Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
[X] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2003
OR
TRANSITION REPORT UNDER SECTION 13 0R 15 (d) OF
[ ] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------- -------
COMMISSION FILE NUMBER: 1-10883
---------
WABASH NATIONAL CORPORATION
---------------------------
( Exact name of registrant as specified in its charter)
Delaware 52-1375208
-------- ----------
(State of Incorporation) (IRS Employer
Identification Number)
1000 Sagamore Parkway South,
Lafayette, Indiana 47905
------------------ -----
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (765) 771-5300
------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and has been subject to such filing requirements
for the past 90 days.
YES X NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.
YES X NO
--- ---
The number of shares of common stock outstanding at May 7, 2003 was 25,663,399.
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
PART I -- FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 19
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
Sarbanes-Oxley 302 Certificates 22
2
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2003 2002
--------- ---------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 7,376 $ 35,659
Accounts receivable, net 74,011 34,396
Current portion of finance contracts 7,345 9,528
Inventories 135,450 134,872
Prepaid expenses and other 22,251 18,299
--------- ---------
Total current assets 246,433 232,754
PROPERTY, PLANT AND EQUIPMENT, net 144,331 145,703
EQUIPMENT LEASED TO OTHERS, net 94,201 100,837
FINANCE CONTRACTS, net of current portion 19,827 22,488
GOODWILL, net 35,552 34,652
OTHER ASSETS 18,940 29,135
------ ------
$ 559,284 $ 565,569
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITES:
Current maturities of long-term debt $ 270,403 $ 42,961
Current maturities of capital lease obligations 49,806 12,860
Accounts payable 60,983 60,457
Other accrued liabilities 61,912 61,424
--------- ---------
Total current liabilities 443,104 177,702
LONG-TERM DEBT, net of current maturities 13,231 239,043
LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current maturities 5,329 51,993
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 22,108 22,847
STOCKHOLDERS' EQUITY:
Preferred stock, 352,000 shares issued and outstanding
with an aggregate liquidation value of $17,600 3 3
Common stock, $0.01 par value, 25,656,275 and 25,647,060 shares
issued and outstanding, respectively 257 257
Additional paid-in capital 237,650 237,489
Retained deficit (161,056) (162,222)
Accumulated other comprehensive loss (63) (264)
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
--------- ---------
Total stockholders' equity 75,512 73,984
--------- ---------
$ 559,284 $ 565,569
========= =========
See Notes to Condensed Consolidated Financial Statements.
3
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months
Ended March 31,
----------------------------
2003 2002
--------- ---------
(Unaudited)
NET SALES $ 222,508 $ 161,952
COST OF SALES 200,167 161,913
--------- ---------
Gross profit 22,341 39
GENERAL AND ADMINISTRATIVE EXPENSES 10,539 14,091
SELLING EXPENSES 5,218 5,749
--------- ---------
Income (loss) from operations 6,584 (19,801)
OTHER INCOME (EXPENSE):
Interest expense (7,868) (5,673)
Trade receivables facility costs (222) (1,731)
Foreign exchange gains and losses, net 2,856 (253)
Other, net 80 922
--------- ---------
Income (loss) before income taxes 1,430 (26,536)
INCOME TAX BENEFIT -- (11,947)
--------- ---------
Net Income (loss) 1,430 (14,589)
PREFERRED STOCK DIVIDENDS 264 443
--------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS $ 1,166 $ (15,032)
========= =========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ 0.05 $ (0.65)
========= =========
COMPREHENSIVE INCOME (LOSS):
Net Income (loss) $ 1,430 $ (14,589)
Foreign currency translation adjustment 201 (5)
--------- ---------
NET COMPREHENSIVE INCOME (LOSS) $ 1,631 $ (14,594)
========= =========
See Notes to Condensed Consolidated Financial Statements.
4
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months
Ended March 31,
-----------------------
2003 2002
-------- --------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,430 $(14,589)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,696 7,441
Net gain on the sale of assets (56) --
Provision for losses on accounts receivable and finance contracts 1,222 4,060
Cash used for restructuring activities (88) (147)
Trailer valuation charges 1,603 2,100
Change in operating assets and liabilities:
Accounts receivable (40,337) (8,830)
Inventories 765 41,625
Refundable income taxes 408 11,685
Prepaid expenses and other 4,141 2,888
Accounts payable and accrued liabilities 643 (6,324)
Other, net (1,439) (207)
-------- --------
Net cash provided by (used in) operating activities (25,012) 39,702
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,267) (766)
Additions to equipment leased to others -- (9,342)
Additions to finance contracts -- (5,694)
Proceeds from sale of leased equipment and finance contracts 4,096 5,737
Principal payments received on finance contracts 2,385 2,963
Proceeds from the sale of property, plant and equipment 490 17
-------- --------
Net cash provided by (used in) investing activities 4,704 (7,085)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Revolving bank line of credit 15,500 23,300
Sale of common stock -- 93
Payments:
Revolving bank line of credit -- (17,308)
Debt and capital lease obligations (23,475) (8,230)
Preferred stock dividends -- (443)
Debt issuance costs -- (827)
-------- --------
Net cash used in financing activities (7,975) (3,415)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (28,283) 29,202
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,659 11,135
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,376 $ 40,337
===============================================================================================================
Supplemental disclosures of cash flow information:
===============================================================================================================
Cash paid during the period for:
Interest $ 7,125 $ 3,190
Income taxes paid (refunded), net (276) (24,534)
- ---------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
5
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed consolidated financial statements of Wabash National Corporation
and its subsidiaries (the Company) have been prepared without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying condensed consolidated financial statements contain
all material adjustments, necessary to present fairly the consolidated financial
position of the Company, its results of operations and cash flows. The condensed
consolidated financial statements included herein should be read in conjunction
with the consolidated financial statements and the notes thereto included in the
Company's 2002 Annual Report on Form 10-K.
Certain items previously reported in specific condensed consolidated financial
statement captions have been reclassified to conform to the 2003 presentation.
2. INVENTORIES
Inventories consisted of the following (in thousands):
March 31, December 31,
2003 2002
---------- ----------
(Unaudited)
Raw material and components $ 28,801 $ 27,646
Work in process 7,549 14,447
Finished goods 64,554 55,523
After-market parts 15,938 15,054
Used trailers 18,608 22,202
---------- ----------
$135,450 $134,872
========== ==========
3. NEW ACCOUNTING PRONOUNCEMENTS
Asset Retirement Obligations
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset
Retirement Obligations. 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 adoption of SFAS No. 143, effective January 1, 2003,
did not have an effect on financial position, results of operations or cash
flow.
Variable Interest Entities
In 2003, the FASB issued Interpretation No. 46 (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
6
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.
4. RESTRUCTURING AND OTHER RELATED CHARGES
In connection with the Company's exit from manufacturing product for export
outside the North American market, international leasing and financing
activities and the consolidation of certain domestic operations, charges
totaling $48.2 million were recorded ($46.6 million in 2000, $1.4 million in
2001 and $0.2 million in 2002). To date, $40.3 million has been utilized. The
remaining balance at March 31, 2003 relates to the following (in thousands):
Equipment Guarantees $ 5,842
Financial Guarantees 1,117
Other Charges 898
---------
$ 7,857
=========
Although certain guarantee obligations do not contractually expire until 2018,
the Company anticipates substantially completing all activities related to this
restructuring plan by the end of 2004.
5. DEBT
In April 2003, the Company completed the amendment of its Bank Term Loan, Bank
Line of Credit, Senior Notes, Trade Receivables Facility and Sale and Leaseback
Facility. The agreements amended debt covenants with its lenders and cured a
technical violation of prior covenants. Among other provisions, the amendments:
- Limit capital expenditures to $4.0 million within a fiscal year;
- Specify minimum levels of earnings before interest, taxes, depreciation
and amortization (EBITDA) and shareholders' equity and a maximum debt
to assets ratio; and
- Require that the Company have a commitment to refinance, amend or
restructure its debt and capital lease obligations prior to January 31,
2004.
Additionally, the amended covenants contain a subjective acceleration clause
related to material adverse changes.
Borrowings under the Bank Term Loan, excluding letters of credit, and Bank Line
of Credit amount to $86.8 million as of March 31, 2003. All borrowings under
these agreements become due and payable on March 30, 2004.
Borrowings under the Senior Notes agreements, excluding make whole and deferral
fees, amounted to $172.5 million as of March 31, 2003 and have stated maturities
extending through 2008. Maturities can be accelerated if the Company does not
comply with certain covenants. The Company does not anticipate being in
compliance with covenants that as of March 31, 2004 require a maximum debt to
capitalization ratio of 60% and a minimum net worth of $135 million and
therefore has classified the debt as current.
6. STOCK-BASED COMPENSATION
The Company follows 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
7
the consolidated financial statements. In accordance with SFAS No. 148,
Accounting for Stock Based Compensation Transition and Disclosure, the following
table illustrates the effect on net income (loss) and net income (loss) per
share as if the Company had applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock Based Compensation to stock-based employee
compensation.
Three Months Ended March
31,
---------------------------
(in thousands, except for per share amounts) 2003 2002
-------- ---------
Reported net income (loss) $ 1,430 $ (14,589)
Pro forma stock- based compensation expense (net of tax) (495) (423)
-------- ---------
Pro forma net income (loss) $ 935 $ (15,012)
======== =========
Basic and diluted earnings (loss) per share:
Reported net income (loss) per share $ 0.05 $ (0.65)
Pro forma stock-based compensation expense (net of tax) per share (0.02) (0.02)
-------- ---------
Pro forma net income (loss) per share $ 0.03 $ (0.67)
======== =========
7. CONTINGENCIES
A. LITIGATION
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company arising in the ordinary course of business,
including those pertaining to product liability, labor and health related
matters, successor liability, 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.
8
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.
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
9
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.
8. PER SHARE OF COMMON STOCK
Per share results have been computed based on the average number of common
shares outstanding. The following table presents the number of incremental
weighted average shares used in computing diluted per share amounts (in
millions):
Three Months Ended March 31,
----------------------------
2003 2002
--------- ---------
Average shares outstanding basic 25.7 23.0
Options -- --
Preferred Stock -- --
--------- ---------
Average shares outstanding diluted 25.7 23.0
========= =========
The average shares outstanding -- diluted excluded the antidilutive effects of
preferred stock convertible into 823,200 shares and 1,194,700 shares in 2003 and
2002, respectively, and 35,000 of stock options in 2002.
9. SEGMENTS
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
after-market parts and service through its retail branch network. In addition,
the retail and distribution segment includes the sale of after-market parts
through Wabash National Parts.
Reportable segment information is as follows (in thousands):
THREE MONTHS ENDED Retail and Consolidated
MARCH 31, 2003 Manufacturing Distribution Eliminations Totals
-------------- ------------- ------------ ------------ ------
(unaudited)
Revenues
External customers $ 144,526 $ 77,982 $ -- $ 222,508
Intersegment sales 22,131 374 (22,505) --
--------- --------- --------- ---------
Total Revenues $ 166,657 $ 78,356 $ (22,505) $ 222,508
========= ========= ========= =========
Income (loss) from Operations $ 8,223 $ (1,662) $ 23 $ 6,584
THREE MONTHS ENDED
MARCH 31, 2002
--------------
(unaudited)
Revenues
External customers $ 77,660 $ 84,292 $ -- $ 161,952
Intersegment sales 4,742 2,060 (6,802) --
--------- --------- --------- ---------
Total Revenues $ 82,402 $ 86,352 $ (6,802) $ 161,952
========= ========= ========= =========
Income (loss) from Operations $ (16,495) $ (3,748) $ 442 $ (19,801)
10
Product Information
The Company offers products primarily in three categories: new trailers, used
trailers and parts. The following table sets forth the major product category
and their percentage of total net sales (dollars in thousands):
Three Months Ended March 31,
-----------------------------------------------
2003 2002
---------------------- ----------------------
$ % $ %
---------------------- ----------------------
New Trailers 164,672 74.0 96,073 59.3
Used Trailers 19,628 8.8 24,367 15.0
Parts 24,131 10.8 24,441 15.1
Other 14,077 6.4 17,071 10.6
---------------------- ----------------------
Total Net Sales 222,508 100.0 161,952 100.0
====================== ======================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report, including documents incorporated herein by reference, contains
forward-looking statements. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities and Exchange Commission or otherwise. The words "believe," "expect,"
"anticipate," and "project" and similar expressions identify forward-looking
statements, which speak only as of the date the statement is made. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but are not
limited to, information regarding revenues, income or loss, capital
expenditures, acquisitions, number of retail branch openings, plans for future
operations, financing needs or plans, the impact of inflation and plans relating
to services of the Company, as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by or
underlying the forward-looking statements. Statements in this report, including
those set forth in "The Company" and "Risk Factors," and in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", describe factors, among others, that could contribute to or cause
such differences.
Although we believe that our expectations that are expressed in these
forward-looking statements are reasonable, we cannot promise that our
expectations will turn out to be correct. Our actual results could be materially
different from and worse than our expectations. Important risks and factors that
could cause our actual results to be materially different from our expectations
include the factors that are disclosed elsewhere herein and in Item 7 in the
Company's Form 10-K as filed with the Securities and Exchange Commission on
April 15, 2003.
11
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
Three Months Ended March 31,
--------------------------------
2003 2002
---------- ----------
Net sales 100.0% 100.0%
Cost of sales 90.0 100.0
---------- ----------
Gross profit 10.0 0.0
General and administrative expense 4.7 8.7
Selling expense 2.3 3.5
---------- ----------
Income (loss) from operations 3.0 (12.2)
Interest expense (3.5) (3.5)
Trade receivables facility costs (0.1) (1.1)
Foreign exchange gains and losses, net 1.3 (0.2)
Other, net 0.0 0.6
---------- ----------
Income (Loss) before income taxes 0.7 (16.4)
Income tax benefit 0.0 (7.4)
---------- ----------
Net income (loss) 0.7% (9.0)%
========== ==========
THREE MONTHS ENDED MARCH 31, 2003
NET SALES
Net sales improved 37% from the first quarter of 2002, which is believed to have
been the low point of the industry downturn that began in 2000. Slow but steady
progress has been noted since the first quarter of last year and on a sequential
basis, net sales are up approximately 8% from the fourth quarter of 2002. By
business segment, net external sales and related units sold were as follows:
Three Months Ended March 31,
---------------------------------------------
2003 2002 % Change
----------- ----------- -----------
Sales by Segment: (in millions)
Manufacturing $144.5 $77.7 86%
Retail and Distribution 78.0 84.3 (7)%
------ ------
Total $222.5 $162.0 37%
====== ======
New trailer units: (units)
Manufacturing 8,400 4,500 87%
Retail and Distribution 1,200 1,000 20%
----- -----
Total 9,600 5,500 75%
===== =====
Used trailer units 3,500 5,100 (31)%
===== =====
The manufacturing segment's sales improvement was driven by demand for new
trailers. Prices declined slightly from a year ago as competition for orders
remains keen. Product mix was also slightly negative when compared to the year
ago period.
12
The decrease in the retail and distribution segment's sales results primarily
from the closing of nine underperforming or non-strategic locations since the
first quarter of 2002. On an equivalent store basis, new trailer sales improved
despite continued soft industry demand. Overall, sales of used trailers declined
as a result of fewer units sold offset in part by an increase in average unit
selling price. The retail and distribution segment has dramatically reduced its
used trailer inventories from approximately $61 million as of December 31, 2001
to approximately $19 million at March 31, 2003. Leasing revenues declined year
over year as a result of the termination of a sublease agreement with a large
customer that filed bankruptcy in August 2002.
GROSS PROFIT (LOSS)
Gross profit as a percent of sales was 10.0% compared to a break-even
performance for the same period in 2002. As discussed below, both of the
Company's segments contributed as follows:
Three Months Ended March 31,
-----------------------------------------
2003 2002 $ Change
----------- ----------- -----------
Gross Profit (Loss) by Segment: (in millions)
Manufacturing $ 16.2 $ (7.4) $ 23.6
Retail and Distribution 6.1 7.0 (0.9)
Eliminations 0.0 0.4 (0.4)
------- ------- -------
Total Gross Profit (Loss) $ 22.3 $ 0.0 $ 22.3
======= ======= =======
The manufacturing segment's gross profit improved due to higher volumes, in line
with sales, coupled with realizing cost savings in both labor and materials as
our continuous improvement initiatives yielded positive results.
The retail and distribution segment's gross profit for 2003 was negatively
impacted by $1.6 million in used trailer valuation charges and $0.4 million in
additional workers' compensation accruals. Excluding the impact of these
charges, gross profit increased $1.1 million despite the $6.3 million reduction
in year over year sales. The higher gross profit percentage was the result of
improved labor utilization and efficiency within the service area and improved
used trailer gross profit percentages. New trailer margins held steady despite
the soft industry demand experienced. Parts gross margins were negatively
impacted by lower wholesale parts sales during the quarter.
General and Administrative
General and administrative expenses decreased $3.6 million to $10.5 million for
the three months ended March 31, 2003, compared to $14.1 million for the same
period in 2002. This decrease was primarily due to reductions of $1.8 million in
bad debt expense and $1.4 million in professional fees associated with debt
restructurings in 2003 compared to 2002.
Other Income (Expense)
Interest expense totaled $7.9 million for the quarter, an increase of $2.2
million from the prior year period. The increase reflects higher interest rates
and the amortization of debt costs incurred to restructure debt in 2002, offset
in part by reduced average borrowings. The Company anticipates that interest
expense will increase significantly in subsequent quarters as amortization of
deferred debt cost will include the additional $1.5 million incurred as a result
of amending the facilities in 2003 and the $8.5 million remaining on deferred
debt cost related to the 2002 debt restructuring will be accelerated to coincide
with a March 2004 maturity.
13
Trade receivables facility costs declined as $1.5 million in facility
restructuring costs incurred in the 2002 quarter were not repeated.
Foreign exchange transaction gains and losses, net were gains of $2.9 million
for the three months ended March 31, 2003, compared to losses of $0.3 million
for the same period in 2002. The gain reflects a strengthening of the Canadian
dollar and the resultant impact on intercompany transactions between the Company
and its Canadian subsidiary, as well as U.S. denominated transactions between
the Canadian subsidiary and third parties.
Income Taxes
In 2003, no income tax expense was recognized as current year earnings were
offset against available net operating losses (NOL). The 2002 benefit recorded
represents an additional realizable Federal 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 in excess of those utilized, a full valuation allowance is
recorded against the related deferred tax assets at March 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
Operating activities consumed $25.0 million in cash during 2003 compared to
providing $39.7 million in 2002. Improvements in net income and non-cash items
were offset by increased levels of accounts receivable resulting from higher
sales. The 2002 period benefited from reducing inventories due to declining
production, the liquidation of used trailer inventory and the collection of tax
refunds.
Investing activities provided $4.7 million in cash as the company is maintaining
strict controls on additional investments.
Net borrowings during the period decreased $8.0 million as the company made
scheduled debt and capital lease payments totaling $23.5 million, offset by
borrowings under its revolving credit facilities of $15.5 million to support
operations.
SOURCES AND USES OF CAPITAL
As of March 31, 2003, the Company's liquidity position, defined as cash on hand
and available borrowing capacity under existing credit agreements amounted to
approximately $62 million compared to approximately $78 million as of December
31, 2002. Debt and lease obligations, both on and off the balance sheet,
amounted to approximately $357 million compared to $367 million as of December
31, 2002. The majority of these debt and lease obligations are due and payable
during the next twelve months. Based upon the Company's projections, it is
unlikely that the Company will be able to repay these obligations from
operations.
The goals for 2003 are to reduce debt by $100 million through a combination of
cash flows from operations, divestitures and working capital improvements and to
refinance the remaining obligations. In the first quarter, a $10 million net
reduction in debt and lease obligations, both on and off the balance sheet, was
achieved despite an increased requirement for working capital in support of
sales growth and seasonal collection patterns.
14
The Company continues to pursue opportunities to divest non-core assets in order
to reduce indebtedness. Currently, discussions are proceeding for the sale of
the rental and leasing business and the parts wholesale business. These
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.
In April 2003, the Company completed the amendment of its revolving line of
credit, senior notes, trade receivables facility and lease facility. The
agreements amended debt covenants with its lenders and cured a technical
violation of a prior covenant. Among other provisions, the amendments:
- Limit capital expenditures to $4.0 million within a fiscal year;
- Specify minimum levels of EBITDA and shareholders' equity and a maximum
debt to assets ratio; and
- Require that the Company have a commitment to refinance, amend or
restructure its debt and capital lease obligations prior to January 31,
2004.
Additionally, the amendments contain a subjective acceleration clause related to
material adverse changes. As of March 31, 2003, the Company's performance
against the covenants was as follows (dollars in millions):
Actual
Required Attained
------------ ------------
Minimum EBITDA -- $ 18.6
Minimum stockholders' equity $ 40.0 $ 83.1
Maximum debt to assets ratio 0.95 0.79
Capital expenditures $ 4.0 $ 2.2
Under the loan agreements: EBITDA is defined as income (loss) from operations
before depreciation and amortization and eligible charges. Stockholders' equity
is defined as Total Stockholders' Equity plus eligible charges. Debt to asset
ratio is defined as the ratio of outstanding amounts under the Bank Term Loan,
excluding letters of credit, Bank Line of Credit and Senior Notes agreements to
the sum of cash and cash equivalents, net inventory, prepaid expenses and other,
and property, plant and equipment.
In summary, the Company's ongoing liquidity and its ability to continue as a
going concern depends on its ability to maintain positive operating results,
continue to borrow under its bank line of credit and trade receivables facility,
manage cash resources, meet the financial covenants under its new debt
agreements and obtain the required commitment to refinance, amend or restructure
its debt and capital lease obligations prior to January 31, 2004. 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.
On April 30, 2003, the Company withdrew a shelf registration statement for the
issuance of up to $50 million in securities, which it had previously filed with
the SEC.
EBITDA
The Company uses EBITDA, income (loss) before income taxes, interest expense,
depreciation and amortization as an internal measure of performance and believes
it is a useful and commonly used measure of financial performance in addition to
income (loss) before taxes and other profitability
15
measures under generally accepted accounting principals (GAAP). EBITDA is not a
measure of performance under GAAP. EBITDA should not be construed as an
alternative to operating income and income (loss) before taxes as an indicator
of the company's operations in accordance with GAAP, nor is EBITDA an
alternative to cash flow from operating activities in accordance with GAAP.
Wabash National's definition of EBITDA can differ from that of other companies.
The following table reconciles Net income, the most comparable measure under
GAAP to EBITDA for the three months ended March 31, 2003 (in millions):
Net income $ 1.4
Add (subtract):
Income tax --
Interest expense 7.9
Depreciation and amortization 6.7
-------
EBITDA $ 16.0
=======
As noted above, the Company is required to maintain a minimum level of EBITDA to
be in compliance with a covenant contained in its loan agreements. EBITDA for
this purpose is defined as income from operations before depreciation and
amortization and eligible charges. The following table reconciles Income from
operations, the most comparable measure under GAAP to EBITDA for the three
months ended March 31, 2003 (in millions):
Income from operations $ 6.6
Add (subtract):
Depreciation and amortization 6.7
Eligible charges 5.3
-------
EBITDA $ 18.6
=======
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
16
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.
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.
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.
The Company provides 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 locations. The reserve is
evaluated quarterly to assess the range of potential clean-up cost on a
site-by-site once an environmental issue has been identified. The Company
determines its necessary legal reserves based upon a probability of potential
outcome.
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
17
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. As of March 31, 2003, the Company has approximately
$150 million in NOLs. The Company believes that its estimates for the valuation
allowance reserved against deferred tax assets are appropriate based on current
facts and circumstances.
BACKLOG
The Company's backlog of orders was approximately $195 million and $208 million
at March 31, 2003 and December 31, 2002, respectively. Orders that comprise the
backlog may be subject to changes in quantities, delivery, specifications and
terms. Orders that have been confirmed by the customer in writing and can be
produced during the next 18 months are included in backlog. The Company expects
to fill a majority of its existing backlog of orders within the next twelve
months.
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 nature of the
equipment, the recovery value is considered to be minimal. As of March 31, 2003,
the unamortized lease value is approximately $5.0 million; additionally, the
Company has approximately $10.0 million in finance contracts recorded on its
balance sheet. Amtrak obligations to the Company are current and as a result no
provision for losses has been recorded.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
In addition to the risks inherent in its operations, the Company has exposure to
financial and market risk resulting from volatility in commodity prices,
interest rates and foreign exchange rates. The following discussion provides
additional detail regarding the Company's exposure to these risks.
A. COMMODITY PRICE RISKS
The Company is exposed to fluctuation in commodity prices through the purchase
of raw materials that are processed from commodities such as aluminum, steel,
wood and virgin plastic pellets. Given the historical volatility of certain
commodity prices, this exposure can significantly impact product costs. The
Company 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 March 31, 2003, the Company had approximately $133 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.
18
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. A five cent change in the Canadian exchange rate would
result in an approximately $1.1 million impact on results of operations. The
Company does not hold or issue derivative financial instruments for speculative
purposes. As of March 31, 2003, the Company had no foreign currency contracts
outstanding.
ITEM 4. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the Company
have evaluated the effectiveness of the disclosure controls and procedures (as
such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90
days prior to the filing date of this quarterly report (the "Evaluation Date").
Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures are effective
in alerting them on a timely basis to material information relating to the
Company required to be included in the Company's periodic filings under the
Exchange Act.
Since the Evaluation Date, there have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
such controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in legal proceedings from the items
disclosed in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) The Company is in arrears with respect to payment of dividends on the
following classes of preferred stock as of March 31, 2003:
Series B 6% Cumulative Convertible Exchangeable Preferred Stock -
$1,100,000
The Company has not paid dividends for the past four quarters and if
dividends are not paid for the next two quarters, the preferred
stockholders will have the right to appoint two directors to serve on the
Board of Directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
19
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(b) Reports on Form 8-K:
1. Form 8-K filed February 13, 2003 reporting under Item 9:
Regulation FD Disclosure.
2. Form 8-K filed February 24, 2003 reporting under Item 9:
Regulation FD Disclosure.
3. Form 8-K filed March 3, 2003 reporting under Item 9: Regulation FD
Disclosure.
4. Form 8-K filed March 3, 2003 reporting under Item 9: Regulation FD
Disclosure.
5. Form 8-K filed April 15, 2003 reporting under Item 7: Financial
Statements, Pro Forma Financial Information and Exhibits and Item
9: Regulation FD Disclosure.
6. Form 8-K filed May 1, 2003 reporting under Item 9: Regulation FD
Disclosure.
7. Form 8-K filed May 5, 2003 reporting under Item 9: Regulation FD
Disclosure.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WABASH NATIONAL CORPORATION
Date: May 13, 2003 By: /s/ Mark R. Holden
------------ ------------------
Mark R. Holden
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer
And Duly Authorized Officer)
21
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 quarterly report on Form 10-Q of Wabash National
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 13, 2003
/s/William P. Greubel
----------------------------------------
William P. Greubel
President and Chief Executive Officer
(Principal Executive Officer)
22
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 quarterly report on Form 10-Q of Wabash National
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 13, 2003
/s/Mark R. Holden
-----------------------------------------
Mark R. Holden
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
23