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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 3
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ________
COMMISSION FILE NUMBER: 1-10883
WABASH NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1375208
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
[WABASH NATIONAL LOGO]
1000 SAGAMORE PARKWAY SOUTH, 47905
LAFAYETTE, INDIANA (ZIP CODE)
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (765) 771-5300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------- -----------------------
Common Stock, $.01 Par Value New York Stock Exchange
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. Yes [X] 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant as of June 30, 2003 was $230,188,920 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 as of
February 6, 2004 was 26,914,517.
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EXPLANATORY NOTE
This is Amendment No. 3 to the Registrant's annual report on Form 10-K for the
year ended December 31, 2003. This filing amends and restates the Form 10-K,
including Amendments No. 1 and 2, changes footnotes 5 and 20 of the Registrant's
financial statements, changes the liquidity and capital resources subsection
of the Management's Discussion and Analysis of Financial Condition and Results
of Operations section and makes minor clerical changes in Part III of the
report. In all other respects, the Form 10-K filed February 12, 2004 remains
unchanged. This Amendment No. 3 continues to speak as of the date of the
original filing of the Form 10-K, and the Registrant has not updated the
disclosure contained herein to reflect any events that occurred at a later date.
TABLE OF CONTENTS
WABASH NATIONAL CORPORATION
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2003
AMENDMENT NO. 3
PAGES
-----
PART I
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 9
Item 3 Legal Proceedings................................................................ 10
Item 4 Submission of Matters to a Vote of Security Holders.............................. 11
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters............ 11
Item 6 Selected Financial Data.......................................................... 12
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 13
Item 7A Quantitative and Qualitative Disclosures about Market Risk....................... 25
Item 7B Risk Factors..................................................................... 26
Item 8 Financial Statements and Supplementary Data...................................... 31
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 60
Item 9A Controls and Procedures.......................................................... 60
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 62
Item 11 Executive Compensation........................................................... 65
Item 12 Security Ownership of Certain Beneficial Owners and Management .................. 69
Item 13 Certain Relationships and Related Transactions................................... 72
Item 14 Principal Accountant Fees and Services........................................... 73
PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 74
SIGNATURE .................................................................................. 76
2
FORWARD LOOKING STATEMENTS
This Report, including documents incorporated by reference, contains
and incorporates by reference "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934 (the "Exchange Act"). Forward-looking statements may include the words
"may," "will," "estimate," "intend," "continue," "believe," "expect," "plan" or
"anticipate" and other similar words. Our "forwarding-looking statements"
include, but are not limited to, statements regarding:
- our business plan;
- our expected revenues, income or loss and capital
expenditures;
- plans for future operations;
- financing needs, plans and liquidity;
- our ability to achieve sustained profitability;
- reliance on certain customers and corporate partnerships;
- shortages of raw materials, availability of capital;
- dependence on industry trends;
- the outcome of any pending litigation;
- export sales and new markets;
- acceptance of new technology and products; and
- government regulation, as well as assumptions relating to the
foregoing.
Although we believe that the expectations expressed in our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in our forward-looking statements.
Our future financial condition and results of operations, as well as any
forward-looking statements, are subject to change and are subject to inherent
risks and uncertainties, such as those disclosed in this Report. Each
forward-looking statement contained in this Report reflects our management's
view only as of the date on which that forward-looking statement was made. We
are not obligated to update forward-looking statements or publicly release the
result of any revisions to them to reflect events or circumstances after the
date of this report or to reflect the occurrence of unanticipated events.
Currently known risk factors that could cause actual results to differ
materially from our expectations are described in the section of this Report
entitled "Risk Factors." We urge you to carefully review that section for a more
complete discussion of the risks of an investment in the notes and our common
stock.
PART I
ITEM 1--BUSINESS
Wabash National Corporation ("Wabash," "Company," "us," "we" or "our")
is one of North America's leaders in designing, manufacturing and marketing
standard and customized truck trailers and related transportation equipment.
Founded in 1985 as a start-up, we grew to over $1.4 billion in sales in 1999,
and had approximately $900 million in sales in 2003. We believe our success has
been the result of our longstanding relationships with our core customers,
innovative product development, broad product line, large distribution and
service network and corporate culture. Our management team is focused on
becoming the low-cost producer in the truck trailer industry through continuous
improvement and lean manufacturing initiatives.
We seek to identify and produce proprietary products that offer added
value to customers with the potential to generate higher profit margins than
those of standardized products. We believe that we have the engineering and
manufacturing capability to produce these products efficiently. Our proprietary
DuraPlate(R) composite truck trailer,
3
which we introduced in 1996, has achieved widespread acceptance by our
customers. In 2003 and 2002, sales of our DuraPlate(R) trailers represented
approximately 80% of our total trailers shipped. We are also a competitive
producer of standardized products, and are seeking to become a low-cost producer
within our industry. We expect to continue a program of product development and
selective acquisitions of quality proprietary products that further
differentiate us from our competitors and increase profit opportunities.
We market our transportation equipment under the Wabash(R),
FreightPro(R), Articlite(R), RoadRailer(R) and DuraPlate(R) trademarks directly
to customers, through independent dealers and through our factory-owned retail
branch network. Our factory-direct marketing effort focuses on our longstanding
core customers that represent many of the largest companies in the trucking
industry, including Schneider National, Inc., J.B. Hunt Transport Services,
Inc., Swift Transportation Corporation, Werner Enterprises, Inc., U.S. Xpress
Enterprises, Inc., Heartland Express, Inc., Safeway, Inc. and Yellow Roadway,
Inc. Our relationship with our core customers has been central to our growth
since inception. Our factory-owned retail branch network, which we acquired in
1997, provides additional opportunities to distribute our products and also
offers national service and support capabilities for our customers. The retail
sale of new and used trailers, aftermarket parts and maintenance service through
our retail branch network generally provides enhanced margin opportunities.
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 18, 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. The Company makes its electronic filings with the SEC,
including its annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to these reports, available on its
website free of charge as soon as practicable after it files or furnishes them
with the SEC. Information on the website is not part of this Form 10-K.
TURNAROUND INITIATIVES
A three-year industry downturn from 2000 through 2002, and its effects
on our results, led us to implement a comprehensive plan to scale our operations
to meet reduced demand, reduce our cost structure, and take aggressive actions
to position us for the future. Among other things we have taken the following
steps:
- changed senior management;
- rationalized our manufacturing capacity through the closure of
two facilities that manufactured flatbed, van and dump
trailers;
- reduced our cost structure through continuous improvement
initiatives;
- reduced used trailer inventories from approximately $110
million, or 11,500 units, as of September 30, 2000, to less
than $12 million, or 2,200 units as of December 31, 2003;
- significantly reduced our exposure to used trailer trade-in
commitments;
- divested our European operations;
- instituted a program of rationalizing our retail distribution
channels by closing 12 retail locations;
- reduced total debt from $460 million, including $48 million of
off balance sheet debt, at December 31, 2001, to $239 million,
including $12 million of off balance sheet debt, at December
31, 2003;
- refinanced our debt through the sale of $125 million of 3.25%
senior unsecured convertible notes and a three-year $222
million bank facility;
- sold certain assets of our rental and leasing business,
wholesale aftermarket parts business and a large portion of
our finance portfolio;
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- converted our outstanding preferred stock with a redemption
value of $17.6 million into approximately 823,000 shares of
common stock; and
- improved our working capital management.
After two years of demand well below replacement levels, the industry
showed improvement during 2003. Market and industry analysts are forecasting
that improvements should continue into 2004.
STRATEGY
We are committed to an operating strategy that seeks to deliver
profitability throughout industry cycles. We intend to achieve our goals by
executing on the core elements of our strategic plans:
- continue our transition from an organization focused on
revenue growth to one focused on earnings and cash flow;
- continue to provide differentiated products that generate
enhanced profit margins;
- continue to reduce our cost structure by adhering to
continuous improvement and lean manufacturing initiatives;
- continue to focus on our longstanding customer partnerships
and create new revenue opportunities by offering tailored
transportation solutions; and
- reduce debt to enhance financial flexibility and enable us to
capitalize on future market opportunities.
INDUSTRY
Trucking in the United States, according to the American Trucking
Association, was estimated to be a $605 billion industry in 2002 (the latest
date such information is available), leading all other modes of transportation.
They estimate that approximately 69% of all freight tonnage is carried by truck
at some point during its shipment, accounting for approximately 87% of freight
industry revenues. Trailer demand is a direct function of the amount of freight
to be transported. As the economy improves, it is forecasted that truck carriers
will need to expand their fleets, which typically results in increased trailer
orders. According to ACT Research Company, LLC (ACT), there are approximately
2.8 million trailers in use today and the trailer replacement demand is
estimated at between 180,000 and 200,000 trailers per year.
In general, the trucking industry grew throughout the 1990's and peaked
in 1999. A number of factors, including an economic downturn, fluctuations in
fuel prices, declining asset values, limited capital, record trucking company
failures and industry consolidation led to a historic reduction of 54% in
trailer purchases from 1999 to 2002. In early 2003, the trailer industry started
seeing signs of gradual improvement. From a net order standpoint, each month in
2003 saw an improvement over the same month in 2002. As an indicator of future
production, the year ended with November and December being two of the highest
net order months in nearly three years for the industry. 2003 ended with
approximately 183,000 units built by the industry, a 30% improvement over 2002.
The truckload market continues to consolidate and failures reached an
unprecedented number of approximately 3,000 per year from 2000 to 2002, it is
believed that the top 10 carriers only haul approximately 11% of the truckload
market, according to the ENO Foundation.
New truck emission regulations became effective on October 1, 2002,
resulting in cleaner, yet less fuel-efficient and costlier engines. As a
consequence, many trucking firms accelerated purchases of tractors prior to the
effective date of the regulation, significantly reducing the historical trailer-
to-tractor ratio of 1.5 to 1, to less than 1 to 1 during parts of 2002,
according to ACT. We believe that a return to historical averages could result
in a significant increased demand in trailers. Additional emission regulations
are to become effective in 2007 and may result in similar purchasing patterns
during 2006. In January 2004, regulations reducing driver hours (hours of
service) for commercial motor vehicles that carry property became effective.
While we expect that the effects of the regulations on our industry to be
positive, it is too early to confirm.
5
Wabash, Great Dane and Utility are generally viewed as the top three
trailer manufacturers and have accounted for greater than 50% of new trailer
market share in recent years. During the severe industry downturn in 2001 and
2002, a number of trailer manufacturers went out of business, resulting in
greater industry consolidation. Despite market concentration, price competition
is fierce and differentiation is primarily through superior products, customer
relationships, service availability and cost.
The following table sets forth new trailer production for the Company,
its largest competitors and for the trailer industry as a whole within North
America:
2003 2002 2001 2000 1999 1998
------- ------- ------- ------- ------- -------
WABASH(1) 36,000 27,000 32,000 66,000 70,000 61,000
Great Dane 41,000 33,000(2) 22,000 47,000 58,000 51,000
Utility 24,000 18,000 16,000 29,000 31,000 27,000
Stoughton 9,900 10,000 6,000 15,000 15,000 12,000
Other principal producers 34,000 28,000 32,000 63,000 68,000 51,000
Total Industry 183,000 140,000 140,000 271,000 306,000 279,000
(1) Does not include approximately 1,300 and 6,000 intermodal containers in
2003 and 2002, respectively.
(2) Data revised by publisher in 2004.
Sources: Individual manufacturer information, some of which is
estimated, provided by Southern Motor Cargo Magazine (C)1999 (for 1998 data) and
Trailer Body Builders Magazine (C)2003 (for 1999-2003 data). Industry totals
provided by Southern Motor Cargo Magazine (C)1999 (for 1998 data) and A.C.T.
Research Company, L.L.C. (for 1999-2003 data).
COMPETITIVE STRENGTHS
We believe our core competitive strengths include:
- LONG TERM CORE CUSTOMER RELATIONSHIPS - We are the exclusive
provider of trailers to a significant number of top tier
trucking companies, generating a revenue base that has helped
to sustain us as one of the market leaders.
- INNOVATIVE PRODUCT OFFERINGS - Our DuraPlate(R) proprietary
technology provides what we believe to be a superior trailer
to our customers and commands premium pricing. A DuraPlate(R)
trailer is a composite plate trailer constructed with material
containing a high density polyethylene core bonded between a
high-strength steel skin. We believe that the competitive
advantages of our DuraPlate(R) trailers over standard trailers
include the following:
- operate three to five years longer;
- less costly to maintain;
- lighter weight; and
- higher trade-in values.
We have also successfully introduced innovations in our
refrigerated trailers and other product lines. For example, we
introduced the Duraplate(R) HD trailer and the FreightPro(R)
sheet and post trailer in 2003.
- EXTENSIVE DISTRIBUTION NETWORK - 26 factory-owned retail
branch locations extend our sales network throughout North
America, diversifying our factory direct sales and supporting
our national service contracts.
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 regulations that require anti-lock braking systems (ABS) and that
define rear impact guard standards. Manufacturing operations are subject to
environmental laws enforced by federal, state and local agencies (See
"Environmental Matters").
6
PRODUCTS
Since our inception, we have expanded our product offerings from a
single truck trailer product to a broad line of trailer related transportation
equipment. Our manufacturing segment specializes in the development of
innovative proprietary products for our key markets. Manufacturing segment sales
represented approximately 70%, 60%, and 60% of consolidated net sales in 2003,
2002 and 2001, respectively. Our current transportation equipment products
include the following:
- DuraPlate(R)Trailers. DuraPlate(R)trailers utilize a
proprietary technology that consists of a composite plate wall
for increased durability and greater strength. Our
DuraPlate(R)trailers include our newly introduced
DuraPlate(R)HD, a heavy duty version of our regular
DuraPlate(R)trailers.
- DuraPlate(R)Domestic Containers. DuraPlate(R)domestic
containers utilize a proprietary technology and consist of
stackable containers, carried either on flat cars or stacked
two-high on special "Double-Stack" railcars.
- Smooth Aluminum Trailers. Smooth aluminum trailers, commonly
known as "sheet and post" trailers, are the standard trailer
product purchased by the trucking industry. In 2003, we
commercialized our new FreightPro(R)trailer to increase our
focus on sheet and post trailers, which is the largest segment
of the trailer market.
- Refrigerated Trailers. Refrigerated trailers have insulating
foam in the sidewalls and roof, which improves both the
insulation capabilities and durability of the trailers. Our
refrigerated trailers use our proprietary SolarGuard(R)
technology, which we believe enables customers to achieve
lower costs through reduced fuel consumption and reduced
operating hours.
- Aluminum Plate Trailers. Aluminum plate trailers utilize
thicker and more durable sidewalls than standard trailers,
which reduces maintenance costs and extends the trailer's
life.
- 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.
- Other. Our other transportation equipment includes container
chassis, soft-sided trailers and converter dollies.
Our retail and distribution segment focuses on the sale of new and used
trailers and providing parts and maintenance services as described below. In
September 2003, we sold certain assets of our rental and leasing business and
wholesale aftermarket parts business and in December 2003 we sold a large
portion of our finance portfolio.
- New transportation equipment produced by the manufacturing
segment. Additionally, we sell specialty trailers including
tank trailers, dump trailers and platform trailers produced by
third parties. 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 9.4%, 9.6% and
11.9% of net sales during 2003, 2002 and 2001, respectively.
- Replacement parts and accessories and maintenance service both
for our own and competitors' trailers and related equipment.
This business is less cyclical than trailer sales and
generally has higher gross profit margins. Management expects
that the sale of aftermarket parts and maintenance service
will be a growing part of its product mix as the number and
age of trailers in service increases. Sales of these products
and service represented approximately 11%, 14% and 15% of net
sales during 2003, 2002 and 2001, respectively.
- Used transportation equipment primarily taken in trade from
our customers upon the sale of new trailers. 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. The sale of used trailers
7
represented approximately 7.3%, 11.3% and 8.5% of net sales
during 2003, 2002 and 2001, respectively.
CUSTOMERS
Our customer base includes many of the nation's largest truckload
common carriers, leasing companies, private fleet carriers, less-than-truckload
(LTL) common carriers, and package carriers. Our five largest customers
accounted for 27%, 30% and 34% of our aggregate net sales in 2003, 2002 and
2001, respectively.
One customer, Schneider National, Inc., accounted for approximately 14%
of net sales in 2003. In 2002 and 2001, J.B. Hunt Transportation Services, Inc.
accounted for approximately 11% and 19% of net sales, respectively.
International sales, primarily to Canadian customers, accounted for
approximately 9% of net sales for each of the last three years. We have
established relationships as a supplier to many large customers in the
transportation industry, including the following:
- Truckload Carriers: Schneider National, Inc.; J.B. Hunt
Transport Services, Inc.; Swift Transportation Corporation;
Werner Enterprises, Inc.; Heartland Express, Inc.; Crete
Carrier Corporation; U.S. Xpress Enterprises, Inc.; Knight
Transportation, Inc.; and Interstate Distributor Co.
- Leasing Companies: Transport International Pool, Inc.; Penske
Truck Leasing Co. LP; Wells Fargo Equipment Finance, Inc.;
Xtra Lease, Inc.; and Transport Services, Inc.
- Private Fleets: Safeway, Inc.; The Home Depot, Inc.; The
Kroger Co.; and Sysco Corporation.
- Less-Than-Truckload Carriers: Yellow Roadway, Inc.; Old
Dominion Freight Lines, Inc.; SAIA Motor Freightlines, Inc.;
and Vitran Express, Inc.
MARKETING AND DISTRIBUTION
We market and distribute our products through the following channels:
- factory direct accounts;
- our factory-owned distribution network; and
- independent dealerships.
Factory direct accounts are generally large fleets, over 5,000 trailers
that are high volume purchasers. Historically, we have focused 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 our products. In 2003, we launched sales and marketing
initiatives targeted at the mid-size fleet segment (operations with between 250
and 5,000 trailers) of the industry.
Our factory-owned distribution network generates retail sales of
trailers to smaller fleets and independent operators located in geographic
regions where our branches are located. This branch network enables us to
provide maintenance and other services to customers. The branch network and our
Used Trailer Centers provide an outlet for used trailers taken in trade upon the
sale of new trailers, which is a common practice with fleet customers.
We also sell our products through a nationwide network of over 40
independent dealerships. 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
We utilize a variety of raw materials and components including steel,
polyethylene, aluminum, lumber, tires and suspensions, which we purchase from a
limited number of suppliers. Significant price fluctuations or shortages in raw
materials or finished components may adversely affect our results of operations.
In 2003 and for the foreseeable future, we expect that the raw materials used in
the greatest quantity will be the steel, aluminum and
8
polyethylene used in our dry freight and refrigerated trailers. Currently, all
components are in ready supply. Price increases in our principal raw materials,
aluminum, steel, plastic and timber, occurred during 2003 and are expected to
continue into 2004. Our Harrison, Arkansas laminated hardwood floor facility
provides the majority of our requirements for trailer floors.
BACKLOG
Orders that have been confirmed by the customer in writing and can be
produced during the next 18 months are included in our backlog. Orders that
comprise backlog may be subject to changes in quantities, delivery,
specifications and terms. Our backlog of orders was approximately $200 million
and $208 million at December 31, 2003 and 2002, respectively. We expect to
complete the majority of our backlog orders during 2004.
PATENTS AND INTELLECTUAL PROPERTY
Wabash holds or has applied for 66 patents in the United States on
various components and techniques utilized in our manufacture of truck trailers.
In addition, we hold or have applied for 91 patents in 12 foreign countries
including the European patent community. Our patents include our proprietary
DuraPlate(R) product, which we believe offers us a significant competitive
advantage.
Wabash also holds or has applied for 32 trademarks in the United States
as well as 28 trademarks in foreign countries. These trademarks include the
Wabash(R) brand name as well as trademarks associated with our 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 million in each of 2003, 2002 and 2001.
ENVIRONMENTAL MATTERS
Our facilities are subject to various environmental laws and
regulations, including those relating to air emissions, wastewater discharges,
the handling and disposal of solid and hazardous wastes, and occupational safety
and health. Our operations and facilities have been and in the future may become
the subject of enforcement actions or proceedings for non-compliance with such
laws or for remediation of company-related releases of substances into the
environment. Resolution of such matters with regulators can result in
commitments to compliance abatement or remediation programs and in some cases
the payment of penalties. (See Item 3 "Legal Proceedings.")
We believe that our facilities are in substantial compliance with
applicable environmental laws and regulations. Our facilities have incurred, and
will continue to incur, capital and operating expenditures and other costs in
complying with these laws and regulations in both the United States and abroad.
However, we currently do not anticipate that the future costs of environmental
compliance will have a material adverse effect on our business, financial
condition or results of operations.
EMPLOYEES
As of December 31, 2003, we had approximately 3,300 full-time
associates, compared to approximately 3,600 full-time associates as of December
31, 2002. No full-time associates were under a labor union contract as of
December 31, 2003. We place a strong emphasis on employee relations through
educational programs and quality improvement teams. We believe our employee
relations are good.
ITEM 2--PROPERTIES
MANUFACTURING FACILITIES
We own two trailer manufacturing facilities in Lafayette, Indiana and a
trailer floor manufacturing facility, 0.5 million sq. ft., in Harrison,
Arkansas. Our main facility, 1.2 million sq. ft., houses truck trailer and
composite material production, tool and die operations, research laboratories,
management offices and headquarters. The
9
second Lafayette facility is 0.6 million sq. ft. We have the capacity to produce
approximately 75,000 trailers annually on a three-shift, five-day work week
schedule.
We closed trailer manufacturing plants located in Ft. Madison, Iowa
(255,000 sq. ft.) and Huntsville, Tennessee (287,000 sq. ft.) during 2001, and a
flooring operation in Sheridan, Arkansas (117,000 sq. ft.) during 2000. These
properties are held for sale and are classified in Prepaid Expenses and Other in
the accompanying Consolidated Balance Sheets at both December 31, 2003 and 2002.
RETAIL AND DISTRIBUTION FACILITIES
Retail and distribution facilities include 19 sales and service
branches (three of which are leased), and seven locations that sell new and used
trailers (six of which are leased). Each branch facility consists of an office,
parts warehouse and service space, and each facility generally ranges in size
from 20,000 to 50,000 square feet per facility. Nineteen branches are located in
13 states and seven branches are located in six Canadian provinces.
We own a 0.3 million sq. ft. distribution facility in Lafayette,
Indiana that is currently leased.
At December 31, 2003, we have four branch properties held for sale and
classified as Prepaid Expenses and Other in the accompanying Consolidated
Balance Sheets.
Wabash owned properties are subject to security interests held by our
bank 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.
Brazil Joint Venture
In March 2001, Bernard Krone Industria e Comercio de Maquinas Agricolas
Ltda. ("BK") filed suit against Wabash 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 Wabash
related to marketing the RoadRailer(R) trailer in Brazil and other areas of
South America. When BK was placed into the Brazilian equivalent of bankruptcy
late in 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 exclusivity and non-compete clauses purportedly found in
the joint venture agreement. BK asserts damages of approximately $8.4 million.
We answered the complaint in May 2001, denying any wrongdoing. We
believe that the claims asserted by BK are without merit and we intend to defend
our position. We believe that the resolution of this lawsuit will not have a
material adverse effect on our 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
In October 2003, the Company reached a verbal agreement with federal
officials to resolve a federal environmental investigation related to its
Huntsville, Tennessee facility. The plea agreement includes payment of a $0.4
million fine and a plea to two misdemeanor violations of the Clean Water Act.
The parties expect to submit the agreement to the court for resolution in the
near future. The expected resolution of this matter does not have a material
impact on the Company's financial position, liquidity or future results of
operations.
In September 2003, the Company was noticed as a potentially responsible
party (PRP) by the United States 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 of. EPA's allegation that the
10
Company was a PRP arises out of the operation of a former branch facility
located approximately five miles from the original site, which the Company
acquired and subsequently disposed of. According to the notice, the site
currently encompasses an area of groundwater contaminated by volatile organic
compounds seven miles long and one mile wide. The site was placed on the
National Priorities List in 1989. Motorola has been operating an interim
groundwater containment remedy since 2001. The Company does not expect that
these proceedings will have a material adverse effect on the Company's financial
condition or results of operations.
ITEM 4--SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None to report.
PART II
ITEM 5--MARKET FOR 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 6, 2004 was 898.
The Company has not paid cash dividends on common shares since the
third quarter of 2001 and there is no assurance that dividend payments will
resume in the future. Payments of cash dividends depend on future earnings,
capital availability and financial condition.
High and low stock prices for the last two years were:
High Low
------- -------
2002
First Quarter $ 12.15 $ 7.16
Second Quarter $ 11.19 $ 7.55
Third Quarter $ 9.94 $ 4.18
Fourth Quarter $ 8.50 $ 3.55
2003
First Quarter $ 9.12 $ 4.95
Second Quarter $ 15.11 $ 6.08
Third Quarter $ 19.75 $ 13.78
Fourth Quarter $ 30.39 $ 15.97
11
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, 2003, have been
derived from the Company's consolidated financial statements. 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,
----------------------------------------------------------------------
2003 2002 2001(1) 2000 1999
--------- --------- --------- ----------- -----------
(Dollar amounts in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales $ 887,940 $ 819,568 $ 863,392 $ 1,332,172 $ 1,454,570
Cost of sales 810,746 777,117(4) 972,105(2) 1,216,205(3) 1,322,852
Loss on asset impairment 28,500 2,000 10,500 - -
--------- --------- --------- ----------- -----------
Gross profit (loss) 48,694 40,451 (119,213) 115,967 131,718
Selling, general and administrative expenses 57,716 77,398 82,325 55,874 50,796
Restructuring charge - 1,813 37,864 36,338 -
--------- --------- --------- ----------- -----------
Income (loss) from operations (9,022) (38,760) (239,402) 23,755 80,922
Interest expense (30,162) (30,873) (21,292) (19,740) (12,695)
Trade receivable facility costs (1,022) (4,072) (2,228) (7,060) (5,804)
Foreign exchange gains and losses, net 5,291 5 (1,706) - -
Equity in losses of unconsolidated affiliate - - (7,668) (3,050) (4,000)
Restructuring charges - - (1,590) (5,832) -
Loss on debt extinguishment (19,840) (1,314) - - -
Other, net (2,472) 3,546 (1,139) 877 6,310
--------- --------- --------- ----------- -----------
Income (loss) before income taxes (57,227) (71,468) (275,025) (11,050) 64,733
Income tax provision (benefit) - (15,278) (42,857) (4,314) 25,891
--------- --------- --------- ----------- -----------
Net income (loss) $ (57,227) $ (56,190) $(232,168) $ (6,736) $ 38,842
========= ========= ========= =========== ===========
Basic earnings (loss) per common share $ (2.26) $ (2.43) $ (10.17) $ (0.38) $ 1.60
========= ========= ========= =========== ===========
Diluted earnings (loss) per common share $ (2.26) $ (2.43) $ (10.17) $ (0.38) $ 1.59
========= ========= ========= =========== ===========
Cash dividends declared per common share $ - $ - $ 0.09 $ 0.16 $ 0.1525
========= ========= ========= =========== ===========
(1) The 2001 amounts reflect the results of operations for the 10 branches
acquired in January 2001.
(2) Includes used trailer inventory valuation charges of $62.1 million, a
restructuring related charge of $3.7 million, and loss contingencies
related to the Company's leasing operations of $27.4 million.
(3) Includes a $4.5 million charge related to the Company's restructuring
activities.
(4) Includes used trailer valuation charges of $5.4 million and $2.8
million for equipment impairment charges.
Years Ended December 31,
------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(Dollar amounts in thousands)
BALANCE SHEET DATA:
Working capital $ 41,970 $ 55,052 $111,299 $270,722 $228,751
Total equipment leased to others & finance contracts 32,069 132,853 160,098 108,451 130,626
Total assets 397,036 565,569 692,504 781,614 791,291
Total debt and capital lease obligations 227,316 346,857 412,017 238,260 167,881
Stockholders' equity 22,162 73,984 130,985 367,233 379,365
12
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") describes the matters that we consider to be
important to understanding the results of our operations for each of the three
years in the period ended December 31, 2003, and our capital resources and
liquidity as of December 31, 2003 and 2002. Our discussion begins with our
assessment of the condition of the North American trailer industry along with a
summary of the actions we have taken to reposition the Company. We then analyze
the results of our operations for the last three years, including the trends in
the overall business and our operations segments, followed by a discussion of
our cash flows and liquidity, capital markets events and transactions, our new
credit facility, and contractual commitments. We then provide a review of the
critical accounting judgments and estimates that we have made which we believe
are most important to an understanding of our MD&A and our consolidated
financial statements. These are the critical accounting policies that affect the
recognition and measurement of our transactions and the balances in our
consolidated financial statements. We conclude our MD&A with information on
recent accounting pronouncements which we adopted during the year, as well as
those not yet adopted that are expected to have an impact on our financial
accounting practices.
The Company has two reportable segments: manufacturing and retail and
distribution. The manufacturing segment produces trailers which are sold to
customers who purchase trailers directly or through independent dealers and to
the retail and distribution segment. The retail and distribution segment
includes the sale and leasing of new and used trailers, as well as the sale of
aftermarket parts and service through its retail branch network.
EXECUTIVE SUMMARY
The North American trailer industry rebounded in 2003 after three
consecutive years of declining demand for new trailer units. The trucking
industry confronting an economic downturn, dramatic increases in fuel,
insurance, labor and EPA compliances cost and weak capitalization reduced
trailer purchases from a high of approximately 306,000 in 1999 to approximately
140,000 units in 2002, a 54% decline in demand. Demand recovered to
approximately 183,000 units in 2003, which as an annual rate approximates the
industry replacement rate. During the last three years, our market share of new
trailers declined from 23% in 2001 to 20% in 2003.
In response to the significant industry deterioration, we implemented a
comprehensive plan to scale our operations to meet demand and to survive.
Actions included:
- changed senior management;
- rationalized manufacturing capacity - closing two plants;
- reduced manufacturing cost structure through continuous
improvement initiatives that focused on safety, quality,
productivity, and product and process standardization;
- reduced used trailer inventories - from approximately $110
million or 11,500 units as of September 2000 to $12 million or
2,200 units as of December 31, 2003;
- resolved legacy trade practices - reducing open trade
commitments to approximately $6 million as of December 31,
2003;
- divested our European operations;
- rationalized retail and distribution capacity - closing 12
locations; and
- improved working capital management.
13
These actions resulting in net losses of $57 million in 2003, $56
million in 2002 and $232 million in 2001, set the stage for:
- selling certain assets of our rental and leasing business and
our wholesale parts business, former branch properties and a
large portion of our finance portfolio - proceeds totaling
approximately $75 million used to reduce on and off balance
sheet debt;
- refinancing our debt through the sale of $125 million of 3.25%
senior unsecured convertible notes and the completion of a
three-year $222 million bank facility - extended required
repayment terms and significantly reducing interest rates;
- continuing the streamlining of the retail and distribution
organization - closing 12 locations; and
- achieving manufacturing margins exceeding those attained in
1999, the recent high point of the production cycle.
Charges totaling approximately $51 million were incurred in connection
with those initiatives.
Entering 2004, we believe that Wabash is well positioned to fully
participate in improving general and trucking industry conditions.
OPERATING PERFORMANCE
We measure our operating performance in four key areas - Safety,
Quality, Productivity and Cost Reduction. Our objective, be better tomorrow than
we are today, is simple, straightforward and easily understood by all our
associates.
- Safety. We have achieved a four-fold improvement in the total
reportable incident rate since June 2002; our safety metrics
have improved each quarter for six straight quarters. We
believe improved safety translates into higher labor
productivity and lower costs as a result of less time missed
due to injuries.
- Quality. We measure our quality performance in terms of:
- First pass yield: How many units pass all inspection
criteria without requiring rework? Our first pass
yield metrics have improved from 20% to 88% during
2003.
- On Time Delivery: Are we meeting our delivery
commitments to customers? In the third quarter of
2003, we attained 100% and continue to operate at
that rate.
- Warranty: We measure, among other things, the number
and severity of warranty claims. While improvements
are being noted and we are encouraged by the results,
a longer term perspective is required before
declaring success.
- Productivity. We measure productivity on many fronts. Some key
indicators include production line speed, man-hours per
trailer and inventory levels. Improvements in these areas
translate into:
- Increased availability capacity which we estimated to
be over 75,000 units annually based on a three-shift,
five-day work week.
- Reduced work in process inventory which is currently
$4 million compared to $14 million at the beginning
of the year.
- Increased inventory turnover which is currently about
nine turns per year compared to approximately six
turns in 2002.
14
- Cost Reduction. During 2002, we introduced our
continuous improvement initiative (CI). As of
December 2003, we believe CI has become a way of
life. Since introduction, over 250 CI events have
been completed.
INDUSTRY TRENDS
To monitor the state of the industry we evaluate a number of indicators
related to trailer manufacturing and to the transportation industry. Information
is obtained from sources such as ACT Research Co., LLC (ACT), American Trucking
Association (ATA), Cass Logistics, and Eno Transportation Foundation. Trends we
are currently seeing include:
- Improvement in the number of units shipped by the U.S. trailer
industry. After reaching a high of over 300,000 units shipped
in 1999, shipments declined to approximately 140,000 units in
2001. Unit shipments were approximately 183,000 in 2003 and
ACT is estimating that 2004 shipments will be approximately
247,000 units.
- Increasing age of motor carrier trailer fleets. For the
three-year period 2000 to 2002, the average age of trailer
fleets have increased from approximately 44 months to 54
months as many motor carriers have deferred purchases. This
trend suggests to us that there is a pent-up replacement
demand for trailers.
- Increasing rate of new trailer orders. Quarterly industry
order placements have been in the 10,000 to 15,000 units range
for the last six quarters. In the fourth quarter of 2003, the
rate was approximately 20,000 units.
- Other developments and our view of their potential impact on
the industry include:
- 2007 Emission Standards could result in improved
demand for trailers in 2004, 2005 and part of 2006 in
advance of motor carriers focusing capital spending
on tractors in advance of the regulations going into
effect. A similar pattern occurred in advance of the
October 2002 enactment of emission standards.
- Technology advances in trailer tracking and route
management implemented by motor carriers are
improving trailer utilization and lower
trailer-to-tractor ratios and could result in reduced
trailer demand.
- Federal Hours-of-Service Rules became effective
January 4, 2004. Based on the assessment of a large
truck load carrier these will negatively impact
driver productivity. In our view, this could result
in increased demand for trailers but it is too early
to confirm.
15
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,
2003 2002 2001
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 91.3 94.8(1) 112.6(2)
Loss on asset impairment 3.2 0.3 1.2
------ ------ ------
Gross profit (loss) 5.5 4.9 (13.8)
General and administrative expense 4.2 6.6 6.6
Selling expense 2.3 2.8 2.9
Restructuring charge - 0.2 4.4
------ ------ ------
Loss from operations (1.0) (4.7) (27.7)
Interest expense (3.4) (3.8) (2.5)
Trade receivables facility costs (0.1) (0.5) (0.3)
Foreign exchange losses, net 0.6 - (0.2)
Equity in losses of unconsolidated affiliate - - (0.9)
Restructuring charge - - (0.2)
Loss on extinguishment (2.2) (0.2) -
Other income (expense), net (0.3) 0.5 (0.1)
------ ------ ------
Loss before income taxes (6.4) (8.7) (31.9)
Income tax benefit - (1.8) (5.0)
------ ------ ------
Net loss (6.4)% (6.9)% (26.9)%
(1) Includes used trailer valuation charges of $5.4 million and $2.8
million for loss contingencies.
(2) 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 related to the Company's leasing operations of $27.4
million (3.2%).
2003 COMPARED TO 2002
NET SALES
Net sales improved 8% from 2002. Base upon ACT data, the first quarter
of 2002 is believed to have been the low point of the industry downturn that
began in 2000. By business segment, net external sales and related units sold
were as follows (dollars in millions):
Years Ended December 31,
----------------------------
2003 2002 % Change
-------- -------- --------
Net Sales by segment:
Manufacturing $ 620.1 $ 492.3 26%
Retail and Distribution 267.8 327.3 (18)
-------- --------
Total $ 887.9 $ 819.6 8%
======== ========
New trailer units:
Manufacturing 36,900 30,900 19%
Retail and Distribution 4,100 3,600 14
-------- --------
Total 41,000 34,500 19%
======== ========
Used trailer units 11,700 17,600 (34)%
======== ========
16
The manufacturing segment's sales improvement was driven by demand for new
trailers and improved product mix. Average selling price increased 4.7%
primarily due to product mix: for example, we sold approximately 5,000 fewer
lower priced containers and chassis in 2003 compared to 2002.
The decrease in the retail and distribution segment's net sales
reflects:
- used trailer sales decline of $27.5 million as unit sales fell
34% due to completing the disposition of excess inventories
during 2002 and the impact of closing certain locations;
- the sale of certain assets of the aftermarket parts
distribution business and the trailer rental and leasing
business in September 2003 primarily accounts for $27.7
million of the sales decline;
- branch parts and services sales decline of $8.7 million
primarily due to closing full service branches; offset by
- new trailer sales increase of $4.4 million due to a 19%
increase in equivalent store units sold, offset partially by
the impact of closing certain locations.
GROSS PROFIT (LOSS)
Gross profit as a percent of sales was 8.7% for 2003 compared to 5.2%
in 2002, before asset impairment charges of $28.5 million and $2.0 million in
2003 and 2002, respectively. The 2003 asset impairment charge was taken on
certain assets of the rental and leasing and aftermarket parts businesses. A
summary of gross profit by segment follows (in millions):
Years Ended December 31,
-----------------------------
2003 2002 $ Change
-------- -------- --------
Gross Profit (Loss) by segment:
Manufacturing $ 59.1 $ 20.8 $ 38.3
Retail and Distribution (10.9) 19.7 (30.6)
Eliminations 0.5 0.0 0.5
-------- -------- --------
Total Gross Profit $ 48.7 $ 40.5 $ 8.2
======== ======== ========
The manufacturing segment's gross profit increased due to higher
volumes and improved product mix, coupled with realizing cost savings driven by
our continuous improvement initiatives. The segment's 2003 gross profit
percentage of 9.5% exceeded the 8.9% attained in 1999, the most recent
production cycle peak.
The retail and distribution segment's gross profit for 2003 was
negatively impacted by the $28.5 million asset impairment charge and $3.9
million in trailer valuation charges. Gross profit for 2002 was negatively
impacted by $4.8 million in loss contingencies and asset impairment charges
related to equipment held for lease and $5.4 million in used trailer valuation
charges. Additionally, the lower gross profit resulted from lower margins on
used trailer sales and the impact of selling certain assets of the rental and
leasing and aftermarket parts businesses in September 2003. New trailers margins
held steady in relation to 2002.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $16.5 million to $37.4
million for 2003, compared to $53.9 million for the same period in 2002. The
2003 expense included $2.6 million in debt restructuring costs, $0.9 million
related to the branch closings, offset in part by a $0.8 million recovery of VAT
taxes. The 2002 expense included $10.6 million in bad debt expense mainly
related to the finance and leasing businesses, $2.2 million in severance
accruals, $1.9 million in write-downs related to the disposition of the
Company's airplane and $1.2 million in debt restructuring costs.
17
SELLING EXPENSES
Selling expenses decreased $3.2 million to $20.3 million in 2003,
compared to $23.5 million in 2002. The decrease primarily reflects the impact of
retail branch closings and the September 2003 sale of certain assets of our
trailer rental and leasing and aftermarket parts businesses.
OTHER INCOME (EXPENSE)
Interest expense totaled $30.2 million for 2003, a decrease of $0.7
million from the prior year. Through the first three quarters of 2003, interest
expense exceeded that of 2002 due to higher interest rates and increased
amortization of debt costs resulting from debt restructurings in 2002 and 2003.
The debt refinancing and assets sales during the second half of 2003 resulted in
lower interest rates and average borrowings, respectively.
Trade receivables facility costs declined as 2002 included $3.3 million
in facility restructuring costs.
Foreign exchange gains and losses, net were gains of $5.3 million for
2003, primarily occurring in the first six months of the year reflecting a
strengthening of the Canadian dollar compared to the U.S. dollar.
Loss on debt extinguishment of $19.8 million in 2003 primarily
represents the additional costs associated with the early extinguishment of the
Company's Senior Series Notes and Bank Debt.
Other, net for 2003 was a net expense of $2.5 million compared to a net
income of $3.5 million for the same period in 2002. The 2003 period included a
$3.2 million loss on the sale of a large portion of the Company's finance
portfolio, $1.3 million charge for the settlement of a legacy RoadRailer(R)
transaction and a $0.8 million loss on the sale of certain assets, offset in
part by gains of $2.9 million on the sale of closed branch properties. The 2002
period included gains on the sale of closed branch properties.
INCOME TAXES
The Company recorded no income tax benefit in 2003 due to uncertainties
surrounding the realizability of benefits associated with NOLs. The 2002 benefit
recorded represents an additional realizable federal NOL carry-back claim filed
and received under the provisions of the Job Creation and Worker Assistance Act
of 2002, which revised the permitted carry-back period for NOLs generated during
2001 from two years to five years.
2002 COMPARED TO 2001
Net loss for 2002 was $56.2 million compared to $232.2 million in 2001.
This improvement reflects a leveling off of new trailer sales and the impact on
2001 restructuring charges and losses related to used trailers.
NET SALES
The Company finished 2002 with consolidated net sales of approximately
$819.6 million compared to $863.4 million in 2001. This decrease was the result
of lower net sales in both the manufacturing and retail and distribution
segments.
Years Ended December 31,
----------------------------
2002 2001 % Change
-------- -------- --------
(Dollar amounts in millions)
Net External Sales by segment:
Manufacturing $ 492.3 $ 518.2 (5%)
Retail and Distribution 327.3 345.2 (5%)
-------- --------
Total $ 819.6 $ 863.4 (5%)
======== ========
New trailer units:
Manufacturing 30,900 31,000 (0%)
Retail and Distribution 3,600 6,100 (41%)
-------- --------
Total 34,500 37,100 (7%)
======== ========
Used trailer units 17,600 11,500 53%
======== ========
18
The manufacturing segment's net external sales decreased $25.9 million
in 2002 compared to 2001 primarily driven by a 4.8% decrease in the average
selling price per new trailer sold from approximately $16,700 in 2001 to
approximately $15,900 in 2002, reflecting a product mix that included
approximately 7,400 units of lower priced containers and chassis. The selling
price per unit in 2002 for non-container units was approximately $16,900.
The retail and distribution segment's net external sales decreased
$17.9 million in 2002 compared to 2001. This decrease was primarily driven by a
41.0% decrease in new units. The decrease in new units sold reflects market
conditions and the Company's focus on reducing used trailer inventories. This
decrease was partially offset by increases in used units sold and the selling
price per new unit (approximately $21,900 in 2002 versus $16,800 in 2001). The
Company's emphasis on reducing used trailer inventory resulted in a 17.5%
decrease in revenues per unit from approximately $6,300 in 2001 to $5,200 in
2002. The total number of branch locations as of December 31, 2002 was 39 as
compared to 47 as of December 31, 2001.
GROSS PROFIT (LOSS)
The Company finished 2002 with gross profit (loss) as a percent of
sales of 4.9% on a consolidated basis as compared to (13.8%) in 2001. As
discussed below, both of the Company's segments contributed to this increase.
Years Ended December 31,
-----------------------------
2002 2001 $ Change
-------- -------- --------
(Dollar amounts in millions)
Gross Profit (Loss) by Segment:
Manufacturing $ 20.8 $ (73.9) $ 94.7
Retail and Distribution 19.7 (47.6) 67.3
Eliminations 0.0 2.3 (2.3)
-------- -------- --------
Total Gross Profit (Loss) $ 40.5 $ (119.2) $ 159.7
======== ======== ========
The manufacturing segment's gross profit (loss) increased primarily as
a result of the following factors:
- decrease of 19% in material costs per unit resulting from
product mix including containers and continuous improvement
initiatives introduced in the second half of 2002;
- new and used trailer inventory valuation adjustments of $65.1
million in 2001 compared to $2.7 million in 2002; and
- the impact of inventory write-downs related to the Company's
2001 restructuring actions of approximately $3.7 million;
partially offset by
- lower revenues per unit, as discussed previously; and
- higher labor costs resulting from temporary labor, time spent
on training and continuous improvement initiatives.
The retail and distribution segment's gross profit (loss) increased
primarily as a result of the following factors:
- impairment of equipment held for lease along with certain loss
contingencies recognized related to its leasing activities
totaling $4.8 million and $37.9 million in 2002 and 2001,
respectively;
- improved used trailers margins, which were 6.4% in 2002
compared to (15.0%) in 2001;
- improved margins from our parts distribution business; and
- new trailer and aftermarket parts inventory valuation
adjustments of approximately $3.5 million in 2001; partially
offset by
- declines in new trailer and parts and service gross profit, in
part due to fewer locations in 2002; and
19
- used trailer inventory adjustments of $5.4 million in 2002.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased $3.1 million to $53.9
million in 2002, compared to $57.0 million in 2001. This decrease was primarily
due to a reduction of $10.3 million in bad debt expense representing improved
collection efforts and significant write-offs taken in 2001. The decrease in bad
debt expense was offset in part by increases of $3.6 million in professional
fees and $3.0 million in severance related to branch closings and former
corporate employees.
RESTRUCTURING EXPENSE
Restructuring expenses decreased $36.1 million to $1.8 million in 2002,
compared to $37.9 million in 2001. The 2002 expense represented additional fair
market value adjustments to closed manufacturing locations which are held for
sale related to 2000 and 2001 restructuring actions. The 2001 expense primarily
related to asset write-downs for the Scott County, Tennessee and Fort Madison,
Iowa manufacturing facilities and Montebello, California parts distribution
center taken as part of the 2001 restructuring.
OTHER INCOME (EXPENSE)
Interest expense totaled $30.9 million and $21.3 million for the years
ended December 31, 2002 and 2001, respectively. This increase was primarily due
to higher interest rates on the Company's Senior Notes and Bank debt resulting
from the debt restructuring in April 2002, interest on capital leases that were
entered into during the fourth quarter of 2001 and significantly higher
amortization from deferred debt costs in connection with the debt restructuring,
offset in part by reduced overall borrowings in 2002.
Trade receivables facility costs related to the Company's accounts
receivable securitization facility, increased to $4.1 million in 2002 from $2.2
million in 2001 primarily as a result of $3.3 million in costs incurred with
restructuring the facility in April 2002, offset in part by an absence of
borrowings under the restructured facility from April to December 2002.
Foreign currency transaction loss, net was $1.7 million for the year
ended December 31, 2001.
Loss on debt extinguishment of $1.3 million in 2002 represents fees and
the write-off of deferred debt issuance costs associated with the April 2002
debt restructuring.
Other, net was income of $3.5 million in 2002 compared to expense of
$1.1 million in 2001. The increase primarily includes gains on sales of closed
branch locations.
INCOME TAXES
Income tax benefit for 2002 and 2001 was $15.3 million and $42.9
million, respectively. The effective tax rate was 21.4% and 15.6% for 2002 and
2001, respectively. For 2002, the benefit recorded primarily represents an
additional realizable federal net operating loss (NOL) carry-back claim filed
and received under the provisions of the Job Creation and Worker Assistance Act
of 2002, which revised the permitted carry-back period for NOLs generated during
2001 from two years to five years. In 2002, 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.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL STRUCTURE
Today, our capital structure is primarily supported by debt as a result
of the significant losses incurred during the years 2000 through 2003.
Significant improvements have been made over the last three years and in 2003 we
were able to stabilize our financial footing through a series of asset sales,
branch network reorganization, debt refinancing and the conversion of preferred
shares. These actions, described below, resulted in repayment or refinancing of
essentially all of our indebtedness, increased our financial flexibility and
substantially reduced the
20
effective rate on borrowings. Our objective is to generate operating cash flows
sufficient to satisfy normal requirements for working capital and capital
expenditures and to better balance the mix of debt and equity in our capital
structure.
Asset Sales
On September 19, 2003, we completed the sale of certain of the assets
of our trailer leasing and rental and aftermarket parts businesses for
approximately $53.5 million in cash. Net proceeds from the sale were used to
repay a portion of the Company's outstanding indebtedness. Loss on the
disposition amounted to $29.3 million, including a $28.5 million asset
impairment charge recorded in the second quarter of 2003.
In the fourth quarter of 2003, we completed the sale of a large portion
of our finance contracts. Proceeds of approximately $12.2 million were used to
reduce outstanding debt. The sale resulted in a loss of $4.1 million, including
a $0.9 million debt extinguishment charge.
During 2003, we realized proceeds of approximately $6 million from the
sale of 6 branch properties.
Branch Network Reorganization
In the third quarter of 2003, we closed 12 retail branch locations and
closed our Lafayette Modification Center in the fourth quarter. We currently
operate 19 full service branches, four retail only branches and three used
trailer centers. The closings reduced branch headcount by 20% and yielded an
annualized cost savings of approximately $5 million. We recorded a charge in the
third quarter of approximately $2 million in connection with the closings.
Debt Refinancing
On August 1, 2003, we completed the sale of $125 million of 3.25%
five-year senior unsecured convertible notes, which are currently convertible
into approximately 6.5 million shares of the Company's common stock. The net
proceeds were used to repay a portion of our outstanding indebtedness. The notes
have a conversion price of $19.20 or a rate of 52.0833 shares per $1,000
principal amount of note. If the notes convert, the number of shares of our
common stock outstanding would increase by approximately 24%. The notes bear
interest at 3.25% per annum payable semi-annually on February 1 and August 1. If
not converted, the balance will become due on August 1, 2008. Costs associated
with the transaction amounted to approximately $4.2 million and are being
amortized over the term of the notes.
On September 23, 2003, we entered into a $222.1 million three-year
asset-based loan arrangement that includes a $47.1 million term loan (bank term
loan) and a $175 million revolver (bank revolver). The new financing replaced
existing indebtedness and is expected to substantially lower our cost of debt as
a result of lower interest rates on borrowings. Our current effective interest
rate is approximately 4% compared to approximately 10% under our previous
borrowing arrangements.
The bank term loan is secured by property, plant and equipment. The
bank revolver is secured by inventory and accounts receivable and the amount
available to borrow varies in relation to the balances of those accounts.
Interest on the bank term loan is variable, based on the London
Interbank Offer Rate (LIBOR) plus 300 basis points, decreasing to 275 basis
points after six months, or the bank's alternative rate, as defined in the
agreement. Interest on the bank revolver is at LIBOR plus 275 basis points,
decreasing to 250 basis points after six months, or the bank's alternative rate,
as defined in the agreement. We pay a commitment fee on the unused portion of
the facility at a rate of 37.5 basis points per annum. Costs associated with the
transaction amounted to approximately $4.4 million and are being amortized over
the term of the loan.
The bank term loan requires a $5.0 million principal payment on January 1, 2004
and quarterly principal payments of $1.7 million commencing on January 1, 2004,
with the balance due on September 23, 2006. The January 1, 2004 payments were
made on December 31, 2003. The bank revolver is due on September 23, 2006.
Beginning in March 2005, excess cash flow, as defined, is required to be used to
reduce term loan indebtedness.
The refinancing resulted in debt extinguishment charges of
approximately $18.9 million.
21
Preferred Share Conversion
In December of 2003, we forced the conversion of preferred shares with
a redemption value of approximately $17.6 million into approximately 823,000
shares of common stock. The transaction will save approximately $1 million in
annual mandatory dividend payments.
Cash Flow
Operating activities provided $41.8 million in cash during 2003
compared to providing $104.3 million during 2002. Operating activities for 2003
saw further reductions in new and used trailer and work in process inventories,
net cash flows from income after adjusting for non-cash items and accounts
payable timing, offset by increased levels of accounts receivable associated
with strong December sales. The 2002 period benefited from reduced accounts
receivables, inventories, the collection of tax refunds and accounts payable
timing. Accounts receivable, net were $66.6 million and $34.4 million as of
December 31, 2003 and 2002, respectively. Days sales outstanding (DSO) were
approximately 27 in 2003 compared to 15 in 2002 reflecting strong end-of-year
sales. Inventory balances were reduced approximately $50 million in 2003.
Inventory turns increased to approximately nine in 2003 compared to
approximately six in 2002.
Investing activities provided $76.8 million in cash during 2003
primarily due to the asset sales discussed previously along with the impact of
our decision not to reinvest in our financing and leasing businesses.
Net cash used in financing activities of $141.7 million during 2003 was
primarily for the repayment of debt from the proceeds of asset sales of $75.5
million with the remainder coming from operating cash flows and available cash
balances.
Capital Expenditures
Capital spending amounted to approximately $6.5 million for 2003 and is
anticipated to be approximately $10 million for 2004. Spending is focused on
productivity improvement and capacity maintenance.
Outlook
The industry recovery that began in 2003 is expected to accelerate in
2004 as production of trailers is anticipated to increase from approximately
183,000 units to approximately 247,000 units based on ACT estimates. The
expansion in production is predicated on a number of factors including improving
general economic conditions, pent-up trucking industry demand for replacement
units as the average age of trailer fleets increases and Department of
Transportation regulations regarding driver hours (hours of service) that may
require additional trailers to maintain driver productivity.
We expect to participate in the industry growth because our core
customers are among the dominant participants in the trucking industry, our
DuraPlate(R) trailer continues to have increased market acceptance and
penetration and we are expanding our presence into the middle market carriers -
approximately 1,250 carriers with fleet sizes ranging from 250 to 5,000 units.
We believe that Wabash is well positioned to benefit from an increased
demand for trailers because of the improvements that have been made over the
last three years. As a result of our continuous improvement initiatives, we have
reduced the total cost of producing a trailer and effectively increased
production capacity. Additionally, we have become much more efficient in the use
of working capital. Key to 2004 will be our ability to counter the effects of
price volatility in our principal raw materials, aluminum, steel, plastic and
timber with productivity gains and selective selling price increases.
As of December 31, 2003, our liquidity position, cash on hand and
available borrowing capacity amounted to approximately $44 million and debt and
lease obligations, both on and off the balance sheet, amounted to approximately
$239 million (including $12 million not on the balance sheet). We expect that in
2004, Wabash will be able to generate sufficient cash flow from operations to
fund working capital and capital spending requirements and to further reduce
indebtedness. However, it is possible that we may not generate sufficient cash
flow or secure additional funds for these purposes. Because we must use a
portion of our cash from operations to pay our debt service obligations, our
high level of debt means we have less funds available for working capital,
capital spending requirements and other purposes than we would otherwise have.
Further, we may be more highly leveraged than our competitors, which would be a
competitive disadvantage in the event of a downturn in the general economic
condition of our business.
22
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
A summary of payments of the Company's contractual obligations and
commercial commitments, both on and off balance sheet, as of December 31, 2003
are as follows:
$ Millions 2004 2005 2006 2007 2008 Thereafter Total
---------------------------------------- ------- ------- ------- ------- ------- ----------- --------
DEBT (excluding interest):
Senior Convertible Notes $ - $ - $ - $ - $ 125.0 $ - $ 125.0
Bank Revolver - - 60.3 - - - 60.3
Bank Term Loan 5.1 6.7 25.0 - - - 36.8
Other Notes Payable 2.3 2.3 0.6 - - - 5.2
------- ------- ------- ------- ------- ----------- --------
TOTAL DEBT $ 7.4 $ 9.0 $ 85.9 $ - $ 125.0 $ - $ 227.3
======= ======= ======= ======= ======= =========== ========
OTHER:
Currency Forward Contracts $ 3.9 $ - $ - $ - $ - $ - $ 3.9
Operating Leases 6.1 3.8 3.1 1.9 1.5 0.1 16.5
------- ------- ------- ------- ------- ----------- --------
TOTAL OTHER $ 10.0 $ 3.8 $ 3.1 $ 1.9 $ 1.5 $ 0.1 $ 20.4
======= ======= ======= ======= ======= =========== ========
OTHER COMMERCIAL COMMITMENTS:
Letters of Credit $ 7.0 $ - $ - $ - $ - $ - $ 7.0
Purchase Commitments 20.4 15.0 15.0 - - - 50.4
Residual Guarantees 5.3 5.0 9.7 5.0 - - 25.0
------- ------- ------- ------- ------- ----------- --------
$ 32.7 $ 20.0 $ 24.7 $ 5.0 $ - $ - $ 82.4
======= ======= ======= ======= ======= =========== ========
TOTAL OBLIGATIONS $ 50.1 $ 32.8 $ 113.7 $ 6.9 $ 126.5 $ 0.1 $ 330.1
======= ======= ======= ======= ======= =========== ========
Residual Guarantees represent purchase commitments related to certain
new and used trailer transactions as well as certain production equipment. We
also have purchase options of $78.0 million on the aforementioned trailers and
equipment. To the extent that the value of the underlying property is less than
the residual guarantee and the value is not expected to be recovered, we have
recorded a loss contingency.
Purchase Commitments primarily represent minimum purchase commitments
under a parts purchase agreement we entered into in connection with the sale of
certain assets of our aftermarket parts distribution business. We are required
to purchase $45 million in parts over the next three years with a minimum of $15
million per year. The purchase price for the parts will be at current market
prices, will not exceed business requirements and is subject to certain
performance requirements.
Operating leases represent the total future minimum lease payments for
off balance sheet debt.
OFF-BALANCE SHEET TRANSACTIONS
We had no off-balance sheet financing transactions in 2002 and 2003. As
of December 31, 2003, we have operating leases with future minimum lease
payments of $16.5 million, as disclosed in the preceding table.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies are more fully described in
Footnote 2 to our consolidated financial statements. Certain of our accounting
policies require the application of significant judgment by management in
selecting the appropriate assumptions for calculating financial estimates. By
their nature, these judgments are subject to an inherent degree of uncertainty.
These judgments are based on our historical experience, terms of existing
contracts, our evaluation of trends in the industry, information provided by our
customers and information available from other outside sources, as appropriate.
We consider an accounting estimate to be critical if:
- it requires us to make assumptions about matters that were
uncertain at the time we were making the estimate; and
23
- changes in the estimate or different estimates that we could
have selected would have had a material impact on our
financial or results of operations.
The table below presents information about the nature and rationale for
Wabash's critical accounting estimates:
CRITICAL ESTIMATE NATURE OF ESTIMATES ASSUMPTIONS/
BALANCE SHEET CAPTION ITEM REQUIRED APPROACHES USED KEY FACTORS
----------------------- ----------------- ------------------------------ ------------------------------------- -----------------
Accrued liabilities and Warranty Estimating warranty requires We base our estimate on historical Failure rates and
other long-term us to forecast the resolution trends of units sold and payment estimated repair
liabilities of existing claims and amounts, combined with our current costs
expected future claims on understanding of the status of
products sold. existing claims, recall campaigns and
discussions with our customers.
Accounts Receivable - Allowance for Estimating the allowance for We base our estimates on historical Customer
allowance for doubtful doubtful doubtful accounts requires us experience, the time an account is financial
accounts accounts to estimate the financial outstanding, customer's financial condition
capability of customers to pay condition and information from credit
for products. rating services.
Inventory Lower of cost or We evaluate future demand for Estimates are based on recent sales Market conditions
market products, market conditions data, historical experience, external
write-downs and incentive programs. market analysis and third party Product type
appraisal services.
Property, plant and Valuation of We are required from We estimate cash flows using internal Future production
equipment, goodwill and long-lived time-to-time to review the budgets based on recent sales data, estimates
other long-term assets assets and recoverability of certain of and independent trailer production
investments our assets based on volume estimates. Discount rate
projections of anticipated
future cash flows, including Asset carrying
future profitability value
assessments of various product
lines.
Deferred income taxes Recoverability of We are required to estimate We use historical and projected Tax law changes
deferred tax whether recoverability of our future operating results, based upon
assets - in deferred tax assets is more our business plans, including a Variances in
particular, net likely than not based on review of the eligible carry-forward future projected
operating loss forecasts of taxable earnings. period, tax planning opportunities profitability,
carry-forwards and other relevant considerations. including by
taxing entity
In addition, there are other items within our financial statements that
require estimation, but are not as critical as those discussed above. Changes in
estimates used in these and other items could have a significant effect on our
consolidated financial statements. The determination of the market value of new
and used trailers is subject to variation particularly in times of rapidly
changing market conditions. A 5% change in the valuation of our inventories
would be approximately $4 million.
OTHER
INFLATION
We have historically been able to offset the impact of rising costs
through productivity improvements as well as selective price increases. As a
result, inflation has not had, and is not expected to have a significant impact
on our business.
24
NEW ACCOUNTING PRONOUNCEMENTS
Variable Interest Entities
In 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN
46 defines a variable interest entity (VIE) as a corporation, partnership, trust
or any other legal structure that does not have equity investors with a
controlling financial interest or has equity investors that do not provide
sufficient financial resources for the entity to support its activities. The
Company has evaluated its financial arrangements that had potential FIN 46
impact and determined that none of these arrangements are with a VIE and that
the adoption will have no impact on its consolidated results of operations,
financial position or liquidity.
Derivatives
In April 2003, the FASB issued Statement of Financial Accounting (SFAS)
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This statement amends and clarifies financial accounting and
reporting for derivative instruments and hedging activities under FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, by
requiring contracts with similar characteristics to be accounted for comparably.
The adoption of SFAS No. 149, effective for contracts entered into or modified
after June 30, 2003, did not have any effect on financial position, results of
operations, or cash flow.
Financial Instruments
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
statement changes the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. SFAS No. 150 may require
that those instruments be classified as liabilities. SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the interim period beginning after June 15, 2003. We
currently have no such instruments.
CUSTOMER CREDIT RISK
We sublease certain highly specialized RoadRailer(R) equipment to Grupo
Transportation Marititma Mexicana SA (TMM), who is experiencing financial
difficulties. Due to the nature of the equipment, recovery value is considered
to be minimal. As of December 31, 2003, we have approximately $5.6 million of
leased equipment with TMM recorded as Equipment Leased to Others on the
Consolidated Balance Sheets. The obligation is current and as a result no
provision for loss has been recorded.
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 may manage aluminum price changes by entering into fixed price
contracts with its suppliers. As of December 31, 2003, the Company had
outstanding purchase commitments of approximately $5.4 million. 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.
25
b. Interest Rates
As of December 31, 2003, the Company had approximately $97.1 million of
floating rate debt outstanding under its various financing agreements. A
hypothetical 100 basis-point increase in the floating interest rate from the
current level would correspond to approximately a $1.0 million increase in
interest expense over a one-year period. This sensitivity analysis does not
account for the change in the Company's competitive environment indirectly
related to the change in interest rates and the potential managerial action
taken in response to these changes.
c. Foreign Exchange Rates
The Company is subject to fluctuations in the Canadian dollar exchange
rate that impact intercompany transactions between the Company and its Canadian
subsidiary, as well as U.S. denominated transactions between the Canadian
subsidiaries and unrelated parties. A five cent change in the Canadian exchange
rate would result in an approximately $0.3 million impact on results of
operations. In July 2003, the Company began purchasing Canadian dollar foreign
currency forward contracts in an effort to mitigate potential Canadian currency
fluctuation impact on working capital requirements. As of December 31, 2003, the
Company had outstanding $3.9 million in forward contracts to be settled in
various increments over the next seven months. The contracts are
marked-to-market and not subject to hedge accounting. The Company does not hold
or issue derivative financial instruments for speculative purposes.
ITEM 7B - RISK FACTORS
You should carefully consider the risks described below in addition to
other information contained or incorporated by reference in this Report before
investing in our securities. Realization of any of the following risks could
have a material adverse effect on our business, financial condition, cash flows
and results of operations.
RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONS
WE HAVE NOT GENERATED PROFITABILITY IN RECENT PERIODS.
Wabash incurred significant net losses during the last three years. We
have reported net losses of $232.2 million, $56.2 million and $57.2 million for
the years ended December 31, 2001, 2002 and 2003, respectively. Our ability to
achieve and sustain profitability in the future will depend on the successful
implementation of measures to reduce costs and achieve sales goals. While we
have taken steps to improve cost performance, lower operating costs and reduce
interest expense, and have seen our sales improve in the recent periods, we
cannot assure you that our cost-reduction measures will be successful, sales
will be sustained or increased or that we can achieve a sustained return to
profitability.
OUR INVENTORIES ARE NOT MANAGED BY PERPETUAL INVENTORY CONTROL SYSTEMS.
Systems and processes used to manage and value our inventories require
significant manual intervention and the verification of actual quantities
requires a physical inventory which is taken once a year. Breakdowns of these
systems and processes, and errors in inventory estimates derived from these
systems and processes could go undetected until the next physical inventory and
adversely affect our operations and financial results.
AN ADVERSE CHANGE IN OUR CUSTOMER RELATIONSHIPS OR IN THE FINANCIAL CONDITION OF
OUR CUSTOMERS COULD ADVERSELY AFFECT OUR BUSINESS.
We have corporate partnering relationships with a number of customers
where we supply the requirements of these customers. Our success is dependent,
to a significant extent, upon the continued strength of these relationships and
the growth of our corporate partners. We often are unable to predict the level
of demand for our products from these partners, or the timing of their orders.
In addition, the same economic condition that adversely affects us also often
adversely affects our customers. As some of our customers are highly leveraged
and have limited access to capital, their continued existence may be uncertain.
One of our customers, Grupo Transportation Marititma Mexicana SA (TMM), located
in Mexico is experiencing financial difficulties. Although this customer is
current in its payment obligation to us, the customer owes us $6.9 million
secured by highly specialized RoadRailer(R) equipment, which due to the nature
of the equipment has a minimal recovery value. The loss of a
26
significant customer or unexpected delays in product purchases could adversely
affect our business and results of operations.
OUR TECHNOLOGY AND PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE, WHICH COULD
ADVERSELY AFFECT OUR COMPETITIVE POSITION.
We continue to introduce new products such as the DuraPlate(R) HD, and
the FreightPro(R) trailer. We cannot assure you that these or other new products
or technologies will achieve sustained market acceptance. In addition, new
technologies or products that our competitors introduce may render our products
obsolete or uncompetitive. We have taken steps to protect our proprietary rights
in our 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 or
use our products or technology. If competitors are able to use our technology,
our ability to compete effectively could be harmed.
WE HAVE A LIMITED NUMBER OF SUPPLIERS OF RAW MATERIALS; AN INCREASE IN THE PRICE
OF RAW MATERIALS OR THE INABILITY TO OBTAIN RAW MATERIALS COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.
We currently rely on a limited number of suppliers for certain key
components in the manufacturing of truck trailers, such as landing gear, axles,
and specialty steel coil used in Duraplate(R) panels. The loss of our suppliers
or their inability to meet our price, quality, quantity and delivery
requirements could have a significant impact on our results of operations.
DISRUPTION OF OUR MANUFACTURING OPERATIONS OR MANAGEMENT INFORMATION SYSTEMS
WOULD HAVE AN ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
We manufacture our products at two facilities in Lafayette, Indiana,
with our primary manufacturing facility accounting for approximately 85% of our
manufacturing output. An unexpected disruption in our production at either of
these facilities or in our management information systems for any length of time
would have an adverse effect on our business, financial condition and results of
operations.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Many of our executive officers, including our CEO William P. Greubel,
CFO Mark R. Holden, and COO Richard J. Giromini, are critical to the management
and direction of our business. Our future success depends, in large part, on our
ability to retain these officers and other capable management personnel. The
unexpected loss of the services of any of our key personnel could have an
adverse effect on the operation of our business, as we may be unable to find
suitable management to replace departing executives on a timely basis.
THE INABILITY TO REALIZE ADDITIONAL COST SAVINGS COULD WEAKEN OUR COMPETITIVE
POSITION.
If we are unable to continue to successfully implement our program of
cost reduction and continuous improvement, we may not realize additional
anticipated cost savings, which could weaken our competitive position.
WE ARE SUBJECT TO CURRENCY EXCHANGE RATE FLUCTUATIONS, WHICH COULD ADVERSELY
AFFECT OUR FINANCIAL PERFORMANCE.
We are subject to currency exchange rate risk related to sales through
our factory-owned retail distribution centers in Canada. For the year ended
December 31, 2003, currency exchange rate fluctuations had a favorable impact of
$5.3 million on our results of operations. However, we cannot assure you that we
will continue to experience such benefits or that currency exchange rate
fluctuations will not have an adverse affect on our results of operations.
RISKS PARTICULAR TO THE INDUSTRIES IN WHICH WE OPERATE
OUR BUSINESS IS HIGHLY CYCLICAL, WHICH COULD ADVERSELY AFFECT OUR SALES AND
RESULTS OF OPERATIONS.
The truck trailer manufacturing industry historically has been and is
expected to continue to be cyclical, as well as affected by overall economic
conditions. New trailer production for the trailer industry as a whole was
approximately 140,000 in both 2001 and 2002 and totaled approximately 183,000 in
2003. Customers historically
27
have replaced trailers in cycles that run from five 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.
SIGNIFICANT COMPETITION IN THE INDUSTRIES IN WHICH WE OPERATE MAY RESULT IN OUR
COMPETITORS OFFERING NEW OR BETTER PRODUCTS AND SERVICES OR LOWER PRICES, WHICH
COULD RESULT IN A LOSS OF CUSTOMERS AND A DECREASE IN OUR REVENUES.
The truck trailer manufacturing industry is highly competitive. We
compete with other manufacturers of varying sizes, some of which may have
greater financial resources than we do. Barriers to entry in the standard truck
trailer manufacturing industry are low. As a result, it is possible that
additional competitors could enter the market at any time. In addition, we
believe that the manufacturing over-capacity and high leverage of some of our
competitors, along with the recent bankruptcies and financial stresses that have
affected the industry, have contributed to significant pricing pressures.
If we are unable to compete successfully with other trailer
manufacturers, we could lose customers and our revenues may decline. In
addition, competitive pressures in the industry may affect the market prices of
our new and used equipment, which, in turn, may adversely affect our sales
margins and results of operations.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL LAWS AND REGULATIONS, AND OUR COSTS
RELATED TO COMPLIANCE WITH, OR OUR FAILURE TO COMPLY WITH, EXISTING OR FUTURE
LAWS AND REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF
OPERATIONS.
The length, height, width, maximum weight capacity and other
specifications of truck trailers are regulated by individual states. The federal
government also regulates certain truck trailer safety features, such as lamps,
reflective devices, tires, air-brake systems, and rear-impact guards. Changes or
anticipation of changes in these regulations can have a material impact on our
financial results, as our customers may defer customer purchasing decisions and
we may have to reengineer products. 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 storm
water 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 an adverse
effect on our business, financial condition and results of operations. Our costs
of complying with these or any other current or future environmental regulations
may be significant. In addition, if we fail to comply with existing or future
laws and regulations, we may be subject to governmental or judicial fines or
sanctions.
A DECLINE IN THE VALUE OF USED TRAILERS COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
General economic and industry conditions, as well as the supply of used
trailers, influence the value of used trailers. As part of our normal business
practices, we maintain used trailer inventories and have entered into finance
contracts secured by used trailers, as well as residual guarantees and purchase
commitments for used trailers. Declines in the market value for used trailers or
the need to dispose of excess inventories has had, and could in the future have,
an adverse effect on our business, financial condition and results of
operations.
RISKS RELATED TO OUR SUBSTANTIAL INDEBTEDNESS
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
We are highly leveraged and have substantial debt in relation to our
shareholders' equity. As of December 31, 2003, we had an aggregate of $227
million of outstanding indebtedness. Although our recent sale in 2003 of our
unsecured 3.25% Convertible Senior Notes due August 1, 2008, and the completion
of a three-year $222 million asset based debt refinancing strengthen our balance
sheet, we continue to be highly leveraged.
Our high level of debt could have important consequences to our
investors, including:
- we may not be able to secure additional funds for working
capital, capital expenditures, debt service requirements or
general corporate purposes;
28
- we will need to use a portion of our cash flow from operations
to pay principal of and interest on our debt, which will
reduce the amount of funds available to us for other purposes;
- we may be more highly leveraged than our competitors, which
could put us at a competitive disadvantage; and
- we may not be able to adjust rapidly to changing market
conditions, which may make us more vulnerable in the event of
a downturn in general economic condition of our business.
RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS COULD LIMIT OUR FINANCIAL AND
OPERATING FLEXIBILITY AND SUBJECT US TO OTHER RISKS.
The agreements governing our indebtedness include certain covenants
that restrict, among other things, our ability to:
- incur additional debt;
- pay dividends on our equity or repurchase our equity;
- make certain investments;
- create certain liens; and
- consolidate, merge or transfer all or substantially all of our
assets.
Our ability to comply with such agreements may be affected by events
beyond our control, including prevailing economic, financial and industry
conditions. In addition, upon the occurrence of an event of default under our
debt agreements, the lenders could elect to declare all amounts outstanding
under our debt agreements, together with accrued interest, to be immediately due
and payable.
RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES
OUR COMMON STOCK HAS EXPERIENCED, AND MAY CONTINUE TO EXPERIENCE, PRICE
VOLATILITY AND A LOW TRADING VOLUME.
The trading price of our common stock has been and may continue to be
subject to large fluctuations and, therefore, the trading price of the notes may
fluctuate significantly, which may result in losses to investors. Our stock
price may increase or decrease in response to a number of events and factors,
including:
- trends in our industry and the markets in which we operate;
- changes in the market price of the products we sell;
- the introduction of new technologies or products by us or our
competitors;
- changes in expectations as to our future financial
performance, including financial estimates by securities
analysts and investors;
- operating results that vary from the expectations of
securities analysts and investors;
- announcements by us or our competitors of significant
contracts, acquisitions, strategic partnerships, joint
ventures, financings or capital commitments;
- changes in laws and regulations; and
- general economic and competitive conditions.
This volatility may adversely affect the prices of our common stock and
the 3.25% Convertible Senior Notes (Notes) regardless of our operating
performance. The price of our common stock also may be adversely affected by the
amount of common stock issuable upon conversion of the notes. Assuming $125
million in
29
aggregate principal amount of the notes are converted at a conversion price of
$19.20, the number of shares of our common stock outstanding would increase by
approximately 6,510,416 shares, or approximately 24%.
In addition, our common stock has experienced low trading volume in the
past.
THERE IS A LIMITED TRADING MARKET FOR THE NOTES.
There is limited market activity in the notes. Although the initial
purchasers of the notes are currently making a market in the notes, they are not
obligated to do so and may discontinue such market making at any time without
notice. In addition, such market making activity will be subject to the limits
imposed by the Securities Act of 1933, as amended and the Securities Exchange
Act of 1934, as amended. Accordingly, there can be no assurance that any market
for the notes will be maintained. If an active market for the notes fails to
develop or be sustained, the trading price of the notes could be materially
adversely affected. The notes are traded on the Portal Market; however, we do
not intend to apply for listing of the notes on any securities exchange.
The liquidity of the trading market in these notes, and the market
price quoted for these notes, may be materially adversely affected by:
- changes in the overall market for convertible subordinated
securities;
- changes in our financial performance or prospects;
- the prospects for companies in our industry generally;
- the number of holders of the notes;
- the interest of securities dealers in making a market for the
notes; and
- prevailing interest rates.
30
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGES
-----
Reports of Independent Public Accountants................................................... 32
Consolidated Balance Sheets as of December 31, 2003 and 2002................................ 34
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and
2001................................................................................ 35
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003,
2002 and 2001....................................................................... 36
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and
2001................................................................................ 37
Notes to Consolidated Financial Statements.................................................. 38
31
Report of Independent Auditors
To the Shareholders of Wabash National Corporation:
We have audited the accompanying consolidated balance sheets of Wabash National
Corporation as of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 2003. 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. The consolidated
financial statements of Wabash National Corporation for the year ended December
31, 2001, were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those financial statements in their
report dated April 12, 2002.
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 consolidated financial position of Wabash
National Corporation as of December 31, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Indianapolis, Indiana
February 5, 2004
32
This report is a copy of a report previously issued by Arthur Andersen
LLP. The report has not been reissued by Arthur Andersen nor has Arthur Andersen
LLP provided a consent to the inclusion of its report in this Form 10-K.
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
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
---------------------
2003 2002
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,552 $ 35,659
Accounts receivable, net 66,641 34,396
Current portion of finance contracts 4,727 9,528
Inventories 84,996 134,872
Prepaid expenses and other 10,249 18,299
--------- ---------
Total current assets 179,165 232,754
PROPERTY, PLANT AND EQUIPMENT, net 130,594 145,703
EQUIPMENT LEASED TO OTHERS, net 21,187 100,837
FINANCE CONTRACTS, net of current portion 6,155 22,488
GOODWILL, net 36,045 34,652
OTHER ASSETS 23,890 29,135
--------- ---------
$ 397,036 $ 565,569
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 7,337 $ 42,961
Current maturities of capital lease obligations - 12,860
Accounts payable 68,437 60,457
Other accrued liabilities 61,421 61,424
--------- ---------
Total current liabilities 137,195 177,702
LONG-TERM DEBT, net of current maturities 219,979 239,043
LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current maturities - 51,993
OTHER NONCURRENT LIABILITIES AND CONTINGENCIES 17,700 22,847
STOCKHOLDERS' EQUITY:
Preferred stock, 25 million shares authorized, 0 and 352,000 shares issued and
outstanding with an aggregate liquidation value of $0 and $17,600 respectively - 3
Common stock, 75 million shares authorized, $0.01 par value, 26,849,257
and 25,647,060 shares issued and outstanding, respectively 269 257
Additional paid-in capital 242,682 237,489
Retained deficit (220,502) (162,222)
Accumulated other comprehensive income (loss) 992 (264)
Treasury stock at cost, 59,600 common shares (1,279) (1,279)
--------- ---------
Total stockholders' equity 22,162 73,984
--------- ---------
$ 397,036 $ 565,569
========= =========
The accompanying notes are an integral part of these Consolidated Statements.
34
WABASH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Years Ended December 31,
---------------------------------
2003 2002 2001
--------- --------- ---------
NET SALES $ 887,940 $ 819,568 $ 863,392
COST OF SALES 810,746 777,117 972,105
LOSS ON ASSET IMPAIRMENT 28,500 2,000 10,500
--------- --------- ---------
Gross profit (loss) 48,694 40,451 (119,213)
GENERAL AND ADMINISTRATIVE EXPENSES 37,383 53,897 56,955
SELLING EXPENSES 20,333 23,501 25,370
RESTRUCTURING CHARGE - 1,813 37,864
--------- --------- ---------
Loss from operations (9,022) (38,760) (239,402)
OTHER INCOME (EXPENSE):
Interest expense (30,162) (30,873) (21,292)
Trade receivables facility costs (1,022) (4,072) (2,228)
Foreign exchange gains and losses, net 5,291 5 (1,706)
Equity in losses of unconsolidated affiliate - - (7,668)
Restructuring charges - - (1,590)
Loss on debt extinguishment (19,840) (1,314) -
Other, net (2,472) 3,546 (1,139)
--------- --------- ---------
Loss before income taxes (57,227) (71,468) (275,025)
INCOME TAX BENEFIT - (15,278) (42,857)
--------- --------- ---------
Net loss $ (57,227) $ (56,190) $(232,168)
PREFERRED STOCK DIVIDENDS 1,053 1,563 1,845
--------- --------- ---------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (58,280) $ (57,753) $(234,013)
========= ========= =========
BASIC AND DILUTED NET LOSS PER SHARE $ (2.26) $ (2.43) $ (10.17)
========= ========= =========
COMPREHENSIVE LOSS
Net loss $ (57,227) $ (56,190) $(232,168)
Foreign currency translation adjustment 1,256 42 (306)
--------- --------- ---------
NET COMPREHENSIVE LOSS $ (55,971) $ (56,148) $(232,474)
========= ========= =========
The accompanying notes are an integral part of these Consolidated Statements.
35
WABASH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Preferred Stock Common Stock Additional Retained Other
---------------- ------------------ Paid-in Earnings Comprehensive Treasury
Shares Amount Capital Amount Capital (Deficit) Income (Loss) Stock Total
------- ------ ---------- ------ ---------- --------- ------------- -------- --------
BALANCES, December 31, 2000 482,041 $ 5 23,002,490 $ 230 $ 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 - - 7,138 - 70 - - - 70
Employee stock bonus plan - - 1,960 - 27 - - - 27
Outside directors' plan - - 2,259 - 47 - - - 47
----------------------------------------------------------------------------------------------
BALANCES, December 31 , 2001 482,041 $ 5 23,013,847 $ 230 $ 236,804 $(104,469) $ (306) $ (1,279) $130,985
Net loss for the year - - - - - (56,190) - - (56,190)
Foreign currency translation - - - - - - 42 - 42
Preferred stock dividends - - - - - (1,563) - - (1,563)
Preferred stock conversion (130,041) (2) 2,589,687 26 334 - - - 358
Common stock issued under:
Employee stock purchase plan - - 5,312 1 47 - - - 48
Employee stock bonus plan - - 10,300 - 89 - - - 89
Stock option plan - - 11,168 - 82 - - - 82
Outside directors' plan - - 16,746 - 133 - - - 133
----------------------------------------------------------------------------------------------
BALANCES, December 31, 2002 352,000 $ 3 25,647,060 $ 257 $ 237,489 $(162,222) $ (264) $ (1,279) $ 73,984
Net loss for the year - - - - - (57,227) - - (57,227)
Foreign currency translation - - - - - - 1,256 - 1,256
Preferred stock dividends - - - - - (1,053) - - (1,053)
Preferred stock conversion (352,000) (3) 823,256 8 (7) - - - (2)
Restricted stock amortization - - - - 225 - - - 225
Common stock issued under:
Employee stock bonus plan - - 6,370 - 74 - - - 74
Stock option plan - - 360,114 4 4,800 - - - 4,804
Outside directors' plan - - 12,457 - 101 - - - 101
----------------------------------------------------------------------------------------------
BALANCES, December 31 , 2003 - $ - 26,849,257 $ 269 $ 242,682 $(220,502) $ 992 ($ 1,279) $ 22,162
===============================================================================================
The accompanying notes are an integral part of these Consolidated Statements.
36
WABASH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended December 31,
---------------------------------
2003 2002 2001
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (57,227) $ (56,190) $(232,168)
Adjustments to reconcile net cash provided by (used in) operating activities:
Depreciation and amortization 23,788 28,626 32,143
Net (gain) loss on the sale of assets 723 (1,322) (504)
Provision for losses on accounts receivable and finance contracts 474 9,773 20,959
Deferred income taxes - - (14,441)
Equity in losses of unconsolidated affiliate - - 7,183
Cash used for restructuring activities (3,372) (373) (6,988)
Restructuring and other related charges - 1,813 41,067
Used trailer valuation charges 2,562 5,443 62,134
Loss contingencies - 2,831 27,400
Loss on debt extinguishment 19,840 1,314 -
Loss on asset impairments 28,500 2,000 10,500
Change in operating assets and liabilities:
Accounts receivable (40,749) 19,695 1,790
Inventories 51,416 58,335 107,755
Refundable income taxes 824 24,762 (20,121)
Prepaid expenses and other 5,009 (4,016) 3,863
Accounts payable and accrued liabilities 11,286 9,776 (34,443)
Other, net (1,280) 1,815 261
--------- --------- ---------
Net cash provided by (used in) operating activities 41,794 104,282 6,390
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,518) (5,703) (5,899)
Additions to equipment leased to others - (9,792) (70,444)
Additions to finance contracts - (7,718) (18,662)
Acquisitions, net of cash acquired - - (6,336)
Investment in unconsolidated affiliate - - (7,183)
Proceeds from Asset Sales 53,479 - -
Proceeds from sale of leased equipment and finance contracts 15,189 5,337 60,556
Principal payments received on finance contracts 7,778 13,278 6,787
Proceeds from the sale of property, plant and equipment 6,861 16,617 426
--------- --------- ---------
Net cash provided by (used in) investing activities 76,789 12,019 (40,755)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of bank term loan and revolving credit facility 135,309 80,402 -
Proceeds from convertible senior notes 125,000 - -
Proceeds from exercise of stock options 4,804 351 144
Borrowings under trade receivables and revolving credit facilities 197,650 56,798 428,776
Payments under trade receivables and revolving credit facilities (225,501) (146,491) (361,006)
Payments under long-term debt and capital lease obligations (367,089) (78,589) (21,738)
Common stock dividends paid - - (2,991)
Preferred stock dividends paid (1,584) (443) (1,879)
Debt issuance costs paid (10,279) (3,805) -
--------- --------- ---------
Net cash provided by (used in) financing activities (141,690) (91,777) 41,306
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (23,107) 24,524 6,941
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,659 11,135 4,194
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,552 $ 35,659 $ 11,135
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 21,774 $ 27,913 $ 20,230
Income taxes refunded, net $ (832) $ (38,153) $ (7,047)
The accompanying notes are an integral part of these Consolidated Statements.
37
WABASH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS, INDUSTRY AND FINANCIAL CONDITION
Wabash National Corporation (the Company) designs, manufactures and
markets standard and customized truck trailers and intermodal equipment under
the Wabash(R), FreightPro(R), Articlite(R) and RoadRailer(R) trademarks. The
Company's wholly-owned subsidiary, Wabash National Trailer Centers, Inc. (WNTC),
sells new and used trailers through its retail network and provides aftermarket
parts and maintenance service for the Company's and competitors' trailers and
related equipment.
After achieving the recent peak production of over 305,000 units in
1999, the North American trucking industry suffered three years of declining
production bottoming at just under 140,000 units in 2002. As a result of these
conditions, the Company implemented a comprehensive plan to scale its operations
to meet demand and to survive.
Beginning in 2001 and continuing into 2002, the Company closed two of
its three trailer assembly facilities, conducted an employee layoff for the
first time in the Company's history, liquidated approximately $110 million of
used trailers under an aggressive liquidation plan, completed the divestiture of
its European operations, closed approximately 10 of its 49 factory-owned branch
locations, closed one of its two wood flooring facilities and closed one of two
parts distribution centers. As a result of these steps, the Company increased
its liquidity position (cash on hand and available borrowings under existing
credit facilities) from approximately $19 million as of September 30, 2001 to
approximately $78 million at the end of 2002. These actions also began to
improve the results from operations during 2002. The net losses incurred in both
2001 and 2002 resulted in the Company being in technical violation of financial
covenants with certain of its lenders on December 31, 2001 and on February 28,
2003. The Company received a waiver of the violation from its lenders and
subsequently amended its debt agreements to cure the violations.
In 2003, the truck trailer industry rebounded with production reaching
approximately 183,000 units. Buoyed by improving industry and general economic
conditions the Company continued its operational and financial turnaround by:
- selling certain assets of the rental and leasing and wholesale
parts businesses, former branch properties and a large portion
of its finance portfolios - proceeds totaling approximately
$75 million used to reduce on and off balance sheet debt;
- refinancing the Company's debt through the sale of $125
million of 3.25% senior unsecured convertible notes and the
completion of a $222 million bank facility - extending
required repayment terms and significantly reducing interest
rates; and
- continuing the streamlining of the retail and distribution
organization - closing 12 locations.
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, which as discussed in Footnote 5 was divested in January 2002.
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 losses for the periods previously reported.
38
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 Financial Accounting Standards
Board (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 Accumulated Other Comprehensive Income (Loss) in
Stockholders' Equity. Gains or losses resulting from foreign currency
transactions are included in Foreign Exchange Gains and Losses, net on the
Company's Consolidated Statements of Operations. The Company recorded foreign
currency (gains) losses of ($5.3) million in 2003, $0 million in 2002 and $1.7
million in 2001.
As a result of a reevaluation of the retail and distribution business,
the Company concluded to close 12 locations, including two in Canada. In
addition, the review resulted in management designating $30 million CDN of
intercompany loans to its Canadian subsidiary as a permanent investment.
Accordingly, beginning July 1, 2003 gains and losses associated with the
permanent investment were charged to Accumulated Other Comprehensive Income
(Loss) on the Consolidated Balance Sheets. As of December 31, 2003, accumulated
gains of $0.9 million have been recorded related to this permanent investment.
d. Revenue Recognition
The Company recognizes revenue from the sale of trailers and
aftermarket parts when the customer has made a fixed commitment to purchase the
trailers for a fixed or determinable price, collection is reasonably assured
under the Company's billing and credit terms and ownership and all risk of loss
has been transferred to the buyer, which is normally upon shipment or pick up by
the customer.
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.
e. Used Trailer Trade Commitments
The Company has commitments with certain customers to accept used
trailers on trade for new trailer purchases. These commitments arise in the
normal course of business related to future new trailer orders. The Company has
accepted trade-ins from customers of approximately $32.8 million, $40.5 million,
and $135.5 million in 2003, 2002 and 2001, respectively. As of December 31, 2003
and 2002, the Company had approximately $6.1 million and $7.0 million,
respectively, of outstanding trade commitments with customers. The net
realizable value of these commitments was approximately $6.1 million and $6.4
million as of December 31, 2003 and 2002, respectively. 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 and Finance Contracts
Accounts receivable and finance contracts are shown net of allowance
for doubtful accounts. Accounts receivable primarily includes trade receivables.
The Company records and maintains a provision for doubtful accounts for
customers based upon a variety of factors including the Company's historical
experience, the length of time the account has been outstanding and the
financial condition of the customer. If the circumstances related to specific
customers were to change, the Company's estimates with respect to the
collectibility of the related accounts
39
could be further adjusted. 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,
------------------------------
2003 2002 2001
-------- -------- --------
Balance at beginning of year $ 16,217 $ 14,481 $ 3,745
Provision 474 9,773 20,959
Write-offs, net (12,531) (8,037) (10,223)
-------- -------- --------
Balance at end of year $ 4,160 $ 16,217 $ 14,481
======== ======== ========
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,
------------------
2003 2002
-------- --------
Raw materials and components $ 24,189 $ 27,646
Work in progress 4,364 14,447
Finished goods 38,198 55,523
Aftermarket parts 5,953 15,054
Used trailers 12,292 22,202
-------- --------
$ 84,996 $134,872
======== ========
The Company continually reviews the valuation of the used trailer
inventory and writes down the value of individual units when the carrying value
exceeds the estimated market value. Write downs amounting to $2.6 million, $5.4
million and $62.1 million were charged to Cost of Sales on the Consolidated
Statement of Operations for 2003, 2002 and 2001, respectively.
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 33 years for buildings and building improvements and
range from three to 10 years for machinery and equipment. Depreciation expense
on property plant and equipment was $13.4 million, $14.7 million and $16.7
million for 2003, 2002 and 2001, respectively.
Property, plant and equipment consist of the following (in thousands):
December 31,
---------------------
2003 2002
--------- ---------
Land $ 23,376 $ 25,059
Buildings and building improvements 86,193 91,774
Machinery and equipment 114,498 112,796
Construction in progress 3,059 3,108
--------- ---------
227,126 232,737
Less--accumulated depreciation (96,532) (87,034)
--------- ---------
$ 130,594 $ 145,703
========= =========
In the second quarter of 2003, as part of an evaluation of certain
assets of its aftermarket parts business, the Company recorded a loss on asset
impairment, which included $5.1 million for property, plant and equipment. See
Footnote 5 for further discussion of this impairment.
40
j. Equipment Leased to Others
Equipment leased to others at December 31, 2003 and 2002 was $21.2
million and $100.8 million, net of accumulated depreciation of $8.9 million and
$11.2 million, respectively. Additions to equipment leased to others are
classified as 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, including capital lease assets, was $6.4 million,
$9.3 million and $9.6 million for 2003, 2002 and 2001, respectively.
During the second quarter of 2003, the Company recorded an asset
impairment charge of approximately $22 million on certain assets of its trailer
leasing and rental business and later on September 19, 2003, completed the sale
of these assets, which were included in Equipment Leased to Others on the
Consolidated Balance Sheets. See Footnote 5 for further discussion of this
transaction.
k. Goodwill
The changes in the carrying amount of goodwill, net of accumulated
amortization of $2.2 million and $1.9 million, respectively, for the years ended
December 31, 2002 and 2003 are as follows (in thousands):
Retail and
Manufacturing Distribution Total
-------------- -------------- --------------
Balance as of January 1, 2002 $ 18,357 $ 16,183 $ 34,540
Effects of foreign currency - 112 112
-------------- -------------- --------------
Balance as of December 31, 2002 $ 18,357 $ 16,295 $ 34,652
============== ============== ==============
Effects of foreign currency - 2,743 2,743
Asset Impairment - (1,350) (1,350)
-------------- -------------- --------------
Balance as of December 31, 2003 $ 18,357 $ 17,688 $ 36,045
============== ============== ==============
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
as of January 1, 2002. This standard changes the accounting for goodwill from an
amortization method to an impairment-only approach and introduces a new model
for determining impairment charges. The new model involves the comparing of the
carrying value of the goodwill to its fair value. The Company estimates fair
value based upon the present value of future cash flows. In estimating the
future cash flows, the Company takes into consideration the overall and industry
economic conditions and trends, market risk of the Company and historical
information. The Company completed the initial transition impairment test as of
January 1, 2002 and has conducted annual impairment tests as of October 1, 2002
and 2003 and determined that no impairment of goodwill existed. The Company
tests goodwill for impairment on an annual basis or more frequently if an event
occurs or circumstances change that could more likely than not reduce the fair
value of a reporting unit below its carrying amount. In the second quarter of
2003, as part of an evaluation of certain assets of its aftermarket parts
business, the Company recorded a loss on asset impairment, which included $1.4
million of goodwill related to its aftermarket parts business. See Footnote 5
for further discussion of this impairment.
The following table presents, on a pro forma basis, net loss and loss
per share as if SFAS No. 142 had been in effect for all years presented (in
thousands, except for loss-per-share amounts).
Years Ended December 31,
------------------------------------
2003 2002 2001
----------- -------- -----------
Reported net loss $ (57,227) $(56,190) $ (232,168)
Goodwill amortization (net of tax) - - 1,124
----------- -------- -----------
Adjusted net loss $ (57,227) $(56,190) $ (231,044)
=========== ======== ===========
Basic and diluted loss per share:
Reported net loss per share $ (2.26) $ (2.43) $ (10.17)
Goodwill amortization (net of tax) per share - - 0.05
----------- -------- -----------
Adjusted net loss per share $ (2.26) $ (2.43) $ (10.12)
=========== ======== ===========
41
l. Other Assets
The Company has other intangible assets including patents and licenses,
non-compete agreements and technology costs which are being amortized on a
straight-line basis over periods ranging from two to 12 years. As of December
31, 2003 and 2002, the Company had gross intangible assets of $17.3 million
($4.3 million net of amortization) and $19.9 million ($6.0 million net of
amortization), respectively. Amortization expense for 2003, 2002 and 2001 was
$1.8 million, $2.4 million and $1.9 million, respectively, and is estimated to
be $1.4 million, $0.9 million, $0.7 million, $0.5 million and $0.3 million for
2004, 2005, 2006, 2007 and 2008, respectively.
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 Developed or Obtained for Internal
Use. Capitalized software is amortized using the straight-line method over three
to five years. As of December 31, 2003 and 2002, the Company had software costs,
net of amortization of $2.1 million and $4.1 million, respectively. Amortization
expense for 2003, 2002 and 2001 was $2.1 million, $2.2 million and $3.0 million,
respectively.
m. Long-Lived Assets
Long-lived assets are reviewed for impairment in accordance with SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
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. Fair value is determined based upon discounted cash flows
or appraisals as appropriate.
n. Other Accrued Liabilities
The following table presents the major components of Other Accrued
Liabilities (in thousands):
Years Ended December 31,
------------------------
2003 2002
------- -------
Payroll and related taxes $12,980 $11,066
Warranty accruals 10,614 12,587
Accrued taxes 8,131 8,840
Self-insurance accruals 7,446 6,738
All other 22,250 22,193
------- -------
$61,421 $61,424
======= =======
The following table presents the changes in certain significant
accruals included in Other Accrued Liabilities as follows (in thousands):
Warranty Accruals Self-Insurance Accruals
----------------- -----------------------
Balance as of January 1, 2002 $ 11,313 $ 7,428
Accruals 7,951 19,767
Payments (6,677) (20,457)
-------- --------
Balance as of December 31, 2002 $ 12,587 $ 6,738
Accruals 6,310 23,728
Payments (8,283) (23,020)
-------- --------
Balance as of December 31, 2003 $ 10,614 $ 7,446
======== ========
The Company's warranty policy generally provides coverage for
components of the trailer the Company produces or assembles. Typically, the
coverage period is five years. The Company's policy is to accrue the estimated
cost of warranty coverage at the time of the sale.
42
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, as well as catastrophic claims as appropriate.
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.
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 basis
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. Stock-Based Compensation
The Company follows 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. However, SFAS No. 123, Accounting for Stock-Based Compensation, as
amended requires pro forma presentation as if compensation costs had been
expensed under the fair value method. For purposes of pro forma disclosure, the
estimated fair value of the options at the date of grant is amortized to expense
over the vesting period. Additional information regarding stock-based
compensation is included in Footnote 13. The following table illustrates the
effect on net loss and loss per share as if compensation expense had been
recognized (in thousands, except for loss-per-share amounts):
Years Ended December 31,
---------------------------------------
2003 2002 2001
----------- ----------- -----------
Reported net loss $ (57,227) $ (56,190) $ (232,168)
Stock- based compensation expense (net of tax) (2,445) (1,671) (1,871)
----------- ----------- -----------
Adjusted net loss $ (59,672) $ (57,861) $ (234,039)
=========== =========== ===========
Basic and diluted loss per share:
Reported net loss per share $ (2.26) $ (2.43) $ (10.17)
Stock- based compensation expense (net of tax) per share (0.10) (0.07) (0.08)
----------- ----------- -----------
Adjusted net loss per share $ (2.36) $ (2.50) $ (10.25)
=========== =========== ===========
q. New Accounting Pronouncements
Variable Interest Entities
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN
46 defines a variable interest entity (VIE) as a corporation, partnership, trust
or any other legal structure that does not have equity investors with a
controlling financial interest or has equity investors that do not provide
sufficient financial resources for the entity to support its activities. The
Company has evaluated its financial arrangements that had potential FIN 46
impact and determined that none of these arrangements are with a VIE and that
the adoption has no impact on its consolidated results of operations, financial
position or liquidity.
Derivatives
In April 2003, the FASB issued Statement of Financial Accounting (SFAS)
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This statement amends and clarifies financial accounting and
reporting for derivative instruments and hedging activities under FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, by
requiring contracts with similar characteristics to
43
be accounted for comparably. The adoption of SFAS No. 149, effective for
contracts entered into or modified after June 30, 2003, did not have a material
effect on financial position, results of operations, or cash flow.
Financial Instruments
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
statement changes the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. SFAS No. 150 may require
that those instruments be classified as liabilities. SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the interim period beginning after June 15, 2003. The
Company currently has no such instruments.
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, 2003, and 2002 were immaterial, with the exception
of the Senior Convertible Notes.
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable.
The carrying amounts reported in the Consolidated Balance Sheets approximate
fair value.
Long-Term Debt. The fair value of long-term debt, 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 Bank Facility are adjusted regularly to reflect current
market rates. The estimated fair value of the Company's Senior Convertible
Notes, based on market quotes, is approximately $214 million compared to a
carrying value of $125 million as of December 31, 2003. The carrying values of
the remainder of the Company's long-term borrowings approximate fair value.
Foreign Currency Forward Contracts. As of December 31, 2003, the
Company has $3.9 million in outstanding foreign currency forward contracts that
are not in a material gain or loss position.
4. RESTRUCTURING AND OTHER RELATED CHARGES
a. 2001 Restructuring Plan
In 2001, the Company recorded restructuring and other related charges
totaling $40.5 million primarily related to the closure of the Company's flatbed
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. In 2002, additional charges
totaling $1.6 million were recorded for asset impairment of the aforementioned
manufacturing facilities. The provisions were fully utilized by December 31,
2002. During 2003, the Company recorded an additional asset impairment charge of
$0.5 million on the Huntsville, Tennessee property which is included in Other,
net on the Consolidated Statements of Operations.
The Company continues to pursue the disposal of the two manufacturing
facilities. The assets have an estimated fair market value of $4.2 million and
$4.7 million as of December 31, 2003 and 2002, respectively, and are classified
in Prepaid Expenses and Other on the Consolidated Balance Sheets. Depreciation
has been discontinued on the assets pending their disposal. In accordance with
SFAS No. 144, the Company continues to review the assets for potential
impairment and appropriate classification as assets held for sale.
b. 2000 Restructuring Plan
In December 2000, the Company recorded restructuring and other related
charges totaling $46.6 million, $40.8 million as a component of Income from
Operations and $5.8 million as Other Income (Expense), primarily related to the
Company's exit from manufacturing products for export to markets outside of
North America, international leasing and financing activities and the
consolidation of certain domestic operations.
44
The Company continues to pursue the sale of the Sheridan, Arkansas
facility, which had a fair market value of $0.8 million at December 31, 2003 and
2002, and is classified in Prepaid Expenses and Other on the Consolidated
Balance Sheets. In accordance with SFAS No. 144, the Company continues to review
the assets for potential impairment and appropriate classification as an asset
held for sale.
In January 2002, the Company completed its divestiture of ETZ, which
resulted in the Company increasing its restructuring reserve by $1.4 million to
recognize the assumption of certain financial guarantees.
Details of the restructuring charges and reserve for the 2000
Restructuring Plan are as follows (in thousands):
Utilized
Original Additional -------------------- Balance
Provision Provision 2000-2002 2003 12/31/03
--------- ---------- --------- -------- --------
Restructuring of majority-owned operations:
Impairment of long-lived assets $ 20,819 $ 227 $ (21,046) $ - $ -
Loss related to equipment guarantees 8,592 - (2,902) (3,179) 2,511
Write-down of other assets & other charges 6,927 - (5,941) (561) 425
--------- ---------- --------- -------- --------
36,338 227 (29,889) (3,740) 2,936
--------- ---------- --------- -------- --------
Restructuring of minority interest operations:
ETZ equity interest 5,832 - (5,832) - -
Financial guarantees - 1,381 (307) 159 1,233
--------- ---------- --------- -------- --------
5,832 1,381 (6,139) 159 1,233
--------- ---------- --------- -------- --------
Inventory write-down and other charges 4,480 - (4,480) - -
--------- ---------- --------- -------- --------
Total restructuring and other related charges $ 46,650 $ 1,608 $ (40,508) $ (3,581) $ 4,169
========= ========== ========= ======== ========
The Company's total restructuring reserves were $4.2 million and $7.8
million at December 31, 2003 and 2002, respectively. These reserves are included
in Other Accrued Liabilities on the Consolidated Balance Sheets. During 2003,
the Company was required to fund $3.1 million of guarantees and has been
notified that an additional $1.2 million will be required in early 2004. The
Company anticipates that these reserves will be adequate to cover the remaining
charges to be incurred through 2004, which is the anticipated completion date
for this restructuring plan.
5. DIVESTITURES
a. ETZ
In January 2002, the Company completed the divestiture of its equity
interest in Europaische Trailerzug Beteiligungsgessellschaft mbH (ETZ). During
2001, the Company recognized approximately $7.7 million for its share of ETZ
losses which is recorded as Equity in Losses of Unconsolidated Affiliate on the
accompanying Consolidated Statements of Operations.
b. Asset Sale
In September 2003, the Company completed the sale of a portion of its
trailer leasing and finance operations and a portion of its aftermarket parts
distribution operations for approximately $53.5 million in cash. The principal
assets sold consisted of tangible assets (i.e., accounts receivable, inventory
and equipment held for lease), relationships with a specific subset of the
Company's customers and a portion of the Company's Retail and Distribution
business. In accordance with SFAS 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, the Company has not reflected these sales as discontinued
operations as only a portion of a component was sold, the Company will continue
to generate cash flows from these components and the Company will continue to be
involved in the operations of the disposed assets through, among other things,
purchase and supply agreements. Net proceeds from the sale were used to repay a
portion of the Company's outstanding indebtedness. Loss on the disposition
amounted to $29.3 million, including a $28.5 million asset impairment charge
recorded in the second quarter of 2003 to recognize that estimated cash flows
were insufficient to support the carrying value. The additional $0.8 million
loss was derived as follows (in thousands):
Assets sold $52,801
Transaction costs 1,503
Less proceeds 53,479
-------
$ 825
=======
The pro forma impact of the asset sale is presented in Footnote 20.
45
c. Finance Portfolio Sale
In the fourth quarter of 2003, the Company completed the sale of a
large portion of the remaining finance contracts in its finance portfolio.
Proceeds approximated $12.2 million and resulted in a charge of approximately
$4.1 million, reflecting the Company's loss on the sale, including $0.9 million
for debt extinguishment charges.
6. PER SHARE OF COMMON STOCK
Per share results have been computed based on the average number of
common shares outstanding. The computation of basic and diluted loss per share
is determined using net loss applicable to common stockholders as the numerator
and the number of shares included in the denominator as follows (in thousands):
Years Ended December 31,
----------------------------
2003 2002 2001
-------- -------- --------
Average shares outstanding basic 25,778 23,791 23,006
Options - - -
Preferred Stock - - -
-------- -------- --------
Average shares outstanding diluted 25,778 23,791 23,006
======== ======== ========
Average shares outstanding diluted exclude the antidilutive effects of
convertible preferred stock and redeemable stock options totaling approximately
1.1 million shares, 850,000 shares and 1.2 million shares in 2003, 2002 and
2001, respectively.
Effective January 1, 2004, 6.5 million shares from the Convertible
Notes will be included in the calculation of diluted per share amounts having
met the criteria. See Footnote 11 for a discussion of the Convertible Notes.
7. EQUIPMENT LEASED TO OTHERS
The Company has equipment on lease under both short-term and long-term
lease arrangements with its 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 $21.2
million and $100.8 million at December 31, 2003 and 2002, respectively.
Impairment charges related to this equipment amounting to $22.0
million, $2.0 million and $10.5 million were recorded in 2003, 2002 and 2001,
respectively. These charges were determined based upon the Company's estimate of
the equipment's fair value.
The future minimum lease payments to be received by the Company under
these lease transactions as of December 31, 2003 are as follows (in thousands):
Receipts
----------
2004 $ 1,437
2005 1,095
2006 1,095
2007 1,095
2008 1,095
Thereafter 1,275
----------
$ 7,092
==========
46
b. Equipment Off Balance Sheet
In certain situations, the Company sold equipment leased to others to
independent financial institutions and simultaneously leased the equipment back
under operating leases. All of this equipment had been subleased to customers
under long-term arrangements, typically five years. In December 2003, all
remaining sublease arrangements were sold to a third party as discussed further
in Footnote 5, and the residual leaseback obligations were paid off. Rental
payments made by the Company totaled $1.3 million, $1.3 million and $4.9 million
during 2003, 2002 and 2001, respectively.
8. CAPITAL LEASES
In conjunction with the asset sale discussed in Footnote 5, the
remaining capital lease obligations were paid off. Assets recorded under capital
lease arrangements included in Equipment Leased to Others, net were $43.6
million in 2002 and none in 2003. Accumulated depreciation recorded on leased
assets at December 31, 2002 was $2.1 million. Depreciation expense recorded on
leased assets in 2003 and 2002 was $1.6 million and $2.2 million, respectively.
In April 2002, a sale and leaseback facility with an independent
financial institution related to its rental equipment was amended which resulted
in a new lease. Rent expense related to this lease was approximately $9.2
million in 2001. In accordance with SFAS No. 13, Accounting for Leases, the new
lease was accounted for as a capital lease. The $23.0 million difference between
the unamortized lease value ($65.2 million) and the fair value of the leased
equipment ($42.2 million) was recorded as a charge to Cost of Sales in the
Consolidated Statement of Operations for the year ended December 31, 2001. As of
December 31, 2002, the Company had $36.1 million of equipment financed and $50.1
million under the capital lease obligation for this facility.
During the fourth quarter of 2002, sale and leaseback arrangements with
independent financial institutions related to certain of its other rental
equipment were amended, resulting in new leases. Rent expense related to these
leases was approximately $4.3 million in 2002 and $4.4 million in 2001. In
accordance with SFAS No. 13, the new leases have been accounted for as capital
leases with the unamortized lease value and the fair value of leased equipment
reflected in the Consolidated Balance Sheets as of December 31, 2002. The $7.2
million difference between the unamortized lease value ($14.7 million) and the
fair value of the leased equipment ($7.5 million) was recorded as a charge to
Cost of Sales in the Consolidated Statements of Operations with $4.4 million
being recorded as a loss contingency as of December 31, 2001, and the remaining
$2.8 million being recorded in 2002. The capital lease obligation of this
equipment was paid off in the fourth quarter of 2003.
During the second quarter of 2002, the decision was made to dispose of
the Company airplane which was accounted for as a capital lease in accordance
with SFAS No. 13. In accordance with SFAS No. 144, the capital lease asset was
written down to fair market value and reclassified, as an asset held for sale,
to Prepaid Expenses and Other in the Consolidated Balance Sheets. Adjustments to
reduce the fair value of the aircraft of $1.1 million and $0.8 million were
recognized in the second and third quarters of 2002, respectively, as charges to
General and Administrative Expense in the Consolidated Statements of Operations.
The airplane was sold in December 2002, and the remaining lease liability of
$11.3 million was paid off.
9. 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,
2003, the unamortized lease values related to these agreements are approximately
$11.9 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 are $4.2 million, $2.5 million, $2.3
million, $1.5 million and $1.4 million for 2004, 2005, 2006, 2007 and 2008,
respectively. 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 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.
47
Total rent expense for these leases in 2003, 2002 and 2001 were $4.2
million, $4.4 million and $4.1 million, respectively.
b. Other Lease Commitments
The Company leases office space, manufacturing, warehouse and service
facilities and equipment under operating leases, the majority of which expire
through 2006. Future minimum lease payments required under these other lease
commitments as of December 31, 2003 are as follows (in thousands):
Amounts
-------
2004 $ 1,930
2005 1,376
2006 789
2007 378
2008 146
Thereafter 52
-------
$ 4,671
=======
Total rental expense under operating leases was $4.0 million, $5.4
million and $5.8 million for 2003, 2002 and 2001, respectively.
10. FINANCE CONTRACTS
The Company previously provided financing for the sale of new and used
trailers to its customers. The Company no longer originates finance contracts.
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,
-------------------
2003 2002
-------- --------
Lease payments receivable $ 11,439 $ 34,817
Estimated residual value 801 5,636
-------- --------
12,240 40,453
Unearned finance charges (1,479) (6,881)
-------- --------
10,761 33,572
Other, net 121 (1,556)
-------- --------
10,882 32,016
Less: current portion (4,727) (9,528)
-------- --------
$ 6,155 $ 22,488
======== ========
Other, net at December 31, 2002 includes an asset of $0.9 million
related to the sale of certain finance contracts. In addition, other, net at
December 31, 2002 included $2.5 million for loss contingencies on finance
contracts recorded as charges to General and Administrative Expenses on the
Company's Consolidated Statements of Operations. The future minimum lease
payments to be received from finance contracts as of December 31, 2003 are as
follows (in thousands):
Amounts
-------
2004 $ 5,561
2005 2,957
2006 2,661
2007 230
2008 30
Thereafter -
-------
$11,439
=======
48
11. DEBT
a. Long-term debt consists of the following (in thousands):
December 31,
---------------------
2003 2002
--------- ---------
Bank Revolver (due 2006) $ 60,358 $ -
Bank Term Loan (due 2006) 36,766 -
Senior Convertible Notes (due 2008) 125,000 -
Other Notes Payable (3.0% - 7.25%, due 2004-2006) 5,192 16,962
Bank Term Loan - 75,273
Series A and C-I Senior Notes - 182,047
Make Whole and Deferral Fee Notes - 7,722
--------- ---------
$ 227,316 $ 282,004
Less: Current maturities (7,337) (42,961)
--------- ---------
$ 219,979 $ 239,043
========= =========
b. Maturities of long-term debt at December 31, 2003, are as
follows (in thousands):
Amounts
--------
2004 $ 7,337
2005 9,031
2006 85,948
2007 -
2008 125,000
Thereafter -
--------
$227,316
========
c. Debt Refinancing
On August 1, 2003, the Company completed the sale of $125 million of
3.25% five-year senior unsecured convertible notes (convertible notes), which
are currently convertible into approximately 6.5 million shares of the Company's
common stock. The Company used the net proceeds to repay a portion of its
outstanding indebtedness. The convertible notes have a conversion price of
$19.20 or a rate of 52.0833 shares per $1,000 principal amount of note. The
convertible notes bear interest at 3.25% per annum payable semi-annually on
February 1 and August 1. If not converted, the balance is due on August 1, 2008.
Costs associated with the transaction amounted to approximately $4.2 million and
are being amortized over the term of the convertible notes.
On September 23, 2003, the Company entered into a $222.1 million
three-year asset-based loan that includes a $47.1 million term loan (bank term
loan) and a $175 million revolver (bank revolver). The new financing replaced
the existing Trade Receivables Facility, Bank and Senior Series Notes.
The bank term loan is secured by the Company's property, plant and
equipment. The bank revolver is secured by inventory and accounts receivable and
the amount available to borrow varies in relation to the balances of those
accounts among other things, as defined in the agreements.
Interest on the bank term loan is variable, based on the London
Interbank Offer Rate (LIBOR) plus 300 basis points, decreasing to 275 basis
points after six months, or the bank's alternative rate, as defined in the
agreement. Interest on the bank revolver is at LIBOR plus 275 basis points,
decreasing to 250 basis points after six months or the bank's alternative rate,
as defined in the agreement. The Company pays a commitment fee on the unused
portion of the facility at a rate of 37.5 basis points per annum. Costs
associated with the transaction amounted to approximately $4.4 million and are
being amortized over the term of the loan. All interest and fees are paid
monthly. The rate in effect at December 31, 2003 was 4.75% for the revolver and
5.00% for the term loan, based on the bank's alternative rate.
The term loan requires a $5.0 million payment on January 1, 2004 and
quarterly principal payments of $1.7 million commencing on January 1, 2004, with
the balance due on September 23, 2006. The January 1, 2004
49
payments were made on December 31, 2003. The revolver is due on September 23,
2006. Beginning in March 2005, excess cash flow, as defined, is required to be
used to reduce term loan indebtedness.
The debt refinancing resulted in a loss on debt extinguishment of
approximately $18.9 million, including prepayment penalties, payment deferral
fees and the write-off of previously deferred debt costs.
d. Covenants
The bank term loan and revolver contain covenants that require, among
other things, minimum fixed charge coverage and maximum senior debt to EBITDA
coverage. Also, the agreement places limits on capital expenditures and
additional borrowings and prohibits the payment of dividends on its common
stock. As of December 31, 2003, the Company was in compliance with its financial
covenants.
12. STOCKHOLDERS' EQUITY
a. Capital Stock
On December 29, 2003, the Company converted its issued and outstanding
shares of Series B 6% Cumulative Convertible Exchangeable Preferred Stock
(Series B Stock) into approximately 823,300 shares, including 1,916 from accrued
and unpaid dividends, of the Company's common stock. The Series B Stock
converted into common stock at the rate of approximately 2.3 shares of common
stock for each full share of Series B Stock based on the conversion price of
$21.375.
In September 2002, the Company converted its Series C Preferred Stock,
along with accrued and unpaid dividends and applicable interest, into
approximately 2.6 million shares of the Company's common stock.
As of December 31, 2003 and 2002, the Company had 300,000 shares of
Series A Junior Participating Preferred Shares authorized with no shares issued
and outstanding.
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
In November 1995, our Board of Directors adopted a Stockholders' Rights
Plan (the "Rights Plan"). The Rights Plan is designed to deter coercive or
unfair takeover tactics in the event of an unsolicited takeover attempt. It is
not intended to prevent a takeover of Wabash on terms that are favorable and
fair to all stockholders and will not interfere with a merger approved by the
Board of Directors. Each right entitles stockholders to buy one one-thousandth
of a share of Series A Junior Participating Preferred Stock at an exercise price
of $120. The rights will be exercisable only if a person or a group acquires or
announces a tender or exchange offer to acquire 20% or more of our Common Stock
or if we enter into other business combination transactions not approved by the
Board of Directors. In the event the rights become exercisable, the rights plan
allows for our stockholders to acquire stock of Wabash or the surviving
corporation, whether or not Wabash is the surviving corporation having a value
twice that of the exercise price of the rights. The rights will expire December
28, 2005 or are redeemable for $0.01 per right by our Board under certain
circumstances.
13. 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.
SARs. 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.
50
The Company had granted 130,000 SARs in 2001 that were terminated in 2002. No
SARs were granted by the Company in 2002 or 2003. During 2001 and 2002, expense
related to SARs was not material.
Restricted Stock. From time-to-time, the Company has granted to certain
key employees and outside directors shares of the Company's stock to be earned
over time. These shares are granted at par value and recorded at the market
price on the date of grant with an offsetting balance representing the unearned
portion. These grants have been made under the 2000 Stock Option Plan. The
grants generally vest over periods ranging from one to three years. As of
December 31, 2003, there were 55,467 shares of restricted stock grants
outstanding and not fully vested with an unearned balance of $0.3 million
included in additional paid-in-capital. In 2003, the Company recorded
amortization expense of $0.2 million related to restricted stock.
Stock Options. 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 generally 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.
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, 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
Granted 375,000 10.01
Exercised (11,168) 7.38
Cancelled (294,981) 17.37
----------
Outstanding at December 31, 2002 1,846,576 17.93
Granted 953,250 8.46
Exercised (360,114) 13.34
Cancelled (563,360) 25.16
----------
Outstanding at December 31, 2003 1,876,352 $11.83
==========
The following table summarizes information about stock options
outstanding at December 31, 2003:
Weighted Weighted Weighted
Range of Average Average Number Average
Exercise Number Remaining Exercise Exercisable Exercise
Prices Outstanding Life Price at 12/31/03 Price
---------------- ----------- -------------------------------------------
$ 6.68 to $10.01 1,454,652 8.9 yrs. $ 8.63 85,069 $ 8.45
$10.02 to $13.35 4,500 7.4 yrs. $ 12.95 4,500 $ 12.95
$13.36 to $16.69 58,200 4.9 yrs. $ 15.35 58,200 $ 15.35
$16.70 to $20.03 32,150 3.0 yrs. $ 18.91 32,150 $ 18.91
$20.04 to $23.36 209,350 4.7 yrs. $ 21.77 163,700 $ 21.84
$26.70 to $30.04 85,000 3.3 yrs. $ 28.75 85,000 $ 28.75
$30.05 to $33.38 32,500 1.4 yrs. $ 33.38 32,500 $ 33.38
51
Using the Black-Scholes option valuation model, the estimated fair
values of options granted during 2003, 2002 and 2001 were $4.61, $5.67 and $5.20
per option, respectively. Principal assumptions used in applying the
Black-Scholes model were as follows:
Black-Scholes Model Assumptions 2003 2002 2001
------------------------------- ------- ------- -------
Risk-free interest rate 4.02% 5.11% 5.07%
Expected volatility 53.50% 49.40% 45.58%
Expected dividend yield 1.30% 1.26% 1.26%
Expected term 10 yrs. 10 yrs. 10 yrs.
b. Other Stock Plans
The 1993 Employee Stock Purchase Plan enabled eligible employees of the
Company to purchase shares of the Company's $0.01 par value common stock.
Employees may contribute up to 15% of their eligible compensation toward the
semi-annual purchase of common stock. The 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 plan. During 2002, 5,312 shares were
issued to employees at an average price of $8.88 per share. The plan was
discontinued effective December 31, 2002.
The Company has a 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 2003 and 2002, 6,370
and 10,300 shares, respectively, were issued to employees at an average price of
$11.58 and $8.64, respectively. The expense associated with the grants is
recognized when the shares are granted and amounted to $74,000, $89,000 and
$27,000 in 2003, 2002 and 2001, respectively. At December 31, 2003 and 2002,
there were 460,010 and 466,380 shares, respectively, available for offering
under the Bonus Plan.
14. 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 up to certain limits. On
January 1, 2003, Plan amendments went into effect that among other things
increased the potential Company matching contribution and changed the vesting
period of those contributions. The Plan was also amended to be a Safe Harbor
Plan and thus subject to those restrictions. The Company's matching contribution
and related expense for the plan was approximately $2.6 million, $1.0 million
and $1.0 million for 2003, 2002 and 2001, respectively.
15. SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and non-cash activities were as follows (in
thousands):
December 31,
------------------------------
2003 2002 2001
-------- -------- --------
Non-cash transactions:
Capital lease obligation incurred $ - $ 14,731 $ 77,363
Purchase option exercised related to equipment guarantees 6,746 - 13,825
Receivable Securitization Facility - - 17,700
Acquisitions, net of cash acquired:
Fair value of assets acquired - - 59,012
Liabilities assumed - - (52,676)
-------- -------- --------
Net cash paid $ - $ - $ (6,336)
======== ======== ========
52
16. INCOME TAXES
a. Income Tax (Benefit) Provision
The consolidated income tax (benefit) provision for 2003, 2002 and 2001
consists of the following components (in thousands):
2003 2002 2001
-------- -------- --------
Current:
U.S. Federal $ - $(13,789) $(27,597)
Foreign - 979 (819)
State - (2,468) -
Deferred - - (14,441)
-------- -------- --------
Total consolidated provision (benefit) $ - $(15,278) $(42,857)
======== ======== ========
The Company's effective tax rate differed from the U.S. Federal
statutory rate of 35% as follows:
2003 2002 2001
-------- -------- ---------
Pretax book loss $(57,227) $(71,468) $(275,025)
Federal tax benefit at 35% statutory rate (20,029) (25,014) (96,259)
State and local income taxes (1,604) (554)
Foreign income taxes - rate differential - (142)
Valuation allowance 18,857 12,706 55,305
Other 1,172 (1,366) (1,207)
-------- -------- ---------
Total income tax expense/(benefit) $ - $(15,278) $ (42,857)
======== ======== =========
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 2003, 2002 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
approximately $250 million, which will expire beginning in 2022, if unused, and
which may be subject to other limitations under IRS rules. The Company has
various tax credit carryforwards which will expire beginning in 2013, if unused.
Under SFAS No. 109, Accounting for Income Taxes, 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, 2003 and 2002, respectively. In future periods, the Company
will evaluate the income tax valuation allowance and adjust (reduce) the
allowance when management has determined that impairment to realizability of the
related deferred tax assets, or a portion thereof, has been removed.
53
The components of deferred tax assets and deferred tax liabilities as
of December 31, 2003 and 2002 were as follows (in thousands):
2003 2002
--------- --------
Deferred tax (assets):
Rentals on finance leases $ - $(22,998)
Leasing difference - (11,989)
Operations restructuring (22,852) (26,799)
Tax credits and loss carryforwards (104,814) (53,360)
Other (52,328) (85,280)
Deferred tax liabilities:
Book-tax basis differences-property, plant and equipment 68,979 73,557
Earned finance charges on finance leases - 10,770
Other 24,147 48,088
--------- --------
Net deferred tax liability/(asset), before valuation allowance $ (86,868) $(68,011)
--------- --------
Valuation allowance $ 86,868 $ 68,011
--------- --------
Net deferred tax asset $ - $ -
========= ========
17. 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 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 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 2000, the joint
venture was dissolved. BK subsequently filed its lawsuit against the Company
alleging among other things 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. 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.
The Company answered the complaint in May 2001, denying any wrongdoing.
The Company believes that the claims asserted against it by BK are without merit
and intends to defend itself vigorously against those claims. 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 early stage of the proceeding, no assurance can be given as to
the ultimate outcome of the case.
54
Environmental
In October 2003, the Company reached a verbal agreement with federal
officials to resolve a federal environmental investigation related to its
Huntsville, Tennessee facility. The plea agreement includes payment of a $0.4
million fine and a plea to two misdemeanor violations of the Clean Water Act.
The parties expect to submit the agreement to the court for resolution in the
near future. The expected resolution of this matter does not have a material
impact on the Company's financial position, liquidity or future results of
operations.
In September 2003, the Company was noticed as a potentially responsible
party (PRP) by the United States 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 of. 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.
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, 2003, the Company was not aware of any of its branch or
manufacturing locations where remediation activities would be required in its
current state and usage and therefore has no reserves. The $0.9 million
environmental reserve at December 31, 2002 was related to sites disposed of in
2003.
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
$9.0 and $8.6 million in the accompanying Consolidated Balance Sheets at
December 31, 2003 and 2002, 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, 2003, the Company had standby letters of credit
totaling approximately $7.0 million issued in connection with workers
compensation claims and surety bonds.
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. Annual
payments for the last three years were approximately $1 million.
f. Used Trailer Residual Guarantees and Purchase Commitments
In connection with certain historical new trailer sale transactions,
the Company had entered into agreements to guarantee end-of-term residual value,
which contain an option to purchase the used equipment at a pre-determined
price. By policy, the Company no longer provides used trailer residual
guarantees.
55
Under these agreements, future payments which may be required as of
December 31, 2003 are as follows (in thousands):
Purchase Option Guarantee Amount
--------------- ----------------
2004 $ 51,679 $ 4,465
2005 22,758 4,976
2006 - 9,680
2007 - 3,527
Thereafter - -
-------- --------
$ 74,437 $ 22,648
======== ========
In relation to the guarantees, as of December 31, 2003 and 2002, the
Company recorded loss contingencies of $1.4 million and $1.2 million,
respectively.
g. Purchase Commitments
As part of the sale of certain assets of our aftermarket parts
business, as discussed in Footnote 5, the Company entered into a parts purchase
agreement with the buyer that requires the Company to purchase $45 million in
parts over the next three years with a minimum of $15 million per year. The
purchase price for the parts will be at current market prices, will not exceed
business requirements and is subject to certain performance requirements.
18. 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.
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 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):
56
Retail and Combined Consolidated
Manufacturing Distribution Segments Eliminations Total
------------- ------------ --------- ------------ ------------
2003
Net sales
External customers $ 620,120 $ 267,820 $ 887,940 $ - $ 887,940
Intersegment sales 52,172 878 53,050 (53,050) -
--------- --------- --------- --------- ---------
Total net sales $ 672,292 $ 268,698 $ 940,990 $ (53,050) $ 887,940
========= ========= ========= ========= =========
Depreciation and amortization 13,843 9,945 23,788 - 23,788
Loss from operations 27,828 (37,283) (9,455) 433 (9,022)
Reconciling items to net loss:
Interest income (406)
Interest expense 30,162
Foreign exchange gains and losses, net (5,291)
Trade receivables facility costs 1,022
Loss on debt extinguishment 19,840
Other (income) expense 2,878
---------
Net loss $ (57,227)
=========
Capital expenditures $ 5,672 $ 846 $ 6,518 $ - $ 6,518
Assets $ 370,325 $ 188,477 $ 558,802 $(161,766) $ 397,036
2002
Net sales
External customers $ 492,267 $ 327,301 $ 819,568 $ - $ 819,568
Intersegment sales 37,793 4,188 41,981 (41,981) -
--------- --------- --------- --------- ---------
Total net sales $ 530,060 $ 331,489 $ 861,549 $ (41,981) $ 819,568
========= ========= ========= ========= =========
Depreciation and amortization 15,152 13,474 28,626 - 28,626
Restructuring charge from operations 1,813 - 1,813 - 1,813
Loss from operations (16,566) (22,287) (38,853) 93 (38,760)
Reconciling items to net loss:
Interest income (282)
Interest expense 30,873
Foreign exchange gains and losses, net (5)
Trade receivables facility costs 4,072
Loss on debt extinguishment 1,314
Other (income) expense (3,264)
Income tax benefit (15,278)
---------
Net loss $ (56,190)
=========
Capital expenditures $ 4,514 $ 1,189 $ 5,703 $ - $ 5,703
Assets $ 387,263 $ 340,505 $ 727,768 $(162,199) $ 565,569
2001
Net sales
External customers $ 518,212 $ 345,180 $ 863,392 $ - $ 863,392
Intersegment sales 61,854 2,427 64,281 (64,281) -
--------- --------- --------- --------- ---------
Total net sales $ 580,066 $ 347,607 $ 927,673 $ (64,281) $ 863,392
========= ========= ========= ========= =========
Depreciation and amortization 18,191 13,952 32,143 - 32,143
Restructuring charge from operations 37,493 371 37,864 - 37,864
Loss from operations (148,727) (92,975) (241,702) 2,300 (239,402)
Reconciling items to net loss:
Interest income (349)
Interest expense 21,292
Equity in losses of unconsolidated affiliate 7,668
Restructuring charges 1,590
Foreign exchange gains and losses, net 1,706
Trade receivables facility costs 2,228
Other (income) expense 1,488
Income tax benefit (42,857)
---------
Net loss $(232,168)
=========
Capital expenditures $ 4,463 $ 1,436 $ 5,899 $ - $ 5,899
Assets $ 449,012 $ 348,155 $ 797,167 $(104,663) $ 692,504
57
b. Geographic Information
International sales, primarily to Canadian customers, accounted for
approximately 9% in each of the last three years.
At December 31, 2003 and 2002, the amount reflected in property, plant
and equipment, net of accumulated depreciation related to the Company's Canadian
subsidiary was approximately $2.0 million.
c. Product Information
The Company offers products primarily in three general categories of
new trailers, used trailers and parts. Other sales include trailer service work
performed at branch locations, leasing revenues, interest income from finance
contracts and freight. The following table sets forth the major product category
sales and their percentage of consolidated net sales (dollars in thousands):
2003 2002 2001
------------------- ------------------- -------------------
New Trailers $690,465 77.8% $563,496 68.8% $614,363 71.2%
Used Trailers 64,843 7.3 92,317 11.3 73,287 8.5
Parts 81,710 9.2 99,447 12.1 103,694 12.0
Other 50,922 5.7 64,308 7.8 72,048 8.3
-------- -------- -------- -------- -------- --------
Total Sales $887,940 100.0% $819,568 100.0% $863,392 100.0%
======== ======== ======== ======== ======== ========
d. Major Customers
The Company had one customer that represented 14% of consolidated net
sales in 2003, and another customer that represented 11% and 19% of consolidated
net sales in 2002 and 2001, respectively. The Company's consolidated net sales
in the aggregate to its five largest customers were 27%, 30% and 34% of its
consolidated net sales in 2003, 2002 and 2001, respectively.
58
19. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for fiscal years 2003, 2002 and 2001 (Dollars in thousands except per
share amounts).
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
2003
Net sales $ 222,508 $ 230,231 $ 215,450 $ 219,751
Gross profit 22,341 (4,811) 15,905 15,259
Net loss 1,430 (27,268)(4) (29,641)(5) (1,748)(6)
Basic and diluted loss per
share(1) $ 0.05 $ (1.07) $ (1.16) $ (0.08)
2002
Net sales $ 161,952 $ 210,251 $ 241,474 $ 205,891
Gross profit 39 6,227 21,731 12,454
Net loss (14,589) (21,677) (8,319) (11,605)
Basic and diluted loss per
share(1) $ (0.65) $ (0.96) $ (0.37) $ (0.46)
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)(2) (134,948)(3)
Basic and diluted loss per
share(1) $ (0.79) $ (0.81) $ (2.69) $ (5.88)
(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 third quarter 2001 results include restructuring and other related
charges of $40.5 million ($25.6 million, net of tax).
(3) 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.
(4) The second quarter 2003 results include a $28.5 million loss on asset
impairment, as discussed in Footnote 5.
(5) The third quarter 2003 results include a $18.9 million loss on debt
extinguishment, related to its debt refinancing, as discussed in
Footnote 11.
(6) The fourth quarter 2003 results includes a $4.1 million loss on the
sale of a large portion of the Company's finance contracts.
59
20. PRO FORMA FINANCIAL INFORMATION
The Company has prepared the following Unaudited Pro Forma Consolidated
Statement of Operations for the twelve months ended December 31, 2003 to
illustrate the estimated effects of the sale (the "Asset Sale") of a portion of
its trailer leasing and finance operations and a portion of its aftermarket
parts distribution operations to Aurora Trailer Holdings, LLC and the
refinancing of its capital structure through the sale of $125 million of 3.25%
five-year senior unsecured convertible notes and entering into a $222 million
three-year asset-based loan arrangement (the "Refinancing").
In accordance with SFAS 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, the Company has not reflected the Asset Sale as
discontinued operations as only a portion of a component was sold, the Company
will continue to generate cash flows from these components and the Company will
continue to be involved in the operations of the disposed assets through, among
other things, purchase and supply agreements.
The Company believes the pro forma data to be useful in understanding
the operating results in view of the recently completed transactions. The
Unaudited Pro Forma Consolidated Statement of Operations gives effect to the
transactions, described in Footnotes 5 and 11, as if they had occurred as of the
beginning of the year. The Pro Forma Financial Statement is based upon
available information and certain assumptions that management believes are
reasonable. The Company has not attempted to allocate various costs and
expenses, including indirect factory-owned branch operating costs and selling,
general and administrative expenses to the pro-forma data as the costs are not
separately identifiable. The Pro Forma Financial Statement does not purport to
represent what the Company's results of operations or financial condition would
actually have been had the transactions in fact occurred on such dates or to
project the Company's results of operations or financial condition for any
future period or date.
60
Wabash National Corporation
Pro Forma Statement of Operations for the Twelve Months Ended December 31, 2003
Dollars in Thousands, Except Per Share Amounts
Adjustments
-----------------------
Historical Asset Sale Refinancing Pro Forma
---------- ---------- ----------- ---------
Net sales $ 887,940 $ (58,904) $ - $ 829,036
Cost of sales 810,746 (48,639) - 762,107
Loss on asset impairment 28,500 (28,500) - -
---------- ---------- ----------- ---------
Gross profit 48,694 18,235 - 66,929
General and administrative expenses 37,383 (1,498) (1,576) 34,309
Selling expenses 20,333 (1,920) - 18,413
---------- ---------- ----------- ---------
Income (loss) from operations (9,022) 21,653 1,576 14,207
Other income (expense):
Interest expense (30,162) 1,745 13,663 (14,754)
Trade receivable facility costs (1,022) - 1,022 -
Foreign exchange gains and losses, net 5,291 - 5,291
Loss on debt extinguishment (19,840) - 18,940 (900)
Other, net (2,472) 853 (1,619)
---------- ---------- ----------- ---------
Income (loss) before income taxes (57,227) 24,251 35,201 2,225
Income tax (benefit) expense - - - -
---------- ---------- ----------- ---------
Net income (loss) (57,227) 24,251 35,201 2,225
Preferred stock dividends 1,053 1,053
---------- ---------- ----------- ---------
Net income (loss) applicable to common stockholders $ (58,280) $ 24,251 $ 35,201 $ 1,172
========== ========== =========== =========
Basic and diluted net income (loss) per share $ (2.26) $ 0.05
========== =========
Weighted average shares outstanding 25,778 25,778
========== =========
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A--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 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (Exchange Act)) were effective as of
December 31, 2003 to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission's rules and forms.
There were no changes in the Company's internal control over financial
reporting identified in management's evaluation during the fourth quarter of
fiscal 2003 that have materially affected or are reasonably likely to materially
affect the Company's internal control over financial reporting.
61
PART III
ITEM 10--EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE REGISTRANT
The name, age, business experience, current committee memberships, and
directorships of each nominee for director, during at least the last five years,
are set forth in the table below.
David C. Burdakin Member - Audit, Compensation, Nominating and
Corporate Governance Committees
Age 49
Director of the Corporation since February 2002. Mr.
Burdakin is President of HON Company, a manufacturer
of office furniture, since February 2000 and
Executive Vice President of HON Industries, a
diversified manufacturer, since February 2001.
Previously, Mr. Burdakin was President of the HON
Group and has held a variety of positions of
increasing responsibility with HON since 1993.
William P. Greubel Member - Executive Committee.
Age 52
President and Chief Executive Officer of the
Corporation since May, 2002. Director of the
Corporation since May, 2002. Mr. Greubel was a
Director and Chief Executive Officer of Accuride
Corporation, a manufacturer of wheels for trucks and
trailers, from 1998 until April 2002 and served as
President of Accuride Corporation from 1994 to 1998.
Previously, Mr. Greubel was employed by AlliedSignal
Corporation from 1974 to 1994 in a variety of
positions of increasing responsibility, most recently
as Vice President and General Manager of the
Environmental Catalysts and Engineering Plastics
business units. Mr. Greubel is a Board member of the
Truck Trailer Manufacturers Association (TTMA) since
2002 and a board member of the United Way of
Lafayette since 2004.
John T. Hackett Member--Audit, Compensation, and Nominating and
Corporate Governance Committees
Age 71
Director of the Corporation since November 1991 and
Chairman of the Board of Directors of Wabash National
Corporation since October 2001. Mr. Hackett was
Managing General Partner of CID Equity Partners,
L.P., a private investment partnership, from 1991
until his retirement in 2001. He previously served as
Vice President--Finance and Administration of Indiana
University from 1988 to 1991 and Executive Vice
President, Chief Financial Officer and director of
Cummins Engine Corporation from 1964 to 1988. Mr.
Hackett is also a director of Irwin Financial
Corporation.
Dr. Martin C. Jischke Member--Audit, Compensation, and Nominating and
Corporate Governance Committees
Age 62
Director of the Corporation since January 2002. Dr.
Jischke is President of Purdue University, West
Lafayette, Indiana, since August 2000. Previously,
Dr. Jischke was president of Iowa State University
from 1991-2000, chancellor of the University of
Missouri-Rolla from 1986-1991, and served in various
capacities at the University of Oklahoma between 1968
and 1986, including dean and interim president. Dr.
Jischke also serves as a director of Kerr-McGee
Corporation.
62
Ludvik F. Koci Member--Audit and Compensation Committees
Age 67
Director of the Corporation since December 1993. Mr.
Koci was Chairman and Chief Executive Officer of
Detroit Diesel Corporation in Detroit, Michigan from
1997 until his retirement in 2002. He had previously
served as President and Chief Operating Officer from
December 1989. Mr. Koci also serves on the Board of
Directors of Penske Corporation, Penske
Transportation Components LLC., VM Motori S.p.A.,
American Trucking Research Institute, Focus Hope,
Mary's Children Family Center of Michigan and the
Board of Regents of Orchard Lake Schools, and of
Saints Cyril & Methodius Seminary.
Stephanie K. Kushner Member--Audit, Compensation, and Nominating and
Corporate Governance Committees
Age 48
Director of the Corporation since February 2004. Ms.
Kushner is Vice President and Chief Financial Officer
of Federal Signal Corporation, a manufacturer and
supplier of diverse industrial products. Prior to
joining Federal Signal, she was employed by FMC
Corporation for 14 years, most recently as Vice
President and Treasurer. Before joining FMC, she held
various financial positions with AMOCO Corporation,
Cyprus Minerals and Homestake Mining Company.
Directors' Fees
From January 1, 2003 until June 30, 2003, Directors who were not
officers or otherwise affiliated with the Corporation received total
compensation of $10,000 per calendar quarter (paid 1/3 in cash and 2/3 in common
stock of the Corporation) and $1,000 for each Committee meeting attended.
Effective July 1, 2003, Directors who are not officers or otherwise
affiliated with the Corporation receive compensation of $10,000 per calendar
quarter (paid 1/2 in cash and 1/2 in common stock of the Corporation), except
for the Chairman of the Board who receives compensation of $11,250 per calendar
quarter (paid 1/2 in cash and 1/2 in common stock of the Corporation). Directors
who are not officers or otherwise affiliated with the Corporation also receive
$1,000 for each Committee meeting attended except for the Chairman of each
committee who receive $2,000 for each committee meeting attended.
Beginning with fiscal year 2003, directors who are not officers or
otherwise affiliated with the Corporation annually receive a restricted stock
award of 1,000 shares on the last day of the fiscal year. One-half of these
shares vest on the first anniversary of the grant date and one-half vest on the
secondary anniversary of the grant date. Vesting of the restricted stock will be
accelerated on the first to occur of either (1) an involuntary termination of
the directorship and (2) the voluntary resignation of the director if the
director has served for one year since the date of grant.
EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to Mr. Greubel, who is identified above under the heading
"Directors of the Registrant," the table below sets forth the names, ages, and
current positions of each of the executive officers of the Corporation. The
business experience for each of these executive officers for the last five years
is described below the table.
NAME AGE POSITION
Rodney P. Ehrlich ......... 58 Senior Vice President--Chief Technology Officer
Richard J. Giromini ....... 50 Senior Vice President--Chief Operating Officer
Mark R. Holden ............ 44 Senior Vice President--Chief Financial Officer
Timothy J. Monahan......... 51 Senior Vice President--Human Resources
Rodney P. Ehrlich. Mr. Rodney Ehrlich has been Senior Vice President --
Chief Technology Officer of the Corporation since January 2004. From 2001 -
2003, Mr. Ehrlich was Senior Vice President--Product Development. Mr. Ehrlich
has been in charge of the Corporation's engineering operations since the
Corporation's founding.
63
Richard J. Giromini. Mr. Giromini has been Senior Vice President--
Chief Operating Officer since joining the Corporation on July 15, 2002. He also
has served as President and a Director of Wabash National Trailer Centers, Inc.
since January 2004. Prior to joining the Corporation, Mr. Giromini was with
Accuride Corporation, a manufacturer of wheels for trucks and trailers, from
April 1998 to July 2002, where he served in capacities as Senior Vice President
- Technology and Continuous Improvement; Senior Vice President and General
Manager - Light Vehicle Operations; and President and CEO of AKW LP. Previously,
Mr. Giromini was employed by ITT Automotive, Inc. from 1996 to 1998 serving as
the Director of Manufacturing.
Mark R. Holden. Mr. Holden has been Senior Vice President--Chief
Financial Officer since October 2001. In addition, Mr. Holden served in the
Office of the CEO during 2001 and 2002. Mr. Holden served as Vice President--
Chief Financial Officer and Director of the Corporation from May 1995 to October
2001.
Timothy J. Monahan. Mr. Monahan has been Senior Vice President--Human
Resources since October 2003. Prior to that, Mr. Monahan was with Textron
Fastening Systems from 1999 to October 2003 where he served as Vice President--
Human Resources. Previously, Mr. Monahan served as Vice President--Human
Resources at Beloit Corporation. Mr. Monahan serves on the board of directors of
North American Tool Corporation.
AUDIT COMMITTEE
The Board of Directors of the Corporation has a standing Audit
Committee established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee is comprised of John T.
Hackett, Ludvik F. Koci, David C. Burdakin, Martin C. Jischke and Stephanie K.
Kushner. The Board of Directors determined that Mr. Hackett is an "audit
committee financial expert" as defined by the Securities and Exchange Commission
and is "independent" as that term is used in Item 7(d)(3) of Schedule 14A under
the Exchange Act.
DIRECTOR NOMINATIONS BY STOCKHOLDERS
The Nominating and Corporate Governance Committee of the Board of
Directors will consider stockholder recommendations for directors sent to the
Nominating and Corporate Governance Committee, c/o VP, General Counsel and
Corporate Secretary, Wabash National Corporation, P.O., Box 6129, Lafayette,
Indiana 47903. Stockholder recommendations for director should include (i) the
name and address of the stockholder recommending the person to be nominated,
(ii) a representation that the stockholder is a holder of record of stock of the
Corporation including the number of shares held and the period of holding, (iii)
a description of all arrangements or understandings between the stockholder and
the recommended nominee, (if) such other information regarding the recommended
nominee as would be required to be included in a proxy statement filed pursuant
to Regulation 14A promulgated by the SEC pursuant to the Securities Exchange Act
of 1934, as amended and (v) the consent of the recommended nominee to serve as
the director of the Corporation if so elected. To submit a recommendation for a
director for an upcoming annual stockholder meeting, it is necessary that you
notify the Corporation not less than 120 days or more than 180 days before the
first anniversary of the date that the proxy statement for the preceding year's
annual meeting was first sent to stockholder. In addition, the notice must meet
all other requirements contained in our bylaws, if any. Upon receipt by the VP,
General Counsel and Corporate Secretary of a stockholder notice of a Director
nomination, the Corporate Secretary will notify the stockholder that the notice
has been received and will be presented to the Nominating and Corporate
Governance Committee for their review. Stockholders' nominees that comply with
these procedures will receive the same consideration as other candidates
identified to the Nominating and Corporate Governance Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors, executive officers and 10% stockholders to file reports
of ownership of equity securities of the Corporation. To the Corporation's
knowledge, based solely on review of the copies of such reports furnished to the
Corporation related to the year ended December 31, 2003, all such reports were
made on a timely basis, except for one Form 4 for Chris Black reporting one
transaction, which was not filed due to an oversight. For the year ended
December 31, 2002, due to clerical errors at the Corporation, each of William
Greubel, Richard Giromini and Chris Black failed to timely file one Form 4
reporting one transaction each.
64
CODE OF ETHICS
As part of our system of corporate governance, our Board of Directors
has adopted a code of ethics that is specifically applicable to our Chief
Executive Officer and Senior Financial Officers. This code of ethics is
available on the About Us page of our website at www.wabashnational.com.
ITEM 11--EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
for services in all capacities to the Corporation for the fiscal years ended
December 31, 2003, 2002, and 2001 of the Chief Executive Officer and the other
four most highly compensated executive officers of the Corporation as of
December 31, 2003, which includes all of the executive officers of the
Corporation as of that date (together, the "Named Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG - TERM
COMPENSATION
AWARDS
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
SALARY BONUS (2) STOCK AWARDS OPTIONS COMPENSATION(2)
NAME AND PRINCIPAL POSITION(1) YEAR ($) ($) ($) (#) ($)
William P. Greubel ........................ 2003 $ 600,000 $ 528,300 $ 0 175,000 $ 188,558
President and Chief Executive Officer 2002 $ 393,461 $ 200,000 $ 262,500 250,000 $ 21,945
2001 $ 0 $ 0 $ 0 0 $ 0
Rodney P. Ehrlich ......................... 2003 $ 251,275 $ 143,126 $ 0 20,000 $ 10,337
Senior Vice President - Chief 2002 $ 251,275 $ 0 $ 0 0 $ 5,790
Technology Officer 2001 $ 251,275 $ 0 $ 0 0 $ 5,183
Richard J. Giromini ....................... 2003 $ 330,305 $ 242,361 $ 0 70,000 $ 81,086
Senior Vice President - Chief Operating 2002 $ 150,208 $ 235,264 $ 70,000 125,000 $ 13,816
Officer 2001 $ 0 $ 0 $ 0 0 $ 0
Mark R. Holden ............................ 2003 $ 355,833 $ 261,093 $ 0 70,000 $ 22,956
Senior Vice President - Chief Financial 2002 $ 349,167 $ 150,000 $ 0 145,000 $ 23,000
Officer 2001 $ 287,500 $ 0 $ 0 5,000 $ 2,675
Timothy Monahan ........................... 2003 $ 44,558 $ 75,000 $ 0 10,000 $ 1,376
Senior Vice President - Human Resources 2002 $ 0 $ 0 $ 0 0 $ 0
2001 $ 0 $ 0 $ 0 0 $ 0
(1) Mr. Greubel became our Chief Executive Officer on May 6, 2002. Mr.
Giromini became the Corporation's Chief Operating Officer on July 15,
2002. Mr. Monahan became the Corporation's Senior Vice President--
Human Resources on October 26, 2003.
(2) "All Other Compensation" consists of (i) contributions to the
Corporation's 401(k) Plan, which, in 2003, consisted of $8,000 in
respect of each of Messrs. Greubel and Ehrlich, $7,625 in respect of
Mr. Giromini, and $2,000 in respect of Mr. Holden; (ii) payments by the
Corporation with respect to term life insurance for the benefit of the
respective officer, which, in 2003, consisted of $1,518 in respect of
each of Messrs. Greubel and Giromini, $660 in respect of Mr. Holden and
$2,337 in respect of Mr. Ehrlich; (iii) payments by the Corporation
with respect to the Executive Life Insurance Plan (which provides
employees with a
65
bonus to pay for a universal life insurance policy that is fully owned
by the employee), which, in 2003, consisted of $38,913 in respect of
Mr. Greubel, $18,250 in respect of Mr. Giromini and $20,000 in respect
of Mr. Holden; and (iv) reimbursement of relocation expenses, which, in
2003, consisted of $140,127 in respect of Mr. Greubel, $53,693 in
respect of Mr. Giromini and $1,376 for Mr. Monahan.
OPTION GRANTS
Shown below is information on grants of stock options during the year
ended December 31, 2003, to the Named Officers pursuant to the Corporation's
2000 Stock Option and Incentive Plan, and inducement options granted outside of
any corporate plan.
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENTAGE OF ASSUMED ANNUAL RATE OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -----------------------------
NAME GRANTED IN 2003 (PER SHARE)(1) DATE 5% ($) 10% ($)
------------------------ ---------- ------------- -------------- ---------- --------- ----------
William P. Greubel...... 175,000(3) 18.36% $ 9.03 1/17/2013 $ 993,811 $2,518,512
Rodney P. Ehrlich....... 20,000(3) 2.10% $ 9.03 1/17/2013 $ 113,578 $ 287,830
Richard J. Giromini..... 70,000(3) 7.34% $ 9.03 1/17/2013 $ 397,524 $1,007,405
Mark R. Holden.......... 70,000(3) 7.34% $ 9.03 1/17/2013 $ 397,524 $1,007,405
Timothy J. Monahan...... 10,000(4) 1.05% $ 20.15 10/27/2013 $ 62,952 $ 159,534
(1) Options were granted having exercise prices at fair market values on
the date of grant.
(2) The dollar amounts set forth under these columns are the result of
calculations of assumed annual rates of stock price appreciation from
the date of grant to the date of expiration of such options of 5% and
10%. These assumptions are not intended to forecast future appreciation
of the Corporation's stock price. The Corporation's stock price may
increase or decrease in value over the time period set forth above.
(3) Options granted to Messrs. Greubel, Ehrlich, Giromini and Holden vest
with respect to 2/3 of the options on the two-year anniversary from the
date of grant and the remainder vest on the three-year anniversary of
the date of grant.
(4) Options granted to Mr. Monahan vest with respect to 1/3 of the options
on each of the first three anniversaries of the date of grant.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Shown below is information with respect to the exercise of options by
the Named Officers to purchase the Company's common stock during the fiscal
year-ended December 31, 2003 and unexercised options to purchase the Company's
common stock pursuant to the Company's Amended 1992 Stock Option and Incentive
Plan, 2000 Stock Option Plan and inducement options granted outside of any
corporate plan held by the Named Officers.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES HELD AT DECEMBER 31, 2003 AT DECEMBER 31, 2003(1)
ACQUIRED ------------------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ ----------- -------------- ----------- ------------- ----------- -------------
William P. Greubel 0 -- 83,334 341,666 $ 1,607,513 $ 6,762,237
Rodney P. Ehrlich 25,000 $ 340,663 37,200 24,000 $ 162,260 $ 436,350
Richard Giromini 0 -- 0 195,000 -- $ 4,000,150
Mark R. Holden 0 -- 89,553 201,667 $ 1,077,066 $ 4,180,744
Timothy J. Monahan 0 -- 0 10,000 -- $ 91,500
(1) Based on the closing price on the New York Stock Exchange-Composite
Transactions of the Corporation's common stock on December 31, 2003
($29.30 per share).
66
EMPLOYMENT AND SEVERANCE AGREEMENTS
In April 2002, the Corporation entered into an employment agreement
with Mr. Greubel to serve as President and Chief Executive Officer of the
Corporation effective April 12, 2002 through March 31, 2005. The term of Mr.
Greubel's employment automatically renews for successive one-year periods unless
and until either party provides written notice, not less than 60 days prior to
the end of the then current term, of their intent not to renew the agreement.
The agreement requires the Corporation to use its commercially reasonable
efforts while Mr. Greubel is serving as the Chief Executive Officer to cause him
to be nominated for election to the Board of Directors. Pursuant to this
agreement, Mr. Greubel's initial salary was set at $600,000 per year, subject to
annual adjustment in connection with annual performance reviews and discussions
between Mr. Greubel and the Corporation. Mr. Greubel is also eligible for an
annual bonus targeted at 50% of his base salary and which may range from 0% to
100% of that year's base salary. This agreement provided that his bonus for 2002
would be at least $200,000. Pursuant to the terms of the agreement, the Board of
Directors granted Mr. Greubel an option to purchase 250,000 shares of our common
stock at an exercise price of $10.01 per share. One-third of these options
vested on the first anniversary of Mr. Greubel's employment and on each of the
next two anniversaries thereafter, an additional one-third of these options will
vest.
In the event that the Corporation terminates Mr. Greubel's employment
without cause, or it is terminated by Mr. Greubel as a result of a material
diminishment of his position, duties or responsibilities, the assignment by the
Corporation to Mr. Greubel of substantial additional duties or responsibilities
which are inconsistent with the duties or responsibilities then being carried
out by him and which are not duties of an executive nature, a material breach of
this agreement by the Corporation, which is not corrected within twenty (20)
business days of the receipt of a written notice specifying the breach, material
fraud on the part of the Corporation, or the discontinuance of the active
operation of business of the Corporation or its insolvency or bankruptcy, the
Corporation will pay to him the sum of three times his then current base salary
if the termination is prior to or on March 31, 2003 and two times his salary if
after March 31, 2003. In addition, all unvested options then held by Mr. Greubel
shall become vested. If the Corporation terminates Mr. Greubel's employment
without cause, upon the attainment of corporate objectives, he is entitled to
receive a pro-rata portion of his bonus for the year in which he is terminated.
Mr. Greubel has agreed not to compete with the Corporation during the term of
his agreement and for a period of two years after termination for any reason.
In June 2002, the Corporation entered into an employment agreement with
Mr. Holden to serve as Chief Financial Officer of the Corporation effective June
14, 2002 through June 14, 2003. The term of Mr. Holden's employment
automatically renews for successive one-year periods unless and until either
party provides written notice, not less than 60 days prior to the end of the
then current term, of their intent not to renew the agreement. Pursuant to this
agreement, Mr. Holden's initial salary was set at $350,000 per year, subject to
annual adjustment in connection with annual performance reviews and discussions
between Mr. Holden and the Corporation. Mr. Holden is also eligible for an
annual bonus targeted at 50% of his base salary and which may range from 0% to
100% of that year's base salary. This agreement provided that his bonus for 2002
would be at least $150,000. Pursuant to the terms of the agreement, the Board of
Directors granted Mr. Holden an option to purchase 125,000 shares of the
Corporation's common stock at an exercise price of $7.79 per share. Two-thirds
of these options will vest on the second anniversary of Mr. Holden's execution
of his employment agreement and on the next anniversary thereafter the remaining
one-third of these options will vest.
In the event that the Corporation terminates Mr. Holden's employment
without cause, or it is terminated by Mr. Holden as a result of a material
diminishment of his position, duties or responsibilities, the assignment by the
Corporation to Mr. Holden of substantial additional duties or responsibilities
which are inconsistent with the duties or responsibilities then being carried
out by him and which are not duties of an executive nature, a material breach of
this agreement by the Corporation, which is not corrected within twenty (20)
business days of the receipt of a written notice specifying the breach, material
fraud on the part of the Corporation, or the discontinuance of the active
operation of business of the Corporation or its insolvency or bankruptcy, the
Corporation will pay to him the sum of two times his then current base salary.
In addition, all unvested options then held by Mr. Holden shall become vested.
If the Corporation terminates Mr. Holden's employment without cause, upon the
attainment of corporate objectives, he is entitled to receive a pro-rata portion
of his bonus for the year in which he is terminated.
67
Mr. Holden has agreed not to compete with the Corporation during the term of his
agreement and for a period of two years after termination for any reason.
In June 2002, the Corporation also entered into an employment agreement
with Mr. Giromini to serve as Chief Operating Officer of the Corporation
effective July 15, 2002 through July 15, 2003. The term of Mr. Giromini's
employment automatically renews for successive one-year periods unless and until
either party provides written notice, not less than 60 days prior to the end of
the then current term, of their intent not to renew the agreement. Pursuant to
this agreement, Mr. Giromini's initial salary was set at $325,000 per year,
subject to annual adjustment in connection with annual performance reviews and
discussions between Mr. Giromini and the Corporation. Mr. Giromini is also
eligible for an annual bonus targeted at 50% of his base salary and which may
range from 0% to 100% of that year's base salary. This agreement provided that
his bonus for 2002 would be at least $150,000. Pursuant to the terms of the
agreement, the Board of Directors granted Mr. Giromini an option to purchase
125,000 shares of the Corporation's common stock at an exercise price of $8.65
per share. Two-thirds of these options will vest on the second anniversary of
Mr. Giromini's employment and on the next anniversary thereafter, the remaining
one-third of these options will vest.
In the event that the Corporation terminates Mr. Giromini's employment
without cause, or it is terminated by Mr. Giromini as a result of a material
diminishment of his position, duties or responsibilities, the assignment by the
Corporation to Mr. Giromini of substantial additional duties or responsibilities
which are inconsistent with the duties or responsibilities then being carried
out by him and which are not duties of an executive nature, a material breach of
this agreement by the Corporation, which is not corrected within twenty (20)
business days of the receipt of a written notice specifying the breach, material
fraud on the part of the Corporation, or the discontinuance of the active
operation of business of the Corporation or its insolvency or bankruptcy, the
Corporation will pay to him the sum of two times his then current base salary.
In addition, all unvested options then held by Mr. Giromini shall become vested.
If the Corporation terminates Mr. Giromini's employment without cause, upon the
attainment of corporate objectives, he is entitled to receive a pro-rata portion
of his bonus for the year in which he is terminated. Mr. Giromini has agreed not
to compete with the Corporation during the term of his agreement and for a
period of two years after termination for any reason.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors in 2003 consisted
of Messrs. Hackett, Koci, Burdakin and Jischke. None of these individuals is
currently, or was during 2003, an officer or employee of the Corporation. In
addition, none of these individuals serves as a member of the Board of Directors
or on the compensation committee of any corporation that has an executive
officer serving on the Board of Directors of the Corporation or its Compensation
Committee.
68
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of March 15, 2004
(unless otherwise specified), with respect to the beneficial ownership of the
Corporation's common stock by each person who is known to own beneficially more
than 5% of the outstanding shares of common stock, each person currently serving
as a director, each nominee for director, each Named Officer (as defined below),
and all directors and executive officers as a group:
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) OF CLASS
---------------------------------------------------------------- ------------ --------
FMR Corp.
82 Devonshire Street
Boston, MA 02109............................................ 3,891,697 (2) 14.37%
Pioneer Global Asset Management S.p.A.
Galleria San Carlo, 6
20122 Milan, Italy........................................... 2,083,332 (3) 7.69%
Goldman Sachs Asset Management, L.P.
32 Old Slip
New York, NY 10005.......................................... 1,741,431 (4) 6.43%
Barclays Private Bank Limited
59/60 Grosvenor Street
London, WIX 9DA England...................................... 1,379,642 (5) 5.09%
David C. Burdakin............................................... 6,376 *
Rodney P. Ehrlich............................................... 21,200 (6) *
Richard J. Giromini............................................. 20,592 *
William P. Greubel.............................................. 221,159 (7) *
John T. Hackett................................................. 21,818 (8) *
Mark R. Holden.................................................. 19,050 (9) *
Martin C. Jischke............................................... 6,063 *
Ludvik F. Koci.................................................. 20,457(10) *
Stephanie K. Kushner............................................ 0 0%
Timothy J. Monahan.............................................. 0 0%
All Executive Officers and Directors as a group (10 persons).... 336,715 1.24%
----------------------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to options or warrants currently exercisable or exercisable
within 60 days of March 15, 2004 are deemed outstanding for purposes of
computing the percentage ownership of the person holding such options
but are not deemed outstanding for purposes of computing the percentage
ownership of any other person. Except where indicated otherwise, and
subject to community property laws where applicable, the persons named
in the table above have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them.
69
(2) Based solely on a Schedule 13G filed December 10, 2003 and a Schedule
13G/A filed February 17, 2004. FMR Corp. has sole voting power with
respect to 572,900 shares of common stock, or 2.12% of the
Corporation's common stock. Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940, is the beneficial owner of 3,319,397 shares or 12.25% of the
common stock outstanding of the Corporation as a result of acting as
investment adviser to various investment companies registered under
Section 8 of the Investment Company Act of 1940. The ownership of one
investment company, Fidelity Small Cap Stock Fund, amounted to
1,478,500 shares or 5.46% of the outstanding common stock of the
Corporation.
Edward C. Johnson 3d, Chairman of FMR Corp., FMR Corp., through its
control of Fidelity, and the funds each has sole power to dispose of
the 3,319,397 shares owned by the Funds. Neither FMR Corp. nor Edward
C. Johnson 3d, has the sole power to vote or direct the voting of the
shares owned directly by the Fidelity Funds, which power resides with
the Funds' Boards of Trustees. Fidelity carries out the voting of the
shares under written guidelines established by the Funds' Boards of
Trustees.
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR
Corp. and a bank as defined in Section 3(a)(6) of the Securities
Exchange Act of 1934, is the beneficial owner of 465,100 shares or
1.72% of the common stock outstanding of the Corporation as a result of
its serving as investment manager of the institutional account(s).
Edward C. Johnson 3d and FMR Corp., through its control of Fidelity
Management Trust Company, each has sole dispositive power over the
465,100 shares and sole power to vote or to direct the voting of the
465,100 shares of common stock.
Members of the Edward C. Johnson 3d family are the predominant owners
of Class B shares of common stock of FMR Corp., representing
approximately 49% of the voting power of FMR Corp. Mr. Johnson 3d owns
12.0% and Abigail Johnson owns 24.5% of the aggregate outstanding
voting stock of FMR Corp. Mr. Johnson 3d is Chairman of FMR Corp. and
Abigail P. Johnson is a Director of FMR Corp. The Johnson family group
and all other Class B shareholders have entered into a shareholders'
voting agreement under which all Class B shares will be voted in
accordance with the majority vote of Class B shares. Accordingly,
through their ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the Investment Company Act of 1940, to form a controlling
group with respect to FMR Corp.
(3) Based solely on Schedules 13G filed August 28, 2003 and February 9,
2004.
(4) Based solely on a Schedule 13G filed February 13, 2004. Goldman Sachs
Asset Management, L.P. has sole voting power with respect to 1,604,424
shares of common stock, or 5.92% of the Corporation's common stock.
(5) Based solely on a Schedule 13G filed February 17, 2004. Barclays
Private Bank Limited has sole voting and investment power with respect
to 1,182,631 shares of common stock, or 4.37% of the Corporation's
common stock.
(6) Includes options to purchase 21,200 shares that are currently, or will
be within 60 days of March 15, 2004, exercisable.
(7) Includes options to purchase 146,667 shares that are currently, or will
be within 60 days of March 15, 2004, exercisable.
(8) Includes options to purchase 10,500 shares that are currently, or will
be within 60 days of March 15, 2004, exercisable.
(9) Includes options to purchase 18,000 shares that are currently, or will
be within 60 days of March 15, 2004, exercisable.
(10) Includes options to purchase 1,500 shares that are currently, or will
be within 60 days of March 15, 2004, exercisable.
70
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information regarding the Corporation's equity
compensation plans as of December 31, 2003.
Number of securities
remaining available for
Number of securities to be Weighted average future issuance under
issued upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (A))
-------------------------------------------------------------------------------------------------------------------------
(A) (B) (C)
-------------------------------------------------------------------------------------------------------------------------
Equity Compensation plans
approved by security holders ........ 589,850(1) $18.38 0
-------------------------------------------------------------------------------------------------------------------------
Equity Compensation plans not
approved by security holders ........ 1,269,485(2) $ 8.75 1,654,554
-------------------------------------------------------------------------------------------------------------------------
Total................................ 1,859,335 $11.81 1,654,554
-------------------------------------------------------------------------------------------------------------------------
(1) Consists of shares of common stock to be issued upon exercise of
outstanding options granted under the Wabash National Corporation
Amended 1992 Stock Option Plan, and shares of common stock to be
issued upon exercise of outstanding options granted under the Wabash
National Corporation 1992 Directors Stock Option Plan and shares of
common stock to be issued under the Wabash National Corporation
Directors and Executives Deferred Compensation Plan. The number of
shares that may be granted under the Wabash National Corporation
Directors and Executives Deferred Compensation Plan is based on
compensation deferral by directors and executives.
(2) Consists of shares of common stock to be issued upon exercise of
outstanding options granted under the Wabash National Corporation 2000
Stock Option and Incentive Plan, shares of common stock to be issued
under the Wabash National Corporation Stock Bonus Plan, shares of
common stock to be issued under the Wabash National Corporation
Employee Stock Purchase Plan and inducement options that were granted
outside of any formal corporate plan.
2000 STOCK AND OPTION INCENTIVE PLAN
The Corporation's Board of Directors adopted the 2000 Stock and Option
Incentive Plan effective November 2000. This plan provides for the grant of
non-qualified stock options and restricted stock in order to attract, retain and
compensate directors, highly qualified officers, key employees and other
persons. There were 2,000,000 shares of stock originally authorized for issuance
under the plan. The exercise price for each option granted is set by the
Compensation Committee, but is required to be at least the aggregate fair market
value of the shares subject to the option. The Compensation Committee sets the
vesting schedule for each option granted and sets the restricted period for each
grant of restricted stock. Upon a change in control of the Corporation, all
outstanding shares subject to options vest and all restrictions and conditions
applicable to shares subject to restricted stock lapse. The term of the plan is
10 years, unless earlier terminated by the Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN
The Corporation's Board of Directors adopted the Employee Stock
Purchase Plan effective June 1993. This plan provides for the purchase of the
Corporation's common stock by certain employees in order to increase the
employee's interest in the Corporation's growth and success and to retain the
employee's services. The employee purchases the stock by electing to have
deducted from his or her payroll a whole percentage amount of at least two
percent and no more than 15 percent of the employee's daily compensation. There
were 200,000 shares of common stock originally authorized for issuance under the
Employee Stock Purchase Plan. The purchase price for each share of common stock
is the fair market value of the common stock on the last day of the applicable
period. The Board of Directors may terminate this plan at any time.
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STOCK BONUS PLAN
The Corporation's Board of Directors adopted the Stock Bonus Plan
effective January 1, 1997. This plan provides that stock may be awarded as
supplementary compensation as an incentive and reward to eligible long service
employees who, through industry, ability and exceptional service, contribute
materially to the success of the Corporation. There were 500,000 shares of stock
originally authorized for issuance under the Stock Bonus Plan. The Board of
Directors has the authority to determine, in its sole discretion, the amount of
individual stock bonus awards. This plan may be amended, suspended or terminated
by the Board of Directors at any time.
INDUCEMENT GRANTS
The Corporation has issued non-qualified stock options outside of any
plan in connection with inducing certain individuals to start work for the
Corporation. In the aggregate, the Corporation has issued options to purchase
385,000 shares of common stock to three individuals. The exercise price for each
option granted was set by the Compensation Committee at the fair market value of
the shares subject to that option. The Compensation Committee set vesting
schedules that vest over three years. Upon a change in control of the
Corporation, all outstanding shares subject to options vest. The term of each
option is 10 years.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 2001, the Corporation entered into a three-year consulting and
non-compete agreement with Donald J. Ehrlich, former President and Chief
Executive Officer of the Corporation. At the time the agreement was executed,
Mr. Ehrlich was a director of the Corporation. The agreement provides for Mr.
Ehrlich to provide certain consulting services to the Corporation and precludes
Mr. Ehrlich from engaging in defined activities that are deemed competitive to
the interests of the Corporation. The agreement provides for payments to Mr.
Ehrlich for consulting services rendered to the Corporation of $50,000 per month
during the first year of the agreement term, $41,667 per month during the second
year of the agreement term, and $33,333 per month during the third year of the
agreement term. Mr. Ehrlich is the brother of Rodney Ehrlich, an executive
officer of the Corporation.
In April 2002, the Corporation entered into an employment contract with
William P. Greubel in connection with Mr. Greubel's employment as Chief
Executive Officer and President of Wabash National Corporation beginning in May
2002, and in June 2002, the Corporation entered into an employment contract with
Richard J. Giromini in connection with Mr. Giromini's employment as Chief
Operating Officer of Wabash National Corporation beginning in July 2002. Mr.
Greubel was formerly a Director and Chief Executive Officer of Accuride
Corporation, a manufacturer and supplier of wheels for medium and heavy-duty
trucks and trailers, and Mr. Giromini was formerly its Senior Vice
President/Technology and Continuous Improvement. During 2003, the Corporation
purchased certain products from Accuride Corporation for $13.7 million, and the
Corporation expects to make additional purchases during 2004. All purchases made
during 2003 were on an arm's-length basis, and the Corporation expects that
future purchases will be made on an arm's-length basis.
In September 2002, the Corporation entered into a sixteen-month
consulting and non-compete agreement with Charles Ehrlich, former Vice President
of Operations of the Corporation. Mr. Charles Ehrlich is the brother of Donald
J. Ehrlich, former President, Chief Executive Officer and Director, and the
brother of Rodney Ehrlich. The agreement provides for Mr. Ehrlich to provide
certain consulting services to the Corporation and precludes Mr. Ehrlich from
engaging in defined activities that are deemed competitive to the interests of
the Corporation. The agreement provides for payments to Mr. Ehrlich for
consulting services rendered to the Corporation of $21,243 per month during the
first four months of the agreement term, and $21,730 per month during the
remaining twelve months of the agreement term. The Corporation has no remaining
payment obligations pursuant to the agreement.
72
ITEM 14--PRINCIPAL ACCOUNTANT FEES AND SERVICES
PRINCIPAL ACCOUNTING FEES AND SERVICES
The fees paid by the Corporation to Ernst & Young LLP for professional
services for the years ended December 31, 2003 and December 31, 2002 were as
follows:
FEE CATEGORY 2003 2002
---------------------- -------- ------
(dollars in thousands)
Audit Fees $ 858 $ 648
Audit-Related Fees 805 80
Tax Fees 273 210
All Other Fees 17 121
------- ------
Total Fees $ 1,953 $1,059
Audit Fees. Consist of fees billed for professional services rendered
for the audit of the Corporation's consolidated financial statements, review of
the interim consolidated financial statements included in quarterly reports and
services provided by Ernst & Young in connection with the Corporation's
convertible notes offering in 2003 and its registration statements.
Audit-Related Fees. Consists of fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of the Corporation's consolidated financial statements and are not reported
under "Audit Fees." In 2003, these services include audits of benefit plans,
audits, accounting consultation, consulting on internal controls and other
audit-related services.
Tax Fees. Consists of fees billed for professional services for tax
compliance, tax advice and tax planning. In 2003, these services include
assistance related to state tax filing and incentives reviews of corporation tax
filings, consulting or net operating loss treatments, and review of tax audits.
All Other Fees. In 2003, these services include assistance related to
expatriate tax liability for a single non-executive officer.
With the exception of $46,000 of tax fees, which constituted 2.4% of
total Ernst & Young fees billed for 2003, for which pre-approval was waived
pursuant to the rules of the Securities and Exchange Commission, all Ernst &
Young fees were pre-approved by the audit committee pursuant to the policy
described below, or related to contracts existing on May 6, 2003.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT SERVICES AND
PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS
The Audit Committee's policy is to pre-approve all audit and
permissible non-audit services performed by the independent public accountants.
These services may include audit services, audit related services, tax services
and other services. For audit services, the independent auditor provides an
engagement letter in advance of the meeting of the Audit Committee that occurs
in connection with the Corporation's Annual Meeting, outlining the scope of the
audit and related audit fees. If agreed to by the Audit Committee, this
engagement letter is formally accepted by the Audit Committee at the meeting.
For all services, the Corporation's senior management submits from time
to time to the Audit Committee for approval services that it recommends the
Audit Committee engage the independent auditor to provide for the fiscal year.
In addition, the audit committee pre-approves specific non-audit services that
the independent auditor can provide from time-to-time during the year. All fee
proposals for those non-audit services must be approved in advance in writing by
the requesting department head and by the Corporate Controller. Any fee proposal
greater than $25,000 must also be approved in advance in writing by the Chief
Financial Officer. Any fee proposal greater than $100,000 must also be approved
in advance in writing by the Chairman of the Audit Committee. The Audit
Committee will be informed routinely as to the non-audit services actually
provided by the independent auditor pursuant to this pre-approval process.
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PART IV
ITEM 15--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.
(b) Reports on Form 8-K:
None.
(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(1)
2.02 Asset Purchase Agreement dated July 22, 2003(14)
2.03 Amendment No. 1 to the Asset Purchase Agreement dated September 19, 2003(14)
3.01 Certificate of Incorporation of the Company(2)
3.02 Certificate of Designations of Series A Junior Participating Preferred Stock(2)
3.03 Amended and restated By-laws of the Company(9)
4.01 Specimen Stock Certificate(7)
4.02 Rights Agreement between the Company and Harris Trust and Savings Bank
as Rights Agent dated December 4, 1995(2)
4.03 First Amendment to Shareholder Rights Agreement dated October 21, 1998(3)
4.04 Second Amendment to Shareholder Rights Agreement dated December 18, 2000(5)
4.05 Indenture for the 3.25% Convertible Senior Notes due August 1, 2008,
between the registrant, as issuer, and Wachovia Bank, National
Association, as Trustee, dated as of August 1, 2003(13)
4.06 Registration Rights Agreement for 3.25% Convertible Senior Notes due
August 1, 2008, dated August 1, 2003(13)
10.01 1992 Stock Option Plan(2)
10.02 Indemnification Agreement between the Company and Roadway Express, Inc.(4)
10.03 2000 Stock Option Plan(6)
10.04 Consulting and Non-Competition Agreement dated July 16, 2001 between
Donald J. Ehrlich and Wabash National Corporation(7)
10.05 2001 Stock Appreciation Rights Plan(8)
10.06 Executive Employment Agreement dated April 2002 between the Company and
William P. Greubel(9)
10.07 Executive Employment Agreement dated June 28, 2002 between the Company
and Richard J. Giromini(10)
10.08 Nonqualified Stock Option Agreement dated July 15, 2002 between the
Company and Richard J. Giromini(10)
10.09 Restricted Stock Agreement between the Company and Richard J. Giromini(10)
10.10 Executive Employment Agreement dated June 14, 2002 between the Company
and Mark R. Holden(10)
10.11 Nonqualified Stock Option Agreement dated May 6, 2002 between the
Company and Mark R. Holden(10)
10.12 Non-qualified Stock Option Agreement between the Company and William P.
Greubel(10)
10.13 First Amendment to Executive Employment Agreement dated December 4,
2002 between the Company and William P. Greubel(11)
10.14 Restricted Stock Agreement between the Company and William P. Greubel(11)
10.15 Second Amendment to Executive Employment Agreement dated June 2, 2003
between the Company and William P. Greubel(12)
10.16 Loan and Security Agreement dated September 23, 2003(15)
10.17 Amendment No. 1 to Loan and Security Agreement dated October 23, 2003(15)
10.18 Amendment No. 3 to Loan and Security Agreement dated December 11, 2003(15)
21.00 List of Significant Subsidiaries(15)
23.01 Consent of Ernst & Young LLP(16)
74
23.02 Notice Regarding Consent of Arthur Andersen LLP(16)
31.01 Certification of Principal Executive Officer(16)
31.02 Certification of Principal Financial Officer(16)
32.01 Written Statement of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002(18
U.S.C. Section 1350)(16)
(1) Incorporated by reference to the Registrant's Form 8-K filed
on May 1, 1997
(2) 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)
(3) Incorporated by reference to the Registrant's Form 8-K filed
on October 26, 1998
(4) Incorporated by reference to the Registrant's Form 10-K for
the year ended December 31, 1999
(5) Incorporated by reference to the Registrant's Amended Form 8-A
filed January 18, 2001
(6) Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended March 31, 2001
(7) Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended June 30, 2001
(8) Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended September 30, 2001
(9) Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended March 31, 2002
(10) Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended June 30, 2002
(11) Incorporated by reference to the Registrant's Form 10-K for
the year ended December 31, 2002
(12) Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended June 30, 2003
(13) Incorporated by reference to the Registrant's registration
statement Form S-3 (Registration No. 333-109375) filed on
October 1, 2003
(14) Incorporated by reference to the Registrant's Form 8-K filed
on September 29, 2003
(15) Previously filed on February 12, 2004
(16) Filed herewith
75
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WABASH NATIONAL CORPORATION
April 5, 2004 By: /s/ Mark R. Holden
--------------------------------------------------
Mark R. Holden
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
76