1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------------
Commission File Number: 1-10883
------------------------------------------------------
WABASH NATIONAL CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1375208
-------- ----------
(State of Incorporation) (IRS Employer
Identification Number)
1000 Sagamore Parkway South,
Lafayette, Indiana 47905
------------------ -----
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (765)448-1591
-------------
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 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 January 20, 1999 was
22,965,090.
2
WABASH NATIONAL CORPORATION
---------------------------
INDEX
-----
FORM 10-Q/A
-----------
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Income for the three
and nine months ended September 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market
Risk (Not Applicable) -
PART II - OTHER INFORMATION
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
3
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
--------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in thousands)
Restated (Note 2)
September 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Note 1)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 25,503 $ 14,647
Accounts receivable, net 161,039 161,249
Current portion of finance contracts 7,594 7,697
Inventories 251,547 211,359
Prepaid expenses and other 14,990 12,962
-------- --------
Total current assets 460,673 407,914
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 132,885 108,798
-------- --------
EQUIPMENT LEASED TO OTHERS, net 38,443 43,986
-------- --------
FINANCE CONTRACTS, net of current portion 67,613 51,539
-------- --------
INTANGIBLE ASSETS, net 32,027 11,152
-------- --------
OTHER ASSETS 7,875 6,481
-------- --------
TOTAL ASSETS $739,516 $629,870
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,931 $ 4,148
Accounts payable 123,980 94,083
Accrued liabilities 35,552 29,471
-------- --------
Total current liabilities 162,463 127,702
-------- --------
LONG-TERM DEBT, net of current maturities 181,913 231,880
-------- --------
DEFERRED INCOME TAXES 32,255 26,440
-------- --------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 17,913 17,332
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock 5 4
Common stock, 22,962,245 and 19,954,874
shares issued and outstanding,
respectively 230 200
Additional paid-in capital 236,218 135,611
Retained earnings 109,798 91,980
Treasury stock at cost, 59,600 shares (1,279) (1,279)
-------- --------
Total stockholders equity 344,972 226,516
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $739,516 $629,870
======== ========
See Notes to Condensed Consolidated Financial Statements.
1
4
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
--------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Amounts in thousands, except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Restated Restated
(Note 2) (Note 2)
Unaudited) (Unaudited)
NET SALES $334,113 $246,403 $965,458 $577,897
COST OF SALES 306,479 225,236 887,898 533,987
-------- -------- -------- -------
Gross Profit 27,634 21,167 77,560 43,910
GENERAL AND ADMINISTRATIVE
EXPENSES 7,469 5,538 20,833 12,130
SELLING EXPENSE 3,286 2,583 9,483 5,802
-------- -------- -------- --------
Income from operations 16,879 13,046 47,244 25,978
OTHER INCOME (EXPENSE):
Interest Expense (3,382) (4,467) (11,558) (11,572)
Other, net (406) 223 (699) 461
-------- -------- -------- --------
Income before income taxes 13,091 8,802 34,987 14,867
PROVISION FOR INCOME TAXES 5,182 3,750 13,917 6,104
-------- -------- -------- ----------
Net Income $ 7,909 $ 5,052 $ 21,070 $ 8,763
-------- -------- -------- ----------
PREFERRED STOCK DIVIDENDS 418 264 946 478
-------- -------- -------- ----------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 7,491 $ 4,788 $ 20,124 $ 8,285
======== ======== ======== ==========
Earnings per share:
Basic $ 0.33 $ 0.24 $ 0.93 $ 0.43
======== ======== ======== ==========
Diluted $ 0.33 $ 0.24 $ 0.92 $ 0.42
======== ======== ======== ==========
CASH DIVIDENDS PER SHARE $ 0.035 $ 0.035 $ .105 $ 0.095
======== ======== ======== ==========
See Notes to Condensed Consolidated Financial Statements.
2
5
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
--------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in thousands)
Nine Months
Ended September 30,
-------------------------
1998 1997
---- ----
Restated
(Note 2)
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 21,070 $ 8,763
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities-
Depreciation and amortization 12,606 13,986
Bad debt provision 614 424
Deferred income taxes 6,370 2,302
Equity in losses of unconsolidated affiliate 2,200 ---
Change in operating assets and liabilities,
excluding effects of the acquisitions--
Accounts receivable 4,548 (51,302)
Inventories (23,783) (48,242)
Prepaid expenses and other (575) 743
Accounts payable and accrued liabilities 28,689 59,713
Other, net (634) (1,147)
Net cash provided by (used in)
---------- ----------
operating activities 51,105 (14,760)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,847) (16,696)
Investment in equipment leased to others (9,619) (34,987)
Investment in finance contracts (24,645) (19,343)
Acquisitions, net of cash acquired, (Note 6) (9,515) (15,129)
Investment in unconsolidated affiliate (1,965) ---
Payments for RoadRailer technology --- (1,086)
Proceeds from sale of leased equipment and
finance contracts 11,119 58,778
Principal payments on finance contracts 5,495 3,897
Other, net 117 60
---------- ----------
Net cash used in investing activities (51,860) (24,506)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Long-term debt --- 25,000
Long-term revolver 247,400 272,500
Common stock, net of expenses 87,484 742
Payments:
Long-term debt (28,280) (2,956)
Long-term revolver (292,000) (248,500)
Common stock dividends (2,201) (1,733)
-
Preferred stock dividends (792) (437)
Net cash provided by
---------- ----------
financing activities 11,611 44,616
---------- ----------
NET INCREASE IN CASH 10,856 5,350
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,647 5,514
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,503 $ 10,864
========== ==========
See Notes to Condensed Consolidated Financial Statements.
3
6
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
--------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars in thousands, Unaudited)
NOTE 1. GENERAL
-------
The consolidated financial statements included herein have been
prepared by Wabash National Corporation and subsidiaries (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 consolidated
financial statements included herein should be read in conjunction with the
financial statements and the notes thereto included in the Company's 1997 Annual
Report on Form 10-K.
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 consolidated financial position of
the Company at September 30, 1998 and December 31, 1997 and its results of
operations for the three and nine month periods ended September 30, 1998 and
1997 and cash flows for the nine month period ended September 30, 1998 and 1997.
NOTE 2. RESTATEMENT
-----------
On January 19, 1999, the Company announced that it would restate the
previously reported financial statements for the quarters ending March 31, June
30 and September 30, 1998. In late 1997, the Company converted its manufacturing
information systems which adversely impacted its ability to accurately determine
its inventory costs on an interim basis in 1998. In connection with the
conversion, the Company lost its ability to generate automated bills of material
for purposes of relieving inventory and instead used estimates of material costs
as a percent of sales prices. Following the Company's annual physical inventory
count, the Company identified adjustments necessary to properly state inventory
and cost of sales for these periods.
4
7
The Company's financial statements at and for the three and nine month periods
ended September 30, 1998 have been restated to reflect adjustments. The results
of the Company's physical inventory identified only immaterial adjustments in
1997; therefore, no adjustments were necessary for any periods prior to 1998. A
summary of the effect of the adjustments at and for the three and nine month
periods ended September 30, 1998 is as follows:
Three Months Nine Months
------------ -----------
Previously Previously
Reported Restated Reported Restated
-------- -------- -------- --------
Sales $334,113 $334,113 $965,458 $965,458
Cost of sales 303,279 306,479 879,698 887,898
Gross Profit 30,834 27,634 85,760 77,560
Income Before Income Taxes 16,291 13,091 43,187 34,987
Net Income 9,829 7,909 25,990 21,070
Earnings Per Share:
Basic $0.41 $0.33 $1.16 $0.93
Diluted $0.41 $0.33 $1.14 $0.92
September 30, 1998
------------------
Inventories $259,747 $251,547
Accrued Liabilities 38,832 35,552
Retained Earnings 114,718 109,798
NOTE 3. INTANGIBLE ASSETS
-----------------
Intangible assets, net of accumulated amortization of $7.2 million
and $6.4 million at September 30, 1998 and December 31, 1997, respectively,
relate primarily to goodwill and other intangible assets associated with the
Cloud Acquisition (See Note 6 for further discussion) and RoadRailer acquisition
costs. These amounts are being amortized on a straight-line basis over periods
ranging from five to forty years.
NOTE 4. INVENTORIES
-----------
Inventories consisted of the following:
Restated
(Note 2)
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Raw material and components $135,351 $ 75,629
Work in process 18,740 16,892
Finished goods 32,692 68,164
Aftermarket parts 27,096 25,386
Used trailers 37,668 25,288
-------- --------
$251,547 $211,359
======== ========
5
8
NOTE 5. EARNINGS PER SHARE
------------------
The Company adopted Statement of Financial Accounting Standards (SFAS
No. 128, "Earnings Per Share") during 1997. SFAS No. 128 simplifies the
computation of earnings per share (EPS) and requires the presentation of two
amounts: basic and diluted EPS. As required, all prior period EPS data has been
restated to conform with the provisions of this statement.
A reconciliation of the numerators and denominators of the basic and
diluted EPS computations, as required by SFAS No. 128, is presented below:
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Restated Restated
(Note 2) (Note 2)
BASIC:
Net income 7,909 5,052 21,070 8,763
Preferred stock dividends (418) (264) (946) (478)
------ ------ ------ ------
Net income, basic 7,491 4,788 20,124 8,285
------ ------ ------ ------
Common shares, basic 22,962 19,939 21,662 19,463
------ ------ ------ ------
BASIC EPS $ 0.33 $ 0.24 $ 0.93 $ 0.43
====== ====== ====== ======
DILUTED:
Net income, basic 7,491 4,788 20,124 8,285
Effect of dilutive securities:
Convertible preferred stock 264 --- --- ---
------ ------ ------ ------
Net income, assuming full dilution 7,755 4,788 20,124 8,285
------ ------- ------ ------
Common shares, basic 22,962 19,939 21,662 19,463
Effect of dilutive securities:
Convertible preferred stock 823 --- --- ---
Stock Options 26 126 98 54
------ ------ ------ ------
Common shares, assuming full dilution 23,811 20,065 21,760 19,517
------ ------ ------ ------
DILUTED EPS $ 0.33 $ 0.24 $ 0.92 $ 0.42
====== ====== ====== ======
NOTE 6. LEASING OPERATIONS
------------------
Wabash National Finance Corporation (the Finance Company), a
wholly-owned subsidiary of the Company, provides leasing and finance programs to
customers for new and used trailers. The Finance Company's lease revenues,
excluding revenue from the sale of leased trailers of $2.4 million and $3.5
million, were $16.4 million and $16.1 million during the nine months ended
September 30, 1998 and 1997 respectively. Income before income taxes was $2.0
million and $0.6 million during the nine months ended September 30, 1998 and
1997 respectively.
6
9
At September 30, 1998 and December 31, 1997 respectively, the Finance
Company had $66.5 million and $54.9 million in long-term debt, comprised of
$59.0 million and $39.0 million in intercompany debt to the Company and $7.5 and
$15.9 million in debt due to third parties, of which $6.9 million and $8.4 was
guaranteed by the Company. Also at September 30, 1998 and December 31, 1997
respectively, the Finance Company had total assets of $117.4 million and $107.1
million, consisting primarily of Equipment Held for Lease of $38.4 million and
$44.0 million and Finance Contracts, including current portion, of $75.2 million
and $59.2 million.
During March 1998, the Finance Company sold approximately $8.8 million
of its equipment leased to others to a large financial institution.
Simultaneously, the Finance Company leased the equipment back and entered into a
sublease arrangement with a customer. This lease is accounted for as an
operating lease. The lease with the financial institution provides for
approximately $2.6 million of end of lease term residual value commitments.
NOTE 7. ACQUISITIONS
------------
On July 14, 1998, the Company acquired Cloud Corporation and Cloud Oak
Flooring Company, Inc. (the Cloud Acquisition) in a merger and stock purchase,
respectively, manufacturers of laminated hardwood floors for the truck body and
trailer industry. For financial statement purposes the Cloud Acquisition was
accounted for as a purchase and, accordingly, Cloud's combined results are
included in the consolidated financial statements since the date of acquisition.
The aggregate consideration for this transaction included $9.7 million in cash,
$13.2 million in convertible preferred stock and the assumption of $32.1 million
in liabilities. The excess of the purchase price over the underlying assets
acquired is approximately $21.9 million. This amount has been allocated to
goodwill and other intangible assets based upon a preliminary estimate of fair
values. These amounts are being amortized on a straight-line basis over periods
of five to forty years. The values assigned to the acquired assets and
liabilities could change following the resolution of certain pre-acquisition
contingencies related to environmental laws and ERISA. While these matters are
at an early stage and it is not possible to predict the outcome with certainty,
based on currently available information the Company does not believe the
outcome of these matters will be material to the consolidated results of
operations or financial condition of the Company. The Company is indemnified by
the sellers of the acquired companies and the Company believes that these
contingencies would be covered by the indemnification provisions of those
agreements.
On April 16, 1997, the Company acquired substantially all of the
remaining assets of Fruehauf Trailer Corporation (Fruehauf), a manufacturer and
marketer of truck trailers and related parts. The following unaudited pro forma
consolidated results of operations of the Company and the acquired assets of
Fruehauf assume the acquisition occurred as of January 1, 1997 (in millions,
except per share data):
7
10
Nine Months
Ended Sept.30,
1998 1997
Restated
(Note 2)
- ------------------------------------------------------------------------------
Net Sales $ 965.5 $ 607.6
Net Income $ 21.1 $ 8.3
Net Income per common share $ 0.92 $ 0.42
- ------------------------------------------------------------------------------
In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of 1997 or of future results of
the combined operations under the ownership and management of the Company.
NOTE 8. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Nine Months
Ended September 30,
(In thousands) 1998 1997
- ------------------------------------------------------------------------------
Cash paid during the period for:
Interest $ 10,752 $ 13,248
Income taxes 10,464 845
- ------------------------------------------------------------------------------
Noncash investing and financing activities:
Preferred stock issued for acquisitions 13,153 17,600
Common stock issued for acquisition --- 17,750
- ------------------------------------------------------------------------------
Acquisitions, net of cash acquired:
Accounts receivable, net $ 4,952 $ 13,955
Inventory, net 16,405 20,163
Prepaid expenses and other 743 4,072
Property, plant and equipment 8,334 25,269
Goodwill and other intangibles 21,891 ---
Deferred income taxes 1,265 ---
Other Assets 1,203 ---
Current liabilities (25,783) (8,980)
Non-current liabilities (6,342) (4,000)
Stock issued (13,153) (35,350)
- --------------------------------------------------------------------------------
Net cash paid for acquisitions $ (9,515) $(15,129)
- --------------------------------------------------------------------------------
NOTE 9. ACCOUNTS RECEIVABLE SECURITIZATION
----------------------------------
On March 31, 1998, Wabash National Corporation replaced its existing
$40 million receivable sale and servicing agreement with a new three-year trade
receivable securitization facility. The new facility allows the Company to sell,
without recourse on an ongoing basis, all of their accounts receivable to Wabash
Funding Corporation (Funding Corp.), a wholly-owned unconsolidated subsidiary of
the Company. Simultaneously, the Funding Corp. has sold and, subject to certain
conditions, may from time to time sell an undivided interest in those
receivables to a large financial institution. At September 30, 1998, $83 million
of proceeds have been received under the new facility. No gain or loss was
recorded during the first quarter of 1998 as a result of this transaction.
Amounts reflected as Accounts Receivable in the accompanying Condensed
Consolidated Balance Sheets as of September 30, 1998 include an interest in
receivables sold to the Funding Corp. in excess of proceeds received.
8
11
Proceeds from the sale were used to reduce outstanding borrowings under
the Company's Revolving Credit Agreement and are reflected as operating cash
flows in the accompanying Condensed Consolidated Statement of Cash Flows. Costs
associated with this facility are classified as Selling, General and
Administrative Expenses in the consolidated statement of income.
In order to operate this facility on an on-going basis, the Funding
Corp. is required to meet certain covenants primarily related to the performance
of the accounts receivable portfolio. Servicing responsibility for these
receivables resides with the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
NOTE: This discussion contains forward-looking statements. These
- ----- statements should be viewed in connection with the risk factors
disclosed in the Company's Registration Statement on Form S-3
(SEC File No. 333-48589).
RESTATEMENT
- -----------
As described in Note 2 of the Notes to Condensed Consolidated Financial
Statements, on January 19, 1999, the Company announced that it would restate the
previously reported financial statements for the quarters ended March 31, June
30 and September 30, 1998. In late 1997, the Company converted its manufacturing
information system which adversely impacted its ability to accurately determine
its inventory costs on an interim basis in 1998. In connection with the
conversion, the Company lost its ability to generate automated bills of material
for purposes of relieving inventory and instead used estimates of material costs
as a percent of sales prices. Following the Company's annual physical inventory
count, the Company identified adjustments necessary to properly state inventory
and cost of sales for these periods.
The Company's financial statements at and for the three and nine month
periods ended September 30, 1998 have been restated to reflect these
adjustments. The results of the Company's physical inventory identified only
immaterial adjustments in 1997; therefore, no adjustments were necessary for any
periods prior to 1998. The effect of the restatement was to reduce net income
for the three and nine month periods ended September 30, 1998 by $1.9 million or
$0.08 per share and $4.9 million or $0.23 per share, respectively. The restated
net income for the three month and nine month periods ended September 30, 1998
is $7.9 million and $21.1 million compared to $5.1 million and $8.8 million for
the same periods in 1997.
The information in the discussion which follows is presented after
restatement of the financial statements.
9
12
Net Sales
---------
Net sales for the three month period ended September 30, 1998 increased
$87.7 million or 35.6% compared to the same period in 1997 and were $387.6
million or 67.1% higher for the nine month period ended September 30, 1998
compared to the same period in 1997. The increase in net sales for the three and
nine month periods were primarily attributable to an increase in new trailer
sales of $73.0 million and $317.4 million, respectively, an increase in used
trailer sales of $9.1 million and $29.3 million, respectively, and an increase
in aftermarket parts and service revenues of $5.7 million and $40.9 million,
respectively.
The increases in new trailer sales of $73.0 million and $317.4 million
for the three and nine month periods, respectively, were caused by a 24.3% and
48.8% increase in units sold, along with an increase of 10.0% and 12.3% in the
average sales price per unit during the same periods. These favorable conditions
are the result of continued sales growth at the Company's retail outlets,
increased production capabilities, increased production of the Company's
composite trailer and a continued strong demand for the Company's products.
The increase in used trailer sales and aftermarket parts and service
revenues reflects increased volume through the Company's existing parts
distribution business as well as the 31 retail outlets acquired. The Company
plans to expand its retail distribution network from its current level of 31
retail outlets to approximately 50 retail outlets within 24 months.
Gross Profit
------------
Gross profit as a percentage of net sales totaled 8.3% for the three
month period ended September 30, 1998 compared to 8.6% for the same period in
1997. The gross profit margin for the nine-month period ended September 30, 1998
as a percentage of sales was 8.0% versus 7.6% for the same period in 1997. The
slight decrease in the gross profit margin for the third quarter reflects the
effect of the Company's conversion of its manufacturing information systems on
its production costs during the quarter. The increase in the gross profit margin
for the year reflects the impact of higher margin sales of new and used trailers
and aftermarket parts and service revenues generated from the retail branch
outlets acquired in 1997. In addition, the improvement in product mix resulting
from the completion of the Company's composite material facility in the third
quarter of 1997 has allowed the Company to increase its production rates,
thereby improving production efficiencies at the Company's manufacturing
facilities.
10
13
Income From Operations
----------------------
Income from operations for the three and nine month periods ended
September 30, 1998 as a percentage of net sales was 5.1% and 4.9% compared to
5.3% and 4.5% for the same periods in 1997. Income from operations in 1998 was
impacted primarily by the changes in the gross profit margins previously
discussed offset somewhat by increased selling, general and administrative
expenses. The increase in selling, general and administrative expenses primarily
reflects higher levels of expense associated with the retail outlets acquired in
April, 1997 as well as costs associated with the Company's new accounts
receivable securitization facility.
Interest Expense
----------------
Interest expense for the three and nine month periods ended September
30, 1998 totaled $3.4 million and $11.6 million compared to $4.5 million and
$11.6 million for the same periods in 1997. The decrease in interest expense
during the third quarter is primarily due to the use of proceeds from the
Company's new trade receivable securitization facility which closed on March 31,
1998 coupled with proceeds from the Company's April, 1998 common stock offering
to reduce the Company's long-term debt.
Taxes
-----
The provision for income taxes for the three and nine month periods
ended September 30, 1998 of $5.2 million and $13.9 million, respectively,
represents 39.6% and 39.8% of pre-tax income for the periods compared to the
provision of $3.8 million and $6.1 million, or 42.6% and 41.1% of pretax income,
respectively, for the same periods in 1997. The effective tax rates are higher
than the Federal statutory rates of 35% due primarily to state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Operating Activities
--------------------
For the nine months ended September 30, 1998, cash provided by
operating activities amounted to $51.1 million primarily due to net income, the
add-back of non-cash charges for depreciation and amortization expense, and as
discussed in more detail below, the proceeds from the sale of accounts
receivable. Increased raw material inventory levels resulting from higher new
trailer production was offset by related increases in accounts payable and
accrued liabilities.
Investing Activities
--------------------
For the nine months ended September 30, 1998, cash used in investing
activities amounted to $51.9 million primarily due to the expansion of the
Finance Company's leasing operation ($34.3 million), capital expenditures ($22.8
million) and the Cloud Acquisition ($9.5 million) offset somewhat by the sale of
leased equipment and finance contracts ($11.1 million).
11
14
Capital expenditures during the period were associated with
increasing the Company's manufacturing operations in Lafayette, Indiana, the
development of a new state of the art painting and coating system at its trailer
manufacturing facility in Huntsville, Tennessee, the acquisition of a new
consolidated parts center in Lafayette, increasing capacity and manufacturing
productivity at its recently acquired flooring operation in Harrison, Arkansas
and other operating purposes. The flooring operations were acquired in July 1998
through the merger of Cloud Corporation with a newly-formed subsidiary of Wabash
and the acquisition of all of the outstanding stock of Cloud Oak Flooring. The
acquisition agreements include customary representations and warranties by the
sellers. Wabash is in the process of looking into certain pre-acquisition
contingencies of the acquired companies relating to compliance with
environmental laws and ERISA. While these matters are at an early stage and it
is not possible to predict the outcome with certainty, based on currently
available information the Company does not believe the outcome of these matters
will be material to the consolidated results of operations or financial
condition of the Company. The Company is indemnified by the sellers of the
acquired companies and the Company believes that these contingencies would be
covered by the indemnification provisions of those agreements.
The Company continues to pursue its branch expansion strategy although
no firm commitments have been entered into to date. The Company anticipates
future capital expenditures related to its branch expansion strategy, the
development of a new computer system in its retail network, the continuation of
the capital projects previously discussed, and other activities to be $80-$100
million over the next 12 to 24 months. During March, 1998, the Finance Company
sold and leased back approximately $8.8 million of its Equipment Leased to
Others with a large financial institution.
Financing Activities
--------------------
For the nine months ended September 30, 1998, cash provided by
financing activities amounted to $11.6 million primarily due to the issuance of
common stock ($87.5 million), a net reduction in the Company's long-term
revolver ($44.6 million) and a pay-down of long-term debt ($28.3 million)
primarily associated with the Cloud Acquisition.
On March 31, 1998, the Company replaced its existing $40 million
receivable sale and servicing agreement with a new three-year trade receivable
securitization facility. The new facility allows the Company to sell, without
recourse on an ongoing basis, all of its accounts receivable to Wabash Funding
Corporation (Funding Corp.), a wholly-owned unconsolidated subsidiary of the
Company. Simultaneously, the Funding Corp. has sold and, subject to certain
conditions, may from time to time sell an undivided interest in those
receivables to a large financial institution. At September 30, 1998, $83 million
of proceeds were received by the Company related to this new facility. Proceeds
from the sale were used to reduce outstanding borrowings under the Company's
Revolving Credit Agreement and are reflected as operating cash flows in the
accompanying Consolidated Statement of Cash Flows.
12
15
On April 28, 1998, the Company sold three million shares of its common
stock in a registered public offering at a public-offering price of $30.75 per
share, for net proceeds to the Company of $87.5 million.
Other
-----
Other sources of funds for capital expenditures, continued expansion of
businesses, dividends, principal repayments on debt, stock repurchase and
working capital requirements are expected to be cash from operations, additional
borrowings under the credit facilities and term borrowings and equity offerings.
The Company believes that these funding sources will be adequate for its
anticipated requirements.
BACKLOG
-------
The Company's backlog of orders was approximately $906 million at
September 30, 1998 and $832 million at December 31, 1997. The Company's backlog
represents the amount of orders the Company believes to be firm. Such orders may
be subject to extension, delay or cancellation under certain circumstances.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
The Company adopted Statement of Financial Accounting Standards (SFAS
No. 128, "Earnings Per Share"), during 1997. SFAS No. 128 simplifies the
computation of earnings per share (EPS) and requires the presentation of two new
amounts, basic and diluted EPS. As required by SFAS No. 128, all prior period
EPS data have been restated to conform with the provisions of this Statement.
The adoption of Statement resulted in an immaterial difference in its
computation of basic and dilutive EPS.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", on
January 1, 1998. SFAS No. 130 was effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 established standards for reporting and display
of "comprehensive income" and its components. Comprehensive income is not
reported in the accompanying Condensed Consolidated Financial Statements as the
Company had no items of Other Comprehensive Income for the periods presented.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" was issued. The statement must be adopted by the
Company on December 31, 1998. Under provisions of this statement, the Company
will be required to modify or expand the financial statement disclosures for
operating segments, products and services, and geographic areas. Implementation
of this disclosure standard will not affect the Company's financial position or
results of operations.
13
16
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (beginning of fiscal
year 2000 for the Company). This statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Management of
the Company has not yet determined the impact that the adoption of SFAS 133 will
have on its earnings or statement of financial position. However, management
anticipates that, due to its limited use of derivative instruments, the adoption
of SFAS 133 will not have a significant effect on the Company's results of
operations or its financial position.
YEAR 2000 COMPLIANCE
- --------------------
The Company continues to address the impact of the Year 2000 issue on
its business. If not corrected certain computer applications may fail or create
erroneous results at the year 2000. Specifically, with respect to the Company,
this includes applications within information technology (IT) as well as non-IT
equipment and machinery that may contain embedded date-sensitive
microcontrollers or microchips.
Information Technology Systems
------------------------------
The Company's assessment of all business critical IT hardware and
software is 90-95% complete. It has been determined that many of the Company's
applications and systems are already Year 2000 compliant, however, it will be
necessary to modify or replace other applications and systems. During this
assessment, it was determined that systems in place within the Company's retail
and distribution network and certain of its manufacturing operations are not
Year 2000 compliant. As a result, during 1998 and 1999, the Company will install
new application systems within these areas which will be Year 2000 compliant.
Other maintenance and project activities to be conducted in 1998 and 1999 have
been initiated to bring the remaining hardware and software into compliance. If
such projects are not completed timely, the Year 2000 issue could have a
material impact on the operations of the Company. The Company's plan for IT
items includes the following phases and timeline: (1) Assessment and Strategy -
completed in 1998 and (2) Design, Implementation, Testing and Validation - in
process and scheduled to be substantially completed by mid 1999.
Non-Information Technology Systems
----------------------------------
The Company's assessment of non-IT systems is approximately 75%
complete. It is expected that the assessment and necessary replacements or
upgrades will be substantially completed by the second quarter in 1999.
14
17
External Parties
----------------
The Company has contacted its vendors and suppliers regarding the
status of their Year 2000 compliance. Many vendors have given a positive
indication that they are or will be compliant. A follow-up inquiry is being
conducted with the parties identified as business critical. This process is
approximately 60% complete and is expected to be substantially completed by the
first quarter in 1999. While compliance issues may be identified and addressed,
this process may not fully ensure these parties' Year 2000 compliance.
Disruptions in the operations of these parties could have an adverse financial
and operational effect on the Company. The Company is currently in the process
of formulating a contingency plan in the event business critical vendors do not
achieve Year 2000 compliance and suffer substantial disruptions in their
operations. This plan will include identifying alternate vendors to replace
those that are positively identified to be Year 2000 non-compliant and also to
identify back-up vendors for those whom represent compliance in the event that
their systems fail. This plan is expected to be substantially completed by mid
1999.
The Company has requested compliance information from its banks and
it has been determined that they expect to be compliant by the second quarter in
1999. In the event that these banks are not compliant at that time, the Company
will review the possibility of relocating its banking relationships to back-up
financial institutions currently being identified.
Costs of Compliance
-------------------
The Company estimates the total costs to be incurred in installing new
application systems in the retail and distribution network and certain
manufacturing operations, along with costs associated with Year 2000 compliance
to be between $4.0 to $5.0 million. Through September 30, 1998, the Company has
spent approximately $0.5 million related to such activities.
Management believes that, with modifications to existing software and
conversions to new software and hardware, the Year 2000 issue is not likely to
materially impact the Company's results of operations or financial position. The
Company expects all of its internal business critical IT and non-IT systems to
be Year 2000 compliant and therefore no contingency plan is in place in the
event of a particular system not being Year 2000 compliant. Such a plan will be
developed if it becomes clear that the Company is not going to achieve its
scheduled compliance objectives. However, because most computer systems are
interdependent by nature, there can be no assurance that the systems of other
companies on which the Company's systems rely, will be timely converted and not
have an adverse effect on the Company's systems.
15
18
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
- ------- ---------------------
Series C 5.5% Convertible Preferred Stock
-----------------------------------------
On July 14, 1998, the Company issued the following as part of the
consideration paid in connection with its acquisition of substantially
all of the assets of Cloud Corporation and Cloud Oak Flooring Company,
Inc.: 131,530 shares of Series C 5.5% Cumulative Convertible
Exchangeable Preferred Stock. This stock is convertible at any time at
the option of the holder, at a conversion price of $35.00 per share,
into up to 375,800 shares, of Common Stock, subject to adjustment. The
Preferred Stock is subject to mandatory conversion if the average
trading price of the Common Stock for twenty consecutive trading days
exceeds the conversion price, or if dividends on the Preferred Stock
are in arrears for at least two full quarterly periods. These
securities were sold pursuant to the exemption available under Section
4(2) of the Securities Act of 1988 and Regulation D promulgated
thereunder as a transaction not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits:
---------
3.5 Certificate of Designations of Series C 5.5% Convertible Preferred Stock
15.1 Previously filed Accountant's Review Report has been withdrawn.
(b) Reports on Form 8-K:
--------------------
1. Form 8-K dated October 19, 1998 reporting an amendment to the
Shareholders Rights Agreement to eliminate those provisions that
require that certain actions may only be taken by "Continuing
Directors."
16
19
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.
WABASH NATIONAL CORPORATION
Date: January 20, 1999 By: /s/ Rick B. Davis
---------------------------
Rick B. Davis
Corporate Controller
and
Executive Officer
17