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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
[x] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2001
OR
TRANSITION REPORT UNDER SECTION 13 0R 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) 771-5300
------------------------------------------------------------------
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 has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
The number of shares of common stock outstanding at May 14, 2001 was 23,004,450.
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WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 2001 and December 31, 2000 1
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2001 and 2000 2
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2001 and 2000 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
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WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2001 2000
------------- ------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,902 $ 4,194
Accounts receivable, net 76,682 49,320
Current portion of finance contracts 10,727 11,544
Inventories 314,378 330,326
Prepaid expenses and other 27,068 24,030
-------- --------
Total current assets 440,757 419,414
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 216,924 216,901
-------- --------
EQUIPMENT LEASED TO OTHERS, net 92,747 52,001
-------- --------
FINANCE CONTRACTS, net of current portion 38,332 44,906
-------- --------
INTANGIBLE ASSETS, net 45,192 31,123
-------- --------
OTHER ASSETS 14,521 17,269
-------- --------
$848,473 $781,614
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 11,862 $ 12,134
Accounts payable 96,989 94,118
Accrued liabilities 48,284 42,440
-------- --------
Total current liabilities 157,135 148,692
-------- --------
LONG-TERM DEBT, net of current maturities 288,819 226,126
-------- --------
DEFERRED INCOME TAXES 23,429 23,644
-------- --------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 31,887 15,919
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, 482,041 shares issued and outstanding with
an aggregate liquidation value of $30,600 5 5
Common stock, 23,002,490 shares issued and outstanding 230 230
Additional paid-in capital 236,660 236,660
Retained earnings 112,489 131,617
Accumulated other comprehensive income (loss) (902) --
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
-------- --------
Total stockholders' equity 347,203 367,233
-------- --------
$848,473 $781,614
======== ========
See Notes to Condensed Consolidated Financial Statements.
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WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Three Months Ended
March 31,
------------------------------
2001 2000
(Unaudited) (Unaudited)
---------- ----------
NET SALES $242,629 $352,848
COST OF SALES 244,372 318,425
-------- --------
Gross profit (loss) (1,743) 34,423
GENERAL AND ADMINISTRATIVE EXPENSES 10,010 8,076
SELLING EXPENSES 6,158 5,064
--------- --------
Income (Loss) from operations (17,911) 21,283
OTHER INCOME (EXPENSE)
Interest expense (5,800) (4,128)
Accounts receivable securitization costs (977) (1,661)
Equity in losses of unconsolidated affiliate (2,489) (850)
Other, net (977) 327
---------- --------
Income (Loss) before income taxes (28,154) 14,971
PROVISION (BENEFIT) FOR INCOME TAXES (10,424) 5,839
--------- --------
Net income (loss) $(17,730) $ 9,132
PREFERRED STOCK DIVIDENDS 476 476
--------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS $ (18,206) $ 8,656
========= ========
EARNINGS (LOSS) PER SHARE:
Basic $ (0.79) $ 0.38
Diluted $ (0.79) $ 0.38
========= ========
CASH DIVIDENDS PER SHARE $ 0.04 $ 0.04
========= ========
See Notes to Condensed Consolidated Financial Statements.
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WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months
Ended March 31,
-----------------------------
2001 2000
-------------- --------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (17,730) $ 9,132
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation and amortization 7,919 6,648
Loss on the sale of assets (230) (191)
Bad debt provision 1,559 468
Deferred income taxes (3,116) (639)
Equity in losses of unconsolidated affiliate 2,489 850
Cash used for restructuring activities (1,913) --
Change in operating assets and liabilities:
Accounts receivable (17,965) (37,383)
Inventories 23,206 (62,411)
Prepaid expenses and other 31 580
Accounts payable and accrued liabilities (5,028) 3,717
Other, net (1,747) (841)
-------- --------
Net cash used in operating activities (12,525) (80,070)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,091) (19,139)
Net additions to equipment leased to others (18,919) (5,537)
Net additions to finance contracts (5,852) (4,414)
Acquisition, net of cash acquired (6,336) --
Investment in unconsolidated subsidiary (1,225) (916)
Proceeds from sale of leased equipment and finance contacts 10,810 3,347
Principal payments received on finance contracts 2,784 3,077
Proceeds from the sale of property, plant and equipment 82 626
-------- --------
Net cash used in investing activities (21,747) (22,956)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Long-term debt -- 12,500
Long-term revolver 124,900 171,900
Common stock -- 28
Payments:
Long-term debt (10,622) (776)
Long-term revolver (70,902) (80,400)
Common stock dividends (920) (920)
Preferred stock dividends (476) (476)
--------- ---------
Net cash provided by financing activities 41,980 101,856
--------- --------
NET INCREASE (DECREASE) IN CASH 7,708 (1,170)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,194 22,484
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,902 $ 21,314
========= =========
See Notes to Condensed Consolidated Financial Statements.
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WABASH NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
The condensed consolidated financial statements included herein have been
prepared by Wabash National Corporation and its 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
consolidated financial statements and the notes thereto included in the
Company's 2000 Annual Report on Form 10-K.
In the opinion of the registrant, the accompanying condensed consolidated
financial statements contain all material adjustments (consisting only of normal
recurring adjustments), necessary to present fairly the consolidated financial
position of the Company at March 31, 2001 and December 31, 2000 and its results
of operations and cash flows for the three months ended March 31, 2001 and 2000.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Foreign Currency Translation
The financial statements of the Company's Canadian subsidiary are
translated into U.S. dollars using the exchange rate at the balance sheet date
for assets and liabilities and a weighted-average exchange rate during the
period for revenue and expense accounts. The resulting translation adjustments
are recorded as a component of stockholder's equity. Gains or losses resulting
from foreign currency transactions are included in Other, net in the Company's
Condensed Consolidated Statements of Operations.
b. Comprehensive Income (Loss)
The Company's comprehensive income (loss) includes net income (loss) and
foreign currency translation adjustments. The Company's net income (loss) and
total comprehensive income (loss) was ($17.7) million and ($18.6) million,
respectively for the three months ended March 31, 2001 and $9.1 million and
$9.1 million, respectively for the same period in the prior year.
c. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities which was subsequently amended by
SFAS 137 and SFAS 138. These statements require that all derivative instruments
be recorded on the balance sheet at their fair value. This standard is effective
for the Company's financial statements beginning January 1, 2001, with early
adoption permitted. The adoption of SFAS 133 did not have an effect on the
Company's annual results of operations or its financial position.
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c. Inventories
Inventories consisted of the following (in thousands):
March 31, December 31,
2001 2000
--------- ------------
(Unaudited)
Raw material and components $ 81,069 $ 84,167
Work in process 13,759 18,765
Finished goods 89,118 93,332
Aftermarket parts 32,255 33,566
Used trailers 98,177 100,496
-------- --------
$314,378 $330,326
======== ========
d. Reclassifications
Certain items previously reported in specific condensed consolidated
financial statement captions have been reclassified to conform with the 2001
presentation.
NOTE 3. RESTRUCTURING AND OTHER RELATED CHARGES
In December 2000, the Company recorded restructuring and other related
charges totaling $46.6 million ($28.5 million, net of tax) primarily related to
the Company's exit from manufacturing products for export outside the North
American market, international leasing and financing activities and the
consolidation of certain domestic operations. Included in this total is $40.8
million that has been included as a component in computing income from
operations. Specifically, $19.1 million of this amount represents the impairment
of certain equipment subject to leases with the Company's international
customers, $8.6 million represents losses recognized for various financial
guarantees related to international financing activities, and $6.9 million was
recorded for the write-down of other assets as well as charges associated with
the consolidation of certain domestic operations including severance of
$0.2 million. Also included in the $40.8 million is a $4.5 million charge for
inventory write-downs related to the restructuring actions and $5.8 million as a
charge representing the write-off of the Company's remaining equity interest in
ETZ for a decline in fair value that is deemed to be other than temporary.
The total impairment charge recognized by the Company as a result of its
restructuring activities was $26.7 million. This amount was computed in
accordance with the provisions of SFAS 121. The estimated fair value of the
impaired assets totaled $3.4 million and was determined by management based upon
economic conditions and potential alternative uses and markets for the
equipment. These assets are held for sale and are classified in prepaid expenses
and other in the accompanying Condensed Consolidated Balance Sheets.
Depreciation has been discontinued on these assets pending their disposal. Upon
the ultimate divestiture of the Company's ownership in ETZ, expected to occur in
2001, the Company will no longer record equity in losses of unconsolidated
affiliate.
The Company is continuing its restructuring plan implemented in the fourth
quarter of 2000. During the first quarter of 2001, the Company paid $1.2 million
related to certain guarantees as well as paid $0.7 million related to the
consolidation of certain domestic operations including
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severance payments of $0.2 million. Details of the restructuring charges and
reserve are as follows (in thousands):
UTILIZED
Original --------------------------- Balance
Provision 2000 2001 03/31/01
---------- -------- -------- --------
Restructuring of majority-owned operations:
Impairment of long-term assets $20,819 $(20,819) $ -- $ --
Loss related to equipment guarantees 8,592 -- (1,183) 7,409
Write-down of other assets and other charges 6,927 (4,187) (730) 2,010
------- --------- -------- -------
$36,338 $(25,006) $ (1,913) $ 9,419
------- --------- -------- -------
Restructuring of minority interest operations:
Impairment of long-term assets $ 5,832 $ (5,832) $ -- $ --
------- --------- -------- -------
Inventory write-down and other charges $ 4,480 $ (3,897) $ -- $ 583
------- --------- -------- -------
Total restructuring and other related charges $46,650 $(34,735) $ (1,913) $10,002
======= ======== ======== =======
As of March 31, 2001, the Company has a restructuring reserve of $10.0
million included in accrued liabilities in the accompanying Condensed
Consolidated Balance Sheets. The Company anticipates completion of its
restructuring activities during 2001.
NOTE 4. ACQUISITION
On January 5, 2001, the Company acquired the Breadner Group of Companies
(the Breadner Group) in a stock purchase agreement (the Breadner Acquisition).
The Breadner Group is headquartered in Kitchener, Ontario, Canada and has ten
branch locations in six Canadian Provinces. These branches are the leading
Canadian distributor of new trailers as well as providers of new trailer
services and aftermarket parts. For financial statement purposes, the Breadner
Acquisition was accounted for as a purchase, and accordingly, the Breadner
Group's assets and liabilities were recorded at fair value and the operating
results are included in the Condensed Consolidated Statements of Operations
since the date of acquisition. The aggregate consideration for this transaction
included approximately $6.3 million in cash and $10.0 million in a long-term
note and the assumption of certain indebtedness. The long-term note has an
annual interest rate of 7.25% and is due April 2001 through January 2006. The
excess of the purchase price over the underlying assets acquired was
approximately $14.3 million and is being amortized on a straight-line basis over
twenty-five years.
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months
Ended March 31,
---------------------
(In thousands) 2001 2000
---------------------
(unaudited)
Cash paid during the period for:
Interest $6,220 $3,059
Income taxes 376 5,795
NOTE 6. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share (EPS) are computed in accordance with SFAS No.
128, Earnings per Share. A reconciliation of the numerators and denominators of
the basic and diluted EPS computations, as required by SFAS No. 128, is
presented below. The Company's convertible preferred stock and stock options
were not included in the computation of EPS for the three month
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period ended March 31, 2001 and stock options were not included in the
computation of EPS for the same period last year since the inclusion would have
resulted in an antidilutive effect. (Amounts in thousands except per share
amounts):
Net Income (Loss) Weighted
Available Average Earnings (Loss)
To Common Shares Per Share
----------------- -------- --------------
(Unaudited)
Three Months Ended March 31, 2001
- ---------------------------------
Basic $(18,206) 23,002 $(0.79)
Preferred Stock -- --
-------- ------ ------
Diluted $(18,206) 23,002 $(0.79)
======== ====== ======
Three Months Ended March 31, 2000
- ---------------------------------
Basic $ 8,656 22,985 $ 0.38
Preferred Stock 297 823
-------- ------ ------
Diluted $ 8,953 23,808 $ 0.38
======== ====== ======
NOTE 7. SEGMENTS
Under the provisions of SFAS No. 131, the Company has two reportable
business segments; manufacturing and retail and distribution operations. The
manufacturing segment principally produces trailers and sells new trailers to
customers who purchase trailers direct or through independent dealers and also
produces trailers for the retail and distribution segment. The retail and
distribution segment sells new and used trailers, aftermarket parts, performs
service repair on used trailers and provides rental, leasing and financing
activity through its retail branch network. In addition, the retail and
distribution segment rents used trailers, primarily on a short-term basis. In
December 2000, the Company combined its rental, leasing and finance activities
into a separate product line within the retail and distribution segment. As a
result, the 2000 presentation has been restated to conform to the 2001
presentation.
Reportable segment information is as follows (in thousands):
Three Months Ended Retail and Combined Consolidated
March 31, 2001 Manufacturing Distribution Segments Eliminations Totals
- ------------------ ------------- ------------ -------- ------------ -----------
(unaudited)
Revenues
External customers $157,990 $ 84,639 $ 242,629 $ -- $242,629
Intersegment sales 14,059 254 14,313 (14,313) --
-------- -------- ---------- --------- --------
Total Revenues $172,049 $ 84,893 $ 256,942 $ (14,313) $242,629
======== ======== ========== ========= ========
Income (loss) from Operations $(16,755) $ (1,265) $ (18,020) $ 109 $(17,911)
Total Assets $874,982 $463,578 $1,338,560 $(490,087) $848,473
Three Months Ended
March 31, 2000
- ------------------
(unaudited)
Revenues
External customers $272,215 $ 80,633 $ 352,848 $ -- $352,848
Intersegment sales 25,174 301 25,475 (25,475) --
-------- -------- ---------- --------- --------
Total Revenues $297,389 $ 80,934 $ 378,323 $ (25,475) $352,848
======== ======== ========== ========= ========
Income (loss) from Operations $ 20,034 $ 1,838 $ 21,872 $ (589) $ 21,283
Total Assets $896,755 $407,444 $1,304,199 $(400,650) $903,549
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NOTE 8. CONTINGENCIES
a. Litigation
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company arising in the ordinary course of business,
including those pertaining to product liability, labor and health related
matters, successor liability, environmental and possible tax assessments. While
the amounts claimed could be substantial, the ultimate liability cannot now be
determined because of the considerable uncertainties that exist. Therefore, it
is possible that results of operations or liquidity in a particular period could
be materially affected by certain contingencies. However, based on facts
currently available, management believes that the disposition of matters that
are pending or asserted will not have a material adverse effect on the Company's
financial position or its annual results of operations.
From January 22, 1999 through February 24, 1999, five purported class
action complaints were filed against the Company and certain of its officers in
the United States District Court for the Northern District of Indiana. The
complaints purported to be brought on behalf of a class of investors who
purchased the Company's common stock between April 20, 1998 and January 15,
1999. The complaints alleged that the Company violated Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated under the Act by
disseminating false and misleading financial statements and reports respecting
the first three quarters of the Company's fiscal year 1998. The complaints
sought unspecified compensatory damages and attorney's fees, as well as other
relief. In addition, on March 23, 1999, another purported class action lawsuit
was also filed in the United States District Court for the Northern District of
Indiana, naming the Company, its directors and the underwriters of the Company's
April 1998 public offering. That complaint alleged that the Company and the
individual defendants violated Section 11 of the Securities Act of 1933, and
that the Company, the individual defendants as "controlling persons" of the
Company, and the underwriters are liable under Section 12 of that Act, by making
untrue statements of material fact in and omitting material facts from the
prospectus used in that offering. The complaint sought unspecified compensatory
damages and attorney's fees, as well as other relief. Both the Securities
Exchange Act complaints and the Securities Act complaint arise out of the
restatement of the Company's financial statements for the first three quarters
of 1998. At a hearing on May 10, 1999 and in an order entered on June 22, 1999,
Judge Allen Sharp consolidated the six pending cases under the caption In re
Wabash National Corporation Securities Litigation, No. 4:99CV0003AS and
established a schedule for further proceedings. Pursuant to the order, selected
lead plaintiffs filed a Consolidated Class Action Complaint on July 6, 1999. The
consolidated complaint repeated the claims made in the original complaints
respecting the restatement and also alleges that the loss contingency for
certain excise taxes, which Wabash disclosed on January 19, 1999, should have
been recorded earlier. The Company's motion to dismiss the consolidated
complaint was denied by the Court in February 2000.
The Court subsequently denied plaintiff's motion to certify the case as a
class action and fixed April 30, 2001 as the deadline for submission of summary
judgment motions and March 31, 2001 as the end of discovery proceedings. On
March 29, 2001, all plaintiffs voluntarily withdrew their claims arising under
Sections 10 (b) and 20 (a) of the Securities and Exchange Act of 1934 (the "1934
Act Claims"), when a Stipulation of Dismissal with Prejudice was filed with the
Court. On April 2, 2001, the Court entered an Order of Dismissal giving effect
to the Stipulation of Dismissal. As a result of that dismissal, the only claims
remaining in the case were those brought by purchasers of shares in the
Company's public offering on April 23, 1998 (i.e., claims arising
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under Sections 11 and 12 of the Securities Act of 1933). On April 17, 2001, the
Company announced that it had reached an agreement that terminates the remaining
elements of the shareholder litigation brought against the Company. Under the
agreement, which is subject to court approval, the Company will pay $500,000
into a fund from which purchasers of stock in the Company's 1998 public offering
and who satisfy certain criteria will be entitled to recover $0.33 per share.
Unclaimed monies remaining in the fund, after attorney's fees and expenses are
paid, will be returned to the Company. Also on April 17, 2001, the Court entered
an order dismissing the action without prejudice to the right of any party upon
good cause shown within ninety days to vacate the order and reopen the action if
the settlement is not consummated.
b. Environmental
The Company generates and handles certain material, wastes and emissions in
the normal course of operations that are subject to various and evolving
Federal, state and local environmental laws and regulations.
The Company assesses its environmental liabilities on an on-going basis by
evaluating currently available facts, existing technology, presently enacted
laws and regulations as well as experience in past treatment and remediation
efforts. Based on these evaluations, the Company estimates a lower and upper
range for the treatment and remediation efforts and recognizes a liability for
such probable costs based on the information available at the time. As of
March 31, 2001, the estimated potential exposure for such costs ranges from
approximately $0.5 million to approximately $1.7 million, for which the Company
has a reserve of approximately $0.9 million. These reserves were primarily
recorded for exposures associated with the costs of environmental remediation
projects to address soil and ground water contamination as well as the costs of
removing underground storage tanks at its branch service locations. The possible
recovery of insurance proceeds has not been considered in the Company's
estimated contingent environmental costs.
Future information and developments will require the Company to continually
reassess the expected impact of these environmental matters. However, the
Company has evaluated its total environmental exposure based on currently
available data and believes that compliance with all applicable laws and
regulations will not have a materially adverse effect on the consolidated
financial position of the Company.
c. Used Trailer Restoration Program
During 1999, the Company reached a settlement with the Internal Revenue
Service related to federal excise tax on certain used trailers restored by the
Company during 1996 and 1997. The Company continued the restoration program with
the same customer since 1997. The customer has indemnified the Company for any
potential excise tax assessed by the IRS for years subsequent to 1997. The IRS
has substantially completed their audit work with respect to certain used
trailers restored by the Company during 1998 and 1999. The Company anticipates
receiving a notice of assessment related to such matters during 2001. The
Company has recorded a liability and a corresponding receivable of approximately
$7.9 million and $7.9 million in the accompanying condensed Consolidated Balance
Sheets at March 31, 2001 and December 31, 2000, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and the information incorporated by reference may include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. We intend the forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements in these sections. All statements regarding our expected financial
position, operating results and our business strategy are forward-looking
statements. These statements can sometimes be identified by our use of
forward-looking words such as "may," "will," "anticipate," "estimate," "expect,"
or "intend." Known and unknown risks, uncertainties and other factors could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.
Although we believe that our expectations that are expressed in these
forward-looking statements are reasonable, we cannot promise that our
expectations will turn out to be correct. Our actual results could be materially
different from and worse than our expectations. Important risks and factors that
could cause our actual results to be materially different from our expectations
include the factors that are disclosed elsewhere herein and in Item 4A in the
Company's Form 10-K as filed with the Securities and Exchange Commission on
March 29, 2001.
RESULTS OF OPERATIONS
The Company has two reportable business segments; manufacturing and retail
and distribution. The manufacturing segment principally produces trailers and
related components and sells to customers who purchase directly from the Company
or through independent dealers. The manufacturing segment also produces trailers
and related components for the Company's retail and distribution segment. The
retail and distribution segment sells new and used trailers, aftermarket parts,
and performs service repair on used trailers through its retail branch network.
In addition, the retail and distribution segment rents used trailers, primarily
on a short-term basis.
Net Sales
Consolidated net sales for the first quarter of 2001 decreased
approximately $110.2 million or 31.2% compared to the same period in 2000. This
decrease was primarily a result of decreased sales in the Company's
manufacturing segment partially offset by an increase in sales in the Company's
retail and distribution segment.
The manufacturing segment's external net sales decreased 42.0% or $114.2
million in the first quarter of 2001 compared to the same period in 2000. This
decrease was driven by a 4.2% decrease in the average price per unit sold
coupled with a decrease of 39.5% in the number of new trailers sold, from
approximately 15,700 units in the first quarter of 2000 compared to
approximately 9,500 units in the first quarter of 2001. Net sales continue to be
negatively impacted by overall economic conditions and more specifically within
the transportation industry which is plagued by a general slowing in freight
tonnage and continued high fuel prices. The decrease in the average price per
unit sold noted above is primarily due to a production mix during the quarter
consisting of generally lower priced products and continued pricing pressure
among commodity products. The Company's proprietary DuraPlate(R) trailer
continued to comprise the majority of the Company's production at over 60%
during the quarter. At March 31, 2001, the Company's
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backlog of orders was approximately $547 million, over 70% of which is related
to the DuraPlate trailer.
The retail and distribution segment's external net sales increased 5.0% or
$4.0 million in the first quarter of 2001 compared to the same period in 2000.
This increase was driven primarily by an increase in new trailer revenues and
rental, leasing and finance revenues of approximately $6.5 million and
$2.0 million respectively, partially offset by a $4.8 million decrease in used
trailer revenues. The increase in new trailer revenues was primarily driven by
the addition of ten branches in Canada as a result of the Breadner acquisition
on January 5, 2001. The increase in rental, leasing and finance revenues
reflects the Company's continued focus on expanding its trailer rental and
leasing programs.
Gross Profit (Loss)
Gross profit (loss) as a percentage of sales totaled (0.7%) for the first
quarter of 2001 compared to 9.8% for the same period in 2000 primarily due to
the manufacturing segment, as discussed below.
The manufacturing segment's gross profit decreased by 134% primarily as
a result of the following factors:
o the decrease in sales volume and pricing previously discussed;
o additional costs related to the start-up of the Company's painting and
coating system at its Huntsville, Tennessee plant;
o a $9.1 million inventory charge related to new and used stock trailers
in order to reflect the Company's estimate of net realizable value or
cost as discussed below and to accelerate inventory reductions on
certain equipment.
The Company accepts used trailers taken in trade on new trailer
transactions in the normal course of business. In accordance with Generally
Accepted Accounting Principles (GAAP) and consistent with the Company's
accounting policies, used trailer inventories are carried at the lower of their
estimated net realizable value or cost. As of March 31, 2001, the Company had
$98.2 million of used trailers in inventory. The Company will continue to
evaluate the carrying value of its used trailer inventories and, to the extent
in the Company's judgment, there is a further decline in used trailer market
values such that an adjustment in the Company's financial statements is
necessary, the Company will make additional provisions to reflect the lower of
cost or market. These adjustments may be material in the financial position or
results of operations of the Company in the period for which they are recorded.
These factors were partially offset by the continued increase in the
proportion of sales from proprietary products such as the DuraPlate trailer.
Income (Loss) From Operations
Income (loss) from operations for the first quarter of 2001 as a percentage
of net sales was (7.4%) compared to 6.0% for the same period in 2000. Income
(loss) from operations in 2001 was impacted primarily by a decrease in gross
profit previously discussed along with increased selling, general and
administrative costs. The increase in selling, general and administrative
expenses primarily reflects increased selling expenses principally to support
the Company's effort to increase sales activity in its aftermarket parts,
service and trailer rental, leasing and finance businesses along with the
acquisition of the Canadian operations in January.
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Other Income (Expense)
Interest expense for the three month period ended March 31, 2001 totaled
$5.8 million compared to $4.1 million in the same period in 2000. This increase
primarily reflects higher borrowings on the Company's revolving credit facility
during 2001 as a result of decreased proceeds from the Company's trade
receivable securitization facility along with increased investing activities.
Equity in losses of unconsolidated affiliate for the three month period
ended March 31, 2001 totaled $2.5 million compared to $0.9 million in the same
period in 2000. During January 2001, the Company assumed the remaining ownership
interest in Europaische Trailerzug Beteiligunsgessellshaft mbH (ETZ) from the
majority shareholder. As a result, the Company has reflected 100% of ETZ's
operating results during 2001 and 25.1% during the same period in the previous
year. The Company intends to pursue the orderly divestiture of ETZ during 2001
and will record 100% of ETZ's operating results until the divestiture is
complete.
Included in Other, net is the loss on foreign currency transactions of $0.8
million and $0 million for the three month period ended March 31, 2001 and March
31, 2000, respectively. This increase reflects realized and unrealized
transaction adjustments of certain receivables and payables from the Company's
recently acquired Canadian subsidiary. Also included in Other, net for the three
month period ended March 31, 2001 is a $0.5 million charge related to the
settlement of the Company's shareholder litigation suit that occurred during the
quarter.
Taxes
The provision (benefit) for income taxes for the three month period ended
March 31, 2001 and 2000 of ($10.4) million and $5.8 million respectively,
represents 37.0% and 39.0% of pre-tax income (loss) for the periods. 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
Net cash used in operating activities was $12.5 million during the first
three months of 2001 primarily as a result of the net loss and changes in
working capital partially offset by the add-back of non-cash charges for
depreciation and amortization. Changes in working capital consisted primarily of
a decrease in all categories of inventory partially offset by increased accounts
receivable. The decrease in inventory is largely due to the Company's continued
emphasis on improving production efficiencies and minimizing inventory levels
required in manufacturing. In addition, as mentioned previously, the Company
recorded a $9.1 million inventory charge related to new and used stock trailer
inventory in order to reflect the Company's estimate of net realizable value or
cost consistent with the Company's accounting policies and to accelerate
inventory reductions of certain equipment. The increase in accounts receivable
was primarily due to a decrease in the proceeds from the Company's trade
receivable securitization facility. As of March 31, 2001, $34.1 million was
outstanding under this facility, compared to $69.4 million outstanding as of
December 31, 2000.
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Investing Activities
Net cash used in investing activities of $21.7 million during the first
three months of 2001 was primarily due to the following:
o net investment in the Company's trailer rental and operating lease
portfolio of approximately $18.1 million;
o net decrease in the Company's finance contract portfolio of
approximately $6.9 million;
o the Breadner Acquisition of $6.3 million; and
o capital expenditures of $3.1 million.
Financing Activities
Net cash provided by financing activities was $42.0 million during the
first three months of 2001 was primarily due to a net increase in total debt of
$43.4 million and the payment of common stock dividends and preferred stock
dividends of $1.4 million in the aggregate.
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, increases in securitization facilities
and term borrowings. The Company believes that these funding sources will be
adequate for its anticipated requirements.
BACKLOG
The Company's backlog of orders was approximately $547 million and $640
million at March 31, 2001 and December 31, 2000, respectively. The Company
expects to fill a majority of its backlog within the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities which was subsequently amended by
SFAS 137 and SFAS 138. These statements require that all derivative instruments
be recorded on the balance sheet at their fair value. This standard is effective
for the Company's financial statements beginning January 1, 2001, with early
adoption permitted. The adoption of SFAS 133 did not have an effect on the
Company's annual results of operations or its financial position.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
In addition to the risks inherent in its operations, the Company has
exposure to financial and market risk resulting from volatility in commodity
prices, interest rates and foreign exchange rates. The following discussion
provides additional detail regarding the Company's exposure to these risks.
a. Commodity Price Risks
The Company is exposed to fluctuation in commodity prices through the
purchase of raw materials that are processed from commodities such as aluminum,
steel, wood and virgin plastic pellets. Given the historical volatility of
certain commodity prices, this exposure can significantly impact product costs.
The Company manages aluminum and virgin plastic pellets price changes by
entering into fixed price contracts with its suppliers prior to a customer sales
order being finalized. Because the Company typically does not set prices for its
products in advance of its commodity purchases, it can take into account the
cost of the commodity in setting its prices for each order. To the extent that
the Company is unable to offset the increased commodity costs in its product
prices, the Company's results would be materially and adversely affected.
b. Interest Rates
As of March 31, 2001, the Company had approximately $74.2 million of London
Interbank Rate (LIBOR) based debt outstanding under its Revolving Credit
Facility, $31.0 million of proceeds from its rental fleet sale and leaseback
agreement which calls for LIBOR based interest payments and $34.1 million of
proceeds from its accounts receivable securitization facility, which also
requires LIBOR based interest payments. A hypothetical 100 basis-point increase
in the floating interest rate from the current level would correspond to a
$1.4 million increase in interest expense over a one-year period. This
sensitivity analysis does not account for the change in the Company's
competitive environment indirectly related to the change in interest rates and
the potential managerial action taken in response to these changes.
c. Foreign Exchange Rates
The Company has historically entered into foreign currency forward
contracts (principally against the German Deutschemark and French Franc) to
hedge the net receivable/payable position arising from trade sales (including
lease revenues) and purchases with regard to the Company's international
activities. In addition, in light of the Breadner Acquisition, the Company is
reviewing its foreign currency exposure related to the Canadian dollar. The
Company does not hold or issue derivative financial instruments for speculative
purposes. As of March 31, 2001, the Company had no foreign currency forward
contracts outstanding.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Footnote 6 to the Condensed Consolidated Financial Statements for
information related to Legal Proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.16 2000 Stock Option Plan
15.01 Report of Independent Public Accountants
(b) Reports on Form 8-K:
1. Form 8-K filed January 30, 2001 reporting under Item 5: Press
release dated January 18, 2001 announcing the Company's
restructuring actions, debt reduction and fourth quarter
earnings expectations.
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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.
WABASH NATIONAL CORPORATION
Date: May 14, 2001 By: /s/ Rick B. Davis
------------ ------------------------------
Rick B. Davis
Corporate Controller
(Principal Accounting Officer)
And
Duly Authorized Officer
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