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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, 1997 Commission File Number 1-10883
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
------------------- -----------------------
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. Yes. X 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 non-affiliates of the
registrant as of February 3, 1998 was $604,912,000, 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 and
Series A Preferred Share Purchase Rights as of February 3, 1998 was 19,955,874.
The Proxy Statement for Annual Meeting of Stockholders to be held May 4,
1998 is incorporated into this Form 10-K Part III by reference.
*By letter dated April 25, 1997, the staff of the Securities and Exchange
Commission informed the Company that it would not recommend any action against
the Company for failure to file financial statements required by Form 8-K in
connection with the Company's acquisition of certain assets of Fruehauf Trailer
Corporation.
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TABLE OF CONTENTS
WABASH NATIONAL CORPORATION
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997
PART I.
PAGES
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Item 1. Business .................................................................. 1
Item 2. Properties ................................................................ 8
Item 3. Legal Proceedings ......................................................... 8
Item 4. Submission of Matters to Vote of Security Holders ......................... 8
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 ................................................................ 11
Item 8. Financial Statements and Supplementary Data ............................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ................................................................ 35
PART III.
Item 10. Directors and Executive Officers of the Registrant ........................ 36
Item 11. Executive Compensation .................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management ............ 37
Item 13. Certain Relationships and Related Transactions ............................ 37
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 38
SIGNATURES .................................................................................... 40
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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. The Company believes
that it is the largest United States manufacturer of truck trailers and the
leading manufacturer of both aluminum and composite 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. The Company
also produces and sells aftermarket parts through its division, Wabash National
Parts.
On April 16, 1997, the Company purchased certain assets of Fruehauf
Trailer Corporation ("Fruehauf"). The assets purchased included the Fruehauf
and ProPar(R) brand names, certain patents and trademarks, retail outlets in 31
major metropolitan markets, an aftermarket parts distribution business based in
Grove City, Ohio, a specialty trailer manufacturing plant in Huntsville,
Tennessee and a trailer manufacturing plant in Ft. Madison, Iowa. As a result,
the Company believes it has the largest company-owned distribution system in
the industry selling new and used trailers, aftermarket parts and maintenance
service. The retail sale of new and used trailers, aftermarket parts and
maintenance service produces higher gross margins and tend to be more stable in
demand. As a result, the Company intends to continue to place emphasis on this
revenue source.
In addition to its retail distribution network, 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, none of
which accounted for more than ten percent of the Company's net sales in 1997
and only a few of which accounted for over ten percent of the Company's net
sales in previous years, including those set forth below:
o Truckload Carriers: Schneider National, Inc.; Werner
Enterprises, Inc.; Swift Transportation Co., Inc.; Dart Transit
Company; Heartland Express, Inc.; Crete Carrier Corporation; Knight
Transportation, Inc.; U.S. Xpress Enterprises, Inc.; Frozen Food
Express Industries (FFE)
o Leasing Companies: Transport International Pool (TIP);
Penske Truck Leasing; Trailer Leasing Company (TLC); National Semi
Trailer Corp.; Leaseway Purchasing Corp.
o Private Fleets: Safeway; Chrysler; The Kroger Company;
Stone Container Corporation; Foster Farms
o Less-Than-Truckload Carriers: Roadway Express, Inc.; Old
Dominion Freight Line, Inc.; Caliber Systems (Viking); USF Holland;
Central Transport International
o Package Carriers: Federal Express Corporation; United Parcel
Service (UPS)
o Domestic Intermodal Carriers: Triple Crown Services Company;
National Rail Passenger Corp. (Amtrak); Burlington Northern Santa
Fe
o 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
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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
seeks 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 factory-owned distribution 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:
o Assessment of Customer Needs. The Company's engineering,
manufacturing, and marketing 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 seeks to acquire products, services and technologies that
address customer needs and provide the Company with 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.
o 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 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.
o 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.
o 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 nine years (1988-1996) 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.
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THE TRUCK TRAILER INDUSTRY
The United States 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,
warranty, dealer service and parts availability are competitive factors 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 ten largest competitors and for the United States trailer industry as a
whole:
1997 1996 1995 1994 1993 1992
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WABASH (1) ...... 48,346 36,517 42,424 35,679 22,060 19,253
Great Dane ...... 37,237 25,730 36,514 29,756 23,900 21,717
Utility ......... 23,084 19,731 25,068 19,501 13,768 10,022
Trailmobile ..... 18,239 11,094 21,239 16,671 14,500 11,908
Stoughton ....... 11,500 8,300 14,770 13,000 13,500 10,011
Strick .......... 10,488 8,141 18,427 15,599 12,800 10,500
Dorsey .......... 7,939 8,595 12,276 12,010 10,190 7,496
Lufkin .......... 5,785 3,648 8,141 4,850 3,476 2,651
Fontaine ........ 5,063 4,613 5,465 4,530 3,700 3,087
Transcraft ...... 4,509 3,161 3,571 3,591 2,507 1,632
Total Industry .. 222,594 192,362 284,268 236,016 188,319 165,268
(1) Includes shipments of 1,467 units by Fruehauf in 1997 prior to the
acquisition by Wabash of certain assets of Fruehauf.
Source: Southern Motor Cargo Magazine (C) 1998. A complete report for the top
30 manufacturers may be obtained from Southern Motor Cargo, P.O. Box 40169,
Memphis, TN 38174.
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,
including new regulations in 1998 which require ABS braking systems on all
trailers produced beginning in March, 1998 and certain rear bumper strength
regulations effective at the beginning of 1998. Manufacturing operations are
subject to environmental laws enforced by federal, state and local agencies.
(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 and services. 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 lines include:
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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
fiberglass reinforced plywood ("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
"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 models 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
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 railcar 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 and 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 FRP
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 these 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.
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- 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
customers in most segments of the trucking industry.
- Other. The Company's other transportation equipment include
container chassis, flatbed trailers, rollerbed trailers, soft-sided
trailers, dumps and converter dollies.
Aftermarket Parts and Service
The Company also produces replacement parts and accessories and provides
maintenance service both for its own and competitors' trailers and related
equipment. Aftermarket parts business is less cyclical than trailer sales and
represent a stable business which can produce high gross profit margins. The
Company markets its aftermarket parts and services through its division, Wabash
National Parts and through its wholly-owned subsidiary, Fruehauf Trailer
Services, Inc. Management expects that the manufacture and sale of aftermarket
parts and maintenance service will be a growing part of its product mix as the
number and age of its units in service increases and as it increases the
number of factory-owned branches. Sales of these products and services
represented 10.9%, 4.5% and 3.0% of net sales during 1997, 1996 and 1995,
respectively.
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 wholly-owned subsidiary, the
Finance Company. At December 31, 1997, the Finance Company had approximately
$44.0 million in equipment leased to others, net and $59.2 million invested in
finance contracts. These leasing assets have been financed through term debt.
Leasing revenues of the Finance Company represented 3.2%, 9.2% and 3.6% of net
sales during 1997, 1996, and 1995, 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 through the Finance Company, or at retail
through its factory owned branch distribution system. 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 5.2%, 4.6% and 2.5% of net sales during 1997, 1996 and 1995,
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 to
approximately 13 customers. Sales to customers for which the Company believes
it is the sole supplier accounted for approximately 28.9% of the Company's new
trailer sales in 1997. In addition, during 1997, export sales accounted for
1.2% percent of net sales.
No customer represented more than 10% of the Company's net sales in 1997.
Schneider National, Inc. accounted for approximately 13% of net sales during
both 1996 and 1995. Swift Transportation Company accounted for approximately
15% of net sales in 1996. No other customer represented more than 10% of net
sales in 1996 and 1995. The Company's net sales in the aggregate to its five
largest customers were 21%, 39% and 33% of its sales in 1997, 1996 and 1995,
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,
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typically purchase trailers in large quantities 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, U.S. Xpress Enterprises, Inc. and FFE represented 42.2%, 58.3%
and 63.9% of the Company's new trailer sales in 1997, 1996 and 1995,
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 16.7%, 8.0% and 10.4% of new trailer sales in 1997, 1996 and 1995,
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 6.7%, 9.4% and
10.0% of new trailer sales in 1997, 1996 and 1995, 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
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 14.1%, 14.9% and 6.8% of
new trailer sales in 1997, 1996 and 1995, respectively.
In the United States, 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 these customers
represented 1.0%, 2.7% and 6.3% of new trailer sales in 1997, 1996 and 1995,
respectively.
Customers for the Company's proprietary RoadRailer products included U.S.
and foreign intermodal carriers such as Triple Crown Services Company, Amtrak,
Swift Transportation Co., Allied Systems, Bayerische Trailerzug Gesellschaft
and Compagnie Nouvelle De Conteneurs. New trailer sales of RoadRailer products
to these customers represented 4.5%, 6.6% and 2.6% of new trailer sales in
1997, 1996 and 1995, respectively. 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.
Retail sales of new trailers to independent operators through the
Company's factory-owned distribution network provides the Company with access
to smaller unit volume sales which typically generate higher gross margins.
Retail sales of new trailers represented 8.0% of total new trailer sales in
1997.
The balance of new trailer sales in 1997, 1996 and 1995 were made to
dealers and household moving carriers.
MARKETING AND DISTRIBUTION
The Company markets and distributes its products directly through its
factory-owned distribution network and through independent dealerships.
Certain types of customers purchase directly from the factory. 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. In the past, 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
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trailer manufacturing industry. 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
customers of the plate trailers manufactured by the Company. The Company's
factory direct sales are based on specific customer orders.
As a result of the acquisition of certain assets of Fruehauf, the
Company's large distribution network affords the Company the ability to
generate retail sales of trailers to smaller independent operators. In
addition, this branch system enables the Company to provide maintenance and
other services to customers on a nationwide basis and to take in large
quantities of trade-ins which are common with large new trailer deals with
fleet customers. In addition to the 31 factory-owned branches, the Company
also sells its products through a nationwide network of 92 full-line and over
150 parts only independent dealerships which generally serve the trucking and
transport industry. 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 may also perform
service work for many of their customers.
The Company also provides leasing and finance programs to its customers
through the Finance Company.
RAW MATERIALS
The Company utilizes a variety of raw materials and components including
steel, 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. Beginning in 1998, the raw material which will be used in the
greatest quantity will be composite plate material used on the Company's
proprietary DuraPlate trailer. The composite material is comprised of an outer
lining made of high strength steel surrounding a vinyl core, of which both
components are in ready supply. In August, 1997, the Company completed
construction of its own composite material facility located in Lafayette,
Indiana where the Company produces the composite plate material from the raw
steel and vinyl components. The Company believes the addition of this new
facility will provide adequate capacity to meet its composite material
requirements. 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 $832 million, $462
million and $858 million at December 31, 1997, 1996 and 1995, respectively.
The Company expects to fill a majority of its existing backlog of orders by the
end of 1998.
PATENTS, LICENSES AND TRADEMARKS
The Company holds or has applied for approximately 70 patents in the
United States on various components and techniques utilized in its manufacture
of truck trailers. In addition, the Company holds or has applied for 78
patents in 13 foreign countries and the European patent community.
RESEARCH AND DEVELOPMENT
The Company emphasizes design and product innovation and has increased its
expenditures for research and development in recent years. 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 $2.1 million, $1.2
million and $1.6 million in 1997, 1996 and 1995, respectively. 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.
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The Company promotes a culture that encourages innovation by all employees,
particularly those working on the factory floor.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
environmental laws and regulations related to air and water quality,
underground storage tanks (USTs) and waste handling and disposal. The
substances and compounds generated and handled in the Company's operations that
fall within these laws and regulations result from the Company's painting,
insulating, undercoating and branch service operations. As a result, the
Company incurs ongoing costs to comply with environmental laws and regulations
as well as recognizes liabilities for treatment and remediation costs
associated with known environmental issues.
See Footnote 12. Commitments and Contingencies for additional
environmental information and the Company's accounting for such costs.
EMPLOYEES
As of December 31, 1997, the Company had 4,320 employees. Approximately
11% of the Company's employees are represented by labor unions. Since the
Fruehauf acquisition, the Company has not entered into any collective
bargaining agreements. The Company places a heavy emphasis on employees
relations through educational programs and quality control teams. The Company
believes its employee relations are good.
ITEM 2-- PROPERTIES
The Company's corporate headquarters are located in Lafayette, Indiana.
The Company and its subsidiaries have facilities located in various geographic
locations. The Company's main facility of approximately 1 million square feet
in Lafayette, Indiana consists of truck trailer and composite material
production, tool and die operations, research laboratories, management offices
and headquarters. This facility is subject to deeds of trust in favor of the
owner of certain industrial revenue bonds sold to finance plant expansions in
1986. The Company owns three other manufacturing facilities, in Lafayette,
Indiana (500,000 sq. ft.), in Fort Madison, Iowa, (255,000 sq. ft.), and
Huntsville, Tennessee (178,000 sq. ft.). The Company emphasizes efficient
manufacturing processes and believes it utilizes a large percentage of the
Company's productive capacity during normal operations.
The Company leases its aftermarket parts distribution center in Grove
City, Ohio (145,000 sq. ft.) as well as other parts centers located in
Montebello, California (40,000 sq. ft.), Phoenix, Arizona (10,000 sq. ft.),
Chicago, Illinois (15,000 sq. ft.) and Lafayette, Indiana (77,000 sq. ft.).
As of December 31, 1997, the Company operated 31 sales and service
locations, six of which were leased. The branch facilities consist of office,
warehouse and service space and generally range in size from 20,000 to 35,000
square feet per facility.
The Company believes that these facilities are suitable and 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.
8
11
PART II
ITEM 5-- MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "WNC." The following table sets forth, for the period indicated,
the high and low 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
-------- --------- ------------
1997
------------------
Fourth Quarter .. $35.625 $25.625 $0.035
Third Quarter ... $30.4375 $23.5 $0.035
Second Quarter .. $30.00 $17.375 $0.03
First Quarter ... $18.625 $15.625 $0.03
1996
------------------
Fourth Quarter .. $20.50 $15.75 $0.03
Third Quarter ... $18.875 $15.125 $0.03
Second Quarter .. $22.75 $17.375 $0.03
First Quarter ... $24.125 $18.25 $0.03
As of January 27, 1998, the Common Stock was held by 1,123 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, 1997, 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 following information 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,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales.......................................... $ 846,082 $ 631,492 $ 734,299 $ 561,797 $ 360,030
Cost of sales...................................... 778,620 602,629 677,503 511,821 325,123
--------- --------- --------- --------- ---------
Gross profit..................................... 67,462 28,863 56,796 49,976 34,907
Selling, general and administrative expenses....... 26,307 13,359 11,111 8,723 7,465
--------- --------- --------- --------- ---------
Income from operations........................... 41,155 15,504 45,685 41,253 27,442
Interest expense................................... (16,100) (10,257) (6,251) (2,684) (1,388)
Other, net......................................... 735 788 875 1,019 (184)
--------- --------- --------- --------- ---------
Income before taxes.............................. 25,790 6,035 40,309 39,588 25,870
Provision for income taxes......................... 10,576 2,397 14,902 15,663 10,315
--------- --------- --------- --------- ---------
Net income....................................... $ 15,214 $ 3,638 $ 25,407 $ 23,925 $ 15,555
========= ========= ========== ========== ==========
Basic earnings per common share ................... $ 0.74 $ 0.19 $ 1.34 $ 1.32 $ 0.90
Cash dividends declared per common share .......... $ 0.13 $ 0.12 $ 0.105 $ 0.085 $ 0.07
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- -------------- ------------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
BALANCE SHEET DATA (at end of period):
Working capital ............................ $280,212 $148,712 $113,198 $ 90,802 $ 56,407
Total lease portfolio ...................... 103,222 113,811 76,464 53,479 37,647
Total assets ............................... 629,870 440,071 384,134 300,679 179,801
Long-term debt, net of current maturities .. 231,880 (1) 151,307(1) 73,726(1) 24,857 24,422
Stockholders' equity ....................... 226,516 178,368 177,631 154,181 87,464
(1) Long-term debt, net of current maturities, includes $54.9 million, $80.9
million and $31.0 million in 1997, 1996 and 1995, respectively, incurred
by the Finance Company in connection with its lease and finance
operations.
10
13
ITEM 7-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of Wabash National Corporation's ("Wabash" or the
"Company") historical results of operations and of its liquidity and capital
resources should be read in conjunction with the consolidated Financial
Statements and related notes thereto.
OVERVIEW
This document contains forward-looking statements. These statements
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.
During 1997, the Company achieved net sales of $846.1 million, which were
34% higher than 1996 net sales of $631.5 million. Net income for 1997 rose to
$15.2 million or $0.74 per share as compared to $3.6 million or $0.19 per share
in 1996. The increase in net sales is primarily attributable to the
acquisition of certain assets of Fruehauf Trailer Corporation ("Fruehauf") in
April, 1997, the completion of the Company's composite material facility in
Lafayette, Indiana, and an estimated 15% increase in U.S. truck trailer demand.
On April 16, 1997, the Company acquired substantially all of the remaining
assets of Fruehauf, a manufacturer and marketer of truck trailers and related
parts. The purchase included assets consisting of the Fruehauf and ProPar(R)
names, certain patents and trademarks, retail outlets in 31 major metropolitan
markets, an aftermarket parts distribution business, a specialty trailer
manufacturing plant and a van manufacturing plant. The acquisition was
accounted for as a purchase and accordingly, Fruehauf's results are included in
the consolidated financial statements since the date of acquisition. This
acquisition was strategic for Wabash as it combined the largest fleet producer
in the truck trailer industry with the largest retail distribution network,
thereby providing important synergies in the areas of aftermarket parts and
service as well as an expansive used trailer distribution network.
In the third quarter of 1997, the Company completed the construction of
its new composite material facility in Lafayette, Indiana and began producing
composite plate material for the Company's proprietary DuraPlate(R) trailer
introduced in late 1995. Previously, the Company was severely limited on the
supply of the composite material from one supplier who was not able to increase
its capacity. The Company's newly constructed composite material facility will
allow the Company to meet its long-term material requirements internally and to
continue to enhance the design and manufacturability of the DuraPlate trailer.
In 1997, the U.S. truck trailer industry experienced one of the best years
in the industry's history with over 220,000 units shipped, an increase of
approximately 15% over 1996 and a decrease of approximately 22% compared to
1995, the best year in the industry's history. The Company's market share in
the U.S. trailer industry was approximately 22% in 1997. The Company's total
new trailer shipments increased 32% over 1996 and increased by 14% over 1995.
The demand for the Company's products continues to be strong as the Company
began 1998 with approximately $831 million in backlog, a majority of which is
expected to be delivered in 1998.
Finally, although not a significant contributor to the Company's 1997
Results of Operations, the Company continues to pursue opportunities in
international markets, primarily through the Company's proprietary RoadRailer
technology. In November, 1997, the Company acquired a minority interest in a
European RoadRailer operating company in which exclusively RoadRailer equipment
is used to transport goods between Italy and Germany over the rails. In
addition, the Company formed an affiliation with trailer manufacturer Bernard
Krone Fabrzeugwerke GmbH of Wertle, Germany for the marketing of dry vans and
refrigerated trailers throughout Europe. The Company believes these, and other
opportunities provide the foundation for future growth internationally.
11
14
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,
-------------------------------------------
1997 1996 1995
---------- -------------- --------------
Net sales ........................... 100.0% 100.0% 100.0%
Cost of sales ....................... 92.0 95.4 92.3
------- ------- -------
Gross profit ................... 8.0 4.6 7.7
General and administrative expense .. 2.1 1.4 1.0
Selling expense ..................... 1.0 .7 .5
------- ------- -------
Income from operations ......... 4.9 2.5 6.2
Interest expense .................... (1.9) (1.6) (.8)
Other, net .......................... --- .1 .1
------- ------- -------
Income before taxes ............ 3.0 1.0 5.5
Provision for taxes ................. 1.2 .4 2.0
------- ------- -------
Net income ..................... 1.8% .6% 3.5%
======= ======= =======
RESULTS OF OPERATIONS
Net Sales
As mentioned previously, the Company achieved record sales of $846.1
million in 1997 and increased its U. S. market share to an estimated 22%. Net
sales and market share compared to 1996 and 1995 is as follows:
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales ...................................... $846,082 $631,492 $734,299
% increase/(decrease) in sales from prior period 34.0% (14.0)% 30.7%
Estimated % share of new U. S. trailer market .. 22.0% 19.0% 14.9%
The increase in net sales from 1996 to 1997 of $214.6 million was attributable
to increases in all facets of the Company's business: new trailer sales
increased $128.8 million, used trailer sales increased $14.4 million,
aftermarket parts and service increased $63.9 million and Finance Company lease
revenues increased $7.4 million.
The increase in new trailer sales of $128.8 million was attributable to a
30% increase in the number of units sold, reflecting the impact of the newly
acquired retail branch outlets, a 15% increase in U.S. truck trailer demand and
continued strong demand for the Company's products. Increased production of
the Company's proprietary composite plate trailer, the "DuraPlate" trailer, the
next generation of the aluminum plate trailer, also favorably impacted net
sales in 1997, particularly in the fourth quarter. 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 developed and introduced in late 1995 the DuraPlate trailer
which is proprietary in design. The Company's plate trailer production,
including both aluminum and DuraPlate, increased 10% in the twelve months ended
December 31, 1997 compared to the same period in 1996, and over 26% in the
fourth quarter of 1997 compared to the same period in 1996. Prior to the
fourth quarter of 1997, the Company was severely limited in the amount of
composite plate material made available to it from its one supplier who was
unable to add additional capacity. As a result, during the first nine months
of 1997, the Company's product mix was heavily weighted toward lower priced and
lower margin commodity-type trailers. In August, 1997, the Company
12
15
completed the construction of its own composite material facility in Lafayette,
Indiana and in the fourth quarter began using material from this production
line for the assembly of new DuraPlate trailers. The Company believes
this new facility will provide sufficient capacity for the Company's
foreseeable composite material requirements which call for continued increases
in demand for this product.
The increase in aftermarket parts and service sales of $63.9 million as
well as the increase in used trailer sales of $14.4 million as compared to 1996
is primarily the result of the addition of the retail branch distribution
network. The Company's strategy to combine the largest fleet manufacturer with
the largest retail distribution network in the U.S. provided immediate
benefits by creating critical synergies in the areas of aftermarket parts and
service and used trailer sales, particularly the ability to market used trailer
trade-ins taken by the Company against new trailer fleet orders. The Company
recently announced its branch expansion plan which will increase the number of
company-owned retail branch outlets to approximately 50 in the next two to
three years. The Company believes the synergies between the fleet and retail
business provides significant competitive advantages in the U.S. truck trailer
industry and the opportunity for continued sales growth. The $7.4 million
increase in leasing and finance revenues during 1997 was primarily due to a
full year of lease revenues on a large number of trailers added to the Finance
Company's portfolio in late 1996, as the overall number of trailers leased and
financed to customers remained relatively constant with 1996 levels.
The decrease in sales of 14% from 1995 to 1996 was the result of a 32%
decrease in industry new trailer shipments combined with the limited supply of
composite material for the Company's newly introduced DuraPlate trailer. As a
result, the Company's production mix was heavily weighted toward lower priced
and lower margin commodity trailers. The 30.7% increase in net sales from 1994
to 1995 was primarily attributed to a 20% increase in industry new trailer
shipments and strong demand for the Company's products.
Gross Profit
The Company's gross profit as a percent of sales increased to 8.0%
compared to 4.6% in 1996 and 7.7% in 1995. This increase in gross profit
percentage reflects the impact of higher margin sales from the retail branch
outlets acquired in 1997 and the improvement in product mix resulting from the
completion of the Company's composite material facility in the third quarter of
1997. As expected, the gross margins recognized through the retail branch
network during 1997 on sales of new and used trailers and aftermarket parts and
service were significantly better than the historical margins achieved by the
Company on new trailer fleet business and contributed to the overall increase
in the consolidated gross margin. In addition, the completion of the Company's
composite material facility in August, 1997, allowed the Company to increase
its production of the proprietary DuraPlate trailer during the fourth quarter,
thereby improving the product mix at the Company's manufacturing facilities.
Gross margin as a percent of sales in the fourth quarter of 1997 was
approximately 8.8% of net sales, compared to 4.6% of net sales in the fourth
quarter of 1996. Based on current known trends, the Company expects further
improvement in gross margin as product mix continues to shift toward
proprietary products like the DuraPlate trailer and as a larger percentage of
the Company's sales are generated from the retail network.
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
----- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
Gross profit ......... $67,462 $28,863 $56,796
as a % of net sales .. 8.0% 4.6% 7.7%
Income from Operations
Income from operations (income before interest, taxes, and other items)
was 4.9%, 2.5% and 6.2% of net sales in 1997, 1996 and 1995, respectively. The
increase in income from operations in 1997 was impacted primarily by the
increase in gross profit margins previously discussed offset by increased
selling, general and administrative expenses. The increase in selling, general
and administrative expenses primarily reflects higher levels of expense
associated with the retail outlets acquired. Selling, general and
administrative expenses were 3.1%, 2.1% and 1.5% of net sales in 1997, 1996 and
1995.
13
16
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
Income from operations .. $41,155 $15,504 $45,685
as a % of net sales ..... 4.9% 2.5% 6.2%
Other Income (Expense)
Interest expense totaled $16.1 million, $10.3 million and $6.3 million for
the years ended December 31, 1997, 1996 and 1995, respectively. The increase
in interest expense primarily reflects new term and bank line of credit debt
associated with increased working capital requirements due to the establishment
of inventory at the Fruehauf retail outlets acquired in the second quarter,
higher working capital due to increased production at the Company's
manufacturing facilities and growth in the Finance Company's leasing
operations. Other, net is primarily comprised of a variety of immaterial,
non-operating expense items.
Income Taxes
The provision for federal and state income taxes represented 41.0%, 39.7%
and 37.0% of pre-tax income for 1997, 1996 and 1995, 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
As presented in the Consolidated Statements of Cash Flows, cash and cash
equivalents as of December 31, 1997 increased $9.1 million to $14.6 million as
compared to $5.5 million at December 31, 1996. The increase in cash was the
result of net cash used in operating and investing activities of $69.4 million
offset by cash provided from financing activities of $78.5 million. Net cash
used in operating and investing activities of $69.4 million is the result of
increased working capital due to the start-up and growth in the retail branch
network acquired in the second quarter of 1997, increased production levels at
the Company's manufacturing facilities, capital expenditures related to the
construction of the Company's composite material facility and continued growth
in the Finance Company's leasing operations.
The increase in working capital during 1997 was due to the Company's
investment of approximately $23 million to establish working capital at the
Fruehauf retail outlets acquired in April, 1997 and higher inventory and
receivables, offset somewhat by increased accounts payable, resulting from
increased production at the Company's manufacturing facilities. The Company
has announced a branch expansion plan beginning in 1998 which will increase the
number of company-owned retail branch outlets from 31 branches to approximately
50 over the next two to three years and as a result, further working capital
investments will be required to meet this expansion plan. The Company
anticipates improvements in working capital at its manufacturing facilities in
1998 to partially offset the working capital needs within the retail branches.
Capital expenditures during 1997 totaled approximately $20 million and
related principally to the construction of the Company's composite material
facility which was completed in the third quarter of 1997. In addition,
investments in the Finance Company's leasing operations of approximately $75
million were made during 1997 as the Finance Company continues to expand its
leasing operations. Offsetting this investing activity were several
transactions during the third and fourth quarters of 1997 totaling
approximately $80 million. These transactions were comprised of $56 million in
sale and leaseback transactions occurring in September, 1997 involving a
portion of the Finance Company's operating lease portfolio and a December, 1997
sale and leaseback transaction involving $10 million of the Company's
manufacturing equipment. The final transaction in December, 1997 of
approximately $13 million involved the sale, with recourse, by the Finance
Company of certain of its finance contracts to a financial institution.
14
17
The acquisition of Fruehauf in April, 1997 for $50.5 million was financed
through the issuance of $17.8 million in common stock, $17.6 million in
preferred stock and the remaining $15.1 million in cash. The initial cash
requirement for this acquisition was funded through the use of the Company's
revolving credit facility and was recovered within the first 90 days following
the acquisition through the positive cash flow generated from the sale of
working capital acquired in the acquisition.
In connection with the investments discussed above, the Company's debt
increased to $231.9 million at December 31, 1997 compared to $151.3 million at
December 31, 1996. Of the $231.9 million of consolidated debt outstanding at
December 31, 1997, the Finance Company had $54.9 million in outstanding
borrowings as a result of its leasing activities compared to $80.9 million at
December 31, 1996. On September 30, 1997, the Company replaced its revolving
credit facility with an unsecured revolving bank line of credit permitting the
Company to borrow up to $125 million. Under this facility, the Company has the
right to borrow until September 30, 2002. Interest payable on such borrowings
is variable based upon the London interbank rate (LIBOR) plus 25 to 55 basis
points or a prime rate of interest. The Company pays a quarterly commitment
fee on the unused portion of this facility of 8.5 to 17.5 basis points per
annum. The Company had available credit under this facility of $59 million at
December 31, 1997. In connection with one of the Company's European
RoadRailer(R) sales transactions, the Company is contingently liable for up to
four years as a guarantor of certain commitments of two separate entities via
standby letters of credit in the amount of $7.6 million and a separate letter
of guarantee in the amount of $4 million. During 1997, the Company continued
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 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 including the branch expansion program, 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 and equity offerings. The Company believes
these funding sources will be adequate for its anticipated requirements.
The Company has assessed and continues to assess the impact of the Year
2000 Issue on its reporting systems and operations. The Year 2000 Issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. As the century date occurs, date sensitive systems
will recognize the year 2000 as 1900 or not at all. This inability to
recognize or properly treat the year 2000 may cause our systems to process
critical financial and operational information incorrectly. One of the more
significant Year 2000 issues faced by the Company are the systems in place
within the Company's retail distribution network, which are not Year 2000
compliant. As a result, in 1998 the Company will install new application
systems within this distribution network which will be Year 2000 compliant.
The Company does not expect the costs associated with becoming Year 2000
compliant to be material.
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.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No.128, Earnings Per Share, which is effective at
year-end 1997. This statement establishes standards for computing and
presenting earnings per share (EPS) and supersedes APB Opinion No. 15, Earnings
per share. The Company adopted this new standard in computing EPS for the
twelve months ended
15
18
December 31, 1997. The adoption of this statement did not have a material
effect on the Company's reported earnings per share.
In addition, in June 1997 the FASB issued SFAS No. 130, "Reporting
Comprehensive Income". This Statement is effective for fiscal periods
beginning after December 15, 1997 with early adoption permitted. The Company
is evaluating the effect this Statement will have on its financial reporting
and disclosures; however, the Statement will have no effect on the Company's
results of operations, financial position, capital resources or liquidity.
16
19
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGES
-----
Report of Independent Public Accountants ............................................. 18
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......................... 19
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and
1995 ............................................................................. 20
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995 .................................................................... 21
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995 ............................................................................. 22
Notes to Consolidated Financial Statements ........................................... 23
17
20
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, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
January 19, 1998.
18
21
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------
ASSETS 1997 1996
------ -------- --------
CURRENT ASSETS:
Cash and cash equivalents .............. $ 14,647 $ 5,514
Accounts receivable, net ............... 161,249 71,166
Current portion of finance contracts ... 7,697 6,128
Inventories ............................ 211,359 140,015
Prepaid expenses and other ............. 12,962 13,087
-------- --------
Total current assets ............... 407,914 235,910
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net ......... 108,798 81,782
-------- --------
EQUIPMENT LEASED TO OTHERS, net ............ 43,986 63,825
-------- --------
FINANCE CONTRACTS, net of current portion .. 51,539 43,858
-------- --------
OTHER ASSETS ............................... 17,633 14,696
-------- --------
$629,870 $440,071
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................ $ 4,148 $ 3,942
Accounts payable .................................... 94,083 69,155
Accrued liabilities ................................. 29,471 14,101
-------- --------
Total current liabilities ..................... 127,702 87,198
-------- --------
LONG-TERM DEBT, net of current maturities ................ 231,880 151,307
-------- --------
DEFERRED INCOME TAXES .................................... 26,440 22,879
-------- --------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES ........... 17,332 319
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock ..................................... 4 ----
Common stock, 19,954,874 and 18,910,923 shares issued
and outstanding, respectively ..................... 200 189
Additional paid-in capital .......................... 135,611 99,388
Retained earnings ................................... 91,980 80,070
Treasury stock at cost, 59,600 common shares ........ (1,279) (1,279)
-------- --------
Total stockholders' equity .................... 226,516 178,368
-------- --------
$629,870 $440,071
======== ========
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
19
22
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
NET SALES .................................................. $ 846,082 $ 631,492 $ 734,299
COST OF SALES .............................................. 778,620 602,629 677,503
---------- ---------- ----------
Gross profit ....................................... 67,462 28,863 56,796
GENERAL AND ADMINISTRATIVE EXPENSES ........................ 17,806 8,857 7,245
SELLING EXPENSES ........................................... 8,501 4,502 3,866
---------- ---------- ----------
Income from operations ............................. 41,155 15,504 45,685
OTHER INCOME (EXPENSE):
Interest expense ...................................... (16,100) (10,257) (6,251)
Other, net ............................................ 735 788 875
---------- ---------- ----------
Income before income taxes ......................... 25,790 6,035 40,309
PROVISION FOR INCOME TAXES ................................. 10,576 2,397 14,902
---------- ---------- ----------
Net income ......................................... $ 15,214 $ 3,638 $ 25,407
PREFERRED STOCK DIVIDENDS .................................. 742 --- ---
---------- ---------- ----------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS ............................................ $ 14,472 $ 3,638 $ 25,407
========== ========== ==========
COMMON STOCK DATA:
Average number of shares of common stock outstanding 19,586,000 18,912,000 18,948,000
Basic earnings per common share .................... $0.74 $0.19 $1.34
========== ========== ==========
Diluted earnings per common share .................. $0.74 $0.19 $1.33
========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
20
23
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Preferred Stock Common Stock Additional
---------------------- ------------------------ Paid-In Retained Treasury
Shares Amount Shares Amount Capital Earnings Stock Total
-------------------------------------------------------------------------------------------
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
Net income for the year ............. --- --- --- --- --- 15,214 --- 15,214
Cash dividends ($0.13 per share) .... --- --- --- --- --- (2,562) --- (2,562)
Preferred dividends.................. --- --- --- --- --- (742) --- (742)
Issuance of common stock under:
employee stock purchase plan ....... --- --- 3,551 --- 97 --- --- 97
employee stock bonus plan .......... --- --- 11,300 --- 272 --- --- 272
Stock issued for acquisition:
Common stock ....................... --- --- 1,000,000 10 17,740 --- --- 17,750
Preferred stock .................... 352,000 4 --- --- 17,596 --- --- 17,600
Exercise of stock options .......... --- --- 29,100 1 518 --- --- 519
--------------------------------------------------------------------------------------------
BALANCES, December 31, 1997 .......... 352,000 $ 4 19,954,874 $200 $135,611 $ 91,980 $(1,279) $ 226,516
============================================================================================
The accompanying notes are an integral part of these consolidated statements.
21
24
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................... $ 15,214 $ 3,638 $ 25,407
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization .................................................... 16,623 15,289 11,504
Bad debt provision ............................................................... 693 186 616
Deferred income taxes ............................................................ 5,463 2,317 4,541
Change in operating assets and liabilities, excluding effects of the acquisition--
Accounts receivable .......................................................... (76,821) 6,183 (3,313)
Inventories .................................................................. (51,181) (7,919) (57,712)
Prepaid expenses and other ................................................... 2,293 (3,661) (4,370)
Accounts payable ............................................................. 24,928 (19,335) 3,900
Accrued liabilities .......................................................... 6,218 757 (1,667)
Other assets ................................................................. 4,757 (3,421) (2,566)
--------- --------- ---------
Net cash used in operating activities ..................................... (51,813) (5,966) (23,660)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................. (20,168) (11,211) (37,898)
Proceeds from sale and leaseback of property, plant, and equipment ................... 10,052 --- ---
Investment in equipment leased to others ............................................. (38,137) (41,275) (19,076)
Proceeds from sale of leased equipment and finance contracts ......................... 73,524 17,706 9,149
Investment in finance contracts ...................................................... (25,561) (24,940) (20, 512)
Principal payments on finance contracts .............................................. 5,403 4,844 3,279
Payments for RoadRailer technology ................................................... (1,464) (2,008) (275)
Investment in unconsolidated affiliate ............................................... (6,230) --- ---
Payment for purchase of Fruehauf, net of cash acquired (Note 5) ...................... (15,129) --- ---
Other ................................................................................ 121 172 (39)
--------- --------- ---------
Net cash used in investing activities ..................................... (17,589) (56,712) (65,372)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ................................................. (14,855) (24,365) (9,895)
Proceeds from issuance of long-term debt ............................................. 35,635 143,361 10,000
Borrowings under long-term revolver .................................................. 418,599 398,100 311,420
Payments under long-term revolver .................................................... (358,600) (448,100) (258,189)
Proceeds from issuance of common stock, net of expenses .............................. 888 142 538
Payment of cash dividends ............................................................ (2,431) (2,269) (1,895)
Payment of preferred dividends ....................................................... (701) --- ---
Purchase of treasury stock ........................................................... --- (774) (505)
--------- --------- ---------
Net cash provided by financing activities ................................. 78,535 66,095 51,474
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH ......................................................... 9,133 3,417 (37,558)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ................................ 5,514 2,097 39,655
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ..................................... $ 14,647 $ 5,514 $ 2,097
========= ========= =========
The accompanying notes are an integral part of these consolidated statements.
22
25
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 under the Wabash National and
Fruehauf trademarks. The Company is the leading manufacturer of composite
trailers, aluminum plate trailers and bimodal vehicles through its RoadRailer
products. The Company produces and sells aftermarket parts through its
division, Wabash National Parts, and its wholly-owned subsidiary, Fruehauf
Trailer Services, Inc. (FTSI). In addition to its aftermarket parts sales and
service revenues, FTSI distributes new and used trailers. The Company's other
wholly-owned subsidiaries include Wabash National Finance Corporation (the
Finance Company) and Continental Transit Corporation (Continental). The
Finance Company provides leasing and financing programs to its customers for
new and used trailers. Continental provides transportation services for the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Consolidation
The consolidated financial statements reflect the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. Investments in unconsolidated affiliates in which the
company exercises significant influence but not control are accounted for by
the equity method and the Company's share of net income or loss of its
affiliates is included in Other, net.
b. Significant Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in its consolidated financial
statements and accompanying notes. Actual results could differ from these
estimates.
c. Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments, which are readily
convertible into cash and have 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 $1,487,000, $1,686,000 and
$1,363,000 at December 31, 1997, 1996 and 1995, 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,
------------------
1997 1996
-------- --------
Raw materials and components .. $75,629 $66,819
Work in progress .............. 16,892 16,344
Finished goods ................ 68,164 27,608
Aftermarket parts ............. 25,386 5,826
Used trailers ................. 25,288 23,418
-------- --------
$211,359 $140,015
======== ========
23
26
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,
------------------
1997 1996
-------- --------
Land ............................ $17,828 $5,154
Buildings and improvements ...... 55,864 37,656
Machinery and equipment ......... 66,685 60,852
Construction in progress ........ --- 1,373
-------- --------
140,377 105,035
Less--Accumulated depreciation .. (31,579) (23,253)
-------- --------
$108,798 $81,782
======== ========
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 differences between the
carrying amounts and the estimated fair values, using the methods and
assumptions listed below, of the Company's financial instruments at December
31, 1997 and 1996 were immaterial.
Cash and Cash Equivalents, Trade Receivables and Trade Payables.
The carrying amounts reported in the Consolidated Balance Sheets
approximate fair value.
Long-Term Debt. The fair value of long-term debt, including
current portion, is estimated based on quoted market prices for
similar issues or on the current rates offered to the Company for
debt of the same maturities. The interest rates on the Company's
bank borrowings under its long-term revolving credit agreement are
adjusted regularly to reflect current market rates. The carrying
values of the Company's long-term borrowings also approximate fair
value.
Forward Contracts. The Company enters into foreign currency
forward contracts (principally against the German deutschemark and
the French franc) to hedge the net receivable/payable position
arising from trade sales (including lease revenues) and purchases
primarily with regard to the Company's European RoadRailer
operations. Gains and losses related to qualifying hedges are
deferred and included in the measurement of the related
transaction, when the hedged transaction occurs. The Company does
not hold or issue derivative financial instruments for speculative
purposes. The fair values of foreign currency contracts (used for
hedging purposes) are estimated by obtaining quotes from brokers.
Foreign currency contracts to receive approximately $14.0 million
and $8.7 million at December 31, 1997, and 1996, respectively,
approximates fair market value at those dates.
h. Revenue Recognition
Revenues and costs are recognized as the related products and services 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.
24
27
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 $2,090,000, $1,206,000 and $1,567,000 in 1997, 1996 and 1995,
respectively.
k. Reclassifications
Certain items previously reported in specific consolidated financial
statement captions have been reclassified to conform with the 1997
presentation.
l. New Accounting Pronouncements
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. In 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
(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. 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 7) Stockholders' Equity.
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share." The
new Standard simplifies the computation of earnings per share (EPS), and
requires the presentation of two new amounts, basic and diluted earnings per
share. During 1997, the Company adopted SFAS 128 and restated its computation
of EPS for the periods 1997, 1996 and 1995. The conversion of the Series B
Preferred Stock would have been anti-dilutive and, therefore, was not
considered in the computation of diluted EPS. The adoption of this new
Standard resulted in an immaterial difference in its computation of basic and
dilutive EPS.
In addition, in June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income". This Statement is effective for fiscal periods
beginning after December 15, 1997 with early adoption permitted. The Company
is evaluating the effect this Statement will have on its financial reporting
and disclosures; however, the Statement will have no effect on the Company's
results of operations, financial position, capital resources or liquidity.
m. Business and Credit Concentrations
On November 4, 1997, the Company purchased a 25.1% equity interest in
Europaische Trailerzug Beteiligungsgessellschaft mbH (ETZ). ETZ is the
majority shareholder of Bayersriche Trailerzug Gesellschaft fur Bimodalen
Guterverkehr mbH (BTZ), a European RoadRailer operation based in Munich,
Germany. The Company paid approximately $6 million for its ownership interest
in ETZ. All premium associated with this purchase is being amortized over a
ten-year period. In addition, the Company recorded approximately $400,000 for
its share of ETZ's losses since the date of the Company's investment and such
losses are recorded in Other, net in the Consolidated Statements of Income.
As of December 31, 1997, the Finance Company had approximately $20 million
recorded as Equipment Leased to Others consisting of RoadRailer equipment
specifically related to current or future operating lease arrangements with
BTZ. In addition, as of December 31, 1997, the Company is contingently liable
for up to four
25
28
years as a guarantor of certain commitments to two separate entities related
to 1996 RoadRailer equipment sales to BTZ. These commitments consist of
standby letters of credit ($7.6 million) and a separate letter of guarantee ($4
million). The contract amount of these letters of credit approximate their
fair value.
3. ACQUISITION
On April 16, 1997, the Company acquired substantially all of the remaining
assets of Fruehauf Trailer Corporation (Fruehauf), a manufacturer and marketer
of truck trailers and related parts. The purchase included assets consisting
of the Fruehauf and Pro Par(R) names, all patents and trademarks, retail
outlets in 31 major metropolitan markets, the aftermarket parts distribution
business based in Grove City, Ohio, a specialty trailer manufacturing plant in
Huntsville, Tennessee and a van manufacturing plant in Ft. Madison, Iowa.
For financial statement purposes the acquisition was accounted for as a
purchase and accordingly, Fruehauf's results are included in the consolidated
financial statements since the date of acquisition. The retail outlets operate
under the name of Fruehauf Trailer Services, Inc., a wholly owned subsidiary of
Wabash National Corporation. Aggregate consideration for this transaction was
approximately $50.5 million consisting of $15.1 million in cash from credit
facilities, $17.8 million in common stock and $17.6 million in preferred stock.
The fair value of the assets acquired was approximately $63.5 million and
approximately $13.0 million of liabilities were assumed in connection with this
acquisition.
The following table reflects unaudited pro forma combined results of
operations of the Company and the acquired assets as if the acquisition had
occurred January 1, 1997 and January 1, 1996.
YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996
(in millions, except per share amounts) (Unaudited)
- ---------------------------------------------------------------------
Net sales ............................. $875.8 $820.5
Net income ............................ $ 14.7 $ (0.9)
Net income per common share ........... $ 0.69 $(0.10)
- ----------------------------------------------------------------------
In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of 1996 or at the beginning of
1997 or of future operations of the combined companies under the ownership and
management of the Company.
4. LEASING AND FINANCE OPERATIONS
The Finance Company provides leasing and financing programs to customers
for new and used trailers. The Finance Company's lease revenues, excluding
revenue from the sale of leased trailers of $5.7 million, $44.4 million and
$13.5 million, were $21.4 million, $13.7 million and $12.6 million during 1997,
1996 and 1995, respectively. Income before income taxes was $1.0 million, $2.5
million and $4.3 million in 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, respectively, the Finance Company had $54.9
million and $80.9 million in long-term debt, comprised of $39.0 and $61.0
million in intercompany debt to the Company and $15.9 million and $19.9 million
in debt due to third parties, of which $8.4 million and $0 was guaranteed by
the Company. Also at December 31, 1997 and 1996, respectively, the Finance
Company had total assets of $107.1 million and $117.7 million, consisting
primarily of Equipment Held for Lease of $44.0 million and $63.8 million and
Finance Contacts, net of current portion, of $51.5 million and $43.9 million.
26
29
a. Equipment Held for Lease
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 $8,374,000, $6,093,000 and $4,175,000 during 1997, 1996 and 1995,
respectively. Accumulated depreciation of equipment leased to others is
$9,596,000 and $10,435,000 at December 31, 1997 and 1996, respectively.
Future minimum lease payments to be received from these noncancellable
operating leases at December 31, 1997 are as follows (in thousands):
Amounts
--------
1998 .................................... $ 7,796
1999 .................................... 4,181
2000 .................................... 3,712
2001 .................................... 3,276
Thereafter .............................. 7,776
--------
$ 26,741
========
b. Finance Contracts
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. These estimated residual values and unearned interest
totalled approximately $7,250,000 and $8,608,000, respectively, at December 31,
1997 and $7,545,000 and $10,212,000, respectively, at December 31, 1996. The
future minimum lease payments to be received at December 31, 1997 are as
follows (in thousands):
Amounts
-----------
1998 .................................... $ 7,329
1999 .................................... 7,077
2000 .................................... 6,366
2001 .................................... 5,304
Thereafter .............................. 6,092
-----------
$ 32,168
===========
Additionally, the Finance Company participates in the contracts and leases
of a major finance company. This participation consists of the purchase of 20%
of the initial value of these contracts and leases by the Finance Company along
with some level of end of term residual value guarantee. The Finance Company's
20% share of this participation was $13,002,000 and $1,347,000 as of December
31, 1997 and 1996, respectively. End of term residual guarantees related to
these participations totaled $5,676,000 and $0 as of December 31, 1997 and
1996, respectively.
c. Other
In certain situations, the Finance Company has sold equipment leased to
others to independent financial institutions, simultaneously leased the
equipment back, and guaranteed an end of term residual value to the financial
institutions. These end of term residual guarantees totaled $19,815,000 and
$10,621,000 as of December 31, 1997 and 1996, respectively. The income from
the sale of this equipment has been deferred and is being recognized over the
term of the financial arrangements. Rental payments made by the Finance
Company under these type of transactions totaled $4,900,000, $700,000 and
$1,400,000 during 1997, 1996 and 1995, respectively. The future
27
30
minimum lease payments to be paid by the Finance Company under these lease
transactions at December 31, 1997 are as follows (in thousands):
Amounts
-----------
1998 .................................... $ 7,817
1999 .................................... 7,817
2000 .................................... 7,817
2001 .................................... 7,817
Thereafter .............................. 12,878
----------
$ 44,146
==========
The future minimum lease payments to be received by the Finance Company under
these sublease arrangements, are $8.0 million in 1998, $4.4 million in 1999,
2000 and 2001, and $12.3 million thereafter.
Additionally, during 1997 the Finance Company sold certain finance
contracts in its portfolio with a full recourse provision. As a result of the
recourse provision, the Finance Company has reflected an asset and an
offsetting liability totaling $13,113,000 in the Company's Consolidated Balance
Sheets as a Finance Contract and Other Non-Current Liabilities and
Contingencies. Such amounts will be amortized over the life of the
arrangement.
5. SUPPLEMENTAL CASH FLOW INFORMATION
DECEMBER 31,
--------------------------------------------
(In Thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest, net of amounts capitalized $ 15,313 $ 8,825 $ 6,433
Income taxes 6,136 714 13,648
- -----------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
Finance contracts converted to operating leases 2,230 3,201 1,519
Operating leases converted to finance contracts 2,783 2,567 ---
Used trailers transferred from inventory to operations --- 2,198 ---
Preferred stock issued for acquisition 17,600 --- ---
Common stock issued for acquisition 17,750 --- ---
- -----------------------------------------------------------------------------------------------------------
Purchase of Fruehauf assets, net of cash acquired:
Accounts receivable, net 13,955 --- ---
Inventory 20,163 --- ---
Prepaid expenses and other 4,072 --- ---
Property, plant and equipment 25,269 --- ---
Current liabilities (8,980) --- ---
Non-current liabilities (4,000) --- ---
Stock issued (35,350) --- ---
- -----------------------------------------------------------------------------------------------------------
Net cash paid to acquire Fruehauf $ (15,129) --- ---
- -----------------------------------------------------------------------------------------------------------
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31,
-----------------------------
1997 1996
------ ------
Revolving Bank Lines of Credit ...................... $ 65,999 $ 6,000
Industrial Revenue Bonds ............................ 385 735
Notes Payable ....................................... 19,644 23,514
Senior Notes ........................................ 150,000 125,000
------------- ------------
236,028 155,249
Less-Current maturities ................ (4,148) (3,942)
------------- ------------
$ 231,880 $ 151,307
============= ============
28
31
A summary of the terms of the long-term debt agreements follows:
Revolving Bank Lines of Credit. On September 30, 1997, the Company
replaced its revolving credit facility. The new unsecured revolving bank line
of credit permits the Company to borrow up to $125 million. Under this
facility, the Company has the right to borrow until September 30, 2002, 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) plus 25 to 55 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 8.5 to 17.5 basis points per annum,
as defined. As of December 31, 1997, total borrowings under this facility was
$65,999,000 at an interest rate of 6.1%. In addition, standby letters of
credit totaling $8,368,000 have been issued in connection with the Company's
Worker's Compensation self-insurance program, its outstanding Industrial
Revenue Bond and its foreign sales transactions.
Industrial Revenue Bonds. These bonds bear interest at 7.5%. The final
principal payment of $385,000 is due in December, 1998. The bonds are secured
by land, buildings and equipment. The Company has a letter of credit of
$385,000 at December 31, 1997 to secure 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 $19,644,000 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 and the remaining $25 million were issued in March, 1997. These
unsecured Senior Notes Series B-H bear interest at rates ranging from 6.99% to
7.55%. Interest payments are due in March, September and December.
As of December 31, 1997, $39 million of the Company's Senior Notes due
2008 were due from the Finance Company. The terms and conditions of the
intercompany loan to the Finance Company are identical to the terms and
conditions of the Senior Notes.
Covenants. Under the various loan agreements, the Company and the Finance
Company are required to meet certain covenants. These covenants require the
Company to maintain certain levels of net worth as well as comply with certain
limitations on indebtedness, investments and sales of assets. The Company and
the Finance Company were in compliance with these covenants at December 31,
1997.
Maturities of long-term debt at December 31, 1997, are as follows (in
thousands):
Amounts
--------------
1998 ....................................$ 4,148
1999 .................................... 3,761
2000 .................................... 4,128
2001 .................................... 12,004
2002 .................................... 91,966
Thereafter .............................. 120,021
--------------
$ 236,028
==============
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32
7. STOCKHOLDERS' EQUITY
a. Capital Stock
DECEMBER 31,
------------------
(Dollars in Thousands) 1997 1996
- --------------------------------------------------------------------------------------------------
Preferred Stock - $.01 par value, 25,000,000 shares authorized:
Series A Junior Participating Preferred Stock - $0.01 par value,
300,000 shares authorized, 0 shares outstanding --- ---
Series B 6% Cumulative Convertible Exchangeable
Preferred Stock, 352,000 and 0 shares authorized and
outstanding at December 31, 1997 and December 31, 1996
($17.6 million aggregate liquidation value) 4 ---
----- ------
Total Preferred Stock $ 4 $ ---
===== ======
Common Stock - $.01 par value, 75,000,000 shares authorized,
issued 19,954,874 and 18,910,923, respectively $ 200 $ 189
===== ======
The Company's Series B 6% Cumulative Convertible Exchangeable Preferred
Stock is convertible at the discretion of the holder, at a rate of 2.3 shares
of Common Stock per share of Preferred Stock. This conversion is subject to
adjustment for dilutive issuances and changes in outstanding capitalization by
reason of a stock split, stock dividend or stock combination.
The Board of Directors has the authority to issue shares of unclassified
preferred stock and to fix dividends, voting and conversion rights, redemption
provisions, liquidation preferences and other rights and restrictions.
b. 1992 Stock Option Plan
During 1992, the Company adopted its 1992 Non-Qualified Stock Option Plan
(the Plan) under which options may be granted to officers and other key
employees of the Company and its subsidiaries. Under the terms of the Plan, up
to an aggregate of 1,750,000 shares are reserved for issuance, subject to
adjustment for stock dividends, recapitalizations and the like. Options
granted under the Plan become exercisable in five annual installments and
expire not more than ten years after the 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.
The Company has elected to follow APB No. 25 in accounting for its stock
options and, accordingly, no compensation cost has been recognized for stock
options in the consolidated financial statements. Had compensation cost for
these plans been determined consistent with SFAS No. 123, the Company's net
income available to common would have been reduced to $13.8 million ($0.71 per
share) in 1997, $3.2 million ($0.17 per share) in 1996 and $25.3 million ($1.34
per share) in 1995.
30
33
Stock option activity during the periods indicated is as follows:
NUMBER OF WEIGHTED-AVERAGE
OPTIONS SHARES EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 394,600 $21.64
- ------------------------------------------------------------------------------------------------------------------------------------
Granted .................................................. 171,100 33.38
Exercised ................................................ (21,000) 22.19
Outstanding at December 31, 1995 544,700 25.30
- ------------------------------------------------------------------------------------------------------------------------------------
Granted .................................................. 178,200 20.59
Exercised ................................................ (2,700) 17.54
Cancelled ................................................ (74,700) 32.29
Outstanding at December 31, 1996 645,500 23.25
- ------------------------------------------------------------------------------------------------------------------------------------
Granted .................................................. 254,500 28.36
Exercised ................................................ (29,100) 17.82
Cancelled ................................................ (15,000) 17.58
Outstanding at December 31, 1997 855,900 $25.05
====================================================================================================================================
The following table summarizes information about stock options outstanding at
December 31, 1997:
Weighted Weighted Weighted
Range of Average Average Number Average
Exercise Number Remaining Exercise Exercisable Exercise
Prices Outstanding Life Price at 12/31/97 Price
- ------------------------------------------------------------------------------------------------------------------------------------
$17.50 to $22.49 386,900 7.3 yrs $18.95 240,348 $17.68
$22.50 to $33.49 469,000 8.8 yrs $30.09 104,656 $29.06
Using the Black-Scholes option valuation model, the estimated fair values of
options granted during 1997, 1996 and 1995 were $14.67, $10.39, and $17.26 per
share respectively. Principal assumptions used in applying the Black-Scholes
model were as follows:
Black-Scholes Model Assumptions 1997 1996 1995
---------------------------------------------------------------------
Risk-free interest rate 6.15% 6.40% 6.10%
Expected volatility 40.13% 41.30% 41.10%
Expected dividend yield 0.40% 0.58% 0.36%
Expected term 7 yrs 7 yrs 7 yrs
c. 1993 Employee Stock Purchase Plan
During 1993, the Company adopted its 1993 Employee Stock Purchase Plan
(the "Purchase 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 1997,
3,551 shares were issued to employees at a weighted average price of $27 per
share. At December 31, 1997, there were approximately 285,149 shares available
for offering under this Plan.
d. Stock Bonus Plan
During 1997, the Company adopted its Stock Bonus Plan (the "Bonus Plan").
Under the terms of the Plan, common stock may be granted to employees under
terms and conditions as determined by the Board of Directors.
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34
During 1997, 11,300 shares were issued to employees at a weighted average price
of $24. At December 31, 1997 there were approximately 488,700 shares available
for offering under this Bonus Plan.
8. STOCKHOLDERS' RIGHTS PLAN
On November 7, 1995, the Board of Directors adopted a Stockholder Rights
Plan (the "Rights Plan"). The Rights 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 Rights 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.
9. 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 $961,000, $994,000
and $750,000 for the years ended December 31, 1997, 1996, and 1995,
respectively.
10. INCOME TAXES
a. Provisions for Income Taxes
The consolidated income tax provision for 1997, 1996 and 1995 consists of
the following components (in thousands):
1997 1996 1995
------- ------ -------
Current:
Federal .................. $ 3,862 $ (801) $ 9,382
State .................... 1,250 (201) 979
Deferred ................... 5,464 3,399 4,541
------- ------ -------
$10,576 $2,397 $14,902
======= ====== =======
The Company's effective income tax rates were 41.0%, 39.7% and 37.0% of pre-tax
income for 1997, 1996 and 1995, respectively, and differed from the U.S.
Federal Statutory rate of 35% due primarily to State taxes. In 1995, the
Company recorded a $1.5 million state income tax credit as a result of property
improvements eligible for income tax credit from the State of Indiana.
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35
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 $26,440,000 and
$22,879,000 and current prepaid income tax assets were $1,270,000 and
$3,173,000 as of December 31, 1997 and 1996, respectively.
The components of deferred tax assets and deferred tax liabilities and of
December 31, 1997 and 1996, are as follows (in thousands of dollars):
1997 1996
------- -------
Deferred tax assets:
Rentals on Finance Leases .................................... $ 12,137 $ 9,014
Other ........................................................ 7,461 5,728
Deferred tax liabilities:
Book-Tax Basis Differences - Property, Plant, and Equipment .. 32,581 24,410
Earned Finance Charges on Finance Leases ..................... 5,359 4,058
RoadRailer Acquisition Payments/Amortization ................. 2,469 2,381
Other ........................................................ 4,359 3,599
-------- -------
Net deferred tax liability ...................................... $ 25,170 $ 19,706
======== ========
11. SIGNIFICANT CUSTOMERS
For the year ended December 31, 1997, no customer represented more than
10% of the Company's net sales. In 1996, the two largest customers accounted
for 15% and 13% of net sales, and in 1995 the largest customer accounted for
13% of net sales. No other customer represented more than 10% of the Company's
net sales in 1996 and 1995.
12. COMMITMENTS AND CONTINGENCIES
a. Litigation
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.
b. Environmental
The Company generates and handles certain material, wastes and emissions
in the normal course of operations that are subject to various and evolving
Federal, state and local environmental laws and regulations.
The Company assesses its environmental liabilities on an on-going basis by
evaluating currently available facts, existing technology, presently enacted
laws and regulations as well as experience in past treatment and remediation
efforts. Based on these evaluations, the Company estimates a lower and upper
range for the treatment and remediation efforts and recognizes a liability for
such probable costs based on the information available at the time. The
potential estimated exposure for such costs ranges from approximately $1
million to approximately $7 million. As of December 31, 1997, the Company has
a reserve of approximately $4.5 million, recorded as Other Non-Current
Liabilities and Contingencies, for the costs of environmental remediation
projects to address soil and ground water contamination at certain of its
facilities as well as the costs of removing underground storage tanks at
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its branch service locations. The possible recovery of insurance proceeds has
not been considered in the Company's estimated contingent environmental costs.
The Company has certain costs associated with the remediation of affected
soils at its Lafayette manufacturing facility which resulted from the
manufacturing activities of the facility's previous bankrupt owner, National
Enterprises, Inc. These remediations efforts, which began in June 1991, are
being conducted voluntarily pursuant to a Work Plan approved by the Indiana
Department of Environmental Management. Although sufficient data have not been
generated to conclude if the remediation efforts will achieve cleanup
objectives imposed by the regulatory agencies, and what the ultimate costs will
be, the costs to date have not been material. The Company does not anticipate
significant costs to be incurred to satisfy ongoing soil remediation efforts
related to this site.
Future information and developments will require the Company to
continually reassess the expected impact of these environmental matters.
However, the Company has evaluated its total environmental exposure based on
currently available data and believes that compliance with all applicable laws
and regulations will not have a materially adverse effect on the financial
position or operations of the Company.
c. Royalty Payments
Beginning in the first quarter of 1998 and extending through 2007, the
Company is obligated to make quarterly royalty payments in accordance with a
licensing agreement related to the development of the Company's composite plate
material used on its proprietary DuraPlate trailer. The amount of the payments
varies with the production volume of usable material, but requires minimum
royalties of $500,000 annually through 2005.
d. Operating Leases
The Company leases office space, manufacturing, warehouse and service
facilities and equipment under operating leases expiring through 2002. Future
minimum lease payments required under operating leases as of December 31, 1997
were as follows (in thousands):
Amounts
----------
1998 .................................... $ 4,230
1999 .................................... 3,406
2000 .................................... 2,807
2001 .................................... 2,445
Thereafter .............................. 67
Total rental expense under operating leases was $2,550,000, $1,336,000 and
$1,121,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
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13.QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE)
1997
- -----------------------------------
Net sales ................... $135,087 $196,407 $246,403 $268,185
Gross profit ................ 8,033 14,710 21,167 23,552
Net income .................. 869 2,842 5,052 6,451
Basic Earnings per share .... $ 0.05 $ 0.13 $ 0.24 $ 0.31
Diluted Earnings per share .. $ 0.05 $ 0.13 $ 0.24 $ 0.31
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
Basic Earnings per share .... $0.12 $0.01 $0.01 $0.07
Diluted Earnings per share .. $0.12 $0.01 $0.01 $0.07
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
Basic Earnings per share .... $0.37 $0.43 $0.31 $0.24
Diluted Earnings per share .. $0.37 $0.42 $0.30 $0.24
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 and key employees of the Company:
NAME AGE POSITION
-------- --- ----------
Donald J. Ehrlich (1) .. 60 President, Chief Executive Officer
and Chairman of the Board
Dean A. Cervenka ....... 40 Vice President--Sales
Richard E. Dessimoz .... 50 Vice President and Chief Executive
Officer of Wabash National
Finance Corporation and Director
Charles R. Ehrlich ..... 53 Vice President--Manufacturing
Rodney P. Ehrlich ...... 51 Vice President--Engineering
Charles E. Fish ........ 43 Vice President--Human Relations
Lawrence J. Gross ...... 43 Vice President--Marketing
Mark R. Holden (1) ..... 38 Vice President-Chief Financial
Officer and Director
Connie L. Koleszar ..... 39 Director of Investor Relations
Wilfred E. Lewallen .... 53 Vice President--Industrial Engineering
Derek L. Nagle ......... 47 President--Fruehauf Trailer Services, Inc.
Stanley E. Sutton ...... 48 Vice President--Purchasing
(1) Member of the Executive Committee of the Board of Directors.
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.
Dean A. Cervenka. Mr. Cervenka has been Vice President--Sales since
January, 1997. Previously, Mr. Cervenka had been a Regional Sales Director for
the Company. Prior to his employment by the Company in April, 1996, he was
employed by Caterpillar, Inc. in various engineering and marketing positions.
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.
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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.
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 in 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.
Derek L. Nagle. Mr. Nagle has been President of Fruehauf Trailer
Services, Inc. since the Company's acquisition of certain Fruehauf assets in
April, 1997. Prior to his employment by the Company, he was employed since
1970 at Fruehauf Trailer Corporation, as Senior Vice President of North
American Sales & Distribution from 1993 through 1995, as Executive Vice
President of North American Operations until 1996. In September, 1997, he was
appointed President of Fruehauf Trailer Corporation following the resignation
of the previous CEO and CFO of Fruehauf. Fruehauf Trailer Corporation filed
bankruptcy in October, 1996.
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 1998
Annual Meeting of Stockholders to be held May 4, 1998.
Donald J. Ehrlich, President, Chief Executive Officer and Chairman, and
Charles R. Ehrlich and Rodney P. Ehrlich, executive officers of the Company,
are brothers. Dean A. Cervenka and Connie L. Koleszar, executive officers of
the Company, are brother and sister.
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 1998 Annual
Meeting of Stockholders to be held May 4, 1998.
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 1998 Annual Meeting of Stockholders to be held on May 4,
1998.
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 1998 Annual Meeting of Stockholders to be held
on May 4, 1998.
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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, reporting under
Item 5: Risk Factors filed under the "Safe Harbor" Provision of
the Private Securities Litigation Reform Act of 1995.
99.2 Form 8-K filed May 1, 1997 reporting under Item 2:
Wabash National Corporation's acquisition of certain assets of
Fruehauf Trailer Corporation.
(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:
2.01 Purchase Agreement dated March 31, 1997, as amended (Incorporated
by reference from Exhibit 2.01 to Registrant's Form 8-K filed in May 1, 1997)
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)
3.04 Certificate of Designations of Series B 6% Cumulative Convertible Exchangeable Preferred Stock (9)
4.01 Specimen Stock Certificate(1)
4.02 Rights Agreement between the Company and Harris Bank as Rights Agent(1)
4.03 Form of Indenture for the Company's 6% Convertible Subordinated Debentures due 2007
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 Receivables Sale and Servicing Agreement dated June 29, 1995, between NBD Bank, N.A. and Wabash National
Corporation (5)
10.13 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)
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41
10.14 Loan and Security Agreement of Wabash National Finance Corporation in favor of Nationsbanc Leasing Corporation
dated March 22, 1995(6)
10.15 6.41% Series A Senior Note Purchase Agreement dated January 31, 1996, between certain Purchasers and Wabash National
Corporation (6)
10.16 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)
10.17 First Amendment to Receivables Sale and Servicing Agreement dated December 28, 1995 between NBD Bank, N.A. and
Wabash National Corporation (8)
10.18 Second Amendment to Receivables Sale and Servicing Agreement dated March 29, 1996 between NBD Bank, N.A. and Wabash
National Corporation (8)
10.19 Third Amendment to Receivables Sale and Servicing Agreement dated June 28, 1996 between NBD Bank, N.A. and Wabash
National Corporation (8)
10.20 Fourth Amendment to Receivables Sale and Servicing Agreement dated September 27, 1996 between NBD Bank, N.A. and
Wabash National Corporation (8)
10.21 Fifth Amendment to Receivables Sale and Servicing Agreement date September 30, 1996 between NBD Bank, N.A. and
Wabash National Corporation (8)
10.22 Sixth Amendment to Receivables Sale and Servicing Agreement dated December 23, 1996 between NBD Bank, N.A. and
Wabash National Corporation (8)
10.23 First Amendment to the 6.41% Series A Senior Note Purchase Agreement dated January 31, 1996 between certain
Purchasers and Wabash National Corporation (8)
10.24 Series B-H Senior Note Purchase Agreement dated December 18, 1996 between certain Purchasers and Wabash National
Corporation (8)
10.25 Master Equipment Lease Agreement dated December 30, 1996 between National City Leasing Corporation and Wabash
National Finance Corporation (8)
10.26 Revolving Credit Loan Agreement dated September 30, 1997, between NBD Bank, N.A. and Wabash National Corporation(10)
10.27 Investment Agreement and Shareholders Agreement dated November 4, 1997, between ETZ (Europaische Trailerzug
Beteiligungsgesellschaft mbH) and Wabash National Corporation (10)
21.00 List of Significant Subsidiaries (11)
23.01 Consent of Arthur Andersen LLP (11)
27.00 Financial Data Schedule (11)
(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) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1996
(9) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended March 31, 1997
(10) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1997
(11) 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
January 29, 1998 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
---- -------------------
January 29, 1998 By: /s/ Donald J. Ehrlich
------------------------------------------------
Donald J. Ehrlich
Chief Executive Officer, President and
Chairman of the Board
(Principal Executive Officer)
January 29, 1998 By: /s/ Mark R. Holden
------------------------------------------------
Mark R. Holden
Vice President--Chief Financial Officer
and Director (Principal Financial
Officer and Principal Accounting Officer)
January 29, 1998 By: /s/ Richard E. Dessimoz
------------------------------------------------
Richard E. Dessimoz
Vice President and Chief Executive
Officer--Wabash National Finance
Corporation and Director
January 29, 1998 By: /s/ John T. Hackett
------------------------------------------------
John T. Hackett
Director
January 29, 1998 By: /s/ E. Hunter Harrison
------------------------------------------------
E. Hunter Harrison
Director
January 29, 1998 By: /s/ Ludvik F. Koci
------------------------------------------------
Ludvik F. Koci
Director
40