10-K 1 c60874e10-k.txt ANNUAL REPORT 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 1-10883 WABASH NATIONAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 52-1375208 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 1000 SAGAMORE PARKWAY SOUTH, 47905 LAFAYETTE, INDIANA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (765) 771-5300 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, $.01 Par Value New York Stock Exchange Series A Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes. No. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant as of March 22, 2001 was $230,024,900 based upon the closing price of the Company's common stock as quoted on the New York Stock Exchange composite tape on such date. The number of shares outstanding of the registrant's Common Stock and Series A Preferred Share Purchase Rights as of March 22, 2001 was 23,002,490. Part III of this Form 10-K incorporates by reference certain portions of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held May 15, 2001. 2 TABLE OF CONTENTS WABASH NATIONAL CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
PAGES ----- PART I. Item 1. Business.............................................................................. 3 Item 2. Properties............................................................................ 11 Item 3. Legal Proceedings..................................................................... 11 Item 4 Submission of Matters to Vote of Security Holders..................................... 11 Item 4A. Risk Factors.......................................................................... 11 PART II. Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.............. 13 Item 6. Selected Financial Data............................................................... 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................... 15 Item 7A. Quantitative and Qualitative Disclosures about Market Risks........................... 22 Item 8. Financial Statements and Supplementary Data........................................... 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................................................... 47 PART III. Item 10. Directors and Executive Officers of the Registrant.................................... 47 Item 11. Executive Compensation................................................................ 48 Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 48 Item 13. Certain Relationships and Related Transactions........................................ 49 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 49 SIGNATURES ...................................................................................... 51
2 3 PART I ITEM 1 -- BUSINESS Wabash designs, manufactures and markets standard and customized truck trailers under the Wabash National and Fruehauf trademarks. The Company produces and sells aftermarket parts through its division, Wabash National Parts and its wholly-owned subsidiary, Fruehauf Trailer Services, Inc. (FTSI). In addition to its aftermarket parts sales and service revenues, FTSI sells new and used trailers through its retail network as well as providing rental, leasing and finance programs to its customers for new and used trailers. The Company's business strategy is to follow an integrated approach to engineering, manufacturing and marketing which emphasizes flexibility in product design and operations while preserving a low cost structure. Wabash seeks to identify and produce proprietary products in the trucking and bimodal industries that offer added value to customers and, therefore, generate higher demand and higher profit margins than those associated with standard trailers. The Company has developed its rental, leasing and finance business for new and used trailers within its retail and distribution network and expects to continue such development. The Company has also expanded its factory-owned retail distribution network in order to more effectively distribute its products. The retail sale of new and used trailers, aftermarket parts and maintenance service generally provides the opportunity for higher gross margins. The Company believes that its RoadRailer(R) bimodal technology provides the opportunity to maintain a reputation for design and new product development leadership. The important elements of the Company's strategies are: - Assessment of Customer Needs. The Company's engineering, manufacturing, and marketing departments work with customers to assess customer needs and to develop cost-effective engineering and manufacturing solutions. This process results in many highly customized products incorporating unique design features. The Company seeks to acquire products, services and technologies that address customer needs and provide the Company with the opportunity for enhanced profit margins. The Company emphasizes long-term customer relationships at all levels in the Company, built on Wabash's reputation for flexibility and customization. - Engineering, Manufacturing and Purchasing. The Company's integrated approach emphasizes low-cost and flexible production on existing assembly lines without the need for extensive capital investment or re-tooling. The Company uses computer-aided design (CAD) and computer-aided manufacturing (CAM) techniques throughout the production process. The Company also utilizes just-in-time techniques for many aspects of the production process including delivery of components immediately prior to the time needed for assembly. These techniques have substantially reduced the capital investment and set-up time associated with introducing product innovations and have also reduced product waste and unnecessary product handling time. - Product Differentiation. Wabash has developed or acquired several proprietary products and processes which, it believes, are recognized as high in quality and distinctive in design. While the Company is a competitive producer of standardized products, it emphasizes the development and manufacture of distinctive and more customized products and believes that it has the engineering and manufacturing capability to produce these products efficiently. The Company expects to continue a program of aggressive product development and selective acquisitions of quality proprietary products that distinguish the Company from its competitors and provide opportunities for enhanced profit margins. - Corporate Culture. Since the Company's founding, management has fostered a corporate culture that emphasizes design and new product development capabilities as well as extensive employee involvement. All employees participate in extensive classroom training covering all aspects of the Company's business, including team building and problem solving, statistical process control, economics and finance. Wabash also employs a compensation program that rewards most hourly employees through the distribution of a percentage of the Company's after-tax profits. Wabash's safety program has been developed with employee participation and has been cited for each of the last twelve years (1988-1999) by the Truck Trailer Manufacturing Association for achieving the best safety record among large plants in the industry. The 3 4 Company believes that its corporate culture has produced a highly trained and motivated workforce that understands the Company's business strategy and that is keenly interested in and rewarded by the success of the Company. Wabash was incorporated in Delaware in 1991 and is the successor by merger to a Maryland corporation organized in 1985. Wabash operates in two segments: manufacturing and retail and distribution. Financial results by segment are discussed in detail within Footnote 5, Segment Reporting, of the accompanying Consolidated Financial Statements. Manufacturing The Company believes that it is the largest United States manufacturer of truck trailers, including the Company's proprietary DuraPlate(R) and RoadRailer trailers. Wabash markets its products directly and through dealers to truckload and less-than-truckload (LTL) common carriers, private fleet operators, leasing companies, package carriers and intermodal carriers including railroads. The Company has established significant relationships as a supplier to many large customers in the transportation industry, including those set forth below: - Truckload Carriers: Schneider National, Inc.; Werner Enterprises, Inc.; Swift Transportation Corporation; J.B. Hunt Transport Services, Inc.; Dart Transit; Heartland Express, Inc.; Crete Carrier Corporation; Knight Transportation, Inc.; USXpress Enterprises, Inc.; Frozen Food Express Industries (FFE); KLLM, Inc.; Interstate Distributor Co. - Leasing Companies: Transport International Pool (TIP); Penske Truck Leasing; National Semi- Trailer Corp. - Private Fleets: Safeway; DaimlerChrysler; The Kroger Company; Foster Farms - Less-Than-Truckload Carriers: Roadway Express, Inc.; Old Dominion Freight Line, Inc.; USF Holland; GLS Leasco; Yellow Services, Inc. - Package Carriers: Federal Express Corporation - North American Intermodal Carriers: Triple Crown Services; National Rail Passenger Corp. (Amtrak); GATX Capital (in conjunction with Burlington Northern Santa Fe and Mark VII Transportation); Canadian National Railroad Retail and Distribution The Company has 29 retail outlets in mostly major, metropolitan markets as well as 5 locations that sell and rent used trailers. During January 2001, the Company expanded its branch network through the acquisition of the Breadner Group of Companies, headquartered in Ontario, Canada. The Breadner Group has ten branch locations in six Canadian Provinces and is the leading Canadian distributor of new trailers and related parts and service. As a result, the Company believes it has the largest company-owned distribution system in the industry selling new and used trailers, aftermarket parts and maintenance service. The retail sale of new and used trailers, aftermarket parts and maintenance service generally produces higher gross margins and tend to be more stable in demand. The Company also provides rental, leasing and financing programs, primarily to its retail customers for new and used trailers, through its subsidiaries, Apex Trailer Leasing and Rentals, L.P. and National Trailer Funding (the Finance Companies). In December 2000, the Company's wholly-owned subsidiary, Wabash National Finance Corporation, was merged into Apex Trailer Leasing and Rentals, L.P. as the Company consolidated its rental, leasing and finance activities into the retail and distribution segment as a separate retail product line. This activity tends to be more stable and predictable while at the same time provides the Company an additional channel of distribution for used trailers taken in trade on the sale of new trailers. Due to the strategic importance of the combined product lines of the retail and distribution segment, the Company intends to continue to place emphasis on this revenue source and has added additional retail outlets over the past few years either through acquisition or greenfield start-up. 4 5 THE TRUCK TRAILER INDUSTRY The United States market for truck trailers and related products has historically been cyclical and has been affected by overall economic conditions in the transportation industry as well as regulatory changes. Management believes that customers historically have replaced trailers in cycles that run from approximately six to ten years. Both State and Federal regulation of the size, safety features and configuration of truck trailers have led to increased demand for trailers meeting new regulatory requirements from time to time. A large percentage of the new trailer market has historically been served by the ten largest truck trailer manufacturers, including the Company. Price, flexibility in design and engineering, product quality and durability, warranty, dealer service and parts availability are competitive factors in the markets served. Historically, there has been manufacturing over-capacity in the truck trailer industry. The following table sets forth domestic new trailer shipments for the Company, its nine largest competitors and for the United States trailer industry as a whole:
2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- WABASH 66,283 69,772 61,061 48,346(1) 36,517 42,424 Great Dane 46,698 58,454 50,513 37,237 25,730 36,514 Utility 28,780 30,989 26,862 23,084 19,731 25,068 Trailmobile 28,089 31,329 23,918 18,239 11,094 21,239 Stoughton 15,050 14,673 11,750 11,700 8,300 14,770 Strick 10,500 11,000 10,959 10,488 8,141 18,427 Hyundai 6,261 5,716 5,200 3,445 2,007 6,705 Fontaine 6,000 6,500 5,894 5,063 4,613 5,465 HPA Monon 5,726 8,386 7,313 2,534 11,184 21,172 Dorsey 5,000 9,013 8,375 7,939 8,595 12,276 Total Industry 270,817 317,388 278,821 222,550 197,519 284,268
(1) Includes shipments of 1,467 units by Fruehauf in 1997 prior to the acquisition by Wabash of certain assets of Fruehauf. Sources: Individual manufacturer information provided by Southern Motor Cargo Magazine (C) 1999 (1998-1995) and Trailer Body Builders Magazine (2000 and 1999 only). Industry totals provided by Southern Motor Cargo Magazine (C) 1999 (1998-1995) and A.C.T. Research Company, L.L.C. (2000 and 1999). REGULATION Truck trailer length, height, width, maximum weight capacity and other specifications are regulated by individual states. The Federal Government also regulates certain safety features incorporated in the design of truck trailers, including new regulations in 1998 which require anti-lock braking systems (ABS) on all trailers produced beginning in March 1998 and certain rear bumper strength regulations effective at the beginning of 1998. Manufacturing operations are subject to environmental laws enforced by federal, state and local agencies. (See "Environmental Matters") PRODUCT LINES Manufacturing Segment Since the Company's inception in 1985, the Company has expanded its product offerings from a single product into a broad line of transportation equipment and related products and services. As a result of its long-term relationships with its customers, the Company has been able to work closely with its customers to create competitive advantages through development and production of productivity-enhancing transportation equipment. The sale of new trailers through the manufacturing segment represented 76.0%, 76.6% and 76.5% of net sales during 2000, 1999 and 1998, respectively. The current new trailer product lines include the following: Transportation Equipment - DuraPlate trailers. In late 1995, the Company introduced its composite plate trailer. Features of the new composite plate trailer include increased durability and greater strength than the 5 6 aluminum plate trailer. The composite material is a high-density vinyl core with a steel skin. The Company holds a number of patents regarding its composite trailer and believes this proprietary trailer will continue to become a greater source of business. - Plate trailers. The aluminum plate trailer was introduced into the Company's product line in 1985. Since these trailers utilize thicker and more durable sidewalls than standard sheet and post or fiberglass reinforced plywood ("FRP") construction and avoid the use of interior liners, the life of the trailer is extended and maintenance costs are significantly reduced. In addition, the post used in constructing the sidewalls of the aluminum plate trailer is much thinner and therefore provides greater interior volume than a standard sheet and post trailer. Plate trailers are used primarily by truckload carriers. - RoadRailer trailers. In 1987, the Company began manufacturing RoadRailer trailers. RoadRailer trailers represent a patented bimodal technology consisting of a truck trailer and detachable rail "bogie" permitting a trailer to run both over the highway and directly on railroad lines. The Company believes that the RoadRailer system can be operated more efficiently than alternative intermodal systems such as "piggyback" or "stack" railcars which require terminal operators to transfer vehicles or containers to railcars. In 1991, the Company acquired the exclusive rights to market and exploit RoadRailer technology. By offering the bimodal technology in a number of variations, the Company believes it can increase its penetration of the intermodal market and enlarge its pool of potential customers. The current models are the ReeferRailer(R) trailer, the ChassisRailer(R) trailer, the PupRailer(TM) trailer, the AutoRailer(R) trailer and the 19.5 RoadRailer trailer. Management believes that RoadRailer trailers provide the opportunity for the Company to maintain a reputation for technological leadership in the transportation industry. - Refrigerated trailers. Refrigerated trailers were introduced into the product line in 1990. The Company's proprietary process for building these trailers involves injecting insulating foam in the sidewalls and roof in a single process prior to assembly, which improves both the insulation capabilities and the durability of the trailers. These trailers are used primarily by private fleets in the transportation of perishable food products. During 1995, the Company opened its refrigerated trailer manufacturing facility in Lafayette, Indiana. - Aluminum vans and doubles. Aluminum vans and doubles, also known as sheet and post trailers, were introduced into the product line in 1986 and are the standard trailer product purchased by customers in most segments of the trucking industry. These products represent the most common trailer sold throughout the Company's retail distribution network. - FRP vans and doubles. The Company's initial product was FRP trailers, which have been purchased primarily by LTL carriers utilizing doubles or triples. Motor carriers utilizing standard double or triple trailers frequently reach the maximum legal weight limits before they fill the capacity of the trailers. Since FRP trailers are lighter in weight than these double trailers, they enable LTL carriers to attain higher productivity than could be achieved using other types of double trailers. - Platform trailers. Platform trailers are typically purchased by owner-operators and are often used for transporting heavier, more durable goods such as those used in the construction and steel industries. In 2000, the Company introduced its ElectroShield(TM) technology for use on platform trailers produced at its manufacturing facility in Huntsville, Tennessee. The ElectroShield technology provides a uniform finish that coats the entire surface of the frame, inside and out. The result is complete surface coverage that is vastly superior to conventional "spray-on" coating systems. ElectroShield coatings provide the best protection in the industry, with greatly improved resistance to corrosion, chipping and fading from exposure to sunlight. The Company believes this new technology adds to its already strong reputation for technological leadership in the transportation industry. - Other. The Company's other transportation equipment includes container chassis, rollerbed trailers, soft-sided trailers, dumps and converter dollies. 6 7 Retail and Distribution Segment The Company believes it has the largest, company-owned retail and distribution network serving the truck trailer industry with the following product lines: Transportation Equipment The Company sells new transportation equipment such as those products offered by the manufacturing segment including DuraPlate trailers, refrigerated trailers, sheet and post trailers and platform trailers. The Company also sells specialty trailers not produced by the manufacturing segment including tank trailers and construction trailers. Customers for this equipment typically purchase in smaller quantities for local or regional transportation needs. The sale of new trailers through the branch network represented 6.3%, 8.1% and 7.3% of net sales during 2000, 1999 and 1998, respectively. Aftermarket Parts and Service The Company also offers replacement parts and accessories and provides maintenance service both for its own and competitors' trailers and related equipment. The aftermarket parts business is less cyclical than trailer sales and generally has higher gross profit margins. The Company markets its aftermarket parts and services through its division, Wabash National Parts and through its wholly-owned subsidiary, Fruehauf Trailer Services, Inc. Management expects that the manufacture and sale of aftermarket parts and maintenance service will be a growing part of its product mix as the number and age of its manufactured trailers in service increases and due to the growth of the retail and distribution segment. Sales of these products and services represented 9.6%, 7.9% and 9.7% of net sales during 2000, 1999 and 1998, respectively. Rental, Leasing and Finance Through 1991, the Company leased trailers to customers on a very limited basis, primarily involving used trailers taken in trade from other customers. In late 1991, the Company began to build its in-house capability to provide leasing programs to its customers through Wabash National Finance. In addition, in late 1998 the Company began offering a rental program for used trailers, primarily on a short-term basis, through its retail branch network. In December 2000, the Company's wholly-owned subsidiary, Wabash National Finance Corporation, was merged into Apex Trailer Leasing and Rentals, L.P. as the Company consolidated its rental, leasing and finance activities into the retail and distribution segment as a separate retail product line. At December 31, 2000, the Company had approximately $52.0 million in equipment leased to others, net and $56.5 million invested in finance contracts. These leasing assets have been financed through sale and leasebacks, term debt and equity. Leasing revenues of the Company represented 2.5%, 1.6% and 1.8% of net sales during 2000, 1999 and 1998, respectively. Used Trailers The Company is also involved in the sale of used trailers, which are primarily trade-ins from its customers for new trailers. The Company generally sells its used trailers directly through its retail and distribution segment. Used trailer sales promote new sales by permitting trade-in allowances and have represented a stable source of revenue for the Company. The sale of used trailers represented 5.6%, 5.8% and 4.7% of net sales during 2000, 1999 and 1998, respectively. CUSTOMERS The Company's customer base includes many of the nation's largest truckload common carriers, leasing companies, LTL common carriers, private fleet carriers, package carriers and domestic and international intermodal carriers including railroads. The Company believes it is the sole supplier of dry vans, refrigerated trailers and platform trailers to approximately 15 customers. Sales to these customers accounted for approximately 41.8%, 32.6% and 28.9% of the Company's new trailer sales in 2000, 1999 and 1998, respectively. The retail and distribution business primarily services small fleets and individual owner operators in which the credit risk varies significantly from customer to customer. The Company's international sales accounted for approximately 3.1% of net sales during 2000 and 2.0% of net sales during 1999 and 1998. 7 8 The Company had one customer, J.B. Hunt Transport Services, Inc., which represented 11.4% of its net sales in 2000, while no other customer exceeded 10% of its net sales in 2000, 1999 and 1998. The Company's net sales in the aggregate to its five largest customers were 30.5%, 22.2% and 18.3% of its sales in 2000, 1999 and 1998, respectively. Truckload common carriers include large national lines as well as regional carriers. The large national truckload carriers, who continue to gain market share at the expense of both regional carriers and private fleets, typically purchase trailers in large quantities with highly individualized specifications. Trailers purchased by truckload common carriers including Schneider National, Inc., Werner Enterprises, Inc., Swift Transportation Corporation, J.B. Hunt Transport Services, Inc., Heartland Express, Inc., Dart Transit, Crete Carrier Corporation, Knight Transportation, Inc., USXpress Enterprises, Inc., and Interstate Distributor Co. represented 59.7%, 54.3% and 44.7% of the Company's new trailer sales in 2000, 1999 and 1998, respectively. LTL carriers have experienced consolidation in recent years and the industry is increasingly dominated by a few large national and several regional carriers. Since the Highway Reauthorization Act of 1983 mandated that all states permit the use of 28-foot double trailers, there has been a conversion of nearly all LTL carriers to doubles operations. Order sizes for LTL carriers tend to be in high volume and with standard specifications. LTL carriers who have purchased Company products include Roadway Express, Inc., Old Dominion Freight Line, Inc., USF Holland, GLS Leasco, and Yellow Services, Inc. New trailer sales to LTL carriers accounted for 10.5%, 9.1% and 11.9% of new trailer sales in 2000, 1999 and 1998, respectively. Private fleet carriers represent the largest segment of the truck trailer industry in terms of total units, but are dominated by small fleets of 1 to 100 trailers. Among the larger private fleets, such as those of the large retail chain stores, automotive manufacturers and paper products, truck trailers are often ordered with customized features designed to transport specialized commodities or goods. Among private fleets, the Company's customers include DaimlerChrysler, Safeway, Foster Farms and The Kroger Company. New trailer sales to private fleets represented 6.7%, 6.4% and 7.5% of new trailer sales in 2000, 1999 and 1998, respectively. Leasing companies include large national companies as well as regional and local companies. Among leasing companies, the Company's customers include Transport International Pool (TIP), National Semi-Trailer Corp. and Penske Truck Leasing. New trailer sales to leasing companies represented 4.2%, 6.0% and 10.0% of new trailer sales in 2000, 1999 and 1998, respectively. Customers for the Company's proprietary RoadRailer products include U.S. and foreign intermodal carriers such as Triple Crown Services, Amtrak, Swift Transportation Corporation, GATX Capital (in conjunction with Burlington Northern Santa Fe Corporation and Mark VII Transportation), Bayerische Trailerzug Gesellschaft, Compagnie Nouvelle De Conteneurs and Canadian National Railroad. New trailer sales of RoadRailer products to these customers represented 2.4%, 2.8% and 4.7% of new trailer sales in 2000, 1999 and 1998, respectively. The Company believes that the RoadRailer technology has enabled it to develop an international presence. Anticipated sources of future revenue in the RoadRailer business also include license fees from the license of RoadRailer technology to overseas manufacturers. In the United States, FedEx Corporation is one of two primary carriers dominating the package carrier industry. Package carriers have developed rigid specifications for their highly specialized trailers and have historically purchased trailers from a small number of suppliers, including Wabash. New trailer sales to package carriers represented 0.7%, 0.8% and 1.1% of new trailer sales in 2000, 1999 and 1998, respectively. Retail sales of new trailers to independent operators through the Company's factory-owned distribution network provide the Company with access to smaller unit volume sales, which typically generate higher gross margins. Retail sales of new trailers represented 7.4%, 8.9% and 9.2% of total new trailer sales in 2000, 1999 and 1998, respectively. The balance of new trailer sales in 2000, 1999 and 1998 were made to dealers and household moving carriers. 8 9 MARKETING AND DISTRIBUTION The Company markets and distributes its products through one of three channels, which include: - factory direct accounts; - the factory-owned distribution network; and - independent dealerships. The factory direct accounts include larger full truckload, LTL, package and household moving carriers and certain private fleets and leasing companies and are high volume purchasers. In the past, the Company has focused its resources on the factory direct market, where customers are generally aware of the Company's management and its reputation in the trailer manufacturing industry. The larger LTL and private fleets, as well as the national fleets which increasingly dominate the truckload segment, buy factory direct with a great deal of customization. These larger carriers will generally purchase the largest trailer allowed by law in the areas that they intend to operate, with maximum interior space. These carriers are the largest customers of the composite plate trailers manufactured by the Company. The Company's factory-owned distribution network provides the opportunity to generate retail sales of trailers as well as leasing and financing arrangements to smaller independent operators. This branch network enables the Company to provide maintenance and other services to customers on a nationwide basis and to take trade-ins, which are common with new trailer deals with fleet customers. In addition to the 29 U.S. factory-owned branches, the 10 retail locations recently acquired in Canada and the 5 U.S. locations that sell and rent used trailers, the Company also sells its products through a nationwide network of over 90 full-line and over 120 parts only independent dealerships, which generally serve the trucking and transport industry. The dealers primarily serve intermediate and smaller sized carriers and private fleets in the geographic region where the dealer is located and on occasion may sell to large fleets. The dealers may also perform service work for many of their customers. RAW MATERIALS The Company utilizes a variety of raw materials and components including steel, aluminum, lumber, tires and suspensions, which it purchases from a large number of suppliers. Significant price fluctuations or shortages in raw materials or finished components may adversely affect the Company's results of operations. In 2000 and for the foreseeable future, the raw material used in the greatest quantity will be composite plate material used on the Company's proprietary DuraPlate trailer. The composite material is comprised of an inner and outer lining made of high strength steel surrounding a vinyl core, of which both components are in ready supply. In August 1997, the Company completed construction of a composite material facility located in Lafayette, Indiana where the Company produces the composite plate material from steel and vinyl components. Due to the continued strong demand for the Company's DuraPlate trailer, additional composite material manufacturing capacity was added to this facility in 2000. The Company believes the addition of this new facility will provide adequate capacity to meet its composite material requirements. During 1998, the Company acquired Cloud Corporation and Cloud Oak Flooring Company, Inc. (Wabash Wood Products), manufacturers of laminated hardwood floors for the truck body and trailer industry. During the course of 2000, the Company increased its hardwood flooring production capacity at its Harrison, Arkansas facility in order to accommodate 100% of the Company's trailer flooring needs. The central U.S. location of the Company's plants gives Wabash a competitive advantage in the transportation cost of inbound raw materials as well as the cost of delivery of finished product as customers often use trailers coming off the assembly line to deliver freight outbound from the Midwest. BACKLOG The Company's backlog of orders was approximately $0.7 billion, $1.1 billion and $1.0 billion at December 31, 2000, 1999 and 1998, respectively. The Company expects to fill a majority of its existing backlog of orders by the end of 2001. 9 10 PATENTS AND INTELLECTUAL PROPERTY The Company holds or has applied for 76 patents in the United States on various components and techniques utilized in its manufacture of truck trailers. In addition, the Company holds or has applied for 119 patents in 14 foreign countries and the European patent community. The Company also holds or has applied for 44 trademarks in the United States as well as 30 trademarks in foreign countries. These trademarks include the Wabash and Fruehauf brand names as well as trademarks associated with the Company's proprietary products such as the DuraPlate trailer and the RoadRailer trailer. RESEARCH AND DEVELOPMENT The Company has a reputation in the industry for its innovation in product design and low cost manufacturing. Research and development expenses are charged to earnings as incurred and approximated $2.4 million, $1.5 million and $1.8 million in 2000, 1999 and 1998, respectively. The Company promotes a culture that encourages innovation by all employees, particularly those working on the factory floor. ENVIRONMENTAL MATTERS The Company is aware of soil and ground water contamination at some of its facilities. Accordingly, the Company has recorded a reserve of approximately $0.9 million associated with environmental remediation at these sites. This reserve was determined based upon currently available information and management does not believe the outcome of these matters will be material to the consolidated annual results of operations or financial condition of the Company. In the second quarter 2000, the Company received a grand jury subpoena requesting certain documents relating to the discharge of wastewaters into the environment at a Wabash facility in Huntsville, Tennessee. The subpoena sought the production of documents and related records concerning the design of the facility's discharge system and the particular discharge in question. On April 17, 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 fully cooperating with state and federal officials with respect to their investigation into the matter. At this time, the Company is unable to predict the outcome of federal grand jury inquiry into this matter, but does not believe it will result in a material adverse effect on its financial position or future results of operations; however, at this early stage of the proceedings, no assurance can be given as to the ultimate outcome of the case. Future information and developments will require the Company to continually reassess the expected impact of these environmental matters. However, the Company has evaluated its total environmental exposure based on currently available data and believes that compliance with all applicable laws and regulations will not have a materially adverse effect on the consolidated financial position and annual results of operations. See Footnote 16 to the Consolidated Financial Statements for additional environmental information and the Company's accounting for such costs. EMPLOYEES As of December 31, 2000, the Company had approximately 5,200 employees, of which less than 1% are represented by labor unions. The Company places a heavy emphasis on employee relations through educational programs and quality control teams. The Company believes its employee relations are good. 10 11 ITEM 2 -- PROPERTIES MANUFACTURING FACILITIES The Company's main facility of 1.2 million sq. ft. in Lafayette, Indiana, consists of truck trailer and composite material production, tool and die operations, research laboratories, management offices and headquarters. The Company owns three other trailer manufacturing facilities, in Lafayette, Indiana (572,000 sq. ft.), in Ft. Madison, Iowa (255,000 sq. ft.) and Huntsville, Tennessee (287,000 sq. ft.). There are three leased manufacturing facilities in Lafayette, Indiana (144,000 sq. ft.). In addition, the Company owns a trailer flooring manufacturing facility, in Harrison, Arkansas (456,000 sq. ft.) and intends to close its flooring operation in Sheridan, Arkansas (117,000 sq. ft.) during the first quarter of 2001. RETAIL AND DISTRIBUTION FACILITIES The Company leases a facility in St. Louis, Missouri (6,700 sq. ft.) that serves as headquarters for its retail and distribution segment. This location oversees the operation of 29 sales and service branches (4 of which are leased) and 5 locations that sell and rent used trailers (all of which are leased.) All of these facilities are located throughout the United States. The branch facilities consist of an office, warehouse and service space and generally range in size from 20,000 to 50,000 square feet per facility. In January 2001, the Company expanded its branch network through the acquisition of 10 branch locations in six Canadian Provinces. In addition, the Company owns its aftermarket parts distribution center in Lafayette, Indiana (300,000 sq. ft.) and leases a parts center in Montebello, California (44,000 sq. ft.). ITEM 3 -- LEGAL PROCEEDINGS There are certain lawsuits and claims pending against the Company that arose in the normal course of business. None of these claims are expected to have a material adverse effect on the Company's financial position or its results of operations. See Footnote 16 to the Consolidated Financial Statements for additional information related to certain lawsuits filed against the Company and certain of its officers and directors. ITEM 4 -- SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS None to report. ITEM 4A -- RISK FACTORS Investing in our securities involves a high degree of risk. In addition to the other information contained in this Form 10-K, including the reports we incorporate by reference, you should consider the following factors before investing in our securities: We Face Intense Competition. The truck trailer manufacturing industry is highly competitive. We compete with other truck trailer manufacturers of varying sizes, some of which may have greater financial resources than we do. Barriers to entry in the truck trailer manufacturing industry are low and, therefore, it is possible that additional competitors could enter the market at any time. Certain participants in the industry in which we compete may have manufacturing over-capacity and high leverage, and the industry has experienced a number of bankruptcies and financial stresses, all of which have resulted in significant pricing pressures. Our inability to compete effectively with existing or potential competitors would have a material adverse effect on our business, financial condition and results of operations. Our Business Is Cyclical and May Be Adversely Affected By An Economic Downturn. The truck trailer manufacturing industry historically has been and is expected to continue to be cyclical and affected by overall economic conditions. New trailer shipments for the trailer industry as a whole decreased to 271,000 units in 2000 as compared to 317,000 units in 1999 and the current forecast for industry shipments in 2001 is between 190,000 and 210,000 units. Sales of new truck trailers have been subject to cyclical variations based on a six to eight year replacement cycle. Poor economic conditions can adversely affect demand for new trailers and in the past have led to an overall aging of trailer fleets beyond this typical replacement cycle. If such economic conditions were to recur, our business could be adversely affected. 11 12 Our New Technology and Products May Not Achieve Market Acceptance. We have recently introduced new products including the DuraPlate composite plate trailer, constructed from a high density vinyl core with a steel skin, and prototypes including the AllRailer railcar, a fully enclosed high-speed railcar. There can be no assurance that these or other new products or technologies will achieve sustained market acceptance. There can also be no assurance that new technologies or products introduced by competitors will not render our products obsolete or uncompetitive. We Depend on Key Members of Our Management. The success of our business is and will continue to be highly dependent upon its President, Donald J. Ehrlich, and other members of senior management. We do not have employment agreements with any of these people. The loss of any of their services could have a material adverse effect upon our business, financial condition and results of operations. We Rely on the Strength of our Corporate Partnerships and the Success of Our Customers. We have corporate partnering relationships with a number of customers where we supply the requirements of these customers. To a significant extent, our success is dependent upon the continued strength of their relationships with us and the growth of our corporate partners. Further, we often are unable to predict the level of demand for our products from these partners, or their timing of orders. The loss of a significant customer or unexpected delays in product purchases could have a material adverse effect on our business, financial condition and results of operations. We Have A Limited Supply of Raw Materials. We currently rely on a limited number of suppliers for certain key components in the manufacturing of truck trailers. The loss of our suppliers or the inability of the suppliers to meet our price, quality, quantity and delivery requirements could have a material adverse effect on our business, financial condition and results of operations. We are Subject to Government Regulations That May Adversely Affect Our Profitability. The length, height, width, maximum weight capacity and other specifications of truck trailers are regulated by individual states. The Federal Government also regulates certain safety features incorporated in the design of truck trailers. Changes or anticipation of changes in these regulations can have a material impact on our customers, may defer customer purchasing decisions, may result in reengineering and may affect our financial results. In addition, we are subject to various environmental laws and regulations dealing with the transportation, storage, presence, use, disposal and handling of hazardous materials, discharge of stormwater and underground fuel storage tanks and may be subject to liability associated with operations of prior owners of acquired property. If we are found to be in violation of applicable laws or regulations, it could have a material adverse effect on our business, financial condition and results of operations. We May Not Be Successful in Integrating Business that We Acquire into Our Business. We have made and expect to make acquisitions of technology, businesses and product lines in the future. Our ability to expand successfully through acquisitions depends on many factors, including the successful identification and acquisition of products, technologies or businesses and management's ability to effectively integrate and operate the acquired products, technologies or businesses. We may compete for acquisition opportunities with other companies that have significantly greater financial and management resources. We cannot assure you that we will be successful in acquiring or integrating any such products, technologies or businesses. Disclosure 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. 12 13 PART II ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange (ticker symbol WNC). The number of record holders of the Company's common stock at February 28, 2001, was 1,082. High and low stock prices and dividends for the last two years were:
DIVIDENDS DECLARED PER HIGH LOW COMMON SHARE ---- --- ------------ 2000 Fourth Quarter....................... $ 9.25 $ 7.25 $0.04 Third Quarter........................ $12.94 $ 8.31 $0.04 Second Quarter...................... $15.25 $10.50 $0.04 First Quarter......................... $17.88 $13.00 $0.04 1999 Fourth Quarter....................... $20.50 $13.06 $0.04 Third Quarter........................ $22.50 $19.13 $0.0375 Second Quarter...................... $19.94 $10.94 $0.0375 First Quarter......................... $21.00 $11.63 $0.0375
The Company expects to continue its policy of paying regular dividends, although there is no assurance as to future dividends because they depend on future earnings, capital requirements, and financial conditions. 13 14 ITEM 6 -- SELECTED FINANCIAL DATA The following selected consolidated financial data with respect to the Company, for the five years in the period ended December 31, 2000, have been derived from the Company's consolidated financial statements, which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports. The following information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included elsewhere herein.
Years Ended December 31, --------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 (Dollar amounts in thousands, except per share data) INCOME STATEMENT DATA: Net sales $ 1,332,172 $ 1,454,570 $ 1,292,259 $ 846,082 $ 631,492 Cost of sales 1,216,205(1) 1,322,852 1,192,968 778,620 602,629 ----------- ----------- ----------- ---------- ----------- Gross profit 115,967 131,718 99,291 67,462 28,863 Selling, general and administrative expenses 55,874 50,796 38,626 26,307 13,359 Restructuring charge 36,338 -- -- -- -- ----------- ----------- ----------- ---------- ----------- Income from operations 23,755 80,922 60,665 41,155 15,504 Interest expense (19,740) (12,695) (14,843) (16,100) (10,257) Accounts receivable securitization costs (7,060) (5,804) (3,966) -- -- Equity in losses of unconsolidated affiliate (3,050) (4,000) (3,100) (400) -- Restructuring charge (5,832) -- -- -- -- Other, net 877 6,310 (259) 1,135 788 ----------- ----------- ----------- ---------- ----------- Income (loss) before income taxes (11,050) 64,733 38,497 25,790 6,035 Provision (benefit) for income taxes (4,314) 25,891 15,226 10,576 2,397 ----------- ----------- ----------- ---------- ----------- Net income (loss) $ (6,736) $ 38,842 $ 23,271 $ 15,214 $ 3,638 =========== =========== =========== ========== =========== Basic earnings (loss) per common share $ (0.38) $ 1.60 $ 1.00 $ 0.74 $ 0.19 =========== =========== =========== ========== =========== Diluted earnings (loss) per common share $ (0.38) $ 1.59 $ 0.99 $ 0.74 $ 0.19 =========== =========== =========== ========== =========== Cash dividends declared per common share $ 0.16 $ 0.1525 $ 0.1425 $ 0.13 $ 0.12 =========== =========== =========== ========== ===========
(1) Includes a $4.5 million charge related to the Company's restructuring activities.
Years Ended December 31, --------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 (Dollar amounts in thousands) BALANCE SHEET DATA: Working capital $270,722 $228,751 $271,256 $280,212 $148,712 Total lease portfolio 108,451 130,626 117,038 103,222 113,811 Total assets 781,614 791,291 704,486 629,870 440,071 Long-term debt, net of current maturities 226,126 164,367 165,215 231,880 151,307 Stockholders' equity 367,233 379,365 345,776 226,516 178,368
14 15 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of Wabash National Corporation's (Wabash or the Company) historical results of operations and of its liquidity and capital resources should be read in conjunction with the consolidated financial statements and related notes thereto. Wabash designs, manufactures and markets standard and customized truck trailers under the Wabash National and Fruehauf trademarks. The Company believes that it is the leading U.S. manufacturer of composite trailers and bimodal vehicles through its RoadRailer products. The Company produces and sells aftermarket parts through its division, Wabash National Parts and its wholly-owned subsidiary, Fruehauf Trailer Services, Inc. (FTSI). In addition to its aftermarket parts sales and service revenues, FTSI sells new and used trailers through its retail network as well as providing rental, leasing and finance programs to its customers for new and used trailers through its subsidiaries Apex Trailer Leasing and Rentals, L.P. and National Trailer Funding (the Finance Companies). In December 2000, the Company recorded restructuring and other related charges totaling $46.6 million ($28.5 million, net of tax) primarily related to the Company's exit from manufacturing products for export outside the North American market, international leasing and financing activities and the consolidation of certain domestic operations. Included in this total is $40.8 million that has been included as a component in computing income from operations. Specifically, $19.1 million of this amount represents the impairment of certain equipment subject to leases with the Company's international customers, $8.6 million represents losses recognized for various financial guarantees related to international financing activities and $6.9 million was recorded for the write-down of other assets as well as charges associated with the consolidation of certain domestic operations including severance of $0.2 million. Also included in the $40.8 million is a $4.5 million charge for inventory write-downs related to the restructuring actions. The Company has recorded $5.8 million as a restructuring charge in Other Income (Expense) representing the write-off of the Company's remaining equity interest in ETZ for a decline in fair value that is deemed to be other than temporary. The total impairment charge recognized by the Company as a result of its restructuring activities was $26.7 million. This amount was computed in accordance with the provisions of SFAS 121. The estimated fair value of the impaired assets totaled $3.4 million and was determined by management based upon economic conditions and potential alternative uses and markets for the equipment. These assets are held for sale and are classified in prepaid expenses and other in the accompanying Consolidated Balance Sheets. Depreciation has been discontinued on these assets pending their disposal. In addition, upon the ultimate divestiture of the Company's ownership in ETZ, expected to occur in 2001, the Company will no longer record equity in losses of unconsolidated affiliate which amounted to $3.1 million, $4.0 million and $3.1 million in 2000, 1999 and 1998, respectively. The impact of restructuring activities undertaken in 2000 is not expected to have a significant effect on the Company's revenues going forward as these businesses on a combined basis accounted for less than 5% of consolidated net sales in 2000, 1999 and 1998. Although the Company has elected to discontinue manufacturing products for export outside of North America and the related international financing activities, the Company will continue to pursue opportunities in international markets to license and market its proprietary RoadRailer bimodal technology. Under the provisions of Financial Accounting Standards (SFAS) No. 131, Disclosure about Segments of an Enterprise and Related Information, the Company determined it has two reportable business segments. These segments are the manufacturing segment and the retail and distribution segment. The manufacturing segment includes the Company's trailer manufacturing facilities located in Lafayette, Indiana, Ft. Madison, Iowa and Huntsville, Tennessee as well as the trailer flooring operation (Wabash Wood Products) located in Harrison, Arkansas. The retail and distribution segment includes the sale, lease 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. 15 16 OVERVIEW In 2000, the U.S. truck trailer industry experienced a 15% decrease to approximately 271,000 units shipped as compared to 317,000 units shipped in the record year 1999. The Company's market share in the U.S. trailer industry was approximately 24.5% in 2000, which represents a slight increase over 1999. Deteriorating economic conditions during 2000, including higher interest rates and fuel costs, negatively affected the purchasing activities of the trucking industry and as a result, the Company's backlog has decreased from $1.1 billion at December 31, 1999 to $0.7 billion at December 31, 2000. RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of net sales for the periods indicated:
Percentage of Net Sales Years Ended December 31, ------------------------ 2000 1999 1998 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of sales 91.3(1) 90.9 92.3 ----- ----- ----- Gross profit 8.7 9.1 7.7 General and administrative expense 2.6 2.1 2.0 Selling expense 1.6 1.4 1.0 Restructuring charge 2.7 -- -- ----- ----- ----- Income from operations 1.8 5.6 4.7 Interest expense (1.5) (0.9) (1.1) Accounts receivable securitization costs (0.5) (0.4) (0.3) Equity in losses of unconsolidated affiliate (0.2) (0.3) (0.3) Restructuring charge (0.4) -- -- Other, net -- 0.4 -- ----- ----- ----- Income (loss) before taxes (0.8) 4.4 3.0 Provision (benefit) for income taxes (0.3) 1.8 1.2 ----- ----- ----- Net income (loss) (0.5)% 2.6% 1.8% ===== ===== =====
(1) Includes a $4.5 million charge (0.3%) related to the Company's restructuring activities. 2000 Compared to 1999 During 2000, the Company achieved net sales of $1.3 billion, which were 8.4% lower than 1999 net sales of $1.5 billion. Net income (loss) for 2000, including the impact of restructuring and other related charges, decreased to ($6.7) million as compared to $38.8 million in 1999. Net Sales
Years Ended December 31, ------------------------ 2000 1999 % Change ---- ---- -------- Net External Sales by Segment: (Dollar amounts in millions) Manufacturing $1,013.1 $1,113.9 (9.0%) Retail and Distribution 319.1 340.7 (6.3%) -------- -------- ---- Total Net Sales $1,332.2 $1,454.6 (8.4%) ======== ======== ====
The manufacturing segment's external net sales decreased 9.0% or $100.8 million in 2000 compared to 1999 driven primarily by a 6.9% decrease in the number of units sold, from approximately 64,100 units in 1999 to approximately 59,700 units in 2000. The average selling price per new trailer sold decreased 1.7%, from approximately $17,200 in 1999 to approximately $16,900 in 2000. The decrease in net sales during the period was primarily driven by the continued impact of a general slowing in freight tonnage, increased interest rates and continued high fuel prices within the transportation industry. As a result of these unfavorable conditions, the transportation industry continues to operate in a very difficult environment, 16 17 which has caused new trailer orders to decrease. As of December 31, 2000, the Company's backlog of orders was approximately $0.7 billion, over $0.4 billion of which is related to the DuraPlate trailer. The retail and distribution segment's external net sales decreased 6.3% or $21.6 million in 2000 compared to 1999 driven primarily by a decrease in new and used trailer sales. New trailer sales decreased 28.1% on approximately 5,900 units sold in 1999 to approximately 4,300 units sold in 2000 and used trailer sales decreased by 11.9% in 2000 compared to 1999. The decreases in new and used trailer sales were offset somewhat by a 15.4% increase in aftermarket parts, service revenues and rental, leasing and finance revenues. The increase in aftermarket parts and service revenues was driven primarily by the reconfiguration of the retail distribution network and the creation of additional service capacity. The increase in rental, leasing and finance revenues primarily reflects the Company's strategy to expand its used trailer rental program as the number of trailers in the rental fleet increased to approximately 6,900 at December 31, 2000 compared to approximately 1,800 at December 31, 1999. Gross Profit
Years Ended December 31, ------------------------ 2000 1999 % Change ---- ---- -------- Gross Profit by Segment: (Dollar amounts in millions) Manufacturing $ 86.7 $ 99.6 (13.0%) Retail and Distribution 31.5 34.3 (8.2%) Eliminations (2.2) (2.2) 0.0% --------- --------- ------- Total Gross Profit $116.0 $ 131.7 (11.9%) ====== ======== ======
The Company finished 2000 with gross profit as a percent of sales of 8.7% on a consolidated basis (9.0% excluding the impact from a non-recurring charge) as compared to 9.1% in 1999. This decrease was primarily due to the manufacturing segment, as discussed below. The manufacturing segment's gross profit decreased by 13.0% primarily as a result of the following factors: - the decrease in net sales previously discussed; - start-up costs related to the state-of-the-art painting and coating system at its Huntsville, Tennessee plant; - increased depreciation and amortization primarily related to several projects completed and placed in service during the year; and - the impact of other charges related to restructuring. These factors were partially offset by the Company's strategy of increasing the proportion of revenues attributable to proprietary products, such as the DuraPlate trailer. These proprietary products accounted for approximately 67% of production in 2000 as compared to 59% in 1999, and have been successful in generating higher gross profits than have historically been possible with a more traditional, commodity type product mix. The retail and distribution segment's gross profit decreased by 8.2% primarily as a result of decreased net sales previously discussed, offset somewhat by increased sales for aftermarket parts, service revenues and rental, leasing and finance revenues which typically have higher margins as compared to the segment as a whole. Income from Operations (before interest, taxes and other items)
Years Ended December 31, ------------------------ 2000 1999 % Change ---- ---- -------- Operating Income by Segment: (Dollar amounts in millions) Manufacturing $ 36.9 $ 72.0 (48.8%) Retail and Distribution (10.9) 11.1 (198.2%) Eliminations (2.2) (2.2) 0.0% ------- ------- -------- Total Operating Profit $ 23.8 $ 80.9 (70.6%) ====== ======= =======
The manufacturing segment's income from operations decreased by 48.8% primarily because of a $22.8 million charge related to the Company's restructuring activities, as well as the decrease in gross profit previously discussed. 17 18 The retail and distribution segment's income from operations decreased by $22.0 million due primarily to a $13.6 million charge related to the Company's restructuring activities and a $5.7 million increase in selling, general and administrative expenses. The increase in selling, general and administrative expenses primarily reflects increased selling expenses principally to support increased sales activity in its aftermarket parts, service and trailer rental, leasing and finance businesses. Other Income (Expense) Interest expense totaled $19.7 million and $12.7 million for the years ended December 31, 2000 and 1999, respectively. The increase in interest expense primarily reflects higher interest rates coupled with the issuance of additional term debt and higher borrowings under the Company's revolving credit facility during 2000 to fund increased investing activities and working capital requirements. Accounts receivable securitization costs related to the Company's receivable sale and servicing agreement increased from $5.8 million in 1999 to $7.1 million in 2000 primarily as a result of higher interest rates during the year. Equity in losses of unconsolidated affiliate consists of the Company's interest in the losses of ETZ, a non-operating, European holding company, at a 25.1% share that represents the Company's interest acquired in November 1997. ETZ is the majority shareholder of BTZ, a European RoadRailer operating company based in Munich, Germany, which began operations in 1996. As part of its restructuring activities, during the fourth quarter of 2000, the Company recorded a $5.8 million charge to Other Income (Expense) in order to reflect its planned divestiture of this investment. In January 2001, in connection with its restructuring activities, the Company assumed the remaining ownership interest in ETZ from the majority shareholder. The Company intends to pursue the orderly divestiture of the ETZ during 2001 and as a result will record 100% of ETZ's operating results until the divestiture is complete. These results will be recorded as Equity in losses of unconsolidated affiliate in the Consolidated Statements of Income in 2001. Other, net totaled income of $0.9 million in 2000 compared to income of $6.3 million in 1999. Included in other, net for 1999 was the reversal of $3.5 million in an accrual related to the Company's favorable resolution of a tax dispute with the Internal Revenue Service. During September 2000, the Company's finance operation sold a portion of its leasing and finance portfolio to a large financial institution. Proceeds of the sale were approximately $20.8 million and resulted in a loss of approximately $0.9 million, which is reflected in Other, net in the accompanying Consolidated Statements of Income for 2000. Interest income was approximately $0.5 million and $0.8 million in 2000 and 1999, respectively. Income Taxes The Company's effective tax rates were 39.0% and 40.0% of pre-tax income (loss) for 2000 and 1999, respectively, and differed from the U.S. Federal Statutory rate of 35% due primarily to state taxes. 1999 Compared to 1998 During 1999, the Company achieved net sales of $1.5 billion, which were 12.6% higher than 1998 net sales of $1.3 billion. Net income for 1999 rose 67% to $38.8 million as compared to $23.3 million in 1998. Net Sales
Years Ended December 31, 1999 1998 % Change Net External Sales by Segment: (Dollar amounts in millions) Manufacturing $1,113.9 $ 988.2 12.7% Retail and Distribution 340.7 304.1 12.0% -------- -------- ------- Total Net Sales $1,454.6 $1,292.3 12.6% ======== ======== =======
The manufacturing segment's external net sales rose 12.7% or $125.7 million in 1999 compared to 1998 driven primarily by a 12.7% increase in units sold, from approximately 56,900 units in 1998 to 18 19 approximately 64,100 units in 1999. The average selling price per new trailer sold increased 1.2%, from approximately $17,000 in 1998 to approximately $17,200 in 1999. The increase in new trailer sales reflects the continued strong demand for the Company's DuraPlate trailer, which accounted for approximately 59% of new trailer production in 1999. The retail and distribution segment's external net sales rose 12.0% or $36.6 million in 1999 compared to 1998 driven primarily by an increase in new and used trailers sales. New trailer sales increased 24.4% on approximately 5,000 units sold in 1998 to approximately 5,900 units sold in 1999 and used trailer sales increased 38.2% in 1999 compared to 1998. In addition, the average price per new trailer sold increased 5.3%, from approximately $19,000 in 1998 to approximately $20,000 in 1999. The increases in new and used trailer sales were offset somewhat by an 6.7% decrease in aftermarket parts and service revenues. Rental, leasing and finance revenues in 2000 were equal to 1999. The net decrease in aftermarket parts and service revenues was driven primarily by lower sales from the Company's parts distribution center, which during 1999 continued to focus on consolidating its operations with the distribution center acquired as part of the Fruehauf asset acquisition in 1997 and the impact of the conversion and implementation of new operating software within the Company's retail and distribution network. Gross Profit
Years Ended December 31, ------------------------ 1999 1998 % Change ---- ---- -------- Gross Profit by Segment: (Dollar amounts in millions) Manufacturing $ 99.6 $ 68.0 46.5% Retail and Distribution 34.3 33.9 1.2% Eliminations (2.2) (2.5) 12.0% ------ ------ ------- Total Gross Profit $131.7 $ 99.3 32.6% ====== ====== =======
The Company finished 1999 with gross profit as a percent of sales of 9.1% on a consolidated basis, the highest gross profit margin since 1993. This favorable increase in gross profits was primarily driven by the manufacturing segment, as discussed below. The manufacturing segment's gross profit increased 46.5% primarily as a result of a 12.7% increase in net sales, higher margins from an improved product mix toward more proprietary products, reduced hardwood flooring costs resulting from the acquisition of the Cloud Companies in July 1998 and a general improvement in production efficiencies throughout the year. The retail and distribution segment's gross profit remained unchanged, primarily due to the increase in net sales previously discussed offset by lower margins resulting from a higher level of sales of used trailers which have lower gross profit percentages than the segment as a whole. In addition, gross profits at the Company's parts distribution center were down in 1999 compared to 1998 due to the margin impact of the Company's consolidation of its two aftermarket parts operations and the conversion of its operating systems. Income from Operations (before interest, taxes and other items)
Years Ended December 31, ------------------------ 1999 1998 % Change ---- ---- -------- Operating Income by Segment: (Dollar amounts in millions) Manufacturing $ 72.0 $ 48.7 47.8% Retail and Distribution 11.1 14.5 (23.4%) Eliminations (2.2) (2.5) 12.0% ------ ------ ------- Total Operating Income $80.9 $ 60.7 33.3% ===== ====== =======
The manufacturing segment's income from operations increased 47.8% primarily because of the increase in gross profit previously discussed. Selling, general and administrative expenses increased primarily as a result of normal operating costs generated from the continued growth in this segment. The retail and distribution segment's income from operations decreased by 23.4% as a result of increased selling, general and administrative expenses associated with the growth of the segment. 19 20 Other Income (Expense) Interest expense totaled $12.7 million and $14.8 million for the years ended December 31, 1999 and 1998, respectively. The decrease in interest expense primarily reflects lower borrowings on the Company's revolving credit facility and higher usage of the Company's accounts receivable securitization facility in 1999 compared to 1998. Accounts receivable securitization costs related to the Company's receivable sale and servicing agreement totaled $5.8 million and $4.0 million for the years ended December 31, 1999 and 1998, respectively. The increase in securitization costs is due to the full-year impact of this new facility in 1999 compared to 9 months in 1998 and an increase in the amount outstanding under this facility during late 1998 from $83 million to $105 million. Equity in losses of unconsolidated affiliate consists of the Company's interest in the losses of ETZ, a non-operating, European holding company, at a 25.1% share, which represents the Company's interest acquired in November 1997. ETZ is the majority shareholder of BTZ, a European RoadRailer operating company based in Munich, Germany, which began operations in 1996. Other, net totaled income of $6.3 million in 1999 compared to a loss of $0.3 million in 1998. On December 24, 1998, the Company received notice from the Internal Revenue Service that it intended to assess additional federal excise tax, primarily on the restoration of certain used trailers. Although the Company strongly disagreed with the IRS, it recorded a $4.6 million accrual during the fourth quarter of 1998 for this loss contingency. In December 1999, the Company favorably resolved the dispute at less than 25% of the accrued amount, or approximately $1.1 million, net of interest, of which less than $1 million was related to the restoration of used trailers. As a result of this favorable resolution, in December 1999 the Company reversed $3.5 million of the previously recorded accrual. Also included in Other, net in 1999 are gains from the sale of property, plant and equipment of approximately $0.9 million and interest income of approximately $0.8 million. Income Taxes The Company's effective tax rates were 40.0% and 39.6% of pre-tax income (loss) for 1999 and 1998, respectively and differed from the U.S. Federal Statutory rate of 35% due primarily to State taxes. LIQUIDITY AND CAPITAL RESOURCES As presented in the Consolidated Statements of Cash Flows, the Company's cash position decreased $18.3 million during 2000 from $22.5 million in cash and cash equivalents at December 31, 1999 to $4.2 million at December 31, 2000. This decrease was due to cash used in operating and investing activities of $83.3 million partially offset by cash provided by financing activities of $65.0 million. Operating Activities: Net cash used in operating activities of $13.7 million in 2000 is primarily the result of the net loss and changes in working capital, partially offset by the add-back of non-cash charges for depreciation and amortization and restructuring and other related charges. Changes in working capital consisted primarily of increased inventory and decreased accounts payable and accrued liabilities offset by a reduction in accounts receivable. The net increase in inventory was primarily due to a higher level of used trailers taken in trade during the year, an increase in new trailer inventory within the retail branch network due to deteriorating conditions in the transportation industry, higher finished trailer inventory resulting from customers delaying taking delivery of the trailers they ordered offset partially by the manufacturing segment reducing its required raw materials inventory level. The decrease in accounts receivable was primarily the result of a favorable decrease in days sales outstanding offset somewhat by a decrease in the proceeds from the Company's trade receivable securitization facility. As of December 31, 2000, $69 million was outstanding under this facility, compared to $105 million as of December 31, 1999. Advance rates under this facility continued to decline into 2001 and, as a result, the Company will evaluate alternative financing arrangements or replacement facilities in 2001 to compensate for the lower borrowing capacity. 20 21 Investing Activities: Net cash used in investing activities of $69.6 million was primarily due to the following: - capital expenditures of $60.3 million during the year which were primarily associated with the following: + completion of a new, state of the art painting and coating system and plant expansion at its trailer manufacturing facility in Huntsville, Tennessee; + additional composite material capacity; + increasing productivity within the Company's manufacturing operations in Lafayette, Indiana; and + on-going capital expenditures related to the Company's branch expansion strategy. - net investment in the Company's rental and operating lease portfolio of approximately $35.9 million; - net decrease in the Company's finance contract portfolio of approximately $20.7 million; and - proceeds from the sale and leaseback of composite material production equipment closed in the fourth quarter of 2000 for approximately $9.1 million. The increase in the Company's rental and operating lease portfolio primarily reflects the Company's strategy to expand its used trailer rental program and is offset somewhat by $31 million of proceeds from a new sale and leaseback facility related to the Company's trailer rental facility which closed on December 29, 2000. The proceeds were used to reduce the Company's line of credit borrowings. This new facility, to be syndicated in the first quarter of 2001 and is expected to increase the total facility size to approximately $110 million, allows for additional draws during 2001 as the trailer rental fleet continues to expand. The facility has an initial term of 18 months followed by four annual renewals and contains financial covenants substantially identical to the Company's existing credit facilities. The decrease in the Company's finance contract portfolio was primarily driven by the September 2000 sale of approximately $21.7 million of its leasing and finance portfolio previously discussed. The Company anticipates future capital expenditures related to the continuation of the capital projects previously discussed and other activities to be $20 to $30 million over the next 12 months. In addition, the Company has future residual guarantees or purchase options of approximately $55.8 million and $171.2 million, respectively, related to certain new and used trailer transactions. The majority of these do not come due until 2002 or after. The Company anticipates re-marketing these trailers to the current users or through the retail and distribution segment. Financing Activities: Net cash provided by financing activities of $65.0 million in 2000 is primarily due to an increase in total debt of $70.4 million offset partially by the payment of common stock dividends and preferred stock dividends of $5.6 million in the aggregate. In connection with the aforementioned activity, the Company's total debt increased to $238.3 million at December 31, 2000 compared to $167.9 million at December 31, 1999. The Company maintains a $125 million unsecured revolving line of credit facility, of which approximately $90.2 million remains available at year end. On September 29, 2000, the Company entered into a $75 million Note Purchase and Private Shelf Agreement with a large financial institution. Under this agreement, the Company initially issued $50 million of unsecured senior notes, $25 million of which are due September 29, 2005 with the remaining $25 million due September 29, 2007. These Series I Senior Notes bear interest at 8.04% with interest payments due semi-annually in March and September and contain financial covenants substantially identical to the Company's existing senior notes. The proceeds were used to repay the amount outstanding under the Company's 364-day Credit Facility. The uncommitted Private Shelf Agreement expires on September 29, 2003 and provides for the possible issuance of additional senior notes up to an aggregate amount of $25 million. 21 22 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. At December 31, 2000, the Company had no borrowings against this facility. Other sources of funds for capital expenditures, continued expansion of businesses, dividends, principal repayments on debt, stock repurchase and working capital requirements are expected to be cash from operations, additional borrowings under the credit facilities and term borrowings and equity offerings. The Company believes these funding sources will be adequate for its anticipated requirements. INFLATION The Company has been generally able to offset the impact of rising costs through productivity improvements as well as selective price increases. As a result, inflation is not expected to have a significant impact on the Company's business. NEW ACCOUNTING PRONOUNCEMENTS 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. The adoption of SFAS 133 did not have an effect on the Company's annual results of operations or its financial position. ITEM 7A -- 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 December 31, 2000, the Company had approximately $20 million of London Interbank Rate (LIBOR) based debt outstanding under its Revolving Credit Facility, $31 million of proceeds from its rental fleet sale and leaseback agreement which calls for LIBOR based interest payments and $69 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 $1.2 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. 22 23 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. The Company does not hold or issue derivative financial instruments for speculative purposes. As of December 31, 2000, the Company had no foreign currency forward contracts outstanding. 23 24 ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGES ----- Report of Independent Public Accountants...................................................... 25 Consolidated Balance Sheets as of December 31, 2000 and 1999.................................. 26 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998..................................................................................... 27 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998............................................................................ 28 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998..................................................................................... 29 Notes to Consolidated Financial Statements.................................................... 30
24 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Wabash National Corporation: We have audited the accompanying consolidated balance sheets of WABASH NATIONAL CORPORATION (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wabash National Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Indianapolis, Indiana, February 6, 2001. 25 26 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
December 31, ------------------- ASSETS 2000 1999 ------ ---- ---- CURRENT ASSETS: Cash and cash equivalents.................................. $ 4,194 $ 22,484 Accounts receivable, net................................... 49,320 111,567 Current portion of finance contracts....................... 11,544 8,423 Inventories................................................ 330,326 269,581 Prepaid expenses and other................................. 24,030 16,962 --------- --------- Total current assets............................... 419,414 429,017 --------- --------- PROPERTY, PLANT AND EQUIPMENT, net................................ 216,901 186,430 --------- --------- EQUIPMENT LEASED TO OTHERS, net................................... 52,001 50,364 --------- --------- FINANCE CONTRACTS, net of current portion......................... 44,906 71,839 --------- --------- INTANGIBLE ASSETS, net............................................ 31,123 32,669 --------- --------- OTHER ASSETS...................................................... 17,269 20,972 --------- --------- $ 781,614 $ 791,291 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt....................... $ 12,134 $ 3,514 Accounts payable........................................... 94,118 145,568 Accrued liabilities........................................ 42,440 51,184 --------- --------- Total current liabilities.......................... 148,692 200,266 --------- --------- LONG-TERM DEBT, net of current maturities......................... 226,126 164,367 --------- --------- DEFERRED INCOME TAXES............................................. 23,644 30,640 --------- --------- OTHER NONCURRENT LIABILITIES AND CONTINGENCIES.................... 15,919 16,653 --------- --------- STOCKHOLDERS' EQUITY: Preferred stock, 482,041 shares issued and outstanding with an aggregate liquidation value of $30,600............. 5 5 Common stock, 23,002,490 and 22,985,186 shares issued and outstanding, respectively.......................... 230 230 Additional paid-in capital................................. 236,660 236,474 Retained earnings.......................................... 131,617 143,935 Treasury stock at cost, 59,600 common shares............... (1,279) (1,279) --------- --------- Total stockholders' equity......................... 367,233 379,365 --------- --------- $ 781,614 $ 791,291 ========= =========
The accompanying notes are an integral part of these Consolidated Statements. 26 27 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended December 31, ----------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- NET SALES............................................... $ 1,332,172 $ 1,454,570 $ 1,292,259 COST OF SALES........................................... 1,216,205 1,322,852 1,192,968 ----------- ----------- ----------- Gross profit................................. 115,967 131,718 99,291 GENERAL AND ADMINISTRATIVE EXPENSES..................... 34,354 30,396 25,780 SELLING EXPENSES........................................ 21,520 20,400 12,846 RESTRUCTURING CHARGE.................................... 36,338 -- -- ----------- ----------- ----------- Income from operations....................... 23,755 80,922 60,665 OTHER INCOME (EXPENSE): Interest expense................................. (19,740) (12,695) (14,843) Accounts receivable securitization costs......... (7,060) (5,804) (3,966) Equity in losses of unconsolidated affiliate..... (3,050) (4,000) (3,100) Restructuring charge............................. (5,832) -- -- Other, net....................................... 877 6,310 (259) ----------- ----------- ----------- Income (loss) before income taxes............ (11,050) 64,733 38,497 PROVISION (BENEFIT) FOR INCOME TAXES.................... (4,314) 25,891 15,226 ----------- ----------- ----------- Net income (loss)............................ $ (6,736) $ 38,842 $ 23,271 PREFERRED STOCK DIVIDENDS............................... 1,903 2,098 1,391 ----------- ----------- ----------- NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS.................................... $ (8,639) $ 36,744 $ 21,880 =========== =========== =========== EARNINGS (LOSS) PER SHARE: Basic........................................... $ (0.38) $ 1.60 $ 1.00 =========== =========== =========== Diluted......................................... $ (0.38) $ 1.59 $ 0.99 =========== =========== ===========
The accompanying notes are an integral part of these Consolidated Statements. 27 28 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
Additional Preferred Stock Common Stock Paid-In Retained Treasury Shares Amount Shares Amount Capital Earnings Stock Total ------- ------- ---------- ------ --------- --------- --------- --------- BALANCES, December 31, 1997........... 352,000 $ 4 19,954,874 $ 200 $ 135,611 $ 91,980 $ (1,279) $ 226,516 Net income for the year.............. -- -- -- -- -- 23,271 -- 23,271 Cash dividends declared: Common stock ($0.1425 per share)... -- -- -- -- -- (3,167) -- (3,167) ......... Preferred stock.................... -- -- -- -- -- (1,391) -- (1,391) Issuance of common stock, net of expenses.................... -- -- 3,000,000 30 87,256 -- -- 87,286 Common stock issued under: Employee stock purchase plan....... -- -- 4,896 -- 110 -- -- 110 Employee stock bonus plan.......... -- -- 3,900 -- 120 -- -- 120 Stock option plan.................. -- -- 1,420 -- 27 -- -- 27 Preferred stock issued for acquisition......................... 130,041 1 -- -- 13,003 -- -- 13,004 ------- ------- ---------- ------ --------- --------- -------- --------- BALANCES, December 31, 1998........... 482,041 $ 5 22,965,090 $ 230 $ 236,127 $ 110,693 $ (1,279) $ 345,776 Net income for the year.............. -- -- -- -- -- 38,842 -- 38,842 Cash dividends declared: Common stock ($0.1525 per share)... -- -- -- -- -- (3,502) -- (3,502) Preferred stock.................... -- -- -- -- -- (2,098) -- (2,098) Common stock issued under: Employee stock purchase plan....... -- -- 10,556 -- 177 -- -- 177 Employee stock bonus plan.......... -- -- 4,400 -- 79 -- -- 79 Stock option plan.................. -- -- 5,140 -- 91 -- -- 91 ------- ------- ---------- ------ --------- --------- -------- --------- BALANCES, December 31, 1999........... 482,041 $ 5 22,985,186 $ 230 $ 236,474 $ 143,935 $ (1,279) $ 379,365 Net loss for the year................ -- -- -- -- -- (6,736) -- (6,736) Cash dividends declared: Common stock ($0.16 per share)..... -- -- -- -- -- (3,679) -- (3,679) Preferred stock.................... -- -- -- -- -- (1,903) -- (1,903) Common stock issued under: Employee stock purchase plan....... -- -- 15,544 -- 158 -- -- 158 Employee stock bonus plan.......... -- -- 1,760 -- 28 -- -- 28 ------- ------- ---------- ------ --------- --------- -------- --------- BALANCES, December 31, 2000........... 482,041 $ 5 23,002,490 $ 230 $ 236,660 $ 131,617 $ (1,279) $ 367,233 ======= ======= ========== ====== ========= ========= ======== =========
The accompanying notes are an integral part of these Consolidated Statements. 28 29 WABASH NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Years Ended December 31, ------------------------------------ 2000 1999 1998 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)................................................................... $ (6,736) $ 38,842 $ 23,271 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization...................................................... 30,051 21,773 18,405 Net (gain) loss on the sale of assets.............................................. 1,474 (864) (2,077) Provision for losses on accounts receivable........................................ 4,088 2,829 772 Deferred income taxes.............................................................. (8,906) (6,947) 6,388 Equity in losses of unconsolidated affiliate....................................... 3,050 4,000 3,100 Restructuring and other related charges............................................ 46,650 -- -- Change in operating assets and liabilities, excluding effects of the acquisitions Accounts receivable............................................................ 52,709 (18,810) 72,557 Inventories.................................................................... (64,879) (37,573) 2,379 Prepaid expenses and other..................................................... (184) 8,607 (5,842) Accounts payable and accrued liabilities....................................... (69,880) 55,537 6,041 Other, net..................................................................... (1,106) (3,924) (1,911) ------- ------ ------- Net cash provided by (used in) operating activities........................ (13,669) 63,470 123,083 ------- ------ ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures................................................................ (60,342) (68,119) (31,006) Net additions to equipment leased to others......................................... (69,553) (11,828) (15,288) Net additions to finance contracts.................................................. (19,400) (28,762) (30,056) Investment in unconsolidated affiliate.............................................. (3,706) (3,580) (2,866) Acquisitions, net of cash acquired.................................................. -- (12,413) (9,515) Proceeds from sale of leased equipment and finance contracts........................ 60,845 12,927 12,357 Principal payments received on finance contracts.................................... 12,914 10,246 7,920 Proceeds from the sale of property, plant and equipment............................. 9,638 7,236 4,084 ------- ------ ------- Net cash used in investing activities.............................................. (69,604) (94,293) (64,370) ------- ------ ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from: Long-term revolver................................................................. 512,300 244,200 276,600 Long-term debt..................................................................... 62,500 -- -- Common stock, net of expenses...................................................... 186 347 87,543 Payments: Long-term revolver................................................................. (500,299) (242,200) (336,600) Long-term debt..................................................................... (4,122) (10,651) (29,420) Common stock dividends............................................................. (3,679) (3,446) (3,004) Preferred dividends................................................................ (1,903) (2,065) (1,357) ------- ------ ------- Net cash provided by (used in) financing activities............................ 64,983 (13,815) (6,238) ------- ------ ------- NET (DECREASE) INCREASE IN CASH...................................................... (18,290) (44,638) 52,475 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD............................. 22,484 67,122 14,647 ------- ------ ------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD................................... $ 4,194 $ 22,484 $ 67,122 ========= ========= =========
The accompanying notes are an integral part of these Consolidated Statements. 29 30 WABASH NATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF THE BUSINESS Wabash National Corporation (the Company) designs, manufactures and markets standard and customized truck trailers under the Wabash National and Fruehauf trademarks. The Company produces and sells aftermarket parts through its division, Wabash National Parts, and its wholly-owned subsidiary, Fruehauf Trailer Services, Inc. (FTSI). In addition to its aftermarket parts sales and service revenues, FTSI sells new and used trailers through its retail network. The Company's other significant wholly-owned subsidiaries include Apex Trailer Leasing and Rentals, L.P. and National Trailer Funding (the Finance Companies) and Cloud Corporation (Wabash Wood Products). The Finance Companies provide rental, leasing and finance programs to their customers for new and used trailers through the retail and distribution segment. Wabash Wood Products manufactures hardwood flooring primarily for the Company's manufacturing segment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Consolidation The consolidated financial statements reflect the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investment in an unconsolidated affiliate in which the Company exercises significant influence but not control is accounted for by the equity method and the Company's share of net income or loss of its affiliate is included in the Consolidated Statements of Income. b. Significant Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amount reported in its consolidated financial statements and accompanying notes. Actual results could differ from these estimates. c. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments, which are readily convertible into cash and have maturities of three months or less. d. Allowance for Doubtful Accounts Accounts receivable as shown in the accompanying Consolidated Balance Sheets are net of allowance for doubtful accounts of $3.7 million, $2.9 million and $2.3 million at December 31, 2000, 1999 and 1998, respectively. The activity in the allowance for doubtful accounts includes (i) provision for losses on accounts receivable of $4.1 million, $2.8 million and $0.8 million; (ii) net accounts written-off of $3.3 million, $2.5 million, and $0.2 million; and (iii) reserves recorded in connection with the acquisition of the Apex Group of $0, $0.3 million, and $0 during 2000, 1999 and 1998, respectively. e. Inventories Inventories are primarily priced at the lower of first-in, first-out (FIFO) cost or market. Inventory costs include raw material, labor and overhead costs for manufactured inventories. Used trailers are carried at the lower of their estimated net realizable value or cost. Inventories consist of the following (in thousands): 30 31
December 31, ------------ 2000 1999 ---- ---- Raw materials and components $ 84,167 $105,476 Work in progress 18,765 11,215 Finished goods 93,332 49,906 Aftermarket parts 33,566 37,894 Used trailers 100,496 65,090 -------- -------- $330,326 $269,581 ======== ========
f. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the depreciable assets. Estimated useful lives are thirty-three and one-third years for buildings and building improvements and range from three to ten years for machinery and equipment. Maintenance and repairs are charged to expense as incurred. Property, plant and equipment consist of the following (in thousands):
December 31, 2000 1999 Land $ 29,314 $ 28,190 Buildings and improvements 109,596 81,585 Machinery and equipment 123,989 93,861 Construction in progress 18,587 31,477 --------- --------- 281,486 235,113 Less -- Accumulated depreciation (64,585) (48,683) --------- --------- $ 216,901 $ 186,430 ========= =========
g. Impairment Long-lived assets, including property, plant and equipment, identifiable intangibles and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If this process concludes that the carrying value of a long-lived asset is not recoverable, then a write-down of the asset would be recorded as a charge to operations. h. Intangible Assets Intangible assets, net of accumulated amortization of $12.2 million and $9.7 million at December 31, 2000 and December 31, 1999, respectively, relate primarily to goodwill and other intangible assets associated with recent acquisitions (See Footnote 6 for further discussion) and RoadRailer acquisition costs. These amounts are being amortized on a straight-line basis over periods ranging from five to forty years. i. Capitalized Software The Company adopted Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, during 1999. This pronouncement specifies the appropriate accounting for costs incurred to develop or obtain computer software for internal use. The new pronouncement provides guidance on which costs should be capitalized, when and over what period such costs should be amortized and what disclosures should be made regarding such costs. The adoption of this pronouncement did not have a material effect on the Company's results of operations or financial position. j. Fair Values of Financial Instruments Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of fair value information for certain financial instruments. The differences between the carrying amounts and the estimated fair values, using the methods and assumptions listed below, of the Company's financial instruments at December 31, 2000 and 1999 were immaterial. Cash and Cash Equivalents, Accounts Receivable and Accounts Payable. The carrying amounts reported in the Consolidated Balance Sheets approximate fair value. 31 32 Long-Term Debt. The fair value of long-term debt, including current portion, is estimated based on quoted market prices for similar issues or on the current rates offered to the Company for debt of the same maturities. The interest rates on the Company's bank borrowings under its long-term revolving credit agreement are adjusted regularly to reflect current market rates. The carrying values of the Company's long-term borrowings approximate fair value. Foreign Exchange Contracts. The Company occasionally enters into foreign currency forward contracts to hedge the net receivable/payable position arising from trade sales (including lease revenues) and purchases related to the Company's international activities. Gains and losses related to qualifying hedges are deferred and included in the measurement of the related transaction, when the hedged transaction occurs. As of December 31, 2000 and 1999, the Company had deferred net gains of approximately $0 and $1.2 million, respectively. The Company does not hold or issue derivative financial instruments for speculative purposes. The fair values of foreign currency contracts (used for hedging purposes) are estimated by obtaining quotes. As of December 31, 2000 and 1999, the Company had approximately $0 and $4.4 million in foreign currency contracts, respectively, which approximate their fair values at those dates. As part of the Company's 2000 restructuring initiative the Company recognized its remaining net hedge gains as part of its restructuring charge. In addition, all foreign currency contracts were terminated as of December 31, 2000. k. Revenue Recognition The Company recognizes revenue from the sale of trailers and aftermarket parts when risk of ownership is transferred to the customer. 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. In addition, the Company recognizes revenue for direct finance leases based upon a constant rate of return while revenue is recognized for operating leases on a straight-line basis in an amount equal to the invoiced rentals. The Company had one customer that represented 11.4% of its net sales in 2000, while no other customer exceeded 10% of its net sales in 2000, 1999 and 1998. The Company's net sales in the aggregate to its five largest customers were 30.5%, 22.2% and 18.3% of its sales in 2000, 1999 and 1998, respectively. l. Income Taxes The Company recognizes income taxes under the liability method of accounting for income taxes. The liability method measures the expected tax impact of future taxable income or deductions resulting from differences in the tax and financial reporting bases of assets and liabilities reflected in the Consolidated Balance Sheets. m. Research and Development Research and development expenses are charged to earnings as incurred and approximated $2.4 million, $1.5 million and $1.8 million in 2000, 1999 and 1998, respectively. During 2000, the Company incurred research and development expenses related to the development of its proprietary anti-lock braking and trailer electronics systems. n. Reclassifications Certain items previously reported in specific consolidated financial statement captions have been reclassified to conform to the 2000 presentation. 32 33 o. 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. The adoption of SFAS 133 did not have an effect on the Company's annual results of operations or its financial position. 3. RESTRUCTURING AND OTHER RELATED CHARGES In December 2000, the Company recorded restructuring and other related charges totaling $46.6 million ($28.5 million, net of tax) primarily related to the Company's exit from manufacturing products for export outside the North American market, international leasing and financing activities and the consolidation of certain domestic operations. Included in this total is $40.8 million that has been included as a component in computing income from operations. Specifically, $19.1 million of this amount represents the impairment of certain equipment subject to leases with the Company's international customers, $8.6 million represents losses recognized for various financial guarantees related to international financing activities, and $6.9 million was recorded for the write-down of other assets as well as charges associated with the consolidation of certain domestic operations including severance of $0.2 million. Also included in the $40.8 million is a $4.5 million charge for inventory write-downs related to the restructuring actions which is included in cost of sales. The Company has recorded $5.8 million as a restructuring charge in Other Income (Expense) representing the write-off of the Company's remaining equity interest in ETZ for a decline in fair value that is deemed to be other than temporary. The total impairment charge recognized by the Company as a result of its restructuring activities was $26.7 million. This amount was computed in accordance with the provisions of SFAS 121. The estimated fair value of the impaired assets totaled $3.4 million and was determined by management based upon economic conditions and potential alternative uses and markets for the equipment. These assets are held for sale and are classified in prepaid expenses and other in the accompanying Consolidated Balance Sheets. Depreciation has been discontinued on these assets pending their disposal. In addition, upon the ultimate divestiture of the Company's ownership in ETZ, expected to occur in 2001, the Company will no longer record equity in losses of unconsolidated affiliate which amounted to $3.1 million, $4.0 million and $3.1 million in 2000, 1999 and 1998, respectively. The cash and non-cash elements of the restructuring charge were approximately $11.9 million and $34.7 million, respectively. Details of the restructuring charges are as follows (in thousands):
Original UTILIZED Balance Provision Cash Non-Cash 12/31/00 --------- ---- -------- -------- Restructuring of majority-owned operations: Impairment of long-term assets $20,819 $ -- $20,819 $ -- Loss related to equipment guarantees 8,592 -- -- 8,592 Write-down of other assets and other charges 6,927 -- 4,187 2,740 ------- ------- ------- ------- $36,338 $ -- $25,006 $11,332 ------- ------- ------- ------- Restructuring of minority interest operations: Impairment of long-term assets $ 5,832 $ -- $ 5,832 $ -- ------- ------- ------- ------- Inventory write-down $ 4,480 $ -- $ 3,897 $ 583 ------- ------- ------- ------- Total restructuring and other related charges $46,650 $ -- $34,735 $11,915 ======= ======= ======= =======
As of December 31, 2000, the $11.9 million restructuring reserve is included in accrued liabilities in the accompanying Consolidated Balance Sheets. The Company anticipates completion of its restructuring activities during 2001. 33 34 4. EARNINGS (LOSS) PER SHARE Earnings (loss) per share (EPS) are computed in accordance with SFAS No. 128, Earnings per Share. A reconciliation of the numerators and denominators of the basic and diluted EPS computations, as required by SFAS No. 128, is presented below. Stock options were not included in the computation of diluted EPS for 2000 and the convertible preferred stock was not included in the computation of diluted EPS for 2000 and 1998 since the inclusion would have resulted in an antidilutive effect (in thousands except per share amounts):
Net Income (Loss) Weighted Available to Average Earnings (Loss) Common Shares Per Share 2000 Basic $ (8,639) 22,990 $ (0.38) Options -- -- Preferred Stock -- -- -------- ------ ----------- Diluted $ (8,639) 22,990 $ (0.38) ======== ====== =========== 1999 Basic $ 36,744 22,973 $ 1.60 Options -- 30 Preferred Stock (Series B only) 1,151 823 -------- ------ ----------- Diluted $ 37,895 23,826 $ 1.59 ======== ====== =========== 1998 Basic $ 21,880 21,990 $ 1.00 Options -- 85 Preferred Stock -- -- -------- ------ ----------- Diluted $ 21,880 22,075 $ 0.99 ======== ====== ===========
5. SEGMENT REPORTING Under the provisions of SFAS No. 131, the Company has two reportable segments: manufacturing and retail and distribution. The manufacturing segment produces trailers and sells new trailers to customers who purchase trailers direct or through independent dealers and also produces trailers for the retail and distribution segment. The retail and distribution segment 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. In December 2000, the Company combined its rental, leasing and finance activities into a separate product line within the retail and distribution segment. As a result, the 1999 and 1998 presentations have been restated to conform to the 2000 presentation. The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that the Company evaluates segment performance based on income from operations. The Company has not allocated certain corporate related charges such as administrative costs, interest expense and income taxes from the manufacturing segment to the Company's other reportable segments. The Company accounts for intersegment sales and transfers at cost plus a specified mark-up. Reportable segment information is as follows (in thousands): 34 35
Retail and Combined Consolidated Manufacturing Distribution Segments Eliminations Totals ------------- ------------ -------- ------------ ------ 2000 ----------- Revenues External customers $ 1,013,108 $ 319,064 $ 1,332,172 $ -- $ 1,332,172 Intersegment sales 83,796 1,141 84,937 (84,937) -- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 1,096,904 $ 320,205 $ 1,417,109 $ (84,937) $ 1,332,172 =========== =========== =========== =========== =========== Depreciation & amortization 16,390 13,661 30,051 -- 30,051 Restructuring charge from operations 22,771 13,567 36,338 -- 36,338 Income (loss) from operations 36,897 (10,926) 25,971 (2,216) 23,755 Interest income 340 174 514 -- 514 Interest expense 18,632 1,108 19,740 -- 19,740 Equity in losses of unconsolidated affiliate 3,050 -- 3,050 -- 3,050 Restructuring charge included in other 5,832 -- 5,832 -- 5,832 Income tax benefit (4,314) -- (4,314) -- (4,314) Investment in unconsolidated affiliate -- -- -- -- -- Capital additions 48,712 11,630 60,342 -- 60,342 Assets 846,740 407,915 1,254,655 (473,041) 781,614 1999 ----------- Revenues External customers $ 1,113,872 $ 340,698 $ 1,454,570 $ -- $ 1,454,570 Intersegment sales 92,537 640 93,177 (93,177) -- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 1,206,409 $ 341,338 $ 1,547,747 $ (93,177) $ 1,454,570 =========== =========== =========== =========== =========== Depreciation & amortization 13,332 8,441 21,773 -- 21,773 Restructuring charge from operations -- -- -- -- -- Income from operations 71,976 11,127 83,103 (2,181) 80,922 Interest income 820 -- 820 -- 820 Interest expense 12,163 532 12,695 -- 12,695 Equity in losses of unconsolidated affiliate 4,000 -- 4,000 -- 4,000 Restructuring charge included in other -- -- -- -- -- Income tax expense 25,891 -- 25,891 -- 25,891 Investment in unconsolidated affiliate 5,176 -- 5,176 -- 5,176 Capital additions 54,945 13,174 68,119 -- 68,119 Assets 768,017 355,890 1,123,907 (332,616) 791,291 1998 ----------- Revenues External customers $ 988,128 $ 304,131 $ 1,292,259 $ -- $ 1,292,259 Intersegment sales 97,986 -- 97,986 (97,986) -- ----------- ----------- ----------- ----------- ----------- Total Revenues $ 1,086,114 $ 304,131 $ 1,390,245 $ (97,986) $ 1,292,259 =========== =========== =========== =========== =========== Depreciation & amortization 11,324 7,081 18,405 -- 18,405 Restructuring charge from operations -- -- -- -- -- Income from operations 48,731 14,457 63,188 (2,523) 60,665 Interest income 981 -- 981 -- 981 Interest expense 13,540 1,303 14,843 -- 14,843 Equity in losses of unconsolidated affiliate 3,100 -- 3,100 -- 3,100 Restructuring charge included in other -- -- -- -- -- Income tax expense 15,226 -- 15,226 -- 15,226 Investment in unconsolidated affiliate 5,595 -- 5,595 -- 5,595 Capital additions 23,435 7,571 31,006 -- 31,006 Assets 682,822 270,412 953,234 (248,748) 704,486
The Company's international sales accounted for approximately 3.1% of consolidated net sales during 2000 and 2.0% of net sales in 1999 and 1998. During 2000, as part of the restructuring charges, all assets attributable to international operations were written down to their estimated recovery values and these charges are included in income from operations in the accompanying Consolidated Statements of Income. These assets accounted for less than 5% of consolidated assets for 2000, 1999 and 1998. 6. ACQUISITIONS On December 1, 1999, the Company acquired Apex Trailer Service, Inc., Apex Trailer and Truck Equipment Sales, Inc. and Apex Rentals, Inc. (the Apex Group) in a stock purchase agreement (the Apex Acquisition). For financial statement purposes, the Apex Acquisition was accounted for as a purchase, and accordingly, the Apex Group's assets and liabilities were recorded at fair value and the operating results are included in the consolidated financial statements since the date of acquisition. The Apex Group has four 35 36 branch locations. These branches sell new and used trailers, aftermarket parts and provide service work. The aggregate consideration for this transaction included approximately $12.4 million in cash and the assumption of $11.3 million in liabilities. Included in the $11.3 million of assumed liabilities was $8.2 million of debt, of which the Company retired $6.8 million immediately following the acquisition using cash from operations. The excess of the purchase price over the underlying assets acquired was approximately $1.8 million. On July 14, 1998, the Company acquired Cloud Corporation and Cloud Oak Flooring Company, Inc. (the Cloud Acquisition) manufacturers of laminated hardwood floors for the truck body and trailer industry in a merger and stock purchase, respectively. For financial statement purposes, the Cloud Acquisition was accounted for as a purchase, and accordingly, Cloud's assets and liabilities were recorded at fair value and the operating results are included in the consolidated financial statements since the date of acquisition. The aggregate consideration for this transaction included approximately $9.5 million in cash, $13.0 million in convertible preferred stock and the assumption of $33.8 million in liabilities. Included in the $33.8 million of assumed liabilities was $18.8 million of debt, which the Company paid off immediately following the acquisition using cash from operations. The excess of the purchase price over the underlying assets acquired was approximately $20.3 million. 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE On November 4, 1997, the Company purchased a 25.1% equity interest in Europaische Trailerzug Beteiligungsgessellschaft mbH (ETZ). ETZ is the majority shareholder of Bayersriche Trailerzug Gesellschaft fur Bimodalen Guterverkehr mbH (BTZ), a European RoadRailer operation based in Munich, Germany, which began operations in 1996 and has incurred operating losses since inception. The Company paid approximately $6.2 million for its ownership interest in ETZ during 1997 and made additional capital contributions of $3.7 million, $3.6 million and $2.9 million during 2000, 1999 and 1998, respectively. During 2000, 1999 and 1998, the Company recorded approximately $3.1 million, $4.0 million and $3.1 million, respectively, for its share of ETZ losses and the amortization of the premiums. Such amounts are recorded as Equity in losses of unconsolidated affiliate on the accompanying Consolidated Statements of Income. In January 2001, in connection with its restructuring activities, the Company assumed the remaining ownership interest in ETZ from the majority shareholder. The Company intends to pursue the orderly divestiture of the ETZ during 2001 and as a result will record 100% of ETZ's operating results until the divestiture is complete. These results will be recorded as Equity in losses of unconsolidated affiliate in the Consolidated Statements of Income in 2001. Although the Company has elected to discontinue manufacturing products for export outside of North America and the related international financing activities, the Company will continue to pursue opportunities in international markets to license and market its proprietary RoadRailer bimodal technology. Summarized financial information for ETZ is as follows (in millions):
December 31, -------------------------------- 2000 1999 1998 ---- ---- ---- Condensed Statement of Operations: Net sales $ 18.9 $ 14.2 $ 11.5 Gross profit (8.9) (11.3) (7.0) Net earnings (loss) (12.6) (17.6) (12.4) Wabash National's share (3.2) (4.4) (3.1) Condensed Statement of Financial Condition: Current assets $ 4.7 $ 6.1 $ 5.3 Non-current assets 3.4 3.2 3.8 Current liabilities 5.5 7.2 5.9 Non-current liabilities 1.4 2.3 2.8 Net assets 1.1 (0.2) 0.4 Wabash National's share 0.3 0.0 0.1
36 37 8. ACCOUNTS RECEIVABLE SECURITIZATION On March 31, 1998, the Company replaced its existing $40.0 million receivable sale and servicing agreement with a new three-year trade receivable securitization facility. The new facility allows the Company to sell, without recourse on an ongoing basis, all of their accounts receivable to Wabash Funding Corporation (Funding Corp). Simultaneously, the Funding Corp. has sold and, subject to certain conditions, may from time to time sell an undivided interest in those receivables to a large financial institution. The Funding Corp. is a qualifying special purpose entity under the provisions of SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. As of December 31, 2000 and 1999, $69.4 million and $105.0 million, respectively, in proceeds have been received under the facility. Amounts reflected as accounts receivable in the accompanying Consolidated Balance Sheets as of December 31, 2000 and 1999 represent receivables sold to the Funding Corp. in excess of proceeds received. Proceeds from the sale in 1998 were used to reduce outstanding borrowings under the Company's Revolving Bank Line of Credit and are reflected as operating cash flows in the accompanying Consolidated Statements of Cash Flows. In order to operate this facility on an on-going basis, the Funding Corp. is required to meet certain covenants primarily related to the performance of the accounts receivable portfolio. Servicing responsibility for these receivables resides with the Company. 9. LEASES a. Equipment Leased to Others The Finance Companies have leased equipment to others under operating leases, whereby revenue is recognized as lease payments are due from the customers and the related costs are amortized over the equipment life. Equipment leased to others is depreciated over the estimated useful life of the equipment, not to exceed 15 years and a 20% residual value, or in some cases, a depreciable life equal to the term of the lease and a residual value equal to the estimated market value at lease termination. Depreciation expense on equipment leased to others was $10.9 million, $7.5 million and $6.4 million during 2000, 1999 and 1998, respectively. Accumulated depreciation of equipment leased to others is $11.4 million and $9.3 million at December 31, 2000 and 1999, respectively. Future minimum lease payments to be received from these noncancellable operating leases at December 31, 2000 are as follows (in thousands):
Amounts ------- 2001 $3,724 2002 1,808 2003 1,362 2004 914 2005 689 Thereafter 589 ------ $9,086 ======
Additionally, the Company has equipment available for short-term cancelable operating leases. The net amount included in equipment leased to others under this type of arrangement totaled $32.1 million and $16.2 million at December 31, 2000 and 1999, respectively. b. Finance Contracts The Finance Companies provide finance contracts for the sale of trailer equipment to certain of its customers. The financing is principally structured in the form of finance leases, typically for a five-year term. During 2000, the Company sold approximately $27.1 million of its finance contracts portfolio. Included in this amount is $21.7 million in contracts in which the Company had a 20% participation arrangement with a major finance company. Finance contracts, as shown on the accompanying Consolidated Balance Sheets, are as follows (in thousands): 37 38
DECEMBER 31, ------------ 2000 1999 ---- ---- Lease payments receivable $ 53,351 $ 72,004 Estimated residual value 11,041 16,622 -------- -------- 64,392 88,626 Unearned finance charges (13,666) (17,218) -------- -------- 50,726 71,408 Other, net 5,724 8,854 -------- -------- 56,450 80,262 Less: current portion (11,544) (8,423) -------- -------- $ 44,906 $ 71,839 ======== ========
Other, net. Other, net includes equipment subject to capital lease that is awaiting customer pick-up. The net amounts under such arrangements totaled $2.3 million and $2.9 million at December 31, 2000 and 1999, respectively. In addition, Other, net also includes the sale of certain finance contracts with full recourse provisions. As a result of the recourse provision, the Finance Companies have reflected an asset and offsetting liability totaling $3.4 million and $6.0 million at December 31, 2000 and December 31, 1999, respectively, in the Company's Consolidated Balance Sheets as a Finance Contract and Other Non-Current Liabilities and Contingencies. The future minimum lease payments to be received from finance contracts as of December 31, 2000 are as follows (in thousands):
Amounts ------- 2001 $13,035 2002 11,658 2003 9,861 2004 7,082 2005 4,911 Thereafter 6,804 ------- $53,351 =======
c. Off-Balance Sheet Financing In certain situations, the Finance Companies have sold equipment leased to others to independent financial institutions and simultaneously leased the equipment back under operating leases with some of these containing end-of-term residual value guarantees. These end-of-term residual guarantees totaled $18.3 million and $19.4 million as of December 31, 2000 and 1999, respectively. Rental payments made by the Finance Companies under these types of transactions totaled $9.1 million, $9.1 million and $8.8 million during 2000, 1999 and 1998, respectively. On December 29, 2000, the Company closed on a new sale and leaseback facility with an independent financial institution related to its trailer rental facility. This new facility, to be syndicated in the first quarter of 2001 and is expected to increase the total facility size to $110 million, allows for additional draws during 2001 as the trailer rental fleet continues to expand. The facility has an initial term of 18 months followed by four annual renewals and contains financial covenants substantially identical to the Company's existing credit facilities. Initial proceeds received under this facility on December 29, 2000, were $31 million. The future minimum lease payments to be paid by the Finance Companies under these lease transactions as of December 31, 2000 are as follows (in thousands):
Amounts ------- 2001 $14,852 2002 9,221 2003 5,702 2004 4,676 2005 1,145 Thereafter -- ------- $35,596 =======
38 39 The future minimum lease payments related to non-cancelable leases to be received by the Finance Companies under these sublease arrangements are $10.0 million in 2001, $6.2 million in 2002, $5.9 million in 2003, $4.4 million in 2004, $2.0 million in 2005 and $1.0 million thereafter. Not included in these future minimum lease payments to be received by the Finance Companies are payments related to short-term cancelable sublease arrangements associated with the $31 million of rental fleet equipment sold and simultaneously leased back in December 2000. d. Lease Commitments The Company leases office space, manufacturing, warehouse and service facilities and equipment under operating leases expiring through 2007. Future minimum lease payments required under non-cancelable operating leases as of December 31, 2000 are as follows (in thousands):
Amounts ------- 2001 $ 6,973 2002 3,818 2003 3,142 2004 1,546 2005 1,371 Thereafter 12 ------- $16,862 =======
Total rental expense under operating leases was $7.9 million, $5.4 million, and $4.2 million for the years ended December 31, 2000, 1999 and 1998, respectively. 10. DEBT a. Long-term debt consists of the following (in thousands):
DECEMBER 31, ------------ 2000 1999 ---- ---- Revolving Bank Line of Credit $ 20,000 $ 7,999 Mortgage and Other Notes Payable (3.0% - 8.17%, Due 2001-2008 Secured by general business assets) 18,260 9,882 Series A Senior Notes (6.41%, Due January 2003) 50,000 50,000 Series B-H Senior Notes (6.99% - 7.55%, Due 2001-2008) 100,000 100,000 Series I Senior Notes (8.04%, Due September 2005-2007) 50,000 -- --------- --------- 238,260 167,881 Less: Current maturities (12,134) (3,514) --------- --------- $ 226,126 $ 164,367 ========= =========
b. Maturities of long-term debt at December 31, 2000, are as follows (in thousands):
Amounts 2001 $ 12,134 2002 45,123 2003 51,375 2004 10,445 2005 29,553 Thereafter 89,630 -------- $238,260 ========
c. Revolving Bank Line of Credit The Company has an unsecured revolving bank line of credit that permits the Company to borrow up to $125 million. Under this facility, the Company has a right to borrow until September 30, 2002, at which time the principal amount then outstanding will be due and payable. Interest payable on such borrowings is variable based upon the London Interbank Rate (LIBOR) plus 25 to 55 basis points, as defined, 39 40 or a prime rate of interest, as defined. The Company pays a commitment fee on the unused portion of this facility at rates of 8.5 to 17.5 basis points per annum, as defined. At December 31, 2000, the Company had borrowings of $20.0 million under this facility, at interest rates ranging from 7.125% - 7.25%. The Company had available credit under the revolving credit facility of approximately $90.2 million after letters of credit and 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. At December 31, 2000, the Company had no borrowings against this facility. d. Senior Notes On September 29, 2000, the Company entered into a $75 million Note Purchase and Private Shelf Agreement with a large financial institution. Under this agreement, the Company initially issued $50 million of unsecured Series I Senior Notes, $25 million of which is due September 29, 2005 with the remaining $25 million due September 29, 2007. The uncommitted Shelf Agreement expires on September 29, 2003 and provides for the possible issuance of additional senior notes up to an aggregate amount of $25 million. Included in current maturities of long-term debt is $8 million which represents a portion of the Company's Series B-H Senior Notes that matures in 2001. e. Covenants Under various loan agreements, the Company is required to meet certain financial covenants. These covenants require the Company to maintain certain levels of net worth as well as comply with certain limitations on indebtedness, investments and sales of assets. The Company was in compliance with these covenants at December 31, 2000. 11. STOCKHOLDERS' EQUITY a. Capital Stock
DECEMBER 31, (Dollars in thousands) 2000 1999 Preferred Stock - $0.01 par value, 25,000,000 shares authorized: Series A Junior Participating Preferred Stock 300,000 shares authorized, 0 shares issued and outstanding $ -- $ -- Series B 6% Cumulative Convertible Exchangeable Preferred Stock, 352,000 shares authorized, issued and outstanding at December 31, 2000 and 1999 ($17.6 million aggregate liquidation value) 4 4 Series C 5.5% Cumulative Convertible Exchangeable Preferred Stock, 130,041 shares authorized, issued and outstanding at December 31, 2000 and 1999 ($13.0 million aggregate liquidation value) 1 1 ---- ---- Total Preferred Stock $ 5 $ 5 ==== ==== Common Stock - $0.01 par value, 75,000,000 shares authorized, 23,002,490 and 22,985,186 shares issued and outstanding at December 31, 2000 and 1999, respectively $230 $230 ==== ====
40 41 The Series B 6% Cumulative Convertible Exchangeable Preferred Stock is convertible at the discretion of the holder, at a conversion price of $21.38 per share, into up to approximately 823,200 shares of common stock. This conversion is subject to adjustment for dilutive issuances and changes in outstanding capitalization by reason of a stock split, stock dividend or stock combination. The Series C 5.5% Cumulative Convertible Exchangeable Preferred Stock is convertible at the discretion of the holder, at a conversion price of $35.00 per share, into up to approximately 371,500 shares of common stock, subject to adjustment. On April 28, 1998, the Company sold three million shares of its common stock in a registered public offering at a public-offering price of $30.75 per share, for net proceeds to the Company of $87.3 million. The Board of Directors has the authority to issue shares of unclassified preferred stock and to fix dividends, voting and conversion rights, redemption provisions, liquidation preferences and other rights and restrictions. b. Stock Option Plans The Company has two non-qualified stock option plans (the 1992 and 2000 Stock Option Plans) under which options may be granted to officers and other key employees of the Company and its subsidiaries to purchase shares of common stock at a price not less than market price at the date of grant. Under the terms of the Stock Option Plans, up to an aggregate of 3,750,000 shares are reserved for issuance, subject to adjustment for stock dividends, recapitalizations and the like. Options granted to employees under the Stock Option Plans become exercisable in annual installments of three years for options granted under the 2000 Plan and five years for options granted under the 1992 Plan. Options granted to non-employee Directors of the Company are fully vested on the date of grant and are exercisable six months thereafter. All options granted expire ten years after the date of grant. The Company has elected to follow APB No. 25, Accounting for Stock Issued to Employees, in accounting for its stock options and, accordingly, no compensation cost has been recognized for stock options in the consolidated financial statements. Had compensation cost for these plans been determined consistent with SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net income (loss) available to common would have been ($10.6) million (($0.46) Basic and Diluted EPS) in 2000, $35.2 million ($1.53 Basic and Diluted EPS) in 1999 and $20.8 million ($0.95 Basic EPS and $0.94 Diluted EPS) in 1998. A summary of stock option activity and weighted-average exercise prices for the periods indicated are as follows:
Number of Weighted-Average Options Exercise Price ------- -------------- Outstanding at December 31, 1997 855,900 $ 25.05 --------- ---------- Granted 368,500 15.31 Exercised (1,420) 18.82 Cancelled (24,720) 24.00 Outstanding at December 31, 1998 1,198,260 21.57 --------- ---------- Granted 537,375 21.52 Exercised (5,140) 17.76 Cancelled (11,590) 20.05 Outstanding at December 31, 1999 1,718,905 21.57 --------- ---------- Granted 277,500 7.50 Exercised -- -- Cancelled (76,780) 20.43 Outstanding at December 31, 2000 1,919,625 $ 19.59 ========= ==========
41 42 The following table summarizes information about stock options outstanding at December 31, 2000:
Weighted Weighted Weighted Range of Average Average Number Average Exercise Number Remaining Exercise Exercisable Exercise Prices Outstanding Life Price at 12/31/00 Price ------ ----------- ---- ----- ----------- ----- $ 7.38 to $10.49 273,000 9.9 yrs. $ 7.38 -- -- $10.50 to $15.49 359,500 7.7 yrs. $ 15.31 149,200 $ 15.31 $15.50 to $22.99 883,125 6.7 yrs. $ 20.46 436,705 $ 19.41 $23.00 to $33.50 404,000 5.5 yrs. $ 29.73 312,000 $ 30.02
Using the Black-Scholes option valuation model, the estimated fair values of options granted during 2000, 1999 and 1998 were $3.54, $11.12 and $8.07 per option, respectively. Principal assumptions used in applying the Black-Scholes model were as follows:
Black-Scholes Model Assumptions 2000 1999 1998 ------- ------- ------- Risk-free interest rate 5.32% 6.06% 4.88% Expected volatility 45.38% 43.95% 40.89% Expected dividend yield 2.21% 0.74% 0.98% Expected term 10 yrs. 7 yrs. 7 yrs.
c. 1993 Employee Stock Purchase Plan During 1993, the Company adopted its 1993 Employee Stock Purchase Plan (the "Purchase Plan"), which enables eligible employees of the Company to purchase shares of the Company's $0.01 par value common stock. Eligible employees may contribute up to 15% of their eligible compensation toward the semi-annual purchase of common stock. The employees' purchase price is based on the fair market value of the common stock on the date of purchase. No compensation expense is recorded in connection with the Purchase Plan. During 2000, 15,544 shares were issued to employees at a weighted average price of $10.16 per share. At December 31, 2000, there were 254,186 shares available for offering under this Purchase Plan. d. Stock Bonus Plan During 1997, the Company adopted its Stock Bonus Plan (the "Bonus Plan"). Under the terms of the Bonus Plan, common stock may be granted to employees under terms and conditions as determined by the Board of Directors. During 2000, 1,760 shares were issued to employees at a weighted average price of $15.91. At December 31, 2000 there were 478,640 shares available for offering under this Bonus Plan. 12. STOCKHOLDERS' RIGHTS PLAN On November 7, 1995, the Board of Directors adopted a Stockholder Rights Plan (the "Rights Plan"). The Rights Plan is designed to deter coercive or unfair takeover tactics, to prevent a person or group from gaining control of the Company without offering fair value to all shareholders and to deter other abusive takeover tactics, which are not in the best interest of stockholders. Under the terms of the Rights Plan, each share of common stock is accompanied by one right; each right entitles the stockholder to purchase from the Company, one one-thousandth of a newly issued share of Series A Preferred Stock at an exercise price of $120. The rights become exercisable ten days after a public announcement that an acquiring person or group (as defined in the Plan) has acquired 20% or more of the outstanding Common Stock of the Company (the Stock Acquisition Date) or ten days after the commencement of a tender offer which would result in a person owning 20% or more of such shares. The Company can redeem the rights for $.01 per right at any time until ten days following the Stock Acquisition Date (the 10-day period can be shortened or lengthened by the Company). The rights will expire in November 2005, unless redeemed earlier by the Company. If, subsequent to the rights becoming exercisable, the Company is acquired in a merger or other business combination at any time when there is a 20% or more holder, the rights will then entitle a holder to buy shares of the Acquiring Company with a market value equal to twice the exercise price of each right. 42 43 Alternatively, if a 20% holder acquires the Company by means of a merger in which the Company and its stock survives, or if any person acquires 20% or more of the Company's Common Stock, each right not owned by a 20% or more shareholder, would become exercisable for Common Stock of the Company (or, in certain circumstances, other consideration) having a market value equal to twice the exercise price of the right. 13. EMPLOYEE 401(k) SAVINGS PLAN Substantially all of the Company's employees are eligible to participate in a voluntary 401(k) Savings Plan, which provides for the Company to match a percentage of each employee's contributions under various formulas. The Company's matching contribution and related expense for the plan was approximately $1.5 million, $1.4 million and $1.0 million for the years ended December 31, 2000, 1999 and 1998, respectively. 14. SUPPLEMENTAL CASH FLOW INFORMATION
DECEMBER 31, ------------ (In thousands) 2000 1999 1998 -------------- ---- ---- ---- Cash paid during the period for: Interest $ 19,694 $ 13,954 $ 12,168 Income taxes 18,064 20,319 17,018 -------- -------- -------- Acquisitions, net of cash acquired: Fair value of assets acquired -- 23,698 56,300 Liabilities assumed -- (11,285) (33,781) Preferred stock issued -- -- (13,004) -------- -------- -------- Net cash used in acquisitions $ -- $(12,413) $ (9,515) ======== ======== ========
15. INCOME TAXES a. Provisions for Income Taxes The consolidated income tax provision for 2000, 1999 and 1998 consists of the following components (in thousands):
2000 1999 1998 ---- ---- ---- Current: Federal $ 3,196 $ 28,769 $ 6,024 State 1,396 4,069 2,814 Deferred (8,906) (6,947) 6,388 -------- -------- -------- Total consolidated provision (benefit) $ (4,314) $ 25,891 $ 15,226 ======== ======== ========
The Company's effective tax rates were 39.0%, 40.0% and 39.6% of pre-tax income for 2000, 1999 and 1998, respectively, and differed from the U.S. Federal Statutory rate of 35% due primarily to State taxes. b. Deferred Taxes Deferred income taxes are primarily due to temporary differences between financial and income tax reporting for the depreciation of property, plant and equipment and equipment under lease, the recognition of payments made in connection with the acquisition of RoadRailer technology (and the amortization thereof), the recognition of income from assets under finance leases and charges the Company recorded in 2000 related to the restructuring of certain international and domestic operations. The long-term deferred tax liabilities were $23.6 million and $30.6 million and current prepaid income tax assets were $9.2 million and $7.3 million as of December 31, 2000 and 1999, respectively. The components of deferred tax assets and deferred tax liabilities as of December 31, 2000 and 1999 were as follows (in thousands): 43 44
2000 1999 ---- ---- Deferred tax assets: Rentals on Finance Leases $18,651 $15,545 Leasing Difference 7,912 6,060 Operations Restructuring 18,194 -- Other 12,481 16,808 Deferred tax liabilities: Book-Tax Basis Differences-Property, Plant and Equipment 48,158 41,433 Earned Finance Charges on Finance Leases 9,241 9,273 RoadRailer Acquisition Payments/Amortization 1,387 1,522 Other 12,893 9,532 ------- ------- Net deferred tax liability $14,441 $23,347 ======= =======
16. COMMITMENTS AND CONTINGENCIES a. Litigation Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company arising in the ordinary course of business, including those pertaining to product liability, labor and health related matters, successor liability, environmental and possible tax assessments. While the amounts claimed could be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are pending or asserted will not have a material adverse effect on the Company's financial position or its annual results of operations. From January 22, 1999 through February 24, 1999, five purported class action complaints were filed against the Company and certain of its officers in the United States District Court for the Northern District of Indiana. The complaints purported to be brought on behalf of a class of investors who purchased the Company's common stock between April 20, 1998 and January 15, 1999. The complaints alleged that the Company violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated under the Act by disseminating false and misleading financial statements and reports respecting the first three quarters of the Company's fiscal year 1998. The complaints sought unspecified compensatory damages and attorney's fees, as well as other relief. In addition, on March 23, 1999, another purported class action lawsuit was also filed in the United States District Court for the Northern District of Indiana, naming the Company, its directors and the underwriters of the Company's April 1998 public offering. That complaint alleged that the Company and the individual defendants violated Section 11 of the Securities Act of 1933, and that the Company, the individual defendants as "controlling persons" of the Company, and the 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. The Court 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. On March 29, 2001, all plaintiffs voluntarily withdrew their claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "1934 Act Claims"), when a Stipulation of Dismissal with Prejudice was filed with the Court. As a result of that dismissal, the only claims remaining in the case are those brought by purchasers of shares in the Company's public offering on April 23, 1998 (i.e., claims arising under Sections 11 and 12 of the Securities Act of 1933). The dismissal of the 1934 Act Claims both decreases the number of persons who might be potential claimants against the Company and the individual defendants and effectively eliminates from the case issues arising from the financial statements prepared for the second and third quarters of 1998. 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 44 45 (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 treatment and remediation efforts. Based on these evaluations, the Company estimates a lower and upper range for the treatment and remediation efforts and recognizes a liability for such probable costs based on the information available at the time. As of December 31, 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. As of December 31, 1999, the estimated potential exposure for such costs ranged from $1.5 million to approximately $2.7 million for which the Company had a reserve of approximately $1.0 million. The reduction in the reserve during 2000 reflects payments made during the period and a $0.8 million change in estimate resulting from experience and the availability of additional information. 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. Future information and developments will require the Company to continually reassess the expected impact of these environmental matters. However, the Company has evaluated its total environmental exposure based on currently available data and believes that compliance with all applicable laws and regulations will not have a materially adverse effect on the consolidated financial position of the Company. c. Used Trailer Restoration Program During 1999, the Company reached a settlement with the Internal Revenue Service related to federal excise tax on certain used trailers restored by the Company during 1996 and 1997. The Company has continued the restoration program with the same customer since 1997. The customer has indemnified the Company for any potential excise tax assessed by the IRS for years subsequent to 1997. As a result, the Company has recorded a liability and a corresponding receivable of approximately $7.9 million and $5.2 million in the accompanying Consolidated Balance Sheets at December 31, 2000 and 1999, respectively. d. Letters of Credit As of December 31, 2000, the Company had standby letters of credit totaling $16.7 million issued in connection with certain foreign sales transactions and other domestic purposes. Of this total, $14.8 million is secured by the revolving bank line of credit while the remaining $1.9 million is unsecured. e. Royalty Payments Beginning in the first quarter of 1998 and extending through 2007, the Company is obligated to make quarterly royalty payments in accordance with a licensing agreement related to the development of the Company's composite plate material used on its proprietary DuraPlate trailer. The amount of the payments varies with the production volume of usable material, but requires minimum royalties of $0.5 million annually through 2005. 45 46 f. Used Trailer Residual Guarantees and Purchase Commitments In connection with certain new trailer sale transactions, the Company has entered into residual value guarantees and purchase option agreements with customers or financing institutions whereby the Company agrees to guarantee an end-of-term residual value or has an option to purchase the used equipment at a pre-determined price. Under these guarantees, future payments which may be required as of December 31, 2000 and 1999 totaled approximately $37.5 million and $31.0 million, respectively, the majority of which do not come due until after 2002. 17. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for fiscal years 2000, 1999 and 1998 (Dollars in thousands except per share amounts).
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 2000 Net Sales $ 352,848 $ 358,729 $ 345,818 $ 274,777 Gross profit 34,423 34,045 29,512 17,987 Net income (loss) 9,132 7,515 4,992 (28,375)(2) Basic earnings (loss) per share(1) $ 0.38 $ 0.31 $ 0.20 $ (1.25) Diluted earnings (loss) per share(1) $ 0.38 $ 0.31 $ 0.20 $ (1.25) 1999 Net Sales $ 341,624 $ 380,203 $ 374,708 $ 358,035 Gross profit 27,225 34,099 35,039 35,354 Net income 6,367 10,347 10,365 11,762 Basic earnings per share(1) $ 0.26 $ 0.42 $ 0.43 $ 0.49 Diluted earnings per share(1) $ 0.26 $ 0.42 $ 0.43 $ 0.49 1998 Net Sales $ 293,612 $ 337,733 $ 334,113 $ 326,801 Gross profit 25,888 24,038 27,634 21,731 Net income 6,958 6,203 7,909 2,201 Basic earnings per share(1) $ 0.34 $ 0.27 $ 0.33 $ 0.08 Diluted earnings per share(1) $ 0.33 $ 0.27 $ 0.33 $ 0.08
(1) Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may differ from annual earnings per share due to rounding. (2) The fourth quarter 2000 results include restructuring and other related charges of $46.6 million ($28.5 million, net of tax.) 18. SUBSEQUENT EVENT On January 10, 2001, the Company acquired the Breadner Group of Companies (the Breadner Group), headquartered in Kitchener, Ontario, Canada. The Breadner Group has ten branch locations in six Canadian Provinces and is the leading Canadian distributor of new trailers and is a provider of new trailer services and aftermarket parts. The Breadner Group had revenues of approximately $135 million (US Dollars) in its fiscal year ended September 30, 2000 and employs approximately 130 associates. Aggregate consideration for this transaction included approximately $6.5 million in cash, and $10.5 million in long-term notes and the assumption of certain indebtedness. This transaction will be accounted for as a purchase with the excess purchase price above the net assets acquired being recorded as goodwill. 46 47 ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following are the executive officers and key employees of the Company:
NAME AGE POSITION Donald J. Ehrlich (1)........... 63 President, Chief Executive Officer and Chairman of the Board Dean A. Cervenka............. 43 Vice President -- Sales Rick B. Davis.................. 33 Corporate Controller Richard E. Dessimoz.......... 53 Vice President and Director Charles R. Ehrlich............. 56 Vice President -- Manufacturing Rodney P. Ehrlich............. 54 Vice President -- Engineering Charles E. Fish................. 46 Vice President -- Human Relations Lawrence J. Gross............. 46 Vice President -- Marketing Mark R. Holden (1)............. 41 Vice President -- Chief Financial Officer and Director Thomas L. Kassouf............ 48 Vice President -- Chief Operating Officer Karl D. Kintzele................ 50 Director of Internal Audit Connie L. Koleszar............ 42 Director of Investor Relations Wilfred E. Lewallen........... 56 Vice President -- Industrial Engineering Derek L. Nagle................. 50 Vice President and President of Fruehauf Trailer Services, Inc. Stanley E. Sutton............... 50 Vice President -- Purchasing
(1) Member of the Executive Committee of the Board of Directors. Donald J. Ehrlich. Mr. Donald J. Ehrlich has been President, Chief Executive Officer and Director of the Company since its founding. In May 1995, Mr. Ehrlich was elected Chairman of the Board. He also serves as a director of Danaher Corporation and Indiana Secondary Market Corporation. Dean A. Cervenka. Mr. Cervenka has been Vice President--Sales since January 1997. Previously, Mr. Cervenka had been a Regional Sales Director for the Company. Prior to his employment by the Company in April 1996, he was employed by Caterpillar, Inc. in various engineering and marketing positions. Rick B. Davis. Mr. Davis has been Corporate Controller of the Company since May 1998. Previously, Mr. Davis was Controller of the Company since June 1995. Prior to his employment by the Company, he was employed by Cummins Engine Company, Inc. since 1994 and Arthur Andersen LLP since 1989. Richard E. Dessimoz. Mr. Dessimoz has been Vice President and Chief Executive Officer of Wabash National Finance Corporation since its inception in December 1991 and a Director of the Corporation since December 1995. Charles R. Ehrlich. Mr. Charles Ehrlich has been Vice President--Manufacturing of the Company and has been in charge of the Company's manufacturing operations since the Company's founding. Rodney P. Ehrlich. Mr. Rodney Ehrlich has been Vice President--Engineering of the Company and has been in charge of the Company's engineering operations since the Company's founding. Charles E. Fish. Mr. Fish is Vice President--Human Relations of the Company and has been in charge of the Company's human relations operations since the Company's founding. 47 48 Lawrence J. Gross. Mr. Gross has been Vice President--Marketing of the Company since December 1994. Previously he had been President of the Company's RoadRailer division since joining the Company in July 1991. Prior to his employment by the Company, he was employed since 1985 by Chamberlain of Connecticut, Inc., a licensor of bimodal technology, as Vice President--Marketing until 1990 and as President until he began his employment with the Company. Mark R. Holden. Mr. Holden has been Vice President--Chief Financial Officer and Director of the Company since May 1995. Previously, Mr. Holden had been Vice President--Controller of the Company. Prior to his employment by the Company in December 1992, he was employed by Arthur Andersen LLP since 1981. Thomas L. Kassouf. Mr. Kassouf has been Vice President--Chief Operating Officer for the Company since January 2001. Prior to his employment by the Company, he was Vice President and General Manager for Kohler Company for approximately one year and was employed by United Technologies Corporation in various capacities for approximately 22 years. Karl D. Kintzele. Mr. Kintzele has been Director of Internal Audit since joining the Company in September, 1999. Prior to his employment by the Company, he was employed by Teledyne, Inc. since 1979. Connie L. Koleszar. Ms. Koleszar has been Director of Investor Relations since the Company's initial public offering in 1991 and has been employed by the Company in various administrative capacities since its founding. Wilfred E. Lewallen. Mr. Lewallen is Vice President--Industrial Engineering of the Company and has been in charge of the Company's industrial engineering operations since the Company's founding. Derek L. Nagle. Mr. Nagle has been Vice President of the Company and President of Fruehauf Trailer Services, Inc. since the Company's acquisition of certain Fruehauf assets in April 1997. Prior to his employment by the Company, he was employed since 1970 at Fruehauf Trailer Corporation, where he held various senior executive positions. Fruehauf Trailer Corporation filed for bankruptcy protection in October 1996. Stanley E. Sutton. Mr. Sutton has been Vice President--Purchasing of the Company since joining the Company in May 1992. Prior to his employment by the Company, he was employed since 1973 by Pines Trailer Limited Partnership as Vice President--Manufacturing Operations. Officers are elected for a term of one year and serve at the discretion of the Board of Directors. The Company hereby incorporates by reference the information contained under the heading "Election of Directors" from its definitive Proxy Statement to be delivered to stockholders of the Company in connection with the 2001 Annual Meeting of Stockholders to be held May 15, 2001. Donald J. Ehrlich, President, Chief Executive Officer and Chairman, and Charles R. Ehrlich and Rodney P. Ehrlich, executive officers of the Company, are brothers. Dean A. Cervenka and Connie L. Koleszar, executive officers of the Company, are brother and sister. ITEM 11 -- EXECUTIVE COMPENSATION The Company hereby incorporates by reference the information contained under the heading "Compensation" from its definitive Proxy Statement to be delivered to the stockholders of the Company in connection with the 2001 Annual Meeting of Stockholders to be held May 15, 2001. ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company hereby incorporates by reference the information contained under the heading "Beneficial Ownership of Common Stock" from its definitive Proxy Statement to be delivered to the stockholders of the Company in connection with the 2001 Annual Meeting of Stockholders to be held on May 15, 2001. 48 49 ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company hereby incorporates by reference the information contained under the heading "Compensation Committee Interlocks and Insider Participant" from its definitive Proxy Statement to be delivered to the stockholders of the Company in connection with the 2001 Annual Meeting of Stockholders to be held on May 15, 2001. PART IV ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements: The Company has included all required financial statements in Item 8 of this Form 10-K. The financial statement schedules have been omitted as they are not applicable or the required information is included in the Notes to the consolidated financial statements. The 2000 financial statements of Europaische Trailerzug Beteiligungsgessellschaft mBH (ETZ) which are required to be included in this report pursuant to Rule 3-09 of Regulation S-X, will be included in an amendment to this report to be filed within 90 days of the date of this Form 10-K. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of 2000. (c) Exhibits: The following exhibits are filed with this Form 10-K or incorporated herein by reference to the document set forth next to the exhibit listed below: 2.01 Purchase Agreement dated March 31, 1997, as amended (Incorporated by reference from Exhibit 2.01 to Registrant's Form 8-K filed in May 1, 1997) 3.01 Certificate of Incorporation of the Company (1) 3.02 Certificate of Designations of Series A Junior Participating Preferred Stock (1) 3.03 By-laws of the Company (1) 3.04 Certificate of Designations of Series B 6% Cumulative Convertible Exchangeable Preferred Stock (5) 3.05 Certificate of Designations of Series C 5.5% Convertible Exchangeable Preferred Stock (8) 4.01 Specimen Stock Certificate (1) 4.02 First Amendment to Shareholder Rights Agreement dated October 21, 1998 (9) 4.03 Form of Indenture for the Company's 6% Convertible Subordinated Debentures due 2007 (5) 4.04 Second Amendment to Shareholder Rights Agreement dated December 18, 2000 (13) 10.01 Loan Agreement, Mortgage, Security Agreement and Financing Statement between Wabash National Corporation and City of Lafayette dated as of August 15, 1989(1) 10.02 1992 Stock Option Plan (1) 10.03 Real Estate Sale Agreement by and between Kraft General Foods, Inc. and Wabash National Corporation, dated June 1, 1994 (2) 10.04 6.41% Series A Senior Note Purchase Agreement dated January 31, 1996, between certain Purchasers and Wabash National Corporation (3) 10.05 Master Loan and Security Agreement in the amount of $10 million by Wabash National Finance Corporation in favor of Fleet Capital Corporation dated December 27, 1995 (3) 10.06 First Amendment to the 6.41% Series A Senior Note Purchase Agreement dated January 31, 1996 between certain Purchasers and Wabash National Corporation (4) 10.07 Series B-H Senior Note Purchase Agreement dated December 18, 1996 between certain Purchasers and Wabash National Corporation (4) 10.08 Revolving Credit Loan Agreement dated September 30, 1997, between NBD Bank, N.A. and Wabash National Corporation (6) 10.09 Investment Agreement and Shareholders Agreement dated November 4, 1997, between ETZ (Europaische Trailerzug Beteiligungsgesellschaft mbH) and Wabash National Corporation (6) 10.10 Receivable Sales Agreement between the Company and Wabash Funding Corporation and the Receivables Purchase Agreement between Wabash Funding Corporation and Falcon Asset Securitization Corporation (7) 10.11 Indemnification Agreement between the Company and Roadway Express, Inc. (10) 49 50 10.12 364-day Credit Agreement dated June 22, 2000, between Bank One, Indiana, N.A., as administrative agent and Wabash National Corporation (11) 10.13 Series I Senior Note Purchase Agreement dated September 29, 2000, between Prudential Insurance Company and Wabash National Corporation (12) 10.14 Share Transfer Agreement dated December 12, 2000, between Bayerische Kapitalbeteiligungsgesellschaft mBH and Wabash National Corporation (15) 10.15 Participation Agreement and Equipment Lease between Apex Trailer Leasing & Rentals L.P. as Lessee and Wabash Statutory Trust as Lessor dated December 29, 2000 (15) 21.00 List of Significant Subsidiaries (15) 23.01 Consent of Arthur Andersen LLP (15) 99.01 Press Release, dated January 18, 2001 (14) (1) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (No. 33-42810) or the Registrant's Registration Statement on Form 8-A filed December 6, 1995 (item 3.02 and 4.02) (2) Incorporated by reference to the Registrant's Form 10-Q for the quarter ended June 30, 1994. (3) Incorporated by reference to the Registrant's Form 10-K for the year ended December 31, 1995 (4) Incorporated by reference to the Registrant's Form 10-K for the year ended December 31, 1996 (5) Incorporated by reference to the Registrant's Form 10-Q for the quarter ended March 31, 1997 (6) Incorporated by reference to the Registrant's Form 10-Q for the quarter ended September 30, 1997 (7) Incorporated by reference to the Registrant's Form 8-K filed on April 14, 1998 (8) Incorporated by reference to the Registrant's Form 10-Q for the quarter ended September 30, 1998 (9) Incorporated by reference to the Registrant's Form 8-K filed on October 26, 1998 (10) Incorporated by reference to the Registrant's Form 10-K for the year ended December 31, 1999 (11) Incorporated by reference to the Registrant's Form 10-Q for the quarter ended June 30, 2000 (12) Incorporated by reference to the Registrant's Form 10-Q for the quarter ended September 30, 2000 (13) Incorporated by reference to the Registrant's Amended Form 8-A filed January 18, 2001 (14) Incorporated by reference to the Registrant's Form 8-K filed on January 30, 2001 (15) Filed herewith The Registrant undertakes to provide to each shareholder requesting the same a copy of each Exhibit referred to herein upon payment of a reasonable fee limited to the Registrant's reasonable expenses in furnishing such Exhibit. 50 51 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. WABASH NATIONAL CORPORATION March 29, 2001 By: /s/ Rick B. Davis -------------------------- Rick B. Davis Corporate Controller (Principal Accounting Officer) and Duly Authorized Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE CAPACITIES AND ON THE DATED INDICATED. DATE SIGNATURE AND TITLE March 29, 2001 By: /s/ Donald J. Ehrlich ------------------------------------ Donald J. Ehrlich Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) March 29, 2001 By: /s/ Mark R. Holden ------------------------------------ Mark R. Holden Vice President -- Chief Financial Officer and Director March 29, 2001 By: /s/ Richard E. Dessimoz ------------------------------------ Richard E. Dessimoz Vice President and Director March 29, 2001 By: /s/ John T. Hackett ------------------------------------ John T. Hackett Director March 29, 2001 By: /s/ E. Hunter Harrison ------------------------------------ E. Hunter Harrison Director March 29, 2001 By: /s/ Ludvik F. Koci ------------------------------------ Ludvik F. Koci Director 51