1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE [X] SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997 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)448-1591 ------------- 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 (2) 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 13, 1997 was 19,949,237.
2 WABASH NATIONAL CORPORATION INDEX FORM 10-Q <TABLE> <CAPTION> Page ---- <S> <C> <C> PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets at September 30, 1997 and December 31, 1996 1 Condensed Consolidated Statements of Income for the three and nine months ended September 30, 1997 and 1996 2 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk (Not Applicable) - PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 </TABLE>
3 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) <TABLE> <CAPTION> September 30, December 31, ------------- ------------ 1997 1996 ---- ---- (Unaudited) (Note 1) ASSETS ------ <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 10,864 $ 5,514 Accounts receivable, net 136,000 71,166 Current portion of finance contracts 6,233 6,128 Inventories 208,421 140,015 Prepaid expenses and other 19,302 13,087 --------- --------- Total current assets 380,820 235,910 --------- --------- PROPERTY, PLANT AND EQUIPMENT, net 117,486 81,782 --------- --------- EQUIPMENT LEASED TO OTHERS, net 44,897 63,825 --------- --------- FINANCE CONTRACTS, net of current portion 47,648 43,858 --------- --------- OTHER ASSETS 15,074 14,696 --------- --------- $ 605,925 $ 440,071 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current maturities of long-term debt $ 4,113 $ 3,942 Accounts payable 113,721 69,155 Accrued liabilities 38,400 14,101 --------- --------- Total current liabilities 156,234 87,198 --------- --------- LONG-TERM DEBT, net of current maturities 197,180 151,307 --------- --------- DEFERRED INCOME TAXES 27,320 22,879 --------- --------- OTHER NONCURRENT LIABILITIES 4,310 319 --------- --------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 25,000,000 share authorized; no shares issued --- --- Series A Junior Participating Preferred stock, $.01 par value, 300,000 shares authorized; no shares issued --- --- Series B Cumulative Convertible Exchangeable Preferred stock, 352,000 and -0- shares authorized and outstanding at September 30, 1997 and December 31, 1996 ($17.6 million 4 --- aggregate liquidation value) Common stock, $.01 par value, 75,000,000 shares authorized; 19,947,837 and 18,910,923 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively 200 189 Additional paid-in capital 135,465 99,388 Retained earnings 86,491 80,070 Treasury stock, at cost, 59,600 and 59,600 shares, respectively (1,279) (1,279) --------- --------- 220,881 178,368 --------- --------- $ 605,925 $ 440,071 ========= ========= </TABLE> See Notes to Condensed Consolidated Financial Statements. 1
4 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share amounts) <TABLE> <CAPTION> Three Months Nine Months Ended September 30, Ended September 30, ------------------- ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> NET SALES $246,403 $161,303 $577,897 $463,131 COST OF SALES 225,236 155,196 533,987 442,075 -------- -------- -------- -------- Gross Profit 21,167 6,107 43,910 21,056 GENERAL AND ADMINISTRATIVE EXPENSES 5,538 2,304 12,130 6,624 SELLING EXPENSE 2,583 1,249 5,802 3,396 -------- -------- -------- -------- Income from operations 13,046 2,554 25,978 11,036 OTHER INCOME (EXPENSE): Interest Expense (4,467) (2,567) (11,572) (7,561) Other, net 223 147 461 459 -------- -------- -------- -------- Income before income taxes 8,802 134 14,867 3,934 PROVISION FOR INCOME TAXES 3,750 39 6,104 1,533 -------- -------- -------- -------- Net Income $ 5,052 $ 95 $ 8,763 $ 2,401 -------- -------- -------- -------- PREFERRED STOCK DIVIDENDS 264 --- 478 --- -------- -------- -------- -------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 4,788 $ 95 $ 8,285 $ 2,401 ======== ======== ======== ======== NET INCOME PER COMMON SHARE $ 0.24 $ 0.01 $ 0.43 $ 0.13 ======== ======== ======== ======== CASH DIVIDENDS PER SHARE $ 0.035 $ .03 $ 0.095 $ .09 ======== ======== ======== ======== AVERAGE SHARES OUTSTANDING 19,939 18,908 19,463 18,914 ======== ======== ======== ======== </TABLE> See Notes to Condensed Consolidated Financial Statements. 2
5 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, ------------------- 1997 1996 ---- ---- (Unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 8,763 $ 2,401 Adjustments to reconcile net income to net cash provided by (used in) operating activities- Depreciation and amortization 13,986 11,640 Bad debt provision 424 285 Deferred income taxes 2,302 1,234 Change in operating assets and liabilities, excluding effects of the acquisition Accounts receivable (51,302) (767) Inventories (48,242) (16,746) Prepaid expenses and other 743 (4,596) Accounts payable 47,353 (22,051) Accrued liabilities 12,360 2,806 Other assets (1,147) (1,898) --------- --------- Total adjustments (23,523) (30,093) --------- --------- Net cash used in operating activities (14,760) (27,692) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (16,696) (6,150) Proceeds on disposal of leased equipment 58,778 17,124 Investment in equipment leased to others (34,987) (35,431) Investments in finance contracts (19,343) (5,480) Principal payments on finance contracts 3,897 3,654 Payments for RoadRailer technology (1,086) (1,759) Payment for purchase of Fruehauf, net of cash acquired (Note 5) (15,129) --- Other 60 85 --------- --------- Net cash used in investing activities (24,506) (27,957) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt (2,956) (11,739) Borrowings under long-term revolver 272,500 310,300 Payments under long-term revolver (248,500) (304,700) Proceeds from issuance of long-term debt 25,000 68,361 Proceeds from issuance of common stock, net of expenses 742 92 Payment of common stock dividend (1,733) (1,705) Payment of preferred stock dividend (437) --- Purchase of treasury stock --- (774) --------- --------- Net cash provided by financing activities 44,616 59,835 --------- --------- NET INCREASE IN CASH 5,350 4,186 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,514 2,097 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,864 $ 6,283 ========= ========= </TABLE> See Notes to Condensed Consolidated Financial Statements. 3
6 WABASH NATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) NOTE 1. GENERAL The consolidated financial statements included herein have been prepared by Wabash National Corporation and 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 financial statements and the notes thereto included in the Company's 1996 Annual Report on Form 10-K. In the opinion of the registrant, the accompanying 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, 1997 and December 31, 1996 and its results of operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine month period ended September 30, 1997 and 1996. NOTE 2. INVENTORIES Inventories consisted of the following: <TABLE> <CAPTION> September 30, December 31, 1997 1996 ---- ---- (Unaudited) <S> <C> <C> Raw material and components $ 90,355 $ 66,819 Work in process 18,687 16,344 Finished goods 54,240 27,608 Aftermarket parts 21,308 5,826 Used trailers 23,831 23,418 -------- -------- $208,421 $140,015 ======== ======== </TABLE> NOTE 3. LEASING OPERATIONS Wabash National Finance Corporation (the Finance Company), a wholly- owned subsidiary of the Company, provides leasing and finance programs to customers for new and used trailers. The Finance Company's lease revenues, excluding revenue from the sale of leased trailers of $3.5 million and $17.6 million, were $16.1 million and $9.8 million during the nine months ended September 30, 1997 and 1996 respectively. Income before income taxes was $0.6 million and $1.8 million during the nine months ended September 30, 1997 and 1996 respectively. 4
7 At September 30, 1997 and December 31, 1996 respectively, the Finance Company had $64.8 million and $80.9 million in long-term debt, comprised of $48.0 million and $61.0 million in intercompany debt to the Company and $16.8 and $19.9 million in debt due to third parties, of which $10.6 million and $0 was guaranteed by the Company. Also at September 30, 1997 and December 31, 1996 respectively, the Finance Company had total assets of $105.2 million and $118.5 million, consisting primarily of Equipment Held for Lease of $44.9 million and $63.8 million and Finance Contracts of $47.6 million and $43.9 million. During September 1997, the Finance Company sold approximately $55.5 million of its equipment leased to others in three separate transactions with large financial institutions. Simultaneously, the Finance Company leased the equipment back and entered into sublease arrangements with its customers. Each of these leases will be accounted for as an operating lease. The leases with the financial institutions provide for approximately $4.6 million of end of lease term residual value commitments. NOTE 4. ACQUISITION On April 16, 1997, the Company acquired substantially all of the remaining assets of Fruehauf Trailer Corporation (Fruehauf), a manufacturer and marketer of truck trailers and related parts. The purchase included assets consisting of the Fruehauf and Pro Par(R) names, all patents and trademarks, retail outlets in 31 major metropolitan markets, the aftermarket parts distribution business based in Grove City, Ohio, a specialty trailer manufacturing plant in Huntsville, Tennessee and a van manufacturing plant in Ft. Madison, Iowa. For financial statement purposes the acquisition was accounted for as a purchase and accordingly, Fruehauf's results are included in the consolidated financial statements since the date of acquisition. The retail outlets will operate under the name of Fruehauf Trailer Services, Inc., a wholly owned subsidiary of Wabash National Corporation. Aggregate consideration for this transaction was approximately $50.5 million consisting of $15.1 million in cash from credit facilities, $17.8 million in common stock and $17.6 million in preferred stock. The fair value of the assets acquired was approximately $63.5 million and approximately $13.0 million of liabilities were assumed in connection with this acquisition. The following table reflects unaudited pro forma combined results of operations of the Company and the acquired assets as if the acquisition had occurred January 1, 1997 and January 1, 1996. <TABLE> <CAPTION> Nine Months Ended September 30, 1997 1996 (Millions except per share amounts) (Unaudited) - ------------------------------------------------------------------------- <S> <C> <C> Net Sales $607.6 $617.6 Net Income $ 8.3 $ .7 Net Income per common share $ 0.42 $ 0 - ------------------------------------------------------------------------- </TABLE> 5
8 In management's opinion, the unaudited pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisition been consummated at the beginning of 1996 or at the beginning of 1997 or of future operations of the combined companies under the ownership and management of the Company. NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION <TABLE> <CAPTION> Nine Months Ended September 30, (In thousands) 1997 1996 - ------------------------------------------------------------------------------- <S> <C> <C> Cash paid during the period for: Interest, net of amounts capitalized $ 13,248 $ 6,668 Income taxes 845 713 - ------------------------------------------------------------------------------- Noncash investing and financing activities: Finance contracts converted to operating leases $ 1,882 $ 3,201 Operating leases converted to finance contracts 1,876 998 Used trailers transferred from inventory to operations --- 2,198 Preferred stock issued for acquisition 17,600 --- Common stock issued for acquisition 17,750 --- - ------------------------------------------------------------------------------- Purchase of Fruehauf assets, net of cash acquired: Accounts receivable, net $ 13,955 $ --- Inventory 20,163 --- Prepaid expenses and other 4,072 --- Property, plant and equipment 25,269 --- Current liabilities (8,980) --- Non-current liabilities (4,000) --- Stock issued (35,350) --- - ------------------------------------------------------------------------------- Net cash paid to acquire Fruehauf $(15,129) $ --- - ------------------------------------------------------------------------------- </TABLE> NOTE 6. LONG-TERM DEBT On September 30, 1997, the Company replaced its revolving credit facility. The new unsecured revolving bank line of credit permits the Company to borrow up to $125 million. Under this facility, the Company has the right to borrow until September 30, 2002, at which time the principal amount then outstanding will be due and payable. Interest payable on such borrowings is variable based upon the London interbank rate (LIBOR) plus 25 to 55 basis points, as defined, or a prime rate of interest, as defined. The Company pays a quarterly commitment fee on the unused portion of this facility at rates of 8.5 to 17.5 basis points per annum, as defined. Covenants under the new facility include a minimum level of net worth and a limitation on indebtedness. NOTE 7. SUBSEQUENT EVENT On November 4, 1997, the Company purchased a 25.1% ownership in a European RoadRailer operation for approximately $6 million. The ownership interest is in the ETZ-Europaische Trailerzug Beteiligungsgessellschaft mbH ("ETZ"), based in Munich, Germany, the majority shareholder of the BTZ Bayersriche Trailerzug Gesellschaft fur JBimodalen Guterverkehr mbH ("BTZ"). Also, on October 1, 1997, the Finance Company entered into a five year operating lease arrangement with BTZ for approximately $13 million of RoadRailer(R) equipment. 6
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS NOTE: This document contains various forward-looking comments. These comments should be viewed in connection with the risk factors disclosed in the Company's Form 8-K as filed with the Securities and Exchange Commission on January 21, 1997. Fruehauf Acquisition On April 16, 1997, the Company acquired substantially all of the remaining assets of Fruehauf Trailer Corporation (Fruehauf), a manufacturer and marketer of truck trailers and related parts. The purchase included assets consisting of the Fruehauf and Pro Par(R) names, all patents and trademarks, retail outlets in 31 major metropolitan markets, the aftermarket parts distribution business, a specialty trailer manufacturing plant and a van manufacturing plant. The acquisition was accounted for as a purchase and accordingly, Fruehauf's results are included in the consolidated financial statements since the date of acquisition. Net Sales Net sales for the three and nine month periods ended September 30, 1997 increased $85.1 million or 53% and $114.8 million or 25%, respectively, compared to the same periods in 1996. The increased sales for the three and nine month period were primarily attributable to an increase in new trailer sales of $55.6 million and $65.2 million, respectively, and an increase in aftermarket parts and service revenues of $20.5 million and $41.4 million, respectively. The increases in new trailer sales of $55.6 million and $65.2 million for the three and nine month periods, respectively, were caused by a 37% and 19% increase, respectively, in units sold as a result of increased production levels at the Company's existing manufacturing facility and the two new manufacturing facilities acquired. The Company's product mix for the three month period ended September 30, 1997 was favorably impacted by an increasing supply of composite material for the Company's newly introduced composite plate trailer. During the third quarter 1997, the Company completed construction of its own composite material manufacturing facility in Lafayette, Indiana. As a result, production start up of the new facility contributed to the increased supply of composite material during the quarter. The average sales price per new trailer sold increased 1.6% for the three month period compared to the corresponding period in 1996. For the nine month period ended September 30, 1997, the average sales price per new trailer sold decreased 2.2% compared to the corresponding period in 1996. 7
10 The increase in aftermarket parts and service revenues reflects an increase in aftermarket parts sales through the Company's existing parts distribution business as well as the aftermarket parts distribution business and 31 retail outlets acquired during the second quarter. Beginning in 1998, the Company plans to begin the expansion of its retail distribution network from its current level of 31 retail outlets to approximately 50 retail outlets within 24 to 36 months. Gross Profit Gross profit as a percentage of net sales totaled 8.6% for the three month period ended September 30, 1997 compared to 3.8% for the same period in 1996. The gross profit margin for the nine month period ended September 30, 1997 as a percentage of sales was 7.6% versus 4.5% for the same period in 1996. The increase in the gross profit percentage in 1997 reflects the increase in production levels and higher levels of aftermarket parts sales and service revenues, which are generally characterized by higher margins. Income From Operations Income from operations for the three and nine month periods ended September 30, 1997 as a percentage of net sales was 5.3% and 4.5% compared to 1.6% and 2.4% for the same periods in 1996. Income from operations in 1997 was impacted primarily by the increase in the gross profit margins previously discussed offset somewhat by increased selling, general and administrative expenses. The increase in selling, general and administrative expenses primarily reflects higher levels of expense associated with the retail outlets acquired. Interest Expense Interest expense for the three and nine month period ended September 30, 1997 totaled $4.5 million and $11.6 million compared to $2.6 million and $7.6 million for the same periods in 1996. The increase in interest expense primarily reflects new term and bank line of credit debt associated with the growth in the leasing operations and working capital requirements. Taxes The provision for income taxes for the three and nine month periods ended September 30, 1997 of $3.8 million and $6.1 million, respectively, represents 42.6% and 41.1% of pre-tax income for the periods compared to the provision of $.1 million and $1.5 million, or 29.1% and 39.0% of pretax income, respectively, for the same periods in 1996. The effective tax rates are higher than the Federal statutory rates of 35% due primarily to state income taxes. 8
11 LIQUIDITY AND CAPITAL RESOURCES As presented in the Condensed Consolidated Statements of Cash Flows, net cash used in operating activities was $14.8 million during the first nine months of 1997 primarily as a result of changes in working capital resulting from increases in accounts receivable and inventory offset somewhat by an increase in accounts payable. The changes in working capital were primarily the result of increased production levels and the establishment of inventory at the retail outlets acquired in the second quarter. During September, 1997, the Finance Company sold and leased back approximately $55.5 million of its equipment leased to others in three separate transactions with financial institutions. Net of these transactions, the Finance Company's lease portfolio (finance contracts and equipment leased to others) increased $40.4 million as the Company continues to expand its leasing operation. In addition, the Company used $16.7 million of cash for capital expenditures during the first nine months of 1997, principally for the construction of its composite material facility. At September 30, 1997, the Company's total debt was $201.3 million compared to $155.2 million at December 31, 1996. The net increase in the Company's debt primarily reflects new term and bank line of credit debt associated with the increased working capital requirements. On September 30, 1997, the Company replaced its revolving credit facility with an unsecured revolving bank line of credit permitting the Company to borrow up to $125 million. Under this facility, the Company has the right to borrow until September 30, 2002. Interest payable on such borrowings is variable based upon the London interbank rate (LIBOR) plus 25 to 55 basis points, as defined, or a prime rate of interest, as defined. The Company pays a quarterly commitment fee on the unused portion of this facility of 8.5 to 17.5 basis points per annum as defined. Other sources of funds for capital expenditures, continued expansion of businesses, dividends, principal repayments on debt, stock repurchase and working capital requirements are expected to be cash from operations, additional borrowings under the credit facilities and term borrowings and equity offerings. The Company believes that these funding sources will be adequate for its anticipated requirements. BACKLOG The Company's backlog of orders was approximately $657 million at September 30, 1997 and $462 million at December 31, 1996. The Company's backlog represents the amount of orders the Company believes to be firm. Such orders may be subject to extension, delay or cancellation under certain circumstances. NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) 9
12 recently released a new accounting rule (SFAS No. 128) on the calculation of earnings per share that is effective at year-end 1997. This rule, which does not permit early adoption, is not expected to have a material effect on the Company's reported earnings per share. In addition, in June 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income". This Statement is effective for fiscal periods beginning after December 15, 1997 with early adoption permitted. The Company is evaluating the effect this Statement will have on its financial reporting and disclosures; however, the Statement will have no effect on the Company's results of operations, financial position, capital resources or liquidity. 10
13 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.44 Revolving Credit Loan Agreement dated September 30, 1997, between NBD Bank, N.A. and Wabash National Corporation 10.45 Investment Agreement and Shareholders Agreement dated November 4, 1997, between ETZ (Europaische Trailerzug Beteiligungsgesellschaft MBH) and Wabash National Corporation 15.1 Report of Independent Public Accountants (b) Reports on Form 8-K: The Company did not file any current reports on Form 8-K during the quarter ended September 30, 1997 11
14 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 13, 1997 By: /s/ Mark R. Holden ----------------- ---------------------------------- Mark. R. Holden Vice President - Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 12