<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[X] THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1999
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
[ ] THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 1-10883
-------
WABASH NATIONAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1375208
------------------------ ----------------------
(State of Incorporation) (IRS Employer
Identification Number)
1000 Sagamore Parkway South,
Lafayette, Indiana 47905
- ---------------------------- ----------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (765) 771-5300
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
The number of shares of common stock outstanding at May 14, 1999 was 22,965,090.
<PAGE> 2
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Income
for the three months ended March 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE> 3
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- -----------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30,674 $ 67,122
Accounts receivable, net 125,920 92,872
Current portion of finance contracts 7,169 7,603
Inventories 259,214 225,385
Prepaid expenses and other 10,376 19,833
--------- ---------
Total current assets 433,353 412,815
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net 146,003 136,001
--------- ---------
EQUIPMENT LEASED TO OTHERS, net 37,656 43,066
--------- ---------
FINANCE CONTRACTS, net of current portion 63,079 66,369
--------- ---------
INTANGIBLE ASSETS, net 32,057 32,637
--------- ---------
OTHER ASSETS 15,047 13,598
--------- ---------
$ 727,195 $ 704,486
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES:
Current maturities of long-term debt $ 2,737 $ 3,089
Accounts payable 122,598 108,963
Accrued liabilities 37,611 29,507
--------- ---------
Total current liabilities 162,946 141,559
--------- ---------
LONG-TERM DEBT, net of current maturities 163,731 165,215
--------- ---------
DEFERRED INCOME TAXES 30,518 31,849
---------- ---------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 19,160 20,087
---------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, aggregate liquidation value of $30,600 5 5
Common stock, 22,965,090 shares issued and outstanding 230 230
Additional paid-in capital 236,127 236,127
Retained earnings 115,757 110,693
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
--------- ---------
Total stockholders' equity 350,840 345,776
--------- ---------
$ 727,195 $ 704,486
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE> 4
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $341,624 $293,612
COST OF SALES 314,399 267,724
-------- --------
Gross profit 27,225 25,888
GENERAL AND ADMINISTRATIVE EXPENSES 7,180 6,302
SELLING EXPENSES 5,038 2,978
-------- --------
Income from operations 15,007 16,608
OTHER INCOME (EXPENSE)
Interest expense (3,013) (4,649)
Accounts receivable securitization costs (1,430) (94)
Equity in losses of unconsolidated affiliate (1,000) (500)
Other, net 1,229 260
-------- --------
Income before income taxes 10,793 11,625
PROVISION FOR INCOME TAXES 4,426 4,667
-------- --------
Net income $ 6,367 $ 6,958
PREFERRED STOCK DIVIDENDS 443 264
-------- --------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ 5,924 $ 6,694
======== ========
Earnings per share:
Basic $ 0.26 $ 0.34
Diluted $ 0.26 $ 0.33
======== ========
Cash dividends per share $ 0.0375 $ 0.035
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 5
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31
---------------------------
1999 1998
---------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,367 $ 6,958
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization 4,938 4,257
Gain on sale of property, plant and equipment (624) ---
Bad debt provision 740 393
Deferred income taxes (2,252) 1,270
Equity in losses of unconsolidated affiliate 1,000 500
Change in operating assets and liabilities:
Accounts receivable (33,788) 29,710
Inventories (33,829) (12,691)
Prepaid expenses and other 10,378 1,711
Accounts payable and accrued liabilities 21,739 21,847
Other, net (935) (30)
--------- --------
Net cash (used in) provided by operating activities (26,266) 53,925
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,393) (4,150)
Net reduction (addition) to equipment leased to others 1,302 (1,549)
Net additions to finance contracts (3,996) (10,947)
Investment in unconsolidated affiliate (562) (361)
Proceeds from the sale of property, plant and equipment 1,182 ---
Proceeds from sale of leased equipment and finance contacts 7,211 9,265
Principal payments on finance contracts 2,322 1,738
Other, net (109) (6)
--------- --------
Net cash used in investing activities (7,043) (6,010)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Long-term debt --- ---
Long-term revolver --- 97,000
Common stock --- 27
Payments:
Long-term debt (1,836) (944)
Long-term revolver --- (136,300)
Common stock dividends (860) (698)
Preferred stock dividends (443) (264)
--------- --------
Net cash used in financing activities (3,139) (41,179)
--------- --------
NET (DECREASE) INCREASE IN CASH (36,448) 6,736
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 67,122 14,647
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 30,674 $ 21,383
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 6
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
financial statements and the notes thereto included in the Company's 1998 Annual
Report on Form 10-K.
In the opinion of the registrant, the accompanying financial statements
contain all material adjustments (consisting only of normal recurring
adjustments), necessary to present fairly the consolidated financial position of
the Company at March 31, 1999 and December 31, 1998 and its results of
operations and cash flows for the three months ended March 31, 1999 and 1998.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. New Accounting Pronouncements
The Company adopted SFAS No. 130, Reporting Comprehensive Income,
during 1998. SFAS No. 130 established standards for reporting and display of
"comprehensive income" and its components. Comprehensive income is not reported
in the accompanying Condensed Consolidated Financial Statements as the Company
had no items of Other Comprehensive Income for the periods presented.
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (beginning of fiscal year 2000 for the Company). This statement
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Management anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a significant
effect on the Company's results of operations or its financial position.
The Company adopted Statement of Position No. 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, during the
first quarter of 1999. This pronouncement specifies the appropriate accounting
for costs incurred to develop or obtain computer software for internal use. The
new pronouncement provides guidance on which costs should be capitalized, when
and over what period such costs should be amortized and what disclosures should
be made regarding such costs. The adoption of this pronouncement did not have a
material effect on the Company's results of operations or financial position.
4
<PAGE> 7
b. Reclassifications
Certain items previously reported in specific consolidated financial
statement captions have been reclassified to conform with the 1999 presentation.
NOTE 3. INVENTORIES
Inventories consisted of the following (in thousands):
March 31, December 31,
1999 1998
-------- -----------
(Unaudited)
Raw material and components $114,244 $104,174
Work in process 20,555 12,159
Finished goods 50,385 44,743
Aftermarket parts 31,304 28,733
Used trailers 42,726 35,576
-------- --------
$259,214 $225,385
======== ========
NOTE 4. SEGMENTS
Under the provisions of SFAS No. 131, the Company has three reportable
segments; manufacturing, retail and distribution and leasing and finance
operations. The manufacturing segment principally produces trailers and related
components and sells to customers who purchase directly from the Company or
through independent dealers. The manufacturing segment also produces trailers
and related components for the retail and distribution segment. The retail and
distribution segment sells new and used trailers, aftermarket parts, and
performs service repair on used trailers through its retail branch network. The
leasing and finance segment provides leasing and finance programs to its
customers for new and used trailers.
Reportable segment information is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Retail and Leasing Combined Consolidated
March 31, 1999 Manufacturing Distribution and Finance Segments Eliminations Totals
- ---------------------- ------------- ------------ ----------- -------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
(unaudited)
Revenues
External customers $259,002 $72,530 $10,092 $341,624 $ --- $ 341,624
Intersegment sales 14,159 28 2,421 16,608 (16,608) ---
-------- ------- ------- -------- --------- ---------
Total Revenues $273,161 $72,558 $12,513 $358,232 $ (16,608) $ 341,624
======== ======= ======= ======== ========= =========
Income from Operations $ 13,266 $ 733 $ 1,293 $ 15,292 $ (285) $ 15,007
Three Months Ended
March 31, 1998
- ----------------------
(unaudited)
Revenues
External customers $219,700 $68,167 $ 5,745 $293,612 $ --- $ 293,612
Intersegment sales 36,748 173 85 37,006 (37,006) ---
-------- ------- ------- -------- --------- ---------
Total Revenues $256,448 $68,340 $ 5,830 $330,618 $ (37,006) $ 293,612
======== ======= ======= ======== ========= =========
Income from Operations $ 12,248 $ 2,704 $ 1,409 $ 16,361 $ 247 $ 16,608
</TABLE>
5
<PAGE> 8
NOTE 5. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and
diluted EPS computations, as required by SFAS No. 128, is presented below (in
thousands except per share amounts):
Weighted
Average Earnings
Income Shares Per Share
-----------------------------------
(Unaudited)
Three Months Ended March 31, 1999
- ------------------------------------
Basic $5,924 22,965 $0.26
Options --- ---
Preferred Stock --- ---
- ------------------------------------ ----------------------
Diluted $5,924 22,965 $0.26
==================================== ===================================
Three Months Ended March 31, 1998
- ------------------------------------
Basic $6,694 19,956 $0.34
Options --- 145
Preferred Stock 264 823
- ------------------------------------ ----------------------
Diluted $6,958 20,924 $0.33
==================================== ===================================
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months
Ended March 31,
---------------------
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Cash paid during the period for: (unaudited)
Interest, net of amounts capitalized $2,856 $4,639
Income taxes 1,555 181
- --------------------------------------------------------------------------------
NOTE 7. 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 and possible tax assessments. None of these claims
are expected to have a material adverse effect on the Company's financial
position or its annual results of operations.
From January 22, 1999 through February 24, 1999, five purported class
action complaints were filed against the Company and certain of its officers in
the United States District Court for the Northern District of Indiana. The five
actions are captioned: John R. Hansel v. Wabash National Corporation, et al.,
No. 4:99CV0003AS; Trust Advisors Equity Plus LLC v. Wabash National Corporation,
et al., No. 4:99CV0006AS; Dana L. Manner v. Wabash National Corporation, et al.,
No. 4:99CV0009AS; Charles Curtis Lester Trust & G. Bruce Cameron v.
6
<PAGE> 9
Wabash National Corporation, et al., No. 4:99CV0012AS; and Miranda Living Trust
v. Wabash National Corporation, et al., No. 4:99CV0014AS. The complaints purport
to be brought on behalf of a class of investors who purchased the Company's
common stock between April 20, 1998 and January 15, 1999. The complaints allege
that the Company violated Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated under the Act by disseminating false and misleading
financial statements and reports respecting the first three quarters of the
Company's fiscal year 1998. The complaints seek unspecified compensatory damages
and attorney's fees, as well as other relief. In addition, on March 23, 1999
another purported class action lawsuit, captioned Jaime Vizcaino Ira et al v.
Wabash National Corporation et al., No. 499CV0019AS, was also filed in the
United States District Court for the Northern District of Indiana, naming the
Company, its directors and the underwriters of the Company's April 1998 public
offering. That complaint alleges that the Company and the individual defendants
violated Section 11 of the Securities Act of 1933, and the Company and the
underwriters are liable under Section 12 of that Act, by making untrue
statements of material fact in and omitting material facts from the prospectus
used in that offering. The complaint also alleges that the individual defendants
are liable as "controlling persons" under the Securities Act. The complaint
seeks unspecified compensatory damages and attorney's fees, as well as other
relief. Both the Securities Exchange Act complaints and the Securities Act
complaint arise out of the restatement of the Company's financial statements for
the first three quarters of 1998. At a hearing on May 10, 1999, Judge Allen
Sharp consolidated the six pending cases and established a schedule for further
proceedings. Although an order reflecting the Court's ruling has not yet been
entered, selected lead plaintiffs may amend their complaints not later than July
6, 1999 and defendants may file motions to dismiss the complaints not later than
September 7, 1999. Plaintiffs' opposing briefs will be due on October 4, 1999,
and any reply by defendants will be due not later than October 11, 1999. The
Court has not yet scheduled a hearing on the anticipated motions to dismiss.
The Company believes the allegations are without merit, and intends to defend
itself and its directors and officers vigorously. The Company believes the
resolution of the lawsuits, including any Company indemnification obligations to
its officers and directors and to the underwriters of its April 1998 public
offering, will not have a material adverse effect on its financial position or
future results of operations; however, no assurance can be given as to the
ultimate outcome of these lawsuits.
b. Environmental
The Company generates and handles certain material, wastes and
emissions in the normal course of operations that are subject to various and
evolving Federal, state and local environmental laws and regulations.
The Company assesses its environmental liabilities on an on-going basis
by evaluating currently available facts, existing technology, presently enacted
laws and regulations as well as experience in past treatment and remediation
efforts. Based on these evaluations, the Company estimates a lower and upper
range for the treatment and remediation efforts and recognizes a liability for
such probable costs based on the information available at the time. As of March
31, 1999, the estimated potential exposure for such costs ranges from
approximately $0.7 million to approximately $2.7 million, for which the Company
has a reserve of approximately $1.5 million. These reserves were recorded for
exposures associated with the costs of environmental remediation projects to
address soil and ground water contamination at certain of its facilities as well
as the costs of removing underground storage tanks at its branch service
locations. The possible recovery of insurance proceeds has not been considered
in the Company's estimated contingent environmental costs.
7
<PAGE> 10
The Company acquired two new manufacturing sites in July, 1998 in
connection with the Cloud acquisition and voluntarily disclosed to the United
States Environmental Protection Agency (EPA) and the Arkansas Department of
Pollution Control and Ecology (ADPC&E) potential soil and groundwater
contamination. In association with both the EPA and the ADPC&E, the Company has
submitted a sampling plan to ADPC&E for monitoring and any required remediation.
This matter is at an early stage and it is not possible to predict the outcome
with certainty. The Company has recorded a reserve of $1.0 million related to
these issues based on current available information and does not believe the
outcome of this matter will be material to the consolidated results of
operations or financial condition of the Company. The Company is indemnified by
the Sellers of the acquired companies and the Company believes that these
matters would be covered by the indemnification.
Future information and developments will require the Company to
continually reassess the expected impact of these environmental matters.
However, the Company has evaluated its total environmental exposure based on
currently available data and believes that compliance with all applicable laws
and regulations will not have a materially adverse effect on the consolidated
financial position of the Company.
c. Tax Assessment
On December 24, 1998, the Company received notice from the Internal
Revenue Service that it intends to assess federal excise tax on certain used
trailers restored by the Company during 1996 and 1997. The Company strongly
disagrees with and intends to vigorously contest the assessment. In applying
generally accepted accounting principles, the Company recorded a $4.6 million
accrual in 1998 for this loss contingency and is reflected in the accompanying
Condensed Consolidated Balance Sheets. The Company continued the restoration
program with the same customer during 1998. 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 $2.4 million for 1998 and is reflected in the accompanying
Condensed Consolidated Balance Sheets.
d. Year 2000
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not addressed,
the impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects of
the Year 2000 Issue affecting an entity, including those related to the efforts
of customers, suppliers, or other third parties, will be fully resolved.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and the information incorporated by reference, may include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. We intend the forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements in these sections. All statements regarding our expected financial
position, operating results and our business strategy are forward-looking
statements. These statements can sometimes be identified by our use of
forward-looking words such as "may," "will," "anticipate," "estimate," "expect,"
or "intend." Known and unknown risks, uncertainties and other factors could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.
Although we believe that our expectations that are expressed in these
forward-looking statements are reasonable, we cannot promise that our
expectations will turn out to be correct. Our actual results could be materially
different from and worse than our expectations. Important risks and factors that
could cause our actual results to be materially different from our expectations
include the factors that are listed in our Registration Statement on Form S-3
(SEC File No. 333-48589).
RESULTS OF OPERATIONS
The Company has three reportable business segments;
- manufacturing,
- retail and distribution, and
- leasing and finance operations
The manufacturing segment principally produces trailers and related components
and sells to customers who purchase directly from the Company or through
independent dealers. The manufacturing segment also produces trailers and
related components for the Company's retail and distribution segment. The retail
and distribution segment sells new and used trailers, aftermarket parts, and
performs service repair on used trailers through its retail branch network.
Leasing and finance operations segment provides leasing and finance programs to
its customers for new and used trailers.
Net Sales
Consolidated net sales for the first quarter of 1999 increased
approximately $48.0 million or 16.4% compared to the same period in 1998. Sales
increased in all of the Company's operating segments.
The manufacturing segment's net sales rose 17.9% or $39.3 million in
the first quarter of 1999 compared to the same period in 1998. This increase was
driven by a 9.0% increase in the average price per unit sold coupled with an
increase of 7.8% in the number of new trailers sold, from approximately 13,000
units in the first quarter of 1998 to approximately 14,000 in the first quarter
of 1999. The manufacturing segment's production mix continues to improve as a
result of the strong demand for the Company's proprietary DuraPlate(TM) trailer.
9
<PAGE> 12
The retail and distribution segment's net sales rose 6.4% or $4.4
million in the first quarter of 1999 compared to the same period in 1998. This
increase was primarily driven by an 87.7% increase in used trailer revenues
partially offset by a decrease in new trailer revenues, aftermarket parts
revenues and service revenues of 17.2%, 1.8% and 19.3%, respectively. The
increase in used trailer revenues is a result of the Company's strategy to
increase its used trailer marketing efforts and capacity through its retail
branch network, particularly related to used trailers taken in trade on new
trailer transactions. The decrease in new trailer revenues, aftermarket parts
revenues and service revenues was primarily the result of lost sales due to
inclement weather conditions throughout the mid-western part of the country
during the first quarter of 1999, as well as the temporary adverse impact caused
by the Company's consolidation of its two aftermarket parts operations. The
number of new trailers sold in the retail and distribution segment declined from
approximately 1,300 units in the first quarter of 1998 to approximately 950
units in the first quarter of 1999.
The leasing and finance segment's net sales rose 75.7% or $4.3 million
in the first quarter of 1999 compared to the same period in 1998 due to a $4.4
million increase in the sale of used trailers that had previously been leased.
Gross Profit
Gross profit as a percentage of sales totaled 8.0% for the first
quarter of 1999 compared to 8.8% for the same period in 1998. Gross profit was
impacted by an improved product mix toward more proprietary products and
reduced material costs (specifically hardwood flooring costs) following the
Company's July, 1998 acquisition of the Cloud Companies. However, more than
offsetting this improvement was the temporary adverse impact caused by the
Company's consolidation of its two aftermarket parts operations, a higher
proportion of used trailer sales at lower gross profit percentages than the
consolidated margin and operating inefficiencies in its manufacturing and retail
and distribution businesses as a result of the severe adverse weather conditions
during the first quarter.
Income From Operations
Income from operations for the first quarter of 1999 as a percentage of
net sales was 4.4% compared to 5.6% for the same period in 1998. Income from
operations in 1999 was impacted primarily by the decrease in gross profit
margins previously discussed as well as increased selling, general and
administrative expenses. The increase in selling, general and administrative
expenses primarily reflects increased selling expenses incurred in the retail
and distribution segment principally to support increased used trailer sales, as
previously discussed, as well as other sales related expenses in the
manufacturing segment associated with higher sales volume.
10
<PAGE> 13
Interest Expense
Interest expense for the three month period ended March 31, 1999
totaled $3.0 million compared to $4.6 million in the same period in 1998. The
decrease in interest expense primarily reflects lower borrowings on the
Company's revolving credit facility during 1999 as a result of the cash
generated from the Company's accounts receivable securitization facility
established in March 1998 and the Company's April 1998 common stock offering.
Taxes
The provision for income taxes for the three month period ended March
31, 1999 and 1998 of $4.4 million and $4.7 million respectively, represents
41.0% and 40.1% of pre-tax income for the periods. The effective tax rates are
higher than the Federal statutory rates of 35% due primarily to state income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash used in operating activities was $26.3 million during the
first three months of 1999 primarily as a result of net income, the add-back of
non-cash charges for depreciation and amortization, and changes in working
capital. Changes in working capital consisted primarily of increased inventory
and accounts receivable balances due to higher sales activity, particularly
during the last month of the quarter, offset by related increases in accounts
payable and accrued liabilities. In addition, a refund for the overpayment of
income taxes in 1998 resulted in a favorable decrease in Prepaid expenses and
other.
On March 31, 1998, the Company replaced its existing $40 million
receivable sale and servicing agreement with a new three-year trade receivable
securitization facility. The new facility allows the Company to sell, without
recourse on an on-going basis, all of its accounts receivable to Wabash Funding
Corporation (Funding Corp.), a wholly-owned unconsolidated subsidiary of the
Company. Simultaneously, the Funding Corp. has sold and, subject to certain
conditions, may from time to time sell an undivided interest in those
receivables to a large financial institution. At March 31, 1998 and 1999, $83
million and $105 million of proceeds, respectively, were outstanding under this
facility.
Investing Activities
Net cash used in investing activities of $7.0 million during the first
three months of 1999 was primarily due to capital expenditures of $14.4 million
partially offset by a $6.8 million net cash inflow related to the reduction in
the Company's leasing portfolio.
Capital expenditures during the period were associated with the
following:
- increasing productivity within the Company's manufacturing
operations in Lafayette, Indiana;
- development of a new state of the art painting and coating system
and plant expansion at its trailer manufacturing facility in
Huntsville, Tennessee;
- increasing capacity and manufacturing productivity at its hardwood
flooring operations in Arkansas;
11
<PAGE> 14
- the acquisition of property related to the Company's branch
expansion strategy;
- the development of a new computer system in the Company's retail
branch network; and
- other operating purposes.
The Company anticipates future capital expenditures related to the continuation
of the capital projects previously discussed and other activities to be $60-$80
million over the next twelve to twenty-four months. The decrease in the Finance
Company's lease portfolio was the result of the sale of certain used trailers
during the period which were previously leased.
Financing Activities
Net cash used in financing activities of $3.1 million during the first
three months of 1999 was primarily due to the paydown of long-term debt of $1.8
million and the payment of common stock dividends and preferred stock dividends
of $1.3 million in the aggregate.
Other sources of funds for capital expenditures, continued expansion of
businesses, dividends, principal repayments on debt, stock repurchase and
working capital requirements are expected to be cash from operations, additional
borrowings under the credit facilities, term borrowings and equity offerings.
The Company believes that these funding sources will be adequate for its
anticipated requirements.
YEAR 2000 READINESS DISCLOSURE
The Company continues to address the impact of the Year 2000 issue on
its business. If not corrected certain computer applications may fail or create
erroneous results at the year 2000. Specifically, with respect to the Company,
this includes applications within information technology (IT) as well as non-IT
equipment and machinery that may contain embedded date-sensitive
microcontrollers or microchips.
Information Technology Systems
The Company's assessment of all business critical IT hardware and
software is approximately 99% complete and will continue throughout 1999 on
subsequent acquisitions of IT systems. It has been determined that many of the
Company's applications and systems are Year 2000 ready, however, it will be
necessary to modify or replace other applications and systems. During this
assessment, it was determined that systems in place within the Company's retail
and distribution network and certain of its manufacturing operations are not
Year 2000 ready. As a result, during 1999, the Company will install new
application systems or modify existing systems within these areas in order to be
Year 2000 ready. The installation and testing of the Company's retail and
distribution system is scheduled for completion during the third quarter of
1999. Other maintenance and project activities to be conducted in 1999 have been
initiated to bring the remaining hardware and software into compliance. If such
projects are not completed timely, the Year 2000 issue could create a disruption
in normal business operations but would not have a material impact on the
operations of the Company. The Company's plan for IT items includes the
following phases and timeline: (1) Assessment and Strategy - substantially
completed in 1998 and (2) Design, Implementation, Testing and Validation - in
process and scheduled to be substantially completed by mid 1999. Testing will
continue throughout 1999 as new systems are acquired.
12
<PAGE> 15
Non-Information Technology Equipment
The Company's assessment of non-IT manufacturing equipment is
approximately 98% complete. It is expected that the assessment and necessary
replacements or upgrades will be substantially completed by mid 1999. If
upgrades and replacements are not completed timely, the Year 2000 issue could
have a material adverse impact on the operations of the Company. Assuming the
"worst case scenario," without the use of essential manufacturing equipment,
production would cease or be severely restricted until Year 2000 ready equipment
can be installed. Testing of these systems will continue throughout 1999 as new
manufacturing equipment is acquired.
External Parties
The Company has contacted its vendors and suppliers regarding the
status of their Year 2000 readiness. Many vendors have given a positive
indication that they are or will be ready. A follow-up inquiry program is in
place with the parties identified as business critical. This process is ongoing
and will continue throughout 1999. While compliance issues may be identified and
addressed, this process may not fully ensure these parties' Year 2000 readiness.
Disruptions in the operations of these parties could have an adverse financial
and operational effect on the Company. The Company has formulated a contingency
plan in the event business critical vendors do not achieve Year 2000 readiness
and suffer substantial disruptions in their operations. This plan includes
advance purchasing of critical production materials, identification of
substitute materials already existing at the manufacturing sites and to contact
alternate vendors previously identified for availability of critical materials
or viable substitutes. In the event of IT failure in this area, purchase orders
can be handwritten and forwarded via U.S. mail or fax.
The Company has requested compliance information from its banks and it
has been determined that they expect to be ready by the second quarter in 1999.
The Company is currently identifying alternate banking relationships in the
event that its current banks are determined not to be Year 2000 ready. In the
event alternative banking relationships are required, they are expected to be in
place by the third quarter in 1999.
Costs of Compliance
The Company estimates the total costs to be incurred in installing new
application systems in the retail and distribution network and certain
manufacturing operations, along with costs associated with Year 2000 readiness
to be between $5.3 to $5.8 million. Through March 31, 1999, the Company has
spent approximately $3.6 million, including internal labor costs, related to
such activities.
Management believes that, with modifications to existing software and
conversions to new software and hardware, the Year 2000 issue is not likely to
materially impact the Company's results of operations or financial position. The
Company expects all of its internal business critical IT and non-IT systems to
be Year 2000 ready and therefore no contingency plan is in place in the event of
a particular system not being Year 2000 ready. Such a plan will be developed if
it becomes clear that the Company is not going to achieve its scheduled
readiness objectives. However, because most computer systems are interdependent
by nature, there can be no assurance that the systems of other companies on
which the Company's systems rely, will be timely converted and not have an
adverse effect on the Company's systems.
13
<PAGE> 16
BACKLOG
The Company's backlog of orders was approximately $1.0 billion at both
March 31, 1999 and December 31, 1998. The Company expects to fill a majority of
its backlog within the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 130, Reporting Comprehensive Income,
during 1998. SFAS No. 130 established standards for reporting and display of
"comprehensive income" and its components. Comprehensive income is not reported
in the accompanying Condensed Consolidated Financial Statements as the Company
had no items of Other Comprehensive Income for the periods presented.
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (beginning of fiscal year 2000 for the Company). This statement
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Management anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a significant
effect on the Company's results of operations or its financial position.
The Company adopted, Statement of Position No. 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, during the
first quarter of 1999. This pronouncement specifies the appropriate accounting
for costs incurred to develop or obtain computer software for internal use. The
new pronouncement provides guidance on which costs should be capitalized, when
and over what period such costs should be amortized and what disclosures should
be made regarding such costs. The adoption of this pronouncement did not have a
material effect on its results of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company has limited exposure to financial risk resulting from
volatility in interest rates and foreign exchange rates. As of March 31, 1999,
the Company had approximately $6 million of LIBOR based debt outstanding under
its Revolving Credit Facility and $105 million of proceeds from its accounts
receivable securitization facility, which also requires LIBOR based interest
payments. A hypothetical 100 basis-point increase in the floating interest rate
from the current level would correspond to a $1.1 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.
The Company enters into foreign currency forward contracts (principally
against the German Deutschemark and French Franc) to hedge the net
receivable/payable position arising from trade sales (including lease revenues)
and purchases primarily with regard to the Company's European RoadRailer
operations. The Company does not hold or issue derivative financial instruments
for speculative purposes. A hypothetical 10% adverse change in foreign currency
exchange rates would have an immaterial effect on the Company's financial
position and results of operations. Additional disclosure related to the
Company's risk management
14
<PAGE> 17
policies are discussed in Note 2 to the Consolidated Financial Statements
included in the Company's 1998 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Footnote 7 to the Condensed Consolidated Financial Statements for
information related to Legal Proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.00 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1999
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WABASH NATIONAL CORPORATION
Date: May 14, 1999 By: /s/ Rick B. Davis
------------ -----------------
Rick B. Davis
Corporate Controller
and
Executive Officer
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME, AND STATEMENT OF CASH FLOW AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 30,674
<SECURITIES> 0
<RECEIVABLES> 125,920
<ALLOWANCES> 0
<INVENTORY> 259,214
<CURRENT-ASSETS> 433,353
<PP&E> 146,003
<DEPRECIATION> 0
<TOTAL-ASSETS> 727,195
<CURRENT-LIABILITIES> 162,946
<BONDS> 163,731
0
5
<COMMON> 230
<OTHER-SE> 350,605
<TOTAL-LIABILITY-AND-EQUITY> 727,195
<SALES> 341,624
<TOTAL-REVENUES> 341,624
<CGS> 314,399
<TOTAL-COSTS> 314,399
<OTHER-EXPENSES> 12,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,013
<INCOME-PRETAX> 10,793
<INCOME-TAX> 4,426
<INCOME-CONTINUING> 6,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,367
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
