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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR COMMISSION FILE NUMBER 1-10883
ENDED DECEMBER 31, 2001
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
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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 April 10, 2002 was $234,228,768 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 April 10, 2002 was
23,031,344.
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 30, 2002.
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EXPLANATORY NOTE:
This amended and restated Form 10-K is for purposes of filing electronic copies
of exhibits previously filed in paper pursuant to a temporary hardship
exemption, to restate the index of exhibits included in Item 14(c) and to
reflect other non-substantive changes.
TABLE OF CONTENTS
WABASH NATIONAL CORPORATION
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2001
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................................. 12
Item 4A. Risk Factors...................................................................... 13
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.......... 15
Item 6. Selected Financial Data........................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................ 30
Item 8. Financial Statements and Supplementary Data....................................... 32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 62
PART III.
Item 10. Directors and Executive Officers of the Registrant................................ 62
Item 11. Executive Compensation............................................................ 63
Item 12. Security Ownership of Certain Beneficial Owners and Management.................... 63
Item 13. Certain Relationships and Related Transactions.................................... 63
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................... 63
SIGNATURES .................................................................................. 66
2
PART I
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.
ITEM 1--BUSINESS
Wabash National Corporation ("Wabash" or "Company") designs,
manufactures and markets standard and customized truck trailers and intermodal
equipment under the Wabash(TM), Fruehauf(R) and RoadRailer(R) trademarks. The
Company's wholly-owned subsidiary North American Trailer Centers(TM) (NATC)
sells new and used trailers through its retail network, provides maintenance
service for its own and competitors' trailers and related equipment, and offers
rental, leasing and financing programs to its customers for new and used
trailers. Wabash also purchases and produces aftermarket parts which its sells
through its division Wabash National Parts as well as NATC.
Wabash seeks to identify and produce proprietary products in the
trucking, intermodal and rail industries that offer added value to customers
and, therefore, have the potential to generate higher profit margins than those
associated with standardized products. Wabash has developed and/or acquired
several proprietary products and processes that, it believes, are recognized
within its markets as providing additional value to users as compared to
conventional product offerings. While the Company believes it 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.
The Company's factory-owned retail distribution network provides
opportunities to effectively distribute its products and also offers national
service and support capabilities for customers. The retail sale of new and used
trailers, aftermarket parts and maintenance service generally provides enhanced
margin opportunities. The retail distribution network also offers long and short
term leasing programs as well as financing products for new and used trailers.
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: (1) manufacturing and (2) retail and distribution. Financial results
by segment and financial information regarding geographic areas and export sales
are discussed in detail within Footnote 7, Segment Reporting, of the
accompanying Consolidated Financial Statements. Additional information
concerning the Company can be found on the Company's website at
www.wabashnational.com. Information on the website is not part of this Form
10-K.
Manufacturing
The Company believes that it is the largest United States
manufacturer of truck trailers, including the Company's proprietary DuraPlate(R)
and RoadRailer(R) trailers.
3
Wabash markets its products directly, and through independent
dealers and company-owned retail locations 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, but not limited to, the following:
- 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; GATX Capital.
- 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 and Railroads: Triple Crown
Services (Norfolk Southern); National Rail Passenger Corp.
(Amtrak); Burlington Northern Santa Fe Railroad); Canadian
National Railroad; Transportacion Martima Mexicana (TMM).
Retail and Distribution
As of December 31, 2001 the Company had 47 factory-owned retail
outlets mostly in major, metropolitan markets as well as 2 rental locations.
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 10 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 that sells used trailers, aftermarket parts
and maintenance service.
The Company believes that the retail sale of new and used trailers,
aftermarket parts and maintenance services will generally produce higher gross
margins and tend to be more stable in demand than activities at the wholesale
level. The Company also provides rental, leasing and financing programs
primarily to retail customers for used trailers, through its subsidiaries, Apex
Trailer Leasing and Rentals, L.P. and National Trailer Funding (the Finance
Companies). Leasing can be less volatile than the sale of equipment while at the
same time providing the Company with 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 segment and has added
retail outlets over the past few years either through acquisition or new
construction.
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. The year 2001 was
one of the most difficult years in the industry's history. It is believed that
the decline in shipments from 2000 represents the largest decline in history.
This decline was a result of general economic conditions and motor-carrier
specific problems combined to dramatically cut demand for new trailers.
Management believes that customers historically have replaced
trailers in cycles that run from approximately six to twelve years, depending on
service and trailer type. Changes in both State and Federal regulation of the
size, safety features and configuration of truck trailers have led to
fluctuations in demand for trailers from time to time. However, the Company does
not expect any significant market effects from changes in government regulation
in the near term.
4
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 production for
the Company, its nine largest competitors and for the trailer industry as a
whole within the United States and Canada:
2001 2000 1999 1998 1997 1996
------- ------- ------- ------- ------- -------
WABASH ....... 31,682 66,283 69,772 61,061 48,346(1) 36,517
Great Dane ... 21,650 46,698 58,454 50,513 37,237 25,730
Utility ...... 16,334 28,780 30,989 26,862 23,084 19,731
Trailmobile .. 13,858 28,089 31,329 23,918 18,239 11,094
Stoughton .... 6,250 15,050 14,673 11,750 11,700 8,300
Manac ........ 5,865 8,052 8,200 * * *
Strick ....... 5,500 10,500 11,000 10,959 10,488 8,141
Hyundai ...... 5,413 6,261 5,716 5,200 3,445 2,007
Fontaine ..... 3,100 6,000 6,500 5,894 5,063 4,613
Transcraft ... 3,018 4,005 5,311 5,317 4,509 3,161
Total Industry 140,084 270,817 317,388 278,821 222,550 197,519
(1) Includes shipments of 1,467 units by Fruehauf in 1997 prior to the
acquisition by Wabash of certain assets of Fruehauf.
(2) Fontaine and Transcraft both build primarily platform types of trailers.
* Data not available
Sources: Individual manufacturer information provided by Southern Motor
Cargo Magazine(C)1999 (for 1995-1998 data) and Trailer Body Builders
Magazine(C)2002 (for 1999-2001 data). Industry totals provided by Southern Motor
Cargo Magazine(C)1999 (for 1995-1998 data) and A.C.T. Research Company, L.L.C.
(for 1999-2001 data).
Several significant events occurred within this group of competitors
during the year 2001. These events included the filing for Chapter 11
reorganization by Trailmobile LLC and the partial shutdown of many manufacturing
facilities and production lines due to weak demand. Two companies formerly
included in the top 10, HPA Monon and Dorsey Trailer, did not number among the
top 10 producers in 2001.
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 its 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,
the Company has been able to work closely with customers to create competitive
advantages through development and production of productivity-enhancing
transportation equipment. The sale of new trailers through the manufacturing
segment represented approximately 59.2%, 76.0% and 76.6% of net sales during
2001, 2000 and 1999, respectively. The current transportation equipment product
lines include the following:
- DuraPlate(R) trailers. In late 1995, the Company introduced
its DuraPlate(R) composite plate wall dry van trailer.
Features of the new composite plate trailer include increased
durability and greater strength than the aluminum plate
trailer that it replaces. The composite material is a
high-density vinyl core with a steel skin. DuraPlate(R)
trailers are purchased by all segments of the dry van customer
base, including truckload carriers, private fleets and
LTL/Package Carriers (generally in a pup trailer version). 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.
5
- 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(R) equipment. The RoadRailer(R) intermodal system
is a patented bimodal technology consisting of a truck trailer
and detachable rail "bogie" which permits a trailer to run
both over the highway and directly on railroad lines. The
Company believes that the RoadRailer(R) system can be operated
more efficiently than alternative intermodal systems such as
"piggyback" or "double-stack" railcars that require terminal
operators to transfer vehicles or containers to railcars. 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 RoadRailer(R) product line includes both dry van
and refrigerated "ReeferRailer(R)" trailers. The operation of
RoadRailer(R) equipment on the railroads is regulated by the
Federal Railroad Administration.
- 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 durability of the trailers. These trailers
are used by refrigerated carriers specializing in the movement
of commodities that require controlled temperatures such as
perishable food products. They are also used by private fleets
such as those operated by large grocery companies. During
1995, the Company opened its refrigerated trailer
manufacturing facility in Lafayette, Indiana.
- Smooth aluminum vans and doubles. Smooth 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.
- DuraPlate(R) domestic containers. During 2001 the Company
entered the domestic container market through the introduction
of a stackable 53 foot domestic container with DuraPlate(R)
sidewalls. Domestic containers are utilized by intermodal
carriers and are carried either on flat cars or stacked
two-high in special "Double-Stack" railcars. The use of the
proprietary DuraPlate(R) material provides significant
advantages in customer appeal, cargo carrying capacity and
damage resistance when compared to conventional domestic
containers. With this introduction, the Company is the only
supplier offering a complete line of intermodal equipment,
including the domestic container, piggyback trailers and the
RoadRailer(R) intermodal system.
- Other. The Company's other transportation equipment includes
container chassis, rollerbed trailers, soft-sided trailers,
dumps, converter dollies and platform trailers. These items
are either manufactured or are acquired, either on a private
label or wholesale basis for distribution through our retail
network or direct to customers.
6
Retail and Distribution Segment
The Company believes it has the largest, company-owned retail and
distribution network serving the truck trailer industry. Through its retail and
distribution segment, the Company sells the following products:
- Transportation Equipment - New. The Company sells new
transportation equipment such as those products offered by the
manufacturing segment including DuraPlate(R) and smooth
aluminum dry van trailers and refrigerated trailers. The
Company also sells specialty trailers not produced by the
manufacturing segment including tank trailers, dump trailers,
platform trailers built for Wabash and construction trailers.
Customers for this equipment typically purchase in smaller
quantities for local or regional transportation needs. The
sale of new transportation equipment through the retail branch
network represented approximately 11.9%, 6.3% and 8.1% of net
sales during 2001, 2000 and 1999, respectively.
- Aftermarket Parts and Service. The Company 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, North American Trailer Centers(TM). 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 the retail and distribution segment continues to
grow. Sales of these products and services represented
approximately 14.8%, 9.6% and 7.9% of net sales during 2001,
2000 and 1999, respectively.
- Rental, Leasing and Finance. In 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. During 1999, the Company began a used trailer
financing program through its subsidiary, National Trailer
Funding. Through this program, the Company originates finance
contracts primarily with small owner-operators with contracts
typically ranging from 3 to 5 years in duration. As of
December 31, 2001, the Company has a $15.9 million portfolio
with an average yield of approximately 11%. 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. Leasing revenues represented
approximately 4.9%, 2.5% and 1.6% of the Company's net sales
during 2001, 2000 and 1999, respectively.
- Transportation Equipment - Used. The Company sells used
transportation equipment primarily taken in trade from its
customers upon the sale of new trailers. The Company generally
sells its used trailers directly through its retail and
distribution segment. The ability to remarket used equipment
promotes new sales by permitting trade-in allowances and
offering customers an outlet for the disposal of used
equipment. During 2001, used trailer values were adversely
affected by the general economic slowdown and excess supply.
The sale of used trailers represented approximately 8.5%, 5.6%
and 5.8% of net sales during 2001, 2000 and 1999,
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 van and
refrigerated trailers to approximately 15 customers. Sales to these 15 customers
accounted for approximately 52.1%, 41.8% and 32.6% of the Company's new trailer
sales in 2001, 2000 and 1999, respectively. The retail and distribution business
primarily services small and mid-sized fleets and individual owner operators in
which the credit risk varies significantly from customer to customer.
International sales accounted for approximately 9.2%, 3.1% and 2.0% of net sales
during 2001, 2000 and 1999, respectively.
7
The Company had one customer, J.B. Hunt Transport Services, Inc.,
which represented approximately 19.0% of net sales in 2001 and 11.4% of net
sales in 2000. No other customer exceeded 10% of net sales in 2001, 2000 and
1999. The Company's net sales in the aggregate to its five largest customers
were 34.4%, 30.5% and 22.2% of its net sales in 2001, 2000 and 1999,
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, Averitt Express, A-Hold, Star, Smith
Transport, Knight Transportation, Inc., USXpress Enterprises, Inc., and
Interstate Distributor Co. represented approximately 49.5%, 59.7% and 54.3% of
the Company's new trailer sales in 2001, 2000 and 1999, 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., Vitran Express, Old Dominion
Freight Line, Inc., USF Holland, GLS Leasco, and Yellow Services, Inc. New
trailer sales to LTL carriers accounted for approximately 5.3%, 10.5% and 9.1%
of new trailer sales in 2001, 2000 and 1999, 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, Caterpillar, Safeway, Foster Farms, A-Hold and The Kroger
Company. New trailer sales to private fleets represented approximately 8.4%,
6.7% and 6.4% of new trailer sales in 2001, 2000 and 1999, 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., Lease
Plan and Penske Truck Leasing. New trailer sales to leasing companies
represented 3.2%, 4.2% and 6.0% of new trailer sales in 2001, 2000 and 1999,
respectively.
Customers for the Company's proprietary RoadRailer(R) products
include North American intermodal carriers such as Triple Crown Services (a
subsidiary of Norfolk Southern), Amtrak, Swift Transportation Corporation,
Alliance Shippers, GATX Capital (in conjunction with Burlington Northern Santa
Fe Corporation and Mark VII Transportation), Canadian National Railroad and
Transportacion Martima Mexicana. New trailer sales of RoadRailer(R) products to
these customers represented approximately 2.3%, 2.4% and 2.8% of new trailer
sales in 2001, 2000 and 1999, respectively.
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 approximately 3.7%,
0.7% and 0.8% of new trailer sales in 2001, 2000 and 1999, 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 approximately 16.8% (or 5.0% excluding the
Breadner locations), 7.4% and 8.9% of total new trailer sales in 2001, 2000 and
1999, respectively.
The balance of new trailer sales in 2001, 2000 and 1999 were made to
dealers and household moving carriers.
8
MARKETING AND DISTRIBUTION
The Company markets and distributes its products through the following channels:
- factory direct accounts;
- the factory-owned distribution network; and
- independent dealerships.
Factory direct accounts include larger full truckload, LTL, package
and household moving carriers and certain private fleets and leasing companies.
These are high volume purchasers. In the past, the Company has focused its
resources on the factory direct market, where customers are highly aware of the
life-cycle costs of trailer equipment and therefore are best equipped to
appreciate the design and value-added features of the Company's product. Among
the factory-direct customer base are national truckload fleets. These large
carriers will generally purchase the largest trailer allowed by law in the areas
that they intend to operate. These carriers are the largest customers of the
composite plate trailers manufactured by the Company. In addition, larger LTL
and private fleets buy factory direct with a great deal of customization.
The Company's factory-owned distribution network generates retail
sales of trailers as well as leasing and financing arrangements to smaller
fleets and independent operators. This branch network enables the Company to
provide maintenance and other services to customers on a nationwide basis and
provides an outlet for used trailers taken in trade upon the sale of new
trailers, which is a common practice with fleet customers. In addition to the 47
factory-owned retail outlets and 2 rental locations, the Company also sells its
products through a nationwide network of approximately 80 full-line and 150
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 limited number of suppliers. Significant price fluctuations or shortages
in raw materials or finished components may adversely affect the Company's
results of operations. In 2001 and for the foreseeable future, the raw material
used in the greatest quantity will be composite plate material for the Company's
proprietary DuraPlate(R) trailer. The composite material is comprised of an
inner and outer lining made of high strength steel surrounding a vinyl core.
Currently 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(R) 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 $142.1 million and
$639.5 million at December 31, 2001 and 2000 respectively. Orders that comprise
the backlog may be subject to changes in quantities, delivery, specifications
and terms. During the third quarter of 2001 the Company modified its criteria
for determining backlog to reflect: (1) only orders that have been confirmed by
the customer in writing, and (2) orders that will be included in the Company's
production schedule during the next 18 months. The backlog reported for December
31, 2000 has not been restated to reflect this new policy. The Company expects
to fill a majority of its existing backlog of orders by the end of 2002.
9
PATENTS AND INTELLECTUAL PROPERTY
The Company holds or has applied for 79 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 111 patents in 13
foreign countries including the European patent community. The Company's patents
primarily relate to its proprietary DuraPlate(R) product and the Company
believes that these patents offer the Company significant competitive
advantages.
The Company also holds or has applied for 44 trademarks in the
United States as well as 41 trademarks in foreign countries. These trademarks
include the Wabash(TM) and Fruehauf(R) brand names as well as trademarks
associated with the Company's proprietary products such as the DuraPlate(R)
trailer and the RoadRailer(R) trailer.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged to earnings as
incurred and were approximately $2.4 million, $2.4 million and $1.5 million in
2001, 2000 and 1999, respectively.
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 May
16, 2001, the Company received a second grand jury subpoena that sought the
production of additional documents relating to the discharge in question. The
Company is fully cooperating with federal officials with respect to their
investigation into the matter. At this time, the Company is unable to predict
the outcome of federal grand jury inquiry into this matter, but does not believe
it will result in a material adverse effect on its financial position or future
results of operations; however, at this early stage of the proceedings, no
assurance can be given as to the ultimate outcome of the case.
On April 17, 2000, the Company received a Notice of
Violation/Request for Incident Report from the Tennessee Department of
Environmental Conservation (TDEC) with respect to the same matter. On September
6, 2000, the Company received an Order and Assessment from TDEC directing the
Company to pay a fine of $100,000 for violations of Tennessee environmental
requirements as a result of the discharge. The Company filed an appeal of the
Order and Assessment on October 10, 2000. The Company is currently negotiating
an agreed-upon Order with TDEC to resolve this matter.
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 19 to the Consolidated Financial Statements for
additional environmental information and the Company's accounting for such
costs.
EMPLOYEES
As of December 31, 2001, the Company had approximately 3,500
employees, compared to approximately 5,200 employees as of December 31, 2000.
The Company has no employees under a labor union contract as of December 31,
2001. The Company places a strong emphasis on employee relations through
educational programs and quality control teams. The Company believes its
employee relations are good.
10
ITEM 2--PROPERTIES
MANUFACTURING FACILITIES
The Company owns its main facility of 1.2 million sq. ft. in
Lafayette, Indiana, which consists of truck trailer and composite material
production, tool and die operations, research laboratories, management offices
and headquarters. The Company also owns another trailer manufacturing facility
in Lafayette, Indiana (572,000 sq. ft.) and a trailer flooring manufacturing
facility in Harrison, Arkansas (456,000 sq. ft.).
During 2001, the Company closed three of its manufacturing
facilities. The facilities closed included two trailer manufacturing plants
located in Ft. Madison, Iowa (255,000 sq. ft.) and Huntsville, Tennessee
(287,000 sq. ft.) and a flooring operation in Sheridan, Arkansas (117,000 sq.
ft.). At December 31, 2001, these properties are being held for sale and,
accordingly, are classified in prepaid expenses and other in the accompanying
Consolidated Balance Sheets.
RETAIL AND DISTRIBUTION FACILITIES
The Company leases a facility in St. Louis, Missouri (10,261 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 18 locations that sell and rent used trailers (15 of which are
leased.) These facilities are located throughout North America. The branch
facilities consist of an office, parts warehouse and service space and generally
range in size from 20,000 to 50,000 square feet per facility. Included in the
amounts above, are 10 branch locations in six Canadian provinces acquired in
January 2001. In addition, the Company owns an aftermarket parts distribution
center in Lafayette, Indiana (300,000 sq. ft.) and subleases a former parts
center in Montebello, California to a third party.
The Company closed three retail branches in 2000 and two in 2001. At
December 31, 2001 these properties are being held for sale and, accordingly, are
classified in prepaid expenses and other in the accompanying Consolidated
Balance Sheets.
The Company owned properties are subject to security interests held
by the Company's Bank and Senior Note Lenders.
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.
In March of 2001, Bernard Krone Industria e Comercio de Maquinas
Agricolas Ltda. ("BK") filed suit against the Company in the Fourth Civil Court
of Curitiba in the State of Parana, Brazil. This action seeks recovery of
damages plus pain and suffering. Because of the bankruptcy of BK, this
proceeding is now pending before the Second Civil Court of Bankruptcies and
Creditors Reorganization of Curitiba, State of Parana (No.232/99).
This case grows out of a joint venture agreement between BK and the
Company, which was generally intended to permit BK and the Company to market the
RoadRailer(R) trailer in Brazil and other areas of South America. When BK was
placed into the Brazilian equivalent of bankruptcy late in the year 2000, the
joint venture was dissolved. BK subsequently filed its lawsuit against the
Company alleging that it was forced to terminate business with other companies
because of the exclusivity and non-compete clauses purportedly found in the
joint venture agreement. The lawsuit further alleges that Wabash did not
properly disclose technology to BK and that Wabash purportedly failed to comply
with its contractual obligations in terminating the joint venture agreement. In
its complaint, BK asserts that it has been damaged by these alleged wrongs by
the Company in the approximate amount of $8.4 million (U.S.).
The Company answered the complaint in May of 2001, denying any
wrongdoing and pointing out that, contrary to the allegation found in the
complaint, a merger of the Company and BK, or the acquisition of BK by the
Company, was never the purpose or intent of the joint venture agreement between
the parties; the only purpose was the business and marketing arrangement as set
out in the agreement. The Company also asserted a counterclaim in the amount of
$351,000 (U.S.) representing monies advanced by the
11
Company to BK to permit BK to import certain trailers from Europe, which was to
be reimbursed to the Company by BK. The counterclaim was based on the fact that
this reimbursement never took place.
The Company believes that the claims asserted against it by BK are
without merit and intends to defend itself vigorously against those claims. It
also believes that the claims asserted in its counterclaim are valid and
meritorious and it intends to prosecute that claim. The Company believes that
the resolution of this lawsuit will not have a material adverse effect on its
financial position or future results of operations; however, at this early stage
of the proceeding, no assurance can be given as to the ultimate outcome of the
case.
On September 17, 2001 the Company commenced an action against PPG
Industries, Inc. ("PPG") in the United States District Court, Northern District
of Indiana, Hammond Division at Lafayette, Civil Action No. 4:01 CV 55. In the
lawsuit, the Company alleged that it has sustained substantial damages stemming
from the failure of the PPG electrocoating system (the "E-coat system") and
related products that PPG provided for the Company's Scott County Tennessee
plant. The Company alleges that PPG is responsible for defects in the design of
the E-coat system and defects in PPG products that have resulted in malfunctions
of the E-coat system and poor quality coatings on numerous trailers. The Company
further alleges that the failures of PPG's E-coat system and products
substantially contributed to the decision to shut down the Scott County plant.
PPG filed a Counterclaim in that action on or about November 8,
2001, seeking damages in excess of approximately $1.35 million based upon
certain provisions of the November 3, 1998 Investment Agreement between it and
the Company. The Company filed a Reply to the Counterclaim denying liability for
the claims asserted.
The Company believes that the claims asserted against it by PPG in
the Counterclaim are without merit and intends to defend itself vigorously
against those claims. It also believes that the claims asserted in its Complaint
are valid and meritorious and it intends to prosecute those claims. The Company
believes that the resolution of this lawsuit will not have a material adverse
effect on its financial position or future results of operations; however, at
this early stage of the proceeding, no assurance can be given as to the ultimate
outcome of the case.
In the second quarter 2000, the Company received a grand jury
subpoena requesting certain documents relating to the discharge of wastewaters
into the environment at a Wabash facility in Huntsville, Tennessee. The subpoena
sought the production of documents and related records concerning the design of
the facility's discharge system and the particular discharge in question. On May
16, 2001, the Company received a second grand jury subpoena that sought the
production of additional documents relating to the discharge in question. The
Company is fully cooperating with federal officials with respect to their
investigation into the matter. At this time, the Company is unable to predict
the outcome of the federal grand jury inquiry into this matter, but does not
believe it will result in a material adverse effect on its financial position or
future results of operations; however, at this early stage of the proceedings,
no assurance can be given as to the ultimate outcome of the case.
On April 17, 2000, the Company received a Notice of
Violation/Request for Incident Report from the Tennessee Department of
Environmental Conservation (TDEC) with respect to the same matter. On September
6, 2000, the Company received an Order and Assessment from TDEC directing the
Company to pay a fine of $100,000 for violations of Tennessee environmental
requirements as a result of the discharge. The Company filed an appeal of the
Order and Assessment on October 10, 2000. The Company is currently negotiating
an agreed-upon Order with TDEC to resolve this matter.
The class action against the Company in United States District Court
for the Northern District of Indiana entitled "In re Wabash National Corporation
Securities Litigation", Civil Action No. 4:99-CV-0003-AS, originally filed in
1999 and previously reported by the Company in prior filings, was dismissed with
prejudice in December 2001 in connection with a final settlement entered into by
the parties, with no material effect on the Company's financial position or
results of operations.
ITEM 4--SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS
None to report.
12
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 Has Been 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 production for the trailer industry as a whole decreased to 140,084
units in 2001 as compared to 270,817 units in 2000 and 317,388 units in 1999 and
the current forecast for industry shipments in 2002 is between 120,000 and
160,000 units. Customers have historically replaced trailers in cycles that run
from six to twelve years depending on service and trailer type. 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. Our
business is likely to continue to be adversely affected unless economic
conditions improve.
Our New Technology and Products May Not Achieve Market Acceptance. We have
recently introduced new products including the DuraPlate(R) composite plate
trailer, constructed from a high density vinyl core with a steel skin. 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 have taken steps to protect our proprietary rights
in these new products. However, the steps we have taken to protect them may not
be sufficient or may not be enforced by a court of law. If we are unable to
protect our proprietary rights, other parties may attempt to copy or otherwise
obtain and use our products or technology. If competitors are able to use our
technology, our ability to compete effectively could be harmed.
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. Our customers are often adversely
affected by the same economic conditions that adversely affect us. 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.
Some of our Customers May be Financially Unstable.
Some of our customers in the transportation industry are highly leveraged and
have limited access to capital. Therefore, their continued existence may be
uncertain. Our financial condition may be affected by the financial stability of
these customers.
We Have A Limited Number of Suppliers of Raw Materials and No Guarantee of
Continued Availability 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 Have Limited Capital Resources.
Our ability to access the capital markets is dependent on perceived current and
future business prospects, as well as the Company's current financial condition.
The Company has experienced liquidity problems in the past and as of December
31, 2001, the Company was in violation of its financial covenants with certain
of its lenders. While the Company believes it had addressed its liquidity
problems by restructuring its
13
indebtedness, there can be no assurance that it will continue to be in
compliance with the terms of its new debt agreements. In addition, there can be
no assurance that the Company will have sufficient resources to meet its debt
service requirements, working capital needs and capital resource requirements.
If the Company is unable to comply with the terms of its new debt agreements, it
could be forced to further modify its operations or it may be unable to continue
as a going concern. (As the Company's lenders could foreclose on the Company's
assets.) It is also dependent on the Company's ability to manage the business to
meet lender's financial requirements. Accordingly, the Company is limited as to
the availability of capital to fund future operations and expansions which could
adversely effect the continuing operations of the Company.
We Have a Single Manufacturing Location.
Our primary manufacturing operations are located in Lafayette, Indiana. If the
production in these facilities were unexpectedly disrupted for any length of
time, it would have a material adverse effect on our business, financial
condition and results of operations.
Used Trailer Values May Decline.
Used trailer values at any point in time are influenced by economic and industry
conditions, as well as supply. The Company maintains inventories of used
trailers, equipment held for lease, finance contracts secured by used trailers
and has entered into residual guarantees and purchase commitments for used
trailers as part of its normal business practices. Declines in the market value
for used trailers or the need to dispose of excess inventories has had and could
in the future 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 Businesses 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. There can be
no assurance that the Company will be successful in acquiring or integrating any
such products, technologies or businesses.
14
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, 2002, was 1,039.
High and low stock prices and dividends for the last two years were:
DIVIDENDS
DECLARED PER
HIGH LOW COMMON SHARE
------ ------ ------------
2001
Fourth Quarter .............. $ 8.74 $ 6.62 $ --
Third Quarter ............... $12.45 $ 6.32 $ 0.01
Second Quarter .............. $13.33 $ 9.75 $ 0.04
First Quarter ............... $12.00 $ 8.25 $ 0.04
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
On December 28, 2001, the Board of Directors suspended the Company's
payment of common stock dividends. There is no assurance that these dividends
will be paid in the future as they depend on future earnings, capital
availability and financial conditions.
15
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, 2001, 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,
-------------------------------------------------------------------------
2001(1) 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales .................................. $ 863,392 $ 1,332,172 $ 1,454,570 $ 1,292,259 $ 846,082
Cost of sales .............................. 982,605(2) 1,216,205(3) 1,322,852 1,192,968 778,620
--------- ----------- ----------- ----------- ---------
Gross profit (loss) ................... (119,213) 115,967 131,718 99,291 67,462
Selling, general and administrative expenses 82,325 55,874 50,796 38,626 26,307
Restructuring charge ....................... 37,864 36,338 -- -- --
--------- ----------- ----------- ----------- ---------
Income (loss) from operations ......... (239,402) 23,755 80,922 60,665 41,155
Interest expense ........................... (21,292) (19,740) (12,695) (14,843) (16,100)
Accounts receivable securitization costs ... (2,228) (7,060) (5,804) (3,966) --
Equity in losses of unconsolidated affiliate (7,668) (3,050) (4,000) (3,100) (400)
Restructuring charges, net ................. (1,590) (5,832) -- -- --
Foreign exchange losses, net ............... (1,706) -- -- -- --
Other, net ................................. (1,139) 877 6,310 (259) 1,135
--------- ----------- ----------- ----------- ---------
Income (loss) before income taxes ..... (275,025) (11,050) 64,733 38,497 25,790
Provision (benefit) for income taxes ....... (42,857) (4,314) 25,891 15,226 10,576
--------- ----------- ----------- ----------- ---------
Net income (loss) ..................... $(232,168) $ (6,736) $ 38,842 $ 23,271 $ 15,214
========= =========== =========== =========== =========
Basic earnings (loss) per common share ..... $ (10.17) $ (0.38) $ 1.60 $ 1.00 $ 0.74
========= =========== =========== =========== =========
Diluted earnings (loss) per common share ... $ (10.17) $ (0.38) $ 1.59 $ 0.99 $ 0.74
========= =========== =========== =========== =========
Cash dividends declared per common share ... $ 0.09 $ 0.16 $ 0.1525 $ 0.1425 $ 0.13
========= =========== =========== =========== =========
(1) The 2001 amounts reflect the results of operations for the 10 branches
acquired from Breadner on January 5, 2001.
(2) Includes used trailer inventory valuation charges of $62.1 million, a
restructuring related charge of $3.7 million, and loss contingencies (1)
and impairment charges related to the Company's leasing operations of
$37.9 million.
(3) Includes a $4.5 million charge related to the Company's restructuring
activities.
Years Ended December 31,
----------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands)
BALANCE SHEET DATA:
Working capital $111,299 $270,722 $228,751 $271,256 $280,212
Total equipment leased to others & finance contracts 160,098 108,451 130,626 117,038 103,222
Total assets 692,504 781,614 791,291 704,486 629,870
Total debt 334,703 238,260 167,881 168,304 236,028
Capital lease obligations 77,314 -- -- -- --
Stockholders' equity 130,985 367,233 379,365 345,776 226,516
16
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(TM), Fruehauf(R) and RoadRailer(R) trademarks.
The Company produces and sells aftermarket parts through its division, Wabash
National Parts and its wholly-owned subsidiary, North American Trailer
Centers(TM) (NATC). In addition to its aftermarket parts sales and service, NATC
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.
OVERVIEW
In 2001, the demand for new trailers in the United States declined
substantially resulting in an industry decline of 48.3% in new production from
270,817 units in 2000 to 140,084 units in 2001. This decline resulted from
overall economic conditions in the US economy, which reduced the level of
freight tonnage shipped in 2001, and ongoing challenges in the motor-carrier
industry principally caused by high fuel prices and lower revenues per mile due
to intense competition for shipments. The Company's market share declined
slightly to 22.6% during 2001. The Company's backlog declined from $639.5
million as of December 31, 2000 to $142.1 million as of December 31, 2001.
This significant reduction in demand along with historical
manufacturing over-capacity in the truck trailer industry resulted in
significant losses being reported by the industry as a whole. Further impacting
the Company was a significant decline in the demand for used trailers caused by
the general economic and industry conditions previously discussed and the
Company's excess supply of used trailers. The Company's supply of used trailers
comes from accepting trade-ins of used trailers from its customers upon the sale
of new trailers. The excess supply of used trailers was further impacted by the
Company's backlog of new trailer orders totaling $639.5 million at December 31,
2000, in which the Company had previously agreed upon the pricing terms for the
new trailers and the trade-in allowance for the used trailers. This excess
supply and decline in demand coupled with the Company's decision to liquidate
used trailers during the second half of 2001 resulted in significant used
trailer market value declines during 2001. In response to the matters discussed
above, during 2001, the Company closed two of its manufacturing facilities and
two of its sales and services branches. As a result of these items, the Company
incurred significant restructuring, impairment and inventory valuation charges
(See notes 2, 4, 9 and 10 for details). Also, in January 2002, the Company
completed its divestiture of ETZ, the majority shareholder of BTZ, a European
Roadrailer(R) operating company based in Munich, Germany which had yet to
achieve profitable operating results.
As a result of these conditions, the Company reported a loss from
operations of $239.4 million for the year ended December 31, 2001, compared to
income from operations of $23.8 million for the year ended December 31, 2000.
The losses reported for 2001 resulted in the Company being in technical
violation of its financial covenants with certain of its lenders at December 31,
2001. In April 2002, the Company entered into an agreement with its lenders to
restructure its existing revolving bank line of credit, Senior Series Notes and
Rental Fleet Facility and to waive violations of certain financial covenants
through March 30, 2002. The restructuring changes debt maturity and principal
payment schedules, provides for all unencumbered assets to be pledged as
collateral, increases interest rates, and requires the Company to meet newly
established financial covenants (See note 13 for details regarding the debt
restructuring).
While the Company believes that industry conditions are likely to
persist throughout 2002, the Company believes it has significantly restructured
its operations and, based on its projections, the Company anticipates generating
positive earnings before interest, taxes, depreciation and amortization in 2002.
Although the Company believes that the assumptions underlying the 2002
projections are reasonable, there are risks related to further declines in
market demand and reduced sales in the U.S. and Canada, adverse interest rate or
currency movements, realization of anticipated cost reductions and levels of
used trailer trade-ins that could cause actual results to differ from the
projections. Should results continue to decline, the Company is prepared to take
additional cost cutting actions. While there can be no assurance that the
Company will achieve these results, the Company believes it has adequately
modified its operations to be in compliance with its financial covenants
throughout 2002 and believes that its existing sources of liquidity
17
combined with its operating results will generate sufficient liquidity such that
the Company has the ability to meet its obligations as they become due
throughout 2002.
During 2001, the Company incurred losses of $73.4 related to the
write-down and sale of used trailers as compared to $13.1 in 2000. These
increased losses were the result of decreased demand for used equipment and the
Company's excess supply of used trailer inventory which combined to decrease
market values for equipment during 2001. The Company's supply of used trailers
has grown significantly over the past two years as a result of large fleet trade
deals with certain customers. During 2001 and 2000, the Company accepted
approximately $135.5 million and $177.0 million in trade-ins of used trailers.
During the third quarter, the Company, to reduce working capital in order to
address liquidity concerns, changed its strategy to focus on the wholesale
liquidation of used trailer inventory. This change in strategy enabled the
Company to reduce working capital needs and generate cash, but resulted in
further pressures in used trailer market values which resulted in losses
included in the amounts above.
During the third quarter of 2001, the Company recorded restructuring
and other related charges totaling $40.5 million primarily related to the
rationalization of the Company's manufacturing capacity resulting in the closure
of the Company's platform manufacturing facility in Huntsville, Tennessee, and
its dry van facility in Fort Madison, Iowa. In addition, the Company closed a
parts distribution facility in Montebello, California. Included in the $40.5
million restructuring charge is the write-down of certain impaired fixed assets
to their fair market value ($33.8 million charge), accrued severance benefits
for approximately 600 employees ($0.9 million) and plant closure and other costs
($2.1 million). In addition, a $3.7 million charge is included in cost of sales
related to inventory write-downs at the closed facilities. During the fourth
quarter of 2001, the Company reduced its plant closure reserve by approximately
$0.9 million as a result of the Company's ability to effectively control its
closure costs.
The Company's impairment charge reflects the write-down of certain
long-lived assets that became impaired as a result of management's decision to
close its operations at the two manufacturing plants discussed above. The
impairment was computed in accordance with the provisions of SFAS 121. The
estimated fair market value of the impaired assets totaled $6.7 million and was
determined by management based upon economic conditions, potential alternative
uses and potential markets for the assets which are held for sale and,
accordingly, are classified in prepaid expenses and other in the accompanying
Consolidated Balance Sheets. Depreciation has been discontinued on the assets
held for sale pending their disposal.
In December 2000, the Company recorded restructuring and other
related charges totaling $46.6 million primarily related to the Company's exit
from manufacturing products for export outside the North American market,
international leasing and financing activities and the consolidation of certain
domestic operations. 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 represented the impairment of certain equipment subject
to leases with the Company's international customers, $8.6 million represented
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 benefits 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.
In January 2002, the Company completed its divestiture of ETZ. As a
result of this divestiture the Company adjusted its restructuring reserve by
$1.4 million during the fourth quarter. This adjustment primarily relates to the
assumption of certain financial guarantees in connection with the divestiture.
Under the provisions of SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, the Company has two reportable segments:
manufacturing and retail and distribution. The manufacturing segment produces
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
18
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.
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.
Critical Accounting Policies
A summary of the Company's critical accounting policies is as follows:
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that directly affect the amounts
reported in its consolidated financial statements and accompanying notes. Actual
results could differ from these estimates.
Revenue Recognition
The Company recognizes revenue from the sale of trailers and aftermarket
parts when risk of ownership is transferred to the customer. Revenue is
generally recognized upon shipment. Customers that have requested to pick up
their trailers are invoiced prior to taking physical possession when the
customer has made a fixed commitment to purchase the trailers, the trailers have
been completed and are available for pickup or delivery, the customer has
requested in writing that the Company hold the trailers until the customer
determines the most economical means of taking possession and the customer takes
possession of the trailers within a specified time period. In such cases, the
trailers, which have been produced to the customer specifications, are invoiced
under the Company's normal billing and credit terms.
The Company recognizes revenue from direct finance leases based upon a
constant rate of return while revenue from operating leases is recognized on a
straight-line basis in an amount equal to the invoiced rentals.
Used Trailer Trade Commitments
The Company has commitments with customers to accept used trailers on trade
for new trailer purchases. As of December 31, 2001, the Company had
approximately $25.7 million of outstanding trade commitments with customers.
The net realizable value of these commitments was approximately $18.0 million as
of December 31, 2001. The Company's policy is to recognize losses related to
these commitments, if any, at the time the new trailer revenue is recognized.
Accounts Receivable
Accounts receivable as of December 31, 2001 and 2000 were $58.4 million and
$49.3 million, respectively, and are shown net of allowance for doubtful
accounts. Accounts receivable includes trade receivables and amounts due under
finance contracts. Provisions to the allowance for doubtful accounts are
charged to General and Administrative expenses on the Consolidated Statements of
Operations.
Inventories
Inventories are primarily stated at the lower of cost, determined on the
first-in, first-out (FIFO) method, or market. The cost of manufactured
inventory includes raw material, labor and overhead. Inventories consist of
the following (in thousands):
December 31,
2001 2000
Raw materials and components ................ $ 38,235 $ 84,167
Work in progress ............................ 10,229 18,765
Finished goods .............................. 58,984 93,332
Aftermarket parts ........................... 22,726 33,566
Used trailers ............................... 60,920 100,496
$ 191,094 $ 330,326
19
The Company recorded used trailer inventory valuation adjustments totaling
$62.1 million and $9.6 million during 2001 and 2000, respectively. These
adjustments, which are reflected in cost of sales on the Consolidated Statements
of Operations, were calculated in accordance with the Company's inventory
valuation policies that are designed to state used trailers at the lower of cost
or market.
Long-Lived Assets
Long-lived assets are reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, whenever facts
and circumstances indicate that the carrying amount may not be recoverable.
Specifically, this process involves comparing an asset's carrying value to the
estimated undiscounted future cash flows the asset is expected to generate over
its remaining life. If this process were to result in the conclusion that the
carrying value of a long-lived asset would not be recoverable, a write-down of
the asset to fair value would be recorded through a charge to operations.
Accrued Liabilities
Accrued liabilities primarily represent accrued payroll related items,
restructuring reserves, warranty reserves, loss contingencies related to used
trailer residual commitments and self insurance reserves related to group
insurance and workers compensation. Changes in the estimates of these reserves
are charged or credited to income in the period determined.
The Company is self-insured up to specified limits for medical and workers'
compensation coverage. The self-insurance reserves have been recorded to
reflect the undiscounted estimated liabilities, including claims incurred but
not reported.
The Company recognizes a loss contingency for used trailer residual
commitments for the difference between the equipment's purchase price and its
fair market value, when it becomes probable that the purchase price at the
guarantee date will exceed the equipment's fair market value at that date.
The Company's warranty policy generally provides coverage for components of
the trailer the Company produces or assembles. Typically, the coverage period
is one year for container chassis and specialty trailers and five years for dry
freight, refrigerated and flat bed trailers. The Company's policy is to accrue
the estimated cost of warranty coverage at the time of the sale. The warranty
reserve at December 31, 2001 and 2000 was approximately $11.3 million and $5.2
million, respectively.
20
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,
--------------------------------
2001 2000 1999
------ ------ ------
Net sales .................................. 100.0% 100.0% 100.0%
Cost of sales .............................. 113.8(1) 91.3(2) 90.9
------ ------ ------
Gross profit ....................... (13.8) 8.7 9.1
General and administrative expense ......... 6.6 2.6 2.1
Selling expense ............................ 2.9 1.6 1.4
Restructuring charge ....................... 4.4 2.7 --
------ ------ ------
Income from operations ............. (27.7) 1.8 5.6
Interest expense ........................... (2.5) (1.5) (0.9)
Accounts receivable securitization costs ... (0.3) (0.5) (0.4)
Equity in losses of unconsolidated affiliate (0.9) (0.2) (0.3)
Restructuring charge ....................... (0.2) (0.4) --
Foreign exchange losses, net ............... (0.2) -- --
Other, net ................................. (0.1) -- 0.4
------ ------ ------
Income (loss) before taxes ......... (31.9) (0.8) 4.4
Provision (benefit) for income taxes ....... (5.0) (0.3) 1.8
------ ------ ------
Net income (loss) .................. (26.9)% (0.5)% 2.6%
====== ====== ======
(1) Includes used trailer inventory valuation charges of $62.1 million
(7.2%), a restructuring related charge of $3.7 million (0.4%) and
loss contingencies and impairment charges related to the Company's
leasing operations of $37.9 million (4.4%).
(2) Includes a $4.5 million charge (0.3%) related to the Company's
restructuring activities.
2001 Compared to 2000
Net income (loss) for 2001 was ($232.2) million as compared to
($6.7) million in 2000. This sharp decrease was primarily driven by decreased
new trailer sales, restructuring and impairment charges and losses related to
used trailers.
Net Sales
The Company finished 2001 with net sales of approximately $863.4
million on a consolidated basis compared to $1,332.2 million in 2000. This
decrease was the result of lower net sales in the manufacturing segment
partially offset by increased net sales in the retail and distribution segment.
Years Ended December 31,
-------------------------------
2001 2000 % Change
--------- ---------- --------
Net External Sales by Segment: (Dollar amounts in millions)
Manufacturing ......... $ 518.2 $ 1,013.1 (48.9%)
Retail and Distribution 345.2 319.1 8.2%
--------- ---------- -----
Total Net Sales ............. $ 863.4 $ 1,332.2 (35.2%)
========= ========== =====
The manufacturing segment's external net sales decreased 48.9% (or
$494.9 million) in 2001 compared to 2000 driven almost entirely by a 48.1%
decrease in the number of units sold, from approximately 59,700 units in 2000 to
approximately 31,000 units in 2001. In addition, the average selling price per
new trailer sold decreased by approximately 1.2% in 2001 compared to 2000 from
approximately $16,900 in 2000 to approximately $16,700 in 2001. These decreases
were driven by unfavorable overall economic conditions in the trailer industry.
The Company's market share in the U.S. trailer industry
21
decreased slightly during 2001 from approximately 24.5% in 2000 to approximately
22.8% in 2001. As of December 31, 2001, the Company's backlog of orders was
approximately $142.1 million, as compared to $639.5 million as of December 31,
2000.
The retail and distribution segment's external net sales increased
by 8.2% (or $26.1 million) during 2001 compared to 2000. This increase was
primarily driven by increased sales from new branch and rental centers opened
and acquired during 2001. As on a same store basis net sales decreased by 21.7%.
The total number of store locations as of December 31, 2001 was 47 as compared
to 34 as of December 31, 2000. The addition of these new stores resulted in
leasing revenues and new trailer sales increasing by approximately 29.8% (or
$9.8 million) and 21.9% (or $18.5 million), respectively, in 2001 as compared to
2000. The increase in rental and leasing revenue reflects the Company's strategy
to expand its rental and leasing operations. The increase in new trailer revenue
was driven by a 41.9% increase in the number of units sold from approximately
4,300 units in 2000 to approximately 6,100 units in 2001, partially offset by a
14.7% decline in the average selling price from approximately $19,700 in 2000 to
approximately $16,800 in 2001. Used trailer revenue was relatively flat in 2001
as compared to 2000.
Gross Profit (Loss)
The Company finished 2001 with gross profit (loss) as a percent of
sales of (13.8%) on a consolidated basis as compared to 8.7% in 2000. As
discussed below, both of the Company's segments contributed to this decrease.
Years Ended December 31,
---------------------------------
2001 2000 % Change
--------- --------- --------
Gross Profit (Loss) by Segment: (Dollar amounts in millions)
Manufacturing ......... $ (73.9) $ 86.7 (185%)
Retail and Distribution (47.6) 31.5 (251%)
Eliminations .......... 2.3 (2.2) 205%
--------- --------- ----
Total Gross Profit (Loss) .... $ (119.2) $ 116.0 (203%)
========= ========= ====
The manufacturing segment's gross profit (loss) decreased by 185%
(or $160.6 million) primarily as a result of the following factors:
- the decrease in net sales previously discussed;
- new trailer and used trailer inventory valuation adjustments
of approximately $3.0 million and $62.1 million, respectively;
- increased warranty expense of approximately $7.0 million; and
- the impact of inventory write-downs related to the Company's
2001 restructuring actions of approximately $3.7 million
These factors were offset somewhat by cost reductions realized from
the Company's 2001 and 2000 restructuring actions.
The retail and distribution segment's gross profit (loss) decreased
by 251% (or $79.1 million) primarily as a result of the following factors:
- decline in average selling prices for new trailer sales of
14.7%;
- impairment of equipment held for lease along with certain loss
contingencies recognized related to its leasing activities
totaling approximately $37.9 million;
- decline in used trailer margins of approximately $8.0 million
primarily as a result of the liquidation of the Company's used
trailer inventory
- new trailer and aftermarket parts inventory valuation
adjustments of approximately $3.5 million and $3.0 million,
respectively; and
- decline in the equipment held for lease utilization rate
during 2001
These factors were somewhat offset by gross margins of approximately $2.8
million generated from the recently acquired Canadian branches.
22
Income (Loss) from Operations (before interest, taxes and other items)
The Company finished 2001 with income (loss) from operations as a
percent of sales of (27.7%) on a consolidated basis as compared to 1.8% in 2000.
As discussed below, both of the Company's segments contributed to this decrease.
Years Ended December 31,
---------------------------------
2001 2000 % Change
--------- --------- --------
Operating Income (Loss) by Segment: (Dollar amounts in millions)
Manufacturing $ (148.7) $ 36.9 (502%)
Retail and Distribution (93.0) (10.9) (753%)
Eliminations 2.3 (2.2) 205%
--------- --------- ------
Total Operating Income (Loss) $ (239.4) $ 23.8 (1,105%)
========= ========= ======
The manufacturing segment and the retail and distribution segment's
income from operations decreased by 502% (or $185.6 million) and 753% (or $82.1
million), respectively, primarily as a result of the decrease in gross profit
(loss) previously discussed along with increased bad debt expense. Bad debt
expense for the manufacturing segment and retail and distribution segment
increased by approximately $8.2 million and $8.7 million, respectively, in 2001
compared to 2000. This increase reflects deteriorating economic conditions in
the transportation industry during 2001. The manufacturing segment also incurred
higher expenses related to professional fees and employee separation pay. The
retail and distribution segment also incurred increased selling, general and
administrative expenses to support the Company's expanding rental and leasing
business and to increase used trailer sales volume.
Other Income (Expense)
Interest expense totaled $21.3 million and $19.7 million for the
years ended December 31, 2001 and 2000, respectively. The increase in interest
expense primarily reflects higher borrowings under the Company's revolving
credit facilities during 2001.
Accounts receivable securitization costs related to the Company's
accounts receivable securitization facility, decreased from $7.1 million in 2000
to $2.2 million in 2001 primarily as a result of decreased borrowings under this
facility during 2001.
Equity in losses of unconsolidated affiliate consists of the
Company's interest in the losses of ETZ, a non-operating, European holding
company, which is the majority shareholder of BTZ, a European RoadRailer(R)
operating company based in Munich, Germany. As part of the Company's 2000
restructuring activities, the Company recorded a $5.8 million charge to Other
Income (Expense) during 2000 and an additional $1.4 million charge in 2001, as
part of its planned divestiture of this investment. In January 2001, in
connection with its restructuring activities, the Company increased its
ownership interest in ETZ from 25.1% to 100%. Accordingly, the Company's equity
in losses of unconsolidated affiliate increased from $3.1 million in 2000 to
$7.7 million in 2001 In January 2002, the Company completed its divestiture of
ETZ. As a result of this divestiture, the Company will cease reflecting an
ownership interest in ETZ's results of operations in 2002.
Foreign currency transaction losses, net totaled $1.7 million and $0
for the years ended December 31, 2001 and 2000, respectively. These net losses
were primarily a result of transaction gains and losses being recorded related
to intercompany transactions between the Company and its recently acquired
Canadian subsidiary, as well as U.S. denominated transaction between the
Canadian subsidiary and unrelated parties.
Other, net was $1.1 million in expense during 2001 compared to $0.9
million in income during 2000. Other, net primarily includes items such as
interest income, gain or loss from the sale of fixed assets and other items
Income Taxes
The Company's effective tax rates were 15.6% and 39% of pre-tax
income (loss) for 2001 and 2000, respectively. In 2001, the effective rate
differed from the U.S. federal statutory rate of 35% primarily due to the
recognition of a valuation allowance against deferred tax assets that the
Company determined were more likely than not to be realized before expiration.
In 2000, the effective rate differed from the U.S. Federal
23
Statutory rate primarily due to state taxes and the effects of permanent
differences in financial and tax reporting of certain transactions.
2000 Compared to 1999
Net income (loss) for 2000 was ($6.7) million as compared to $38.8
million in 1999. This decrease was driven primarily by lower sales and the
impact of restructuring and other related charges.
Net Sales
The Company finished 2000 with net sales of approximately $1.3
billion on a consolidated basis compared to $1.5 billion in 1999. As discussed
below, both of the Company's segments contributed to this decrease.
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. In addition, the average selling price per
new trailer sold decreased 1.7% during 2000 compared to 1999. 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, 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(R) trailer.
The retail and distribution segment's external net sales decreased
6.3% (or $21.6 million) during 2000 compared to 1999 driven primarily by a 3.6%
decline in same store sales during the periods along with the reduction of a
branch location during 2000. The total number of store locations as of December
31, 2000 was 34 as compared to 35 as of December 31, 1999.
Gross Profit
The Company finished 2000 with gross profit as a percent of sales of
8.7% on a consolidated basis, as compared to 9.1% in 1999. As discussed below,
both of the Company's segments contributed to this decrease.
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%)
====== ======== =====
24
The manufacturing segment's gross profit decreased by 13.0% (or
$12.9 million) 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(R) 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%
(or $2.8 million) primarily as a result of decreased net sales previously
discussed. This decrease was partially 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 (Loss) from Operations (before interest, taxes and other items)
The Company finished 2000 with income (loss) from operations as a
percent of sales of 1.8% on a consolidated basis, as compared to 5.6% in 1999.
As discussed below, both of the Company's segments contributed to this decrease.
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.
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 25.1% interest in the losses of ETZ, a non-operating, European holding
company, acquired in November 1997. ETZ is the majority
25
shareholder of BTZ, a European RoadRailer(R) 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 and in January 2002, the Company completed its divestiture of ETZ.
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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, the Company had $11.1 million in cash and cash
equivalents and $75 million outstanding under its $125 million revolving credit
facility. As of December 31, 2001, the Company was in technical default with the
minimum net worth and debt to capital covenants under the revolving credit
facility and the minimum net worth covenants under its Senior Series Notes
agreements. In April 2002, the Company renegotiated these agreements and
received waivers of all covenant violations through March 30, 2002. Under the
new agreements, substantially all of the Company's assets are pledged as
collateral for the loans. The new agreements also require an increase in the
cost of funds and impose new financial covenants.
The Company believes that existing funds, cash generated from
operations and availability of funds from its restructured credit facilities and
accounts receivable securitization should be adequate to satisfy working capital
needs, capital expenditure requirements, interest and principal repayments on
debt for the foreseeable future. Management also anticipates the completion of
the following transactions during 2002 that will provide additional financial
resources for the Company:
- Sale and leaseback of certain real property - $30 million;
- Sale of idle assets currently held for sale - $10 million; and
- Additional income tax refunds resulting from March 2002 tax
law changes - $13 million.
The Company received the $13 million income tax refund in April
2002, however, there can be no assurance that the proceeds from the other
transactions will be available to the Company in 2002.
The Company's ongoing liquidity will depend upon a number of factors
including its ability to manage cash resources and meet the financial covenants
under its new debt agreements. In the event the Company is unsuccessful in
meeting its debt service obligations or if expectations regarding the management
and generation of cash resources are not met, the Company would need to
implement severe cost reductions, reduce capital expenditures, sell additional
assets, restructure all or a portion of its existing debt and/or obtain
additional financing.
Debt Restructuring:
In April 2002, the Company entered into an agreement with its
lenders to restructure its existing revolving credit facility and Senior Series
Notes and waive violations of its financial covenants through March 30, 2002.
The amendment changes debt maturity and principal payment schedules; provides
for all unencumbered assets to be pledged as collateral equally to the lenders;
increases the cost of funds; and requires the Company to meet certain additional
financial conditions, among other items. The amended agreements also contain
restrictions on acquisitions and the payment of preferred stock dividends.
26
The Company's existing $125 million Revolving Credit facility was
restructured into a $107 million term loan (Bank Term Loan) and an $18 million
revolving credit facility (Bank Line of Credit). The Bank Term Loan and Bank
Line of Credit both mature on March 30, 2004 and are secured by all of the
unencumbered assets of the Company. The $107 million Bank Term Loan, of which
approximately $29 million consists of outstanding letters of credit, requires
monthly payments of principal of $3.0 million per annum in 2002, $13.8 million
per annum in 2003, and $3.4 million per annum in 2004, with the balance due
March 30, 2004. In addition, principal payments will be made from excess cash
flow, as defined in the agreement, on a quarterly basis. Any such additional
payments will reduce the balance of the Bank Term Loan due March 30, 2004.
Interest on the $107 million Bank Term Loan is variable based upon
the adjusted London Interbank Offered Rate ("LIBOR") plus 380 basis points and
is payable monthly. Interest on the borrowings under the $18 million Bank Line
of Credit is based upon adjusted LIBOR plus 355 basis points or the agent bank's
alternative borrowing rate as defined in the agreement.
As of December 31, 2001, the Company had $192 million of Senior
Series Notes outstanding which originally matured in 2002 through 2008. As part
of the restructuring, the original maturity dates for $72 million of Senior
Series Notes, payable in 2002 through March 2004, have been extended to March
30, 2004. The maturity dates for the other $120 million of Senior Series Notes
due subsequent to March 30, 2004, remain unchanged. As consideration for the
extension of the maturity dates the Senior Series Notes are now secured by all
of the unencumbered assets of the Company. In addition, monthly principal
payments totaling $7.5 million in 2002, $33.8 million in 2003 and $8.4 million
in 2004 will be made on a prorata basis to all Senior Series Notes. In addition,
principal payments will be made from excess cash flow, as defined in the
agreement, on a quarterly basis. Interest on the Senior Series Notes, which is
payable monthly, increased by 325 basis points, effective April 2002, and ranges
from 9.66% to 11.29%.
In December 2000, the Company entered into a sale and leaseback
facility with an independent financial institution related to its trailer rental
fleet. The total facility size was $110 million and was syndicated in the first
quarter of 2001. The facility's initial term expires in June 2002, has four
annual renewal periods and contains financial covenants substantially identical
to the Company's existing credit facilities.
In April 2002, the Company entered into an agreement with the
financial institutions that were a party to the sale and leaseback facility to
waive financial covenant violations through March 30, 2002 and amend the terms
of the existing agreement. The amendment provided for increased pricing and
conforms the financial covenants to those in the amended Bank Term Loan, Bank
Line of Credit and Senior Series Notes agreements described above. The initial
term of the facility remains unchanged, expiring in June 2002, however, the
annual renewal periods have been reduced to three, with the last renewal period
being from July 2004 to January 2005.
As a result of the amendments to the sale-leaseback facility, which
had been accounted for as an operating lease, this facility was required to be
included on the Consolidated Balance Sheet of the Company as of December 31,
2001. Accordingly, the trailer rental fleet has been recorded as equipment
leased to others at its fair market value of approximately $42 million and a
capital lease obligation of approximately $65 million, which reflects the
unamortized lease value under this agreement. A non-cash charge to cost of sales
of $23 million was recorded in the Consolidated Statements of Operations for the
year ended December 31, 2001 related to the difference between the fair market
values of the equipment and the unamortized lease value. Assuming all renewal
periods are elected, the Company will make payments under this facility of $14.7
million, $14.2 million and $13.3 million in 2002, 2003 and 2004, respectively.
In April 2002, the Company replaced its existing $100 million
receivable securitization facility with a new two year $110 million Trade
Receivables Facility. The new facility allows the Company to sell, without
recourse, on an ongoing basis predominantly all of its domestic accounts
receivable to a wholly-owned, bankruptcy remote special purpose entity (SPE).
The SPE sells an undivided interest in receivables to an outside liquidity
provider who, in turn, remits cash back to the SPE for receivables eligible for
funding. This new facility includes financial covenants identical to those in
the amended Bank Term Loan, Bank Line of Credit and Senior Series Notes
agreements.
The Company anticipates total fees to be incurred in 2002 in
connection with restructuring its Bank Term Loan, Bank Line of Credit, Senior
Series Notes, rental fleet facility and Trade Receivables Facility, discussed
above, to be approximately $10 million.
27
The Company has future residual guarantees and purchase options of
approximately $34.7 million and $104.5 million, respectively, related to certain
new and used trailer transactions as well as certain production equipment. The
majority of these do not come due until 2002 or after. To the extent that the
value of the underlying property is less than the residual guarantee and it is
likely that the value is not expected to recover, the Company has recorded a
loss contingency.
Contractual Obligations and Commercial Commitments:
A summary of payments due by period of the Company's contractual
obligations and commercial commitments as of December 31, 2001 is shown in the
table below. The table reflects the obligations under the amended and restated
credit agreement which was effective April 2002. A more complete description of
these obligations and commitments is included in the Notes to the Consolidated
Financial Statements.
Contractual Cash Obligations
$ Millions 2002 2003 2004 2005 Thereafter Total
--------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
DEBT (excluding interest):
Revolving Bank Line of Credit $ 14.6 $ -- $ -- $ -- $ -- $ 14.6
Receivable Securitization Facility* 17.7 -- -- -- -- 17.7
Mortgages & Other Notes Payable 17.9 3.4 3.4 4.1 6.6 35.4
Bank Term Loan 3.0 13.8 58.2 -- -- 75.0
Senior Series Notes 7.5 33.8 68.8 20.7 61.2 192.0
---------- ---------- ---------- ---------- ---------- ----------
TOTAL DEBT $ 60.7 $ 51.0 $ 130.4 $ 24.8 $ 67.8 $ 334.7
========== ========== ========== ========== ========== ==========
OTHER:
Capital Lease Obligations $ 27.2 $ 14.2 $ 13.3 $ 36.8 $ -- $ 91.5
Operating Leases 12.2 11.0 9.3 5.5 4.2 42.2
---------- ---------- ---------- ---------- ---------- ----------
TOTAL OTHER $ 39.4 $ 25.2 $ 22.6 $ 42.3 $ 4.2 $ 133.7
========== ========== ========== ========== ========== ==========
TOTAL $ 100.1 $ 76.2 $ 153.0 $ 67.1 $ 72.0 $ 468.4
========== ========== ========== ========== ========== ==========
*The Receivable Securitization Facility obligation reflects advances as of
December 31, 2001 which will be refinanced under the new Trade Receivable
Facility.
Other Commercial Commitments
$ Millions 2002 2003 2004 2005 Thereafter Total
--------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Letters of credit $ -- $ -- $ 29.0 $ -- $ -- $ 29.0
Residual guarantees 1.9 3.6 8.3 5.3 15.6 34.7
---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 1.9 $ 3.6 $ 37.3 $ 37.3 $ 15.6 $ 63.7
========== ========== ========== ========== ========== ==========
Explanation of Cash Flow
The Company's cash position increased $6.9 million during 2001 from
$4.2 million in cash and cash equivalents at December 31, 2000 to $11.1 million
at December 31, 2001. This increase was due to cash provided by financing
activities of $41.3 million partially offset by cash used in operating and
investing activities of $34.4 million.
Operating Activities:
Net cash provided by operating activities of $6.4 million in 2001 is
primarily the result of the net loss offset by changes in working capital along
with the add back of non-cash charges for depreciation and amortization;
restructuring and other related charges; provision for losses on accounts
receivable; and inventory and contingency adjustments.
28
Changes in working capital provided $57.4 million of net cash. This
resulted from a reduction in inventory that was partially offset by a
corresponding decrease in accounts payable and accrued liabilities. In addition,
refundable income taxes increased during the year.
The net decrease in inventory was primarily due to overall lower
levels of production resulting from reduced demand from customers as the
transportation industry continued to be adversely impacted by unfavorable
economic conditions. The Company reduced all components of manufacturing
inventory and aftermarket parts during the year. Used trailer inventory
balances, excluding the effects of non-cash valuation charges remained
comparable to the prior year.
Accounts payable decreased $47.6 million primarily due to the lower
levels of production and an emphasis by management on cost containment.
Refundable income taxes increased $20.1 million as the Company recorded a
receivable for income taxes paid in previous years due to the utilization of a
net operating loss carryback. Accrued liabilities increased approximately $13.2
million due in part to increase in warranty accruals.
Investing Activities:
Net cash used in investing activities of $40.8 million consisted of
the following:
Capital expenditures were $5.9 million during 2001 and were largely
related to maintaining facilities.
The Company invested approximately $70.4 million, net in its rental
and operating lease portfolio in 2001 compared to $69.6 million in 2000. 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 $40.0 million of proceeds from a sale and leaseback facility
related to the Company's trailer rental facility and $9.7 million in proceeds
received during the normal course of business.
The Company's finance contract portfolio remained virtually
unchanged. Additional investments in finance contracts of $18.7 million were
partially offset by payments received of $6.8 million and the sale of
approximately $10.8 million of contracts sold primarily to a large financial
institution.
In January 2001, the Company acquired the stock of the Breadner
Group of Companies (the Breadner Group), headquartered in Kitchener, Ontario,
Canada for approximately $6.3 million in cash, $10.0 million in long-term notes
and the assumption of certain indebtedness. This transaction was accounted for
as a purchase. The purchase price in excess of the fair value of assets
purchased and liabilities assumed of approximately $13 million as been recorded
as goodwill and is being amortized over a twenty-five year period.
Financing Activities:
Net cash provided by financing activities of $41.3 million in 2001
is primarily due to an increase in total debt of $46.0 million offset partially
by the payment of common stock and preferred stock dividends of approximately
$4.9 million.
In connection with the aforementioned activity, the Company's total
debt increased to $334.7 million at December 31, 2001 compared to $238.3 million
at December 31, 2000. This increase is comprised of net increases in short-term
borrowings under the Company's revolving credit facilities of $46.0 million, and
non-cash transactions of approximately $18.9 million related to the acquisition
of Breadner and approximately $31.5 million of indebtedness reflected in the
current year which was previously accounted for as off-balance sheet financing.
29
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
The Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended by SFAS 137 and SFAS 138, as of
January 1, 2001. These standards require that all derivative instruments be
recorded on the balance sheet at fair value. The adoption of these standards did
not have an effect on the Company's annual results of operations or its
financial position.
The Company adopted SFAS No. 142. Goodwill and Other Intangible
Assets, as of January 1, 2002. This new standard changes the accounting for
goodwill from an amortization method to an impairment-only approach, and
introduces a new model for determining impairment charges. SFAS No. 142 requires
completion of the initial step of a transitional impairment test within six
months of the adoption of this standard and, if applicable, completion of the
final step of the adoption by December 31, 2002. The Company is in the initial
stages of evaluating the transitional impairment test and related impact, if
any, to the Company's results of operations and financial position. Goodwill
amortization expense was approximately $1.1 million, $0.6 million and $0.2
million, for 2001, 2000 and 1999, respectively.
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 143, Accounting for Asset Retirement Obligations with an effective date
of June 15, 2002 which becomes effective for the Company on January 1, 2003.
This Standard requires obligations associated with retirement of long-lived
assets to be capitalized as part of the carrying value of the related asset. The
Company does not believe the adoption of SFAS No. 143 will have a material
effect on its financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Effective January 1, 2002, this
standard sets forth a single accounting model for the accounting and reporting
for the impairment or disposal of long-lived assets. The Company is currently
evaluating the provisions of SFAS No. 144 to determine the effect, if any, on
its consolidated financial statements.
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, 2001, the Company had approximately $75 million
of London Interbank Rate (LIBOR) based debt outstanding under its Bank Line of
Credit, $14.6 million of outstanding borrowings under its Canadian Revolving
Line of Credit and $17.7 million of proceeds from its accounts receivable
securitization facility, which also requires LIBOR based interest payments. A
hypothetical approximately 1.0 million increase in interest expense over a
one-year period. This sensitivity analysis does not account for the change
30
in the Company's competitive environment indirectly related to the change in
interest rates and the potential managerial action taken in response to these
changes.
c. Foreign Exchange Rates
The Company has historically entered into foreign currency forward
contracts (principally against the German Deutschemark and French Franc) to
hedge the net receivable/payable position arising from trade sales (including
lease revenues) and purchases with regard to the Company's international
activities. The Company does not hold or issue derivative financial instruments
for speculative purposes. As of December 31, 2001, the Company had no foreign
currency forward contracts outstanding.
31
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGES
-----
Report of Independent Public Accountants...................................................... 33
Consolidated Balance Sheets as of December 31, 2001 and 2000.................................. 34
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and
1999.................................................................................... 35
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001,
2000 and 1999........................................................................... 36
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and
1999.................................................................................... 37
Notes to Consolidated Financial Statements.................................................... 38
32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders 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, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. 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, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
April 12, 2002.
33
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
December 31,
------------------------
ASSETS 2001 2000
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 11,135 $ 4,194
Accounts receivable, net .................................. 58,358 49,320
Current portion of finance contracts ...................... 10,646 11,544
Inventories ............................................... 191,094 330,326
Refundable income taxes ................................... 25,673 5,552
Prepaid expenses and other ................................ 17,231 18,478
--------- ---------
Total current assets ........................... 314,137 419,414
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net ................................. 170,330 216,901
--------- ---------
EQUIPMENT LEASED TO OTHERS, net .................................... 109,265 52,001
--------- ---------
FINANCE CONTRACTS, net of current portion .......................... 40,187 44,906
--------- ---------
INTANGIBLE ASSETS, net ............................................. 43,777 31,123
--------- ---------
OTHER ASSETS ....................................................... 14,808 17,269
--------- ---------
$ 692,504 $ 781,614
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ...................... $ 60,682 $ 12,134
Current maturities of capital lease obligations ........... 21,559 --
Accounts payable .......................................... 51,351 94,118
Accrued liabilities ....................................... 69,246 42,440
--------- ---------
Total current liabilities ...................... 202,838 148,692
--------- ---------
LONG-TERM DEBT, net of current maturities .......................... 274,021 226,126
--------- ---------
LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current maturities ..... 55,755 --
--------- ---------
DEFERRED INCOME TAXES .............................................. -- 23,644
--------- ---------
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES ..................... 28,905 15,919
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, 482,041 shares issued and outstanding with
an aggregate liquidation value of $30,600 ............ 5 5
Common stock, 23,013,847 and 23,002,490 shares issued
and outstanding, respectively ........................ 230 230
Additional paid-in capital ................................ 236,804 236,660
Retained earnings (deficit) ............................... (104,469) 131,617
Accumulated other comprehensive loss ...................... (306) --
Treasury stock at cost, 59,600 common shares .............. (1,279) (1,279)
--------- ---------
Total stockholders' equity ..................... 130,985 367,233
--------- ---------
$ 692,504 $ 781,614
========= =========
The accompanying notes are an integral part of these Consolidated Statements.
34
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended December 31,
-------------------------------------------
2001 2000 1999
--------- ----------- -----------
NET SALES ........................................... $ 863,392 $ 1,332,172 $ 1,454,570
COST OF SALES ....................................... 982,605 1,216,205 1,322,852
--------- ----------- -----------
Gross profit (loss) .................. (119,213) 115,967 131,718
GENERAL AND ADMINISTRATIVE EXPENSES ................. 56,955 34,354 30,396
SELLING EXPENSES .................................... 25,370 21,520 20,400
RESTRUCTURING CHARGE ................................ 37,864 36,338 --
--------- ----------- -----------
Income (loss) from operations ........ (239,402) 23,755 80,922
OTHER INCOME (EXPENSE):
Interest expense ........................... (21,292) (19,740) (12,695)
Accounts receivable securitization costs ... (2,228) (7,060) (5,804)
Equity in losses of unconsolidated affiliate (7,668) (3,050) (4,000)
Restructuring charges ...................... (1,590) (5,832) --
Foreign exchange losses, net ............... (1,706) -- --
Other, net ................................. (1,139) 877 6,310
--------- ----------- -----------
Income (loss) before income taxes .... (275,025) (11,050) 64,733
PROVISION (BENEFIT) FOR INCOME TAXES ................ (42,857) (4,314) 25,891
--------- ----------- -----------
Net income (loss) .................... $(232,168) $ (6,736) $ 38,842
PREFERRED STOCK DIVIDENDS ........................... 1,845 1,903 2,098
--------- ----------- -----------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................. $(234,013) $ (8,639) $ 36,744
========= =========== ===========
EARNINGS (LOSS) PER SHARE:
Basic .................................... $ (10.17) $ (0.38) $ 1.60
========= =========== ===========
Diluted .................................. $ (10.17) $ (0.38) $ 1.59
========= =========== ===========
The accompanying notes are an integral part of these Consolidated Statements.
35
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Preferred Stock Common Stock
------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
BALANCES, December 31, 1998 ....... 482,041 $ 5 22,965,090 $ 230
Net income for the year ........... -- -- -- --
Cash dividends declared:
Common stock ($0.1525 per share) -- -- -- --
Preferred stock ................ -- -- -- --
Common stock issued under:
Employee stock purchase plan ... -- -- 10,556 --
Employee stock bonus plan ...... -- -- 4,400 --
Stock option plan .............. -- -- 5,140 --
------- ---------- ---------- ----------
BALANCES, December 31, 1999 ....... 482,041 $ 5 22,985,186 $ 230
Net loss for the year ............. -- -- -- --
Cash dividends declared:
Common stock ($0.16 per share) . -- -- -- --
Preferred stock ................ -- -- -- --
Common stock issued under:
Employee stock purchase plan ... -- -- 15,544 --
Employee stock bonus plan ...... -- -- 1,760 --
------- ---------- ---------- ----------
BALANCES, December 31, 2000 ....... 482,041 $ 5 23,002,490 $ 230
Net loss for the year ............. -- -- -- --
Foreign currency translation ...... -- -- -- --
Cash dividends declared:
Common stock ($0.09 per share) . -- -- -- --
Preferred stock ................ -- -- -- --
Common stock issued under:
Employee stock purchase plan ... -- -- 7,138 --
Employee stock bonus plan ...... -- -- 1,960 --
Outside directors' compensation -- -- 2,259 --
------- ---------- ---------- ----------
BALANCES, December 31, 2001 ....... 482,041 $ 5 23,013,847 $ 230
======= ========== ========== ==========
Additional Retained Other
Paid-In Earnings Comprehensive Treasury
Capital (Deficit) Income (Loss) Stock Total
------- --------- ------------- -------- -----
BALANCES, December 31, 1998 ....... $ 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 ... 177 -- -- -- 177
Employee stock bonus plan ...... 79 -- -- -- 79
Stock option plan .............. 91 -- -- -- 91
---------- ---------- -------- ---------- ----------
BALANCES, December 31, 1999 ....... $ 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 ... 158 -- -- -- 158
Employee stock bonus plan ...... 28 -- -- -- 28
---------- ---------- -------- ---------- ----------
BALANCES, December 31, 2000 ....... $ 236,660 $ 131,617 $ -- $ (1,279) $ 367,233
Net loss for the year ............. -- (232,168) -- -- (232,168)
Foreign currency translation ...... -- -- (306) -- (306)
Cash dividends declared:
Common stock ($0.09 per share) . -- (2,073) -- -- (2,073)
Preferred stock ................ -- (1,845) -- -- (1,845)
Common stock issued under:
Employee stock purchase plan ... 70 -- -- -- 70
Employee stock bonus plan ...... 27 -- -- -- 27
Outside directors' compensation 47 -- -- -- 47
---------- ---------- -------- ---------- ----------
BALANCES, December 31, 2001 ....... $ 236,804 $ (104,469) $ (306) $ (1,279) $ 130,985
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these Consolidated Statements.
36
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Years Ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $(232,168) $ (6,736) $ 38,842
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization .......................................... 32,143 30,051 21,773
Net (gain) loss on the sale of assets .................................. (504) 1,474 (864)
Provision for losses on accounts receivable ............................ 20,959 4,088 2,829
Deferred income taxes .................................................. (14,441) (8,906) (6,947)
Equity in losses of unconsolidated affiliate ........................... 7,183 3,050 4,000
Restructuring and other related charges ................................ 41,067 46,650 --
Cash used in restructuring ............................................. (6,988) -- --
Used trailer valuation charges ......................................... 62,134 9,600 --
Loss contingencies and impairment of equipment leased to others . ...... 37,900 -- --
Change in operating assets and liabilities, excluding
effects of the acquisitions
Accounts receivable .................................................. 1,790 52,709 (18,810)
Inventories .......................................................... 107,755 (74,479) (37,573)
Refundable income taxes .............................................. (20,121) (5,552) --
Prepaid expenses and other ........................................... 3,863 5,368 8,607
Accounts payable and accrued liabilities ............................. (34,443) (69,880) 55,537
Other, net ........................................................... 261 (1,106) (3,924)
--------- --------- ---------
Net cash provided by (used in) operating activities ............ 6,390 (13,669) 63,470
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................................................... (5,899) (60,342) (68,119)
Net additions to equipment leased to others .............................. (70,444) (69,553) (11,828)
Net additions to finance contracts ....................................... (18,662) (19,400) (28,762)
Investment in unconsolidated affiliate ................................... (7,183) (3,706) (3,580)
Acquisitions, net of cash acquired ....................................... (6,336) -- (12,413)
Proceeds from sale of leased equipment and finance contracts ............. 60,556 60,845 12,927
Principal payments received on finance contracts ......................... 6,787 12,914 10,246
Proceeds from the sale of property, plant and equipment .................. 426 9,638 7,236
--------- --------- ---------
Net cash used in investing activities .......................... (40,755) (69,604) (94,293)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Short-term revolver ...................................................... 428,776 512,300 244,200
Long-term debt ........................................................... -- 62,500 --
Common stock, net of expenses ............................................ 144 186 347
Payments:
Short-term revolver ...................................................... (361,006) (500,299) (242,200)
Long-term debt ........................................................... (21,738) (4,122) (10,651)
Common stock dividends ................................................... (2,991) (3,679) (3,446)
Preferred dividends ...................................................... (1,879) (1,903) (2,065)
--------- --------- ---------
Net cash provided by (used in) financing activities ............ 41,306 64,983 (13,815)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH .............................................. 6,941 (18,290) (44,638)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ..................... 4,194 22,484 67,122
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ........................... $ 11,135 $ 4,194 $ 22,484
========= ========= =========
The accompanying notes are an integral part of these Consolidated Statements.
37
WABASH NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS, INDUSTRY AND FINANCIAL CONDITIONS
Wabash National Corporation (the Company) designs, manufactures and
markets standard and customized truck trailers and intermodal equipment under
the Wabash(TM), Fruehauf(R) and RoadRailer(R) trademarks. The Company produces
and sells aftermarket parts through its division, Wabash National Parts, and its
wholly-owned subsidiary, North American Trailer Centers(TM) (NATC). In addition
to aftermarket parts sales and service revenues, NATC sells new and used
trailers through its retail network and provides maintenance service for the
Company's and competitors' trailers and related equipment. On January 5, 2001
NATC acquired Canadian branch locations in connection with the Breadner
acquisition. The Company's other significant wholly-owned subsidiaries include
Apex Trailer Leasing and Rentals, L.P. and National Trailer Funding (the Finance
Companies), Cloud Corporation (Wabash Wood Products) and Europaische Trailerzug
Beteiligungsgessellschaft mbH (ETZ). 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. ETZ is a
European RoadRailer(R) operation based in Munich, Germany and was divested in
January 2002.
In 2001, the demand for new trailers in the United States declined
substantially resulting in an industry decline of 48.3% in new trailer
production from 270,817 units in 2000 to 140,084 units in 2001. This decline
resulted from overall economic conditions in the US economy, which reduced the
level of freight tonnage shipped in 2001, and ongoing challenges in the
motor-carrier industry principally caused by high fuel prices and lower revenues
per mile due to intense competition for shipments. The Company's market share
declined slightly to 22.6% during 2001. The Company's backlog declined from
$639.5 million as of December 31, 2000 to $142.1 million as of December 31,
2001.
This significant reduction in demand along with historical
manufacturing over-capacity in the truck trailer industry resulted in
significant losses being reported by the industry as a whole. Further impacting
the Company was a significant decline in the demand for used trailers caused by
the general economic and industry conditions previously discussed and the
Company's excess supply of used trailers. The Company's supply of used trailers
comes from accepting trade-ins of used trailers from its customers upon the sale
of new trailers. The excess supply of used trailers was further impacted by the
Company's backlog of new trailer orders totaling $639.5 million at December 31,
2000, in which the Company had previously agreed upon the pricing terms for the
new trailers and the trade-in allowance for the used trailers. This excess
supply and decline in demand coupled with the Company's decision to liquidate
used trailers during the second half of 2001 resulted in significant used
trailer market value declines during 2001. In response to the matters discussed
above, during 2001, the Company closed two of its manufacturing facilities and
two of its sales and services branches. As a result of these items, the Company
incurred significant restructuring, impairment and inventory valuation charges
(See notes 2, 4, 9 and 10 for details). Also, in January 2002, the Company
completed its divestiture of ETZ, the majority shareholder of BTZ, a European
Roadrailer(R) operating company based in Munich, Germany which had yet to
achieve profitable operating results.
As a result of these conditions, the Company reported a loss from
operations of $239.4 million for the year ended December 31, 2001, compared to
income from operations of $23.8 million for the year ended December 31, 2000.
The losses reported for 2001 resulted in the Company being in technical
violation of its financial covenants with certain of its lenders at December 31,
2001. In April 2002, the Company entered into an agreement with its lenders to
restructure its existing revolving bank line of credit, Senior Series Notes and
Rental Fleet Facility and to waive violations of certain financial covenants
through March 30, 2002. The restructuring changes debt maturity and principal
payment schedules, provides for all unencumbered assets to be pledged as
collateral, increases interest rates, and requires the Company to meet newly
established financial covenants (See note 13 for details regarding the debt
restructuring).
While the Company believes that industry conditions are likely to
persist throughout 2002, the Company believes it has significantly restructured
its operations and, based on its projections, the Company anticipates generating
positive earnings before interest, taxes, depreciation and amortization in 2002.
Although the Company believes that the assumptions underlying the 2002
projections are reasonable, there are risks related to further declines in
market demand and reduced sales in the U.S. and Canada, adverse interest rate or
currency movements, realization of anticipated cost reductions and levels of
used trailer trade-
38
ins that could cause actual results to differ from the projections. Should
results continue to decline, the Company is prepared to take additional cost
cutting actions. While there can be no assurance that the Company will achieve
these results, the Company believes it has adequately modified its operations to
be in compliance with its financial covenants throughout 2002 and believes that
its existing sources of liquidity combined with its operating results will
generate sufficient liquidity such that the Company has the ability to meet its
obligations as they become due throughout 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Consolidation
The consolidated financial statements reflect the accounts of the
Company and its wholly-owned and majority-owned subsidiaries with the exception
of ETZ since the control of this subsidiary was deemed to be temporary.
Accordingly, ETZ's operating results are included in Equity in Losses of
Unconsolidated Affiliate in the Consolidated Statements of Operations. All
significant intercompany profits, transactions and balances have been eliminated
in consolidation. Certain reclassifications have been made to prior periods to
conform to the current year presentation. These reclassifications had no effect
on net income (loss) for the periods previously reported.
b. Use of Estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that directly affect the amounts
reported in its consolidated financial statements and accompanying notes. Actual
results could differ from these estimates.
c. Foreign Currency Accounting
The financial statements of the Company's Canadian subsidiary have
been translated into U.S. dollars in accordance with FASB Statement No. 52,
Foreign Currency Translation. Assets and liabilities have been translated using
the exchange rate in effect at the balance sheet date. Revenues and expenses
have been translated using a weighted-average exchange rate for the period. The
resulting translation adjustments are recorded as other comprehensive income
(loss) in stockholders' equity. Gains or losses resulting from foreign currency
transactions are included in Other Income (Expense) on the Company's
Consolidated Statements of Operations. The Company recorded foreign currency
losses of $1.7 million in 2001 and $0 during 2000 and 1999.
d. Revenue Recognition
The Company recognizes revenue from the sale of trailers and
aftermarket parts when risk of ownership is transferred to the customer. Revenue
is generally recognized upon shipment. Customers that have requested to pick up
their trailers are invoiced prior to taking physical possession when the
customer has made a fixed commitment to purchase the trailers, the trailers have
been completed and are available for pickup or delivery, the customer has
requested in writing that the Company hold the trailers until the customer
determines the most economical means of taking possession and the customer takes
possession of the trailers within a specified time period. In such cases, the
trailers, which have been produced to the customer specifications, are invoiced
under the Company's normal billing and credit terms.
The Company recognizes revenue from direct finance leases based upon
a constant rate of return while revenue from operating leases is recognized on a
straight-line basis in an amount equal to the invoiced rentals.
The Company had one customer that represented 19.0% of net sales in
2001 and 11.4% of net sales in 2000. No other customer exceeded 10% of its net
sales in 2001, 2000 and 1999. The Company's net sales in the aggregate to its
five largest customers were 34.4%, 30.5% and 22.2% of its net sales in 2001,
2000 and 1999, respectively.
39
e. Used Trailer Trade Commitments
The Company has commitments with customers to accept used trailers
on trade for new trailer purchases. As of December 31, 2001, the Company had
approximately $25.7 million of outstanding trade commitments with customers. The
net realizable value of these commitments was approximately $18.0 million as of
December 31, 2001. The Company's policy is to recognize losses related to these
commitments, if any, at the time the new trailer revenue is recognized.
f. 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.
g. Accounts Receivable
Accounts receivable as shown in the accompanying Consolidated
Balance Sheets are net of allowance for doubtful accounts. Accounts receivable
includes trade receivables and amounts due under finance contracts. Provisions
to the allowance for doubtful accounts are charged to General and Administrative
expenses on the Consolidated Statements of Operations. The activity in the
allowance for doubtful accounts was as follows (in thousands):
Years Ended December 31,
------------------------------------------------------
2001 2000 1999
---------- ---------- -----------
Balance at Beginning of Year $ 3,745 $2,930 $2,251
Provision 20,959 4,088 2,829
Write-offs, net (10,223) (3,273) (2,150)
-------- ------ ------
Balance at End of Year $ 14,481 $3,745 $2,930
======== ====== ======
h. Inventories
Inventories are primarily stated at the lower of cost, determined on
the first-in, first-out (FIFO) method, or market. The cost of manufactured
inventory includes raw material, labor and overhead. Inventories consist of the
following (in thousands):
December 31,
--------------------------
2001 2000
-------- --------
Raw materials and components ............... $ 38,235 $ 84,167
Work in progress ........................... 10,229 18,765
Finished goods ............................. 58,984 93,332
Aftermarket parts .......................... 22,726 33,566
Used trailers .............................. 60,920 100,496
-------- --------
$191,094 $330,326
======== ========
The Company recorded used trailer inventory valuation adjustments
totaling $62.1 million and $9.6 million during 2001 and 2000, respectively.
These adjustments, which are reflected in cost of sales on the Consolidated
Statements of Operations, were calculated in accordance with the Company's
inventory valuation policies that are designed to state used trailers at the
lower of cost or market.
40
i. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Maintenance and
repairs are charged to expense as incurred, and expenditures that extend the
useful life of the asset are capitalized. Depreciation is recorded using the
straight-line method over the estimated useful lives of the depreciable assets.
Estimated useful lives are 331/3 years for buildings and building improvements
and range from 3 to 10 years for machinery and equipment. Property, plant and
equipment consist of the following (in thousands):
December 31,
--------------------------
2001 2000
--------- ---------
Land ......................................... $ 27,907 $ 29,314
Buildings and building improvements .......... 92,987 109,596
Machinery and equipment ...................... 122,981 123,989
Construction in progress ..................... 817 18,587
--------- ---------
244,692 281,486
Less--Accumulated depreciation ............... (74,362) (64,585)
--------- ---------
$ 170,330 $ 216,901
========= =========
j. Equipment Leased to Others
Equipment leased to others at December 31, 2001 and December 31,
2000 was $109.3 million and $52.0 million, net of accumulated depreciation of
$9.4 million and $11.4 million, respectively. Additions to Equipment leased to
others is classified in investing activities on the Consolidated Statements of
Cash Flows. The equipment leased to others is depreciated over the estimated
life of the equipment or the term of the underlying lease arrangement, not to
exceed 15 years, with a 20% residual value or a residual value equal to the
estimated market value of the equipment at lease termination. Depreciation
expense on equipment leased to others was $9.6 million, $10.9 million and $7.5
million for 2001, 2000 and 1999, respectively.
k. Intangible Assets
Intangible assets, of $43.8 million and $31.1 million net of
accumulated amortization of $15.1 million and $12.2 million at December 31, 2001
and December 31, 2000, respectively, primarily consist of goodwill and other
intangible assets associated with recent acquisitions. The Company has amortized
goodwill on a straight-line basis over periods ranging from 25 to 40 years and
all other intangible assets over periods ranging from 3 to 20 years. See New
Accounting Pronouncements below for a discussion of what impact the adoption of
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, will have on the Company's consolidated financial statements.
l. Capitalized Software
The Company capitalizes the cost of computer software developed or
obtained for internal use in accordance with statement of Position No. 98-1,
Accounting for the Costs of Computer Software Development or Obtained for
Internal Use. Software costs capitalized, net of accumulated amortization, were
$6.3 million and $8.1 million as of December 31, 2001 and December 31, 2000,
respectively, and are included in other assets on the Consolidated Balance
Sheets. Capitalized software is amortized using the straight-line method over 3
to 5 years.
m. Long-Lived Assets
Long-lived assets are reviewed for impairment in accordance with
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
whenever facts and circumstances indicate that the carrying amount may not be
recoverable. Specifically, this process involves comparing an asset's carrying
value to the estimated undiscounted future cash flows the asset is expected to
generate over its remaining life. If this process were to result in the
conclusion that the carrying value of a long-lived asset would not be
recoverable, a write-down of the asset to fair value would be recorded through a
charge to operations.
41
n. Accrued Liabilities
Accrued liabilities primarily represent accrued payroll related
items, restructuring reserves, warranty reserves, loss contingencies related to
used trailer residual commitments and self insurance reserves related to group
insurance and workers compensation. Changes in the estimates of these reserves
are charged or credited to income in the period determined.
The Company is self-insured up to specified limits for medical and
workers' compensation coverage. The self-insurance reserves have been recorded
to reflect the undiscounted estimated liabilities, including claims incurred but
not reported.
The Company recognizes a loss contingency for used trailer residual
commitments for the difference between the equipment's purchase price and its
fair market value, when it becomes probable that the purchase price at the
guarantee date will exceed the equipment's fair market value at that date.
The Company's warranty policy generally provides coverage for
components of the trailer the Company produces or assembles. Typically, the
coverage period is one year for container chassis and specialty trailers and
five years for dry freight, refrigerated and flat bed trailers. The Company's
policy is to accrue the estimated cost of warranty coverage at the time of the
sale. The warranty reserve at December 31, 2001 and 2000 was approximately $11.3
million and $5.2 million, respectively.
o. Income Taxes
The Company determines its provision or benefit for income taxes
under the asset and liability method. The asset and liability method measures
the expected tax impact at current enacted rates 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. Future
tax benefits of tax losses and credit carryforwards are recognized as deferred
tax assets. Deferred tax assets are reduced by a valuation allowance to the
extent the Company concludes there is uncertainty as to their realization.
p. Comprehensive Income (loss)
Comprehensive income (loss) for the Company includes net income
(loss) and foreign currency translation adjustments. The Company's net income
(loss) and total comprehensive income (loss) were $(232.2) million and $(232.5)
million, respectively for 2001. Net income (loss) and comprehensive income
(loss) were equal in 2000 and 1999.
q. New Accounting Pronouncements
The Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended by SFAS 137 and SFAS 138, as of
January 1, 2001. These standards require that all derivative instruments be
recorded on the balance sheet at fair value. The adoption of these standards did
not have an effect on the Company's annual results of operations or its
financial position.
The Company adopted SFAS No. 142. Goodwill and Other Intangible
Assets, as of January 1, 2002. This new standard changes the accounting for
goodwill from an amortization method to an impairment-only approach, and
introduces a new model for determining impairment charges. SFAS No. 142 requires
completion of the initial step of a transitional impairment test within six
months of the adoption of this standard and, if applicable, completion of the
final step of the adoption by December 31, 2002. The Company is in the initial
stages of evaluating the transitional impairment test and related impact, if
any, to the Company's results of operations and financial position. Goodwill
amortization expense was approximately $1.1 million, $0.6 million and $0.2
million, for 2001, 2000 and 1999, respectively.
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 143, Accounting for Asset Retirement Obligations with an effective date
of June 15, 2002 which becomes effective for the Company on January 1, 2003.
This standard requires obligations associated with retirement of long-lived
assets to be capitalized as part of the carrying value of the related asset. The
Company does not believe the adoption of SFAS No. 143 will have a material
effect on its financial statements.
42
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Effective January 1, 2002, this
standard sets forth a single accounting model for the accounting and reporting
for the impairment or disposal of long-lived assets. The Company is currently
evaluating the provisions of SFAS No. 144 to determine the effect, if any, on
its consolidated financial statements.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
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, 2001, and 2000 were immaterial.
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable.
The carrying amounts reported in the Consolidated Balance Sheets approximate
fair value.
Long-Term Debt and Capital Lease Obligations. The fair value of
long-term debt and capital lease obligations, including the current portion, is
estimated based on current quoted market prices for similar issues or debt with
the same maturities. The interest rates on the Company's bank borrowings under
its long-term revolving bank line of credit agreement are adjusted regularly to
reflect current market rates. The carrying values of the Company's long-term
borrowings approximate fair value.
4. RESTRUCTURING AND OTHER RELATED CHARGES
a. 2001 Restructuring Plan
During the third quarter of 2001, the Company recorded restructuring
and other related charges totaling $40.5 million primarily related to the
rationalization of the Company's manufacturing capacity resulting in the closure
of the Company's platform trailer manufacturing facility in Huntsville,
Tennessee, and its dry van facility in Fort Madison, Iowa. In addition, the
Company closed a parts distribution facility in Montebello, California. Included
in the $40.5 million restructuring charge is the write-down of certain impaired
fixed assets to their fair market value ($33.8 million charge), accrued
severance benefits for approximately 600 employees ($0.9 million) and plant
closure and other costs ($2.1 million). In addition, a $3.7 million charge is
included in cost of sales related to inventory write-downs at the closed
facilities. During the fourth quarter of 2001, the Company reduced its plant
closure reserve by approximately $0.9 million as a result of the Company's
ability to effectively control its closure costs. This reduction is reflected in
non-cash utilization below.
The Company's impairment charge reflects the write-down of certain
long-lived assets that became impaired as a result of management's decision to
close its operations at the two manufacturing plants discussed above. The
impairment was computed in accordance with the provisions of SFAS 121. The
estimated fair market value of the impaired assets totaled $6.7 million and was
determined by management based upon economic conditions, potential alternative
uses and potential markets for the assets which are held for sale and,
accordingly, are classified in prepaid expenses and other in the accompanying
Consolidated Balance Sheets. Depreciation has been discontinued on the assets
held for sale pending their disposal. Details of the restructuring charges and
reserve for the 2001 Restructuring Plan are as follows (in thousands):
Utilized
Original --------------------- Balance
Provision Cash Non-cash 12/31/01
--------- -------- -------- --------
Restructuring Costs:
Impairment of long-term assets $ 33,842 $ -- $(33,842) $ --
Plant closure costs 1,763 (613) (850) 300
Severance benefits 912 (912) -- --
Other 305 (105) -- 200
-------- -------- -------- --------
$ 36,822 $ (1,630) $(34,692) $ 500
======== ======== ======== ========
Inventory write-down $ 3,714 $ -- $ (3,714) $ --
-------- -------- -------- --------
Total restructuring & other related charges $ 40,536 $ (1,630) $(38,406) $ 500
======== ======== ======== ========
43
b. 2000 Restructuring Plan
In December 2000, the Company recorded restructuring and other
related charges totaling $46.6 million primarily related to the Company's exit
from manufacturing products for export outside the North American market,
international leasing and financing activities and the consolidation of certain
domestic operations. 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 represented the impairment of certain equipment subject
to leases with the Company's international customers, $8.6 million represented
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 benefits 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.
In January 2002, the Company completed its divestiture of ETZ. As a
result of this divestiture the Company adjusted its restructuring reserve by
$1.4 million during the fourth quarter. This adjustment primarily relates to the
assumption of certain financial guarantees in connection with the divestiture.
Details of the restructuring charges and reserve for the 2000 Restructuring Plan
are as follows (in thousands):
Utilized
Original Additional ------------------------- Balance
Provision Provision 2000(1) 2001(1) 12/31/01
--------- ---------- -------- -------- --------
Restructuring of majority-owned operations:
Impairment of long-term assets $ 20,819 $ -- $(20,819) $ -- $ --
Loss related to equipment guarantees 8,592 -- -- (3,394) 5,198
Write-down of other assets & other charges 6,927 -- (4,187) (1,381) 1,359
-------- -------- -------- -------- --------
$ 36,338 $ -- $(25,006) $ (4,775) $ 6,557
-------- -------- -------- -------- --------
Restructuring of minority interest operations:
Impairment of long-term assets $ 5,832 $ -- $ (5,832) $ -- $ --
Financial Guarantees $ -- $ 1,381 $ -- $ -- $ 1,381
Inventory write-down and other charges $ 4,480 $ -- $ (3,897) $ (583) $ --
-------- -------- -------- -------- --------
Total restructuring and other related charges $ 46,650 $ 1,381 $(34,735) $ (5,358) $ 7,938
======== ======== ======== ======== ========
(1) The amounts utilized in 2000 were all non-cash related while the
amounts utilized in 2001 represented the cash elements of the
restructuring charge.
The Company's total restructuring reserves were $8.4 million and
$11.9 million at December 31, 2001 and 2000, respectively. These reserves are
included in accrued liabilities in the accompanying Consolidated Balance Sheets.
The Company anticipates that these reserves will be adequate to cover the
remaining charges to be incurred in 2002.
5. ACQUISITIONS AND DIVESTITURE
a. Acquisitions
On January 5, 2001, the Company acquired the Breadner Group of
Companies (the Breadner Group) in a stock purchase agreement (the Breadner
Acquisition). The Breadner Group is headquartered in Kitchener, Ontario, Canada
and has ten branch locations in six Canadian Provinces. The Breadner Group is
the leading Canadian distributor of new trailers as well as a provider of new
trailer services and aftermarket parts. The Breadner Group had revenues and
income from operations of approximately $135 million and $2.3 million (US
Dollars), respectively for its fiscal year ended September 30, 2000 and employs
approximately 130 associates. For financial statement purposes, the Breadner
Acquisition was accounted for as a purchase, and accordingly, the Breadner
Group's assets and liabilities were recorded at fair value. The Breadner Group's
operating results are included in the Consolidated Financial Statements since
the date of
44
acquisition. The aggregate consideration for this transaction included
approximately $6.3 million in cash and $10.0 million in a long-term note and the
assumption of certain liabilities. The long-term note has an annual interest
rate of 7.25% and scheduled principal payments are due quarterly April 2001
through January 2006. The excess of the purchase price over the underlying
assets acquired was approximately $13.0 million and is being amortized on a
straight-line basis over twenty-five years.
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 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 and is being amortized on a straight
line basis over twenty-five years.
b. Divestiture
On November 4, 1997, the Company purchased a 25.1% equity interest
in Europaische Trailerzug Beteiligungsgessellschaft mbH (ETZ). ETZ is the
majority shareholder of Bayerische Trailerzug Gesellschaft fur Bimodalen
Guterverkehr mbH (BTZ), a European RoadRailer(R) 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 $7.2
million, $3.7 million and $3.6 million during 2001, 2000 and 1999, respectively.
During 2001, 2000 and 1999, the Company recorded approximately $7.7 million,
$3.1 million and $4.0 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
Operations.
In January 2001, in connection with its restructuring activities,
the Company assumed the remaining ownership interest in ETZ from the majority
shareholder with the intent to pursue an orderly divestiture of ETZ. Because
control of this subsidiary was deemed to be temporary, 100% of ETZ's 2001
operating results have been recorded as Equity in Losses of Unconsolidated
affiliate in the Consolidated Statements of Operations for 2001. In January
2002, the Company completed the divestiture of ETZ.
45
6. 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. Neither stock options nor convertible preferred stock were
included in the computation of diluted EPS for 2001 and 2000 since the inclusion
of these items 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
--------- ------ ---------
2001
Basic $(234,013) 23,006 $ (10.17)
Options -- --
Preferred Stock -- --
--------- ------ ---------
Diluted $(234,013) 23,006 $ (10.17)
========= ====== =========
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
========= ====== =========
7. SEGMENTS AND RELATED INFORMATION
a. Segment Reporting
Under the provisions of SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, the Company has two reportable segments:
manufacturing and retail and distribution. The manufacturing segment produces
and sells new trailers to the retail and distribution segment or to customers
who purchase trailers direct or through independent dealers. The retail and
distribution segment includes the sale, leasing and financing of new and used
trailers, as well as the sale of aftermarket parts and service through its
retail branch network. In addition, the retail and distribution segment includes
the sale of aftermarket parts through Wabash National Parts.
46
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 segment. The Company accounts for
intersegment sales and transfers at cost plus a specified mark-up. Reportable
segment information is as follows (in thousands):
Retail and Combined Consolidated
Manufacturing Distribution Segments Eliminations Totals
-------------- ------------ ----------- ------------ ------------
2001
Revenues
External customers $ 518,212 $ 345,180 $ 863,392 $ -- $ 863,392
Intersegment sales 61,854 2,427 64,281 (64,281) --
----------- ----------- ----------- ----------- -----------
Total Revenues $ 580,066 $ 347,607 $ 927,673 $ (64,281) $ 863,392
=========== =========== =========== =========== ===========
Depreciation & amortization 18,191 13,952 32,143 -- 32,143
Restructuring charge from operations 37,493 371 37,864 -- 37,864
Income (Loss) from operations (148,727) (92,975) (241,702) 2,300 (239,402)
Interest income 178 171 349 -- 349
Interest expense 20,235 1,057 21,292 -- 21,292
Equity in losses of unconsolidated affiliate 7,668 -- 7,668 -- 7,668
Restructuring charge included in other 1,590 -- 1,590 -- 1,590
Income tax (benefit) (42,038) (819) (42,857) -- (42,857)
Investment in unconsolidated affiliate -- -- -- -- --
Capital expenditures 4,463 1,436 5,899 -- 5,899
Assets 710,683 389,263 1,099,946 (407,442) 692,504
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 expenditures 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 (Loss) 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 expenditures 54,945 13,174 68,119 -- 68,119
Assets 768,017 355,890 1,123,907 (332,616) 791,291
b. Geographic Information
International sales accounted for approximately 9.2%, 3.1% and 2.0%
of net sales during 2001, 2000 and 1999, respectively. These sales consisted
primarily of new trailer sales made to Canadian customers. Sales to Canada
accounted for approximately 8.6%, 1.4% and 1.5% of net sales during 2001, 2000
and 1999.
47
As previously discussed, the Company acquired a Canadian subsidiary
in January, 2001. At December 31, 2001, the amount reflected in property, plant
and equipment net of accumulated depreciation related to this subsidiary was
approximately $2.0 million. Fixed assets utilized outside of North America
during 2001, 2000 and 1999 were immaterial.
8. ACCOUNTS RECEIVABLE SECURITIZATION
On October 1, 2001, the Company entered into a $100 million Conduit
Securitization Facility (the A/R Facility) to replace its previous Accounts
Receivable Securitization Facility. Under the terms of the A/R Facility the
Company sells, on a revolving basis, virtually all of its domestic accounts
receivable to a wholly-owned, bankruptcy-remote special purpose entity (SPE).
The SPE sells an undivided interest in receivables to an outside liquidity
provider who in turn remits cash back to the Company's SPE for receivables
eligible for funding. As of December 31, 2001, the amount outstanding under the
A/R Facility was $17.7 million and the amount outstanding under the Company's
previous facility as of December 31, 2000 was $69.4 million.
As of December 31, 2001, the Company was in violation of its
covenants under this facility. Therefore, all amounts under this facility were
due and payable. Accordingly, the Company has reflected the $17.7 million
outstanding under this facility as accounts receivable and current maturities of
long-term debt on the Consolidated Balance Sheet as of December 31, 2001.
In April 2002, the Company replaced this facility with a new $110
million Trade Receivables Facility. Under the terms of the Trade Receivables
Facility, the Company sells, on a revolving basis, predominately all of its
domestic accounts receivable to a wholly-owned, bankruptcy remote SPE. The SPE
sells an undivided interest in receivables to an outside liquidity provider who,
in turn, remits cash back to the Company's SPE for receivables eligible for
funding. This new facility includes financial covenants identical to the
Company's debt obligations as discussed in Note 13.
Proceeds advanced under the Company's A/R Facility are used to
provide liquidity in order to fund operations. The cash flows related to this
securitization are reflected as cash flows from operating activities in the
accompanying Consolidated Statements of Cash Flows.
9. EQUIPMENT LEASED TO OTHERS
The Finance Companies and NATC have equipment on lease under both
short-term and long-term lease arrangements with their customers. This equipment
includes trailers manufactured by the Company and used trailers acquired on
trade. Equipment on short-term lease represents lease contracts that are less
than one year and typically run month-to-month, while long-term leases have
terms ranging from one to five years in duration. Items being leased include
both Company-owned equipment, which is reflected on the Consolidated Balance
Sheets, as well as equipment that was sold by the Company and then
simultaneously leased back to the Company which are accounted for as operating
leases.
a. Equipment On Balance Sheet
The Company's Equipment leased to others, net was approximately
$109.3 million and $52.0 million at December 31, 2001 and 2000, respectively.
During 2001, the market values of used trailers declined
significantly. This decline led the Company to perform an impairment analysis in
accordance with SFAS 121 of its Equipment Leased to Others. This analysis
indicated that the undiscounted future cash flows of this equipment was not
sufficient to recover the carrying amount of certain portions of this equipment.
Therefore, the Company recorded an impairment charge of approximately $10.5
million to reduce these assets to fair value. This charge is included in Cost of
Sales in the Consolidated Statements of Operations.
During 2000, the Company entered into a sale and leaseback facility
with an independent financial institution related to its rental equipment. As of
December 31, 2000, the Company had $31 million of equipment financed through
this facility which was accounted for as an operating lease. As of December 31,
2001, the Company was in technical default of financial covenants under this
facility resulting in the unamortized lease value being due and payable. As of
December 31, 2001, the Company had $65.2 million of equipment financed under
this facility. In April 2002, the facility was amended which resulted in a new
lease. The new lease has been accounted for as a capital lease (see Note 10).
Accordingly, the Company has
48
reflected the unamortized lease value as a capital lease obligation of $65.2
million in the Consolidated Balance Sheet as of December 31, 2001. The leased
equipment was recorded at fair value of $42.2 million in the Consolidated
Balance Sheet as of December 31, 2001. The $23.0 million difference between the
unamortized lease value and the fair value of the leased equipment was recorded
as a charge to cost of sales in the Consolidated Statements of Operations for
the year ended December 31, 2001.
The future minimum lease payments to be received by the Finance
Companies and NATC under these lease transactions as of December 31, 2001 are as
follows (in thousands):
Receipts
--------
2002 ................ $ 7,279
2003 ................ 5,398
2004 ................ 4,106
2005 ................ 3,049
2006 ................ 2,387
Thereafter .......... 4,116
-------
$26,335
=======
b. Equipment Off Balance Sheet
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. All of this equipment has been
subleased to customers under long-term arrangements, typically five years. As of
December 31, 2001, the unamortized lease value of equipment financed under these
arrangements was approximately $24 million. Additionally, while these
arrangements do not contain financial covenants, certain non-financial covenants
such as provisions for cross default and material adverse changes are contained
in these arrangements. Rental payments made by the Finance Companies under these
types of transactions totaled $9.3 million, $9.1 million and $8.8 million during
2001, 2000 and 1999, respectively.
The future minimum noncancellable lease payments the Company is
required to make under the above mentioned transactions along with rents to be
received under various sublease arrangements as of December 31, 2001 are as
follows (in thousands):
Payments Receipts
-------- --------
2002 ......... $ 5,674 $ 5,752
2003 ......... 5,674 5,702
2004 ......... 4,657 4,233
2005 ......... 1,145 1,916
2006 ......... -- 953
Thereafter ... -- 50
------- -------
$17,150 $18,606
======= =======
The Company has end-of-term purchase options and residual guarantees
related to these transactions. These purchase options totaled $10.9 million and
$24.9 million as of December 31, 2001 and 2000, respectively. These residual
guarantees totaled $4.3 million and $14.8 million as of December 31, 2001 and
2000, respectively.
The Company recognizes a loss when the Company's operating lease payments
exceed the anticipated rents from the sublease arrangements with customers.
Included in the receipts above is approximately $12.3 million to be received
from a single customer. During 2001, the Company recorded a loss, which was
included in cost of sales, related to this customer of approximately $4.4
million. This amount represents the anticipated shortfall of sublease revenues
from operating lease payments.
49
10. CAPITAL LEASES
The Company entered into two capital lease arrangements in 2001,
which expire in 2002 and 2005.
During December 2000, the Company entered into a sale and leaseback
facility with an independent financial institution related to its rental
equipment. As of December 31, 2000, the Company had $31.0 million of equipment
financed through this facility which was accounted for as an operating lease.
Rent expense related to this lease was approximately $9.2 million in 2001 and $0
in 2000 and 1999. As of December 31, 2001, the Company was in technical default
of financial covenants under this facility resulting in the unamortized lease
value being due and payable. In April 2002, the facility was amended which
resulted in a new lease. In accordance with statement of Financial Accounting
Standards (SFAS) No. 13, Accounting for Leases, the new lease will be accounted
for as a capital lease. Accordingly, the Company has reflected the unamortized
lease value as a capital lease obligation of $65.2 million in the Consolidated
Balance Sheet as of December 31, 2001. The leased equipment was recorded at fair
value of $42.2 million in the Consolidated Balance Sheet as of December 31,
2001. The $23.0 million difference between the unamortized lease value and the
fair value of the leased equipment was recorded as a charge to Cost of Sales in
the Consolidated Statement of Operations for the year ended December 31, 2001.
This new capital lease has financial covenants identical to the Company's debt
as discussed in Footnote 13.
During 2001 the Company renewed a lease for a corporate aircraft.
This lease arrangement expires in 2002 and has been reflected as a capital
lease.
Assets recorded under capital lease arrangements included in
property, plant and equipment and equipment leased to others on the Consolidated
Balance Sheets consist of the following (in thousands):
December 31,
------------------------
2001 2000
------- -------
Property, Plant and Equipment, net $11,503 $ --
Equipment Leased to Others, net 42,233 --
------- -------
$53,736 $ --
======= =======
Accumulated depreciation recorded on leased assets at December 31,
2001 was $0.1 million. Depreciation expense recorded on leased assets in 2001
was $0.1 million.
Future minimum lease payments under capital leases are as follows
(in thousands):
Amounts
--------
2002 .............................. $ 27,152
2003 .............................. 14,203
2004 .............................. 13,326
2005 .............................. 36,829
2006 .............................. --
Thereafter ........................ --
--------
$ 91,510
Amount representing interest ...... (14,196)
--------
Capital lease obligations ......... 77,314
Obligations due within one year ... (21,559)
--------
Long-term capital lease obligations $ 55,755
========
11. OTHER LEASE ARRANGEMENTS
a. Equipment Financing
The Company has entered into agreements for the sale and leaseback
of certain production equipment at its manufacturing locations. As of December
31, 2001, the unamortized lease value related to these agreements was
approximately $24.5 million. Under these agreements, the initial lease terms
expired during 2001. The Company elected to renew these agreements and
anticipates renewing them through their maximum lease terms (2004-2008). Future
minimum lease payments related to these arrangements is approximately $4.2
million per year and the end of term residual guarantees and purchase options
are $2.4 million and $3.6 million, respectively. These agreements contain no
financial covenants; however, they do
50
contain non-financial covenants including cross default provisions which could
be triggered if the Company is not in compliance with covenants in other debt or
leasing arrangements.
Total rent expense for these leases in 2001, 2000 and 1999 was $3.1
million, $1.0 million and $1.5 million, respectively.
b. Other 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 these other lease commitments as of
December 31, 2001 are as follows (in thousands):
Amounts
-------
2002 .............................................. $2,352
2003 .............................................. 1,096
2004 .............................................. 462
2005 .............................................. 130
2006 .............................................. 15
Thereafter ........................................ 15
------
$4,070
======
Total rental expense under operating leases was $8.2 million, $7.9
million, and $5.4 million for 2001, 2000 and 1999, respectively.
12. FINANCE CONTRACTS
The Finance Companies provide financing for the sale of new and used
trailers to its customers. The financing is principally structured in the form
of finance leases, typically for a five-year term. Finance contracts, as shown
on the accompanying Consolidated Balance Sheets, are as follows (in thousands):
December 31,
----------------------------
2001 2000
-------- --------
Lease payments receivable .............. $ 53,151 $ 53,351
Estimated residual value ............... 6,589 11,041
-------- --------
59,740 64,392
Unearned finance charges ............... (11,563) (13,666)
-------- --------
48,177 50,726
Other, net ............................. 2,656 5,724
-------- --------
50,833 56,450
Less: current portion .................. (10,646) (11,544)
-------- --------
$ 40,187 $ 44,906
======== ========
Other, net. Other, net includes equipment subject to capital lease
that is awaiting customer pick-up. The net amounts under such arrangements
totaled $0.6 million and $2.3 million at December 31, 2001 and 2000,
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
$2.1 million and $3.4 million at December 31, 2001 and December 31, 2000,
respectively, in the Company's Consolidated Balance Sheets as a Finance Contract
and Other Noncurrent Liabilities and Contingencies. The future minimum lease
payments to be received from finance contracts as of December 31, 2001 are as
follows (in thousands):
Amounts
-------
2002 ................................................ $19,003
2003 ................................................ 11,489
2004 ................................................ 8,643
2005 ................................................ 5,483
2006 ................................................ 3,908
Thereafter .......................................... 4,625
-------
$53,151
=======
51
13. DEBT
In April 2002, the Company entered into an agreement with its
lenders to restructure its existing revolving credit facility and Senior Series
Notes and waive violations of its financial covenants through March 30, 2002.
The amendment changes debt maturity and principal payment schedules; provides
for all unencumbered assets to be pledged as collateral equally to the lenders;
increases the cost of funds; and requires the Company to meet certain financial
conditions, among other things. The amended agreements also contain certain
restrictions on acquisitions and the payment of preferred stock dividends. The
following reflects the terms of the amended credit agreement.
a. Long-term debt consists of the following (in thousands):
DECEMBER 31,
-------------------------
2001 2000
--------- ---------
Revolving Bank Line of Credit ................................ $ 14,642 $ 20,000
Receivable Securitization Facility, Note 8 ................... 17,700 --
Mortgage and Other Notes Payable (3.0% - 8.17%, Due 2002-2008) 35,362 18,260
Bank Term Loan (Due March 2004) .............................. 75,000 --
Series A Senior Notes (9.66%, Due March 2004) ................ 50,000 50,000
Series C-H Senior Notes (10.41% - 10.8%, Due 2004-2008) ...... 92,000 100,000
Series I Senior Notes (11.29%, Due 2005-2007) ................ 50,000 50,000
--------- ---------
334,703 238,260
Less: Current maturities ........................ (60,682) (12,134)
--------- ---------
$ 274,021 $ 226,126
========= =========
b. Maturities of long-term debt at December 31, 2001, are as follows (in
thousands):
Amounts
--------
2002 ............................................... $ 60,682
2003 ............................................... 50,975
2004 ............................................... 130,445
2005 ............................................... 24,712
2006 ............................................... 15,924
Thereafter ......................................... 51,965
--------
$334,703
========
c. Revolving Bank Line of Credit and Bank Term Loan
The Company's existing $125 million Revolving Credit Facility was
restructured into a $107 million term loan (Bank Term Loan) and $18 million
revolving credit facility (Bank Line of Credit). The Bank Term Loan and Bank
Line of Credit both mature on March 30, 2004 and are secured by all of the
unencumbered assets of the Company. The $107 million Bank Term Loan, of which
approximately $29 million consists of outstanding letters of credit, requires
monthly payments of $3.0 million per annum in 2002, $13.8 million per annum in
2003 and $3.4 million per annum in 2004, with the balance due March 30, 2004. In
addition, principal payments will be made from excess cash flow, as defined in
the agreement, on a quarterly basis. Any such additional payments will reduce
the balance of the loan due March 30, 2004.
Interest on the $107 million Bank Term Loan is variable based upon
the adjusted London Interbank Offered Rate ("LIBOR") plus 380 basis points and
is payable monthly. Interest on the borrowings under the $18 million Bank Line
of Credit is based upon LIBOR plus 355 basis points or the agent bank's
alternative borrowing rate as defined in the agreement. The Company pays a
commitment fee on the unused portion of this facility at a rate of 50 basis
points per annum.
At December 31, 2001, the Company had $75 million outstanding under
the Bank Term Loan, after letters of credit, at an interest rate of 2.4375%. The
Company had available credit under the Bank Line of Credit of approximately $18
million.
The Company has a revolving bank line of credit in Canada that
permits the Company to borrow up to CDN $20 million. This revolver is secured by
certain FTSI Canada Accounts Receivable balances and
52
new and used Canadian inventory. Interest payable on such borrowings is variable
based on the London Interbank Rate (LIBOR) plus 50 to 150 basis points, as
defined, or a prime rate of interest as defined. The Company pays a commitment
fee on the unused portion of this facility at rates of 15 to 30 basis points per
annum, as defined. As a result of noncompliance with the financial covenants in
its other debt agreements, the Company was in technical default under this
agreement at December 31, 2001 and will pay off the balance on this credit line
in 2002. At December 31, 2001, the Company had borrowings of USD $14.6 million
under this facility at a weighted average interest rate of 3.13%.
d. Senior Notes
As of December 31, 2001 the Company had $192 million of Senior
Series Notes outstanding which originally matured in 2002 through 2008. As part
of the restructuring, the original maturity dates for $72 million of Senior
Series Notes, payable in 2002 through March 2004, have been extended to March
30, 2004. The maturity dates for the other $120 million of Senior Series Notes
due subsequent to March 30, 2004, remain unchanged. The Senior Series Notes are
secured by all of the unencumbered assets of the Company.
Monthly principal payments totaling $7.5 million in 2002, $33.8
million in 2003 and $8.4 million in 2004 will be made on a prorata basis to all
Senior Series Notes. In addition, principal payments will be made from excess
cash flow, as defined in the agreement, on a quarterly basis. Interest on the
Senior Series Notes, which is payable monthly, increased by 325 basis points,
effective April 2002, and ranges from 9.66% to 11.29%.
e. Mortgage and Other Notes Payable
Mortgage and other notes payable includes debt incurred in
connection with the acquisition discussed in Note 5, an obligation associated
with the exercise of an equipment purchase option under an operating lease
secured by the equipment and other term borrowings secured by property.
f. Covenants
Prior to the new debt agreements, the Company was required under
various loan agreements to meet certain financial covenants. As of December 31,
2001, the Company was not in compliance with certain of these financial
covenants. The Company has obtained waivers from the lenders for this
non-compliance through March 30, 2002. The Company's new debt agreements contain
restrictions on excess cash flow, the amount of new finance contracts the
Company can enter into (not to exceed $5 million within any twelve month
period), and other restrictive covenants. These other restrictive covenants
contain minimum requirements related to the following items, as defined in the
agreement: Earnings Before Interest, Taxes, Depreciation and Amortization;
quarterly equity positions; debt to asset ratios; interest coverage ratios; and
capital expenditure amounts. These covenants will become effective in April of
2002 and become more restrictive in 2003.
53
14. STOCKHOLDERS' EQUITY
a. Capital Stock
DECEMBER 31,
--------------
(Dollars in thousands) 2001 2000
---- ----
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, 2001 and 2000
($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, 2001 and 2000
($13.0 million aggregate liquidation value) 1 1
---- ----
Total Preferred Stock $ 5 $ 5
---- ----
Common Stock - $0.01 par value, 75,000,000 shares authorized, 23,013,847
and 23,002,490 shares issued and outstanding
at December 31, 2001 and 2000, respectively $230 $230
==== ====
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.
The Board of Directors has the authority to issue up to 25 million
shares of unclassified preferred stock and to fix dividends, voting and
conversion rights, redemption provisions, liquidation preferences and other
rights and restrictions.
b. 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.
54
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. 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.
15. STOCK-BASED INCENTIVE PLANS
a. Stock Option and Stock Related Plans
The Company has stock incentive plans that provide for the issuance
of stock appreciation rights (SAR) and the granting of common stock options to
officers and other eligible employees.
During 2001, the company adopted a SAR Plan giving eligible
participants the right to receive, upon exercise thereof, the excess of the fair
market value of one share of stock on the date of exercise over the exercise
price of the SAR as determined by the Company. All SARs granted expire ten years
after the date of grant. As of December 31, 2001 the Company had granted 130,000
SAR at a weighted average exercise price of $8.64.
SARs require the Company to continually adjust compensation expense
for the changes in the fair market value of the Company's stock. During 2001,
expense recorded related to SARs was not material.
The Company has two non-qualified stock option plans (the 1992 and
2000 Stock Option Plans) which allow eligible employees 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 over 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 ($235.9) million
(($10.25) Basic and Diluted EPS) in 2001, ($10.6) million (($0.46) Basic and
Diluted EPS) in 2000 and $35.2 million ($1.53 Basic and Diluted EPS) in 1999.
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, 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
--------- ----------
Granted ............................... 89,500 9.47
Exercised ............................. -- --
Cancelled ............................. (231,400) 16.79
Outstanding at December 31, 2001 .............. 1,777,725 $ 19.39
========= ==========
55
The following table summarizes information about stock options
outstanding at December 31, 2001:
Weighted Weighted Weighted
Range of Average Average Number Average
Exercise Number Remaining Exercise Exercisable Exercise
Prices Outstanding Life Price at 12/31/01 Price
-----------------------------------------------------------------------------------
$ 7.25 to $10.49 269,500 9.1 yrs. $ 7.59 71,536 $ 7.38
$10.50 to $15.49 339,000 6.4 yrs. $15.08 208,000 $15.26
$15.50 to $22.99 786,225 5.2 yrs. $20.34 535,125 $19.77
$23.00 to $33.50 383,000 4.1 yrs. $29.78 346,000 $29.90
Using the Black-Scholes option valuation model, the estimated fair
values of options granted during 2001, 2000 and 1999 were $5.20, $3.54 and
$11.12 per option, respectively. Principal assumptions used in applying the
Black-Scholes model were as follows:
Black-Scholes Model Assumptions 2001 2000 1999
------------------------------- ---- ---- ----
Risk-free interest rate .............. 5.07% 5.32% 6.06%
Expected volatility .................. 45.58% 45.38% 43.95%
Expected dividend yield .............. 1.26% 2.21% 0.74%
Expected term ........................ 10 yrs. 10 yrs. 7 yrs.
b. Other Stock Plans
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
2001, 7,138 shares were issued to employees at an average price of $9.77 per
share. At December 31, 2001, there were 247,048 shares available for offering
under this Purchase 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 2001, 1,960 shares were issued to employees at an average price of
$14.14. At December 31, 2001 there were 476,680 shares available for offering
under this Bonus Plan.
16. EMPLOYEE 401(K) SAVINGS PLAN
Substantially all of the Company's employees are eligible to
participate in a defined contribution plan that qualifies under Section 401(k)
of the Internal Revenue Code. The Plan provides for the Company to match, in
cash, a percentage of each employee's contributions under various formulas. The
Company's matching contribution and related expense for the plan was
approximately $1.0 million, $1.5 million and $1.4 million for 2001, 2000 and
1999, respectively.
56
17. SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and non cash activities were as follows (in
thousands):
DECEMBER 31,
---------------------------------------
2001 2000 1999
-------- -------- --------
Cash paid during the year for:
Interest ............................................................ $ 20,230 $ 19,694 $ 13,954
Income taxes paid (refunded, net) ................................... (7,047) 18,064 20,319
-------- -------- --------
Non cash transactions:
Capital lease obligation incurred (Note 10) ......................... 77,363 -- --
Purchase option exercised related to equipment
Guarantees (Note 13e) ............................................ 13,825 -- --
Receivable Securitization Facility (Note 8) ......................... 17,700 -- --
Acquisitions, net of cash acquired:
Fair value of assets acquired ................................. 59,012 -- 23,698
Liabilities assumed ........................................... (52,676) -- (11,285)
-------- -------- --------
Net cash paid ............................................ $ (6,336) $ -- $(12,413)
======== ======== ========
18. INCOME TAXES
a. Provisions for Income Taxes
The consolidated income tax provision for 2001, 2000 and 1999
consists of the following components (in thousands):
2001 2000 1999
-------- -------- --------
Current:
U.S. Federal and Foreign ............................................ $(28,416) $ 3,196 $ 28,769
State ............................................................... -- 1,396 4,069
Deferred ................................................................ (14,441) (8,906) (6,947)
-------- -------- --------
Total consolidated provision (benefit) .................................. $(42,857) $ (4,314) $ 25,891
======== ======== ========
The Company's effective tax rates were 15.6%, 39.0% and 40.0% of
pre-tax income/(loss) for 2001, 2000 and 1999, respectively, and differed from
the U.S. Federal statutory rate of 35% as follows:
2001 2000 1999
--------- --------- ---------
Pretax book income/(loss) .............................. $(275,025) $ (11,050) $ 64,733
Federal tax expense (benefit) at 35% statutory rate (96,259) $ (3,868) $ 22,657
State, local income taxes .......................... (554) 591 2,397
Foreign income taxes - rate differential ........... (142) -- --
Valuation allowance ................................ 55,305 -- --
Other .............................................. (1,207) (1,037) 837
--------- --------- ---------
Total income tax expense/(benefit) ..................... $ (42,857) $ (4,314) $ 25,891
========= ========= =========
57
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 income from
assets under finance leases, charges the Company recorded in 2000 and 2001
related to the restructuring of certain operations, and tax credits and losses
carried forward.
The Company has a federal tax net operating loss carryforward of
$86.8 million, which will expire in 2022 if unused. The Company has various tax
credit carryforwards which will expire beginning in 2021 if unused. Under
Statement of Financial Accounting Standards 109, deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. The Company has determined that a valuation allowance is necessary
and, accordingly, has recorded a valuation allowance for all deferred tax assets
as of December 31, 2001.
The components of deferred tax assets and deferred tax liabilities
as of December 31, 2001 and 2000 were as follows (in thousands):
2001 2000
-------- --------
Deferred tax (assets):
Rentals on Finance Leases .............................. $(21,241) $(18,651)
Leasing Difference ..................................... (10,284) (7,912)
Operations Restructuring ............................... (26,428) (18,194)
Tax credits and loss carryforwards ..................... (36,394) --
Other .................................................. (60,789) (12,481)
Deferred tax liabilities:
Book-Tax Basis Differences-Property, Plant and Equipment 68,343 48,158
Earned Finance Charges on Finance Leases ............... 10,138 9,241
Other .................................................. 21,350 14,280
-------- --------
Net deferred tax liability/(asset), before valuation allowance . $(55,305) $ 14,441
-------- --------
Valuation allowance ............................................ $ 55,305 $ --
-------- --------
Net deferred tax liability/(asset) ............................. $ -- $ 14,441
======== ========
c. Change in Tax Laws
In March 2002, Congress enacted the Job Creation and Worker
Assistance Act of 2002 which allows corporate taxpayers who incur net operating
losses in tax years ending in 2001 and 2002 to carry back such losses to offset
federal taxable income generated in the previous five years. The Company
received a refund of federal income taxes of approximately $13 million in April
2002 related to the carryback of losses incurred during 2001 to tax years ended
1996, 1997 and 1998. The benefit associated with this tax law change will be
recorded in 2002. The additional carryback period will reduce the amount of
federal tax net operating losses available for carryforward to $52.1 million.
19. 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.
58
In March of 2001, Bernard Krone Industria e Comercio de Maquinas
Agricolas Ltda. ("BK") filed suit against the Company in the Fourth Civil Court
of Curitiba in the State of Parana, Brazil. This action seeks recovery of
damages plus pain and suffering. Because of the bankruptcy of BK, this
proceeding is now pending before the Second Civil Court of Bankruptcies and
Creditors Reorganization of Curitiba, State of Parana (No.232/99).
This case grows out of a joint venture agreement between BK and the
Company, which was generally intended to permit BK and the Company to market the
Roadrailer(R) trailer in Brazil and other areas of South America. When BK was
placed into the Brazilian equivalent of bankruptcy late in the year 2000, the
joint venture was dissolved. BK subsequently filed its lawsuit against the
Company alleging that it was forced to terminate business with other companies
because of the exclusivity and non-compete clauses purportedly found in the
joint venture agreement. The lawsuit further alleges that Wabash did not
properly disclose technology to BK and that Wabash purportedly failed to comply
with its contractual obligations in terminating the joint venture agreement. In
its complaint, BK asserts that it has been damaged by these alleged wrongs by
the Company in the approximate amount of $8.4 million (U.S.).
The Company answered the complaint in May of 2001, denying any
wrongdoing and pointing out that, contrary to the allegation found in the
complaint, a merger of the Company and BK, or the acquisition of BK by the
Company, was never the purpose or intent of the joint venture agreement between
the parties; the only purpose was the business and marketing arrangement as set
out in the agreement. The Company also asserted a counterclaim in the amount of
$351,000 (U.S.) representing monies advanced by the Company to BK to permit BK
to import certain trailers from Europe, which was to be reimbursed to the
Company by BK. The counterclaim was based on the fact that this reimbursement
never took place.
The Company believes that the claims asserted against it by BK are
without merit and intends to defend itself vigorously against those claims. It
also believes that the claims asserted in its counterclaim are valid and
meritorious and it intends to prosecute that claim. The Company believes that
the resolution of this lawsuit will not have a material adverse effect on its
financial position or future results of operations; however, at this early stage
of the proceeding, no assurance can be given as to the ultimate outcome of the
case.
On September 17, 2001 the Company commenced an action against PPG
Industries, Inc. ("PPG") in the United States District Court, Northern District
of Indiana, Hammond Division at Lafayette, Civil Action No. 4:01 CV 55. In the
lawsuit, the Company alleged that it has sustained substantial damages stemming
from the failure of the PPG electrocoating system (the "E-coat system") and
related products that PPG provided for the Company's Scott County Tennessee
plant. The Company alleges that PPG is responsible for defects in the design of
the E-coat system and defects in PPG products that have resulted in malfunctions
of the E-coat system and poor quality coatings on numerous trailers. The Company
further alleges that the failures of PPG's E-coat system and products
substantially contributed to the decision to shut down the Scott County plant.
PPG filed a Counterclaim in that action on or about November 8,
2001, seeking damages in excess of approximately $1.35 million based upon
certain provisions of the November 3, 1998 Investment Agreement between it and
the Company. The Company filed a Reply to the Counterclaim denying liability for
the claims asserted.
The Company believes that the claims asserted against it by PPG in
the Counterclaim are without merit and intends to defend itself vigorously
against those claims. It also believes that the claims asserted in its Complaint
are valid and meritorious and it intends to prosecute those claims. The Company
believes that the resolution of this lawsuit will not have a material adverse
effect on its financial position or future results of operations; however, at
this early stage of the proceeding, no assurance can be given as to the ultimate
outcome of the case.
In the second quarter of 2000, the Company received a grand jury
subpoena requesting certain documents relating to the discharge of wastewaters
into the environment at a Wabash facility in Huntsville, Tennessee. The subpoena
sought the production of documents and related records concerning the design of
the facility's discharge system and the particular discharge in question. On May
16, 2001, the Company received a second grand jury subpoena that sought the
production of additional documents relating to the discharge in question. The
Company is fully cooperating with federal officials with respect to their
investigation into the matter. At this time, the Company is unable to predict
the outcome of the federal grand jury inquiry into this matter, but does not
believe it will result in a material adverse effect on its financial
59
position or future results of operations; however, at this early stage of the
proceedings, no assurance can be given as to the ultimate outcome of the case.
On April 17, 2000, the Company received a Notice of
Violation/Request for Incident Report from the Tennessee Department of
Environmental Conservation (TDEC) with respect to the same matter. On September
6, 2000, the Company received an Order and Assessment from TDEC directing the
Company to pay a fine of $100,000 for violations of Tennessee environmental
requirements as a result of the discharge. The Company filed an appeal of the
Order and Assessment on October 10, 2000. The Company is currently negotiating
an agreed-upon Order with TDEC to resolve this matter.
The class action against the Company in United States District Court
for the Northern District of Indiana entitled "In re Wabash National Corporation
Securities Litigation", Civil Action No. 4:99-CV-0003-AS, originally filed in
1999 and previously reported by the Company in prior filings, was dismissed with
prejudice in December 2001 in connection with a final settlement entered into by
the parties, with no material effect on the Company's financial position or
results of operations.
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, 2001 and 2000, the estimated potential exposure for
such costs ranges from approximately $0.5 million to approximately $1.7 million,
for which the Company has a reserve of approximately $0.9 million. These
reserves were 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 or results of operations of the Company.
c. Used Trailer Restoration Program
During 1999, the Company reached a settlement with the IRS related
to federal excise tax on certain used trailers restored by the Company during
1996 and 1997. The Company has continued the restoration program with the same
customer since 1997. The customer has indemnified the Company for any potential
excise tax assessed by the IRS for years subsequent to 1997. As a result, the
Company has recorded a liability and a corresponding receivable of approximately
$8.3 million and $7.9 million in the accompanying Consolidated Balance Sheets at
December 31, 2001 and 2000, respectively. During 2001, the IRS completed its
federal excise tax audit of 1999 and 1998 resulting in an assessment of
approximately $5.4 million. The Company believes it is fully indemnified for
this liability and that the related receivable is fully collectible.
d. Letters of Credit
As of December 31, 2001, the Company had standby letters of credit
totaling approximately $29.0 million issued in connection with certain foreign
sales transactions and other domestic purposes.
60
e. Royalty Payments
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(R) 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. Payments
for 2001, 2000 and 1999 were $1.4 million, $2.1 million and $2.4 million,
respectively.
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, 2001 and 2000 totaled approximately
$28.1 million and $37.5 million, respectively are as follows (in thousands):
Purchase Option Guarantee Amount
--------------- ----------------
2002 ............................... $ 9,416 $ 1,878
2003 ............................... 20,596 3,617
2004 ............................... 44,800 5,057
2005 ............................... 13,465 4,571
2006 ............................... 1,748 10,475
Thereafter ......................... -- 2,463
------- -------
$90,025 $28,061
======= =======
20. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for fiscal years 2001, 2000 and 1999 (Dollars in thousands except per
share amounts).
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
2001
Net Sales .................... $ 242,629 $ 212,172 $ 241,945 $ 166,646
Gross loss ................... (1,743) (26) (32,733) (84,711)
Net loss ..................... (17,730) (18,117) (61,373)(3) (134,948)(4)
Basic loss per share(1) ...... $ (0.79) $ (0.81) $ (2.69) $ (5.88)
Diluted loss per share(1) .... $ (0.79) $ (0.81) $ (2.69) $ (5.88)
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
(1) Earnings (loss) 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).
(3) The third quarter 2001 results include restructuring and other
related charges of $40.5 million ($25.6 million, net of tax).
(4) The fourth quarter 2001 results include loss contingencies and
impairment charge related to the Company's leasing operations
of $37.9 million and used trailer inventory valuation of $18.6
million.
61
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 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
2002 Annual Meeting of Stockholders to be held May 30, 2002.
The following are the executive officers of the Company:
NAME AGE POSITION
---- --- --------
Richard E. Dessimoz(1)... 54 Acting Chief Executive Officer and DirectoR
Mark R. Holden(1)........ 42 Senior Vice President--Chief Financial Officer and Director
Arthur R. Brown.......... 50 Senior Vice President--Chief Operating Officer
Rodney P. Ehrlich........ 55 Senior Vice President--Product Development
Lawrence J. Gross........ 47 Senior Vice President--Marketing
Derek L. Nagle........... 51 Senior Vice President and President of North American Trailer Centers(TM)
(1) Member of the Executive Committee of the Board of Directors
Richard E. Dessimoz. Mr. Dessimoz has been Acting Chief Executive
Officer of the Company since July 2001 and Vice President and Chief Executive
Officer of Wabash National Finance Corporation since its inception in December
1991. Mr. Dessimoz has been a Director of the Company since December 1995.
Mark R. Holden. Mr. Holden has been Senior Vice President--Chief
Financial Officer since October 2001 and a member of the Office of the Chief
Executive Officer since July 2001. Mr. Holden has served as Vice
President--Chief Financial Officer and Director of the Company since May 1995
and Vice President--Controller of the Company since 1992.
Arthur R. Brown. Mr. Brown has been Senior Vice President-Chief
Operating Officer of the Company since October 2001 and Vice President-Chief
Operating Officer since August 2001. Prior to his employment with the Company,
Mr. Brown served as Vice President of Fram/Autolite Operations for Honeywell
Corporation since April 1998 and as Director of Operations for Vickers, Inc.
from November 1995 to April 1998.
Rodney P. Ehrlich. Mr. Rodney Ehrlich has been Senior Vice
President--Product Development of the Company since October 2001. Mr. Ehrlich
was Vice President-Engineering and has been in charge of the Company's
engineering operations since the Company's founding.
Lawrence J. Gross. Mr. Gross has been Senior Vice
President--Marketing since October 2001. Mr. Gross had been Vice
President--Marketing of the Company since December 1994. Previously he served as
President of the Company's RoadRailer(R)division since joining the Company in
July 1991. Prior to his employment by the Company, he was employed as Vice
President--Marketing from 1985 until 1990 by Chamberlain of Connecticut, Inc., a
licensor of bimodal technology, and as Vice President--Marketing until he began
his employment with the Company.
Derek L. Nagle. Mr. Nagle has been Senior Vice President of the
Company since October 2001. Mr. Nagle has served as Vice President of the
Company and President of North American Trailer Centers(TM)since the Company's
acquisition of certain Fruehauf assets in April 1997. Prior to his employment by
the Company, he held various senior executive positions. Fruehauf Trailer
Corporation filed for bankruptcy protection in October 1996.
Officers are elected for a term of one year and serve at the
discretion of the Board of Directors.
62
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 2002
Annual Meeting of Stockholders to be held May 30, 2002.
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 2002 Annual Meeting of Stockholders to be held on May 30,
2002.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the information
contained under the heading "Related Party Transaction" from its definitive
Proxy Statement to be delivered to the stockholders of the Company in connection
with the 2002 Annual Meeting of Stockholders to be held on May 30, 2002.
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.
For the year ended December 31, 2000, ETZ was a significant
subsidiary under Rule 3-09 of Regulation S-X. Therefore, the Company
was required to file audited financial statements of ETZ for the
year ended December 31, 2000 by June 30, 2001. The Company has
received audited financial statements under German generally
accepted accounting principles for the year ended December 31, 2000,
but has not been able to obtain these financial statements in
conformity with accounting principles generally accepted in the
United States.
For the year ended December 31, 2001, ETZ was not a significant
subsidiary under Rule 3-09 of Regulation S-X. The Company divested
ETZ in January 2002.
(b) Reports on Form 8-K:
(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 Amended and restated By-laws of the Company (19)
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 (16)
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)
63
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)
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 and Rentals, L.P., as Lessee, and Wabash Statutory Trust, as
Lessor, dated December 29, 2000 (15)
10.16 2000 Stock Option Plan (16)
10.17 Consulting and Non-Competition Agreement dated July 16, 2001 between
Donald J. Ehrlich and Wabash National Corporation (17)
10.18 Employment Contract dated August 13, 2001 between Arthur R. Brown
and the Company (19)
10.19 Originators Receivables Sale Agreement dated October 4, 2001 between
Wabash National LP and NOAMTC, Inc. as originators and Wabash
National Financing LLC, Receivable Sales Agreement dated October 4,
2001 between Wabash Financing LLC and WNC Funding LLC and the
Receivables Purchase Agreement dated October 4, 2001 between WNC
Funding LLC and North Coast Funding Corporation (18)
10.20 2001 Stock Appreciation Rights Plan (18)
10.21 Asset Purchase Agreement dated January 11, 2002, between Bayerische
Trailerzug Gesellschaft fur Bimodalen Guterverkehr mbH (ETZ) and
Wabash National Corporation (19)
10.22 Share Purchase Agreement dated January 11, 2002, between Brennero
Trasporto Rotaia S.p.A. and Bimodal Verwaltungs Gesellschaft mbH
(collectively the "Purchasers") and Wabash National Corporation (the
Seller) (19)
10.23 Master Amendment Agreement dated April 11, 2002 between the Company
and various financial institutions (19)
10.24 Amended and Restated 9.66% Series A Senior Secured Notes Purchase
Agreement dated April 12, 2002, between certain purchasers and the
Company (19)
10.25 Amended and Restated Series C-H Senior Secured Notes purchase
Agreement dated April 12, 2002, between certain purchasers and the
Company (19)
10.26 Amended and Restated Series I 11.29% Senior Secured Note Purchase
Agreement dated April 12, 2002, between Prudential Insurance
Company and the Company (19)
10.27 Amended and Restated Credit Agreement dated April 11, 2002 between
Bank One, Indiana, NA, as administrative agent and the Company (19)
10.28 Receivables Purchase and Servicing Agreement dated April 11, 2002
between General Electric Capital Corporation, as initial Purchaser
and as Agent and the Company (19)
10.29 Receivables Sale and Contribution Agreement dated April 11, 2002
between Wabash National Corporation as Performance Guarantor,
NOAMTC, Inc. and Wabash National LP, as originators and WNC
Receivables, LLC, as Buyer (19)
10.30 Annex X to the Receivables Sale and Contribution Agreement and
Receivables purchase and Servicing Agreement each dated April 11,
2002 (19)
21.00 List of Significant Subsidiaries (19)
23.01 Consent of Arthur Andersen LLP (19)
99.01 Representation Letter Concerning Arthur Andersen LLP (19)
(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.
64
(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
February 5, 2002
(15) Incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 2000
(16) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended March 31, 2001
(17) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 2001
(18) Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 2001
(19) 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.
65
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS AMENDED REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
WABASH NATIONAL CORPORATION
April 17, 2002 By: /s/ Mark R. Holden
-----------------------------------------------
Mark R. Holden
Senior Vice President - Chief Financial Officer
(Principal Accounting Officer)
and Duly Authorized Officer
66