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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 1-10883
WABASH NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1375208
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1000 SAGAMORE PARKWAY SOUTH, 47905
LAFAYETTE, INDIANA (ZIP CODE)
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (765) 771-5300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 Par Value New York Stock Exchange
Series A Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes. No.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 22, 2001 was $230,024,900 based upon the closing
price of the Company's common stock as quoted on the New York Stock Exchange
composite tape on such date.
The number of shares outstanding of the registrant's Common Stock and
Series A Preferred Share Purchase Rights as of March 22, 2001 was 23,002,490.
Part III of this Form 10-K incorporates by reference certain portions
of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be
held May 15, 2001.
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TABLE OF CONTENTS
WABASH NATIONAL CORPORATION
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2000
PAGES
-----
PART I.
Item 1. Business.............................................................................. 3
Item 2. Properties............................................................................ 11
Item 3. Legal Proceedings..................................................................... 11
Item 4 Submission of Matters to Vote of Security Holders..................................... 11
Item 4A. Risk Factors.......................................................................... 11
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.............. 13
Item 6. Selected Financial Data............................................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risks........................... 22
Item 8. Financial Statements and Supplementary Data........................................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................... 47
PART III.
Item 10. Directors and Executive Officers of the Registrant.................................... 47
Item 11. Executive Compensation................................................................ 48
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 48
Item 13. Certain Relationships and Related Transactions........................................ 49
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 49
SIGNATURES ...................................................................................... 51
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PART I
ITEM 1 -- BUSINESS
Wabash designs, manufactures and markets standard and customized truck
trailers under the Wabash National and Fruehauf trademarks. The Company produces
and sells aftermarket parts through its division, Wabash National Parts and its
wholly-owned subsidiary, Fruehauf Trailer Services, Inc. (FTSI). In addition to
its aftermarket parts sales and service revenues, FTSI sells new and used
trailers through its retail network as well as providing rental, leasing and
finance programs to its customers for new and used trailers.
The Company's business strategy is to follow an integrated approach to
engineering, manufacturing and marketing which emphasizes flexibility in product
design and operations while preserving a low cost structure. Wabash seeks to
identify and produce proprietary products in the trucking and bimodal industries
that offer added value to customers and, therefore, generate higher demand and
higher profit margins than those associated with standard trailers. The Company
has developed its rental, leasing and finance business for new and used trailers
within its retail and distribution network and expects to continue such
development. The Company has also expanded its factory-owned retail distribution
network in order to more effectively distribute its products. The retail sale of
new and used trailers, aftermarket parts and maintenance service generally
provides the opportunity for higher gross margins. The Company believes that its
RoadRailer(R) bimodal technology provides the opportunity to maintain a
reputation for design and new product development leadership. The important
elements of the Company's strategies are:
- Assessment of Customer Needs. The Company's engineering,
manufacturing, and marketing departments work with customers to
assess customer needs and to develop cost-effective engineering
and manufacturing solutions. This process results in many highly
customized products incorporating unique design features. The
Company seeks to acquire products, services and technologies that
address customer needs and provide the Company with the
opportunity for enhanced profit margins. The Company emphasizes
long-term customer relationships at all levels in the Company,
built on Wabash's reputation for flexibility and customization.
- Engineering, Manufacturing and Purchasing. The Company's
integrated approach emphasizes low-cost and flexible production on
existing assembly lines without the need for extensive capital
investment or re-tooling. The Company uses computer-aided design
(CAD) and computer-aided manufacturing (CAM) techniques throughout
the production process. The Company also utilizes just-in-time
techniques for many aspects of the production process including
delivery of components immediately prior to the time needed for
assembly. These techniques have substantially reduced the capital
investment and set-up time associated with introducing product
innovations and have also reduced product waste and unnecessary
product handling time.
- Product Differentiation. Wabash has developed or acquired several
proprietary products and processes which, it believes, are
recognized as high in quality and distinctive in design. While the
Company is a competitive producer of standardized products, it
emphasizes the development and manufacture of distinctive and more
customized products and believes that it has the engineering and
manufacturing capability to produce these products efficiently.
The Company expects to continue a program of aggressive product
development and selective acquisitions of quality proprietary
products that distinguish the Company from its competitors and
provide opportunities for enhanced profit margins.
- Corporate Culture. Since the Company's founding, management has
fostered a corporate culture that emphasizes design and new
product development capabilities as well as extensive employee
involvement. All employees participate in extensive classroom
training covering all aspects of the Company's business, including
team building and problem solving, statistical process control,
economics and finance. Wabash also employs a compensation program
that rewards most hourly employees through the distribution of a
percentage of the Company's after-tax profits. Wabash's safety
program has been developed with employee participation and has
been cited for each of the last twelve years (1988-1999) by the
Truck Trailer Manufacturing Association for achieving the best
safety record among large plants in the industry. The
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Company believes that its corporate culture has produced a highly
trained and motivated workforce that understands the Company's
business strategy and that is keenly interested in and rewarded by
the success of the Company.
Wabash was incorporated in Delaware in 1991 and is the successor by
merger to a Maryland corporation organized in 1985. Wabash operates in two
segments: manufacturing and retail and distribution. Financial results by
segment are discussed in detail within Footnote 5, Segment Reporting, of the
accompanying Consolidated Financial Statements.
Manufacturing
The Company believes that it is the largest United States manufacturer
of truck trailers, including the Company's proprietary DuraPlate(R) and
RoadRailer trailers.
Wabash markets its products directly and through dealers to truckload
and less-than-truckload (LTL) common carriers, private fleet operators, leasing
companies, package carriers and intermodal carriers including railroads. The
Company has established significant relationships as a supplier to many large
customers in the transportation industry, including those set forth below:
- Truckload Carriers: Schneider National, Inc.; Werner Enterprises,
Inc.; Swift Transportation Corporation; J.B. Hunt Transport
Services, Inc.; Dart Transit; Heartland Express, Inc.; Crete
Carrier Corporation; Knight Transportation, Inc.; USXpress
Enterprises, Inc.; Frozen Food Express Industries (FFE); KLLM,
Inc.; Interstate Distributor Co.
- Leasing Companies: Transport International Pool (TIP); Penske
Truck Leasing; National Semi- Trailer Corp.
- Private Fleets: Safeway; DaimlerChrysler; The Kroger Company;
Foster Farms
- Less-Than-Truckload Carriers: Roadway Express, Inc.; Old Dominion
Freight Line, Inc.; USF Holland; GLS Leasco; Yellow Services, Inc.
- Package Carriers: Federal Express Corporation
- North American Intermodal Carriers: Triple Crown Services;
National Rail Passenger Corp. (Amtrak); GATX Capital (in
conjunction with Burlington Northern Santa Fe and Mark VII
Transportation); Canadian National Railroad
Retail and Distribution
The Company has 29 retail outlets in mostly major, metropolitan markets
as well as 5 locations that sell and rent used trailers. During January 2001,
the Company expanded its branch network through the acquisition of the Breadner
Group of Companies, headquartered in Ontario, Canada. The Breadner Group has ten
branch locations in six Canadian Provinces and is the leading Canadian
distributor of new trailers and related parts and service. As a result, the
Company believes it has the largest company-owned distribution system in the
industry selling new and used trailers, aftermarket parts and maintenance
service. The retail sale of new and used trailers, aftermarket parts and
maintenance service generally produces higher gross margins and tend to be more
stable in demand. The Company also provides rental, leasing and financing
programs, primarily to its retail customers for new and used trailers, through
its subsidiaries, Apex Trailer Leasing and Rentals, L.P. and National Trailer
Funding (the Finance Companies). In December 2000, the Company's wholly-owned
subsidiary, Wabash National Finance Corporation, was merged into Apex Trailer
Leasing and Rentals, L.P. as the Company consolidated its rental, leasing and
finance activities into the retail and distribution segment as a separate retail
product line. This activity tends to be more stable and predictable while at the
same time provides the Company an additional channel of distribution for used
trailers taken in trade on the sale of new trailers. Due to the strategic
importance of the combined product lines of the retail and distribution segment,
the Company intends to continue to place emphasis on this revenue source and has
added additional retail outlets over the past few years either through
acquisition or greenfield start-up.
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THE TRUCK TRAILER INDUSTRY
The United States market for truck trailers and related products has
historically been cyclical and has been affected by overall economic conditions
in the transportation industry as well as regulatory changes. Management
believes that customers historically have replaced trailers in cycles that run
from approximately six to ten years. Both State and Federal regulation of the
size, safety features and configuration of truck trailers have led to increased
demand for trailers meeting new regulatory requirements from time to time.
A large percentage of the new trailer market has historically been
served by the ten largest truck trailer manufacturers, including the Company.
Price, flexibility in design and engineering, product quality and durability,
warranty, dealer service and parts availability are competitive factors in the
markets served. Historically, there has been manufacturing over-capacity in the
truck trailer industry.
The following table sets forth domestic new trailer shipments for the
Company, its nine largest competitors and for the United States trailer industry
as a whole:
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
WABASH 66,283 69,772 61,061 48,346(1) 36,517 42,424
Great Dane 46,698 58,454 50,513 37,237 25,730 36,514
Utility 28,780 30,989 26,862 23,084 19,731 25,068
Trailmobile 28,089 31,329 23,918 18,239 11,094 21,239
Stoughton 15,050 14,673 11,750 11,700 8,300 14,770
Strick 10,500 11,000 10,959 10,488 8,141 18,427
Hyundai 6,261 5,716 5,200 3,445 2,007 6,705
Fontaine 6,000 6,500 5,894 5,063 4,613 5,465
HPA Monon 5,726 8,386 7,313 2,534 11,184 21,172
Dorsey 5,000 9,013 8,375 7,939 8,595 12,276
Total Industry 270,817 317,388 278,821 222,550 197,519 284,268
(1) Includes shipments of 1,467 units by Fruehauf in 1997 prior to the
acquisition by Wabash of certain assets of Fruehauf.
Sources: Individual manufacturer information provided by Southern Motor
Cargo Magazine (C) 1999 (1998-1995) and Trailer Body Builders Magazine (2000 and
1999 only). Industry totals provided by Southern Motor Cargo Magazine (C) 1999
(1998-1995) and A.C.T. Research Company, L.L.C. (2000 and 1999).
REGULATION
Truck trailer length, height, width, maximum weight capacity and other
specifications are regulated by individual states. The Federal Government also
regulates certain safety features incorporated in the design of truck trailers,
including new regulations in 1998 which require anti-lock braking systems (ABS)
on all trailers produced beginning in March 1998 and certain rear bumper
strength regulations effective at the beginning of 1998. Manufacturing
operations are subject to environmental laws enforced by federal, state and
local agencies. (See "Environmental Matters")
PRODUCT LINES
Manufacturing Segment
Since the Company's inception in 1985, the Company has expanded its
product offerings from a single product into a broad line of transportation
equipment and related products and services. As a result of its long-term
relationships with its customers, the Company has been able to work closely with
its customers to create competitive advantages through development and
production of productivity-enhancing transportation equipment. The sale of new
trailers through the manufacturing segment represented 76.0%, 76.6% and 76.5% of
net sales during 2000, 1999 and 1998, respectively. The current new trailer
product lines include the following:
Transportation Equipment
- DuraPlate trailers. In late 1995, the Company introduced its
composite plate trailer. Features of the new composite plate
trailer include increased durability and greater strength than the
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aluminum plate trailer. The composite material is a high-density
vinyl core with a steel skin. The Company holds a number of
patents regarding its composite trailer and believes this
proprietary trailer will continue to become a greater source of
business.
- Plate trailers. The aluminum plate trailer was introduced into the
Company's product line in 1985. Since these trailers utilize
thicker and more durable sidewalls than standard sheet and post or
fiberglass reinforced plywood ("FRP") construction and avoid the
use of interior liners, the life of the trailer is extended and
maintenance costs are significantly reduced. In addition, the post
used in constructing the sidewalls of the aluminum plate trailer
is much thinner and therefore provides greater interior volume
than a standard sheet and post trailer. Plate trailers are used
primarily by truckload carriers.
- RoadRailer trailers. In 1987, the Company began manufacturing
RoadRailer trailers. RoadRailer trailers represent a patented
bimodal technology consisting of a truck trailer and detachable
rail "bogie" permitting a trailer to run both over the highway and
directly on railroad lines. The Company believes that the
RoadRailer system can be operated more efficiently than
alternative intermodal systems such as "piggyback" or "stack"
railcars which require terminal operators to transfer vehicles or
containers to railcars. In 1991, the Company acquired the
exclusive rights to market and exploit RoadRailer technology. By
offering the bimodal technology in a number of variations, the
Company believes it can increase its penetration of the intermodal
market and enlarge its pool of potential customers. The current
models are the ReeferRailer(R) trailer, the ChassisRailer(R)
trailer, the PupRailer(TM) trailer, the AutoRailer(R) trailer and
the 19.5 RoadRailer trailer. Management believes that RoadRailer
trailers provide the opportunity for the Company to maintain a
reputation for technological leadership in the transportation
industry.
- Refrigerated trailers. Refrigerated trailers were introduced into
the product line in 1990. The Company's proprietary process for
building these trailers involves injecting insulating foam in the
sidewalls and roof in a single process prior to assembly, which
improves both the insulation capabilities and the durability of
the trailers. These trailers are used primarily by private fleets
in the transportation of perishable food products. During 1995,
the Company opened its refrigerated trailer manufacturing facility
in Lafayette, Indiana.
- Aluminum vans and doubles. Aluminum vans and doubles, also known
as sheet and post trailers, were introduced into the product line
in 1986 and are the standard trailer product purchased by
customers in most segments of the trucking industry. These
products represent the most common trailer sold throughout the
Company's retail distribution network.
- FRP vans and doubles. The Company's initial product was FRP
trailers, which have been purchased primarily by LTL carriers
utilizing doubles or triples. Motor carriers utilizing standard
double or triple trailers frequently reach the maximum legal
weight limits before they fill the capacity of the trailers. Since
FRP trailers are lighter in weight than these double trailers,
they enable LTL carriers to attain higher productivity than could
be achieved using other types of double trailers.
- Platform trailers. Platform trailers are typically purchased by
owner-operators and are often used for transporting heavier, more
durable goods such as those used in the construction and steel
industries. In 2000, the Company introduced its ElectroShield(TM)
technology for use on platform trailers produced at its
manufacturing facility in Huntsville, Tennessee. The ElectroShield
technology provides a uniform finish that coats the entire surface
of the frame, inside and out. The result is complete surface
coverage that is vastly superior to conventional "spray-on"
coating systems. ElectroShield coatings provide the best
protection in the industry, with greatly improved resistance to
corrosion, chipping and fading from exposure to sunlight. The
Company believes this new technology adds to its already strong
reputation for technological leadership in the transportation
industry.
- Other. The Company's other transportation equipment includes
container chassis, rollerbed trailers, soft-sided trailers, dumps
and converter dollies.
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Retail and Distribution Segment
The Company believes it has the largest, company-owned retail and
distribution network serving the truck trailer industry with the following
product lines:
Transportation Equipment
The Company sells new transportation equipment such as those products
offered by the manufacturing segment including DuraPlate trailers, refrigerated
trailers, sheet and post trailers and platform trailers. The Company also sells
specialty trailers not produced by the manufacturing segment including tank
trailers and construction trailers. Customers for this equipment typically
purchase in smaller quantities for local or regional transportation needs. The
sale of new trailers through the branch network represented 6.3%, 8.1% and 7.3%
of net sales during 2000, 1999 and 1998, respectively.
Aftermarket Parts and Service
The Company also offers replacement parts and accessories and provides
maintenance service both for its own and competitors' trailers and related
equipment. The aftermarket parts business is less cyclical than trailer sales
and generally has higher gross profit margins. The Company markets its
aftermarket parts and services through its division, Wabash National Parts and
through its wholly-owned subsidiary, Fruehauf Trailer Services, Inc. Management
expects that the manufacture and sale of aftermarket parts and maintenance
service will be a growing part of its product mix as the number and age of its
manufactured trailers in service increases and due to the growth of the retail
and distribution segment. Sales of these products and services represented 9.6%,
7.9% and 9.7% of net sales during 2000, 1999 and 1998, respectively.
Rental, Leasing and Finance
Through 1991, the Company leased trailers to customers on a very
limited basis, primarily involving used trailers taken in trade from other
customers. In late 1991, the Company began to build its in-house capability to
provide leasing programs to its customers through Wabash National Finance. In
addition, in late 1998 the Company began offering a rental program for used
trailers, primarily on a short-term basis, through its retail branch network. In
December 2000, the Company's wholly-owned subsidiary, Wabash National Finance
Corporation, was merged into Apex Trailer Leasing and Rentals, L.P. as the
Company consolidated its rental, leasing and finance activities into the retail
and distribution segment as a separate retail product line. At December 31,
2000, the Company had approximately $52.0 million in equipment leased to others,
net and $56.5 million invested in finance contracts. These leasing assets have
been financed through sale and leasebacks, term debt and equity. Leasing
revenues of the Company represented 2.5%, 1.6% and 1.8% of net sales during
2000, 1999 and 1998, respectively.
Used Trailers
The Company is also involved in the sale of used trailers, which are
primarily trade-ins from its customers for new trailers. The Company generally
sells its used trailers directly through its retail and distribution segment.
Used trailer sales promote new sales by permitting trade-in allowances and have
represented a stable source of revenue for the Company. The sale of used
trailers represented 5.6%, 5.8% and 4.7% of net sales during 2000, 1999 and
1998, respectively.
CUSTOMERS
The Company's customer base includes many of the nation's largest
truckload common carriers, leasing companies, LTL common carriers, private fleet
carriers, package carriers and domestic and international intermodal carriers
including railroads. The Company believes it is the sole supplier of dry vans,
refrigerated trailers and platform trailers to approximately 15 customers. Sales
to these customers accounted for approximately 41.8%, 32.6% and 28.9% of the
Company's new trailer sales in 2000, 1999 and 1998, respectively. The retail and
distribution business primarily services small fleets and individual owner
operators in which the credit risk varies significantly from customer to
customer. The Company's international sales accounted for approximately 3.1% of
net sales during 2000 and 2.0% of net sales during 1999 and 1998.
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The Company had one customer, J.B. Hunt Transport Services, Inc., which
represented 11.4% of its net sales in 2000, while no other customer exceeded 10%
of its net sales in 2000, 1999 and 1998. The Company's net sales in the
aggregate to its five largest customers were 30.5%, 22.2% and 18.3% of its sales
in 2000, 1999 and 1998, respectively.
Truckload common carriers include large national lines as well as
regional carriers. The large national truckload carriers, who continue to gain
market share at the expense of both regional carriers and private fleets,
typically purchase trailers in large quantities with highly individualized
specifications. Trailers purchased by truckload common carriers including
Schneider National, Inc., Werner Enterprises, Inc., Swift Transportation
Corporation, J.B. Hunt Transport Services, Inc., Heartland Express, Inc., Dart
Transit, Crete Carrier Corporation, Knight Transportation, Inc., USXpress
Enterprises, Inc., and Interstate Distributor Co. represented 59.7%, 54.3% and
44.7% of the Company's new trailer sales in 2000, 1999 and 1998, respectively.
LTL carriers have experienced consolidation in recent years and the
industry is increasingly dominated by a few large national and several regional
carriers. Since the Highway Reauthorization Act of 1983 mandated that all states
permit the use of 28-foot double trailers, there has been a conversion of nearly
all LTL carriers to doubles operations. Order sizes for LTL carriers tend to be
in high volume and with standard specifications. LTL carriers who have purchased
Company products include Roadway Express, Inc., Old Dominion Freight Line, Inc.,
USF Holland, GLS Leasco, and Yellow Services, Inc. New trailer sales to LTL
carriers accounted for 10.5%, 9.1% and 11.9% of new trailer sales in 2000, 1999
and 1998, respectively.
Private fleet carriers represent the largest segment of the truck
trailer industry in terms of total units, but are dominated by small fleets of 1
to 100 trailers. Among the larger private fleets, such as those of the large
retail chain stores, automotive manufacturers and paper products, truck trailers
are often ordered with customized features designed to transport specialized
commodities or goods. Among private fleets, the Company's customers include
DaimlerChrysler, Safeway, Foster Farms and The Kroger Company. New trailer sales
to private fleets represented 6.7%, 6.4% and 7.5% of new trailer sales in 2000,
1999 and 1998, respectively.
Leasing companies include large national companies as well as regional
and local companies. Among leasing companies, the Company's customers include
Transport International Pool (TIP), National Semi-Trailer Corp. and Penske Truck
Leasing. New trailer sales to leasing companies represented 4.2%, 6.0% and 10.0%
of new trailer sales in 2000, 1999 and 1998, respectively.
Customers for the Company's proprietary RoadRailer products include
U.S. and foreign intermodal carriers such as Triple Crown Services, Amtrak,
Swift Transportation Corporation, GATX Capital (in conjunction with Burlington
Northern Santa Fe Corporation and Mark VII Transportation), Bayerische
Trailerzug Gesellschaft, Compagnie Nouvelle De Conteneurs and Canadian National
Railroad. New trailer sales of RoadRailer products to these customers
represented 2.4%, 2.8% and 4.7% of new trailer sales in 2000, 1999 and 1998,
respectively. The Company believes that the RoadRailer technology has enabled it
to develop an international presence. Anticipated sources of future revenue in
the RoadRailer business also include license fees from the license of RoadRailer
technology to overseas manufacturers.
In the United States, FedEx Corporation is one of two primary carriers
dominating the package carrier industry. Package carriers have developed rigid
specifications for their highly specialized trailers and have historically
purchased trailers from a small number of suppliers, including Wabash. New
trailer sales to package carriers represented 0.7%, 0.8% and 1.1% of new trailer
sales in 2000, 1999 and 1998, respectively.
Retail sales of new trailers to independent operators through the
Company's factory-owned distribution network provide the Company with access to
smaller unit volume sales, which typically generate higher gross margins. Retail
sales of new trailers represented 7.4%, 8.9% and 9.2% of total new trailer sales
in 2000, 1999 and 1998, respectively.
The balance of new trailer sales in 2000, 1999 and 1998 were made to
dealers and household moving carriers.
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MARKETING AND DISTRIBUTION
The Company markets and distributes its products through one of three
channels, which include:
- factory direct accounts;
- the factory-owned distribution network; and
- independent dealerships.
The factory direct accounts include larger full truckload, LTL, package
and household moving carriers and certain private fleets and leasing companies
and are high volume purchasers. In the past, the Company has focused its
resources on the factory direct market, where customers are generally aware of
the Company's management and its reputation in the trailer manufacturing
industry. The larger LTL and private fleets, as well as the national fleets
which increasingly dominate the truckload segment, buy factory direct with a
great deal of customization. These larger carriers will generally purchase the
largest trailer allowed by law in the areas that they intend to operate, with
maximum interior space. These carriers are the largest customers of the
composite plate trailers manufactured by the Company.
The Company's factory-owned distribution network provides the
opportunity to generate retail sales of trailers as well as leasing and
financing arrangements to smaller independent operators. This branch network
enables the Company to provide maintenance and other services to customers on a
nationwide basis and to take trade-ins, which are common with new trailer deals
with fleet customers. In addition to the 29 U.S. factory-owned branches, the 10
retail locations recently acquired in Canada and the 5 U.S. locations that sell
and rent used trailers, the Company also sells its products through a nationwide
network of over 90 full-line and over 120 parts only independent dealerships,
which generally serve the trucking and transport industry. The dealers primarily
serve intermediate and smaller sized carriers and private fleets in the
geographic region where the dealer is located and on occasion may sell to large
fleets. The dealers may also perform service work for many of their customers.
RAW MATERIALS
The Company utilizes a variety of raw materials and components
including steel, aluminum, lumber, tires and suspensions, which it purchases
from a large number of suppliers. Significant price fluctuations or shortages in
raw materials or finished components may adversely affect the Company's results
of operations. In 2000 and for the foreseeable future, the raw material used in
the greatest quantity will be composite plate material used on the Company's
proprietary DuraPlate trailer. The composite material is comprised of an inner
and outer lining made of high strength steel surrounding a vinyl core, of which
both components are in ready supply. In August 1997, the Company completed
construction of a composite material facility located in Lafayette, Indiana
where the Company produces the composite plate material from steel and vinyl
components. Due to the continued strong demand for the Company's DuraPlate
trailer, additional composite material manufacturing capacity was added to this
facility in 2000. The Company believes the addition of this new facility will
provide adequate capacity to meet its composite material requirements. During
1998, the Company acquired Cloud Corporation and Cloud Oak Flooring Company,
Inc. (Wabash Wood Products), manufacturers of laminated hardwood floors for the
truck body and trailer industry. During the course of 2000, the Company
increased its hardwood flooring production capacity at its Harrison, Arkansas
facility in order to accommodate 100% of the Company's trailer flooring needs.
The central U.S. location of the Company's plants gives Wabash a competitive
advantage in the transportation cost of inbound raw materials as well as the
cost of delivery of finished product as customers often use trailers coming off
the assembly line to deliver freight outbound from the Midwest.
BACKLOG
The Company's backlog of orders was approximately $0.7 billion, $1.1
billion and $1.0 billion at December 31, 2000, 1999 and 1998, respectively. The
Company expects to fill a majority of its existing backlog of orders by the end
of 2001.
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PATENTS AND INTELLECTUAL PROPERTY
The Company holds or has applied for 76 patents in the United States on
various components and techniques utilized in its manufacture of truck trailers.
In addition, the Company holds or has applied for 119 patents in 14 foreign
countries and the European patent community.
The Company also holds or has applied for 44 trademarks in the United
States as well as 30 trademarks in foreign countries. These trademarks include
the Wabash and Fruehauf brand names as well as trademarks associated with the
Company's proprietary products such as the DuraPlate trailer and the RoadRailer
trailer.
RESEARCH AND DEVELOPMENT
The Company has a reputation in the industry for its innovation in
product design and low cost manufacturing. Research and development expenses are
charged to earnings as incurred and approximated $2.4 million, $1.5 million and
$1.8 million in 2000, 1999 and 1998, respectively. The Company promotes a
culture that encourages innovation by all employees, particularly those working
on the factory floor.
ENVIRONMENTAL MATTERS
The Company is aware of soil and ground water contamination at some of
its facilities. Accordingly, the Company has recorded a reserve of approximately
$0.9 million associated with environmental remediation at these sites. This
reserve was determined based upon currently available information and management
does not believe the outcome of these matters will be material to the
consolidated annual results of operations or financial condition of the Company.
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.
See Footnote 16 to the Consolidated Financial Statements for additional
environmental information and the Company's accounting for such costs.
EMPLOYEES
As of December 31, 2000, the Company had approximately 5,200 employees,
of which less than 1% are represented by labor unions. The Company places a
heavy emphasis on employee relations through educational programs and quality
control teams. The Company believes its employee relations are good.
10
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ITEM 2 -- PROPERTIES
MANUFACTURING FACILITIES
The Company's main facility of 1.2 million sq. ft. in Lafayette,
Indiana, consists of truck trailer and composite material production, tool and
die operations, research laboratories, management offices and headquarters. The
Company owns three other trailer manufacturing facilities, in Lafayette, Indiana
(572,000 sq. ft.), in Ft. Madison, Iowa (255,000 sq. ft.) and Huntsville,
Tennessee (287,000 sq. ft.). There are three leased manufacturing facilities in
Lafayette, Indiana (144,000 sq. ft.). In addition, the Company owns a trailer
flooring manufacturing facility, in Harrison, Arkansas (456,000 sq. ft.) and
intends to close its flooring operation in Sheridan, Arkansas (117,000 sq. ft.)
during the first quarter of 2001.
RETAIL AND DISTRIBUTION FACILITIES
The Company leases a facility in St. Louis, Missouri (6,700 sq. ft.)
that serves as headquarters for its retail and distribution segment. This
location oversees the operation of 29 sales and service branches (4 of which are
leased) and 5 locations that sell and rent used trailers (all of which are
leased.) All of these facilities are located throughout the United States. The
branch facilities consist of an office, warehouse and service space and
generally range in size from 20,000 to 50,000 square feet per facility. In
January 2001, the Company expanded its branch network through the acquisition of
10 branch locations in six Canadian Provinces. In addition, the Company owns its
aftermarket parts distribution center in Lafayette, Indiana (300,000 sq. ft.)
and leases a parts center in Montebello, California (44,000 sq. ft.).
ITEM 3 -- LEGAL PROCEEDINGS
There are certain lawsuits and claims pending against the Company that
arose in the normal course of business. None of these claims are expected to
have a material adverse effect on the Company's financial position or its
results of operations.
See Footnote 16 to the Consolidated Financial Statements for additional
information related to certain lawsuits filed against the Company and certain of
its officers and directors.
ITEM 4 -- SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS
None to report.
ITEM 4A -- RISK FACTORS
Investing in our securities involves a high degree of risk. In addition
to the other information contained in this Form 10-K, including the reports we
incorporate by reference, you should consider the following factors before
investing in our securities:
We Face Intense Competition. The truck trailer manufacturing industry is highly
competitive. We compete with other truck trailer manufacturers of varying sizes,
some of which may have greater financial resources than we do. Barriers to entry
in the truck trailer manufacturing industry are low and, therefore, it is
possible that additional competitors could enter the market at any time. Certain
participants in the industry in which we compete may have manufacturing
over-capacity and high leverage, and the industry has experienced a number of
bankruptcies and financial stresses, all of which have resulted in significant
pricing pressures. Our inability to compete effectively with existing or
potential competitors would have a material adverse effect on our business,
financial condition and results of operations.
Our Business Is Cyclical and May Be Adversely Affected By An Economic Downturn.
The truck trailer manufacturing industry historically has been and is expected
to continue to be cyclical and affected by overall economic conditions. New
trailer shipments for the trailer industry as a whole decreased to 271,000 units
in 2000 as compared to 317,000 units in 1999 and the current forecast for
industry shipments in 2001 is between 190,000 and 210,000 units. Sales of new
truck trailers have been subject to cyclical variations based on a six to eight
year replacement cycle. Poor economic conditions can adversely affect demand for
new trailers and in the past have led to an overall aging of trailer fleets
beyond this typical replacement cycle. If such economic conditions were to
recur, our business could be adversely affected.
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Our New Technology and Products May Not Achieve Market Acceptance. We have
recently introduced new products including the DuraPlate composite plate
trailer, constructed from a high density vinyl core with a steel skin, and
prototypes including the AllRailer railcar, a fully enclosed high-speed railcar.
There can be no assurance that these or other new products or technologies will
achieve sustained market acceptance. There can also be no assurance that new
technologies or products introduced by competitors will not render our products
obsolete or uncompetitive.
We Depend on Key Members of Our Management. The success of our business is and
will continue to be highly dependent upon its President, Donald J. Ehrlich, and
other members of senior management. We do not have employment agreements with
any of these people. The loss of any of their services could have a material
adverse effect upon our business, financial condition and results of operations.
We Rely on the Strength of our Corporate Partnerships and the Success of Our
Customers. We have corporate partnering relationships with a number of customers
where we supply the requirements of these customers. To a significant extent,
our success is dependent upon the continued strength of their relationships with
us and the growth of our corporate partners. Further, we often are unable to
predict the level of demand for our products from these partners, or their
timing of orders. The loss of a significant customer or unexpected delays in
product purchases could have a material adverse effect on our business,
financial condition and results of operations.
We Have A Limited Supply of Raw Materials. We currently rely on a limited number
of suppliers for certain key components in the manufacturing of truck trailers.
The loss of our suppliers or the inability of the suppliers to meet our price,
quality, quantity and delivery requirements could have a material adverse effect
on our business, financial condition and results of operations.
We are Subject to Government Regulations That May Adversely Affect Our
Profitability. The length, height, width, maximum weight capacity and other
specifications of truck trailers are regulated by individual states. The Federal
Government also regulates certain safety features incorporated in the design of
truck trailers. Changes or anticipation of changes in these regulations can have
a material impact on our customers, may defer customer purchasing decisions, may
result in reengineering and may affect our financial results. In addition, we
are subject to various environmental laws and regulations dealing with the
transportation, storage, presence, use, disposal and handling of hazardous
materials, discharge of stormwater and underground fuel storage tanks and may be
subject to liability associated with operations of prior owners of acquired
property. If we are found to be in violation of applicable laws or regulations,
it could have a material adverse effect on our business, financial condition and
results of operations.
We May Not Be Successful in Integrating Business that We Acquire into Our
Business. We have made and expect to make acquisitions of technology, businesses
and product lines in the future. Our ability to expand successfully through
acquisitions depends on many factors, including the successful identification
and acquisition of products, technologies or businesses and management's ability
to effectively integrate and operate the acquired products, technologies or
businesses. We may compete for acquisition opportunities with other companies
that have significantly greater financial and management resources. We cannot
assure you that we will be successful in acquiring or integrating any such
products, technologies or businesses.
Disclosure Regarding Forward-Looking Statements. This report, including
documents incorporated herein by reference, contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe," "expect," "anticipate," and "project" and
similar expressions identify forward-looking statements, which speak only as of
the date the statement is made. Such forward-looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements may include, but are not limited to, information regarding revenues,
income or loss, capital expenditures, acquisitions, number of retail branch
openings, plans for future operations, financing needs or plans, the impact of
inflation and plans relating to services of the Company, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by or underlying the forward- looking statements. Statements in
this report, including those set forth in "The Company" and "Risk Factors," and
in "Business" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations", describe factors, among others, that could
contribute to or cause such differences.
12
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PART II
ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange
(ticker symbol WNC). The number of record holders of the Company's common stock
at February 28, 2001, was 1,082.
High and low stock prices and dividends for the last two years were:
DIVIDENDS
DECLARED PER
HIGH LOW COMMON SHARE
---- --- ------------
2000
Fourth Quarter....................... $ 9.25 $ 7.25 $0.04
Third Quarter........................ $12.94 $ 8.31 $0.04
Second Quarter...................... $15.25 $10.50 $0.04
First Quarter......................... $17.88 $13.00 $0.04
1999
Fourth Quarter....................... $20.50 $13.06 $0.04
Third Quarter........................ $22.50 $19.13 $0.0375
Second Quarter...................... $19.94 $10.94 $0.0375
First Quarter......................... $21.00 $11.63 $0.0375
The Company expects to continue its policy of paying regular dividends,
although there is no assurance as to future dividends because they depend on
future earnings, capital requirements, and financial conditions.
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ITEM 6 -- SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company, for the five years in the period ended December 31, 2000, have been
derived from the Company's consolidated financial statements, which have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports. The following information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto included
elsewhere herein.
Years Ended December 31,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
(Dollar amounts in thousands, except per share data)
INCOME STATEMENT DATA:
Net sales $ 1,332,172 $ 1,454,570 $ 1,292,259 $ 846,082 $ 631,492
Cost of sales 1,216,205(1) 1,322,852 1,192,968 778,620 602,629
----------- ----------- ----------- ---------- -----------
Gross profit 115,967 131,718 99,291 67,462 28,863
Selling, general and administrative expenses 55,874 50,796 38,626 26,307 13,359
Restructuring charge 36,338 -- -- -- --
----------- ----------- ----------- ---------- -----------
Income from operations 23,755 80,922 60,665 41,155 15,504
Interest expense (19,740) (12,695) (14,843) (16,100) (10,257)
Accounts receivable securitization costs (7,060) (5,804) (3,966) -- --
Equity in losses of unconsolidated affiliate (3,050) (4,000) (3,100) (400) --
Restructuring charge (5,832) -- -- -- --
Other, net 877 6,310 (259) 1,135 788
----------- ----------- ----------- ---------- -----------
Income (loss) before income taxes (11,050) 64,733 38,497 25,790 6,035
Provision (benefit) for income taxes (4,314) 25,891 15,226 10,576 2,397
----------- ----------- ----------- ---------- -----------
Net income (loss) $ (6,736) $ 38,842 $ 23,271 $ 15,214 $ 3,638
=========== =========== =========== ========== ===========
Basic earnings (loss) per common share $ (0.38) $ 1.60 $ 1.00 $ 0.74 $ 0.19
=========== =========== =========== ========== ===========
Diluted earnings (loss) per common share $ (0.38) $ 1.59 $ 0.99 $ 0.74 $ 0.19
=========== =========== =========== ========== ===========
Cash dividends declared per common share $ 0.16 $ 0.1525 $ 0.1425 $ 0.13 $ 0.12
=========== =========== =========== ========== ===========
(1) Includes a $4.5 million charge related to the Company's
restructuring activities.
Years Ended December 31,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
(Dollar amounts in thousands)
BALANCE SHEET DATA:
Working capital $270,722 $228,751 $271,256 $280,212 $148,712
Total lease portfolio 108,451 130,626 117,038 103,222 113,811
Total assets 781,614 791,291 704,486 629,870 440,071
Long-term debt, net of current maturities 226,126 164,367 165,215 231,880 151,307
Stockholders' equity 367,233 379,365 345,776 226,516 178,368
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ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of Wabash National Corporation's (Wabash or
the Company) historical results of operations and of its liquidity and capital
resources should be read in conjunction with the consolidated financial
statements and related notes thereto.
Wabash designs, manufactures and markets standard and customized truck
trailers under the Wabash National and Fruehauf trademarks. The Company believes
that it is the leading U.S. manufacturer of composite trailers and bimodal
vehicles through its RoadRailer products. The Company produces and sells
aftermarket parts through its division, Wabash National Parts and its
wholly-owned subsidiary, Fruehauf Trailer Services, Inc. (FTSI). In addition to
its aftermarket parts sales and service revenues, FTSI sells new and used
trailers through its retail network as well as providing rental, leasing and
finance programs to its customers for new and used trailers through its
subsidiaries Apex Trailer Leasing and Rentals, L.P. and National Trailer Funding
(the Finance Companies).
In December 2000, the Company recorded restructuring and other related
charges totaling $46.6 million ($28.5 million, net of tax) primarily related to
the Company's exit from manufacturing products for export outside the North
American market, international leasing and financing activities and the
consolidation of certain domestic operations. Included in this total is $40.8
million that has been included as a component in computing income from
operations. Specifically, $19.1 million of this amount represents the impairment
of certain equipment subject to leases with the Company's international
customers, $8.6 million represents losses recognized for various financial
guarantees related to international financing activities and $6.9 million was
recorded for the write-down of other assets as well as charges associated with
the consolidation of certain domestic operations including severance of $0.2
million. Also included in the $40.8 million is a $4.5 million charge for
inventory write-downs related to the restructuring actions. The Company has
recorded $5.8 million as a restructuring charge in Other Income (Expense)
representing the write-off of the Company's remaining equity interest in ETZ for
a decline in fair value that is deemed to be other than temporary.
The total impairment charge recognized by the Company as a result of
its restructuring activities was $26.7 million. This amount was computed in
accordance with the provisions of SFAS 121. The estimated fair value of the
impaired assets totaled $3.4 million and was determined by management based upon
economic conditions and potential alternative uses and markets for the
equipment. These assets are held for sale and are classified in prepaid expenses
and other in the accompanying Consolidated Balance Sheets. Depreciation has been
discontinued on these assets pending their disposal. In addition, upon the
ultimate divestiture of the Company's ownership in ETZ, expected to occur in
2001, the Company will no longer record equity in losses of unconsolidated
affiliate which amounted to $3.1 million, $4.0 million and $3.1 million in 2000,
1999 and 1998, respectively.
The impact of restructuring activities undertaken in 2000 is not
expected to have a significant effect on the Company's revenues going forward as
these businesses on a combined basis accounted for less than 5% of consolidated
net sales in 2000, 1999 and 1998.
Although the Company has elected to discontinue manufacturing products
for export outside of North America and the related international financing
activities, the Company will continue to pursue opportunities in international
markets to license and market its proprietary RoadRailer bimodal technology.
Under the provisions of Financial Accounting Standards (SFAS) No. 131,
Disclosure about Segments of an Enterprise and Related Information, the Company
determined it has two reportable business segments. These segments are the
manufacturing segment and the retail and distribution segment. The manufacturing
segment includes the Company's trailer manufacturing facilities located in
Lafayette, Indiana, Ft. Madison, Iowa and Huntsville, Tennessee as well as the
trailer flooring operation (Wabash Wood Products) located in Harrison, Arkansas.
The retail and distribution segment includes the sale, lease and financing of
new and used trailers, as well as the sale of aftermarket parts and service
through its retail branch network. In addition, the retail and distribution
segment includes the sale of aftermarket parts through Wabash National Parts.
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OVERVIEW
In 2000, the U.S. truck trailer industry experienced a 15% decrease to
approximately 271,000 units shipped as compared to 317,000 units shipped in the
record year 1999. The Company's market share in the U.S. trailer industry was
approximately 24.5% in 2000, which represents a slight increase over 1999.
Deteriorating economic conditions during 2000, including higher interest rates
and fuel costs, negatively affected the purchasing activities of the trucking
industry and as a result, the Company's backlog has decreased from $1.1 billion
at December 31, 1999 to $0.7 billion at December 31, 2000.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of net
sales for the periods indicated:
Percentage of Net Sales
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 91.3(1) 90.9 92.3
----- ----- -----
Gross profit 8.7 9.1 7.7
General and administrative expense 2.6 2.1 2.0
Selling expense 1.6 1.4 1.0
Restructuring charge 2.7 -- --
----- ----- -----
Income from operations 1.8 5.6 4.7
Interest expense (1.5) (0.9) (1.1)
Accounts receivable securitization costs (0.5) (0.4) (0.3)
Equity in losses of unconsolidated affiliate (0.2) (0.3) (0.3)
Restructuring charge (0.4) -- --
Other, net -- 0.4 --
----- ----- -----
Income (loss) before taxes (0.8) 4.4 3.0
Provision (benefit) for income taxes (0.3) 1.8 1.2
----- ----- -----
Net income (loss) (0.5)% 2.6% 1.8%
===== ===== =====
(1) Includes a $4.5 million charge (0.3%) related to the Company's
restructuring activities.
2000 Compared to 1999
During 2000, the Company achieved net sales of $1.3 billion, which were
8.4% lower than 1999 net sales of $1.5 billion. Net income (loss) for 2000,
including the impact of restructuring and other related charges, decreased to
($6.7) million as compared to $38.8 million in 1999.
Net Sales
Years Ended December 31,
------------------------
2000 1999 % Change
---- ---- --------
Net External Sales by Segment: (Dollar amounts in millions)
Manufacturing $1,013.1 $1,113.9 (9.0%)
Retail and Distribution 319.1 340.7 (6.3%)
-------- -------- ----
Total Net Sales $1,332.2 $1,454.6 (8.4%)
======== ======== ====
The manufacturing segment's external net sales decreased 9.0% or $100.8
million in 2000 compared to 1999 driven primarily by a 6.9% decrease in the
number of units sold, from approximately 64,100 units in 1999 to approximately
59,700 units in 2000. The average selling price per new trailer sold decreased
1.7%, from approximately $17,200 in 1999 to approximately $16,900 in 2000. The
decrease in net sales during the period 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,
16
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which has caused new trailer orders to decrease. As of December 31, 2000, the
Company's backlog of orders was approximately $0.7 billion, over $0.4 billion of
which is related to the DuraPlate trailer.
The retail and distribution segment's external net sales decreased 6.3%
or $21.6 million in 2000 compared to 1999 driven primarily by a decrease in new
and used trailer sales. New trailer sales decreased 28.1% on approximately 5,900
units sold in 1999 to approximately 4,300 units sold in 2000 and used trailer
sales decreased by 11.9% in 2000 compared to 1999. The decreases in new and used
trailer sales were offset somewhat by a 15.4% increase in aftermarket parts,
service revenues and rental, leasing and finance revenues. The increase in
aftermarket parts and service revenues was driven primarily by the
reconfiguration of the retail distribution network and the creation of
additional service capacity. The increase in rental, leasing and finance
revenues primarily reflects the Company's strategy to expand its used trailer
rental program as the number of trailers in the rental fleet increased to
approximately 6,900 at December 31, 2000 compared to approximately 1,800 at
December 31, 1999.
Gross Profit
Years Ended December 31,
------------------------
2000 1999 % Change
---- ---- --------
Gross Profit by Segment: (Dollar amounts in millions)
Manufacturing $ 86.7 $ 99.6 (13.0%)
Retail and Distribution 31.5 34.3 (8.2%)
Eliminations (2.2) (2.2) 0.0%
--------- --------- -------
Total Gross Profit $116.0 $ 131.7 (11.9%)
====== ======== ======
The Company finished 2000 with gross profit as a percent of sales of
8.7% on a consolidated basis (9.0% excluding the impact from a non-recurring
charge) as compared to 9.1% in 1999. This decrease was primarily due to the
manufacturing segment, as discussed below.
The manufacturing segment's gross profit decreased by 13.0% primarily
as a result of the following factors:
- the decrease in net sales previously discussed;
- start-up costs related to the state-of-the-art painting and
coating system at its Huntsville, Tennessee plant;
- increased depreciation and amortization primarily related to
several projects completed and placed in service during the year;
and
- the impact of other charges related to restructuring.
These factors were partially offset by the Company's strategy of
increasing the proportion of revenues attributable to proprietary products, such
as the DuraPlate trailer. These proprietary products accounted for approximately
67% of production in 2000 as compared to 59% in 1999, and have been successful
in generating higher gross profits than have historically been possible with a
more traditional, commodity type product mix.
The retail and distribution segment's gross profit decreased by 8.2%
primarily as a result of decreased net sales previously discussed, offset
somewhat by increased sales for aftermarket parts, service revenues and rental,
leasing and finance revenues which typically have higher margins as compared to
the segment as a whole.
Income from Operations (before interest, taxes and other items)
Years Ended December 31,
------------------------
2000 1999 % Change
---- ---- --------
Operating Income by Segment: (Dollar amounts in millions)
Manufacturing $ 36.9 $ 72.0 (48.8%)
Retail and Distribution (10.9) 11.1 (198.2%)
Eliminations (2.2) (2.2) 0.0%
------- ------- --------
Total Operating Profit $ 23.8 $ 80.9 (70.6%)
====== ======= =======
The manufacturing segment's income from operations decreased by 48.8%
primarily because of a $22.8 million charge related to the Company's
restructuring activities, as well as the decrease in gross profit previously
discussed.
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The retail and distribution segment's income from operations decreased
by $22.0 million due primarily to a $13.6 million charge related to the
Company's restructuring activities and a $5.7 million increase in selling,
general and administrative expenses. The increase in selling, general and
administrative expenses primarily reflects increased selling expenses
principally to support increased sales activity in its aftermarket parts,
service and trailer rental, leasing and finance businesses.
Other Income (Expense)
Interest expense totaled $19.7 million and $12.7 million for the years
ended December 31, 2000 and 1999, respectively. The increase in interest expense
primarily reflects higher interest rates 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.
Accounts receivable securitization costs related to the Company's
receivable sale and servicing agreement increased from $5.8 million in 1999 to
$7.1 million in 2000 primarily as a result of higher interest rates during the
year.
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 that 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. As part of its
restructuring activities, during the fourth quarter of 2000, the Company
recorded a $5.8 million charge to Other Income (Expense) in order to reflect its
planned divestiture of this investment.
In January 2001, in connection with its restructuring activities, the
Company assumed the remaining ownership interest in ETZ from the majority
shareholder. The Company intends to pursue the orderly divestiture of the ETZ
during 2001 and as a result will record 100% of ETZ's operating results until
the divestiture is complete. These results will be recorded as Equity in losses
of unconsolidated affiliate in the Consolidated Statements of Income in 2001.
Other, net totaled income of $0.9 million in 2000 compared to income of
$6.3 million in 1999. Included in other, net for 1999 was the reversal of $3.5
million in an accrual related to the Company's favorable resolution of a tax
dispute with the Internal Revenue Service. 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 Consolidated Statements of Income for 2000. Interest
income was approximately $0.5 million and $0.8 million in 2000 and 1999,
respectively.
Income Taxes
The Company's effective tax rates were 39.0% and 40.0% of pre-tax
income (loss) for 2000 and 1999, respectively, and differed from the U.S.
Federal Statutory rate of 35% due primarily to state taxes.
1999 Compared to 1998
During 1999, the Company achieved net sales of $1.5 billion, which were
12.6% higher than 1998 net sales of $1.3 billion. Net income for 1999 rose 67%
to $38.8 million as compared to $23.3 million in 1998.
Net Sales
Years Ended December 31,
1999 1998 % Change
Net External Sales by Segment: (Dollar amounts in millions)
Manufacturing $1,113.9 $ 988.2 12.7%
Retail and Distribution 340.7 304.1 12.0%
-------- -------- -------
Total Net Sales $1,454.6 $1,292.3 12.6%
======== ======== =======
The manufacturing segment's external net sales rose 12.7% or $125.7
million in 1999 compared to 1998 driven primarily by a 12.7% increase in units
sold, from approximately 56,900 units in 1998 to
18
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approximately 64,100 units in 1999. The average selling price per new trailer
sold increased 1.2%, from approximately $17,000 in 1998 to approximately $17,200
in 1999. The increase in new trailer sales reflects the continued strong demand
for the Company's DuraPlate trailer, which accounted for approximately 59% of
new trailer production in 1999.
The retail and distribution segment's external net sales rose 12.0% or
$36.6 million in 1999 compared to 1998 driven primarily by an increase in new
and used trailers sales. New trailer sales increased 24.4% on approximately
5,000 units sold in 1998 to approximately 5,900 units sold in 1999 and used
trailer sales increased 38.2% in 1999 compared to 1998. In addition, the average
price per new trailer sold increased 5.3%, from approximately $19,000 in 1998 to
approximately $20,000 in 1999. The increases in new and used trailer sales were
offset somewhat by an 6.7% decrease in aftermarket parts and service revenues.
Rental, leasing and finance revenues in 2000 were equal to 1999. The net
decrease in aftermarket parts and service revenues was driven primarily by lower
sales from the Company's parts distribution center, which during 1999 continued
to focus on consolidating its operations with the distribution center acquired
as part of the Fruehauf asset acquisition in 1997 and the impact of the
conversion and implementation of new operating software within the Company's
retail and distribution network.
Gross Profit
Years Ended December 31,
------------------------
1999 1998 % Change
---- ---- --------
Gross Profit by Segment: (Dollar amounts in millions)
Manufacturing $ 99.6 $ 68.0 46.5%
Retail and Distribution 34.3 33.9 1.2%
Eliminations (2.2) (2.5) 12.0%
------ ------ -------
Total Gross Profit $131.7 $ 99.3 32.6%
====== ====== =======
The Company finished 1999 with gross profit as a percent of sales of
9.1% on a consolidated basis, the highest gross profit margin since 1993. This
favorable increase in gross profits was primarily driven by the manufacturing
segment, as discussed below.
The manufacturing segment's gross profit increased 46.5% primarily as a
result of a 12.7% increase in net sales, higher margins from an improved product
mix toward more proprietary products, reduced hardwood flooring costs resulting
from the acquisition of the Cloud Companies in July 1998 and a general
improvement in production efficiencies throughout the year.
The retail and distribution segment's gross profit remained unchanged,
primarily due to the increase in net sales previously discussed offset by lower
margins resulting from a higher level of sales of used trailers which have lower
gross profit percentages than the segment as a whole. In addition, gross profits
at the Company's parts distribution center were down in 1999 compared to 1998
due to the margin impact of the Company's consolidation of its two aftermarket
parts operations and the conversion of its operating systems.
Income from Operations (before interest, taxes and other items)
Years Ended December 31,
------------------------
1999 1998 % Change
---- ---- --------
Operating Income by Segment: (Dollar amounts in millions)
Manufacturing $ 72.0 $ 48.7 47.8%
Retail and Distribution 11.1 14.5 (23.4%)
Eliminations (2.2) (2.5) 12.0%
------ ------ -------
Total Operating Income $80.9 $ 60.7 33.3%
===== ====== =======
The manufacturing segment's income from operations increased 47.8%
primarily because of the increase in gross profit previously discussed. Selling,
general and administrative expenses increased primarily as a result of normal
operating costs generated from the continued growth in this segment.
The retail and distribution segment's income from operations decreased
by 23.4% as a result of increased selling, general and administrative expenses
associated with the growth of the segment.
19
20
Other Income (Expense)
Interest expense totaled $12.7 million and $14.8 million for the years
ended December 31, 1999 and 1998, respectively. The decrease in interest expense
primarily reflects lower borrowings on the Company's revolving credit facility
and higher usage of the Company's accounts receivable securitization facility in
1999 compared to 1998. Accounts receivable securitization costs related to the
Company's receivable sale and servicing agreement totaled $5.8 million and $4.0
million for the years ended December 31, 1999 and 1998, respectively. The
increase in securitization costs is due to the full-year impact of this new
facility in 1999 compared to 9 months in 1998 and an increase in the amount
outstanding under this facility during late 1998 from $83 million to $105
million.
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.
Other, net totaled income of $6.3 million in 1999 compared to a loss of
$0.3 million in 1998. On December 24, 1998, the Company received notice from the
Internal Revenue Service that it intended to assess additional federal excise
tax, primarily on the restoration of certain used trailers. Although the Company
strongly disagreed with the IRS, it recorded a $4.6 million accrual during the
fourth quarter of 1998 for this loss contingency. In December 1999, the Company
favorably resolved the dispute at less than 25% of the accrued amount, or
approximately $1.1 million, net of interest, of which less than $1 million was
related to the restoration of used trailers. As a result of this favorable
resolution, in December 1999 the Company reversed $3.5 million of the previously
recorded accrual. Also included in Other, net in 1999 are gains from the sale of
property, plant and equipment of approximately $0.9 million and interest income
of approximately $0.8 million.
Income Taxes
The Company's effective tax rates were 40.0% and 39.6% of pre-tax
income (loss) for 1999 and 1998, respectively and differed from the U.S. Federal
Statutory rate of 35% due primarily to State taxes.
LIQUIDITY AND CAPITAL RESOURCES
As presented in the Consolidated Statements of Cash Flows, the
Company's cash position decreased $18.3 million during 2000 from $22.5 million
in cash and cash equivalents at December 31, 1999 to $4.2 million at December
31, 2000. This decrease was due to cash used in operating and investing
activities of $83.3 million partially offset by cash provided by financing
activities of $65.0 million.
Operating Activities:
Net cash used in operating activities of $13.7 million in 2000 is
primarily the result of the net loss and changes in working capital, partially
offset by the add-back of non-cash charges for depreciation and amortization and
restructuring and other related charges. Changes in working capital consisted
primarily of increased inventory and decreased accounts payable and accrued
liabilities offset by a reduction in accounts receivable. The net increase in
inventory was primarily due to a higher level of used trailers taken in trade
during the year, an increase in new trailer inventory within the retail branch
network due to deteriorating conditions in the transportation industry, higher
finished trailer inventory resulting from customers delaying taking delivery of
the trailers they ordered offset partially by the manufacturing segment reducing
its required raw materials inventory level. The decrease in accounts receivable
was primarily the result of a favorable decrease in days sales outstanding
offset somewhat by a decrease in the proceeds from the Company's trade
receivable securitization facility. As of December 31, 2000, $69 million was
outstanding under this facility, compared to $105 million as of December 31,
1999. Advance rates under this facility continued to decline into 2001 and, as a
result, the Company will evaluate alternative financing arrangements or
replacement facilities in 2001 to compensate for the lower borrowing capacity.
20
21
Investing Activities:
Net cash used in investing activities of $69.6 million was primarily
due to the following:
- capital expenditures of $60.3 million during the year which were
primarily associated with the following:
+ completion of a new, state of the art painting and coating
system and plant expansion at its trailer manufacturing
facility in Huntsville, Tennessee;
+ additional composite material capacity;
+ increasing productivity within the Company's manufacturing
operations in Lafayette, Indiana; and
+ on-going capital expenditures related to the Company's branch
expansion strategy.
- net investment in the Company's rental and operating lease
portfolio of approximately $35.9 million;
- net decrease in the Company's finance contract portfolio of
approximately $20.7 million; and
- proceeds from the sale and leaseback of composite material
production equipment closed in the fourth quarter of 2000 for
approximately $9.1 million.
The increase in the Company's rental and operating lease portfolio
primarily reflects the Company's strategy to expand its used trailer rental
program and is offset somewhat by $31 million of proceeds from a new sale and
leaseback facility related to the Company's trailer rental facility which closed
on December 29, 2000. The proceeds were used to reduce the Company's line of
credit borrowings. This new facility, to be syndicated in the first quarter of
2001 and is expected to increase the total facility size to approximately $110
million, allows for additional draws during 2001 as the trailer rental fleet
continues to expand. The facility has an initial term of 18 months followed by
four annual renewals and contains financial covenants substantially identical to
the Company's existing credit facilities. 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 $20 to $30 million over the next 12 months. In addition, the Company has
future residual guarantees or purchase options of approximately $55.8 million
and $171.2 million, respectively, related to certain new and used trailer
transactions. The majority of these do not come due until 2002 or after. The
Company anticipates re-marketing these trailers to the current users or through
the retail and distribution segment.
Financing Activities:
Net cash provided by financing activities of $65.0 million in 2000 is
primarily due to an increase in total debt of $70.4 million offset partially by
the payment of common stock dividends and preferred stock dividends of $5.6
million in the aggregate.
In connection with the aforementioned activity, the Company's total
debt increased to $238.3 million at December 31, 2000 compared to $167.9 million
at December 31, 1999. The Company maintains a $125 million unsecured revolving
line of credit facility, of which approximately $90.2 million remains available
at year end.
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 are 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 Private 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.
21
22
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 December
31, 2000, the Company had no borrowings against this facility.
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 and term borrowings and equity offerings.
The Company believes these funding sources will be adequate for its anticipated
requirements.
INFLATION
The Company has been generally able to offset the impact of rising
costs through productivity improvements as well as selective price increases. As
a result, inflation is not expected to have a significant impact on the
Company's business.
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. The adoption of SFAS 133 did not have an effect on the
Company's annual results of operations or its financial position.
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
In addition to the risks inherent in its operations, the Company has
exposure to financial and market risk resulting from volatility in commodity
prices, interest rates and foreign exchange rates. The following discussion
provides additional detail regarding the Company's exposure to these risks.
a. Commodity Price Risks
The Company is exposed to fluctuation in commodity prices through the
purchase of raw materials that are processed from commodities such as aluminum,
steel, wood and virgin plastic pellets. Given the historical volatility of
certain commodity prices, this exposure can significantly impact product costs.
The Company manages aluminum and virgin plastic pellets price changes by
entering into fixed price contracts with its suppliers prior to a customer sales
order being finalized. Because the Company typically does not set prices for its
products in advance of its commodity purchases, it can take into account the
cost of the commodity in setting its prices for each order. To the extent that
the Company is unable to offset the increased commodity costs in its product
prices, the Company's results would be materially and adversely affected.
b. Interest Rates
As of December 31, 2000, the Company had approximately $20 million of
London Interbank Rate (LIBOR) based debt outstanding under its Revolving Credit
Facility, $31 million of proceeds from its rental fleet sale and leaseback
agreement which calls for LIBOR based interest payments and $69 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 $1.2
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.
22
23
c. Foreign Exchange Rates
The Company has historically entered 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 with regard to the Company's international
activities. The Company does not hold or issue derivative financial instruments
for speculative purposes. As of December 31, 2000, the Company had no foreign
currency forward contracts outstanding.
23
24
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGES
-----
Report of Independent Public Accountants...................................................... 25
Consolidated Balance Sheets as of December 31, 2000 and 1999.................................. 26
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and
1998..................................................................................... 27
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000,
1999 and 1998............................................................................ 28
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and
1998..................................................................................... 29
Notes to Consolidated Financial Statements.................................................... 30
24
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Wabash National Corporation:
We have audited the accompanying consolidated balance sheets of WABASH
NATIONAL CORPORATION (a Delaware corporation) and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wabash
National Corporation and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
February 6, 2001.
25
26
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
December 31,
-------------------
ASSETS 2000 1999
------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 4,194 $ 22,484
Accounts receivable, net................................... 49,320 111,567
Current portion of finance contracts....................... 11,544 8,423
Inventories................................................ 330,326 269,581
Prepaid expenses and other................................. 24,030 16,962
--------- ---------
Total current assets............................... 419,414 429,017
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net................................ 216,901 186,430
--------- ---------
EQUIPMENT LEASED TO OTHERS, net................................... 52,001 50,364
--------- ---------
FINANCE CONTRACTS, net of current portion......................... 44,906 71,839
--------- ---------
INTANGIBLE ASSETS, net............................................ 31,123 32,669
--------- ---------
OTHER ASSETS...................................................... 17,269 20,972
--------- ---------
$ 781,614 $ 791,291
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt....................... $ 12,134 $ 3,514
Accounts payable........................................... 94,118 145,568
Accrued liabilities........................................ 42,440 51,184
--------- ---------
Total current liabilities.......................... 148,692 200,266
--------- ---------
LONG-TERM DEBT, net of current maturities......................... 226,126 164,367
--------- ---------
DEFERRED INCOME TAXES............................................. 23,644 30,640
--------- ---------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES.................... 15,919 16,653
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, 482,041 shares issued and outstanding
with an aggregate liquidation value of $30,600............. 5 5
Common stock, 23,002,490 and 22,985,186 shares issued
and outstanding, respectively.......................... 230 230
Additional paid-in capital................................. 236,660 236,474
Retained earnings.......................................... 131,617 143,935
Treasury stock at cost, 59,600 common shares............... (1,279) (1,279)
--------- ---------
Total stockholders' equity......................... 367,233 379,365
--------- ---------
$ 781,614 $ 791,291
========= =========
The accompanying notes are an integral part of these Consolidated Statements.
26
27
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended December 31,
-----------------------------------------------
2000 1999 1998
----------- ----------- -----------
NET SALES............................................... $ 1,332,172 $ 1,454,570 $ 1,292,259
COST OF SALES........................................... 1,216,205 1,322,852 1,192,968
----------- ----------- -----------
Gross profit................................. 115,967 131,718 99,291
GENERAL AND ADMINISTRATIVE EXPENSES..................... 34,354 30,396 25,780
SELLING EXPENSES........................................ 21,520 20,400 12,846
RESTRUCTURING CHARGE.................................... 36,338 -- --
----------- ----------- -----------
Income from operations....................... 23,755 80,922 60,665
OTHER INCOME (EXPENSE):
Interest expense................................. (19,740) (12,695) (14,843)
Accounts receivable securitization costs......... (7,060) (5,804) (3,966)
Equity in losses of unconsolidated affiliate..... (3,050) (4,000) (3,100)
Restructuring charge............................. (5,832) -- --
Other, net....................................... 877 6,310 (259)
----------- ----------- -----------
Income (loss) before income taxes............ (11,050) 64,733 38,497
PROVISION (BENEFIT) FOR INCOME TAXES.................... (4,314) 25,891 15,226
----------- ----------- -----------
Net income (loss)............................ $ (6,736) $ 38,842 $ 23,271
PREFERRED STOCK DIVIDENDS............................... 1,903 2,098 1,391
----------- ----------- -----------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS.................................... $ (8,639) $ 36,744 $ 21,880
=========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Basic........................................... $ (0.38) $ 1.60 $ 1.00
=========== =========== ===========
Diluted......................................... $ (0.38) $ 1.59 $ 0.99
=========== =========== ===========
The accompanying notes are an integral part of these Consolidated Statements.
27
28
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Additional
Preferred Stock Common Stock Paid-In Retained Treasury
Shares Amount Shares Amount Capital Earnings Stock Total
------- ------- ---------- ------ --------- --------- --------- ---------
BALANCES, December 31, 1997........... 352,000 $ 4 19,954,874 $ 200 $ 135,611 $ 91,980 $ (1,279) $ 226,516
Net income for the year.............. -- -- -- -- -- 23,271 -- 23,271
Cash dividends declared:
Common stock ($0.1425 per share)... -- -- -- -- -- (3,167) -- (3,167)
.........
Preferred stock.................... -- -- -- -- -- (1,391) -- (1,391)
Issuance of common stock,
net of expenses.................... -- -- 3,000,000 30 87,256 -- -- 87,286
Common stock issued under:
Employee stock purchase plan....... -- -- 4,896 -- 110 -- -- 110
Employee stock bonus plan.......... -- -- 3,900 -- 120 -- -- 120
Stock option plan.................. -- -- 1,420 -- 27 -- -- 27
Preferred stock issued for
acquisition......................... 130,041 1 -- -- 13,003 -- -- 13,004
------- ------- ---------- ------ --------- --------- -------- ---------
BALANCES, December 31, 1998........... 482,041 $ 5 22,965,090 $ 230 $ 236,127 $ 110,693 $ (1,279) $ 345,776
Net income for the year.............. -- -- -- -- -- 38,842 -- 38,842
Cash dividends declared:
Common stock ($0.1525 per share)... -- -- -- -- -- (3,502) -- (3,502)
Preferred stock.................... -- -- -- -- -- (2,098) -- (2,098)
Common stock issued under:
Employee stock purchase plan....... -- -- 10,556 -- 177 -- -- 177
Employee stock bonus plan.......... -- -- 4,400 -- 79 -- -- 79
Stock option plan.................. -- -- 5,140 -- 91 -- -- 91
------- ------- ---------- ------ --------- --------- -------- ---------
BALANCES, December 31, 1999........... 482,041 $ 5 22,985,186 $ 230 $ 236,474 $ 143,935 $ (1,279) $ 379,365
Net loss for the year................ -- -- -- -- -- (6,736) -- (6,736)
Cash dividends declared:
Common stock ($0.16 per share)..... -- -- -- -- -- (3,679) -- (3,679)
Preferred stock.................... -- -- -- -- -- (1,903) -- (1,903)
Common stock issued under:
Employee stock purchase plan....... -- -- 15,544 -- 158 -- -- 158
Employee stock bonus plan.......... -- -- 1,760 -- 28 -- -- 28
------- ------- ---------- ------ --------- --------- -------- ---------
BALANCES, December 31, 2000........... 482,041 $ 5 23,002,490 $ 230 $ 236,660 $ 131,617 $ (1,279) $ 367,233
======= ======= ========== ====== ========= ========= ======== =========
The accompanying notes are an integral part of these Consolidated Statements.
28
29
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Years Ended December 31,
------------------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................... $ (6,736) $ 38,842 $ 23,271
Adjustments to reconcile net income to net cash provided by (used in) operating
activities
Depreciation and amortization...................................................... 30,051 21,773 18,405
Net (gain) loss on the sale of assets.............................................. 1,474 (864) (2,077)
Provision for losses on accounts receivable........................................ 4,088 2,829 772
Deferred income taxes.............................................................. (8,906) (6,947) 6,388
Equity in losses of unconsolidated affiliate....................................... 3,050 4,000 3,100
Restructuring and other related charges............................................ 46,650 -- --
Change in operating assets and liabilities, excluding effects of the acquisitions
Accounts receivable............................................................ 52,709 (18,810) 72,557
Inventories.................................................................... (64,879) (37,573) 2,379
Prepaid expenses and other..................................................... (184) 8,607 (5,842)
Accounts payable and accrued liabilities....................................... (69,880) 55,537 6,041
Other, net..................................................................... (1,106) (3,924) (1,911)
------- ------ -------
Net cash provided by (used in) operating activities........................ (13,669) 63,470 123,083
------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................ (60,342) (68,119) (31,006)
Net additions to equipment leased to others......................................... (69,553) (11,828) (15,288)
Net additions to finance contracts.................................................. (19,400) (28,762) (30,056)
Investment in unconsolidated affiliate.............................................. (3,706) (3,580) (2,866)
Acquisitions, net of cash acquired.................................................. -- (12,413) (9,515)
Proceeds from sale of leased equipment and finance contracts........................ 60,845 12,927 12,357
Principal payments received on finance contracts.................................... 12,914 10,246 7,920
Proceeds from the sale of property, plant and equipment............................. 9,638 7,236 4,084
------- ------ -------
Net cash used in investing activities.............................................. (69,604) (94,293) (64,370)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Long-term revolver................................................................. 512,300 244,200 276,600
Long-term debt..................................................................... 62,500 -- --
Common stock, net of expenses...................................................... 186 347 87,543
Payments:
Long-term revolver................................................................. (500,299) (242,200) (336,600)
Long-term debt..................................................................... (4,122) (10,651) (29,420)
Common stock dividends............................................................. (3,679) (3,446) (3,004)
Preferred dividends................................................................ (1,903) (2,065) (1,357)
------- ------ -------
Net cash provided by (used in) financing activities............................ 64,983 (13,815) (6,238)
------- ------ -------
NET (DECREASE) INCREASE IN CASH...................................................... (18,290) (44,638) 52,475
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD............................. 22,484 67,122 14,647
------- ------ -------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD................................... $ 4,194 $ 22,484 $ 67,122
========= ========= =========
The accompanying notes are an integral part of these Consolidated Statements.
29
30
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Wabash National Corporation (the Company) designs, manufactures and
markets standard and customized truck trailers under the Wabash National and
Fruehauf trademarks. The Company produces and sells aftermarket parts through
its division, Wabash National Parts, and its wholly-owned subsidiary, Fruehauf
Trailer Services, Inc. (FTSI). In addition to its aftermarket parts sales and
service revenues, FTSI sells new and used trailers through its retail network.
The Company's other significant wholly-owned subsidiaries include Apex Trailer
Leasing and Rentals, L.P. and National Trailer Funding (the Finance Companies)
and Cloud Corporation (Wabash Wood Products). The Finance Companies provide
rental, leasing and finance programs to their customers for new and used
trailers through the retail and distribution segment. Wabash Wood Products
manufactures hardwood flooring primarily for the Company's manufacturing
segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Consolidation
The consolidated financial statements reflect the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Investment in an unconsolidated affiliate in
which the Company exercises significant influence but not control is accounted
for by the equity method and the Company's share of net income or loss of its
affiliate is included in the Consolidated Statements of Income.
b. Significant Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in its consolidated financial
statements and accompanying notes. Actual results could differ from these
estimates.
c. Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments, which are
readily convertible into cash and have maturities of three months or less.
d. Allowance for Doubtful Accounts
Accounts receivable as shown in the accompanying Consolidated Balance
Sheets are net of allowance for doubtful accounts of $3.7 million, $2.9 million
and $2.3 million at December 31, 2000, 1999 and 1998, respectively. The activity
in the allowance for doubtful accounts includes (i) provision for losses on
accounts receivable of $4.1 million, $2.8 million and $0.8 million; (ii) net
accounts written-off of $3.3 million, $2.5 million, and $0.2 million; and (iii)
reserves recorded in connection with the acquisition of the Apex Group of $0,
$0.3 million, and $0 during 2000, 1999 and 1998, respectively.
e. Inventories
Inventories are primarily priced at the lower of first-in, first-out
(FIFO) cost or market. Inventory costs include raw material, labor and overhead
costs for manufactured inventories. Used trailers are carried at the lower of
their estimated net realizable value or cost. Inventories consist of the
following (in thousands):
30
31
December 31,
------------
2000 1999
---- ----
Raw materials and components $ 84,167 $105,476
Work in progress 18,765 11,215
Finished goods 93,332 49,906
Aftermarket parts 33,566 37,894
Used trailers 100,496 65,090
-------- --------
$330,326 $269,581
======== ========
f. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
recorded using the straight-line method over the estimated useful lives of the
depreciable assets. Estimated useful lives are thirty-three and one-third years
for buildings and building improvements and range from three to ten years for
machinery and equipment. Maintenance and repairs are charged to expense as
incurred. Property, plant and equipment consist of the following (in thousands):
December 31,
2000 1999
Land $ 29,314 $ 28,190
Buildings and improvements 109,596 81,585
Machinery and equipment 123,989 93,861
Construction in progress 18,587 31,477
--------- ---------
281,486 235,113
Less -- Accumulated depreciation (64,585) (48,683)
--------- ---------
$ 216,901 $ 186,430
========= =========
g. Impairment
Long-lived assets, including property, plant and equipment,
identifiable intangibles and goodwill are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. If this process concludes that the carrying value
of a long-lived asset is not recoverable, then a write-down of the asset would
be recorded as a charge to operations.
h. Intangible Assets
Intangible assets, net of accumulated amortization of $12.2 million and
$9.7 million at December 31, 2000 and December 31, 1999, respectively, relate
primarily to goodwill and other intangible assets associated with recent
acquisitions (See Footnote 6 for further discussion) and RoadRailer acquisition
costs. These amounts are being amortized on a straight-line basis over periods
ranging from five to forty years.
i. Capitalized Software
The Company adopted Statement of Position No. 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, during 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.
j. Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures
About Fair Value of Financial Instruments, requires disclosure of fair value
information for certain financial instruments. The differences between the
carrying amounts and the estimated fair values, using the methods and
assumptions listed below, of the Company's financial instruments at December 31,
2000 and 1999 were immaterial.
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable.
The carrying amounts reported in the Consolidated Balance Sheets
approximate fair value.
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32
Long-Term Debt. The fair value of long-term debt, including current
portion, is estimated based on quoted market prices for similar issues
or on the current rates offered to the Company for debt of the same
maturities. The interest rates on the Company's bank borrowings under
its long-term revolving credit agreement are adjusted regularly to
reflect current market rates. The carrying values of the Company's
long-term borrowings approximate fair value.
Foreign Exchange Contracts. The Company occasionally enters into
foreign currency forward contracts to hedge the net receivable/payable
position arising from trade sales (including lease revenues) and
purchases related to the Company's international activities. Gains and
losses related to qualifying hedges are deferred and included in the
measurement of the related transaction, when the hedged transaction
occurs. As of December 31, 2000 and 1999, the Company had deferred net
gains of approximately $0 and $1.2 million, respectively. The Company
does not hold or issue derivative financial instruments for speculative
purposes. The fair values of foreign currency contracts (used for
hedging purposes) are estimated by obtaining quotes. As of December 31,
2000 and 1999, the Company had approximately $0 and $4.4 million in
foreign currency contracts, respectively, which approximate their fair
values at those dates.
As part of the Company's 2000 restructuring initiative the Company
recognized its remaining net hedge gains as part of its restructuring
charge. In addition, all foreign currency contracts were terminated as
of December 31, 2000.
k. Revenue Recognition
The Company recognizes revenue from the sale of trailers and
aftermarket parts when risk of ownership is transferred to the customer.
Customers that have requested to pick up their trailers are invoiced prior to
taking physical possession when the customer has made a fixed commitment to
purchase the trailers, the trailers have been completed and are available for
pickup or delivery, the customer has requested in writing that the Company hold
the trailers until the customer determines the most economical means of taking
possession and the customer takes possession of the trailers within a specified
time period. In such cases, the trailers, which have been produced to the
customer specifications, are invoiced under the Company's normal billing and
credit terms.
In addition, the Company recognizes revenue for direct finance leases
based upon a constant rate of return while revenue is recognized for operating
leases on a straight-line basis in an amount equal to the invoiced rentals.
The Company had one customer that represented 11.4% of its net sales in
2000, while no other customer exceeded 10% of its net sales in 2000, 1999 and
1998. The Company's net sales in the aggregate to its five largest customers
were 30.5%, 22.2% and 18.3% of its sales in 2000, 1999 and 1998, respectively.
l. Income Taxes
The Company recognizes income taxes under the liability method of
accounting for income taxes. The liability method measures the expected tax
impact of future taxable income or deductions resulting from differences in the
tax and financial reporting bases of assets and liabilities reflected in the
Consolidated Balance Sheets.
m. Research and Development
Research and development expenses are charged to earnings as incurred
and approximated $2.4 million, $1.5 million and $1.8 million in 2000, 1999 and
1998, respectively. During 2000, the Company incurred research and development
expenses related to the development of its proprietary anti-lock braking and
trailer electronics systems.
n. Reclassifications
Certain items previously reported in specific consolidated financial
statement captions have been reclassified to conform to the 2000 presentation.
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o. 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. The adoption of SFAS 133 did not have an effect on the
Company's annual results of operations or its financial position.
3. RESTRUCTURING AND OTHER RELATED CHARGES
In December 2000, the Company recorded restructuring and other related
charges totaling $46.6 million ($28.5 million, net of tax) primarily related to
the Company's exit from manufacturing products for export outside the North
American market, international leasing and financing activities and the
consolidation of certain domestic operations. Included in this total is $40.8
million that has been included as a component in computing income from
operations. Specifically, $19.1 million of this amount represents the impairment
of certain equipment subject to leases with the Company's international
customers, $8.6 million represents losses recognized for various financial
guarantees related to international financing activities, and $6.9 million was
recorded for the write-down of other assets as well as charges associated with
the consolidation of certain domestic operations including severance of $0.2
million. Also included in the $40.8 million is a $4.5 million charge for
inventory write-downs related to the restructuring actions which is included in
cost of sales. The Company has recorded $5.8 million as a restructuring charge
in Other Income (Expense) representing the write-off of the Company's remaining
equity interest in ETZ for a decline in fair value that is deemed to be other
than temporary.
The total impairment charge recognized by the Company as a result of
its restructuring activities was $26.7 million. This amount was computed in
accordance with the provisions of SFAS 121. The estimated fair value of the
impaired assets totaled $3.4 million and was determined by management based upon
economic conditions and potential alternative uses and markets for the
equipment. These assets are held for sale and are classified in prepaid expenses
and other in the accompanying Consolidated Balance Sheets. Depreciation has been
discontinued on these assets pending their disposal. In addition, upon the
ultimate divestiture of the Company's ownership in ETZ, expected to occur in
2001, the Company will no longer record equity in losses of unconsolidated
affiliate which amounted to $3.1 million, $4.0 million and $3.1 million in 2000,
1999 and 1998, respectively.
The cash and non-cash elements of the restructuring charge were
approximately $11.9 million and $34.7 million, respectively. Details of the
restructuring charges are as follows (in thousands):
Original UTILIZED Balance
Provision Cash Non-Cash 12/31/00
--------- ---- -------- --------
Restructuring of majority-owned operations:
Impairment of long-term assets $20,819 $ -- $20,819 $ --
Loss related to equipment guarantees 8,592 -- -- 8,592
Write-down of other assets and other charges 6,927 -- 4,187 2,740
------- ------- ------- -------
$36,338 $ -- $25,006 $11,332
------- ------- ------- -------
Restructuring of minority interest operations:
Impairment of long-term assets $ 5,832 $ -- $ 5,832 $ --
------- ------- ------- -------
Inventory write-down $ 4,480 $ -- $ 3,897 $ 583
------- ------- ------- -------
Total restructuring and other related charges $46,650 $ -- $34,735 $11,915
======= ======= ======= =======
As of December 31, 2000, the $11.9 million restructuring reserve is
included in accrued liabilities in the accompanying Consolidated Balance Sheets.
The Company anticipates completion of its restructuring activities during 2001.
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4. EARNINGS (LOSS) PER SHARE
Earnings (loss) 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. Stock options were not included in the computation of diluted
EPS for 2000 and the convertible preferred stock was not included in the
computation of diluted EPS for 2000 and 1998 since the inclusion would have
resulted in an antidilutive effect (in thousands except per share amounts):
Net Income (Loss) Weighted
Available to Average Earnings (Loss)
Common Shares Per Share
2000
Basic $ (8,639) 22,990 $ (0.38)
Options -- --
Preferred Stock -- --
-------- ------ -----------
Diluted $ (8,639) 22,990 $ (0.38)
======== ====== ===========
1999
Basic $ 36,744 22,973 $ 1.60
Options -- 30
Preferred Stock (Series B only) 1,151 823
-------- ------ -----------
Diluted $ 37,895 23,826 $ 1.59
======== ====== ===========
1998
Basic $ 21,880 21,990 $ 1.00
Options -- 85
Preferred Stock -- --
-------- ------ -----------
Diluted $ 21,880 22,075 $ 0.99
======== ====== ===========
5. SEGMENT REPORTING
Under the provisions of SFAS No. 131, the Company has two reportable
segments: manufacturing and retail and distribution. The manufacturing segment
produces trailers and sells new trailers to customers who purchase trailers
direct or through independent dealers and also produces trailers for the retail
and distribution segment. The retail and distribution segment includes the sale,
leasing and financing of new and used trailers, as well as the sale of
aftermarket parts and service through its retail branch network. In addition,
the retail and distribution segment includes the sale of aftermarket parts
through Wabash National Parts. In December 2000, the Company combined its
rental, leasing and finance activities into a separate product line within the
retail and distribution segment. As a result, the 1999 and 1998 presentations
have been restated to conform to the 2000 presentation.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies except that the Company
evaluates segment performance based on income from operations. The Company has
not allocated certain corporate related charges such as administrative costs,
interest expense and income taxes from the manufacturing segment to the
Company's other reportable segments. The Company accounts for intersegment sales
and transfers at cost plus a specified mark-up. Reportable segment information
is as follows (in thousands):
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Retail and Combined Consolidated
Manufacturing Distribution Segments Eliminations Totals
------------- ------------ -------- ------------ ------
2000
- -----------
Revenues
External customers $ 1,013,108 $ 319,064 $ 1,332,172 $ -- $ 1,332,172
Intersegment sales 83,796 1,141 84,937 (84,937) --
----------- ----------- ----------- ----------- -----------
Total Revenues $ 1,096,904 $ 320,205 $ 1,417,109 $ (84,937) $ 1,332,172
=========== =========== =========== =========== ===========
Depreciation & amortization 16,390 13,661 30,051 -- 30,051
Restructuring charge from operations 22,771 13,567 36,338 -- 36,338
Income (loss) from operations 36,897 (10,926) 25,971 (2,216) 23,755
Interest income 340 174 514 -- 514
Interest expense 18,632 1,108 19,740 -- 19,740
Equity in losses of unconsolidated
affiliate 3,050 -- 3,050 -- 3,050
Restructuring charge included in
other 5,832 -- 5,832 -- 5,832
Income tax benefit (4,314) -- (4,314) -- (4,314)
Investment in unconsolidated affiliate -- -- -- -- --
Capital additions 48,712 11,630 60,342 -- 60,342
Assets 846,740 407,915 1,254,655 (473,041) 781,614
1999
- -----------
Revenues
External customers $ 1,113,872 $ 340,698 $ 1,454,570 $ -- $ 1,454,570
Intersegment sales 92,537 640 93,177 (93,177) --
----------- ----------- ----------- ----------- -----------
Total Revenues $ 1,206,409 $ 341,338 $ 1,547,747 $ (93,177) $ 1,454,570
=========== =========== =========== =========== ===========
Depreciation & amortization 13,332 8,441 21,773 -- 21,773
Restructuring charge from operations -- -- -- -- --
Income from operations 71,976 11,127 83,103 (2,181) 80,922
Interest income 820 -- 820 -- 820
Interest expense 12,163 532 12,695 -- 12,695
Equity in losses of unconsolidated
affiliate 4,000 -- 4,000 -- 4,000
Restructuring charge included in
other -- -- -- -- --
Income tax expense 25,891 -- 25,891 -- 25,891
Investment in unconsolidated affiliate 5,176 -- 5,176 -- 5,176
Capital additions 54,945 13,174 68,119 -- 68,119
Assets 768,017 355,890 1,123,907 (332,616) 791,291
1998
- -----------
Revenues
External customers $ 988,128 $ 304,131 $ 1,292,259 $ -- $ 1,292,259
Intersegment sales 97,986 -- 97,986 (97,986) --
----------- ----------- ----------- ----------- -----------
Total Revenues $ 1,086,114 $ 304,131 $ 1,390,245 $ (97,986) $ 1,292,259
=========== =========== =========== =========== ===========
Depreciation & amortization 11,324 7,081 18,405 -- 18,405
Restructuring charge from operations -- -- -- -- --
Income from operations 48,731 14,457 63,188 (2,523) 60,665
Interest income 981 -- 981 -- 981
Interest expense 13,540 1,303 14,843 -- 14,843
Equity in losses of unconsolidated
affiliate 3,100 -- 3,100 -- 3,100
Restructuring charge included in
other -- -- -- -- --
Income tax expense 15,226 -- 15,226 -- 15,226
Investment in unconsolidated affiliate 5,595 -- 5,595 -- 5,595
Capital additions 23,435 7,571 31,006 -- 31,006
Assets 682,822 270,412 953,234 (248,748) 704,486
The Company's international sales accounted for approximately 3.1% of
consolidated net sales during 2000 and 2.0% of net sales in 1999 and 1998.
During 2000, as part of the restructuring charges, all assets attributable to
international operations were written down to their estimated recovery values
and these charges are included in income from operations in the accompanying
Consolidated Statements of Income. These assets accounted for less than 5% of
consolidated assets for 2000, 1999 and 1998.
6. ACQUISITIONS
On December 1, 1999, the Company acquired Apex Trailer Service, Inc.,
Apex Trailer and Truck Equipment Sales, Inc. and Apex Rentals, Inc. (the Apex
Group) in a stock purchase agreement (the Apex Acquisition). For financial
statement purposes, the Apex Acquisition was accounted for as a purchase, and
accordingly, the Apex Group's assets and liabilities were recorded at fair value
and the operating results are included in the consolidated financial statements
since the date of acquisition. The Apex Group has four
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36
branch locations. These branches sell new and used trailers, aftermarket parts
and provide service work. The aggregate consideration for this transaction
included approximately $12.4 million in cash and the assumption of $11.3 million
in liabilities. Included in the $11.3 million of assumed liabilities was $8.2
million of debt, of which the Company retired $6.8 million immediately following
the acquisition using cash from operations. The excess of the purchase price
over the underlying assets acquired was approximately $1.8 million.
On July 14, 1998, the Company acquired Cloud Corporation and Cloud Oak
Flooring Company, Inc. (the Cloud Acquisition) manufacturers of laminated
hardwood floors for the truck body and trailer industry in a merger and stock
purchase, respectively. For financial statement purposes, the Cloud Acquisition
was accounted for as a purchase, and accordingly, Cloud's assets and liabilities
were recorded at fair value and the operating results are included in the
consolidated financial statements since the date of acquisition. The aggregate
consideration for this transaction included approximately $9.5 million in cash,
$13.0 million in convertible preferred stock and the assumption of $33.8 million
in liabilities. Included in the $33.8 million of assumed liabilities was $18.8
million of debt, which the Company paid off immediately following the
acquisition using cash from operations. The excess of the purchase price over
the underlying assets acquired was approximately $20.3 million.
7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On November 4, 1997, the Company purchased a 25.1% equity interest in
Europaische Trailerzug Beteiligungsgessellschaft mbH (ETZ). ETZ is the majority
shareholder of Bayersriche Trailerzug Gesellschaft fur Bimodalen Guterverkehr
mbH (BTZ), a European RoadRailer operation based in Munich, Germany, which began
operations in 1996 and has incurred operating losses since inception. The
Company paid approximately $6.2 million for its ownership interest in ETZ during
1997 and made additional capital contributions of $3.7 million, $3.6 million and
$2.9 million during 2000, 1999 and 1998, respectively. During 2000, 1999 and
1998, the Company recorded approximately $3.1 million, $4.0 million and $3.1
million, respectively, for its share of ETZ losses and the amortization of the
premiums. Such amounts are recorded as Equity in losses of unconsolidated
affiliate on the accompanying Consolidated Statements of Income.
In January 2001, in connection with its restructuring activities, the
Company assumed the remaining ownership interest in ETZ from the majority
shareholder. The Company intends to pursue the orderly divestiture of the ETZ
during 2001 and as a result will record 100% of ETZ's operating results until
the divestiture is complete. These results will be recorded as Equity in losses
of unconsolidated affiliate in the Consolidated Statements of Income in 2001.
Although the Company has elected to discontinue manufacturing products for
export outside of North America and the related international financing
activities, the Company will continue to pursue opportunities in international
markets to license and market its proprietary RoadRailer bimodal technology.
Summarized financial information for ETZ is as follows (in millions):
December 31,
--------------------------------
2000 1999 1998
---- ---- ----
Condensed Statement of Operations:
Net sales $ 18.9 $ 14.2 $ 11.5
Gross profit (8.9) (11.3) (7.0)
Net earnings (loss) (12.6) (17.6) (12.4)
Wabash National's share (3.2) (4.4) (3.1)
Condensed Statement of Financial Condition:
Current assets $ 4.7 $ 6.1 $ 5.3
Non-current assets 3.4 3.2 3.8
Current liabilities 5.5 7.2 5.9
Non-current liabilities 1.4 2.3 2.8
Net assets 1.1 (0.2) 0.4
Wabash National's share 0.3 0.0 0.1
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8. ACCOUNTS RECEIVABLE SECURITIZATION
On March 31, 1998, the Company replaced its existing $40.0 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 ongoing basis, all of their accounts receivable to Wabash Funding
Corporation (Funding Corp). 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. The Funding Corp. is a
qualifying special purpose entity under the provisions of SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. As of December 31, 2000 and 1999, $69.4 million and $105.0
million, respectively, in proceeds have been received under the facility.
Amounts reflected as accounts receivable in the accompanying Consolidated
Balance Sheets as of December 31, 2000 and 1999 represent receivables sold to
the Funding Corp. in excess of proceeds received.
Proceeds from the sale in 1998 were used to reduce outstanding
borrowings under the Company's Revolving Bank Line of Credit and are reflected
as operating cash flows in the accompanying Consolidated Statements of Cash
Flows.
In order to operate this facility on an on-going basis, the Funding
Corp. is required to meet certain covenants primarily related to the performance
of the accounts receivable portfolio. Servicing responsibility for these
receivables resides with the Company.
9. LEASES
a. Equipment Leased to Others
The Finance Companies have leased equipment to others under operating
leases, whereby revenue is recognized as lease payments are due from the
customers and the related costs are amortized over the equipment life. Equipment
leased to others is depreciated over the estimated useful life of the equipment,
not to exceed 15 years and a 20% residual value, or in some cases, a depreciable
life equal to the term of the lease and a residual value equal to the estimated
market value at lease termination. Depreciation expense on equipment leased to
others was $10.9 million, $7.5 million and $6.4 million during 2000, 1999 and
1998, respectively. Accumulated depreciation of equipment leased to others is
$11.4 million and $9.3 million at December 31, 2000 and 1999, respectively.
Future minimum lease payments to be received from these noncancellable operating
leases at December 31, 2000 are as follows (in thousands):
Amounts
-------
2001 $3,724
2002 1,808
2003 1,362
2004 914
2005 689
Thereafter 589
------
$9,086
======
Additionally, the Company has equipment available for short-term
cancelable operating leases. The net amount included in equipment leased to
others under this type of arrangement totaled $32.1 million and $16.2 million at
December 31, 2000 and 1999, respectively.
b. Finance Contracts
The Finance Companies provide finance contracts for the sale of trailer
equipment to certain of its customers. The financing is principally structured
in the form of finance leases, typically for a five-year term. During 2000, the
Company sold approximately $27.1 million of its finance contracts portfolio.
Included in this amount is $21.7 million in contracts in which the Company had a
20% participation arrangement with a major finance company. Finance contracts,
as shown on the accompanying Consolidated Balance Sheets, are as follows (in
thousands):
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DECEMBER 31,
------------
2000 1999
---- ----
Lease payments receivable $ 53,351 $ 72,004
Estimated residual value 11,041 16,622
-------- --------
64,392 88,626
Unearned finance charges (13,666) (17,218)
-------- --------
50,726 71,408
Other, net 5,724 8,854
-------- --------
56,450 80,262
Less: current portion (11,544) (8,423)
-------- --------
$ 44,906 $ 71,839
======== ========
Other, net. Other, net includes equipment subject to capital lease that
is awaiting customer pick-up. The net amounts under such arrangements totaled
$2.3 million and $2.9 million at December 31, 2000 and 1999, respectively. In
addition, Other, net also includes the sale of certain finance contracts with
full recourse provisions. As a result of the recourse provision, the Finance
Companies have reflected an asset and offsetting liability totaling $3.4 million
and $6.0 million at December 31, 2000 and December 31, 1999, respectively, in
the Company's Consolidated Balance Sheets as a Finance Contract and Other
Non-Current Liabilities and Contingencies. The future minimum lease payments to
be received from finance contracts as of December 31, 2000 are as follows (in
thousands):
Amounts
-------
2001 $13,035
2002 11,658
2003 9,861
2004 7,082
2005 4,911
Thereafter 6,804
-------
$53,351
=======
c. Off-Balance Sheet Financing
In certain situations, the Finance Companies have sold equipment leased
to others to independent financial institutions and simultaneously leased the
equipment back under operating leases with some of these containing end-of-term
residual value guarantees. These end-of-term residual guarantees totaled $18.3
million and $19.4 million as of December 31, 2000 and 1999, respectively. Rental
payments made by the Finance Companies under these types of transactions totaled
$9.1 million, $9.1 million and $8.8 million during 2000, 1999 and 1998,
respectively.
On December 29, 2000, the Company closed on a new sale and leaseback
facility with an independent financial institution related to its trailer rental
facility. This new facility, to be syndicated in the first quarter of 2001 and
is expected to increase the total facility size to $110 million, allows for
additional draws during 2001 as the trailer rental fleet continues to expand.
The facility has an initial term of 18 months followed by four annual renewals
and contains financial covenants substantially identical to the Company's
existing credit facilities. Initial proceeds received under this facility on
December 29, 2000, were $31 million.
The future minimum lease payments to be paid by the Finance Companies
under these lease transactions as of December 31, 2000 are as follows (in
thousands):
Amounts
-------
2001 $14,852
2002 9,221
2003 5,702
2004 4,676
2005 1,145
Thereafter --
-------
$35,596
=======
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The future minimum lease payments related to non-cancelable leases to
be received by the Finance Companies under these sublease arrangements are $10.0
million in 2001, $6.2 million in 2002, $5.9 million in 2003, $4.4 million in
2004, $2.0 million in 2005 and $1.0 million thereafter. Not included in these
future minimum lease payments to be received by the Finance Companies are
payments related to short-term cancelable sublease arrangements associated with
the $31 million of rental fleet equipment sold and simultaneously leased back in
December 2000.
d. Lease Commitments
The Company leases office space, manufacturing, warehouse and service
facilities and equipment under operating leases expiring through 2007. Future
minimum lease payments required under non-cancelable operating leases as of
December 31, 2000 are as follows (in thousands):
Amounts
-------
2001 $ 6,973
2002 3,818
2003 3,142
2004 1,546
2005 1,371
Thereafter 12
-------
$16,862
=======
Total rental expense under operating leases was $7.9 million, $5.4
million, and $4.2 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
10. DEBT
a. Long-term debt consists of the following (in thousands):
DECEMBER 31,
------------
2000 1999
---- ----
Revolving Bank Line of Credit $ 20,000 $ 7,999
Mortgage and Other Notes Payable (3.0% - 8.17%, Due 2001-2008
Secured by general business assets) 18,260 9,882
Series A Senior Notes (6.41%, Due January 2003) 50,000 50,000
Series B-H Senior Notes (6.99% - 7.55%, Due 2001-2008) 100,000 100,000
Series I Senior Notes (8.04%, Due September 2005-2007) 50,000 --
--------- ---------
238,260 167,881
Less: Current maturities (12,134) (3,514)
--------- ---------
$ 226,126 $ 164,367
========= =========
b. Maturities of long-term debt at December 31, 2000, are as follows (in
thousands):
Amounts
2001 $ 12,134
2002 45,123
2003 51,375
2004 10,445
2005 29,553
Thereafter 89,630
--------
$238,260
========
c. Revolving Bank Line of Credit
The Company has an unsecured revolving bank line of credit that
permits the Company to borrow up to $125 million. Under this facility, the
Company has a right to borrow until September 30, 2002, 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 25
to 55 basis points, as defined,
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or a prime rate of interest, as defined. The Company pays a commitment fee on
the unused portion of this facility at rates of 8.5 to 17.5 basis points per
annum, as defined. At December 31, 2000, the Company had borrowings of $20.0
million under this facility, at interest rates ranging from 7.125% - 7.25%. The
Company had available credit under the revolving credit facility of
approximately $90.2 million after letters of credit and 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. At December
31, 2000, the Company had no borrowings against this facility.
d. Senior Notes
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 Series I
Senior Notes, $25 million of which is due September 29, 2005 with the remaining
$25 million due September 29, 2007. 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.
Included in current maturities of long-term debt is $8 million which
represents a portion of the Company's Series B-H Senior Notes that matures in
2001.
e. Covenants
Under various loan agreements, the Company is required to meet certain
financial covenants. These covenants require the Company to maintain certain
levels of net worth as well as comply with certain limitations on indebtedness,
investments and sales of assets. The Company was in compliance with these
covenants at December 31, 2000.
11. STOCKHOLDERS' EQUITY
a. Capital Stock
DECEMBER 31,
(Dollars in thousands) 2000 1999
Preferred Stock - $0.01 par value, 25,000,000 shares authorized:
Series A Junior Participating Preferred Stock
300,000 shares authorized, 0 shares issued and outstanding $ -- $ --
Series B 6% Cumulative Convertible Exchangeable Preferred Stock,
352,000 shares authorized, issued and outstanding at
December 31, 2000 and 1999
($17.6 million aggregate liquidation value) 4 4
Series C 5.5% Cumulative Convertible Exchangeable Preferred Stock,
130,041 shares authorized, issued and outstanding at December
31, 2000 and 1999 ($13.0 million aggregate liquidation value) 1 1
---- ----
Total Preferred Stock $ 5 $ 5
==== ====
Common Stock - $0.01 par value, 75,000,000 shares authorized,
23,002,490 and 22,985,186 shares issued and outstanding
at December 31, 2000 and 1999, respectively $230 $230
==== ====
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The Series B 6% Cumulative Convertible Exchangeable Preferred Stock is
convertible at the discretion of the holder, at a conversion price of $21.38 per
share, into up to approximately 823,200 shares of common stock. This conversion
is subject to adjustment for dilutive issuances and changes in outstanding
capitalization by reason of a stock split, stock dividend or stock combination.
The Series C 5.5% Cumulative Convertible Exchangeable Preferred Stock
is convertible at the discretion of the holder, at a conversion price of $35.00
per share, into up to approximately 371,500 shares of common stock, subject to
adjustment.
On April 28, 1998, the Company sold three million shares of its common
stock in a registered public offering at a public-offering price of $30.75 per
share, for net proceeds to the Company of $87.3 million.
The Board of Directors has the authority to issue shares of
unclassified preferred stock and to fix dividends, voting and conversion rights,
redemption provisions, liquidation preferences and other rights and
restrictions.
b. Stock Option Plans
The Company has two non-qualified stock option plans (the 1992 and 2000
Stock Option Plans) under which options may be granted to officers and other key
employees of the Company and its subsidiaries to purchase shares of common stock
at a price not less than market price at the date of grant. Under the terms of
the Stock Option Plans, up to an aggregate of 3,750,000 shares are reserved for
issuance, subject to adjustment for stock dividends, recapitalizations and the
like. Options granted to employees under the Stock Option Plans become
exercisable in annual installments of three years for options granted under the
2000 Plan and five years for options granted under the 1992 Plan. Options
granted to non-employee Directors of the Company are fully vested on the date of
grant and are exercisable six months thereafter. All options granted expire ten
years after the date of grant.
The Company has elected to follow APB No. 25, Accounting for Stock
Issued to Employees, in accounting for its stock options and, accordingly, no
compensation cost has been recognized for stock options in the consolidated
financial statements. Had compensation cost for these plans been determined
consistent with SFAS No. 123, Accounting for Stock-Based Compensation, the
Company's net income (loss) available to common would have been ($10.6) million
(($0.46) Basic and Diluted EPS) in 2000, $35.2 million ($1.53 Basic and Diluted
EPS) in 1999 and $20.8 million ($0.95 Basic EPS and $0.94 Diluted EPS) in 1998.
A summary of stock option activity and weighted-average exercise prices
for the periods indicated are as follows:
Number of Weighted-Average
Options Exercise Price
------- --------------
Outstanding at December 31, 1997 855,900 $ 25.05
--------- ----------
Granted 368,500 15.31
Exercised (1,420) 18.82
Cancelled (24,720) 24.00
Outstanding at December 31, 1998 1,198,260 21.57
--------- ----------
Granted 537,375 21.52
Exercised (5,140) 17.76
Cancelled (11,590) 20.05
Outstanding at December 31, 1999 1,718,905 21.57
--------- ----------
Granted 277,500 7.50
Exercised -- --
Cancelled (76,780) 20.43
Outstanding at December 31, 2000 1,919,625 $ 19.59
========= ==========
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The following table summarizes information about stock options
outstanding at December 31, 2000:
Weighted Weighted Weighted
Range of Average Average Number Average
Exercise Number Remaining Exercise Exercisable Exercise
Prices Outstanding Life Price at 12/31/00 Price
------ ----------- ---- ----- ----------- -----
$ 7.38 to $10.49 273,000 9.9 yrs. $ 7.38 -- --
$10.50 to $15.49 359,500 7.7 yrs. $ 15.31 149,200 $ 15.31
$15.50 to $22.99 883,125 6.7 yrs. $ 20.46 436,705 $ 19.41
$23.00 to $33.50 404,000 5.5 yrs. $ 29.73 312,000 $ 30.02
Using the Black-Scholes option valuation model, the estimated fair
values of options granted during 2000, 1999 and 1998 were $3.54, $11.12 and
$8.07 per option, respectively. Principal assumptions used in applying the
Black-Scholes model were as follows:
Black-Scholes Model Assumptions 2000 1999 1998
------- ------- -------
Risk-free interest rate 5.32% 6.06% 4.88%
Expected volatility 45.38% 43.95% 40.89%
Expected dividend yield 2.21% 0.74% 0.98%
Expected term 10 yrs. 7 yrs. 7 yrs.
c. 1993 Employee Stock Purchase Plan
During 1993, the Company adopted its 1993 Employee Stock Purchase Plan
(the "Purchase Plan"), which enables eligible employees of the Company to
purchase shares of the Company's $0.01 par value common stock. Eligible
employees may contribute up to 15% of their eligible compensation toward the
semi-annual purchase of common stock. The employees' purchase price is based on
the fair market value of the common stock on the date of purchase. No
compensation expense is recorded in connection with the Purchase Plan. During
2000, 15,544 shares were issued to employees at a weighted average price of
$10.16 per share. At December 31, 2000, there were 254,186 shares available for
offering under this Purchase Plan.
d. Stock Bonus Plan
During 1997, the Company adopted its Stock Bonus Plan (the "Bonus
Plan"). Under the terms of the Bonus Plan, common stock may be granted to
employees under terms and conditions as determined by the Board of Directors.
During 2000, 1,760 shares were issued to employees at a weighted average price
of $15.91. At December 31, 2000 there were 478,640 shares available for offering
under this Bonus Plan.
12. STOCKHOLDERS' RIGHTS PLAN
On November 7, 1995, the Board of Directors adopted a Stockholder
Rights Plan (the "Rights Plan"). The Rights Plan is designed to deter coercive
or unfair takeover tactics, to prevent a person or group from gaining control of
the Company without offering fair value to all shareholders and to deter other
abusive takeover tactics, which are not in the best interest of stockholders.
Under the terms of the Rights Plan, each share of common stock is
accompanied by one right; each right entitles the stockholder to purchase from
the Company, one one-thousandth of a newly issued share of Series A Preferred
Stock at an exercise price of $120.
The rights become exercisable ten days after a public announcement that
an acquiring person or group (as defined in the Plan) has acquired 20% or more
of the outstanding Common Stock of the Company (the Stock Acquisition Date) or
ten days after the commencement of a tender offer which would result in a person
owning 20% or more of such shares. The Company can redeem the rights for $.01
per right at any time until ten days following the Stock Acquisition Date (the
10-day period can be shortened or lengthened by the Company). The rights will
expire in November 2005, unless redeemed earlier by the Company.
If, subsequent to the rights becoming exercisable, the Company is
acquired in a merger or other business combination at any time when there is a
20% or more holder, the rights will then entitle a holder to buy shares of the
Acquiring Company with a market value equal to twice the exercise price of each
right.
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Alternatively, if a 20% holder acquires the Company by means of a merger in
which the Company and its stock survives, or if any person acquires 20% or more
of the Company's Common Stock, each right not owned by a 20% or more
shareholder, would become exercisable for Common Stock of the Company (or, in
certain circumstances, other consideration) having a market value equal to twice
the exercise price of the right.
13. EMPLOYEE 401(k) SAVINGS PLAN
Substantially all of the Company's employees are eligible to
participate in a voluntary 401(k) Savings Plan, which provides for the Company
to match a percentage of each employee's contributions under various formulas.
The Company's matching contribution and related expense for the plan was
approximately $1.5 million, $1.4 million and $1.0 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
14. SUPPLEMENTAL CASH FLOW INFORMATION
DECEMBER 31,
------------
(In thousands) 2000 1999 1998
- -------------- ---- ---- ----
Cash paid during the period for:
Interest $ 19,694 $ 13,954 $ 12,168
Income taxes 18,064 20,319 17,018
-------- -------- --------
Acquisitions, net of cash acquired:
Fair value of assets acquired -- 23,698 56,300
Liabilities assumed -- (11,285) (33,781)
Preferred stock issued -- -- (13,004)
-------- -------- --------
Net cash used in acquisitions $ -- $(12,413) $ (9,515)
======== ======== ========
15. INCOME TAXES
a. Provisions for Income Taxes
The consolidated income tax provision for 2000, 1999 and 1998 consists
of the following components (in thousands):
2000 1999 1998
---- ---- ----
Current:
Federal $ 3,196 $ 28,769 $ 6,024
State 1,396 4,069 2,814
Deferred (8,906) (6,947) 6,388
-------- -------- --------
Total consolidated provision (benefit) $ (4,314) $ 25,891 $ 15,226
======== ======== ========
The Company's effective tax rates were 39.0%, 40.0% and 39.6% of pre-tax
income for 2000, 1999 and 1998, respectively, and differed from the U.S. Federal
Statutory rate of 35% due primarily to State taxes.
b. Deferred Taxes
Deferred income taxes are primarily due to temporary differences
between financial and income tax reporting for the depreciation of property,
plant and equipment and equipment under lease, the recognition of payments made
in connection with the acquisition of RoadRailer technology (and the
amortization thereof), the recognition of income from assets under finance
leases and charges the Company recorded in 2000 related to the restructuring of
certain international and domestic operations.
The long-term deferred tax liabilities were $23.6 million and $30.6
million and current prepaid income tax assets were $9.2 million and $7.3 million
as of December 31, 2000 and 1999, respectively.
The components of deferred tax assets and deferred tax liabilities as
of December 31, 2000 and 1999 were as follows (in thousands):
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2000 1999
---- ----
Deferred tax assets:
Rentals on Finance Leases $18,651 $15,545
Leasing Difference 7,912 6,060
Operations Restructuring 18,194 --
Other 12,481 16,808
Deferred tax liabilities:
Book-Tax Basis Differences-Property, Plant and Equipment 48,158 41,433
Earned Finance Charges on Finance Leases 9,241 9,273
RoadRailer Acquisition Payments/Amortization 1,387 1,522
Other 12,893 9,532
------- -------
Net deferred tax liability $14,441 $23,347
======= =======
16. COMMITMENTS AND 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, environmental and possible tax assessments. While
the amounts claimed could be substantial, the ultimate liability cannot now be
determined because of the considerable uncertainties that exist. Therefore, it
is possible that results of operations or liquidity in a particular period could
be materially affected by certain contingencies. However, based on facts
currently available, management believes that the disposition of matters that
are pending or asserted will not 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
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. On March 29, 2001, all plaintiffs voluntarily withdrew their claims
arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
(the "1934 Act Claims"), when a Stipulation of Dismissal with Prejudice was
filed with the Court. As a result of that dismissal, the only claims remaining
in the case are those brought by purchasers of shares in the Company's public
offering on April 23, 1998 (i.e., claims arising under Sections 11 and 12 of the
Securities Act of 1933). The dismissal of the 1934 Act Claims both decreases the
number of persons who might be potential claimants against the Company and the
individual defendants and effectively eliminates from the case issues arising
from the financial statements prepared for the second and third quarters of
1998.
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
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(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
December 31, 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. As of December 31, 1999, the
estimated potential exposure for such costs ranged from $1.5 million to
approximately $2.7 million for which the Company had a reserve of approximately
$1.0 million. The reduction in the reserve during 2000 reflects payments made
during the period and a $0.8 million change in estimate resulting from
experience and the availability of additional information. These reserves were
primarily recorded for exposures associated with the costs of environmental
remediation projects to address soil and ground water contamination 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.
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. 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 $7.9 million and $5.2 million in the accompanying Consolidated
Balance Sheets at December 31, 2000 and 1999, respectively.
d. Letters of Credit
As of December 31, 2000, the Company had standby letters of credit
totaling $16.7 million issued in connection with certain foreign sales
transactions and other domestic purposes. Of this total, $14.8 million is
secured by the revolving bank line of credit while the remaining $1.9 million is
unsecured.
e. Royalty Payments
Beginning in the first quarter of 1998 and extending through 2007, the
Company is obligated to make quarterly royalty payments in accordance with a
licensing agreement related to the development of the Company's composite plate
material used on its proprietary DuraPlate trailer. The amount of the payments
varies with the production volume of usable material, but requires minimum
royalties of $0.5 million annually through 2005.
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f. Used Trailer Residual Guarantees and Purchase Commitments
In connection with certain new trailer sale transactions, the Company
has entered into residual value guarantees and purchase option agreements with
customers or financing institutions whereby the Company agrees to guarantee an
end-of-term residual value or has an option to purchase the used equipment at a
pre-determined price. Under these guarantees, future payments which may be
required as of December 31, 2000 and 1999 totaled approximately $37.5 million
and $31.0 million, respectively, the majority of which do not come due until
after 2002.
17. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for fiscal years 2000, 1999 and 1998 (Dollars in thousands except per
share amounts).
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2000
Net Sales $ 352,848 $ 358,729 $ 345,818 $ 274,777
Gross profit 34,423 34,045 29,512 17,987
Net income (loss) 9,132 7,515 4,992 (28,375)(2)
Basic earnings (loss) per share(1) $ 0.38 $ 0.31 $ 0.20 $ (1.25)
Diluted earnings (loss) per share(1) $ 0.38 $ 0.31 $ 0.20 $ (1.25)
1999
Net Sales $ 341,624 $ 380,203 $ 374,708 $ 358,035
Gross profit 27,225 34,099 35,039 35,354
Net income 6,367 10,347 10,365 11,762
Basic earnings per share(1) $ 0.26 $ 0.42 $ 0.43 $ 0.49
Diluted earnings per share(1) $ 0.26 $ 0.42 $ 0.43 $ 0.49
1998
Net Sales $ 293,612 $ 337,733 $ 334,113 $ 326,801
Gross profit 25,888 24,038 27,634 21,731
Net income 6,958 6,203 7,909 2,201
Basic earnings per share(1) $ 0.34 $ 0.27 $ 0.33 $ 0.08
Diluted earnings per share(1) $ 0.33 $ 0.27 $ 0.33 $ 0.08
(1) Earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings
per share may differ from annual earnings per share due to
rounding.
(2) The fourth quarter 2000 results include restructuring and other
related charges of $46.6 million ($28.5 million, net of tax.)
18. SUBSEQUENT EVENT
On January 10, 2001, the Company acquired the Breadner Group of
Companies (the Breadner Group), headquartered in Kitchener, Ontario, Canada. The
Breadner Group has ten branch locations in six Canadian Provinces and is the
leading Canadian distributor of new trailers and is a provider of new trailer
services and aftermarket parts. The Breadner Group had revenues of approximately
$135 million (US Dollars) in its fiscal year ended September 30, 2000 and
employs approximately 130 associates.
Aggregate consideration for this transaction included approximately
$6.5 million in cash, and $10.5 million in long-term notes and the assumption of
certain indebtedness. This transaction will be accounted for as a purchase with
the excess purchase price above the net assets acquired being recorded as
goodwill.
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ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers and key employees of the Company:
NAME AGE POSITION
Donald J. Ehrlich (1)........... 63 President, Chief Executive Officer and Chairman of the Board
Dean A. Cervenka............. 43 Vice President -- Sales
Rick B. Davis.................. 33 Corporate Controller
Richard E. Dessimoz.......... 53 Vice President and Director
Charles R. Ehrlich............. 56 Vice President -- Manufacturing
Rodney P. Ehrlich............. 54 Vice President -- Engineering
Charles E. Fish................. 46 Vice President -- Human Relations
Lawrence J. Gross............. 46 Vice President -- Marketing
Mark R. Holden (1)............. 41 Vice President -- Chief Financial Officer and Director
Thomas L. Kassouf............ 48 Vice President -- Chief Operating Officer
Karl D. Kintzele................ 50 Director of Internal Audit
Connie L. Koleszar............ 42 Director of Investor Relations
Wilfred E. Lewallen........... 56 Vice President -- Industrial Engineering
Derek L. Nagle................. 50 Vice President and President of Fruehauf Trailer Services, Inc.
Stanley E. Sutton............... 50 Vice President -- Purchasing
(1) Member of the Executive Committee of the Board of Directors.
Donald J. Ehrlich. Mr. Donald J. Ehrlich has been President, Chief
Executive Officer and Director of the Company since its founding. In May 1995,
Mr. Ehrlich was elected Chairman of the Board. He also serves as a director of
Danaher Corporation and Indiana Secondary Market Corporation.
Dean A. Cervenka. Mr. Cervenka has been Vice President--Sales since
January 1997. Previously, Mr. Cervenka had been a Regional Sales Director for
the Company. Prior to his employment by the Company in April 1996, he was
employed by Caterpillar, Inc. in various engineering and marketing positions.
Rick B. Davis. Mr. Davis has been Corporate Controller of the Company
since May 1998. Previously, Mr. Davis was Controller of the Company since June
1995. Prior to his employment by the Company, he was employed by Cummins Engine
Company, Inc. since 1994 and Arthur Andersen LLP since 1989.
Richard E. Dessimoz. Mr. Dessimoz has been Vice President and Chief
Executive Officer of Wabash National Finance Corporation since its inception in
December 1991 and a Director of the Corporation since December 1995.
Charles R. Ehrlich. Mr. Charles Ehrlich has been Vice
President--Manufacturing of the Company and has been in charge of the Company's
manufacturing operations since the Company's founding.
Rodney P. Ehrlich. Mr. Rodney Ehrlich has been Vice
President--Engineering of the Company and has been in charge of the Company's
engineering operations since the Company's founding.
Charles E. Fish. Mr. Fish is Vice President--Human Relations of the
Company and has been in charge of the Company's human relations operations since
the Company's founding.
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Lawrence J. Gross. Mr. Gross has been Vice President--Marketing of the
Company since December 1994. Previously he had been President of the Company's
RoadRailer division since joining the Company in July 1991. Prior to his
employment by the Company, he was employed since 1985 by Chamberlain of
Connecticut, Inc., a licensor of bimodal technology, as Vice
President--Marketing until 1990 and as President until he began his employment
with the Company.
Mark R. Holden. Mr. Holden has been Vice President--Chief Financial
Officer and Director of the Company since May 1995. Previously, Mr. Holden had
been Vice President--Controller of the Company. Prior to his employment by the
Company in December 1992, he was employed by Arthur Andersen LLP since 1981.
Thomas L. Kassouf. Mr. Kassouf has been Vice President--Chief Operating
Officer for the Company since January 2001. Prior to his employment by the
Company, he was Vice President and General Manager for Kohler Company for
approximately one year and was employed by United Technologies Corporation in
various capacities for approximately 22 years.
Karl D. Kintzele. Mr. Kintzele has been Director of Internal Audit
since joining the Company in September, 1999. Prior to his employment by the
Company, he was employed by Teledyne, Inc. since 1979.
Connie L. Koleszar. Ms. Koleszar has been Director of Investor
Relations since the Company's initial public offering in 1991 and has been
employed by the Company in various administrative capacities since its founding.
Wilfred E. Lewallen. Mr. Lewallen is Vice President--Industrial
Engineering of the Company and has been in charge of the Company's industrial
engineering operations since the Company's founding.
Derek L. Nagle. Mr. Nagle has been Vice President of the Company and
President of Fruehauf Trailer Services, Inc. since the Company's acquisition of
certain Fruehauf assets in April 1997. Prior to his employment by the Company,
he was employed since 1970 at Fruehauf Trailer Corporation, where he held
various senior executive positions. Fruehauf Trailer Corporation filed for
bankruptcy protection in October 1996.
Stanley E. Sutton. Mr. Sutton has been Vice President--Purchasing of
the Company since joining the Company in May 1992. Prior to his employment by
the Company, he was employed since 1973 by Pines Trailer Limited Partnership as
Vice President--Manufacturing Operations.
Officers are elected for a term of one year and serve at the discretion
of the Board of Directors.
The Company hereby incorporates by reference the information contained
under the heading "Election of Directors" from its definitive Proxy Statement to
be delivered to stockholders of the Company in connection with the 2001 Annual
Meeting of Stockholders to be held May 15, 2001.
Donald J. Ehrlich, President, Chief Executive Officer and Chairman, and
Charles R. Ehrlich and Rodney P. Ehrlich, executive officers of the Company, are
brothers. Dean A. Cervenka and Connie L. Koleszar, executive officers of the
Company, are brother and sister.
ITEM 11 -- EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the information contained
under the heading "Compensation" from its definitive Proxy Statement to be
delivered to the stockholders of the Company in connection with the 2001 Annual
Meeting of Stockholders to be held May 15, 2001.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company hereby incorporates by reference the information contained
under the heading "Beneficial Ownership of Common Stock" from its definitive
Proxy Statement to be delivered to the stockholders of the Company in connection
with the 2001 Annual Meeting of Stockholders to be held on May 15, 2001.
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ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the information contained
under the heading "Compensation Committee Interlocks and Insider Participant"
from its definitive Proxy Statement to be delivered to the stockholders of the
Company in connection with the 2001 Annual Meeting of Stockholders to be held on
May 15, 2001.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements: The Company has included all required financial
statements in Item 8 of this Form 10-K. The financial statement
schedules have been omitted as they are not applicable or the required
information is included in the Notes to the consolidated financial
statements.
The 2000 financial statements of Europaische Trailerzug
Beteiligungsgessellschaft mBH (ETZ) which are required to be included
in this report pursuant to Rule 3-09 of Regulation S-X, will be
included in an amendment to this report to be filed within 90 days of
the date of this Form 10-K.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 2000.
(c) Exhibits: The following exhibits are filed with this Form 10-K or
incorporated herein by reference to the document set forth next to the
exhibit listed below:
2.01 Purchase Agreement dated March 31, 1997, as amended (Incorporated by
reference from Exhibit 2.01 to Registrant's Form 8-K filed in May 1,
1997)
3.01 Certificate of Incorporation of the Company (1)
3.02 Certificate of Designations of Series A Junior Participating Preferred
Stock (1)
3.03 By-laws of the Company (1)
3.04 Certificate of Designations of Series B 6% Cumulative Convertible
Exchangeable Preferred Stock (5)
3.05 Certificate of Designations of Series C 5.5% Convertible Exchangeable
Preferred Stock (8)
4.01 Specimen Stock Certificate (1)
4.02 First Amendment to Shareholder Rights Agreement dated October 21, 1998
(9)
4.03 Form of Indenture for the Company's 6% Convertible Subordinated
Debentures due 2007 (5)
4.04 Second Amendment to Shareholder Rights Agreement dated December 18,
2000 (13)
10.01 Loan Agreement, Mortgage, Security Agreement and Financing Statement
between Wabash National Corporation and City of Lafayette dated as of
August 15, 1989(1)
10.02 1992 Stock Option Plan (1)
10.03 Real Estate Sale Agreement by and between Kraft General Foods, Inc. and
Wabash National Corporation, dated June 1, 1994 (2)
10.04 6.41% Series A Senior Note Purchase Agreement dated January 31, 1996,
between certain Purchasers and Wabash National Corporation (3)
10.05 Master Loan and Security Agreement in the amount of $10 million by
Wabash National Finance Corporation in favor of Fleet Capital
Corporation dated December 27, 1995 (3)
10.06 First Amendment to the 6.41% Series A Senior Note Purchase Agreement
dated January 31, 1996 between certain Purchasers and Wabash National
Corporation (4)
10.07 Series B-H Senior Note Purchase Agreement dated December 18, 1996
between certain Purchasers and Wabash National Corporation (4)
10.08 Revolving Credit Loan Agreement dated September 30, 1997, between NBD
Bank, N.A. and Wabash National Corporation (6)
10.09 Investment Agreement and Shareholders Agreement dated November 4, 1997,
between ETZ (Europaische Trailerzug Beteiligungsgesellschaft mbH) and
Wabash National Corporation (6)
10.10 Receivable Sales Agreement between the Company and Wabash Funding
Corporation and the Receivables Purchase Agreement between Wabash
Funding Corporation and Falcon Asset Securitization Corporation (7)
10.11 Indemnification Agreement between the Company and Roadway Express, Inc.
(10)
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10.12 364-day Credit Agreement dated June 22, 2000, between Bank One,
Indiana, N.A., as administrative agent and Wabash National Corporation
(11)
10.13 Series I Senior Note Purchase Agreement dated September 29, 2000,
between Prudential Insurance Company and Wabash National Corporation
(12)
10.14 Share Transfer Agreement dated December 12, 2000, between Bayerische
Kapitalbeteiligungsgesellschaft mBH and Wabash National Corporation
(15)
10.15 Participation Agreement and Equipment Lease between Apex Trailer
Leasing & Rentals L.P. as Lessee and Wabash Statutory Trust as Lessor
dated December 29, 2000 (15)
21.00 List of Significant Subsidiaries (15)
23.01 Consent of Arthur Andersen LLP (15)
99.01 Press Release, dated January 18, 2001 (14)
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (No. 33-42810) or the Registrant's Registration Statement
on Form 8-A filed December 6, 1995 (item 3.02 and 4.02)
(2) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 1994.
(3) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1995
(4) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1996
(5) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended March 31, 1997
(6) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 1997
(7) Incorporated by reference to the Registrant's Form 8-K filed on April
14, 1998
(8) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 1998
(9) Incorporated by reference to the Registrant's Form 8-K filed on
October 26, 1998
(10) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1999
(11) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 2000
(12) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 2000
(13) Incorporated by reference to the Registrant's Amended Form 8-A filed
January 18, 2001
(14) Incorporated by reference to the Registrant's Form 8-K filed on
January 30, 2001
(15) Filed herewith
The Registrant undertakes to provide to each shareholder requesting the same a
copy of each Exhibit referred to herein upon payment of a reasonable fee limited
to the Registrant's reasonable expenses in furnishing such Exhibit.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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
March 29, 2001 By: /s/ Rick B. Davis
--------------------------
Rick B. Davis
Corporate Controller
(Principal Accounting Officer)
and Duly Authorized Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATED INDICATED.
DATE SIGNATURE AND TITLE
March 29, 2001 By: /s/ Donald J. Ehrlich
------------------------------------
Donald J. Ehrlich
Chief Executive Officer, President and
Chairman of the Board
(Principal Executive Officer)
March 29, 2001 By: /s/ Mark R. Holden
------------------------------------
Mark R. Holden
Vice President -- Chief Financial Officer
and Director
March 29, 2001 By: /s/ Richard E. Dessimoz
------------------------------------
Richard E. Dessimoz
Vice President and Director
March 29, 2001 By: /s/ John T. Hackett
------------------------------------
John T. Hackett
Director
March 29, 2001 By: /s/ E. Hunter Harrison
------------------------------------
E. Hunter Harrison
Director
March 29, 2001 By: /s/ Ludvik F. Koci
------------------------------------
Ludvik F. Koci
Director
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