UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[X] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2005
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
[ ] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER: 1-10883
WABASH NATIONAL CORPORATION
-------------------------------------------------------
( Exact name of registrant as specified in its charter)
Delaware 52-1375208
-------- ----------
(State of Incorporation) (IRS Employer
Identification Number)
(WABASH NATIONAL LOGO)
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO
--- ---
The number of shares of common stock outstanding at August 1, 2005 was
31,250,791.
Securities registered pursuant to Section 12(b) of the Act:
<Table>
<Caption>
Title of each class Name of exchange on which registered
- ------------------- ------------------------------------
Common stock, $0.01 par value New York Stock Exchange
Series A Preferred Share Purchase Rights New York Stock Exchange
</Table>
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
<Table>
<Caption>
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at 3
June 30, 2005 and December 31, 2004
Condensed Consolidated Statements of Operations 4
For the three and six months ended June 30, 2005 and 2004
Condensed Consolidated Statements of Cash Flows 5
For the six months ended June 30, 2005 and 2004
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits 18
Signature 18
</Table>
2
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<Table>
<Caption>
June 30, December 31,
2005 2004
----------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 39,869 $ 41,928
Accounts receivable, net 109,674 87,512
Current portion of finance contracts 2,196 2,185
Inventories 139,954 94,600
Deferred income taxes 8,253 --
Prepaid expenses and other 7,961 14,425
----------- -----------
Total current assets 307,907 240,650
PROPERTY, PLANT AND EQUIPMENT, net 125,443 124,701
EQUIPMENT LEASED TO OTHERS, net 9,892 14,030
FINANCE CONTRACTS, net of current portion 1,549 3,319
GOODWILL 34,193 34,511
DEFERRED INCOME TAXES 27,289 --
OTHER ASSETS 18,894 14,835
----------- -----------
$ 525,167 $ 432,046
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,500 $ 2,000
Accounts payable 102,434 78,107
Other accrued liabilities 47,305 52,442
----------- -----------
Total current liabilities 151,239 132,549
LONG-TERM DEBT, net of current maturities 125,000 125,500
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 9,128 9,423
STOCKHOLDERS' EQUITY:
Preferred stock, 300,000 shares authorized, 0 shares issued and outstanding -- --
Common stock 75,000,000 shares authorized, $0.01 par value, 31,243,665
and 30,807,370 shares issued and outstanding, respectively 314 309
Additional paid-in capital 336,197 325,512
Retained deficit (97,180) (162,097)
Accumulated other comprehensive income 1,748 2,129
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
----------- -----------
Total stockholders' equity 239,800 164,574
----------- -----------
$ 525,167 $ 432,046
=========== ===========
</Table>
See Notes to Condensed Consolidated Financial Statements.
3
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<Table>
<Caption>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
NET SALES $ 322,983 $ 254,899 $ 579,088 $ 476,496
COST OF SALES 286,874 218,264 508,581 416,739
----------- ----------- ----------- -----------
Gross profit 36,109 36,635 70,507 59,757
GENERAL AND ADMINISTRATIVE EXPENSES 10,213 10,309 19,431 20,782
SELLING EXPENSE 3,966 3,851 7,962 7,626
----------- ----------- ----------- -----------
Income from operations 21,930 22,475 43,114 31,349
OTHER INCOME (EXPENSE)
Interest expense (1,605) (2,769) (3,223) (5,666)
Foreign exchange gains and losses, net (310) (405) (452) (545)
Other, net (205) (540) (997) 482
----------- ----------- ----------- -----------
Income before income taxes 19,810 18,761 38,442 25,620
INCOME TAX (BENEFIT) EXPENSE (29,448) 499 (29,295) 499
----------- ----------- ----------- -----------
NET INCOME $ 49,258 $ 18,262 $ 67,737 $ 25,121
=========== =========== =========== ===========
COMMON STOCK DIVIDENDS DECLARED $ 0.045 $ -- $ 0.09 $ --
=========== =========== =========== ===========
BASIC NET INCOME PER SHARE $ 1.58 $ 0.67 $ 2.18 $ 0.93
=========== =========== =========== ===========
DILUTED NET INCOME PER SHARE $ 1.33 $ 0.56 $ 1.85 $ 0.80
=========== =========== =========== ===========
COMPREHENSIVE INCOME
Net income $ 49,258 $ 18,262 $ 67,737 $ 25,121
Foreign currency translation adjustment (183) (593) (381) (822)
----------- ----------- ----------- -----------
NET COMPREHENSIVE INCOME $ 49,075 $ 17,669 $ 67,356 $ 24,299
=========== =========== =========== ===========
</Table>
See Notes to Condensed Consolidated Financial Statements.
4
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<Table>
<Caption>
Six Months Ended June 30,
--------------------------
2005 2004
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 67,737 $ 25,121
Adjustments to reconcile net cash provided by (used in) operating activities:
Depreciation and amortization 8,276 9,895
Net (gain) loss on the sale of assets 684 (473)
Recovery of losses on accounts receivable and finance contracts (84) (134)
Deferred income taxes (29,304) --
Trailer valuation charges 103 169
Changes in operating assets and liabilities:
Accounts receivable (22,078) (27,975)
Finance contracts 1,645 2,204
Inventories (45,405) (20,530)
Prepaid expenses and other 1,139 374
Accounts payable and accrued liabilities 21,067 17,714
Other, net 901 (91)
---------- ----------
Net cash provided by operating activities 4,681 6,274
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,796) (3,936)
Proceeds from the sale of property, plant and equipment 5,852 2,104
---------- ----------
Net cash used in investing activities (7,944) (1,832)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 3,610 3,163
Borrowings under revolving credit facility 15,786 331,975
Payments under revolving credit facility (15,786) (341,399)
Payments under long-term debt agreements (1,000) (5,088)
Common stock dividends paid (1,406) --
---------- ----------
Net cash provided by (used in) financing activities 1,204 (11,349)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,059) (6,907)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 41,928 12,552
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 39,869 $ 5,645
========== ==========
</Table>
See Notes to Condensed Consolidated Financial Statements
5
WABASH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The condensed consolidated financial statements of Wabash National
Corporation (the Company) have been prepared 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. In the opinion of
management, the accompanying condensed consolidated financial statements contain
all material adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the consolidated financial position of the Company,
its results of operations and cash flows. 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 2004 Annual
Report on Form 10-K.
Certain items previously reported in specific condensed consolidated
financial statement captions have been reclassified to conform to the 2005
presentation.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<Table>
<Caption>
June 30, 2005 December 31, 2004
------------- -----------------
Raw material and components $ 51,387 $ 35,941
Work in process 10,029 4,653
Finished goods 57,492 35,222
After-market parts 6,361 6,115
Used trailers 14,685 12,669
--------- ---------
$ 139,954 $ 94,600
========= =========
</Table>
3. NEW ACCOUNTING PRONOUNCEMENTS
Share-Based Payments. In December 2004, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 123 (revised 2004), Share-Based Payment. SFAS No. 123R, which is a revision
of SFAS No. 123, Accounting for Stock-Based Compensation, superceded Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and amends SFAS No. 95, Statements of Cash Flows. SFAS No. 123R requires that
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based upon their fair
value. The current pro forma disclosure of the impact on earnings is no longer
permitted. This Statement is effective for fiscal years beginning after June 15,
2005. Based upon currently outstanding options, expense, net of tax, calculated
using the Black-Scholes model would amount to approximately $1.1 million in
2006.
4. CONTINGENCIES
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 currently pending or asserted will not have a material adverse effect on the
Company's financial position, liquidity or results of operations.
6
5. STOCK-BASED COMPENSATION
The Company follows APB No. 25, Accounting for Stock Issued to
Employees, in accounting for its stock options and, accordingly, no compensation
cost has been recognized for stock options in the consolidated financial
statements. In accordance with SFAS No. 148, Accounting for Stock Based
Compensation Transition and Disclosure, the following table illustrates the
effect on net income and net income per share as if the Company had applied the
fair value recognition provisions of SFAS No. 123, Accounting for Stock Based
Compensation to stock-based employee compensation.
<Table>
<Caption>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
(in thousands, except for per share amounts)
Reported net income $ 49,258 $ 18,262 $ 67,737 $ 25,121
Pro forma stock-based compensation expense (net of tax) (1,096) (823) (1,964) (1,221)
Stock-based employee compensation expense recorded (net of tax) 389 50 607 99
---------- ---------- ---------- ----------
Proforma net income $ 48,551 $ 17,489 $ 66,380 $ 23,999
========== ========== ========== ==========
Basic net income per share:
Reported net income per share $ 1.58 $ 0.67 $ 2.18 $ 0.93
========== ========== ========== ==========
Pro forma net income per share $ 1.56 $ 0.64 $ 2.14 $ 0.89
========== ========== ========== ==========
Diluted net income per share:
Reported net income per share $ 1.33 $ 0.56 $ 1.85 $ 0.80
========== ========== ========== ==========
Pro forma net income per share $ 1.31 $ 0.54 $ 1.81 $ 0.76
========== ========== ========== ==========
</Table>
6. NET INCOME PER SHARE
Per share results have been computed based on the average number of
common shares outstanding. The following table presents the number of
incremental weighted average shares used in computing diluted per share amounts
(in thousands, except per share amounts):
<Table>
<Caption>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Basic net income per share:
Net income applicable to common stockholders $ 49,258 $ 18,262 $ 67,737 $ 25,121
========= ========= ========= =========
Weighted average common shares outstanding 31,194 27,145 31,055 27,067
========= ========= ========= =========
Basic net income per share $ 1.58 $ 0.67 $ 2.18 $ 0.93
========= ========= ========= =========
Diluted net income per share:
Net income applicable to common stockholders $ 49,258 $ 18,262 $ 67,737 $ 25,121
After-tax equivalent of interest on convertible notes 1,234 1,204 2,445 2,408
--------- --------- --------- ---------
Diluted net income applicable to common stockholders $ 50,492 $ 19,466 $ 70,182 $ 27,529
========= ========= ========= =========
Weighted average common shares outstanding 31,194 27,145 31,055 27,067
Dilutive stock options/shares 243 906 374 946
Convertible notes equivalent shares 6,510 6,510 6,510 6,510
--------- --------- --------- ---------
Diluted weighted average common shares outstanding 37,947 34,561 37,939 34,523
========= ========= ========= =========
Diluted net income per share $ 1.33 $ 0.56 $ 1.85 $ 0.80
========= ========= ========= =========
</Table>
7
7. SEGMENTS
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.
Reportable segment information is as follows (in thousands):
<Table>
<Caption>
Retail and Consolidated
Manufacturing Distribution Eliminations Totals
------------- ------------ ------------ ------------
THREE MONTHS ENDED JUNE 30, 2005
Net Sales
External customers $ 261,616 $ 61,367 $ -- $ 322,983
Intersegment sales 26,398 -- (26,398) --
---------- ---------- ---------- ----------
Total Net Sales $ 288,014 $ 61,367 $ (26,398) $ 322,983
========== ========== ========= ==========
Income from operations $ 20,927 $ 869 $ 134 $ 21,930
Assets $ 500,288 $ 189,760 $ (164,881) $ 525,167
THREE MONTHS ENDED JUNE 30, 2004
Net Sales
External customers $ 195,689 $ 59,210 $ -- $ 254,899
Intersegment sales 32,150 1,975 (34,125) --
---------- ---------- ---------- ----------
Total Net Sales $ 227,839 $ 61,185 $ (34,125) $ 254,899
========== ========== ========= ==========
Income from operations $ 24,933 $ (141) $ (2,317) $ 22,475
Assets $ 398,018 $ 186,401 $ (164,066) $ 420,353
SIX MONTHS ENDED JUNE 30, 2005
Net Sales
External customers $ 455,688 $ 123,400 $ -- $ 579,088
Intersegment sales 63,991 -- (63,991) --
---------- ---------- ---------- ----------
Total Net Sales $ 519,679 $ 123,400 $ (63,991) $ 579,088
========== ========== ========= ==========
Income from operations $ 42,768 $ 1,707 $ (1,361) $ 43,114
Assets $ 500,288 $ 189,760 $ (164,881) $ 525,167
SIX MONTHS ENDED JUNE 30, 2004
Net Sales
External customers $ 359,744 $ 116,752 $ -- $ 476,496
Intersegment sales 56,291 1,975 (58,266) --
---------- ---------- ---------- ----------
Total Net Sales $ 416,035 $ 118,727 $ (58,266) $ 476,496
========== ========== ========= ==========
Income from operations $ 35,705 $ (2,056) $ (2,300) $ 31,349
Assets $ 398,018 $ 186,401 $ (164,066) $ 420,353
</Table>
8
Product Information
The Company offers products primarily in three categories: new
trailers, used trailers and parts and service. Other sales include leasing
revenues, interest income from finance contracts and freight. The following
table sets forth the major product categories and their percentage of total net
sales (dollars in thousands):
<Table>
<Caption>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------------- ----------------------------------------------
2005 2004 2005 2004
-------------------- -------------------- -------------------- --------------------
$ % $ % $ % $ %
------- ----- ------- ----- ------- ----- ------- -----
New Trailers 290,344 89.9 223,044 87.5 515,081 89.0 414,524 87.0
Used Trailers 12,936 4.0 13,206 5.2 25,877 4.4 26,478 5.6
Parts & Service 15,740 4.9 14,947 5.9 30,196 5.2 28,334 5.9
Other 3,963 1.2 3,702 1.4 7,934 1.4 7,160 1.5
------- ----- ------- ----- ------- ----- ------- -----
Total Net Sales 322,983 100.0 254,899 100.0 579,088 100.0 476,496 100.0
======= ===== ======= ===== ======= ===== ======= =====
</Table>
8. INCOME TAXES
During the second quarter of 2005, management analyzed its projected
future income and determined that a portion of its previously reserved deferred
tax assets were more likely than not realizable based on criteria set forth in
SFAS No. 109, Accounting for Income Taxes. As a result, the Company reversed
$29.3 million of valuation allowance. In addition, the Company utilized $15.7
million of valuation allowance associated with current year income. The Company
will continue to reverse valuation allowances through December 31, 2005
associated with 2005 income. The following table provides a reconciliation of
differences from the U.S. Federal statutory rate:
<Table>
<Caption>
Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
---------------- ----------------
Pretax book income $ 38,442 $ 25,620
U.S. Federal tax expense at 35% statutory rate 13,455 8,967
U.S. Federal alternative minimum tax 1,095 507
State income taxes 1,850 1,271
Reversal of tax valuation allowance (29,304) --
Current utilization of net operating losses (15,720) (10,705)
Other (671) 459
-------- --------
Total income tax (benefit) expense $(29,295) $ 499
======== ========
</Table>
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 Wabash 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 Wabash, 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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations," describe factors, among others, that could
contribute to or cause such differences.
9
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 under the heading "Risk Factors" in our
Form 10-K for the year ended December 31, 2004 and elsewhere herein, including,
but not limited to, Item 5 of Part II hereof.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage
of net sales for the periods indicated:
<Table>
<Caption>
Percentage of Net Sales
------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2005 2004 2005 2004
------- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 88.8 85.6 87.8 87.5
------- ------- ------- -------
Gross profit 11.2 14.4 12.2 12.5
General and administrative expenses 3.2 4.1 3.4 4.3
Selling expense 1.2 1.5 1.4 1.6
------- ------- ------- -------
Income from operations 6.8 8.8 7.4 6.6
Interest expense 0.5 1.1 0.6 1.2
Foreign exchange gains and losses, net 0.1 0.2 0.1 0.1
Other, net 0.1 0.1 0.1 (0.1)
------- ------- ------- -------
Income before income taxes 6.1 7.4 6.6 5.4
Income tax (benefit) expense (9.2) 0.2 (5.1) 0.1
------- ------- ------- -------
Net income 15.3% 7.2% 11.7% 5.3%
======= ======= ======= =======
</Table>
The industry recovery that began in 2003 continues and it is expected
to accelerate over the balance of 2005 as production of trailers is anticipated
to increase from approximately 229,000 units in 2004 to approximately 264,000
units in 2005 according to ACT Research Company, LLC (ACT) estimates. The
expansion in production is predicated on a number of factors including improving
general economic conditions and pent-up trucking industry demand for replacement
units as the average age of trailer fleets increases. To date, Department of
Transportation regulations regarding driver hours (hours of service), which went
into effect on January 1, 2004, have had no discernible impact on our business.
We expect to participate in the industry growth because our core
customers are among the largest participants in the trucking industry, our
DuraPlate(R) trailer continues to have increased market acceptance and
penetration and we are expanding our presence into the middle market carriers -
approximately 1,250 carriers with fleet sizes ranging from 250 to 7,500 units.
We believe that Wabash is well positioned to benefit from any increased
demand for trailers because of the improvements that have been made over the
last three years. As a result of our continuous improvement initiatives, we have
reduced our total cost of producing a trailer and effectively increased
production capacity. In 2004, there was significant price volatility in our
principal raw materials, steel and timber. We experienced roughly a 5% increase
at the beginning of 2005 and our overall raw material and component prices have
remained reasonably constant since then. We anticipate there will be some modest
relief over the balance of the year.
10
THREE MONTHS ENDED JUNE 30, 2005
NET SALES
Net sales increased $68.1 million compared to the second quarter of
2004. By business segment, net external sales and related units sold were as
follows (dollars in millions):
<Table>
<Caption>
Three Months Ended June 30,
-----------------------------------------
2005 2004 % Change
---------- ---------- ----------
Sales by Segment: (millions)
Manufacturing $ 261.6 $ 195.7 34%
Retail and Distribution 61.4 59.2 4%
---------- ----------
Total $ 323.0 $ 254.9 27%
========== ==========
New trailers: (units)
Manufacturing 13,800 11,100 24%
Retail and Distribution 1,300 1,600 (19)%
---------- ----------
Total 15,100 12,700 19%
========== ==========
Used trailers 1,400 1,900 (26)%
========== ==========
</Table>
Manufacturing sales increased due to a combination of higher unit
volume and average selling prices per unit. The higher selling prices resulted
from aggressively passing through most increases in raw material costs.
Second quarter 2005 sales in the retail and distribution segment were
up $2.2 million compared to the prior year second quarter primarily as a result
of higher average selling prices for new trailers, in response to raw material
increases, despite a 19% decline in unit volume primarily due to the timing of
trailer shipments. Used trailer sales improved $1.0 million from the prior year
quarter as a result of higher average selling price due to strong market
conditions and changes in product mix, which more than offset continued
constraints on used equipment availability. Sales for parts and service were up
4.5% due to higher volume despite having three fewer full-service branches.
GROSS PROFIT
Gross profit decreased to $36.1 million for the second quarter of 2005
from $36.6 million in the second quarter of 2004. Gross profit as a percent of
sales was 11.2% for the quarter compared to 14.4% for the same period in 2004.
As discussed below, both of our segments contributed as follows (in millions):
<Table>
<Caption>
Three Months Ended June 30,
---------------------------------
2005 2004 $ Change
------- ------- --------
Gross Profit by Segment:
Manufacturing $ 30.4 $ 33.8 $ (3.4)
Retail and Distribution 5.6 5.1 0.5
Eliminations 0.1 (2.3) 2.4
------- ------- -------
Total Gross Profit $ 36.1 $ 36.6 $ (0.5)
======= ======= =======
</Table>
The manufacturing segment's gross profit as a percentage of sales was
11.6% in 2005, a 5.7 percentage point decline from the prior year quarter.
Average per trailer raw material costs, including the effects of product mix,
increased approximately 15% from the prior year quarter, which we were able to
partially offset through selling price increases. Our product mix in the second
quarter of 2005 included a larger portion of lower margin container, double and
FreightPro(R) units than the comparable 2004 quarter. Our labor and overhead
efficiency declined compared to the prior year period due to production delays
related to employee turnover, an order cancellation that required reconfiguring
the production schedule that negatively impacted line speed, and a sharper focus
on quality. The 2005 period was negatively impacted by additional warranty
reserve requirements of $1.1 million for trailers produced prior to 2003, while
the 2004 period received a benefit of $1.4 million related to specific warranty
issues. We had an increase in trailer delivery costs of $1.4 million. The 2004
period also included $0.7 million from the favorable outcome of residual
contingencies. A positive impact resulted from increased unit volume, but at a
lower margin rate than the prior year.
11
The retail and distribution segment's gross profit as a percent of
sales was 9.1% in the second quarter 2005 compared to 8.6% in the 2004 period.
Service margins were up for the quarter primarily due to the positive impact of
continuous improvement initiatives resulting in improved overhead efficiencies.
Used trailer margins were up in the 2005 period due to the overall strength of
the used trailer market. New trailer margins were flat compared to the 2004
period. The 2004 quarter included $1.1 million of profit related to
RoadRailer(R) bogies from our finance and leasing business.
OTHER INCOME (EXPENSE)
Interest expense totaled $1.6 million for the quarter ended June 30,
2005, a decrease of $1.2 million from the prior year period primarily due to
reduced average borrowings.
INCOME TAXES
During the second quarter of 2005, we analyzed our projected future
income and determined that a portion of our previously reserved deferred tax
assets were more likely than not realizable based on criteria set forth in SFAS
No. 109, Accounting for Income Taxes. As a result, we reversed $29.3 million of
valuation allowance. In addition, we utilized $15.7 million of valuation
allowance associated with current year income. We will continue to reverse
valuation allowances through December 31, 2005 associated with 2005 income. We
recognized income tax expense of $0.5 million in the 2004 period primarily
related to Federal and state alternative minimum tax (AMT). Based on current
estimates, we believe we have sufficient tax net operating loss (NOL)
carryforwards to offset income tax liabilities which would otherwise arise
during 2005.
SIX MONTHS ENDED JUNE 30, 2005
NET SALES
Net sales increased $102.6 million compared to the 2004 period. By
business segment, net external sales and related units sold were as follows:
<Table>
<Caption>
Six Months Ended June 30,
---------------------------------------
2005 2004 % Change
---------- ---------- --------
Sales by Segment: (millions)
Manufacturing $ 455.7 $ 359.7 27%
Retail and Distribution 123.4 116.8 6%
---------- ----------
Total $ 579.1 $ 476.5 22%
========== ==========
New trailers: (units)
Manufacturing 23,400 20,900 12%
Retail and Distribution 2,900 3,100 (6)%
---------- ----------
Total 26,300 24,000 10%
========== ==========
Used trailers 2,800 3,800 (26)%
========== ==========
</Table>
Manufacturing sales increased due to higher volumes and average selling
prices per unit. The increase in selling prices resulted from aggressively
passing through increases in raw material costs and a change in customer mix,
which included sales to core accounts of approximately 27% in the first six
months of 2005 compared to approximately 37% in the prior year period.
First half 2005 sales in the retail and distribution segment were up
$6.6 million compared to the prior year period primarily as a result of higher
average selling prices for new trailers as unit volume was down slightly. A
modest increase in used trailer sales was achieved despite continued inventory
constraints as average selling price was positively impacted by market
conditions and product mix. Sales for parts and service increased due to higher
volume despite having three fewer full-service branches.
12
GROSS PROFIT
Gross profit for the first six months of 2005 increased to $70.5
million compared to $59.8 million for the first six months of 2004. Gross profit
as a percent of sales was 12.2% compared to 12.5% for the same period in 2004.
As discussed below, both of our segments contributed as follows (in millions):
<Table>
<Caption>
Six Months Ended June 30,
---------------------------------
2005 2004 $ Change
------- ------- --------
Gross Profit by Segment:
Manufacturing $ 61.4 $ 54.0 $ 7.4
Retail and Distribution 10.5 8.1 2.4
Eliminations (1.4) (2.3) 0.9
------- ------- -------
Total Gross Profit $ 70.5 $ 59.8 $ 10.7
======= ======= =======
</Table>
The manufacturing segment's gross profit as a percentage of sales was
13.5% in 2005, a 1.5 percentage point decrease from the prior year period.
Average per trailer raw material costs, including the effects of product mix,
increased approximately 18% from the prior period, which we were able to more
than offset through selling price increases in the first half of 2005. The
product mix for the first six months of 2005 included a larger percentage of
lower margin container, double and FreightPro(R) units than the comparable 2004
period. Our labor and overhead efficiency declined compared to the prior year
period primarily due to production delays resulting from employee turnover,
order cancellations and a sharper focus on quality experienced in the second
quarter of 2005. The 2005 period was negatively impacted by additional warranty
reserve requirements of $1.1 million for trailers produced prior to 2003, while
the 2004 period received a benefit of $1.4 million related to specific warranty
issues. We had an increase in trailer delivery costs of $1.7 million. The 2004
period also benefited from the favorable outcome of residual contingencies of
$0.7 million. A positive impact resulted from a 12% increase in unit volume, but
at a lower margin rate than the prior year.
The retail and distribution segment continued to attain positive gross
profit improvement for the first six months of 2005 through favorable market
conditions and internal initiatives. Gross profit as a percent of sales improved
to 8.5% in the 2005 period from 6.9% in the 2004 period. Service margins were up
for the six months of 2005 primarily due to the positive impact of continuous
improvement initiatives. Used trailer margins were up in the 2005 period due to
the overall strength of the used trailer market. New trailer and parts margins
improved slightly in the 2005 period. The 2004 period included a $1.1 million of
profit related to RoadRailer(R) bogies from our finance and leasing business.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $1.4 million in the first
six months of 2005 to $19.4 million from $20.8 million in the prior year period
primarily due to reductions in outside professional fees and compensation costs.
SELLING EXPENSE
Selling expense increased $0.4 million to $8.0 million in the first six
months of 2005, compared to $7.6 million in the prior year period.
OTHER INCOME (EXPENSE)
Interest expense totaled $3.2 million for the six months ended June 30,
2005, a decrease of $2.4 million from the prior year period primarily due to
reduced average borrowings.
Other, net for the six months ended June 30, 2005 was an expense of
$1.0 million compared to income of $0.5 million in the 2004 period. The 2005
expense relates to the disposition of non-operating assets. The 2004 income
included gains on the sale of closed properties, partially offset by write-downs
of non-operating assets.
13
INCOME TAXES
During the second quarter of 2005, we analyzed our projected future
income and determined that a portion of our previously reserved deferred tax
assets were more likely than not realizable based on criteria set forth in SFAS
No. 109. As a result, we reversed $29.3 million of valuation allowance. In
addition, we utilized $15.7 million of valuation allowance associated with
current year income. We will continue to reverse valuation allowances through
December 31, 2005 associated with 2005 income. We recognized income tax expense
of $0.5 million in the 2004 period primarily related to Federal and state AMT.
Based on current estimates, we believe we have sufficient tax NOL carryforwards
to offset income tax liabilities which would otherwise arise during 2005.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL STRUCTURE
Today, our capital structure is comprised of a mix of equity and debt.
As of June 30, 2005, our debt to equity ratio is approximately 1:2. Our
objective is to generate operating cash flows sufficient to satisfy normal
requirements for working capital and capital expenditures and be positioned to
take advantage of market opportunities.
CASH FLOW
Cash provided by operating activities at June 30, 2005 amounted to $4.7
million, a decrease of $1.6 million from the prior year period as increases in
working capital were partially offset by a $12.8 million increase in net income
(adjusted for non-cash items). The following is a discussion of factors
impacting certain working capital items in the first six months of 2005 compared
to the first six months of 2004.
- Accounts receivables increased $22.1 million in 2005 compared to
$28.0 million in 2004. Days sales outstanding, a measure of
working capital efficiency that measures the amount of time a
receivable is outstanding, was 31 days at June 30, 2005, a
decrease of four days versus the prior year.
- Inventory increased $45.4 million in 2005 compared to $20.5 in
2004. Inventory turns, a commonly used measure of working capital
efficiency that measures how quickly inventory turns, were
approximately eight times which is consistent with the prior
year. The inventory increases are primarily due to a change in
production levels, price increases and higher new trailer
inventories.
- Accounts payable and accrued liabilities increased approximately
$21.1 million in 2005 compared to $17.7 million in 2004 in line
with increases in raw materials and finished goods inventories.
Investing activities used $7.9 million in the first six months of 2005,
a change of $6.1 million from the first six months of 2004 resulting primarily
from increased capital spending.
Financing activities provided $1.2 million during the first six months
of 2005, a change of $12.6 million from the first six months of 2004 primarily
due to reduced payments under our revolving credit facility.
Capital Expenditures
Capital spending amounted to approximately $13.8 million for the first
six month period of 2005 and is anticipated to be in the range of $25 million -
$35 million for 2005.
Outlook
We faced several challenges in the second quarter of 2005, such as
employee turnover, the cancellations of 2,000 units for the balance of 2005, and
a renewed focus on improving the level of outgoing product quality, which
resulted in lower throughput and decreased line speeds. We have taken immediate
steps to put processes in place to better manage our temporary staffing and
shifts to meet production requirements now and in the future. Likewise, our
commitment to quality is an acknowledgement that, while we have made significant
strides in this area over the last three years, we are not where we want to be
and have put measures in place to reach that level.
14
Despite our near term challenges, the fundamentals for growth continue,
our customers remain positive, our backlog and order quoting remains strong and
we are seeing firmness in the economy, which are all signs pointing in a
positive direction.
ACT estimates that production of trailers in 2005 will be approximately
264,000 units. The continued expansion in production is predicated on a number
of factors including improving general economic conditions and pent-up trucking
industry demand for replacement units as the average age of trailer fleets
increases.
We expect to participate in the industry growth because (1) our core
customers are among the dominant participants in the trucking industry, (2) our
DuraPlate(R) trailer continues to have increased market acceptance, (3) our
focus on developing solutions that reduce our customers trailers maintenance
costs, and (4) the success we are achieving expanding our presence into the
middle market carriers - approximately 1,250 carriers with fleet sizes ranging
from 250 to 7,500 units that represent a fleet that totals approximately one
million trailers. Thus far in 2005, we have added 33 new middle market customers
representing orders of approximately 5,300 units which will be produced over the
next several years.
We believe that Wabash is well positioned to benefit from an increased
demand for trailers because of the improvements that have been made over the
last three years. As a result of our continuous improvement initiatives, we have
reduced the cost of producing a trailer and effectively increased production
capacity.
As of June 30, 2005, our liquidity position, defined as cash on hand
and available borrowing capacity, amounted to approximately $158.1 million and
total debt and lease obligations amounted to approximately $132.6 million
(including $6.1 million of operating lease commitments). We expect that in 2005,
we will be able to generate sufficient cash flow from operations to fund working
capital and capital expenditure requirements.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
We have included a summary of our Contractual Obligations and
Commercial Commitments in our annual report on Form 10-K for the year ended
December 31, 2004, filed on March 3, 2005. There have been no material changes
to the summary provided in that report.
OFF-BALANCE SHEET TRANSACTIONS
As of June 30, 2005, we had approximately $6.1 million in operating
lease commitments. During the second quarter of 2005, we entered into a $2.2
million three-year lease of computer equipment. Future minimum lease payments
for this lease amount to $0.8 million per year.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have included a summary of our Critical Accounting Estimates in our
annual report on Form 10-K for the year ended December 31, 2004, filed on March
3, 2005. There have been no material changes to the summary provided in that
report.
BACKLOG
Orders that have been confirmed by the customer in writing and can be
produced during the next 18 months are included in backlog. Orders that comprise
the backlog may be subject to changes in quantities, delivery, specifications
and terms. Our backlog of orders was approximately $380 million at June 30, 2005
compared to $500 million at March 31, 2005 and $280 million at December 31,
2004. We expect to complete the majority of our existing backlog orders within
the next twelve months.
CUSTOMER CREDIT RISK
We sublease certain highly specialized RoadRailer(R) equipment to Grupo
Transportation Marititma Mexicana SA (TMM), who is experiencing financial
difficulties. In August 2004, TMM completed the restructuring
15
of its debt agreements and has sold certain assets. Customer payments, which
have historically been timely, are behind schedule. The customer owes us $6.6
million secured by highly specialized RoadRailer(R) equipment, which due to the
nature of the equipment, has a minimal recovery value.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
In addition to the risks inherent in our operations, we have 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 our exposure to these risks.
a. COMMODITY PRICE RISKS
We are exposed to fluctuation in commodity prices through the purchase
of raw materials that are processed from commodities such as aluminum, steel,
wood and polyethylene. Given the historical volatility of certain commodity
prices, this exposure can significantly impact product costs. We may manage
aluminum price changes by entering into fixed price contracts with our
suppliers. As of June 30, 2005, we had outstanding purchase commitments of
approximately $25.6 million through December 2005 for materials that will be
used in the production process. Because we typically do not set prices for our
products more than 45-90 days in advance of our commodity purchases, we can take
into account the cost of the commodity in setting our prices for each order. To
the extent that we are unable to offset the increased commodity costs in our
product prices, our results would be materially and adversely affected.
b. INTEREST RATES
As of June 30, 2005, we had no floating rate debt outstanding.
c. FOREIGN EXCHANGE RATES
We are subject to fluctuations in the Canadian dollar exchange rate
that impact intercompany transactions with our Canadian subsidiary, as well as
U.S. denominated transactions between the Canadian subsidiaries and unrelated
parties. A five cent change in the Canadian exchange rate would result in an
approximately $0.8 million impact on results of operations. We do not hold or
issue derivative financial instruments for speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Based on an evaluation under the supervision and with the participation
of our management, our principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 14a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (Exchange Act)) were effective as of June 30, 2005.
CHANGES IN INTERNAL CONTROLS
There were no changes in our internal control over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the
second quarter of fiscal 2005 that have materially affected or are reasonably
likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no material changes in legal proceedings from the items
disclosed in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
16
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of stockholders on May 12, 2005, at which
time the stockholders of Wabash voted on the following item:
1. The election of eight members of the Board of Directors of Wabash
National.
The following nominees for directors were elected on the following
votes:
<Table>
<Caption>
NOMINEES FOR WITHHELD AUTHORITY TO VOTE
-------- ---------- --------------------------
David C. Burdakin 29,680,683 142,532
William P. Greubel 29,680,483 142,732
John T. Hackett 28,685,773 1,137,442
Martin C. Jischke 28,692,584 1,130,631
Stephanie K. Kushner 28,699,352 1,123,863
Larry J. Magee 29,590,917 232,298
Scott K. Sorensen 29,590,516 232,699
Ronald L. Stewart 29,679,333 143,882
</Table>
ITEM 5. OTHER INFORMATION
RISK FACTORS
You should carefully consider the risks described in our Form 10-K for
the year ended December 31, 2004, including those under the heading "Risk
Factors" appearing in Item 7B of Part II of the Form 10-K, in addition to risk
factors discussed below and other information contained or incorporated by
reference in this Report before investing in our securities. Realization of any
of the following risks could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
WE ARE IN THE INITIAL STAGES OF A PROJECT TO IMPLEMENT A COMPANY-WIDE ENTERPRISE
RESOURCE PLANNING (ERP) SYSTEM, AND IF OUR IMPLEMENTATION IS UNSUCCESSFUL OR
PROVES MORE COSTLY THAN EXPECTED OUR BUSINESS COULD BE HARMED.
The project to implement a new ERP system is in its initial stages. Our
new ERP system is expected to integrate departments and functions across the
Company, enhance the ability to service customers and improve our control
environment. We may encounter delays and unforeseen costs in this process. If we
are unable to implement the ERP system successfully, we may not be able to
properly serve our customers or realize expected efficiencies.
WE MAY NOT BE SUCCESSFUL IN OUR PLANS TO UPGRADE OUR PRODUCTION LINES AND
REALIZE INCREASED LEVELS OF EFFICIENCY.
In 2005, we began the first phase of what is planned to be a four-phase
three-year project to replace four trailer assembly lines using technology
adapted from the automotive industry at a cost of approximately $10 million per
line. Our costs to replace the lines could exceed our estimates, the technology
may not work as planned and we may not be able to meet our estimated timeline.
Even if we are successful in replacing the production lines, we may not realize
the level of costs savings that we estimate.
17
ITEM 6. EXHIBITS
(a) Exhibits:
31.01 Certification of Principal Executive Officer
31.02 Certification of Principal Financial Officer
32.01 Written Statement of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WABASH NATIONAL CORPORATION
Date: August 5, 2005 By: /s/ Robert J. Smith
-------------------
Robert J. Smith
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
18