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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2005
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, [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 25, 2005 was
31,118,545.
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
Series A Preferred Share Purchase Rights New York Stock Exchange
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 2005 and December 31, 2004 3
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits 16
Signature 16
2
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2005 2004
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 27,029 $ 41,928
Accounts receivable, net 102,286 87,512
Current portion of finance contracts 1,591 2,185
Inventories 137,201 94,600
Prepaid expenses and other 13,370 16,313
--------- -----------
Total current assets 281,477 242,538
PROPERTY, PLANT AND EQUIPMENT, net 121,847 123,626
EQUIPMENT LEASED TO OTHERS, net 12,558 14,030
FINANCE CONTRACTS, net of current portion 2,897 3,319
GOODWILL, net 33,529 33,698
OTHER ASSETS 18,301 14,835
--------- -----------
$ 470,609 $ 432,046
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,000 $ 2,000
Accounts payable 102,622 78,107
Other accrued liabilities 47,487 52,442
--------- -----------
Total current liabilities 152,109 132,549
LONG-TERM DEBT, net of current maturities 125,000 125,500
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 9,159 9,423
STOCKHOLDERS' EQUITY:
Preferred stock, 300,000 shares authorized, 0 shares issued and outstanding - -
Common stock 75,000,000 shares authorized, $0.01 par value, 31,095,805
and 30,807,370 shares issued and outstanding, respectively 313 309
Additional paid-in capital 328,394 325,512
Retained deficit (145,018) (162,097)
Accumulated other comprehensive income 1,931 2,129
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
--------- -----------
Total stockholders' equity 184,341 164,574
--------- -----------
$ 470,609 $ 432,046
========= ===========
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,
-----------------------
2005 2004
--------- ---------
NET SALES $ 256,105 $ 221,597
COST OF SALES 221,707 198,475
--------- ---------
Gross profit 34,398 23,122
GENERAL AND ADMINISTRATIVE EXPENSES 9,218 10,473
SELLING EXPENSES 3,996 3,775
--------- ---------
Income from operations 21,184 8,874
OTHER INCOME (EXPENSE):
Interest expense (1,618) (2,897)
Foreign exchange gains and losses, net (142) (140)
Other, net (792) 1,022
--------- ---------
Income before income taxes 18,632 6,859
INCOME TAX EXPENSE 153 -
--------- ---------
NET INCOME $ 18,479 $ 6,859
========= =========
COMMON STOCK DIVIDENDS DECLARED $ 0.045 $ -
========= =========
BASIC NET INCOME PER SHARE $ 0.60 $ 0.25
========= =========
DILUTED NET INCOME PER SHARE $ 0.52 $ 0.23
========= =========
COMPREHENSIVE INCOME
Net income $ 18,479 $ 6,859
Foreign currency translation adjustment (198) (229)
--------- ---------
NET COMPREHENSIVE INCOME $ 18,281 $ 6,630
========= =========
See Notes to Condensed Consolidated Financial Statements.
4
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
----------------------
2005 2004
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,479 6,859
Adjustments to reconcile net cash provided by (used in) operating activities:
Depreciation and amortization 4,243 4,984
Net (gain) loss on the sale of assets 680 (524)
Provision (credit) for losses on accounts receivable and finance contracts (179) 45
Trailer valuation charges 58 164
Changes in operating assets and liabilities:
Accounts receivable (14,595) (29,118)
Finance contracts 918 1,205
Inventories (42,610) (3,250)
Prepaid expenses and other (521) 77
Accounts payable and accrued liabilities 19,100 10,915
Other, net 290 254
-------- ---------
Net cash used in operating activities (14,137) (8,389)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,348) (1,571)
Proceeds from the sale of property, plant and equipment 3,528 2,033
-------- ---------
Net cash (used in) provided by investing activities (2,820) 462
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 2,558 2,792
Borrowings under revolving credit facility 15,672 143,205
Payments under revolving credit facility (15,672) (136,609)
Payments under long-term debt agreements (500) (2,195)
-------- ---------
Net cash provided by financing activities 2,058 7,193
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (14,899) (734)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 41,928 12,552
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,029 $ 11,818
======== =========
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 2004 Annual
Report on Form 10-K.
Certain items previously reported in specific condensed consolidated
financial statement captions have been reclassified to conform to the 2005
presentation.
2. INVENTORIES
Inventories consisted of the following (in thousands):
March 31, December 31,
2005 2004
--------- ------------
Raw material and components $ 47,295 $ 36,146
Work in process 8,934 4,653
Finished goods 59,015 35,017
After-market parts 6,064 6,115
Used trailers 15,893 12,669
--------- ------------
$ 137,201 $ 94,600
========= ============
3. NEW ACCOUNTING PRONOUNCEMENTS
Share-Based Payments. In December 2004, the FASB issued SFAS No. 123
(revised 2004), Share-Based Payment. SFAS No. 123R, which is a revision of SFAS
No. 123, Accounting for Stock-Based Compensation, superceded APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statements of
Cash Flows. Statement No. 123R requires that all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based upon their fair value. The current pro forma
disclosure of the impact on earnings is no longer allowed. The Statement is
effective for the fiscal years beginning after June 15, 2005. Based upon
currently outstanding options, expense, net of tax, calculated using the
Black-Scholes model would amount to approximately $1.1 million in 2006.
4. 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
6
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.
2005 2004
---------- ----------
Report net income $ 18,479 $ 6,859
Pro forma stock-based compensation expense (net of tax) (868) (399)
Stock-based employee compensation expense recorded (net of tax) 218 50
---------- ----------
Pro forma net income $ 17,829 $ 6,510
========== ==========
Basic earnings per share:
Reported net income per share $ 0.60 $ 0.25
========== ==========
Pro forma net income per share $ 0.58 $ 0.24
========== ==========
Diluted earnings per share:
Reported net income per share $ 0.52 $ 0.23
========== ==========
Pro forma net income per share $ 0.50 $ 0.22
========== ==========
5. 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.
6. 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,
----------------------------
2005 2004
------- -------
Basic earnings per share:
Net income applicable to common stockholders $18,479 $ 6,859
======= =======
Weighted average common shares outstanding 30,914 26,990
======= =======
Basic earnings per share $ 0.60 $ 0.25
======= =======
Diluted earnings per share:
Net income applicable to common stockholders $18,479 $ 6,859
After-tax equivalent of interest on convertible notes 1,210 1,204
------- -------
Diluted net income application to common stockholders $19,689 $ 8,063
======= =======
Weighted average common shares outstanding 30,914 26,990
Dilutive stock options 508 985
Convertible notes equivalent shares 6,510 6,510
------- -------
Diluted weighted average common shares outstanding 37,932 34,485
======= =======
Diluted earnings per share $ 0.52 $ 0.23
======= =======
7
7. 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.
Reportable segment information is as follows (in thousands):
THREE MONTHS ENDED Retail and Consolidated
MARCH 31, 2005 Manufacturing Distribution Eliminations Totals
- ---------------------- ------------- ------------ ------------ ------------
Revenues
External customers $ 194,072 $ 62,033 $ - $ 256,105
Intersegment sales 37,593 - (37,593) -
------------- ------------ ----------- ------------
Total Revenues $ 231,665 $ 62,033 $ (37,593) $ 256,105
============= ============ =========== ============
Income from operations $ 21,841 $ 838 $ (1,495) $ 21,184
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 $ 10,772 (1,915) $ 17 $ 8,874
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,
--------------------------------------
2005 2004
------------------ ------------------
$ % $ %
------- ------- ------- -------
New Trailers 224,737 87.8 191,480 86.4
Used Trailers 12,941 5.1 13,272 6.0
Parts and Service 14,456 5.6 13,387 6.0
Other 3,971 1.5 3,458 1.6
------- ------- ------- -------
Total Net Sales 256,105 100.0 221,597 100.0
======= ======= ======= =======
8
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 Wabash 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 Wabash, 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 under the heading "Risk Factors" in our
Form 10-K for the year ended December 31, 2004 and elsewhere herein, including,
but not limited to, Item 5 of Part II hereof.
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,
----------------------------
2005 2004
----- ------
Net sales 100.0% 100.0%
Cost of sales 86.6 89.6
----- -----
Gross profit 13.4 10.4
General and administrative expense 3.5 4.7
Selling expense 1.6 1.7
----- -----
Income from operations 8.3 4.0
Interest expense (0.6) (1.3)
Foreign exchange gains and losses, net (0.1) (0.1)
Other, net (0.3) 0.5
----- -----
Income before income taxes 7.3 3.1
Income tax expense 0.1 -
----- -----
Net income 7.2% 3.1%
===== =====
9
The industry recovery that began in 2003 continues and it is expected to
accelerate over the balance of 2005 as production of trailers is anticipated to
increase from approximately 229,000 units in 2004 to approximately 271,000 units
in 2005 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. To date, Department of
Transportation regulations regarding driver hours (hours of service), which went
into effect on January 1, 2004, have had no discernible impact on our business.
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 7,500 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. In 2004, we 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.
THREE MONTHS ENDED MARCH 31, 2005
NET SALES
Net sales increased $34.5 million compared to the first quarter of 2004.
By business segment, net external sales and related units sold were as follows
(dollars in millions):
Three Months Ended March 31,
-------------------------------
2005 2004 % Change
-------- ------ --------
Sales by Segment: (in millions)
Manufacturing $ 194.1 $164.1 18%
Retail and Distribution 62.0 57.5 8%
-------- ------
Total $ 256.1 $221.6 16%
======== ======
New trailer units: (units)
Manufacturing 9,700 9,700 -
Retail and Distribution 1,500 1,500 -
-------- ------
Total 11,200 11,200 -
======== ======
Used trailer units 1,300 2,000 (35%)
======== ======
Manufacturing sales increased due to higher average selling prices per
unit, as unit volume was unchanged from the prior period. The increase in
selling prices results from aggressively passing through increases in raw
material costs and a favorable customer mix. Sales to core accounts represented
less than 20% of sales in the first quarter of 2005 compared to over 35% in the
prior year period.
First quarter 2005 sales in the retail and distribution segment were up
$4.5 million compared to the prior year period primarily as a result of higher
average selling price for new trailers as unit volume was constant. The average
selling price increase reflects the pass through of significant raw materials
increases experienced since the first quarter of 2004. A modest decrease in used
trailer sales was more than offset by increased parts and service sales despite
having three fewer full-service branches.
10
GROSS PROFIT
Gross profit as a percent of sales was 13.4% for the quarter compared to
10.4% for the same period in 2004. As discussed below, both of our segments
contributed as follows (in millions):
Three Months Ended March 31,
---------------------------
2005 2004 % Change
----- ----- --------
Gross Profit by Segment:
Manufacturing $30.9 $20.1 54%
Retail and Distribution 5.0 3.0 67%
Eliminations (1.5) - -
----- -----
Total Gross Profit $34.4 $23.1 49%
===== =====
The manufacturing segment's gross profit as a percentage of sales was
15.9% in 2005, a 3.7 percentage point improvement from the prior year period as
a result of the selling price increases noted above.
The retail and distribution segment's gross profit as a percent of sales
was 8.0% compared to 5.1% in the 2004 quarter. The increase is primarily due to
improved new trailer margins as market conditions allows price increases to out
pace cost increases. Service margins were up for the quarter primarily due to
the positive impact of continuous improvement initiatives resulting in improved
overhead efficiencies. Used trailer and parts margins were down slightly in the
2005 period.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $1.3 million in the first
quarter of 2005 to $9.2 million from $10.5 million in the prior year period
primarily due to reductions in outside professional fees and compensation costs.
SELLING EXPENSE
Selling expense increased $0.2 million to $4.0 million in the first
quarter of 2005, compared to $3.8 million in the prior year period.
OTHER INCOME (EXPENSE)
Interest expense totaled $1.6 million for the quarter ended March 31,
2005, a decrease of $1.3 million from the prior year period primarily due to
reduced average borrowings.
Other, net for the three months ended March 31, 2005 was an expense of
$0.8 million compared to income of $1.0 million in the 2004 period. The 2005
expense related to the disposition of non-operating assets. The 2004 income
included gains on the sale of closed properties.
INCOME TAXES
We recognized income tax expense of $0.2 million primarily related to
Federal and State alternative minimum tax (AMT) in the first quarter of 2005.
The income tax expense is below statutory tax rates primarily due to the
utilization of net operating loss (NOL) carryforwards. 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 March 31, 2005.
11
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL STRUCTURE
Today, our capital structure is comprised of a mix of equity and debt. Our
objective is to generate operating cash flows sufficient to satisfy normal
requirements for working capital and capital expenditures and be positioned to
take advantage of market opportunities.
CASH FLOW
Cash used in operating activities amounted to $14.1 million, an increase
of $5.7 million from the prior year period as increases in working capital were
only partially offset by an $11.8 million increase in net income (adjusted for
non-cash items) as follows:
- Accounts receivables increased $14.6 million compared to $29.1
million in the first quarter of 2004. Days sales outstanding, a
measure of working capital efficiency that measures the amount of
time a receivable is outstanding, was 37 days at March 31, 2005, a
decrease of 3 days versus the prior year.
- Inventory increased $42.6 million compared to $3.3 in the prior year
period. Inventory turns, a commonly used measure of working capital
efficiency that measures how quickly inventory turns, decreased to
approximately 6.5 times versus 9 times in the prior year reflecting
an increase in raw materials and finished goods inventories. The
inventory increases are primarily due to production requirements and
price increases.
- Accounts payable and accrued liabilities increased approximately
$19.1 million in line with increases in raw materials and finished
goods inventories.
Investing activities used $2.8 million in the 2005 quarter, a change of
$3.3 million from the prior year period resulting primarily from increased
capital spending.
Financing activities provided $2.1 million during the period, a decrease
of $5.1 million from the prior year period primarily due to reduced net
borrowing under our revolving credit facility.
Capital Expenditures
Capital spending amounted to approximately $6.3 million for the first
three months of 2005 and is anticipated to be in the range of $25-35 million for
2005. Spending thus far in 2005 included $3.9 million related to our ERP
project.
Outlook
The industry recovery that began in 2003 is expected to continue into 2005
and beyond. ACT estimates that production of trailers in 2005 will be
approximately 271,000 units. The continued 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.
We expect to participate in the industry growth because (1) our core
customers are among the dominant participants in the trucking industry, (2) our
DuraPlate(R) trailer continues to have increased market acceptance, (3) our
focus on developing solutions that reduce our customers trailers maintenance
costs, and (4) the success we are achieving expanding our presence into the
middle market carriers - approximately 1,250 carriers with fleet sizes ranging
from 250 to 7,500 units that represent a fleet that
12
totals approximately one million trailers. In the first quarter of 2005, we
added approximately 23 new customers representing orders of approximately 1,500
units from this segment of the market.
We believe that Wabash is well positioned to benefit from an 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 the cost of producing a trailer and effectively increased production
capacity.
As of March 31, 2005, our liquidity position, defined as cash on hand and
available borrowing capacity, amounted to approximately $145.5 million and total
debt and lease obligations amounted to approximately $131.5 million (including
$4.5 million of operating lease commitments). We expect that in 2005, we will be
able to generate sufficient cash flow from operations to fund working capital
and capital expenditure requirements.
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 for the year ended December 31,
2004, filed on March 3, 2005. There have been no material changes to the summary
provided in that report.
OFF-BALANCE SHEET TRANSACTIONS
As of March 31, 2005, we had approximately $4.5 million in operating lease
commitments. 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 for the year ended December 31, 2004, filed on March
3, 2005. 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 $500 million at March 31,
2005 compared to $280 million at December 31, 2004. We expect to complete the
majority of our existing backlog orders within the next twelve months.
CUSTOMER CREDIT RISK
We sublease certain highly specialized RoadRailer(R) equipment to Grupo
Transportation Marititma Mexicana SA (TMM), who is experiencing financial
difficulties. In August 2004, TMM completed the restructuring of its debt
agreements and has sold certain assets. Customer payments, which have
historically been timely, are behind schedule. The customer owes us $6.9 million
secured by highly specialized RoadRailer(R) equipment, which due to the nature
of the equipment, has a minimal recovery value.
13
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, 2005, the Company had outstanding
purchase commitments of approximately $25.5 million through December 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, 2005, the Company had no floating rate debt outstanding
under its various financing agreements.
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 $1.0 million impact on results of
operations. The Company does not hold or issue derivative financial instruments
for speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Based on an evaluation under the supervision and with the participation of
the Company's management, the Company's principal executive officer and
principal financial officer have concluded that the Company's disclosure
controls and procedures (as defined in Rules 14a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (Exchange Act)) were effective as of
March 31, 2005.
CHANGES IN INTERNAL CONTROLS
There were no changes in the Company's internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act,
during the first quarter of fiscal 2005 that have materially affected or are
reasonably likely to materially affect the Company's internal control over
financial reporting.
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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. UNREGISTERED SALES OF EQUITY 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
RISK FACTORS
You should carefully consider the risks described in our Form 10-K for the
year ended December 31, 2004, including those under the heading "Risk Factors"
appearing in Item 7B of Part II of the Form 10-K, in addition to risk factors
discussed below and other information contained or incorporated by reference in
this Report before investing in our securities. Realization of any of the
following risks could have a material adverse effect on our business, financial
condition, cash flows and results of operations.
WE ARE IN THE INITIAL STAGES OF A PROJECT TO IMPLEMENT A COMPANY-WIDE ENTERPRISE
RESOURCE PLANNING (ERP) SYSTEM, AND IF OUR IMPLEMENTATION IS UNSUCCESSFUL OR
PROVES MORE COSTLY THAN EXPECTED OUR BUSINESS COULD BE HARMED.
The project to implement a new ERP system is in its initial stages. Our
new ERP system is expected to integrate departments and functions across the
Company, enhance the ability to service customers and improve our control
environment. We may encounter delays and unforeseen costs in this process. If we
are unable to implement the ERP system successfully, we may not be able to
properly serve our customers or realize expected efficiencies.
WE MAY NOT BE SUCCESSFUL IN OUR PLANS TO UPGRADE OUR PRODUCTION LINES AND
REALIZE INCREASED LEVELS OF EFFICIENCY.
In 2005, we began the first phase of what is planned to be a four-phase
three-year project to replace four trailer assembly lines using technology
adapted from the automotive industry at a cost of approximately $10 million per
line. Our costs to replace the lines could exceed our estimates, the technology
may not work as planned and we may not be able to meet our estimated timeline.
Even if we are successful in replacing the production lines, we may not realize
the level of costs savings that we estimate.
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ITEM 6. EXHIBITS
(a) Exhibits:
10.26 Restricted Stock Unit Agreement between the Company and William P.
Greubel dated March 7, 2005 (Incorporated by reference to the
Company's Form 8-K filed on March 11, 2005).
10.27 Stock Option Agreement between the Company and William P. Greubel
dated March 7, 2005 (Incorporated by reference to the Company's Form
8-K filed on March 11, 2005).
10.28 Corporate Plan for Retirement - Executive 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).
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 29, 2005 By: /s/ Robert J. Smith
-------------------------------------------------
Robert J. Smith
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
16