<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 JUNE 30, 2000
OR
TRANSITION REPORT UNDER SECTION 13 0R 15 (D) OF
[ ] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------- ----------
COMMISSION FILE NUMBER: 1-10883
-------
WABASH NATIONAL CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1375208
-------- ----------
(State of Incorporation) (IRS Employer
Identification Number)
1000 Sagamore Parkway South,
Lafayette, Indiana 47905
------------------ -----
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (765) 771-5300
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
The number of shares of common stock outstanding at August 11, 2000 was
22,986,946.
<PAGE> 2
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Income
For the three and six months ended June 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2000 and 1999 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 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)
June 30, December 31,
2000 1999
----------- ------------
(Unaudited) (Note 1)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 9,841 $ 22,484
Accounts receivable, net 159,132 111,567
Current portion of finance contracts 14,525 8,423
Inventories 364,567 269,581
Prepaid expenses and other 18,270 16,962
-------- --------
Total current assets 566,335 429,017
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 216,463 186,430
-------- --------
EQUIPMENT LEASED TO OTHERS, net 67,755 50,364
-------- --------
FINANCE CONTRACTS, net of current portion 63,766 71,839
-------- --------
INTANGIBLE ASSETS, net 31,619 32,669
-------- --------
OTHER ASSETS 22,440 20,972
-------- --------
$968,378 $791,291
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITES:
Short-term borrowings $ 50,000 $ ---
Current maturities of long-term debt 3,605 3,514
Accounts payable 150,657 145,568
Accrued liabilities 42,545 51,184
-------- --------
Total current liabilities 246,807 200,266
-------- --------
LONG-TERM DEBT, net of current maturities 277,485 164,367
-------- --------
DEFERRED INCOME TAXES 32,636 30,640
-------- --------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 18,202 16,653
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, aggregate liquidation
value of $30,600 5 5
Common stock, 22,986,946 and
22,985,186 shares issued and
outstanding, respectively 230 230
Additional paid-in capital 236,502 236,474
Retained earnings 157,790 143,935
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
-------- --------
Total stockholders' equity 393,248 379,365
-------- --------
$968,378 $791,291
======== ========
See Notes to Condensed Consolidated Financial Statements.
1
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WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 358,729 $ 380,203 $ 711,577 $ 721,827
COST OF SALES 324,684 346,104 643,109 660,502
--------- --------- --------- ---------
Gross Profit 34,045 34,099 68,468 61,325
GENERAL AND ADMINISTRATIVE EXPENSES 8,669 6,763 16,746 13,944
SELLING EXPENSE 5,254 4,940 10,318 9,979
--------- --------- --------- ---------
Income from operations 20,122 22,396 41,404 37,402
OTHER INCOME (EXPENSE):
Interest expense (5,643) (2,975) (9,772) (5,988)
Accounts receivable securitization costs (1,736) (1,320) (3,396) (2,750)
Equity in losses of unconsolidated
affiliate (750) (1,000) (1,600) (2,000)
Other, net 326 586 653 1,816
--------- --------- --------- ---------
Income before income taxes 12,319 17,687 27,289 28,480
PROVISION FOR INCOME TAXES 4,804 7,340 10,643 11,766
--------- --------- --------- ---------
Net Income $ 7,515 $ 10,347 $ 16,646 $ 16,714
PREFERRED STOCK DIVIDENDS 476 706 951 1,149
--------- --------- --------- ---------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 7,039 $ 9,641 $ 15,695 $ 15,565
========= ========= ========= =========
Earnings per share:
Basic $ 0.31 0.42 0.68 0.68
Diluted $ 0.31 0.42 0.68 0.68
========= ========= ========= =========
Cash dividends per share $ 0.04 $ 0.0375 $ 0.08 $ 0.075
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months
Ended June 30,
---------------------------
2000 1999
---------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 16,646 $ 16,714
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities-
Depreciation and amortization 13,729 9,933
Gain on sale of property, plant
and equipment (126) (672)
Bad debt provision 1,329 1,315
Deferred income taxes 402 (3,125)
Equity in losses of unconsolidated
affiliate 1,600 2,000
Change in operating assets and liabilities:
Accounts receivable (48,894) (29,730)
Inventories (94,986) (39,087)
Prepaid expenses and other 286 6,943
Accounts payable and accrued liabilities (3,551) 34,733
Other, net 1,520 379
--------- ----------
Net cash used in operating
activities (112,045) (597)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (38,372) (31,439)
Net (addition) reduction to equipment
leased to others (23,986) 3,408
Net additions to finance contracts (9,709) (9,701)
Investment in unconsolidated affiliate (1,283) (1,799)
Proceeds from the sale of property,
plant and equipment 626 1,185
Proceeds from sale of leased equipment
and finance contacts 5,436 9,494
Principal payments on finance contracts
6,244 4,801
--------- ----------
Net cash used in investing
activities (61,044) (24,051)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Short-term borrowings 50,000 ---
Long-term debt 12,500 ---
Long-term revolver 263,200 9,300
Common stock, net of expense 28 164
Payments:
Long-term debt (1,759) (2,534)
Long-term revolver (160,732) (9,300)
Common stock dividends (1,839) (1,725)
Preferred stock dividends (952) (1,118)
--------- ----------
Net cash provided by (used in)
financing activities 160,446 (5,213)
--------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (12,643) (29,861)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,484 67,122
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,841 $ 37,261
========= ==========
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 1999 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 June 30, 2000 and December 31, 1999, its results of operations
for the three and six months ended June 30, 2000 and 1999 and cash flows for the
six months ended June 30, 2000 and 1999.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities which was subsequently amended by
SFAS 137 and SFAS 138. These statements require that all derivative instruments
be recorded on the balance sheet at their fair value. This standard is effective
for the Company's financial statements beginning January 1, 2001, with early
adoption permitted. Management anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133, as amended, will not have
a significant effect on the Company's annual results of operations or its
financial position.
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements.
This bulletin, through its subsequent revised releases, SAB No. 101A and SAB No.
101B, is effective for the Company's financial statements beginning in the
fourth quarter 2000. Management is currently evaluating the impact of applying
SAB 101 to its business.
4
<PAGE> 7
b. Inventories
Inventories consisted of the following (amounts in thousands):
June 30, December 31,
2000 1999
-------- --------
(Unaudited)
Raw material and components $108,049 $105,476
Work in process 16,729 11,215
Finished goods 95,175 49,906
Aftermarket parts 37,256 37,894
Used trailers 107,358 65,090
-------- --------
$364,567 $269,581
======== ========
c. Reclassifications
Certain items previously reported in specific consolidated financial
statement captions have been reclassified to conform with the 2000 presentation.
NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Six Months
Ended June 30,
--------------------------
(amounts in thousands) 2000 1999
-----------------------------------------------------------------------------
Cash paid during the period for: (unaudited)
Interest, net of amounts capitalized $ 8,635 $ 6,024
Income taxes 17,529 10,002
------------------------------------------------------------------------------
NOTE 4. SHORT-TERM BORROWINGS
---------------------
On June 22, 2000, the Company entered into a new, unsecured 364-day
Credit Facility which permits the Company to borrow up to $70 million. Under
this facility, the Company has a right to borrow until June 21, 2001, at which
time the principal amount then outstanding will be due and payable. Interest
payable on such borrowings is variable based upon the London Interbank Rate
(LIBOR) plus 50 to 150 basis points, as defined, or a prime rate of interest, as
defined. The Company pays a commitment fee on the unused portion of this
facility at rates of 15 to 30 basis points per annum, as defined. The Company
also pays a utilization fee on outstanding borrowings under this facility at
rates of 0 to 25 basis points per annum, as defined. Covenants under this
facility are identical to existing covenants within the Company's Revolving Bank
Line of Credit. At June 30, 2000, the Company had outstanding borrowings of $50
million under this facility, at an interest rate of 7.69%.
5
<PAGE> 8
NOTE 5. SEGMENTS
--------
Under the provisions of SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, 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. In addition, the retail and distribution segment rents used trailers,
primarily on a short-term basis. 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 (amounts 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
June 30, 2000
----------------------
(unaudited)
Revenues
External customers $270,502 $ 82,913 $ 5,314 $ 358,729 $ --- $ 358,729
Intersegment sales 26,433 4,111 378 30,922 (30,922) ---
-------- ---------- ---------- ---------- ----------- -----------
Total Revenues $296,935 $ 87,024 $ 5,692 $ 389,651 $ (30,922) $ 358,729
======== ========== ========== ========== =========== ===========
Income from Operations $ 19,533 $ 1,311 $ 637 $ 21,481 $ (1,359) $ 20,122
Assets $938,724 $ 332,547 $ 119,707 $1,390,978 $ (422,600) $ 968,378
Three Months Ended
June 30, 1999
----------------------
(unaudited)
Revenues
External customers $290,610 $ 80,801 $ 8,792 $ 380,203 $ --- $ 380,203
Intersegment sales 24,554 153 4,998 29,705 (29,705) ---
-------- ---------- ---------- ---------- ----------- -----------
Total Revenues $315,164 $ 80,954 $ 13,790 $ 409,908 $ (29,705) $ 380,203
======== ========== ========== ========== =========== ===========
Income from Operations $ 19,960 $ 1,561 $ 1,790 $ 23,311 $ (915) $ 22,396
Assets $736,013 $ 178,814 $ 100,251 $1,015,078 $ (265,430) $ 749,648
Six Months Ended
June 30, 2000
----------------------
(unaudited)
Revenues
External customers $542,717 $ 153,969 $ 14,891 $ 711,577 $ --- $ 711,577
Intersegment sales 51,607 5,092 2,441 59,140 (59,140) ---
-------- ---------- ---------- ---------- ----------- -----------
Total Revenues $594,324 $ 159,061 $ 17,332 $ 770,717 $ (59,140) $ 711,577
======== ========== ========== ========== =========== ===========
Income from Operations $ 39,567 $ 2,053 $ 1,733 $ 43,353 $ (1,949) $ 41,404
Assets $938,724 $ 332,547 $ 119,707 $1,390,978 $ (422,600) $ 968,378
Six Months Ended
June 30, 1999
----------------------
(unaudited)
Revenues
External customers $549,612 $ 153,331 $ 18,884 $ 721,827 $ --- $ 721,827
Intersegment sales 38,713 181 7,419 46,313 (46,313) ---
-------- ---------- ---------- ---------- ----------- -----------
Total Revenues $588,325 $ 153,512 $ 26,303 $ 768,140 $ (46,313) $ 721,827
======== ========== ========== ========== =========== ===========
Income from Operations $ 33,226 $ 2,294 $ 3,083 $ 38,603 $ (1,201) $ 37,402
Assets $736,013 $178,814 $ 100,251 $1,015,078 $ (265,430) $ 749,648
</TABLE>
6
<PAGE> 9
NOTE 6. EARNINGS PER SHARE
------------------
Earnings per share (EPS) are computed in accordance with SFAS No. 128,
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 (amounts in thousands except per share amounts):
Weighted
Average Earnings
Income Shares Per Share
-----------------------------------
(Unaudited)
Three Months Ended June 30, 2000
---------------------------------
Basic $ 7,039 22,987 $0.31
Options --- ---
Preferred Stock --- ---
--------------------------------- -------------------------
Diluted $ 7,039 22,987 $0.31
================================= ===================================
Three Months Ended June 30, 1999
---------------------------------
Basic $ 9,641 22,967 $0.42
Options --- 33
Preferred Stock 295 823
--------------------------------- -------------------------
Diluted $ 9,936 23,823 $0.42
================================= ===================================
Six Months Ended June 30, 2000
---------------------------------
Basic $15,695 22,986 $0.68
Options --- ---
Preferred Stock --- ---
--------------------------------- -------------------------
Diluted $15,695 22,986 $0.68
================================= ===================================
Six Months Ended June 30, 1999
---------------------------------
Basic $15,565 22,966 $0.68
Options --- 16
Preferred Stock --- ---
--------------------------------- -------------------------
Diluted $15,565 22,982 $0.68
================================= ===================================
7
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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
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 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. The
Company's motion to dismiss the consolidated complaint was denied by the Court
in February 2000. However, the Court also subsequently denied plaintiff's motion
to certify the case as a class action and fixed April 30, 2001 as the deadline
for submission of summary judgment motions. Discovery proceedings are expected
to end on March 31, 2001.
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
8
<PAGE> 11
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 June 30, 2000, the estimated potential exposure for
such costs ranges from approximately $0.5 million to approximately $1.7 million,
for which the Company has a reserve of approximately $0.9 million. These
reserves were 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 annual 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.
In the second quarter 2000, the Company received a grand jury subpoena
requesting certain documents relating to the discharge of wastewaters into the
environment at a Wabash facility in Huntsville, Tennessee. The subpoena seeks
the production of documents and related records concerning the design of our
plant's discharge system and the particular discharge in question. Subsequently,
Wabash received a Notice of Violation/Request for Incident Report from the
Tennessee Department of Environmental Conservation ("TDEC") with respect to the
same matter. Wabash is fully cooperating with the U.S. Attorney's Office and
TDEC in this matter. No formal action has been commenced against Wabash. Company
representatives have met with TDEC officials, who indicated that they were
pleased with the Company's corrective actions to date, but intended to seek some
sanction against the Company. At this early stage, we are unable to predict the
outcome of either inquiry, but do not believe they will result in a material
adverse effect on our financial position or annual results of operations.
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 and annual results of operations.
c. Used Trailer Restoration Program
During 1999, the Company reached a settlement with the Internal Revenue
Service related to federal excise tax on certain used trailers restored by the
Company during 1996 and 1997. The Company continued the restoration program with
the same customer since 1997. The customer has indemnified the Company for any
potential excise tax assessed by the IRS for years subsequent to 1997. As a
result, the Company has recorded a liability and a corresponding receivable of
approximately $6.6 million and $5.2 million in the accompanying Condensed
Consolidated Balance Sheets at June 30, 2000 and December 31, 1999,
respectively.
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. In
addition, the retail and distribution segment rents used trailers, primarily on
a short-term basis. 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 June 30, 2000
decreased approximately $21.5 million or 5.6% compared to the same period in
1999 and were $10.3 million or 1.4% lower for the six-month period ended June
30, 2000 compared to the same period in 1999.
The manufacturing segment's external net sales decreased $20.1 million
or 6.9% in the second quarter of 2000 compared to the same period in 1999 and
were $6.9 million or 1.3% lower for the six-month period ended June 30, 2000
compared to the same period in 1999. These decreases were driven primarily by a
9.6% decrease (16,000 units vs. 17,700 units) and a 3.6% decrease (31,700 units
vs. 32,900 units) in the number of new trailers sold during the three and
six-month periods ended June 30, 2000 compared to the same periods in 1999,
respectively. This decrease was largely impacted by the rate of new trailer
shipments lagging the Company's production rate as customers continued to
temporarily delay taking delivery of the trailers they ordered.
10
<PAGE> 13
The retail and distribution segment's external net sales increased $2.1
million or 2.6% in the second quarter of 2000 compared to the same period in
1999 and were $0.6 million or 0.4% higher for the six-month period ended June
30, 2000 compared to the same period in 1999. The increase in net sales for the
three and six month periods ended June 30, 2000 was due to increases in
aftermarket parts revenues, service revenues and used trailer rental revenues,
offset partially by decreases in new and used trailer revenues. The decreases in
new and used trailer revenues were primarily due to the impact of higher fuel
and interest costs on the Company's retail customer bases. The increase in
aftermarket parts and service revenues is due to the reconfiguration of the
retail distribution network and the creation of additional service capacity. In
addition, the increase in used trailer rental revenues primarily reflects the
Company's continued expansion of its used trailer rental portfolio.
The leasing and finance segment's external net sales decreased $3.5
million or 39.6% in the second quarter of 2000 compared to the same period in
1999 and were $4.0 million or 21.1% lower for the six-month period ended June
30, 2000 compared to the same period in 1999. These decreases were primarily due
to a decline in new and used trailer sales as leasing revenues remained level
with the same periods in 1999.
Gross Profit
Gross profit as a percentage of sales totaled 9.5% for the second
quarter of 2000 compared to 9.0% for the same period in 1999 and totaled 9.6%
for the six-month period ended June 30, 2000 compared to 8.5% for the same
period in 1999. The Company's strategy of increasing the proportion of revenues
attributable to proprietary products, such as the DuraPlate trailer, has been
successful in generating higher gross profits than has historically been
possible with a more traditional, commodity-type production mix. In addition,
the Company is experiencing improvements in its aftermarket parts business and
favorable improvements in its on-going reconfiguration of its retail
distribution network.
Income from Operations
Income from operations as a percentage of sales was 5.6% for the second
quarter of 2000 compared to 5.9% for the same period in 1999 and was 5.8% for
the six-month period ended June 30, 2000 compared to 5.2% for the same period in
1999 due primarily to the higher gross profit margins previously discussed.
Increased selling, general and administrative expenses during the second quarter
of 2000 led to slightly lower income from operations compared to the same period
in 1999. The increase in selling, general and administrative expenses primarily
reflects increased expenses incurred in the retail and distribution segment
principally to support increased sales activity in its aftermarket parts,
service and used trailer rental business.
Interest Expense
Interest expense as a percentage of sales was 1.6% for the second
quarter of 2000 compared to 0.8% for the same period in 1999 and was 1.4% for
the six-month period ended June 30, 2000 compared to 0.8% for the same period in
1999. The increase in interest expense primarily reflects higher rates during
the period coupled with higher borrowings on the Company's revolving credit
facility during 2000 associated with increased investing activities and working
capital requirements.
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Taxes
The provision for income taxes for the three month period ended June
30, 2000 and 1999 of $4.8 million and $7.3 million respectively, represents
39.0% and 41.5% 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 $112.0 million during the
first six months of 2000 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. The increase in inventory was primarily due to
a higher level of used trailers taken in trade during the period, an increase in
new trailer inventory within the retail branch network and higher finished
trailer inventory resulting from customers temporarily delaying taking delivery
of the trailers they ordered. The increase in accounts receivable was primarily
the result of higher sales activity during the last month of the quarter coupled
with a slight increase in days sales outstanding due to general economic
conditions within the transportation industry.
Investing Activities
Net cash used in investing activities of $61.0 million during the six
months ended June 30, 2000 was primarily due to capital expenditures of $38.4
million and a $22.0 million net cash investment in the Company's rental and
leasing portfolio.
Capital expenditures during the period were primarily associated with
the following:
- increasing productivity within the Company's manufacturing operations
in Lafayette, Indiana;
- substantial completion of a new state-of-the-art painting and coating
system and plant expansion at its trailer manufacturing facility in
Huntsville, Tennessee;
- on-going capital expenditures related to the Company's branch
expansion strategy;
The Company anticipates future capital expenditures related to the continuation
of its branch expansion strategy and other operating purposes to be $25 to $50
million over the next twelve to twenty-four months.
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Financing Activities
Net cash provided by financing activities of $160.4 million during the
six months ended June 30, 2000 was primarily due to a net increase in total debt
of $163.2 million partially offset by the payment of common stock dividends and
preferred dividends of $2.8 million.
On June 22, 2000, the Company entered into a new, unsecured 364-day
Credit Facility which permits the Company to borrow up to $70 million. Under
this facility, the Company has a right to borrow until June 21, 2001, at which
time the principal amount then outstanding will be due and payable. Interest
payable on such borrowings is variable based upon the London Interbank Rate
(LIBOR) plus 50 to 150 basis points, as defined, or a prime rate of interest, as
defined. The Company pays a commitment fee on the unused portion of this
facility at rates of 15 to 30 basis points per annum, as defined. The Company
also pays a utilization fee on outstanding borrowings under this facility at
rates of 0 to 25 basis points per annum, as defined. Covenants under this
facility are identical to existing covenants within the Company's Revolving Bank
Line of Credit. At June 30, 2000, the Company had outstanding borrowings of $50
million under this facility, at an interest rate of 7.69%.
Other sources of funds for capital expenditures, continued expansion of
businesses, dividend payments, principal repayments on debt, stock repurchase
and working capital requirements are expected to be cash from operations,
additional borrowings under the credit facilities, and term borrowings. The
Company believes that these funding sources will be adequate for its anticipated
requirements over the next 12 months.
BACKLOG
The Company's backlog of orders was approximately $0.8 billion and $1.1
billion at June 30, 2000 and December 31, 1999, 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
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities which was subsequently amended by
SFAS 137 and SFAS 138. These statements require that all derivative instruments
be recorded on the balance sheet at their fair value. This standard is effective
for the Company's financial statements beginning January 1, 2001, with early
adoption permitted. Management anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133, as amended, will not have
a significant effect on the Company's annual results of operations or its
financial position.
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements.
This bulletin, through its subsequent revised releases, SAB No. 101A and SAB No.
101B, is effective for the Company's financial statements beginning in the
fourth quarter 2000. Management is currently evaluating the impact of applying
SAB 101 to its business and anticipates that the adoption of SAB 101 will not
have a significant effect on the Company's results of operations or its
financial position.
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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 June 30, 2000,
the Company had approximately $160 million of LIBOR based debt outstanding under
its Revolving Credit Facility and new 364-day 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 $2.6
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 1999 Annual Report on Form 10-K.
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<PAGE> 17
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
The Company held its annual meeting of security-holders on May 9, 2000,
at which time the following nominees were elected to the Board of Directors:
WITHHOLD AUTHORITY
NOMINEES FOR TO VOTE
-------- --- -------
Richard E. Dessimoz 21,203,087 1,144,684
Donald J. Ehrlich 21,258,090 1,089,681
John T. Hackett 21,192,593 1,155,178
E. Hunter Harrison 20,760,100 1,587,671
Mark R. Holden 21,197,362 1,150,409
Ludvik F. Koci 21,314,235 1,033,536
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
---------
10.15 364-Day Credit Agreement dated June 22, 2000, between
Bank One, Indiana, N.A., as administrative agent
and Wabash National Corporation
15.01 Report of Independent Public Accountants
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 June 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WABASH NATIONAL CORPORATION
Date: August 11, 2000 By: /s/ Rick B. Davis
------------------------------
Rick B. Davis
Corporate Controller
(Principal Accounting Officer)
and
Duly Authorized Officer
16
