SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF [X] THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2001 OR TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF [ ] THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________ COMMISSION FILE NUMBER: 1-10883 WABASH NATIONAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 52-1375208 -------- ---------- (State of Incorporation) (IRS Employer Identification Number) 1000 Sagamore Parkway South, Lafayette, Indiana 47905 ------------------ ----- (Address of Principal (Zip Code) Executive Offices) Registrant's telephone number, including area code: (765) 771-5300 ------------------------------------------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. YES X NO --- --- The number of shares of common stock outstanding at November 14, 2001 was 23,010,293.
WABASH NATIONAL CORPORATION INDEX FORM 10-Q PART I - FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets at September 30, 2001 and December 31, 2000 1 Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000 2 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19
WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) <TABLE> <CAPTION> September 30, December 31, 2001 2000 ------------ ----------- (Unaudited) (Note 1) <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 17,360 $ 4,194 Accounts receivable, net 77,802 49,320 Current portion of finance contracts 10,015 11,544 Inventories 238,974 330,326 Refundable income taxes 25,765 5,552 Prepaid expenses and other 32,132 18,478 --------- --------- Total current assets 402,048 419,414 --------- --------- PROPERTY, PLANT AND EQUIPMENT, net 169,119 216,901 --------- --------- EQUIPMENT LEASED TO OTHERS, net 71,162 52,001 --------- --------- FINANCE CONTRACTS, net of current portion 40,456 44,906 --------- --------- INTANGIBLE ASSETS, net 42,824 31,123 --------- --------- OTHER ASSETS 31,502 17,269 --------- --------- $ 757,111 $ 781,614 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 135,982 $ 12,134 Accounts payable 75,454 94,118 Accrued liabilities 46,493 42,440 --------- --------- Total current liabilities 257,929 148,692 --------- --------- LONG-TERM DEBT, net of current maturities 188,389 226,126 --------- --------- DEFERRED INCOME TAXES 16,940 23,644 --------- --------- OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 27,675 15,919 --------- --------- STOCKHOLDERS' EQUITY: Preferred stock, 482,041 shares issued and outstanding with an aggregate liquidation value of $30,600 5 5 Common stock, 23,008,034 and 23,002,490 shares issued and outstanding , respectively 231 230 Additional paid-in capital 236,729 236,660 Retained earnings 30,922 131,617 Accumulated other comprehensive loss (430) --- Treasury stock at cost, 59,600 common shares (1,279) (1,279) --------- --------- Total stockholders' equity 266,178 367,233 --------- --------- $ 757,111 $ 781,614 ========= ========= </TABLE> See Notes to Condensed Consolidated Financial Statements. 1
WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) <TABLE> <CAPTION> Three Months Nine Months Ended September 30, Ended September 30, ----------------------------- ----------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> NET SALES $ 241,945 $ 345,818 $ 696,746 $ 1,057,395 COST OF SALES 274,678 316,306 731,249 959,416 ----------- ----------- ----------- ----------- Gross profit (loss) (32,733) 29,512 (34,503) 97,979 GENERAL AND ADMINISTRATIVE EXPENSES 12,555 8,743 38,085 25,488 SELLING EXPENSES 6,669 5,325 19,387 15,642 RESTRUCTURING CHARGE 36,822 -- 36,822 -- ----------- ----------- ----------- ----------- Income (Loss) from operations (88,779) 15,444 (128,797) 56,849 OTHER INCOME (EXPENSE): Interest expense (5,311) (4,563) (16,471) (14,335) Accounts receivable securitization costs (414) (1,862) (1,840) (5,259) Equity in losses of unconsolidated affiliate (1,800) (750) (6,133) (2,350) Other, net (933) (86) (1,066) 568 ----------- ----------- ----------- ----------- Income (Loss) before income taxes (97,237) 8,183 (154,307) 35,473 PROVISION (BENEFIT) FOR INCOME TAXES (35,864) 3,191 (57,087) 13,834 ----------- ----------- ----------- ----------- Net income (loss) $ (61,373) $ 4,992 $ (97,220) $ 21,639 PREFERRED STOCK DIVIDENDS 451 476 1,403 1,427 ----------- ----------- ----------- ----------- NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ (61,824) $ 4,516 $ (98,623) $ 20,212 =========== =========== =========== =========== EARNINGS (LOSS) PER SHARE: Basic and Diluted $ (2.69) $ 0.20 $ (4.29) $ 0.88 =========== =========== =========== =========== Cash dividends per share $ 0.01 $ 0.04 $ 0.09 $ 0.12 =========== =========== =========== =========== </TABLE> See Notes to Condensed Consolidated Financial Statements. 2
WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, ------------------------- 2001 2000 --------- --------- (Unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (97,220) $ 21,639 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities- Depreciation and amortization 25,096 21,007 Net loss on the sale of assets 287 1,497 Bad debt provision 11,614 2,502 Deferred income taxes (11,099) 8,197 Equity in losses of unconsolidated affiliate 6,133 2,350 Restructuring and other related charges 40,536 --- Cash used for restructuring activities (5,403) --- Used trailer valuation adjustment 42,468 3,000 Change in operating assets and liabilities: Accounts receivable (29,245) (12,895) Inventories 59,779 (87,434) Refundable income taxes (20,213) --- Prepaid expenses and other (1,929) 937 Accounts payable and accrued liabilities (27,052) (22,371) Other assets (17,783) (1,031) Other non-current liabilities and contingencies (6,372) 4,823 --------- --------- Net cash used in operating activities (30,403) (57,779) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (5,219) (52,844) Net additions to equipment leased to others (49,440) (51,330) Net additions to finance contracts (13,955) (18,549) Acquisition, net of cash acquired (6,336) --- Investment in unconsolidated subsidiary (4,380) (2,363) Proceeds from sale of leased equipment and finance contacts 52,359 29,783 Principal payments received on finance contracts 7,280 10,070 Proceeds from the sale of property, plant and equipment 140 626 --------- --------- Net cash used in investing activities (19,551) (84,607) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from: Short-term borrowings --- 50,000 Long-term debt --- 62,500 Short-term revolver 348,585 359,400 Common stock 70 116 Payments: Short-term debt --- (50,000) Long-term debt (12,744) (2,943) Short-term revolver (268,602) (291,003) Common stock dividends (2,761) (2,759) Preferred stock dividends (1,428) (1,427) --------- --------- Net cash provided by financing activities 63,120 123,884 --------- --------- NET INCREASE (DECREASE) IN CASH 13,166 (18,502) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,194 22,484 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,360 $ 3,982 ========= ========= </TABLE> See Notes to Condensed Consolidated Financial Statements. 3
WABASH NATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. GENERAL The condensed consolidated financial statements included herein have been prepared by Wabash National Corporation and its subsidiaries (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's 2000 Annual Report on Form 10-K. In the opinion of the registrant, the accompanying condensed consolidated financial statements contain all material adjustments (consisting only of normal recurring adjustments), necessary to present fairly the consolidated financial position of the Company at September 30, 2001 and December 31, 2000 and its results of operations for the three and nine months ended September 30, 2001 and 2000 and cash flows for the nine months ended September 30, 2001 and 2000. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Foreign Currency Accounting The financial statements of the Company's Canadian subsidiary are translated into U.S. dollars using the exchange rate at the balance sheet date for assets and liabilities and a weighted-average exchange rate during the period for revenue and expense accounts. The resulting translation adjustments are recorded as a component of stockholders' equity. Gains or losses resulting from foreign currency transactions are included in Other, net in the Company's Condensed Consolidated Statements of Operations. b. Comprehensive Income (Loss) The Company's comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments. The Company's net income (loss) and total comprehensive income (loss) were ($61.4) million and ($61.7) million, respectively for the three months ended September 30, 2001 and $5.0 million and $5.0 million, respectively for the same period in the prior year. The Company's net income (loss) and total comprehensive income (loss) were ($97.2) million and ($97.7) million, respectively for the nine months ended September 30, 2001 and $21.6 million and $21.6 million, respectively for the same period in the prior year. 4
c. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities which was subsequently amended by SFAS 137 and SFAS 138. These Statements require that all derivative instruments be recorded on the balance sheet at their fair value. This standard is effective for the Company's financial statements beginning January 1, 2001. The adoption of SFAS 133 did not have an effect on the Company's annual results of operations or its financial position. In June 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. This Statement requires companies to cease the amortization of goodwill and establishes a new method of testing goodwill for impairment. This standard is effective for the Company's financial statements beginning January 1, 2002. The Company's goodwill amortization for the three and nine months ended September 30, 2001 was $0.5 million and $1.3 million, respectively, in advance of implementing the provisions within this statement. The Company is currently evaluating this Statement's requirement for testing goodwill impairment and the related impact, if any, to the Company's results of operations and financial position. In August 2001, FASB issued SFAS No. 144, Impairment or Disposal of Long-Lived Assets, which addresses accounting and financial reporting for the impairment or disposal of long-lived assets. This standard is effective for the Company's financial statements beginning January 1, 2002. The Company is currently evaluating the impact, if any, the implementation of this Statement will have on the Company's results of operations and financial position. d. Inventories Inventories consisted of the following (in thousands): September 30, December 31, 2001 2000 ------------- ----------- (Unaudited) Raw material and components $ 40,427 $ 84,167 Work in process 13,067 18,765 Finished goods 84,229 93,332 Aftermarket parts 25,962 33,566 Used trailers 75,289 100,496 --------- --------- $ 238,974 $ 330,326 ========= ========= e. Reclassifications Certain items previously reported in specific condensed consolidated financial statement captions have been reclassified to conform with the 2001 presentation. NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION Nine Months Ended September 30, --------------------------- (In thousands) 2001 2000 - -------------------------------------------------------------------------------- Cash paid during the period for: (Unaudited) Interest $16,302 $12,679 Income taxes (net of refunds received) 574 17,633 - -------------------------------------------------------------------------------- 5
NOTE 4. RESTRUCTURING AND OTHER CHARGES 2001 RESTRUCTURING PLAN During the third quarter of 2001, the Company recorded restructuring and other related charges totaling $40.5 million ($25.6 million, net of tax) primarily related to the rationalization of the Company's manufacturing capacity resulting in the closure of the Company's platform manufacturing facility in Huntsville, Tennessee, and its dry van facility in Fort Madison, Iowa. In addition, the Company closed a parts distribution facility in Montebello, California. Included in the $40.5 million restructuring charge is the write-down of certain impaired fixed assets to their fair market value ($33.8 million), accrued severance benefits for approximately 600 employees impacted ($0.9 million), plant closure and other costs ($2.1 million). In addition, a $3.7 million charge is included in cost of sales related to inventory write-downs at the closed facilities. The Company's impairment charge reflects the write-down of certain long-lived assets that became impaired as a result of management's decision to close its operations at the two manufacturing plants discussed above. The impairment was computed in accordance with the provisions of SFAS 121. The estimated fair market value of the impaired assets totaled $6.8 million and was determined by management based upon economic conditions, potential alternative uses and potential markets for the assets. Approximately $2.9 million of the long-lived assets are held for sale and, accordingly, are classified in prepaid expenses and other in the accompanying Condensed Consolidated Balance Sheets. Depreciation has been discontinued on the assets held for sale pending their disposal. Details of the restructuring charges and reserve for the 2001 Restructuring Plan are as follows (in thousands): <TABLE> <CAPTION> UTILIZED Original ------------------------- Balance Provision Cash Non-cash 09/30/01 --------- --------- ---------- --------- <S> <C> <C> <C> <C> Restructuring Costs: Impairment of long-term assets $ 33,842 $ --- $(33,842) $ --- Plant closure costs 1,763 (156) --- 1,607 Severance benefits 912 (386) --- 526 Other 305 --- --- 305 -------- -------- -------- -------- $ 36,822 $ (542) $(33,842) $ 2,438 -------- -------- -------- -------- Inventory write-down $ 3,714 $ --- $ (3,714) $ --- -------- -------- -------- -------- Total restructuring and other related charges $ 40,536 $ (542) $(37,556) $ 2,438 ======== ======== ======== ======== </TABLE> USED TRAILER INVENTORY VALUATION During the third quarter 2001, the Company initiated an aggressive strategy to market its used trailer inventory in order to liquidate a significant portion of this inventory. As a result of this strategy and continued market deterioration, the Company recorded used trailer valuation adjustments totaling $28.5 million and $42.5 million during the three and nine-months ended September 30, 2001. These adjustments were calculated in accordance with the Company's inventory valuation policies which are designed to state used trailers at the lower of their cost or net realizable value. 6
2000 RESTRUCTURING PLAN In December 2000, the Company recorded restructuring and other related charges totaling $46.6 million ($28.5 million, net of tax) primarily related to the Company's exit from manufacturing products for export outside the North American market, international leasing and financing activities and the consolidation of certain domestic operations. Details of the restructuring charges and reserve for the 2000 Restructuring Plan are as follows (in thousands): <TABLE> <CAPTION> UTILIZED Original ----------------------- Balance Provision 2000 2001 09/30/01 --------- -------- -------- -------- <S> <C> <C> <C> <C> Restructuring of majority-owned operations: Impairment of long-term assets $ 20,819 $(20,819) $ --- $ --- Loss related to equipment guarantees 8,592 --- (3,469) 5,123 Write-down of other assets and other charges 6,927 (4,187) (1,147) 1,593 -------- -------- -------- -------- $ 36,338 $(25,006) $ (4,616) $ 6,716 -------- -------- -------- -------- Restructuring of minority interest operations: Impairment of long-term assets $ 5,832 $ (5,832) $ --- $ --- -------- -------- -------- -------- Inventory write-down and other charges $ 4,480 $ (3,897) $ --- $ 583 -------- -------- -------- -------- Total restructuring and other related charges $ 46,650 $(34,735) $ (4,616) $ 7,299 ======== ======== ======== ======== </TABLE> As of September 30, 2001, the Company has $2.4 million and $7.3 million in restructuring reserves related to the 2001 and 2000 restructuring plans, respectively. These reserves are included in accrued liabilities in the accompanying Condensed Balance Sheets. The Company anticipates completion of its restructuring activities related to its 2000 restructuring plan during the fourth quarter 2001 and completion of its 2001 restructuring plan during 2002. NOTE 5. ACQUISITION On January 5, 2001, the Company acquired the Breadner Group of Companies (the Breadner Group) in a stock purchase agreement (the Breadner Acquisition). The Breadner Group is headquartered in Kitchener, Ontario, Canada and has ten branch locations in six Canadian Provinces. These branches are the leading Canadian distributor of new trailers as well as providers of new trailer services and aftermarket parts. For financial statement purposes, the Breadner Acquisition was accounted for as a purchase, and accordingly, the Breadner Group's assets and liabilities were recorded at fair value and the operating results are included in the Condensed Consolidated Statements of Operations since the date of acquisition. The aggregate consideration for this transaction included approximately $6.3 million in cash and $10.0 million in a long-term note and the assumption of certain indebtedness. The long-term note has an annual interest rate of 7.25% and scheduled principal payments are due April 2001 through January 2006. The excess of the purchase price over the underlying assets acquired was approximately $14.3 million and is being amortized on a straight-line basis over twenty-five years. 7
NOTE 6. SEGMENTS Under the provisions of SFAS No. 131, the Company has two reportable business segments; manufacturing and retail and distribution operations. The manufacturing segment principally produces and sells new trailers to customers who purchase trailers direct or through independent dealers and for the retail and distribution segment. The retail and distribution segment sells new and used trailers, sells aftermarket parts, performs service repair on used trailers and provides rental, leasing and financing services through its retail branch network. In December 2000, the Company combined its rental, leasing and finance services into a separate product line within the retail and distribution segment. As a result, the 2000 presentation has been restated to conform to the 2001 presentation. Reportable segment information is as follows (in thousands): <TABLE> <CAPTION> THREE MONTHS ENDED Retail and Combined Consolidated SEPTEMBER 30, 2001 Manufacturing Distribution Segments Eliminations Totals - ------------------ ------------- ------------ -------- ------------ ------ (unaudited) <S> <C> <C> <C> <C> <C> Revenues External customers $ 154,935 $ 87,010 $ 241,945 $ --- $ 241,945 Intersegment sales 8,307 340 8,647 (8,647) --- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 163,242 $ 87,350 $ 250,592 $ (8,647) $ 241,945 =========== =========== =========== =========== =========== Income (loss) from Operations $ (82,408) $ (7,292) $ (89,700) $ 921 $ (88,779) Total Assets $ 821,123 $ 414,217 $ 1,235,340 $ (478,229) $ 757,111 THREE MONTHS ENDED SEPTEMBER 30, 2000 - ------------------ (Unaudited) Revenues External customers $ 263,628 $ 82,190 $ 345,818 $ --- $ 345,818 Intersegment sales 18,529 283 18,812 (18,812) --- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 282,157 $ 82,473 $ 364,630 $ (18,812) $ 345,818 =========== =========== =========== =========== =========== Income (loss) from Operations $ 14,423 $ 1,283 $ 15,706 $ (262) $ 15,444 Total Assets $ 950,434 $ 425,684 $ 1,376,118 $ (451,428) $ 924,690 NINE MONTHS ENDED SEPTEMBER 30, 2001 - ------------------ (Unaudited) Revenues External customers $ 440,349 $ 256,397 $ 696,746 $ --- $ 696,746 Intersegment sales 44,215 947 45,162 (45,162) --- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 484,564 $ 257,344 $ 741,908 $ (45,162) $ 696,746 =========== =========== =========== =========== =========== Income (loss) from Operations $ (118,047) $ (11,503) $ (129,550) $ 753 $ (128,797) Total Assets $ 821,123 $ 414,217 $ 1,235,340 $ (478,229) $ 757,111 NINE MONTHS ENDED SEPTEMBER 30, 2000 - ------------------ (Unaudited) Revenues External customers $ 806,344 $ 251,051 $ 1,057,395 $ --- $ 1,057,395 Intersegment sales 70,136 879 71,015 (71,015) --- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 876,480 $ 251,930 $ 1,128,410 $ (71,015) $ 1,057,395 =========== =========== =========== =========== =========== Income (loss) from Operations $ 53,990 $ 4,442 $ 58,432 $ (1,583) $ 56,849 Total Assets $ 950,434 $ 425,684 $ 1,376,118 $ (451,428) $ 924,690 </TABLE> 8
NOTE 7. EARNINGS (LOSS) PER SHARE Earnings (loss) per share (EPS) are computed in accordance with SFAS No. 128, Earnings per Share. A reconciliation of the numerators and denominators of the basic EPS computations, as required by SFAS No. 128, is presented below. The Company did not include the effect of other securities that could be converted into common in its calculation of diluted EPS for the three and nine months ended September 30, 2001 and September 30, 2000, since their inclusion would have resulted in an antidilutive effect. As a result, basic and diluted EPS are equal for the periods presented below (amounts in thousands except per share amounts): <TABLE> <CAPTION> Three Months Nine Months Ended September 30, Ended September 30, ----------------------- ----------------------- 2001 2000 2001 2000 -------- -------- -------- -------- (Unaudited) <S> <C> <C> <C> <C> Net Income (Loss) $(61,373) $ 4,992 $(97,220) $ 21,639 Less: Preferred Stock Dividends 451 476 1,403 1,427 -------- -------- -------- -------- Basic and Diluted Net Income (Loss) Available to Common $(61,824) $ 4,516 $(98,623) $ 20,212 ======== ======== ======== ======== Weighted Average Shares 23,008 22,995 23,005 22,989 ======== ======== ======== ======== Basic and Diluted EPS $ (2.69) $ 0.20 $ (4.29) $ 0.88 ======== ======== ======== ======== </TABLE> NOTE 8. CONTINGENCIES a. Litigation Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company arising in the ordinary course of business, including those pertaining to product liability, labor and health related matters, successor liability, environmental and possible tax assessments. While the amounts claimed could be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are pending or asserted will not have a material adverse effect on the Company's financial position or its annual results of operations. 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 complaints purported 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 complaints alleged 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 sought unspecified compensatory damages and attorney's fees, as well as other relief. In addition, on March 23, 1999, another purported class action lawsuit 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 alleged that the Company and the individual defendants violated Section 11 of the Securities Act of 1933, and that the Company, the individual defendants as "controlling persons" of the Company, and the 9
underwriters are liable under Section 12 of that Act, by making untrue statements of material fact and omitting material facts from the prospectus used in that offering. The complaint sought 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. At a hearing on May 10, 1999 and in an order entered on June 22, 1999, Judge Allen Sharp consolidated the six pending cases under the caption In re Wabash National Corporation Securities Litigation, No. 4:99CV0003AS. On March 29, 2001, all plaintiffs voluntarily withdrew their claims arising under Sections 10 (b) and 20 (a) of the Securities and Exchange Act of 1934 (the "1934 Act Claims"), when a Stipulation of Dismissal with Prejudice was filed with the Court. On April 2, 2001, the Court entered an Order of Dismissal giving effect to the Stipulation of Dismissal. As a result of that dismissal, the only claims remaining in the case were those brought by purchasers of shares in the Company's public offering on April 23, 1998 (i.e., claims arising under Sections 11 and 12 of the Securities Act of 1933). On April 17, 2001, the Company announced that it had reached an agreement that terminates the remaining elements of the shareholder litigation brought against the Company. Under the agreement, which is subject to court approval, the Company will pay $500,000 into a fund from which purchasers of stock in the Company's 1998 public offering and who satisfy certain criteria will be entitled to recover $0.33 per share. Unclaimed monies remaining in the fund, after attorney's fees and expenses are paid, will be returned to the Company. On September 27, 2001, the Court entered an order preliminarily approving the settlement, certifying a class action for settlement. 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 September 30, 2001 the estimated potential exposure for such costs ranges from approximately $0.5 million to approximately $1.7 million, for which the Company has a reserve of approximately $0.9 million. These reserves were primarily recorded for exposures associated with the costs of environmental remediation projects to address soil and ground water contamination 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. In the second quarter 2000, the Company received a grand jury subpoena requesting certain documents relating to the discharge of wastewaters into the environment at a Wabash facility in Huntsville, Tennessee. The subpoena sought the production of documents and related records concerning the design of the facility's discharge system and the particular discharge in question. On April 17, 2000, the Company received a Notice of Violation/Request for Incident Report from the Tennessee Department of Environmental Conservation (TDEC) with respect to the same matter. On September 6, 2000, the Company received an Order and Assessment from TDEC directing the Company to pay a fine of $100,000 for violations of Tennessee environmental requirements as a result of the discharge. The Company filed an appeal of the Order and Assessment on October 10, 2000. On May 16, 2001, the Company received a second grand jury 10
subpoena that sought the production of additional documents relating to the discharge in question. The Company has provided documents in response to that subpoena. The Company is fully cooperating with state and federal officials with respect to their respective investigations into the matter. At this time, the Company is unable to predict the outcome of federal grand jury inquiry into this matter, but does not believe it will result in a material adverse effect on its financial position or future results of operations; however, at this early stage of the proceedings, no assurance can be given as to the ultimate outcome of the case. 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. Used Trailer Restoration Program During 1999, the Company reached a settlement with the Internal Revenue Service related to federal excise tax on certain used trailers restored by the Company during 1996 and 1997. The Company has continued the restoration program with the same customer since 1997. The customer has indemnified the Company for any potential excise tax, interest and penalties assessed by the IRS for years subsequent to 1997. The IRS has substantially completed their audit work with respect to certain used trailers restored by the Company during 1998 and 1999. The Company anticipates receiving a notice of assessment related to such matters during 2001. The Company has recorded a liability and a corresponding receivable of approximately $8.3 million and $7.9 million in the accompanying condensed Consolidated Balance Sheets at September 30, 2001 and December 31, 2000, respectively. 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report and the information incorporated by reference may include "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position, operating results and our business strategy are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend." Known and unknown risks, uncertainties and other factors could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Although we believe that our expectations that are expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations include the factors that are disclosed elsewhere herein and in Item 4A in the Company's Form 10-K as filed with the Securities and Exchange Commission on March 29, 2001. RESULTS OF OPERATIONS During the third quarter of 2001, the Company recorded restructuring and other related charges totaling $40.5 million ($25.6 million, net of tax) primarily related to the rationalization of the Company's manufacturing capacity resulting in the closure of the Company's platform manufacturing facility in Huntsville, Tennessee, and its dry van facility in Fort Madison, Iowa. In addition, the Company closed a parts distribution facility in Montebello, California. Included in the $40.5 million restructuring charge, is the write-down of certain impaired fixed assets to their fair market value ($33.8 million), accrued severance benefits for approximately 600 employees impacted ($0.9 million), plant closure and other costs ($2.1 million). In addition, a $3.7 million charge is included in cost of sales related to inventory write-downs at the closed facilities. The Company's impairment charge reflects the write-down of certain long-lived assets that became impaired as a result of management's decision to close its operations at the two manufacturing plants discussed above. The impairment was computed in accordance with the provisions of SFAS 121. The estimated fair market value of the impaired assets totaled $6.8 million. Management determined the fair market value based upon economic conditions, potential alternative uses and potential markets for the assets. Approximately $2.9 million of the long-lived assets are held for sale and, accordingly, are classified in prepaid expenses and other in the accompanying Condensed Consolidated Balance Sheets. Depreciation has been discontinued on the assets held for sale pending their disposal. During the third quarter 2001, the Company initiated an aggressive strategy to market its used trailer inventory in order to liquidate a significant portion of this inventory. As a result of this strategy and continued market deterioration, the Company recorded used trailer valuation adjustments totaling $28.5 million and $42.5 million during the three and nine-months ended September 30, 2001, respectively. These adjustments were calculated in accordance with the Company's inventory valuation policies which are designed to state used trailers at the lower of their cost or net realizable value. 12
Under the provisions of SFAS No. 131, the Company has two reportable business segments; manufacturing and retail and distribution operations. The manufacturing segment principally produces and sells new trailers to customers who purchase trailers direct or through independent dealers and for the retail and distribution segment. The retail and distribution segment sells new and used trailers, sells aftermarket parts, performs service repair on used trailers and provides rental, leasing and financing services through its retail branch network. In December 2000, the Company combined its rental, leasing and finance services into a separate product line within the retail and distribution segment. As a result, the 2000 presentation has been restated to conform to the 2001 presentation. Net Sales Consolidated net sales for the third quarter of 2001 decreased approximately $103.9 million or 30.0% compared to the same period in 2000 and decreased $360.6 million or 34.1% for the nine-month period ended September 30, 2001 compared with the same period in the prior year. This decrease primarily reflects lower sales activity in the Company's manufacturing segment, as sales in the retail and distribution segment were slightly higher than prior year sales. The manufacturing segment's external net sales decreased 41.2% or $108.7 million in the third quarter of 2001 compared to the same period in 2000 and were $366.0 million or 45.4% lower for the nine-month period ended September 30, 2001 compared to the same period in 2000. These decreases were driven primarily by a 42.0% decrease (9,100 units vs. 15,700 units) and a 44.9% decrease (26,100 units vs. 47,400 units) in the number of new trailers sold during the three and nine-month periods ended September 30, 2001 compared to the same periods in 2000, respectively. The Company's proprietary DuraPlate(R) trailer continued to comprise the majority of the Company's sales mix at over 68% during the quarter and 73% during the nine-months ended September 30, 2001. During 2001, the Company's manufacturing segment continued to be negatively impacted by overall economic conditions including the current recessionary environment of the U.S. manufacturing sector and, more specifically, the transportation industry, which has been plagued by a general slowing in freight tonnage. According to a publication released in October 2001 by Americas Commercial Transportation Research Co., LLC (ACT), the U.S. Trailer Industry's total backlog at September 30, 2001 was down by nearly 40% from the same period in the previous year. The retail and distribution segment's external net sales increased 5.9% or $4.8 million in the third quarter of 2001 compared to the same period in 2000 and were $5.3 million or 2.1% higher for the nine-month period ended September 30, 2001 compared to the same period in 2000. The change in net sales was primarily attributable to increased net sales from new branch and rental centers opened since the nine-months ended September 20, 2000. The total number of store locations as of September 30, 2001 was 49 as compared to 39 for the same period in the prior year. The increase in the net sales associated with these new locations was offset by a 17.8% and 20.5% decline in same store external net sales for the three and nine-month periods ended September 30, 2001 as compared to the same periods in the previous year. 13
Gross Profit (Loss) Gross profit (loss) as a percentage of sales was (13.5%) for the third quarter of 2001 compared to 8.5% for the same period in 2000 and was (5.0%) for the nine-month period ended September 30, 2001 compared to 9.3% for the same period in 2000 primarily due to the following items: - the decrease in the manufacturing's segments new trailer sales volumes previously discussed; - additional costs related to the start-up of the Company's painting and coating system at its Huntsville, Tennessee plant; - charges of $6.4 million and $7.7 million recorded for the three and nine-months ended September 30, 2001, respectively, related to inventory write-downs associated with the Company's 2001 restructuring plan as well as inventory valuation adjustments related to new trailer stock units and aftermarket parts; - losses of approximately $5.1 million incurred during the quarter related to the Company's strategy to substantially reduce used trailer inventory levels; and - charges of $28.5 million and $42.5 million recorded for the three and nine-months ended September 30, 2001, respectively, related to used stock trailers valued at the lower of cost or net realizable value The Company accepts used trailers taken in trade on new trailer transactions in the normal course of business. In accordance with Generally Accepted Accounting Principles (GAAP) and consistent with the Company's accounting policies, used trailer inventories are carried at the lower of their estimated net realizable value or cost. As of September 30, 2001, the Company had $75.3 million of used trailers in inventory. The Company will continue to evaluate the carrying value of its used trailer inventories and to the extent, in the Company's judgment that there is a further decline in used trailer market values such that an adjustment in the Company's financial statements is necessary the Company will make additional provisions to reflect the inventory at its lower of cost or market. These adjustments may be material to the financial position or results of operations of the Company in the period they are recorded. Income (Loss) From Operations Income (loss) from operations as a percentage of sales for the third quarter of 2001 was (36.7%) compared to 4.5% for the same period in 2000 and was (18.5%) for the nine-month period ended September 30, 2001 compared to 5.4% for the same period in 2000. Income (loss) from operations in 2001 was impacted primarily by the decrease in gross profit previously discussed, a $36.8 million charge related to the Company's restructuring activities and increased selling, general and administrative expenses. The increase in selling, general and administrative expenses was primarily the result of higher bad debt expenses, increased expenses associated with the Company's effort to increase sales activity in its retail and distribution segment and the acquisition of the Canadian retail branch operations in January 2001. Other Income (Expense) Interest expense for the three-month period ended September 30, 2001 totaled $5.3 million compared to $4.6 million in the same period in 2000 and was $16.5 million for the nine-month period ended September 30, 2001 compared to $14.3 million during the same period in 2000. This increase during the first nine months of 2001 primarily reflects higher borrowings on the Company's revolving credit facility during 2001. 14
Equity in losses of unconsolidated affiliate for the three month period ended September 30, 2001 totaled $1.8 million compared to $0.8 million in the same period in 2000 and was $6.1 million for the nine month period ended September 30, 2001 as compared to $2.4 million during the same period in 2000. During January 2001, the Company assumed the remaining ownership interest in Europaische Trailerzug Beteiligunsgessellshaft mbH (ETZ) from the majority shareholder. As a result, the Company has reflected 100% of ETZ's operating results during 2001 compared to 25.1% during the same period in the previous year. The Company intends to pursue the orderly divestiture of ETZ during 2001 and will record 100% of ETZ's operating results until the divestiture is complete. Other, net primarily includes miscellaneous interest income and gain (loss) on foreign currency transactions. The foreign currency transactions primarily reflect realized and unrealized adjustments of certain receivables and payables related to the Company's recently acquired Canadian subsidiary. Also included in Other, net for the nine month period ended September 30, 2001 is a $0.5 million charge related to the settlement of the Company's shareholder litigation suit that occurred during the first quarter of 2001. Taxes The provision (benefit) for income taxes for the three month period ended September 30, 2001 and 2000 of ($35.9) million and $3.2 million respectively, represents 36.9% and 39.0% of pre-tax income (loss) for the periods. The effective tax rates are higher than the Federal statutory rates of 35% due primarily to state income taxes. LIQUIDITY AND CAPITAL RESOURCES The Company's net liquidity position was approximately $18.8 million on September 30, 2001, comprised of cash and cash equivalents of $17.4 million and available borrowing capacity under its revolving credit facilities of $1.4 million. At September 30, 2001, the Company's Current maturities of long-term debt totaled $136.0 million of which $97.4 million was outstanding under its revolving credit facility which expires in September 2002. The Company believes it has access to sufficient resources to fund on-going operations, satisfy its scheduled principal and interest payments, dividend payments, used trailer trade commitments and anticipated capital expenditure payments, over the next twelve months, through a combination of the following: Future Sources of Cash Including: - income tax refunds; - proceeds from the sale of assets held for sale related to the Company's 2001 and 2000 restructuring actions; - securing a new long-term revolving credit facility; and - additional new credit facilities. Future Reductions to Cash Out-Flows Including: - reduced operating costs as a result of recent restructuring actions; - reduced working capital requirements primarily driven by the liquidation of used trailer inventory levels; and - anticipated sale of ETZ during the fourth quarter of 2001, which would cease future funding requirements. 15
As presented in the Condensed Consolidated Statements of Cash Flows, the Company's cash position increased by $13.2 million during the nine-month period ended September 30, 2001 as a result of cash provided by financing activities of $63.1 million partially offset by cash used in operating and investing activities of $49.9 million. Operating Activities Net cash used in operating activities of $30.4 million during the first nine months of 2001 consisted of the net loss during the period and changes in operating assets and liabilities partially offset by the add-back of certain non-cash charges. Non-cash charges primarily consisted of depreciation and amortization, bad debt provision, restructuring and other related charges and the used trailer valuation adjustment. The net increase in operating assets and liabilities was primarily impacted by an increase in the Company's refundable income taxes, an increase in other assets primarily attributable to net operating loss carryforwards and a decrease in the amount outstanding under the Company's accounts receivable securitization facility. As of September 30, 2001, $30.8 million was outstanding under this facility, compared to $69.4 million outstanding as of December 31, 2000. Another use of cash was a decline in accounts payable and accrued liabilities, which was more than offset by a corresponding decrease in all categories of inventory. Investing Activities Net cash used in investing activities of $19.6 million during the first nine months of 2001 was primarily due to the following: - additional investment in the Company's trailer rental and operating lease portfolio, of approximately $49.4 million, nearly offset by $42.1 million in sales from this portfolio of which $39.9 million represents sales under the Company's rental fleet sale and leaseback facility; - net decrease in the Company's finance contract portfolio of approximately $3.5 million; - the Breadner Acquisition and additional funding requirements for ETZ totaling $10.7 million; and - capital expenditures of $5.2 million. The Company anticipates capital expenditures to be less than $10 million over the next twelve months. Financing Activities Net cash provided by financing activities was $63.1 million during the first nine months of 2001 was primarily due to a net increase in total debt of $67.3 million partially offset by the payment of common stock dividends and preferred stock dividends of $4.2 million in the aggregate. The increase in debt primarily reflects debt incurred with the Breadner Acquisition and additional borrowings under the Company's unsecured revolving bank line of credit. At September 30, 2001, the Company had available borrowing capacity under its revolving credit facilities of approximately $1.4 million as compared to $90.2 million at December 31, 2000. This decrease is primarily due to the impact of decreasing availability under the Company's accounts receivable securitization facility, as mentioned previously. In addition, the Company's liquidity was further impacted by the maturity of the Company's 364-day facility and operating losses incurred by the business during the period. During October 2001, the Company replaced its $100 million accounts receivable facility with a new, two-year, $100 million credit facility. The 16
advance rate and; accordingly, the level of securitization, is substantially similar under the new facility to the replaced facility. BACKLOG The Company's backlog of orders was approximately $182 million and $640 million at September 30, 2001 and December 31, 2000, respectively. In response to deteriorating market conditions, the Company reevaluated its method for determining backlog during the quarter. The backlog amount reported for December 31, 2000 has not been restated to reflect these new criteria. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities which was subsequently amended by SFAS 137 and SFAS 138. These Statements require that all derivative instruments be recorded on the balance sheet at their fair value. This standard is effective for the Company's financial statements beginning January 1, 2001. The adoption of SFAS 133 did not have an effect on the Company's annual results of operations or its financial position. In June 2001, FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. This Statement requires companies to cease the amortization of goodwill and establishes a new method of testing goodwill for impairment. This standard is effective for the Company's financial statements beginning January 1, 2002. The Company's goodwill amortization for the three and nine-months ended September 30, 2001 was $0.5 million and $1.3 million, respectively, in advance of implementing the provisions within this statement. The Company is currently evaluating this Statement's requirement for testing goodwill impairment and the related impact, if any, to the Company's results of operations and financial position. In August 2001, FASB issued SFAS No. 144, Impairment or Disposal of Long-Lived Assets, which addresses accounting and financial reporting for the impairment or disposal of long-lived assets. This standard is effective for the Company's financial statements beginning January 1, 2002. The Company is currently evaluating the impact, if any, the implementation of this Statement will have on the Company's results of operations and financial position. 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS In addition to the risks inherent in its operations, the Company has exposure to financial and market risk resulting from volatility in commodity prices, interest rates and foreign exchange rates. The following discussion provides additional detail regarding the Company's exposure to these risks. a. Commodity Price Risks The Company is exposed to fluctuation in commodity prices through the purchase of raw materials that are processed from commodities such as aluminum, steel, wood and virgin plastic pellets. Given the historical volatility of certain commodity prices, this exposure can significantly impact product costs. The Company manages aluminum and virgin plastic pellets price changes by entering into fixed price contracts with its suppliers prior to a customer sales order being finalized. Because the Company typically does not set prices for its products in advance of its commodity purchases, it can take into account the cost of the commodity in setting its prices for each order. To the extent that the Company is unable to offset the increased commodity costs in its product prices, the Company's results would be materially and adversely affected. b. Interest Rates As of September 30, 2001, the Company had approximately $97.4 million of London Interbank Rate (LIBOR) based debt outstanding under its Revolving Credit Facility, $71.0 million of proceeds from its rental fleet sale and leaseback agreement which calls for LIBOR based interest payments and $30.8 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 $2.0 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. c. Foreign Exchange Rates The Company has historically entered 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 with regard to the Company's international activities. In addition, in light of the Breadner Acquisition, the Company is reviewing its foreign currency exposure related to the Canadian dollar. The Company does not hold or issue derivative financial instruments for speculative purposes. As of September 30, 2001, the Company had no foreign currency forward contracts outstanding. 18
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Footnote 8 to the Condensed Consolidated Financial Statements for information related to Legal Proceedings. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION On October 2, 2001 the Company announced that John T. Hackett, a member of its Board of Directors since 1991, has been elected Chairman of the Board of Directors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: -------- 10.01 Originators Receivables Sale Agreement dated October 4, 2001 between Wabash National LP and NOAMTC, Inc. as originators and Wabash Financing LLC, Receivable Sales Agreement dated October 4, 2001 between Wabash Financing LLC and WNC Funding LLC and the Receivables Purchase Agreement dated October 4, 2001 between WNC Funding LLC and North Coast Funding Corporation 10.02 2001 Stock Appreciation Rights Plan 15.01 Report of Independent Public Accountants (b) Reports on Form 8-K: 1. Form 8-K filed August 17, 2001 reporting under Item 5: Press release dated August 16, 2001 announcing certain restructuring and cost reduction plans. 19
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WABASH NATIONAL CORPORATION Date: November 14, 2001 By: /s/ Mark R. Holden ----------------- ------------------ Mark R. Holden Senior Vice President, Chief Financial Officer And Duly Authorized Officer 20