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 SEPTEMBER 30, 2001
OR
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
[ ] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________
COMMISSION FILE NUMBER: 1-10883
WABASH NATIONAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1375208
-------- ----------
(State of Incorporation) (IRS Employer
Identification Number)
1000 Sagamore Parkway South,
Lafayette, Indiana 47905
------------------ -----
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (765) 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 November 14, 2001 was
23,010,293.
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 2001 and December 31, 2000 1
Condensed Consolidated Statements of Operations
for the three and nine months ended
September 30, 2001 and 2000 2
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 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 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
2001 2000
------------ -----------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,360 $ 4,194
Accounts receivable, net 77,802 49,320
Current portion of finance contracts 10,015 11,544
Inventories 238,974 330,326
Refundable income taxes 25,765 5,552
Prepaid expenses and other 32,132 18,478
--------- ---------
Total current assets 402,048 419,414
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net 169,119 216,901
--------- ---------
EQUIPMENT LEASED TO OTHERS, net 71,162 52,001
--------- ---------
FINANCE CONTRACTS, net of current portion 40,456 44,906
--------- ---------
INTANGIBLE ASSETS, net 42,824 31,123
--------- ---------
OTHER ASSETS 31,502 17,269
--------- ---------
$ 757,111 $ 781,614
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 135,982 $ 12,134
Accounts payable 75,454 94,118
Accrued liabilities 46,493 42,440
--------- ---------
Total current liabilities 257,929 148,692
--------- ---------
LONG-TERM DEBT, net of current maturities 188,389 226,126
--------- ---------
DEFERRED INCOME TAXES 16,940 23,644
--------- ---------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 27,675 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
outstanding , respectively 231 230
Additional paid-in capital 236,729 236,660
Retained earnings 30,922 131,617
Accumulated other comprehensive loss (430) ---
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
--------- ---------
Total stockholders' equity 266,178 367,233
--------- ---------
$ 757,111 $ 781,614
========= =========
See Notes to Condensed Consolidated Financial Statements.
1
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
NET SALES $ 241,945 $ 345,818 $ 696,746 $ 1,057,395
COST OF SALES 274,678 316,306 731,249 959,416
----------- ----------- ----------- -----------
Gross profit (loss) (32,733) 29,512 (34,503) 97,979
GENERAL AND ADMINISTRATIVE EXPENSES 12,555 8,743 38,085 25,488
SELLING EXPENSES 6,669 5,325 19,387 15,642
RESTRUCTURING CHARGE 36,822 -- 36,822 --
----------- ----------- ----------- -----------
Income (Loss) from operations (88,779) 15,444 (128,797) 56,849
OTHER INCOME (EXPENSE):
Interest expense (5,311) (4,563) (16,471) (14,335)
Accounts receivable securitization costs (414) (1,862) (1,840) (5,259)
Equity in losses of unconsolidated affiliate (1,800) (750) (6,133) (2,350)
Other, net (933) (86) (1,066) 568
----------- ----------- ----------- -----------
Income (Loss) before income taxes (97,237) 8,183 (154,307) 35,473
PROVISION (BENEFIT) FOR INCOME TAXES (35,864) 3,191 (57,087) 13,834
----------- ----------- ----------- -----------
Net income (loss) $ (61,373) $ 4,992 $ (97,220) $ 21,639
PREFERRED STOCK DIVIDENDS 451 476 1,403 1,427
----------- ----------- ----------- -----------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS $ (61,824) $ 4,516 $ (98,623) $ 20,212
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Basic and Diluted $ (2.69) $ 0.20 $ (4.29) $ 0.88
=========== =========== =========== ===========
Cash dividends per share $ 0.01 $ 0.04 $ 0.09 $ 0.12
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
2
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months
Ended September 30,
-------------------------
2001 2000
--------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (97,220) $ 21,639
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 25,096 21,007
Net loss on the sale of assets 287 1,497
Bad debt provision 11,614 2,502
Deferred income taxes (11,099) 8,197
Equity in losses of unconsolidated affiliate 6,133 2,350
Restructuring and other related charges 40,536 ---
Cash used for restructuring activities (5,403) ---
Used trailer valuation adjustment 42,468 3,000
Change in operating assets and liabilities:
Accounts receivable (29,245) (12,895)
Inventories 59,779 (87,434)
Refundable income taxes (20,213) ---
Prepaid expenses and other (1,929) 937
Accounts payable and accrued liabilities (27,052) (22,371)
Other assets (17,783) (1,031)
Other non-current liabilities and contingencies (6,372) 4,823
--------- ---------
Net cash used in operating activities (30,403) (57,779)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,219) (52,844)
Net additions to equipment leased to others (49,440) (51,330)
Net additions to finance contracts (13,955) (18,549)
Acquisition, net of cash acquired (6,336) ---
Investment in unconsolidated subsidiary (4,380) (2,363)
Proceeds from sale of leased equipment and finance contacts 52,359 29,783
Principal payments received on finance contracts 7,280 10,070
Proceeds from the sale of property, plant and equipment 140 626
--------- ---------
Net cash used in investing activities (19,551) (84,607)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Short-term borrowings --- 50,000
Long-term debt --- 62,500
Short-term revolver 348,585 359,400
Common stock 70 116
Payments:
Short-term debt --- (50,000)
Long-term debt (12,744) (2,943)
Short-term revolver (268,602) (291,003)
Common stock dividends (2,761) (2,759)
Preferred stock dividends (1,428) (1,427)
--------- ---------
Net cash provided by financing activities 63,120 123,884
--------- ---------
NET INCREASE (DECREASE) IN CASH 13,166 (18,502)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,194 22,484
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,360 $ 3,982
========= =========
See Notes to Condensed Consolidated Financial Statements.
3
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 September 30, 2001 and December 31, 2000 and its
results of operations for the three and nine months ended September 30, 2001 and
2000 and cash flows for the nine months ended September 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 ($61.4) million and ($61.7) million,
respectively for the three months ended September 30, 2001 and $5.0 million and
$5.0 million, respectively for the same period in the prior year. The Company's
net income (loss) and total comprehensive income (loss) were ($97.2) million and
($97.7) million, respectively for the nine months ended September 30, 2001 and
$21.6 million and $21.6 million, respectively for the same period in the prior
year.
4
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 nine months ended
September 30, 2001 was $0.5 million and $1.3 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.
In August 2001, FASB issued SFAS No. 144, Impairment or Disposal of
Long-Lived Assets, which addresses accounting and financial reporting for the
impairment or disposal of long-lived assets. This standard is effective for the
Company's financial statements beginning January 1, 2002. The Company is
currently evaluating the impact, if any, the implementation of this Statement
will have on the Company's results of operations and financial position.
d. Inventories
Inventories consisted of the following (in thousands):
September 30, December 31,
2001 2000
------------- -----------
(Unaudited)
Raw material and components $ 40,427 $ 84,167
Work in process 13,067 18,765
Finished goods 84,229 93,332
Aftermarket parts 25,962 33,566
Used trailers 75,289 100,496
--------- ---------
$ 238,974 $ 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
Nine Months
Ended September 30,
---------------------------
(In thousands) 2001 2000
- --------------------------------------------------------------------------------
Cash paid during the period for: (Unaudited)
Interest $16,302 $12,679
Income taxes (net of refunds received) 574 17,633
- --------------------------------------------------------------------------------
5
NOTE 4. RESTRUCTURING AND OTHER CHARGES
2001 RESTRUCTURING PLAN
During the third quarter of 2001, the Company recorded restructuring and
other related charges totaling $40.5 million ($25.6 million, net of tax)
primarily related to the rationalization of the Company's manufacturing capacity
resulting in the closure of the Company's platform manufacturing facility in
Huntsville, Tennessee, and its dry van facility in Fort Madison, Iowa. In
addition, the Company closed a parts distribution facility in Montebello,
California. Included in the $40.5 million restructuring charge is the write-down
of certain impaired fixed assets to their fair market value ($33.8 million),
accrued severance benefits for approximately 600 employees impacted ($0.9
million), plant closure and other costs ($2.1 million). In addition, a $3.7
million charge is included in cost of sales related to inventory write-downs at
the closed facilities.
The Company's impairment charge reflects the write-down of certain
long-lived assets that became impaired as a result of management's decision to
close its operations at the two manufacturing plants discussed above. The
impairment was computed in accordance with the provisions of SFAS 121. The
estimated fair market value of the impaired assets totaled $6.8 million and was
determined by management based upon economic conditions, potential alternative
uses and potential markets for the assets. Approximately $2.9 million of the
long-lived assets are held for sale and, accordingly, are classified in prepaid
expenses and other in the accompanying Condensed Consolidated Balance Sheets.
Depreciation has been discontinued on the assets held for sale pending their
disposal. Details of the restructuring charges and reserve for the 2001
Restructuring Plan are as follows (in thousands):
UTILIZED
Original ------------------------- Balance
Provision Cash Non-cash 09/30/01
--------- --------- ---------- ---------
Restructuring Costs:
Impairment of long-term assets $ 33,842 $ --- $(33,842) $ ---
Plant closure costs 1,763 (156) --- 1,607
Severance benefits 912 (386) --- 526
Other 305 --- --- 305
-------- -------- -------- --------
$ 36,822 $ (542) $(33,842) $ 2,438
-------- -------- -------- --------
Inventory write-down $ 3,714 $ --- $ (3,714) $ ---
-------- -------- -------- --------
Total restructuring and other related charges $ 40,536 $ (542) $(37,556) $ 2,438
======== ======== ======== ========
USED TRAILER INVENTORY VALUATION
During the third quarter 2001, the Company initiated an aggressive strategy
to market its used trailer inventory in order to liquidate a significant portion
of this inventory. As a result of this strategy and continued market
deterioration, the Company recorded used trailer valuation adjustments totaling
$28.5 million and $42.5 million during the three and nine-months ended September
30, 2001. These adjustments were calculated in accordance with the Company's
inventory valuation policies which are designed to state used trailers at the
lower of their cost or net realizable value.
6
2000 RESTRUCTURING PLAN
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. Details of the restructuring
charges and reserve for the 2000 Restructuring Plan are as follows (in
thousands):
UTILIZED
Original ----------------------- Balance
Provision 2000 2001 09/30/01
--------- -------- -------- --------
Restructuring of majority-owned operations:
Impairment of long-term assets $ 20,819 $(20,819) $ --- $ ---
Loss related to equipment guarantees 8,592 --- (3,469) 5,123
Write-down of other assets and other charges 6,927 (4,187) (1,147) 1,593
-------- -------- -------- --------
$ 36,338 $(25,006) $ (4,616) $ 6,716
-------- -------- -------- --------
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) $ (4,616) $ 7,299
======== ======== ======== ========
As of September 30, 2001, the Company has $2.4 million and $7.3 million in
restructuring reserves related to the 2001 and 2000 restructuring plans,
respectively. These reserves are included in accrued liabilities in the
accompanying Condensed Balance Sheets. The Company anticipates completion of its
restructuring activities related to its 2000 restructuring plan during the
fourth quarter 2001 and completion of its 2001 restructuring plan during 2002.
NOTE 5. 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 scheduled principal payments are 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.
7
NOTE 6. 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, sells aftermarket parts, performs service repair on used trailers and
provides rental, leasing and financing services through its retail branch
network. In December 2000, the Company combined its rental, leasing and finance
services 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
SEPTEMBER 30, 2001 Manufacturing Distribution Segments Eliminations Totals
- ------------------ ------------- ------------ -------- ------------ ------
(unaudited)
Revenues
External customers $ 154,935 $ 87,010 $ 241,945 $ --- $ 241,945
Intersegment sales 8,307 340 8,647 (8,647) ---
----------- ----------- ----------- ----------- -----------
Total Revenues $ 163,242 $ 87,350 $ 250,592 $ (8,647) $ 241,945
=========== =========== =========== =========== ===========
Income (loss) from
Operations $ (82,408) $ (7,292) $ (89,700) $ 921 $ (88,779)
Total Assets $ 821,123 $ 414,217 $ 1,235,340 $ (478,229) $ 757,111
THREE MONTHS ENDED
SEPTEMBER 30, 2000
- ------------------
(Unaudited)
Revenues
External customers $ 263,628 $ 82,190 $ 345,818 $ --- $ 345,818
Intersegment sales 18,529 283 18,812 (18,812) ---
----------- ----------- ----------- ----------- -----------
Total Revenues $ 282,157 $ 82,473 $ 364,630 $ (18,812) $ 345,818
=========== =========== =========== =========== ===========
Income (loss) from
Operations $ 14,423 $ 1,283 $ 15,706 $ (262) $ 15,444
Total Assets $ 950,434 $ 425,684 $ 1,376,118 $ (451,428) $ 924,690
NINE MONTHS ENDED
SEPTEMBER 30, 2001
- ------------------
(Unaudited)
Revenues
External customers $ 440,349 $ 256,397 $ 696,746 $ --- $ 696,746
Intersegment sales 44,215 947 45,162 (45,162) ---
----------- ----------- ----------- ----------- -----------
Total Revenues $ 484,564 $ 257,344 $ 741,908 $ (45,162) $ 696,746
=========== =========== =========== =========== ===========
Income (loss) from
Operations $ (118,047) $ (11,503) $ (129,550) $ 753 $ (128,797)
Total Assets $ 821,123 $ 414,217 $ 1,235,340 $ (478,229) $ 757,111
NINE MONTHS ENDED
SEPTEMBER 30, 2000
- ------------------
(Unaudited)
Revenues
External customers $ 806,344 $ 251,051 $ 1,057,395 $ --- $ 1,057,395
Intersegment sales 70,136 879 71,015 (71,015) ---
----------- ----------- ----------- ----------- -----------
Total Revenues $ 876,480 $ 251,930 $ 1,128,410 $ (71,015) $ 1,057,395
=========== =========== =========== =========== ===========
Income (loss) from
Operations $ 53,990 $ 4,442 $ 58,432 $ (1,583) $ 56,849
Total Assets $ 950,434 $ 425,684 $ 1,376,118 $ (451,428) $ 924,690
8
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 nine months
ended September 30, 2001 and September 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 Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
(Unaudited)
Net Income (Loss) $(61,373) $ 4,992 $(97,220) $ 21,639
Less: Preferred Stock Dividends 451 476 1,403 1,427
-------- -------- -------- --------
Basic and Diluted Net Income (Loss)
Available to Common $(61,824) $ 4,516 $(98,623) $ 20,212
======== ======== ======== ========
Weighted Average Shares 23,008 22,995 23,005 22,989
======== ======== ======== ========
Basic and Diluted EPS $ (2.69) $ 0.20 $ (4.29) $ 0.88
======== ======== ======== ========
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
9
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. On September 27, 2001, the Court entered
an order preliminarily approving the settlement, certifying a class action for
settlement.
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
September 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
10
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 has continued the restoration program
with the same customer since 1997. The customer has indemnified the Company for
any potential excise tax, interest and penalties 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 $8.3 million and $7.9 million in the accompanying condensed
Consolidated Balance Sheets at September 30, 2001 and December 31, 2000,
respectively.
11
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
During the third quarter of 2001, the Company recorded restructuring and
other related charges totaling $40.5 million ($25.6 million, net of tax)
primarily related to the rationalization of the Company's manufacturing capacity
resulting in the closure of the Company's platform manufacturing facility in
Huntsville, Tennessee, and its dry van facility in Fort Madison, Iowa. In
addition, the Company closed a parts distribution facility in Montebello,
California. Included in the $40.5 million restructuring charge, is the
write-down of certain impaired fixed assets to their fair market value ($33.8
million), accrued severance benefits for approximately 600 employees impacted
($0.9 million), plant closure and other costs ($2.1 million). In addition, a
$3.7 million charge is included in cost of sales related to inventory
write-downs at the closed facilities.
The Company's impairment charge reflects the write-down of certain
long-lived assets that became impaired as a result of management's decision to
close its operations at the two manufacturing plants discussed above. The
impairment was computed in accordance with the provisions of SFAS 121. The
estimated fair market value of the impaired assets totaled $6.8 million.
Management determined the fair market value based upon economic conditions,
potential alternative uses and potential markets for the assets. Approximately
$2.9 million of the long-lived assets are held for sale and, accordingly, are
classified in prepaid expenses and other in the accompanying Condensed
Consolidated Balance Sheets. Depreciation has been discontinued on the assets
held for sale pending their disposal.
During the third quarter 2001, the Company initiated an aggressive strategy
to market its used trailer inventory in order to liquidate a significant portion
of this inventory. As a result of this strategy and continued market
deterioration, the Company recorded used trailer valuation adjustments totaling
$28.5 million and $42.5 million during the three and nine-months ended September
30, 2001, respectively. These adjustments were calculated in accordance with the
Company's inventory valuation policies which are designed to state used trailers
at the lower of their cost or net realizable value.
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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, sells aftermarket parts, performs service repair on used trailers and
provides rental, leasing and financing services through its retail branch
network. In December 2000, the Company combined its rental, leasing and finance
services 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 third quarter of 2001 decreased
approximately $103.9 million or 30.0% compared to the same period in 2000 and
decreased $360.6 million or 34.1% for the nine-month period ended September 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 slightly higher than prior year
sales.
The manufacturing segment's external net sales decreased 41.2% or $108.7
million in the third quarter of 2001 compared to the same period in 2000 and
were $366.0 million or 45.4% lower for the nine-month period ended September 30,
2001 compared to the same period in 2000. These decreases were driven primarily
by a 42.0% decrease (9,100 units vs. 15,700 units) and a 44.9% decrease (26,100
units vs. 47,400 units) in the number of new trailers sold during the three and
nine-month periods ended September 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 sales mix at over 68% during the quarter
and 73% during the nine-months ended September 30, 2001.
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 publication released in October 2001 by Americas
Commercial Transportation Research Co., LLC (ACT), the U.S. Trailer Industry's
total backlog at September 30, 2001 was down by nearly 40% from the same period
in the previous year.
The retail and distribution segment's external net sales increased 5.9% or
$4.8 million in the third quarter of 2001 compared to the same period in 2000
and were $5.3 million or 2.1% higher for the nine-month period ended September
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 nine-months ended September 20, 2000. The total number of store
locations as of September 30, 2001 was 49 as compared to 39 for the same period
in the prior year. The increase in the net sales associated with these new
locations was offset by a 17.8% and 20.5% decline in same store external net
sales for the three and nine-month periods ended September 30, 2001 as compared
to the same periods in the previous year.
13
Gross Profit (Loss)
Gross profit (loss) as a percentage of sales was (13.5%) for the third
quarter of 2001 compared to 8.5% for the same period in 2000 and was (5.0%) for
the nine-month period ended September 30, 2001 compared to 9.3% for the same
period in 2000 primarily due to the following items:
- the decrease in the manufacturing's segments new trailer sales volumes
previously discussed;
- additional costs related to the start-up of the Company's painting and
coating system at its Huntsville, Tennessee plant;
- charges of $6.4 million and $7.7 million recorded for the three and
nine-months ended September 30, 2001, respectively, related to
inventory write-downs associated with the Company's 2001 restructuring
plan as well as inventory valuation adjustments related to new trailer
stock units and aftermarket parts;
- losses of approximately $5.1 million incurred during the quarter
related to the Company's strategy to substantially reduce used trailer
inventory levels; and
- charges of $28.5 million and $42.5 million recorded for the three and
nine-months ended September 30, 2001, respectively, related to used
stock trailers valued at the lower of cost or net realizable value
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 September 30, 2001, the Company
had $75.3 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 that 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.
Income (Loss) From Operations
Income (loss) from operations as a percentage of sales for the third
quarter of 2001 was (36.7%) compared to 4.5% for the same period in 2000 and was
(18.5%) for the nine-month period ended September 30, 2001 compared to 5.4% for
the same period in 2000. Income (loss) from operations in 2001 was impacted
primarily by the decrease in gross profit previously discussed, a $36.8 million
charge related to the Company's restructuring activities and increased selling,
general and administrative expenses. The increase in selling, general and
administrative expenses was primarily the result of higher bad debt expenses,
increased expenses associated with the Company's effort to increase sales
activity in its retail and distribution segment and the acquisition of the
Canadian retail branch operations in January 2001.
Other Income (Expense)
Interest expense for the three-month period ended September 30, 2001
totaled $5.3 million compared to $4.6 million in the same period in 2000 and was
$16.5 million for the nine-month period ended September 30, 2001 compared to
$14.3 million during the same period in 2000. This increase during the first
nine months of 2001 primarily reflects higher borrowings on the Company's
revolving credit facility during 2001.
14
Equity in losses of unconsolidated affiliate for the three month period
ended September 30, 2001 totaled $1.8 million compared to $0.8 million in the
same period in 2000 and was $6.1 million for the nine month period ended
September 30, 2001 as compared to $2.4 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 compared to 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
related to the Company's recently acquired Canadian subsidiary. Also included in
Other, net for the nine month period ended September 30, 2001 is a $0.5 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
September 30, 2001 and 2000 of ($35.9) million and $3.2 million respectively,
represents 36.9% 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
The Company's net liquidity position was approximately $18.8 million on
September 30, 2001, comprised of cash and cash equivalents of $17.4 million and
available borrowing capacity under its revolving credit facilities of $1.4
million. At September 30, 2001, the Company's Current maturities of long-term
debt totaled $136.0 million of which $97.4 million was outstanding under its
revolving credit facility which expires in September 2002. The Company believes
it has access to sufficient resources to fund on-going operations, satisfy its
scheduled principal and interest payments, dividend payments, used trailer trade
commitments and anticipated capital expenditure payments, over the next twelve
months, through a combination of the following:
Future Sources of Cash Including:
- income tax refunds;
- proceeds from the sale of assets held for sale related to the
Company's 2001 and 2000 restructuring actions;
- securing a new long-term revolving credit facility; and
- additional new credit facilities.
Future Reductions to Cash Out-Flows Including:
- reduced operating costs as a result of recent restructuring actions;
- reduced working capital requirements primarily driven by the
liquidation of used trailer inventory levels; and
- anticipated sale of ETZ during the fourth quarter of 2001, which would
cease future funding requirements.
15
As presented in the Condensed Consolidated Statements of Cash Flows, the
Company's cash position increased by $13.2 million during the nine-month period
ended September 30, 2001 as a result of cash provided by financing activities of
$63.1 million partially offset by cash used in operating and investing
activities of $49.9 million.
Operating Activities
Net cash used in operating activities of $30.4 million during the first
nine months of 2001 consisted of the net loss during the period and changes in
operating assets and liabilities partially offset by the add-back of certain
non-cash charges. Non-cash charges primarily consisted of depreciation and
amortization, bad debt provision, restructuring and other related charges and
the used trailer valuation adjustment. The net increase in operating assets and
liabilities was primarily impacted by an increase in the Company's refundable
income taxes, an increase in other assets primarily attributable to net
operating loss carryforwards and a decrease in the amount outstanding under the
Company's accounts receivable securitization facility. As of September 30, 2001,
$30.8 million was outstanding under this facility, compared to $69.4 million
outstanding as of December 31, 2000. Another use of cash was a decline in
accounts payable and accrued liabilities, which was more than offset by a
corresponding decrease in all categories of inventory.
Investing Activities
Net cash used in investing activities of $19.6 million during the first
nine months of 2001 was primarily due to the following:
- additional investment in the Company's trailer rental and operating
lease portfolio, of approximately $49.4 million, nearly offset by
$42.1 million in sales from this portfolio of which $39.9 million
represents sales under the Company's rental fleet sale and leaseback
facility;
- net decrease in the Company's finance contract portfolio of
approximately $3.5 million;
- the Breadner Acquisition and additional funding requirements for ETZ
totaling $10.7 million; and
- capital expenditures of $5.2 million.
The Company anticipates capital expenditures to be less than $10 million
over the next twelve months.
Financing Activities
Net cash provided by financing activities was $63.1 million during the
first nine months of 2001 was primarily due to a net increase in total debt of
$67.3 million partially offset by the payment of common stock dividends and
preferred stock dividends of $4.2 million in the aggregate. The increase in debt
primarily reflects debt incurred with the Breadner Acquisition and additional
borrowings under the Company's unsecured revolving bank line of credit.
At September 30, 2001, the Company had available borrowing capacity under
its revolving credit facilities of approximately $1.4 million as compared to
$90.2 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 October
2001, the Company replaced its $100 million accounts receivable facility with a
new, two-year, $100 million credit facility. The
16
advance rate and; accordingly, the level of securitization, is substantially
similar under the new facility to the replaced facility.
BACKLOG
The Company's backlog of orders was approximately $182 million and $640
million at September 30, 2001 and December 31, 2000, respectively. In response
to deteriorating market conditions, the Company reevaluated its method for
determining backlog during the quarter. The backlog amount reported for December
31, 2000 has not been restated to reflect these new criteria.
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 nine-months ended
September 30, 2001 was $0.5 million and $1.3 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.
In August 2001, FASB issued SFAS No. 144, Impairment or Disposal of
Long-Lived Assets, which addresses accounting and financial reporting for the
impairment or disposal of long-lived assets. This standard is effective for the
Company's financial statements beginning January 1, 2002. The Company is
currently evaluating the impact, if any, the implementation of this Statement
will have on 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 September 30, 2001, the Company had approximately $97.4 million of
London Interbank Rate (LIBOR) based debt outstanding under its Revolving Credit
Facility, $71.0 million of proceeds from its rental fleet sale and leaseback
agreement which calls for LIBOR based interest payments and $30.8 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 $2.0
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 September 30, 2001, the Company had no foreign currency forward
contracts outstanding.
18
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
Not Applicable
ITEM 5. OTHER INFORMATION
On October 2, 2001 the Company announced that John T. Hackett, a
member of its Board of Directors since 1991, has been elected
Chairman of the Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
--------
10.01 Originators Receivables Sale Agreement dated October 4, 2001
between Wabash National LP and NOAMTC, Inc. as originators and
Wabash Financing LLC, Receivable Sales Agreement dated October
4, 2001 between Wabash Financing LLC and WNC Funding LLC and the
Receivables Purchase Agreement dated October 4, 2001 between WNC
Funding LLC and North Coast Funding Corporation
10.02 2001 Stock Appreciation Rights Plan
15.01 Report of Independent Public Accountants
(b) Reports on Form 8-K:
1. Form 8-K filed August 17, 2001 reporting under Item 5: Press
release dated August 16, 2001 announcing certain restructuring
and cost reduction plans.
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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: November 14, 2001 By: /s/ Mark R. Holden
----------------- ------------------
Mark R. Holden
Senior Vice President,
Chief Financial Officer
And
Duly Authorized Officer
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