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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, 2004
OR
TRANSITION REPORT UNDER 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 of Incorporation) (IRS Employer
Identification Number)
1000 Sagamore Parkway South, [WABASH NATIONAL LOGO]
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 April 23, 2004 was
27,086,335.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
- ----------------------------- ------------------------------------
Common stock, $0.01 par value New York Stock Exchange
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 2004 and December 31, 2003 3
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2004 and 2003 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 16
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
2
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,818 $ 12,552
Accounts receivable, net 95,714 66,641
Current portion of finance contracts 3,494 4,727
Inventories 88,678 84,996
Prepaid expenses and other 8,706 10,249
--------- ---------
Total current assets 208,410 179,165
PROPERTY, PLANT AND EQUIPMENT, net 128,823 130,594
EQUIPMENT LEASED TO OTHERS, net 19,418 21,187
FINANCE CONTRACTS, net of current portion 5,564 6,155
GOODWILL, net 35,887 36,045
OTHER ASSETS 19,771 23,890
--------- ---------
$ 417,873 $ 397,036
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 9,018 $ 7,337
Accounts payable 82,561 68,437
Other accrued liabilities 56,768 61,421
--------- ---------
Total current liabilities 148,347 137,195
LONG-TERM DEBT, net of current maturities 222,699 219,979
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 14,004 17,700
STOCKHOLDERS' EQUITY:
Preferred stock, 25,000,000 shares authorized, 0 shares issued and outstanding - -
Common stock 75,000,000 shares authorized, $0.01 par value, 27,079,748
and 26,849,257 shares issued and outstanding, respectively 271 269
Additional paid-in capital 246,711 242,682
Retained deficit (213,643) (220,502)
Accumulated other comprehensive income 763 992
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
--------- ---------
Total stockholders' equity 32,823 22,162
--------- ---------
$ 417,873 $ 397,036
========= =========
See Notes to Condensed Consolidated Financial Statements.
3
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
----------------------
2004 2003
--------- ---------
NET SALES $ 221,597 $ 222,508
COST OF SALES 198,475 199,342
--------- ---------
Gross profit 23,122 23,166
GENERAL AND ADMINISTRATIVE EXPENSES 10,424 11,620
SELLING EXPENSES 3,775 4,962
--------- ---------
Income from operations 8,923 6,584
OTHER INCOME (EXPENSE):
Interest expense (2,897) (8,090)
Foreign exchange gains and losses, net (140) 2,856
Other, net 973 80
--------- ---------
Income before income taxes 6,859 1,430
INCOME TAXES - -
--------- ---------
Net income 6,859 1,430
PREFERRED STOCK DIVIDENDS - 264
--------- ---------
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 6,859 $ 1,166
========= =========
BASIC NET INCOME PER SHARE $ 0.25 $ 0.05
========= =========
DILUTED NET INCOME PER SHARE $ 0.23 $ 0.05
========= =========
COMPREHENSIVE INCOME
Net income $ 6,859 $ 1,430
Foreign currency translation adjustment (229) 201
--------- ---------
NET COMPREHENSIVE INCOME $ 6,630 $ 1,631
========= =========
See Notes to Condensed Consolidated Financial Statements.
4
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,859 $ 1,430
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 4,984 6,696
Net gain on the sale of assets (524) (56)
Provision for losses on accounts receivable and finance contracts 45 1,222
Cash used for restructuring activities (79) (88)
Trailer valuation charges 164 1,603
Change in operating assets and liabilities:
Accounts receivable (29,118) (40,337)
Inventories (3,250) 765
Refundable income taxes 79 408
Prepaid expenses and other (2) 4,141
Accounts payable and accrued liabilities 10,915 643
Other, net 333 (1,439)
--------- ---------
Net cash used in operating activities (9,594) (25,012)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,571) (2,267)
Proceeds from sale of leased equipment and finance contracts - 4,096
Principal payments received on finance contracts 1,205 2,385
Proceeds from the sale of property, plant and equipment 2,033 490
--------- ---------
Net cash provided by investing activities 1,667 4,704
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 2,792 -
Borrowings under trade receivables and revolving credit facilities 143,205 15,500
Payments under trade receivables and revolving credit facilities (136,609) -
Payments under long-term debt and capital lease obligations (2,195) (23,475)
--------- ---------
Net cash provided by (used in) financing activities 7,193 (7,975)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (734) (28,283)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,552 35,659
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,818 $ 7,376
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,457 $ 7,125
Income taxes refunded, net $ (79) $ (276)
See Notes to Condensed Consolidated Financial Statements.
5
WABASH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The condensed consolidated financial statements of Wabash National
Corporation (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 (consisting only of normal recurring 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 2003 Annual
Report on Form 10-K, as amended.
Certain items previously reported in specific condensed consolidated
financial statement captions have been reclassified to conform to the 2004
presentation.
During the period ended March 31, 2004, there were no accounting
pronouncements issued that would have an affect on the Company's financial
position, results of operations, or cash flow.
2. INVENTORIES
Inventories consisted of the following (in thousands):
March 31, December 31,
2004 2003
--------- ------------
Raw material and components $25,439 $24,189
Work in process 7,634 4,364
Finished goods 39,521 38,198
After-market parts 5,838 5,953
Used trailers 10,246 12,292
------- -------
$88,678 $84,996
======= =======
3. 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 in 2000, charges
totaling $48.2 million were recorded. To date, $44.3 million has been utilized.
The remaining balance at March 31, 2004 relates to the following (in thousands):
Equipment Guarantees $ 2,450
Financial Guarantees 1,260
Other Charges 166
-------
$ 3,876
=======
The Company anticipates substantially completing all activities related
to this restructuring plan by the end of 2004.
6
4. DEBT
The Company has $125 million of 3.25% senior unsecured convertible
notes (Convertible Notes) due August 1, 2008, which are convertible into
approximately 6.5 million shares of the Company's stock. The notes have a
conversion price of $19.20 or a rate of 52.0833 shares per $1,000 principal
amount of notes. Interest is payable semi-annually on February 1 and August 1.
The Company has an asset-based loan facility due September 23, 2006
(ABL Facility) that includes a $35.1 million term loan and a $175 million
revolver. The revolver is secured by inventory and accounts receivable and the
amount available to borrow varies in relation to the balances of those accounts.
As of March 31, 2004, borrowing capacity and outstanding amounts under the
revolver amounted to $23.5 million and $67.0 million, respectively. Interest on
the revolver is at the London Interbank Offer Rate (LIBOR) plus 275 basis
points, which decreased to 250 basis points after March 21, 2004, or the banks
prime rate plus 75 basis points, which decreased to 50 basis points on March 21,
2004. The Company pays a commitment fee on the unused portion of the facility at
a rate of 37.5 basis points per annum. At March 31, 2004, the weighted average
interest rate for the quarter was 4.96%. The revolver is due on September 23,
2006.
The term loan is secured by the Company's property, plant and
equipment. Interest is variable, based on LIBOR plus 300 basis points, which
decreased to 275 basis points on March 21, 2004, or the banks prime rate plus
100 basis points, which decreased to 75 basis points on March 21, 2004. At March
31, 2004, the 30 day LIBOR rate was 1.125% and the weighted average interest
rate for the quarter was 4.38%. Quarterly principal payments of $1.7 million
commenced on January 1, 2004. Additionally, principal payments equal to the
preceding years excess cash flow are due by April 30, 2005 and 2006. Excess cash
flow is defined as 25% of the sum of EBITDA (earnings before interest, taxes,
depreciation and amortization and other allowed non-operating items), less
payments for: taxes, scheduled principal and interest payments, and unfinanced
capital expenditures, is required.
The ABL Facility agreement contains covenants that require, among other
things, minimum fixed charge coverage and maximum senior debt to EBITDA
coverage. Also, the agreement places limits on capital expenditures and
additional borrowings. As of March 31, 2004, the Company was in compliance with
all loan covenants.
Scheduled maturities for the remainder of 2004 and future years are as
follows (in thousands):
2004 $ 6,787
2005 9,031
2006 90,899
2007 -
2008 125,000
-----------
$ 231,717
Less: Current maturities 9,018
-----------
$ 222,699
===========
7
5. 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 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 and net income 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) 2004 2003
--------- ---------
Reported net income $ 6,859 $ 1,430
Pro forma stock- based compensation expense (net of tax) (349) (495)
--------- ---------
Pro forma net income $ 6,510 $ 935
========= =========
Basic earnings per share:
Reported net income per share $ 0.25 $ 0.05
Pro forma stock-based compensation expense (net of tax) per share (0.01) (0.02)
--------- ---------
Pro forma net income per share $ 0.24 $ 0.03
========= =========
Diluted earnings per share:
Reported net income per share $ 0.23 $ 0.05
Pro forma stock-based compensation expense (net of tax) per share (0.01) (0.02)
--------- ---------
Pro forma net income per share $ 0.22 $ 0.03
========= =========
6. 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,
8
the joint venture was dissolved. BK subsequently filed its lawsuit against the
Company alleging among other things 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. 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.
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.
Environmental
In September 2003, the Company was noticed as a potentially responsible
party (PRP) by the United States Environmental Protection Agency pertaining to
the Motorola 52nd Street, Phoenix, Arizona Superfund Site pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act. PRPs
include current and former owners and operators of facilities at which hazardous
substances were disposed of. EPA's allegation that the Company was a PRP arises
out of the operation of a former branch facility located approximately five
miles from the original site. The Company does not expect that these proceedings
will have a material adverse effect on the Company's financial condition or
results of operations.
7. NET INCOME PER SHARE
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 thousands, except per share amounts):
Three Months Ended
March 31,
------------------
2004 2003
------- -------
Basic earnings per share:
Net income applicable to common stockholders $ 6,859 $ 1,166
======= =======
Weighted average common shares outstanding 26,990 25,700
======= =======
Basic earnings per share $ 0.25 $ 0.05
======= =======
Diluted earnings per share:
Net income applicable to common stockholders $ 6,859 $ 1,166
After-tax equivalent of interest on convertible notes 1,204 -
------- -------
Diluted net income applicable to common stockholders $ 8,063 $ 1,166
======= =======
Weighted average common shares outstanding 26,990 25,700
Dilutive stock options 985 -
Convertible notes equivalent shares 6,510 -
------- -------
Diluted weighted average common shares outstanding 34,485 25,700
======= =======
Diluted earnings per share $ 0.23 $ 0.05
======= =======
9
The diluted weighted average shares outstanding excluded the
antidilutive effects of preferred stock convertible into 823,200 shares in 2003.
8. 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):
Retail and Consolidated
Manufacturing Distribution Eliminations Totals
------------- ------------ ------------ ------------
THREE MONTHS ENDED
MARCH 31, 2004
Revenues
External customers $ 164,055 $ 57,542 $ - $ 221,597
Intersegment sales 24,141 - (24,141) -
--------- --------- --------- ---------
Total Revenues $ 188,196 $ 57,542 $ (24,141) $ 221,597
========= ========= ========= =========
Income (loss) from operations $ 10,821 $ (1,915) $ 17 $ 8,923
THREE MONTHS ENDED
MARCH 31, 2003
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
Product Information
The Company offers products primarily in three categories: new
trailers, used trailers and parts and service. Other sales include leasing
revenues, interest income from finance contracts and freight. The following
table sets forth the major product categories and their percentage of total net
sales (dollars in thousands):
Three Months Ended March 31,
---------------------------------
2004 2003
--------------- ---------------
$ % $ %
------- ----- ------- -----
New Trailers 191,480 86.4 164,672 74.0
Used Trailers 13,272 6.0 19,628 8.8
Parts and Service 13,387 6.0 28,384 12.8
Other 3,458 1.6 9,824 4.4
------- ----- ------- -----
Total Net Sales 221,597 100.0 222,508 100.0
======= ===== ======= =====
10
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 "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 7B in the
Company's amended Form 10-K as filed with the Securities and Exchange Commission
on April 5, 2004.
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,
----------------------------
2004 2003
-------- --------
Net sales 100.0% 100.0%
Cost of sales 89.6 89.6
-------- --------
Gross profit 10.4 10.4
General and administrative expense 4.7 5.2
Selling expense 1.7 2.2
-------- --------
Income from operations 4.0 3.0
Interest expense (1.3) (3.6)
Foreign exchange gains and losses, net - 1.3
Other, net 0.4 -
-------- --------
Income before income taxes 3.1 0.7
Income taxes - -
-------- --------
Net income 3.1% 0.7%
======== ========
11
THREE MONTHS ENDED MARCH 31, 2004
The industry recovery that began in 2003 continued into the first
quarter of 2004 and it is expected to accelerate over the balance of the year as
production of trailers is anticipated to increase from approximately 183,000
units to approximately 247,000 units in 2004 according to ACT Research Company,
LLC estimates. The expansion in production is predicated on a number of factors
including improving general economic conditions and pent-up trucking industry
demand for replacement units as the average age of trailer fleets increases. The
impact of Department of Transportation regulations regarding driver hours (hours
of service) on the need for additional trailers to maintain driver productivity
is still undetermined.
The industry is enjoying a period of improvement and we expect to
participate in the industry growth because our core customers are among the
largest participants in the trucking industry, our DuraPlate(R) trailer
continues to have increased market acceptance and penetration and we are
expanding our presence into the middle market carriers - approximately 1,250
carriers with fleet sizes ranging from 250 to 5,000 units.
We believe that Wabash is well positioned to benefit from any increased
demand for trailers because of the improvements that have been made over the
last three years. As a result of our continuous improvement initiatives, we have
reduced our total cost of producing a trailer and effectively increased
production capacity. Additionally, we have become much more efficient in the use
of working capital. In recent months, we have experienced significant price
volatility in our principal raw materials, steel, and timber, and we expect this
trend of rising material prices will continue in the near term. Steel prices
have been particularly difficult recently for a number of reasons including
steel imports to Asia and the weakened U.S. dollar and higher transportation
costs have made foreign steel more expensive than domestic steel, thereby
reducing the supply of imports to meet market demand. Because of these
conditions, obtaining steel is currently challenging, but our long-term
relationships with suppliers have been advantageous. In response to these
increases, on March 9, 2004 we implemented price increases on new trailers
ranging from 4.5% to 6%, as contract terms allow. While we have experienced some
nominal order cancellations and postponements, we do not anticipate any
significant impact on our overall market share. Second quarter gross profit
margins may be compressed as the ability to realize selling price increases will
not match rising material costs.
NET SALES
Net sales were comparable to the first quarter of 2003, which included
approximately $19.8 million of sales associated with certain assets of our
trailer rental and leasing and aftermarket parts distribution businesses which
were sold in September 2003 (Asset Sales). By business segment, net external
sales and related units sold were as follows:
Three Months Ended March 31,
------------------------------
2004 2003 % Change
-------- -------- --------
Sales by Segment: (in millions)
Manufacturing $ 164.1 $ 144.5 14%
Retail and Distribution 57.5 78.0 (26%)
-------- --------
Total $ 221.6 $ 222.5 -
======== ========
New trailer units: (units)
Manufacturing 9,700 8,400 15%
Retail and Distribution 1,500 1,200 25%
-------- --------
Total 11,200 9,600 17%
======== ========
Used trailer units 2,000 3,500 (43%)
======== ========
12
Improving conditions in both the overall economy and the transportation
industry drove a 15% increase in unit volume in the manufacturing segment. To
meet production requirements, over 200 associates were added during the first
quarter. Average selling prices were essentially unchanged from the prior year
period as competition for orders remains keen.
First quarter 2004 sales in the retail and distribution segment were
lower than the prior year period which included $19.8 million of sales
associated with the aforementioned Assets Sales. A $7.4 million increase in new
trailer sales predicated on a 25% increase in units was offset by reductions in
used trailer and parts and service sales. The decrease in used trailer sales
results from constrained used equipment availability, as transportation
companies retain equipment to meet requirements. The closing of four full
service branches during 2003 resulted in slightly lower parts and service sales.
GROSS PROFIT
Gross profit as a percent of sales of 10.4% was unchanged from the same
period in 2003. As discussed below, both of the Company's segments contributed
as follows (in millions):
Three Months Ended March 31,
------------------------------
2004 2003 % Change
-------- -------- --------
Gross Profit by Segment:
Manufacturing $ 20.1 $ 16.6 21%
Retail and Distribution 3.0 6.6 (55%)
Eliminations - - -
-------- --------
Total Gross Profit $ 23.1 $ 23.2 -
======== ========
The manufacturing segment's gross profit as a percentage of sales was
12.2% in 2004, a 0.7 percentage point improvement from the prior year period.
Average per trailer raw material costs, including the effects of product mix,
increased approximately 4% from the prior period due to increases in our key raw
materials - principally steel and wood. This increase was more than offset by
improved labor productivity, cost containment initiatives and the impact of
higher volumes.
First quarter gross profits in the retail and distribution segment were
lower than the prior year which included $3.9 million of gross profits
associated with the 2003 Asset Sales. As a percentage of sales, gross profits
were 5.2% in 2004 compared to 4.6% in 2003 after excluding the effect of the
Asset Sales.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $1.2 million from the
prior year primarily due to reductions related to the Assets Sales and debt
restructuring related costs were partially offset by increased staff and
information technology costs in 2004.
SELLING EXPENSE
Selling expense decreased $1.2 million to $3.8 million, compared to
$5.0 million in the prior year due to the impact of the Asset Sales and the
closing of 12 branch locations.
13
OTHER INCOME (EXPENSE)
Interest expense totaled $2.9 million for the quarter, a decrease of
$5.2 million from the prior year period due to lower interest rates resulting
from the debt refinancings completed in the third quarter of 2003, and reduced
average borrowings.
The Company incurred a foreign exchange loss of $0.1 million in 2004
compared to gains of $2.9 million in 2003, reflecting the parity of the US
dollar compared to the Canadian dollar in 2004 versus a significant weakening of
the US dollar relative to the Canadian dollar in the 2003 period.
Other, net for the three months ended March 31, 2004 includes gains on
the sale of closed branch properties.
INCOME TAXES
No income tax expense was recognized in 2003 or 2004 as current year
earnings were offset against available net operating losses (NOL). 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, 2004. We expect to recognize Federal and State alternative minimum
taxes beginning in the second quarter. This will amount to approximately two
percent of pretax income.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL STRUCTURE
Our capital structure is primarily supported by debt as a result of the
significant losses incurred during the years 2000 through 2003. Due to the
financial and operational restructuring of the Company and the significant
improvements in manufacturing made over the last several years, we were able to
stabilize our financial footing. Our objective is to generate operating cash
flows sufficient to satisfy normal requirements for working capital and capital
expenditures and to better balance the mix of debt and equity in our capital
structure.
CASH FLOW
Cash used in operating activities amounted to $9.6 million, an
improvement of $15.4 million from the prior year per period. The improvement is
primarily attributable to a $5.4 million increase in net income coupled with
improved working capital management as follows:
- Accounts receivables increased $29.1 million compared to $40.3
million in the first quarter of 2003 which was the starting
point of the industry recovery. Days sales outstanding, a
measure of working capital efficiency that measures the amount
of time a receivable is outstanding, was 39 days at March 31,
2004, an increase of nine days over the prior year period
reflecting strong March sales.
- Inventory increased $4.0 million from the prior year period.
Inventory turns, a commonly used measure of working capital
efficiency that measures how quickly inventory turns, improved
to approximately nine times, a 50% improvement from the prior
year reflecting reduced new trailer inventory.
- Accounts payable and accrued liabilities increased
approximately $10.3 million as the Company is no longer
subjected to vendor payment term restrictions that were in
place in 2003.
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Investing activities provided $1.7 million, a decrease of $3.0 million
from the prior year period resulting primarily from the Company's withdrawal
from leasing and rental operations.
Financing activities provided $7.2 million during the period, $6.6
million from borrowings under its revolving credit facilities to support
operations and $2.8 million from stock options exercised, offset by debt
payments of $2.2 million, including $1.6 million from proceeds on the sale of
closed branch properties.
Capital Expenditures
Capital spending amounted to $1.6 million thus far in 2004 and is
anticipated to be approximately $10 million for the full year. Spending is
focused on productivity improvement and capacity maintenance.
Outlook
As of March 31, 2004, our liquidity position, cash on hand and
available borrowing capacity amounted to approximately $35 million and debt and
lease obligations, both on and off the balance sheet, amounted to approximately
$243 million (including $12 million off-balance sheet). We expect that in 2004,
Wabash will be able to generate sufficient cash flow from operations to fund
working capital and capital spending requirements and to further reduce
indebtedness. However, it is possible that we may not generate sufficient cash
flow or secure additional funds for these purposes. Because we must use a
portion of our cash from operations to pay our debt service obligations, our
high level of debt means we have less funds available for working capital,
capital spending requirements and other purposes than we would otherwise have.
Further, we may be more highly leveraged than our competitors, which would be a
competitive disadvantage in the event of a downturn in the general economic
condition of our business.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
We have included a summary of our Contractual Obligations and
Commercial Commitments in our annual report on Form 10-K, as amended, for the
year ended December 31, 2003, filed on April 5, 2004. There have been no
material changes to the summary provided in that report.
OFF-BALANCE SHEET TRANSACTIONS
As of March 31, 2004, we had approximately $12 million in off-balance
sheet debt. We did not enter into any material off-balance sheet debt or
operating lease transactions during the quarter.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have included a summary of our Critical Accounting Estimates in our
annual report on Form 10-K, as amended, for the year ended December 31, 2003,
filed on April 5, 2004. There have been no material changes to the summary
provided in that report.
BACKLOG
Orders that have been confirmed by the customer in writing and can be
produced during the next 18 months are included in backlog. Orders that comprise
the backlog may be subject to changes in quantities, delivery, specifications
and terms. Our backlog of orders was approximately $190 million at March 31,
2004 compared to $200 million at December 31, 2003. We expect to complete the
majority of our existing backlog orders within the next twelve months.
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CUSTOMER CREDIT RISK
We sublease certain highly specialized RoadRailer(R) equipment to Grupo
Transportation Marititma Mexicana SA (TMM), who is experiencing financial
difficulties. Although this customer is current in its payment obligations to
us, the customer owes us $7.8 million secured by highly specialized
RoadRailer(R) equipment, which due to the nature of the equipment, has a minimal
recovery value.
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. As of March 31, 2004, the Company had outstanding
purchase commitments of approximately $40.9 million through February 2005 for
materials that will be used in the production process. Because the Company
typically does not set prices for its products more than 45-90 days 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, 2004, the Company had approximately $102 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 $1.0 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 that impact intercompany transactions between the Company and its Canadian
subsidiary, as well as U.S. denominated transactions between the Canadian
subsidiaries and unrelated parties. A five cent change in the Canadian exchange
rate would result in an approximately $0.6 million impact on results of
operations. The Company has Canadian dollar foreign currency forward contracts
in an effort to mitigate potential Canadian currency fluctuation impact on
working capital requirements. As of March 31, 2004, the Company had outstanding
$3.5 million in forward contracts to be settled in various increments over the
next seven months. The contracts are marked-to-market and not subject to hedge
accounting. The Company does not hold or issue derivative financial instruments
for speculative purposes.
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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, as amended, filed with
the Securities and Exchange Commission.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.01 Certification of Principal Executive Officer
31.02 Certification of Principal Financial Officer
32.01 Written Statement of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
(b) Reports on Form 8-K:
1. Form 8-K filed February 11, 2004 reporting under Item 9:
Regulation FD Disclosure.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WABASH NATIONAL CORPORATION
Date: April 27, 2004 By: /s/ Mark R. Holden
----------------------------------
Mark R. Holden
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
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