UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| [x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
OR
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from
to
Commission File Number: 1-10883
WABASH NATIONAL CORPORATION
( Exact name of registrant as specified in its charter)
| Delaware (State of Incorporation) 1000 Sagamore Parkway South, Lafayette, Indiana (Address of Principal Executive Offices) |
|
52-1375208 (IRS Employer Identification Number) 47905 (Zip Code) |
Registrant’s telephone number, including area code: (765) 771-5300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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.
Yes x No o
Yes x No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the
Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer ý | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No x
Yes o No x
The number of shares of common stock outstanding at October 27, 2008 was 30,700,337.
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
Page |
||||
| PART I – FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements |
|||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. | 14 | |||
| Item 3. | 22 | |||
| Item 4. | 23 | |||
| PART II – OTHER INFORMATION | ||||
| Item 1A. | 23 | |||
| Item 2. | 24 | |||
| Item 6. | 24 | |||
| 24 | ||||
2
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| September 30, | December 31, | |||||||
| 2008 | 2007 | |||||||
| (Unaudited) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 12,345 | $ | 41,224 | ||||
Accounts receivable, net |
75,856 | 68,752 | ||||||
Inventories |
132,841 | 113,125 | ||||||
Deferred income taxes |
15,248 | 14,514 | ||||||
Prepaid expenses and other |
3,715 | 4,046 | ||||||
Total current assets |
240,005 | 241,661 | ||||||
PROPERTY, PLANT AND EQUIPMENT, net |
122,221 | 122,063 | ||||||
DEFERRED INCOME TAXES |
7,887 | 2,772 | ||||||
GOODWILL |
66,317 | 66,317 | ||||||
INTANGIBLE ASSETS |
29,925 | 32,498 | ||||||
OTHER ASSETS |
16,536 | 18,271 | ||||||
| $ | 482,891 | $ | 483,582 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Current portion of capital lease obligation |
$ | 590 | $ | - | ||||
Accounts payable |
80,496 | 40,787 | ||||||
Other accrued liabilities |
48,496 | 54,258 | ||||||
Total current liabilities |
129,582 | 95,045 | ||||||
LONG-TERM DEBT |
79,000 | 104,500 | ||||||
CAPITAL LEASE OBLIGATION |
4,636 | - | ||||||
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES |
4,481 | 4,108 | ||||||
STOCKHOLDERS’ EQUITY |
||||||||
Preferred stock, 25,000,000 shares authorized, no shares issued or outstanding |
- | - | ||||||
Common stock 75,000,000 shares authorized, $0.01 par value, 29,993,606
and 29,842,945 shares issued and outstanding, respectively |
324 | 321 | ||||||
Additional paid-in capital |
350,610 | 347,143 | ||||||
Retained deficit |
(60,125 | ) | (42,058 | ) | ||||
Accumulated other comprehensive income |
(140 | ) | - | |||||
Treasury stock at cost, 1,675,600 common shares |
(25,477 | ) | (25,477 | ) | ||||
Total stockholders’ equity |
265,192 | 279,929 | ||||||
| $ | 482,891 | $ | 483,582 | |||||
See Notes to Condensed Consolidated Financial Statements
3
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
| Three Months | Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
NET SALES |
$ | 242,953 | $ | 291,017 | $ | 605,498 | $ | 844,720 | ||||||||
COST OF SALES |
233,965 | 266,424 | 579,832 | 772,110 | ||||||||||||
Gross profit |
8,988 | 24,593 | 25,666 | 72,610 | ||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES |
10,060 | 13,173 | 32,016 | 38,332 | ||||||||||||
SELLING EXPENSES |
3,420 | 3,916 | 10,189 | 12,029 | ||||||||||||
(Loss) Income from operations |
(4,492 | ) | 7,504 | (16,539 | ) | 22,249 | ||||||||||
OTHER INCOME (EXPENSE) |
||||||||||||||||
Interest expense |
(1,154 | ) | (1,416 | ) | (3,349 | ) | (4,410 | ) | ||||||||
Foreign exchange, net |
(85 | ) | 65 | (91 | ) | 461 | ||||||||||
Gain on debt extinguishment |
- | - | 151 | - | ||||||||||||
Other, net |
113 | (86 | ) | (83 | ) | (592 | ) | |||||||||
(Loss) Income before income taxes |
(5,618 | ) | 6,067 | (19,911 | ) | 17,708 | ||||||||||
INCOME TAX (BENEFIT) EXPENSE |
(1,288 | ) | 2,289 | (5,991 | ) | 7,059 | ||||||||||
NET (LOSS) INCOME |
$ | (4,330 | ) | $ | 3,778 | $ | (13,920 | ) | $ | 10,649 | ||||||
COMMON STOCK DIVIDENDS DECLARED |
$ | 0.045 | $ | 0.045 | $ | 0.135 | $ | 0.135 | ||||||||
BASIC NET (LOSS) INCOME PER SHARE |
$ | (0.14 | ) | $ | 0.13 | $ | (0.47 | ) | $ | 0.35 | ||||||
DILUTED NET (LOSS) INCOME PER SHARE |
$ | (0.14 | ) | $ | 0.12 | $ | (0.47 | ) | $ | 0.35 | ||||||
COMPREHENSIVE (LOSS) INCOME |
||||||||||||||||
Net (loss) income |
$ | (4,330 | ) | $ | 3,778 | $ | (13,920 | ) | $ | 10,649 | ||||||
Changes in fair value of derivatives (net of tax) |
(140 | ) | - | (140 | ) | - | ||||||||||
Foreign currency translation adjustment |
- | 113 | - | 339 | ||||||||||||
NET COMPREHENSIVE (LOSS) INCOME |
$ | (4,470 | ) | $ | 3,891 | $ | (14,060 | ) | $ | 10,988 | ||||||
See Notes to Condensed Consolidated Financial Statements.
4
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2008 | 2007 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net (loss) income |
$ | (13,920 | ) | $ | 10,649 | |||
Adjustments to reconcile net (loss) income to net cash provided by
operating activities |
||||||||
Depreciation and amortization |
15,535 | 14,477 | ||||||
Net loss on the sale of assets |
236 | 106 | ||||||
Gain on early debt extinguishment |
(151 | ) | - | |||||
Deferred income taxes |
(5,849 | ) | 6,596 | |||||
Excess tax benefits from stock-based compensation |
(6 | ) | (33 | ) | ||||
Stock-based compensation |
3,452 | 3,213 | ||||||
Changes in operating assets and liabilities |
||||||||
Accounts receivable |
(7,104 | ) | 10,120 | |||||
Inventories |
(19,716 | ) | (21,211 | ) | ||||
Prepaid expenses and other |
2,028 | 2,260 | ||||||
Accounts payable and accrued liabilities |
33,705 | (9,991 | ) | |||||
Other, net |
81 | 826 | ||||||
Net cash provided by operating activities |
8,291 | 17,012 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Capital expenditures |
(8,037 | ) | (5,196 | ) | ||||
Acquisition, net of cash acquired |
- | (4,500 | ) | |||||
Proceeds from the sale of property, plant and equipment |
131 | 124 | ||||||
Net cash used in investing activities |
(7,906 | ) | (9,572 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Proceeds from exercise of stock options |
97 | 74 | ||||||
Excess tax benefits from stock-based compensation |
6 | 33 | ||||||
Borrowings under revolving credit facilities |
139,250 | 99,424 | ||||||
Payments under revolving credit facilities |
(60,250 | ) | (99,424 | ) | ||||
Payments under long-term obligations |
(104,133 | ) | - | |||||
Principal payments under capital lease obligation |
(107 | ) | - | |||||
Repurchases of common stock |
- | (11,668 | ) | |||||
Common stock dividends paid |
(4,127 | ) | (4,107 | ) | ||||
Net cash used in financing activities |
(29,264 | ) | (15,668 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(28,879 | ) | (8,228 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
41,224 | 29,885 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 12,345 | $ | 21,657 | ||||
See Notes to Condensed Consolidated Financial Statements
5
WABASH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The condensed consolidated financial statements of Wabash National Corporation (the Company)
have been prepared without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. In management’s opinion, the accompanying
condensed consolidated financial statements contain all material adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated financial position of
the Company, its results of operations and cash flows. The condensed consolidated financial
statements included herein should be read in conjunction with the consolidated financial statements
and the notes thereto included in the Company’s 2007 Annual Report on Form 10-K.
2. NEW ACCOUNTING PRONOUNCEMENTS
Derivative Instruments and Hedging Activities. In March 2008, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement
No. 133. The statement requires enhanced disclosures for derivative and hedging activities,
including information that would enable financial statement users to understand how and why a
company uses derivative instruments, how derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and
how derivative instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. This statement is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008 and will be applicable to
the Company in the first quarter of 2009. As SFAS No. 161 only requires enhanced disclosures, the
Company does not anticipate that this standard will have a material impact on its financial
position, results of operations or cash flows.
Fair Value Measurements. In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. The Statement provides guidance for using fair value to measure assets and
liabilities and only applies when other standards require or permit the fair value measurement of
assets and liabilities. It does not expand the use of fair value measurement. In February 2008,
the FASB announced that it was deferring the effective date to fiscal years beginning after
November 15, 2008 for certain non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a recurring basis. For
these financial and non-financial assets and liabilities that are remeasured at least annually,
this statement was effective for fiscal years beginning after November 15, 2007. Derivative
instruments and hedging activities are carried at fair value. The adoption of SFAS No. 157 has not
and is not expected to have a material impact on the Company’s financial position, results of
operations or cash flows. See Note 6 for further discussion of fair value for derivative
instruments.
6
3. INVENTORIES
Inventories consisted of the following (in thousands):
| September 30, | December 31, | |||||||
| 2008 | 2007 | |||||||
Raw materials and components |
$ | 42,075 | $ | 29,666 | ||||
Work in progress |
5,801 | 1,023 | ||||||
Finished goods |
62,775 | 64,772 | ||||||
Aftermarket parts |
5,730 | 5,324 | ||||||
Used trailers |
16,460 | 12,340 | ||||||
| $ | 132,841 | $ | 113,125 | |||||
4. LONG-TERM BORROWINGS
The Company maintains a $200 million loan and security agreement (Revolving Facility) with its
lenders that matures March 6, 2012. The Revolving Facility is subject to a borrowing base and as
of September 30, 2008, borrowings outstanding on the Revolving Facility totaled $79.0 million.
On July 24, 2008, the Company entered into a three-year lease for a manufacturing facility
located in Cadiz, Kentucky. The lease includes a bargain purchase option. As of September 30,
2008, the present value of future minimum lease payments totaled $5.2 million with annual minimum
payments of $0.1 million, $0.6 million, $0.6 million and $4.6 million for the years ending 2008
through 2011, respectively, including interest of approximately $0.7 million. The assets related
to the manufacturing facility are recorded within Property, Plant and Equipment in the Condensed
Consolidated Balance Sheet for $5.3 million (net of less than $0.1 million of accumulated
depreciation).
During the third quarter of 2008, the Company purchased and retired the remaining $26.4
million in aggregate principal amount of the Company’s Senior Convertible Notes outstanding.
5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On September 26, 2008, the Company entered into a two-year interest rate swap
agreement (“Swap”) whereby the Company pays a fixed rate of 3.753% on $30 million of notional
principal to its counterparty, and the counterparty pays to the Company a variable rate on the same
notional amount based on the three-month London Interbank Offered Rate (“LIBOR”). The Company is
exposed to credit loss in the event of nonperformance by the counterparty. However, the Company
considers this risk to be low.
Under the provisions of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended and interpreted, the Company has designated the Swap as a cash flow
hedge in an effort to reduce its exposure to fluctuations in interest rates by converting a portion
of its variable rate borrowings to a fixed rate for a specific period of time. The changes in the
fair value of a derivative designated as a cash flow hedge are recorded in other comprehensive
income and are recognized in the statement of operations when the hedged item affects net income.
As of September 30, 2008, the Company estimates the fair value of the $30 million
notional Swap to be a liability of $0.2 million. The fair value of the Swap is estimated using
Level 3 inputs. The fair
7
value is an estimate of the net amount that the Company would be required to pay or would receive
on September 30, 2008, if the agreement was transferred to another party or cancelled by the
Company.
6. FAIR VALUE MEASUREMENTS
As discussed in Note 2, in September 2006, the FASB issued SFAS No. 157 which addresses
aspects of expanding the application of fair value accounting. Effective January 1, 2008, the
Company adopted SFAS No. 157. Pursuant to the provisions of FSP No. 157-2, the Company has
deferred the adoption of SFAS No. 157 for non-financial assets and liabilities that are recognized
or disclosed at fair value in the financial statements on a nonrecurring basis.
SFAS No. 157 establishes a three-level valuation hierarchy for fair value measurements. These
valuation techniques are based upon the transparency of inputs (observable and unobservable) to the
valuation of an asset or liability as of the measurement date. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect the Company’s market
assumptions. These two types of inputs create the following fair value hierarchy:
| • | Level 1 — Valuation is based on quoted prices for identical assets or liabilities in active markets; | ||
| • | Level 2 — Valuation is based on quoted prices for similar assets or liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for the full term of the financial instrument; and | ||
| • | Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair value measurement. |
The following table sets forth by level within the fair value hierarchy the Company’s
financial assets and liabilities that were accounted for at fair value on a recurring basis as of
September 30, 2008 (in thousands):
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Quoted Prices | ||||||||||||||||
| in Active | Significant | |||||||||||||||
| Markets for | Other | Significant | ||||||||||||||
| Identical Assets | Observable | Unobservable | ||||||||||||||
| Or Liabilities | Inputs | Inputs | Total | |||||||||||||
Assets |
||||||||||||||||
Interest rate derivatives |
$ | - | $ | - | $ | - | $ | - | ||||||||
Liabilities |
||||||||||||||||
Interest rate derivatives |
$ | - | $ | - | $ | 230 | $ | 230 | ||||||||
8
Financial instruments classified as Level 3 in the fair value hierarchy represent derivative
contracts in which management has used at least one significant unobservable input in the valuation
model. The following table presents a reconciliation of activity for such derivative contracts on
a net basis (in thousands):
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2008 | Septembr 30, 2008 | |||||||
Balance at beginning of period |
$ | - | $ | - | ||||
Total realized/unrealized (losses) or gains
included in other comprehensive income |
(230 | ) | (230 | ) | ||||
Purchases, sales, issuances, and settlements |
- | - | ||||||
Transfers in and (or) out of Level 3 |
- | - | ||||||
Balance at end of period |
$ | (230 | ) | $ | (230 | ) | ||
7. STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123(R), Share-Based Payment, using the modified prospective
method. This Statement requires that all share-based payments to employees, including grants of
employee stock options, be recognized in the financial statements based upon their fair value.
SFAS No. 123(R) requires the use of a valuation model to calculate the fair value of stock
option awards. The Company has valued new stock option awards granted using a binomial model,
which incorporates various assumptions including volatility, expected life, dividend yield and
risk-free interest rates. The expected life and volatility assumptions are based on the Company’s
historical experience as well as the terms and conditions of stock option awards it grants to
employees.
The Company’s policy is to recognize expense for awards subject to graded vesting using the
straight-line attribution method. The amount of after-tax compensation costs related to nonvested
stock options and restricted stock not yet recognized was $7.5 million at September 30, 2008, for
which the expense will be recognized through 2011.
8. CONTINGENCIES
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 currently pending or asserted will not have a material adverse
effect on the Company’s financial position, liquidity or results of operations.
Brazil Joint Venture. In March 2001, Bernard Krone Indústria e Comércio de Máquinas Agrícolas
Ltda. (“BK”) filed suit against the Company in the Fourth Civil Court of Curitiba in the State of
Paraná, Brazil. 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 Paraná (No. 232/99).
This case grows out of a proposed joint venture with BK and the Company related to marketing
of RoadRailerâ trailers in Brazil and other areas of South America. BK was placed
into the Brazilian equivalent of bankruptcy late in 2000. BK subsequently filed its lawsuit
against the Company alleging
9
that it was forced to terminate business with other companies because of exclusivity and
non-compete clauses related to the proposed joint venture. BK asserts damages of approximately
$8.4 million.
The Company answered the complaint in May 2001, denying any wrongdoing. The matter is set for
trial in December 2008. The Company believes that the claims asserted by BK are without merit and
will defend its position. The Company believes that the resolution of this lawsuit will not have a
material adverse effect on its financial position, liquidity or future results of operations;
however, at this stage of the proceeding no assurances can be given as to the ultimate outcome of
the case.
Intellectual Property. In October 2006, the Company filed a patent infringement suit against
Vanguard National Corporation (“Vanguard”) regarding U.S. Patent Nos. 6,986,546 and 6,220,651 in
the U.S. District Court for the Northern District of Indiana (Civil Action No. 4:06-cv-135); and
amended the Complaint in April 2007. In May 2007, Vanguard filed its Answer to the Amended
Complaint, along with Counterclaims seeking findings of non-infringement, invalidity, and
unenforceability of the subject patents. The Company filed a reply to Vanguard’s counterclaims in
May 2007, denying any wrongdoing or merit to the allegations as set forth in the counterclaims.
The Company believes that the claims asserted by Vanguard are without merit and will defend
its position. The Company believes that the resolution of this lawsuit will not have a material
adverse effect on its financial position, liquidity or future results of operations; however, at
this stage of the proceeding, no assurance can be given as to the ultimate outcome of the case.
Environmental Disputes. In September 2003, the Company was noticed as a potentially
responsible party (PRP) by the U.S. Environmental Protection Agency pertaining to the Motorola
52nd Street, Phoenix, Arizona Superfund Site pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act. PRPs include current and former owners and operators of
facilities at which hazardous substances were disposed. EPA’s allegation that the Company was a
PRP arises out of the operation of a former branch facility located approximately five miles from
the original site. The Company does not expect that these proceedings will have a material adverse
effect on the Company’s financial condition or results of operations.
In January 2006, the Company received a letter from the North Carolina Department of
Environment and Natural Resources indicating that a site that the Company formerly owned near
Charlotte, North Carolina has been included on the state’s October 2005 Inactive Hazardous Waste
Sites Priority List. The letter states that the Company was being notified in fulfillment of the
state’s “statutory duty” to notify those who own and those who at present are known to be
responsible for each Site on the Priority List. No action is being requested from the Company at
this time. The Company does not expect that this designation will have a material adverse effect
on its financial condition or results of operations.
9. NET INCOME PER SHARE
Per share results have been computed based on the average number of common shares outstanding.
The computation of basic and diluted net income per share is determined using net income as the
numerator and the number of shares included in the denominator as follows (in thousands, except per
share amounts):
10
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
Basic net (loss) income per share |
||||||||||||||||
Net (loss) income applicable to common stockholders |
$ | (4,330 | ) | $ | 3,778 | $ | (13,920 | ) | $ | 10,649 | ||||||
Weighted average common shares outstanding |
29,993 | 29,874 | 29,933 | 30,132 | ||||||||||||
Basic net (loss) income per share |
$ | (0.14 | ) | $ | 0.13 | $ | (0.47 | ) | $ | 0.35 | ||||||
Diluted net (loss) income per share |
||||||||||||||||
Net (loss) income applicable to common stockholders |
$ | (4,330 | ) | $ | 3,778 | $ | (13,920 | ) | $ | 10,649 | ||||||
After-tax equivalent of interest on convertible notes |
- | 741 | - | 2,222 | ||||||||||||
Diluted net (loss) income applicable to common stockholders |
$ | (4,330 | ) | $ | 4,519 | $ | (13,920 | ) | $ | 12,871 | ||||||
Weighted average common shares outstanding |
29,993 | 29,874 | 29,933 | 30,132 | ||||||||||||
Dilutive stock options/shares |
- | 234 | - | 255 | ||||||||||||
Convertible notes equivalent shares |
- | 6,692 | - | 6,675 | ||||||||||||
Diluted weighted average common shares outstanding |
29,993 | 36,800 | 29,933 | 37,062 | ||||||||||||
Diluted net (loss) income per share |
$ | (0.14 | ) | $ | 0.12 | $ | (0.47 | ) | $ | 0.35 | ||||||
Average diluted shares outstanding for the three and nine month periods ended September 30,
2008 exclude the antidilutive effects of the Company’s Convertible Notes. For the three and nine
month periods ended September 30, 2008, the after-tax equivalent of interest on Convertible Notes
was $0.1 million and $0.8 million, respectively, and the Convertible Notes equivalent shares were
0.5 million and 2.3 million, respectively. Diluted shares outstanding for the three and nine
month periods ended September 30, 2008 also exclude the antidilutive effects of potentially
dilutive stock options and restricted stock totaling approximately 125,000 and 107,000 shares of
common stock, respectively.
10. INCOME TAXES
The Company recognized an income tax benefit of $6.0 million in the first nine months of 2008
compared to an expense of $7.1 million in the prior year period. The effective tax rate for the
nine months of 2008 was 30.1% compared to 39.9% for the prior year period. For 2008, the effective
tax rate differs from the U.S. Federal statutory rate of 35% primarily due to a valuation allowance
provided for state income taxes and other permanent differences between book income and taxable
income.
The following table provides reconciliation of differences from the U.S. federal statutory
rate of 35% (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2008 | 2007 | |||||||
Pretax book income |
$ | (19,911 | ) | $ | 17,708 | |||
Federal tax expense at 35% statutory rate |
(6,969 | ) | 6,198 | |||||
State and local income taxes |
(724 | ) | 755 | |||||
Provision for (utilization of) valuation allowance for net
operating losses - U.S. and state |
786 | (86 | ) | |||||
Other |
916 | 192 | ||||||
Total income tax (benefit) expense |
$ | (5,991 | ) | $ | 7,059 | |||
11
11. PRODUCT WARRANTIES
The following table presents the changes in the product warranty accrual included in Other
Accrued Liabilities (in thousands):
| 2008 | 2007 | |||||||
Balance as of January 1 |
$ | 17,246 | $ | 14,978 | ||||
Provision for warranties issued in current year |
2,250 | 3,238 | ||||||
Additional provisions for pre-existing warranties |
635 | 2,133 | ||||||
Payments |
(3,320 | ) | (3,341 | ) | ||||
Balance as of September 30 |
$ | 16,811 | $ | 17,008 | ||||
The Company offers a limited warranty for its products. With respect to Company products
manufactured prior to 2005, the limited warranty coverage period is five years. Beginning in 2005,
the coverage period for DuraPlate® trailer panels was extended to ten years, with all
other products remaining at five years. The Company passes through component manufacturers’
warranties to our customers. The Company’s policy is to accrue the estimated cost of warranty
coverage at the time of the sale.
12. SEGMENTS
a. Segment Reporting
Under the provisions of SFAS No. 131, Disclosure 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 directly from the Company or through independent dealers. The
retail and distribution segment includes the sale of new and used trailers, as well as the sale of
after-market parts and service, through its retail branch network.
12
Reportable segment information is as follows (in thousands):
| Three Months Ended | Retail and | Consolidated | ||||||||||||||
| September 30, 2008 | Manufacturing | Distribution | Eliminations | Totals | ||||||||||||
Net sales |
||||||||||||||||
External customers |
$ | 199,838 | $ | 43,115 | $ | - | $ | 242,953 | ||||||||
Intersegment sales |
17,819 | - | (17,819 | ) | $ | - | ||||||||||
Total net sales |
$ | 217,657 | $ | 43,115 | $ | (17,819 | ) | $ | 242,953 | |||||||
(Loss) Income from operations |
$ | (3,221 | ) | $ | (1,381 | ) | $ | 110 | $ | (4,492 | ) | |||||
Assets |
$ | 582,014 | $ | 131,377 | $ | (230,500 | ) | $ | 482,891 | |||||||
Three Months Ended September 30, 2007 |
||||||||||||||||
Net sales |
||||||||||||||||
External customers |
$ | 256,847 | $ | 34,170 | $ | - | $ | 291,017 | ||||||||
Intersegment sales |
13,207 | 544 | (13,751 | ) | $ | - | ||||||||||
Total net sales |
$ | 270,054 | $ | 34,714 | $ | (13,751 | ) | $ | 291,017 | |||||||
Income (Loss) from operations |
$ | 8,165 | $ | (699 | ) | $ | 38 | $ | 7,504 | |||||||
Assets |
$ | 654,252 | $ | 125,924 | $ | (236,574 | ) | $ | 543,602 | |||||||
Nine Months Ended September 30, 2008 |
||||||||||||||||
Net sales |
||||||||||||||||
External customers |
$ | 493,201 | $ | 112,297 | $ | - | $ | 605,498 | ||||||||
Intersegment sales |
42,837 | 32 | (42,869 | ) | $ | - | ||||||||||
Total net sales |
$ | 536,038 | $ | 112,329 | $ | (42,869 | ) | $ | 605,498 | |||||||
(Loss) Income from operations |
$ | (14,613 | ) | $ | (2,767 | ) | $ | 841 | $ | (16,539 | ) | |||||
Assets |
$ | 582,014 | $ | 131,377 | $ | (230,500 | ) | $ | 482,891 | |||||||
| Nine Months Ended September 30, 2007 |
||||||||||||||||
Net sales |
||||||||||||||||
External customers |
$ | 727,695 | $ | 117,025 | $ | - | $ | 844,720 | ||||||||
Intersegment sales |
49,516 | 544 | (50,060 | ) | $ | - | ||||||||||
Total net sales |
$ | 777,211 | $ | 117,569 | $ | (50,060 | ) | $ | 844,720 | |||||||
Income (Loss) from operations |
$ | 24,212 | $ | (1,337 | ) | $ | (626 | ) | $ | 22,249 | ||||||
Assets |
$ | 654,252 | $ | 125,924 | $ | (236,574 | ) | $ | 543,602 | |||||||
b. Product Information
The Company offers products primarily in three general categories: new trailers, used trailers
and parts and service. Other sales include leasing and freight revenue. The following table sets
forth the major product categories and their percentage of consolidated net sales (dollars in
thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||
New trailers |
215,978 | 88.9 | 265,020 | 91.1 | 530,213 | 87.6 | 763,489 | 90.4 | ||||||||||||||||||||||||
Used trailers |
11,097 | 4.6 | 8,098 | 2.8 | 29,560 | 4.9 | 29,763 | 3.5 | ||||||||||||||||||||||||
Parts and service |
13,804 | 5.7 | 14,811 | 5.1 | 41,330 | 6.8 | 43,500 | 5.2 | ||||||||||||||||||||||||
Other |
2,074 | 0.8 | 3,088 | 1.0 | 4,395 | 0.7 | 7,968 | 0.9 | ||||||||||||||||||||||||
Total net sales |
242,953 | 100.0 | 291,017 | 100.0 | 605,498 | 100.0 | 844,720 | 100.0 | ||||||||||||||||||||||||
13
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. Additional written or oral forward-looking
statements may be made by Wabash National Corporation (the Company) from time to time in filings
with the Securities and Exchange Commission or otherwise. The words “believe,” “expect,”
“anticipate,” “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 our business plan, our expected revenues, income or loss, capital
expenditures, acquisitions, divestitures, contingencies, financing and refinancing needs or plans,
liquidity, plans for future operations, commodity pricing and our ability to obtain commodities,
the impact of inflation and plans relating to services of the Company, as well as assumptions
related 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 forward-looking
statements. Statements in this report, including those set forth in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” describe factors, among others, that
could contribute to or cause such differences.
Although we believe that our expectations expressed in these forward-looking statements are
reasonable, we cannot ensure that our expectations will turn out to be correct. Our actual results
could be materially different from and worse than our expectations. Important risks and factors
that could cause our actual results to be materially different from our expectations include the
factors that are disclosed under the heading “Risk Factors” in our Form 10-K for the year ended
December 31, 2007 and elsewhere herein, including, but not limited to, Item 1A of Part II hereof.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of net sales for the
periods indicated:
14
| Percentage of Net Sales | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales |
96.3 | 91.5 | 95.8 | 91.4 | ||||||||||||
Gross profit |
3.7 | 8.5 | 4.2 | 8.6 | ||||||||||||
General and administrative expenses |
4.1 | 4.5 | 5.3 | 4.5 | ||||||||||||
Selling expenses |
1.4 | 1.4 | 1.6 | 1.5 | ||||||||||||
(Loss) Income from operations |
(1.8 | ) | 2.6 | (2.7 | ) | 2.6 | ||||||||||
Interest expense |
(0.5 | ) | (0.5 | ) | (0.6 | ) | (0.5 | ) | ||||||||
Foreign exchange, net |
- | - | - | 0.1 | ||||||||||||
Other, net |
- | - | - | (0.1 | ) | |||||||||||
(Loss) Income before income taxes |
(2.3 | ) | 2.1 | (3.3 | ) | 2.1 | ||||||||||
Income tax (benefit) expense |
(0.5 | ) | 0.8 | (1.0 | ) | 0.8 | ||||||||||
Net (loss) income |
(1.8) | % | 1.3 | % | (2.3 | )% | 1.3 | % | ||||||||
For the three and nine month periods ended September 30, 2008, we recorded net sales of $243.0
million and $605.5 million, respectively, compared to $291.0 million and $844.7 million in the
prior year periods. Despite an increase in average selling prices, net sales declined year over
year for the nine month period ended September 30, 2008 due to an 11,600, or 32.6%, decline in
trailer volumes compared to the prior year period resulting from continued weak market demand which
is a product of the current macroeconomic environment and the continuing recessionary conditions in
the transportation industry. Gross profit margin as a percentage of sales declined to 3.7% in the
third quarter of 2008 compared to 8.5% in the third quarter of 2007. Gross profit was negatively
impacted by reduced volumes and increased material costs. Loss from operations in the three and
nine month periods ended September 30, 2008, was $4.5 million and $16.5 million, respectively,
compared to income of $7.5 million and $22.2 million for the same periods in 2007. Operating
income was favorably impacted for the three and nine month periods of 2008 due to a decrease in
selling, general and administrative costs compared to the 2007 periods resulting from reductions in
professional services, salaries and other employee related expenses.
As a recognized industry leader, we continue to focus on product innovation, lean
manufacturing, strategic sourcing and workforce rationalization in order to strengthen our industry
position and improve operating results.
Three Months Ended September 30, 2008
Net Sales
Net sales decreased $48.0 million, or 16.5%, compared to the third quarter of 2007. By
business segment, net external sales and related units sold were as follows (dollars in millions):
15
| Three Months Ended September 30, | ||||||||||||
| 2008 | 2007 | % Change | ||||||||||
Sales by segment |
||||||||||||
Manufacturing |
$ | 199.9 | $ | 256.8 | (22.2 | ) | ||||||
Retail and distribution |
43.1 | 34.2 | 26.0 | |||||||||
Total |
$ | 243.0 | $ | 291.0 | (16.5 | ) | ||||||
| (units) |
||||||||||||
New trailer units |
||||||||||||
Manufacturing |
8,800 | 11,500 | (23.5 | ) | ||||||||
Retail and distribution |
900 | 600 | 50.0 | |||||||||
Total |
9,700 | 12,100 | (19.8 | ) | ||||||||
Used trailer units |
2,200 | 1,000 | 120.0 | |||||||||
Manufacturing segment sales were $199.9 million in the third quarter of 2008, down $56.9
million, or 22.2%, compared to the third quarter of 2007. Due to continued weak market demand, new
trailer sales decreased approximately 2,700 units, or $58.1 million. The decrease in sales volume
in the third quarter of 2008 was only partially offset by higher average selling prices totaling
$1.6 million as continued efforts to offset increased material prices were muted by shipping a
higher percentage of lower priced pup trailers in 2008 as compared to the same period in 2007.
Retail and distribution segment sales were $43.1 million in the third quarter of 2008, up
$8.9 million, or 26.0% compared to the prior year third quarter. New trailer sales increased
$7.5 million due to higher volumes, increased average selling prices and favorable product mix.
Used trailer sales were up $3.0 million, or 37.0%, due to higher volumes offset by lower average
selling prices as depressed market conditions for used trailers have driven values down. Parts and
service sales were down $1.5 million in the third quarter of 2008 compared to the prior year period
due to continued weak market demand.
Gross Profit
Gross profit was $9.0 million in the third quarter of 2008, down $15.6 million, or 63.4%, from
the prior year period. Gross profit as a percent of sales was 3.7% for the quarter compared to 8.5%
for the same period in 2007. Gross profit by segment was as follows (in millions):
| Three Months Ended September 30, | ||||||||||||
| 2008 | 2007 | % Change | ||||||||||
Gross profit by segment |
||||||||||||
Manufacturing |
$ | 7.4 | $ | 21.9 | (66.2 | ) | ||||||
Retail and distribution |
1.5 | 2.7 | (44.4 | ) | ||||||||
Eliminations |
0.1 | - | ||||||||||
Total gross profit |
$ | 9.0 | $ | 24.6 | (63.4 | ) | ||||||
Manufacturing segment gross profit in the third quarter of 2008 was $7.4 million, a decrease
of $14.5 million, or 66.2%, compared to the third quarter of 2007. Gross profit as a percentage of
sales was 3.7% compared to 8.5% for the prior year period. The decrease in gross profit and gross
profit percentage
16
was primarily driven by the 23.5% decline in new trailer volumes and increases in
raw material costs which outpaced selling price increases.
Retail and distribution segment gross profit in the third quarter of 2008 was $1.5 million, a
decrease of $1.2 million, or 44.4%, compared to the 2007 period. Gross profit as a percentage of
sales was 3.5% compared to 7.9% for the prior year period due to decreased parts and service volume
coupled with continued pricing pressures for new trailer sales and depressed valuations for used
trailers.
General and Administrative Expenses
General and administrative expenses decreased $3.1 million to $10.1 million in the third
quarter of 2008 compared to the prior year period primarily due to reductions in professional
services, employee related costs and bad debt expense.
Selling Expenses
Selling expenses decreased $0.5 million to $3.4 million in the third quarter of 2008 compared
to the prior year period primarily due to decreases in employee related costs.
Income Taxes
An income tax benefit of $1.3 million was recognized for the three months ending September 30,
2008, compared to an expense of $2.3 million in the prior year period. The effective tax rate for
the third quarter of 2008 was 22.9% compared to 37.7% for the third quarter of 2007. For the third
quarter of 2008, the effective tax rate differs from the U.S. Federal statutory rate of 35%
primarily due to a valuation allowance provided for state income taxes and other permanent
differences between book income and taxable income.
Nine Months Ended September 30, 2008
Net Sales
Net sales for the first nine months were $605.5, a decrease of $239.2 million, or 28.3%,
compared to the 2007 period. By business segment, net external sales and related units sold were
as follows (dollars in millions):
17
| Nine Months Ended September 30, | ||||||||||||
| 2008 | 2007 | % Change | ||||||||||
Sales by segment |
||||||||||||
Manufacturing |
$ | 493.2 | $ | 727.7 | (32.2 | ) | ||||||
Retail and distribution |
112.3 | 117.0 | (4.0 | ) | ||||||||
Total |
$ | 605.5 | $ | 844.7 | (28.3 | ) | ||||||
| (units) | ||||||||||||
New trailer units |
||||||||||||
Manufacturing |
22,000 | 33,300 | (33.9 | ) | ||||||||
Retail and distribution |
2,000 | 2,300 | (13.0 | ) | ||||||||
Total |
24,000 | 35,600 | (32.6 | ) | ||||||||
Used trailer units |
5,300 | 3,600 | 47.2 | |||||||||
Manufacturing segment sales were $493.2 million for the first nine months of 2008, a decrease
of $234.5 million, or 32.2%, compared to the prior year period. The decrease was attributable to
lower trailer volumes of 11,300 units which had an impact of $240.2 million. The volume decline
was due to weak market demand. This decrease in sales volume for the first nine months of 2008 was
partially offset by higher average selling prices totaling $8.9 million due to efforts made to
offset material price increases and product mix.
Retail and distribution segment sales were $112.3 million for the first nine months of 2008,
down $4.7 million, or 4.0%, compared to the prior year period. This decrease was primarily the
result of lower new trailer volumes from weak demand and lower selling prices for used trailers
resulting from depressed market conditions and unfavorable product mix in the current year period
due to the model age and condition of used trailers sold. Parts and service sales in the first
nine months of 2008 were down $2.5 million, or 7.9%, compared to the prior year period due to weak
market demand.
Gross Profit
Gross profit for the first nine months of 2008 was $25.7 million, down $46.9 million, or
64.6%, compared to the first nine months of 2007. Gross profit as a percent of sales was 4.2%
compared to 8.6% for the same period in 2007. Gross profit by segment was as follows (in
millions):
| Nine Months Ended September 30, | ||||||||||||
| 2008 | 2007 | % Change | ||||||||||
Gross profit by segment |
||||||||||||
Manufacturing |
$ | 18.9 | $ | 65.0 | (70.9 | ) | ||||||
Retail and distribution |
5.9 | 8.3 | (28.9 | ) | ||||||||
Eliminations |
0.9 | (0.7 | ) | |||||||||
Total gross profit |
$ | 25.7 | $ | 72.6 | (64.6 | ) | ||||||
Manufacturing segment gross profit was $18.9 million for the first nine months of 2008, a
decrease of $46.1 million, or 70.9%, compared to the prior year period. Gross profit as a
percentage of sales was 3.8% compared to 8.9% for the first nine months of 2007. The decrease in
gross profit and
18
gross profit margin percentage was primarily driven by the 33.9% decline in new
trailer volumes and continued increases in raw material costs which outpaced increases in selling
prices.
Retail and distribution segment gross profit for the first nine months of 2008 was $5.9
million, a decrease of $2.4 million, or 28.9%, compared to the prior year period. Gross profit as
a percentage of sales was 5.3% compared to 7.1% in the prior year period due to product mix,
pricing pressures on new and used trailers and reduced parts and service volumes.
General and Administrative Expenses
General and administrative expenses decreased $6.3 million to $32.0 million in the first nine
months of 2008 compared to the prior year period primarily due to lower professional services,
salaries and employee related costs.
Selling Expenses
Selling expenses decreased $1.8 million to $10.2 million in the first nine months of 2008
compared to the prior year period primarily due to decreases in salaries, employee related costs,
advertising and promotional activities.
Income Taxes
An income tax benefit of $6.0 million was recognized for the nine months ending September 30,
2008 compared to an expense of $7.1 million in the prior year period. The effective tax rate for
the first nine months of 2008 was 30.1% compared to 39.9% for the prior year period. For 2008, the
effective tax rate differs from the U.S. Federal statutory rate of 35% primarily due to a valuation
allowance provided for state income taxes and other permanent differences between book income and
taxable income.
Liquidity and Capital Resources
Capital Structure
Our capital structure is comprised of a mix of equity and debt. As of September 30, 2008, our
debt to equity ratio was approximately 0.3:1.0. Our objective is to generate operating cash flows
sufficient to fund normal working capital requirements, capital expenditures, pay dividends and
take advantage of market opportunities.
Debt Facilities
We maintain a $200 million loan and security agreement (“Revolving Facility”) with our lenders
that matures March 6, 2012. The Revolving Facility is subject to a borrowing base and as of
September 30, 2008, borrowings outstanding on the Revolving Facility totaled $79.0 million.
On July 24, 2008, we entered into a three year lease for a manufacturing facility located in
Cadiz, Kentucky. The lease includes a bargain purchase option. As of September 30, 2008, the
present value of future minimum lease payments totaled $5.2 million with annual minimum payments of
$0.1 million, $0.6 million, $0.6 million and $4.6 million for the years ending 2008 through 2011,
respectively, including interest of approximately $0.7 million. The assets related to the
manufacturing facility are recorded within Property, Plant and Equipment in the Condensed
Consolidated Balance Sheet for $5.3 million (net of less than $0.1 million of accumulated
depreciation).
19
During the third quarter of 2008, we purchased and retired the remaining $26.4 million in
aggregate principal amount of our Senior Convertible Notes outstanding.
Cash Flow
Cash provided by operating activities for the nine-month period ended September 30, 2008
amounted to $8.3 million compared to $17.0 million in the same period in 2007. The change was
primarily a result of a $27.0 million improvement in working capital offset by a $35.7 million
reduction in net income, adjusted for non-cash items. The following is a discussion of factors
impacting certain working capital items in the nine-month period ended September 30, 2008 compared
to the comparable prior year period:
| - | Accounts receivable increased $7.1 million during 2008 compared to a decrease of $10.1 million in 2007. The increase for 2008 is due to the timing of shipments and higher sales volumes recorded during the latter portion of the period. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, improved to approximately 29 days in 2008 compared to 32 days in 2007. | ||
| - | Inventory increased $19.7 million during 2008 compared to an increase of $21.2 million in 2007. Inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately six times in 2008 compared to seven times in 2007 due to weaker market conditions. | ||
| - | Accounts payable and accrued liabilities increased $33.7 million in 2008 compared to a decrease of $10.0 million in 2007. The increase was primarily due to higher raw material levels and improved vendor management. |
Investing activities used $7.9 million for the nine-month period ending September 30, 2008
compared to $9.6 million used in the comparable prior year period. The 2008 period includes $2.8
million used to acquire certain equipment from Benson International, LLC, a manufacturer of
aluminum
flatbeds, dump trailers and other truck bodies. The 2007 period included an additional $4.5
million purchase price payment based on Transcraft’s achievement of 2006 performance targets.
Financing activities used $29.3 million during the first nine months of 2008 as borrowings
under the Revolving Facility were used to purchase and retire $104.1 million of Convertible Notes.
As of September 30, 2008, our liquidity position, defined as cash on hand and available
borrowing capacity, amounted to approximately $113.2 million and total debt and lease obligations
amounted to approximately $87.8 million, including $5.2 million and $3.6 million of capital and
operating leases, respectively. We expect that in 2008, we will be able to generate sufficient
cash flow from operations and available borrowings under the Revolving Facility to fund our
anticipated working capital, capital expenditures and quarterly dividend payments.
Capital Expenditures
Capital spending amounted to $8.0 million for the first nine months of 2008 and is anticipated
to be approximately $11.0 million for 2008, including $2.8 million for the assets purchased on July
24, 2008 from Benson International, LLC. The majority of our capital spending for 2008 will be
related to improvements to our Lafayette facilities intended to streamline production flow and
enhance manufacturing efficiency. In addition, in February 2008, we announced the construction of
a new $25
20
million manufacturing facility in Franklin, Kentucky. Construction of the new facility
will not commence until leading market indicators dictate.
Off-Balance Sheet Transactions
As of September 30, 2008, we had approximately $3.6 million in operating lease commitments.
We did not enter into any material off-balance sheet debt or operating lease transactions during
the quarter.
Contractual Obligations and Commercial Commitments
We have included a summary of our Contractual Obligations and Commercial Commitments in our
annual report on Form 10-K, for the year ended December 31, 2007. With the exception of the
changes to our outstanding debt and capital lease obligations as discussed in Note 4 of the
Condensed Consolidated Financial Statements, there have been no material changes to the summary
provided in that report.
Backlog
Orders that have been confirmed by customers in writing and can be produced during the next 18
months are included in backlog. Orders that comprise the backlog may be subject to changes in
quantities, delivery, specifications and terms. Our backlog of orders was approximately $283
million at September 30, 2008 compared to $336 million at December 31, 2007. We expect to complete
the majority of our existing backlog orders within the next 12 months.
OUTLOOK
According to the most recent A.C.T. Research Co., LLC (ACT) estimates, total trailer industry
shipments for 2008 are expected to be down 34% from 2007 to approximately 144,000 units. The
decrease in the demand for trailers reflects the weakness of truck freight, which has trended down
since the latter part of 2006 as a result of general economic conditions and, more particularly,
declines in new
home construction and automotive manufacturing. ACT estimates that sales in 2009 will drop 4%
to approximately 138,000 units. The most significant concern in 2008 remains the global economy,
especially credit markets, high fuel prices and commodity costs, as well as housing and
construction-related markets in the United States. Management’s expectation is that the trailer
industry will continue to be soft in the last quarter of 2008 and in 2009, recovering in 2010.
Despite the overall weakness in our industry, we believe we are in a strong position relative
to our competitors because: (1) our core customers are among the dominant participants in the
trucking industry; (2) our DuraPlate® trailer continues to have increased market
acceptance; and (3) our focus is on developing solutions that reduce our customers’ total cost of
ownership.
Pricing will remain difficult in 2008 and 2009 due to weak demand and fierce competitive
activity. Raw material and component costs are expected to be volatile. For the remainder of 2008
raw material and component costs are expected to trend upward based on contractual commitments and
then become more moderate beginning in 2009. As has been our policy, we will endeavor to pass
along raw material and component price increases to our customers. However, we expect that the
imbalance between commodity costs and selling prices and the constrained demand for trailers
resulting from a weak freight environment and excess capacity will impact near-term profitability.
21
We continue to focus on developing innovative new products that both add value to our
customers’ operations and allow us to continue to differentiate our products from the competition
to increase profitability. Longer term, we are implementing our strategic plan that includes
increased focus on expanding sales of our DuraPlate® products, implementing strategic
purchasing solutions and improving our manufacturing footprint.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have included a summary of our Critical Accounting Policies and Estimates in our annual
report on Form 10-K, for the year ended December 31, 2007. There have been no material changes to
the summary provided in that report.
NEW ACCOUNTING PRONOUNCEMENTS
Derivative Instruments and Hedging Activities. In March 2008, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement
No. 133. The statement requires enhanced disclosures for derivative and hedging activities,
including information that would enable financial statement users to understand how and why a
company uses derivative instruments, how derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
and how derivative instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. This statement is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008 and will be applicable to
our financial statements beginning in the first quarter of 2009. As SFAS No. 161 only requires
enhanced disclosures, we do not anticipate that this standard will have a material impact on our
financial position, results of operations or cash flows.
Fair Value Measurements. In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. The Statement provides guidance for using fair value to measure assets and
liabilities and only applies when other standards require or permit the fair value measurement of
assets and liabilities. It does not expand the use of fair value measurement. In February 2008,
the FASB announced that it was deferring the effective date to fiscal years beginning after
November 15, 2008 for
certain non-financial assets and non-financial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a recurring basis. For these financial
and non-financial assets and liabilities that are remeasured at least annually, this statement
was effective for fiscal years beginning after November 15, 2007. Derivative instruments and
hedging activities are carried at fair value. The adoption of SFAS No. 157 has not and is not
expected to have a material impact on our financial position, results of operations or cash
flows. See Note 6 of our Notes to Condensed Consolidated Financial Statements for further
discussion of fair value for derivative instruments.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
In addition to the risks inherent in our operations, we have exposure to financial and market
risk resulting from volatility in commodity prices and interest rates. The following discussion
provides additional detail regarding our exposure to these risks.
Commodity Prices
We are exposed to fluctuations in commodity prices through the purchase of raw materials that
are processed from commodities such as aluminum, steel, wood and polyethylene. Given the
historical
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volatility of certain commodity prices, this exposure can materially impact product
costs. Historically, we have managed aluminum price changes by entering into fixed price contracts
with our suppliers. As of September 30, 2008, we had $27.7 million in raw material purchase
commitments through September 2009 for materials that will be used in the production process. We
typically do not set prices for our products more than 45-90 days in advance of our commodity
purchases and can, subject to competitive market conditions, take into account the cost of the
commodity in setting our prices for each order. To the extent that we are unable to offset the
increased commodity costs in product prices, results would be adversely, and possibly materially,
affected.
Interest Rates
On September 26, 2008, we entered into an interest rate swap agreement that fixed a portion of
our underlying variable rate borrowings under our Revolving Facility at 3.753% compared to the
variable rate of the three-month LIBOR plus the applicable margin set forth within the Revolving
Facility. The notional amount of the interest rate swap agreement totaled $30.0 million and expires
on September 26, 2010. Based on amounts outstanding at September 30, 2008, (after taking into
account the effect of the interest rate swap agreement) if the interest rate on our variable rate
debt were to change by a hypothetical 100 basis-points, the interest expense over a one-year period
would change by approximately $0.5 million. This sensitivity analysis does not account for the
change in the competitive environment indirectly related to the change in interest rates and the
potential managerial action taken in response to these changes.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s
management, the Company’s principal executive officer and principal financial officer have
concluded that the Company’s disclosure controls and procedures (as defined in Rules 14a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) were effective as
of September 30, 2008.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting, as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the third quarter of fiscal 2008
that have materially affected or are reasonably likely to materially affect the Company’s internal
control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1A. RISK FACTORS
You should carefully consider the risks described in our Annual Report on Form 10-K, for the
year ended December 31, 2007, including those under the heading “Risk Factors” appearing in Item
1A of Part I of the Form 10-K and other information contained in this Quarterly Report before
investing in our securities. Realization of any of these risks could have a material adverse
effect on our business, financial condition, cash flows and results of operations.
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| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The Company’s stock repurchase program (Repurchase Program) that allowed for the repurchase
of common stock up to $50 million expired September 15, 2008 with $25.8 million remaining
available under the program. During the third quarter of 2008, no stock repurchases under the
Repurchase Program were made.
During the third quarter of 2008, we purchased and retired the remaining $26.4 million of
our Convertible Notes. In addition, 206 shares were surrendered or withheld to cover withholding
tax obligations upon vesting of restricted stock awards.
ITEM 6. EXHIBITS
| (a) | Exhibits: |
| 31.01 | Certification of Principal Executive Officer |
|||||
| 31.02 | Certification of Principal Financial Officer | |||||
| 32.01 | Written Statement of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| WABASH NATIONAL CORPORATION | ||||||
Date: October 30, 2008
|
By: | /s/ Robert J. Smith
|
||||
| Senior Vice President and Chief Financial Officer | ||||||
| (Principal Financial Officer) |
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