<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 SEPTEMBER 30, 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 November 15, 1999 was
22,979,017.
<PAGE> 2
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Income
for the three and nine months ended
September 30, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 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 10
Item 3. Quantitative and Qualitative Disclosures About Market Risks 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE> 3
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
(Unaudited) (Note 1)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 32,373 $ 67,122
Accounts receivable, net 138,386 92,872
Current portion of finance contracts 7,556 7,603
Inventories 248,636 225,385
Prepaid expenses and other 15,827 19,833
--------- ---------
Total current assets 442,778 412,815
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net 164,591 136,001
--------- ---------
EQUIPMENT LEASED TO OTHERS, net 42,834 43,066
--------- ---------
FINANCE CONTRACTS, net of current portion 65,570 66,369
--------- ---------
INTANGIBLE ASSETS, net 30,737 32,637
--------- ---------
OTHER ASSETS 19,769 13,598
--------- ---------
$ 766,279 $ 704,486
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES:
Current maturities of long-term debt $ 2,890 $ 3,089
Accounts payable 136,917 108,963
Accrued liabilities 40,182 29,507
--------- ---------
Total current liabilities 179,989 141,559
--------- ---------
LONG-TERM DEBT, net of current maturities 162,188 165,215
--------- ---------
DEFERRED INCOME TAXES 34,227 31,849
--------- ---------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 20,970 20,087
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, aggregate liquidation value of $30,600 5 5
Common stock, 22,979,017 and 22,965,090 shares issued and
outstanding 230 230
Additional paid-in capital 236,382 236,127
Retained earnings 133,567 110,693
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
--------- ---------
Total stockholders' equity 368,905 345,776
--------- ---------
$ 766,279 $ 704,486
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE> 4
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- ------------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 374,708 $ 334,113 $1,096,535 $ 965,458
COST OF SALES 339,669 306,479 1,000,171 887,898
--------- --------- ---------- ----------
Gross Profit 35,039 27,634 96,364 77,560
GENERAL AND ADMINISTRATIVE EXPENSES 7,613 6,187 21,557 18,217
SELLING EXPENSE 4,978 3,286 14,956 9,483
--------- --------- ---------- ----------
Income from operations 22,448 18,161 59,851 49,860
OTHER INCOME (EXPENSE):
Interest expense (3,341) (3,382) (9,329) (11,558)
Accounts receivable securitization costs (1,481) (1,282) (4,231) (2,616)
Equity in losses of unconsolidated affiliate (1,000) (900) (3,000) (2,200)
Other, net 345 494 2,160 1,501
--------- --------- ---------- ----------
Income before income taxes 16,971 13,091 45,451 34,987
PROVISION FOR INCOME TAXES 6,606 5,182 18,371 13,917
--------- --------- ---------- ----------
Net Income $ 10,365 $ 7,909 $ 27,080 $ 21,070
PREFERRED STOCK DIVIDENDS 474 418 1,623 946
--------- --------- ---------- ----------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 9,891 $ 7,491 $ 25,457 $ 20,124
========= ========= ========== ==========
Earnings per share:
Basic $ 0.43 $ 0.33 $ 1.11 $ 0.93
========= ========= ========== ==========
Diluted $ 0.43 $ 0.33 $ 1.10 $ 0.92
========= ========= ========== ==========
Cash dividends per share $ 0.038 $ 0.035 $ 0.113 $ 0.105
========= ========= ========== ==========
</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>
Nine Months
Ended September 30
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 27,080 $ 21,070
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization 15,121 12,606
Net gain on sale of property, plant and equipment (665) ---
Bad debt provision 1,761 614
Deferred income taxes (1,921) 6,370
Equity in losses of unconsolidated affiliate 3,000 2,200
Change in operating assets and liabilities:
Accounts receivable (47,274) 4,548
Inventories (23,251) (23,783)
Prepaid expenses and other 8,305 (575)
Accounts payable and accrued liabilities 38,598 28,689
Other, net 1,018 (634)
---------- ----------
Net cash provided by operating activities 21,772 51,105
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (47,010) (22,847)
Net addition to equipment leased to others (6,561) (8,665)
Net additions to finance contracts (17,188) (24,313)
Acquisition, net of cash acquired --- (9,515)
Investment in unconsolidated affiliate (2,355) (1,965)
Proceeds from the sale of property, plant and equipment 5,219 ---
Proceeds from sale of leased equipment and finance contacts 11,051 9,833
Principal payments on finance contracts 7,470 5,495
Other, net (1) 117
---------- ----------
Net cash used in investing activities (49,375) (51,860)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Long-term revolver 120,300 247,400
Common stock, net of expense 256 87,484
Payments:
Long-term debt (3,226) (28,280)
Long-term revolver (120,300) (292,000)
Common stock dividends (2,584) (2,201)
Preferred stock dividends (1,592) (792)
---------- ----------
Net cash (used in) provided by financing activities (7,146) 11,611
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (34,749) 10,856
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 67,122 14,647
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32,373 $ 25,503
========== ==========
</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 Company, 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 September 30, 1999 and December 31, 1998, its results of
operations for the three and nine months ended September 30, 1999 and 1998 and
cash flows for the nine months ended September 30, 1999 and 1998.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement requires that all derivative instruments be recorded on the balance
sheet at their fair value. As amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133, this standard is effective for the Company's financial
statements beginning January 1, 2001, with early adoption permitted. Management
anticipates that, due to its limited use of derivative instruments, the adoption
of SFAS No. 133, as amended by SFAS No. 137, 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.
b. Inventories
Inventories consisted of the following (in thousands):
September 30, December 31,
1999 1998
-------- --------
(Unaudited)
Raw material and components $ 93,733 $104,174
Work in process 18,885 12,159
Finished goods 48,670 44,743
Aftermarket parts 30,130 28,733
Used trailers 57,218 35,576
-------- --------
$248,636 $225,385
======== ========
4
<PAGE> 7
c. Reclassifications
Certain items previously reported in specific consolidated financial
statement captions have been reclassified to conform with the 1999 presentation.
Such reclassifications had no impact on net income.
NOTE 3. 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 new trailers and
sells them directly to certain customers or through independent dealers. The
manufacturing segment also produces trailers 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 the
Company's retail branch network. The leasing and finance segment provides
leasing and finance programs to the Company's customers for new and used
trailers. Reportable segment information is as follows (in thousands):
<TABLE>
<CAPTION>
Retail and Leasing Combined Consolidated
Manufacturing Distribution and Finance Segments Eliminations Totals
------------- ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended
September 30, 1999
- ------------------
(unaudited)
Revenues
External customers $285,648 $ 78,640 $10,420 $ 374,708 $ --- $ 374,708
Intersegment sales 28,693 483 1,625 30,801 (30,801) ---
-------- -------- ------- ---------- -------- ----------
Total Revenues $314,341 $ 79,123 $12,045 $ 405,509 $(30,801) $ 374,708
======== ======== ======= ========== ======== ==========
Income from Operations $ 19,593 $ 1,622 $ 1,552 $ 22,767 $ (319) $ 22,448
Three Months Ended
September 30, 1998
- ------------------
(unaudited)
Revenues
External customers $261,998 $ 66,122 $ 5,993 $ 334,113 $ --- $ 334,113
Intersegment sales 12,394 2,295 658 15,347 (15,347) ---
-------- -------- ------- ---------- -------- ----------
Total Revenues $274,392 $ 68,417 $ 6,651 $ 349,460 $(15,347) $ 334,113
======== ======== ======= ========== ======== ==========
Income from Operations $ 13,899 $ 2,451 $ 1,615 $ 17,965 $ 196 $ 18,161
Nine Months Ended
September 30, 1999
- ------------------
(unaudited)
Revenues
External customers $835,260 $231,971 $29,304 $1,096,535 $ --- $1,096,535
Intersegment sales 67,406 664 9,044 77,114 (77,114) ---
-------- -------- ------- ---------- -------- ----------
Total Revenues $902,666 $232,635 $38,348 $1,173,649 $(77,114) $1,096,535
======== ======== ======= ========== ======== ==========
Income from Operations $ 52,820 $ 3,916 $ 4,635 $ 61,371 $ (1,520) $ 59,851
Nine Months Ended
September 30, 1998
- ------------------
(unaudited)
Revenues
External customers $734,169 $213,909 $17,380 $ 965,458 $ --- $ 965,458
Intersegment sales 61,514 3,680 1,384 66,578 (66,578) ---
-------- -------- ------- ---------- -------- ----------
Total Revenues $795,683 $217,589 $18,764 $1,032,036 $(66,578) $ 965,458
======== ======== ======= ========== ======== ==========
Income from Operations $ 37,959 $ 7,587 $ 4,436 $ 49,982 $ (122) $ 49,860
</TABLE>
5
<PAGE> 8
NOTE 4. 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):
<TABLE>
<CAPTION>
Weighted
Average Earnings
Income Shares Per Share
--------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Three Months Ended September 30, 1999
-----------------------------------------------
Basic $ 9,891 22,979 $0.43
Options --- 80
Preferred Stock 295 823
----------------------------------------------- ------------------------------
Diluted $10,186 23,882 $0.43
=============================================== ============================================
Three Months Ended September 30, 1998
-----------------------------------------------
Basic $ 7,491 22,962 $0.33
Options --- 26
Preferred Stock 264 823
----------------------------------------------- ------------------------------
Diluted $ 7,755 23,811 $0.33
=============================================== ============================================
Nine Months Ended September 30, 1999
-----------------------------------------------
Basic $25,457 22,970 $1.11
Options --- 38
Preferred Stock 854 823
----------------------------------------------- ------------------------------
Diluted $26,311 23,831 $1.10
=============================================== ============================================
Nine Months Ended September 30, 1998
-----------------------------------------------
Basic $20,124 21,662 $0.93
Options --- 98
----------------------------------------------- ------------------------------
Diluted $20,124 21,760 $0.92
=============================================== ============================================
</TABLE>
6
<PAGE> 9
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
Nine Months
Ended September 30,
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Cash paid during the period for:
Interest $ 10,710 $ 10,752
Income taxes 14,623 10,464
- --------------------------------------------------------------------------------
Noncash investing and financing activities:
Preferred stock issued for acquisition --- 13,004
Common stock issued for acquisition --- ---
- --------------------------------------------------------------------------------
Acquisitions, net of cash acquired:
Accounts receivable, net $ --- $ 4,952
Inventory, net --- 16,405
Prepaid expenses and other --- 743
Property, plant and equipment --- 8,333
Goodwill and other intangibles --- 22,956
Deferred income taxes --- 1,265
Other assets --- 1,203
Current liabilities --- (8,243)
Current maturities of long-term debt --- (18,753)
Non-current liabilities --- (3,400)
Long-term debt, net of current maturities --- (2,942)
Stock issued --- (13,004)
- --------------------------------------------------------------------------------
Net cash paid for acquisition $ --- $ (9,515)
- --------------------------------------------------------------------------------
NOTE 6. 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
complaints purported to be brought on behalf of a class of investors who
purchased the Company's common stock between April 20, 1998 and January 15,
1999. The complaints alleged that the Company violated Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated under the Act by
disseminating false and misleading financial statements and reports respecting
the first three quarters of the Company's fiscal year 1998. The complaints
sought unspecified compensatory damages and attorney's fees, as well as other
relief. In addition, on March 23, 1999, another purported class action lawsuit
was also filed in the United States District Court for the Northern District of
Indiana, naming the Company, its directors and the underwriters of the Company's
April 1998 public offering. That complaint alleged that the Company and the
individual defendants violated Section 11 of the Securities Act of 1933, and the
Company, the individual defendants as "controlling persons" of the Company, and
the underwriters are liable under Section 12 of that Act, by making untrue
statements of material fact in and omitting material facts from the prospectus
used in that offering. The complaint sought unspecified compensatory damages and
attorney's fees, as well as other relief. Both the Securities Exchange Act
complaints and the Securities Act complaint arise out of the restatement of the
Company's financial statements for the first three quarters of 1998. At a
hearing on
7
<PAGE> 10
May 10, 1999 and in an order entered on June 22, 1999, Judge Allen Sharp
consolidated the six pending cases under the caption In re Wabash National
Corporation Securities Litigation, No. 4:99CV0003AS, and established a schedule
for further proceedings. Pursuant to the order, selected lead plaintiffs filed a
Consolidated Class Action Complaint on July 6, 1999. The consolidated complaint
repeats the claims made in the original complaints respecting the restatement
and also alleges that the loss contingency for certain excise taxes, which
Wabash disclosed on January 19, 1999, should have been recorded earlier. Under
the schedule established and modified by the Court, defendants filed motions to
dismiss the consolidated complaint on September 7, 1999, plaintiffs filed their
opposing briefs on October 4, 1999 and defendants filed their reply briefs on
October 12, 1999. A hearing on those motions is currently scheduled to take
place on December 8, 1999.
The Company believes the allegations in the consolidated
complaint are without merit, and intends to defend itself and its directors and
officers vigorously. The Company believes the resolution of the lawsuit (as to
which the Company is self-insured), 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, at this early stage of the
proceedings, no assurance can be given as to the ultimate outcome of the case.
b. Environmental
The Company generates and handles certain material, wastes and
emissions in the normal course of operations that are subject to various and
evolving Federal, state and local environmental laws and regulations.
The Company assesses its environmental liabilities on an on-going
basis by evaluating currently available facts, existing technology, presently
enacted laws and regulations as well as experience in past treatment and
remediation efforts. Based on these evaluations, the Company estimates a lower
and upper range for the treatment and remediation efforts and recognizes a
liability for such probable costs based on the information available at the
time. As of September 30, 1999, the estimated potential exposure for such costs
ranges from approximately $0.6 million to approximately $2.2 million, for which
the Company has a reserve of approximately $1.0 million. The reduction in the
reserve during the first nine months of 1999 reflects payments made during the
period and a $0.3 million change in estimate resulting from experience and the
availability of additional information. 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.
The Company acquired two new manufacturing sites in July 1998 in
connection with its acquisition of a trailer flooring business in Arkansas (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 currently 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.
8
<PAGE> 11
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 for a single customer 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 that is
reflected in the accompanying Condensed Consolidated Balance Sheets. The Company
continued the restoration program with the same customer during 1998 and 1999.
As a result, the Company has a contingent liability and a corresponding
receivable in the accompanying Condensed Consolidated Balance Sheets of $4.9
million and $2.4 million at September 30, 1999 and December 31, 1998,
respectively. The customer has agreed to indemnify the Company for any potential
excise tax assessed by the IRS for trailers sold and delivered after January 1,
1998.
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.
9
<PAGE> 12
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) under the heading "Risk Factors."
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. The
leasing and finance segment provides leasing and finance programs to its
customers for new and used trailers.
Net Sales
Consolidated net sales for the three-month period ended September
30, 1999 increased approximately $40.6 million or 12.2% compared to the same
period in 1998 and were $131.1 million or 13.6% higher for the nine-month period
ended September 30, 1999, compared to the same period in 1998. Sales increased
in all of the Company's business segments.
The manufacturing segment's external net sales rose 9.0% or $23.6
million in the third quarter of 1999 compared to the same period in 1998 and
were $101.1 million or 13.8% higher for the nine-month period ended September
30, 1999 compared to the same period in 1998. These increases were primarily
driven by a 10.2% increase (16,200 units vs. 14,700 units) and a 13.7% increase
(48,000 units vs. 42,200 units) in the number of new trailers sold during the
three and nine-month periods ended September 30, 1999 compared to the same
periods in 1998, respectively. Strong demand for the
10
<PAGE> 13
Company's proprietary DuraPlate trailer continues to drive increased new trailer
revenues in the manufacturing segment.
The retail and distribution segment's external net sales rose
18.9% or $12.5 million in the third quarter of 1999 compared to the same period
in 1998 and were $18.1 million or 8.4% higher for the nine-month period ended
September 30, 1999 compared to the same period in 1998. The increase in net
sales during the three and nine-month periods ending September 30, 1999 was due
to an increase in new and used trailer revenues offset partially by decreases in
aftermarket parts and service revenues. The increase in new trailer revenue was
driven primarily by a 54.5% increase (1,700 vs. 1,100) and a 5.1% increase
(4,100 vs. 3,900) in the number of new trailers sold during the three and
nine-month periods ended September 30, 1999 compared to the same periods in
1998, 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. Inclement weather conditions throughout
the mid-western part of the country during the first quarter of 1999 coupled
with the temporary adverse impact of the Company's consolidation of its
aftermarket parts operations negatively impacted sales of new trailers,
aftermarket parts and service compared to 1998.
The Company continues to pursue its branch expansion strategy of
approximately 20 locations; which includes the replacement of certain existing
sites within the same market as well as the addition of locations in new markets
throughout North America. The majority of the new locations are expected to
become operational in the second half of 1999 and the first half of 2000 with
the remainder becoming operational thereafter. The Company has entered into a
letter of intent to acquire 4 retail branch locations in the Midwest and expects
to complete this acquisition during the fourth quarter of 1999.
The leasing and finance segment's external net sales rose 73.9%
or $4.4 million in the third quarter of 1999 compared to the same period in 1998
and were 68.6% or $11.9 million higher for the nine-month period ended September
30, 1999 compared to the same period in 1998. These increases were primarily due
to an increase in the sale of used trailers to external customers and to the
retail branch network, for used trailers coming off lease, and to an increase in
sales-type finance leases during the periods.
Gross Profit
Gross profit as a percentage of sales totaled 9.4% for the third
quarter of 1999 compared to 8.3% for the same period in 1998 and totaled 8.8%
for the nine-month period ended September 30, 1999 compared to 8.0% for the same
period in 1998. The increase in gross profit percentages in 1999 is primarily
due to an improved production mix toward more proprietary products and reduced
material costs (specifically hardwood flooring costs) following the Company's
July 1998 Cloud Acquisition. Partially offsetting these factors is the temporary
adverse impact caused by the Company's consolidation of its two aftermarket
parts operations, the continued reconfiguration of its retail and distribution
network and the severe adverse weather impact incurred during the first quarter
of 1999.
Income from Operations
Income from operations as a percentage of sales was 6.0% for the
third quarter of 1999 compared to 5.4% for the same period in 1998 and was 5.5%
for the nine-month period ended September 30, 1999 compared to 5.2% for the same
period in 1998. Income from operations in 1999 was impacted primarily by the
increase in gross profit margins previously discussed offset somewhat by
increased selling, general and administrative expenses. The increase in selling,
general and administrative expenses
11
<PAGE> 14
primarily reflects increased selling expenses incurred in the retail and
distribution segment principally to support increased used trailer sales and
other sales-related expenses in the manufacturing segment associated with higher
sales volume.
Interest Expense
Interest expense for the third quarter of 1999 totaled $3.3
million compared to $3.4 million for the same period in 1998 and totaled $9.3
million for the nine-month period ended September 30, 1999 compared to $11.6
million for 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 and nine-month
periods ended September 30, 1999 of $6.6 million and $18.4 million,
respectively, represents 38.9% and 40.4% of pre-tax income for the periods
compared to the provision of $5.2 million and $13.9 million, or 39.6% and 39.8%
of pre-tax income, respectively, for the same periods in 1998. 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 provided by operating activities was $21.8 million
during the first nine 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
partially 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 September 30, 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 $49.4 million during the
nine months ended September 30, 1999 was primarily due to capital expenditures
of $47.0 million coupled with a $5.2 million net cash outflow related to the
Company's leasing portfolio. Partially offsetting this investing activity is a
$4.0 million sale and leaseback transaction completed in September 1999
involving certain of the Company's manufacturing equipment.
12
<PAGE> 15
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;
- 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 $40 to
$60 million over the next twelve to twenty-four months.
Financing Activities
Net cash used in financing activities of $7.1 million during the
nine months ended September 30, 1999, was primarily due to the paydown of
long-term debt of $3.2 million and the payment of common stock dividends and
preferred stock dividends of $4.2 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 complete and will continue throughout the remainder of 1999 on any
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 has installed and
continues to 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 on schedule for completion during
the fourth quarter of 1999. Other modifications are being made to the hardware
and software at certain of the Company's manufacturing locations. These
modifications are on schedule to be completed during 1999. 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
13
<PAGE> 16
operations of the Company. The Company's plan for IT items includes the
following phases and timeline: (1) Assessment and Strategy - completed in 1999
and (2) Design, Implementation, Testing and Validation - in process and
scheduled to be completed during the fourth quarter 1999.
Non-Information Technology Equipment
The Company's assessment of business critical non-IT
manufacturing equipment is complete and will continue throughout the remainder
of 1999 on any subsequent acquisitions of non-IT manufacturing equipment. It is
expected that the necessary replacements or upgrades on this equipment,
resulting from this assessment, will be completed during the remainder of 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 the remainder of 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's major banking partners have indicated that they are
Year 2000 ready and do not anticipate disruptions to normal business operations.
These banks indicate that they have done extensive testing and have created
contingency plans in the event that they are affected by the Year 2000 issue.
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 $7.4 to $8.1 million. Through September 30, 1999, the
Company has spent approximately $6.3 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; however, a contingency plan is in place in the event of a
particular system not being Year 2000 ready. This plan includes, at a minimum,
the generation of payroll and production data necessary for the Company to
operate in the event of a system failure. However, because most computer systems
are interdependent by nature, there can be no assurance that the systems of
other
14
<PAGE> 17
companies on which the Company's systems rely, will be timely converted and not
have an adverse effect on the Company's systems.
BACKLOG
The Company's backlog of orders was approximately $1.1 billion
and $1.0 billion at September 30, 1999 and December 31, 1998, respectively. The
Company expects to fill a majority of its backlog within the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement requires that all derivative instruments be recorded
on the balance sheet at their fair value. As amended by SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133, this standard is effective for the Company's
financial statements beginning January 1, 2001, with early adoption permitted.
Management anticipates that, due to its limited use of derivative instruments,
the adoption of SFAS No. 133, as amended by SFAS No. 137, 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 September 30,
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 policies are discussed in Note 2 to the Consolidated
Financial Statements included in the Company's 1998 Annual Report on Form 10-K.
15
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Footnote 6 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:
27.01 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1999
16
<PAGE> 19
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 15, 1999 By: /s/ Rick B. Davis
----------------- -----------------
Rick B. Davis
Corporate Controller
(Principal Accounting Officer)
and
Duly Authorized Officer
17
<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. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 32,373
<SECURITIES> 0
<RECEIVABLES> 138,386
<ALLOWANCES> 0
<INVENTORY> 248,636
<CURRENT-ASSETS> 442,778
<PP&E> 164,591
<DEPRECIATION> 0
<TOTAL-ASSETS> 766,279
<CURRENT-LIABILITIES> 179,989
<BONDS> 162,188
0
5
<COMMON> 230
<OTHER-SE> 368,670
<TOTAL-LIABILITY-AND-EQUITY> 766,379
<SALES> 1,096,535
<TOTAL-REVENUES> 1,096,535
<CGS> 1,000,171
<TOTAL-COSTS> 1,000,171
<OTHER-EXPENSES> 36,513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,329
<INCOME-PRETAX> 45,451
<INCOME-TAX> 18,371
<INCOME-CONTINUING> 27,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,080
<EPS-BASIC> 1.11
<EPS-DILUTED> 1.10
</TABLE>
