Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-10883
WABASH NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1375208
(STATE 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. Yes X . 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No____.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 30, 2002 was $230,188,920 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 as of
April 4, 2003 was 25,661,565.
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
filed within 120 days after December 31, 2002.
================================================================================
2
TABLE OF CONTENTS
WABASH NATIONAL CORPORATION
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2002
PAGES
PART I.
Item 1. Business.............................................................................. 4
Item 2. Properties............................................................................ 11
Item 3. Legal Proceedings..................................................................... 11
Item 4 Submission of Matters to Vote of Security Holders..................................... 13
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 Risk............................ 32
Item 8. Financial Statements and Supplementary Data........................................... 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.......................................................................... 68
PART III.
Item 10. Directors and Executive Officers of the Registrant.................................... 68
Item 11. Executive Compensation................................................................ 68
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 68
Item 13. Certain Relationships and Related Transactions........................................ 69
Item 14. Controls and Procedures............................................................... 69
PART IV.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 69
SIGNATURES ...................................................................................... 72
3
PART I
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 (SEC)
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, liquidity, 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 "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.
ITEM 1 -- BUSINESS
Wabash National Corporation ("Wabash" or "Company") designs, manufactures
and markets standard and customized truck trailers and intermodal equipment
under the Wabash(R), Fruehauf(R) and RoadRailer(R) trademarks. The
Company's wholly-owned subsidiary Wabash National Trailer Centers (WNTC),
formerly known as North American Trailer Centers(TM), sells new and used
trailers through its retail network, provides maintenance service for its own
and competitors' trailers and related equipment, and offers rental and leasing
programs to its customers for new and used trailers. Wabash also purchases and
produces aftermarket parts which its sells through its Wabash National Parts
division as well as WNTC.
Wabash seeks to identify and produce proprietary products in the trucking,
intermodal and rail industries that offer added value to customers and,
therefore, have the potential to generate higher profit margins than those
associated with standardized products. Wabash has developed and/or acquired
several proprietary products and processes that, it believes, are recognized
within its markets as providing additional value to users as compared to
conventional product offerings. While the Company believes it 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 product development and selective
acquisitions of quality proprietary products that distinguish the Company from
its competitors and provide opportunities for enhanced profit margins.
The Company's factory-owned retail distribution network provides
opportunities to effectively distribute its products and also offers national
service and support capabilities for customers. The retail sale of new and used
trailers, aftermarket parts and maintenance service generally provides enhanced
margin opportunities. The retail distribution network also offers long and short
term leasing for new and used trailers.
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: (1) manufacturing and (2) retail and distribution. Financial results
by segment and financial information regarding geographic areas and export sales
are discussed in detail within Footnote 19, Segment Reporting, of the
accompanying Consolidated Financial Statements. Additional information
concerning the Company can be found on the Company's website at
www.wabashnational.com. The Company makes its electronic filings with the SEC,
including its annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to these reports, available on its
website free of charge as soon as practicable after it files or furnishes them
with the SEC. Information on the website is not part of this Form 10-K.
4
Manufacturing
The Company believes that it is one of the largest manufacturers of truck
trailers. Wabash markets its products directly, and through independent dealers
and company-owned retail locations 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, but not limited to, the following:
- Truckload Carriers: Schneider National, Inc.; Werner Enterprises,
Inc.; Swift Transportation Corporation; J.B. Hunt Transport
Services, Inc.; Heartland Express, Inc.; Crete Carrier Corporation;
Knight Transportation, Inc.; USXpress Enterprises, Inc.; Frozen Food
Express Industries (FFE); Interstate Distributor Co.
- Leasing Companies: Transport International Pool (TIP); Penske Truck
Leasing; Transport Services, Inc.
- Private Fleets: Safeway; Home Depot; The Kroger Company; Sysco
Corporation.
- Less-Than-Truckload Carriers: Roadway Express, Inc.; Old Dominion
Freight Line, Inc.; GLS Leasco; Yellow Services, Inc.; SAIA Motor
Freightlines Inc.; Vitran Express.
- North American Intermodal Carriers and Railroads: Triple Crown
Services (Norfolk Southern); National Rail Passenger Corp. (Amtrak);
Burlington Northern Santa Fe Railroad; Canadian National Railroad;
Transportacion Martima Mexicana (TMM); Alliance Shippers.
Retail and Distribution
As of December 31, 2002 the Company had 39 factory-owned retail outlets
mostly in major, metropolitan markets as well as two rental locations. The
Company believes it has the largest North American company-owned distribution
system in the industry that sells used trailers, aftermarket parts and
maintenance service.
The Company believes that the retail sale of new and used trailers,
aftermarket parts and maintenance service will generally produce higher gross
margins and tend to be more stable in demand than the manufacturing segment. The
Company also provides or makes available rental and leasing programs primarily
to retail customers for used trailers, through its subsidiary, Apex Trailer
Leasing and Rentals, L.P. Leasing can be less volatile than the sale of
equipment while at the same time providing the Company with an additional
channel of distribution for used trailers taken in trade on the sale of new
trailers.
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. The first half of
2002 reflected the residual effect of the decline in demand in 2001. The second
half of 2002 reflected a stabilization of capacity and a slight up swing in
demand. It is believed that the decline in shipments from 2000 to 2001
represents the largest decline in recent history.
Management believes that customers historically have replaced trailers in
cycles that run from approximately five to 12 years, depending on warranty,
service and trailer type. Changes in both State and Federal regulation of the
size, safety features and configuration of truck trailers have led to
fluctuations in demand for trailers from time to time. However, the Company does
not expect any significant market effects from changes in government regulation
in the near term.
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.
5
The following table sets forth new trailer production for the Company, its
nine largest competitors and for the trailer industry as a whole within North
America:
2002 2001 2000 1999 1998 1997
------- ------- ------- ------- ------- -------
WABASH ....... 27,149(4) 31,682 66,283 69,772 61,061 48,346(1)
Great Dane ... 26,000 21,650 46,698 58,454 50,513 37,237
Utility ...... 17,574 16,334 28,780 30,989 26,862 23,084
Stoughton .... 10,300 6,250 15,050 14,673 11,750 11,700
Manac ........ 6,900 5,865 8,052 8,200 * *
Strick ....... 5,200 5,500 10,500 11,000 10,959 10,488
Hyundai ...... 4,763 5,413 6,261 5,716 5,200 3,445
Trailmobile .. 4,664(2) 13,858 28,089 31,329 23,918 18,239
Transcraft(3) 3,703 3,018 4,005 5,311 5,317 4,509
Fontaine(3) .. 3,050 3,100 6,000 6,500 5,894 5,063
Total Industry 139,658 140,084 270,817 317,388 278,821 222,550
(1) Includes production of 1,467 units by Fruehauf in 1997 prior to the
acquisition by Wabash of certain assets of Fruehauf.
(2) Includes Trailmobile Canada only. Trailmobile U.S. filed for bankruptcy in
2001 and was subsequently liquidated.
(3) Transcraft and Fontaine both build primarily platform types of trailers.
(4) Does not include approximately 6,000 intermodal containers.
* Data not available
Sources: Individual manufacturer information, some of which is estimated,
provided by Southern Motor Cargo Magazine (C)1999 (for 1997-1998 data) and
Trailer Body Builders Magazine (C)2002 (for 1999-2002 data). Industry totals
provided by Southern Motor Cargo Magazine (C)1999 (for 1997-1998 data) and
A.C.T. Research Company, L.L.C. (for 1999-2002 data).
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 regulations that require anti-lock braking systems (ABS) and that
define rear impact guard standards. Manufacturing operations are subject to
environmental laws enforced by federal, state and local agencies (See
"Environmental Matters").
PRODUCT LINES
Manufacturing Segment
Since its inception, 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, the Company
has been able to work closely with customers to create competitive advantages
through development and production of productivity-enhancing transportation
equipment. The sale of new trailers through the manufacturing segment
represented approximately 59.2%, 59.2% and 76.0% of net sales during 2002, 2001
and 2000, respectively. The Company's current transportation equipment product
lines include the following:
- DuraPlate(R) trailers. In late 1995, the Company introduced its
DuraPlate(R) composite plate wall dry van trailer. Features of the
composite plate trailer include increased durability and greater
strength than the aluminum plate trailer that it replaces. The
composite material is a high-density polyethylene core with a steel
skin. DuraPlate(R) trailers are purchased by all segments of the dry
van customer base. 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.
- Smooth aluminum vans and doubles. Smooth aluminum vans and doubles,
also known as sheet and post trailers 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.
6
- Refrigerated trailers. 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 durability of the
trailers. These trailers are used by refrigerated carriers
specializing in the movement of commodities that require controlled
temperatures such as perishable food products. They are also used by
private fleets such as those operated by large grocery companies.
- DuraPlate(R) domestic containers. During 2001 the Company entered
the domestic container market through the introduction of a
stackable 53 foot domestic container with DuraPlate(R) sidewalls.
Domestic containers are utilized by intermodal carriers and are
carried either on flat cars or stacked two-high in special
"Double-Stack" railcars. The use of the proprietary DuraPlate(R)
material provides significant advantages in customer appeal, cargo
carrying capacity and damage resistance when compared to
conventional domestic containers. The Company believes it is the
only supplier offering a complete line of intermodal equipment,
including the domestic container, piggyback trailers and the
RoadRailer(R) intermodal system.
- Plate trailers. Aluminum plate 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(R) equipment. The RoadRailer(R) intermodal system is a
patented bimodal technology consisting of a truck trailer and
detachable rail "bogie" which permits a trailer to run both over the
highway and directly on railroad lines.
- Other. The Company's other transportation equipment includes
container chassis, rollerbed trailers, soft-sided trailers and
converter dollies. These items are either manufactured or are
acquired, either on a private label or wholesale basis for
distribution through our retail network or direct to customers.
Retail and Distribution Segment
The Company believes it has the largest, company-owned retail and
distribution network serving the truck trailer industry. Through its retail and
distribution segment, the Company sells the following products:
- Transportation Equipment - New. The Company sells new transportation
equipment offered by the manufacturing segment. The Company also
sells specialty trailers including tank trailers, dump trailers and
platform trailers produced by third parties for Wabash. Customers
for this equipment typically purchase in smaller quantities for
local or regional transportation needs. The sale of new
transportation equipment through the retail branch network
represented approximately 9.6%, 11.9% and 6.3% of net sales during
2002, 2001 and 2000, respectively.
- Aftermarket Parts and Service. The Company 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 service through its division, Wabash National Parts and
WNTC. 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 trailers in service
increases. Sales of these products and service represented
approximately 14.4%, 14.8% and 9.6% of net sales during 2002, 2001
and 2000, respectively.
- Rental, Leasing and Finance. In 1991, the Company began to build its
in-house capability to provide leasing programs to its customers
through Wabash National Finance. In 1998, the Company began offering
a rental program for used trailers, primarily on a short-term basis,
through its retail branch network. During 1999, the Company began a
used trailer financing program through its subsidiary, National
Trailer Funding. Through this program, the Company originated
finance contracts primarily with small owner-operators with
contracts which typically ranged from three to five years in
duration. Beginning April 2002, Wabash National
7
Finance and National Trailer Funding discontinued originating new
finance contracts and is unwinding existing financial contracts,
which as of December 31, 2002, amounted to a $28.1 million portfolio
with an average yield of approximately 11%. Leasing revenues
represented approximately 4.7%, 4.9% and 2.5% of the Company's net
sales during 2002, 2001 and 2000, respectively.
- Transportation Equipment - Used. The Company sells used
transportation equipment primarily taken in trade from its customers
upon the sale of new trailers. The ability to remarket used
equipment promotes new sales by permitting trade-in allowances and
offering customers an outlet for the disposal of used equipment.
During 2001 and 2002, the Company aggressively sold down its used
trailer excess inventory. The sale of used trailers represented
approximately 11.3%, 8.5% and 5.6% of net sales during 2002, 2001
and 2000, 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 van and
refrigerated trailers to approximately 15 customers. Sales to these 15 customers
accounted for approximately 52.1%, 57.7% and 41.8% of the Company's new trailer
sales in 2002, 2001 and 2000, respectively. The retail and distribution business
primarily services small and mid-sized fleets and individual owner operators in
which the credit risk varies significantly from customer to customer.
International sales, primarily to Canadian customers, accounted for
approximately 9.1%, 9.2% and 3.1% of net sales during 2002, 2001 and 2000,
respectively.
The Company had one customer, JB Hunt Transport Services, Inc., that
represented approximately 10.9%, 19.0% and 11.4% of net sales in 2002, 2001 and
2000, respectively. The Company's net sales in the aggregate to its five largest
customers were 30.3%, 34.4% and 30.5% of its net sales in 2002, 2001 and 2000,
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.
Such sales represented approximately 51.0%, 55.2% and 59.7% of the Company's new
trailer sales in 2002, 2001 and 2000, 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. Such sales represented
approximately 6.0%, 5.3% and 10.5% of new trailer sales in 2002, 2001 and 2000,
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 one to
100 trailers. Among the larger private fleets, such as those of the large retail
chain stores, automotive manufacturers and paper product manufacturers, truck
trailers are often ordered with customized features designed to transport
specialized commodities or goods. Such sales represented approximately 8.0%,
8.4% and 6.7% of new trailer sales in 2002, 2001 and 2000, respectively.
Leasing companies include large national companies as well as regional and
local companies. Such sales represented 4.6%, 3.2% and 4.2% of new trailer sales
in 2002, 2001 and 2000, 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. Such sales represented approximately 14.0%, 16.8% and
7.4% of total new trailer sales in 2002, 2001 and 2000, respectively.
8
MARKETING AND DISTRIBUTION
The Company markets and distributes its products through the following
channels:
- factory direct accounts;
- the factory-owned distribution network; and
- independent dealerships.
Factory direct accounts include larger full truckload, LTL, package and
household moving carriers and certain private fleets and leasing companies.
These are high volume purchasers. Historically, the Company has focused its
resources on the factory direct market, where customers are highly aware of the
life-cycle costs of trailer equipment and therefore are best equipped to
appreciate the design and value-added features of the Company's product.
The Company's factory-owned distribution network generates retail sales of
trailers as well as leasing arrangements to smaller fleets and independent
operators. This branch network enables the Company to provide maintenance and
other services to customers and provides an outlet for used trailers taken in
trade upon the sale of new trailers, which is a common practice with fleet
customers. In addition to the 39 factory-owned retail outlets and two rental
locations, the Company also sells its products through a nationwide network of
approximately 40 full-line and 180 parts only independent dealerships, which
generally serve the trucking and transportation 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, polyethylene, aluminum, lumber, tires and suspensions, which it purchases
from a limited number of suppliers. Significant price fluctuations or shortages
in raw materials or finished components may adversely affect the Company's
results of operations. In 2002 and for the foreseeable future, the Company
expects raw materials used in the greatest quantity will be the steel and
polyethylene used in the DuraPlate(R) trailers. Currently both components are in
ready supply. During 1998, the Company acquired Cloud Corporation and Cloud Oak
Flooring Company, Inc. (Wabash Wood Products), which were 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 $208.0 million and
$142.1 million at December 31, 2002 and 2001, respectively. The Company's
backlog of orders for DuraPlate(R) trailers was approximately 78% and 40% of
total backlog at December 31, 2002 and 2001, respectively. Orders that comprise
the backlog may be subject to changes in quantities, delivery, specifications
and terms. The Company's criteria for determining backlog includes: (1) only
orders that have been confirmed by the customer in writing, and (2) orders that
will be included in the Company's production schedule during the next 18 months.
The Company expects to fill a majority of its existing backlog of orders by the
end of 2003.
PATENTS AND INTELLECTUAL PROPERTY
The Company holds or has applied for 73 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 101 patents in 13 foreign
countries including the European patent community. The Company's patents include
its proprietary DuraPlate(R) product, which the Company believes offers the
Company a significant competitive advantage.
The Company also holds or has applied for 42 trademarks in the United
States as well as 35 trademarks in foreign countries. These trademarks include
the Wabash(R) and Fruehauf(R) brand names as
9
well as trademarks associated with the Company's proprietary products such as
the DuraPlate(R) trailer and the RoadRailer(R) trailer.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged to earnings as incurred and
were approximately $2.0 million in each of 2002, 2001 and 2000.
ENVIRONMENTAL MATTERS
The Company is aware of soil and ground water contamination at some of its
facilities. Accordingly, the Company has a reserve of approximately $0.9 million
as of December 31, 2002 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 of 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, which was closed in
the fourth quarter of 2001 as part of the 2001 restructuring. 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 May
16, 2001, the Company received a second grand jury subpoena that sought the
production of additional documents relating to the discharge in question. The
Company is fully cooperating with federal officials with respect to their
investigation into the matter. The Company received an oral communication from
the government's lawyer in the matter that he intends to seek charges under the
federal Clean Water Act. Subsequent to that oral communication, in December 2002
the Company and its outside counsel met with the government's lawyer to discuss
potential resolutions to this matter, and the government's lawyer is now
considering the information provided by the Company at that meeting. At this
time, the Company is unable to predict the outcome of the federal grand jury
inquiry into this matter, but does not believe it will result in a material
adverse effect on its financial position, liquidity or future results of
operations; however, at this stage of the proceedings, no assurance can be given
as to the ultimate outcome of the case.
On April 17, 2000, 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. The Company and TDEC negotiated a
settlement agreement to resolve this matter, under which the Company paid
$100,000. An accrual for this fine was recorded in 2001 and paid in October
2002.
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 its consolidated
financial position and annual results of operations.
EMPLOYEES
As of December 31, 2002, the Company had approximately 3,600 full-time
associates, compared to approximately 3,500 full-time associates as of December
31, 2001. The Company had no full-time associates under a labor union contract
as of December 31, 2002. The Company places a strong emphasis on employee
relations through educational programs and quality control teams. The Company
believes its employee relations are good.
10
ITEM 2 -- PROPERTIES
MANUFACTURING FACILITIES
The Company owns its main facility of 1.2 million sq. ft. in Lafayette,
Indiana, which consists of truck trailer and composite material production, tool
and die operations, research laboratories, management offices and headquarters.
The Company also owns another trailer manufacturing facility in Lafayette,
Indiana (572,000 sq. ft.) and a trailer flooring manufacturing facility in
Harrison, Arkansas (456,000 sq. ft.).
During 2001, the Company closed trailer manufacturing plants located in
Ft. Madison, Iowa (255,000 sq. ft.) and Huntsville, Tennessee (287,000 sq. ft.)
and a flooring operation in Sheridan, Arkansas (117,000 sq. ft.). At December
31, 2002, these properties are being held for sale and, accordingly, are
classified in Prepaid Expenses and Other in the accompanying Consolidated
Balance Sheets.
RETAIL AND DISTRIBUTION FACILITIES
Retail and distribution facilities include 24 sales and service branches
(two of which are leased), 15 locations that sell new and used trailers (12 of
which are leased) and two used trailer rental centers. These facilities are
located throughout North America. Each branch facility consists of an office,
parts warehouse and service space and each facility generally ranges in size
from 20,000 to 50,000 square feet per facility. Included in the amounts above
are 10 branch locations in seven Canadian provinces acquired in January 2001. In
addition, the Company owns an aftermarket parts distribution center in
Lafayette, Indiana (300,000 sq. ft.).
The Company closed two retail branches in 2001 and eight in 2002. At
December 31, 2002, five of these branches remained and are being held for sale.
Accordingly, these branches are classified in Prepaid Expenses and Other in the
accompanying Consolidated Balance Sheets.
In 2002, the Company closed its retail and distribution segment office in
St. Louis, Missouri and transferred the administrative functions to Lafayette,
Indiana. The transition was completed during the fourth quarter of 2002 and the
Company is currently searching for a sub-tenant.
Company owned properties are subject to security interests held by the
Company's bank and senior note lenders.
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.
Brazil Joint Venture
In March 2001, Bernard Krone Industria e Comercio de Maquinas Agricolas
Ltda. ("BK") filed suit against the Company in the Fourth Civil Court of
Curitiba in the State of Parana, Brazil. This action seeks recovery of damages
plus pain and suffering. Because of the bankruptcy of BK, this proceeding is now
pending before the Second Civil Court of Bankruptcies and Creditors
Reorganization of Curitiba, State of Parana (No.232/99).
This case grows out of a joint venture agreement between BK and the
Company, which was generally intended to permit BK and the Company to market the
RoadRailer(R) trailer in Brazil and other areas of South America. When BK was
placed into the Brazilian equivalent of bankruptcy late in 2000, the joint
venture was dissolved. BK subsequently filed its lawsuit against the Company
alleging that it was forced to terminate business with other companies because
of the exclusivity and non-compete clauses purportedly found in the joint
venture agreement. The lawsuit further alleges that Wabash did not properly
disclose technology to BK and that Wabash purportedly failed to comply with its
contractual obligations in terminating the joint venture agreement. In its
complaint, BK asserts that it has been damaged by these alleged wrongs by the
Company in the approximate amount of $8.4 million.
The Company answered the complaint in May 2001, denying any wrongdoing and
pointing out that, contrary to the allegation found in the complaint, a merger
of the Company and BK, or the acquisition of BK
11
by the Company, was never the purpose or intent of the joint venture agreement
between the parties; the only purpose was the business and marketing arrangement
as set out in the agreement.
The Company believes that the claims asserted against it by BK are without
merit and intends to defend itself vigorously against those claims. The Company
believes that the resolution of this lawsuit will not have a material adverse
effect on its financial position, liquidity or future results of operations;
however, at this early stage of the proceeding, no assurance can be given as to
the ultimate outcome of the case.
E-Coat System
On September 17, 2001 the Company commenced an action against PPG
Industries, Inc. ("PPG") in the United States District Court, Northern District
of Indiana, Hammond Division at Lafayette, Indiana, Civil Action No. 4:01 CV 55.
In the lawsuit, the Company alleges that it has sustained substantial damages
stemming from the failure of the PPG electrocoating system (the "E-coat system")
and related products that PPG provided for the Company's Huntsville, Tennessee
plant. The Company alleges that PPG is responsible for defects in the design of
the E-coat system and defects in PPG products that have resulted in malfunctions
of the E-coat system and poor quality coatings on numerous trailers.
PPG filed a Counterclaim in that action on or about November 8, 2001,
seeking damages in excess of approximately $1.35 million based upon certain
provisions of the November 3, 1998 Investment Agreement between it and the
Company. The Company filed a Reply to the Counterclaim denying liability for the
claims asserted. The Company subsequently amended its complaint to include two
additional defendants, U.S. Filter and Wheelabrator Abrasives Inc., who
designed, manufactured, or provided equipment for the E-coat system.
The Company denies and is vigorously defending PPG's counterclaim. It also
believes that the claims asserted in its complaint are valid and meritorious and
it intends to fully prosecute those claims. The Company believes that the
resolution of this lawsuit will not have a material adverse effect on its
financial position, liquidity or future results of operations; however, at this
early stage of the proceeding, no assurance can be given as to the ultimate
outcome of the case.
Environmental
In the second quarter of 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 May 16,
2001, the Company received a second grand jury subpoena that sought the
production of additional documents relating to the discharge in question. The
Company is fully cooperating with federal officials with respect to their
investigation into the matter. The Company received an oral communication from
the government's lawyer in the matter that he intends to seek charges under the
federal Clean Water Act. Subsequent to that oral communication, in December 2002
the Company and its outside counsel met with the government's lawyer to discuss
potential resolutions to this matter, and the government's lawyer is now
considering the information provided by the Company at that meeting. At this
time, the Company is unable to predict the outcome of the federal grand jury
inquiry into this matter, but does not believe it will result in a material
adverse effect on its financial position, liquidity or future results of
operations; however, at this stage of the proceedings, no assurance can be given
as to the ultimate outcome of the case.
On April 17, 2000, 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. The Company and TDEC negotiated a
settlement agreement to resolve this matter, under which the Company paid
$100,000. An accrual for this fine was recorded in 2001 and paid in October
2002.
12
ITEM 4 -- SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None to report.
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 April 4, 2003 was 1,197.
High and low stock prices and dividends for the last two years were:
DIVIDENDS
DECLARED PER
HIGH LOW COMMON SHARE
-------- -------- ------------
2002
Fourth Quarter ...................... $ 8.50 $ 3.55 $ --
Third Quarter ....................... $ 9.94 $ 4.18 $ --
Second Quarter ...................... $ 11.19 $ 7.55 $ --
First Quarter ....................... $ 12.15 $ 7.16 $ --
2001
Fourth Quarter ...................... $ 8.74 $ 6.62 $ --
Third Quarter ....................... $ 12.45 $ 6.32 $ 0.01
Second Quarter ...................... $ 13.33 $ 9.75 $ 0.04
First Quarter ....................... $ 12.00 $ 8.25 $ 0.04
On December 28, 2001, the Board of Directors suspended the Company's payment of
common stock dividends. There is no assurance that these dividends will be paid
in the future as they depend on future earnings, capital availability and
financial conditions.
13
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, 2002, have been
derived from the Company's consolidated financial statements. 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,
--------------------------------------------------------------------------------
2002 2001(1) 2000 1999 1998
----------- ----------- ----------- ----------- -----------
(Dollar amounts in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales ................................... $ 819,568 $ 863,392 $ 1,332,172 $ 1,454,570 $ 1,292,259
Cost of sales ............................... 779,117(4) 982,605(2) 1,216,205(3) 1,322,852 1,192,968
----------- ----------- ----------- ----------- -----------
Gross profit (loss) ....................... 40,451 (119,213) 115,967 131,718 99,291
Selling, general and administrative expenses. 77,398 82,325 55,874 50,796 38,626
Restructuring charge ........................ 1,813 37,864 36,338 -- --
----------- ----------- ----------- ----------- -----------
Income (loss) from operations ............. (38,760) (239,402) 23,755 80,922 60,665
Interest expense ............................ (30,873) (21,292) (19,740) (12,695) (14,843)
Accounts receivable securitization costs .... (4,072) (2,228) (7,060) (5,804) (3,966)
Foreign exchange gains (losses), net ........ 5 (1,706) -- -- --
Equity in losses of unconsolidated affiliate -- (7,668) (3,050) (4,000) (3,100)
Restructuring charges, net .................. -- (1,590) (5,832) -- --
Other income (expense), net ................. 2,232 (1,139) 877 6,310 (259)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes ......... (71,468) (275,025) (11,050) 64,733 38,497
Provision (benefit) for income taxes ........ (15,278) (42,857) (4,314) 25,891 15,226
----------- ----------- ----------- ----------- -----------
Net income (loss) ......................... (56,190) $ (232,168) $ (6,736) $ 38,842 $ 23,271
=========== =========== =========== =========== ===========
Basic earnings (loss) per common share ...... $ (2.43) $ (10.17) $ (0.38) $ 1.60 $ 1.00
=========== =========== =========== =========== ===========
Diluted earnings (loss) per common share .... $ (2.43) $ (10.17) $ (0.38) $ 1.59 $ 0.99
=========== =========== =========== =========== ===========
Cash dividends declared per common share .... -- $ 0.09 $ 0.16 $ 0.1525 $ 0.1425
=========== =========== =========== =========== ===========
(1) The 2001 amounts reflect the results of operations for the 10
branches acquired from Breadner on January 5, 2001.
(2) Includes used trailer inventory valuation charges of $62.1 million,
a restructuring related charge of $3.7 million, and loss
contingencies and impairment charges related to the Company's
leasing operations of $37.9 million.
(3) Includes a $4.5 million charge related to the Company's
restructuring activities.
(4) Includes used trailer valuation charges of $5.4 million and $4.8
million for loss contingencies and equipment impairment charges.
Years Ended December 31,
------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(Dollar amounts in thousands)
BALANCE SHEET DATA:
Working capital .................................... $ 55,052 $111,299 $270,722 $228,751 $271,256
Total equipment leased to others & finance contracts 132,853 160,098 108,451 130,626 117,038
Total assets ....................................... 565,569 692,504 781,614 791,291 704,486
Total debt ......................................... 282,004 334,703 238,260 167,881 168,304
Capital lease obligations .......................... 64,853 77,314 -- -- --
Stockholders' equity ............................... 73,984 130,985 367,233 379,365 345,776
14
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of Wabash's 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(R), Fruehauf(R) and RoadRailer(R) trademarks. The
Company produces and sells aftermarket parts through Wabash National Parts and
WNTC. In addition to its aftermarket parts sales and service, WNTC sells new and
used trailers through its retail network as well as providing rental and leasing
programs to its customers for new and used trailers.
The Company has two reportable segments: manufacturing and retail and
distribution. The manufacturing segment produces trailers which are sold to
customers who purchase trailers direct or through independent dealers and to the
retail and distribution segment. The retail and distribution segment includes
the sale and leasing 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.
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
incorporated by reference, you should consider the following factors before
investing in our securities:
We have limited capital resources.
Our ability to access the capital markets is dependent on perceived
current and future business prospects, as well as the Company's current
financial condition. The Company has experienced liquidity problems in the past
and was in technical violation of its financial covenants with its lenders on
February 28, 2003 for the reporting period ended January 31, 2003. The Company
received a waiver of the violation from its lenders and subsequently amended
certain of its debt agreements in April 2003. This amendment changed debt
maturities and principal payment schedules; increased the cost of funds;
required the Company to meet certain financial conditions and contains a
subjective acceleration clause, which provides for an event of default upon the
occurrence of a material adverse change, as defined in the agreements. In
addition, there can be no assurance that the Company will have sufficient
resources to meet its debt service requirements, working capital needs and
capital resource requirements. This amendment also contained provisions
requiring the Company to have a commitment letter to refinance, amend or
restructure its debt and capital lease obligations prior to January 31, 2004 in
order to avoid an event of default. Additionally, $267.3 million of debt and
capital lease obligations are scheduled to be due and payable during the first
quarter of 2004. Based upon the Company's forecasted operating results for 2003,
it is unlikely that the Company will be able to repay all of the debt and
capital lease obligations due in 2004 from operations. If the Company is unable
to comply with the terms of its new debt agreements or refinance existing
obligations, it could be forced to further modify its operations or it may be
unable to continue as a going concern, as the Company's lenders could foreclose
on its assets. The ability to continue as a going concern is also dependent on
the Company's ability to manage the business to meet lender's financial
requirements. Accordingly, the Company has limited the availability and access
to capital to fund future operations and expansions which could adversely affect
the continuing operations of the Company.
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.
15
Our business is cyclical and has been adversely affected by an economic
downturn.
The truck trailer manufacturing industry historically has been and is
expected to continue to be cyclical as well as affected by overall economic
conditions. New trailer production for the trailer industry as a whole decreased
to 139,658 in 2002 as compared to 140,084 units in 2001 and 270,817 units in
2000 and the current forecast for industry shipments in 2003 is approximately
182,000 units. Customers have historically replaced trailers in cycles that run
from five to twelve years depending on service and trailer type. 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. Our
business is likely to continue to be adversely affected unless economic
conditions improve.
Our technology and products may not achieve market acceptance.
We continue to introduce new products such as the DuraPlate(R) HD, and the
Freight-Pro commodity trailer. 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 have taken steps to
protect our proprietary rights in these new products. However, the steps we have
taken to protect them may not be sufficient or may not be enforced by a court of
law. If we are unable to protect our proprietary rights, other parties may
attempt to copy or otherwise obtain and use our products or technology. If
competitors are able to use our technology, our ability to compete effectively
could be harmed.
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. Our customers are often adversely
affected by the same economic conditions that adversely affect us. 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 significant impact effect on
our business, financial condition and results of operations.
Some of our customers may be financially unstable.
Some of our customers are highly leveraged and have limited access to
capital. Therefore, their continued existence may be uncertain. Our financial
condition may be affected by the financial stability of these customers.
We have a limited number of suppliers of raw materials and no guarantee of
continued availability 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 significant impact on our business, financial
condition and results of operations.
We have a single manufacturing location.
Our primary manufacturing operations are located in Lafayette, Indiana. If
the production in these facilities were unexpectedly disrupted for any length of
time, it would have a material adverse effect on our business, financial
condition and results of operations.
Used trailer values may decline.
Used trailer values at any point in time are influenced by economic and
industry conditions, as well as supply. The Company maintains inventories of
used trailers, equipment held for lease, finance contracts secured by used
trailers and has entered into residual guarantees and purchase commitments for
used trailers as part of its normal business practices. Declines in the market
value for used trailers or the need to dispose of excess inventories has had,
and could in the future have, a material adverse effect on our business,
financial condition and results of operations.
16
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 businesses 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. There can be
no assurance that the Company will be successful in acquiring or integrating any
such products, technologies or businesses.
OVERVIEW
After a 14.7% decline in demand during 2000 and a further decline of 48.3%
during 2001, the trailer industry in the United States saw a third consecutive
year of declines in demand during 2002 with overall new production of 139,658
units down slightly from 140,084 units in 2001. During this three year industry
retrenchment, the Company's market share of new trailers declined from 24.5% in
2000 and 22.6% in 2001 to 19.4% during 2002.
As a result of these conditions, the Company implemented a comprehensive
plan to scale its operations to meet demand and to survive, including:
o Hiring of new management;
o Rationalizing manufacturing capacity;
o Reducing its cost structure through continuous improvement
initiatives;
o Reducing used trailer inventories;
o Divesting international operations;
o Rationalizing retail and distribution capacity; and
o Improving working capital management.
Beginning in 2001 and continuing into 2002, the Company closed two of its
three trailer assembly facilities, conducted an employee layoff for the first
time in the Company's history, liquidated approximately $110 million of used
trailers under an aggressive liquidation plan, completed its divestiture of its
European operations, closed approximately 10 of its 49 factory-owned branch
locations, closed one of its two wood flooring facilities and closed one of two
parts distribution centers. As a result of these dramatic steps, the Company
increased its liquidity position (cash on hand and available borrowings under
existing credit facilities) from approximately $19 million as of September 30,
2001 to approximately $78 million at the end of 2002. These actions also began
to improve the results from operations during 2002. The net loss in 2002 of
$56.2 million represented a 76% improvement over the net loss reported in 2001
of $232.2 million, despite a 5% decline in net sales during 2002 compared to
2001.
The net losses incurred in both 2001 and 2002 resulted in the Company
being in technical violation of financial covenants with certain of its lenders
on December 31, 2001 and on February 28, 2003. The company received a waiver of
the violation from its lenders and subsequently amended its debt agreements in
April 2002 and 2003, respectively.
While the Company believes that industry conditions are likely to rebound,
the Company believes it has significantly restructured its operations and, based
on its projections, the Company anticipates generating positive earnings before
interest, taxes, depreciation and amortization (EBITDA) in 2003. Although the
Company believes that the assumptions underlying the 2003 projections are
reasonable, there are risks related
17
to market demand and sales in the U.S. and Canada, adverse interest rate or
currency movements, realization of anticipated cost reductions and levels of
used trailer trade-ins that could cause actual results to differ from the
projections. Should results continue to decline, the Company is prepared to take
additional cost cutting actions. While there can be no assurance that the
Company will achieve these results, the Company believes it has adequately
modified its operations to be in compliance with its financial covenants
throughout 2003 and believes that its existing sources of liquidity combined
with its operating results will generate sufficient liquidity such that the
Company has the ability to meet its obligations as they become due throughout
2003.
However, based upon debt maturities and the Company's forecasted operating
results for 2003, it is unlikely that the Company will be able to repay debt and
capital lease obligations due in 2004 from operations. Therefore, the Company
will be required to refinance, amend or restructure existing obligations during
the first quarter of 2004 in order to continue as a going concern.
During 2002, 2001 and 2000, the Company incurred losses related to the
write-down and sale of used trailers of $5.4 million, $73.4 million and $13.1
million, respectively. The high level of losses in 2001 was the result of
decreased demand for used equipment and the Company's excess supply of used
trailer inventory which combined to decrease market values for equipment during
2001. The Company's supply of used trailers grew significantly during 2000 and
2001 as a result of large fleet trade deals with certain customers. During 2002,
2001 and 2000, the Company accepted approximately $40.5 million, $135.5 million
and $177.0 million, respectively, in trade-ins of used trailers. During the
third quarter of 2001, the Company, to reduce working capital in order to
address liquidity concerns, changed its strategy to focus on the wholesale
liquidation of used trailer inventory. This change in strategy enabled the
Company to reduce working capital needs and generate cash, but resulted in
further pressures in used trailer market values which resulted in losses
included in the amounts above. The lower level of losses in 2002 is the result
of the completion of the Company's wholesale liquidation initiative during the
first half of 2002 as inventory levels were significantly reduced from $94.7
million as of June 30, 2001 to $60.9 million as of December 31, 2001 and further
reduced to $35.2 million as of June 30, 2002. This dramatic reduction was driven
by increased sales volumes and a significant reduction in trade-in activity.
During the third quarter of 2001, the Company recorded restructuring and
other related charges totaling $40.5 million primarily related to the
rationalization of the Company's manufacturing capacity resulting in the closure
of the Company's platform trailer manufacturing facility in Huntsville,
Tennessee, and its dry van facility in Fort Madison, Iowa. In addition, the
Company closed a parts distribution facility in Montebello, California. During
2001 and 2000, the Huntsville, Tennessee and Fort Madison, Iowa facilities had
revenues of $73.5 million and $184.3 million and operating losses of $4.5
million and operating income of $8.1 million, respectively. Included in the
$40.5 million restructuring charge is the write-down of certain impaired fixed
assets to their fair market value ($33.8 million), accrued severance benefits
for approximately 600 employees ($0.9 million) and plant closure and other costs
($2.1 million). In addition, a $3.7 million charge is included in Cost of Sales
related to inventory write-downs at the closed facilities in 2001. During the
fourth quarter of 2001, the Company reduced its plant closure reserve by
approximately $0.9 million as a result of the Company's ability to effectively
control its closure costs.
The Company's 2001 impairment charge reflects the write-down of certain
long-lived assets that became impaired as a result of management's decision to
close its operations at the two manufacturing plants discussed above. The
estimated fair market value of the impaired assets totaled $6.7 million and was
determined by management based upon economic conditions, potential alternative
uses and potential markets for the assets which are held for sale and,
accordingly, are classified in Prepaid Expenses and Other in the accompanying
Consolidated Balance Sheets. Depreciation has been discontinued on the assets
held for sale pending their disposal.
In December 2000, the Company recorded restructuring and other related
charges totaling $46.6 million 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 of income from operations. Specifically, $19.1 million
of this amount represented the impairment of certain equipment subject to leases
with the Company's international customers, $8.6 million represented 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 benefits 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
18
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 $20.8 million in 2002. 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.
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,
---------------------------------
2002 2001 2000
----- ----- -----
Net sales .................................. 100.0% 100.0% 100.0%
Cost of sales .............................. 95.1(1) 113.8(2) 91.3(3)
----- ----- -----
Gross profit ......................... 4.9 (13.8) 8.7
General and administrative expense ......... 6.6 6.6 2.6
Selling expense ............................ 2.8 2.9 1.6
Restructuring charge ....................... 0.2 4.4 2.7
----- ----- -----
Income from operations ............... (4.7) (27.7) 1.8
Interest expense ........................... (3.8) (2.5) (1.5)
Trade receivables facility costs ........... (0.5) (0.3) (0.5)
Foreign exchange losses, net ............... 0.0 (0.2) --
Equity in losses of unconsolidated affiliate 0.0 (0.9) (0.2)
Restructuring charge ....................... 0.0 (0.2) (0.4)
Other income (expense), net ................ 0.3 (0.1) --
----- ----- -----
Loss before income taxes ............. (8.7) (31.9) (0.8)
Income tax benefit ......................... (1.8) (5.0) (0.3)
----- ----- -----
Net loss ............................. (6.9)% (26.9)% (0.5)%
===== ===== =====
(1) Includes used trailer valuation charges of $5.4 million and $4.8
million for loss contingencies and equipment impairment charges.
(2) Includes used trailer inventory valuation charges of $62.1 million
(7.2%), a restructuring related charge of $3.7 million (0.4%) and
loss contingencies and impairment charges related to the Company's
leasing operations of $37.9 million (4.4%).
(3) Includes a $4.5 million charge (0.3%) related to the Company's
restructuring activities.
19
2002 COMPARED TO 2001
Net loss for 2002 was $56.2 million compared to $232.2 million in 2001.
This improvement reflects a leveling off of new trailer sales and the impact on
2001 of restructuring charges and losses related to used trailers.
NET SALES
The Company finished 2002 with net sales of approximately $819.6 million
on a consolidated basis compared to $863.4 million in 2001. This decrease was
the result of lower net sales in both the manufacturing and retail and
distribution segments.
Years Ended December 31,
---------------------------------------
2002 2001 % Change
---- ---- --------
Net External Sales by Segment: (Dollar amounts in millions)
Manufacturing $492.3 $518.2 (5.0%)
Retail and Distribution 327.3 345.2 (5.2%)
------ ------ -----
Total Net Sales $819.6 $863.4 (5.1%)
====== ====== =====
The manufacturing segment's net external sales decreased 5.0% (or $25.9
million) in 2002 compared to 2001 primarily driven by a 4.8% decrease in the
average selling price per new trailer sold from approximately $16,700 in 2001 to
approximately $15,900 in 2002. This decrease in selling price per unit was
primarily due to a product mix that included approximately 6,000 units of lower
revenue containers. The selling price per unit in 2002 for non-container units
was approximately $16,900. The number of units sold decreased slightly from
approximately 31,000 units in 2001 to approximately 30,900 units in 2002.
The retail and distribution segment's net external sales decreased by 5.2%
(or $17.9 million) in 2002 compared to 2001. This decrease was primarily driven
by a 41.0% decrease in new units sold from approximately 6,100 units in 2001
compared to approximately 3,600 in 2002. The decrease in new units sold reflects
market conditions and the Company's focus in 2002 on reducing used trailer
inventories. This decrease was partially offset by increases in used units sold
(approximately 17,600 in 2002 compared to approximately 11,500 in 2001) and the
selling price per new unit (approximately $21,900 in 2002 versus $16,800 in
2001). The increase in used units sold was driven by the Company's efforts to
reduce used trailer inventory, as was previously discussed. These reduction
efforts resulted in a 17.5% decrease in revenues per unit from approximately
$6,300 in 2001 to $5,200 in 2002. As of December 31, 2002, used trailer
inventory was $22.2 million (or approximately 5,300 units) compared to $60.9
million (or approximately 12,200 units) at December 31, 2001. The total number
of branch locations as of December 31, 2002 was 39 as compared to 47 as of
December 31, 2001.
GROSS PROFIT (LOSS)
The Company finished 2002 with gross profit (loss) as a percent of sales
of 4.9% on a consolidated basis as compared to (13.8%) in 2001. As discussed
below, both of the Company's segments contributed to this increase.
Years Ended December 31,
-------------------------------------
2002 2001 $ Change
---- ---- --------
Gross Profit (Loss) by Segment: (Dollar amounts in millions)
Manufacturing $ 20.8 $ (73.9) $ 94.7
Retail and Distribution 19.7 (47.6) 67.3
Eliminations 0.0 2.3 (2.3)
------- -------- --------
Total Gross Profit (Loss) $ 40.5 $ (119.2) $ 159.7
======= ======== ========
The manufacturing segment's gross profit (loss) increased primarily as a
result of the following factors:
- decrease of 19% in material costs per unit resulting from product
mix including containers and continuous improvement initiatives
introduced in the second half of 2002;
20
- new and used trailer inventory valuation adjustments of $65.1
million in 2001 compared to $2.7 million in 2002; and
- the impact of inventory write-downs related to the Company's 2001
restructuring actions of approximately $3.7 million; partially
offset by
- lower revenues per unit, as discussed previously; and
- higher labor costs resulting from temporary labor, time spent on
training and continuous improvement initiatives.
The retail and distribution segment's gross profit (loss) increased
primarily as a result of the following factors:
- impairment of equipment held for lease along with certain loss
contingencies recognized related to its leasing activities totaling
$4.8 million and $37.9 million in 2002 and 2001, respectively;
- improved used trailers margins, which were 6.4% in 2002 compared to
(15.0%) in 2001;
- improved margins from our parts distribution business; and
- new trailer and aftermarket parts inventory valuation adjustments of
approximately $3.5 million in 2001; partially offset by
- declines in new trailer and parts and service gross profit, in part
due to fewer locations in 2002; and
- used trailer inventory adjustments of $5.4 million in 2002.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased $3.1 million to $53.9
million in 2002, compared to $57.0 million in 2001. This decrease was primarily
due to a reduction of $10.3 million in bad debt expense representing improved
collection efforts and significant write-offs taken in 2001. The decrease in bad
debt expense is offset in part by increases of $3.6 million in professional fees
and $3.0 million in severance related to branch closings and former corporate
employees.
RESTRUCTURING EXPENSE
Restructuring expenses decreased $36.1 million to $1.8 million in 2002,
compared to $37.9 million in 2001. The 2002 expense represents additional fair
market value adjustments to closed manufacturing locations which are held for
sale related to 2000 and 2001 restructuring actions. The 2001 expense primarily
relates to asset write-downs for the Scott County, Tennessee and Fort Madison,
Iowa manufacturing facilities and Montebello, California parts distribution
center taken as part of the 2001 restructuring.
OTHER INCOME (EXPENSE)
Interest expense totaled $30.9 million and $21.3 million for the years
ended December 31, 2002 and 2001, respectively. This increase is primarily due
to higher interest rates on the Company's Senior Notes and Bank debt resulting
from the debt restructuring in April 2002, interest on capital leases that were
entered into during the fourth quarter of 2001 and significantly higher
amortization from deferred debt costs in connection with the debt restructuring,
offset in part by reduced overall borrowings in 2002.
Trade receivables facility costs related to the Company's accounts
receivable securitization facility, increased to $4.1 million in 2002 from $2.2
million in 2001 primarily as a result of $3.3 million in costs incurred with
restructuring the facility in April 2002, offset in part by an absence of
borrowings under the restructured facility from April to December 2002.
Foreign currency transaction losses, net totaled $0.0 million and $1.7
million for the years ended December 31, 2002 and 2001, respectively. The 2001
net losses were primarily the result of a weakening of the Canadian dollar in
2001 and the resultant impact on intercompany transactions between the Company
and its recently acquired Canadian subsidiary, as well as U.S. denominated
transactions between the Canadian subsidiary and unrelated parties. The absence
of losses in 2002 was primarily the result of reduced foreign currency exposure
and the stability of the Canadian Dollar.
Equity in losses of unconsolidated affiliate was $0 million for 2002
resulting from the Company completing the divestiture of its ETZ affiliate in
January 2002.
21
Other, net was income of $2.2 million in 2002 compared to expense of $1.1
million in 2001. The increase primarily includes gains recognized in 2002 on
sales of closed branch locations.
INCOME TAXES
Income tax benefit for 2002 and 2001 was $15.3 million and $42.9 million,
respectively. The effective tax rate was 21.4% and 15.6% for 2002 and 2001,
respectively. For 2002, the benefit recorded primarily represents an additional
realizable Federal net operating loss (NOL) carry-back claim filed and received
under the provisions of the Job Creation and Worker Assistance Act of 2002,
which revised the permitted carry-back period for NOLs generated during 2001
from two years to five years. Because of uncertainty related to the
realizability of NOLs generated to date in excess of those utilized through
carry-back claims, a full valuation allowance is recorded against the related
deferred tax assets at December 31, 2002. In 2002, the effective rate differed
from the U.S. federal statutory rate of 35% primarily due to the recognition of
a valuation allowance against deferred tax assets that the Company determined
were more likely than not to be realized before expiration.
2001 COMPARED TO 2000
Net income (loss) for 2001 was ($232.2) million as compared to ($6.7)
million in 2000. This sharp decrease was primarily driven by decreased new
trailer sales, restructuring and impairment charges and losses related to used
trailers.
NET SALES
The Company finished 2001 with net sales of approximately $863.4 million
on a consolidated basis compared to $1,332.2 million in 2000. This decrease was
the result of lower net sales in the manufacturing segment partially offset by
increased net sales in the retail and distribution segment.
Years Ended December 31,
----------------------------------------
2001 2000 % Change
---- ---- --------
Net External Sales by Segment: (Dollar amounts in millions)
Manufacturing $518.2 $1,013.1 (48.9%)
Retail and Distribution 345.2 319.1 8.2%
------ -------- ------
Total Net Sales $863.4 $1,332.2 (35.2%)
====== ======== ======
The manufacturing segment's external net sales decreased 48.9% (or
$494.9 million) in 2001 compared to 2000 driven almost entirely by a 48.1%
decrease in the number of units sold, from approximately 59,700 units in 2000 to
approximately 31,000 units in 2001. In addition, the average selling price per
new trailer sold decreased by approximately 1.2% in 2001 compared to 2000 from
approximately $16,900 in 2000 to approximately $16,700 in 2001. These decreases
were driven by unfavorable overall economic conditions in the trailer industry.
The Company's market share in the U.S. trailer industry decreased slightly
during 2001 from approximately 24.5% in 2000 to approximately 22.8% in 2001. As
of December 31, 2001, the Company's backlog of orders was approximately $142.1
million, as compared to $639.5 million as of December 31, 2000.
The retail and distribution segment's external net sales increased by
8.2% (or $26.1 million) during 2001 compared to 2000. This increase was
primarily driven by increased sales from new branch and rental centers opened
and acquired during 2001. On a same store basis net sales decreased by 21.7%.
The total number of store locations as of December 31, 2001 was 47 as compared
to 34 as of December 31, 2000. The addition of these new stores resulted in
leasing revenues and new trailer sales increasing by approximately 29.8% (or
$9.8 million) and 21.9% (or $18.5 million), respectively, in 2001 as compared to
2000. The increase in rental and leasing revenue reflects the Company's strategy
to expand its rental and leasing operations. The increase in new trailer revenue
was driven by a 41.9% increase in the number of units sold from approximately
4,300 units in 2000 to approximately 6,100 units in 2001, partially offset by a
14.7% decline in the average selling price from approximately $19,700 in 2000 to
approximately $16,800 in 2001. Used trailer revenue was relatively flat in 2001
as compared to 2000.
22
GROSS PROFIT (LOSS)
The Company finished 2001 with gross profit (loss) as a percent of sales
of (13.8%) on a consolidated basis as compared to 8.7% in 2000. As discussed
below, both of the Company's segments contributed to this decrease.
Years Ended December 31,
-----------------------------------------
2001 2000 % Change
---- ---- --------
Gross Profit (Loss) by Segment: (Dollar amounts in millions)
Manufacturing $ (73.9) $ 86.7 (185%)
Retail and Distribution (47.6) 31.5 (251%)
Eliminations 2.3 (2.2) 205%
-------- ------- ----
Total Gross Profit (Loss) $(119.2) $116.0 (203%)
======== ======= ====
The manufacturing segment's gross profit (loss) decreased by 185% (or
$160.6 million) primarily as a result of the following factors:
- the decrease in net sales previously discussed;
- new trailer and used trailer inventory valuation adjustments of
approximately $3.0 million and $62.1 million, respectively;
- increased warranty expense of approximately $7.0 million; and
- the impact of inventory write-downs related to the Company's 2001
restructuring actions of approximately $3.7 million
These factors were offset somewhat by cost reductions realized from the
Company's 2001 and 2000 restructuring actions.
The retail and distribution segment's gross profit (loss) decreased by
251% (or $79.1 million) primarily as a result of the following factors:
- decline in average selling prices for new trailer sales of 14.7%;
- impairment of equipment held for lease along with certain loss
contingencies recognized related to its leasing activities totaling
approximately $37.9 million;
- decline in used trailer margins of approximately $8.0 million
primarily as a result of the liquidation of the Company's used
trailer inventory
- new trailer and aftermarket parts inventory valuation adjustments of
approximately $3.5 million and $3.0 million, respectively; and
- decline in the equipment held for lease utilization rate during 2001
These factors were somewhat offset by gross margins of approximately $2.8
million generated from the recently acquired Canadian branches.
INCOME (LOSS) FROM OPERATIONS (BEFORE INTEREST, TAXES AND OTHER ITEMS)
The Company finished 2001 with income (loss) from operations as a percent
of sales of (27.7%) on a consolidated basis as compared to 1.8% in 2000. As
discussed below, both of the Company's segments contributed to this decrease.
Years Ended December 31,
-----------------------------------------
2001 2000 % Change
---- ---- --------
Operating Income (Loss) by Segment: (Dollar amounts in millions)
Manufacturing $(148.7) $ 36.9 (502%)
Retail and Distribution (93.0) (10.9) (753%)
Eliminations 2.3 (2.2) 205%
------- ------- ------
Total Operating Income (Loss) $(239.4) $ 23.8 (1,105%)
======= ======= =======
The manufacturing segment and the retail and distribution segment's
income from operations decreased by 502% (or $185.6 million) and 753% (or $82.1
million), respectively, primarily as a result of the decrease in gross profit
(loss) previously discussed along with increased bad debt expense. Bad debt
expense for the manufacturing segment and retail and distribution segment
increased by approximately $8.2 million
23
and $8.7 million, respectively, in 2001 compared to 2000. This increase reflects
deteriorating economic conditions in the transportation industry during 2001.
The manufacturing segment also incurred higher expenses related to professional
fees and employee separation pay. The retail and distribution segment also
incurred increased selling, general and administrative expenses to support the
Company's expanding rental and leasing business and to increase used trailer
sales volume.
OTHER INCOME (EXPENSE)
Interest expense totaled $21.3 million and $19.7 million for the years
ended December 31, 2001 and 2000, respectively. The increase in interest expense
primarily reflects higher borrowings under the Company's revolving credit
facilities during 2001.
Accounts receivable securitization costs related to the Company's accounts
receivable securitization facility, decreased from $7.1 million in 2000 to $2.2
million in 2001 primarily as a result of decreased borrowings under this
facility during 2001.
Foreign currency transaction losses, net totaled $1.7 million and $0 for
the years ended December 31, 2001 and 2000, respectively. These net losses were
primarily a result of transaction gains and losses being recorded related to
intercompany transactions between the Company and its recently acquired Canadian
subsidiary, as well as U.S. denominated transactions between the Canadian
subsidiary and unrelated parties.
Equity in losses of unconsolidated affiliate consists of the Company's
interest in the losses of ETZ, a non-operating, European holding company, which
is the majority shareholder of BTZ, a European RoadRailer(R) operating company
based in Munich, Germany. As part of the Company's 2000 restructuring
activities, the Company recorded a $5.8 million charge to Other Income (Expense)
during 2000 and an additional $1.4 million charge in 2001, as part of its
planned divestiture of this investment. In January 2001, in connection with its
restructuring activities, the Company increased its ownership interest in ETZ
from 25.1% to 100%. ETZ was not consolidated in 2001 and 2000 since control of
the subsidiary was deemed to be temporary. Accordingly, the Company's equity in
losses of unconsolidated affiliate increased from $3.1 million in 2000 to $7.7
million in 2001 In January 2002, the Company completed its divestiture of ETZ.
As a result of this divestiture, the Company will cease reflecting an ownership
interest in ETZ's results of operations in 2002.
Other, net was $1.1 million in expense during 2001 compared to $0.9
million in income during 2000. Other, net primarily includes items such as
interest income, gain or loss from the sale of fixed assets and other items
INCOME TAXES
The Company's effective tax rates were 15.6% and 39% of pre-tax income
(loss) for 2001 and 2000, respectively. In 2001, the effective rate differed
from the U.S. federal statutory rate of 35% primarily due to the recognition of
a valuation allowance against deferred tax assets that the Company determined
were more likely than not to be realized before expiration. In 2000, the
effective rate differed from the U.S. Federal Statutory rate primarily due to
state taxes and the effects of permanent differences in financial and tax
reporting of certain transactions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position increased $24.5 million during 2002 from $11.1
million in cash and cash equivalents at December 31, 2001 to $35.7 million at
December 31, 2002. This increase was due to cash provided by operating
activities of $104.3 million and investing activities of $12.0 million partially
offset by cash used for financing activities of $91.8 million.
EXPLANATION OF CASH FLOW
A. OPERATING ACTIVITIES
Net cash provided by operating activities of $104.3 million in 2002 is
primarily due to cash inflows from tax refunds of $38.5 million and the
conversion of other working capital items into cash. The cash
24
provided from other working capital included $58.3 million from inventories,
$19.7 million from accounts receivable and $9.8 million from accounts payable
and accrued liabilities. The net cash provided from working capital reflects the
Company's renewed focus on managing working capital resources.
The net cash provided from inventories includes a $33.3 million reduction
in used trailer inventories reflecting the efforts to reduce excess inventory
on-hand at December 31, 2001. Also contributing to the net cash provided from
inventories was a reduction of $10.6 million in raw materials inventories
reflective of the Company's efforts to better manage on-hand inventories.
The net cash provided from accounts receivable reflects increased 2002
fourth quarter sales, increased cash collections as a result of timing of
payments, continued efforts to effectively manage delinquent customers and an
increased emphasis on collections.
B. INVESTING ACTIVITIES
Net cash provided by investing activities was $12.0 million in 2002
primarily due to proceeds of $16.6 million from the sale of property, plant and
equipment, payments of $13.3 million received on finance contracts and $5.3
million from the sale of leased equipment, offset by additions of $9.8 million
to leased equipment, net additions of $7.7 million to finance contracts and
capital expenditures of $5.7 million.
The proceeds from the sale of property, plant and equipment includes $9.0
million for the sale of the company airplane and $6.6 million for the sale of
closed branch locations.
The majority of the additions to leased equipment were made to improve the
product quality and mix of the fleet and were in response to customer demand.
The finance contract additions were executed prior to the termination of the
financing origination business.
Capital expenditures included $4.5 million for the manufacturing segment
primarily related to construction of a new production line for the Freight-Pro
commodity trailer and modifications to existing production lines as part of
continuous improvement initiatives.
C. FINANCING ACTIVITIES
Net cash used in financing activities of $91.8 million in 2002 reflects
payments of $78.6 million under long-term debt and capital lease obligations and
$9.3 million for the net pay down or conversion to term loan of borrowings under
the revolving credit facility. Net cash used in financing activities also
includes $3.8 million in costs capitalized as part of the debt restructuring in
April 2002.
The net pay down or conversion to term loan of borrowings under the
revolving credit facility occurred as a result of the April 2002 debt
restructuring under which the existing revolving credit facility and all
outstanding borrowings were converted into a new facility containing a Bank
Term Loan and Bank Line of Credit.
The $78.6 million of payments includes $43.6 million for scheduled
long-term debt and capital lease obligation principal payments, $18.2 million
for the pay-off of the previous accounts receivable facility, $11.8 million for
the pay-off of the airplane capital lease obligation and an additional payment
made of $5.0 million on its Senior Notes and Bank Term Loan.
SOURCES OF CAPITAL
The Company has taken aggressive steps toward improving its liquidity
position during 2002, including the liquidation and normalization of its
inventory of used trailers, improved working capital management and controlled
capital expenditures. Accordingly, the Company's liquidity position has improved
since the end of 2001 from approximately $24 million as of December 31, 2001, to
approximately $78 million as of December 31, 2002. The Company defines liquidity
as cash on hand and available borrowings under its existing credit facilities.
As part of the Company's focus on debt reduction, it paid $87.9 million
in debt and capital lease obligations during 2002. As of December 31, 2002,
the Company's total debt and capital lease obligations were $346.9 million as
compared to $412.0 million in 2001.
25
Additionally, $267.3 million of debt and capital lease obligations
are due and payable during the first quarter of 2004. Based upon the Company's
forecasted operating results for 2003, it is unlikely that the Company will be
able to repay all of the debt and capital lease obligations due in 2004 from
operations. Further, the Company's obligations include a provision for an event
of default if the Company has not obtained a commitment letter to restructure
its debt obligations prior to January 31, 2004. Therefore, the Company will be
required to refinance, amend or restructure existing obligations prior to the
end of the first quarter of 2004 in order to continue as a going concern.
The Company continues to pursue opportunities to divest of non-core
assets in order to reduce indebtedness. Proceeds from dispositions will be used
to further reduce the Company's indebtedness. All transactions are subject to
lender and Board of Director approvals. There can be no assurance that the
Company will be successful in divesting any of these assets.
The Company's ongoing liquidity will depend upon a number of factors
including its ability to continue to borrow under its bank line of credit and
trade receivables facility, manage cash resources and meet the financial
covenants under its new debt agreements. In the event the Company is
unsuccessful in meeting its debt service obligations or if expectations
regarding the management and generation of cash resources are not met, the
Company would need to implement severe cost reductions, reduce capital
expenditures, sell additional assets, restructure all or a portion of its
existing debt and/or obtain additional financing.
A. DEBT COVENANTS
As of December 31, 2002, the Company was in compliance with its
financial covenants. On February 28, 2003, the Company was in technical
violation of certain of its financial covenants for the reporting period ended
January 31, 2003. The Company received a waiver of current violations through
April 15, 2003. The Company's April 2003 amended covenants contain, among other
provisions as defined in the agreement, the following items: a subjective
acceleration clause related to material adverse changes; restricts capital
expenditures to $4.0 million within any twelve month period; restricts new
finance contracts the Company can enter into to $5.0 million within any twelve
month period; required levels of minimum EBITDA, minimum shareholders' equity
and maximum debt to assets ratio; and the requirement that the Company have a
commitment letter to refinance, amend or restructure its debt and capital lease
obligations prior to January 31, 2004.
In July 2002, the Company received a waiver of a default from Pitney
Bowes Credit Corporation (PBCC) under its Master Equipment Lease Agreement dated
September 30, 1997. The event of default was the result of delinquent payment of
lease obligations from the Company's sublessee under the agreement. The waiver
permanently waived the provision of the agreement (effective from September 30,
1997) related to delinquent payment of rental obligations from the Company's
sublessee. The Company is not and has never been delinquent with respect to its
lease payments to PBCC. The Company has terminated its sublease agreement with
the sublessee and is in the process of repossessing the equipment. The sublessee
filed for bankruptcy protection in August 2002.
B. DEBT
In April 2002, the Company restructured its existing revolving
credit facility and Senior Notes. In April 2003, the Company amended its
existing Bank Term Loan, Bank Line of Credit and Senior Notes agreements (the
agreements). The agreements change debt maturities and principal payment
schedules; provide for all assets, other than receivables, to be pledged as
collateral equally to the lenders; increase the cost of funds; and require the
Company to meet certain financial conditions, among other things. The agreements
also contain certain restrictions on acquisitions and the payment of preferred
stock dividends. The following reflects certain terms of the agreements.
In April 2002 and as amended in April 2003, the Company restructured
its $125 million Revolving Credit Facility into a $107 million term loan (Bank
Term Loan) and $18 million revolving credit facility
26
(Bank Line of Credit). The Bank Term Loan and Bank Line of Credit both mature on
March 30, 2004 and are secured by all of the assets, other than receivables, of
the Company. The Bank Term Loan, of which approximately $31.5 million consists
of outstanding letters of credit, requires monthly payments totaling $14.6
million per annum in 2003 and $12.4 million per annum in 2004, with the balance
due March 30, 2004.
Interest on the Bank Term Loan, excluding letters of credit, is
variable based upon the adjusted London Interbank Offered Rate (LIBOR) plus 430
basis points or Prime Rate plus 200 basis points. Interest on the borrowings
under the Bank Line of Credit is based upon LIBOR plus 405 basis points or the
agent bank's alternative borrowing rate as defined in the agreement. The Company
pays a commitment fee on the unused portion of this facility at a rate of 100
basis points per annum. All interest and fees are payable monthly. These
interest rates are subject to increases of up to a maximum of 500 basis points
per annum if the Company does not meet certain performance targets for EBITDA
and debt to asset ratios. Certain of these targets, as defined, are more
restrictive than the Company's debt covenant levels.
As of December 31, 2002 and 2001 the Company had $182 and $192
million, respectively of Senior Notes outstanding with original maturities in
2002 through 2008. As part of the April 2002 restructuring and April 2003
amending of these terms, the original maturity dates for $72 million of Senior
Notes, payable in 2002 through March 2004, have been extended to March 30, 2004.
The maturity dates for the other $120 million of Senior Notes due subsequent to
March 30, 2004 remain unchanged. The Senior Notes are secured by all of the
assets, other than receivables, of the Company.
Monthly principal payments totaling $25.5 million in 2003 and $22.3
million in 2004 will be made on a prorata basis to all Senior Notes. Interest on
the Senior Notes, which is payable monthly, increased by 50 basis points,
effective April 2003, and ranges from 10.16% to 11.79%. These interest rates are
subject to increases of up to a maximum of 500 basis points per annum if the
Company does not meet certain performance targets for EBITDA and debt to asset
ratios. Certain of these targets, as defined, are more restrictive than the
Company's debt covenant levels.
C. CAPITAL LEASES
In December 2000, the Company entered into a sale and leaseback
facility with an independent financial institution related to its trailer rental
fleet. The total facility size was $110 million and was syndicated in the first
quarter of 2001. The facility's initial term that expired in June 2002, has four
annual renewal periods and contains financial covenants substantially identical
to the Company's existing credit facilities.
In April 2002, the Company entered into an amendment of its sale and
leaseback agreement with an independent financial institution related to its
trailer rental fleet to waive financial covenant violations through March 30,
2002 and amend the terms of the existing agreement. The amendment provided for
increased pricing and conforms the financial covenants to those in the amended
Bank Term Loan, Bank Line of Credit and Senior Notes agreements described above.
Further, the term of the facility was reduced from June 2006 to January 2005.
Assuming all renewal periods are elected, the Company will make payments under
this facility of $11.3 million and $41.2 million in 2003 and 2004, respectively.
As of December 31, 2002, the Company has $36.1 million of equipment financed and
$50.1 million under the capital lease obligation of this facility.
In December 2002, a sale and leaseback facility with three
independent financial institutions related to its trailer rental fleet was
brought on balance sheet as a capital lease. As of December 31, 2002, the
Company had $7.5 million in equipment financed and an unamortized lease value of
$14.7 million. Two of the three pieces of this facility expire in 2004, with the
remaining piece due to expire in 2005. The Company will make payments under this
facility of $4.3 million, $9.2 million and $2.8 million in 2003, 2004 and 2005,
respectively.
D. TRADE RECEIVABLE FACILITY
In April 2002, the Company replaced its previous $100 million
receivable securitization facility with a new two year $110 million Trade
Receivables Facility. The new facility allows the Company to sell, without
recourse, on an ongoing basis predominantly all of its domestic accounts
receivable to a wholly-owned, bankruptcy remote special purpose entity (SPE).
The SPE sells an undivided interest in receivables to an outside liquidity
provider who, in turn, remits cash back to the SPE for receivables eligible for
funding. This new facility includes financial covenants identical to those in
the amended Bank Term Loan, Bank Line
27
of Credit and Senior Notes agreements. As of December 31, 2002, the Company had
no outstanding borrowings under this facility and had not borrowed under the
facility since its inception.
E. SECURITIES
In January 2003, the Company filed with the SEC a shelf registration
statement for the issuance of up to $50 million in securities, which may include
debt securities, common or preferred stock, depositary shares or warrants to
purchase any of the aforementioned. The registration of these securities is
pending review by the SEC of the registration statement and the 2002 Form 10-K.
Proceeds from any issuance would be used to provide additional funds for
operations, repayment of any then outstanding debt and for other general
corporate purposes. There can be no assurance that any issuance will be placed.
USE OF CAPITAL
A. CAPITAL EXPENDITURES
Under the new debt agreements, the Company is restricted to $4.0
million of capital expenditures in 2003.
B. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
A summary of payments due by period of the Company's contractual
obligations and commercial commitments as of December 31, 2002 is shown in the
table below. A more complete description of these obligations and commitments is
included in the Notes to the Consolidated Financial Statements.
Contractual Obligations
$ Millions 2003 2004 2005 2006 Thereafter Total
- ------------------------------------- ------- ------- ------- ------- ---------- -------
DEBT (excluding interest):
Revolving Bank Line of Credit $ -- $ -- $ -- $ -- $ -- $ --
Receivable Securitization Facility -- -- -- -- -- --
Mortgages & Other Notes Payable 2.9 3.4 3.6 2.0 5.1 17.0
Make Whole and Deferral Fee Notes -- 7.7 -- -- -- 7.7
Bank Term Loan 14.6 60.7 -- -- -- 75.3
Senior Notes 25.5 156.5 -- -- -- 182.0
------- ------- ------- ------- ------- -------
TOTAL DEBT $ 43.0 $ 228.3 $ 3.6 $ 2.0 $ 5.1 $ 282.0
======= ======= ======= ======= ======= =======
OTHER:
Capital Lease Obligations $ 15.6 $ 50.4 $ 2.8 $ -- $ -- $ 68.8
Operating Leases 8.1 7.0 3.7 2.9 3.1 24.8
------- ------- ------- ------- ------- -------
TOTAL OTHER $ 23.7 $ 57.4 $ 6.5 $ 2.9 $ 3.1 $ 93.6
======= ======= ======= ======= ======= =======
TOTAL $ 66.7 $ 285.7 $ 10.1 $ 4.9 $ 8.2 $ 375.6
======= ======= ======= ======= ======= =======
Other Commercial Commitments
$ Millions 2003 2004 2005 2006 Thereafter Total
- ------------------------------------- ------- ------- ------- ------- ---------- -------
Letters of credit $ -- $ 31.5 -- $ -- $ -- $ 31.5
Residual guarantees 3.8 5.6 5.4 9.8 5.9 30.5
------- ------- ------- ------- ------- -------
TOTAL $ 3.8 $ 37.1 $ 5.4 $ 9.8 $ 5.9 $ 62.0
======= ======= ======= ======= ======= =======
Residual guarantees represent purchase commitments related to
certain new and used trailer transactions as well as certain production
equipment. The Company also has purchase options of $94.9 million on the
aforementioned trailers and equipment. To the extent that the value of the
underlying property is less than the residual guarantee and the value is not
expected to be recovered, the Company has recorded a loss contingency.
28
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that directly affect the amounts
reported in its consolidated financial statements and accompanying notes.
Management bases its estimates on historical experience and other assumptions
that it believes to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Management
continually evaluates the information used to make such estimates as its
business and economic environment changes and has discussed these estimates with
the Audit Committee of the Board of Directors. The use of estimates is pervasive
throughout the Company's financial statements, but the accounting polices and
estimates management considers most critical are as follows:
a. Revenue Recognition
The Company recognizes revenue from the sale of trailers and
aftermarket parts when the customer has made a fixed commitment to purchase the
trailers for a fixed or determinable sales price, collection is reasonably
assured under the Company's normal billing and credit terms and ownership and
all risks of loss have been transferred to the buyer, which is normally upon
shipment or pick up by the customer.
b. Allowance for Doubtful Accounts
The Company records and maintains a provision for doubtful accounts
for customers based upon a variety of factors including the Company's historical
experience, the length of time the receivable has been outstanding and the
financial condition of the customer. If the circumstances related to specific
customers were to change, the Company's estimates with respect to the
collectibility of the related receivables could be further adjusted. A 5% change
in the allowance for doubtful accounts would lead to an approximate $0.7 million
effect on our net loss before income taxes.
c. Inventories
Inventories are primarily stated at the lower of cost, determined on
the first-in, first-out (FIFO) method, or market. The cost of manufactured
inventory includes raw material, labor and overhead. As used trailers
approximate market value, a 5% change in the market values of used trailer
inventory would lead to an approximate $1.1 million effect on our net loss
before income taxes.
d. Asset Impairment including Long-Lived Assets, Goodwill and Other
Intangible Assets
Long-lived assets are reviewed for impairment in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
whenever facts and circumstances indicate that the carrying amount may not be
recoverable. Specifically, this process involves comparing an asset's carrying
value to the estimated undiscounted future cash flows the asset is expected to
generate over its remaining life. If this process were to result in the
conclusion that the carrying value of a long-lived asset would not be
recoverable, a write-down of the asset to fair value would be recorded through a
charge to operations. Fair value is determined based upon discounted cash flows
or appraisals as appropriate.
Goodwill and other intangible assets are subject to periodic
evaluations when circumstances warrant, or at least once a year, in accordance
with SFAS No. 142, Goodwill and Other Intangible Assets. This evaluation
involves the comparing of the carrying value of the goodwill or intangible
assets to its fair value. The fair value is estimated based upon the present
value of future cash flows. In estimating the future cash flows, the Company
takes into consideration the overall and industry economic conditions and
trends, market risk of the Company and historical information. All of the
factors involve a high degree of judgment and complexity and any changes in
these factors could affect the carrying value of the assets in the future.
e. Accrued and Contingent Liabilities
The Company's warranty policy generally provides coverage for
components of the trailers the Company produces or assembles. Typically, the
coverage period is five years. The Company's policy is to accrue the estimated
cost of warranty coverage at the time of the sale. A 5% increase in warranty
accruals would have increased total warranty provision by $0.6 million in 2002.
29
The Company also has reserves for environmental and legal exposures.
The Company's environmental reserves represent the estimated cost to remediate
any known contamination at any of its current or formerly owned manufacturing or
retail branch locations. The reserve is evaluated quarterly to assess the range
of potential clean-up cost on a site-by-site basis based upon testing performed
once an environmental issue has been identified. The evaluation also takes into
consideration any state or federal assistance with the remediation costs. The
Company determines its necessary legal reserves based upon a probability of
potential outcome. A 5% increase in these reserves would not have a significant
impact on the total provision in 2002.
f. Income Taxes
The Company currently has a full valuation allowance equal to its
net deferred tax assets based upon the realizability of those values. The level
of the Company's net operating losses over the past three years, industry
economic conditions and the financial struggles of the Company have all affected
the assessment of the Company's ability to realize the assets in the future. The
Company believes that its estimates for the valuation allowance reserved against
deferred tax assets are appropriate based on current facts and circumstances. A
5% increase in the valuation allowance would result in a tax benefit of
approximately $3.4 million.
OTHER
INFLATION
The Company has generally been able to offset the impact of rising
costs through productivity improvements as well as selective price increases. As
a result, inflation has not had, and is not expected to have a significant
impact on the Company's business.
NEW ACCOUNTING PRONOUNCEMENTS
a. Goodwill and Other Intangible Assets
The Company adopted SFAS No. 142 as of January 1, 2002. This new
standard changes the accounting for goodwill from an amortization method to an
impairment-only approach and introduces a new model for determining impairment
charges. SFAS No. 142 requires completion of the initial step of a transitional
impairment test within six months of the adoption of this standard and, if
applicable, completion of the final step of the adoption by December 31, 2002.
The Company completed the initial transition impairment test as of January 1,
2002 and determined that there was no impairment loss as a result of adoption.
The Company conducted its annual impairment test as of October 1, 2002 and has
determined no subsequent impairment of goodwill exists. The Company will
continue to perform annual impairment tests, as required under SFAS No. 142, and
review its goodwill for impairment when circumstances indicate that the fair
value has declined significantly.
b. Asset Retirement Obligations
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations with an effective date of June 15, 2002, which becomes
effective for the Company on January 1, 2003. This standard requires obligations
associated with retirement of long-lived assets to be capitalized as part of the
carrying value of the related asset. The Company does not believe the adoption
of SFAS No. 143 will have a material effect on its financial position or results
of operations.
c. Asset Impairment or Disposal
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, supercedes APB No. 30, Reporting
the Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions and SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. This standard retains the
previously existing accounting requirements related to the recognition and
measurement requirements of the impairment of long-lived assets to be held for
use, while expanding the measurement requirements of long-lived assets to be
disposed of by sale to include discontinued operations. It also expands on the
previously existing reporting requirements for discontinued
30
operations to include a component of an entity that either has been disposed of
or is classified as held for sale. The Company adopted the accounting provisions
of this standard on January 1, 2002. The effect of adopting the accounting
provisions of this standard was not material to the Company's financial
statements. Consistent with the provisions of this new standard, financial
statements for prior years have not been restated. As of December 31, 2002 and
2001, the Company had $9.2 million and $13.0 million, respectively, classified
as assets held for sale and recorded in Prepaid Expenses and Other on the
Consolidated Balance Sheets. The Company continues to pursue the immediate
disposition of these assets as market conditions allow.
d. Debt Extinguishment Costs
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections. This standard is required to be adopted by the Company on January
1, 2003, but may be adopted early. SFAS No. 145 modifies the classification
criteria for extraordinary items related to the extinguishment of debt.
Effective April 1, 2002, the Company decided to early adopt the provisions of
SFAS No. 145. Under the new standard, $1.2 million in expenses associated with
the Company's debt restructuring in April 2002, which under prior standards
would have been recorded as an extraordinary item, were recorded in other, net
on the Consolidated Statements of Operations.
e. Termination Benefits and Exit Costs
In June 2002, the FASB issued SFAS No. 146 Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 nullifies Emerging
Issues Task Force (EITF) Issue No., 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS No. 146 generally requires
companies to recognize costs associated with exit activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan and
is to be applied prospectively to exit or disposal activities initiated after
December 31, 2002. The Company is currently not contemplating any restructuring
activities, but if such activities were to be undertaken in the future, the
Company would evaluate the effects, if any, that these activities could have on
its results of operations or financial position.
f. Stock-Based Compensation
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123. The statement is effective for fiscal years ending after
December 15, 2002 for transition guidance and annual disclosures and interim
periods beginning after December 15, 2002 for interim disclosure provisions.
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value method of accounting for stock-based compensation and requires
a more prominent disclosure on an annual and interim basis of the method of
accounting for stock-based compensation. As allowed by SFAS No. 148, the Company
continues to account for stock-based compensation under APB No. 25, Accounting
for Stock Issued to Employees and therefore, SFAS No. 148 will not have an
affect on the Company's results of operations or financial condition.
g. Guarantees
In 2002, the FASB issued FASB Interpretation (FIN) 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires an issuer of a guarantee
to recognize an initial liability for the fair value of the obligations covered
by the guarantee. FIN 45 also addresses the disclosures required by a guarantor
in interim and annual financial statements regarding obligations under
guarantees. We will adopt the requirement for recognition of the liability for
the fair value of guaranteed obligations prospectively for guarantees entered
into after January 1, 2003. We adopted the disclosure provisions as of December
31, 2002.
h. Variable Interest Entities
In 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. FIN 46 defines a variable interest entity (VIE) as a corporation,
partnership, trust or any other legal structure that does not have equity
investors with a controlling financial interest or has equity investors that do
not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires consolidation of a VIE by the primary beneficiary of
the assets, liabilities, and results of activities effective for 2003. FIN 46
also
31
requires certain disclosures by all holders of a significant variable interest
in a VIE that are not the primary beneficiary. The Company is currently
evaluating the impacts of FIN 46 to its consolidated financial statements and
does not believe that the adoption of FIN 46 will have a material impact on the
consolidated results of operations, financial position or liquidity for the
periods presented herein.
EQUIPMENT OFF BALANCE SHEET AND RELATED CUSTOMER CREDIT RISK
The Company subleased certain highly specialized RoadRailer(R)
equipment to Amtrak, who is experiencing financial difficulties. Due to the
highly specialized nature of the equipment, the recovery value of the equipment
is considered to be minimal. The unamortized lease value of this arrangement is
approximately $5.0 million as of December 31, 2002. The Company also has finance
contracts related to this customer recorded on its December 31, 2002 balance
sheet of approximately $10.7 million. As of December 31, 2002, the customer was
current in its obligations to the Company. As a result, the Company has not
recorded any provision for a loss on this equipment.
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 may manage aluminum price changes by entering into
fixed price contracts with its suppliers upon 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, 2002, the Company had approximately $125 million
of floating rate debt outstanding under its various financing agreements. A
hypothetical 100 basis-point increase in the floating interest rate from the
current level would correspond to approximately a $1.3 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.
c. Foreign Exchange Rates
The Company is subject to fluctuations in the Canadian dollar
exchange rate and that impact on intercompany transactions between the Company
and its Canadian subsidiary, as well as U.S. denominated transactions between
the Canadian subsidiaries and unrelated parties. Since acquiring its Canadian
subsidiary, the Company has not undertaken any activities, such as hedging
activities, to mitigate this exposure. Therefore, exchange rate fluctuations
could have a material impact on the results of operations. The Company also 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, 2002, the Company had no foreign currency forward
contracts outstanding.
32
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGES
-----
Reports of Independent Public Accountants .................................. 34
Consolidated Balance Sheets as of December 31, 2002 and 2001 ............... 36
Consolidated Statements of Operations for the years ended December 31, 2002,
2001 and 2000 .............................................................. 37
Consolidated Statements of Stockholders' Equity for the years ended December
31, 2002, 2001 and 2000 .................................................... 38
Consolidated Statements of Cash Flows for the years ended December 31, 2002,
2001 and 2000 .............................................................. 39
Notes to Consolidated Financial Statements ................................. 40
33
Report of Independent Auditors
To the Shareholders of Wabash National Corporation:
We have audited the accompanying consolidated balance sheet of Wabash National
Corporation and subsidiaries as of December 31, 2002, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 2002. 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 audit. The consolidated
financial statements of Wabash National Corporation and subsidiaries as of
December 31, 2001 and for the two years in the period ended December 31, 2001,
were audited by other auditors who have ceased operations. Those auditors
expressed an unqualified opinion on those financial statements in their report
dated April 12, 2002.
We conducted our audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Wabash National Corporation and subsidiaries as of December 31, 2002, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note 2 to the Consolidated Financial Statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," in 2002.
ERNST & YOUNG LLP
Indianapolis, Indiana
February 19, 2003
except for Notes 1, 7, 9, and 12, as to which the date is
April 11, 2003
34
This report is a copy of a report previously issued by Arthur
Andersen LLP. The report has not been reissued by Arthur Andersen nor has Arthur
Andersen LLP provided a consent to the inclusion of its report in this Form
10-K.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders 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, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. 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, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
April 12, 2002.
35
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
December 31,
-------------------------
ASSETS 2002 2001
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 35,659 $ 11,135
Accounts receivable, net ................................... 34,396 58,358
Current portion of finance contracts ....................... 9,528 10,646
Inventories ................................................ 134,872 191,094
Refundable income taxes .................................... 911 25,673
Prepaid expenses and other ................................. 17,388 17,231
--------- ---------
Total current assets ................................. 232,754 314,137
PROPERTY, PLANT AND EQUIPMENT, net .............................. 145,703 170,330
EQUIPMENT LEASED TO OTHERS, net ................................. 100,837 109,265
FINANCE CONTRACTS, net of current portion ....................... 22,488 40,187
GOODWILL, net ................................................... 34,652 34,540
OTHER ASSETS .................................................... 29,135 24,045
--------- ---------
$ 565,569 $ 692,504
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ....................... $ 42,961 $ 60,682
Current maturities of capital lease obligations ............ 12,860 21,559
Accounts payable ........................................... 60,457 51,351
Other accrued liabilities .................................. 61,424 69,246
--------- ---------
Total current liabilities ............................ 177,702 202,838
LONG-TERM DEBT, net of current maturities ....................... 239,043 274,021
LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current maturities .. 51,993 55,755
DEFERRED INCOME TAXES ........................................... -- --
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES .................. 22,847 28,905
STOCKHOLDERS' EQUITY:
Preferred stock, 352,000 and 482,041 shares
authorized, issued and outstanding with an aggregate
liquidation value of $17,600 and $30,600, respectively . 3 5
Common stock, $0.01 par value, 75,000,000 shares authorized,
25,647,060 and 23,013,847 shares issued and outstanding,
respectively ............................................ 257 230
Additional paid-in capital ................................. 237,489 236,804
Retained deficit ........................................... (162,222) (104,469)
Accumulated other comprehensive loss ....................... (264) (306)
Treasury stock at cost, 59,600 common shares ............... (1,279) (1,279)
--------- ---------
Total stockholders' equity ........................... 73,984 130,985
--------- ---------
$ 565,569 $ 692,504
========= =========
The accompanying notes are an integral part of these Consolidated Statements
36
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended December 31,
-----------------------------------------------
2002 2001 2000
----------- ----------- -----------
NET SALES $ 819,568 $ 863,392 $ 1,332,172
COST OF SALES 779,117 982,605 1,216,205
----------- ----------- -----------
Gross profit (loss) 40,451 (119,213) 115,967
GENERAL AND ADMINISTRATIVE EXPENSES 53,897 56,955 34,354
SELLING EXPENSES 23,501 25,370 21,520
RESTRUCTURING CHARGES 1,813 37,864 36,338
----------- ----------- -----------
Income (loss) from operations (38,760) (239,402) 23,755
OTHER INCOME (EXPENSE):
Interest expense (30,873) (21,292) (19,740)
Trade receivables facility costs (4,072) (2,228) (7,060)
Foreign exchange gains and losses, net 5 (1,706) --
Equity in losses of unconsolidated
affiliate -- (7,668) (3,050)
Restructuring charges -- (1,590) (5,832)
Other, net 2,232 (1,139) 877
----------- ----------- -----------
Loss before income taxes (71,468) (275,025) (11,050)
INCOME TAX BENEFIT (15,278) (42,857) (4,314)
----------- ----------- -----------
Net Loss $ (56,190) $ (232,168) $ (6,736)
PREFERRED STOCK DIVIDENDS 1,563 1,845 1,903
----------- ----------- -----------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $ (57,753) $ (234,013) $ (8,639)
=========== =========== ===========
LOSS PER SHARE:
Basic $ (2.43) $ (10.17) $ (0.38)
=========== =========== ===========
Diluted $ (2.43) $ (10.17) $ (0.38)
=========== =========== ===========
COMPREHENSIVE LOSS:
Net Loss $ (56,190) $ (232,168) $ (6,736)
Foreign currency translation adjustment 42 (306) --
----------- ----------- -----------
NET COMPREHENSIVE LOSS $ (56,148) $ (232,474) $ (6,736)
=========== =========== ===========
The accompanying notes are an integral part of these Consolidated Statements.
37
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Preferred Stock Common Stock Additional
--------------------------- -------------------------- Paid-In
Shares Amount Capital Amount Capital
---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 1999 482,041 $ 5 22,985,186 $ 230 $ 236,474
Net loss for the year -- -- -- -- --
Cash dividends declared:
Common stock ($0.16 per share) -- -- -- -- --
Preferred stock -- -- -- -- --
Common stock issued under:
Employee stock purchase plan -- -- 15,544 -- 158
Employee stock bonus plan -- -- 1,760 -- 28
---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 2000 482,041 $ 5 23,002,490 $ 230 $ 236,660
Net loss for the year -- -- -- -- --
Foreign currency translation -- -- -- -- --
Cash dividends declared:
Common stock ($0.09 per share) -- -- -- -- --
Preferred stock -- -- -- -- --
Common stock issued under:
Employee stock purchase plan -- -- 7,138 -- 70
Employee stock bonus plan -- -- 1,960 -- 27
Outside directors' compensation -- -- 2,259 -- 47
---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 2001 482,041 $ 5 23,013,847 $ 230 $ 236,804
Net loss for the year -- -- -- -- --
Foreign currency translation -- -- -- -- --
Cash dividends declared:
Common stock -- -- -- -- --
Preferred stock -- -- -- -- --
Preferred Stock Conversion (130,041) (2) 2,589,687 26 334
Common stock issued under:
Employee stock purchase plan -- -- 5,312 1 47
Employee stock bonus plan -- -- 10,300 -- 89
Stock option plan -- -- 11,168 -- 82
Outside directors' compensation -- -- 16,746 -- 133
---------- ---------- ---------- ---------- ----------
BALANCES, December 31, 2002 352,000 $ 3 25,647,060 $ 257 $ 237,489
========== ========== ========== ========== ==========
Retained Other
Earnings Comprehensive Treasury
(Deficit) Income(Loss) Stock Total
---------- ------------- ---------- ----------
BALANCES, December 31, 1999 $ 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 -- -- -- 158
Employee stock bonus plan -- -- -- 28
---------- ---------- ---------- ----------
BALANCES, December 31, 2000 $ 131,617 $ -- $ (1,279) $ 367,233
Net loss for the year (232,168) -- -- (232,168)
Foreign currency translation -- (306) -- (306)
Cash dividends declared:
Common stock ($0.09 per share) (2,073) -- -- (2,073)
Preferred stock (1,845) -- -- (1,845)
Common stock issued under:
Employee stock purchase plan -- -- -- 70
Employee stock bonus plan -- -- -- 27
Outside directors' compensation -- -- -- 47
---------- ---------- ---------- ----------
BALANCES, December 31, 2001 $ (104,469) $ (306) $ (1,279) $ 130,985
Net loss for the year (56,190) -- -- (56,190)
Foreign currency translation -- 42 -- 42
Cash dividends declared:
Common stock -- -- -- --
Preferred stock (1,563) -- -- (1,563)
Preferred Stock Conversion -- -- -- 358
Common stock issued under:
Employee stock purchase plan -- -- -- 48
Employee stock bonus plan -- -- -- 89
Stock option plan -- -- -- 82
Outside directors' compensation -- -- -- 133
---------- ---------- ---------- ----------
BALANCES, December 31, 2002 $ (162,222) $ (264) $ (1,279) $ 73,984
========== ========== ========== ==========
The accompanying notes are an integral part of these Consolidated Statements.
38
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Years Ended December 31,
-----------------------------------
2002 2001 2000
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................................... $ (56,190) $(232,168) $ (6,736)
Adjustments to reconcile net income to net cash provided by (used in) operating activities .
Depreciation and amortization ........................................................... 28,626 32,143 30,051
Net (gain) loss on the sale of assets ................................................... (1,322) (504) 1,474
Provision for losses on accounts receivable and finance contracts ....................... 9,773 20,959 4,088
Deferred income taxes ................................................................... -- (14,441) (8,906)
Equity in losses of unconsolidated affiliate ............................................ -- 7,183 3,050
Restructuring and other related charges ................................................. 1,813 41,067 46,650
Cash used in restructuring .............................................................. (373) (6,988) --
Used trailer valuation charges .......................................................... 5,443 62,134 9,600
Loss contingencies and impairment of equipment leased to others ......................... 4,831 37,900 --
Other non-cash adjustments .............................................................. 4,706 -- --
Change in operating assets and liabilities, excluding effects of the acquisitions
Accounts receivable ................................................................. 19,695 1,790 52,709
Inventories ......................................................................... 58,335 107,755 (74,479)
Refundable income taxes ............................................................. 24,762 (20,121) (5,552)
Prepaid expenses and other .......................................................... (4,016) 3,863 5,368
Accounts payable and accrued liabilities ............................................ 9,776 (34,443) (69,880)
Other, net .......................................................................... (1,577) 261 (1,106)
--------- --------- ---------
Net cash provided by (used in) operating activities ................................. 104,282 6,390 (13,669)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................................... (5,703) (5,899) (60,342)
Additions to equipment leased to others .................................................... (9,792) (70,444) (69,553)
Additions to finance contracts ............................................................. (7,718) (18,662) (19,400)
Investment in unconsolidated affiliate ..................................................... -- (7,183) (3,706)
Acquisitions, net of cash acquired ......................................................... -- (6,336) --
Proceeds from sale of leased equipment and finance contracts ............................... 5,337 60,556 60,845
Principal payments received on finance contracts ........................................... 13,278 6,787 12,914
Proceeds from the sale of property, plant and equipment .................................... 16,617 426 9,638
--------- --------- ---------
Net cash provided by (used in) investing activities ................................. 12,019 (40,755) (69,604)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of bank term loan .............................................................. 80,402 -- --
Revolving bank line of credit ........................................................... 56,798 428,776 512,300
Long-term debt .......................................................................... -- -- 62,500
Sale of common stock .................................................................... 351 144 186
Payments:
Revolving bank line of credit ........................................................... (146,491) (361,006) (500,299)
Long-term debt and capital lease obligations ............................................ (78,589) (21,738) (4,122)
Common stock dividends .................................................................. -- (2,991) (3,679)
Preferred stock dividends ............................................................... (443) (1,879) (1,903)
Debt issuance costs ..................................................................... (3,805) -- --
--------- --------- ---------
Net cash provided by (used in) financing activities ................................. (91,777) 41,306 64,983
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH ............................................................ 24,524 6,941 (18,290)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD .................................. 11,135 4,194 22,484
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ......................................... $ 35,659 $ 11,135 $ 4,194
========= ========= =========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest ............................................................................ $ 27,913 $ 20,230 $ 19,694
Income taxes paid (refunded), net ................................................... (38,153) (7,047) 18,064
The accompanying notes are an integral part of these Consolidated Statements
39
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS, INDUSTRY AND FINANCIAL CONDITION
Wabash National Corporation (the Company) designs, manufactures and
markets standard and customized truck trailers and intermodal equipment under
the Wabash(R), Fruehauf(R) and RoadRailer(R) trademarks. The Company produces
and sells aftermarket parts through its division, Wabash National Parts, and its
wholly-owned subsidiary, Wabash National Trailer Centers (WNTC), formerly known
as North American Trailer Centers(TM). In addition to aftermarket parts sales,
WNTC sells new and used trailers through its retail network and provides
maintenance service for the Company's and competitors' trailers and related
equipment. On January 5, 2001, WNTC acquired Canadian branch locations in
connection with the Breadner acquisition. The Company's other significant
wholly-owned subsidiaries include Apex Finance, Apex Trailer Leasing and
Rentals, L.P. and National Trailer Funding (the Finance Companies), and Cloud
Oak Flooring Company, Inc. and WNC Cloud Merger Sub, Inc. (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.
After a 14.7% decline in demand during 2000 and a further decline of
48.3% during 2001, the trailer industry in the United States saw a third
consecutive year of declines in demand during 2002 with overall new production
of 139,658 units down slightly from 140,084 units in 2001. During this three
year industry retrenchment, the Company's market share of new trailers declined
from 24.5% in 2000 and 22.6% in 2001 to 19.4% during 2002.
As a result of these conditions, the Company implemented a
comprehensive plan to scale its operations to meet demand and to survive,
including:
o Hiring of new management;
o Rationalizing manufacturing capacity;
o Reducing its cost structure through continuous
improvement initiatives;
o Reducing used trailer inventories;
o Divesting international operations;
o Rationalizing retail and distribution capacity; and
o Improving working capital management.
Beginning in 2001 and continuing into 2002, the Company closed two
of its three trailer assembly facilities, conducted an employee layoff for the
first time in the Company's history, liquidated approximately $110 million of
used trailers under an aggressive liquidation plan, completed its divestiture of
its European operations, closed approximately 10 of its 49 factory-owned branch
locations, closed one of its two wood flooring facilities and closed one of two
parts distribution centers. As a result of these dramatic steps, the Company
increased its liquidity position (cash on hand and available borrowings under
existing credit facilities) from approximately $19 million as of September 30,
2001 to approximately $78 million at the end of 2002. These actions also began
to improve the results from operations during 2002. The net loss in 2002 of
$56.2 million represented a 76% improvement over the net loss reported in 2001
of $232.2 million, despite a 5% decline in net sales during 2002 compared to
2001.
The net losses incurred in both 2001 and 2002 resulted in the
Company being in technical violation of financial covenants with certain of its
lenders on December 31, 2001 and on February 28, 2003. The Company received a
waiver of the violation from its lenders and subsequently amended its debt
agreements in April 2002 and 2003, respectively.
While the Company believes that industry conditions are likely to
rebound, the Company believes it has significantly restructured its operations
and, based on its projections, the Company anticipates generating positive
earnings before interest, taxes, depreciation and amortization (EBITDA) in 2003.
Although the Company believes that the assumptions underlying the 2003
projections are reasonable, there are risks related to market demand and sales
in the U.S. and Canada, adverse interest rate or currency movements, realization
of anticipated cost reductions and levels of used trailer trade-ins that could
cause actual results to differ from the projections. Should results continue to
decline, the Company is prepared to take additional cost cutting actions. While
there can be no assurance that the Company will achieve these results, the
Company believes it has adequately modified its operations to be in compliance
with its financial covenants throughout 2003
40
and believes that its existing sources of liquidity combined with its operating
results will generate sufficient liquidity such that the Company has the ability
to meet its obligations as they become due throughout 2003.
However, based upon debt maturities and the Company's forecasted
operating results for 2003, it is unlikely that the Company will be able to
repay all of the debt and capital lease obligations due in 2004 from operations.
Therefore, the Company will be required to refinance, amend or restructure
existing obligations during the first quarter of 2004 in order to continue as a
going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Consolidation
The consolidated financial statements reflect the accounts of the
Company and its wholly-owned and majority-owned subsidiaries with the exception
of ETZ, in 2001 and 2000, since the control of this subsidiary was deemed to be
temporary. Accordingly, ETZ's operating results are included in Equity in Losses
of Unconsolidated Affiliate in the Consolidated Statements of Operations. ETZ
was divested January of 2002 as discussed in Footnote 5. All significant
intercompany profits, transactions and balances have been eliminated in
consolidation. Certain reclassifications have been made to prior periods to
conform to the current year presentation. These reclassifications had no effect
on net income (loss) for the periods previously reported.
b. Use of Estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that directly affect the amounts
reported in its consolidated financial statements and accompanying notes. Actual
results could differ from these estimates.
c. Foreign Currency Accounting
The financial statements of the Company's Canadian subsidiary have
been translated into U.S. dollars in accordance with Financial Accounting
Standards Board (FASB) Statement No. 52, Foreign Currency Translation. Assets
and liabilities have been translated using the exchange rate in effect at the
balance sheet date. Revenues and expenses have been translated using a
weighted-average exchange rate for the period. The resulting translation
adjustments are recorded as Other Comprehensive Income (Loss) in Stockholders'
Equity. Gains or losses resulting from foreign currency transactions are
included in Foreign Exchange Gains and Losses, net on the Company's Consolidated
Statements of Operations. The Company recorded foreign currency (gains) losses
of $0 during 2002, $1.7 million in 2001 and $0 during 2000.
d. Revenue Recognition
The Company recognizes revenue from the sale of trailers and
aftermarket parts when the customer has made a fixed commitment to purchase the
trailers for a fixed or determinable sales price, collection is reasonably
assured under the Company's normal billing and credit terms and ownership and
all risks of loss have been transferred to the buyer, which is normally upon
shipment or pick up by the customer.
The Company recognizes revenue from direct finance leases based upon
a constant rate of return while revenue from operating leases is recognized on a
straight-line basis in an amount equal to the invoiced rentals.
e. Used Trailer Trade Commitments
The Company has commitments with certain customers to accept used
trailers on trade for new trailer purchases. These commitments arise in the
normal course of business related to future new trailer orders. The Company has
accepted trade ins from customers of approximately $40.5 million, $135.5 million
and $177.0 million in 2002, 2001 and 2000, respectively. As of December 31, 2002
and 2001, the Company had approximately $7.0 million and $25.7 million,
respectively, of outstanding trade commitments with customers. The net
realizable value of these commitments was approximately $6.4 million and $18.0
million as of December 31, 2002 and 2001, respectively. The Company's policy is
to recognize losses related to these commitments, if any, at the time the new
trailer revenue is recognized.
41
f. 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. As of
December 31, 2002, the Company has $5.2 million in restricted cash representing
escrowed amounts to pay the first quarter of 2003 interest on its Senior Notes
and Term Loan. The amounts are escrowed in compliance with the Company's credit
agreements and will be replenished quarterly. The restricted cash is included in
Prepaid Expenses and Other on the Consolidated Balance Sheets.
g. Accounts Receivable and Finance Contracts
Accounts receivable and finance contracts as shown in the
accompanying Consolidated Balance Sheets are net of allowance for doubtful
accounts. Accounts receivable primarily includes trade receivables. The Company
records and maintains a provision for doubtful accounts for customers based upon
a variety of factors including the Company's historical experience, the length
of time the account has been outstanding and the financial condition of the
customer. If the circumstances related to specific customers were to change, the
Company's estimates with respect to the collectibility of the related accounts
could be further adjusted. Provisions to the allowance for doubtful accounts are
charged to General and Administrative Expenses on the Consolidated Statements of
Operations. The activity in the allowance for doubtful accounts was as follows
(in thousands):
Years Ended December 31,
--------------------------------
2002 2001 2000
-------- -------- --------
Balance at beginning of year $ 14,481 $ 3,745 $ 2,930
Provision 9,773 20,959 4,088
Write-offs, net (8,037) (10,223) (3,273)
-------- -------- --------
Balance at end of year $ 16,217 $ 14,481 $ 3,745
======== ======== ========
h. Inventories
Inventories are primarily stated at the lower of cost, determined on
the first-in, first-out (FIFO) method, or market. The cost of manufactured
inventory includes raw material, labor and overhead. Inventories consist of the
following (in thousands):
December 31,
----------------------
2002 2001
-------- --------
Raw materials and components $ 27,646 $ 38,235
Work in progress ............ 14,447 10,229
Finished goods .............. 55,523 58,984
Aftermarket parts ........... 15,054 22,726
Used trailers ............... 22,202 60,920
-------- --------
$134,872 $191,094
======== ========
The Company recorded used trailer inventory valuation adjustments
totaling $5.4 million, $62.1 million and $9.6 million during 2002, 2001 and
2000, respectively. These adjustments, which are reflected in Cost of Sales on
the Consolidated Statements of Operations, were calculated in accordance with
the Company's inventory valuation policies that are designed to state used
trailers at the lower of cost or market.
i. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Maintenance and
repairs are charged to expense as incurred, and expenditures that extend the
useful life of the asset are capitalized. Depreciation is recorded using the
straight-line method over the estimated useful lives of the depreciable assets.
Estimated useful lives are 33 years for buildings and building improvements and
range from three to 10 years for machinery and equipment. Depreciation expense
on property plant and equipment was $14.7 million, $16.7 million and $14.0
million for 2002, 2001 and 2000, respectively.
42
Property, plant and equipment consist of the following (in
thousands):
December 31,
-------------------------
2002 2001
--------- ---------
Land $ 25,059 $ 27,907
Buildings and building improvements 91,774 92,987
Machinery and equipment 112,796 122,981
Construction in progress 3,108 817
--------- ---------
232,737 244,692
Less -- accumulated depreciation (87,034) (74,362)
--------- ---------
$ 145,703 $ 170,330
========= =========
j. Equipment Leased to Others
Equipment leased to others at December 31, 2002 and December 31,
2001 was $100.8 million and $109.3 million, net of accumulated depreciation of
$11.2 million and $9.4 million, respectively. Additions to equipment leased to
others are classified as investing activities on the Consolidated Statements of
Cash Flows. The equipment leased to others is depreciated over the estimated
life of the equipment or the term of the underlying lease arrangement, not to
exceed 15 years, with a 20% residual value or a residual value equal to the
estimated market value of the equipment at lease termination. Depreciation
expense on equipment leased to others, including capital lease assets, was $9.3
million, $9.6 million and $10.9 million for 2002, 2001 and 2000, respectively.
k. Goodwill
The changes in the carrying amount of goodwill for the years ended
December 31, 2001 and 2002 are as follows (in thousands):
Retail and
Manufacturing Distribution Total
------------- ------------ --------
Balance as of January 1, 2001 $ 18,862 $ 3,860 $ 22,722
Goodwill acquired -- 13,000 13,000
Goodwill amortized (505) (664) (1,169)
Effects of foreign currency -- (13) (13)
-------- -------- --------
Balance as of December 31, 2001 $ 18,357 $ 16,183 $ 34,540
Effects of foreign currency -- 112 112
-------- -------- --------
Balance as of December 31, 2002 $ 18,357 $ 16,295 $ 34,652
======== ======== ========
The Company adopted SFAS No. 142. Goodwill and Other Intangible
Assets, as of January 1, 2002. This new standard changes the accounting for
goodwill from an amortization method to an impairment-only approach and
introduces a new model for determining impairment charges. The new model
involves the comparing of the carrying value of the goodwill to its fair value.
The Company estimates fair value based upon the present value of future cash
flows. In estimating the future cash flows, the Company takes into consideration
the overall and industry economic conditions and trends, market risk of the
Company and historical information. The Company completed the initial transition
impairment test as of January 1, 2002 and determined that there was no
impairment loss as a result of adoption. The Company conducted its annual
impairment test as of October 1, 2002 and has determined no subsequent
impairment of goodwill exists. The Company will continue to perform annual
impairment tests, as required under SFAS No. 142, and review its goodwill for
impairment when circumstances indicate that the fair value has declined
significantly.
43
The following table presents, on a proforma basis, net loss and loss
per share as if SFAS No. 142 had been in effect for all years presented.
For the Year Ended December 31,
-----------------------------------------------
(in thousands, except for loss-per-share amounts)
2002 2001 2000
----------- ----------- -----------
Reported net loss $ (56,190) $ (232,168) $ (6,736)
Goodwill amortization (net of tax) -- 1,124 589
----------- ----------- -----------
Adjusted net loss $ (56,190) $ (231,044) $ (6,147)
=========== =========== ===========
Basic and diluted loss per share:
Reported net loss per share $ (2.43) $ (10.17) $ (0.38)
Goodwill amortization (net of tax) per share -- 0.05 0.03
----------- ----------- -----------
Adjusted net loss per share $ (2.43) $ (10.12) $ (0.35)
=========== =========== ===========
l. Other Assets
The Company has other intangible assets including patents and
licenses, non-compete agreements and technology costs which are being amortized
on a straight-line basis over periods ranging from two to 12 years. Intangible
assets are included in Other Assets on the Consolidated Balance Sheets. As of
December 31, 2002 and 2001, the Company had intangible assets, net of
amortization of $6.0 million and $9.3 million, respectively. Amortization
expense for 2002, 2001 and 2000 was $2.4 million, $1.9 million and $1.7 million,
respectively, and is estimated to be $1.8 million, $1.3 million, $0.9 million,
$0.6 million and $0.5 million for 2003, 2004, 2005, 2006 and 2007, respectively.
The Company capitalizes the cost of computer software developed or
obtained for internal use in accordance with Statement of Position No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. Capitalized software is amortized using the straight-line method over three
to five years. Software costs are included in Other Assets on the Consolidated
Balance Sheets. As of December 31, 2002 and 2001, the Company had software
costs, net of amortization of $4.1 million and $6.3 million, respectively.
m. Long-Lived Assets
Long-lived assets are reviewed for impairment in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
whenever facts and circumstances indicate that the carrying amount may not be
recoverable. Specifically, this process involves comparing an asset's carrying
value to the estimated undiscounted future cash flows the asset is expected to
generate over its remaining life. If this process were to result in the
conclusion that the carrying value of a long-lived asset would not be
recoverable, a write-down of the asset to fair value would be recorded through a
charge to operations. Fair value is determined based upon discounted cash flows
or appraisals as appropriate.
n. Other Accrued Liabilities
The Company's warranty policy generally provides coverage for
components of the trailer the Company produces or assembles. Typically, the
coverage period is five years. The Company's policy is to accrue the estimated
cost of warranty coverage at the time of the sale.
The Company is self-insured up to specified limits for medical and
workers' compensation coverage. The self-insurance reserves have been recorded
to reflect the undiscounted estimated liabilities, including claims incurred but
not reported, as well as catastrophic claims as appropriate.
The Company recognizes a loss contingency for used trailer residual
commitments for the difference between the equipment's purchase price and its
fair market value when it becomes probable that the purchase price at the
guarantee date will exceed the equipment's fair market value at that date.
o. Income Taxes
The Company determines its provision or benefit for income taxes
under the asset and liability method. The asset and liability method measures
the expected tax impact at current enacted rates of future
44
taxable income or deductions resulting from differences in the tax and financial
reporting bases of assets and liabilities reflected in the Consolidated Balance
Sheets. Future tax benefits of tax losses and credit carryforwards are
recognized as deferred tax assets. Deferred tax assets are reduced by a
valuation allowance to the extent the Company concludes there is uncertainty as
to their realization.
p. Stock-Based Compensation
As discussed further in Footnote 15, 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. However, SFAS No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure, requires pro forma
presentation as if compensation costs had been expensed under the fair value
method of the SFAS No. 123. For purposes of pro forma disclosure, the estimated
fair value of the options at the date of grant is amortized to expensed over the
vesting period. The following table illustrates the effect on net loss and loss
per share (LPS) as if compensation expense had been recognized:
For the Year Ended December 31,
-----------------------------------------------
(in thousands, except for loss-per-share amounts)
2002 2001 2000
----------- ----------- -----------
Reported net loss $ (56,190) $ (232,168) $ (6,736)
Stock-based compensation expense (net of tax) (1,671) (1,871) (1,918)
----------- ----------- -----------
Adjusted net loss $ (57,861) $ (234,039) $ (8,654)
=========== =========== ===========
Basic and diluted loss per share:
Reported net loss per share $ (2.43) $ (10.17) $ (0.38)
Stock-based compensation expense (net of tax) per share (0.07) (0.08) (0.08)
----------- ----------- -----------
Adjusted net loss per share $ (2.50) $ (10.25) $ (0.46)
=========== =========== ===========
q. New Accounting Pronouncements
Asset Retirement Obligations
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations with an effective date of June 15, 2002, which becomes
effective for the Company on January 1, 2003. This standard requires obligations
associated with retirement of long-lived assets to be capitalized as part of the
carrying value of the related asset. The Company does not believe the adoption
of SFAS No. 143 will have a material effect on its financial position or results
of operations.
Asset Impairment or Disposal
In August 2001, the FASB issued SFAS No. 144, which supercedes APB
No. 30, Reporting the Results of Operations -- Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions and SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
This standard retains the previously existing accounting requirements related to
the recognition and measurement requirements of the impairment of long-lived
assets to be held for use, while expanding the measurement requirements of
long-lived assets to be disposed of by sale to include discontinued operations.
It also expands on the previously existing reporting requirements for
discontinued operations to include a component of an entity that either has been
disposed of or is classified as held for sale. The Company adopted the
accounting provisions of this standard on January 1, 2002. The effect of
adopting the accounting provisions of this standard was not material to the
Company's financial statements. Consistent with the provisions of this new
standard, financial statements for prior years have not been restated. As of
December 31, 2002 and 2001, the Company had $9.2 million and $13.0 million,
respectively, classified as assets held for sale and recorded in Prepaid
Expenses and Other on the Consolidated Balance Sheets. The Company continues to
pursue the immediate disposition of these assets as market conditions allow.
45
Debt Extinguishment Costs
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections. This standard is required to be adopted by the Company on January
1, 2003, but may be adopted early. SFAS No. 145 modifies the classification
criteria for extraordinary items related to the extinguishment of debt.
Effective April 1, 2002, the Company decided to early adopt the provisions of
SFAS No. 145. Under the new standard, $1.2 million in expenses associated with
the Company's debt restructuring in April 2002, which under prior standards
would have been recorded as an extraordinary item, were recorded in Other, net
on the Consolidated Statements of Operations.
Termination Benefits and Exit Costs
In June 2002, the FASB issued SFAS No. 146 Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 nullifies Emerging
Issues Task Force (EITF) Issue No., 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS No. 146 generally requires
companies to recognize costs associated with exit activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan and
is to be applied prospectively to exit or disposal activities initiated after
December 31, 2002. The Company is currently not contemplating any restructuring
activities, but if such activities were to be undertaken in the future, the
Company would evaluate the effects, if any, that these activities could have on
its results of operations or financial position.
Stock-Based Compensation
In December 2002, the FASB issued SFAS No. 148, effective for fiscal
years ending after December 15, 2002 for transition guidance and annual
disclosures and interim periods beginning after December 15, 2002 for interim
disclosure provisions. SFAS No. 148 provides alternative methods of transition
for a voluntary change to the fair value method of accounting for stock-based
compensation and requires a more prominent disclosure on an annual and interim
basis of the method of accounting for stock-based compensation. As allowed by
SFAS No. 148, the Company continues to account for stock-based compensation
under APB No. 25, Accounting for Stock Issued to Employees and therefore, SFAS
No. 148 will not have an affect on the Company's results of operations or
financial condition.
Guarantees
In 2002, the FASB issued FASB Interpretation (FIN) 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires an issuer of a guarantee
to recognize an initial liability for the fair value of the obligations covered
by the guarantee. FIN 45 also addresses the disclosures required by a guarantor
in interim and annual financial statements regarding obligations under
guarantees. We will adopt the requirement for recognition of the liability for
the fair value of guaranteed obligations prospectively for guarantees entered
into after January 1, 2003. We adopted the disclosure provisions as of December
31, 2002.
Variable Interest Entities
In 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. FIN 46 defines a variable interest entity (VIE) as a corporation,
partnership, trust or any other legal structure that does not have equity
investors with a controlling financial interest or has equity investors that do
not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires consolidation of a VIE by the primary beneficiary of
the assets, liabilities, and results of activities effective for 2003. FIN 46
also requires certain disclosures by all holders of a significant variable
interest in a VIE that are not the primary beneficiary. The Company is currently
evaluating the impacts of FIN 46 to its consolidated financial statements and
does not believe that the adoption of FIN 46 will have a material impact on the
consolidated results of operations, financial position or liquidity for the
periods presented herein.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
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
46
estimated fair values, using the methods and assumptions listed below, of the
Company's financial instruments at December 31, 2002, and 2001 were immaterial.
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable.
The carrying amounts reported in the Consolidated Balance Sheets approximate
fair value.
Long-Term Debt and Capital Lease Obligations. The fair value of
long-term debt and capital lease obligations, including the current portion, is
estimated based on current quoted market prices for similar issues or debt with
the same maturities. The interest rates on the Company's bank borrowings under
its long-term revolving bank line of credit agreement are adjusted regularly to
reflect current market rates. The carrying values of the Company's long-term
borrowings approximate fair value.
4. RESTRUCTURING AND OTHER RELATED CHARGES
a. 2001 Restructuring Plan
During the third quarter of 2001, the Company recorded restructuring
and other related charges totaling $40.5 million primarily related to the
rationalization of the Company's manufacturing capacity resulting in the closure
of the Company's platform trailer manufacturing facility in Huntsville,
Tennessee, and its dry van facility in Fort Madison, Iowa. In addition, the
Company closed a parts distribution facility in Montebello, California. During
2001 and 2000, the Huntsville, Tennessee and Fort Madison, Iowa facilities had
revenues of $73.5 million and $184.3 million and operating losses of $4.5
million and operating income of $8.1 million, respectively. Included in the
$40.5 million restructuring charge is the write-down of certain impaired fixed
assets to their fair market value ($33.8 million), accrued severance benefits
for approximately 600 employees ($0.9 million) and plant closure and other costs
($2.1 million). In addition, a $3.7 million charge is included in Cost of Sales
related to inventory write-downs at the closed facilities in 2001. During the
fourth quarter of 2001, the Company reduced its plant closure reserve by
approximately $0.9 million as a result of the Company's ability to effectively
control its closure costs.
The Company's 2001 impairment charge reflects the write-down of
certain long-lived assets that became impaired as a result of management's
decision to close its operations at the two manufacturing plants discussed
above. The estimated fair market value of the impaired assets totaled $6.7
million and was determined by management based upon economic conditions,
potential alternative uses, market appraisals and potential markets for the
assets which are held for sale and, accordingly, are classified in Prepaid
Expenses and Other in the accompanying Consolidated Balance Sheets. Depreciation
has been discontinued on the assets held for sale pending their disposal. The
Company continues to pursue the disposal of these idle assets. In accordance
with SFAS No. 144, effective January 1, 2002, the Company continues to review
the assets for potential impairment and appropriate classification as assets
held for sale.
During the third quarter of 2002, the Company recorded an additional
restructuring charge of $1.5 million for asset impairment at the Huntsville,
Tennessee facility. During the fourth quarter of 2002, the Company recorded an
additional restructuring charge of $0.1 million for asset impairment at the Fort
Madison, Iowa facility.
Details of the restructuring charges and reserve for the 2001 Restructuring Plan
are as follows (in thousands):
Utilized
Original Additional ----------------------- Balance
Provision Provision 2001 2002 12/31/02
--------- ---------- -------- -------- --------
Restructuring costs:
Impairment of long-lived assets $ 33,842 $ 1,586 $(33,842) $ (1,586) $ --
Plant closure costs 1,763 -- (1,463) (300) --
Severance benefits 912 -- (912) -- --
Other 305 -- (105) (200) --
-------- -------- -------- -------- --------
36,822 1,586 (36,322) (2,086) --
-------- -------- -------- -------- --------
Inventory write-down 3,714 -- (3,714) -- --
-------- -------- -------- -------- --------
Total restructuring & other related charges $ 40,536 $ 1,586 $(40,036) $ (2,086) $ --
======== ======== ======== ======== ========
47
b. 2000 Restructuring Plan
In December 2000, the Company recorded restructuring and other
related charges totaling $46.6 million 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 of income from operations. Specifically, $19.1 million
of this amount represented the impairment of certain equipment subject to leases
with the Company's international customers, $8.6 million represented 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 benefits 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 $20.8 million. 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. In accordance with SFAS No. 144, effective January 1, 2002, the
Company continues to review the assets for potential impairment and appropriate
classification as assets held for sale.
In January 2002, the Company completed its divestiture of ETZ. As a
result of this divestiture, the Company adjusted its restructuring reserve by
$1.4 million during the fourth quarter of 2001. This adjustment primarily
related to the assumption of certain financial guarantees in connection with the
divestiture. During the third quarter of 2002, the Company recorded an
additional restructuring charge of $0.2 million related to asset impairments on
the Sheridan, Arkansas facility closed in 2000 as part of the consolidation of
certain domestic operations.
Details of the restructuring charges and reserve for the 2000
Restructuring Plan are as follows (in thousands):
Utilized
Original Additional ------------------------ Balance
Provision Provision 2000-2001 2002 12/31/02
--------- ---------- --------- -------- --------
Restructuring of majority-owned operations:
Impairment of long-lived assets $ 20,819 $ 227 $(20,819) $ (227) $ --
Loss related to equipment guarantees 8,592 -- (3,394) 492 5,690
Write-down of other assets & other charges 6,927 -- (5,568) (373) 986
-------- -------- -------- -------- --------
36,338 227 (29,781) (108) 6,676
-------- -------- -------- -------- --------
Restructuring of minority interest operations:
ETZ equity interest 5,832 -- (5,832) -- --
Financial guarantees -- 1,381 -- (307) 1,074
-------- -------- -------- -------- --------
5,832 1,381 (5,832) (307) 1,074
-------- -------- -------- -------- --------
Inventory write-down and other charges 4,480 -- (4,480) -- --
-------- -------- -------- -------- --------
Total restructuring and other related charges $ 46,650 $ 1,608 $(40,093) $ (415) $ 7,750
======== ======== ======== ======== ========
The Company's total restructuring reserves were $7.8 million and
$8.4 million at December 31, 2002 and December 31, 2001, respectively. These
reserves are included in Other Accrued Liabilities in the accompanying
Consolidated Balance Sheets. The Company anticipates that these reserves will be
adequate to cover the remaining charges to be incurred through 2004 which is the
anticipated completion date for these restructuring plans.
5. ACQUISITION AND DIVESTITURE
a. Acquisition
On January 5, 2001, the Company acquired the Breadner Group of
Companies (the Breadner Group) in a stock purchase agreement (the Breadner
Acquisition). The Breadner Group was headquartered in Kitchener, Ontario, Canada
and had 10 branch locations in seven Canadian Provinces. The Breadner Group
48
was the leading Canadian distributor of new trailers as well as a provider of
new trailer services and aftermarket parts. The Breadner Group had revenues and
income from operations of approximately $135 million and $2.3 million (US
Dollars), respectively, for its fiscal year ended September 30, 2000 and
employed approximately 130 associates. For financial statement purposes, the
Breadner Acquisition was accounted for as a purchase, and accordingly, the
Breadner Group's assets and liabilities were recorded at fair value. The
Breadner Group's operating results are included in the Consolidated Financial
Statements since the date of acquisition. The aggregate consideration for this
transaction included approximately $6.3 million in cash and $10.0 million in a
long-term note and the assumption of certain liabilities. The long-term note has
an annual interest rate of 7.25% and scheduled principal payments are due
quarterly April 2001 through January 2006. The excess of the purchase price over
the underlying assets acquired was approximately $13.0 million.
b. Divestiture
On November 4, 1997, the Company purchased a 25.1% equity interest
in Europaische Trailerzug Beteiligungsgesellschaft mbH (ETZ). ETZ is the
majority shareholder of Bayerische Trailerzug Gesellschaft fur Bimodalen
Guterverkehr mbH (BTZ), a European RoadRailer(R) 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 $7.2
million and $3.7 million during 2001 and 2000, respectively. During 2001 and
2000, the Company recorded approximately $7.7 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 Operations.
In January 2001, in connection with its restructuring activities,
the Company assumed the remaining ownership interest in ETZ from the majority
shareholder with the intent to pursue an orderly divestiture of ETZ. Because
control of this subsidiary was deemed to be temporary, 100% of ETZ's 2001
operating results have been recorded as Equity in Losses of Unconsolidated
Affiliate in the Consolidated Statements of Operations for 2001. In January
2002, the Company completed the divestiture of ETZ.
6. LOSS PER SHARE
Loss per share (LPS) is computed in accordance with SFAS No. 128,
Earnings per Share. A reconciliation of the numerators and denominators of the
basic and diluted LPS computations, as required by SFAS No. 128, is presented
below. Stock options redeemable for 125,340 shares, 78,534 shares and 0 shares
at December 31, 2002, 2001 and 2000, respectively, and convertible preferred
stock redeemable for 823,200 shares, 1,194,745 shares and 1,194,745 shares at
December 31, 2002, 2001 and 2000, respectively, were excluded from the
computation of diluted LPS for 2002, 2001 and 2000 since the inclusion of these
items would have resulted in an antidilutive effect (in thousands except per
share amounts):
Net Loss Weighted
Available to Average Loss
Common Shares Per Share
------------ --------- ---------
2002
Basic $ (57,753) 23,791 $ (2.43)
Diluted $ (57,753) 23,791 $ (2.43)
2001
Basic $(234,013) 23,006 $ (10.17)
Diluted $(234,013) 23,006 $ (10.17)
2000
Basic $ (8,639) 22,990 $ (0.38)
Diluted $ (8,639) 22,990 $ (0.38)
49
7. ACCOUNTS RECEIVABLE SECURITIZATION
On October 1, 2001, the Company entered into a $100 million Conduit
Securitization Facility (the A/R Facility) to replace its previous Accounts
Receivable Securitization Facility. Under the terms of the A/R Facility, the
Company sold, on a revolving basis, virtually all of its domestic accounts
receivable to a wholly-owned, bankruptcy-remote special purpose entity (SPE).
The SPE sold an undivided interest in receivables to an outside liquidity
provider who in turn remitted cash back to the Company's SPE for receivables
eligible for funding. As of December 31, 2001, the amount outstanding under the
A/R Facility was $17.7 million and the amount outstanding under the Company's
previous facility as of December 31, 2000 was $69.4 million.
As of December 31, 2001, the Company was in technical violation of
its financial covenants under the A/R Facility. Therefore, all amounts under
this facility were due and payable on demand. Accordingly, the Company has
reflected the $17.7 million outstanding under this facility as Accounts
Receivable and Current Maturities of Long-Term Debt on the Consolidated Balance
Sheet as of December 31, 2001.
In April 2002, the Company replaced the A/R Facility with a new $110
million Trade Receivables Facility. Under the terms of the Trade Receivables
Facility, the Company sells, on a revolving basis, predominately all of its
domestic accounts receivable to a wholly-owned, bankruptcy remote SPE. The SPE
sells an undivided interest in receivables to an outside liquidity provider who,
in turn, remits cash back to the Company's SPE for receivables eligible for
funding. This new facility includes financial covenants identical to the
Company's debt obligations. As of December 31, 2002, there were no borrowings
outstanding under this facility.
Proceeds advanced under these facilities are used to provide
liquidity in order to fund operations. The cash flows related to this
securitization are reflected as cash flows from operating activities in the
accompanying 2001 and 2000 Consolidated Statements of Cash Flows. There were no
borrowings under this facility during 2002.
8. EQUIPMENT LEASED TO OTHERS
The Company has equipment on lease under both short-term and
long-term lease arrangements with their customers. This equipment includes
trailers manufactured by the Company and used trailers acquired on trade.
Equipment on short-term lease represents lease contracts that are less than one
year and typically run month-to-month, while long-term leases have terms ranging
from one to five years in duration. Items being leased include both
Company-owned equipment, which is reflected on the Consolidated Balance Sheets,
as well as equipment that was sold by the Company and then simultaneously leased
back to the Company which are accounted for as operating leases.
a. Equipment On Balance Sheet
The Company's equipment leased to others, net was approximately
$100.8 million and $109.3 million at December 31, 2002 and 2001, respectively.
During 2001, the market values of used trailers declined
significantly. This decline led the Company to perform an impairment analysis of
its equipment leased to others in accordance with SFAS No. 121. This analysis
indicated that the undiscounted future cash flows of this equipment was not
sufficient to recover the carrying amount of certain portions of this equipment.
Therefore, the Company recorded an impairment charge of approximately $10.5
million to reduce these assets to fair value. This charge is included in Cost of
Sales in the Consolidated Statements of Operations. During 2002, the Company's
on-going analysis of assets for impairment in accordance with SFAS No. 144
determined that certain assets were impaired. This analysis indicated that the
undiscounted future cash flows of this equipment was not sufficient to recover
the carrying amount of this equipment. Therefore, the Company recorded an
impairment charge of approximately $2.0 million to reduce these assets to
appraised value. This charge is included in Cost of Sales in the Consolidated
Statements of Operations.
50
The future minimum lease payments to be received by the Company under
these lease transactions as of December 31, 2002 are as follows (in thousands):
Receipts
--------
2003 ................................................ $ 4,233
2004 ................................................ 2,861
2005 ................................................ 2,257
2006 ................................................ 2,175
2007 ................................................ 1,688
Thereafter .......................................... 2,168
-------
$15,382
=======
b. Equipment Off Balance Sheet
In certain situations, the Company has sold equipment leased to others
to independent financial institutions and simultaneously leased the equipment
back under operating leases. All of this equipment has been subleased to
customers under long-term arrangements, typically five years. As of December 31,
2002, the Company subleased certain highly specialized RoadRailer equipment to
Amtrak, who is experiencing financial difficulties. Due to the highly
specialized nature of the equipment, the recovery value of the equipment is
considered to be minimal. The unamortized lease value of this arrangement is
approximately $5.0 million as of December 31, 2002. Additionally, while these
arrangements do not contain financial covenants, certain non-financial covenants
such as provisions for cross default and material adverse changes are contained
in these arrangements. Rental payments made by the Company under this
transaction totaled $1.3 million, $4.9 million and $4.7 million during 2002,
2001 and 2000, respectively.
The future minimum noncancellable lease payments the Company is
required to make under the above mentioned transactions along with rents to be
received under various sublease arrangements as of December 31, 2002 are as
follows (in thousands):
Payments Receipts
-------- --------
2003 ............................... $1,317 $1,351
2004 ............................... 1,317 1,340
2005 ............................... 438 1,340
2006 ............................... -- 953
2007 ............................... -- 46
Thereafter ......................... -- 4
------ ------
$3,072 $5,034
====== ======
The Company has end-of-term purchase options and residual guarantees
related to these transactions. These purchase options totaled $2.6 million as of
December 31, 2002 and 2001. These residual guarantees totaled $1.1 million as of
December 31, 2002 and 2001. The Company also has finance contracts related to
this customer recorded on its December 31, 2002, balance sheet of approximately
$10.7 million.
The Company recognizes a loss when the Company's operating lease
payments exceed the anticipated rents from the sublease arrangements with
customers. As of December 31, 2002, the customer was current in its obligations
to the Company. As a result, the Company has not recorded any provision for a
loss on this equipment.
9. CAPITAL LEASES
Assets recorded under capital lease arrangements included in Property,
Plant and Equipment, net and Equipment Leased to Others, net on the Consolidated
Balance Sheets consist of the following (in thousands):
December 31,
------------------------
2002 2001
------- -------
Property, Plant and Equipment, net ........... $ -- $11,503
Equipment Leased to Others, net .............. 43,599 42,233
------- -------
$43,599 $53,736
======= =======
51
Accumulated depreciation recorded on leased assets at December 31, 2002
and 2001 was $2.1 million and $0.1 million, respectively. Depreciation expense
recorded on leased assets in 2002 and 2001 was $2.2 million and $0.1 million,
respectively.
Future minimum lease payments under capital leases, assumes that the
Company will refinance, amend or restructure certain of its capital lease
obligations by the end of the first quarter of 2004, are as follows (in
thousands):
Amounts
-------
2003 ..................................................... $ 15,598
2004 ..................................................... 50,385
2005 ..................................................... 2,794
2006 ..................................................... --
2007 ..................................................... --
Thereafter --
--------
$ 68,777
Amount representing interest ............................. (3,924)
--------
Capital lease obligations ................................ 64,853
Obligations due within one year .......................... (12,860)
--------
Long-term capital lease obligations ...................... $ 51,993
========
During December 2000, the Company entered into a sale and leaseback
facility with an independent financial institution related to its rental
equipment. As of December 31, 2000, the Company had $31.0 million of equipment
financed through this facility which was accounted for as an operating lease.
Rent expense related to this lease was approximately $9.2 million in 2001 and $0
in 2000. As of December 31, 2001, the Company was in technical violation of its
financial covenants under this facility resulting in the unamortized lease value
being due and payable. In April 2002, the facility was amended which resulted in
a new lease. In accordance with SFAS No. 13, Accounting for Leases, the new
lease was accounted for as a capital lease. Accordingly, the Company has
reflected the unamortized lease value as a capital lease obligation of $65.2
million in the Consolidated Balance Sheet as of December 31, 2001. The leased
equipment was recorded at fair value of $42.2 million in the Consolidated
Balance Sheet as of December 31, 2001. The $23.0 million difference between the
unamortized lease value and the fair value of the leased equipment was recorded
as a charge to Cost of Sales in the Consolidated Statement of Operations for the
year ended December 31, 2001. This capital lease has financial covenants
identical to the Company's debt as discussed in Footnote 12. As of December 31,
2002, the Company had $36.1 million of equipment financed and $50.1 million
under the capital lease obligation for this facility.
During September 1997, the Company entered into a sale and leaseback
facility with independent financial institutions related to certain of its
rental equipment. As of December 31, 2001, the Company had $18.0 million in
equipment financed through this facility which was accounted for as an operating
lease. Rent expense related to this lease was approximately $4.3 million in
2002, $4.4 million in 2001 and $4.4 million in 2000. During the fourth quarter
of 2002, the lease was amended resulting in a new lease. In accordance with SFAS
No. 13, the new lease has been accounted for as a capital lease. Accordingly,
the Company has reflected the unamortized lease value as a capital lease
obligation of $14.7 million in the Consolidated Balance Sheet as of December 31,
2002. The leased equipment was recorded at fair value of $7.5 million in the
Consolidated Balance Sheet as of December 31, 2002. The $7.2 million difference
between unamortized lease value and the fair value of the leased equipment was
recorded as a charge to Cost of Sales in the Consolidated Statement of
Operations with $4.4 million being recorded as a loss contingency as of December
31, 2001, and the remaining $2.8 million being recorded in 2002.
During 2001, the Company renewed a lease for a corporate aircraft. This
lease arrangement expired in 2002 and, in accordance with SFAS No. 13, was
reflected as a capital lease. Rent expense related to this lease was $1.4
million in 2001 and $1.4 million in 2000. During the second quarter of 2002, the
decision was made to dispose of the airplane. In accordance with SFAS No. 144,
the capital lease asset was written down to fair market value and reclassified,
as an asset held for sale, to Prepaid Expenses and Other in the Consolidated
Balance Sheet. Adjustments to reduce the fair value of the aircraft of $1.1
million and $0.8 million were recognized in the second and third quarters of
2002, respectively, as charges to General and Administrative Expense in the
Consolidated Statement of Operations. Ultimately, the airplane was sold to a
third party in December 2002, and the remaining lease liability of $11.3 million
was paid off.
52
10. OTHER LEASE ARRANGEMENTS
a. Equipment Financing
The Company has entered into agreements for the sale and leaseback of
certain production equipment at its manufacturing locations. As of December 31,
2002 the unamortized lease value related to these agreements are approximately
$14.9 million. Under these agreements, the initial lease terms expired during
2001. The Company elected to renew these agreements and anticipates renewing
them through their maximum lease terms (2004-2008). Future minimum lease
payments related to these arrangements are approximately $4.2 million per year
and the end of term residual guarantees and purchase options are $2.4 million
and $3.6 million, respectively. These agreements contain no financial covenants;
however, they do contain non-financial covenants including cross default
provisions which could be triggered if the Company is not in compliance with
covenants in other debt or leasing arrangements.
Total rent expense for these leases in 2002, 2001 and 2000 was $4.4
million, $4.1 million and $2.0 million, respectively.
b. Other Lease Commitments
The Company leases office space, manufacturing, warehouse and service
facilities and equipment under operating leases, the majority of which expire
through 2006. Future minimum lease payments required under these other lease
commitments as of December 31, 2002 are as follows (in thousands):
Amounts
-------
2003 ................................................. $2,625
2004 ................................................. 1,484
2005 ................................................. 833
2006 ................................................. 644
2007 ................................................. 183
Thereafter
12
------
$5,781
======
Total rental expense under operating leases was $5.4 million, $5.8
million, and $5.5 million for 2002, 2001 and 2000, respectively.
11. FINANCE CONTRACTS
The Company previously provided financing for the sale of new and used
trailers to its customers. The Company no longer originates finance contracts.
The financing is principally structured in the form of finance leases, typically
for a five-year term. Finance Contracts, as shown on the accompanying
Consolidated Balance Sheets, are as follows (in thousands):
December 31,
-----------------------
2002 2001
-------- --------
Lease payments receivable $ 34,817 $ 53,151
Estimated residual value 5,636 6,589
-------- --------
40,453 59,740
Unearned finance charges (6,881) (11,563)
-------- --------
33,572 48,177
Other, net .............. (1,556) 2,656
-------- --------
32,016 50,833
Less: current portion ... (9,528) (10,646)
-------- --------
$ 22,488 $ 40,187
======== ========
Other, net includes the sale of certain finance contracts with full
recourse provisions. As a result of the recourse provision, the Company has
reflected an asset and an offsetting liability of $0.9 million at December 31,
2002 in the Company's Consolidated Balance Sheets as a Finance Contract and
Other Noncurrent Liabilities and Contingencies. In addition, other, net at
December 31, 2002 includes $2.5 million for loss contingencies on finance
contracts recorded as charges to General and Administrative Expenses on the
Company's Consolidated Statements of Operations. Other, net of $2.7 million at
December 31, 2001
53
includes finance contracts with full recourse provisions of $2.1 million and
equipment subject to capital lease awaiting customer pick-up of $0.6 million.
The future minimum lease payments to be received from finance contracts as of
December 31, 2002 are as follows (in thousands):
Amounts
-------
2003............................................. $11,084
2004............................................. 9,093
2005............................................. 5,705
2006............................................. 5,045
2007............................................. 2,227
Thereafter....................................... 1,663
-------
$34,817
=======
12. DEBT
In April 2002, the Company restructured its existing revolving credit
facility and Senior Notes. In April 2003, the Company amended its existing Bank
Term Loan, Bank Line of Credit and Senior Notes agreements (the agreements). The
agreements change debt maturities and principal payment schedules; provide for
all assets, other than receivables, to be pledged as collateral equally to the
lenders; increase the cost of funds; and require the Company to meet certain
financial conditions, among other things. The agreements also contain certain
restrictions on acquisitions and the payment of preferred stock dividends. The
following reflects the terms of the agreements.
a. Long-term debt consists of the following (in thousands):
DECEMBER 31,
------------------------
2002 2001
-------- ---------
Revolving Bank Line of Credit ................................ $ -- $ 14,642
Receivable Securitization Facility ........................... -- 17,700
Mortgage and Other Notes Payable (3.0% - 8.17%, Due 2004-2008) 16,962 35,361
Bank Term Loan (Due March 2004) .............................. 75,273 75,000
Series A Senior Notes (10.16%, Due March 2004) ............... 47,408 50,000
Series C-H Senior Notes (10.91% - 11.3%, Due 2004-2008) ...... 87,231 92,000
Series I Senior Notes (11.79%, Due 2005-2007) ................ 47,408 50,000
Make Whole and Deferral Fee Notes (Due March 2004) ........... 7,722 --
--------- ---------
282,004 334,703
Less: Current maturities ........................... (42,961) (60,682)
--------- ---------
$ 239,043 $ 274,021
========= =========
b. Maturities of long-term debt at December 31, 2002, assumes that the
Company will refinance, amend or restructure certain of its obligations by the
end of the first quarter of 2004, are as follows (in thousands):
Amounts
-------
2003 ..... $ 42,961
2004 ..... 228,404
2005 ..... 3,556
2006 ..... 1,963
2007 ..... 1,476
Thereafter 3,644
--------
$282,004
========
c. Revolving Bank Line of Credit and Bank Term Loan
In April 2002 and as amended in April 2003, the Company restructured
its $125 million Revolving Credit Facility into a $107 million term loan (Bank
Term Loan) and $18 million revolving credit facility (Bank Line of Credit). The
Bank Term Loan and Bank Line of Credit both mature on March 30, 2004 and are
secured by all of the assets of the Company, other than receivables. The Bank
Term Loan, of which approximately $31.5 million consists of outstanding letters
of credit, requires monthly payments totaling $14.6 million per annum in 2003
and $12.4 million per annum in 2004, with the balance due March 30, 2004.
54
Interest on the Bank Term Loan, excluding letters of credit, is
variable based upon the adjusted London Interbank Offered Rate (LIBOR) plus 430
basis points or Prime Rate plus 200 basis points. Interest on the borrowings
under the Bank Line of Credit is based upon LIBOR plus 405 basis points or the
agent bank's alternative borrowing rate as defined in the agreement. The Company
pays a commitment fee on the unused portion of this facility at a rate of 100
basis points per annum. All interest and fees are payable monthly. These
interest rates are subject to increases of up to a maximum of 500 basis points
per annum if the Company does not meet certain performance targets for EBITDA
and debt to asset ratios. Certain of these targets, as defined, are more
restrictive than the Company's debt covenant levels.
At December 31, 2002, the Company had $75.3 million outstanding under
the Bank Term Loan, excluding letters of credit, with a weighted average
interest rate of 5.54%. The Company had available credit under the Bank Line of
Credit of approximately $14.2 million and no outstanding borrowings.
At the end of 2001, the Company had a revolving bank line of credit in
Canada that permitted the Company to borrow up to CDN $20 million. In April
2002, an agreement was signed canceling the facility, and the balance on this
line of credit was paid off.
d. Senior Notes
As of December 31, 2002 and 2001, the Company had $182 and $192
million, respectively of Senior Notes outstanding with originally maturities in
2002 through 2008. As part of the April 2002 restructuring and April 2003
amending of these terms, the original maturity dates for $72 million of Senior
Notes, payable in 2002 through March 2004, were extended to March 30, 2004. The
maturity dates for the other $120 million of Senior Notes due subsequent to
March 30, 2004 remain unchanged. The Senior Notes are secured by all of the
assets, other than receivables, of the Company.
Monthly principal payments totaling $25.5 million in 2003 and $22.3
million in 2004 will be made on a prorata basis to all Senior Notes. Interest on
the Senior Notes, which is payable monthly, increased by 50 basis points,
effective April 2003, and ranges from 10.16% to 11.79%. These interest rates are
subject to increases of up to a maximum of 500 basis points per annum if the
Company does not meet certain performance targets for EBITDA and debt to asset
ratios. Certain of these targets, as defined, are more restrictive than the
Company's debt covenant levels.
e. Make Whole and Deferral Fee Notes
As part of the debt restructuring in April 2002, the agreements called
for two additional obligations to be paid to certain holders of Senior Notes
and the Revolving Credit Facility. These obligations were the result of maturity
schedule changes requiring the prepayment or deferral of certain scheduled
maturities.
The prepayment obligation or Make Whole Notes represent the interest
foregone by the lender with the change in scheduled debt payments affecting all
Senior Note Series, except Series C. The obligation earned monthly and the
estimated full obligation is determined using treasury bill (T-bill) yield rates
with maturities ranging from three months to 10 years. The T-bill rates are used
to calculate the interest between the prepayment date and original schedule
payment date and are selected to correspond to the maturity date of the
underlying debt. The Make Whole Notes are earned monthly until their maturity
date of March 30, 2004. As of December 31, 2002, the Make Whole Notes were
estimated to be $6.2 million, which is reflected in Long Term Debt and Other
Assets in the Consolidated Balance Sheets. The asset is being amortized, under
the effective interest method, over the full maturity of the underlying debt. As
of December 31, 2002, the asset, net of amortization, was $5.2 million.
The deferral obligation or Deferral Fee Notes represents a fee earned
for deferring payments originally scheduled to be made in 2002 under the Senior
Notes Series A and C and Revolving Credit Facility. The obligation is earned
from the date of deferral on a monthly basis. The full obligation calculated
based on the amount of payments deferred multiplied by 50 basis points, plus
interest on the accrued fee at rates ranging from 6% to 10.41%. The Deferral Fee
Notes are earned until their maturity date of March 30, 2004. As of December 31,
2002, the Deferral Fee Notes were estimated to be $1.5 million, which is
reflected in Long-Term Debt and Other Assets in the Consolidated Balance Sheets.
The asset is being amortized, under the effective interest method, over the full
maturity of the underlying debt. As of December 31, 2002, the asset, net of
amortization, was $1.3 million.
55
f. Mortgage and Other Notes Payable
Mortgage and other notes payable includes debt incurred in connection
with the Breadner acquisition discussed in Footnote 5, an obligation associated
with the exercise in 2001 of an equipment purchase option under an operating
lease secured by the equipment and other term borrowings secured by property.
g. Covenants
As of December 31, 2002, the Company was in compliance with its
financial covenants. On February 28, 2003, the Company was in technical
violation of certain of its financial covenants for the reporting period ended
January 31, 2003. The Company received a waiver of current violations through
April 15, 2003. The Company's April 2003 amended covenants contain, among other
provisions as defined in the agreement, the following items: a subjective
acceleration clause related to material adverse changes; restricts capital
expenditures to $4.0 million within any twelve month period; restricts new
finance contracts the Company can enter into to $5.0 million within any twelve
month period; required levels of minimum EBITDA, minimum shareholders' equity
and maximum debt to assets ratio; and the requirement that the Company have a
commitment letter to refinance, amend or restructure its debt and capital lease
obligations prior to January 31, 2004.
The Company is required to maintain the following levels of minimum
cumulative year-to-date EBITDA, minimum shareholders' equity and maximum debt to
assets ratio, as defined in the agreements, on a quarterly basis:
March 31, June 30, September 30, December 31,
2003 2003 2003 2003
-----------------------------------------------------------
EBITDA ............. $ 0 $ 5,000,000 $15,000,000 $20,000,000
Shareholders' equity $ 40,000,000 $35,000,000 $30,000,000 $25,000,000
Debt to assets ratio .95 .95 .95 .95
In addition to these financial covenants, the Company is now requiring
to have a commitment letter by January 31, 2004 in order to avoid an event of
default under the agreements. Debt to Assets ratio is defined as the ratio of i)
outstanding principal of Senior Notes, Bank Term loan, excluding letters of
credit, and Bank Line of Credit to ii) the sum of cash and cash equivalents,
inventory, prepaid and other expenses and property, plant and equipment, net.
The agreements also contain a subjective acceleration clause, which
provides for an event of default upon the occurrence of a material adverse
change, as defined in the agreements. The Company has evaluated this clause in
accordance with FASB Technical Bulletin 79-3 and based upon expected operating
performance and consultation with its advisors has concluded that the
possibility of this clause being exercised is remote. Accordingly, the Company
has classified its debt in accordance with its scheduled maturities, and not all
as current due to the existence of this clause, as of December 31, 2002.
In July 2002, the Company received a waiver of a default from Pitney
Bowes Credit Corporation (PBCC) under its Master Equipment Lease Agreement dated
September 30, 1997. The event of default was the result of delinquent payment of
lease obligations from the Company's sublessee under the agreement. The waiver
permanently waived the provision of the agreement (effective from September 30,
1997) related to delinquent payment of rental obligations from the Company's
sublessee. The Company is not and has never been delinquent with respect to its
lease payments to PBCC. The Company has terminated its sublease agreement with
the sublessee and is in the process of repossessing the equipment. The sublessee
filed for bankruptcy protection in August 2002.
56
13. STOCKHOLDERS' EQUITY
a. Capital Stock
DECEMBER 31,
---------------
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------------------------
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, 2002 and 2001
($17.6 million aggregate liquidation value) ......................... 3 4
Series C 5.5% Cumulative Convertible Exchangeable Preferred Stock, 0 and
130,041 shares authorized, issued and outstanding at
December 31, 2002 and 2001, respectively ............................ -- 1
---- ----
Total Preferred Stock .............................................. $ 3 $ 5
==== ====
Common Stock - $0.01 par value, 75,000,000 shares authorized, 25,647,060 and
23,013,847 shares issued and outstanding
at December 31, 2002 and 2001, respectively ......................... $257 $230
==== ====
The Series B 6% Cumulative Convertible Exchangeable Preferred Stock
(Series B 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. Each share of Series B Stock entitles the holder to the
same voting right as a holder of common stock. As a result of dividend
restrictions under the new debt agreements, the Company has not paid dividends
since the first quarter of 2002. As of December 31, 2002, dividends in arrears
on Series B Stock was $0.8 million.
The Series C 5.5% Cumulative Convertible Exchangeable Preferred Stock
(Series C 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, as defined. However, the Series C Stock can also
be mandatorily converted into common stock if (i) the average trading price over
the last 20 consecutive trading days exceeds the conversion price or (ii)
dividends payable on the Series C Stock are in arrears two quarters.
When the Company, due to dividend restrictions under the new debt
agreements, did not pay dividends on the June 15 and September 15 dividend
dates, the mandatory conversion clause went into effect. Under this clause on
September 15, 2002, the Company converted its 130,041 issued and outstanding
shares of the Series C Stock into approximately 2.6 million shares of the
Company's common stock. The Series C Stock converted into common stock at the
rate of approximately 20 shares of common stock for each full share of Series C
Stock based on the current conversion price of $5.16. On the conversion date,
accrued and unpaid dividends, along with applicable interest, with respect to
shares of Series C Stock were converted into 69,513 shares of common stock based
on the conversion price of $5.16.
The Board of Directors has the authority to issue up to 25 million
shares of unclassified preferred stock and to fix dividends, voting and
conversion rights, redemption provisions, liquidation preferences and other
rights and restrictions.
b. 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.
57
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. 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.
14. STOCK-BASED INCENTIVE PLANS
a. Stock Option and Stock Related Plans
The Company has stock incentive plans that provide for the issuance of
stock appreciation rights (SAR) and the granting of common stock options to
officers and other eligible employees.
During 2001, the company adopted a SAR Plan giving eligible
participants the right to receive, upon exercise thereof, the excess of the fair
market value of one share of stock on the date of exercise over the exercise
price of the SAR as determined by the Company. All SARs granted expire ten years
after the date of grant. As of December 31, 2001, the Company had granted
130,000 SARs at a weighted average exercise price of $8.64. The 2001 grants were
terminated in 2002. No SARS were granted by the Company in 2002.
SARs require the Company to continually adjust compensation expense for
the changes in the fair market value of the Company's stock. During 2002 and
2001, expense recorded related to SARs was not material.
The Company has two non-qualified stock option plans (the 1992 and 2000
Stock Option Plans) which allow eligible employees 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 generally become exercisable in annual installments over 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.
58
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, 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
--------- ---------
Granted .................. 89,500 9.47
Exercised ................ -- --
Cancelled ................ (231,400) 16.79
Outstanding at December 31, 2001 1,777,725 19.39
--------- ---------
Granted .................. 375,000 10.01
Exercised ................ (11,168) 7.38
Cancelled ................ (294,981) 17.37
Outstanding at December 31, 2002 1,846,576 $ 17.93
========= =========
The following table summarizes information about stock options
outstanding at December 31, 2002:
Weighted Weighted Weighted
Range of Average Average Number Average
Exercise Number Remaining Exercise Exercisable Exercise
Prices Outstanding Life Price at 12/31/02 Price
--------- ----------- --------- -------- ----------- --------
$ 6.68 to $10.01 553,501 8.3 yrs. $ 9.08 157,007 $ 7.84
$10.02 to $13.35 24,500 8.4 yrs. $12.16 11,168 $12.37
$13.36 to $16.69 258,800 3.3 yrs. $15.32 231,800 $15.32
$16.70 to $20.03 267,050 0.8 yrs. $17.93 267,050 $17.93
$20.04 to $23.36 405,225 3.9 yrs. $21.74 320,225 $21.78
$26.70 to $30.04 186,000 2.2 yrs. $28.75 186,000 $28.75
$30.05 to $33.38 151,500 0.6 yrs. $32.22 151,500 $32.22
Using the Black-Scholes option valuation model, the estimated fair
values of options granted during 2002, 2001 and 2000 were $5.67, $5.20 and $3.54
per option, respectively. Principal assumptions used in applying the
Black-Scholes model were as follows:
Black-Scholes Model Assumptions 2002 2001 2000
---- ---- ----
Risk-free interest rate........ 5.11% 5.07% 5.32%
Expected volatility ........... 49.40% 45.58% 45.38%
Expected dividend yield........ 1.26% 1.26% 2.21%
Expected term ................. 10 yrs. 10 yrs. 10 yrs.
b. Other Stock Plans
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
2002 and 2001, 5,312 and 7,138 shares were issued to employees at an average
price of $8.88 and $9.77 per share, respectively. At December 31, 2002 and 2001,
there were 241,736 and 247,048 shares, respectively, available for offering
under this Purchase 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 2002 and 2001, 10,300 and 1,960 shares, respectively, were issued to
employees at an average price of $8.64 and $14.14, respectively. At December 31,
2002 and 2001, there were 466,380 and 476,680 shares, respectively, available
for offering under the Bonus Plan.
59
15. EMPLOYEE 401(K) SAVINGS PLAN
Substantially all of the Company's employees are eligible to
participate in a defined contribution plan that qualifies under Section 401(k)
of the Internal Revenue Code. The Plan provides for the Company to match, in
cash, a percentage of each employee's contributions under various formulas. The
Company's matching contribution and related expense for the plan was
approximately $1.0 million, $1.0 million and $1.5 million for 2002, 2001 and
2000, respectively.
16. SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and non cash activities were as follows (in
thousands):
DECEMBER 31,
-------------------------------
2002 2001 2000
------ -------- -----
Non cash transactions:
Capital lease obligation incurred (Footnote 10) 14,731 77,363 --
Purchase option exercised related to equipment -- 13,825 --
Guarantees (Footnote 13(f))
Receivable Securitization Facility (Footnote 8) -- 17,700 --
Acquisitions, net of cash acquired:
Fair value of assets acquired ............. -- 59,012 --
Liabilities assumed ....................... -- (52,676) --
----- ------- -----
Net cash paid ......................... $ -- $ (6,336) $ --
===== ======== =====
17. INCOME TAXES
a. Income Tax (Benefit) Provision
The consolidated income tax (benefit) provision for 2002, 2001 and 2000
consists of the following components (in thousands):
2002 2001 2000
---- ---- ----
Current:
U.S. Federal ......................... $(13,789) $(27,597) $ 3,196
Foreign .............................. 979 (819) --
State ................................ (2,468) -- 1,396
Deferred ............................... -- (14,441) (8,906)
-------- -------- --------
Total consolidated provision (benefit) $(15,278) $(42,857) $ (4,314)
======== ======== ========
The Company's effective tax rates were 21.4%, 15.6% and 39.0% of
pre-tax income/(loss) for 2002, 2001 and 2000, respectively, and differed from
the U.S. Federal statutory rate of 35% as follows:
2002 2001 2000
---- ---- ----
Pretax book loss ............................ $ (71,468) $(275,025) $ (11,050)
Federal tax benefit at 35% statutory rate (25,014) (96,259) $ (3,868)
State and local income taxes ............. (1,604) (554) 591
Foreign income taxes - rate differential . -- (142) --
Valuation allowance ...................... 12,706 55,305 --
Other .................................... (1,366) (1,207) (1,037)
--------- --------- ---------
Total income tax expense/(benefit) .......... $ (15,278) $ (42,857) $ (4,314)
========= ========= =========
60
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 income from
assets under finance leases, charges the Company recorded in 2002 and 2001
related to the restructuring of certain operations, and tax credits and losses
carried forward.
The Company has a federal tax net operating loss carryforward of $150.9
million, which will expire in 2022 if unused. The Company has various tax credit
carryforwards which will expire beginning in 2013 if unused. Under SFAS No. 109,
Accounting for Income Taxes, deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The Company
has determined that a valuation allowance is necessary and, accordingly, has
recorded a valuation allowance for all deferred tax assets as of December 31,
2002 and 2001, respectively. In future periods, the Company will evaluate the
income tax valuation allowance and adjust (reduce) the allowance when management
has determined that impairment to realizability of the related deferred tax
assets, or a portion there of, has been removed.
The components of deferred tax assets and deferred tax liabilities as
of December 31, 2002 and 2001 were as follows (in thousands):
2002 2001
---- ----
Deferred tax (assets):
Rentals on finance leases ............................... $(22,998) $(21,241)
Leasing difference ...................................... (11,989) (10,284)
Operations restructuring ................................ (26,799) (26,428)
Tax credits and loss carryforwards ...................... (53,360) (36,394)
Other ................................................... (85,280) (60,789)
Deferred tax liabilities:
Book-tax basis differences-property, plant and equipment 73,557 68,343
Earned finance charges on finance leases ................ 10,770 10,138
Other ................................................... 48,088 21,350
-------- --------
Net deferred tax liability/(asset), before valuation allowance $(68,011) $(55,305)
-------- --------
Valuation allowance .......................................... $ 68,011 $ 55,305
-------- --------
Net deferred tax liability/(asset) ........................... $ -- $ --
======== ========
c. Change in Tax Laws
In March 2002, Congress enacted the Job Creation and Worker Assistance
Act of 2002 which allows corporate taxpayers who incur net operating losses in
tax years ending in 2001 and 2002 to carry back such losses to offset federal
taxable income generated in the previous five years. The Company received a
refund of federal income taxes of approximately $13 million in April 2002
related to the carryback of losses incurred during 2001 to tax years ended 1996,
1997 and 1998.
d. Other
In the fourth quarter of 2002, the Company recorded a state income tax
benefit of approximately $2.4 million associated with adjustments to income tax
accruals resulting from the statutory closure of certain audit years.
18. 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
61
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 currently pending or asserted will not have a
material adverse effect on the Company's financial position, liquidity or
results of operations.
Brazil Joint Venture
In March 2001, Bernard Krone Industria e Comercio de Maquinas Agricolas
Ltda. ("BK") filed suit against the Company in the Fourth Civil Court of
Curitiba in the State of Parana, Brazil. This action seeks recovery of damages
plus pain and suffering. Because of the bankruptcy of BK, this proceeding is now
pending before the Second Civil Court of Bankruptcies and Creditors
Reorganization of Curitiba, State of Parana (No.232/99).
This case grows out of a joint venture agreement between BK and the
Company, which was generally intended to permit BK and the Company to market the
RoadRailer(R) trailer in Brazil and other areas of South America. When BK was
placed into the Brazilian equivalent of bankruptcy late in 2000, the joint
venture was dissolved. BK subsequently filed its lawsuit against the Company
alleging that it was forced to terminate business with other companies because
of the exclusivity and non-compete clauses purportedly found in the joint
venture agreement. The lawsuit further alleges that Wabash did not properly
disclose technology to BK and that Wabash purportedly failed to comply with its
contractual obligations in terminating the joint venture agreement. In its
complaint, BK asserts that it has been damaged by these alleged wrongs by the
Company in the approximate amount of $8.4 million.
The Company answered the complaint in May 2001, denying any wrongdoing
and pointing out that, contrary to the allegation found in the complaint, a
merger of the Company and BK, or the acquisition of BK by the Company, was never
the purpose or intent of the joint venture agreement between the parties; the
only purpose was the business and marketing arrangement as set out in the
agreement.
The Company believes that the claims asserted against it by BK are
without merit and intends to defend itself vigorously against those claims. The
Company believes that the resolution of this lawsuit will not have a material
adverse effect on its financial position, liquidity or future results of
operations; however, at this early stage of the proceeding, no assurance can be
given as to the ultimate outcome of the case.
E-Coat System
On September 17, 2001 the Company commenced an action against PPG
Industries, Inc. ("PPG") in the United States District Court, Northern District
of Indiana, Hammond Division at Lafayette, Indiana, Civil Action No. 4:01 CV 55.
In the lawsuit, the Company alleges that it has sustained substantial damages
stemming from the failure of the PPG electrocoating system (the "E-coat system")
and related products that PPG provided for the Company's Huntsville, Tennessee
plant. The Company alleges that PPG is responsible for defects in the design of
the E-coat system and defects in PPG products that have resulted in malfunctions
of the E-coat system and poor quality coatings on numerous trailers.
PPG filed a Counterclaim in that action on or about November 8, 2001,
seeking damages in excess of approximately $1.35 million based upon certain
provisions of the November 3, 1998 Investment Agreement between it and the
Company. The Company filed a Reply to the Counterclaim denying liability for the
claims asserted. The Company subsequently amended its complaint to include two
additional defendants, U.S. Filter and Wheelabrator Abrasives Inc., who
designed, manufactured, or provided equipment for the E-coat system.
The Company denies and is vigorously defending PPG's counterclaim. It
also believes that the claims asserted in its complaint are valid and
meritorious and it intends to fully prosecute those claims. The Company believes
that the resolution of this lawsuit will not have a material adverse effect on
its financial position, liquidity or future results of operations; however, at
this early stage of the proceeding, no assurance can be given as to the ultimate
outcome of the case.
62
Environmental
In the second quarter of 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 May
16, 2001, the Company received a second grand jury subpoena that sought the
production of additional documents relating to the discharge in question. The
Company is fully cooperating with federal officials with respect to their
investigation into the matter. The Company received an oral communication from
the government's lawyer in the matter that he intends to seek charges under the
federal Clean Water Act. Subsequent to that oral communication, in December 2002
the Company and its outside counsel met with the government's lawyer to discuss
potential resolutions to this matter, and the government's lawyer is now
considering the information provided by the Company at that meeting. At this
time, the Company is unable to predict the outcome of the federal grand jury
inquiry into this matter, but does not believe it will result in a material
adverse effect on its financial position, liquidity or future results of
operations; however, at this stage of the proceedings, no assurance can be given
as to the ultimate outcome of the case.
On April 17, 2000, 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. The Company and TDEC negotiated a
settlement agreement to resolve this matter, under which the Company paid
$100,000 in October 2002.
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, 2002 and 2001, the estimated potential exposure for such costs
ranges from approximately $0.3 million to approximately $1.1 million and from
approximately $0.5 million to approximately $1.7 million, respectively, for
which the Company has a reserve of approximately $0.9 million recorded in Other
Noncurrent Liabilities and Contingencies on the Consolidated Balance Sheets as
of December 31, 2002 and 2001. 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 or results of operations of the Company.
c. Used Trailer Restoration Program
During 1999, the Company reached a settlement with the IRS 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
$8.6 million and $8.3 million in the accompanying Consolidated Balance Sheets at
December 31, 2002 and 2001, respectively. During 2001, the IRS completed its
federal excise tax audit of 1999 and 1998 resulting in an assessment of
approximately $5.4 million. The Company believes it is fully indemnified for
this liability and that the related receivable is fully collectible.
63
d. Letters of Credit
As of December 31, 2002 and 2001, the Company had standby letters of
credit totaling approximately $31.5 million and $29.0 million issued in
connection with the rental fleet facility, workers compensation claims and
certain foreign sales transactions. Letters of credit in connection with the
rental fleet facility were $21.3 million at December 31, 2002 and 2001,
respectively.
e. Royalty Payments
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(R) 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. Payments
for 2002, 2001 and 2000 were $1.0 million, $1.4 million and $2.1 million,
respectively.
f. Used Trailer Residual Guarantees and Purchase Commitments
In connection with certain historical new trailer sale transactions,
the Company had entered into residual value guarantees and purchase option
agreements with customers or financing institutions whereby the Company agreed
to guarantee an end-of-term residual value or has an option to purchase the used
equipment at a pre-determined price. By policy, the Company no longer provides
used trailer residual guarantees.
Under these guarantees, future payments which may be required as of
December 31, 2002 totaled approximately $27.0 million as follows (in thousands):
Purchase Option Guarantee Amount
--------------- ----------------
2003 ..... $21,401 $ 3,800
2004 ..... 48,860 4,781
2005 ..... 18,454 4,352
2006 ..... -- 9,680
2007 ..... -- 4,395
Thereafter -- --
------- -------
$88,715 $27,008
======= =======
In relation to the guarantees on these transactions, as of December 31,
2002 and 2001, the Company recorded loss contingencies of $1.2 million and $0.8
million, respectively. The contingencies are recorded in Accrued Liabilities and
Other Noncurrent Liabilities and Contingencies on the Consolidated Balance
Sheets.
19. SEGMENTS AND RELATED INFORMATION
a. Segment Reporting
Under the provisions of SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company has two reportable segments:
manufacturing and retail and distribution. The manufacturing segment produces
and sells new trailers to the retail and distribution segment or to customers
who purchase trailers direct or through independent dealers. 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.
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 and
income taxes from the manufacturing segment to the Company's other reportable
segment. The Company accounts for intersegment sales and transfers at cost plus
a specified mark-up. Reportable segment information is as follows (in
thousands):
64
Retail and Combined Consolidated
Manufacturing Distribution Segments Eliminations Total
------------- ------------ -------- ------------ ------------
2002
- --------------------------------
Revenues
External customers $ 492,267 $ 327,301 $ 819,568 $ -- $ 819,568
Intersegment sales 37,793 4,188 41,981 (41,981) --
------- ------- --------- -------- -------
Total revenues $ 530,060 $ 331,489 $ 861,549 $ (41,981) $ 819,568
=========== =========== =========== =========== ===========
Depreciation & amortization 15,152 13,474 28,626 -- 28,626
Restructuring charge from operations 1,813 -- 1,813 -- 1,813
Loss from operations (16,566) (22,287) (38,853) 93 (38,760)
Reconciling items to net loss:
Interest income (216) (66) (282) -- (282)
Interest expense 11,325 19,548 30,873 -- 30,873
Equity in losses of unconsolidated
affiliate -- -- -- -- --
Restructuring charge included in
other -- -- -- -- --
Losses (gains) on foreign currency -- (5) (5) -- (5)
Trade receivables facility costs 4,072 -- 4,072 -- 4,072
Other (income) expense (229) (1,721) (1,950) -- (1,950)
Income tax benefit (15,278) -- (15,278) -- (15,278)
------- ------- --------- -------- -------
Net loss (16,240) (40,043) (56,283) 93 (56,190)
======= ======= ========= ======== =======
Capital expenditures 4,514 1,189 5,703 -- 5,703
Assets 658,662 368,835 1,027,497 (461,928) 565,569
2001
- -------------------------------
Revenues
External customers $ 518,212 $ 345,180 $ 863,392 $ -- $ 863,392
Intersegment sales 61,854 2,427 64,281 (64,281) --
----------- ----------- ----------- ----------- -----------
Total revenues $ 580,066 $ 347,607 $ 927,673 $ (64,281) $ 863,392
=========== =========== =========== =========== ===========
Depreciation & amortization 18,191 13,952 32,143 -- 32,143
Restructuring charge from operations 37,493 371 37,864 -- 37,864
Loss from operations (148,727) (92,975) (241,702) 2,300 (239,402)
Reconciling items to net loss:
Interest income (178) (171) (349) -- (349)
Interest expense 20,235 1,057 21,292 -- 21,292
Equity in losses of unconsolidated
affiliate 7,668 -- 7,668 -- 7,668
Restructuring charge included in
other 1,590 -- 1,590 -- 1,590
Losses (gains) on foreign currency -- 1,706 1,706 -- 1,706
Trade receivables facility costs 2,228 -- 2,228 -- 2,228
Other (income) expense 2,088 (600) 1,488 -- 1,488
Income tax benefit (42,038) (819) (42,857) -- (42,857)
----------- ----------- ----------- ----------- -----------
Net loss (140,320) (94,148) (234,468) 2,300 (232,168)
=========== =========== =========== =========== ===========
Capital expenditures 4,463 1,436 5,899 -- 5,899
Assets 710,683 389,263 1,099,946 (407,442) 692,504
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
Reconciling items to net income (loss):
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
Losses (gains) on foreign currency -- -- -- -- --
Trade receivables facility costs 7,060 -- 7,060 -- 7,060
Other (income) expense (862) 499 (363) -- (363)
Income tax benefit (4,314) -- (4,314) -- (4,314)
----------- ----------- ----------- ----------- -----------
Net income (loss) 7,839 (12,359) (4,520) (2,216) (6,736)
=========== =========== =========== =========== ===========
Capital expenditures 48,712 11,630 60,342 -- 60,342
Assets 846,740 407,915 1,254,655 (473,041) 781,614
65
b. Geographic Information
International sales, primarily to Canadian customers, accounted for
approximately 9.1%, 9.2% and 3.1% of net sales during 2002, 2001 and 2000,
respectively.
As previously discussed, the Company acquired a Canadian subsidiary in
January, 2001. At December 31, 2002 and 2001, the amount reflected in property,
plant and equipment, net of accumulated depreciation related to this subsidiary
was approximately $2.0 million. Fixed assets utilized outside of North America
during 2002, 2001 and 2000 were immaterial.
c. Product Information
The Company offers products primarily in three general revenue
categories of new trailers, used trailers and parts. The new and used trailer
categories include trailers of varying sizes and specifications such as dry and
refrigerated trailers. Other revenues include trailer service work performed at
branch locations, leasing revenues, interest income from finance contracts, and
freight. The following table sets forth the major product category revenues and
their percentage of total revenues:
2002 2001 2000
------------------- -------------------- ---------------------
$ % $ % $ %
------------------- -------------------- ---------------------
New Trailers 563,496 68.8 614,363 71.2 1,079,913 81.1
Used Trailers 92,317 11.3 73,287 8.5 74,660 5.6
Parts 99,447 12.1 103,694 12.0 109,821 8.2
Other 64,308 7.8 72,048 8.3 67,778 5.1
------------------- -------------------- ---------------------
Total Revenues 819,568 100.0 863,392 100.0 1,332,172 100.0
=================== =================== =====================
d. Major Customers
The Company had one customer that represented 10.9%, 19.0% and 11.4% of
net sales in 2002, 2001 and 2000, respectively. The Company's net sales in the
aggregate to its five largest customers were 30.3%, 34.4% and 30.5% of its net
sales in 2002, 2001 and 2000, respectively.
66
20. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for fiscal years 2002, 2001 and 2000 (Dollars in thousands except per
share amounts).
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2002
- ----------------------------
Net Sales $ 161,952 $ 210,251 $ 241,474 $ 205,891
Gross profit 39 6,227 21,731 12,454
Net loss (14,589)(5) (21,677)(6) (8,319) (11,605)
Basic loss per share(1) $ (0.65) $ (0.96) $ (0.37) $ (0.46)
Diluted loss per share(1) $ (0.65) $ (0.96) $ (0.37) $ (0.46)
2001
- ----------------------------
Net Sales $ 242,629 $ 212,172 $ 241,945 $ 166,646
Gross loss (1,743) (26) (32,733) (84,711)
Net loss (17,730) (18,117) (61,373)(3) (134,948)(4)
Basic loss per share(1) $ (0.79) $ (0.81) $ (2.69) $ (5.88)
Diluted loss per share(1) $ (0.79) $ (0.81) $ (2.69) $ (5.88)
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)
(1)Earnings (loss) 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).
(3)The third quarter 2001 results include restructuring and other related
charges of $40.5 million ($25.6 million, net of tax).
(4)The fourth quarter 2001 results include loss contingencies and impairment
charge related to the Company's leasing operations of $37.9 million and used
trailer inventory valuation of $18.6 million.
(5)The first quarter 2002 results include new trailer inventory valuation
charges of $2.1 million.
(6)The second quarter 2002 results include loss contingencies of $6.0 million
related to the Company's leasing operations and used trailer inventory
valuation charges of $4.0 million.
67
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 -- EXECUTIVE OFFICERS OF THE REGISTRANT
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 2003 Annual
Meeting of Stockholders to be held June 2, 2003.
The following are the executive officers of the Company:
NAME AGE POSITION
---- --- --------
William P. Greubel............ 51 President, Chief Executive Officer and Director
Rodney P. Ehrlich.............. 56 Senior Vice President -- Product Development
Richard J. Giromini............ 49 Senior Vice President -- Chief Operating Officer
Mark R. Holden................. 43 Senior Vice President -- Chief Financial Officer
William P. Greubel. Mr. Greubel has been President, Chief Executive
Officer and Director of the Company since May 2002. As a Director he also serves
on the Executive and Nominating Committees of the Board. Mr. Greubel was a
Director and Chief Executive Officer of Accuride Corporation, a manufacturer of
wheels for trucks and trailers, from 1998 until May 2002 and served as President
of Accuride Corporation from 1994 to 1998. Previously, Mr. Greubel was employed
by AlliedSignal Corporation from 1974 to 1994 in a variety of positions of
increasing responsibility, most recently as Vice President and General Manager
of the Environmental Catalysts and Engineering Plastics business units.
Rodney P. Ehrlich. Mr. Rodney Ehrlich has been Senior Vice President --
Product Development of the Company since October 2001. Mr. Ehrlich was Vice
President-Engineering and has been in charge of the Company's engineering
operations since the Company's founding.
Richard J. Giromini. Mr. Giromini has been Senior Vice President -
Chief Operating Officer since joining the Company on July 15, 2002. Prior to
that, Mr. Giromini was with Accuride Corporation from April 1998 to July 2002,
where he served in capacities as Senior Vice President - Technology and
Continuous Improvement; Senior Vice President and General Manager - Light
Vehicle Operations; and President and CEO of AKW LP. Previously, Mr. Giromini
was employed by ITT Automotive, Inc. from 1996 to 1998 serving as the Director
of Manufacturing.
Mark R. Holden. Mr. Holden has been Senior Vice President--Chief
Financial Officer since October 2001. Mr. Holden has served as Vice
President--Chief Financial Officer and Director of the Company since May 1995 to
October 2001 and Vice President--Controller of the Company from 1992 until May
1995.
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 2003 Annual
Meeting of Stockholders to be held June 2, 2003.
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 2003 Annual Meeting of Stockholders to be held on June 2, 2003.
68
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the information contained
under the heading "Related Party Transaction" from its definitive Proxy
Statement to be delivered to the stockholders of the Company in connection with
the 2003 Annual Meeting of Stockholders to be held on June 2, 2003.
ITEM 14 -- CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. The Chief Executive
Officer and the Chief Financial Officer have reviewed the Company's disclosure
controls and procedures as of a date within the 90-day period prior to the
filing of this annual report (the "Evaluation Date"). Based on that review, they
have concluded that, as of the Evaluation Date, these controls and procedures
were, in design and operation, effective to assure that the information required
to be included in this report has been properly collected, processed, and timely
communicated to those responsible in order that it may be included in this
report.
Changes in Internal Controls. Subsequent to the Evaluation Date, there
have been no significant changes, including corrective actions, in the Company's
internal controls or in other factors that could significantly affect the
disclosure controls and procedures.
PART IV
ITEM 15 -- 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.
For the year ended December 31, 2000, ETZ was a significant subsidiary
under Rule 3-09 of Regulation S-X. Therefore, the Company was required
to file audited financial statements of ETZ for the year ended December
31, 2000 by June 30, 2001. The Company has received audited financial
statements under German generally accepted accounting principles for
the year ended December 31, 2000, but has not been able to obtain these
financial statements in conformity with accounting principles generally
accepted in the United States.
For the year ended December 31, 2001, ETZ was not a significant
subsidiary under Rule 3-09 of Regulation S-X. The Company divested ETZ
in January 2002.
(b) Reports on Form 8-K:
On November 14, 2002, the Company filed a current report on Form 8-K
for the purpose of furnishing under Item 9 a copy of the written
certification required by 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
On November 12, 2002, the Company filed a current report on Form 8-K
for the purpose of furnishing under Item 9 a copy of a senior
management presentation at an investor conference.
On October 7, 2002, the Company filed a current report on Form 8-K for
the purpose of furnishing under Item 9 a copy of a senior management
presentation to institutional investors.
(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 (1)
3.01 Certificate of Incorporation of the Company (2)
3.02 Certificate of Designations of Series A Junior Participating Preferred
Stock (2)
3.03 Amended and restated By-laws of the Company (20)
3.04 Certificate of Designations of Series B 6% Cumulative Convertible
Exchangeable Preferred Stock (6)
3.05 Certificate of Designations of Series C 5.5% Convertible Exchangeable
Preferred Stock (9)
4.01 Specimen Stock Certificate (17)
69
4.02 First Amendment to Shareholder Rights Agreement dated October 21, 1998
(10)
4.03 Form of Indenture for the Company's 6% Convertible Subordinated
Debentures due 2007 (6)
4.04 Second Amendment to Shareholder Rights Agreement dated December 18,
2000 (14)
10.01 Loan Agreement, Mortgage, Security Agreement and Financing Statement
between Wabash National Corporation and City of Lafayette dated as of
August 15, 1989 (2)
10.02 1992 Stock Option Plan (2)
10.03 Real Estate Sale Agreement by and between Kraft General Foods, Inc. and
Wabash National Corporation, dated June 1, 1994 (3)
10.04 6.41% Series A Senior Note Purchase Agreement dated January 31, 1996,
between certain Purchasers and Wabash National Corporation (4)
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 (4)
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 (5)
10.07 Series B-H Senior Note Purchase Agreement dated December 18, 1996
between certain Purchasers and Wabash National Corporation (5)
10.08 Revolving Credit Loan Agreement dated September 30, 1997, between NBD
Bank, N.A. and Wabash National Corporation (7)
10.09 Investment Agreement and Shareholders Agreement dated November 4, 1997,
between ETZ (Europaische Trailerzug Beteiligungsgesellschaft mbH) and
Wabash National Corporation (7)
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 (8)
10.11 Indemnification Agreement between the Company and Roadway Express, Inc.
(11)
10.12 364-day Credit Agreement dated June 22, 2000, between Bank One,
Indiana, N.A., as administrative agent and Wabash National Corporation
(12)
10.13 Series I Senior Note Purchase Agreement dated September 29, 2000,
between Prudential Insurance Company and Wabash National Corporation
(13)
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 and Rentals, L.P., as Lessee, and Wabash Statutory Trust, as
Lessor, dated December 29, 2000 (15)
10.16 2000 Stock Option Plan (16)
10.17 Consulting and Non-Competition Agreement dated July 16, 2001 between
Donald J. Ehrlich and Wabash National Corporation (17)
10.18 Offer of Employment dated August 13, 2001 between Arthur R. Brown and
the Company (19)
10.19 Originators Receivables Sale Agreement dated October 4, 2001 Wabash
National LP and NOAMTC, Inc. as originators and Wabash National
Financing LLC, Receivable Sales Agreement dated October 4, 2001 between
Wabash Financing LLC and WNC Funding LLC and the Receivables Purchase
Agreement dated October 4, 2001 between WNC Funding LLC and North Coast
Funding Corporation (18)
10.20 2001 Stock Appreciation Rights Plan (18)
10.21 Asset Purchase Agreement dated January 11, 2002, between Bayerische
Trailerzug Gesellschaft fur Bimodalen Guterverkehr mbH (ETZ) and Wabash
National Corporation (19)
10.22 Share Purchase Agreement dated January 11, 2002, between Brennero
Trasporto Rotaia S.p.A. and Bimodal Verwaltungs Gesellschaft mbH
(collectively the "Purchasers") and Wabash National Corporation (the
Seller) (19)
10.23 Master Amendment Agreement dated April 11, 2002 between the Company and
various financial institutions (19)
10.24 Amended and Restated 9.66% Series A Senior Secured Notes Purchase
Agreement dated April 12, 2002, between certain purchasers and the
Comnpany (19)
10.25 Amended and Restated Series C-H Senior Secured Notes Purchase Agreement
dated April 12, 2002, between certain purchasers and the Company (19)
10.26 Amended and Restated Series I 11.29% Senior Secured Note Purchase
Agreement dated April 12, 2002, between Prudential Insurance Company
and the Company (19)
10.27 Amended and Restated Credit Agreement dated April 11, 2002 between Bank
One, Indiana, NA, as administrative agent and the Company (19)
10.28 Receivables Purchase and Servicing Agreement dated April 11, 2002
between General Electric Capital Corporation, as initial Purchaser and
as Agent and the Company (19)
70
10.29 Receivables Sale and Contribution Agreement dated April 11, 2002
between Wabash National Corporation as Performance Guarantor, NOAMTC,
Inc. and Wabash National LP, as originators and WNC Receivables, LLC,
as Buyer (19)
10.30 Annex X to the Receivables Sale and Contribution Agreement and
Receivables Purchase and Servicing Agreement each dated April 11, 2002
(19)
10.31 Executive Employment Agreement dated April, 2002 between the Company
and William P. Greubel (20)
10.32 Severance Agreement including Exhibit A Form of Waiver and Release
Agreement dated May 6, 2002 between the Company and Richard E. Dessimoz
(21)
10.33 Severance Agreement dated May 6, 2002 and Letter Agreement dated July
1, 2002 between the Company and Derek L. Nagle (21)
10.34 Executive Employment Agreement dated June 28, 2002 between the Company
and Richard J. Giromini (21)
10.35 Nonqualified Stock Option Agreement dated July 15, 2002 between the
Company and Richard J. Giromini (21)
10.36 Restricted Stock Agreement between the Company and Richard J. Giromini
(21)
10.37 Executive Employment Agreement dated June 14, 2002 between the Company
and Mark R. Holden (21)
10.38 Nonqualified Stock Option Agreement dated May 6, 2002 between the
Company and Mark R. Holden (21)
10.39 Non-qualified Stock Option Agreement between the Company and William P.
Greubel (21)
10.40 Exhibit A Form of Waiver and Release Agreement dated May 6, 2002
between the Company and Derek L. Nagle (23)
10.41 First Amendment to Executive Employment Agreement dated December 4,
2002 between the Company and William P. Greubel (23)
10.42 Consulting and Non-Competition Agreement dated September 1, 2002
between the Company and Charles Ehrlich (23)
10.43 Restricted Stock Agreement between the Company and William P. Greubel
(23)
10.44 Third Master Amendment Agreement dated April 11, 2003 between the
Company and various financial institutions (23)
10.45 Second Amendment to Amended and Restated 9.66% Series A Senior Secured
Notes Purchase Agreement dated April 11, 2003, between certain
purchasers and the Company (23)
10.46 Second Amendment to Amended and Restated Series C-H Senior Secured
Notes Purchase Agreement dated April 11, 2003, between certain
purchasers and the Company (23)
10.47 Second Amendment to Amended and Restated Series I 11.29% Senior Secured
Note Purchase Agreement dated April 11, 2003, between Prudential
Insurance Company and the Company (23)
10.48 Second Amendment to Amended and Restated Credit Agreement dated April
11, 2003 between Bank One, Indiana, NA, as administrative agent and the
Company (23)
10.49 Omnibus Amendment No. 2 to the Receivables Sale and Contribution
Agreement and Receivables Purchase and Servicing Agreement each dated
April 11, 2003 (23)
21.00 List of Significant Subsidiaries (23)
23.01 Consent of Ernst & Young LLP (23)
23.02 Notice Regarding Consent of Arthur Andersen LLP (23)
(1) Incorporated by reference to the Registrant's Form 8-K filed on May 1,
1997
(2) 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)
(3) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended June 30, 1994.
(4) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1995
(5) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1996
(6) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended March 31, 1997
(7) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1997
(8) Incorporated by reference to the Registrant's Form 8-K filed on April
14, 1998
(9) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1998
(10) Incorporated by reference to the Registrant's Form 8-K filed on October
26, 1998
(11) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1999
(12) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended June 30, 2000
(13) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 2000
(14) Incorporated by reference to the Registrant's Amended Form 8-A filed
January 18, 2001
(15) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 2000
(16) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended March 31, 2001
(17) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended June 30, 2001
(18) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 2001
(19) Incorporated by reference to the Registrant's Form 10-K for the quarter
ended December 31, 2001
(20) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended March 31, 2002
(21) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended June 30, 2002
(22) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 2002
(23) Filed herewith
71
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
April 15, 2003 By: /s/ MARK R. HOLDEN
--------------------------------------------
Mark R. Holden
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting 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 date indicated.
Date Signature and Title
- ---- -------------------
April 15, 2003 By: /s/ WILLIAM P. GREUBEL
-----------------------------------------
William P. Greubel
President and Chief Financial Officer and
Director (Principal Executive Officer)
April 15, 2003 By: /s/ MARK R. HOLDEN
-----------------------------------------
Mark R. Holden
Senior Vice President and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
April 15, 2003 By: /s/ JOHN T. HACKETT
-----------------------------------------
John T. Hackett
Chairman of the Board of Directors
April 15, 2003 By: /s/ DAVID C. BURDAKIN
-----------------------------------------
David C. Burdakin
Director
April 15, 2003 By: /s/ LUDVIK F. KOCI
-----------------------------------------
Ludvik F. Koci
Director
April 15, 2003 By: /s/ DR. MARTIN C. JISCHKE
-----------------------------------------
Dr. Martin C. Jischke
Director
April 15, 2003 By: /s/ E. HUNTER HARRISON
-----------------------------------------
E. Hunter Harrison
Director
72
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William P. Greubel, certify that:
1. I have reviewed this annual report on Form 10-K of Wabash National
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 15, 2003
/s/William P. Greubel
-----------------------------------------
William P. Greubel
President and Chief Executive Officer
(Principal Executive Officer)
73
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark R. Holden, certify that:
1. I have reviewed this annual report on Form 10-K of Wabash National
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 15, 2003
/s/Mark R. Holden
-----------------------------------------
Mark R. Holden
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
74