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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, 1998 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) 771-5300
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. X Yes. No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 24, 1999 was $277,204,475, 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 March 24, 1999 was 22,965,090.
The Proxy Statement for Annual Meeting of Stockholders to be held May 6,
1999 is incorporated into this Form 10-K Part III by reference.
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TABLE OF CONTENTS
WABASH NATIONAL CORPORATION
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998
PAGES
PART I.
Item 1.Business .................................................................. 1
Item 2.Properties ................................................................ 9
Item 3.Legal Proceedings ......................................................... 9
Item 4.Submission of Matters to Vote of Security Holders ......................... 9
PART II.
Item 5.Market for the Registrant's Common Stock and Related Stockholder Matters .. 10
Item 6.Selected Financial Data ................................................... 10
Item 7.Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................... 11
Item 7A.Quantitative and Qualitative Disclosures about Market Risks .............. 20
Item 8.Financial Statements and Supplementary Data ............................... 21
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .................................................................... 43
PART III.
Item 10.Directors and Executive Officers of the Registrant ....................... 45
Item 11.Executive Compensation ................................................... 46
Item 12.Security Ownership of Certain Beneficial Owners and Management ........... 46
Item 13.Certain Relationships and Related Transactions ........................... 47
PART IV.
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K .......... 47
SIGNATURES ................................................................................ 49
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PART I
ITEM 1--BUSINESS
Wabash National Corporation (Wabash or the Company) was founded in 1985 by
its current President, Donald J. Ehrlich, and sixteen other associates. The
Company's founders utilized their years of experience in the truck trailer
manufacturing business to design and build a state-of-the-art manufacturing
facility and to create a corporate culture which emphasizes design and new
product development capabilities and stresses the integration of engineering,
manufacturing and marketing.
The Company's business strategy is to follow an integrated approach to
engineering, manufacturing and marketing which emphasizes flexibility in
product design and operations while preserving a low cost structure. Wabash
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 and finance business and expects to continue such
development. The Company has also expanded and intends to further expand its
factory-owned retail distribution network in order to more effectively
distribute its products. The retail sale of new and used trailers, aftermarket
parts and maintenance service generally produces higher gross margins. 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:
- 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.
- 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.
- 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 that distinguish the Company from its competitors and
provide opportunities for enhanced profit margins.
- Corporate Culture. Since the Company's founding, management
has fostered a corporate culture that 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 also employs a compensation program
that 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 ten years (1988-1997) by the Truck
Trailer Manufacturing Association for achieving the best safety
record
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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 and operates in three segments,
manufacturing; retail and distribution; and leasing and finance.
Manufacturing
Wabash 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 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 that consists of trailers and detachable rail bogies that permit a
vehicle to run both over the highway and directly on railroad lines.
Wabash markets its products directly and through dealers to truckload and
less-than-truckload (LTL) common carriers, private fleet operators, 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 1998 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:
- 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)
- Leasing Companies: Transport International Pool (TIP);
Penske Truck Leasing; National Semi Trailer Corp.; Leaseway
Purchasing Corp.
- Private Fleets: Safeway; Chrysler; The Kroger Company;
Stone Container Corporation; Foster Farms
- Less-Than-Truckload Carriers: Roadway Express, Inc.; Old
Dominion Freight Line, Inc.; USF Holland; Central Transport
International; Yellow Services, Inc.
- Package Carriers: Federal Express Corporation; United Parcel
Service (UPS)
- Domestic Intermodal Carriers: Triple Crown Services Company;
National Rail Passenger Corp. (Amtrak); Burlington Northern Santa
Fe
- International Intermodal Carriers: Bayerische Trailerzug
Gesellschaft (BTZ); Compagnie Nouvelle De Conteneurs (CNC)
In addition, on July 14, 1998, the Company acquired Cloud Corporation of
Harrison, AR and Cloud Oak Flooring Co., Inc. of Sheridan, AR, manufacturers of
laminated hardwood floors for the truck body and trailer industry. The Company
believes it is the nation's largest consumer of trailer flooring and expects to
utilize 100% of the production capacity of the acquired companies. The
acquisition gives the Company the opportunity to enhance margins and ensure an
adequate supply of a material that has experienced volatile pricing and limited
supply. It also allows the Company to leverage its current research and
development activity in high strength, lightweight reinforced hardwood to
produce a proprietary flooring product. Through investment in additional
assembly lines, the Company expects to increase the capacity of the
manufacturing plants located in Sheridan and Harrison, AR.
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Retail and Distribution
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 and expects to add approximately 20 additional retail outlets to
its existing network. In addition, the Company recently combined its
aftermarket parts distribution facilities into a newly acquired facility in
Lafayette, Indiana to accommodate anticipated growth in its parts distribution
business as a result of its retail expansion.
Leasing and Finance
The Company's wholly-owned subsidiary, Wabash National Finance Corporation
(the Finance Company) provides leasing and finance programs to its customers
for new and used trailers. This business tends to be more stable and
predictable while at the same time provides the Company an additional channel
of distribution for used trailers taken in trade on the sale of new trailers.
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 ten 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.
The following table sets forth domestic trailer shipments for the Company,
its nine largest competitors and for the United States trailer industry as a
whole:
1998 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------
WABASH .......... 61,061 48,346(1) 36,517 42,424 35,679 22,060
Great Dane ...... 50,513 37,237 25,730 36,514 29,758 23,900
Utility ......... 26,862 23,084 19,731 25,068 19,501 13,768
Trailmobile ..... 23,918 18,239 11,094 21,239 16,671 14,500
Stoughton ....... 11,750 11,700 8,300 14,770 13,000 13,500
Strick .......... 10,959 10,488 8,141 18,427 15,599 12,800
Dorsey .......... 8,375 7,939 8,595 12,276 12,010 10,190
HPA Monon ....... 7,313 2,534 11,184 21,172 13,478 9,500
Lufkin .......... 6,975 5,785 3,648 6,141 4,850 3,476
Fontaine ........ 5,894 5,063 4,613 5,465 4,530 3,700
Total Industry .. 278,821 222,550 197,519 284,268 236,016 188,319
(1) Includes shipments of 1,467 units by Fruehauf in 1997 prior to the
acquisition by Wabash of certain assets of Fruehauf.
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Source: Southern Motor Cargo Magazine (C) 1999. 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 required anti lock braking systems (ABS)
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")
PRODUCT LINES
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:
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. 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. The Company holds a number of patents
regarding its composite trailer and believes this proprietary
trailer will continue to become a greater source of business. The
Company believes that it is the largest producer of plate trailers
in the United States.
- 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.
- 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.
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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 and represent
the most common trailer sold throughout the Company's retail
distribution network.
- 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 one of the largest producers of FRP trailers in the United
States.
- 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% 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.
- 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 offers replacement parts and accessories and provides
maintenance service both for its own and competitors' trailers and related
equipment. The aftermarket parts business is less cyclical than trailer sales
and represents 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 manufactured trailers in service increases and as the
Company expands the number of factory-owned branches. Sales of these products
and services represented 8.1%, 10.9% and 4.5% of net sales during 1998, 1997
and 1996, 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 the Finance Company. At December 31,
1998, the Company had approximately $43.1 million in equipment leased to
others, net and $74.0 million invested in finance contracts. These leasing
assets have been financed through term debt and equity. Leasing revenues of
the Finance Company represented 1.8%, 3.2% and 9.2% of net sales during 1998,
1997 and 1996, 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 its factory-owned branch
distribution system or through the Finance Company. Used trailer sales promote
new sales by permitting trade-in allowances and have represented a stable source
of revenue for the
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Company. The sale of used trailers represented 5.8%, 5.2% and 4.6% of net
sales during 1998, 1997 and 1996, 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 believes it is the sole supplier
to approximately 14 customers. Sales to these customers accounted for
approximately 29% of the Company's new trailer sales in 1998. In addition,
during 1998, export sales accounted for approximately 2.0% of net sales.
No customer represented more than 10% of the Company's net sales in 1998
and 1997. Schneider National, Inc. accounted for approximately 13% of net
sales during 1996. Swift Transportation Company accounted for approximately
15% of net sales in 1996. No other customer represented more than 10% of net
sales 1996. The Company's net sales in the aggregate to its five largest
customers were 18%, 21% and 39% of its sales in 1998, 1997 and 1996,
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 of both regional carriers and private fleets, 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, Inc., U.S. Xpress Enterprises, Inc. and FFE represented 44.7%,
42.2% and 58.3% of the Company's new trailer sales in 1998, 1997 and 1996,
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), National Semi Trailer Corp. and Penske
Truck Leasing. New trailer sales to leasing companies represented 10.0%, 16.7%
and 8.0% of new trailer sales in 1998, 1997 and 1996, 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 7.5%, 6.7% and
9.4% of new trailer sales in 1998, 1997 and 1996, 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 International, Yellow
Services, Inc. New trailer sales to LTL carriers accounted for 11.9%, 14.1% and
14.9% of new trailer sales in 1998, 1997 and 1996, respectively.
In the United States, the package carrier industry is dominated by Federal
Express Corporation (FedEx), United Parcel Service (UPS) and Roadway Package
System, Inc. FedEx 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 1.1%, 1.0% and 2.7% of new trailer sales in 1998, 1997
and 1996, respectively.
Customers for the Company's proprietary RoadRailer products include 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 4.7%, 4.5% and 6.6% of new trailer sales in
1998, 1997 and 1996, respectively. The Company believes
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that the RoadRailer technology has enabled it to develop an international
presence. Anticipated sources of future revenue in the RoadRailer business
also include 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 9.2% and 8.0% of total new trailer
sales in 1998 and 1997.
The balance of new trailer sales in 1998, 1997 and 1996 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 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 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 trade-ins which are common with 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
over 100 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. In 1999 and for the foreseeable future, the raw material used in
the greatest quantity will be composite plate material used on the Company's
proprietary DuraPlate(TM) 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. Also, as discussed more fully in Footnote 5 to the Consolidated
Financial Statements, during 1998 the Company acquired Cloud Corporation and
Cloud Oak Flooring Company, Inc., manufacturers of laminated hardwood floors for
the truck body and trailer industry. The Company is in the process of
increasing production capacity at these facilities in order to accommodate 100%
of the Company's trailer flooring needs and should be complete in 1999. In the
interim, flooring needs in excess of Cloud's capacity are purchased externally.
The central U.S. location of the Company's plants 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.
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BACKLOG
The Company's backlog of orders was approximately $1.0 billion, $832
million and $462 million at December 31, 1998, 1997 and 1996, respectively.
The Company expects to fill a majority of its existing backlog of orders by the
end of 1999.
PATENTS
The Company holds or has applied for approximately 64 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 95
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 $1.8 million, $2.1
million and $1.2 million in 1998, 1997 and 1996, 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. 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, branch service operations and recently acquired
flooring 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 14 to the Consolidated Financial Statements for additional
environmental information and the Company's accounting for such costs.
EMPLOYEES
As of December 31, 1998, the Company had 5,302 employees. Approximately 9%
of the Company's employees are represented by labor unions. Since the
acquisition of certain assets of Fruehauf Trailer Corporation,, the Company has
not entered into any collective bargaining agreements. The Company places a
heavy emphasis on employee relations through educational programs and quality
control teams. The Company believes its employee relations are good.
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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 leased and owned facilities approximate the
following:
MANUFACTURING FACILITIES
The Company's main facility of 1.1 million sq. ft. in Lafayette, Indiana,
consists of truck trailer and composite material production, tool and die
operations, research laboratories, management offices and headquarters. The
Company owns three other trailer manufacturing facilities, in Lafayette,
Indiana (528,000 sq. ft.), in Ft. Madison, Iowa (255,000 sq. ft.), and
Huntsville, Tennessee (178,000 sq. ft.). There are two leased manufacturing
facilities, both in Lafayette, Indiana (88,000 sq. ft.).
The Company owns two trailer flooring manufacturing facilities, in
Harrison, Arkansas (33,000 sq. ft.) and in Sheridan, Arkansas (54,000 sq.
ft.).
The Company emphasizes efficient manufacturing processes and believes it
utilizes a large percentage of the Company's productive capacity during normal
operations.
RETAIL AND DISTRIBUTION FACILITIES
The Company owns its aftermarket parts distribution center in Lafayette,
Indiana (300,000 sq. ft.).
The Company leases three facilities serving as parts centers, in
Montebello, California (44,000 sq. ft.), Phoenix, Arizona (10,000 sq. ft.), and
Chicago, Illinois (15,000 sq. ft.). The Company also leases a parts warehouse
in Lafayette, Indiana (77,000 sq. ft.).
As of December 31, 1998 the Company operated 31 sales and service
branches, 5 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.
LEASING AND FINANCE FACILITIES
The Company leases a facility in Arlington Heights, Illinois (400 sq.
ft.), that serves as headquarters for the Finance Company.
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 its
annual results of operations.
See Footnote 15 to the Consolidated Financial Statements, for additional
information related to certain class action lawsuits filed against the Company
and certain of its officers.
ITEM 4--SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS
None to report.
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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
------- ------- ------------
1998
- -----------------------------------
Fourth Quarter ................ $22.06 $10.25 $0.0375
Third Quarter ................. $26.69 $13.31 $0.035
Second Quarter ................ $31.75 $21.50 $0.035
First Quarter ................. $31.00 $24.25 $0.035
1997
- ----------------------------------
Fourth Quarter ............... $35.63 $25.63 $0.035
Third Quarter ................ $30.44 $23.50 $0.035
Second Quarter ............... $30.00 $17.38 $0.03
First Quarter ................ $18.63 $15.63 $0.03
As of March 15, 1999, the Common Stock was held by 1,057 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, 1998, have been
derived from the Company's consolidated financial statements, which 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.
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YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales.................................. $1,292,259 $846,082 $631,492 $ 734,299 $ 561,797
Cost of sales.............................. 1,192,968 778,620 602,629 677,503 511,821
---------- -------- -------- --------- ---------
Gross profit.......................... 99,291 67,462 28,863 56,796 49,976
Selling, general and administrative expenses 42,592 26,307 13,359 11,111 8,723
---------- -------- -------- --------- ---------
Income from operations................ 56,699 41,155 15,504 45,685 41,253
Interest expense........................... (14,843) (16,100) (10,257) (6,251) (2,684)
Equity in losses of unconsolidated affiliate (3,100) (400) --- --- ---
Other, net ................................ (259) 1,135 788 875 1,019
---------- -------- -------- --------- ---------
Income before income taxes .............. 38,497 25,790 6,035 40,309 39,588
Provision for income taxes ................ 15,226 10,576 2,397 14,902 15,663
---------- -------- -------- --------- ---------
Net income .............................. $23,271 $15,214 $3,638 $25,407 $23,925
========== ======== ======== ========= =========
Basic earnings per common share ........... $1.00 $0.74 $0.19 $1.34 $ 1.32
========== ======== ======== ========= =========
Cash dividends declared per common share .. $0.143 $0.13 $0.12 $0.105 $ 0.085
========== ======== ======== ========= =========
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
BALANCE SHEET DATA (at end of period):
Working capital ............................ $ 271,256 $280,212 $148,712 $113,198 $90,802
Total lease portfolio ...................... 117,038 103,222 113,811 76,464 53,479
Total assets ............................... 704,486 629,870 440,071 384,134 300,679
Long-term debt, net of current maturities .. 165,215(1) 231,880(1) 151,307(1) 73,726(1) 24,857
Stockholders' equity ....................... 345,776 226,516 178,368 177,631 154,181
(1) Long-term debt, net of current maturities, includes $61.0 million, $54.9
million, $80.9 million and $31.0 million in 1998, 1997, 1996 and 1995,
respectively, incurred by the Finance Company in connection with its
leasing and finance operations.
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.
This document contains forward-looking statements. These statements
should be viewed in connection with the risk factors disclosed in the Company's
Registration Statement on Form S-3 (SEC File No. 333-48589).
Wabash designs, manufactures and markets standard and customized truck
trailers under the Wabash National and Fruehauf trademarks. The Company
believes that it is the leading U.S. manufacturer of aluminum and composite
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.
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(FTSI). In addition to its aftermarket parts sales and service revenues, FTSI
sells new and used trailers through its retail network. The Company's other
wholly-owned subsidiaries include Wabash National Finance Corporation (the
Finance Company), and Cloud Corporation and Cloud Oak Flooring (Cloud
Companies). The Finance Company provides leasing and finance programs to its
customers for new and used trailers. The Cloud Companies manufacture hardwood
flooring for the Company's manufacturing segment.
The Company continues to pursue opportunities in international markets,
primarily through the Company's proprietary RoadRailer technology. In late
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. In addition, the Company formed an
affiliation with trailer manufacturer Bernard Krone Fahrzeugwerke GmbH of
Wertle, Germany for the marketing of dry vans and refrigerated trailers
throughout Europe. The Company believes these opportunities provide the
foundation for future growth internationally.
Under the provisions of Financial Accounting Standards (SFAS) No. 131,
Disclosure About Segments of an Enterprise and Related Information, the Company
determined it has three reportable business segments. These segments are the
manufacturing segment, the retail and distribution segment and the leasing and
finance segment. The manufacturing segment includes the Company's trailer
manufacturing facilities located in Lafayette, Indiana, Ft. Madison, Iowa and
Huntsville, Tennessee as well as the recently acquired trailer flooring
operations (Cloud Companies) located in Harrison and Sheridan, Arkansas. The
retail and distribution segment includes the sale of new and used trailers,
aftermarket parts and service through the retail branch network of FTSI and the
sale of aftermarket parts through Wabash National Parts. The leasing and
finance segment includes the leasing and finance operations of the Finance
Company.
OVERVIEW
In 1998, the U.S. truck trailer industry experienced one of the best years
in the industry's history with approximately 279,000 units shipped, an increase
of approximately 25% over 1997. The Company's market share in the U.S. trailer
industry was approximately 22% in 1998. The demand for the Company's products
continues to be strong as the Company began 1999 with approximately $1.0
billion in backlog, a majority of which is expected to be delivered in 1999.
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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,
------------------------------
1998 1997 1996
---- ---- ----
Net sales ..................................... 100.0% 100.0% 100.0%
Cost of sales ................................. 92.3 92.0 95.4
----- ----- -----
Gross profit ............................. 7.7 8.0 4.6
General and administrative expense ............ 2.3 2.1 1.4
Selling expense ............................... 1.0 1.0 .7
----- ----- -----
Income from operations ................... 4.4 4.9 2.5
Interest expense .............................. (1.1) (1.9) (1.6)
Equity in losses of unconsolidated affiliate .. (.3) --- ---
Other, net .................................... --- --- .1
----- ----- -----
Income before taxes ...................... 3.0 3.0 1.0
Provision for taxes ........................... 1.2 1.2 .4
----- ----- -----
Net income ............................... 1.8% 1.8% .6%
===== ===== =====
1998 COMPARED TO 1997
During 1998, the Company achieved net sales of $1.3 billion, which were
53% higher than 1997 net sales of $846.1 million. Net income for 1998 rose 53%
to $23.3 million as compared to $15.2 million in 1997.
RESULTS OF OPERATIONS
Net Sales YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 % CHANGE
---- ---- ---------
Net Sales by Segment: (DOLLAR AMOUNTS IN MILLIONS)
Manufacturing $988.1 $646.5 52.8%
Retail and Distribution 280.5 172.7 62.4%
Leasing and Finance 23.7 26.9 (11.9%)
-------- ------ -----
Total Net Sales $1,292.3 $846.1 52.7%
======== ====== =====
The manufacturing segment's net sales rose 52.8% or $341.6 million in 1998
compared to 1997 driven primarily by a 38% increase in units sold, from
approximately 41,000 units in 1997 to approximately 57,000 units in 1998. In
addition, the average selling price per unit sold increased 10.5% in 1998 over
1997, reflecting improved production mix particularly as a result of the strong
demand for the Company's DuraPlate trailer. The Company continues to pursue
its manufacturing strategy of increasing the proportion of revenues derived
from proprietary products such as the DuraPlate trailer and RoadRailer bimodal
products. Demand for the Company's products continues to be very strong as
evidenced by the Company's $1.0 billion backlog at the beginning of 1999, over
$500 million of which is related to the DuraPlate trailer. Revenues from
RoadRailer technology increased approximately 17% to approximately $48 million
in 1998 compared to $41 million in 1997.
The retail and distribution segment's net sales rose 62.4% or $107.8
million in 1998 compared to 1997 driven primarily by a 72% increase in the
number of new trailers sold, from approximately 2,900 units in 1997 to
approximately 5,100 units in 1998, a 107% increase in the number of used
trailers sold and a 38% increase in aftermarket parts and service revenues.
These increases are primarily the result of a full year of operations of the
retail distribution network acquired in April, 1997 and a higher level of used
trailer sales year over year. The
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Company continues to pursue its branch expansion strategy, which includes the
replacement of certain existing sites within the same market as well as the
addition of approximately 20 locations in new markets throughout North America.
The leasing and finance segment's net sales decreased slightly in 1998
compared to 1997 primarily as a result of lower sales of leased equipment as
leasing revenues remained level with 1997.
Gross Profit
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 % CHANGE
---- ---- ---------
Gross Profit by Segment: (DOLLAR AMOUNTS IN MILLIONS)
Manufacturing $68.0 $44.0 54.5%
Retail and Distribution 27.3 17.9 52.5%
Leasing and Finance 6.9 7.9 (12.7%)
Eliminations (2.9) (2.3) 26.1%
----- ----- -----
Total Gross Profit $99.3 $67.5 47.1%
===== ===== =====
The manufacturing segment's gross profit increased 54.5% primarily as a
result of the 52.8% increase in net sales. Gross profit as a percentage of net
sales increased slightly as a result of an improved product mix toward more
proprietary products and reduced material costs as a result of the acquisition
of the Cloud Companies which reduced the Company's hardwood flooring costs
since the acquisition in July, 1998. The improvement in gross profit was
offset to some extent by increased labor and overtime expenses associated with
the 52.8% increase in the manufacturing segment's net sales. Gross profit was
also impacted by a favorable change of estimates in the Company's environmental
reserve requirements of approximately $2.8 million and an unfavorable change of
estimates in inventory reserves of approximately $2.9 million.
The retail and distribution segment's gross profit increased 52.5%,
primarily as a result of the 62.4% increase in net sales. Gross profit as a
percentage of net sales declined slightly primarily as a result of the change
in product mix with higher levels of sales of used trailers which were at a
lower gross profit percentages than the segment as a whole, and due to the
margin impact of the Company's consolidation of its two aftermarket parts
operations during 1998.
The leasing and finance segment's gross profit declined during 1998 as a
result of a decrease in net sales.
Income from Operations
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 % CHANGE
---- ---- ---------
Operating Income by Segment: (DOLLAR AMOUNTS IN MILLIONS)
Manufacturing $44.8 $30.6 46.4%
Retail and Distribution 8.7 5.9 47.5%
Leasing and Finance 6.2 7.0 (11.4%)
Eliminations (3.0) (2.3) 30.4%
----- ----- -----
Total Operating Income $56.7 $41.2 37.6%
===== ===== =====
Income from operations (income before interest, taxes, and other items)
for the manufacturing segment increased 46.4% primarily because of the increase
in gross profit previously discussed offset by increased selling, general and
administrative expenses. The increases in selling, general and administrative
expenses are primarily the result of a full year of operations of the retail
distribution network acquired in April, 1997 and higher usage of the Company's
accounts receivable securitization facility and the related costs thereof which
increased approximately $3 million over 1997.
Income from operations for the retail and distribution segment and the
leasing and finance segment were impacted by the changes in the gross profit
previously discussed.
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Other Income (Expense)
Interest expense totaled $14.8 million and $16.1 million for the years
ended December 31, 1998 and 1997, respectively. The decrease in interest
expense primarily reflects lower borrowings on the Company's revolving credit
facility during the last nine months of 1998 as a result of the cash generated
from the Company's accounts receivable securitization facility established in
March, 1998, and the Company's April, 1998 common stock offering.
Other, net totaled a loss of $0.3 million in 1998 compared to income of
$1.1 million in 1997. On December 24, 1998, the Company received notice from
the Internal Revenue Service that it intends to assess federal excise tax on
certain used trailers restored by the Company. The Company strongly disagrees
with and intends to vigorously contest the assessment; however, applying
generally accepted accounting principles, the Company recorded a $4.6 million
accrual in 1998 for this loss contingency which is reflected in Other, net in
the accompanying Consolidated Statements of Income. Also included in Other,
net in 1998 are gains from the sale of property, plant and equipment of
approximately $2.1 million and interest income of approximately $1.0 million.
Other Income (Expense) also includes the Company's interest in the losses
of ETZ, a European RoadRailer operating company, a 25.1% share of which the
Company acquired in November, 1997.
Income Taxes
The provision for federal and state income taxes represented 39.6% and
41.0% of pre-tax income for 1998 and 1997, respectively and differed from the
U.S. Federal Statutory rate of 35% due primarily to State taxes.
1997 COMPARED TO 1996
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 was
$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.
RESULTS OF OPERATIONS
Net sales
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 % CHANGE
---- ---- ---------
(DOLLAR AMOUNTS IN MILLIONS)
Net Sales by Segment:
Manufacturing $646.5 $547.0 18.2%
Retail and Distribution 172.7 26.3 556.7%
Leasing and Finance 26.9 58.1 (53.7%)
------ ------ -----
Total Net Sales $846.1 $631.4 34.0%
====== ====== =====
The manufacturing segment's net sales increased 18.2% or $99.5 million in
1997 compared to 1996. This increase was primarily due to a 21% increase in
the number of units sold, reflecting a continued strong demand for the
Company's products, and a 15% increase in U.S. truck trailer demand. Increased
production of the Company's proprietary composite plate trailer, the
"DuraPlate" trailer, also favorably impacted net sales in the manufacturing
segment in 1997. In August, 1997, the Company 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 retail and distribution segment's net sales increased 556.7% or $146.4
million in 1997 compared to 1996 primarily as a result of the addition of the
retail branch distribution network in April, 1997. The Company's strategy to
combine the largest fleet manufacturer with the largest retail distribution
network in the U.S. provided
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immediate benefits by creating critical synergies in the areas of aftermarket
parts and service and used trailer sales, particularly the ability to market
trade-in trailers.
The leasing and finance segment's net sales decreased 53.7% or $31.2
million in 1997 compared to 1996 primarily as a result of lower revenues from
the sale of leased equipment in 1997 compared to 1996. Excluding the sale of
leased equipment of $5.7 million and $44.4 million in 1997 and 1996,
respectively, leasing and finance revenues increased $7.7 million due to a full
year of lease revenues on a large number of trailers added to the Finance
Company's portfolio in late 1996.
Gross Profit
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 % CHANGE
---- ---- ---------
(DOLLAR AMOUNTS IN MILLIONS)
Gross Profit by Segment:
Manufacturing $44.0 $20.3 116.7%
Retail and Distribution 17.9 2.4 645.8%
Leasing and Finance 7.9 7.2 9.7%
Eliminations (2.3) (1.0) (130.0%)
----- ----- ------
Total Gross Profit $67.5 $28.9 133.6%
===== ===== ======
The Company's gross profit as a percent of sales increased to 8.0%
compared to 4.6% in 1996. 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.
Income from Operations
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 % CHANGE
---- ---- --------
(DOLLAR AMOUNTS IN MILLIONS)
Operating Income by Segment:
Manufacturing $30.6 $9.3 229.0%
Retail and Distribution 5.9 0.9 555.6%
Leasing and Finance 7.0 6.3 11.1%
Eliminations (2.3) (1.0) (130.0%)
----- ----- -------
Total Operating Income $41.2 $15.5 165.8%
===== ===== ======
Income from operations (income before interest, taxes, and other items)
was 4.9% and 2.5% of net sales in 1997 and 1996, 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% and
2.1% of net sales in 1997 and 1996.
Other Income (Expense)
Interest expense totaled $16.1 million and $10.3 million for the years
ended December 31, 1997 and 1996, 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 retail outlets acquired in April, 1997, 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.
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Income Taxes
The Company's effective income tax rates were 41.0% and 39.7% of pre-tax
income for 1997 and 1996, respectively, and differed from the U.S. Federal
Statutory rate of 35% due primarily to State taxes.
LIQUIDITY AND CAPITAL RESOURCES
As presented in the Consolidated Statements of Cash Flows, the Company's
liquidity position increased $52.5 million during 1998 from $14.6 million in
cash and cash equivalents at December 31, 1997 to $67.1 million at December 31,
1998. This increase was due to net cash provided by operating and investing
activities of $58.7 offset slightly by net cash used in financing activities
of $6.2 million.
Operating Activities:
Net cash provided by operating activities of $123.1 million in 1998 is
primarily the result of net income, the add-back of non-cash charges for
depreciation and amortization, and as discussed in more detail below, the
proceeds from the sale of accounts receivable. Changes in other working
capital items which offset to an immaterial amount include a slight decrease in
inventories (excluding the effect of the Cloud Acquisition) coupled with an
increase in accounts payable offset somewhat by an increase in prepaid
expenses. The Company anticipates future increases in working capital as a
result of its branch expansion strategy to be partially offset by improvements
in working capital at its manufacturing locations.
On March 31, 1998, the Company replaced its existing $40 million
receivable sale and servicing agreement with a new three-year trade receivable
securitization facility. The new facility allows the Company to sell, without
recourse on an ongoing basis, all of its accounts receivable to Wabash Funding
Corporation (Funding Corp.), a wholly-owned unconsolidated subsidiary of the
Company. Simultaneously, the Funding Corp. has sold and, subject to certain
conditions, may from time to time sell an undivided interest in those
receivables to a large financial institution. As of December 31, 1998, $105
million of proceeds were received by the Company related to this new facility.
Proceeds from the sale were used to reduce outstanding borrowings under the
Company's Revolving Credit Agreement and are reflected as operating cash flows
in the accompanying Consolidated Statements of Cash Flows.
Investing Activities:
Net cash used in investing activities of $64.4 million in 1998 is
primarily due to capital expenditures during the year of $31.0 million, the
expansion of the Finance Company's leasing operation which consumed a net cash
outflow of $25.1 million in 1998 and the Cloud Acquisition in July, 1998 of
$9.5 million.
Capital expenditures during the period were associated with increasing
productivity within the Company's manufacturing operations in Lafayette,
Indiana; development of a new state of the art painting and coating system and
plant expansion at its trailer manufacturing facility in Huntsville, Tennessee;
the acquisition of a new consolidated parts center in Lafayette; increasing
capacity and manufacturing productivity at its recently acquired flooring
operations in Arkansas and other operating purposes. The flooring
operations were acquired in July 1998 and were financed through the issuance
of $13.0 million of convertible preferred stock, $9.5 million in cash and the
assumption of $33.8 million in liabilities.
The Company continues to pursue its branch expansion strategy, which
includes the replacement of several existing sites within the same market as
well as the addition of approximately 20 locations in new markets throughout
North America. The Company is in various stages of completing several of these
transactions although no significant purchase commitments were in existence at
year end. The Company anticipates future capital expenditures related to its
branch expansion strategy, the development of a new computer system in its
retail network, the continuation of the capital projects previously discussed,
and other activities to be $80 to $100 million over the next 12 to 24 months. In
addition, the Company has future residual guarantees or purchase options of
approximately $32 million and $80 million, respectively, related to certain new
and used trailer transactions. The majority of these do not come due until 2002
or after. The Company anticipates purchasing these trailers at the
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expiration of the contracts and subsequently selling them through the retail
branch network or leasing them through the Finance Company.
Financing Activities:
Net cash used in financing activities of $6.2 million in 1998 is primarily
due to the proceeds received from the issuance of common stock of $87.3
million, offset by a net reduction in the Company's long-term revolver of $60.0
million and a pay-down of long-term debt of $29.4 million primarily associated
with the Cloud Acquisition.
On April 28, 1998, the Company sold 3 million shares of its common stock
in a registered public offering at a public-offering price of $30.75 per share,
for net proceeds to the Company of $87.3 million. Proceeds of the offering
were used to finance the investments mentioned herein and to repay debt.
In connection with the aforementioned activity, the Company's debt
decreased to $165.2 million at December 31, 1998 compared to $231.9 million at
December 31, 1997. Of the $165.2 million of consolidated debt outstanding at
December 31, 1998, the Finance Company had $67.9 million in outstanding
borrowings as a result of its leasing activities compared to $54.9 million at
December 31, 1997. The Company maintains a $125 million unsecured revolving
line of credit facility, of which approximately $107 million remains available
at yearend.
Other sources of funds for capital expenditures, continued expansion of
businesses, dividends, principal repayments on debt, stock repurchase and
working capital requirements are expected to be cash from operations,
additional borrowings under the credit facilities and term borrowings and
equity offerings. The Company believes these funding sources will be adequate
for its anticipated requirements.
INFLATION
The Company has been generally able to offset the impact of rising costs
through productivity improvements as well as selective price increases. As a
result, inflation is not expected to have a significant impact on the Company's
business.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 130, Reporting Comprehensive Income, during
1998. SFAS No. 130 established standards for reporting and display of
"comprehensive income" and its components. Comprehensive income is not
reported in the accompanying Consolidated Financial Statements as the Company
had no items of Other Comprehensive Income for the periods presented.
The Company adopted SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, as of December 31, 1998. SFAS No. 131
requires companies to modify or expand the financial statement disclosures for
operating segments based on the way management divides the Company for making
internal operating decisions. The adoption of this Statement did not affect
the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999 (beginning of fiscal year 2000 for the Company). This
statement requires that all derivative instruments be recorded on the balance
sheet at their fair value. Management has not yet determined the impact that
the adoption of SFAS No. 133 will have on its earnings or statement of
financial position. However, management anticipates that, due to its limited
use of derivative instruments, the adoption of SFAS No. 133 will not have a
significant effect on the Company's results of operations or its financial
position.
In March 1998, Statement of Position No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, was issued which
specifies the appropriate accounting for costs incurred to develop or obtain
computer software for internal use. The new pronouncement provides guidance on
which costs should be capitalized, when and over what period such costs should
be amortized and what disclosures should be made
18
21
regarding such costs. The Company must adopt the pronouncement by the end of
1999. Previously capitalized costs will not be adjusted. The Company believes
that it is already in substantial compliance with the accounting requirements
as set forth in this new pronouncement and therefore believes that adoption
will not have a material effect on financial conditions or operating results.
YEAR 2000 COMPLIANCE
The Company continues to address the impact of the Year 2000 issue on its
business. If not corrected certain computer applications may fail or create
erroneous results at the year 2000. Specifically, with respect to the Company,
this includes applications within information technology (IT) as well as non-IT
equipment and machinery that may contain embedded date-sensitive
microcontrollers or microchips.
Information Technology Systems
The Company's assessment of all business critical IT hardware and software
is 95% complete. It has been determined that many of the Company's
applications and systems are already Year 2000 compliant, however, it will be
necessary to modify or replace other applications and systems. During this
assessment, it was determined that systems in place within the Company's retail
and distribution network and certain of its manufacturing operations are not
Year 2000 compliant. As a result, during 1999, the Company will install new
application systems or modify existing systems within these areas in order to
be Year 2000 compliant. Other maintenance and project activities to be
conducted in 1999 have been initiated to bring the remaining hardware and
software into compliance. If such projects are not completed timely, the Year
2000 issue could have a material impact on the operations of the Company. The
Company's plan for IT items includes the following phases and timeline: (1)
Assessment and Strategy - substantially completed in 1998 and (2) Design,
Implementation, Testing and Validation - in process and scheduled to be
substantially completed by mid 1999.
Non-Information Technology Systems
The Company's assessment of non-IT systems is approximately 95% complete.
It is expected that the assessment and necessary replacements or upgrades will
be substantially completed by the second quarter in 1999.
External Parties
The Company has contacted its vendors and suppliers regarding the status
of their Year 2000 compliance. Many vendors have given a positive indication
that they are or will be compliant. A follow-up inquiry is continuing with the
parties identified as business critical. This process is approximately 95%
complete and is expected to be substantially completed by the first quarter in
1999. While compliance issues may be identified and addressed, this process
may not fully ensure these parties' Year 2000 compliance. Disruptions in the
operations of these parties could have an adverse financial and operational
effect on the Company. The Company has formulated a contingency plan in the
event business critical vendors do not achieve Year 2000 compliance and suffer
substantial disruptions in their operations. This plan includes advance
purchasing of critical production materials, identification of substitute
materials already existing at the manufacturing sites and to contact alternate
vendors previously identified for availability of critical materials or viable
substitutes. In the event of IT failure in this area, purchase orders can be
handwritten and forwarded via U.S. mail or fax.
The Company has requested compliance information from its banks and it has
been determined that they expect to be compliant by the second quarter in
1999. The Company is currently identifying alternate banking relationships in
the event that its current banks are determined to be non-compliant. In the
event alternative banking relationships are required, they are expected to be
in place by the third quarter in 1999.
Costs of Compliance
The Company estimates the total costs to be incurred in installing new
application systems in the retail and distribution network and certain
manufacturing operations, along with costs associated with Year 2000 compliance
19
22
to be between $4.9 to $5.4 million. Through December 31, 1998, the Company has
spent approximately $2.5 million, including internal labor costs, related to
such activities.
Management believes that, with modifications to existing software and
conversions to new software and hardware, the Year 2000 issue is not likely to
materially impact the Company's results of operations or financial position.
The Company expects all of its internal business critical IT and non-IT systems
to be Year 2000 compliant and therefore no contingency plan is in place in the
event of a particular system not being Year 2000 compliant. Such a plan will
be developed if it becomes clear that the Company is not going to achieve its
scheduled compliance objectives. However, because most computer systems are
interdependent by nature, there can be no assurance that the systems of other
companies on which the Company's systems rely, will be timely converted and not
have an adverse effect on the Company's systems.
MARKET RISKS
The Company has limited exposure to financial risk resulting from
volatility in interest rates and foreign exchange rates. As of December 31,
1998, the Company had approximately $6 million of LIBOR based debt outstanding
under its Revolving Credit Facility and $105 million of proceeds from its
accounts receivable securitization facility, which also requires LIBOR based
interest payments. A hypothetical 100 basis-point increase in the floating
interest rate from the current level would correspond to a $1.1 million
increase in interest expense over a one-year period. This sensitivity analysis
does not account for the change in the Company's competitive environment
indirectly related to the change in interest rates and the potential managerial
action taken in response to these changes.
The Company enters into foreign currency forward contracts (principally
against the German Deutschemark and 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. The Company does not hold or issue derivative financial
instruments for speculative purposes. A hypothetical 10% adverse change in
foreign currency exchange rates would have an immaterial effect on the
Company's financial position and results of operations. Additional disclosure
related to the Company's risk management policies are discussed in Note 2 to
the Consolidated Financial Statements.
20
23
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGES
-----
Report of Independent Public Accountants ............................................. 22
Consolidated Balance Sheets as of December 31, 1998 and 1997 ......................... 23
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and
1996 ............................................................................. 24
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998,
1997 and 1996 .................................................................... 25
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and
1996 ............................................................................. 26
Notes to Consolidated Financial Statements ........................................... 27
21
24
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, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
February 4, 1999
(except with respect to matter discussed in Note 15,
as to which the date is March 23, 1999)
22
25
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------------
ASSETS 1998 1997
-------- --------
CURRENT ASSETS:
Cash and cash equivalents ......................... $67,122 $14,647
Accounts receivable, net .......................... 92,872 161,249
Current portion of finance contracts .............. 7,603 7,697
Inventories ....................................... 225,385 211,359
Prepaid expenses and other ........................ 19,833 12,962
-------- --------
Total current assets .......................... 412,815 407,914
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net .................... 136,001 108,798
-------- --------
EQUIPMENT LEASED TO OTHERS, net ....................... 43,066 43,986
-------- --------
FINANCE CONTRACTS, net of current portion ............. 66,369 51,539
-------- --------
INTANGIBLE ASSETS, net ................................ 32,637 11,152
-------- --------
OTHER ASSETS .......................................... 13,598 6,481
-------- --------
$704,486 $629,870
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ............... $3,089 $4,148
Accounts payable ................................... 108,963 94,083
Accrued liabilities ................................ 29,507 29,471
------- --------
Total current liabilities .................... 141,559 127,702
------- --------
LONG-TERM DEBT, net of current maturities ............... 165,215 231,880
------- --------
DEFERRED INCOME TAXES ................................... 31,849 26,440
------- --------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES........... 20,087 17,332
------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, aggregate liquidation value of $30,600
and $17,600, respectively ............................ 5 4
Common stock, 22,965,090 and 19,954,874 shares issued
and outstanding, respectively ......................... 230 200
Additional paid-in capital ............................ 236,127 135,611
Retained earnings ..................................... 110,693 91,980
Treasury stock at cost, 59,600 common shares .......... (1,279) (1,279)
-------- --------
Total stockholders' equity ................... 345,776 226,516
-------- --------
$704,486 $629,870
======== ========
The accompanying notes are an integral part of these Consolidated Statements.
23
26
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
NET SALES ......................................... $1,292,259 $846,082 $631,492
COST OF SALES ..................................... 1,192,968 778,620 602,629
---------- -------- --------
Gross profit ............................... 99,291 67,462 28,863
GENERAL AND ADMINISTRATIVE EXPENSES ............... 29,746 17,806 8,857
SELLING EXPENSES .................................. 12,846 8,501 4,502
---------- -------- --------
Income from operations ..................... 56,699 41,155 15,504
OTHER INCOME (EXPENSE):
Interest expense .............................. (14,843) (16,100) (10,257)
Equity in losses of unconsolidated affiliate .. (3,100) (400) ---
Other, net .................................... (259) 1,135 788
---------- -------- --------
Income before income taxes ................. 38,497 25,790 6,035
PROVISION FOR INCOME TAXES ........................ 15,226 10,576 2,397
---------- -------- --------
Net income ................................. $23,271 $ 15,214 $ 3,638
PREFERRED STOCK DIVIDENDS ......................... 1,391 742 ---
---------- -------- --------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS ................................. $21,880 $ 14,472 $ 3,638
========== ======== ========
EARNINGS PER SHARE:
Basic ........................................ $ 1.00 $ 0.74 $ 0.19
========== ======== ========
Diluted ...................................... $ 0.99 $ 0.74 $ 0.19
========== ======== ========
The accompanying notes are an integral part of these Consolidated Statements.
24
27
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
-------- ------ ------ ------ ------- --------- ------- -----
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
Net income for the year ........... --- --- --- --- --- 23,271 --- 23,271
Cash dividends ($0.1425 per share) --- --- --- --- --- (3,167) --- (3,167)
Preferred dividends ............... --- --- --- --- --- (1,391) --- (1,391)
Issuance of common stock,
net of expenses ................ --- --- 3,000,000 30 87,256 --- --- 87,286
Issuance of common stock under:
employee stock purchase plan ... --- --- 4,896 --- 110 --- --- 110
employee stock bonus plan ...... --- --- 3,900 --- 120 --- --- 120
Preferred stock issued for
acquisition .................... 130,041 1 --- --- 13,003 --- --- 13,004
Exercise of stock options ......... --- --- 1,420 --- 27 --- --- 27
-----------------------------------------------------------------------------
BALANCES, December 31, 1998 ......... 482,041 $5 22,965,090 $230 $236,127 $110,693 $(1,279) $345,776
=============================================================================
The accompanying notes are an integral part of these Consolidated Statements.
25
28
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................................. $23,271 $15,214 $3,638
Adjustments to reconcile net income to net cash provided by (used in) operating activities--
Depreciation and amortization .......................................................... 18,405 16,623 15,289
Net gain on the sale of property, plant and equipment .................................. (2,077) --- ---
Provision for losses on accounts receivable ............................................ 772 193 186
Deferred income taxes .................................................................. 6,388 5,463 2,317
Equity in losses of unconsolidated affiliate ........................................... 3,100 400 ---
Change in operating assets and liabilities, excluding effects of the acquisitions--
Accounts receivable ................................................................ 72,557 (76,321) 6,183
Inventories ........................................................................ 2,379 (51,181) (7,919)
Prepaid expenses and other ......................................................... (5,842) 2,293 (3,661)
Accounts payable and accrued liabilities ........................................... 6,041 31,146 (18,578)
Other, net ......................................................................... (1,911) 4,357 (3,421)
------- -------- -------
Net cash provided by (used in) operating activities ............................ 123,083 (51,813) (5,966)
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................................... (31,006) (20,168) (11,211)
Net additions to equipment leased to others ................................................ (15,288) (37,867) (41,275)
Net additions to finance contracts ......................................................... (30,056) (25,550) (24,940)
Investment in unconsolidated affiliate ..................................................... (2,866) (6,230) ---
Payments for RoadRailer technology ......................................................... --- (1,464) (2,008)
Proceeds from sale of leased equipment and finance contracts ............................... 12,357 73,243 17,706
Proceeds from the sale of property, plant, and equipment .................................. 3,985 10,052 ---
Principal payments on finance contracts .................................................... 7,920 5,403 4,844
Acquisitions, net of cash acquired (Note 5) ................................................ (9,515) (15,129) ---
Other, net ................................................................................. 99 121 172
------- -------- -------
Net cash used in investing activities .......................................... (64,370) (17,589) (56,712)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Long-term debt ......................................................................... --- 35,635 143,361
Long-term revolver ..................................................................... 276,600 418,599 398,100
Common stock, net of expenses .......................................................... 87,543 888 142
Payments:
Long-term debt ......................................................................... (29,420) (14,855) (24,365)
Long-term revolver .....................................................................(336,600) (358,600) (448,100)
Common stock dividends ................................................................. (3,004) (2,431) (2,269)
Preferred dividends .................................................................... (1,357) (701) ---
Purchase of treasury stock ............................................................. --- --- (774)
------- -------- -------
Net cash (used in) provided by financing activities .................................... (6,238) 78,535 66,095
------- -------- -------
NET INCREASE IN CASH ........................................................................... 52,475 9,133 3,417
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ....................................... 14,647 5,514 2,097
------- -------- -------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ............................................ $67,122 $14,647 $5,514
======= ======== =======
The accompanying notes are an integral part of these Consolidated Statements.
26
29
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 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 sells new and used trailers through its retail network.
The Company's other wholly-owned subsidiaries include Wabash National Finance
Corporation (the Finance Company), and Cloud Corporation and Cloud Oak Flooring
(Cloud Companies) which were acquired on July 14, 1998. The Finance Company
provides leasing and finance programs to its customers for new and used
trailers. The Cloud Companies manufacture hardwood flooring primarily for the
Company's manufacturing segment.
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. Investment in an unconsolidated affiliate in which the
Company exercises significant influence but not control is accounted for by the
equity method and the Company's share of net income or loss of its affiliate is
included in the Consolidated Statements of Income.
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 $2.3 million, $1.7 million
and $1.1 million at December 31, 1998, 1997 and 1996, respectively. The
activity included in the allowance for doubtful accounts were (i) provision for
losses on accounts receivable of $0.8 million, $0.2 million and $0.2 million;
(ii) net accounts recovered (written-off) of ($0.2) million; ($0.6) million and
$0.2 million; and (iii) the establishment of reserves recorded in connection
with the acquisition of certain assets of Fruehauf Trailer Corporation (See Note
5) of $0, $1.0 million and $0 during 1998, 1997 and 1996, respectively.
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30
e. Inventories
Inventories are primarily 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,
-------------------------------
1998 1997
---- ----
Raw materials and components .. $104,174 $75,629
Work in progress .............. 12,159 16,892
Finished goods ................ 44,743 68,164
Aftermarket parts ............. 28,733 25,386
Used trailers ................. 35,576 25,288
-------- --------
$225,385 $211,359
======== ========
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,
---------------------
1998 1997
---- ----
Land ............................ $23,281 $21,461
Buildings and improvements ...... 65,605 52,231
Machinery and equipment ......... 78,886 66,685
Construction in progress ........ 7,433 ---
-------- --------
175,205 140,377
Less--Accumulated depreciation .. (39,204) (31,579)
-------- --------
$136,001 $108,798
======== ========
g. Long-Lived Assets
Long-lived assets, identifiable intangibles and goodwill related to those
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
h. Intangible Assets
Intangible assets, net of accumulated amortization of $8.5 million and
$6.4 million at December 31, 1998 and December 31, 1997, respectively, relate
primarily to goodwill and other intangible assets associated with the Cloud
acquisition (See Note 5 for further discussion) and RoadRailer acquisition
costs. These amounts are being amortized on a straight-line basis over periods
ranging from five to forty years.
i. 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, 1998 and 1997 were immaterial.
28
31
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 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 $11.7 million
and $14.0 million at December 31, 1998, and 1997, respectively,
approximate fair value at those dates.
j. Revenue Recognition
The Company recognizes revenue from the sale of trailers and aftermarket
parts when title and risk of ownership are transferred to the customer, which
is generally upon shipment or customer pickup. Certain customers are invoiced
for trailers prior to taking physical possession when the customer has made a
commitment to purchase; the trailers have been completed and are available for
pickup or delivery; the trailers have been titled in the customers' name; and
the customer has requested the Company to hold the trailers until the customer
determines the most economical means of taking possession. In such cases, the
trailers which have been produced to the customer specifications, are invoiced
under the Company's normal billing and credit terms, and the Company generally
holds the trailers for a short period of time as is customary in the industry.
In addition, the Company recognizes revenue for direct finance leases
based upon a constant rate of return while revenue is recognized for operating
leases on a straight-line basis in an amount equal to the invoiced rentals.
For the years ended December 31, 1998 and 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.
k. 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.
l. Research and Development
Research and development expenses are charged to earnings as incurred, and
approximated $1.8 million, $2.1 million and $1.2 million in 1998, 1997 and
1996, respectively.
m. Reclassifications
Certain items previously reported in specific consolidated financial
statement captions have been reclassified to conform with the 1998
presentation.
29
32
n. New Accounting Pronouncements
The Company adopted SFAS No. 130, Reporting Comprehensive Income, during
1998. SFAS No. 130 established standards for reporting and display of
"comprehensive income" and its components. Comprehensive income is not
reported in the accompanying Consolidated Financial Statements as the Company
had no items of Other Comprehensive Income for the periods presented.
The Company adopted SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, as of December 31, 1998. SFAS No. 131
requires companies to modify or expand the financial statement disclosures for
operating segments based on the way management divides the Company for making
internal operating decisions.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999 (beginning of fiscal year 2000 for the Company). This
statement requires that all derivative instruments be recorded on the balance
sheet at their fair value. Management has not yet determined the impact that
the adoption of SFAS No. 133 will have on its earnings or statement of
financial position. However, management anticipates that, due to its limited
use of derivative instruments, the adoption of SFAS No. 133 will not have a
significant effect on the Company's results of operations or its financial
position.
In March 1998, Statement of Position No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, was issued which
specifies the appropriate accounting for costs incurred to develop or obtain
computer software for internal use. The new pronouncement provides guidance on
which costs should be capitalized, when and over what period such costs should
be amortized and what disclosures should be made regarding such costs. The
Company must adopt the pronouncement by the end of 1999. Previously
capitalized costs will not be adjusted. The Company believes that it is
already in substantial compliance with the accounting requirements as set forth
in this new pronouncement and therefore believes that adoption will not have a
material effect on financial conditions or operating results.
o. 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 which began
operations in 1996. The Company paid approximately $6.2 million for its
ownership interest in ETZ during 1997 and made additional capital contributions
of $2.9 million during 1998. All premium associated with this purchase is being
amortized over a ten-year period. During 1998 and 1997, the Company recorded
approximately $3.1 million and $0.4 million, respectively, for its share of ETZ
losses and the amortization of the premium. Such amounts are recorded as Equity
in losses of unconsolidated affiliate on the accompanying Consolidated
Statements of Income.
As of December 31, 1998, the Finance Company had approximately $10.6
million recorded as Equipment Leased to Others consisting of RoadRailer
equipment specifically related to current operating lease arrangements with BTZ
and commitments to supply approximately $9.0 million in additional RoadRailer
equipment under existing operating lease arrangements. In addition, as of
December 31, 1998, the Company is contingently liable for up to four 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 totaling approximately $10.5 million and separate letters of
guarantee of approximately $4 million.
3. SEGMENTS
Under the provisions of SFAS No. 131, the Company has three reportable
segments; manufacturing, retail and distribution and leasing and finance
operations. The manufacturing segment produces trailers and sells new trailers
to customers who purchase trailers direct or through independent dealers and
also produces trailers for the retail and distribution segment. The retail and
distribution segment sells new and used trailers, aftermarket parts,
30
33
and performs service repair on used trailers through its retail branch network.
The leasing and finance segment provides leasing and finance programs to its
customers for new and used trailers.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies except that the Company
evaluates performance based on income from operations. The Company has not
allocated certain corporate related charges such as administrative costs,
interest expense and income taxes from the manufacturing segment to the
Company's other reportable segments. The Company accounts for intersegment
sales and transfers at cost plus a specified mark-up. Reportable segment
information is as follows (in thousands):
Leasing
Retail and and Combined Consolidated
1998 Manufacturing Distribution Finance Segments Eliminations Totals
- ---------------------- ------------- ------------ ------- -------- ------------ ------------
Revenues
External customers $988,128 $280,480 $23,651 $1,292,259 $--- $1,292,259
Intersegment sales 97,986 4,580 2,582 105,148 (105,148) ---
---------- -------- ------- ---------- --------- ----------
Total Revenues $1,086,114 $285,060 $26,233 $1,397,407 $(105,148) $1,292,259
========== ======== ======= ========== ========= ==========
Depreciation & amortization 11,324 925 6,156 18,405 --- 18,405
Income from operations 44,765 8,660 6,186 59,611 (2,912) 56,699
Interest income 981 --- --- 981 --- 981
Interest expense 11,446 --- 3,397 14,843 --- 14,843
Equity in unconsolidated affiliate 3,100 --- --- 3,100 --- 3,100
Income tax expense 15,226 --- --- 15,226 --- 15,226
Investments in unconsolidated affiliate 5,595 --- --- 5,595 --- 5,595
Capital additions 23,435 7,564 7 31,006 --- 31,006
Assets 605,922 152,465 117,396 875,784 (171,297) 704,486
1997
- ----------------------
Revenues
External customers $646,524 $172,687 $26,871 $846,082 $--- $846,082
Intersegment sales 104,570 --- 359 104,929 (104,929) ---
---------- -------- ------- ---------- --------- ----------
Total Revenues $751,094 $172,687 $27,230 $951,011 $(104,929) $846,082
========== ======== ======= ========== ========= ==========
Depreciation & amortization 7,714 507 8,402 16,623 --- 16,623
Income from operations 30,576 5,855 7,014 43,445 (2,290) 41,155
Interest income 293 --- --- 293 --- 293
Interest expense 9,949 --- 6,151 16,100 --- 16,100
Equity in unconsolidated affiliate 400 --- --- --- --- 400
Income tax expense 10,576 --- --- 10,576 --- 10,576
Investments in unconsolidated affiliate 6,230 --- --- 6,230 --- 6,230
Capital additions 19,885 283 --- 20,168 --- 20,168
Assets 533,180 106,528 107,300 747,008 (117,138) 629,870
1996
- ----------------------
Revenues
External customers $547,025 $26,345 $58,122 $631,492 $--- $631,492
Intersegment sales 71,641 --- --- 71,641 (71,641) ---
---------- -------- ------- ---------- --------- ----------
Total Revenues $618,666 $26,345 58,122 $703,133 $(71,641) $631,492
========== ======== ======= ========== ========= ==========
Depreciation & amortization 9,052 130 6,107 15,289 --- 15,289
Income from operations 9,338 872 6,305 16,515 (1,011) 15,504
Interest income 374 --- --- 374 --- 374
Interest expense 6,380 --- 3,877 10,257 --- 10,257
Equity in unconsolidated affiliate --- --- --- --- --- ---
Income tax expense 2,397 --- --- 2,397 --- 2,397
Investments in unconsolidated affiliate --- --- --- --- --- ---
Capital additions 11,026 150 35 11,211 --- 11,211
Assets 352,099 10,590 118,475 481,164 (41,842) 439,322
31
34
The Company's international sales accounted for less than 2% of
consolidated net sales during 1998, 1997 and 1996, respectively. In addition,
assets attributable to international operations accounted for less than 5% of
consolidated assets during 1998, 1997 and 1996, respectively.
4. EARNINGS PER SHARE
The Company adopted SFAS No. 128, Earnings per Share during 1997. As
required by SFAS No. 128, all prior period EPS data has been restated to
conform with the provisions of this statement. A reconciliation of the
numerators and denominators of the basic and diluted EPS computations, as
required by SFAS No. 128, is presented below. The effects of preferred stock
dividends and convertible preferred stock were excluded from the calculation of
1998 and 1997 diluted earnings per share, as they would have been antidilutive
(in thousands except per share amounts):
Net Income Weighted
Available to Average Earnings
Common Shares Per Share
- -------------------------------------------------------------------
1998
Basic $21,880 21,990 $1.00
Options --- 85 ---
- -------------------------------------------------------------------
Diluted $21,880 22,075 $0.99
===================================================================
1997
Basic $14,472 19,586 $0.74
Options --- 77 ---
- -------------------------------------------------------------------
Diluted $14,472 19,663 $0.74
===================================================================
1996
Basic $3,638 18,912 $0.19
Options --- 17 ---
- -------------------------------------------------------------------
Diluted $3,638 18,929 $0.19
===================================================================
5. ACQUISITIONS
On July 14, 1998, the Company acquired Cloud Corporation and Cloud Oak
Flooring Company, Inc. (the Cloud Acquisition) in a merger and stock purchase,
respectively, manufacturers of laminated hardwood floors for the truck body and
trailer industry. For financial statement purposes, the Cloud Acquisition was
accounted for as a purchase, and, accordingly, Cloud's combined results are
included in the consolidated financial statements since the date of
acquisition. The aggregate consideration for this transaction included
approximately $9.5 million in cash, $13.0 million in convertible preferred
stock and the assumption of $33.8 million in liabilities. Included in the
$33.8 million of assumed liabilities was $18.8 million of debt which the
Company paid off immediately following the acquisition using cash from
operations. The excess of the purchase price over the underlying assets
acquired is approximately $20.3 million. The values assigned to the acquired
assets and liabilities could change following the resolution of certain
pre-acquisition contingencies related to environmental and ERISA matters.
32
35
On April 16, 1997, the Company acquired certain assets of Fruehauf Trailer
Corporation (Fruehauf), a manufacturer and marketer of truck trailers and
related parts. The following unaudited pro forma consolidated results of
operations of the Company and the acquired assets of Fruehauf assume the
acquisition occurred as of January 1, 1997 and January 1, 1996 (in millions,
except per share data):
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996
(Unaudited)
- -------------------------------------------------------------------------------------
Net sales ........................... $875.8 $820.5
Net income (loss) ................... $ 14.7 $ (0.9)
Net income (loss) 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 1997 or at the beginning of
1996 or of future operations of the combined companies under the ownership and
management of the Company.
6. LEASING AND FINANCE OPERATIONS
a. Equipment Leased to Others
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 13 years and no residual value, or in some cases, a depreciable life
equal to the term of the lease and a residual value equal to the estimated
market value at lease termination. Depreciation expense on equipment leased to
others was $6.1 million, $8.4 million and $6.1 million during 1998, 1997 and
1996, respectively. Accumulated depreciation of equipment leased to others is
$13.3 million and $9.6 million at December 31, 1998 and 1997, respectively.
Future minimum lease payments to be received from these noncancellable
operating leases at December 31, 1998 are as follows (in thousands):
Amounts
-------
1999 ................. $3,123
2000 ................. 3,056
2001 ................. 2,787
2002 ................. 1,801
2003 ................. 265
Thereafter ........... ---
-------
$11,032
=======
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36
b. Finance Contracts
The Finance Company also provides finance 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 consolidated financial
statements, represent the minimum lease payments receivable plus the estimated
residual values less unearned interest. These estimated residual values and
unearned interest totaled approximately $8.6 million and $8.8 million,
respectively, at December 31, 1998 and $7.3 million and $8.6 million,
respectively, at December 31, 1997.
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 these contracts and leases was $28.2 million and $13.0 million as of
December 31, 1998 and 1997, respectively. The estimated residual values and
unearned interest related to this participation totaled approximately $7.8
million and $4.8 million, respectively, at December 31, 1998 and $3.0 million
and $2.5 million, respectively, at December 31, 1997. End of term residual
guarantees related to these participations totaled $0.4 million and $0.2
million as of December 31, 1998 and 1997, respectively.
The future minimum lease payments to be received at December 31, 1998 are
as follows (in thousands):
Amounts
-------
1999 ..................... $14,703
2000 ..................... 13,948
2001 ..................... 13,186
2002 ..................... 9,852
2003 ..................... 5,269
Thereafter ............... 4,068
-------
$61,026
=======
The Finance Company has sold certain finance contracts in its portfolio
with full recourse provisions. As a result of the recourse provision, the
Finance Company has reflected an asset and an offsetting liability totaling
$8.3 million and $13.1 million at December 31, 1998 and December 31, 1997,
respectively, in the Company's Consolidated Balance Sheets as a Finance
Contract and Other Non-Current Liabilities and Contingencies.
Additionally, the Finance Company has certain equipment subject to capital
lease contracts that is awaiting delivery or customer pick-up. The net amounts
under such arrangements totaled $1.9 million and $2.3 million at December 31,
1998 and 1997, respectively.
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37
c. Other
In certain situations, the Finance Company has sold equipment leased to
others to independent financial institutions, simultaneously leased the
equipment back under operating leases containing end of term residual value
guarantees. These end of term residual guarantees totaled $20.5 million and
$19.8 million as of December 31, 1998 and 1997, respectively. Rental payments
made by the Finance Company under these types of transactions totaled $8.8
million, $4.9 million and $0.7 million during 1998, 1997 and 1996,
respectively. The future minimum lease payments to be paid by the Finance
Company under these lease transactions at December 31, 1998 are as follows (in
thousands):
Amounts
-------
1999 ............... $9,129
2000 ............... 9,129
2001 ............... 9,129
2002 ............... 5,718
2003 ............... 5,718
Thereafter ......... 5,842
-------
$44,665
=======
The future minimum lease payments to be received by the Finance Company under
these sublease arrangements are $9.1 million in 1999, $5.8 million per year in
the years 2000 through 2003 and $7.3 million thereafter.
7. SUPPLEMENTAL CASH FLOW INFORMATION
DECEMBER 31,
-------------------------
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------
Cash paid during the period for:
Interest, net of amounts capitalized $12,168 $15,313 $8,825
Income taxes 17,018 6,136 714
- ---------------------------------------------------------------------------
Noncash investing and financing activities:
Preferred stock issued for acquisition 13,004 17,600 ---
Common stock issued for acquisition --- 17,750 ---
- ---------------------------------------------------------------------------
Acquisitions, net of cash acquired:
Accounts receivable, net 4,952 13,955 ---
Inventory, net 16,405 20,163 ---
Prepaid expenses and other 743 4,072 ---
Property, plant and equipment 8,333 25,269 ---
Goodwill and other intangibles 23,392 --- ---
Deferred income taxes 1,265 --- ---
Other assets 1,203 --- ---
Current liabilities (8,679) (8,980) ---
Current maturities of long-term debt (18,753) --- ---
Non-current liabilities (3,407) (4,000) ---
Long-term debt, net of current maturities (2,942) --- ---
Stock issued (13,004) (35,350) ---
- ---------------------------------------------------------------------------
Net cash used in acquisitions $(9,515) $(15,129) $---
- ---------------------------------------------------------------------------
8. ACCOUNTS RECEIVABLE SECURITIZATION
On March 31, 1998, the Company replaced its existing $40.0 million
receivable sale and servicing agreement with a new three-year trade receivable
securitization facility. The new facility allows the Company to sell, without
recourse on an ongoing basis, all of their accounts receivable to Wabash
Funding Corporation (Funding Corp.), a wholly-owned unconsolidated subsidiary
of the Company. Simultaneously, the Funding Corp. has sold
35
38
and, subject to certain conditions, may from time to time sell an undivided
interest in those receivables to a large financial institution. The Funding
Corp. is a qualifying special purpose entity under the provisions of SFAS No.
125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. As of December 31, 1998, $105.0 million of
proceeds have been received under the new facility. Amounts reflected as
Accounts Receivable in the accompanying Consolidated Balance Sheets as of
December 31, 1998 represent receivables sold to the Funding Corp. in excess of
proceeds received.
Proceeds from the sale were used to reduce outstanding borrowings under
the Company's Revolving Bank Line of Credit and are reflected as operating cash
flows in the accompanying Consolidated Statements of Cash Flows. Costs
associated with this facility are classified as General and Administrative
Expenses in the Consolidated Statements of Income.
In order to operate this facility on an on-going basis, the Funding Corp.
is required to meet certain covenants primarily related to the performance of
the accounts receivable portfolio. Servicing responsibility for these
receivables resides with the Company.
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31,
-------------------
1998 1997
---- ----
Revolving Bank Lines of Credit .................................... $5,999 $65,999
Industrial Revenue Bonds, 7.5%, Due 1998
Secured by land, buildings, equipment and letter of credit .. --- 385
Notes Payable, 6.6% - 10%, Due 1999-2003
Secured by equipment held for lease ......................... 9,495 19,644
Mortgage Notes Payable, 3.0% - 6.7%, Due 2001 - 2006
Secured by land, buildings and equipment .................... 2,810 ---
Series A Senior Notes, 6.41%, Due January 2003 .................... 50,000 50,000
Series B-H Senior Notes, 6.99% - 7.55%, Due 2001-2008 ............. 100,000 100,000
-------- --------
168,304 236,028
Less: Current maturities ................................. (3,089) (4,148)
-------- --------
$165,215 $231,880
-------- --------
-------- --------
Revolving Bank Lines of Credit. The Company has an unsecured revolving
bank line of credit which permits the Company to borrow up to $125 million.
Under this facility, the Company has a 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 commitment fee on the unused
portion of this facility at rates of 8.5 to 17.5 basis points per annum, as
defined. At December 31, 1998, the Company had Deutschemark - denominated
borrowings outstanding in the amount of approximately $6.0 million at an
interest rate of 3.85% in connection with its international operations. The
Company had available credit under the revolving credit facility of
approximately $107 million after letters of credit and the Deutschemark
borrowing.
Mortgage Notes. In connection with the Cloud acquisition, the Company
assumed certain Mortgage Notes which carried an outstanding balance of $2.8
million at December 31, 1998.
Senior Notes. As of December 31, 1998 and 1997, $61.0 million and $39.0
million, respectively, of the Company's Senior Notes were due from the Finance
Company as a result of its leasing and finance operations.
Covenants. Under various loan agreements, the Company is required to meet
certain financial 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 was in compliance
with these covenants at December 31, 1998.
36
39
Maturities of long-term debt at December 31, 1998, are as follows (in
thousands):
Amounts
--------
1999 ........ $ 3,089
2000 ........ 3,378
2001 ........ 11,046
2002 ........ 29,775
2003 ........ 50,332
Thereafter .. 70,684
--------
$168,304
--------
--------
10. STOCKHOLDERS' EQUITY
a. Capital Stock
DECEMBER 31,
-----------------
(Dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------------
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 issued and outstanding $--- $---
Series B 6% Cumulative Convertible Exchangeable Preferred Stock,
352,000 shares authorized, issued and outstanding at
December 31, 1998 and December 31, 1997, respectively
($17.6 million aggregate liquidation value) 4 4
Series C 5.5% Cumulative Convertible Exchangeable Preferred Stock,
130,041 and 0 shares authorized, issued and outstanding at
December 31, 1998 and December 31, 1997, respectively
($13.0 million aggregate liquidation value) 1 ---
---- ----
Total Preferred Stock $ 5 $ 4
---- ----
Common Stock - $.01 par value, 75,000,000 shares authorized, issued
and outstanding, 22,965,090 and 19,954,874, respectively $230 $200
---- ----
The Series B 6% Cumulative Convertible Exchangeable Preferred Stock is
convertible at the discretion of the holder, at a conversion price of $21.38
per share, into up to approximately 823,200 shares of common 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 Series C 5.5% Cumulative Convertible Exchangeable Preferred Stock is
convertible at the discretion of the holder, at a conversion price of $35.00
per share, into up to approximately 371,500 shares of common stock, subject to
adjustment.
On April 28, 1998, the Company sold three million shares of its common
stock in a registered public offering at a public-offering price of $30.75 per
share, for net proceeds to the Company of $87.3 million.
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.
37
40
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 $20.8 million ($0.95 per
share) in 1998, $13.8 million ($0.71 per share) in 1997 and $3.2 million ($0.17
per share) in 1996.
Stock option activity during the periods indicated is as follows:
NUMBER OF WEIGHTED-AVERAGE
OPTIONS SHARES EXERCISE PRICE
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
Granted ........... 364,000 15.31
Exercised ......... (1,420) 18.82
Cancelled ......... (24,720) 24.00
Outstanding at December 31, 1998 1,193,760 $21.59
- -------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 1998:
Weighted Weighted Weighted
Range of Average Average Number Average
Exercise Number Remaining Exercise Exercisable Exercise
Prices Outstanding Life Price at 12/31/98 Price
- -------------------------------------------------------------------------------------------------------------
$15.25 to $22.49 764,760 7.7 yrs. $17.17 297,430 $18.25
$22.50 to $33.50 429,000 7.5 yrs. $29.47 198,200 $29.59
Using the Black-Scholes option valuation model, the estimated fair values of
options granted during 1998, 1997 and 1996 were $8.07, $14.67 and $10.39 per
option, respectively. Principal assumptions used in applying the Black-Scholes
model were as follows:
Black-Scholes Model Assumptions 1998 1997 1996
- -------------------------------------------------------------------
Risk-free interest rate 4.88% 6.15% 6.40%
Expected volatility 40.89% 40.13% 41.30%
Expected dividend yield 0.98% 0.40% 0.58%
Expected term 7 yrs 7 yrs 7 yrs
38
41
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 1998,
4,896 shares were issued to employees at a weighted average price of $22.47 per
share. At December 31, 1998, there were approximately 280,253 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 Bonus Plan, common stock may be granted to employees
under terms and conditions as determined by the Board of Directors. During
1998, 3,900 shares were issued to employees at a weighted average price of
$30.77. At December 31, 1998 there were approximately 484,800 shares available
for offering under this Bonus Plan.
11. 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.
12. 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 $987,000, $961,000
and $994,000 for the years ended December 31, 1998, 1997, and 1996,
respectively.
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42
13. INCOME TAXES
a. Provisions for Income Taxes
The consolidated income tax provision for 1998, 1997 and 1996 consists of
the following components (in thousands):
1998 1997 1996
---- ---- ----
Current:
Federal ..................... $ 6,024 $3,862 $(801)
State ....................... 2,814 1,251 (201)
Deferred ...................... 6,388 5,463 3,399
------- ------- ------
Total consolidated provision .. $15,226 $10,576 $2,397
------- ------- ------
------- ------- ------
The Company's effective income tax rates were 39.6%, 41.0% and 39.7% of
pre-tax income for 1998, 1997 and 1996, respectively, and differed from the
U.S. Federal Statutory rate of 35% due primarily to State taxes.
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 $31.8 million and
$26.4 million and current deferred tax assets, which are included in Prepaid
expenses and other in the Consolidated Balance Sheets, were $1.5 million and
$1.3 million as of December 31, 1998 and 1997, respectively.
The components of deferred tax assets and deferred tax liabilities as of
December 31, 1998 and 1997, were as follows (in thousands):
1998 1997
---- ----
Deferred tax assets:
Rentals on Finance Leases .................................... $14,660 $12,137
Leasing Differences .......................................... 3,953 1,529
Other ........................................................ 11,223 5,932
Deferred tax liabilities:
Book-Tax Basis Differences - Property, Plant, and Equipment .. 42,432 32,581
Earned Finance Charges on Finance Leases ..................... 6,944 5,359
RoadRailer Acquisition Payments/Amortization ................. 2,103 2,469
Other ........................................................ 8,651 4,359
------- -------
Net deferred tax liability ...................................... $30,294 $25,170
------- -------
------- -------
The net deferred tax liability at December 31, 1998 also includes the recording
of a deferred tax asset of $1.3 million related to the net cumulative temporary
differences of Cloud Oak Flooring Company, Inc., which was acquired during the
year.
14. COMMITMENTS AND CONTINGENCIES
a. Litigation
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company arising in the ordinary course of business,
including those pertaining to product liability, labor and health related
matters, successor liability and possible tax assessments. None of these
claims are expected to have a material adverse effect on the Company's
financial position or its annual results of operations.
40
43
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. As of
December 31, 1998, the estimated potential exposure for such costs ranges from
approximately $0.7 million to approximately $2.7 million, for which the Company
has a reserve of approximately $1.5 million. As of December 31, 1997, the
estimated potential exposure for such costs ranged from approximately $1.0
million to approximately $7.0 million, for which the Company had a reserve of
approximately $4.5 million. The reduction in the reserve during 1998 reflects
payments made during the period and a $2.8 million change in estimate resulting
from experience and the availability of additional information. These reserves
were recorded for exposures associated with 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
its branch service locations. The possible recovery of insurance proceeds has
not been considered in the Company's estimated contingent environmental costs.
The Company acquired two new manufacturing sites in July, 1998 in
connection with the Cloud acquisition and voluntarily disclosed to the United
States Environmental Protection Agency (EPA) and the Arkansas Department of
Pollution Control and Ecology (ADPC&E) potential soil and groundwater
contamination. In association with both the EPA and the ADPC&E, the Company
has submitted a sampling plan to ADPC&E for monitoring and any required
remediation. This matter is at an early stage and it is not possible to
predict the outcome with certainty. The Company has recorded a reserve of $1.0
million related to these issues based on current available information and does
not believe the outcome of this matter will be material to the consolidated
results of operations or financial condition of the Company. The Company is
indemnified by the Sellers of the acquired companies and the Company believes
that these matters would be covered by the indemnification.
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 consolidated
financial position of the Company.
c. Tax Assessment
On December 24, 1998, the Company received notice from the Internal
Revenue Service that it intends to assess federal excise tax on certain used
trailers restored by the Company during 1996 and 1997. The Company strongly
disagrees with and intends to vigorously contest the assessment. In applying
generally accepted accounting principles, the Company recorded a $4.6 million
accrual in 1998 for this loss contingency that is reflected in Other, net in
the accompanying Consolidated Statements of Income. The Company continued the
restoration program with the same customer during 1998. The customer has
indemnified the Company for any potential excise tax assessed by the IRS for
years subsequent to 1997. As a result, the Company has recorded a liability
and a corresponding receivable of $2.4 million for 1998 in the accompanying
Consolidated Balance Sheets.
d. Letters of Credit
As of December 31, 1998, the Company had standby letters of credit
totaling $11.8 million issued in connection with certain foreign sales
transactions and with the Company's worker's compensation self-insurance
program.
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e. 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 $0.5 million annually through 2005.
f. Operating Leases
The Company leases office space, manufacturing, warehouse and service
facilities and equipment under operating leases expiring through 2003. Future
minimum lease payments required under operating leases as of December 31, 1998
were as follows (in thousands):
Amounts
-------
1999 ........ $5,462
2000 ........ 5,027
2001 ........ 4,425
2002 ........ 2,380
2003 ........ 1,863
Thereafter .. 2,998
-------
$22,155
-------
-------
Total rental expense under operating leases was $4.2 million, $2.6 million
and $1.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
g. Used Trailer Residual Guarantees and Purchase Commitments
In connection with certain new trailer sale transactions, the Company has
entered into residual value guarantees and purchase option agreements with
customers or financing institutions whereby the Company agrees to guarantee an
end-of-term residual value or has an option to purchase the used equipment at a
pre-determined price. Future payments required under these transactions as of
December 31, 1998 and 1997 totaled approximately $12.6 million and $2.2
million, respectively, the majority of which do not come due until 2002 or
after.
h. Year 2000
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not addressed,
the impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting an entity, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
15. SUBSEQUENT EVENT
From January 22, 1999 through February 24, 1999, five purported class
action complaints were filed against the Company and certain of its officers in
the United States District Court for the Northern District of Indiana. The
five actions are captioned: John R. Hansel v. Wabash National Corporation, et
al., No. 4:99CV0003AS; Trust Advisors Equity Plus LLC v. Wabash National
Corporation, et al., No. 4:99CV0006AS; Dana L. Manner v. Wabash National
Corporation, et al., No. 4:99CV0009AS; Charles Curtis Lester Trust & G. Bruce
Cameron v. Wabash National Corporation, et al., No. 4:99CV0012AS; and Miranda
Living Trust v. Wabash National Corporation, et al., No. 4:99CV0014AS. The
complaints purport to be brought on behalf of a class of investors who
purchased the Company's common stock between April 20, 1998 and January 15,
1999. The Company expects that they will be consolidated into a single case.
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The complaints allege that the Company violated Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated under the Act by
disseminating false and misleading financial statements and reports respecting
the first three quarters of the Company's fiscal year 1998. The complaints
seek unspecified compensatory damages and attorney's fees, as well as other
relief. The Company's response to the complaints is not yet due.
In addition, on March 23, 1999 another purported class action lawsuit,
captioned Jaime Vizcaino Ira et al v. Wabash National Corporation et al. No.
499CV0019AS, was also filed in the United States District Court for the
Northern District of Indiana, naming the Company, its directors and the
underwriters of the Company's April 1998 public offering. That complaint
alleges that the Company and the individual defendants violated Section 11 of
the Securities Act of 1933, and the Company and the underwriters are liable
under Section 12 of that Act, by making untrue statements of material fact in
and omitting material facts from the prospects used in that offering. The
complaint also alleges that the individual defendants are liable as
"controlling persons" under the Securities Act. The complaint seeks
unspecified compensatory damages and attorney's fees, as well as other relief.
Both the Securities Exchange Act complaints and the Securities Act complaint
arise out of the restatement of the Company's financial statements for the
first three quarters of 1998.
The Company believes the allegations are without merit, and intends to
defend itself and its officers vigorously. The Company believes the resolution
of the lawsuits, including the Company's indemnification obligations to its
officers, will not have a material adverse effect on its financial position or
future results of operations; however, no assurance can be given as to the
ultimate outcome with respect to such lawsuits.
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16. QUARTERLY FINANCIAL DATA
In late 1997, the Company converted its manufacturing information systems
which adversely impacted its ability to accurately determine its inventory
costs on an interim basis in 1998. In connection with the conversion, the
Company's ability to generate bills of material for purposes of relieving
inventory was reduced and instead used estimates of historical material costs
as a percent of sales prices. Following the Company's annual physical
inventory count in August 1998, the Company identified adjustments necessary to
properly state the previously filed 1998 quarterly financial statements. The
nature of the adjustments identified by the Company were determined and
accounted for during the rollforward period from the date of the physical
inventory to year-end. In addition, the Company recorded a valuation reserve
for an estimate of the unidentified differences between the book value and the
physical count the Company experiences each year. The reserve balance was $3.9
million and $1.0 million as of December 31, 1998 and 1997, respectively. It is
the opinion of management that this reserve is adequate but not excessive.
(UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE)
1998
- -----------------------------------
Net sales ....................... $293,612 $337,733 $334,113 $326,801
Gross profit .................... 25,888(a) 24,038(a) 27,634(a) 21,731
Net income ...................... 6,958(a) 6,203(a) 7,909(a) 2,201
Basic earnings per share (b) .... $0.34(a) $0.27(a) $0.33(a) $0.08
Diluted earnings per share (b) .. $0.33(a) $0.27(a) $0.33(a) $0.08
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 (b)..... $0.05 $0.13 $0.24 $0.31
Diluted earnings per share (b) .. $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 (b) .... $0.12 $0.01 $0.01 $0.07
Diluted earnings per share (b) .. $0.12 $0.01 $0.01 $0.07
(a) Amounts have been restated in public filings dated January 20, 1999.
(b) The sum of quarterly earnings per share may differ from annual earnings
per share primarily due to rounding.
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) .. 61 President, Chief Executive Officer
and Chairman of the Board
Dean A. Cervenka ....... 41 Vice President--Sales
Rick B. Davis .......... 31 Corporate Controller
Richard E. Dessimoz .... 51 Vice President and Chief Executive
Officer of Wabash National
Finance Corporation and Director
Charles R. Ehrlich ..... 54 Vice President--Manufacturing
Rodney P. Ehrlich ...... 52 Vice President--Engineering
Charles E. Fish ........ 44 Vice President--Human Relations
Lawrence J. Gross ...... 44 Vice President--Marketing
Mark R. Holden (1) ..... 39 Vice President-Chief Financial
Officer and Director
Connie L. Koleszar ..... 40 Director of Investor Relations
Wilfred E. Lewallen .... 54 Vice President--Industrial Engineering
Derek L. Nagle.......... 48 Vice President and President--Fruehauf Trailer
Services, Inc.
Geary D. Richard ....... 46 Vice President--Information Systems
Stanley E. Sutton ...... 49 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.
Rick B. Davis. Mr. Davis has been Corporate Controller of the Company
since May, 1998. Previously, Mr. Davis was Controller of the Company since
June, 1995. Prior to his employment by the Company, he was employed by Cummins
Engine Company, Inc. since 1994 and Arthur Andersen LLP since 1989.
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. Mr.
Dessimoz is also a director of APACHE Medical Systems, Inc., a producer of
software and services for the medical industry.
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.
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Charles E. Fish. Mr. Fish is Vice President--Human Relations of the
Company and has been in charge of the Company's human relations operations
since the Company's founding.
Lawrence J. Gross. Mr. Gross has been Vice President--Marketing of the
Company since December, 1994. Previously he had been President of the
Company's RoadRailer division since joining the Company in July, 1991. Prior
to his employment by the Company, he was employed since 1985 by Chamberlain of
Connecticut, Inc., a licensor of bimodal technology, as Vice
President--Marketing until 1990 and as President until he began his employment
with the Company.
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 Vice President and 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.
Geary D. Richard. Mr. Richard has been Vice President--Information
Systems since February 1999. Previously, Mr. Richard had been
Director--Information Systems of the Company. Prior to his employment by the
Company in July 1989, he was employed by Schwab Safe Company since 1975.
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 1999
Annual Meeting of Stockholders to be held May 6, 1999.
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 1999 Annual
Meeting of Stockholders to be held May 6, 1999.
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 1999 Annual Meeting of Stockholders to be held on May 6,
1999.
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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 1999 Annual Meeting of Stockholders to be held
on May 6, 1999.
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: None
(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 (6)
3.05 Certificate of Designations of Series C 5.5% 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 First Amendment to Shareholder Rights Agreement dated October 21, 1998
(10)
4.04 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 $1,017,750 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 $2,882,392 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 Loan Agreement of Wabash National Finance Corporation in favor of
Corestates Bank, N.A. dated December 21, 1993(2)
10.08 Real Estate Sale Agreement by and between Kraft General Foods, Inc. and
Wabash National Corporation, dated June 1, 1994 (3)
10.09 6.41% Series A Senior Note Purchase Agreement dated January 31, 1996,
between certain
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Purchasers and Wabash National Corporation (4)
10.10 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(4)
10.11 First Amendment to the 6.41% Series A Senior Note Purchase Agreement
dated January 31, 1996 between certain Purchasers and Wabash National
Corporation (5)
10.12 Series B-H Senior Note Purchase Agreement dated December 18, 1996 between
certain Purchasers and Wabash National Corporation (5)
10.13 Revolving Credit Loan Agreement dated September 30, 1997,
between NBD Bank, N.A. and Wabash National Corporation(7)
10.14 Investment Agreement and Shareholders Agreement dated
November 4, 1997, between ETZ (Europaische Trailerzug
Beteiligungsgesellschaft mbH) and Wabash National Corporation (7)
10.15 Receivables Sales Agreement between the Company and Wabash Funding
Corporation and the Receivables Purchase Agreement between Wabash Funding
Corporation and Falcon Asset Securities Corporation (8)
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-K for the year
ended December 31, 1995
(5) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1996
(6) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended March 31, 1997
(7) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1997
(8) Incorporated by reference to the Registrant's Form 8-K filed on
April 14, 1998
(9) Incorporated by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1998
(10) Incorporated by reference to the Registrant's Form 8-K filed on
October 21, 1998
(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
March 23, 1999 By:/s/ Rick B. Davis
---------------------------------------------
Rick B. Davis
Corporate Controller
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE 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
-------------- -------------------------------------------------
March 23, 1999 By:/s/ Donald J. Ehrlich
----------------------------------------------
Donald J. Ehrlich
Chief Executive Officer, President and
Chairman of the Board
(Principal Executive Officer)
March 23, 1999 By:/s/ Mark R. Holden
----------------------------------------------
Mark R. Holden
Vice President--Chief Financial Officer
and Director (Principal Financial
Officer and Principal Accounting Officer)
March 23, 1999 By:/s/ Richard E. Dessimoz
----------------------------------------------
Richard E. Dessimoz
Vice President and Chief Executive
Officer-Wabash National Finance
Corporation and Director
March 23, 1999 By:/s/ John T. Hackett
----------------------------------------------
John T. Hackett
Director
March 23, 1999 By:/s/ E. Hunter Harrison
----------------------------------------------
E. Hunter Harrison
Director
March 23, 1999 By:/s/ Ludvik F. Koci
----------------------------------------------
Ludvik F. Koci
Director
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