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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 17684-3
WABASH NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1375208
(STATE OR OTHER JURISDICTION) (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1000 SAGAMORE PARKWAY SOUTH 47905
LAFAYETTE, INDIANA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(765) 448-1591
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.01 Par Value New York Stock Exchange
Series A Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. __X__ Yes. ____No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of January 30, 1997 was $326,217,000, based upon the closing
price of the Company's common stock as quoted on the New York Stock Exchange
composite tape on such date.
The number of shares outstanding of the registrant's common stock as of
January 30, 1997 was 18,910,923.
The Proxy Statement for Annual Meeting of Stockholders to be held May 8,
1997 is incorporated into this Form 10-K Part III by reference.
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TABLE OF CONTENTS
WABASH NATIONAL CORPORATION
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996
PAGES
PART I.
Item 1. Business .................................................................. 1
Item 2. Properties ................................................................ 8
Item 3. Legal Proceedings ......................................................... 9
Item 4. Submission of Matters to Vote of Security Holders ......................... 9
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters .. 9
Item 6. Selected Financial Data ................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................. 10
Item 8. Financial Statements and Supplementary Data ............................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................. 29
PART III.
Item 10. Directors and Executive Officers of the Registrant ........................ 30
Item 11. Executive Compensation .................................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management ............ 31
Item 13. Certain Relationships and Related Transactions ............................ 31
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 31
SIGNATURES ........................................................................... 34
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PART I
ITEM 1--BUSINESS
Wabash National Corporation ("Wabash" or the "Company") designs,
manufactures and markets standard and customized truck trailers, including dry
freight vans, refrigerated trailers and bimodal vehicles and also produces and
sells aftermarket parts through its division, Wabash National Parts. The
Company believes that it is the largest United States manufacturer of truck
trailers and the leading manufacturer of both fiberglass reinforced plastic
("FRP") trailers and aluminum plate trailers. In addition, the Company is the
exclusive manufacturer of RoadRailer(R) trailers, a patented bimodal technology
owned by the Company which consists of trailers and detachable rail bogies that
permit a vehicle to run both over the highway and directly on railroad lines.
The Company's wholly-owned subsidiary, Wabash National Finance Corporation,
(the "Finance Company") provides leasing and financing programs to its
customers for new and used trailers.
Wabash markets its products directly and through dealers to truckload and
less-than-truckload ("LTL") common carriers, private fleet operators, household
moving and storage companies, leasing companies, package carriers and
intermodal carriers including railroads. The Company has established
significant relationships as a supplier to many large customers in the
transportation industry, including those set forth below:
- Truckload Carriers: Schneider National, Inc.; Werner
Enterprises; Swift Transportation Co.; Dart Transit, Inc.; Heartland
Express, Inc.; Crete Carrier Corporation; Knight Transportation;
Frozen Food Express Industries (FFE)
- Leasing Companies: Transport International Pool (TIP);
Penske Truck Leasing; Trailer Leasing Company (TLC); National Semi
Trailer Corp.; Leaseway Purchasing Corp.
- Private Fleets: Safeway; Chrysler; The Kroger Company;
Stone Container Corporation; Foster Farms
- Less-Than-Truckload Carriers: Roadway Express, Inc.; Old
Dominion Freight Line, Inc.; Caliber Systems (Viking); USF Holland;
Central Transport International
- Package Carriers: Federal Express; United Parcel Service
(UPS)
- Domestic Intermodal Carriers: Triple Crown Services, Inc.;
National Rail Passenger Corp. (Amtrak); Burlington Northern Santa
Fe
- International Intermodal Carriers: Bayerische Trailerzug
Gesellschaft (BTZ); Compagnie Nouvelle De Conteneurs (CNC)
The Company was founded in 1985 by its current President, Donald J.
Ehrlich, and sixteen other associates. The Company's founders utilized their
years of experience in the truck trailer manufacturing business to design and
build a state-of-the-art manufacturing facility and to create a corporate
culture which emphasizes design and new product development capabilities and
stresses the integration of engineering, manufacturing and marketing.
The Company's business strategy is to follow an integrated approach to
engineering, manufacturing and marketing which emphasizes flexibility in
product design and operations while preserving a low cost structure. Wabash
has sought to identify and produce proprietary products in the trucking and
bimodal industries which offer added value to customers and, therefore,
generate higher profit margins than those associated with standard trailers.
The Company has developed its leasing business and expects to continue such
development. The Company also intends to expand its distribution of
aftermarket parts and strengthen its existing dealer network in order to more
effectively distribute its products. The Company believes that its RoadRailer
bimodal technology provides the opportunity to maintain a reputation for design
and new product development leadership and to continue to develop an
international presence. The important elements of the Company's strategies
are:
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- Assessment of Customer Needs. The Company's marketing,
engineering and manufacturing departments work with customers to
assess customer needs and to develop cost-effective engineering and
manufacturing solutions. This process results in many highly
customized products incorporating unique design features. The
Company also seeks to acquire products, services and technologies
that address customer needs and provide the opportunity for enhanced
profit margins. The Company emphasizes long-term customer
relationships at all levels in the Company, built on Wabash's
reputation for flexibility and customization.
- Engineering, Manufacturing and Purchasing. The Company's
integrated approach emphasizes low-cost and flexible production on
existing assembly lines without the need for extensive capital
investment or re-tooling. The Company uses computer-aided design
("CAD") and computer-aided manufacturing ("CAM") techniques
throughout the production process. The Company's product line is
produced on several assembly lines in Lafayette, Indiana where
quality control and uniformity can be maintained while line or
facility downtime is reduced. The Company also utilizes
just-in-time techniques for many aspects of the production process
including delivery of components immediately prior to the time
needed for assembly. These techniques have substantially reduced
the capital investment and set-up time associated with introducing
product innovations and have also reduced product waste and
unnecessary product handling time.
- Product Differentiation. Wabash has developed or acquired
several proprietary products and processes which it believes are
recognized as high in quality and distinctive in design. While the
Company is a competitive producer of standardized products, it
emphasizes the development and manufacture of distinctive and more
customized products and believes that it has the engineering and
manufacturing capability to produce these products efficiently. The
Company expects to continue a program of aggressive product
development and selective acquisitions of quality proprietary
products which distinguish the Company from its competitors and
provide opportunities for enhanced profit margins.
- Corporate Culture. Since the Company's founding, management
has fostered a corporate culture which emphasizes design and new
product development capabilities as well as extensive employee
involvement. All employees participate in extensive classroom
training covering all aspects of the Company's business, including
team building and problem solving, statistical process control,
economics and finance. Wabash employs a compensation program which
rewards all hourly employees through the distribution of a
percentage of the Company's after-tax profits. Wabash's safety
program has been developed with employee participation and has been
cited for each of the last eight years (1988-1995) by the Truck
Trailer Manufacturing Association for achieving the best safety
record among large plants in the industry. The Company believes
that its corporate culture has produced a highly trained and
motivated workforce that understands the Company's business strategy
and that is keenly interested in and rewarded by the success of the
Company.
Wabash was incorporated in Delaware in 1991 and is the successor by merger
to a Maryland corporation organized in 1985.
THE TRUCK TRAILER INDUSTRY
The U.S. market for truck trailers and related products has historically
been cyclical and has been affected by overall economic conditions in the
transportation industry as well as regulatory changes. Management believes
that customers historically have replaced trailers in cycles that run from
approximately six to eight years. Both state and Federal regulation of the
size, safety features and configuration of truck trailers have led to increased
demand for trailers meeting new regulatory requirements from time to time.
Currently, for instance, most states permit the use of 53 foot trailers, and
this development has had a positive effect on trailer demand in the past few
years.
A large percentage of the new trailer market has historically been served
by the ten largest truck trailer manufacturers, including the Company. Price,
flexibility in design and engineering, product quality and durability,
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warranty, dealer service and parts availability have influenced competitive
position in the markets served. Historically, there has been manufacturing
over capacity in the truck trailer industry, particularly among the competitors
of the Company.
The following table sets forth domestic trailer shipments for the Company,
its nine largest competitors and for the United States trailer industry as a
whole:
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
WABASH NATIONAL .......... 36,517 42,424 35,679 22,060 19,253
Great Dane ............... 25,730 36,514 29,756 23,900 21,717
Utility .................. 19,731 25,068 19,501 13,768 10,022
Monon .................... 11,164 21,172 13,478 9,500 8,300
Trailmobile .............. 11,094 21,239 16,671 14,500 11,908
Dorsey ................... 8,595 12,276 12,010 10,190 7,496
Fruehauf ................. 8,509 16,653 16,092 9,445 18,916
Stoughton ................ 8,300 14,770 13,000 13,500 10,011
Strick ................... 8,141 18,427 15,599 12,800 10,500
Fontaine ................. 4,613 5,465 4,530 3,700 3,087
Total Industry ........... 192,362 284,268 236,016 188,319 165,268
Source: Southern Motor Cargo Magazine (C) 1997. A complete report for the top
30 manufacturers may be obtained from Southern Motor Cargo, P.O. Box 40169,
Memphis, TN 38174. The above figures reflect shipments not units produced.
REGULATION
Truck trailer length, height, width, maximum weight capacity and other
specifications are regulated by individual states. The Federal Government also
regulates certain safety features incorporated in the design of truck trailers.
Manufacturing operations are subject to environmental laws enforced by
Federal, state and local agencies, and the Company is currently in the process
of undertaking a soil remediation effort at its facility (See "Environmental
Matters").
PRODUCTS
Since the Company's inception in 1985, the Company has expanded its
product offerings from a single product into a broad line of transportation
equipment and related products. As a result of its long-term relationships
with its customers, the Company has been able to work closely with its
customers to create competitive advantages through development and production
of productivity--enhancing transportation equipment. The Company's current
product offering includes:
Transportation Equipment
- Plate Trailers. The aluminum plate trailer was introduced
into the Company's product line in 1985. Since these trailers
utilize thicker and more durable sidewalls than standard sheet and
post or FRP construction and avoid the use of interior liners, the
life of the trailer is extended and maintenance costs are
significantly reduced. In addition, the post used in constructing
the sidewalls of the plate trailer is much thinner and therefore
provides greater interior volume than a standard sheet and post
trailer. Plate trailers are used primarily by truckload carriers.
The Company believes that it is the largest producer of plate
trailers in the United States. In late 1995, the Company introduced
its composite plate trailer. Features of the new composite plate
trailer include increased durability and greater strength than the
aluminum plate trailer. The composite material is a high density
vinyl core with a steel skin.
- RoadRailer trailers. In 1987, the Company began manufacturing
RoadRailer trailers. RoadRailer trailers represent a patented
bimodal technology consisting of a truck trailer and detachable rail
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"bogie" permitting a trailer to run both over the highway and
directly on railroad lines. The Company believes that the RoadRailer
system can be operated more efficiently than alternative intermodal
systems such as "piggyback" or "stack" railcars which require
terminal operators to transfer vehicles or containers to
railcars. In 1991, the Company acquired the exclusive rights to
market and exploit RoadRailer technology. By offering the bimodal
technology in a number of variations, the Company believes it can
increase its penetration of the intermodal market and enlarge its
pool of potential customers. The current variants are the
ReeferRailer(R) trailer, the ChassisRailer(R) trailer, the
PupRailer(R) trailer, the AutoRailer(R) trailer and the 19.5
RoadRailer trailer. Management believes that RoadRailer trailers and
its variants will provide the opportunity for the Company to maintain
a reputation for technological leadership in the transportation
industry.
- Lightweight Railcars. In 1995, the Company introduced its
first prototype lightweight, totally enclosed, high-speed railcar
(the "AllRailer(R) railcar"). The AllRailer railcar design allows
shippers to transport vehicles by rail in a fully-enclosed
environment, protected from both airborne contamination and
vandalism. The AllRailer unit has the flexibility to be converted
for use in either a bi-level or tri-level configuration by
positioning the upper floors to handle automobiles or vehicles such
as pick-up trucks, vans or sport/utility vehicles. This feature
should result in greater railcar utilization and a reduction in
repositioning empty railcars. AllRailer railcars feature a heavy
duty version of the RoadRailer slack-free coupler, which reduces up
to 99.8 percent of the forces transmitted to vehicles as a result of
train slack action. Additional AllRailer railcar features include a
wide interior, door edge protection and flat floors with built-in
bridge plates between cars, all designed to provide damage-free
vehicle loading and unloading.
- Refrigerated trailers. Refrigerated trailers were introduced
into the product line in 1990. The Company's proprietary process
for building these trailers involves injecting insulating foam in
the sidewalls and roof in a single process prior to assembly, which
improves both the insulation capabilities and the durability of the
trailers. These trailers are used primarily by private fleets in
the transportation of perishable food products. During 1995, the
Company opened its new refrigerated trailer manufacturing facility
in Lafayette, Indiana.
- FRP vans and doubles. The Company's initial product was
fiberglass reinforced plastic trailers which have been purchased
primarily by LTL carriers utilizing doubles or triples. Motor
carriers utilizing standard double or triple trailers frequently
reach the maximum legal weight limits before they fill the capacity
of the trailers. Since FRP trailers are lighter in weight than some
other types of double trailers, they enable LTL carriers to attain
higher productivity than could be achieved using other types of
double trailers. The Company believes that it is the largest
producer of FRP trailers in the United States.
- Aluminum vans and doubles. Aluminum vans and doubles, also
known as sheet and post trailers, were introduced into the product
line in 1986 and are the standard trailer product purchased by most
segments of the trucking industry.
- Other. The Company's other transportation equipment include
container chassis, flatbed trailers, rollerbed trailers, soft-sided
trailers and converter dollies.
Leasing and Finance
Through 1991, the Company leased trailers to customers on a very limited
basis, primarily involving used trailers taken in trade from other customers.
In late 1991, the Company began to build its in-house capability to provide
leasing programs to its customers through its newly formed subsidiary, Wabash
National Finance Corporation ("the Finance Company"). At December 31, 1996,
the Finance Company had approximately $63.8
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million in equipment leased to others, net and $43.9 million invested in
finance contracts. These leasing assets have been financed through term debt.
Leasing revenues of the Finance Company represented 9.2%, 3.6% and 2.9% of
total net sales during 1996, 1995 and 1994, respectively.
Aftermarket Parts
The Company also produces replacement parts and accessories both for its
own and competitors' trailers and related equipment. Aftermarket parts
represent a stable business which can produce high gross profit margins and are
marketed through its division, Wabash National Parts. Management expects that
the manufacture and sale of aftermarket parts will be a growing part of its
product mix as the number and age of its units in service increases. Sales of
these products represented 4.5%, 3.0%, and 3.5% of total net sales during 1996,
1995 and 1994, respectively.
Used Trailers
The Company is also involved in the sale of used trailers, which are
primarily trade-ins from its customers for new trailers. The Company generally
sells its used trailers both directly and through the Finance Company.
Depending upon the customer's desire, the Company may recondition a used
trailer or "stretch" the trailer to convert a 48-foot unit into a 53-foot unit.
Used trailer sales promote new sales by permitting trade-in allowances and
have represented a stable source of revenue for the Company. The sale of used
trailers represented 4.6%, 2.5% and 1.1% of total net sales during 1996, 1995
and 1994, respectively.
CUSTOMERS
The Company's customer base includes many of the nation's largest
truckload common carriers, domestic and international intermodal carriers
including railroads, leasing companies, LTL common carriers, private fleet
carriers, and package carriers. The Company is currently the sole supplier for
several of its customers.
Schneider National, Inc. accounted for approximately 13% of the Company's
net sales during both 1996 and 1995 and 16% during 1994. Swift Transportation
Company accounted for approximately 15% of the Company's net sales in 1996. No
other customer represented more than 10% of net sales in 1996, 1995 or 1994.
The Company's net sales in the aggregate to its five largest customers were
39%, 33% and 37% of its net sales in 1996, 1995 and 1994, respectively.
Truckload common carriers include large national lines as well as regional
carriers. The large national truckload carriers, who continue to gain market
share at the expense both of regional carriers and private fleets, typically
purchase trailers in large orders with highly individualized specifications.
Trailers purchased by truckload common carriers including Schneider National,
Inc., Werner Enterprises, Swift Transportation Co., Heartland Express, Inc.,
Dart Transit, Inc., Crete Carrier Corporation, Knight Transportation and FFE
represented 58.3%, 63.9% and 57.3% of the Company's total new trailer sales in
1996, 1995 and 1994, respectively.
Leasing companies include large national companies as well as regional and
local companies. Among leasing companies, the Company's customers include
Transport International Pool (TIP), Trailer Leasing Company, National Semi
Trailer Corp. and Penske Truck Leasing. New trailer sales to leasing companies
represented 8.0%, 10.4% and 14.8% of total new trailer sales in 1996, 1995 and
1994, respectively.
Private fleet carriers represent the largest segment of the truck trailer
industry in terms of total units, but are dominated by small fleets of 1 to 100
trailers. Among the larger private fleets, such as those of the large retail
chain stores, automotive manufacturers and paper products, truck trailers are
often ordered with customized features designed to transport specialized
commodities or goods. Among private fleets, the Company's customers include
Chrysler, Safeway, Foster Farms, The Kroger Company and Stone Container
Corporation. New trailer sales to private fleets represented 9.4%, 10.0% and
4.2% of total new trailer sales in 1996, 1995 and 1994, respectively.
LTL carriers have experienced consolidation in recent years, and the
industry is increasingly dominated by a few large national and several regional
carriers. Since the Highway Reauthorization Act of 1983 mandated that all
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states permit the use of 28 foot double trailers, there has been a conversion
of nearly all LTL carriers to doubles operations. Order sizes for LTL carriers
tend to be in high volume and with standard specifications. LTL carriers who
have purchased Company products include Roadway Express, Inc., Old Dominion
Freight Line, Inc., Viking, USF Holland, Central Transport and TNT Freightway,
Inc. New trailer sales to LTL carriers accounted for 14.9%, 6.8% and 10.3% of
total new trailer sales in 1996, 1995 and 1994, respectively.
In the U.S., the package carrier industry is dominated by Federal Express,
United Parcel Service and Roadway Package System, Inc. Federal Express and UPS
have developed rigid specifications for their highly specialized trailers and
have historically purchased trailers from a small number of suppliers,
including Wabash. New trailer sales to package carriers represented 2.7%, 6.3%
and 3.5% of total new trailer sales in 1996, 1995 and 1994, respectively.
Customers for the Company's proprietary RoadRailer products included
United States and foreign intermodal carriers such as Triple Crown Services,
Amtrak, Allied Systems, Bayerische Trailerzug Gesellschaft and Compagnie
Nouvelle De Conteneurs. The Company believes that the RoadRailer technology
has enabled it to develop an international presence. Anticipated sources of
future revenue in the RoadRailer business also includes license fees from the
license of RoadRailer technology to overseas manufacturers. New trailer sales
of RoadRailer products represented 6.6%, 2.6% and 9.9% of total new trailer
sales in 1996, 1995 and 1994, respectively.
The balance of new trailer sales in 1996, 1995 and 1994 were made to
dealers and household moving carriers.
MARKETING AND DISTRIBUTION
Trailer Sales. The Company and other truck trailer manufacturers market
and distribute their products in two principal ways. Certain types of
customers purchase directly from the factory, while others purchase primarily
from dealers. The factory direct accounts include the larger truckload, LTL,
package and household moving carriers and certain private fleets and leasing
companies, and are high volume purchasers. The Company has focused its
resources on the factory direct market, where customers are generally aware of
the Company's management and its reputation in the trailer manufacturing
industry, rather than on its dealer network. The current strategy is to
increase its share of the factory direct market while expanding its dealer
sales by attracting additional high quality regional dealers. The dealers
primarily serve intermediate and smaller sized carriers and private fleets in
the geographic region where the dealer is located and on occasion may sell to
large fleets. The dealers also perform service work for many of their
customers. The Company believes that the expansion of its dealer network will
enable it to increase sales to regional carriers including private fleets and
will assist in the distribution of aftermarket parts.
The larger LTL and private fleets, as well as the national fleets which
increasingly dominate the truckload segment, buy factory direct with a great
deal of customization. These larger carriers generally will purchase the
largest trailer allowable by law in the areas they intend to operate, with
maximum interior space. These carriers are the largest users of the plate
trailers manufactured by the Company. The Company's factory direct sales are
based on specific customer orders. The Company has seven full time marketing
and sales employees responsible for factory direct sales. These individuals
work closely with senior management and with representatives of the engineering
and manufacturing departments in order to effectively market products designed
to meet the needs of a specific customer. Factory direct sales represented
73.2%, 66.4% and 65.6% of total new trailer sales in 1996, 1995 and 1994,
respectively.
After the Company successfully obtained a significant share of the factory
direct business and developed a reputation as a high quality manufacturer whose
product was purchased by large carriers, the Company began to attract regional
dealers. The Company expanded its product line in 1990 to include refrigerated
vans to establish the full product line necessary to attract quality dealers.
Changes in the management, product line, product quality and financial
condition of many competitive manufacturers during the past five years also
influenced many dealers to reconsider the product lines carried. At December
31, 1996, the Company's products were being offered by 40
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independent dealers in 61 locations including Canada and Mexico. New trailer
sales through dealers represented 26.8%, 33.6% and 34.4% of total new trailer
sales in 1996, 1995 and 1994, respectively.
On January 11, 1996, the Company announced a strategic alliance with
Fruehauf Trailer Corporation ("Fruehauf"). As a part of this alliance, the
Company announced that a private label manufacturing agreement had been reached
whereby Wabash will build refrigerated van trailers for Fruehauf to market
through Fruehauf's distribution network. These trailers will be built to
Fruehauf's specifications, utilizing proprietary components such as axles,
suspension and landing gear. In addition, the Company announced its intention
to develop programs to enhance its aftermarket parts and used trailer business
through Fruehauf's distribution network. On October 7, 1996, Fruehauf filed
bankruptcy. It is expected this development will have little impact as there
had been limited activity between the Companies since the alliance was
announced.
Leasing and Finance. In late 1991 the Company began to build an in-house
capability to provide a leasing program to its customers for new and used
trailers. Wabash National Finance Corporation was formed as a wholly owned
subsidiary of the Company and a senior executive was hired to manage the
leasing operations.
Aftermarket Parts. The Company also produces replacement parts and
accessories both for its own and competitors' trailers and related equipment.
Aftermarket parts represent a stable business which can produce high gross
profit margins. These products are offered through the Company's network of
over 135 independent dealers and through its aftermarket parts division, Wabash
National Parts.
RAW MATERIALS
The Company utilizes a variety of raw materials and components including
aluminum, lumber, tires and suspensions which it purchases from a large number
of suppliers. Significant price fluctuations or shortages in raw materials or
finished components may adversely affect the Company's results of operations.
The raw material used in greatest quantity is aluminum, which is readily
available from numerous sources. The Company is increasing its use of
composite materials which includes high strength steel and a vinyl core. There
is currently a very limited supply of this composite material. As a result,
the Company is currently constructing its own composite material facility in
Lafayette, Indiana. The central Midwest location of the Company's plant gives
Wabash a competitive advantage in the transportation cost of inbound raw
materials as well as the cost of delivery of finished product. Customers often
use trailers coming off the assembly line to deliver freight outbound from the
Midwest.
BACKLOG
The Company's backlog of orders was approximately $462.0 million, $858.0
million and $1,028.7 million at December 31, 1996, 1995 and 1994, respectively.
The Company expects to fill a majority of its existing backlog of orders by
the end of 1997. The Company has historically built trailers to customer order
and does not maintain an inventory of new trailers built in anticipation of
future orders.
PATENTS, LICENSES AND TRADEMARKS
The Company currently holds or has applied for approximately 63 patents in
the United States on various components and techniques utilized in its
manufacture of truck trailers, of which 23 patents and 12 applications in the
United States cover the Company's RoadRailer technology. RoadRailer technology
is also covered by the Company's patents registered in 16 foreign countries.
The Company utilizes confidential proprietary information in the design and
manufacturing of its products and takes appropriate measures, including legal
action where necessary, to protect its trademarks, patents and proprietary
rights. The Company does not license the use of its trademarks, patents or
proprietary rights to other persons, except that the Company has entered into
six licensing agreements with foreign firms in over 19 countries for those
firms to utilize the Company's proprietary RoadRailer technology and trademarks
in return for royalty payments based on sales. In addition, as a part of the
Fruehauf alliance, the Company reached an exclusive cross license agreement
relative to composite plate trailer design and patents. Under this agreement,
Wabash and Fruehauf will have the exclusive right to build and distribute
composite plate trailers covered by patents owned by the Company and Fruehauf.
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RESEARCH AND DEVELOPMENT
The Company emphasizes design and product innovation and has increased its
expenditures for research and development in recent years since its founding.
The Company has a reputation in the industry for its innovation in product
design and low cost manufacturing. The Company's policy is to expense all
research and development costs as incurred. Research and development costs
were $1.2 million in 1996, $1.6 million in 1995 and $1.4 million in 1994.
Research and development efforts include the development of proprietary highly
automated manufacturing equipment and tooling, much of which was developed by
the employees who operate the equipment. The Company attempts to foster a
culture that encourages innovation by all employees, particularly those working
on the factory floor.
ENVIRONMENTAL MATTERS
Wabash operates in several sites in Lafayette pursuant to permits issued
by the Indiana Department of Environmental Management ("IDEM") Office of Air
Management which restrict the emission of volatile organic compounds ("VOC")
from the Company's painting, insulating and undercoating operations. The
Company regularly reports its VOC emissions to IDEM and the United States
Environmental Protection Agency ("EPA"), and believes its emissions comply with
applicable laws and regulations. The Company also disposes of waste associated
with painting operations in landfills pursuant to permits issued by IDEM and
disposes of other solid wastes off-site through independent solid waste
haulers.
Wood preservatives and solvents associated with manufacturing activities
conducted by the previous owner of the site, National Enterprises, Inc., which
filed for bankruptcy protection, are contained in soils at a portion of that
site and are being remediated voluntarily pursuant to a Work Plan approved by
IDEM. Enhanced long-term bioremediation of the affected soils began in June
1991. Sufficient data have not yet been generated to predict when the
remediation will be complete, whether the enhanced bioremediation will achieve
cleanup objectives imposed by regulatory agencies, and what the ultimate costs
of cleanup will be. To date, costs associated with the on-site soil
remediation have not been material. The Company does not expect the condition
of the Site or the cost of cleanup to have a materially adverse effect upon the
financial condition or operations of the Company.
In 1989, the Company received and responded to a "Request For Information"
pursuant to the Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA"), and the Resource Conservation and Recovery Act, regarding the
Tippecanoe Sanitary Landfill in Lafayette, Indiana. With one immaterial
exception, the Company has not disposed of waste at this landfill. A generator
claim against the Company pursuant to CERCLA for response costs associated with
a cleanup of the landfill may be asserted, but none is known to be
contemplated. The Company's apportioned share of liability for such cleanup,
if any, is expected to be immaterial.
EMPLOYEES
As of December 31, 1996, the Company employed 2,921 persons, of whom 36
are employed in research and engineering, 2,620 in manufacturing, 48 in sales
and marketing, 102 in materials and 115 in administration, finance and
management. None of the Company's employees are represented by a labor union.
The Company places a heavy emphasis on employee relations through educational
programs and quality control teams. The Company believes that its employee
relations are excellent.
ITEM 2-- PROPERTIES
The Company owns an approximately 1 million square foot facility in
Lafayette, Indiana which houses its truck trailer manufacturing, tool and die
operations, research laboratories and management offices. This facility,
comprising 12 buildings on 79 acres, is subject to deeds of trust in favor of
the owner of certain industrial revenue bonds sold to finance plant expansions
in 1986. As a result of the Company's emphasis on efficient manufacturing
processes, the Company believes it utilizes a large percentage of the Company's
productive capacity during normal operations. In 1994, the Company purchased
an additional facility in Lafayette, Indiana. The additional facility
8
11
contains approximately 500,000 square feet of manufacturing space and is
located on 300 acres. This facility was opened during 1995 and is used for
expanded production capacity of truck trailers (primarily refrigerated
trailers) and RoadRailer bimodal products. The Company also broke ground on
its new composite material facility in early 1997 which is expected to be
approximately 40,000 square feet of manufacturing space upon completion. The
Company believes that these facilities are adequate for its operations.
ITEM 3-- LEGAL PROCEEDINGS
There are certain lawsuits and claims pending against the Company which
arose in the normal course of business. None of these claims are expected to
have a material adverse effect on the Company's financial position or results
of operations.
ITEM 4-- SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS
None to report.
PART II
ITEM 5-- MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Following the Company's initial public offering of Common Stock on
November 8, 1991, the Company's Common Stock has been traded on the New York
Stock Exchange under the symbol "WNC." The following table sets forth, for the
period indicated, the high and low last sale prices per share of the Common
Stock as reported on the New York Stock Exchange Composite Tape and the
dividends declared per common share.
DIVIDENDS
DECLARED PER
HIGH LOW COMMON SHARE
---- ----- ---------------
1995
First Quarter ............................. $38.875 $27.875 $0.025
Second Quarter ............................ $33.625 $27.75 $0.025
Third Quarter ............................. $39.75 $30.35 $0.025
Fourth Quarter ............................ $34.00 $19.875 $0.03
1996
First Quarter ............................. $24.125 $18.25 $0.03
Second Quarter ............................ $22.75 $17.375 $0.03
Third Quarter ............................. $18.875 $15.125 $0.03
Fourth Quarter ............................ $20.50 $15.75 $0.03
1997
First Quarter (through January 30, 1997) .. $18.50 $17.125 ---
As of January 30, 1997, the Common Stock was held by 1,191 holders of
record.
ITEM 6--SELECTED FINANCIAL DATA
The following selected consolidated financial data, with respect to the
Company for the five years in the period ended December 31, 1996 have been
derived from the Company's consolidated financial statements, which statements
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere herein.
9
12
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales .................................. $631,492 $734,299 $561,797 $360,030 $289,097
Cost of sales .............................. 602,629 677,503 511,821 325,123 267,743
---------- ---------- ---------- ---------- ----------
Gross profit ........................... 28,863 56,796 49,976 34,907 21,354
Selling, general and administrative
expenses.................................. 13,359 11,111 8,723 7,465 6,145
---------- ---------- ---------- ---------- ----------
Income from operations ................. 15,504 45,685 41,253 27,442 15,209
Interest expense ........................... (10,257) (6,251) (2,684) (1,388) (704)
Other, net ................................. 788 875 1,019 (184) 1
---------- ---------- ---------- ---------- ----------
Income before taxes .................... 6,035 40,309 39,588 25,870 14,506
Provision for income taxes ................. 2,397 14,902 15,663 10,315 5,575
---------- ---------- ---------- ---------- ----------
Net income ............................. $ 3,638 $ 25,407 $ 23,925 $ 15,555 $ 8,931
========== ========== ========== ========== ==========
Net income per common share ................ $ 0.19 $ 1.34 $ 1.32 $ 0.90 $ 0.54
Cash dividends declared per common share ... $ 0.12 $ 0.105 $ 0.85 $ 0.07 $ 0.017
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------ ------ -------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA (at end of period):
Working capital ............................ $148,712 $113,198 $ 90,802 $ 56,407 $ 44,129
Total lease portfolio ...................... 113,811 76,464 53,479 37,647 18,854
Total assets ............................... 440,071 384,134 300,679 179,801 134,633
Long-term debt, net of current maturities .. 151,307(1) 73,726(1) 24,857 24,422 18,105
Stockholders' equity ....................... 178,368 177,631 154,181 87,464 62,086
(1) Long-term debt, net of current maturities includes $80.9 million in 1996
and $31.0 million in 1995 incurred by the Finance Company in connection
with its lease and finance operations.
ITEM 7-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
This document contains various forward-looking comments. These comments
should be viewed in connection with the risk factors disclosed in the Company's
Form 8-K as filed with the Securities and Exchange Commission on January 21,
1997.
As a result of the significant investments made by the Company in new
products and new markets coupled with a 32% decline in total U.S. truck trailer
demand, net sales and net income decreased during 1996. New product
introductions resulted in the Company's product mix becoming significantly more
dependent on standard type
10
13
trailer equipment at the same time that demand for truck trailers in the United
States decreased approximately 32%. The decline in truck trailer demand during
1996 coupled with excess capacity in the industry resulted in extreme pricing
pressure on new trailers which unfavorably impacted margins. As a result, the
Company's net sales decreased 14% during 1996 to $631.5 million compared to
$734.3 million in 1995 while net income decreased to $3.6 million ($0.19 per
share) compared to $25.4 million ($1.34 per share) in 1995. The decline in
truck trailer demand combined with excess capacity resulted in two of the ten
largest manufacturers entering bankruptcy during 1996. Partially offsetting
the decrease in net sales were increases in the sales of the Company's leasing
and finance and aftermarket parts operations. The demand for the Company's
products continued to be strong as the Company began 1997 with approximately
$460 million in backlog, a majority of which is expected to be delivered in
1997.
In 1995, the Company experienced a 31% increase in net sales and a 6%
increase in net income over 1994 levels as a result of increased demand for
Company products.
The following table sets forth certain operating data as a percentage of
net sales for the periods indicated:
PERCENTAGE OF NET SALES
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- ------------ ------------
Net sales ........................... 100.0% 100.0% 100.0%
Cost of sales ....................... 95.4 92.3 91.1
-------- ------------ ------------
Gross profit ................... 4.6 7.7 8.9
General and administrative expense .. 1.4 1.0 1.0
Selling expense ..................... .7 .5 .6
-------- ------------ ------------
Income from operations ......... 2.5 6.2 7.3
Interest expense .................... (1.6) (.8) (.5)
Other, net .......................... .1 .1 .2
-------- ------------ ------------
Income before taxes ............ 1.0 5.5 7.0
Provision for taxes ................. .4 2.0 2.8
-------- ------------ ------------
Net income ..................... .6% 3.5% 4.3%
======== ============ ============
RESULTS OF OPERATIONS
Net Sales
For the first time since 1991, industry shipments of new trailers
decreased from prior year levels. Due to oversupply of new trailers in 1995
and industry consolidation in the full truckload segment, new trailer shipments
in 1996 decreased an estimated 32% from 1995, compared to a 20% increase in
1995 from 1994 and a 25% increase in 1994 from 1993. During these periods the
Company was able to increase its net sales in 1995 and 1994; however, sales
decreased in 1996. During 1996, however, the Company was able to increase its
estimated market share despite the 32% reduction in total industry new trailer
shipments as a result of its strategy to continuously improve productivity,
increase capacity and to provide superior equipment to the full truckload,
refrigerated and intermodal segments, as follows:
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---------- --------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales ...................................... $631,492 $734,299 $561,797
% (decrease)/increase in sales from prior period (14.0)% 30.7% 56.0%
Estimated % share of new trailer market ........ 19.0% 14.9% 15.2%
11
14
The decreased net sales for 1996 was attributable to a decrease in new
trailer sales of $150.3 million, offset by increased aftermarket parts sales of
$6.5 million, increased sales of used trailers previously under lease by the
Finance Company of $9 million and a $32 million increase in the revenues of
the Finance Company. The decrease in new trailer sales for the year was
attributable to a 16% decrease in units sold, reflecting the decreased
production on the Company's plate trailer line as a result of the limited
supply of composite material and the 32% decline in U.S. truck trailer demand.
In late 1995, the Company introduced its new composite plate trailer, the
DuraPlate(R) trailer, the next generation of the plate trailer. Historically,
the aluminum plate trailer had accounted for over half of the Company's
revenues and even a greater percentage of its earnings. While not
proprietary, the Company has enjoyed a sizable market share within this
segment. As the success of the aluminum plate trailer grew, the Company
experienced increased competition within its main product line and as a result,
decreased margins. With this in mind, the Company has been developing for some
time the next generation of the aluminum plate trailer, one which is
proprietary in design. With the introduction of the DuraPlate trailer many of
the Company's customers delayed taking the aluminum plate trailer. At the same
time, the Company was severely limited on the supply of the composite material
from one supplier who was not able to increase its capacity. As a result, the
Company's plate trailer production decreased approximately 40% from 1995. The
Company anticipates supply of the composite material to improve over the next
several quarters as its supplier increases manufacturing capacity; however,
this increased capacity is not expected to fulfill the Company's long-term
demand for this product. As a result, the Company plans to construct its own
composite manufacturing facility in Lafayette, Indiana during 1997 at an
estimated cost of $17 million to $20 million. Furthermore, the Company expects
pricing to improve in the standard trailer market as overall manufacturing
capacity decreases in the domestic trailer market during this period of
consolidation. The $32 million increase in leasing and finance revenues during
1996 was due to the increase in the number of trailers leased and financed to
customers, which increased from approximately 7,200 trailers on lease at
December 31, 1995 to approximately 9,900 trailers on lease at December 31, 1996
and due to the increase in the sale of leased or financed equipment. The
increase in aftermarket parts sales reflects the Company's strategy of
continuing to increase its independent dealer network, which consisted of over
135 independent dealers at December 31, 1996.
The increase in sales of 21.1% and 63.1% in 1995 and 1994, respectively,
reflects an increase in units sold due to increased demand for the Company's
products.
Gross Profit
During 1996, the Company experienced continued growth in the demand for
several new products recently introduced, including, among others, its new
composite plate trailer. However, due to a limited supply of composite
material available from the Company's supplier, production on the Company's
plate trailer line was down 40% from 1995 levels. As a result, the Company's
production mix in 1996 was concentrated in the standard type trailer market
which experienced significant pricing pressures and resulted in the Company's
decreased gross profit margins. In addition, during late-1995 the Company
completed its capacity expansion program which tripled its production capacity
over 1993 levels and achieved a record number of new product introductions and
new product developments. This increased level of capital expenditures
impacted the Company's gross margin percentage in 1996 due to the unfavorable
production mix in 1996. The Company believes these investments have positioned
it for continued growth in the foreseeable future in light of a downturn in the
domestic trailer market while at the same time giving it the opportunity to
improve gross margins.
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
Gross profit ......... $28,863 $56,796 $49,976
as a % of net sales .. 4.6% 7.7% 8.9%
12
15
Income from Operations
Income from operations (income before interest, taxes and other items) was
affected primarily by the changes in gross profit. The decrease in the percent
of income from operations in 1996 was a result of the decrease in gross profit
margins and increased selling, general and administrative (SG&A) expenses as a
percent of net sales. Selling, general and administrative expenses increased
during 1996 due in part to a $1.0 million increase in discount fees associated
with the increased use of the Company's receivables sales and servicing
agreement. Also impacting income from operations in 1996 was decreased income
from the Finance Company. This decreased income was primarily due to the
bankruptcy of certain large customers in 1996 and 1995. Reduced SG&A expenses
as a percent of net sales partially offset decreased gross profit margins in
1995. Selling, general and administrative expenses were 2.1%, 1.5% and 1.6% of
net sales in 1996, 1995 and 1994, respectively.
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
Income from operations .. $15,504 $45,665 $41,253
as a % of net sales ..... 2.5% 6.2% 7.3%
Other Income (Expense)
Interest expense totaled $10.3 million, $6.3 million and $2.7 million for
the years ended December 31, 1996, 1995 and 1994, respectively. The increase
in interest expense primarily reflects new term and bank line of credit debt
associated with growth in the Finance Company's leasing operations, which is
expected to continue, and increased interest expense as a result of increased
working capital requirements during 1996. Other, net is primarily comprised of
a variety of immaterial, non-operating expense items. During 1994, it also
included $1.0 million of interest income generated by higher levels of cash and
cash equivalents resulting from the net proceeds of $44.3 million received from
the issuance of additional shares of common stock by the Company.
Income Taxes
The provision for Federal and State income taxes represented 39.7%, 37.0%
and 39.6% of pre-tax income for 1996, 1995 and 1994, respectively. During
1995, the Company recognized a state income tax credit related to property
improvements on its new facility acquired during 1994. This credit caused the
effective tax rate to be 2.4% points lower than the statutory rates in 1995.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company continued its investment in new product
development and its leasing and finance operation. Capital expenditures during
1996 totaled $11.2 million and were principally used for achieving improved
manufacturing productivity. In addition, the Company invested approximately
$24.0 million during 1996 in working capital, primarily in inventory and
accounts payable. The increased inventory was primarily due to increases in
work-in-progress and finished goods associated with the production of
RoadRailer equipment for export in 1996. The decrease in accounts payable from
1995 is a result of reduced raw material inventory as days payable outstanding
remained level with 1995. The Finance Company also invested a net $43.7
million in its lease portfolio during 1996 which resulted in a net investment
of $113.8 million at December 31, 1996. These investments during 1996 were
financed primarily through an increase in long-term debt of $69 million and
cash generated from operations.
In connection with the investments discussed above, the Company's debt
increased to $151.3 million at December 31, 1996 compared to $73.7 million at
December 31, 1995. Of the $151.3 million of consolidated debt outstanding at
December 31, 1996, the Finance Company had $80.9 million in outstanding
borrowings as a result of its leasing activities compared to $43.2 million at
December 31,1995. In December, 1996 the Company amended its unsecured
revolving credit line to $85 million, with interest being based upon the London
interbank rate
13
16
(LIBOR) plus 25 to 125 basis points, as defined. The Company continues to
utilize a receivables sale and servicing agreement established in June, 1995,
which enables the Company to sell up to $40 million of receivables without
recourse. These credit facilities are used for working capital and other
general corporate purposes. On January 31, 1996, the Company issued $50
million, unsecured principal amount of 6.41% Series A Senior Notes due January
31, 2003. The proceeds were used to repay amounts outstanding under the
Company's revolving line of credit. In addition, in December, 1996, the
Company issued $100 million, unsecured Series B-H Senior Notes due 2001-2008,
of which $75 million was drawn down in December and the remaining $25 million
will be drawn down in March, 1997. The proceeds will be used to reduce the
operating costs and support the future growth of the Finance Company by
refinancing certain Finance Company debt. Of the total $75 million drawn down
in 1996, $61 million was used to pay off the outstanding balance of the Finance
Company's $50 million secured revolving line of credit as well as other secured
debt issues of the Finance Company.
On April 27, 1995, the Company announced that the Board of Directors
authorized a common stock repurchase plan of up to $30 million in the
aggregate. The Company may purchase its common stock in the open market or in
block transactions from time to time as it deems appropriate.
Other sources of funds for capital expenditures, continued expansion of
businesses, dividends, principal repayments on debt, stock repurchase and
working capital requirements are expected to be cash from operations,
additional borrowings under the credit facilities and term borrowings. The
Company believes that these funding sources will be adequate for its
anticipated requirements.
INFLATION
The Company has been generally able to offset the impact of rising costs
through productivity improvements as well as selective price increases. As a
result, inflation is not expected to have a significant impact on the Company's
business.
14
17
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGES
Report of Independent Public Accountants ............................................. 16
Consolidated Balance Sheets as of December 31, 1996 and 1995 ......................... 17
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and
1994 ............................................................................. 18
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
1995 and 1994 .................................................................... 19
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994 ............................................................................. 20
Notes to Consolidated Financial Statements ........................................... 21
15
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Wabash National Corporation:
We have audited the accompanying consolidated balance sheets of WABASH
NATIONAL CORPORATION (a Delaware corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wabash
National Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
January 17, 1997.
16
19
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------
ASSETS 1996 1995
------ -------- --------
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 5,514 $ 2,097
Accounts receivable, net ...................................... 71,166 77,535
Current portion of finance contracts .......................... 6,128 5,979
Inventories ................................................... 140,015 134,294
Prepaid expenses and other .................................... 13,087 7,657
-------- --------
Total current assets ...................................... 235,910 227,562
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net ................................ 81,782 76,192
-------- --------
EQUIPMENT LEASED TO OTHERS, net ................................... 63,825 35,362
-------- --------
FINANCE CONTRACTS, net of current portion ......................... 43,858 35,123
-------- --------
OTHER ASSETS ...................................................... 14,696 9,895
-------- --------
$440,071 $384,134
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ......................... $ 3,942 $ 12,527
Accounts payable ............................................. 69,155 88,490
Accrued liabilities .......................................... 14,101 13,347
-------- --------
Total current liabilities .............................. 87,198 114,364
-------- --------
LONG-TERM DEBT, net of current maturities ......................... 151,307 73,726
-------- --------
DEFERRED INCOME TAXES ............................................. 22,879 18,045
-------- --------
OTHER NONCURRENT LIABILITIES ...................................... 319 368
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 25,000,000 shares
authorized, no shares issued ............................... ---- ----
Series A Junior Participatory Preferred stock, $.01 par value,
300,000 shares authorized; no shares issued ............... ---- ----
Common stock, $.01 par value, 75,000,000 shares
authorized: 18,910,923 and 18,943,228 shares issued and
outstanding, respectively .................................. 189 189
Additional paid-in capital ................................... 99,388 99,246
Retained earnings ............................................ 80,070 78,701
Treasury stock, at cost, 59,600 and 19,600 shares, respectively (1,279) (505)
-------- --------
178,368 177,631
-------- --------
$440,071 $384,134
======== ========
The accompanying notes are an integral part of these
consolidated balance sheets.
17
20
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
NET SALES ............................ $ 631,492 $ 734,299 $561,797
COST OF SALES ........................ 602,629 677,503 511,821
---------- ---------- ----------
Gross profit .................... 28,863 56,796 49,976
GENERAL AND ADMINISTRATIVE EXPENSES .. 8,857 7,245 5,334
SELLING EXPENSES ..................... 4,502 3,866 3,389
---------- ---------- ----------
Income from operations .......... 15,504 45,685 41,253
OTHER INCOME (EXPENSE):
Interest expense .................. (10,257) (6,251) (2,684)
Other, net ........................ 788 875 1,019
---------- ---------- ----------
Income before income taxes ...... 6,035 40,309 39,588
PROVISION FOR INCOME TAXES ........... 2,397 14,902 15,663
---------- ---------- ----------
Net income ...................... $ 3,638 $ 25,407 $23,925
========== ========== ==========
Net income per common share ..... $ 0.19 $ 1.34 $1.32
========== ========== ==========
Average shares outstanding ...... 18,912,000 18,948,000 18,173,000
========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
18
21
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
COMMON STOCK ADDITIONAL
------------------------ PAID- RETAINED TREASURY
SHARES AMOUNT IN CAPITAL EARNINGS STOCK TOTAL
----------- ----------- ----------- ------------ ------------ ----------
BALANCES, December 31, 1993 ..................... 17,389,027 $174 $54,351 $32,939 $ --- $87,464
Net income for the year ...................... ---- ---- ---- 23,925 --- 23,925
Cash dividends ($0.085 per share) ............ ---- ---- ---- (1,580) --- (1,580)
Issuance of additional shares of common stock,
net of expenses ............................ 1,545,000 15 44,247 ---- --- 44,262
Issuance of common stock under employee
stock purchase plan ........................ 2,022 --- 68 ---- --- 68
Exercise of stock options .................... 2,400 --- 42 ---- --- 42
----------- ----------- ----------- ------------ ---------- ---------
BALANCES, December 31, 1994 ..................... 18,938,449 189 98,708 55,284 --- 154,181
Net income for the year ...................... --- --- --- 25,407 --- 25,407
Cash dividends ($0.105 per share) ............ --- --- --- (1,990) --- (1,990)
Issuance of common stock under employee
stock purchase plan ........................ 3,379 --- 88 --- --- 88
Exercise of stock options .................... 21,000 --- 450 --- --- 450
Purchase treasury stock ...................... (19,600) --- --- --- (505) (505)
---------- ----------- ----------- ------------ ---------- ---------
BALANCES, December 31, 1995 ..................... 18,943,228 189 99,246 78,701 (505) 177,631
Net income for the year....................... --- --- --- 3,638 --- 3,638
Cash dividends ($0.12 per share).............. --- --- --- (2,269) --- (2,269)
Issuance of common stock under employee
stock purchase plan ........................ 4,995 --- 92 --- --- 92
Exercise of stock options .................... 2,700 --- 50 --- --- 50
Purchase treasury stock ...................... (40,000) --- --- --- (774) (774)
---------- ----------- ----------- ------------ ---------- ---------
BALANCES, December 31, 1996 ..................... 18,910,923 $189 $99,388 $80,070 $(1,279) $178,368
=========== =========== =========== ============ ========== =========
The accompanying notes are an integral part of these consolidated statements.
19
22
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
--------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $3,638 $25,407 $23,925
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization ................................................ 15,289 11,504 7,386
Bad debt provision ........................................................... 186 616 430
Deferred income taxes ........................................................ 2,317 4,541 4,877
Change in operating assets and liabilities--
Decrease (increase) in accounts receivable ............................... 6,183 (3,313) (37,439)
(Increase) in inventories ................................................ (7,919) (57,712) (30,626)
(Increase) in prepaid expenses and other ................................. (3,661) (4,370) (183)
(Decrease) increase in accounts payable .................................. (19,335) 3,900 41,171
Increase (decrease) in accrued liabilities ............................... 757 (1,667) 5,107
(Increase) decrease in other assets ...................................... (3,421) (2,566) 489
--------- --------- --------
Total adjustments ..................................................... (9,604) (49,067) (8,788)
--------- --------- --------
Net cash provided by (used in) operating activities ................... (5,966) (23,660) 15,137
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................................. (11,211) (37,898) (26,279)
Investment in equipment leased to others ......................................... (41,275) (19,076) (6,481)
Proceeds from disposal of equipment .............................................. 17,706 9,149 293
Investment in finance contracts .................................................. (24,940) (20,512) (14,875)
Principal payments on finance contracts .......................................... 4,844 3,279 2,184
Payments for RoadRailer technology ............................................... (2,008) (275) (3,242)
Other ............................................................................ 172 (39) 105
--------- --------- --------
Net cash used in investing activities ................................. (56,712) (65,372) (48,295)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ............................................. (24,365) (9,895) (7,801)
Proceeds from issuance of long-term debt ......................................... 143,361 10,000 10,332
Borrowings under long-term revolver .............................................. 398,100 311,420 35,000
Payments under long-term revolver ................................................ (448,100) (258,189) (35,231)
Proceeds from issuance of common stock, net of expenses .......................... 142 538 44,372
Payment of cash dividend ......................................................... (2,269) (1,895) (1,455)
Purchase of treasury stock ....................................................... (774) (505) ---
--------- --------- --------
Net cash provided by financing activities ............................. 66,095 51,474 45,217
--------- --------- --------
NET INCREASE (DECREASE) IN CASH ..................................................... 3,417 (37,558) 12,059
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ............................ 2,097 39,655 27,596
--------- --------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD .................................. $5,514 $2,097 $39,655
========= ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for---
Interest .................................................................... $8,825 $ 6,433 $ 2,534
========= ========= ========
Income taxes ................................................................ $ 714 $13,648 $10,372
========= ========= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Operating leases converted to finance contracts .................................. $2,567 $ --- $ 3,107
========= ========= ========
Finance contracts converted to operating leases .................................. 3,201 1,519 ---
========= ========= ========
Used trailers transferred from inventory into operations ......................... 2,198 --- ---
========= ========= ========
The accompanying notes are an integral part of these consolidated statements.
20
23
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Wabash National Corporation (the Company) designs, manufactures and
markets standard and customized truck trailers, including dry freight vans,
refrigerated trailers and bimodal vehicles and produces and sells aftermarket
parts through its division, Wabash National Parts. The Company's manufacturing
facilities are located in Lafayette, Indiana. The Company's wholly-owned
subsidiary, Continental Transit Corporation (Continental), delivers finished
trailers manufactured by the Company. The Company's wholly-owned subsidiary,
Wabash National Finance Corporation (the Finance Company) provides leasing and
financing programs to its customers for new and used trailers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions have been
eliminated.
b. Significant Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
c. Cash and Cash Equivalents
The Company classifies as cash equivalents all highly liquid investments
with maturities of three months or less.
d. Allowance for Doubtful Accounts
Accounts receivable as shown in the accompanying consolidated balance
sheets are net of allowance for doubtful accounts of $1,686,000, $1,363,000
and $891,000 at December 31, 1996, 1995 and 1994, respectively. The activity
included in the allowance for doubtful accounts were (i) provisions for bad
debts of $186,000, $616,000 and $430,000; and (ii) net accounts recovered
(written-off) of $137,000, ($144,000), and $15,000 during 1996, 1995 and 1994,
respectively.
e. Inventories
Inventories are priced at the lower of first-in, first-out (FIFO) cost or
market. Inventory costs include raw material, labor and overhead costs for
manufactured inventories. Used trailers are carried at the lower of their
estimated net realizable value or cost. Inventories consist of the following
(in thousands):
DECEMBER 31,
------------------
1996 1995
-------- --------
Raw materials and components ................ $72,645 $89,961
Work in progress ............................ 16,344 13,582
Finished goods .............................. 27,608 14,034
Used trailers ............................... 23,418 16,717
-------- --------
$140,015 $134,294
======== ========
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24
f. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
recorded using the straight-line method over the estimated useful lives of the
depreciable assets. Estimated useful lives are 33 1/3 years for buildings and
building improvements and range from 3 to 10 years for machinery and equipment.
Maintenance and repairs are charged to expense as incurred. Property, plant
and equipment consist of the following (in thousands):
DECEMBER 31,
------------------
1996 1995
-------- --------
Land ......................................... $ 5,154 $ 4,051
Buildings and improvements ................... 37,656 34,236
Machinery and equipment ...................... 60,852 54,074
Construction in progress ..................... 1,373 ---
-------- --------
105,035 92,361
Less--Accumulated depreciation ............... (23,253) (16,169)
-------- --------
$ 81,782 $ 76,192
======== ========
g. Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of fair value
information for certain financial instruments. The carrying amounts for trade
receivables and payables are considered to be their fair values. The
differences between the carrying amounts and the estimated fair values of the
Company's other financial instruments at December 31, 1996 and 1995 were
immaterial.
h. Revenue Recognition
Revenues and costs are recognized as the related products are accepted by
the customer except in the case of direct finance or operating leases.
Revenues from direct finance leases are recognized over the term of the lease
at a constant rate of return. Revenues from operating leases are recognized
over the term of the lease on a straight-line basis in an amount equal to the
invoiced rentals.
i. Income Taxes
The Company recognizes income taxes under the liability method of
accounting for income taxes. The liability method measures the expected tax
impact of future taxable income or deductions resulting from differences in the
tax and financial reporting bases of assets and liabilities reflected in the
consolidated balance sheets.
j. Research and Development
Research and development expenses are charged to earnings as incurred, and
approximated $1,206,000, $1,567,000 and $1,401,000 in 1996, 1995 and 1994,
respectively.
k. Net Income per Common Share
The computation of net income per common share is based on the weighted
average number of outstanding common shares during the period. Shares issuable
under employee stock options are excluded from the weighted average number of
shares when their effect is not dilutive.
22
25
l. Reclassifications
Certain items previously reported in specific financial statement captions
have been reclassified to conform with the 1996 presentation.
m. New Accounting Standard
The Company currently accounts for its employee stock option plans using
APB Opinion No. 25, Accounting for Stock Issued to Employees, which results in
no charge to earnings when issued at fair market value. During 1995, the
Financial Accounting Standards Board issued SFAS No. 123, Accounting for
Stock-Based Compensation, which considers the stock options as compensation
expense to the Company based on their estimated fair value at date of grant
based on their estimated fair vaule at date of grant. Under this new standard,
the Company has the option of accounting for employee stock option plans as it
currently does, or it may use the new method. The Company intends to continue
to use the existing method, but has adopted the disclosure requirements of SFAS
123 within Note 5) Stockholders' Equity.
3. LEASING AND FINANCE OPERATIONS
The Finance Company has leased equipment to others under operating leases,
whereby revenue is recognized as lease payments are due from the customers and
the related costs are amortized over the equipment life. Equipment leased to
others is depreciated over the estimated useful life of the equipment, not to
exceed 11 years and no residual value, or in some cases, a depreciable life
equal to the term of the lease and a residual value equal to the estimated
market value at lease termination. Depreciation expense on equipment leased to
others was $6,093,000, $4,175,000 and $3,048,000 during 1996, 1995 and 1994,
respectively. Accumulated depreciation of equipment leased to others is
$10,435,000 and $8,284,000 at December 31, 1996 and 1995, respectively. Future
minimum lease payments to be received from these noncancellable operating
leases, some of which extend to the year 2004, amount to $54,659,000 at
December 31, 1996. These payments are due as follows: $15,687,000 in 1997,
$10,118,000 in 1998, $7,530,000 in 1999, $6,349,000 in 2000, $5,161,000 in 2001
and $9,813,000 thereafter.
The Finance Company also provides financing contracts for the sale of
trailer equipment to certain of its customers. The financing is principally
structured in the form of finance leases, typically for a five-year term.
Finance contracts, as shown on the accompanying financial statements, represent
the minimum lease payments receivable plus the estimated residual values less
unearned interest. The future minimum lease payments to be received are as
follows: $8,387,000 in 1997, $7,483,000 in 1998, $7,018,000 in 1999,
$5,849,000 in 2000, $4,499,000 in 2001 and $4,069,000 thereafter, which
includes unearned interest of $10,212,000. At December 31, 1996, the total
nonguaranteed residuals on these finance contracts was $7,545,000.
In certain situations, the Company and the Finance Company have helped
customers obtain financing for trailers purchased by guaranteeing the residual
values of such equipment. This has been accomplished by (i) selling the
trailers to an independent third party, (ii) leasing the trailers back and
providing some level of guaranteed residual value to the third party, and (iii)
subleasing the trailers to the customer. The total of the residual values
guaranteed under these and other leasing arrangements approximates $10,621,000
as of December 31, 1996. The income from the sale of this equipment has been
deferred and will be recognized over the term of the financial arrangements.
The Company's and the Finance Company's rental expense under situations where
trailers have been leased back was $743,000 in 1996, $1,389,000 in 1995 and
$1,427,000 in 1994. At December 31, 1996, the future minimum lease payments
under these leases are $4,161,000 in 1997, $4,161,000 in 1998, $3,790,000 in
1999 and $3,419,000 in 2000 and $3,419,000 in 2001, of which $3,419,000 per
year is guaranteed by the Company.
23
26
The Finance Company provides leasing programs to customers for new and
used trailers. The Finance Company's revenues were $58,122,000, $26,084,000
and $16,150,000 during 1996, 1995 and 1994, respectively. Income before income
taxes was $2,520,000, $4,305,000 and $3,102,000 in 1996, 1995, and 1994,
respectively. Included below is condensed balance sheet information which
segregates the assets and liabilities of the Finance Company.
DECEMBER 31, 1996
-----------------------
(IN THOUSANDS)
DECEMBER 31,
WABASH FINANCE 1995
NATIONAL COMPANY CONSOLIDATED CONSOLIDATED
--------- --------- ------------ -------------
(INTHOUSANDS)
ASSETS:
Current assets ............................. $226,526 $ 9,384 $235,910 $227,562
Property, plant and equipment, net ......... 81,729 53 81,782 76,192
Equipment leased to others, net ............ --- 63,825 63,825 35,362
Finance contracts, net of current portion .. --- 43,858 43,858 35,123
Other assets ............................... 13,342 1,354 14,696 9,895
Due from subsidiary to parent .............. 744 (744) --- ---
Investment in subsidiary ................... 32,012 --- --- ---
-------- -------- ------------ --------
$354,353 $117,730 $440,071 $384,134
======== ======== ============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities ........................ $ 82,983 $ 4,215 $ 87,198 $114,364
Long-term debt, net:
Third party .............................. 131,385 19,922 151,307 73,726
Intercompany ............................. (61,000) 61,000 --- ---
-------- -------- ------------ --------
70,385 80,922 151,307 73,726
Other non-current liabilities .............. 22,617 581 23,198 18,413
-------- -------- ------------ --------
175,985 85,718 261,703 206,503
Stockholders' equity ....................... 178,368 32,012 178,368 177,631
-------- -------- ------------ --------
$354,353 $117,730 $440,071 $384,134
======== ======== ============ ========
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31,
-------------------
1996 1995
-------- --------
Revolving bank lines of credit .......................................... $ 6,000 $ 56,000
Industrial Revenue Bonds ................................................ 735 1,060
Notes payable ........................................................... 23,514 28,801
Senior Notes ............................................................ 125,000 ---
Other ................................................................... --- 392
-------- --------
155,249 86,253
Less-Current maturities ................................ (3,942) (12,527)
-------- --------
$151,307 $ 73,726
======== ========
A summary of the terms of the long-term debt agreements follows:
Revolving bank lines of credit. Effective December 23, 1996, the Company
amended its revolving credit facility. The unsecured revolving bank line of
credit permits the Company to borrow up to $85,000,000. Under this facility,
the Company has the right to borrow until July 1, 1998, at which time the
principal amount then outstanding will be due and payable. Interest payable on
such borrowings is variable based upon the London interbank rate (LIBOR) rate
plus 25 to 125 basis points, as defined, or a prime rate of interest, as
defined. The Company pays a quarterly commitment fee on the unused portion of
this facility at rates of .10% to .45% per annum, as defined. As of
24
27
December 31, 1996, the total borrowings under this facility was $6 million at
an interest rate of 6.2%. In addition, standby letters of credit totaling
$6,127,000 have been issued in connection with the Company's worker's
compensation self-insurance program, its outstanding Industrial Revenue Bond
and in connection with foreign sales transactions.
During December 1996, the Finance Company paid off its revolving line of
credit and terminated its arrangement with the bank. A portion of the Senior
Notes were used to pay off the outstanding balance.
Industrial Revenue Bonds bear interest at 7.5%. Principal payments of
$350,000 and $385,000 are due in 1997 and 1998, respectively. The bonds are
secured by land, buildings and equipment. The Company has a letter of credit
of $109,000 and $434,000 at December 31, 1996 and 1995, respectively, to secure
certain portions of the bonds.
Notes payable. Notes payable are term borrowings by the Finance Company
maturing from 1998 through 2003 from certain commercial banks and commercial
finance companies and are secured by equipment under lease and the underlying
leases. Notes amounting to $23,514,000 are at fixed annual percentage interest
rates ranging from 6.6% to 8.75%.
Senior Notes. On January 31, 1996, the Company issued $50 million of
unsecured notes due January 31, 2003. These Series A Senior Notes bear
interest at 6.41% with interest payments due semi-annually on July 31 and
January 31. On December 1, 1996, the Company completed the private placement
of $100 million Senior Notes due 2001-2008 of which $75 million were issued in
December 1996 with the remaining $25 million to be issued in March, 1997.
These unsecured notes bear interest at rates ranging from 6.99% to 7.55%.
Interest is due semiannually in June and December.
As of December 31, 1996, $61 million of the Company's Senior Notes due
2001 to 2008 were loaned to the Finance Company. The proceeds were used by the
Finance Company to pay off its existing revolving credit facility and to
refinance certain other long-term debts. The terms and conditions of the
intercompany loan to the Finance Company are identical to the terms and
conditions of the Senior Notes.
Under the various loan agreements, the Company and the Finance Company are
required to meet certain covenants. These covenants require the Company to
maintain certain levels of net worth and an interest coverage ratio as well as
a limitation on indebtedness. The Company and the Finance Company were in
compliance with these covenants at December 31, 1996.
Maturities of long-term debt at December 31, 1996, are as follows (in
thousands):
AMOUNT
--------
1997 ........................ $ 3,942
1998 ........................ 10,189
1999 ........................ 3,767
2000 ........................ 3,686
2001 ........................ 11,268
Thereafter .................. 122,397
--------
$155,249
========
5. STOCKHOLDERS' EQUITY
a. Capital Stock
The Company's total authorized number of common shares is 75,000,000 and
has a par value of $.01 per share. In addition, the Company authorized
25,000,000 shares of preferred stock, $.01 par value. The Board of Directors
has the authority to issue these shares and to fix dividends, voting and
conversion rights, redemption provisions, liquidation preferences and other
rights and restrictions.
25
28
b. 1992 Stock Option Plan
During 1992, the Company adopted its 1992 Stock Option Plan (the Plan)
under which nonqualified options may be granted to officers and other key
employees of the Company and its subsidiaries. Up to an aggregate of 750,000
shares are reserved for issuance under the Plan, subject to adjustment for
stock dividends, recapitalizations and the like. Options granted under the
Plan are exercisable for a period of ten years, and vest in equal installments
over a five year period from date of grant, except for non-employee Directors
of the Company in which options are fully vested on date of grant and are
exercisable six months thereafter. Options must be granted at exercise prices
equal to at least 85% of fair market value of the covered shares at date of
grant. The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with SFAS No. 123, the Company's net
earnings would have been reduced to $3.2 million ($0.17 per share) in 1996 and
$25.3 million ($1.34 per share) in 1995. Because the SFAS No. 123 method of
accounting has not been applied to options granted prior to January 1, 1995,
the resulting pro-forma compensation cost may not be representative of that to
be expected in future years.
Stock option activity under the Plan was as follows:
NUMBER OF WEIGHTED-AVERAGE
OPTIONS SHARES EXERCISE PRICE
- ------- --------- ----------------
December 31, 1993 ......................................... 300,000 $17.56
Granted ................................................ 137,500 29.27
Exercised .............................................. (2,400) 17.50
Cancelled .............................................. (40,500) 17.58
------- ------
December 31, 1994 ......................................... 394,600 21.64
Granted ................................................ 171,100 33.38
Exercised .............................................. (21,000) 22.19
------- ------
December 31, 1995 ......................................... 544,700 25.30
Granted ................................................ 178,200 20.59
Exercised .............................................. (2,700) 17.54
Cancelled .............................................. (74,700) 32.29
------- ------
December 31, 1996 ......................................... 645,500 $23.25
======= ======
Shares Exercisable ........................................ 226,100 $22.14
======= ======
The weighted-average fair value of options granted was $10.39 per share in 1996
and $17.26 per share in 1995, with 421,500 of the options outstanding at
December 31, 1996 having exercise prices between $17.50 and $22.13, a
weighted-average exercise price of $18.84 and a weighted-average remaining life
of 8.8 years. 141,300 of these options are exercisable with a weighted-average
exercise price of $17.55. The remaining 224,000 options have exercise prices
between $23.00 and $33.00, a weighted-average exercise price of $29.33 and a
weighted-average remaining life of 7.5 years. 84,800 of these options are
exercisable with a weighted-average exercise price of $29.80. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995, respectively: risk-free interest rates of 6.4 and 6.1
percent; expected dividend yields of .58 and .36 percent; expected volatility
of 41.3 and 41.1 percent; and an expected life of 7 years for all options
granted.
c. 1993 Employee Stock Purchase Plan
During 1993, the Company adopted its 1993 Employee Stock Purchase Plan
(the Plan) which enables eligible employees of the Company to purchase shares
of the Company's $.01 par value common stock. Eligible employees may
contribute up to 15% of their eligible compensation toward the semi-annual
purchase of common stock. The employees' purchase price is based on the fair
market value of the common stock on the date of purchase. No compensation
expense is recorded in connection with the Plan. During 1996, 4,995 shares
were issued to employees at prices of $18.00 to $18.25 per share. At December
31, 1996, there were approximately 288,700 shares available for offering under
the Plan.
26
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6. STOCKHOLDERS' RIGHTS PLAN
On November 7, 1995, the Board of Directors adopted a Stockholder Rights
Plan (the "Plan"). The Plan is designed to deter coercive or unfair takeover
tactics, to prevent a person or group from gaining control of the Company
without offering fair value to all shareholders and to deter other abusive
takeover tactics which are not in the best interest of stockholders.
Under the terms of the Plan, each share of common stock is accompanied by
one right; each right entitles the stockholder to purchase from the Company,
one one-thousandth of a newly issued share of Series A Preferred Stock at an
exercise price of $120.
The rights become exercisable ten days after a public announcement that an
acquiring person or group (as defined in the Plan) has acquired 20% or more of
the outstanding Common Stock of the Company (the Stock Acquisition Date) or ten
days after the commencement of a tender offer which would result in a person
owning 20% or more of such shares. The Company can redeem the rights for $.01
per right at any time until ten days following the Stock Acquisition Date (the
10-day period can be shortened or lengthened by the Company). The rights will
expire in November, 2005, unless redeemed earlier by the Company.
If, subsequent to the rights becoming exercisable, the Company is acquired
in a merger or other business combination at any time when there is a 20% or
more holder, the rights will then entitle a holder to buy shares of the
Acquiring Company with a market value equal to twice the exercise price of each
right. Alternatively, if a 20% holder acquires the Company by means of a
merger in which the Company and its stock survives, or if any person acquires
20% or more of the Company's Common Stock, each right not owned by a 20% or
more shareholder, would become exercisable for Common Stock of the Company (or,
in certain circumstances, other consideration) having a market value equal to
twice the exercise price of the right.
7. EMPLOYEE 401(K) SAVINGS PLAN
Substantially all of the Company's employees are eligible to participate
in the 401(k) Savings Plan which provides for Company matching under various
formulas. The Company's matching expense for the plan was $994,000, $750,000,
and $785,000 for the years ended December 31, 1996, 1995, and 1994,
respectively.
8. INCOME TAXES
a. Tax Provisions
The consolidated income tax provision for 1996, 1995 and 1994 consists of
the following components (in thousands):
1996 1995 1994
------ ------- -------
Current:
Federal .................. $ (801) $ 9,382 $ 8,717
State .................... (201) 979 2,069
Deferred ................. 3,399 4,541 4,877
------ ------- -------
$2,397 $14,902 $15,663
====== ======= =======
In 1996, 1995 and 1994, the effective Federal income tax rates were 35.2%,
34.9% and 34.8%, respectively. In all periods, there were no individually
significant items which caused the effective rate to differ from the Federal
statutory rate. In 1995, the Company recorded a $1.5 million state income tax
credit as a result of its property improvements eligible for income tax credit
by the State of Indiana.
27
30
b. Deferred Taxes
Deferred income taxes are primarily due to temporary differences between
financial and income tax reporting for the depreciation of property, plant and
equipment and equipment under lease, the recognition of warranty expense,
payments made in connection with the acquisition of the RoadRailer technology
and the amortization thereof, and the recognition of income from assets under
finance leases. The long-term deferred tax liabilities were $22,879,000 and
$18,045,000 and current prepaid income tax assets were $3,173,000 and
$1,738,000 as of December 31, 1996 and 1995, respectively.
The components of deferred tax assets and deferred tax liabilities as
December 31, 1996 and 1995, are as follows (in thousands):
1996 1995
------ ------
Deferred tax assets:
Rentals on Finance Leases ....................... $9,014 $ 6,107
Deferred State Income Taxes ..................... 954 1,161
Personal Property Taxes ......................... 886 62
Other ........................................... 3,888 2,721
Deferred tax liabilities:
Basis Difference-Property, Plant and Equipment .. 24,410 18,367
Earned Finance Charges on Finance Leases ........ 4,058 2,948
RoadRailer Acquisition Payments/Amortization .... 2,381 1,877
Other ........................................... 3,599 3,166
------- -------
Net deferred tax liability ........................ $19,706 $16,307
======= =======
9. SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, the two largest customers of the
Company accounted for approximately 15% and 13% of the Company's net sales,
respectively. The Company's largest customer accounted for approximately 13%
and 16% of the Company's net sales for the years ended December 31, 1995 and
1994, respectively. No other customer represented more than 10% of the
Company's net sales in 1996, 1995 or 1994. The Company's net sales in the
aggregate to its five largest customers were 39%, 33% and 37% of its net sales
in 1996, 1995 and 1994, respectively.
10. COMMITMENTS AND CONTINGENCIES
There are certain lawsuits and claims pending against the Company which
arose in the normal course of business. In the opinion of management, none of
these actions are expected to have a material adverse effect on the Company's
financial position or results of operations.
In connection with the acquisition of the RoadRailer technology, the
Company is obligated to make payments not to exceed $12.1 million based upon
(i) future sales of trailers and related equipment utilized in the bimodal
transportation segment and (ii) future revenues received in connection with the
sale or licensing of the bimodal technology. On January 8, 1997, the Company
exercised its prepayment option and paid $2,145,000 in full satisfaction of
this obligation. Payments for the RoadRailer technology are capitalized and
amortized over an estimated average life span of 12 years. During 1996, the
Company changed its estimated average life span of the RoadRailer technology
from 6 to 12 years which resulted in approximately $700,000 in reduced
amortization. The average life span was changed to correspond with the patents
economic life securing the technology. At December 31, 1996 and 1995, the
RoadRailer technology costs were $5,953,000 and $4,695,000 (net of accumulated
amortization of $4,011,000 and $3,262,000), respectively, and are included in
"Other Assets" in the accompanying consolidated balance sheets.
28
31
In connection with two of the Company's European RoadRailer sales
transactions, the Company is contingently liable for up to five years as a
guarantor of certain commitments of two separate entities via a standby letter
of credit in the amount of $10 million and a separate letter of guarantee in
the amount of $4 million.
The Company has made certain commitments for the construction of a
composite material facility adjacent to its primary manufacturing facility in
Lafayette, Indiana. The commitments include a building and various machinery
and equipment. As of December 31, 1996, open commitments related to this
facility were approximately $2 million and total commitments are expected to be
$17 million to $20 million.
The Company does not anticipate significant costs to be incurred to
satisfy ongoing soil remediation efforts resulting from the manufacturing
activities conducted by the previous owner of its site in Lafayette.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE)
1996
Net sales .................... $161,222 $140,606 $161,303 $168,361
Gross profit ................. 9,069 5,880 6,107 7,803
Net income ................... 2,204 102 95 1,237
Net income per common share .. .12 .01 .01 .07
1995
Net sales .................... $177,634 $193,450 $176,129 $187,086
Gross profit ................. 15,060 17,098 13,786 10,852
Net income ................... 6,962 8,054 5,830 4,561
Net income per common share .. .37 .43 .31 .24
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company:
NAME AGE POSITION
---- --- --------
Donald J. Ehrlich (1) .. 59 President, Chief Executive Officer
and Chairman of the Board
Richard E. Dessimoz .... 49 Vice President and Chief Executive
Officer of Wabash National
Finance Corporation and Director
Charles R. Ehrlich ..... 52 Vice President--Manufacturing
Rodney P. Ehrlich ...... 50 Vice President--Engineering
Charles E. Fish ........ 42 Vice President--Human Relations
Lawrence J. Gross ...... 42 Vice President--Marketing
Mark R. Holden (1) ..... 37 Vice President-Chief Financial
Officer and Director
Connie L. Koleszar ..... 38 Director of Investor Relations
Wilfred E. Lewallen .... 52 Vice President--Industrial Engineering
Stanley E. Sutton ...... 47 Vice President--Purchasing
(1) Member of the Executive Committee.
Donald J. Ehrlich. Mr. Donald J. Ehrlich has been President, Chief
Executive Officer and Director of the Company since its founding. In May,
1995, Mr. Ehrlich was elected Chairman of the Board. He also serves as a
director of Danaher Corporation, NBD Bank, N.A., and Indiana Secondary Market
Corporation.
Richard E. Dessimoz. Mr. Dessimoz has been Vice President and Chief
Executive Officer of Wabash National Finance Corporation since its inception in
December 1991 and a Director of the Corporation since December, 1995. Prior to
his employment by the Company, he was employed since 1989 by Premier Equipment
Leasing Company as Chief Executive Officer and co-owner, and he was employed
from 1985 to 1989 by Evans Transportation Company (a major lessor of railcars
and truck trailers) as Chief Operating Officer.
Charles R. Ehrlich. Mr. Charles Ehrlich has been Vice
President--Manufacturing of the Company and has been in charge of the Company's
manufacturing operations since the Company's founding.
Rodney P. Ehrlich. Mr. Rodney Ehrlich has been Vice
President--Engineering of the Company and has been in charge of the Company's
engineering operations since the Company's founding.
Charles E. Fish. Mr. Fish is Vice President--Human Relations of the
Company and has been in charge of the Company's human relations operations
since the Company's founding.
Lawrence J. Gross. Mr. Gross has been Vice President--Marketing of the
Company since December 1994. Previously he had been President of the Company's
RoadRailer division since joining the Company in July, 1991. Prior to his
employment by the Company, he was employed since 1985 by Chamberlain of
Connecticut, Inc., a licensor of bimodal technology, as Vice
President--Marketing until 1990 and as President until he began his employment
with the Company.
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Mark R. Holden. Mr. Holden has been Vice President--Chief Financial
Officer and Director of the Company since May, 1995. Previously, Mr. Holden
had been Vice President Controller of the Company. Prior to his employment by
the Company in December, 1992, he was employed by Arthur Andersen LLP since
1981.
Connie L. Koleszar. Ms. Koleszar has been Director of Investor Relations
since the Company's initial public offering of 1991 and has been employed by
the Company in various administrative capacities since its founding.
Wilfred E. Lewallen. Mr. Lewallen is Vice President--Industrial
Engineering of the Company and has been in charge of the Company's industrial
engineering operations since the Company's founding.
Stanley E. Sutton. Mr. Sutton has been Vice President--Purchasing of the
Company since joining the Company in May 1992. Prior to his employment by the
Company, he was employed since 1973 by Pines Trailer Limited Partnership as
Vice President--Manufacturing Operations.
Officers are elected for a term of one year and serve at the discretion of
the Board of Directors.
The Company hereby incorporates by reference the information contained
under the heading "Election of Directors" from its definitive Proxy Statement
to be delivered to stockholders of the Company in connection with the 1997
Annual Meeting of Stockholders to be held May 8, 1997.
Donald J. Ehrlich, President, Chief Executive Officer and Chairman, and
Charles R. Ehrlich and Rodney P. Ehrlich, executive officers of the Company,
are brothers.
ITEM 11--EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the information contained
under the heading "Compensation" from its definitive Proxy Statement to be
delivered to the stockholders of the Company in connection with the 1997 Annual
Meeting of Stockholders to be held May 8, 1997.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company hereby incorporates by reference the information contained
under the heading "Beneficial Ownership of Common Stock" from its definitive
Proxy Statement to be delivered to the stockholders of the Company in
connection with the 1997 Annual Meeting of Stockholders to be held on May 8,
1997.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the information contained
under the heading "Compensation Committee Interlocks and Insider Participant"
from its definitive Proxy Statement to be delivered to the stockholders of the
Company in connection with the 1997 Annual Meeting of Stockholders to be held
on May 8, 1997
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements: All required financial statements are included
in Item 8 of this Form 10-K. Financial statement schedules are omitted as they
are not required or not applicable or the required information is included in
the Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K:
99.1 Form 8-K, filed on January 21, 1997, regarding Cautionary Statements
for Purposes of the "Safe Harbor" Provision of the Private Securities Reform
Act of 1995.
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(c) Exhibits: The following exhibits are filed with this Form 10-K or
incorporated herein by reference to the document set forth next to the exhibit
listed below:
3.01 Certificate of Incorporation of the Company(1)
3.02 Certificate of Designations of Series A Junior
Participating Preferred Stock(1)
3.03 By-laws of the Company(1)
4.01 Specimen Stock Certificate(1)
4.02 Rights Agreement between the Company and Harris Bank as
Rights Agent(1)
10.01 Loan Agreement, Mortgage, Security Agreement and Financing
Statement between Wabash National Corporation and City of Lafayette
dated as of August 15, 1989(1)
10.02 1992 Stock Option Plan(1)
10.03 Promissory Note in the principal amount of $1,161,395 by
Wabash National Finance Corporation in favor of Corestates Bank,
N.A. dated December 21, 1993(2)
10.04 Security Agreement of Wabash National Finance Corporation
in favor of Corestates Bank, N.A. dated December 21, 1993(2)
10.05 Promissory Note in the principal amount of $1,017,750 by
Wabash National Finance Corporation in favor of Corestates Bank,
N.A. dated December 21, 1993(2)
10.06 Security Agreement of Wabash National Finance Corporation
in favor of Corestates Bank, N.A. dated December 21, 1993(2)
10.07 Promissory Note in the principal amount of $2,882,392 by
Wabash National Finance Corporation in favor of Corestates Bank,
N.A. dated December 21, 1993(2)
10.08 Security Agreement of Wabash National Finance Corporation
in favor of Corestates Bank, N.A. dated December 21, 1993(2)
10.09 Loan Agreement of Wabash National Finance Corporation in
favor of Corestates Bank, N.A. dated December 21, 1993(2)
10.10 Real Estate Sale Agreement by and between Kraft General
Foods, Inc. and Wabash National Corporation, dated June 1, 1994 (3)
10.11 Purchase and Servicing Agreement, dated July 20, 1994
between NBD Bank, N.A. and Wabash National Corporation (3)
10.12 Revolving Credit Loan Agreement dated April 28, 1995,
between NBD Bank, N.A. and Wabash National Corporation (4)
10.13 Receivables Sale and Servicing Agreement dated June 29,
1995, between NBD Bank, N.A. and Wabash National Corporation (5)
10.14 Promissory Note in the principal amount of $10,000,000 by
Wabash National Finance Corporation in favor of Nationsbanc Leasing
Corporation dated March 22, 1995 (6)
10.15 Loan and Security Agreement of Wabash National Finance
Corporation in favor of Nationsbanc Leasing Corporation dated March
22, 1995(6)
10.16 November 9, 1995 Amendment to Revolving Credit Loan
Agreement dated April 28, 1995, between NBD Bank, N.A., and Wabash
National Corporation (6)
10.17 6.41% Series A Senior Note Purchase Agreement dated
January 31, 1996, between certain Purchasers and Wabash National
Corporation (6)
10.18 Master Loan and Security Agreement in the amount of $10
million by Wabash National Finance Corporation in favor of Sanwa
Business Credit Corporation dated December 27, 1995(6)
10.19 First Amendment to Receivables Sale and Servicing
Agreement dated December 28, 1995 between NBD Bank, N.A. and
Wabash National Corporation (8)
10.20 Second Amendment to Receivables Sale and Servicing
Agreement dated March 29, 1996 between NBD Bank, N.A. and Wabash
National Corporation (8)
10.21 Third Amendment to Receivables Sale and Servicing
Agreement dated June 28, 1996 between NBD Bank, N.A. and Wabash
National Corporation (8)
10.22 Fourth Amendment to Receivables Sale and Servicing
Agreement dated September 27, 1996 between NBD Bank, N.A. and
Wabash National Corporation (8)
10.23 Fifth Amendment to Receivables Sale and Servicing
Agreement date September 30, 1996 between NBD Bank, N.A. and
Wabash National Corporation (8)
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10.24 Sixth Amendment to Receivables Sale and Servicing
Agreement dated December 23, 1996 between NBD Bank, N.A. and
Wabash National Corporation (8)
10.25 September 30, 1996 Second Amendment to Revolving Credit
Loan Agreement dated April 28, 1995 between NBD Bank, N.A. and
Wabash National Corporation (7)
10.26 December 23, 1996 Third Amendment to Revolving Credit
Loan Agreement dated April 28, 1995 between NBD Bank, N.A. and
Wabash National Corporation (8)
10.27 First Amendment to the 6.41% Series A Senior Note
Purchase Agreement dated January 31, 1996
between certain Purchasers and Wabash National Corporation (8)
10.28 Series B-H Senior Note Purchase Agreement dated December
18, 1996 between certain Purchasers and Wabash National
Corporation (8)
10.29 Master Equipment Lease Agreement dated December 30, 1996
between National City Leasing Corporation and Wabash National
Finance Corporation (8)
21.00 List of Significant Subsidiaries (8)
23.01 Consent of Arthur Andersen LLP (8)
27.00 Financial Data Schedule (8)
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (No. 33-42810) or the Registrant's Registration Statement on
Form 8-A filed December 6, 1995 (item 3.02 and 4.02).
(2) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1993.
(3) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 1994.
(4) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended March 31, 1995.
(5) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 1995.
(6) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1995
(7) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 1996
(8) Filed herewith.
The Registrant undertakes to provide to each shareholder requesting the
same a copy of each Exhibit referred to herein upon payment of a reasonable fee
limited to the Registrant's reasonable expenses in furnishing such Exhibit.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
WABASH NATIONAL CORPORATION
February 10, 1997 By: /s/ Mark R. Holden
--------------------------------
Mark R. Holden
Vice President-Chief Financial Officer
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN
THE CAPACITIES AND ON THE DATES INDICATED.
DATE SIGNATURE AND TITLE
---- -------------------
February 10, 1997 By: /s/ Donald J. Ehrlich
-------------------------------------
Donald J. Ehrlich
Chief Executive Officer, President and
Chairman of the Board
(Principal Executive Officer)
February 10, 1997 By: /s/ Mark R. Holden
--------------------------------------
Mark R. Holden
Vice President--Chief Financial Officer
and Director (Principal Financial
Officer and Principal Accounting Officer)
February 10, 1997 By: /s/ Richard E. Dessimoz
--------------------------------------
Richard E. Dessimoz
Vice President and Chief Executive
Officer-Wabash National Finance
Corporation and Director
February 10, 1997 By: /s/ John T. Hackett
---------------------------------------
John T. Hackett
Director
February 10, 1997 By: /s/ E. Hunter Harrison
----------------------------------------
E. Hunter Harrison
Director
February 10, 1997 By: /s/ Ludvik F. Koci
----------------------------------------
Ludvik F. Koci
Director
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