10-Q 1 e10-q.txt QUARTERLY REPORT 1 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 JUNE 30, 2000 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 August 11, 2000 was 22,986,946. 2 WABASH NATIONAL CORPORATION INDEX FORM 10-Q PART I - FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets at June 30, 2000 and December 31, 1999 1 Condensed Consolidated Statements of Income For the three and six months ended June 30, 2000 and 1999 2 Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2000 and 1999 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risks 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 3 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) June 30, December 31, 2000 1999 ----------- ------------ (Unaudited) (Note 1) ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 9,841 $ 22,484 Accounts receivable, net 159,132 111,567 Current portion of finance contracts 14,525 8,423 Inventories 364,567 269,581 Prepaid expenses and other 18,270 16,962 -------- -------- Total current assets 566,335 429,017 -------- -------- PROPERTY, PLANT AND EQUIPMENT, net 216,463 186,430 -------- -------- EQUIPMENT LEASED TO OTHERS, net 67,755 50,364 -------- -------- FINANCE CONTRACTS, net of current portion 63,766 71,839 -------- -------- INTANGIBLE ASSETS, net 31,619 32,669 -------- -------- OTHER ASSETS 22,440 20,972 -------- -------- $968,378 $791,291 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITES: Short-term borrowings $ 50,000 $ --- Current maturities of long-term debt 3,605 3,514 Accounts payable 150,657 145,568 Accrued liabilities 42,545 51,184 -------- -------- Total current liabilities 246,807 200,266 -------- -------- LONG-TERM DEBT, net of current maturities 277,485 164,367 -------- -------- DEFERRED INCOME TAXES 32,636 30,640 -------- -------- OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 18,202 16,653 -------- -------- STOCKHOLDERS' EQUITY: Preferred stock, aggregate liquidation value of $30,600 5 5 Common stock, 22,986,946 and 22,985,186 shares issued and outstanding, respectively 230 230 Additional paid-in capital 236,502 236,474 Retained earnings 157,790 143,935 Treasury stock at cost, 59,600 common shares (1,279) (1,279) -------- -------- Total stockholders' equity 393,248 379,365 -------- -------- $968,378 $791,291 ======== ======== See Notes to Condensed Consolidated Financial Statements. 1 4 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts)
Three Months Six Months Ended June 30, Ended June 30, -------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- (Unaudited) (Unaudited) NET SALES $ 358,729 $ 380,203 $ 711,577 $ 721,827 COST OF SALES 324,684 346,104 643,109 660,502 --------- --------- --------- --------- Gross Profit 34,045 34,099 68,468 61,325 GENERAL AND ADMINISTRATIVE EXPENSES 8,669 6,763 16,746 13,944 SELLING EXPENSE 5,254 4,940 10,318 9,979 --------- --------- --------- --------- Income from operations 20,122 22,396 41,404 37,402 OTHER INCOME (EXPENSE): Interest expense (5,643) (2,975) (9,772) (5,988) Accounts receivable securitization costs (1,736) (1,320) (3,396) (2,750) Equity in losses of unconsolidated affiliate (750) (1,000) (1,600) (2,000) Other, net 326 586 653 1,816 --------- --------- --------- --------- Income before income taxes 12,319 17,687 27,289 28,480 PROVISION FOR INCOME TAXES 4,804 7,340 10,643 11,766 --------- --------- --------- --------- Net Income $ 7,515 $ 10,347 $ 16,646 $ 16,714 PREFERRED STOCK DIVIDENDS 476 706 951 1,149 --------- --------- --------- --------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 7,039 $ 9,641 $ 15,695 $ 15,565 ========= ========= ========= ========= Earnings per share: Basic $ 0.31 0.42 0.68 0.68 Diluted $ 0.31 0.42 0.68 0.68 ========= ========= ========= ========= Cash dividends per share $ 0.04 $ 0.0375 $ 0.08 $ 0.075 ========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements. 2 5 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Six Months Ended June 30, --------------------------- 2000 1999 --------------------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 16,646 $ 16,714 Adjustments to reconcile net income to net cash provided by (used in) operating activities- Depreciation and amortization 13,729 9,933 Gain on sale of property, plant and equipment (126) (672) Bad debt provision 1,329 1,315 Deferred income taxes 402 (3,125) Equity in losses of unconsolidated affiliate 1,600 2,000 Change in operating assets and liabilities: Accounts receivable (48,894) (29,730) Inventories (94,986) (39,087) Prepaid expenses and other 286 6,943 Accounts payable and accrued liabilities (3,551) 34,733 Other, net 1,520 379 --------- ---------- Net cash used in operating activities (112,045) (597) --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (38,372) (31,439) Net (addition) reduction to equipment leased to others (23,986) 3,408 Net additions to finance contracts (9,709) (9,701) Investment in unconsolidated affiliate (1,283) (1,799) Proceeds from the sale of property, plant and equipment 626 1,185 Proceeds from sale of leased equipment and finance contacts 5,436 9,494 Principal payments on finance contracts 6,244 4,801 --------- ---------- Net cash used in investing activities (61,044) (24,051) --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from: Short-term borrowings 50,000 --- Long-term debt 12,500 --- Long-term revolver 263,200 9,300 Common stock, net of expense 28 164 Payments: Long-term debt (1,759) (2,534) Long-term revolver (160,732) (9,300) Common stock dividends (1,839) (1,725) Preferred stock dividends (952) (1,118) --------- ---------- Net cash provided by (used in) financing activities 160,446 (5,213) --------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (12,643) (29,861) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,484 67,122 --------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,841 $ 37,261 ========= ========== See Notes to Condensed Consolidated Financial Statements. 3 6 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 financial statements and the notes thereto included in the Company's 1999 Annual Report on Form 10-K. In the opinion of the Company, 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 June 30, 2000 and December 31, 1999, its results of operations for the three and six months ended June 30, 2000 and 1999 and cash flows for the six months ended June 30, 2000 and 1999. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ a. 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, with early adoption permitted. Management anticipates that, due to its limited use of derivative instruments, the adoption of SFAS No. 133, as amended, will not have a significant effect on the Company's annual results of operations or its financial position. On December 3, 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), to provide guidance on the recognition, presentation and disclosure of revenue in financial statements. This bulletin, through its subsequent revised releases, SAB No. 101A and SAB No. 101B, is effective for the Company's financial statements beginning in the fourth quarter 2000. Management is currently evaluating the impact of applying SAB 101 to its business. 4 7 b. Inventories Inventories consisted of the following (amounts in thousands): June 30, December 31, 2000 1999 -------- -------- (Unaudited) Raw material and components $108,049 $105,476 Work in process 16,729 11,215 Finished goods 95,175 49,906 Aftermarket parts 37,256 37,894 Used trailers 107,358 65,090 -------- -------- $364,567 $269,581 ======== ======== c. Reclassifications Certain items previously reported in specific consolidated financial statement captions have been reclassified to conform with the 2000 presentation. NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION ---------------------------------- Six Months Ended June 30, -------------------------- (amounts in thousands) 2000 1999 ----------------------------------------------------------------------------- Cash paid during the period for: (unaudited) Interest, net of amounts capitalized $ 8,635 $ 6,024 Income taxes 17,529 10,002 ------------------------------------------------------------------------------ NOTE 4. SHORT-TERM BORROWINGS --------------------- On June 22, 2000, the Company entered into a new, unsecured 364-day Credit Facility which permits the Company to borrow up to $70 million. Under this facility, the Company has a right to borrow until June 21, 2001, 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 50 to 150 basis points, as defined, or a prime rate of interest, as defined. The Company pays a commitment fee on the unused portion of this facility at rates of 15 to 30 basis points per annum, as defined. The Company also pays a utilization fee on outstanding borrowings under this facility at rates of 0 to 25 basis points per annum, as defined. Covenants under this facility are identical to existing covenants within the Company's Revolving Bank Line of Credit. At June 30, 2000, the Company had outstanding borrowings of $50 million under this facility, at an interest rate of 7.69%. 5 8 NOTE 5. SEGMENTS -------- Under the provisions of SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, the Company has three reportable segments; manufacturing, retail and distribution, and leasing and finance operations. The manufacturing segment principally produces new trailers and sells them directly to certain customers or through independent dealers. The manufacturing segment also produces trailers for the retail and distribution segment. The retail and distribution segment sells new and used trailers, aftermarket parts, and performs service repair on used trailers through the Company's retail branch network. In addition, the retail and distribution segment rents used trailers, primarily on a short-term basis. The leasing and finance segment provides leasing and finance programs to the Company's customers for new and used trailers. Reportable segment information is as follows (amounts in thousands):
Retail and Leasing Combined Consolidated Manufacturing Distribution and Finance Segments Eliminations Totals ------------- ------------ ----------- -------- ------------ ------------ Three Months Ended June 30, 2000 ---------------------- (unaudited) Revenues External customers $270,502 $ 82,913 $ 5,314 $ 358,729 $ --- $ 358,729 Intersegment sales 26,433 4,111 378 30,922 (30,922) --- -------- ---------- ---------- ---------- ----------- ----------- Total Revenues $296,935 $ 87,024 $ 5,692 $ 389,651 $ (30,922) $ 358,729 ======== ========== ========== ========== =========== =========== Income from Operations $ 19,533 $ 1,311 $ 637 $ 21,481 $ (1,359) $ 20,122 Assets $938,724 $ 332,547 $ 119,707 $1,390,978 $ (422,600) $ 968,378 Three Months Ended June 30, 1999 ---------------------- (unaudited) Revenues External customers $290,610 $ 80,801 $ 8,792 $ 380,203 $ --- $ 380,203 Intersegment sales 24,554 153 4,998 29,705 (29,705) --- -------- ---------- ---------- ---------- ----------- ----------- Total Revenues $315,164 $ 80,954 $ 13,790 $ 409,908 $ (29,705) $ 380,203 ======== ========== ========== ========== =========== =========== Income from Operations $ 19,960 $ 1,561 $ 1,790 $ 23,311 $ (915) $ 22,396 Assets $736,013 $ 178,814 $ 100,251 $1,015,078 $ (265,430) $ 749,648 Six Months Ended June 30, 2000 ---------------------- (unaudited) Revenues External customers $542,717 $ 153,969 $ 14,891 $ 711,577 $ --- $ 711,577 Intersegment sales 51,607 5,092 2,441 59,140 (59,140) --- -------- ---------- ---------- ---------- ----------- ----------- Total Revenues $594,324 $ 159,061 $ 17,332 $ 770,717 $ (59,140) $ 711,577 ======== ========== ========== ========== =========== =========== Income from Operations $ 39,567 $ 2,053 $ 1,733 $ 43,353 $ (1,949) $ 41,404 Assets $938,724 $ 332,547 $ 119,707 $1,390,978 $ (422,600) $ 968,378 Six Months Ended June 30, 1999 ---------------------- (unaudited) Revenues External customers $549,612 $ 153,331 $ 18,884 $ 721,827 $ --- $ 721,827 Intersegment sales 38,713 181 7,419 46,313 (46,313) --- -------- ---------- ---------- ---------- ----------- ----------- Total Revenues $588,325 $ 153,512 $ 26,303 $ 768,140 $ (46,313) $ 721,827 ======== ========== ========== ========== =========== =========== Income from Operations $ 33,226 $ 2,294 $ 3,083 $ 38,603 $ (1,201) $ 37,402 Assets $736,013 $178,814 $ 100,251 $1,015,078 $ (265,430) $ 749,648
6 9 NOTE 6. EARNINGS PER SHARE ------------------ Earnings per share (EPS) are 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 (amounts in thousands except per share amounts): Weighted Average Earnings Income Shares Per Share ----------------------------------- (Unaudited) Three Months Ended June 30, 2000 --------------------------------- Basic $ 7,039 22,987 $0.31 Options --- --- Preferred Stock --- --- --------------------------------- ------------------------- Diluted $ 7,039 22,987 $0.31 ================================= =================================== Three Months Ended June 30, 1999 --------------------------------- Basic $ 9,641 22,967 $0.42 Options --- 33 Preferred Stock 295 823 --------------------------------- ------------------------- Diluted $ 9,936 23,823 $0.42 ================================= =================================== Six Months Ended June 30, 2000 --------------------------------- Basic $15,695 22,986 $0.68 Options --- --- Preferred Stock --- --- --------------------------------- ------------------------- Diluted $15,695 22,986 $0.68 ================================= =================================== Six Months Ended June 30, 1999 --------------------------------- Basic $15,565 22,966 $0.68 Options --- 16 Preferred Stock --- --- --------------------------------- ------------------------- Diluted $15,565 22,982 $0.68 ================================= =================================== 7 10 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 and possible tax assessments. None of these claims are expected to have a material adverse effect on the Company's financial position or its annual results of operations. 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 the Company, the individual defendants as "controlling persons" of the Company, and the underwriters are liable under Section 12 of that Act, by making untrue statements of material fact in and omitting material facts from the 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 and established a schedule for further proceedings. Pursuant to the order, selected lead plaintiffs filed a Consolidated Class Action Complaint on July 6, 1999. The consolidated complaint repeats the claims made in the original complaints respecting the restatement and also alleges that the loss contingency for certain excise taxes, which Wabash disclosed on January 19, 1999, should have been recorded earlier. The Company's motion to dismiss the consolidated complaint was denied by the Court in February 2000. However, the Court also subsequently denied plaintiff's motion to certify the case as a class action and fixed April 30, 2001 as the deadline for submission of summary judgment motions. Discovery proceedings are expected to end on March 31, 2001. The Company believes the allegations in the consolidated complaint are without merit, and intends to defend itself and its directors and officers vigorously. The Company believes the resolution of the lawsuit (as to which the Company is self-insured), including any Company indemnification obligations to its officers and directors and to the underwriters of its April 1998 public offering, will not have 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. 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 8 11 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 June 30, 2000, 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 recorded for exposures associated with the costs of environmental remediation projects to address soil and ground water contamination at certain of its facilities as well as the costs of removing underground storage tanks at its branch service locations. The possible recovery of insurance proceeds has not been considered in the Company's estimated contingent environmental costs. The Company acquired two new manufacturing sites in July, 1998 in connection with its acquisition of a trailer flooring business in Arkansas (the "Cloud Acquisition") and voluntarily disclosed to the United States Environmental Protection Agency (EPA) and the Arkansas Department of Pollution Control and Ecology (ADPC&E) potential soil and groundwater contamination. In association with both the EPA and the ADPC&E, the Company has submitted a sampling plan to ADPC&E for monitoring and any required remediation. This matter is at an early stage and it is not possible to predict the outcome with certainty. The Company has recorded a reserve of $1.0 million related to these issues based on currently available information and does not believe the outcome of this matter will be material to the consolidated annual results of operations or financial condition of the Company. The Company is indemnified by the Sellers of the acquired companies and the Company believes that these matters would be covered by the indemnification. 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 seeks the production of documents and related records concerning the design of our plant's discharge system and the particular discharge in question. Subsequently, Wabash received a Notice of Violation/Request for Incident Report from the Tennessee Department of Environmental Conservation ("TDEC") with respect to the same matter. Wabash is fully cooperating with the U.S. Attorney's Office and TDEC in this matter. No formal action has been commenced against Wabash. Company representatives have met with TDEC officials, who indicated that they were pleased with the Company's corrective actions to date, but intended to seek some sanction against the Company. At this early stage, we are unable to predict the outcome of either inquiry, but do not believe they will result in a material adverse effect on our financial position or annual results of operations. 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 and annual results of operations. 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 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 $6.6 million and $5.2 million in the accompanying Condensed Consolidated Balance Sheets at June 30, 2000 and December 31, 1999, respectively. 9 12 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 listed in our Registration Statement on Form S-3 (SEC File No. 333-48589) under the heading "Risk Factors." RESULTS OF OPERATIONS The Company has three reportable business segments; - manufacturing, - retail and distribution and - leasing and finance operations The manufacturing segment principally produces trailers and related components and sells to customers who purchase directly from the Company or through independent dealers. The manufacturing segment also produces trailers and related components for the Company's retail and distribution segment. The retail and distribution segment sells new and used trailers, aftermarket parts, and performs service repair on used trailers through its retail branch network. In addition, the retail and distribution segment rents used trailers, primarily on a short-term basis. The leasing and finance segment provides leasing and finance programs to its customers for new and used trailers. Net Sales Consolidated net sales for the three-month period ended June 30, 2000 decreased approximately $21.5 million or 5.6% compared to the same period in 1999 and were $10.3 million or 1.4% lower for the six-month period ended June 30, 2000 compared to the same period in 1999. The manufacturing segment's external net sales decreased $20.1 million or 6.9% in the second quarter of 2000 compared to the same period in 1999 and were $6.9 million or 1.3% lower for the six-month period ended June 30, 2000 compared to the same period in 1999. These decreases were driven primarily by a 9.6% decrease (16,000 units vs. 17,700 units) and a 3.6% decrease (31,700 units vs. 32,900 units) in the number of new trailers sold during the three and six-month periods ended June 30, 2000 compared to the same periods in 1999, respectively. This decrease was largely impacted by the rate of new trailer shipments lagging the Company's production rate as customers continued to temporarily delay taking delivery of the trailers they ordered. 10 13 The retail and distribution segment's external net sales increased $2.1 million or 2.6% in the second quarter of 2000 compared to the same period in 1999 and were $0.6 million or 0.4% higher for the six-month period ended June 30, 2000 compared to the same period in 1999. The increase in net sales for the three and six month periods ended June 30, 2000 was due to increases in aftermarket parts revenues, service revenues and used trailer rental revenues, offset partially by decreases in new and used trailer revenues. The decreases in new and used trailer revenues were primarily due to the impact of higher fuel and interest costs on the Company's retail customer bases. The increase in aftermarket parts and service revenues is due to the reconfiguration of the retail distribution network and the creation of additional service capacity. In addition, the increase in used trailer rental revenues primarily reflects the Company's continued expansion of its used trailer rental portfolio. The leasing and finance segment's external net sales decreased $3.5 million or 39.6% in the second quarter of 2000 compared to the same period in 1999 and were $4.0 million or 21.1% lower for the six-month period ended June 30, 2000 compared to the same period in 1999. These decreases were primarily due to a decline in new and used trailer sales as leasing revenues remained level with the same periods in 1999. Gross Profit Gross profit as a percentage of sales totaled 9.5% for the second quarter of 2000 compared to 9.0% for the same period in 1999 and totaled 9.6% for the six-month period ended June 30, 2000 compared to 8.5% for the same period in 1999. The Company's strategy of increasing the proportion of revenues attributable to proprietary products, such as the DuraPlate trailer, has been successful in generating higher gross profits than has historically been possible with a more traditional, commodity-type production mix. In addition, the Company is experiencing improvements in its aftermarket parts business and favorable improvements in its on-going reconfiguration of its retail distribution network. Income from Operations Income from operations as a percentage of sales was 5.6% for the second quarter of 2000 compared to 5.9% for the same period in 1999 and was 5.8% for the six-month period ended June 30, 2000 compared to 5.2% for the same period in 1999 due primarily to the higher gross profit margins previously discussed. Increased selling, general and administrative expenses during the second quarter of 2000 led to slightly lower income from operations compared to the same period in 1999. The increase in selling, general and administrative expenses primarily reflects increased expenses incurred in the retail and distribution segment principally to support increased sales activity in its aftermarket parts, service and used trailer rental business. Interest Expense Interest expense as a percentage of sales was 1.6% for the second quarter of 2000 compared to 0.8% for the same period in 1999 and was 1.4% for the six-month period ended June 30, 2000 compared to 0.8% for the same period in 1999. The increase in interest expense primarily reflects higher rates during the period coupled with higher borrowings on the Company's revolving credit facility during 2000 associated with increased investing activities and working capital requirements. 11 14 Taxes The provision for income taxes for the three month period ended June 30, 2000 and 1999 of $4.8 million and $7.3 million respectively, represents 39.0% and 41.5% of pre-tax income 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 Operating Activities Net cash used in operating activities was $112.0 million during the first six months of 2000 primarily as a result of net income, the add-back of non-cash charges for depreciation and amortization, and changes in working capital. Changes in working capital consisted primarily of increased inventory and accounts receivable balances. The increase in inventory was primarily due to a higher level of used trailers taken in trade during the period, an increase in new trailer inventory within the retail branch network and higher finished trailer inventory resulting from customers temporarily delaying taking delivery of the trailers they ordered. The increase in accounts receivable was primarily the result of higher sales activity during the last month of the quarter coupled with a slight increase in days sales outstanding due to general economic conditions within the transportation industry. Investing Activities Net cash used in investing activities of $61.0 million during the six months ended June 30, 2000 was primarily due to capital expenditures of $38.4 million and a $22.0 million net cash investment in the Company's rental and leasing portfolio. Capital expenditures during the period were primarily associated with the following: - increasing productivity within the Company's manufacturing operations in Lafayette, Indiana; - substantial completion of a new state-of-the-art painting and coating system and plant expansion at its trailer manufacturing facility in Huntsville, Tennessee; - on-going capital expenditures related to the Company's branch expansion strategy; The Company anticipates future capital expenditures related to the continuation of its branch expansion strategy and other operating purposes to be $25 to $50 million over the next twelve to twenty-four months. 12 15 Financing Activities Net cash provided by financing activities of $160.4 million during the six months ended June 30, 2000 was primarily due to a net increase in total debt of $163.2 million partially offset by the payment of common stock dividends and preferred dividends of $2.8 million. On June 22, 2000, the Company entered into a new, unsecured 364-day Credit Facility which permits the Company to borrow up to $70 million. Under this facility, the Company has a right to borrow until June 21, 2001, 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 50 to 150 basis points, as defined, or a prime rate of interest, as defined. The Company pays a commitment fee on the unused portion of this facility at rates of 15 to 30 basis points per annum, as defined. The Company also pays a utilization fee on outstanding borrowings under this facility at rates of 0 to 25 basis points per annum, as defined. Covenants under this facility are identical to existing covenants within the Company's Revolving Bank Line of Credit. At June 30, 2000, the Company had outstanding borrowings of $50 million under this facility, at an interest rate of 7.69%. Other sources of funds for capital expenditures, continued expansion of businesses, dividend payments, 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. The Company believes that these funding sources will be adequate for its anticipated requirements over the next 12 months. BACKLOG The Company's backlog of orders was approximately $0.8 billion and $1.1 billion at June 30, 2000 and December 31, 1999, respectively. The Company expects to fill a majority of its backlog within the next twelve months. 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, with early adoption permitted. Management anticipates that, due to its limited use of derivative instruments, the adoption of SFAS No. 133, as amended, will not have a significant effect on the Company's annual results of operations or its financial position. On December 3, 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), to provide guidance on the recognition, presentation and disclosure of revenue in financial statements. This bulletin, through its subsequent revised releases, SAB No. 101A and SAB No. 101B, is effective for the Company's financial statements beginning in the fourth quarter 2000. Management is currently evaluating the impact of applying SAB 101 to its business and anticipates that the adoption of SAB 101 will not have a significant effect on the Company's results of operations or its financial position. 13 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS ------- ----------------------------------------------------------- The Company has limited exposure to financial risk resulting from volatility in interest rates and foreign exchange rates. As of June 30, 2000, the Company had approximately $160 million of LIBOR based debt outstanding under its Revolving Credit Facility and new 364-day Credit Facility and $105 million of proceeds from its accounts receivable securitization facility, which also requires LIBOR based interest payments. A hypothetical 100 basis-point increase in the floating interest rate from the current level would correspond to a $2.6 million increase in interest expense over a one-year period. This sensitivity analysis does not account for the change in the Company's competitive environment indirectly related to the change in interest rates and the potential managerial action taken in response to these changes. The Company enters into foreign currency forward contracts (principally against the German Deutschemark and French Franc) to hedge the net receivable/payable position arising from trade sales (including lease revenues) and purchases primarily with regard to the Company's European RoadRailer operations. The Company does not hold or issue derivative financial instruments for speculative purposes. A hypothetical 10% adverse change in foreign currency exchange rates would have an immaterial effect on the Company's financial position and results of operations. Additional disclosure related to the Company's risk management policies are discussed in Note 2 to the Consolidated Financial Statements included in the Company's 1999 Annual Report on Form 10-K. 14 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Footnote 7 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 The Company held its annual meeting of security-holders on May 9, 2000, at which time the following nominees were elected to the Board of Directors: WITHHOLD AUTHORITY NOMINEES FOR TO VOTE -------- --- ------- Richard E. Dessimoz 21,203,087 1,144,684 Donald J. Ehrlich 21,258,090 1,089,681 John T. Hackett 21,192,593 1,155,178 E. Hunter Harrison 20,760,100 1,587,671 Mark R. Holden 21,197,362 1,150,409 Ludvik F. Koci 21,314,235 1,033,536 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: --------- 10.15 364-Day Credit Agreement dated June 22, 2000, between Bank One, Indiana, N.A., as administrative agent and Wabash National Corporation 15.01 Report of Independent Public Accountants 27.01 Financial Data Schedule (b) Reports on Form 8-K: -------------------- The Company did not file any reports on Form 8-K during the quarter ended June 30, 2000. 15 18 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: August 11, 2000 By: /s/ Rick B. Davis ------------------------------ Rick B. Davis Corporate Controller (Principal Accounting Officer) and Duly Authorized Officer 16