter of
1998. The net cash proceeds were offset by capital expenditures of $477.
Net cash provided by financing activities was $5,048 for the period ended
October 2, 1999 as compared
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to net cash provided by financing activities of $2,428 for the period ended
October 3, 1998. Net cash provided by financing activities for 1999 primarily
came from net borrowings of $5,433 under the Company's line of credit
agreement. Net cash provided by financing activities in 1998 came from net
borrowing of $2,683 from the Company's revolving line of credit agreement.
On March 28, 1997 the Company entered into a $14,000 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 November 12, 1999,
the Company had $7,863 outstanding under the Financing Agreement and $2,012 in
letters of credit, and had $2,671 in availability under the Financing
Agreement. On June 30, 1999 the Company amended the Financing Agreement
increasing the advance rate allowed under the agreement. In addition, the
agreement was extended for an additional two year term. As of October 2, 1999
and November 16, 1999, the Company was in compliance with the covenant
requirements of the Financing Agreement.
The $14,000 Financing Agreement allowed the Company to improve payment
conditions with its vendors and provide the liquidity necessary for a
consistent production flow. However, with the 20.2% growth in sales the Company
has experienced in the first nine months of 1999, coupled with prior years'
losses, the Company's liquidity position has remained constrained. As stated
above, the Company has amended its Financing Agreement which increased the
advance rates on eligible assets. Management estimates that the increased
advance rates will provide the additional availability to assist in funding the
growth of the Company. Additionally, the improved financial performance of the
Company will aid in supporting the Company's growth. Earnings before interest,
taxes, depreciation and amortization have increased $1,806 to $3,723 for the
nine months ended October 2, 1999 as compared to the nine months ended October
3, 1998. The Company continues to negotiate with vendors to obtain increased
credit limits, based on the current growth of the Company and its improved
financial performance. Management believes, based on the improved financial
results, that the Company's liquidity position has improved during the first
nine months of 1999, as compared to the first nine months of 1998. However, as
stated above, the Company's growth and prior year losses continue to constrain
the Company's liquidity position.
BACKLOG
The Company's backlog of orders was approximately $45,192 at October 2, 1999
and $34,745 at December 31, 1998. The backlog includes only those orders for
trailers for which a confirmed customer order has been received. The Company
expects to fill these orders over the next twelve months. Approximately $17.5
million of the backlog at October 2, 1999 was for an order received from one
customer. 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 independent
dealers do maintain an inventory of stock trailers.
YEAR 2000
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 issue and has
developed an implementation plan to resolve the issue. The Company is utilizing
both internal and external resources to identify and correct the Company's
computer systems. 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. Any
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of the Company's hardware and programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
factor could result in system failure or miscalculations. The Company does not
currently have significant manufacturing operation systems which would be
affected by the Year 2000 issue. The Company's systems which rely on time
sensitive information include primarily the accounting and purchasing systems.
The Company presently believes that with modification to existing hardware and
software and conversions to new software, the Year 2000 problem will not pose
significant operational problems for the Company's computer systems as modified
and converted. Maintenance and modification costs will be expensed as incurred,
while the costs of new hardware and software will be capitalized and amortized
over the assets' useful lives. Management estimates the total cost of the
conversion and modification to be $830, which has been approved by the Board of
Directors of the Company and has been incorporated in the Company's 1999
capital expenditure and operating budget. The Company will finance the majority
of the total cost, with the remainder funded through operating cash flow.
On the last weekend of the quarter ended October 2, 1999, the Company converted
to the new system described above. This timing allows management sufficient
time to implement a contingency plan, should systems problems arise after the
conversion. With limited reliance on time sensitive computer systems,
management does not believe that the Year 2000 issue will have a material
adverse effect on the Company's operations and that such systems which
currently rely on time sensitive information could be performed by other
methods, i.e., personal computer based solutions. With the timely completion of
the modifications and conversion, the Company will be year 2000 compliant. In
addition, the Year 2000 issue should not have a material impact on the
operations of the Company.
Year 2000 related issues may 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
material 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. The Company is in the process of obtaining
information from key suppliers and customers on their company's computer
systems compliance with the Year 2000 issue. While the Company obtains its
materials from a number of vendors and sells its products to a number of
customers, if a sufficient number of these vendors or customers experience Year
2000 problems that prevent or substantially impair their ability to continue to
transact business with the Company as they currently do, the Company would be
required to find alternative sources of these materials or customers. The
inability to find or delay in finding such alternatives could have a material
adverse effect on the Company's operations.
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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:
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: November 16, 1999 By: /s/ Charles A. Chesnutt
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Charles A. Chesnutt
Director of 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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27 Financial Data Schedule (for SEC use only)
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