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 MARCH 31, 2002 OR TRANSITION REPORT UNDER SECTION 13 0R 15(d) OF [ ] THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________ COMMISSION FILE NUMBER: 1-10883 ------- WABASH NATIONAL CORPORATION --------------------------- (Exact name of registrant as specified in its charter) Delaware 52-1375208 -------- ---------- (State of Incorporation) (IRS Employer Identification Number) 1000 Sagamore Parkway South, 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 May 13, 2002 was 23,033,564.
WABASH NATIONAL CORPORATION INDEX FORM 10-Q PART I - FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001 1 Condensed Consolidated Statements of Operations For the three months ended March 31, 2002 and 2001 2 Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2002 and 2001 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 PART II - OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds 22 Item 3. Defaults Upon Senior Securities 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 23
WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) <TABLE> <CAPTION> March 31, December 31, 2002 2001 ---------- ----------- (Unaudited) (Note 1) <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 40,337 $ 11,135 Accounts receivable, net 65,328 58,358 Current portion of finance contracts 10,991 10,646 Inventories 148,008 191,094 Refundable income taxes 13,988 25,673 Prepaid expenses and other 15,846 17,231 --------- --------- Total current assets 294,498 314,137 --------- --------- PROPERTY, PLANT AND EQUIPMENT, net 165,655 170,330 --------- --------- EQUIPMENT LEASED TO OTHERS, net 112,964 109,265 --------- --------- FINANCE CONTRACTS, net of current portion 37,604 40,187 --------- --------- INTANGIBLE ASSETS, net 42,051 43,777 --------- --------- OTHER ASSETS 18,860 14,808 --------- --------- $ 671,632 $ 692,504 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 62,543 $ 60,682 Current maturities of capital lease obligations 21,409 21,559 Accounts payable 50,848 51,351 Accrued liabilities 63,278 69,246 --------- --------- Total current liabilities 198,078 202,838 --------- --------- LONG-TERM DEBT, net of current maturities 272,943 274,021 --------- --------- LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current maturities 53,385 55,755 --------- --------- OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 31,185 28,905 --------- --------- STOCKHOLDERS' EQUITY: Preferred stock, 482,041 shares issued and outstanding with an aggregate liquidation value of $30,600 5 5 Common stock, 23,027,660 and 23,013,847 shares issued and outstanding, respectively 230 230 Additional paid-in capital 236,897 236,804 Retained deficit (119,501) (104,469) Accumulated other comprehensive loss (311) (306) Treasury stock at cost, 59,600 common shares (1,279) (1,279) --------- --------- Total stockholders' equity 116,041 130,985 --------- --------- $ 671,632 $ 692,504 ========= ========= </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) Three Months Ended March 31, -------------------------- 2002 2001 (Unaudited) (Unaudited) ----------- ---------- NET SALES $ 161,952 $ 242,629 COST OF SALES 161,913 244,372 --------- --------- Gross profit (loss) 39 (1,743) GENERAL AND ADMINISTRATIVE EXPENSES 14,091 10,010 SELLING EXPENSES 5,749 6,158 --------- --------- Loss from operations (19,801) (17,911) OTHER INCOME (EXPENSE) Interest expense (5,673) (5,800) Accounts receivable securitization costs (1,731) (977) Foreign exchange losses, net (253) (818) Equity in losses of unconsolidated affiliate --- (2,489) Other, net 922 (159) --------- --------- Loss before income taxes (26,536) (28,154) INCOME TAX BENEFIT (11,947) (10,424) --------- --------- Net loss $ (14,589) $ (17,730) PREFERRED STOCK DIVIDENDS 443 476 --------- --------- NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (15,032) $ (18,206) ========= ========= EARNINGS (LOSS) PER SHARE: Basic $ (0.65) $ (0.79) Diluted $ (0.65) $ (0.79) ========= ========= CASH DIVIDENDS PER SHARE $ --- $ 0.04 ========= ========= See Notes to Condensed Consolidated Financial Statements. 2
WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) <TABLE> <CAPTION> Three Months Ended March 31, ----------------------------- 2002 2001 ---------- ---------- (Unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (14,589) $ (17,730) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities- Depreciation and amortization 7,441 7,919 Trailer valuation charges 2,100 9,100 Provision for losses on accounts receivable and finance contracts 4,060 1,559 Deferred income taxes --- (3,116) Equity in losses of unconsolidated affiliate --- 2,489 Cash used for restructuring activities (147) (1,913) Change in operating assets and liabilities: Accounts receivable (8,830) (17,965) Inventories 41,625 14,106 Refundable income taxes 11,685 --- Prepaid expenses and other 2,888 31 Accounts payable and accrued liabilities (6,324) (5,028) Other, net (1,034) (1,977) - ----------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 38,875 (12,525) - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (766) (3,091) Net additions to equipment leased to others (9,342) (18,919) Net additions to finance contracts (5,694) (5,852) Acquisitions, net of cash acquired --- (6,336) Investment in unconsolidated affiliate --- (1,225) Proceeds from sale of leased equipment and finance contacts 5,737 10,810 Principal payments received on finance contracts 2,963 2,784 Proceeds from the sale of property, plant and equipment 17 82 - ----------------------------------------------------------------------------------------------------- Net cash used in investing activities (7,085) (21,747) - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from: Revolver 23,300 124,900 Common stock 93 --- Payments: Revolver (17,308) (70,902) Long-term debt and capital lease obligations (8,230) (10,622) Common stock dividends --- (920) Preferred stock dividends (443) (476) - ----------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (2,588) 41,980 - ----------------------------------------------------------------------------------------------------- NET INCREASE IN CASH 29,202 7,708 - ----------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,135 4,194 - ----------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 40,337 $ 11,902 ===================================================================================================== Supplemental disclosures of cash flow information: - ----------------------------------------------------------------------------------------------------- Cash paid during the period for: Interest $ 3,190 $ 6,220 Income taxes paid (refunded, net) (24,534) 376 - ----------------------------------------------------------------------------------------------------- </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 2001 Annual Report on Form 10-K/A. In the opinion of the registrant, the accompanying condensed consolidated financial statements contain all material adjustments, necessary to present fairly the consolidated financial position of the Company at March 31, 2002 and December 31, 2001 and its results of operations and cash flows for the three months ended March 31, 2002 and 2001. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Comprehensive Loss The Company's comprehensive loss includes net loss and foreign currency translation adjustments. The Company's net loss and total comprehensive loss was $14.6 million and $14.6 million, respectively for the three months ended March 31, 2002 and $17.7 million and $18.6 million, respectively for the same period in 2001. b. Inventories Inventories consisted of the following (in thousands): March 31, December 31, 2002 2001 ----------- ------------ (Unaudited) Raw material and components $ 32,402 $ 38,235 Work in process 12,133 10,229 Finished goods 44,424 58,984 Aftermarket parts 20,828 22,726 Used trailers 38,221 60,920 --------- --------- $ 148,008 $ 191,094 ========= ========= 4
c. New Accounting Pronouncements The Company adopted Statement of Accounting Standards (SFAS) No. 142. Goodwill and Other Intangible Assets, as of January 1, 2002. This new standard changes the accounting for goodwill from an amortization method to an impairment-only approach, and introduces a new model for determining impairment charges. SFAS No. 142 requires completion of the initial step of a transitional impairment test within six months of the adoption of this standard and, if applicable, completion of the final step of the adoption by December 31, 2002. The Company is in the initial stages of evaluating the transitional impairment test and related impact, if any, to the Company's results of operations and financial position. Goodwill amortization expense was approximately $0 million and $0.3 million, for the three months ended March 31, 2002 and 2001, respectively. In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations with an effective date of June 15, 2002 which becomes effective for the Company on January 1, 2003. This standard requires obligations associated with retirement of long-lived assets to be capitalized as part of the carrying value of the related asset. The Company does not believe the adoption of SFAS No. 143 will have a material effect on its financial statements. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This standard supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This standard retains the previously existing accounting requirements related to the recognition and measurement requirements of the impairment of long-lived assets to be held for used, while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. The provisions of SFAS No. 144 could require the Company to reclassify assets held for sale if the sale is not completed prior to December 31, 2002. It also expands on the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. The Company adopted the accounting provisions of this standard on January 1, 2002. The effect of adopting the accounting provisions of this standard was not material to the Company's financial statements. Consistent with the provisions of this new standard, financial statements for prior years have not been restated. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections. This standard is required to be adopted by the Company on January 1, 2003, but may be adopted early. SFAS No. 145 modifies the classification criteria for extraordinary items related to the extinguishment of debt. The Company is evaluating the impact of this standard and considering adoption alternatives in connection with the Company's debt extinguishment charges to be recorded in the period ended June 30, 2002. d. Reclassifications Certain items previously reported in specific condensed consolidated financial statement captions have been reclassified to conform to the 2002 presentation. 5
NOTE 3. RESTRUCTURING AND OTHER RELATED CHARGES a. 2001 Restructuring Plan During the third quarter of 2001, the Company recorded restructuring and other related charges totaling $40.5 million primarily related to the rationalization of the Company's manufacturing capacity resulting in the closure of the Company's platform trailer 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. During the fourth quarter of 2001, the Company reduced its plant closure reserve by approximately $0.9 million as a result of the Company's ability to effectively control its closure costs. Details of the restructuring charges and reserve for the 2001 Restructuring Plan are as follows (in thousands): <TABLE> <CAPTION> Utilized Original --------------------- Balance Provision 2001 2002 3/31/02 --------- -------- ------ -------- <S> <C> <C> <C> <C> Restructuring Costs: Impairment of long-term assets $ 33,842 $(33,842) $ --- $ --- Plant closure costs 1,763 (1,463) (30) 270 Severance benefits 912 (912) --- --- Other 305 (105) --- 200 -------- -------- ------ -------- $ 36,822 $(36,322) $ (30) $ 470 ======== ======== ====== ======== Inventory write-down $ 3,714 $ (3,714) $ --- $ --- Total restructuring & other related charges $ 40,536 $(40,036) $ (30) $ 470 ======== ======== ====== ======== </TABLE> b. 2000 Restructuring Plan In December 2000, the Company recorded restructuring and other related charges totaling $46.6 million 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. During the fourth quarter of 2001, the Company recorded an additional restructuring charge of $1.4 million related to its divestiture of ETZ. Details of the restructuring charges and reserve for the 2000 Restructuring Plan are as follows (in thousands): <TABLE> <CAPTION> Utilized Original Additional ------------------------ Balance Provision Provision 2000-2001 2002 3/31/02 --------- --------- --------- -------- -------- <S> <C> <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 --- (3,394) --- 5,198 Write-down of other assets & other charges 6,927 --- (5,568) (117) 1,242 -------- -------- -------- -------- -------- $ 36,338 $ --- $(29,781) $ (117) $ 6,440 -------- -------- -------- -------- -------- Restructuring of minority interest operations: Impairment of long-term assets $ 5,832 $ --- $ (5,832) $ --- $ --- Financial Guarantees $ --- $ 1,381 $ --- $ --- $ 1,381 Inventory write-down and other charges $ 4,480 $ --- $ (4,480) $ --- $ --- Total restructuring and other related charges $ 46,650 $ 1,381 $(40,093) $ (117) $ 7,821 ======== ======== ======== ======== ======== </TABLE> 6
NOTE 4. EARNINGS (LOSS) PER SHARE Earnings (Loss) per share is computed in accordance with SFAS No. 128, Earnings per Share. A reconciliation of the numerators and denominators of the basic and diluted EPS computations, as required by SFAS No. 128, is presented below. Neither stock options nor convertible preferred stock were included in the computation of diluted losses per share in the current year and in the same period last year since these inclusions would have resulted in an antidilutive effect (in thousands except per share amounts): Net Loss Weighted Available Average Loss To Common Shares Per Share - -------------------------------------------------------------------------------- (Unaudited) Three Months Ended March 31, 2002 - ---------------------------------- Basic $(15,032) 23,018 $(0.65) - -------------------------------------------------------------------------------- Diluted $(15,032) 23,018 $(0.65) ================================================================================ Three Months Ended March 31, 2001 - ---------------------------------- Basic $(18,206) 23,002 $(0.79) - -------------------------------------------------------------------------------- Diluted $(18,206) 23,002 $(0.79) ================================================================================ NOTE 5. SEGMENTS Under the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company has two reportable segments: manufacturing and retail and distribution. The manufacturing segment produces and sells new trailers to the retail and distribution segment or to customers who purchase trailers direct or through independent dealers. The retail and distribution segment includes the sale, leasing and financing of new and used trailers, as well as the sale of aftermarket parts and service through its retail branch network. In addition, the retail and distribution segment includes the sale of aftermarket parts through Wabash National Parts. Reportable segment information is as follows (in thousands): <TABLE> <CAPTION> Three Months Ended Retail and Combined Consolidated March 31, 2002 Manufacturing Distribution Segments Eliminations Totals - ------------------ ------------- ------------ -------- ------------ ------ (unaudited) <S> <C> <C> <C> <C> <C> Revenues External customers $ 77,660 $ 84,292 $ 161,952 $ --- $ 161,952 Intersegment sales 4,742 2,060 6,802 (6,802) --- --------- --------- --------- --------- --------- Total Revenues $ 82,402 $ 86,352 $ 168,754 $ (6,802) $ 161,952 ========= ========= ========= ========= ========= Income (loss) from Operations $ (16,495) $ (3,748) $ (20,243) $ 442 $ (19,801) Three Months Ended March 31, 2001 - ------------------ (unaudited) Revenues External customers $ 157,990 $ 84,639 $ 242,629 $ --- $ 242,629 Intersegment sales 14,059 254 14,313 (14,313) --- --------- --------- --------- --------- --------- Total Revenues $ 172,049 $ 84,893 $ 256,942 $ (14,313) $ 242,629 ========= ========= ========= ========= ========= Income (loss) from Operations $ (16,755) $ (1,265) $ (18,020) $ 109 $ (17,911) </TABLE> 7
NOTE 6. DEBT In April 2002, the Company entered into an agreement with its lenders to restructure its existing revolving credit facility and Senior Series Notes and waive violations of its financial covenants through March 30, 2002. The amendment changes debt maturity and principal payment schedules; provides for all unencumbered assets to be pledged as collateral equally to the lenders; increases the cost of funds; and requires the Company to meet certain financial conditions, among other things. The amended agreements also contain certain restrictions on acquisitions and the payment of preferred stock dividends. Maturities of long-term debt at March 31, 2002, are as follows (in thousands): Amounts ------- 2002.............................. $ 46,890 2003.............................. 62,871 2004.............................. 133,124 2005.............................. 24,712 2006.............................. 15,924 Thereafter.......................... 51,965 -------- $335,486 ======== Prior to the new debt agreements, the Company was required under various loan agreements to meet certain financial covenants. The Company's new debt agreements contain restrictions on excess cash flow, the amount of new finance contracts the Company can enter into (not to exceed $5 million within any twelve month period), and other restrictive covenants. These other restrictive covenants contain minimum requirements related to the following items, as defined in the agreement: Earnings Before Interest, Taxes, Depreciation and Amortization; quarterly equity positions; debt to asset ratios; interest coverage ratios; and capital expenditure amounts. These covenants become effective in April of 2002 and become more restrictive in 2003. NOTE 7. 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. In March of 2001, Bernard Krone Industria e Comercio de Maquinas Agricolas Ltda. ("BK") filed suit against the Company in the Fourth Civil Court of Curitiba in the State of Parana, Brazil. This action seeks recovery of damages plus pain and suffering. Because of the bankruptcy of BK, this proceeding is now pending before the Second Civil Court of Bankruptcies and Creditors Reorganization of Curitiba, State of Parana (No.232/99). 8
This case grows out of a joint venture agreement between BK and the Company, which was generally intended to permit BK and the Company to market the RoadRailer(R) trailer in Brazil and other areas of South America. When BK was placed into the Brazilian equivalent of bankruptcy late in the year 2000, the joint venture was dissolved. BK subsequently filed its lawsuit against the Company alleging that it was forced to terminate business with other companies because of the exclusivity and non-compete clauses purportedly found in the joint venture agreement. The lawsuit further alleges that Wabash did not properly disclose technology to BK and that Wabash purportedly failed to comply with its contractual obligations in terminating the joint venture agreement. In its complaint, BK asserts that it has been damaged by these alleged wrongs by the Company in the approximate amount of $8.4 million (U.S.). The Company answered the complaint in May of 2001, denying any wrongdoing and pointing out that, contrary to the allegation found in the complaint, a merger of the Company and BK, or the acquisition of BK by the Company, was never the purpose or intent of the joint venture agreement between the parties; the only purpose was the business and marketing arrangement as set out in the agreement. The Company believes that the claims asserted against it by BK are without merit and intends to defend itself vigorously against those claims. The Company believes that the resolution of this lawsuit will not have a material adverse effect on its financial position or future results of operations; however, at this early stage of the proceeding, no assurance can be given as to the ultimate outcome of the case. On September 17, 2001 the Company commenced an action against PPG Industries, Inc. ("PPG") in the United States District Court, Northern District of Indiana, Hammond Division at Lafayette, Civil Action No. 4:01 CV 55. In the lawsuit, the Company alleged that it has sustained substantial damages stemming from the failure of the PPG electrocoating system (the "E-coat system") and related products that PPG provided for the Company's Scott County Tennessee plant. The Company alleges that PPG is responsible for defects in the design of the E-coat system and defects in PPG products that have resulted in malfunctions of the E-coat system and poor quality coatings on numerous trailers. The Company further alleges that the failures of PPG's E-coat system and products substantially contributed to the decision to shut down the Scott County plant. PPG filed a Counterclaim in that action on or about November 8, 2001, seeking damages in excess of approximately $1.35 million based upon certain provisions of the November 3, 1998 Investment Agreement between it and the Company. The Company filed a Reply to the Counterclaim denying liability for the claims asserted. The Company believes that the claims asserted against it by PPG in the Counterclaim are without merit and intends to defend itself vigorously against those claims. It also believes that the claims asserted in its Complaint are valid and meritorious and it intends to prosecute those claims. The Company believes that the resolution of this lawsuit will not have a material adverse effect on its financial position or future results of operations; however, at this early stage of the proceeding, no assurance can be given as to the ultimate outcome of the case. In the second quarter of 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 May 16, 2001, the Company received a second grand jury subpoena that sought the production of additional documents relating to the discharge in question. The Company is fully cooperating with federal officials with respect to their investigation into the matter. At this time, 9
the Company is unable to predict the outcome of the 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. 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. The Company is currently negotiating an agreed-upon Order with TDEC to resolve this matter. b. Environmental 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 March 31, 2002 and 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. c. Used Trailer Restoration Program During 1999, the Company reached a settlement with the IRS 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 assessed by the IRS for years subsequent to 1997. As a result, the Company has recorded a liability and a corresponding receivable of approximately $8.3 million and $8.3 million in the accompanying Consolidated Balance Sheets at March 31, 2002 and December 31, 2001, respectively. During 2001, the IRS completed its federal excise tax audit of 1999 and 1998 resulting in an assessment of approximately $5.4 million. The Company believes it is fully indemnified for this liability and that the related receivable is fully collectible. 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report, including documents incorporated herein by reference, contains forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission or otherwise. The words "believe," "expect," "anticipate," and "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement is made. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, information regarding revenues, income or loss, capital expenditures, acquisitions, number of retail branch openings, plans for future operations, financing needs or plans, the impact of inflation and plans relating to services of the Company, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Statements in this report, including those set forth in "The Company" and "Risk Factors," and in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", describe factors, among others, that could contribute to or cause such differences. Although we believe that our expectations that are expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations include the factors that are disclosed elsewhere herein and in Item 4A in the Company's Form 10-K/A as filed with the Securities and Exchange Commission on April 18, 2002. CRITICAL ACCOUNTING POLICIES A summary of the Company's critical accounting policies is as follows: Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that directly affect the amounts reported in its consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Revenue Recognition The Company recognizes revenue from the sale of trailers and aftermarket parts when risk of ownership is transferred to the customer. Revenue is generally recognized upon shipment. Customers that have requested to pick up their trailers are invoiced prior to taking physical possession when the customer has made a fixed commitment to purchase the trailers, the trailers have been completed and are available for pickup or delivery, the customer has requested in writing that the Company hold the trailers until the customer determines the most economical means of taking possession and the customer takes possession of the trailers within a specified time period. In such cases, the trailers, which have been produced to the customer specifications, are invoiced under the Company's normal billing and credit terms. 11
The Company recognizes revenue from direct finance leases based upon a constant rate of return while revenue from operating leases is recognized on a straight-line basis in an amount equal to the invoiced rentals. Used Trailer Trade Commitments The Company has commitments with customers to accept used trailers on trade for new trailer purchases. The Company's policy is to recognize losses related to these commitments, if any, at the time the new trailer revenue is recognized. Accounts Receivable Accounts receivable includes trade receivables and amounts due under finance contracts. Provisions to the allowance for doubtful accounts are charged to General and Administrative expenses on the Consolidated Statements of Operations. Inventories Inventories are primarily stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or market. The cost of manufactured inventory includes raw material, labor and overhead. Inventories consist of the following (in thousands): March 31, December 31, 2002 2001 ---------- ------------ (Unaudited) Raw material and components $ 32,402 $ 38,235 Work in process 12,133 10,229 Finished goods 44,424 58,984 Aftermarket parts 20,828 22,726 Used trailers 38,221 60,920 --------- -------- $ 148,008 $191,094 ========= ======== Long-Lived Assets Long-lived assets are reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever facts and circumstances indicate that the carrying amount may not be recoverable. Specifically, this process involves comparing an asset's carrying value to the estimated undiscounted future cash flows the asset is expected to generate over its remaining life. If this process were to result in the conclusion that the carrying value of a long-lived asset would not be recoverable, a write-down of the asset to fair value would be recorded through a charge to operations. Accrued Liabilities Accrued liabilities primarily represent accrued payroll related items, restructuring reserves, warranty reserves, loss contingencies related to used trailer residual commitments and self insurance reserves related to group insurance and workers compensation. Changes in the estimates of these reserves are charged or credited to income in the period determined. The Company is self-insured up to specified limits for medical and workers' compensation coverage. The self-insurance reserves have been recorded to reflect the undiscounted estimated liabilities, including claims incurred but not reported. 12
The Company recognizes a loss contingency for used trailer residual commitments for the difference between the equipment's purchase price and its fair market value, when it becomes probable that the purchase price at the guarantee date will exceed the equipment's fair market value at that date. The Company's warranty policy generally provides coverage for components of the trailer the Company produces or assembles. Typically, the coverage period is one year for container chassis and specialty trailers and five years for dry freight, refrigerated and flat bed trailers. The Company's policy is to accrue the estimated cost of warranty coverage at the time of the sale. RESULTS OF OPERATIONS The Company has two reportable segments: manufacturing and retail and distribution. The manufacturing segment produces and sells new trailers to the retail and distribution segment or to customers who purchase trailers direct or through independent dealers. The retail and distribution segment includes the sale, leasing and financing of new and used trailers, as well as the sale of aftermarket parts and service through its retail branch network. In addition, the retail and distribution segment includes the sale of aftermarket parts through Wabash National Parts. Net Sales Consolidated net sales for the first quarter of 2002 decreased by 33.3% (or $80.7 million) compared to the same period in 2001. This decrease was primarily a result of lower net sales in the Company's manufacturing segment. Net sales in the first quarter of 2002 continued to be adversely affected by the unfavorable economic conditions in the U.S. economy and weak trailer orders. The Company believes that trailer order rates are being negatively affected by class 8 tractor orders and new emission standards that became effective October 1, 2002. The manufacturing segment's external net sales decreased by 50.8% (or $80.3 million) in the first quarter of 2002 compared to the same period in 2001. This decrease was driven by a 52.6% decrease in the number of units sold from approximately 9,500 units in the first quarter of 2001 to approximately 4,500 units during the first quarter of 2002. This decrease was partially offset by a 3.0% increase in the average selling price per new trailer sold during the first quarter of 2002 compared to the same period in 2001 from approximately $16,500 in 2001 to $17,000 in 2002. At March 31, 2002, the Company's backlog of orders was approximately $187.6 million, approximately 60% of which is related to the DuraPlate trailer. The retail and distribution segment's external net sales decreased by 0.4% (or $0.3 million) in the first quarter of 2002 compared to the same period in 2001. This decrease was driven primarily by a decrease in new trailer revenues and after market parts revenue of approximately $6.9 million and $2.2 million respectively, nearly offset by a $8.7 million increase in used trailer revenues. 13
Gross Profit (Loss) Gross profit (loss) as a percentage of net sales totaled 0.02% for the first quarter of 2002 compared to (0.7%) for the same period in 2001. This improvement was primarily attributable to the following factors: - Increase in the average selling price for new trailers of approximately 3.0% within the Company's manufacturing segment previously discussed; - Decrease in inventory valuation charges related to new and used trailers recorded during the period to $2.1 million during the first quarter of 2002 as compared to $9.1 million in the first quarter of 2001; and - Partially offset by a 52.6% decline in the number of units sold in the Company's manufacturing segment during the first quarter of 2002, as compared to the same period last year. Loss From Operations Loss from operations for the first quarter of 2002 as a percentage of net sales was (12.2%) compared to (7.4%) for the same period in 2001. This decline is primarily attributable to the following factors: - Increase in bad debt expense of $2.5 million for the first quarter of 2002 compared to the same period in 2001, primarily attributable to the Company's leasing operations within the Company's retail and distribution segment; - Incurred $1.7 million in professional fees in connection with the Company's debt restructuring actions during the first quarter of 2002; and - Partially offset by a slight improvement in the Company's gross profit (loss). Other Income (Expense) Interest expense for the first quarter of 2002 was approximately $5.7 million as compared to $5.8 million during the same period in 2001. This slight decrease was primarily driven by lower interest rates on the Company's revolver during 2002, nearly offset by increased interest expense associated with two capital leases the Company entered into during December 2001. Accounts receivable securitization costs related to the Company's accounts receivable securitization facility, was $1.7 million in the first quarter of 2002 compared to $1.0 million during the same period in the prior year. This increase is primarily attributable to costs incurred in connection with the Company's recent debt restructuring actions. Equity in losses of unconsolidated affiliate for the first quarter of 2002 was $0 compared to a loss of approximately $2.5 million during the same period in 2001. This change reflects the Company's divestiture of its German subsidiary on January 11, 2002. As a result of this divestiture, the Company has ceased recognizing an ownership in this entity's operations. Other, net primarily includes items such as interest income, gain or loss from the sale of fixed assets and other non-operating items. 14
Taxes The provision (benefit) for income taxes for the three-month period ended March 31, 2002 and 2001 was ($11.9) million and ($10.4) million, respectively. For the quarter ended March 31, 2001, the effective rate of benefit recorded of 37.0% exceeded the Federal statutory rate of 35% primarily due to state income taxes. For the first quarter of 2002 the benefit recorded represented an additional realizable Federal net operating loss carryback claim filed under the provisions of the Job Creation and Worker Assistance Act of 2002, which revised the permitted carryback period for net operating losses generated during 2001 from two years to five years. LIQUIDITY AND CAPITAL RESOURCES The Company believes that existing funds, cash generated from operations and availability of funds from its restructured credit facilities and accounts receivable securitization should be adequate to satisfy working capital needs, capital expenditure requirements, interest and principal repayments on debt for the next twelve months. Management also anticipates the completion of the following transactions during 2002 that will provide additional financial resources for the Company: - Sale and leaseback of certain real property - $30 million; and - Sale of idle assets currently held for sale - $10 million. The Company's ongoing liquidity will depend upon a number of factors including its ability to manage cash resources and meet the financial covenants under its new debt agreements. In the event the Company is unsuccessful in meeting its debt service obligations or if expectations regarding the management and generation of cash resources are not met, the Company would need to implement severe cost reductions, reduce capital expenditures, sell additional assets, restructure all or a portion of its existing debt and/or obtain additional financing. Debt Restructuring In April 2002, the Company entered into an agreement with its lenders to restructure its existing revolving credit facility and Senior Series Notes and waive violations of its financial covenants through March 30, 2002. The amendment changes debt maturity and principal payment schedules; provides for all unencumbered assets to be pledged as collateral equally to the lenders; increases the cost of funds; and requires the Company to meet certain additional financial conditions, among other items. The amended agreement also contains restrictions on acquisitions and the payment of preferred stock dividends. The Company's existing $125 million Revolving Credit facility was restructured into a $107 million term loan (Bank Term Loan) and an $18 million revolving credit facility (Bank Line of Credit). The Bank Term Loan and Bank Line of Credit both mature on March 30, 2004 and are secured by all of the unencumbered assets of the Company. Interest on the $107 million Bank Term Loan is variable based upon the adjusted London Interbank Offered Rate ("LIBOR") plus 380 basis points and is payable monthly. Interest on the borrowing under the $18 million Bank Line of Credit is based upon adjusted LIBOR plus 355 basis points or the agent bank's alternative borrowing rate as defined in the agreement. 15
As of March 31, 2002, the Company had $192 million of Senior Series Notes outstanding which originally matured in 2002 through 2008. As part of the restructuring, the original maturity dates for $72 million of Senior Series Notes, payable in 2002 through March 2004, have been extended to March 30, 2004. The maturity dates for the other $120 million of Senior Series Notes, due subsequent to March 30, 2004, remain unchanged. As consideration for the extension of the maturity dates, the Senior Series Notes are now secured by all of the unencumbered assets of the Company. Interest on the Senior Series Notes, which is payable monthly, increased by 325 basis points, effective April 2002, and ranges from 9.66% to 11.29%. The Company is required to make principal payments of approximately $10 million during 2002 and approximately $60 million during 2003 to the Bank Term Loan and Senior Series Notes. The monthly principal payments are applied on a pro-rata basis to the Bank Term Loan and Senior Series Notes. In addition, principal payments will be made from excess cash flow, as defined in the agreement, on a quarterly basis. Such additional payments will also be applied on a pro-rata basis to the Bank Term Loan and Senior Series Notes. In April 2002, the Company entered into an amendment of its sale and leaseback agreement with an independent financial institution related to its trailer rental fleet to waive financial covenant violations through March 30, 2002 and amend the terms of the existing agreement. The amendment provided for increased pricing and conforms the financial covenants to those in the amended Bank Term Loan, Bank Line of Credit and Senior Series Notes agreements described above. The initial term of the facility remains unchanged, expiring in June 2002. However, the annual renewal periods have been reduced to three, with the last renewal period being from July 2004 through January 2005. Assuming all renewal periods are elected, the Company will make payments under this facility of $14.7 million, $14.2 and $13.3 million in 2002, 2003 and 2004, respectively. As a result of the amendments to the sale-leaseback facility, which had been accounted for as an operating lease, this facility was required to be included on the Consolidated Balance Sheet of the Company as of December 31, 2001. Accordingly, the trailer rental fleet has been recorded as equipment leased to others at its fair market value of approximately $42 million and a capital lease obligation of approximately $65 million, which reflects the unamortized lease value under this agreement. A non-cash charge to cost of sales of $23 million was recorded in the Consolidated Statements of Operations for the year ended December 31, 2001 related to the difference between the fair market values of the equipment and the unamortized lease value. Assuming all renewal periods are elected, the Company will make payments under this facility of $14.7 million, $14.2 million and $13.3 million in 2002, 2003 and 2004, respectively. In April 2002, the Company replaced its existing $100 million receivable securitization facility with a new two year $110 million Trade Receivables Facility. The new facility allows the Company to sell, without recourse, on an ongoing basis predominantly all of its domestic accounts receivable to a wholly-owned, bankruptcy remote special purpose entity (SPE). The SPE sells an undivided interest in receivables to an outside liquidity provider who, in turn, remits cash back to the SPE for receivables eligible for funding. This new facility includes financial covenants identical to those in the amended Bank Term Loan, Bank Line of Credit and Senior Series Notes. 16
Debt Obligations A summary of debt payments due by period of the Company's contractual obligations and commercial commitments as of March 31, 2002 is shown in the table below. The table reflects the obligations under the amended and restated credit agreement which was effective April 2002. <TABLE> <CAPTION> $ Millions 2002 2003 2004 2005 Thereafter Total - ----------------------------------- ------- ------- -------- ------- ---------- -------- <S> <C> <C> <C> <C> <C> <C> DEBT (excluding interest): - ----------------------------------- Revolving Bank Line of Credit $ 5.7 $ --- $ 14.9 $ --- $ --- $ 20.6 Receivable Securitization Facility* 18.2 --- --- --- --- 18.2 Mortgages & Other Notes Payable 12.5 3.4 3.4 4.1 6.3 29.7 Bank Term Loan 3.8 21.4 49.8 --- --- 75.0 Senior Series Notes 6.7 38.1 65.0 20.7 61.5 192.0 TOTAL DEBT $ 46.9 $ 62.9 $ 133.1 $ 24.8 $ 67.8 $ 335.5 ======= ======= ======== ======= ======= ======== </TABLE> *The Receivable Securitization Facility obligation reflects advances as of March 31, 2002 which will be refinanced under the new Trade Receivable Facility. Explanation of Cash Flow The Company's cash position increased $29.2 million, from $11.1 million in cash and cash equivalents at December 31, 2001 to $40.3 million as of March 31, 2002. This increase was due to cash provided by operating activities of $38.9 million partially offset by cash used in investing activities and financing activities of $7.1 million and $2.6 million, respectively. Operating Activities Net cash provided by operating activities was $38.9 million during the first three months of 2002 was primarily the result of changes in working capital along with the add back of non-cash charges for depreciation expense and amortization and provision for losses on accounts receivable and finance contracts, offset somewhat by the Company's net loss. Changes in working capital provided $42.1 million of net cash. This resulted from the collection of refundable income taxes as well as the reduction of inventory that was partially offset by a corresponding decrease in accounts payable and accrued liabilities. The decrease in inventory was primarily due to overall lower production resulting from reduced demand from customers as the transportation industry continued to be adversely impacted by unfavorable economic conditions. The Company reduced all components of its inventory, with the exception of work in process. 17
Investing Activities Net cash used in investing activities of $7.1 million during the first three months of 2002 was primarily due to the following: - net investment in the Company's trailer rental and operating lease portfolio of approximately $3.8 million; - net investment in the Company's finance contract portfolio of approximately $2.6 million; Financing Activities Net cash used in financing activities of $2.6 million during the first three months of 2002 was primarily due to a net decrease in total debt and capital lease obligations of $2.2 million and the payment of preferred stock dividends of $0.4 million. BACKLOG The Company's backlog of orders was approximately $187.6 million and $142.1 million at March 31, 2002 and December 31, 2001, respectively. The Company expects to fill a majority of its backlog within the next twelve months. NEW ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Accounting Standards (SFAS) No. 142. Goodwill and Other Intangible Assets, as of January 1, 2002. This new standard changes the accounting for goodwill from an amortization method to an impairment-only approach, and introduces a new model for determining impairment charges. SFAS No. 142 requires completion of the initial step of a transitional impairment test within six months of the adoption of this standard and, if applicable, completion of the final step of the adoption by December 31, 2002. The Company is in the initial stages of evaluating the transitional impairment test and related impact, if any, to the Company's results of operations and financial position. Goodwill amortization expense was approximately $0 million and $0.3 million, for the three months ended March 31, 2002 and 2001, respectively. In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations with an effective date of June 15, 2002 which becomes effective for the Company on January 1, 2003. This standard requires obligations associated with retirement of long-lived assets to be capitalized as part of the carrying value of the related asset. The Company does not believe the adoption of SFAS No. 143 will have a material effect on its financial statements. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This standard supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This standard retains the previously existing accounting requirements related to the recognition and measurement requirements of the impairment of long-lived assets to be held for used, while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. The provisions of SFAS No. 144 could require the Company to reclassify assets held 18
for sale if the sale is not completed prior to December 31, 2002. It also expands on the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. The Company adopted the accounting provisions of this standard on January 1, 2002. The effect of adopting the accounting provisions of this standard was not material to the Company's financial statements. Consistent with the provisions of this new standard, financial statements for prior years have not been restated. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections. This standard is required to be adopted by the Company on January 1, 2003, but may be adopted early. SFAS No. 145 modifies the classification criteria for extraordinary items related to the extinguishment of debt. The Company is evaluating the impact of this standard and considering adoption alternatives in connection with the Company's debt extinguishment charges to be recorded in the period ended June 30, 2002. 19
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 March 31, 2002, the Company had approximately $90 million of London Interbank Rate (LIBOR) based debt outstanding under its Bank Line of Credit, $6 million of outstanding borrowings under its Canadian revolving line of credit and $18 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. 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 March 31, 2002, the Company had no foreign currency forward contracts outstanding. 20
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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. In March of 2001, Bernard Krone Industria e Comercio de Maquinas Agricolas Ltda. ("BK") filed suit against the Company in the Fourth Civil Court of Curitiba in the State of Parana, Brazil. This action seeks recovery of damages plus pain and suffering. Because of the bankruptcy of BK, this proceeding is now pending before the Second Civil Court of Bankruptcies and Creditors Reorganization of Curitiba, State of Parana (No.232/99). This case grows out of a joint venture agreement between BK and the Company, which was generally intended to permit BK and the Company to market the RoadRailer(R) trailer in Brazil and other areas of South America. When BK was placed into the Brazilian equivalent of bankruptcy late in the year 2000, the joint venture was dissolved. BK subsequently filed its lawsuit against the Company alleging that it was forced to terminate business with other companies because of the exclusivity and non-compete clauses purportedly found in the joint venture agreement. The lawsuit further alleges that Wabash did not properly disclose technology to BK and that Wabash purportedly failed to comply with its contractual obligations in terminating the joint venture agreement. In its complaint, BK asserts that it has been damaged by these alleged wrongs by the Company in the approximate amount of $8.4 million (U.S.). The Company answered the complaint in May of 2001, denying any wrongdoing and pointing out that, contrary to the allegation found in the complaint, a merger of the Company and BK, or the acquisition of BK by the Company, was never the purpose or intent of the joint venture agreement between the parties; the only purpose was the business and marketing arrangement as set out in the agreement. The Company believes that the claims asserted against it by BK are without merit and intends to defend itself vigorously against those claims. The Company believes that the resolution of this lawsuit will not have a material adverse effect on its financial position or future results of operations; however, at this early stage of the proceeding, no assurance can be given as to the ultimate outcome of the case. On September 17, 2001 the Company commenced an action against PPG Industries, Inc. ("PPG") in the United States District Court, Northern District of Indiana, Hammond Division at Lafayette, Civil Action No. 4:01 CV 55. In the lawsuit, the Company alleged that it has sustained substantial damages stemming from the failure of the PPG electrocoating system (the "E-coat system") and related products that PPG provided for the Company's Scott County Tennessee plant. The Company alleges that PPG is responsible for defects in the design of the E-coat system and defects in PPG products that have resulted in malfunctions of the E-coat system and poor quality coatings on numerous trailers. The Company further alleges that the failures of PPG's E-coat system and products substantially contributed to the decision to shut down the Scott County plant. 21
PPG filed a Counterclaim in that action on or about November 8, 2001, seeking damages in excess of approximately $1.35 million based upon certain provisions of the November 3, 1998 Investment Agreement between it and the Company. The Company filed a Reply to the Counterclaim denying liability for the claims asserted. The Company believes that the claims asserted against it by PPG in the Counterclaim are without merit and intends to defend itself vigorously against those claims. It also believes that the claims asserted in its Complaint are valid and meritorious and it intends to prosecute those claims. The Company believes that the resolution of this lawsuit will not have a material adverse effect on its financial position or future results of operations; however, at this early stage of the proceeding, no assurance can be given as to the ultimate outcome of the case. In the second quarter of 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 May 16, 2001, the Company received a second grand jury subpoena that sought the production of additional documents relating to the discharge in question. The Company is fully cooperating with federal officials with respect to their investigation into the matter. At this time, the Company is unable to predict the outcome of the 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. 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. The Company is currently negotiating an agreed-upon Order with TDEC to resolve this matter. 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 None 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.01 Executive Employment Agreement dated April, 2002 between the Company and William P. Greubel. 15.01 Report of Independent Public Accountants (b) Reports on Form 8-K: 1. Form 8-K filed February 5, 2002 reporting under Item 2: Press release dated January 21, 2002 announcing the Company's divestiture of its European operations and completion of its restructuring plans. 2. Form 8-K filed April 22, 2002 reporting under Item 5: Press release dated April 22, 2002 announcing the resignation of Donald J. Ehrlich from the Company's Board of Directors. 3. Form 8-K filed April 23, 2002 reporting under Item 5: Press release dated April 23, 2002 announcing the appointment of William P. Greubel as President and Chief Executive Officer (CEO). 23
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: May 15, 2002 By: /s/ Mark R. Holden ------------ ------------------ Mark R. Holden Senior Vice President and Chief Financial Officer (Principal Accounting Officer And Duly Authorized Officer) 24