<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, 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 November 14, 2000 was
22,994,642.
<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, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Income
For the three and nine months ended
September 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 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 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)
September 30, December 31,
2000 1999
------------- -------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,982 $ 22,484
Accounts receivable, net 121,960 111,567
Current portion of finance contracts 10,540 8,423
Inventories 354,015 269,581
Prepaid expenses and other 13,795 16,962
------------- ------------
Total current assets 504,292 429,017
------------- ------------
PROPERTY, PLANT AND EQUIPMENT, net 226,552 186,430
------------- ------------
EQUIPMENT LEASED TO OTHERS, net 90,689 50,364
------------- ------------
FINANCE CONTRACTS, net of current portion 48,379 71,839
------------- ------------
INTANGIBLE ASSETS, net 31,632 32,669
------------- ------------
OTHER ASSETS 23,146 20,972
------------- ------------
$ 924,690 $ 791,291
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES:
Current maturities of long-term debt $ 3,254 $ 3,514
Accounts payable 139,862 145,568
Accrued liabilities 34,519 51,184
------------- ------------
Total current liabilities 177,635 200,266
------------- ------------
LONG-TERM DEBT, net of current maturities 292,581 164,367
------------- ------------
DEFERRED INCOME TAXES 36,608 30,640
------------- ------------
OTHER NONCURRENT LIABILITIES AND
CONTINGENCIES 20,933 16,653
------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock, aggregate liquidation value
of $30,600 5 5
Common stock, 22,994,642 and 22,985,186
shares issued and outstanding,
respectively 230 230
Additional paid-in capital 236,590 236,474
Retained earnings 161,387 143,935
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
------------- ------------
Total stockholders' equity 396,933 379,365
------------- ------------
$ 924,690 $ 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 Nine Months
Ended September 30, Ended September 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------ ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 345,818 $ 374,708 $ 1,057,395 $1,096,535
COST OF SALES 316,306 339,669 959,416 1,000,171
------------- ------------ ------------- -------------
Gross Profit 29,512 35,039 97,979 96,364
GENERAL AND ADMINISTRATIVE EXPENSES 8,743 7,613 25,488 21,557
SELLING EXPENSES 5,325 4,978 15,642 14,956
------------- ------------ ------------- -------------
Income from operations 15,444 22,448 56,849 59,851
OTHER INCOME (EXPENSE):
Interest expense (4,563) (3,341) (14,335) (9,329)
Accounts receivable securitization costs (1,862) (1,481) (5,259) (4,231)
Equity in losses of unconsolidated affiliate (750) (1,000) (2,350) (3,000)
Other, net (86) 345 568 2,160
------------- ------------ ------------- -------------
Income before income taxes 8,183 16,971 35,473 45,451
PROVISION FOR INCOME TAXES 3,191 6,606 13,834 18,371
------------- ------------ ------------- -------------
Net Income $ 4,992 $ 10,365 $ 21,639 $ 27,080
PREFERRED STOCK DIVIDENDS 476 474 1,427 1,623
------------- ------------ ------------- -------------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ 4,516 $ 9,891 $ 20,212 $ 25,457
============= ============ ============= =============
Earnings per share:
Basic $ 0.20 $ 0.43 $ 0.88 $ 1.11
============= ============ ============= =============
Diluted $ 0.20 $ 0.43 $ 0.88 $ 1.10
============= ============ ============= =============
Cash dividends per share $ 0.04 $ 0.038 $ 0.12 $ .113
============= ============ ============= =============
</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)
Nine Months
Ended September 30
---------------------------
2000 1999
------------- ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 21,639 $ 27,080
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities-
Depreciation and amortization 21,007 15,121
Net loss (gain) on sale of assets 1,497 (944)
Bad debt provision 2,502 1,761
Deferred income taxes 8,197 (1,921)
Equity in losses of unconsolidated affiliate 2,350 3,000
Change in operating assets and liabilities:
Accounts receivable (12,895) (47,274)
Inventories (84,434) (23,251)
Prepaid expenses and other 937 8,305
Accounts payable and accrued liabilities (22,371) 38,598
Other, net 3,792 1,018
------------- ------------
Net cash (used in) provided by
operating activities (57,779) 21,493
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (52,844) (47,010)
Net addition to equipment leased to others (51,330) (6,561)
Net additions to finance contracts (18,549) (17,188)
Investment in unconsolidated affiliate (2,363) (2,355)
Proceeds from sale of leased equipment
and finance contacts 29,783 11,330
Principal payments on finance contracts 10,070 7,469
Proceeds from the sale of property,
plant and equipment 626 5,219
------------- ------------
Net cash used in investing
activities (84,607) (49,096)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Short-term debt 50,000 ---
Long-term debt 62,500 ---
Long-term revolver 359,400 120,300
Common stock 116 256
Payments:
Short-term debt (50,000) ---
Long-term debt (2,943) (3,226)
Long-term revolver (291,003) (120,300)
Common stock dividends (2,759) (2,584)
Preferred stock dividends (1,427) (1,592)
------------- ------------
Net cash provided by (used in)
financing activities 123,884 (7,146)
------------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (18,502) (34,749)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,484 67,122
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,982 $ 32,373
============= ============
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
audited 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 September 30, 2000 and December 31, 1999, its results of
operations for the three and nine months ended September 30, 2000 and 1999 and
cash flows for the nine months ended September 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, must be adopted no later than the fourth quarter 2000. While management
continues to evaluate the impact of applying SAB 101 to its business, the impact
is not expected to have a significant effect on the Company's annual results of
operations or its financial position.
4
<PAGE> 7
b. Inventories
Inventories consisted of the
following (in thousands): September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
Raw materials and components $ 89,987 $ 105,476
Work in process 20,079 11,215
Finished goods 96,284 49,906
Aftermarket parts 36,364 37,894
Used trailers 111,301 65,090
------------- ------------
$ 354,015 $ 269,581
============= ============
c. Reclassifications
Certain items previously reported in specific consolidated financial
statement captions have been reclassified to conform with the 2000 presentation.
Such reclassifications had no impact on net income.
NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Nine Months
Ended September 30,
---------------------------
(Dollars in thousands) 2000 1999
-----------------------------------------------------------------------------
Cash paid during the period for: (unaudited)
Interest, net of amounts capitalized $ 12,679 $ 10,710
Income taxes 17,633 14,623
-----------------------------------------------------------------------------
NOTE 4. DEBT
----
On September 29, 2000, the Company entered into a $75 million Note
Purchase and Private Shelf Agreement with a large financial institution. Under
this agreement, the Company initially issued $50 million of unsecured senior
notes, $25 million of which is due September 29, 2005 with the remaining $25
million due September 29, 2007. These Series I Senior Notes bear interest at
8.04% with interest payments due semi-annually in March and September and
contain financial covenants substantially identical to the Company's existing
senior notes. The proceeds were used to repay the amount outstanding under the
Company's 364-day Credit Facility. The uncommitted Shelf Agreement expires on
September 29, 2003 and provides for the possible issuance of additional senior
notes up to an aggregate amount of $25 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. At September
30, 2000, the Company had no borrowings against this facility.
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 (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, 2000
-----------------------
(unaudited)
Revenues
External customers $263,628 $ 69,752 $ 12,438 $ 345,818 $ --- $ 345,818
Intersegment sales 18,529 3,666 326 22,521 (22,521) ---
-------- --------- -------- ---------- ------------ ----------
Total Revenues $282,157 $ 73,418 $ 12,764 $ 368,339 $ (22,521) $ 345,818
======== ========= ======== ========== ============ ==========
Income from Operations $ 14,423 $ 1,249 $ 315 $ 15,987 $ (543) $ 15,444
Assets $950,434 $ 339,944 $ 85,740 $1,376,118 $ (451,428) $ 924,690
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
Assets $731,086 $ 186,565 $108,026 $1,025,677 $ (259,398) $ 766,279
Nine Months Ended
September 30, 2000
-----------------------
(unaudited)
Revenues
External customers $806,345 $ 223,721 $ 27,329 $1,057,395 $ --- $1,057,395
Intersegment sales 70,136 8,758 2,767 81,661 (81,661) ---
-------- --------- -------- ---------- ------------ ----------
Total Revenues $876,481 $ 232,479 $ 30,096 $1,139,056 $ (81,661) $1,057,395
======== ========= ======== ========== ============ ==========
Income from Operations $ 53,990 $ 3,302 $ 2,048 $ 59,340 $ (2,491) $ 56,849
Assets $950,434 $ 339,944 $ 85,740 $1,376,118 $ (451,428) $ 924,690
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
Assets $731,086 $ 186,565 $108,026 $1,025,677 $ (259,398) $ 766,279
</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 September 30, 2000
-------------------------------------
Basic $ 4,516 22,995 $0.20
Options --- ---
Preferred Stock --- ---
-----------------
-------------------------------------
Diluted $ 4,516 22,995 $0.20
===================================== =============================
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
===================================== =============================
Nine Months Ended September 30, 2000
-------------------------------------
Basic $ 20,212 22,989 $0.88
Options --- ---
Preferred Stock --- ---
------------------------------------- -----------------------------
Diluted $ 20,212 22,989 $0.88
=============================
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
===================================== =============================
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,
7
<PAGE> 10
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
that 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.
The Court 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 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, 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.
8
<PAGE> 11
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 sought
the production of documents and related records concerning the design of the
facility's discharge system and the particular discharge in question. On April
17, the Company received a Notice of Violation/Request for Incident Report from
the Tennessee Department of Environmental Conservation (TDEC) with respect to
the same matter. On September 6, 2000, the Company received an Order and
Assessment from TDEC directing the Company to pay a fine of $100,000 for
violations of Tennessee environmental requirements as a result of the discharge.
The Company filed an appeal of the Order and Assessment on October 10, 2000. The
Company is fully cooperating with state and federal officials with respect to
their investigation into the matter. At this time, the Company is unable to
predict the outcome of federal grand jury inquiry into this matter, but does not
believe it will result in 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.
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 has continued the restoration program
with the same customer since 1997. The customer has indemnified the Company for
any potential excise tax assessed by the IRS for years subsequent to 1997. As a
result, the Company has recorded a liability and a corresponding receivable of
approximately $6.6 million and $5.2 million in the accompanying Condensed
Consolidated Balance Sheets at September 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 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,
2000 decreased approximately $28.9 million or 7.7% compared to the same period
in 1999 and were $39.1 million or 3.6% lower for the nine-month period ended
September 30, 2000, compared to the same period in 1999.
The manufacturing segment's external net sales decreased 7.7% or $22.0
million in the third quarter of 2000 compared to the same period in 1999 and
were $28.9 million or 3.5% lower for the nine-month period ended September 30,
2000 compared to the same period in 1999. These decreases were primarily driven
by a 3.1% decrease (15,700 units vs. 16,200 units) and a 3.5% decrease (47,400
units vs. 49,100 units) in the number of new trailers sold during the three and
nine-month periods ended September 30, 2000 compared to the same periods in
1999, respectively.
10
<PAGE> 13
In addition, the average selling price per unit was lower by 4.0% and higher by
0.6% for the three and nine-month periods ended September 30, 2000 compared to
the same periods in 1999, respectively. The decrease in net sales during the
periods was primarily driven by the continued impact of a general slowing in
freight tonnage, increased interest rates and continued high fuel prices within
the transportation industry. As a result of these unfavorable conditions, the
transportation industry continues to operate in a very difficult environment,
which has caused new trailer orders to decrease.
The retail and distribution segment's external net sales decreased
11.3% or $8.9 million in the third quarter of 2000 compared to the same period
in 1999 and were $8.3 million or 3.6% lower for the nine-month period ended
September 30, 2000 compared to the same period in 1999. The decrease in net
sales during the three and nine-month periods ended September 30, 2000 was due
to a decrease in new and used trailer revenues offset partially by increases in
aftermarket parts, service revenues and rental revenues. The decreases in new
and used trailer revenues were primarily due to the impact of higher fuel and
interest costs experienced by 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 strategy to expand its used trailer rental program.
The leasing and finance segment's external net sales rose 19.4% or $2.0
million in the third quarter of 2000 compared to the same period in 1999 and
were 6.7% or $2.0 million lower for the nine-month period ended September 30,
2000 compared to the same period in 1999. The increase in net sales in the third
quarter of 2000 compared to the same period in 1999 was primarily due to the
sale of used trailers coming off lease partially offset by a decline in
sales-type finance leases. The decrease in net sales during the nine-month
period ended September 30, 2000 compared to the same period in 1999 was
primarily attributable to a decline in sales-type leases.
Gross Profit
Gross profit as a percentage of sales totaled 8.5% for the third
quarter of 2000 compared to 9.4% for the same period in 1999 and totaled 9.3%
for the nine-month period ended September 30, 2000 compared to 8.8% for the same
period in 1999. The decrease in the gross profit percentage for the third
quarter 2000 compared to the same period in 1999 was primarily due to start-up
costs related to the Company's state-of-the-art painting and coating system at
its Scott County, Tennessee plant. In addition, during the third quarter of
2000, the production mix on non-proprietary products consisted of a higher
concentration of lower-priced, lower-margin products, which also impacted the
gross profit percentages. The increase in the gross profit percentage for the
nine-month period ended September 30, 2000 reflects the Company's strategy of
increasing the proportion of revenues attributable to proprietary products, such
as the Duraplate trailer, which 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, service business and used trailer rental business which
also generate higher margins than commodity-type new trailer production.
Income from Operations
Income from operations as a percentage of sales was 4.5% for the third
quarter of 2000 compared to 6.0% for the same period in 1999 and was 5.4% for
the nine-month period ended September 30, 2000 compared to 5.5% for the same
period in 1999. Income from operations in 2000 was impacted primarily by the
decrease in gross profit margins previously discussed along with increased
selling, general and administrative expenses. The increase in selling, general
and administrative expenses primarily reflects increased selling expenses
incurred in the retail and
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distribution segment principally to support increased sales activity in its
aftermarket parts, service and used trailer rental business.
Other Income (Expense)
Interest expense as a percentage of sales was 1.3% for the third
quarter of 2000 compared to 0.9% for the same period in 1999 and was 1.4% for
the nine-month period ended September 30, 2000 compared to 0.9% for the same
period in 1999. The increase in interest expense during both periods primarily
reflects higher interest rates during the periods coupled with the issuance of
additional term debt and higher borrowings under the Company's revolving credit
facility during 2000 to fund increased investing activities and working capital
requirements.
Equity in losses of unconsolidated affiliate consists of the Company's
interest in the losses of ETZ, a non-operating European holding company, at a
25.1% share which represents the Company's interest acquired in November, 1997.
ETZ is the majority shareholder of BTZ, a European RoadRailer operating company
based in Munich, Germany, which began operations in 1996. The majority
shareholder of the ETZ and the Company's partner in the RoadRailer operations
has decided to evaluate exit strategies relative to its investment in the ETZ,
including the possible sale of its ownership interest. The Company has not
determined whether it will sell its ownership interest in the ETZ, for which the
Company has $5.2 million reflected in Other Assets at September 30, 2000. Due to
the BTZ being a start-up Company which has incurred start-up losses since
inception, no assurances can be given as to the ultimate impact of the majority
shareholder's decision to evaluate it's exit strategies.
During September 2000, the Company's finance operation sold a portion
of its leasing and finance portfolio to a large financial institution. Proceeds
of the sale were approximately $20.8 million and resulted in a loss of
approximately $0.9 million which is reflected in Other, net in the accompanying
Condensed Consolidated Statements of Income.
Taxes
The provision for income taxes for the three and nine-month periods
ended September 30, 2000 of $3.2 million and $13.8 million, respectively,
represents 39.0% of pre-tax income for both periods compared to the provision of
$6.6 million and $18.4 million, or 38.9% and 40.4% of pre-tax income,
respectively, for the same periods in 1999. 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 $57.8 million during the
first nine 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 as well as a reduction in accounts payable and
accrued liabilities. 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, higher finished trailer
inventory resulting from customers temporarily delaying taking delivery of the
trailers they ordered offset partially by the manufacturing segment reducing its
required raw material inventory level. The increase in accounts receivable was
primarily the result of an increase in days sales outstanding due to general
economic conditions within the transportation industry.
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Investing Activities
Net cash used in investing activities of $84.6 million during the nine
months ended September 30, 2000 was primarily due to the following:
- capital expenditures of $52.8 million;
- net investment in the Company's rental and operating lease
portfolio of approximately $48.6 million; and
- net decrease in the Company's finance contract portfolio of
approximately $18.6 million
Capital expenditures during the period were associated with the
following:
- increasing productivity within the Company's manufacturing
operations in Lafayette, Indiana;
- completion of a new state of the art painting and coating
system and plant expansion at its trailer manufacturing facility
in Huntsville, Tennessee; and
- on-going capital expenditures related to the Company's branch
expansion strategy
The increase in the Company's rental and operating leasing portfolio
primarily reflects the Company's strategy to increase its used trailer rental
program. The decrease in the Company's finance contract portfolio was primarily
driven by the September 2000 sale of approximately $21.7 million of its leasing
and finance portfolio previously discussed.
The Company anticipates future capital expenditures related to the
continuation of the capital projects previously discussed and other activities
to be $25 to $40 million over the next twelve months.
Financing Activities
Net cash provided by financing activities of $123.9 million during the
nine months ended September 30, 2000, was primarily due to a net increase in
total debt of $128.0 million and the payment of common stock dividends and
preferred stock dividends of $4.2 million in the aggregate.
On September 29, 2000, the Company entered into a $75 million Note
Purchase and Private Shelf Agreement with a large financial institution. Under
this agreement, the Company initially issued $50 million of unsecured senior
notes, $25 million of which is due September 29, 2005 with the remaining $25
million due September 29, 2007. These Series I Senior Notes bear interest at
8.04% with interest payments due semi-annually in March and September and
contain financial covenants substantially identical to the Company's existing
senior notes. The proceeds were used to repay the amount outstanding under the
Company's 364-day Credit Facility. The uncommitted Shelf Agreement expires on
September 29, 2003 and provides for the possible issuance of additional senior
notes up to an aggregate amount of $25 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. At September
30, 2000, the Company had no borrowings against this facility.
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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.
BACK LOG
The Company's backlog of orders was approximately $0.7 billion and $1.1
billion at September 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. While management continues to evaluate the impact of
applying SAB 101 to its business, the impact is not expected to have a
significant effect on the Company's annual results of operations or its
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,
2000, the Company had approximately $76.4 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 $1.8 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 a change in interest rates and potential managerial action taken in
response to those 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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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:
10.16 Series I Senior Note Purchase Agreement dated September 29,
2000 between Prudential Insurance Company 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 September 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: November 14, 2000 By: /s/ Rick B. Davis
----------------- ------------------------------------
Rick B. Davis
Corporate Controller
(Principal Accounting Officer)
and
Duly Authorized Officer
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