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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 JUNE 30, 2004
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)
[WABASH NATIONAL LOGO]
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 July 30, 2004 was
27,268,183.
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
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 2004 and December 31, 2003 3
Condensed Consolidated Statements of Operations for
the three and six months ended June 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows for
the three and six months ended June 30, 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 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 20
2
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
2004 2003
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,645 $ 12,552
Accounts receivable, net 94,750 66,641
Current portion of finance contracts 3,092 4,727
Inventories 107,608 84,996
Prepaid expenses and other 8,300 10,249
----------- ------------
Total current assets 219,395 179,165
PROPERTY, PLANT AND EQUIPMENT, net 127,342 130,594
EQUIPMENT LEASED TO OTHERS, net 15,999 21,187
FINANCE CONTRACTS, net of current portion 4,349 6,155
GOODWILL, net 35,187 36,045
OTHER ASSETS 18,081 23,890
----------- ------------
$ 420,353 $ 397,036
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 8,729 $ 7,337
Accounts payable 88,036 68,437
Other accrued liabilities 57,249 61,421
----------- ------------
Total current liabilities 154,014 137,195
LONG-TERM DEBT, net of current maturities 204,075 219,979
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 11,278 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, 27,158,991
and 26,849,257 shares issued and outstanding, respectively 272 269
Additional paid-in capital 247,204 242,682
Retained deficit (195,381) (220,502)
Accumulated other comprehensive income 170 992
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
----------- ------------
Total stockholders' equity 50,986 22,162
----------- ------------
$ 420,353 $ 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 Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
NET SALES $ 254,899 $ 230,231 $ 476,496 $ 452,739
COST OF SALES 218,264 205,586 416,739 404,928
LOSS ON ASSET IMPAIRMENT - 28,500 - 28,500
---------- ---------- ---------- ----------
Gross profit (loss) 36,635 (3,855) 59,757 19,311
GENERAL AND ADMINISTRATIVE EXPENSES 10,260 8,906 20,684 20,526
SELLING EXPENSES 3,851 5,966 7,626 10,928
---------- ---------- ---------- ----------
Income (loss)from operations 22,524 (18,727) 31,447 (12,143)
OTHER INCOME (EXPENSE):
Interest expense (2,769) (10,794) (5,666) (18,884)
Foreign exchange gains and losses, net (405) 2,733 (545) 5,589
Other, net (589) (480) 384 (400)
---------- ---------- ---------- ----------
Income (loss) before income taxes 18,761 (27,268) 25,620 (25,838)
INCOME TAX PROVISION 499 - 499 -
---------- ---------- ---------- ----------
Net income (loss) 18,262 (27,268) 25,121 (25,838)
PREFERRED STOCK DIVIDENDS - 264 - 528
---------- ---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 18,262 $ (27,532) $ 25,121 $ (26,366)
========== ========== ========== ==========
BASIC NET INCOME (LOSS) PER SHARE $ 0.67 $ (1.07) $ 0.93 $ (1.03)
========== ========== ========== ==========
DILUTED NET INCOME (LOSS) PER SHARE $ 0.56 $ (1.07) $ 0.80 $ (1.03)
========== ========== ========== ==========
COMPREHENSIVE INCOME (LOSS)
Net income (loss) $ 18,262 $ (27,268) $ 25,121 $ (25,838)
Foreign currency translation adjustment (593) 243 (822) 444
---------- ---------- ---------- ----------
NET COMPREHENSIVE INCOME (LOSS) $ 17,669 $ (27,025) $ 24,299 $ (25,394)
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
4
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months
Ended June 30,
---------------------
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 25,121 $ (25,838)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 9,895 13,327
Net gain on the sale of assets (473) (429)
Provision for losses on accounts receivable and finance contracts (134) 940
Cash used for restructuring activities (889) (159)
Trailer valuation charges 169 2,057
Loss on asset impairment - 28,500
Change in operating assets and liabilities:
Accounts receivable (27,975) (52,104)
Inventories (20,530) 2,823
Refundable income taxes 71 886
Prepaid expenses and other 303 3,792
Accounts payable and accrued liabilities 17,714 2,479
Other, net 798 (1,224)
--------- ---------
Net cash provided by (used in) operating activities 4,070 (24,950)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,936) (3,460)
Proceeds from sale of leased equipment and finance contracts - 4,805
Principal payments received on finance contracts 2,204 4,389
Proceeds from the sale of property, plant and equipment 2,104 1,749
--------- ---------
Net cash provided by investing activities 372 7,483
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 3,163 756
Borrowings under trade receivables and revolving credit facilities 331,975 56,418
Payments under trade receivables and revolving credit facilities (341,399) (18,649)
Payments under long-term debt and capital lease obligations (5,088) (48,571)
Debt issuance costs - (1,531)
--------- ---------
Net cash used in financing activities (11,349) (11,577)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,907) (29,044)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,552 35,659
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,645 $ 6,615
========= =========
See Notes to 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 June 30, 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):
June 30, December 31,
2004 2003
---------- ------------
Raw material and components $ 34,192 $ 24,189
Work in process 5,490 4,364
Finished goods 48,819 38,198
After-market parts 5,869 5,953
Used trailers 13,238 12,292
---------- ------------
$ 107,608 $ 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, $45.2 million has been utilized.
The remaining balance at June 30, 2004 relates to the following (in thousands):
Equipment Guarantees $ 2,428
Financial Guarantees 514
Other Charges 91
-------
$ 3,033
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 $33.4 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
June 30, 2004, borrowing capacity and outstanding amounts under the revolver
amounted to $66.5 million and $50.9 million, respectively. Interest on the
revolver is at the London Interbank Offer Rate (LIBOR) plus 250 basis points, or
the bank's prime rate plus 50 basis points. At June 30, 2004, the 30-day LIBOR
rate was 1.375%. The Company pays a commitment fee on the unused portion of the
facility at a rate of 37.5 basis points per annum. At June 30, 2004, the
weighted average interest rate for the quarter was 4.82%. 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 275 basis points, or the bank's prime
rate plus 75 basis points. At June 30, 2004, the weighted average interest rate
for the quarter was 4.03%. 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 June 30, 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 $ 4,364
2005 8,729
2006 74,711
2007 -
2008 125,000
--------
212,804
Less: Current maturities (8,729)
---------
$ 204,075
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.
7
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
2004 2003 2004 2003
--------- --------- -------- --------
(in thousands, except for per share amounts)
Reported net income (loss) $ 18,262 $ (27,268) $ 25,121 $(25,838)
Pro forma stock-based compensation expense (net of tax) (773) (643) (1,122) (1,102)
--------- --------- -------- --------
Proforma net income (loss) $ 17,489 $ (27,911) $ 23,999 $(26,940)
========= ========= ======== ========
Basic earnings per share:
Reported net income (loss) per share $ 0.67 $ (1.07) $ 0.93 $ (1.03)
Proforma stock-based compensation expense (net of tax) per share (0.03) (0.03) (0.04) (0.04)
--------- --------- -------- --------
Pro forma net income (loss) per share $ 0.64 $ (1.10) $ 0.89 $ (1.07)
========= ========= ======== ========
Diluted earnings per share:
Reported net income (loss) per share $ 0.56 $ (1.07) $ 0.80 $ (1.03)
Pro forma stock-based compensation expense (net of tax) per share (0.02) (0.03) (0.04) (0.04)
--------- --------- -------- --------
Pro forma net income (loss) per share $ 0.54 $ (1.10) $ 0.76 $ (1.07)
========= ========= ======== ========
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, 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.
8
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 Six Months Ended
June 30, June 30,
----------------------- ---------------------
2004 2003 2004 2003
--------- ----------- --------- ---------
Basic earnings (loss) per share:
Net income (loss). applicable to common stockholders $ 18,262 $ (27,532) $ 25,121 $ (26,366)
========= =========== ========= =========
Weighted average common shares outstanding 27,145 25,705 27,067 25,680
========= =========== ========= =========
Basic income (loss) per share $ 0.67 $ (1.07) $ 0.93 $ (1.03)
========= =========== ========= =========
Diluted earnings (loss) per share:
Net income (loss) applicable to common stockholders $ 18,262 $ (27,532) $ 25,121 $ (26,366)
After-tax equivalent of interest on convertible notes 1,204 - 2,408 -
--------- ----------- --------- ---------
Diluted net income (loss) applicable to common stockholders $ 19,466 $ (27,532) $ 27,529 $ (26,366)
========= =========== ========= =========
Weighted average common shares outstanding 27,145 25,705 27,067 25,680
Dilutive stock options/shares 906 - 946 -
Convertible notes equivalent shares 6,510 - 6,510 -
--------- ----------- --------- ---------
Diluted weighted average common shares outstanding 34,561 25,705 34,523 25,680
========= =========== ========= =========
Diluted income (loss) per share $ 0.56 $ (1.07) $ 0.80 $ (1.03)
========= =========== ========= =========
The 2003 diluted weighted average shares outstanding excluded the
antidilutive effects of preferred stock convertible into 823,200 shares, and
174,000 shares and 89,600 shares of stock options for the three and six months,
respectively.
9
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 in 2003 included the sale of after-market
parts.
Reportable segment information is as follows (in thousands):
Retail and Consolidated
Manufacturing Distribution Eliminations Totals
------------- ------------ ------------ ------------
THREE MONTHS ENDED JUNE 30, 2004
Net Sales
External customers $ 195,689 $ 59,210 $ - $ 254,899
Intersegment sales 32,150 1,975 (34,125) -
------------- ------------ ------------ ------------
Total Net Sales $ 227,839 $ 61,185 $ (34,125) $ 254,899
============= ============ ============ ============
Income from operations $ 24,982 $ (141) $ (2,317) $ 22,524
Assets $ 398,018 $ 186,401 $ (164,066) $ 420,353
THREE MONTHS ENDED JUNE 30, 2003
Net Sales
External $ 155,095 $ 75,136 $ - $ 230,231
Intersegment sales 12,388 239 (12,627) -
------------- ------------ ------------ ------------
Total Net Sales $ 167,483 $ 75,375 $ (12,627) $ 230,231
============= ============ ============ ============
Loss from operations $ 10,592 $ (29,595) $ 276 $ (18,727)
Assets $ 397,772 $ 301,020 $ (165,273) $ 533,519
SIX MONTHS ENDED JUNE 30, 2004
Net Sales
External $ 359,744 $ 116,752 $ - $ 476,496
Intersegment sales 56,291 1,975 (58,266) -
------------- ------------ ------------ ------------
Total Net Sales $ 416,035 $ 118,727 $ (58,266) $ 476,496
============= ============ ============ ============
Income from operations $ 35,803 $ (2,056) $ (2,300) $ 31,447
Assets $ 398,018 $ 186,401 $ (164,066) $ 420,353
SIX MONTHS ENDED JUNE 30, 2003
Net Sales
External $ 299,621 $ 153,118 $ - $ 452,739
Intersegment sales 34,519 613 (35,132) -
------------- ------------ ------------ ------------
Total New Sales $ 334,140 $ 153,731 $ (35,132) $ 452,739
============= ============ ============ ============
Loss from operations $ 18,815 $ (31,257) $ 299 $ (12,143)
Assets $ 397,772 $ 301,020 $ (165,273) $ 533,519
10
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 June 30, Six Months Ended June 30,
--------------------------------- ---------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
$ % $ % $ % $ %
------- ----- ------- ----- ------- ----- ------- -----
New Trailers 223,044 87.5 172,767 75.0 414,524 87.0 337,439 74.5
Used Trailers 13,206 5.2 17,131 7.4 26,478 5.6 36,759 8.1
Parts & Service 14,947 5.9 30,350 13.2 28,334 5.9 58,734 13.0
Other 3,702 1.4 9,983 4.4 7,160 1.5 19,807 4.4
------- ----- ------- ----- ------- ----- ------- -----
Total Net Sales 254,899 100.0 230,231 100.0 476,496 100.0 452,739 100.0
======= ===== ======= ===== ======= ===== ======= =====
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 "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.
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 June 30, Six Months Ended June 30,
---------------------------- -------------------------
2004 2003 2004 2003
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 85.6 89.3 87.5 89.4
Loss on asset impairment - 12.4 - 6.3
----- ----- ----- -----
Gross profit (loss) 14.4 (1.7) 12.5 4.3
General and administrative expense 4.0 3.8 4.3 4.5
Selling expense 1.5 2.6 1.6 2.5
----- ----- ----- -----
Income (loss) from operations 8.9 (8.1) 6.6 (2.7)
Interest expense 1.1 4.7 1.2 4.1
Foreign exchange gains and losses, net 0.2 (1.2) 0.1 (1.2)
Other, net 0.2 0.2 (0.1) 0.1
----- ----- ----- -----
Income (loss) before income taxes 7.4 (11.8) 5.4 (5.7)
Income tax provision 0.2 - 0.1 -
----- ----- ----- -----
Net income (loss) 7.2% (11.8)% 5.3% (5.7)%
===== ===== ===== =====
The industry recovery that began in 2003 continued into the second 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 244,000 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
Department of Transportation regulations regarding driver hours (hours of
service) that became effective January 2004 were recently vacated by the U.S.
Court of Appeals. The regulation remains in effect pending a decision with
respect to an appeal. To date, there has been limited business as a result of
the regulation. If the regulation is vacated, there is the potential for
cancellation of reefer units and some increase of trade-ins which could affect
used trailer prices.
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, aluminum and timber, and we
expect this trend of rising material prices will continue in the near term.
Recently, steel prices have been particularly difficult 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 although at a more
moderate pace than experienced in the first six months of the year. Because of
these conditions, obtaining steel is currently challenging, but our long-term
relationships with suppliers have been
12
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. We continue to pass on raw material increases as competitive conditions
allow. While we have experienced some nominal order cancellations and
postponements, we do not anticipate any significant impact on our overall market
share.
THREE MONTHS ENDED JUNE 30, 2004
NET SALES
Net sales increased $24.7 million from the second quarter 2003, which
included $21.0 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 June 30,
-----------------------------
2004 2003 %Change
------- ------- -------
Sales by Segment: (in millions)
Manufacturing $ 195.7 $ 155.1 26%
Retail and Distribution 59.2 75.1 (21%)
------- -------
Total $ 254.9 $ 230.2 11%
======= =======
New trailer units: (units)
Manufacturing 11,100 9,200 21%
Retail and Distribution 1,600 1,000 60%
------- -------
Total 12,700 10,200 25%
======= =======
Used trailer units 1,900 3,300 (42%)
======= =======
Improving conditions in both the overall economy and the transportation
industry drove a 21% increase in unit volume in the manufacturing segment.
Average selling prices rose above the prior year period as material price
increases were passed along to the end users.
Second quarter 2004 sales in the retail and distribution segment were
lower than the prior year period which included $21.0 million of sales
associated with the aforementioned Assets Sales. A $12.1 million increase in new
trailer sales caused by a 60% increase in units was offset by reductions in used
trailer and parts 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 was 14.4% compared to (1.7%) in the
second quarter of 2003, which included a $28.5 million asset impairment charge
taken on certain assets of our rental and leasing and aftermarket parts assets.
As discussed below, both of the Company's segments contributed as follows (in
millions):
Three Months Ended June 30,
---------------------------
2004 2003 $Change
------ ------- -------
Gross Profit by Segment:
Manufacturing $ 33.8 $ 18.2 $ 15.6
Retail and Distribution 5.1 (22.3) 27.4
Eliminations (2.3) 0.3 (2.6)
------ ------- -------
Total Gross Profit $ 36.6 $ (3.8) $ 40.4
====== ======= =======
13
The increase in the manufacturing segment's gross profit primarily
resulted from: increased volume, $7.0 million; improved labor and overhead
utilization, $6.0 million, reflecting the benefits of continuous improvement
initiatives, reductions in cycle times, cost controls and a reduction in
warranty costs. Raw material cost increases were essentially offset by increases
in selling prices.
Second quarter gross profit in the retail and distribution segment was
higher than the prior year which included a $28.5 million asset impairment
charge and $3.2 million of profit associated with the 2003 Asset Sales. The 2004
period includes $1.1 million of profit related to RoadRailer(R) bogies from our
finance and leasing business.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $1.4 million from the prior
year. The 2004 period included $0.9 million in higher employee related costs and
$0.6 million in increased technology costs. The 2003 period included a $1.4
million charge related to debt refinancing and benefited from a $1.0 million
recovery of taxes..
SELLING EXPENSE
Selling expense decreased $2.1 million to $3.9 million, compared to $6.0
million in the prior year due to the impact of the Asset Sales and the closing
of 12 branch locations during the third quarter of 2003.
OTHER INCOME (EXPENSE)
Interest expense totaled $2.8 million for the quarter; a decrease of $8.0
million from the prior year period due to lower effective 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 $0.4 million in 2004
compared to a gain of $2.7 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.
INCOME TAXES
The Company recognized income tax provision of $0.5 million related to
Federal and State alternative minimum tax in the second quarter of 2004. No
ordinary income tax provision was recognized in 2004 due to the utilization of
net operating loss (NOL) carryforwards. No income tax provision was recognized
in 2003. Because of uncertainty related to the realizability of NOLs in excess
of those utilized, a full valuation allowance continues to be recorded against
the related deferred tax assets at June 30, 2004.
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SIX MONTHS ENDED JUNE 30, 2004
NET SALES
Net sales increased $23.8 million compared to the 2003 period. The six
months ended June 30, 2003 included $40.9 million of sales associated with the
Asset Sales. By business segment, net external sales and related units sold were
as follows:
Six Months Ended June 30,
---------------------------
2004 2003 % Change
------- ------- --------
(in millions)
Sales by Segment:
Manufacturing $ 359.7 $ 299.6 20%
Retail and Distribution 116.8 153.1 (24%)
------- -------
Total $ 476.5 $ 452.7 5%
======= =======
New trailer units: (units)
Manufacturing 20,900 17,700 18%
Retail and Distribution 3,100 2,100 48%
------- -------
Total 24,000 19,800 21%
====== =======
Used trailer units 3,800 6,800 (44%)
======= =======
Improving conditions in both the overall economy and the transportation
industry drove an 18% increase in unit volume in the manufacturing segment. To
meet production requirements, we have increased headcount by approximately 500.
Average selling prices were increased in an attempt to recoup increases in raw
materials.
The 2004 sales in the retail and distribution segment were lower than the
prior year period which included $40.9 million of sales associated with the
aforementioned Assets Sales. A $19.5 million increase in new trailer sales
caused by a 48% increase in units was offset by reductions in used trailer and
parts sales. The decrease in used trailer sales results from constrained used
equipment availability, as transportation companies retain equipment to meet
requirements
GROSS PROFIT
Gross profit as a percent of sales was 12.5% compared to 4.3% for same
period in 2003, which included a $28.5 million asset impairment charge taken on
certain assets of our rental and leasing and aftermarket parts assets. As
discussed below, both of the Company's segments contributed as follows (in
millions):
Six Months Ended June 30,
----------------------------
2004 2003 $ Change
------ ------- --------
Gross Profit by Segment:
Manufacturing $ 54.0 $ 34.7 $ 19.3
Retail and Distribution 8.1 (15.7) 23.8
Eliminations (2.3) 0.3 (2.6)
------ ------- -------
Total Gross Profit $ 59.8 $ 19.3 $ 40.5
====== ======= =======
The manufacturing segment's gross profit as a percentage of sales was
15.0% in 2004, a 3.4 percentage point increase 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, which we were able to partially offset
through selling price increases. The shortfall from rising material costs was
more than offset by the impact of higher volumes,
15
the continued improvement in our labor and overhead utilization and a reduction
in warranty expense.
The 2004 gross profit in the retail and distribution segment was higher
than the prior year. The first six months of 2003 included a $28.5 million asset
impairment charge and $7.2 million of gross profit associated with the Asset
Sales. The 2004 period includes $1.1 million of profit related to RoadRailer(R)
bogies from our finance and leasing business.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were comparable with the prior year.
The 2004 period included $1.8 million in higher employee related costs and $1.4
million in increased technology costs. The 2003 period included $3.1 million in
debt refinancing costs and $0.9 million in bad debt reserves related to our
finance and leasing business, reduced in part by the recovery of $1.0 million in
taxes.
SELLING EXPENSE
Selling expense decreased $3.3 million to $7.6 million, compared to $10.9
million in the prior year due to the impact of the Asset Sales and the closing
of 12 branch locations during the third quarter of 2003.
OTHER INCOME (EXPENSE)
Interest expense totaled $5.7 million for the six months; a decrease of
$13.2 million from the prior year period due to lower effective 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 $0.5 million in 2004
compared to a gain of $5.6 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 six months ended June 30, 2004 includes gains on the
sale of closed branch properties.
INCOME TAXES
The Company recognized income tax provision of $0.5 million related to
Federal and State alternative minimum tax in the second quarter of 2004. No
ordinary tax provision was recognized in 2004 due to the utilization of net
operating loss (NOL) carryforwards. No income tax expense was recognized in
2003. Because of uncertainty related to the realizability of NOLs in excess of
those utilized, a full valuation allowance continues to be recorded against the
related deferred tax assets at June 30, 2004.
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.
16
CASH FLOW
Cash provided by operating activities amounted to $4.1 million, an
improvement of $29.0 million from the prior year per period. The improvement is
primarily attributable to a $15.3 million increase in cash flows from net income
(adjusted for non-cash items) coupled with improved working capital management
as follows:
- Accounts receivables increased $28.0 million compared to $52.1
million in the second quarter of 2003. Days sales outstanding, a
measure of working capital efficiency that measures the amount of
time a receivable is outstanding, was 35 days at June 30, 2004, a
decrease of three days over the prior year period.
- Inventory increased $23.4 million from the prior year period. This
increase is reflective of the increased production levels and the
timing of customer pick-ups. Inventory turns, a commonly used
measure of working capital efficiency that measures how quickly
inventory turns, improved to approximately eight times, a 40%
improvement from the prior year.
- Accounts payable and accrued liabilities increased approximately
$15.2 million in line with increased production as well as the
Company no longer being subjected to vendor payment term
restrictions that were in place in 2003.
Investing activities provided $0.4 million, a decrease of $7.1 million
from the prior year period resulting primarily from the Company's withdrawal
from leasing and rental operations.
Financing activities used $11.3 million during the period, $9.4 million in
paydowns under its revolving credit facilities, and debt payments of $5.1
million, including $1.7 million from proceeds on the sale of closed branch
properties, offset by $3.2 million from stock options exercised.
Capital Expenditures
Capital spending amounted to $3.9 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 June 30, 2004, our liquidity position, cash on hand and available
borrowing capacity amounted to approximately $72 million and debt and lease
obligations, both on and off the balance sheet, amounted to approximately $223
million (including $10 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.
OFF-BALANCE SHEET TRANSACTIONS
As of June 30, 2004, we had approximately $10 million in off-balance sheet
debt. We did not enter into any material off-balance sheet debt or operating
lease transactions during the quarter.
17
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 $330 million at June 30, 2004
compared to $190 million at March 31, 2004 and $200 million at December 31,
2003. The March backlog was impacted by the removal of orders totaling
approximately $100 million which were required to be reaffirmed with customers
due to our mid-March price increase announcement. We expect to complete the
majority of our existing backlog orders within the next 12 months.
CUSTOMER CREDIT RISK
We sublease certain highly specialized RoadRailer(R) equipment to Grupo
Transportation Marititma Mexicana SA (TMM), who is experiencing financial
difficulties. On August 5, 2004, TMM completed the restructuring its existing
debt agreements. Customer payments, which have historically been timely, are
currently behind schedule. 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 our operations, we have 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 our exposure to these risks.
a. COMMODITY PRICE RISKS
We are 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. We may manage
aluminum price changes by entering into fixed price contracts with our
suppliers. As of June 30, 2004, we had outstanding purchase commitments of
approximately $33.6 million through February 2005 for materials that will be
used in the production process. Because we typically do not set prices for our
products more than 45-90 days in advance of our commodity purchases, we can take
into account the cost of the commodity in setting our prices for each order. To
the extent that the we are unable to offset the increased commodity costs in our
product prices, our results would be materially and adversely affected.
b. INTEREST RATES
As of June 30, 2004, we had approximately $84 million of floating rate
debt outstanding under our various financing agreements. A hypothetical 100
basis-point increase in the floating interest rate from the current level would
correspond to approximately a $0.8 million increase in interest expense over a
one-year period. This sensitivity analysis does not account for the change in
our 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
We are subject to fluctuations in the Canadian dollar exchange rate that
impact intercompany transactions with our 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 $0.5 million impact on results of operations. We have Canadian
dollar foreign currency forward contracts in an effort to mitigate potential
Canadian currency fluctuation impact on working capital requirements. As of June
30, 2004, we had outstanding $3.5 million in forward contracts
18
to be settled in various increments over the next six months. The contracts are
marked-to-market and not subject to hedge accounting. We do not hold or issue
derivative financial instruments for speculative purposes.
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
The Company held its annual meeting of stockholders on May 13, 2004, at
which time the stockholders of the Company voted on the following two items:
1. The election of six members of the Board of Directors of the
Company.
2. The approval of the Wabash National Corporation 2004 Stock Incentive
Plan.
The following nominees for directors were elected on the following votes:
NOMINEES FOR WITHHOLD AUTHORITY TO VOTE
-------- --- --------------------------
David C. Burdakin 23,305,942 1,599,597
William P. Greubel 24,141,263 764,276
John T. Hackett 23,324,916 1,580,623
Martin C. Jischke 23,322,599 1,582,940
Ludvik F. Koci 23,332,083 1,573,456
Stephanie K. Kushner 24,624,296 281,243
19
The Wabash National Corporation 2004 Stock Incentive Plan was approved with the
following vote:
- 14,740,310 votes for approval
- 6,918,608 votes against
- 200,695 abstentions
- 3,045,926 broker non-votes
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.19 2004 Stock Incentive Plan
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 June 21, 2004 reporting under Item 5: Other Events
and Required FD Disclosure and Item 7: Financial Statements, Pro
Forma Financial Information and Exhibits.
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: August 9, 2004 By: /s/ Robert J. Smith
------------------------------
Robert J. Smith
Vice President and Controller
(Principal Financial Officer)
20