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, 2002
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 November 5, 2002 was
25,644,238.
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
<Table>
<Caption>
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 2002 and December 31, 2001 1
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 2002 and 2001 2
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2002 and 2001 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Controls and Procedures 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
</Table>
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<Table>
<Caption>
Three Months Nine Months
ASSETS Ended September 30, Ended September 30,
------------------ ------------------
CURRENT ASSETS:
Cash and cash equivalents $ 13,374 $ 11,135
Accounts receivable, net 105,390 58,358
Current portion of finance contracts 9,881 10,646
Inventories 137,193 191,094
Refundable income taxes 1,247 25,673
Prepaid expenses and other 20,737 17,231
------------------ ------------------
Total current assets 287,822 314,137
------------------ ------------------
PROPERTY, PLANT AND EQUIPMENT, net 149,542 170,330
EQUIPMENT LEASED TO OTHERS, net 96,866 109,265
FINANCE CONTRACTS, net of current portion 27,778 40,187
INTANGIBLE ASSETS, net 41,226 43,777
OTHER ASSETS 23,934 14,808
------------------ ------------------
$ 627,168 $ 692,504
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 53,409 $ 60,682
Current maturities of capital lease obligations 21,102 21,559
Accounts payable 81,984 51,351
Accrued liabilities 71,684 69,246
------------------ ------------------
Total current liabilities 228,179 202,838
------------------ ------------------
LONG-TERM DEBT, net of current maturities 244,245 274,021
LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current maturities 44,604 55,755
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 24,432 28,905
STOCKHOLDERS' EQUITY:
Preferred stock, 352,000 and 482,041 shares issued and outstanding
with an aggregate liquidation value of $17,600 and $30,600 3 5
Common stock, $0.01 par value, 25,638,078 and 23,013,847 shares
issued and outstanding, respectively 257 230
Additional paid-in capital 237,351 236,804
Retained deficit (150,349) (104,469)
Accumulated other comprehensive loss (275) (306)
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
------------------ ------------------
Total stockholders' equity 85,708 130,985
------------------ ------------------
$ 627,168 $ 692,504
================== ==================
</Table>
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)
<Table>
<Caption>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
(Unaudited) (Unaudited)
NET SALES $ 241,474 $ 241,945 $ 613,677 $ 696,746
COST OF SALES 219,743 274,678 585,680 731,249
--------- --------- --------- ---------
Gross profit (loss) 21,731 (32,733) 27,997 (34,503)
GENERAL AND ADMINISTRATIVE EXPENSES 12,137 12,555 41,035 38,085
SELLING EXPENSES 5,774 6,669 17,553 19,387
RESTRUCTURING CHARGE 1,717 36,822 1,717 36,822
--------- --------- --------- ---------
Income (loss) from operations 2,103 (88,779) (32,308) (128,797)
OTHER INCOME (EXPENSE):
Interest expense (8,523) (5,311) (22,012) (16,471)
Trade receivables facility costs (237) (414) (3,870) (1,840)
Foreign exchange gains and losses, net (1,825) (1,248) 133 (1,938)
Equity in losses of unconsolidated affiliate -- (1,800) -- (6,133)
Other, net 163 315 1,525 872
--------- --------- --------- ---------
Loss before income taxes (8,319) (97,237) (56,532) (154,307)
BENEFIT FROM INCOME TAXES -- (35,864) (11,947) (57,087)
--------- --------- --------- ---------
Net loss (8,319) (61,373) (44,585) (97,220)
PREFERRED STOCK DIVIDENDS 409 451 1,295 1,403
--------- --------- --------- ---------
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS $ (8,728) $ (61,824) $ (45,880) $ (98,623)
========= ========= ========= =========
LOSS PER SHARE:
Basic $ (0.37) $ (2.69) $ (1.98) $ (4.29)
Diluted $ (0.37) $ (2.69) $ (1.98) $ (4.29)
========= ========= ========= =========
Cash dividends per share $ -- $ 0.01 $ -- $ 0.09
========= ========= ========= =========
COMPREHENSIVE LOSS:
Net loss $ (8,319) $ (61,373) $ (44,585) $ (97,220)
Foreign currency translation adjustment (135) (290) 31 (430)
--------- --------- --------- ---------
COMPREHENSIVE LOSS $ (8,454) $ (61,663) $ (44,554) $ (97,650)
========= ========= ========= =========
</Table>
See Notes to Condensed Consolidated Financial Statements.
2
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<Table>
<Caption>
Nine Months
Ended September 30,
----------------------
2002 2001
--------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (44,585) $ (97,220)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 21,697 25,096
Gain or loss on sale of assets (1,133) 287
Provision for losses on accounts receivable and finance contracts 8,915 11,614
Deferred income taxes -- (11,099)
Equity in losses of unconsolidated affiliate -- 6,133
Restructuring and other related charges 1,717 40,536
Cash used for restructuring activities (973) (5,403)
Trailer valuation charges 7,051 42,468
Loss contingencies 6,000 --
Other non-cash adjustments 3,842 --
Change in operating assets and liabilities:
Accounts receivable (51,517) (29,245)
Inventories 54,065 59,779
Refundable income taxes 24,426 (20,213)
Prepaid expenses and other 858 (1,929)
Accounts payable and accrued liabilities 31,008 (27,052)
Other, net 699 (24,155)
--------- ---------
Net cash provided by (used in) operating activities 62,070 (30,403)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,701) (5,219)
Net additions to equipment leased to others (9,030) (49,440)
Net additions to finance contracts (7,718) (13,955)
Acquisitions, net of cash acquired -- (6,336)
Investment in unconsolidated affiliate -- (4,380)
Proceeds from sale of leased equipment and finance contracts 5,181 52,359
Principal payments received on finance contracts 9,652 7,280
Proceeds from the sale of property, plant and equipment 5,261 140
--------- ---------
Net cash provided by (used in) investing activities 645 (19,551)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of bank term loan 80,402 --
Revolving bank line of credit 43,998 348,585
Sale of common stock 213 70
Payments:
Revolving bank line of credit (130,691) (268,602)
Long-term debt and capital lease obligations (50,150) (12,744)
Common stock dividends -- (2,761)
Preferred stock dividends (443) (1,428)
Debt issuance costs (3,805) --
--------- ---------
Net cash provided by (used in) financing activities (60,476) 63,120
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,239 13,166
--------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,135 4,194
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,374 $ 17,360
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 20,029 $ 16,302
Income taxes paid (refunded), net (24,642) 574
--------- ---------
</Table>
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 2001 Annual Report on Form 10-K/A.
In the opinion of the registrant, the accompanying condensed consolidated
financial statements contain all material adjustments, necessary to present
fairly the consolidated financial position of the Company at September 30, 2002,
and December 31, 2001, and its results of operations for the three and nine
months ended September 30, 2002 and 2001, and cash flows for the nine months
ended September 30, 2002 and 2001.
Certain items previously reported in specific condensed consolidated financial
statement captions have been reclassified to conform to the 2002 presentation.
NOTE 2. INVENTORIES
Inventories consisted of the following (in thousands):
<Table>
<Caption>
September 30, December 31,
2002 2001
------------- -------------
(Unaudited)
Raw material and components $ 42,190 $ 38,235
Work in process 10,759 10,229
Finished goods 36,673 58,984
After-market parts 19,247 22,726
Used trailers 28,324 60,920
------------- -------------
$ 137,193 $ 191,094
============= =============
</Table>
NOTE 3. CONVERSION OF PREFERRED STOCK
At the mandatory conversion date of September 15, 2002, the Company converted
its 130,041 issued and outstanding shares of Series C 5.5% Cumulative
Convertible Exchangeable Preferred Stock (the "Series C Stock") into
approximately 2.6 million shares of the Company's common stock. The Series C
Stock converted into common stock at the rate of approximately 20 shares of
common stock for each full share of Series C Stock based on the then current
conversion price of $5.16. On the conversion date, accrued and unpaid dividends,
along with applicable interest, with respect to shares of Series C Stock were
converted into 69,513 shares of common stock based on the then conversion price
of $5.16. At September 30, 2002, 352,000 shares of the Company's Series B 6%
Cumulative Convertible Exchangeable Preferred Stock remained issued and
outstanding.
4
NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS
a. INTANGIBLE ASSETS
The Company adopted Statement of Accounting Standards (SFAS) No. 142. Goodwill
and Other Intangible Assets, as of January 1, 2002. This new standard changes
the accounting for goodwill from an amortization method to an impairment-only
approach, and introduces a new model for determining impairment charges. SFAS
No. 142 requires completion of the initial step of a transitional impairment
test within six months of the adoption of this standard and, if applicable,
completion of the final step of the adoption by December 31, 2002. Goodwill
amortization expense was $0.0 million and $0.5 million for the three months
ended September 30, 2002, and 2001, respectively, and $0.0 million and $1.3
million for the nine months ended September 30, 2002 and 2001, respectively. The
Company completed the initial transition impairment test as of June 30, 2002.
The results of this test indicate that the Company had no impairment of its
goodwill as of the date of adoption. The Company will perform annual impairment
tests, as required under SFAS No. 142, and review its goodwill for impairment
when circumstances indicate that the fair value has declined significantly.
b. ASSET RETIREMENT OBLIGATIONS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, Accounting for Asset Retirement Obligations with an effective date of June
15, 2002, which becomes effective for the Company on January 1, 2003. This
standard requires obligations associated with retirement of long-lived assets to
be capitalized as part of the carrying value of the related asset. The Company
does not believe the adoption of SFAS No. 143 will have a material effect on its
financial position or results of operations.
c. ASSET IMPAIRMENT OR DISPOSAL
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This standard supercedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. This standard retains the previously existing accounting requirements
related to the recognition and measurement requirements of the impairment of
long-lived assets to be held for use, while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. The provisions of SFAS No. 144 could require the
Company to reclassify assets held for sale if the sale is not completed prior to
December 31, 2002. It also expands on the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. The Company
adopted the accounting provisions of this standard on January 1, 2002. The
effect of adopting the accounting provisions of this standard was not material
to the Company's financial statements. Consistent with the provisions of this
new standard, financial statements for prior years have not been restated.
d. DEBT EXTINGUISHMENT COSTS
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections
(SFAS No. 145). This standard is required to be adopted by the Company on
January 1, 2003, but may be adopted early. SFAS No. 145 modifies the
classification criteria for extraordinary items related to the extinguishment of
debt. Effective April 1, 2002, the Company decided to early adopt the provisions
of SFAS No. 145. Under the new standard, $1.2 million in expenses associated
with the Company's debt
5
restructuring in April 2002, which under prior standards would have been
recorded as an extraordinary item, were recorded in other, net on the
Consolidated Statements of Operations.
e. TERMINATION BENEFITS AND EXIT COSTS
In June 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 nullifies Emerging Issues Task Force
(EITF) Issue No., 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS No. 146 generally requires companies to recognize
costs associated with exit activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan and is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The Company is currently evaluating the effects, if any, that this standard will
have on its results of operations or financial position.
NOTE 5. RESTRUCTURING AND OTHER RELATED CHARGES
a. 2001 RESTRUCTURING PLAN
During the third quarter of 2001, the Company recorded restructuring and other
related charges totaling $40.5 million primarily related to the rationalization
of the Company's manufacturing capacity resulting in the closure of the
Company's platform trailer 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. During the third quarter
of 2002, the Company recorded an additional restructuring charge of $1.5 million
for asset impairment at the Huntsville, Tennessee facility. Details of the
restructuring charges and reserve for the 2001 Restructuring Plan are as follows
(in thousands):
<Table>
<Caption>
Utilized
Original Additional -------------------------- Balance
Provision Provision 2001 2002 9/30/02
----------- ----------- ----------- ----------- -----------
Restructuring costs:
Impairment of long-term assets $ 33,842 $ 1,490 $ (33,842) $ (1,490) $ --
Plant closure costs 1,763 -- (1,463) (283) 17
Severance benefits 912 -- (912) -- --
Other 305 -- (105) (200) --
----------- ----------- ----------- ----------- -----------
36,822 1,490 (36,322) (1,973) 17
=========== =========== =========== =========== ===========
Inventory write-down 3,714 -- (3,714) -- --
----------- ----------- ----------- ----------- -----------
Total restructuring & other related
charges $ 40,536 $ 1,490 $ (40,036) $ (1,973) $ 17
=========== =========== =========== =========== ===========
</Table>
6
B. 2000 RESTRUCTURING PLAN
In December 2000, the Company recorded restructuring and other related charges
totaling $46.6 million 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. During the fourth quarter of 2001, the Company recorded an
additional restructuring charge of $1.4 million related to its divestiture of
ETZ. During the third quarter of 2002, the Company recorded an additional
restructuring charge of $0.2 million related to asset impairments on the
Sheridan, Arkansas facility closed in 2000 as part of the consolidation of
certain domestic operations. Details of the restructuring charges and reserve
for the 2000 Restructuring Plan are as follows (in thousands):
<Table>
<Caption>
Utilized
Original Additional ---------------------------- Balance
Provision Provision 2000-2001 2002 9/30/02
------------ ------------ ------------ ------------ ------------
Restructuring of majority-owned operations:
Impairment of long-term assets $ 20,819 $ 227 $ (20,819) $ (227) $ --
Loss related to equipment guarantees 8,592 -- (3,394) 210 5,408
Write-down of other assets & other charges 6,927 -- (5,568) (332) 1,027
------------ ------------ ------------ ------------ ------------
36,338 227 (29,781) (349) 6,435
------------ ------------ ------------ ------------ ------------
Restructuring of minority interest operations:
Impairment of long-term assets 5,832 -- (5,832) -- --
Financial guarantees -- 1,381 -- (369) 1,012
------------ ------------ ------------ ------------ ------------
5,832 1,381 (5,832) (369) 1,012
============ ============ ============ ============ ============
Inventory write-down and other charges 4,480 -- (4,480) -- --
------------ ------------ ------------ ------------ ------------
Total restructuring and other related
charges $ 46,650 $ 1,608 $ (40,093) $ (718) $ 7,447
============ ============ ============ ============ ============
</Table>
7
NOTE 6. SEGMENTS
Under the provisions of SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company has two reportable segments:
manufacturing and retail and distribution. The manufacturing segment produces
and sells new trailers to the retail and distribution segment or to customers
who purchase trailers direct or through independent dealers. The retail and
distribution segment includes the sale, leasing and financing of new and used
trailers, as well as the sale of after-market parts and service through its
retail branch network. In addition, the retail and distribution segment includes
the sale of after-market parts through Wabash National Parts.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies except that the Company evaluates
segment performance based on income from operations. The Company has not
allocated certain corporate related charges such as administrative costs,
interest expense and income taxes from the manufacturing segment to the
Company's other reportable segment. The Company accounts for intersegment sales
and transfers at cost plus a specified mark-up. Reportable segment information
is as follows (in thousands):
<Table>
<Caption>
THREE MONTHS ENDED Retail and Combined Consolidated
SEPTEMBER 30, 2002 Manufacturing Distribution Segments Eliminations Totals
----------- ------------ ----------- ----------- -----------
(unaudited)
Revenues
External customers $ 159,251 $ 82,223 $ 241,474 $ -- $ 241,474
Intersegment sales 7,142 325 7,467 (7,467) --
----------- ----------- ----------- ----------- -----------
Total Revenues $ 166,393 $ 82,548 $ 248,941 $ (7,467) $ 241,474
=========== =========== =========== =========== ===========
Income (loss) from Operations $ 5,285 $ (3,188) $ 2,097 $ 6 $ 2,103
Total Assets $ 704,285 $ 393,076 $ 1,097,361 $ (470,193) $ 627,168
THREE MONTHS ENDED
SEPTEMBER 30, 2001
(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
NINE MONTHS ENDED
SEPTEMBER 30, 2002
(Unaudited)
Revenues
External customers $ 358,605 $ 255,072 $ 613,677 $ -- $ 613,677
Intersegment sales 21,037 3,093 24,130 (24,130) --
----------- ----------- ----------- ----------- -----------
Total Revenues $ 379,642 $ 258,165 $ 637,807 $ (24,130) $ 613,677
=========== =========== =========== =========== ===========
Income (loss) from Operations $ (12,911) $ (19,974) $ (32,885) $ 577 $ (32,308)
Total Assets $ 704,285 $ 393,076 $ 1,097,361 $ (470,193) $ 627,168
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
</Table>
8
NOTE 7. LOSS PER SHARE
Loss per share is computed in accordance with SFAS No. 128, Earnings per Share.
Neither stock options or convertible preferred stock were included in the
computation of diluted losses per share in the current or prior year as these
inclusions would have resulted in an antidilutive effect. A reconciliation of
the numerators and denominators of the basic and diluted EPS computations, as
required by SFAS No. 128, is presented below (in thousands except per share
amounts):
<Table>
<Caption>
Net Loss Weighted
Available Average Loss
(Unaudited) To Common Shares Per Share
--------- --------- ---------
Three Months Ended September 30, 2002
Basic $ (8,728) 23,440 $(0.37)
Diluted $ (8,728) 23,440 $(0.37)
========= ========= ======
Three Months Ended September 30, 2001
Basic $(61,824) 23,008 $(2.69)
Diluted $(61,824) 23,008 $(2.69)
========= ========= ======
Nine months Ended September 30, 2002
Basic $(45,880) 23,166 $(1.98)
Diluted $(45,880) 23,166 $(1.98)
========= ========= ======
Nine months Ended September 30, 2001
Basic $(98,623) 23,005 $(4.29)
Diluted $(98,623) 23,005 $(4.29)
</Table>
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, liquidity or its annual results of operations.
Brazil Joint Venture
In March 2001, Bernard Krone Industria e Comercio de Maquinas Agricolas Ltda.
("BK") filed suit against the Company in the Fourth Civil Court of Curitiba in
the State of Parana, Brazil. This action seeks recovery of damages plus pain and
suffering. Because of the bankruptcy of BK, this proceeding is now pending
before the Second Civil Court of Bankruptcies and Creditors Reorganization of
Curitiba, State of Parana (No.232/99).
9
This case grows out of a joint venture agreement between BK and the Company,
which was generally intended to permit BK and the Company to market the
RoadRailer(R) trailer in Brazil and other areas of South America. When BK was
placed into the Brazilian equivalent of bankruptcy late in 2000, the joint
venture was dissolved. BK subsequently filed its lawsuit against the Company
alleging that it was forced to terminate business with other companies because
of the exclusivity and non-compete clauses purportedly found in the joint
venture agreement. The lawsuit further alleges that Wabash did not properly
disclose technology to BK and that Wabash purportedly failed to comply with its
contractual obligations in terminating the joint venture agreement. In its
complaint, BK asserts that it has been damaged by these alleged wrongs by the
Company in the approximate amount of $8.4 million.
The Company answered the complaint in May 2001, denying any wrongdoing and
pointing out that, contrary to the allegation found in the complaint, a merger
of the Company and BK, or the acquisition of BK by the Company, was never the
purpose or intent of the joint venture agreement between the parties; the only
purpose was the business and marketing arrangement as set out in the agreement.
The Company believes that the claims asserted against it by BK are without merit
and intends to defend itself vigorously against those claims. The Company
believes that the resolution of this lawsuit will not have a material adverse
effect on its financial position, liquidity or future results of operations;
however, at this early stage of the proceeding, no assurance can be given as to
the ultimate outcome of the case.
E-Coat System
On September 17, 2001 the Company commenced an action against PPG Industries,
Inc. ("PPG") in the United States District Court, Northern District of Indiana,
Hammond Division at Lafayette, Indiana, Civil Action No. 4:01 CV 55. In the
lawsuit, the Company alleges that it has sustained substantial damages stemming
from the failure of the PPG electrocoating system (the "E-coat system") and
related products that PPG provided for the Company's Huntsville, Tennessee
plant. The Company alleges that PPG is responsible for defects in the design of
the E-coat system and defects in PPG products that have resulted in malfunctions
of the E-coat system and poor quality coatings on numerous trailers.
PPG filed a Counterclaim in that action on or about November 8, 2001, seeking
damages in excess of approximately $1.35 million based upon certain provisions
of the November 3, 1998 Investment Agreement between it and the Company. The
Company filed a Reply to the Counterclaim denying liability for the claims
asserted. The Company subsequently amended its complaint to include two
additional defendants, U.S. Filter and Wheelabrator Abrasives Inc., who
designed, manufactured, or provided equipment for the E-coat system.
The Company denies and is vigorously defending PPG's counterclaim. It also
believes that the claims asserted in its complaint are valid and meritorious and
it intends to fully prosecute those claims. The Company believes that the
resolution of this lawsuit will not have a material adverse effect on its
financial position, liquidity or future results of operations; however, at this
early stage of the proceeding, no assurance can be given as to the ultimate
outcome of the case.
10
Environmental
In the second quarter of 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 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 is fully cooperating with federal officials with respect to their
investigation into the matter. The Company has received an oral communication
from the government's lawyer in the matter that he intends to seek charges under
the federal Clean Water Act, and he has agreed to meet with the Company to
explore possible resolutions. At this time, the Company is unable to predict the
outcome of the federal grand jury inquiry into this matter, but does not believe
it will result in a material adverse effect on its financial position, liquidity
or future results of operations; however, at this stage of the proceedings, no
assurance can be given as to the ultimate outcome of the case.
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. The Company and TDEC negotiated a
settlement agreement to resolve this matter, under which the Company paid
$100,000. An accrual for this fine was recorded in 2001 and paid in October
2002.
b. ENVIRONMENTAL
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, 2002 and 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.
c. USED TRAILER RESTORATION PROGRAM
During 1999, the Company reached a settlement with the IRS 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 assessed by the IRS for years subsequent to 1997. As a result, the Company
has recorded a liability and a corresponding receivable of approximately $8.3
million in the accompanying Consolidated Balance Sheets at September 30, 2002,
and December 31, 2001, respectively. During 2001, the IRS completed its federal
excise tax audit of 1999 and 1998 resulting in an assessment of approximately
$5.4 million. The Company believes it is fully indemnified for this liability
and that the related receivable is fully collectible.
11
NOTE 9. EQUIPMENT OFF BALANCE SHEET AND RELATED CUSTOMER CREDIT RISK
In certain situations, the Company sold equipment leased to others to
independent financial institutions and simultaneously leased the equipment back
under operating leases. All of this equipment has been subleased to customers
under long-term arrangements, typically five years. As of September 30, 2002,
the unamortized lease value of equipment financed under these arrangements was
approximately $20.7 million. In connection with these agreements, the Company
has end of term purchase options and residual guarantees of $10.8 million and
$4.3 million, respectively.
The Company has loss exposures related to these arrangements to the extent
customers do not perform under their sublease arrangements or the fair value of
the equipment is less than the Company's residual guarantee at the end of the
lease term. The Company recognizes a loss when the Company's operating lease
payments exceed the anticipated rents from the sublease arrangements with
customers. Additionally, to the extent that the residual value exceeds the
Company's estimate of fair value at the end of the lease terms, the Company
recognizes a loss for this difference over the remaining term of the lease.
Due to economic and industry conditions, certain of the Company's customers are
experiencing financial difficulties which have resulted in delinquencies in
lease payments due to the Company.
The Company subleased equipment to a customer that became severely delinquent in
its payments to the Company and, in August 2002, the customer filed for
bankruptcy protection. The Company terminated its sublease agreement with this
customer in July and began the process of repossessing the equipment.
Accordingly, the Company recorded a charge of $6.0 million in the second quarter
of 2002 related to this customer. As of September 30, 2002, the unamortized
lease value of this arrangement was approximately $15.5 million for which the
Company has recorded a total loss contingency of $10.4 million. While management
believes that the loss contingency recorded adequately reflects the expected
loss related to this customer, there can be no assurance that additional charges
may not need to be taken in the future as circumstances dictate.
The Company also subleased certain highly specialized RoadRailer equipment to
Amtrak, who is experiencing financial difficulties. Due to the highly
specialized nature of the equipment, the recovery value of the equipment is
considered to be minimal. The unamortized lease value of this arrangement is
approximately $5.2 million as of September 30, 2002. The Company also has
finance contracts related to this customer recorded on its September 30, 2002,
balance sheet of approximately $11.0 million. As of September 30, 2002, the
customer was current in its obligations to the Company. As a result, the Company
has not recorded any provision for a loss on this equipment.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report, including documents incorporated herein by reference, contains
forward-looking statements. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities and Exchange Commission or otherwise. The words "believe," "expect,"
"anticipate," and "project" and similar expressions identify forward-looking
statements, which speak only as of the date the statement is made. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but are not
limited to, information regarding revenues, income or loss, capital
expenditures, acquisitions, number of retail branch openings, plans for future
operations, financing needs or plans, the impact of inflation and plans relating
to services of the Company, as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by or
underlying the forward-looking statements. Statements in this report, including
those set forth in "The Company" and "Risk Factors," and in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", describe factors, among others, that could contribute to or cause
such differences.
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/A as filed with the Securities and Exchange Commission on
April 18, 2002.
CRITICAL ACCOUNTING POLICIES
A summary of the Company's critical accounting policies is as follows:
a. REVENUE RECOGNITION
The Company recognizes revenue from the sale of trailers and after-market parts
when risk of ownership is transferred to the customer. Revenue is generally
recognized upon shipment. Customers that have requested to pick up their
trailers are invoiced prior to taking physical possession when the customer has
made a fixed commitment to purchase the trailers, the trailers have been
completed and are available for pickup or delivery, the customer has requested
in writing that the Company hold the trailers until the customer determines the
most economical means of taking possession and the customer takes possession of
the trailers within a specified time period. In such cases, the trailers, which
have been produced to the customer specifications, are invoiced under the
Company's normal billing and credit terms.
The Company recognizes revenue from direct finance leases based upon a constant
rate of return while revenue from operating leases is recognized on a
straight-line basis in an amount equal to the invoiced rentals.
13
b. USED TRAILER TRADE COMMITMENTS
The Company has commitments with customers to accept used trailers on trade for
new trailer purchases. The Company's policy is to recognize losses related to
these commitments, if any, at the time the new trailer revenue is recognized.
c. ACCOUNTS RECEIVABLE
Accounts receivable includes trade receivables and amounts due under finance
contracts. Provisions to the allowance for doubtful accounts are charged to
general and administrative expenses on the Consolidated Statements of
Operations.
d. INVENTORIES
Inventories are primarily stated at the lower of cost, determined on the
first-in, first-out (FIFO) method, or market. The cost of manufactured inventory
includes raw material, labor and overhead.
e. LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment in accordance with Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, whenever facts and circumstances indicate that
the carrying amount may not be recoverable. Specifically, this process involves
comparing an asset's carrying value to the estimated undiscounted future cash
flows the asset is expected to generate over its remaining life. If this process
were to result in the conclusion that the carrying value of a long-lived asset
would not be recoverable, a write-down of the asset to fair value would be
recorded through a charge to operations.
f. ACCRUED LIABILITIES
Accrued liabilities primarily represent accrued payroll related items,
restructuring reserves, warranty reserves, loss contingencies related to used
trailer residual commitments, loss lease contingencies and self insurance
reserves related to group insurance and workers compensation. Changes in the
estimates of these reserves are charged or credited to income in the period
determined.
The Company is self-insured up to specified limits for medical and workers'
compensation coverage. The self-insurance reserves have been recorded to reflect
the undiscounted estimated liabilities, including claims incurred but not
reported.
The Company recognizes a loss contingency for used trailer residual commitments
for the difference between the equipment's purchase price and its fair market
value, when it becomes probable that the purchase price at the guarantee date
will exceed the equipment's fair market value at that date. A loss lease
contingency is recognized when the Company's operating lease payments exceed the
anticipated rents from the sublease arrangement with customers.
The Company's warranty policy generally provides coverage for components of the
trailer the Company produces or assembles. Typically, the coverage period is one
year for container chassis and specialty trailers and five years for dry
freight, refrigerated and flat bed trailers. The Company's policy is to accrue
the estimated cost of warranty coverage at the time of the sale.
14
RESULTS OF OPERATIONS
The Company has two reportable segments: manufacturing and retail and
distribution. The manufacturing segment produces and sells new trailers to the
retail and distribution segment or to customers who purchase trailers direct or
through independent dealers. The retail and distribution segment includes the
sale, leasing and financing of new and used trailers, as well as the sale of
after-market parts and service through its retail branch network. In addition,
the retail and distribution segment includes the sale of after-market parts
through Wabash National Parts.
THREE MONTHS ENDED SEPTEMBER 30, 2002
NET SALES
Consolidated net sales for the three months ended September 30, 2002, decreased
by 0.2% (or $0.5 million) compared to the same period in 2001. This decrease was
primarily a result of lower retail and distribution parts/service sales and
lower overall new trailer revenues offset by an increase in used trailer
revenues. New trailer sales for the three months ended September 30, 2002,
continued to be adversely affected by the unfavorable economic conditions in the
U.S. economy and weak demand. The Company believes that trailer order rates were
negatively affected by customers shifting capital expenditures into Class 8
tractor orders driven by new Federal emission standards for engines that become
effective October 1, 2002.
The manufacturing segment's external net sales increased 2.8% (or $4.3 million)
for the three months ended September 30, 2002, compared to the same period in
2001. New trailer units sold in the third quarter of 2002 increased 14.8% to
approximately 10,400 units compared to approximately 9,100 units sold during the
third quarter of 2001. However, the average new trailer selling price during the
third quarter of 2002 declined by approximately 10.7% versus the same period in
2001, from approximately $16,900 per unit to approximately $15,100 per unit in
2001 and 2002, respectively. The decline in average new trailer selling price
was in part a result of lower revenue dollar container units being sold during
the period.
The retail and distribution segment's external net sales decreased 5.5% (or $4.8
million) for the three months ended September 30, 2002, compared to the same
period in 2001. The decrease is primarily due to decreases of 15.9% (or $4.0
million) in branch new trailer revenues and 12.0% (or $2.1 million) in branch
parts/service revenues, partially offset by a 7.2% (or $1.4 million) increase in
branch used trailer revenues. The decrease in new trailer revenues was primarily
due to a 21.6% decline in units sold from approximately 1,300 units in 2001 to
approximately 1,000 units in 2002, offset in part by a 7.3% increase in the
average sales price per unit to approximately $20,800 in 2002 from approximately
$19,400 in 2001. The decrease in parts/service revenues can be attributed to
fewer locations offering these services in 2002 and a 5.7% decrease in
same-store revenues ($182,000 per store in 2002 compared to $193,000 per store
in 2001). The increase in used trailer revenues is the result of the continued
effort to reduce used trailer inventories, which is demonstrated by a 35.5% (or
1,100 units) increase in units sold.
GROSS PROFIT (LOSS)
Gross profit (loss) as a percentage of net sales totaled 9.0% for the three
months ended September 30, 2002 compared to a (13.5%) for the same period in
2001. This improvement was primarily attributable to the following factors:
15
o Inventory valuation charges of $28.5 million recorded during
the third quarter of 2001 associated with the Company's
decision to aggressively reduce used trailer inventories
versus $1.0 million recorded during the third quarter of 2002;
o Restructuring related charges of $3.7 million recorded in 2001
for inventory valuation related to the closed manufacturing
facilities in Huntsville, Tennessee and Fort Madison, Iowa;
o Lower manufacturing costs per unit during 2002 and changes in
product mix, resulting in higher new trailer margins; and
o Improved used trailer margins during 2002.
RESTRUCTURING CHARGE
Restructuring charge for the three months ended September 30, 2002, was $1.7
million as compared to $36.8 million during the same period in 2001. The 2002
expense includes additional asset impairments for the Sheridan, Arkansas and
Huntsville, Tennessee properties being held for sale. The Company has been
marketing these properties for approximately one year. The additional asset
impairment expense recorded in 2002 was necessary to reflect the assets at their
current market value based on recent offers for the properties. The 2001 expense
relates to charges taken for asset impairments as part of the Company's 2001
restructuring plan, which resulted in the closing of manufacturing facilities in
Huntsville, Tennessee and Fort Madison, Iowa and a parts distribution facility
in Montebello, California.
OTHER INCOME (EXPENSE)
Interest expense for the three months ended September 30, 2002, was $8.5 million
as compared to $5.3 million during the same period in 2001. This increase was
primarily driven by higher interest rates for the Company's bank term loan and
senior notes, which were restructured in April 2002, combined with interest
expense associated with capital leases recorded by the Company in December 2001.
Foreign exchange gains and losses, net were net losses of $1.8 million for the
three months ended September 30, 2002 and $1.2 million for the same period in
2001. The increased losses in 2002 reflect a weakening in the Canadian Dollar,
as it relates to operating activities of the Company's Canadian retail branches.
Equity in losses of unconsolidated affiliate for the three months ended
September 30, 2002, was $0 compared to a loss of $1.8 million during the same
period in 2001. This change is the result of the Company's divestiture of its
German subsidiary ETZ on January 11, 2002.
TAXES
The Company recorded no benefit from income taxes for the three months ended
September 30, 2002, as compared to income tax benefit of $35.9 million for the
same period in 2001. The Company generated significant tax net operating losses
(NOL) in 2001 in excess of those which could be utilized through carryback
claims and, after analyzing the future realizability of the remaining tax
assets, the Company determined that the recording of a full, 100% valuation
allowance was appropriate. The Company believes that the realizability of future
benefits associated with NOLs generated in 2002 is uncertain, and, accordingly,
has recognized no income tax benefit for the three months ended September 30,
2002.
16
NINE MONTHS ENDED SEPTEMBER 30, 2002
NET SALES
Consolidated net sales for the nine months ended September 30, 2002 decreased by
11.9% (or $83.1 million) compared to the same period in 2001. This decrease was
primarily a result of lower new trailer unit sales in the Company's
manufacturing and retail distribution segments, as well as a lower average
selling price per new trailer unit in the Company's manufacturing segment. New
trailer sales for the nine months ended September 30, 2002, continued to be
adversely affected by the unfavorable economic conditions in the U.S. economy
and weak demand. The Company believes that trailer order rates are being
negatively affected by customers shifting capital expenditures into Class 8
tractor orders driven by new Federal emission standards for engines that become
effective October 1, 2002.
The manufacturing segment's external net sales decreased 18.6% (or $81.7
million) for the nine months ended September 30, 2002, compared to the same
period in 2001. The decrease is primarily due to a 8.4% decrease in the average
new trailer selling price of approximately $16,700 per unit during the nine
months ended September 30, 2001, to approximately $15,300 per unit for the
comparable period ended September 30, 2002. The decline in average new trailer
selling price was in part a result of lower revenue dollar container units being
sold during the first nine months of 2002. The decrease in net sales was also
due to a decline in the number of units sold from approximately 26,100 units
during the nine months ended September 30, 2001 to approximately 23,100 units
during the nine months ended September 30, 2002.
The retail and distribution segment's external net sales decreased 0.5% (or $1.3
million) for the nine months ended September 30, 2002, compared to the same
period in 2001. The decrease is primarily due to decreases of 17.2% (or $13.4
million) in branch new trailer revenues and 15.4% (or $8.4 million) in branch
parts/service revenues, almost offset by a 44.4% (or $21.1 million) increase in
branch used trailer revenues. The decrease in new trailer revenues was primarily
due to a 27.4% decline in units sold from approximately 4,000 units in 2001 to
approximately 2,900 units in 2002, offset in part by a 14.0% increase in the
average sales price per unit to approximately $22,000 in 2002 from approximately
$19,300 in 2001. The decrease in parts/service revenues can be attributed to a
10.3% decrease in same-store revenues ($182,000 per store is 2002 compared to
$203,000 per store in 2001) and fewer locations offering these services in 2002.
The increase in used trailer revenues is the result of the continued effort to
reduce used trailer inventories, which is demonstrated by a 93.4% (or
approximately 6,700 units) increase in units sold.
GROSS PROFIT (LOSS)
Gross profit (loss) as a percentage of net sales totaled 4.6% for the nine
months ended September 30, 2002, compared to a (5.0%) for the same period in
2001. This improvement was primarily attributable to the following factors:
o Inventory valuation charges of $42.5 million recorded during
2001, compared to $7.0 million in 2002 associated with the
Company's decision to aggressively reduce used trailer
inventories;
o Restructuring related charges of $3.7 million recorded in 2001
for inventory valuation related to the closed manufacturing
facilities in Huntsville, Tennessee and Fort Madison, Iowa;
17
o Increased margins in the Company's parts distribution
business, due in part to a 2001 charge of $2.0 million for
inventory valuation adjustments taken in its parts
distribution business;
o Lower manufacturing costs per unit during 2002 and changes in
product mix, resulting in a higher new trailer margins; and
o Improved used trailer margins during 2002; offset by
o A $6.0 million charge recorded in 2002 for loss lease
contingencies related to the Company's financing business.
RESTRUCTURING CHARGE
Restructuring charge for the nine months ended September 30, 2002, was $1.7
million as compared to $36.8 million during the same period in 2001. The 2002
expense includes additional asset impairments for the Sheridan, Arkansas and
Huntsville, Tennessee properties being held for sale. The Company has been
marketing these properties for approximately one year. The additional asset
impairment expense recorded in 2002 was necessary to reflect the assets at their
current market value based on recent offers for the properties. The 2001 expense
relates to charges taken for asset impairments as part of the Company's 2001
restructuring plan, which resulted in the closing of manufacturing facilities in
Huntsville, Tennessee and Fort Madison, Iowa and a parts distribution facility
in Montebello, California.
OTHER INCOME (EXPENSE)
Interest expense for the nine months ended September 30, 2002, was $22.0
million, as compared to $16.5 million during the same period in 2001. This
increase was primarily driven by higher interest rates for the Company's bank
term loan and senior notes, which were restructured in April 2002, combined with
interest expense associated with capital leases recorded by the Company in
December 2001.
Trade receivables facility costs related to the Company's trade accounts
receivables facility, were $3.9 million in the nine months ended September 30,
2002, compared to $1.8 million during the same period in 2001. This increase is
primarily attributable to costs incurred in connection with the Company's
restructuring of this facility in April 2002.
Foreign exchange gains and losses, net was a net gain of $.1 million for the
nine months ended September 30, 2002, as compared to a net loss of $1.9 million
for the same period in 2001. The losses in 2001 reflect a weakening of the
Canadian Dollar, as it relates to operating activities of the Company's Canadian
retail branches. Foreign currency rates have changed only slightly from December
31, 2001, to September 30, 2002.
Equity in losses of unconsolidated affiliate for the nine months ended September
30, 2002, was $0 compared to a loss of $6.1 million during the same period in
2001. This change is the result of the Company's divestiture of its German
subsidiary ETZ on January 11, 2002.
TAXES
The benefit from income taxes for the nine months ended September 30, 2002 and
2001 was $11.9 million and $57.1 million, respectively. For the nine months
ended September 30, 2001, the effective rate of benefit recorded of 36.9%
exceeded the Federal statutory rate of 35% primarily due to state income taxes.
For 2002, the benefit recorded represents an additional realizable Federal net
operating loss (NOL) carry-back claim filed and liquidated under the provisions
of the Job Creation and Worker Assistance Act of 2002, which revised the
permitted carry-back period for NOLs generated during 2001 from two years to
five years. Because of
18
uncertainty related to the realizability of NOLs generated in 2001 in excess of
those utilized through carry-back claims, the related tax assets were made
subject to a 100% valuation allowance. The Company believes that the
realizability of future benefits associated with NOLs generated in 2002 is
uncertain, and, accordingly, has recognized no income tax benefit for the nine
months ended September 30, 2002, for NOLs for which carry-back claims are not
available.
LIQUIDITY AND CAPITAL RESOURCES
The Company has taken aggressive steps toward improving its liquidity position
during 2002, including the liquidation and normalization of its inventory of
used trailers, improved working capital management and controlled capital
expenditures. Accordingly, the Company's liquidity position has improved since
the end of 2001 from approximately $24 million as of December 31, 2001, to
approximately $79 million as of September 30, 2002. The Company defines
liquidity as cash on hand and available borrowings under its existing credit
facilities.
As part of the Company's focus on debt reduction, it has repaid $56.4 million in
debt during the nine months ended September 30, 2002. As of September 30, 2002,
the Company's total debt and capital lease obligations were $363.4 million.
The Company continues to pursue opportunities to divest of non-core assets in
order to reduce indebtedness. The Company is in the final stages of negotiating
the potential divestiture of its rental and leasing operations and expects to
enter into a definitive agreement before the end of 2002. The net book value of
the rental and leasing assets is approximately $71 million and is included in
'Equipment Leased to Others, net' on the Company's September 30, 2002, balance
sheet. Cash consideration for the sale of these assets will be used entirely to
reduce indebtedness. The transaction must be approved by all of the Company's
lenders and the Board of Directors.
Management is also in various stages of divesting of other non-core assets such
as the Company's wood flooring operations, certain retail finance contracts, the
corporate aircraft and certain closed retail and manufacturing facilities. Such
dispositions could generate proceeds in excess of $100 million which would be
used to further reduce the Company's indebtedness. All transactions are subject
to lender and Board of Director approval. There can be no assurance that the
Company will be successful in divesting any of these assets.
As of September 30, 2002, the Company was in compliance with all covenants under
its credit facilities. However, based upon the Company's 2002 financial results
and the potential divestiture of the rental and leasing operations, management
anticipates that the Company will not be in compliance with one or more of its
financial covenants as of January 2003. Accordingly, the Company is currently in
discussions with its lenders to amend certain financial covenants to take into
account these conditions.
If the Company is unsuccessful in amending its financial covenants and is
determined to be in default under its credit agreements, it may have difficulty
meeting working capital needs, capital expenditure requirements and interest and
principal payments on indebtedness during the next twelve months. Further, a
default under the terms of the credit agreements would give the lenders certain
rights with respect to the encumbered assets of the business, as well as the
ability to accelerate principal payments. Management anticipates that it will
favorably amend its financial covenants prior to year-end. However, there can be
no assurances that this will be accomplished successfully.
19
In July 2002, the Company received a waiver of default from Pitney Bowes Credit
Corporation (PBCC) under its Master Equipment Lease Agreement dated September
30, 1997. The event of default was the result of delinquent payment of lease
obligations from the Company's sublessee under the agreement. The waiver
permanently waived the provision of the agreement (effective from September 30,
1997) related to delinquent payment of rental obligations from the Company's
sublessee. The Company is not and has never been delinquent with respect to its
lease payments to PBCC. The Company has terminated its sublease agreement with
the sublessee and is in the process of repossessing the equipment. The sublessee
filed for bankruptcy protection in August 2002.
DEBT RESTRUCTURING
In April 2002, the Company entered into an agreement with its lenders to
restructure its existing revolving credit facility and Senior Series Notes and
waive violations of its financial covenants through March 30, 2002. The
amendment changed debt maturity and principal payment schedules; provided for
all unencumbered assets to be pledged as collateral equally to the lenders;
increased the cost of funds; and requires the Company to meet certain additional
financial conditions, among other items. The amended agreement also contains
restrictions on acquisitions and the payment of preferred stock dividends.
The Company's existing $125 million Revolving Credit facility was restructured
into a $107 million term loan (Bank Term Loan) and an $18 million revolving
credit facility (Bank Line of Credit). The Bank Term Loan and Bank Line of
Credit both mature on March 30, 2004, and are secured by all of the formerly
unencumbered assets of the Company. Interest on the $107 million Bank Term Loan
is variable based upon the adjusted London Interbank Offered Rate ("LIBOR") plus
380 basis points and is payable monthly. Interest on the borrowing under the $18
million Bank Line of Credit is based upon adjusted LIBOR plus 355 basis points
or the agent bank's alternative borrowing rate as defined in the agreement and
is payable monthly. There were outstanding borrowings of $3.0 million under this
facility as of September 30, 2002.
As of December 31, 2001, the Company had $192 million of Senior Series Notes
outstanding, which originally matured in 2002 through 2008. As part of the
restructuring, the original maturity dates for $72 million of Senior Series
Notes, payable in 2002 through March 2004, have been extended to March 30, 2004.
The maturity dates for the other $120 million of Senior Series Notes, due
subsequent to March 30, 2004, remain unchanged. As consideration for the
extension of the maturity dates, the Senior Series Notes are now secured by all
of the formerly unencumbered assets of the Company. Interest on the Senior
Series Notes, which is payable monthly, increased by 325 basis points, effective
April 2002, and ranges from 9.66% to 11.29%.
The Company is required to make principal payments of approximately $3.8 million
during the remainder of 2002 and approximately $58 million during 2003 on the
Bank Term Loan and Senior Series Notes. The monthly principal payments are
applied on a pro-rata basis to the Bank Term Loan and Senior Series Notes. In
addition, principal payments will be made from excess liquidity, as defined in
the agreement, on a quarterly basis. Such additional payments will also be
applied on a pro-rata basis to the Bank Term Loan and Senior Series Notes.
The Company's new debt agreements contain restrictions on excess liquidity, the
amount of new finance contracts the Company can enter into (not to exceed $5
million within any twelve month period), the payment of preferred stock
dividends, and other restrictive covenants. These other restrictive covenants
contain minimum requirements related to the following items, as defined in the
agreement: Earnings Before Interest, Taxes, Depreciation and Amortization;
quarterly equity
20
positions; debt to asset ratios; interest coverage ratios; and capital
expenditure amounts. These covenants became effective in April 2002, and become
more restrictive in 2003.
In April 2002, the Company entered into an amendment of its sale and leaseback
agreement with an independent financial institution related to its trailer
rental fleet to waive financial covenant violations through March 30, 2002 and
amend the terms of the existing agreement. The amendment provided for increased
pricing and conforms the financial covenants to those in the amended Bank Term
Loan, Bank Line of Credit and Senior Series Notes agreements described above.
Further, the term of the facility was reduced from June 2006 to January 2005.
Assuming all renewal periods are elected, the Company will make payments under
this facility of $14.7 million, $12.2 million and $11.7 million in 2002, 2003
and 2004, respectively.
In April 2002, the Company replaced its existing $100 million receivable
securitization facility with a new two year $110 million Trade Receivables
Facility. The new facility allows the Company to sell, without recourse, on an
ongoing basis predominantly all of its domestic accounts receivable to a
wholly-owned, bankruptcy remote special purpose entity (SPE). The SPE sells an
undivided interest in receivables to an outside liquidity provider who, in turn,
remits cash back to the SPE for receivables eligible for funding. This new
facility includes financial covenants identical to those in the amended Bank
Term Loan, Bank Line of Credit and Senior Series Notes. There were no
outstanding borrowings under this facility as of September 30, 2002.
The Company incurred approximately $9.8 million of costs associated with the
debt and receivable securitization facility restructuring. Approximately $3.0
million of these costs were expensed in the first quarter of 2002 while an
additional $3.0 million of costs were expensed in the second quarter of 2002.
Approximately $3.8 million of debt restructuring costs were capitalized and will
be amortized over the remaining term of the associated debt.
CONTRACTUAL CASH OBLIGATIONS
A summary of payments due by period of the Company's contractual obligations and
commercial commitments as of September 30, 2002, is shown in the table below.
The table reflects the obligations under the amended and restated credit
agreement, which was effective April 2002.
CONTRACTUAL CASH OBLIGATIONS
<Table>
<Caption>
$ Millions 2002 2003 2004 2005 Thereafter Total
---------- ---------- ---------- ---------- ---------- ----------
DEBT (excluding interest):
Trade Receivables Facility $ -- $ -- $ -- $ -- $ -- $ --
Mortgages & Other Notes 3.8 3.5 3.4 3.5 7.1 21.3
Payable
Revolving Bank Line of
Credit and Bank Term Loan 1.3 19.9 61.1 -- -- 82.3
Senior Series Notes 2.5 38.2 73.8 27.1 52.5 194.1
---------- ---------- ---------- ---------- ---------- ----------
TOTAL DEBT $ 7.6 $ 61.6 $ 138.3 $ 30.6 $ 59.6 $ 297.7
========== ========== ========== ========== ========== ==========
OTHER:
Capital Lease
Obligations 14.8 12.2 11.7 32.9 -- 71.6
Operating Leases 3.1 11.0 9.3 5.5 4.2 33.1
---------- ---------- ---------- ---------- ---------- ----------
TOTAL OTHER $ 17.9 $ 23.2 $ 21.0 $ 38.4 $ 4.2 $ 104.7
========== ========== ========== ========== ========== ==========
TOTAL $ 25.5 $ 84.8 $ 159.3 $ 69.0 $ 63.8 $ 402.4
========== ========== ========== ========== ========== ==========
</Table>
21
OTHER COMMERCIAL COMMITMENTS
<Table>
<Caption>
$ Millions 2002 2003 2004 2005 Thereafter Total
---------- ---------- ---------- ---------- ---------- ----------
Letters of credit $ -- $ -- $ 29.0 $ -- $ -- $ 29.0
Residual guarantees 1.0 3.6 8.3 5.3 15.6 33.8
---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 1.0 $ 3.6 $ 37.3 $ 5.3 $ 15.6 $ 62.8
========== ========== ========== ========== ========== ==========
</Table>
EXPLANATION OF CASH FLOW
The Company's cash position increased $2.3 million, from $11.1 million in cash
and cash equivalents at December 31, 2001, to $13.4 million as of September 30,
2002. This increase was due to cash provided by operating and investing
activities of $62.1 million and $0.7 million, respectively, offset by cash used
in financing activities of $60.5 million.
OPERATING ACTIVITIES
Net cash provided by operating activities of $62.1 million during the nine
months ended September 30, 2002, was primarily the result of changes in working
capital along with the add back of non-cash charges, including depreciation and
amortization, trailer valuation charges, loss contingencies and provision for
losses on accounts receivable and finance contracts, offset somewhat by the
Company's net loss. Cash provided by working capital was primarily the result of
the collection of $24.6 million of income tax refunds during the period as well
as the net impact of normal fluctuations in accounts receivable, inventories and
accounts payable.
INVESTING ACTIVITIES
Net cash provided by investing activities of $0.7 million during the nine months
ended September 30, 2002, was primarily due to proceeds from sales of leased
equipment and assets held for sale and principal payments received on finance
contracts, offset by capital expenditures, net additions to the Company's
trailer rental fleet and the origination of finance contracts.
FINANCING ACTIVITIES
Net cash used in financing activities of $60.5 million during the nine months
ended September 30, 2002, was primarily due to net payments under the revolving
bank line of credit resulting from net operating cash inflows, payments under
capital lease obligations, pay-off of the receivable securitization facility and
scheduled principle payments under the Company's other borrowing arrangements.
OTHER
EQUIPMENT OFF BALANCE SHEET AND RELATED CUSTOMER CREDIT RISK
In certain situations, the Company sold equipment leased to others to
independent financial institutions and simultaneously leased the equipment back
under operating leases. All of this equipment has been subleased to customers
under long-term arrangements, typically five years. As
22
of September 30, 2002, the unamortized lease value of equipment financed under
these arrangements was approximately $20.7 million. In connection with these
agreements, the Company has end of term purchase options and residual guarantees
of $10.8 million and $4.3 million, respectively.
The Company has loss exposures related to these arrangements to the extent
customers do not perform under their sublease arrangements or the fair value of
the equipment is less than the Company's residual guarantee at the end of the
lease term. The Company recognizes a loss when the Company's operating lease
payments exceed the anticipated rents from the sublease arrangements with
customers. Additionally, to the extent that the residual value exceeds the
Company's estimate of fair value at the end of the lease terms, the Company
recognizes a loss for this difference over the remaining term of the lease.
Due to economic and industry conditions, certain of the Company's customers are
experiencing financial difficulties which have resulted in delinquencies in
lease payments due to the Company.
The Company subleased equipment to a customer that became severely delinquent in
its payments to the Company and, in August 2002, the customer filed for
bankruptcy protection. The Company terminated its sublease agreement with this
customer in July and began the process of repossessing the equipment.
Accordingly, the Company recorded a charge of $6.0 million in the second quarter
of 2002 related to this customer. As of September 30, 2002, the unamortized
lease value of this arrangement was approximately $15.5 million for which the
Company has recorded a total loss contingency of $10.4 million. While management
believes that the loss contingency recorded adequately reflects the expected
loss related to this customer, there can be no assurance that additional charges
may not need to be taken in the future as circumstances dictate.
The Company also subleased certain highly specialized RoadRailer equipment to
Amtrak, who is experiencing financial difficulties. Due to the highly
specialized nature of the equipment, the recovery value of the equipment is
considered to be minimal. The unamortized lease value of this arrangement is
approximately $5.2 million as of September 30, 2002. The Company also has
finance contracts related to this customer recorded on its September 30, 2002,
balance sheet of approximately $11.0 million. As of September 30, 2002, the
customer was current in its obligations to the Company. As a result, the Company
has not recorded any provision for a loss on this equipment.
BACKLOG
The Company's backlog of orders was approximately $95.3 million and $142.1
million at September 30, 2002, and December 31, 2001, respectively. The Company
expects to fill a majority of its backlog within the next twelve months. The
Company's criteria for determining backlog reflects: (1) only orders that have
been confirmed by the customer in writing, and (2) orders that will be included
in the Company's production schedule during the next 18 months.
NEW ACCOUNTING PRONOUNCEMENTS
a. INTANGIBLE ASSETS
The Company adopted Statement of Accounting Standards (SFAS) No. 142. Goodwill
and Other Intangible Assets, as of January 1, 2002. This new standard changes
the accounting for goodwill from an amortization method to an impairment-only
approach, and introduces a new model for determining impairment charges. SFAS
No. 142 requires completion of the initial step of a transitional impairment
test within six months of the adoption of this standard and, if applicable,
23
completion of the final step of the adoption by December 31, 2002. Goodwill
amortization expense was $0.0 million and $0.5 million for the three months
ended September 30, 2002, and 2001, respectively, and $0.0 million and $1.3
million for the nine months ended September 30, 2002 and 2001, respectively. The
Company completed the initial transition impairment test as of June 30, 2002.
The results of this test indicate that the Company had no impairment of its
goodwill as of the date of adoption. The Company will perform annual impairment
tests, as required under SFAS No. 142, and review its goodwill for impairment
when circumstances indicate that the fair value has declined significantly.
b. ASSET RETIREMENT OBLIGATIONS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, Accounting for Asset Retirement Obligations with an effective date of June
15, 2002, which becomes effective for the Company on January 1, 2003. This
standard requires obligations associated with retirement of long-lived assets to
be capitalized as part of the carrying value of the related asset. The Company
does not believe the adoption of SFAS No. 143 will have a material effect on its
financial position or results of operations.
c. ASSET IMPAIRMENT
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This standard supercedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. This standard retains the previously existing accounting requirements
related to the recognition and measurement requirements of the impairment of
long-lived assets to be held for use, while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. The provisions of SFAS No. 144 could require the
Company to reclassify assets held for sale if the sale is not completed prior to
December 31, 2002. It also expands on the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. The Company
adopted the accounting provisions of this standard on January 1, 2002. The
effect of adopting the accounting provisions of this standard was not material
to the Company's financial statements. Consistent with the provisions of this
new standard, financial statements for prior years have not been restated.
d. DEBT EXTINGUISHMENT COSTS
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections
(SFAS No. 145). This standard is required to be adopted by the Company on
January 1, 2003, but may be adopted early. SFAS No. 145 modifies the
classification criteria for extraordinary items related to the extinguishment of
debt. Effective April 1, 2002, the Company decided to early adopt the provisions
of SFAS No. 145. Under the new standard, $1.2 million in expenses associated
with the Company's debt restructuring in April 2002, which under prior standards
would have been recorded as an extraordinary item, were recorded in other, net
on the Consolidated Statements of Operations.
e. TERMINATION BENEFITS AND EXIT COSTS
In June 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 nullifies Emerging Issues Task Force
(EITF) Issue No., 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS No. 146 generally requires companies to recognize
costs associated with exit activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan and is to be applied
prospectively to exit or
24
disposal activities initiated after December 31, 2002. The Company is currently
evaluating the effects, if any, that this standard will have on its results of
operations or financial position.
CHANGES IN INDEPENDENT PUBLIC ACCOUNTANTS
On May 31, 2002, the Company filed a Current Report on Form 8-K announcing that
its board of directors approved the selection of Ernst & Young LLP as its
independent public accountants for the fiscal year 2002, replacing Arthur
Andersen LLP. The decision to change independent public accountants was not the
result of any disagreements with Arthur Andersen LLP on matters of accounting
principles or practices, financial statement disclosure or auditing scope and
procedure. The transition to Ernst & Young LLP began in June 2002.
CORPORATE REALIGNMENT
In July 2002, the Company announced that it will close its Retail and
Distribution business unit office in St. Louis, Missouri and transfer the
administrative functions to Lafayette, Indiana. The decision to integrate the
St. Louis office is part of the Company's overall plan to align the corporate
structure with the long-term goals of the organization. The transition is
anticipated to be completed by the end of 2002. In the third quarter of 2002,
the Company recorded approximately $1.0 million for severance and other exit
costs.
25
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 may manage aluminum price changes by entering into fixed price contracts
with its suppliers upon 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, 2002, the Company had approximately $127 million of London
Interbank Offered Rate (LIBOR) based debt outstanding under its various
financing agreements. A hypothetical 100 basis-point increase in the floating
interest rate from the current level would correspond to a $1.3 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
Effective with the divestiture of its German subsidiary in January 2002, the
Company has ceased any foreign currency forward contracts related to its former
European activities. In addition, in light of the Breadner acquisition in 2001,
the Company continues to review 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, 2002, the Company had
no foreign currency forward contracts outstanding.
ITEM 4. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the Company
have evaluated the effectiveness of the disclosure controls and procedures (as
such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90
days prior to the filing date of this quarterly report (the "Evaluation Date").
Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures are effective
in alerting them on a timely basis to material information relating to the
Company required to be included in the Company's periodic filings under the
Exchange Act.
26
Since the Evaluation Date, there have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
such controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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, liquidity or its annual results of operations.
Brazil Joint Venture
In March 2001, Bernard Krone Industria e Comercio de Maquinas Agricolas Ltda.
("BK") filed suit against the Company in the Fourth Civil Court of Curitiba in
the State of Parana, Brazil. This action seeks recovery of damages plus pain and
suffering. Because of the bankruptcy of BK, this proceeding is now pending
before the Second Civil Court of Bankruptcies and Creditors Reorganization of
Curitiba, State of Parana (No.232/99).
This case grows out of a joint venture agreement between BK and the Company,
which was generally intended to permit BK and the Company to market the
RoadRailer(R) trailer in Brazil and other areas of South America. When BK was
placed into the Brazilian equivalent of bankruptcy late in 2000, the joint
venture was dissolved. BK subsequently filed its lawsuit against the Company
alleging that it was forced to terminate business with other companies because
of the exclusivity and non-compete clauses purportedly found in the joint
venture agreement. The lawsuit further alleges that Wabash did not properly
disclose technology to BK and that Wabash purportedly failed to comply with its
contractual obligations in terminating the joint venture agreement. In its
complaint, BK asserts that it has been damaged by these alleged wrongs by the
Company in the approximate amount of $8.4 million.
The Company answered the complaint in May 2001, denying any wrongdoing and
pointing out that, contrary to the allegation found in the complaint, a merger
of the Company and BK, or the acquisition of BK by the Company, was never the
purpose or intent of the joint venture agreement between the parties; the only
purpose was the business and marketing arrangement as set out in the agreement.
The Company believes that the claims asserted against it by BK are without merit
and intends to defend itself vigorously against those claims. The Company
believes that the resolution of this lawsuit will not have a material adverse
effect on its financial position, liquidity or future results of operations;
however, at this early stage of the proceeding, no assurance can be given as to
the ultimate outcome of the case.
27
E-Coat System
On September 17, 2001, the Company commenced an action against PPG Industries,
Inc. ("PPG") in the United States District Court, Northern District of Indiana,
Hammond Division at Lafayette, Indiana, Civil Action No. 4:01 CV 55. In the
lawsuit, the Company alleges that it has sustained substantial damages stemming
from the failure of the PPG electrocoating system (the "E-coat system") and
related products that PPG provided for the Company's Huntsville, Tennessee
plant. The Company alleges that PPG is responsible for defects in the design of
the E-coat system and defects in PPG products that have resulted in malfunctions
of the E-coat system and poor quality coatings on numerous trailers.
PPG filed a Counterclaim in that action on or about November 8, 2001, seeking
damages in excess of approximately $1.35 million based upon certain provisions
of the November 3, 1998, Investment Agreement between it and the Company. The
Company filed a Reply to the Counterclaim denying liability for the claims
asserted. The Company subsequently amended its complaint to include two
additional defendants, U.S. Filter and Wheelabrator Abrasives Inc., who
designed, manufactured, or provided equipment for the E-coat system.
The Company denies and is vigorously defending PPG's counterclaim. It also
believes that the claims asserted in its complaint are valid and meritorious and
it intends to fully prosecute those claims. The Company believes that the
resolution of this lawsuit will not have a material adverse effect on its
financial position, liquidity or future results of operations; however, at this
early stage of the proceeding, no assurance can be given as to the ultimate
outcome of the case.
Environmental
In the second quarter of 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 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 is fully cooperating with federal officials with respect to their
investigation into the matter. The Company has received an oral communication
from the government's lawyer in the matter that he intends to seek charges under
the federal Clean Water Act, and he has agreed to meet with the Company to
explore possible resolutions. At this time, the Company is unable to predict the
outcome of the federal grand jury inquiry into this matter, but does not believe
it will result in a material adverse effect on its financial position, liquidity
or future results of operations; however, at this stage of the proceedings, no
assurance can be given as to the ultimate outcome of the case.
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. The Company and TDEC negotiated a
settlement agreement to resolve this matter, under which the Company paid
$100,000. An accrual for this fine was recorded in 2001 and paid in October
2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not Applicable
(b) Not Applicable
28
(c) Recent Sales of Equity Securities of the Registrant
On September 15, 2002, the Company converted its 130,041 issued and
outstanding shares of Series C 5.5% Cumulative Convertible Exchangeable
Preferred Stock (the "Series C Stock") into 2,589,687 shares of the
Company's common stock. The Series C Stock converted into common stock
at the rate of approximately 20 shares of common stock for each full
share of preferred stock based on the then current conversion price of
$5.16. At conversion, accrued and unpaid dividends, along with
applicable interest, with respect to shares of Series C Stock were
converted into 69,513 shares of common stock based on the then
conversion price of $5.16. The Company did not receive any additional
consideration at the time of conversion of the Series C Stock. The
initial sale of the Series C Stock was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), and the conversion of the Series C Stock into the Company's
common stock was exempt from registration under Section 3(a)(9) of the
Securities Act.
(d) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) The Company is in arrears with respect to payment of dividends on the
following classes of preferred stock as of November 13, 2002:
Series B 6% Cumulative Convertible Exchangeable Preferred Stock -
$528,000
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(b) Reports on Form 8-K:
1. Form 8-K filed August 14, 2002 reporting under Item 7: Financial
Statements, Pro Forma Financial Information and Exhibits and Item 9:
Regulation FD Disclosure.
2. Form 8-K filed October 7, 2002 reporting under Item 9: Regulation FD
Disclosure
3. Form 8-K filed November 12, 2002 reporting under Item 9: Regulation FD
Disclosure.
29
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 13, 2002 By: /s/ Mark R. Holden
----------------- ----------------------------------
Mark R. Holden
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer
And Duly Authorized Officer)
30
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William P. Greubel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wabash National
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/William P. Greubel
----------------------------------------
William P. Greubel
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark R. Holden, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wabash National
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/Mark R. Holden
-------------------------------------------
Mark R. Holden
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)