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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 JUNE 30, 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 August 9, 2001 was
23,008,034.
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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
June 30, 2001 and December 31, 2000 1
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 2001 and 2000 2
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 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 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
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WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
2001 2000
---------- -----------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,300 $ 4,194
Accounts receivable, net 42,031 49,320
Current portion of finance contracts 10,602 11,544
Inventories 311,003 330,326
Refundable income taxes 16,230 5,552
Prepaid expenses and other 21,448 18,478
--------- ---------
Total current assets 424,614 419,414
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net 214,121 216,901
--------- ---------
EQUIPMENT LEASED TO OTHERS, net 88,199 52,001
--------- ---------
FINANCE CONTRACTS, net of current portion 39,065 44,906
--------- ---------
INTANGIBLE ASSETS, net 44,008 31,123
--------- ---------
OTHER ASSETS 15,661 17,269
--------- ---------
$ 825,668 $ 781,614
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES:
Current maturities of long-term debt $ 33,814 $ 12,134
Accounts payable 82,676 94,118
Accrued liabilities 47,892 42,440
--------- ---------
Total current liabilities 164,382 148,692
--------- ---------
LONG-TERM DEBT, net of current maturities 279,317 226,126
--------- ---------
DEFERRED INCOME TAXES 23,666 23,644
--------- ---------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 29,752 15,919
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, 482,041 shares issued and outstanding with
an aggregate liquidation value of $30,600 5 5
Common stock, 23,008,034 and 23,002,490 shares issued and 230 230
outstanding , respectively
Additional paid-in capital 236,729 236,660
Retained earnings 92,976 131,617
Accumulated other comprehensive loss (110) ---
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
--------- ---------
Total stockholders' equity 328,551 367,233
--------- ---------
$ 825,668 $ 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 Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(Unaudited) (Unaudited)
NET SALES $ 212,172 $ 358,729 $ 454,801 $ 711,577
COST OF SALES 212,198 324,684 456,570 643,109
--------- --------- --------- ---------
Gross profit (loss) (26) 34,045 (1,769) 68,468
GENERAL AND ADMINISTRATIVE EXPENSES 15,521 8,669 25,531 16,746
SELLING EXPENSES 6,560 5,254 12,718 10,318
--------- --------- --------- ---------
Income (Loss) from operations (22,107) 20,122 (40,018) 41,404
OTHER INCOME (EXPENSE):
Interest expense (5,360) (5,643) (11,160) (9,772)
Accounts receivable securitization costs (449) (1,736) (1,426) (3,396)
Equity in losses of unconsolidated affiliate (1,844) (750) (4,333) (1,600)
Other, net 843 326 (134) 653
--------- --------- --------- ---------
Income (Loss) before income taxes (28,917) 12,319 (57,071) 27,289
PROVISION (BENEFIT) FOR INCOME TAXES (10,800) 4,804 (21,224) 10,643
--------- --------- --------- ---------
Net income (loss) $ (18,117) $ 7,515 $ (35,847) $ 16,646
PREFERRED STOCK DIVIDENDS 476 476 952 951
--------- --------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS $ (18,593) $ 7,039 $ (36,799) $ 15,695
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE:
Basic $ (0.81) $ 0.31 $ (1.60) $ 0.68
Diluted $ (0.81) $ 0.31 $ (1.60) $ 0.68
========= ========= ========= =========
Cash dividends per share $ 0.04 $ 0.04 $ 0.08 $ 0.08
========= ========= ========= =========
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)
Six Months
Ended June 30,
------------------------
2001 2000
--------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (35,847) $ 16,646
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 16,420 13,729
Gain on the sale of assets (69) (126)
Bad debt provision 7,795 1,329
Deferred income taxes (3,128) 402
Equity in losses of unconsolidated affiliate 4,333 1,600
Cash used for restructuring activities (5,156) ---
Change in operating assets and liabilities:
Accounts receivable 10,366 (48,894)
Inventories 27,509 (94,986)
Refundable income taxes (10,678) (400)
Prepaid expenses and other 351 286
Accounts payable and accrued liabilities (16,403) (3,151)
Other, net (6,221) 1,520
--------- ---------
Net cash used in operating activities (10,728) (112,045)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,300) (38,372)
Net additions to equipment leased to others (35,073) (23,986)
Net additions to finance contracts (9,628) (9,709)
Acquisition, net of cash acquired (6,336) ---
Investment in unconsolidated subsidiary
(2,550) (1,283)
Proceeds from sale of leased equipment and finance contacts 29,054 5,436
Principal payments received on finance contracts 5,218 6,244
Proceeds from the sale of property, plant and equipment 124 626
--------- ---------
Net cash used in investing activities (23,491) (61,044)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Short-term borrowings --- 50,000
Long-term debt --- 12,500
Long-term revolver 249,598 263,200
Common stock 69 28
Payments:
Long-term debt (11,348) (1,759)
Long-term revolver (182,202) (160,732)
Common stock dividends (1,840) (1,839)
Preferred stock dividends (952) (952)
--------- ---------
Net cash provided by financing activities 53,325 160,446
--------- ---------
NET INCREASE (DECREASE) IN CASH 19,106 (12,643)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,194 22,484
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,300 $ 9,841
========= =========
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 June 30, 2001 and December 31,
2000 and its results of operations for the three and six months ended June 30,
2001 and 2000 and cash flows for the six months ended June 30, 2001 and 2000.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Foreign Currency Accounting
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 stockholders' 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) were ($18.1) million and ($17.3) million,
respectively for the three months ended June 30, 2001 and $7.5 million and $7.5
million, respectively for the same period in the prior year. The Company's net
income (loss) and total comprehensive income (loss) were ($35.8) million and
($36.0) million, respectively for the six months ended June 30, 2001 and $16.6
million and $16.6 million, respectively for the same period in the prior year.
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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. The adoption
of SFAS 133 did not have an effect on the Company's annual results of operations
or its financial position.
In June 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This Statement requires companies to cease the amortization of goodwill
and establishes a new method of testing goodwill for impairment. This standard
is effective for the Company's financial statements beginning January 1, 2002.
The Company's goodwill amortization for the three and six months ended June 30,
2001 was $0.4 million and $0.8 million, respectively, in advance of implementing
the provisions within this statement. The Company is currently evaluating this
Statement's requirement for testing goodwill impairment and the related impact,
if any, to the Company's results of operations and financial position.
d. Inventories
Inventories consisted of the following (in thousands):
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
Raw material and components $ 59,270 $ 84,167
Work in process 19,900 18,765
Finished goods 105,396 93,332
Aftermarket parts 31,685 33,566
Used trailers 94,752 100,496
-------- --------
$311,003 $330,326
======== ========
e. Reclassifications
Certain items previously reported in specific condensed consolidated
financial statement captions have been reclassified to conform with the 2001
presentation.
NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION
Six Months
Ended June 30,
---------------------------
(In thousands) 2001 2000
- -----------------------------------------------------------------------------
Cash paid during the period for: (Unaudited)
Interest $10,487 $ 8,635
Income taxes 562 17,529
- -----------------------------------------------------------------------------
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NOTE 4. 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.
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 six-month period ended June 30, 2001, the
Company paid $4.3 million related to certain guarantees as well as paid $0.9
million related to the consolidation of certain domestic operations including
severance payments of $0.2 million. Details of the restructuring charges and
reserve are as follows (in thousands):
UTILIZED
Original ----------------------- Balance
Provision 2000 2001 06/30/01
--------- -------- --------- --------
Restructuring of majority-owned operations:
Impairment of long-term assets $ 20,819 $(20,819) $ --- $ ---
Loss related to equipment guarantees 8,592 --- (4,264) 4,328
Write-down of other assets and other charges 6,927 (4,187) (892) 1,848
-------- -------- -------- --------
$ 36,338 $(25,006) $ (5,156) $ 6,176
-------- -------- -------- --------
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) $ (5,156) $ 6,759
======== ======== ======== ========
As of June 30, 2001, the Company has a restructuring reserve of $6.8
million included in accrued liabilities in the accompanying Condensed
Consolidated Balance Sheets. The Company anticipates completion of its
restructuring activities during 2001.
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NOTE 5. 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 and sells new trailers to customers
who purchase trailers direct or through independent dealers and 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 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
JUNE 30, 2001 Manufacturing Distribution Segments Eliminations Totals
- ------------- ------------- ------------ ----------- ------------ -----------
(unaudited)
Revenues
External customers $ 127,424 $ 84,748 $ 212,172 $ --- $ 212,172
Intersegment sales 21,849 353 22,202 (22,202) ---
----------- ----------- ----------- ----------- -----------
Total Revenues $ 149,273 $ 85,101 $ 234,374 $ (22,202) $ 212,172
=========== =========== =========== =========== ===========
Income (loss) from $ (18,883) $ (2,764) $ (21,647) $ (460) $ (22,107)
Operations
Total Assets $ 866,950 $ 451,877 $ 1,318,827 $ (493,159) $ 825,668
THREE MONTHS ENDED
JUNE 30, 2000
- -------------
(Unaudited)
Revenues
External customers $ 270,502 $ 88,227 $ 358,729 $ --- $ 358,729
Intersegment sales 26,433 (2,128) 24,305 (24,305) ---
----------- ----------- ----------- ----------- -----------
Total Revenues $ 296,935 $ 86,099 $ 383,034 $ (24,305) $ 358,729
=========== =========== =========== =========== ===========
Income (loss) from $ 19,534 $ 1,948 $ 21,482 $ (1,360) $ 20,122
Operations
Total Assets $ 951,757 $ 442,770 $ 1,394,527 $ (426,149) $ 968,378
SIX MONTHS ENDED
JUNE 30, 2001
- -------------
(Unaudited)
Revenues
External customers $ 285,413 $ 169,388 $ 454,801 $ --- $ 454,801
Intersegment sales 35,908 607 36,515 (36,515) ---
----------- ----------- ----------- ----------- -----------
Total Revenues $ 321,321 $ 169,995 $ 491,316 $ (36,515) $ 454,801
=========== =========== =========== =========== ===========
Income (loss) from $ (35,639) $ (4,028) $ (39,667) $ (351) $ (40,018)
Operations
Total Assets $ 866,950 $ 451,877 $ 1,318,827 $ (493,159) $ 825,668
SIX MONTHS ENDED
JUNE 30, 2000
- -------------
(Unaudited)
Revenues
External customers $ 542,717 $ 168,860 $ 711,577 $ --- $ 711,577
Intersegment sales 51,607 (1,827) 49,780 (49,780) ---
----------- ----------- ----------- ----------- -----------
Total Revenues $ 594,324 $ 167,033 $ 761,357 $ (49,780) $ 711,577
=========== =========== =========== =========== ===========
Income (loss) from $ 39,567 $ 3,786 $ 43,353 $ (1,949) $ 41,404
Operations
Total Assets $ 951,757 $ 442,770 $ 1,394,527 $ (426,149) $ 968,378
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NOTE 6. 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 7. 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 EPS computations, as required by SFAS No. 128, is presented below.
The Company did not include the effect of other securities that could be
converted into common in its calculation of diluted EPS for the three and six
months ended June 30, 2001 and June 30, 2000, since their inclusion would have
resulted in an antidilutive effect. As a result, basic and diluted EPS are equal
for the periods presented below. (Amounts in thousands except per share
amounts):
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
2001 2000 2001 2000
-------- -------- --------- -------
(Unaudited)
Net Income (Loss) $(18,117) $ 7,515 $ (35,847) $16,646
Less: Preferred Stock Dividends 476 476 952 951
-------- -------- --------- -------
Basic and Diluted Net Income (Loss)
Available to Common $(18,593) $ 7,039 $ (36,799) $15,695
======== ======== ========= =======
Weighted Average Shares 23,004 22,987 23,003 22,986
======== ======== ========= =======
Basic and Diluted EPS $ (0.81) $ 0.31 $ (1.60) $ 0.68
======== ======== ========= =======
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
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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 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.
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 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. On July 16, 2001, the Court entered an order
extending that period until November 1, 2001. The parties are currently
preparing the filings necessary to complete the settlement process.
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.
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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 June
30, 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.
In the second quarter 2000, the Company received a grand jury subpoena
requesting certain documents relating to the discharge of wastewaters into the
environment at a Wabash facility in Huntsville, Tennessee. The subpoena sought
the production of documents and related records concerning the design of the
facility's discharge system and the particular discharge in question. On April
17, 2000, the Company received a Notice of Violation/Request for Incident Report
from the Tennessee Department of Environmental Conservation (TDEC) with respect
to the same matter. On September 6, 2000, the Company received an Order and
Assessment from TDEC directing the Company to pay a fine of $100,000 for
violations of Tennessee environmental requirements as a result of the discharge.
The Company filed an appeal of the Order and Assessment on October 10, 2000. On
May 16, 2001, the Company received a second grand jury subpoena that sought the
production of additional documents relating to the discharge in question. The
Company has provided documents in response to that subpoena. The Company is
fully cooperating with state and federal officials with respect to their
respective investigations into the matter. At this time, the Company is unable
to predict the outcome of federal grand jury inquiry into this matter, but does
not believe it will result in a material adverse effect on its financial
position or future results of operations; however, at this early stage of the
proceedings, no assurance can be given as to the ultimate outcome of the case.
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
$8.1 million and $7.9 million in the accompanying condensed Consolidated Balance
Sheets at June 30, 2001 and December 31, 2000, respectively.
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d. Possible Management Actions in Light of Industry Conditions
In response to the continued weakness in the truck trailer
manufacturing industry and the Company's recent results, management is currently
evaluating strategies to improve its operating results and financial position.
In July 2001, the Company issued Worker Adjustment and Retraining Notification
Act (WARN) notices to the employees of its Fort Madison, Iowa and Huntsville,
Tennessee manufacturing plants informing them of the potential closure or
temporary shutdown of these two plants. Combined, these two plants accounted for
less than 20% of the Company's production for the six months ended June 30,
2001. In addition, the Company is evaluating its investment in used trailer
inventory given current market conditions and is pursuing strategies to reduce
this investment and associated carrying costs. The Company's Board of Directors
must approve any decisions relative to the above strategies before any action
can be taken. To the extent these strategies are approved and implemented, the
impact of these actions could have a material impact on the Company's financial
position and operating results in the period incurred.
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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
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 and sells new trailers to customers
who purchase trailers direct or through independent dealers and 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 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.
Net Sales
Consolidated net sales for the second quarter of 2001 decreased
approximately $146.6 million or 40.9% compared to the same period in 2000 and
decreased $256.8 million or 36.1% for the six-month period ended June 30, 2001
compared with the same period in the prior year. This decrease primarily
reflects lower sales activity in the Company's manufacturing segment as sales in
the retail and distribution segment were approximately level with prior year
sales.
The manufacturing segment's external net sales decreased 52.9% or
$143.1 million in the second quarter of 2001 compared to the same period in 2000
and were $257.3 million or 47.4% lower for the six-month period ended June 30,
2001 compared to the same period in 2000. These decreases were driven primarily
by a 53.1% decrease (7,500 units vs. 16,000 units) and a 46.4% decrease (17,000
units vs. 31,700 units) in the number of new trailers sold during the three and
six-month periods ended June 30, 2001 compared to the same periods in 2000,
respectively. The Company's proprietary DuraPlate(R) trailer continued to
comprise the majority of the Company's
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production at over 70% during the quarter. At June 30, 2001, the Company's
backlog of orders was approximately $450 million, over 65% of which is related
to the DuraPlate trailer. During 2001, the Company's manufacturing segment
continued to be negatively impacted by overall economic conditions including the
current recessionary environment of the U.S. manufacturing sector and, more
specifically, the transportation industry, which has been plagued by a general
slowing in freight tonnage. According to a Federal Reserve report released on
July 17, 2001, production at factories, mines and utilities slipped for the
ninth straight month in June, the longest stretch of negative readings since
1982. In addition, manufacturing capacity utilization was the lowest since
August 1983.
The retail and distribution segment's external net sales decreased 3.9%
or $3.5 million in the second quarter of 2001 compared to the same period in
2000 and were $0.5 million or 0.3% higher for the six-month period ended June
30, 2001 compared to the same period in 2000. The change in net sales was
primarily attributable to increased net sales from new branch and rental centers
opened since the first and second quarters of 2000. The total number of store
locations as of March 31, 2001 and June 30, 2001 was 47 and 49 respectively, as
compared to 37 and 37, respectively for the same periods in the prior year. The
increase in the net sales associated with these new locations was offset by a
46.2% and 33.2% decline in external net sales in same store sales for the three
and six month periods ended June 30, 2001 as compared to the same periods in the
previous year.
Gross Profit (Loss)
Gross profit (loss) as a percentage of sales totaled 0.0% for the
second quarter of 2001 compared to 9.5% for the same period in 2000 and totaled
(0.4%) for the six-month period ended June 30, 2001 compared to 9.6% for the
same period in 2000 primarily due to the manufacturing segment, as discussed
below:
- the decrease in sales volume previously discussed;
- additional costs related to the start-up of the Company's
painting and coating system at its Huntsville, Tennessee plant;
- charges of $9.1 million in the first quarter and $5.9 million in
the second quarter of 2001 related to new and used stock trailers
in order to reflect the Company's estimate of net realizable
value or cost.
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 June 30, 2001, the Company had
$94.8 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 inventory
at its lower of cost or market. These adjustments may be material to the
financial position or results of operations of the Company in the period 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.
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Income (Loss) From Operations
Income (loss) from operations as a percentage of sales for the second
quarter of 2001 was (10.4%) compared to 5.6% for the same period in 2000 and was
(8.8%) for the six-month period ended June 30, 2001 compared to 5.8% for the
same period in 2000. Income (loss) from operations in 2001 was impacted
primarily by a decrease in gross profit previously discussed and increased
selling, general and administrative costs. The increase in selling, general and
administrative expenses was primarily a result of a $4.0 million charge to
earnings during the second quarter of 2001 related to a collection dispute with
one of the Company's customers, along with increased expenses associated with
the Company's effort to increase sales activity in its aftermarket parts,
service and trailer rental, leasing and finance businesses and the acquisition
of the Canadian retail branch operations in January. Subsequent to the end of
the second quarter, the Company settled the aforementioned collection dispute
and, as a result of this settlement, determined the $4.0 million reserve
recorded during the period to be adequate.
In response to the continued weakness in the truck trailer
manufacturing industry and the Company's recent results, management is currently
evaluating strategies to improve its operating results and financial position.
In July 2001, the Company issued Worker Adjustment and Retraining Notification
Act (WARN) notices to the employees of its Fort Madison, Iowa and Huntsville,
Tennessee manufacturing plants informing them of the potential closure or
temporary shutdown of these two plants. Combined, these two plants accounted for
less than 20% of the Company's production for the six months ended June 30,
2001. In addition, the Company is evaluating its investment in used trailer
inventory given current market conditions and is pursuing strategies to reduce
this investment and associated carrying costs. The Company's Board of Directors
must approve any decisions relative to the above strategies before any action
can be taken. To the extent these strategies are approved and implemented, the
impact of these actions could have a material impact on the Company's financial
position and operating results in the period incurred.
Other Income (Expense)
Interest expense for the three month period ended June 30, 2001 totaled
$5.4 million compared to $5.6 million in the same period in 2000 and was $11.2
million for the six month period ended June 30, 2001 compared to $9.8 million
during the same period in 2000. This increase during the first six months of
2001 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 June 30, 2001 totaled $1.8 million compared to $0.8 million in the same
period in 2000 and was $4.3 million for the six month period ended June 30, 2001
as compared to $1.6 million during 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.
Other, net primarily includes miscellaneous interest income and gain
(loss) on foreign currency transactions. The foreign currency transactions
primarily reflect realized and unrealized adjustments of certain receivables and
payables from the Company's recently acquired Canadian subsidiary. Also included
in Other, net for the six month period ended June 30, 2001 is a $0.5
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million charge related to the settlement of the Company's shareholder litigation
suit that occurred during the first quarter of 2001.
Taxes
The provision (benefit) for income taxes for the three month period
ended June 30, 2001 and 2000 of ($10.8) million and $4.8 million respectively,
represents 37.3% 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
As presented in the Condensed Consolidated Statements of Cash Flows,
the Company's cash position increased $19.1 million during the six month period
ended June 30, 2001 from $4.2 million in cash and cash equivalents at December
31, 2000 to $23.3 million at June 30, 2001. This increase was due to cash
provided by financing activities of $53.3 million partially offset by cash used
in operating and investing activities of $34.2 million.
Operating Activities
Net cash used in operating activities of $10.7 million during the first
six months of 2001 consisted of the net loss during the period partially offset
by the add-back of certain non-cash charges and a decrease in working capital.
Non-cash charges primarily consisted of depreciation and amortization and the
provision for bad debt which included the aforementioned $4.0 million charge
related to a collection dispute. Working capital decreased during the period due
to the Company's continued focus on reducing its days sales outstanding in
receivables and minimizing raw material inventory levels required in
manufacturing. Also included in the decrease in inventory is the aforementioned
$15.0 million charge during the period related to the Company's inventory
valuation writedown, primarily attributed to used trailers. In addition,
contributing to the change in accounts receivable is a decrease in the amount
outstanding under the Company's accounts receivable securitization facility. As
of June 30, 2001, $35.5 million was outstanding under this facility, compared to
$69.4 million outstanding as of December 31, 2000.
Investing Activities
Net cash used in investing activities of $23.5 million during the first
six months of 2001 was primarily due to the following:
- Additional investment in the Company's trailer rental and
operating lease portfolio of approximately $35.1 million,
partially offset by proceeds of $17.5 million received during the
second quarter under the rental fleet sale and leaseback
facility;
- net decrease in the Company's finance contract portfolio of
approximately $5.5 million;
- the Breadner Acquisition of $6.3 million; and
- capital expenditures of $4.3 million.
The Company anticipates capital expenditures to be less than $10
million over the next twelve months.
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Financing Activities
Net cash provided by financing activities was $53.3 million during the
first six months of 2001 was primarily due to a net increase in total long-term
debt of $56.1 million partially offset by the payment of common stock dividends
and preferred stock dividends of $2.8 million in the aggregate. The increase in
total debt primarily reflects debt incurred with the Breadner Acquisition and
additional borrowings under the Company's unsecured revolving bank line of
credit.
At June 30, 2001, the Company had available borrowing capacity under
its revolving credit facilities of approximately $20 million as compared to $90
million at December 31, 2000. This decrease is primarily due to the impact of
decreasing availability under the Company's accounts receivable securitization
facility, as mentioned previously. In addition, the Company's liquidity was
further impacted by the maturity of the Company's 364-day facility and operating
losses incurred by the business during the period. During the third quarter, the
Company expects to replace its accounts receivable securitization facility as
well as fund additional equipment under its existing rental fleet sale and
leaseback facility. The Company believes that these facilities, combined with
other financing transactions and improved cash flow from operations, will be
adequate to meet its anticipated requirements related to capital expenditures,
dividend and interest payments and working capital requirements.
BACKLOG
The Company's backlog of orders was approximately $450 million and $640
million at June 30, 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. The adoption
of SFAS 133 did not have an effect on the Company's annual results of operations
or its financial position.
In June 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This Statement requires companies to cease the amortization of goodwill
and establishes a new method of testing goodwill for impairment. This standard
is effective for the Company's financial statements beginning January 1, 2002.
The Company's goodwill amortization for the three and six months ended June 30,
2001 was $0.4 million and $0.8 million, respectively, in advance of implementing
the provisions within this statement. The Company is currently evaluating this
Statement's requirement for testing goodwill impairment and the related impact,
if any, to the Company's results of operations and 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 June 30, 2001, the Company had approximately $85.6 million of
London Interbank Rate (LIBOR) based debt outstanding under its Revolving Credit
Facility, $48.6 million of proceeds from its rental fleet sale and leaseback
agreement which calls for LIBOR based interest payments and $35.5 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 $1.7
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 June 30, 2001, the Company had no foreign currency forward
contracts outstanding.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Footnote 8 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
The Company held its annual meeting of security-holders on May 15,
2001, at which time the following nominees were elected to the Board of
Directors:
WITHHOLD AUTHORITY
NOMINEES FOR TO VOTE
-------- --- -------
Richard E. Dessimoz 18,797,089 3,950,115
Donald J. Ehrlich 18,954,619 3,792,585
John T. Hackett 21,375,800 1,371,404
E. Hunter Harrison 22,328,950 418,254
Mark R. Holden 18,792,407 3,954,797
Ludvik F. Koci 21,480,627 1,266,577
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.01 Consulting and Non-Competition Agreement dated July 16, 2001
between Donald J. Ehrlich and Wabash National Corporation.
15.01 Report of Independent Public Accountants
(b) Reports on Form 8-K:
None.
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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: August 9, 2001 By: /s/ Rick B. Davis
-------------- -----------------
Rick B. Davis
Corporate Controller
(Principal Accounting Officer)
And
Duly Authorized Officer
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