WABASH NATIONAL CORP
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2010
|
||
|
OR
|
||
|
¨
|
TRANSITION
REPORT UNDER SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
|
For
the transition period from
to
Commission
File Number:
1-10883
WABASH NATIONAL
CORPORATION
( Exact
name of registrant as specified in its charter)
|
Delaware
|
|
52-1375208
|
|
(State
of Incorporation)
|
(IRS
Employer
|
|
|
Identification
Number)
|
||
|
1000
Sagamore Parkway South,
|
||
|
Lafayette, Indiana
|
47905
|
|
|
(Address
of Principal
|
(Zip
Code)
|
|
|
Executive
Offices)
|
Registrant’s telephone
number, including area code: (765) 771-5300
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (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 whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
|
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
|
Non-accelerated
filer
x
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
x
The
number of shares of common stock outstanding at July 28, 2010 was
58,946,261.
WABASH
NATIONAL CORPORATION
INDEX
FORM
10-Q
|
Page
|
|||
|
|
|||
|
Item
1.
|
Financial
Statements
|
||
|
Condensed
Consolidated Balance Sheets at
June
30, 2010 and December 31, 2009
|
3
|
||
|
Condensed
Consolidated Statements of Operations
for
the three and six months ended June 30, 2010 and 2009
|
4
|
||
|
Condensed
Consolidated Statements of Cash Flows
for
the six months ended June 30, 2010 and 2009
|
5
|
||
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
||
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
and
Results of Operations
|
18
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risks
|
32
|
|
|
Item
4.
|
Controls
and Procedures
|
33
|
|
|
|
|||
|
Item
1.
|
Legal
Proceedings
|
33
|
|
|
Item
1A.
|
Risk
Factors
|
34
|
|
|
Item
6.
|
Exhibits
|
35
|
|
|
|
Signature
|
35
|
|
2
(Dollars
in thousands)
|
June 30,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
|
$ | 6,771 | $ | 1,108 | ||||
|
Accounts
receivable, net
|
38,261 | 17,081 | ||||||
|
Inventories
|
87,876 | 51,801 | ||||||
|
Prepaid
expenses and other
|
3,712 | 6,877 | ||||||
|
Total
current assets
|
136,620 | 76,867 | ||||||
|
PROPERTY,
PLANT AND EQUIPMENT, net
|
103,121 | 108,802 | ||||||
|
INTANGIBLE
ASSETS
|
24,401 | 25,952 | ||||||
|
OTHER
ASSETS
|
10,362 | 12,156 | ||||||
| $ | 274,504 | $ | 223,777 | |||||
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Current
portion of capital lease obligation
|
$ | 337 | $ | 337 | ||||
|
Accounts
payable
|
70,558 | 30,201 | ||||||
|
Other
accrued liabilities
|
39,790 | 34,583 | ||||||
|
Warrant
|
66,462 | 46,673 | ||||||
|
Total
current liabilities
|
177,147 | 111,794 | ||||||
|
LONG-TERM
DEBT
|
27,591 | 28,437 | ||||||
|
CAPITAL
LEASE OBLIGATION
|
4,300 | 4,469 | ||||||
|
OTHER
NONCURRENT LIABILITIES AND CONTINGENCIES
|
3,558 | 3,258 | ||||||
|
PREFERRED
STOCK, net of discount, 25,000,000 shares authorized, $0.01 par value, 0
and 35,000 shares issued and outstanding, respectively
|
- | 22,334 | ||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Common
stock 200,000,000 shares authorized, $0.01 par value, 58,503,114 and
30,376,374 shares issued and outstanding, respectively
|
608 | 331 | ||||||
|
Additional
paid-in capital
|
534,028 | 355,747 | ||||||
|
Retained
deficit
|
(447,251 | ) | (277,116 | ) | ||||
|
Treasury
stock at cost, 1,675,600 common shares
|
(25,477 | ) | (25,477 | ) | ||||
|
Total
stockholders' equity
|
61,908 | 53,485 | ||||||
| $ | 274,504 | $ | 223,777 | |||||
See Notes
to Condensed Consolidated Financial Statements.
3
(Dollars
in thousands, except per share amounts)
(Unaudited)
|
Three Months
|
Six Months
|
|||||||||||||||
|
Ended June 30,
|
Ended June 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
NET
SALES
|
$ | 149,699 | $ | 86,206 | $ | 227,974 | $ | 164,143 | ||||||||
|
COST
OF SALES
|
144,398 | 91,437 | 223,649 | 184,850 | ||||||||||||
|
Gross
profit
|
5,301 | (5,231 | ) | 4,325 | (20,707 | ) | ||||||||||
|
GENERAL
AND ADMINISTRATIVE EXPENSES
|
8,515 | 8,515 | 16,230 | 17,173 | ||||||||||||
|
SELLING
EXPENSES
|
2,501 | 2,918 | 5,042 | 6,103 | ||||||||||||
|
Loss
from operations
|
(5,715 | ) | (16,664 | ) | (16,947 | ) | (43,983 | ) | ||||||||
|
OTHER
INCOME (EXPENSE):
|
||||||||||||||||
|
Decrease
(Increase) in fair value of warrant
|
1,913 | - | (124,852 | ) | - | |||||||||||
|
Interest
expense
|
(998 | ) | (1,306 | ) | (2,025 | ) | (2,311 | ) | ||||||||
|
Other,
net
|
(802 | ) | 34 | (770 | ) | 89 | ||||||||||
|
Loss
before income taxes
|
(5,602 | ) | (17,936 | ) | (144,594 | ) | (46,205 | ) | ||||||||
|
INCOME
TAX (BENEFIT) EXPENSE
|
- | (1 | ) | 87 | 14 | |||||||||||
|
Net
loss
|
$ | (5,602 | ) | $ | (17,935 | ) | $ | (144,681 | ) | $ | (46,219 | ) | ||||
|
PREFERRED
STOCK DIVIDENDS AND EARLY EXTINGUISHMENT
|
$ | 23,455 | $ | - | $ | 25,454 | $ | - | ||||||||
|
NET
LOSS APPLICABLE TO COMMON STOCKHOLDERS
|
$ | (29,057 | ) | $ | (17,935 | ) | $ | (170,135 | ) | $ | (46,219 | ) | ||||
|
BASIC
AND DILUTED NET LOSS PER SHARE
|
$ | (0.72 | ) | $ | (0.59 | ) | $ | (4.78 | ) | $ | (1.53 | ) | ||||
|
COMPREHENSIVE
LOSS
|
||||||||||||||||
|
Net
loss
|
$ | (5,602 | ) | $ | (17,935 | ) | $ | (144,681 | ) | $ | (46,219 | ) | ||||
|
Reclassification
adjustment for interest rate swaps included in net loss
|
- | 231 | - | 231 | ||||||||||||
|
Changes
in fair value of derivatives, net of tax
|
- | - | - | 118 | ||||||||||||
|
NET
COMPREHENSIVE LOSS
|
$ | (5,602 | ) | $ | (17,704 | ) | $ | (144,681 | ) | $ | (45,870 | ) | ||||
See Notes
to Condensed Consolidated Financial Statements.
4
(Dollars
in thousands)
(Unaudited)
|
Six Months Ended June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
loss
|
$ | (144,681 | ) | $ | (46,219 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
|
Depreciation
and amortization
|
8,723 | 9,600 | ||||||
|
Net
gain on the sale of assets
|
(9 | ) | (7 | ) | ||||
|
Increase
in fair value of warrant
|
124,852 | - | ||||||
|
Stock-based
compensation
|
1,756 | 2,138 | ||||||
|
Changes
in operating assets and liabilities
|
||||||||
|
Accounts
receivable
|
(21,180 | ) | 19,931 | |||||
|
Inventories
|
(36,075 | ) | 25,176 | |||||
|
Prepaid
expenses and other
|
2,761 | 1,637 | ||||||
|
Accounts
payable and accrued liabilities
|
44,795 | (16,373 | ) | |||||
|
Other,
net
|
983 | 135 | ||||||
|
Net
cash used in operating activities
|
$ | (18,075 | ) | $ | (3,982 | ) | ||
|
Cash
flows from investing activities
|
||||||||
|
Capital
expenditures
|
(755 | ) | (628 | ) | ||||
|
Proceeds
from the sale of property, plant and equipment
|
526 | 7 | ||||||
|
Net
cash used in investing activities
|
$ | (229 | ) | $ | (621 | ) | ||
|
Cash
flows from financing activities
|
||||||||
|
Proceeds
from issuance of common stock, net of expenses
|
72,588 | - | ||||||
|
Proceeds
from exercise of stock options
|
305 | - | ||||||
|
Borrowings
under revolving credit facilities
|
242,977 | 86,118 | ||||||
|
Payments
under revolving credit facilities
|
(243,823 | ) | (103,795 | ) | ||||
|
Principal
payments under capital lease obligation
|
(169 | ) | (166 | ) | ||||
|
Payments
under redemption of preferred stock
|
(47,791 | ) | - | |||||
|
Debt
issuance costs paid
|
- | (583 | ) | |||||
|
Preferred
stock issuance costs paid
|
(120 | ) | - | |||||
|
Net
cash provided by (used in) financing activities
|
$ | 23,967 | $ | (18,426 | ) | |||
|
Net
increase (decrease) in cash
|
$ | 5,663 | $ | (23,029 | ) | |||
|
Cash
at beginning of period
|
1,108 | 29,766 | ||||||
|
Cash
at end of period
|
$ | 6,771 | $ | 6,737 | ||||
See Notes
to Condensed Consolidated Financial Statements
5
WABASH
NATIONAL CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION
OF THE BUSINESS
The
condensed consolidated financial statements of Wabash National Corporation (the
“Company”) have been prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the
“SEC”). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying condensed
consolidated financial statements contain all material adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
consolidated financial position of the Company, its results of operations and
cash flows. The Company has evaluated its June 30, 2010 consolidated financial
statements for subsequent events through the date that the Company’s
consolidated financial statements were filed with the SEC and determined no
subsequent events have taken place that meet the definition of a subsequent
event that requires further disclosure in this filing except for the change in
fair value of the Company’s warrant liability discussed in Note
4. The condensed consolidated financial statements included herein
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company’s 2009 Annual Report on Form
10-K.
As
discussed in Note 1 to the Company’s 2009 Annual Report on Form 10-K, the year
ending December 31, 2009 was challenging for the trailer industry as the factors
negatively impacting demand for new trailers became more intense and pervasive
across the United States. According to the most recent A.C.T.
Research Company, LLC (“ACT”) estimates, total trailer industry shipments in
2009 were approximately 79,000, or a decline of 45% from the 143,000 trailers
shipped in 2008 and more than 62% lower than the 213,000 trailers shipped for
the year ended December 31, 2007. These decreases in the demand
for trailers reflected the weakness of truck freight, which trended down since
the latter part of 2006 as a result of general economic conditions and, more
particularly, declines in new home construction and the automotive
industry. As a result of these significant declines within the
trailer industry, the Company’s revenues, gross profits, financial position and
liquidity for 2009 were all negatively impacted.
In light
of these economic conditions and the decline in the Company’s operating results
and financial condition, in July 2009, the Company entered into a Securities
Purchase Agreement (the “Securities Purchase Agreement”) with Trailer
Investments, LLC (“Trailer Investments”) pursuant to which Trailer Investments
purchased shares of redeemable preferred stock and received a warrant to
purchase common stock for an aggregate purchase price of $35.0
million. Furthermore, on May 28, 2010 and as discussed in Notes 3 and
5, the Company (i) closed on a public offering of the Company’s common stock,
par value $0.01 per share (the “Offering”), which consisted of 11,750,000 shares
of common stock sold by the Company and 16,137,500 shares of common stock sold
by Trailer Investments as selling stockholder, each at a purchase price of $6.50
per share and (ii) entered into a Consent and Amendment No. 1 to the Third
Amended and Restated Loan and Security Agreement (the “Amended Facility”) with
its lenders. Net proceeds from the Offering were used to redeem all
of its outstanding preferred stock and to repay a portion of its outstanding
indebtedness under its revolving credit facility.
As of
June 30, 2010, the Company’s liquidity position, defined as cash on hand and
available borrowing capacity, net of availability reserves as established in the
Amended Facility, amounted to approximately $67.7 million, an increase of
approximately $46.7 million from December 31, 2009. In addition to
the liquidity generated from the Securities Purchase Agreement, the Offering and
the Amended Facility, the Company has been and will continue to aggressively
manage its capital expenditures, cost structure and cash
position. Capital spending for 2009, which was limited to required
replacement projects and cost reduction initiatives, amounted to $1.0 million
and is anticipated to be approximately $2.0 million for 2010. The
Company has also implemented various cost reduction actions that have
substantially decreased its overhead and operating costs, including reductions
in hourly and salary headcount, compensation, and benefits. In
addition, the Company optimized its operations through plant, assembly line and
warehouse consolidation projects.
6
While the
Company continues to face uncertainty in 2010 regarding the demand for trailers
in the current economic environment, the overall trailer market for 2010 has
improved from 2009. According to the most recent ACT estimates, total
trailer industry shipments for 2010 are expected to be up 37% from 2009 to
approximately 107,000 units in 2010. Our backlog of orders at June
30, 2010 was $377 million, up 175% from our backlog at December 31, 2009 and
195% from the same period in the prior year. While this trend in the
overall trailer market is encouraging to see, the Company will proceed with
caution as the overall demand levels are expected to be stronger in the second
half of the year as compared to the first half.
As a
result of the May 28, 2010 closing of the Company’s Offering and Amended
Facility, the cash management actions implemented and an overall improved
trailer market outlined above, the Company believes liquidity is adequate to
fund its expected operating results, working capital requirements and capital
expenditures for the remainder of 2010.
2. INVENTORIES
Inventories
are stated at 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 consisted of the following
(in thousands):
|
June 30,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Raw
materials and components
|
$ | 29,623 | $ | 15,280 | ||||
|
Work
in progress
|
6,253 | 386 | ||||||
|
Finished
goods
|
43,610 | 26,920 | ||||||
|
Aftermarket
parts
|
3,735 | 4,072 | ||||||
|
Used
trailers
|
4,655 | 5,143 | ||||||
| $ | 87,876 | $ | 51,801 | |||||
In May 2010, the Company entered into
the Consent and Amendment No. 1 to the Third Amended and Restated Loan and
Security Agreement (the “Amended Facility”) with its lenders. The
Amended Facility amends and restates our previous revolving credit
facility. The Amended Facility was entered into to permit the early
redemption of the Company’s Series E-G Preferred Stock and required the Company
to pay down its revolving credit facility by at least $23.0
million. The repayment did not reduce the Company’s revolving loan
commitments. Pursuant to the Amended Facility, if the availability
under the Company’s revolving credit facility is less than $15.0 million at any
time before the earlier of August 14, 2011 or the date that monthly financial
statements are delivered for the month ending June 30, 2011, the Company is
required to maintain a varying minimum EBITDA and is restricted in the amount of
capital expenditures it can make during such period. If the Company’s
availability is less than $20.0 million thereafter, the Company is required to
maintain a fixed charge coverage ratio for the 12 month period ending on the
last day of the calendar month that ended most recently prior to such time of
not less than 1.1 to 1.0. In addition, the Amended Facility modifies
the Company’s borrowing base by eliminating a $12.5 million facility reserve
while reducing the fixed assets sub-limit by $12.5 million from $30.3 million to
$17.8 million.
7
As of June 30, 2010, the Company was in
compliance with all covenants of the Amended Facility.
4. PREFERRED
STOCK AND WARRANT
In July 2009, the Company entered into
a Securities Purchase Agreement with Trailer Investments pursuant to which
Trailer Investments purchased 20,000 shares of Series E redeemable preferred
stock (“Series E Preferred”), 5,000 shares of Series F redeemable preferred
stock (“Series F Preferred”), and 10,000 shares of Series G redeemable preferred
stock (“Series G Preferred”, and together with the Series E Preferred and the
Series F Preferred, the “Series E-G Preferred Stock”) for an aggregate purchase
price of $35.0 million. Trailer Investments also received a warrant
that is exercisable at $0.01 per share for 24,762,636 newly issued shares of the
Company’s common stock representing, on August 3, 2009, the date the warrant was
delivered, 44.21% of the Company’s issued and outstanding common stock after
giving effect to the issuance of the shares underlying the warrant, subject to
upward adjustment to maintain that percentage if currently outstanding options
are exercised. The number of shares of common stock subject to the
warrant was also subject to upward adjustment to an amount equivalent to 49.99%
of the issued and outstanding common stock of the Company outstanding
immediately after the closing after giving effect to the issuance of the shares
underlying the warrant in specified circumstances where the Company loses its
ability to utilize its net operating loss carryforwards, including as a result
of a stockholder of the Company acquiring greater than 5% of the outstanding
common stock of the Company.
In May 2010, in connection with the
Offering (as discussed in Note 5), the Company redeemed (the “Redemption”) all
outstanding shares of the Company’s Series E-G Preferred Stock at a liquidation
value of $1,000 per share, or $35.0 million, plus accrued and unpaid dividends
and a premium adjustment of 20% as required under the Securities Purchase
Agreement for any redemption made prior to August 2014. The Series E
Preferred, Series F Preferred and Series G Preferred paid an annual dividend
rate of 15%, 16% and 18%, respectively, based on liquidation
value. The Company accrued all dividend payments on the Series E-G
Preferred Stock totaling approximately $4.8 million through the Redemption
date. The premium adjustment for early redemption of $8.0 million was
applied to the sum of the liquidation value and accrued and unpaid
dividends. The total redemption price of the Series E-G Preferred
Stock, including accrued and unpaid dividends, was approximately $47.8
million.
Trailer Investments’ ownership of the
Series E-G Preferred Stock included significant rights pursuant to the
applicable certificates of designation for the Series E-G Preferred Stock and
pursuant to the Investor Rights Agreement dated August 3, 2009 between the
Company and Trailer Investments (the “Investor Rights Agreement”). As a
result of the Redemption, except for the payment in connection with a change of
control described below, the principal rights that previously existed but are no
longer held by Trailer Investments are (i) its right to receive the preferred
dividend, (ii) veto rights over certain significant aspects of the Company’s
operations and business, including payments of dividends, issuance of the
Company’s securities, incurrence of indebtedness, liquidation and sale of
assets, changes in the size of the Company’s board of directors, amendments to
the Company’s organizational documents (including those of its subsidiaries),
and other material actions by the Company, subject to certain thresholds and
limitations, and (iii) a right of first refusal to participate in any
future private financings.
8
If a change of control, meaning more
than 50% of the voting power is transferred or acquired by any person other than
Trailer Investments and its affiliates, occurs within 12 months of the date of
the Redemption (i.e., by May 28, 2011), Trailer Investments will be entitled to
receive an aggregate payment equal to $74.6 million, representing the difference
between what it received in the Redemption and what it would have been entitled
to receive on the date of the Redemption if a change of control had occurred on
that date.
The following table presents the
activity for the six month period ending June 30, 2010 for the Series E-G
Preferred Stock (in thousands):
|
Series E
|
Series F
|
Series G
|
Total
Preferred
|
|||||||||||||
|
Preferred
|
Preferred
|
Preferred
|
Stock
|
|||||||||||||
|
Balance
as of December 31, 2009
|
$ | 12,984 | $ | 3,190 | $ | 6,160 | $ | 22,334 | ||||||||
|
Issuance
cost adjustment
|
2 | - | 1 | 3 | ||||||||||||
|
Accretion
|
483 | 123 | 247 | 853 | ||||||||||||
|
Accrued
and unpaid dividends
|
1,326 | 355 | 807 | 2,488 | ||||||||||||
|
Payments
under redemption of preferred stock
|
(27,092 | ) | (6,827 | ) | (13,872 | ) | (47,791 | ) | ||||||||
|
Loss
on early extinguishment of preferred stock
|
12,297 | 3,159 | 6,657 | 22,113 | ||||||||||||
|
Balance
as of June 30, 2010
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Also in connection with the Company’s
Offering of its common stock, the Company amended the Warrant issued to Trailer
Investments on August 3, 2009 (the “Warrant,” and, as amended, the “Replacement
Warrant”). The Warrant was modified so that (i) the Warrant will no
longer adjust or increase based upon any limitation on the Company’s ability to
fully utilize its net operating loss (“NOL”) carryforwards and (ii) the Warrant
was increased by a fixed number of 750,000 warrant shares in lieu of the market
price anti-dilution adjustment that would have otherwise applied as a result of
the Offering. The market price anti-dilution adjustment and other
warrant adjustment provisions, other than the NOL adjustment, will continue to
apply to the Replacement Warrant.
The Company’s Offering of its common
stock also included 16,137,500 shares sold by Trailer Investments (the “Warrant
Shares”) pursuant to a partial exercise of the Warrant. The partial
net exercise of the Warrant was made by Trailer Investments via the forfeiture
of 22,812 shares of Common Stock under the Warrant.
As a result of the issuance of the
Warrant Shares and the partial net exercise of the Warrant, the Replacement
Warrant as issued in May 2010 was made exercisable for 9,355,865 shares,
representing 13.7% of the Company’s issued and outstanding common stock on the
date the Replacement Warrant was delivered. The number of shares for
which the Replacement Warrant is exercisable continues to be subject to upward
adjustment if currently outstanding options are exercised. Pursuant
to these terms, due to shares issued upon the exercise of stock options during
the second quarter of 2010 the Warrant is now exercisable for an additional
6,716 shares, or 9,362,581 shares in the aggregate. The Replacement
Warrant continues to be exercisable for cash or convertible into common stock
under a customary “cashless exercise” feature based upon the trading price of
the common stock at the time of exercise and continues to contain customary
anti-dilution adjustment features for stock splits and the like as well as
future issuances of stock or derivative securities that have sale or exercise
prices below the then current market price or $0.54.
9
Trailer Investments continues to have
other rights pursuant to the terms of the Investor Rights Agreement and its
Warrant. These rights include registration rights as well as certain
rights upon events of default, although these are now limited to events that
occur as a result only of breach of the covenants in the Investor Rights
Agreement that are in force after the Preferred Expiration Date as described in
the Investor Rights Agreement. The Investor Rights Agreement also
continues to provide that until the time that Trailer Investments cease to hold
or cease to beneficially own at least 10% of the issued and outstanding common
stock of the Company, it has the right to nominate five out of twelve members of
the Company’s board of directors. For the election at the Company’s
2010 annual meeting of stockholders, Trailer Investments waived its right to
nominate five directors and agreed to only nominate four out of ten members of
the Company’s board of directors.
The Warrant contains several
conditions, including, among other things, an upward adjustment of shares upon
the occurrence of certain contingent events but no longer including the loss of
the Company’s ability to utilize its net operating loss carryforwards, and the
holder has an option pursuant to the terms of the Investor Rights Agreement to
settle the Warrant for cash in event of a specific default. These
provisions result in the classification of the Warrant as a liability that is
adjusted to fair value at each balance sheet date.
The warrant liability was recorded
initially at fair value with subsequent changes in fair value reflected in
earnings. Estimating fair value of the Warrant requires the use of
assumptions and inputs that are observable, either directly or indirectly, and
may, and are likely to, change over the duration of the Warrant with related
changes in internal and external market factors. In addition,
option-based techniques are highly volatile and sensitive to changes in the
trading market price of the Company’s common stock, which has a high historical
volatility. Since the Warrant is initially and subsequently carried
at fair value, the Company’s Statements of Operations will reflect the
volatility in these estimate and assumption changes. Subsequent to
June 30, 2010 the fair value of the Warrant has increased by approximately $17
million due primarily to change in the market price of the Company’s common
stock. The fair value of the Warrant was estimated using a binomial
valuation model.
5. STOCKHOLDERS’
EQUITY
On May 13, 2010, the Company’s
stockholders approved an amendment to the Company’s Certificate of
Incorporation, as amended, to increase the number of authorized shares of common
stock, par value $.01 per share, from 75 million shares to 200 million shares
and correspondingly, to increase the total number of authorized shares of all
classes of capital stock from 100 million shares to 225 million shares, which
includes 25 million shares of preferred stock, par value $.01 per
share.
On May 28, 2010, the Company closed the
Offering, which consisted of 11,750,000 shares of common stock sold by the
Company and 16,137,500 shares of common stock sold by Trailer Investments as
selling stockholder, each at a purchase price of $6.50 per share. The
shares of common stock sold in the Offering by Trailer Investments included
3,637,500 shares sold pursuant to the underwriters’ exercise in full of their
option to purchase additional shares to cover over-allotments. All
shares sold by Trailer Investments were issued upon the partial exercise of the
Warrant it held (see Note 4 for further details). The Company did not
receive any proceeds from the sale of the shares by Trailer
Investments. The Company generated proceeds from the sale of
11,750,000 shares of common stock of $76.4 million and used the net proceeds to
redeem all of its outstanding preferred stock and to repay a portion of its
outstanding indebtedness under its revolving credit facility.
6. FAIR
VALUE MEASUREMENTS
As of the beginning of the 2008 fiscal
year, the Company adopted the provisions of a statement issued by the FASB on
fair value measurements as it relates to recurring financial assets and
liabilities. As of the beginning of the 2009 fiscal year, the Company
adopted the provisions of this Statement as it relates to nonrecurring fair
value measurement requirements for nonfinancial assets and
liabilities.
10
The
statement establishes a three-level valuation hierarchy for fair value
measurements. These valuation techniques are based upon the
transparency of inputs (observable and unobservable) to the valuation of an
asset or liability as of the measurement date. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs
reflect the Company’s market assumptions. These two types of inputs
create the following fair value hierarchy:
|
|
·
|
Level
1 — Valuation is based on quoted prices for identical assets or
liabilities in active markets;
|
|
|
·
|
Level
2 — Valuation is based on quoted prices for similar assets or liabilities
in active markets, or other inputs that are observable for the asset or
liability, either directly or indirectly, for the full term of the
financial instrument; and
|
|
|
·
|
Level
3 — Valuation is based upon other unobservable inputs that are significant
to the fair value measurement.
|
The
following table sets forth by level within the fair value hierarchy the
Company’s financial assets and liabilities that were accounted for at fair value
on a recurring basis (in thousands):
|
June 30, 2010
|
December 31, 2009
|
|||||||||||||||||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Warrant
|
$ | - | $ | 66,462 | $ | - | $ | 66,462 | $ | - | $ | 46,673 | $ | - | $ | 46,673 | ||||||||||||||||
The
carrying amounts of cash and cash equivalents, accounts receivable and accounts
payable reported in the Condensed Consolidated Balance Sheets approximate fair
value.
The fair
value of total borrowings 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 Revolving Facility are adjusted
regularly to reflect current market rates and thus carrying value approximates
fair value.
7. STOCK-BASED
COMPENSATION
The
Company recognizes all stock-based payments to employees, including grants of
employee stock options, in the financial statements based upon their fair
value. The Company uses a binomial valuation model, which
incorporates various assumptions including volatility, expected life, dividend
yield and risk-free interest rates, to value new stock option awards it
grants. The expected life and volatility assumptions are based on the
Company’s historical experience as well as the terms and conditions of stock
option awards granted to employees.
The
Company’s policy is to recognize expense for awards subject to graded vesting
using the straight-line attribution method. The amount of
compensation costs related to stock appreciation rights, nonvested stock options
and restricted stock not yet recognized was $4.5 million at June 30, 2010, for
which the expense will be recognized through 2013.
11
8. CONTINGENCIES
Various
lawsuits, claims and proceedings have been or may be instituted or asserted
against the Company arising in the ordinary course of business, including those
pertaining to product liability, labor and health related matters, successor
liability, environmental matters 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. Costs associated with
the litigation and settlement of legal matters are reported within
General and Administrative
Expenses
in the Consolidated Statements of Operations.
Brazil
Joint Venture
In March
2001, Bernard Krone Indústria e Comércio de Máquinas Agrícolas Ltda. ("BK")
filed suit against the Company in the Fourth Civil Court of Curitiba in the
State of Paraná, Brazil. Because of the bankruptcy of BK, this
proceeding is now pending before the Second Civil Court of Bankruptcies and
Creditors Reorganization of Curitiba, State of Paraná (No. 232/99).
The case
grows out of a joint venture agreement between BK and the Company related to
marketing of RoadRailer trailers 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 the exclusivity and
non-compete clauses purportedly found in the joint venture
agreement. BK asserts damages of approximately $8.4
million.
The
Company answered the complaint in May 2001, denying any
wrongdoing. The Company believes that the claims asserted by BK are
without merit and it intends to defend its position. A trial was held
on March 30, 2010 in Curitiba, Paraná, Brazil. A ruling on the
evidence presented at the trial is not expected for several
months. The Company believes that the resolution of this
lawsuit will not have a material adverse effect on its financial position,
liquidity or future results of operations; however, at this stage of the
proceeding no assurances can be given as to the ultimate outcome of the
case.
Intellectual
Property
In
October 2006, the Company filed a patent infringement suit against Vanguard
National Corporation (“Vanguard”) regarding Wabash National’s U.S. Patent Nos.
6,986,546 and 6,220,651 in the U.S. District Court for the Northern District of
Indiana (Civil Action No. 4:06-cv-135). The Company amended the
Complaint in April 2007. In May 2007, Vanguard filed its Answer to
the Amended Complaint, along with Counterclaims seeking findings of
non-infringement, invalidity, and unenforceability of the subject
patents. The Company filed a reply to Vanguard’s counterclaims in May
2007, denying any wrongdoing or merit to the allegations as set forth in the
counterclaims. The case has currently been stayed by agreement of the
parties while the U.S. Patent and Trademark Office (“Patent Office”) undertakes
a reexamination of U.S. Patent Nos. 6,986,546. The Patent Office
recently notified the Company that the reexamination is complete and the Patent
Office will be reissuing U.S. Patent Nos. 6,986,546 without cancelling any
claims of the patent. Once reissued, the parties will petition the
Court to lift the stay; however, it is unknown at this time when the stay may be
lifted.
12
The
Company believes that its claims against Vanguard have merit, that the claims
asserted by Vanguard are without merit, and intends to vigorously defend its
position and intellectual property. The Company believes that the
resolution of this lawsuit will not have a material adverse effect on its
financial position, liquidity or future results of operations; however, at this
stage of the proceeding, no assurance can be given as to the ultimate outcome of
the case.
Environmental
Disputes
In
September 2003, the Company was noticed as a potentially responsible party (PRP)
by the U.S. Environmental Protection Agency (“EPA”) pertaining to the Motorola
52nd Street, Phoenix, Arizona Superfund Site (the “Superfund Site”) pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act
(“CERCLA”). PRPs include current and former owners and operators of
facilities at which hazardous substances were allegedly disposed. The
EPA’s allegation that the Company was a PRP arises out of the Company’s
acquisition of a former branch facility located approximately five miles from
the original Superfund Site. The Company acquired this facility in
1997, operated the facility until 2000, and sold the facility to a third party
in 2002. In June 2010, the Company was contacted by the Roosevelt
Irrigation District (“RID”) informing it that the Arizona Department of
Environmental Quality (“ADEQ”) had approved a remediation plan in excess of $100
million for the RID portion of the Superfund Site, and demanded that the Company
contribute to the cost of the plan or be named as a defendant in a CERCLA action
to be filed in July 2010. The Company initiated settlement
discussions with the RID and the ADEQ in July 2010 to provide the Company with a
full release from the RID, and a covenant not-to-sue and contribution protection
regarding the former branch property from the ADEQ, in exchange for payment from
the Company. If the settlement is approved by all parties, it will
prevent any third party from successfully bringing claims against the Company
for environmental contamination relating to this former branch
property. The Company is awaiting approval from the ADEQ for the
settlement proposed by the Company in July 2010; the Company and the RID do not
expect to receive a response from the ADEQ for several months. Based
upon the Company’s limited period of ownership of the former branch property,
and the fact that the Company no longer owns the former branch property, the
Company does not anticipate that the ADEQ will reject the proposed settlement,
but no assurance can be given at this time as to the ADEQ’s response to the
settlement proposal. The proposed settlement terms have been accrued
by the Company and did not have a material adverse effect on the Company’s
financial condition or results of operations, and the Company believes that any
ongoing proceedings will not have a material adverse effect on the Company’s
financial condition or results of operations.
In
January 2006, the Company received a letter from the North Carolina Department
of Environment and Natural Resources indicating that a site that the Company
formerly owned near Charlotte, North Carolina has been included on the state's
October 2005 Inactive Hazardous Waste Sites Priority List. The letter
states that the Company was being notified in fulfillment of the state's
“statutory duty” to notify those who own and those who at present are known to
be responsible for each Site on the Priority List. No action is being
requested from the Company at this time. The Company does not expect
that this designation will have a material adverse effect on its financial
condition or results of operations.
13
|
9.
|
NET LOSS PER
SHARE
|
Per share
results have been computed based on the average number of common shares
outstanding. The computation of basic and diluted net 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,
except per share amounts):
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Net
loss applicable to common stockholders
|
$ | (29,057 | ) | $ | (17,935 | ) | $ | (170,135 | ) | $ | (46,219 | ) | ||||
|
Basic
and diluted weighted average common shares outstanding
|
40,623 | 30,198 | 35,556 | 30,127 | ||||||||||||
|
Basic
and diluted net loss per share
|
$ | (0.72 | ) | $ | (0.59 | ) | $ | (4.78 | ) | $ | (1.53 | ) | ||||
Due to
the losses reported in 2010 and 2009, average diluted shares outstanding for the
three and six month periods ending June 30, 2010 and 2009 exclude the
antidilutive effects of the following potential common shares (in
thousands):
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Stock
options and restricted stock
|
400 | 3 | 276 | 17 | ||||||||||||
|
Redeemable
warrants
|
19,155 | - | 21,913 | - | ||||||||||||
|
Options
to purchase common shares
|
1,617 | 2,230 | 1,662 | 2,175 | ||||||||||||
|
10.
|
INCOME
TAXES
|
The Company has experienced cumulative
operating losses over the most recent three year period. After
considering these operating losses and other available evidence, both positive
and negative, management determined that it was necessary to record a full
valuation allowance against its deferred tax assets created during the quarter
and year to date periods ended June 30, 2010. As a result, the
effective income tax expense for the first six months of 2010 was less than $0.1
million.
The following table provides
reconciliation of differences from the U.S. federal statutory rate of 35% (in
thousands):
|
Six Months Ended June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Pretax
book loss
|
$ | (144,594 | ) | $ | (46,205 | ) | ||
|
Federal
tax benefit at 35% statutory rate
|
(50,608 | ) | (16,172 | ) | ||||
|
State
and local income tax benefit
|
(7,144 | ) | (2,271 | ) | ||||
|
Provision
for valuation allowance for net operating losses - U.S. and
states
|
7,318 | 17,619 | ||||||
|
Effect
of non-deductible adjustment to fair value of warrant
|
49,941 | - | ||||||
|
Effect
of non-deductible stock-based compensation
|
521 | 741 | ||||||
|
Other
|
59 | 97 | ||||||
|
Total
income tax expense
|
$ | 87 | $ | 14 | ||||
14
As of
June 30, 2010, the Company had approximately $184 million of remaining U.S.
federal income tax net operating loss carryforwards (“NOLs”), which will begin
to expire in 2022 if unused and which may be subject to other limitations under
Internal Revenue Service (the “IRS”) rules. The Company has various,
multistate income tax NOL carryforwards, which have been recorded as a deferred
income tax asset of approximately $17 million, before valuation
allowance. The Company also has various U.S. federal income tax
credit carryforwards, which will expire beginning in 2013, if
unused.
The
Company’s NOLs, including any future NOLs that may arise, are subject to
limitations on use under the IRS rules, including Section 382 of the Internal
Revenue Code of 1986, as revised. Section 382 limits the ability of a
company to utilize NOLs in the event of an ownership change. The
Company would undergo an ownership change if, among other things, the
stockholders, or group of stockholders, who own or have owned, directly or
indirectly, 5% or more of the value of the Company’s stock or are otherwise
treated as 5% stockholders under Section 382 and the regulations
promulgated thereunder increase their aggregate percentage ownership of the
Company’s stock by more than 50 percentage points over the lowest percentage of
its stock owned by these stockholders at any time during the testing period,
which is generally the three-year period preceding the potential ownership
change.
In the
event of an ownership change, Section 382 imposes an annual limitation on
the amount of post-ownership change taxable income a corporation may offset with
pre-ownership change NOLs and certain recognized built-in losses. The limitation
imposed by Section 382 for any post-change year would be determined by
multiplying the value of our stock immediately before the ownership change
(subject to certain adjustments) by the applicable long-term tax-exempt rate in
effect at the time of the ownership change. Any unused annual limitation may be
carried over to later years, and the limitation may under certain circumstances
be increased by built-in gains that may be present in assets held by us at the
time of the ownership change that are recognized in the five-year period after
the ownership change. It is expected that any loss of the Company’s
NOLs would cause its effective tax rate to go up significantly when we return to
profitability.
On May
28, 2010 a change of ownership did occur resulting from the issuance of
11,750,000 shares of common stock, which invoked a limitation on the utilization
of pre-ownership change NOLs under Section 382. As a result,
pre-ownership change NOLs are currently estimated to be $181 million and are
currently estimated to be limited under Section 382 through 2014 to the
following limits: $21 million for the period May 29, 2010 to December 31, 2010;
$48 million for 2011; $41 million for 2012; $40 million for 2013; and $31
million for 2014. To the extent taxable income in a given year does
not fully utilize the allowable limit, any unused NOL limitation can be carried
forward indefinitely to future years. In addition, post-ownership change NOLs at
June 30, 2010 are currently estimated to be $3 million, which are currently not
subject to utilization limits.
In 2009
the Company undertook a study to ensure that the change in ownership related to
the issuance of the Warrant in August 2009 did not result in a Section 382
limitation and believes that such a limitation was not
triggered. However, there can be no assurance that such a change had
not been triggered due to the lack of authoritative
guidance.
15
|
11.
|
PRODUCT
WARRANTIES
|
The following table presents the
changes in the product warranty accrual included in
Other Accrued Liabilities
(in
thousands):
|
2010
|
2009
|
|||||||
|
Balance
as of January 1
|
$ | 14,782 | $ | 17,027 | ||||
|
Provision
for warranties issued in current year
|
702 | 533 | ||||||
|
Additional
(recovery of) provision for pre-existing warranties
|
(354 | ) | 110 | |||||
|
Payments
|
(950 | ) | (1,365 | ) | ||||
|
Balance
as of June 30
|
$ | 14,180 | $ | 16,305 | ||||
The
Company offers a limited warranty for its products. With respect to
Company products manufactured prior to 2005, the limited warranty coverage
period is five years. Beginning in 2005, the coverage period for
DuraPlate
®
trailer
panels was extended to ten years, with all other products remaining at five
years. The Company passes component manufacturers’ warranties on to
its customers. The Company’s policy is to accrue the estimated cost
of warranty coverage at the time of the sale.
|
12.
|
SEGMENTS
|
a. Segment
Reporting
The
Company has two reportable segments: manufacturing and retail and
distribution. The manufacturing segment produces and sells new
trailers to the retail and distribution segment or to customers who purchase
trailers directly from the Company or through independent
dealers. The retail and distribution segment includes the sale of new
and used trailers, as well as the sale of after-market parts and service,
through its retail branch network.
16
Reportable
segment information is as follows (in thousands):
|
Manufacturing
|
Retail
and
Distribution
|
Eliminations
|
Consolidated
Totals
|
|||||||||||||
|
Three
Months Ended June 30, 2010
|
||||||||||||||||
|
Net
sales
|
||||||||||||||||
|
External
customers
|
$ | 124,837 | $ | 24,862 | $ | - | $ | 149,699 | ||||||||
|
Intersegment
sales
|
7,936 | - | (7,936 | ) | - | |||||||||||
|
Total
net sales
|
$ | 132,773 | $ | 24,862 | $ | (7,936 | ) | $ | 149,699 | |||||||
|
(Loss)
Income from operations
|
$ | (5,717 | ) | $ | 97 | $ | (95 | ) | $ | (5,715 | ) | |||||
|
Assets
|
$ | 407,726 | $ | 96,690 | $ | (229,912 | ) | $ | 274,504 | |||||||
|
Three
Months Ended June 30, 2009
|
||||||||||||||||
|
Net
sales
|
||||||||||||||||
|
External
customers
|
$ | 68,007 | $ | 18,199 | $ | - | $ | 86,206 | ||||||||
|
Intersegment
sales
|
2,880 | - | (2,880 | ) | - | |||||||||||
|
Total
net sales
|
$ | 70,887 | $ | 18,199 | $ | (2,880 | ) | $ | 86,206 | |||||||
|
(Loss)
Income from operations
|
$ | (15,440 | ) | $ | (1,308 | ) | $ | 84 | $ | (16,664 | ) | |||||
|
Assets
|
$ | 380,390 | $ | 102,823 | $ | (230,095 | ) | $ | 253,118 | |||||||
|
Six
Months Ended June 30, 2010
|
||||||||||||||||
|
Net
sales
|
||||||||||||||||
|
External
customers
|
$ | 182,172 | $ | 45,802 | $ | - | $ | 227,974 | ||||||||
|
Intersegment
sales
|
13,350 | - | (13,350 | ) | - | |||||||||||
|
Total
net sales
|
$ | 195,522 | $ | 45,802 | $ | (13,350 | ) | $ | 227,974 | |||||||
|
Loss
from operations
|
$ | (16,332 | ) | $ | (522 | ) | $ | (93 | ) | $ | (16,947 | ) | ||||
|
Assets
|
$ | 407,726 | $ | 96,690 | $ | (229,912 | ) | $ | 274,504 | |||||||
|
Six
Months Ended June 30, 2009
|
||||||||||||||||
|
Net
sales
|
||||||||||||||||
|
External
customers
|
$ | 125,261 | $ | 38,882 | $ | - | $ | 164,143 | ||||||||
|
Intersegment
sales
|
6,264 | - | (6,264 | ) | - | |||||||||||
|
Total
net sales
|
$ | 131,525 | $ | 38,882 | $ | (6,264 | ) | $ | 164,143 | |||||||
|
(Loss)
Income from operations
|
$ | (39,829 | ) | $ | (4,289 | ) | $ | 135 | $ | (43,983 | ) | |||||
|
Assets
|
$ | 380,390 | $ | 102,823 | $ | (230,095 | ) | $ | 253,118 | |||||||
17
b. Product
Information
The
Company offers products primarily in three general categories: new trailers,
used trailers and parts, service and other. The following table sets
forth the major product categories and their percentage of consolidated net
sales (dollars in thousands):
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||||||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||||||||||||||||||
|
$
|
%
|
$
|
%
|
$
|
%
|
$
|
%
|
|||||||||||||||||||||||||
|
New
trailers
|
121,886 | 81.4 | 68,711 | 79.7 | 181,563 | 79.6 | 128,975 | 78.6 | ||||||||||||||||||||||||
|
Used
trailers
|
8,109 | 5.4 | 5,926 | 6.9 | 12,799 | 5.6 | 11,433 | 7.0 | ||||||||||||||||||||||||
|
Parts,
service and other
|
19,704 | 13.2 | 11,569 | 13.4 | 33,612 | 14.8 | 23,735 | 14.4 | ||||||||||||||||||||||||
|
Total
net sales
|
149,699 | 100.0 | 86,206 | 100.0 | 227,974 | 100.0 | 164,143 | 100.0 | ||||||||||||||||||||||||
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report of Wabash National Corporation (the “Company”, “Wabash” or
“we”) contains “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 “forward-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, including for working capital and capital
expenditures;
|
|
|
•
|
our
ability to achieve sustained
profitability;
|
|
|
•
|
reliance
on certain customers and corporate
relationships;
|
|
|
•
|
availability
and pricing of raw materials;
|
|
|
•
|
availability
of capital and financing;
|
|
|
•
|
dependence
on industry trends;
|
|
|
•
|
the
outcome of any pending litigation;
|
|
|
•
|
export
sales and new markets;
|
18
|
|
•
|
engineering
and manufacturing capabilities and
capacity;
|
|
|
•
|
acceptance
of new technology and products;
|
|
|
•
|
government
regulation; and
|
|
|
•
|
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 Quarterly Report. Important risks and factors that
could cause our actual results to be materially different from our expectations
include the factors that are disclosed in “Item 1A. Risk Factors” in our Form
10-K for the year ended December 31, 2009 and elsewhere herein, including, but
not limited to, Item 1A of Part II hereof. Each forward-looking statement
contained in this Quarterly 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
Quarterly Report or to reflect the occurrence of unanticipated
events.
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
|
||||||||||||||||
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
|
Cost
of sales
|
96.5 | 106.1 | 98.1 | 112.6 | ||||||||||||
|
Gross
profit
|
3.5 | (6.1 | ) | 1.9 | (12.6 | ) | ||||||||||
|
General
and administrative expenses
|
5.7 | 9.9 | 7.1 | 10.5 | ||||||||||||
|
Selling
expenses
|
1.6 | 3.3 | 2.2 | 3.7 | ||||||||||||
|
Loss
from operations
|
(3.8 | ) | (19.3 | ) | (7.4 | ) | (26.8 | ) | ||||||||
|
Decrease
(Increase) in fair value of warrant
|
1.3 | - | (54.8 | ) | - | |||||||||||
|
Interest
expense
|
(0.7 | ) | (1.5 | ) | (0.9 | ) | (1.4 | ) | ||||||||
|
Other,
net
|
(0.5 | ) | - | (0.4 | ) | 0.1 | ||||||||||
|
Loss
before income taxes
|
(3.7 | ) | (20.8 | ) | (63.5 | ) | (28.1 | ) | ||||||||
|
Income
tax expense
|
- | - | - | 0.1 | ||||||||||||
|
Net
loss
|
(3.7 | ) % | (20.8 | ) % | (63.5 | ) % | (28.2 | ) % | ||||||||
19
In the
three and six month periods ended June 30, 2010, we recorded net sales of $149.7
million and $228.0 million, respectively, compared to $86.2 million and $164.1
million in the prior year periods. Net sales increased for the three
and six month periods ending June 30, 2010 as new trailer volumes increased
68.8% and 35.6%, respectively, compared to the prior year periods. Gross profit
margin was 3.5% in the second quarter of 2010 compared to a negative 6.1% for
the same period of 2009. The 9.6 percentage point improvement in
gross profit was driven by increased production levels, improved raw material
and component costs as well as lower overhead costs per unit as compared to the
prior year period. We are encouraged as the overall trailer market
continued to strengthen during the second quarter of 2010 and our expectation is
that the overall production levels will continue to increase throughout the
second half of the year; however, the pricing environment remains competitive
and will continue to impact on our margins as manufacturers compete for limited
opportunities in order to fill capacity. Operating income was
positively impacted in the second quarter of 2010 by decreases in selling and
general and administrative expenses compared to the 2009 period as reductions in
salaries and employee related expenses and other various discretionary cost
reductions more than offset increases in legal professional
services. The reductions in salaries and employee related expenses
are related to headcount and base pay reductions initiated in 2009 as a result
of our cost cutting initiatives and efforts to adjust our cost structure to
match the market demand. Included in other income and expense for the
three and six month periods ending June 30, 2010, is a $1.9 million non-cash
benefit and $124.9 million non-cash charge, respectively, which relates to the
fair value adjustment of our warrant issued to Trailer Investments as a part of
the Securities Purchase Agreement entered into in July 2009.
Also, on
May 28, 2010, we closed on a public offering of our common stock consisting of
11,750,000 shares sold by us and 16,137,500 shares sold by Trailer Investments
as selling stockholder, each at a purchase price of $6.50 per
share. Net proceeds from the public offering were used to redeem all
of our outstanding preferred stock and to repay a portion of our
outstanding indebtedness under our revolving credit facility.
Our
management team continues to be focused on rightsizing our operations to match
the current demand environment, maintaining our cost savings initiatives,
strengthening our capital structure, developing innovative products, positioning
the Company to optimize profits as the industry recovers and selecting product
introductions that meet the needs of our customers.
As a
recognized industry leader, we continue to focus on product innovation, lean
manufacturing, strategic sourcing and workforce rationalization in order to
strengthen our industry position and improve operating results.
Three Months Ended June 30,
2010
Net
Sales
Net sales in the second quarter of 2010
increased $63.5 million, or 73.7%, compared to the second quarter of
2009. By business segment, net external sales and related units sold
were as follows (dollars in millions):
20
|
Three
Months Ended June 30,
|
||||||||||||
|
2010
|
2009
|
%
Change
|
||||||||||
|
Sales
by segment
|
||||||||||||
|
Manufacturing
|
$ | 124.8 | $ | 68.0 | 83.5 | |||||||
|
Retail
and distribution
|
24.9 | 18.2 | 36.8 | |||||||||
|
Total
|
$ | 149.7 | $ | 86.2 | 73.7 | |||||||
|
(units)
|
||||||||||||
|
New
trailer units
|
||||||||||||
|
Manufacturing
|
5,100 | 3,000 | 70.0 | |||||||||
|
Retail
and distribution
|
300 | 200 | 50.0 | |||||||||
|
Total
|
5,400 | 3,200 | 68.8 | |||||||||
|
Used
trailer units
|
800 | 800 | - | |||||||||
Manufacturing
segment sales were $124.8 million in the second quarter of 2010, an increase of
$56.8 million, or 83.5%, compared to the second quarter of 2009 due primarily to
increased volumes. New trailer sales volumes increased 2,100 units,
or 70.0%, compared to the prior year period as a result of overall strengthened
market demand coupled with a 7.5% increase in average selling prices as compared
to the previous year period due to customer and product mix. Further, net sales
have increased $5.5 million due to increased demand in our portable storage
containers and other DuraPlate
®
composite products.
Retail
and distribution segment sales were $24.9 million in the second quarter of 2010,
up $6.7 million, or 36.8%, compared to the prior year second quarter. New
trailer sales increased $3.5 million, or 85.7%, due primarily to the
increase in volumes as a result of improved market demand. Used
trailer sales were up $2.2 million, or 36.8%, primarily due to higher average
selling prices resulting from selling higher priced late model
trailers. Parts and service sales were up $1.0 million, or 11.9%, as
a result of increased market demand.
Cost
of Sales
Cost of sales for the second quarter of
2010 was $144.4 million, an increase of $53.0 million, or 57.9%, compared to the
second quarter of 2009. As a percentage of net sales, cost of sales
was 96.5% in the second quarter of 2010 compared to 106.1% in the second quarter
of 2009.
Manufacturing
segment cost of sales, as detailed in the following table, was $121.4 million
for the second quarter of 2010, an increase of $47.2 million, or 63.6%, compared
to the 2009 period. As a percentage of net sales, cost of sales was
97.3% in the second quarter of 2010 compared to 109.1% in the 2009
period.
21
|
Three Months Ended June 30,
|
||||||||||||||||
|
Manufacturing Segment
|
2010
|
2009
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||
|
% of
Net
Sales
|
% of Net
Sales
|
|||||||||||||||
|
Material
Costs
|
$ | 92.4 | 74.0 | % | $ | 54.0 | 79.3 | % | ||||||||
|
Other
Manufacturing Costs
|
29.0 | 23.3 | % | 20.2 | 29.8 | % | ||||||||||
| $ | 121.4 | 97.3 | % | $ | 74.2 | 109.1 | % | |||||||||
Cost of
sales is composed of material costs, a variable expense, and other manufacturing
costs, comprised of both fixed and variable expenses, including direct and
indirect labor, outbound freight, and overhead expenses. Material
costs were 74.0% of net sales in the 2010 period compared to 79.3% in the 2009
period. The 5.3% decrease results from decreases in raw material
commodity and component costs, primarily aluminum and lumber. In
addition, other manufacturing costs decreased from 29.8% of net sales in the
second quarter of 2009 to 23.3% in the 2010 period. The 6.5% decrease
is primarily due to approximately 3,200 more new trailers produced in the
current quarter as compared to the prior year period due to increased market
demand which resulted in allocating our overhead costs over more
trailers.
Retail
and distribution segment cost of sales was $22.9 million in the second quarter
of 2010, an increase of $5.6 million, or 32.1%, compared to the 2009
period. As a percentage of net sales, cost of sales was 92.0% in the
second quarter of 2010 compared to 95.1% in the 2009 period. This
improvement as a percentage of net sales was primarily the result of increased
volumes across all reporting segments and favorable product mix.
Gross
Profit
Gross
profit was $5.3 million in the second quarter of 2010, an improvement of $10.5
million from the prior year period. Gross profit as a percent of sales was 3.5%
for the quarter compared to a negative 6.1% for the same period in
2009. Gross profit by segment was as follows (in
millions):
|
Three Months Ended June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Gross
profit by segment
|
||||||||
|
Manufacturing
|
$ | 3.4 | $ | (6.2 | ) | |||
|
Retail
and distribution
|
2.0 | 0.9 | ||||||
|
Eliminations
|
(0.1 | ) | 0.1 | |||||
|
Total
gross profit
|
$ | 5.3 | $ | (5.2 | ) | |||
The
manufacturing segment gross profit for the second quarter of 2010 was $3.4
million, an improvement of $9.6 million from the previous year period. This
improvement in gross profits is primarily due to an increase in new trailer
volumes for the quarter coupled with reduced raw material and component costs
and the favorable impact of higher production volumes to cover fixed overhead
costs.
Retail
and distribution segment gross profit in the second quarter of 2010 was $2.0
million, an increase of $1.1 million compared to the 2009
period. Gross profit as a percentage of sales was 8.0% compared to
4.9% for the prior year period primarily due to increased new trailer and parts
and service volumes
and
reduced overhead costs per unit
.
22
General
and Administrative Expenses
General
and administrative expenses of $8.5 million for the second quarter of 2010
remained flat with the prior year period as reductions in salaries, director
compensation, employee related expenses and bad debts were offset by
increases in professional services of $0.7 million.
Selling
Expenses
Selling
expenses were $2.5 million in the second quarter of 2010, a decrease of $0.4
million, or 14.3%, compared to the prior year period. This decrease
was the result of our cost cutting initiatives and adjusting our cost structure
to match the current market demand. These initiatives resulted in a
$0.4 million reduction in salaries and employee related costs due to headcount
and base pay reductions made in the prior year.
Other
Income (Expense)
Decrease in fair value of
warrant
of $1.9 million represents the income recognized as a result of
the fair value adjustment for the warrant issued to Trailer Investments as a
part of the Securities Purchase Agreement entered into in July
2009. The decrease results from an $8.1 million decrease in fair
value of the warrant recorded immediately prior to the exercise of 16,137,500
Warrant Shares on May 28, 2010. This decrease was offset by a $5.3
million increase resulting from the additional 750,000 warrant shares issued in
lieu of the market price anti-dilution adjustment that otherwise would have
applied as a result of the Offering and an overall increase in the fair value of
the warrant shares outstanding throughout the quarter.
Income
Taxes
We have experienced cumulative
operating losses over the most recent three year period. After
considering these operating losses and other available evidence, both positive
and negative, we have recorded a full valuation allowance against our deferred
tax assets created during the quarter ended June 30, 2010. As a
result, the income tax expense for the second quarter of 2010 was
nominal
Six Months Ended June 30,
2010
Net
Sales
Net sales for the first six months were
$228.0 million, an increase of $63.9 million, or 38.9%, compared to the 2009
period. By business segment, net external sales and related units
sold were as follows (dollars in millions):
23
|
Six
Months Ended June 30,
|
||||||||||||
|
2010
|
2009
|
%
Change
|
||||||||||
|
Sales
by segment
|
||||||||||||
|
Manufacturing
|
$ | 182.2 | $ | 125.3 | 45.4 | |||||||
|
Retail
and distribution
|
45.8 | 38.8 | 18.0 | |||||||||
|
Total
|
$ | 228.0 | $ | 164.1 | 38.9 | |||||||
|
(units)
|
||||||||||||
|
New
trailer units
|
||||||||||||
|
Manufacturing
|
7,400 | 5,600 | 32.1 | |||||||||
|
Retail
and distribution
|
600 | 300 | 100.0 | |||||||||
|
Total
|
8,000 | 5,900 | 35.6 | |||||||||
|
Used
trailer units
|
1,400 | 1,700 | (17.6 | ) | ||||||||
Manufacturing
segment sales were $182.2 million for the first six months of 2010, up $56.9
million, or 45.4%, compared to the first six months of 2009. The
increase in sales is due primarily to a 32.1% increase in new trailer shipments
with approximately 7,400 units shipped in the first half of 2010 compared to
5,600 units shipped in the prior year period as a result of the overall
strengthening in demand. This increase in unit volume is coupled with a 5.7%
increase in average selling prices as compared to the previous year period due
to customer and product mix. Further, net sales have increased $7.1
million due to increased demand in our portable storage containers and other
DuraPlate
®
composite products.
Retail
and distribution segment sales were $45.8 million in the first six months of
2010, up $7.0 million, or 18.0%, compared to the prior year period. New
trailer sales increased $4.9 million, or 46.6%, due to a 100.0% increase in
shipments and used trailer sales were up $1.4 million, or 11.9%, as increases in
the average selling price per unit resulting from higher priced late model
trailers more than offset the 300 unit decline in used trailers. Parts and
service sales were up $0.7 million, or 4.0%, due to increased market
demand.
Cost
of Sales
Cost of sales for the first six months
of 2010 was $223.6 million, an increase of $38.8 million, or 21.0%, compared to
the 2009 period. As a percentage of net sales, cost of sales was
98.1% for the first six months of 2010 compared to 112.6% for the 2009
period.
Manufacturing
segment cost of sales, as detailed in the following table, was $181.1 million
for the first six months of 2010, an increase of $34.8 million, or 23.8%,
compared to the 2009 period. As a percentage of net sales, cost of
sales was 99.4% for the first six months of 2010 compared to 116.8% in the 2009
period.
24
|
Six Months Ended June 30,
|
||||||||||||||||
|
Manufacturing Segment
|
2010
|
2009
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||
|
% of
Net
Sales
|
% of Net
Sales
|
|||||||||||||||
|
Material
Costs
|
$ | 134.8 | 74.0 | % | $ | 99.5 | 79.4 | % | ||||||||
|
Other
Manufacturing Costs
|
46.3 | 25.4 | % | 46.8 | 37.4 | % | ||||||||||
| $ | 181.1 | 99.4 | % | $ | 146.3 | 116.8 | % | |||||||||
Cost of
sales is composed of material costs, a variable expense, and other manufacturing
costs, comprised of both fixed and variable expenses, including direct and
indirect labor, outbound freight, and overhead expenses. Material
costs were 74.0% in the 2010 period of net sales compared to 79.4% in the 2009
period. The 5.4% decrease results from decreases in raw material
commodity and component costs, primarily aluminum, steel and lumber. In
addition, other manufacturing costs decreased from 37.4% of net sales in the
first six months of 2009 to 25.4% in the 2010 period. The 12.0%
decrease is primarily the result of a 4,100 unit increase in new trailer
production as compared to the prior year period which resulted in allocating our
overhead costs over more trailers.
Retail
and distribution segment cost of sales was $42.5 million in the first six months
of 2010, an increase of $3.8 million, or 9.9%, compared to the 2009
period. As a percentage of net sales, cost of sales was 92.7% in the
first six months of 2010 compared to 99.4% in the 2009 period. The
6.7% improvement as a percentage of sales was primarily the result of increased
volumes across all reporting segments coupled with used trailer valuation
reserves recognized in the prior period not repeated in the current year
period.
Gross
Profit
Gross
profit for the first six months of 2010 was $4.3 million, an increase of $25.0
million compared to the first six months of 2009. Gross profit as a
percent of sales was 1.9% compared to a negative 12.6% for the same period in
2009. Gross profit by segment was as follows (in
millions):
|
Six
Months Ended June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Gross
profit by segment
|
||||||||
|
Manufacturing
|
$ | 1.1 | $ | (21.1 | ) | |||
|
Retail
and distribution
|
3.3 | 0.3 | ||||||
|
Eliminations
|
(0.1 | ) | 0.1 | |||||
|
Total
gross profit
|
$ | 4.3 | $ | (20.7 | ) | |||
The
manufacturing segment gross profit was $1.1 million for the first six months of
2010 compared to a negative $21.1 million in the prior year period due to a
32.1% increase in new trailer volumes, lower raw material and component part
costs and the favorable impact of higher production volumes to cover fixed
overhead costs as compared to the prior year period.
Retail
and distribution segment gross profit was $3.3 million for the first six months
of 2010, an increase of $3.0 million compared to the 2009
period. Gross profit as a percentage of sales was 7.3% compared to
0.8% for the prior year period. This increase is primarily due to increased new
trailer and parts and service volumes.
25
General
and Administrative Expenses
General
and administrative expenses decreased $0.9 million, or 5.5%, to $16.2 million in
the first six months of 2010 compared to the prior year period. This
decrease was the result of a $0.8 million reduction in salaries, director
compensation and other employee related costs achieved through the
implementation of various cost cutting initiatives made during 2009 to adjust
our cost structure to match the current market demand.
Selling
Expenses
Selling
expenses decreased $1.1 million, or 17.4%, to $5.0 million in the first six
months of 2010 compared to the prior year period. This decrease was
the result of our cost cutting initiatives to adjust our cost structure to match
the current market demand, which resulted in a $1.0 million reduction in
salaries and employee related costs in the current year.
Other
Income (Expense)
Increase in fair value of
warrant
of $124.9 million represents the expense recognized as a result
of the fair value adjustment for the warrant issued to Trailer Investments as a
part of the Securities Purchase Agreement entered into in July
2009. The change in the fair value of the warrant was driven by the
change in our stock price during the quarter. The increase results
from a $74.5 million increase in fair value of the warrant recorded immediately
prior to the exercise of 16,137,500 Warrant Shares on May 28, 2010 coupled with
a $5.3 million increase resulting from the additional 750,000 warrant shares
issued in lieu of the market price anti-dilution adjustment that otherwise would
have applied as a result of the Offering and an overall increase in the fair
value of the warrant shares outstanding throughout the current
year.
Income
Taxes
We have experienced cumulative
operating losses over the most recent three year period. After
considering these operating losses and other available evidence, both positive
and negative, we determined that it was necessary to record a full valuation
allowance against our deferred tax assets created during the six month period
ending June 30, 2010. As a result, the effective income tax expense
for the first six months of 2010 was nominal.
Liquidity and Capital
Resources
Capital
Structure
In July 2009, we entered into a
Securities Purchase Agreement (the “Securities Purchase Agreement”) with Trailer
Investments pursuant to which Trailer Investments purchased 20,000 shares of
Series E redeemable preferred stock (“Series E Preferred”), 5,000 shares of
Series F redeemable preferred stock (“Series F Preferred”), and 10,000 shares of
Series G redeemable preferred stock (“Series G Preferred”, and together with the
Series E Preferred and the Series F Preferred, the “Series E-G Preferred Stock”)
for an aggregate purchase price of $35.0 million. Trailer Investments
also received a warrant that was exercisable at $0.01 per share for 24,762,636
newly issued shares of our common stock representing, on August 3, 2009, the
date the warrant was delivered, 44.21% of our issued and outstanding common
stock after giving effect to the issuance of the shares underlying the warrant,
subject to upward adjustment to maintain that percentage if currently
outstanding options were exercised. The number of shares of common
stock subject to the warrant was also subject to upward adjustment to an amount
equivalent to 49.99% of our issued and outstanding common stock outstanding
immediately after the closing after giving effect to the issuance of the shares
underlying the warrant in specified circumstances where we lose our ability to
utilize our net operating loss carryforwards, including as a result of a
stockholder acquiring greater than 5% of our outstanding common
stock.
26
On May
28, 2010, we closed on a public offering of our common stock, par value $0.01
per share (the “Offering”), which consisted of 11,750,000 shares of common stock
sold by us and 16,137,500 shares of common stock sold by Trailer Investments as
a selling stockholder, each at a purchase price of $6.50 per
share. The shares of common stock sold in the Offering by Trailer
Investments included 3,637,500 shares sold pursuant to the underwriters’
exercise in full of their option to purchase additional shares to cover
over-allotments. All shares sold by Trailer Investments were issued
upon the partial exercise of the Warrant it held. We did not receive
any proceeds from the sale of the shares by Trailer Investments. We
generated proceeds from the Offering of $76.4 million and used the net proceeds
to redeem all of our outstanding preferred stock and to repay a portion of our
outstanding indebtedness under our revolving credit facility
.
From the net proceeds of the Offering,
we redeemed (the “Redemption”) all outstanding shares of our Series E-G
Preferred Stock at a liquidation value of $1,000 per share, or $35.0 million,
plus accrued and unpaid dividends and a premium adjustment of 20% as required
under the Securities Purchase Agreement for any redemption made prior to August
2014. The Series E Preferred, Series F Preferred and Series G
Preferred paid an annual dividend rate of 15%, 16% and 18%, respectively, based
on liquidation value. We accrued these dividends
unpaid. Through the date of the Redemption, accrued and unpaid
dividends totaled approximately $4.8 million. The premium adjustment
for early redemption of $8.0 million was applied to the sum of the liquidation
value and accrued and unpaid dividends. The total redemption price of
the Series E-G Preferred Stock including all accrued and unpaid dividends was
approximately $47.8 million.
Trailer Investments’ ownership of the
Series E-G Preferred Stock included significant rights pursuant to the
applicable certificates of designation for the Series E-G Preferred Stock and
pursuant to the Investor Rights Agreement dated August 3, 2009 between us and
Trailer Investments (the “Investor Rights Agreement”). As a result of the
Redemption, except for the payment in connection with a change of control
described below, the principal rights that previously existed but are no longer
held by Trailer Investments are (i) its right to receive the preferred dividend,
(ii) veto rights over certain significant aspects of our operations and
business, including payments of dividends, issuance of securities, incurrence of
indebtedness, liquidation and sale of assets, changes in the size of our board
of directors, amendments to our organizational documents (including those of our
subsidiaries), and other material actions, subject to certain thresholds and
limitations, and (iii) a right of first refusal to participate in any
future private financings.
If a change of control, meaning if more
than 50% of the voting power is transferred or acquired by any person other than
Trailer Investments and its affiliates, occurs within 12 months of the date of
the Redemption (i.e., by May 28, 2011), Trailer Investments will be entitled to
receive an aggregate payment equal to $74.6 million, representing the difference
between what it received in the Redemption and what it would have been entitled
to receive on the date of the Redemption if a change of control had occurred on
that date.
Also in connection with our Offering of
common stock, we amended the warrant originally issued to Trailer Investments on
August 3, 2009 (the “Warrant,” and, as amended, the “Replacement
Warrant”). The Warrant was modified so that (i) the Warrant will no
longer adjust or increase based upon any limitation on our ability to fully
utilize our net operating loss (“NOL”) carryforwards and (ii) the Warrant was
increased by a fixed number of 750,000 warrant shares in lieu of the market
price anti-dilution adjustment that would have otherwise applied as a result of
the Offering. The market price anti-dilution adjustment and other
warrant adjustment provisions, other than the NOL adjustment, will continue to
apply to the Replacement Warrant.
27
As discussed above, our Offering of
common stock also included 16,137,500 shares sold by Trailer Investments (the
“Warrant Shares”) pursuant to a partial exercise of the Warrant. The
partial net exercise of the Warrant was made by Trailer Investments via the
forfeiture of 22,812 shares of Common Stock under the Warrant.
As a result of the issuance of the
Warrant Shares and the partial net exercise of the Warrant, the Replacement
Warrant, as issued in May 2010, was made exercisable for 9,355,865 shares,
representing 13.7% of our issued and outstanding common stock on the date the
Replacement Warrant was delivered. The number of shares for which the
Replacement Warrant is exercisable continues to be subject to upward adjustment
if currently outstanding options are exercised. Pursuant to these
terms, due to shares issued upon the exercise of stock options during the second
quarter of 2010 the Warrant is now exercisable for an additional 6,716 shares,
or 9,362,581 shares in the aggregate. The Replacement Warrant
continues to be exercisable for cash or convertible into common stock under a
customary “cashless exercise” feature based upon the trading price of the common
stock at the time of exercise and continues to contain customary
anti-dilution adjustment features for stock splits and the like as well as
future issuances of stock or derivative securities that have sale or exercise
prices below the then current market price or $0.54.
Trailer Investments continues to have
other rights pursuant to the terms of the Investor Rights Agreement and its
Warrant. These rights include registration rights as well as certain
rights upon events of default, although these are now limited to events that
occur as a result only of breach of the covenants in the Investor Rights
Agreement that are in force after the Preferred Expiration Date as described in
the Investor Rights Agreement. The Investor Rights Agreement also
continues to provide that until the time that Trailer Investments ceases to hold
or ceases to beneficially own at least 10% of our issued and outstanding common
stock, it has the right to nominate five out of twelve members of our board of
directors. For the election at our 2010 annual meeting of
stockholders, Trailer Investments waived its right to nominate five directors
and agreed to only nominate four out of ten members of our board of
directors.
The warrant contains several
conditions, including, among other things, an upward adjustment of shares upon
the occurrence of certain contingent events but no longer including the loss of
our ability to utilize our net operating loss carryforwards, and the holder has
an option pursuant to the terms of the Investor Rights Agreement to settle the
warrant for cash in event of a specific default. These provisions
result in the classification of the warrant as a liability that is adjusted to
fair value at each balance sheet date.
The warrant liability was recorded
initially at fair value with subsequent changes in fair value reflected in
earnings. Estimating fair value of the warrant requires the use of
assumptions and inputs that are observable, either directly or indirectly, and
may, and are likely to, change over the duration of the warrant with related
changes in internal and external market factors. In addition,
option-based techniques are highly volatile and sensitive to changes in the
trading market price of the Company’s common stock, which has a high historical
volatility. Since the warrant is initially and subsequently carried
at fair value, the Company’s Statements of Operations will reflect the
volatility in these estimate and assumption changes. The fair value
of the warrant was estimated using a binomial valuation
model.
28
As a result of the Offering and our
ability to use the net proceeds to redeem all of our outstanding preferred stock
and repay a portion of our outstanding indebtedness under the revolving credit
facility, we reduced our total debt and capital lease obligations to $32.2
million and significantly improved our debt to equity ratio to approximately
0.5:1.0 as of June 30, 2010. The Offering improves our overall
capital structure and provides us additional liquidity to meet working capital
requirements as the overall demand in our industry grows. Our
long-term objective is to generate operating cash flows sufficient to fund
working capital requirements, to fund capital expenditures and to be positioned
to take advantage of market opportunities. For the remainder of 2010
we expect to fund operating results, working capital requirements and capital
expenditures through cash flows from operations as well as available borrowings
under our Revolving Facility.
Debt
Agreements and Related Amendments
Concurrent with entering into the
Securities Purchase Agreement, in July 2009, we entered into a Third Amended and
Restated Loan and Security Agreement (the “Facility”) with our lenders,
effective August 3, 2009, with a maturity date of August 3, 2012. The
Facility is guaranteed by certain subsidiaries of ours and secured by
substantially all of our assets. The Facility has a capacity of $100
million, subject to a borrowing base and other discretionary
reserves. The Facility amends and restates our previous revolving
credit facility, and our lenders waived certain events of default that had
occurred under the previous revolving credit facility and waived the right to
receive default interest during the time the events of default had
continued.
In May 2010, we entered into the
Consent and Amendment No. 1 to the Third Amended and Restated Loan and Security
Agreement (the “Amended Facility”) with our lenders. The Amended
Facility amends and restates our previous revolving credit
facility. The Amended Facility was entered into to permit the early
redemption of our Series E-G Preferred Stock and required us to pay down our
revolving credit facility by at least $23.0 million. The repayment
did not reduce our revolving loan commitments. Pursuant to the
Amended Facility, if the availability under our revolving credit facility is
less than $15.0 million at any time before the earlier of August 14, 2011 or the
date that monthly financial statements are delivered for the month ending June
30, 2011, we would be required to maintain a varying minimum EBITDA and would be
restricted in the amount of capital expenditures we can make during such
period. If our availability is less than $20.0 million thereafter, we
would be required to maintain a fixed charge coverage ratio for the 12 month
period ending on the last day of the calendar month that ended most recently
prior to such time of not less than 1.1 to 1.0. In addition, the
Amended Facility modifies our borrowing base by eliminating a $12.5 million
facility reserve while reducing the fixed assets sub-limit by $12.5 million from
$30.3 million to $17.8 million.
The interest rate on borrowings under
our revolving credit facility from the date of effectiveness through
July 31, 2010 is LIBOR plus 4.25% or the prime rate of Bank of America,
N.A. (the “Prime Rate”) plus 2.75%. After July 31, 2010, the
interest rate is based upon average unused availability and will range between
LIBOR plus 3.75% to 4.25% or the Prime Rate plus 2.25% to 2.75%. We
are required to pay a monthly unused line fee equal to 0.375% times the average
daily unused availability along with other customary fees and expenses of our
agent and lenders. All interest and fees are paid
monthly.
Our revolving credit facility contains
customary representations, warranties, affirmative and negative covenants,
including, without limitation, restrictions on mergers, dissolutions,
acquisitions, indebtedness, affiliate transactions, the occurrence of liens,
payments of subordinated indebtedness, disposition of assets, leases and changes
to organizational documents.
Our revolving credit facility contains
customary events of default including, without limitation, failure to pay
obligations when due under the facility, false and misleading representations,
breaches of covenants (subject in some instances to cure and grace periods),
defaults on certain other indebtedness, the occurrence of certain uninsured
losses, business disruptions for a period of time that materially adversely
affects the capacity to continue business on a profitable basis, changes of
control and the incurrence of certain judgments that are not stayed, released or
discharged within 30 days.
29
Cash
Flow
Cash used in operating activities for
the six months ended June 30, 2010 was $18.1 million compared to $4.0 million
used in operating activities in the same period of 2009. The use of
cash from operating activities for the current year period was the result of
$9.4 million of net losses, adjusted for various non-cash activities, including
depreciation, amortization, stock-based compensation and changes in the fair
value of our warrant, coupled with an increase in our working
capital. Changes in working capital accounted for a use of cash
totaling $8.7 million for the six months ending June 30, 2010 as compared to a
source of cash totaling $30.5 million for the prior year period. The
increased production levels in the current year period as compared to the
previous year and the related increase in purchasing activities have resulted in
higher working capital requirements. Changes in key working capital
accounts for the first half of 2010 compared to the prior year period are
summarized below (in millions):
|
2010
|
2009
|
Change
|
||||||||||
|
Accounts
receivable
|
$ | (21.2 | ) | $ | 19.9 | $ | (41.1 | ) | ||||
|
Inventories
|
(36.1 | ) | 25.2 | (61.3 | ) | |||||||
|
Accounts
payable and accrued liabilities
|
44.8 | (16.4 | ) | 61.2 | ||||||||
For the
first half of 2010, accounts receivable increased by $21.2 million as compared
to a $19.9 million decrease in 2009. Days sales outstanding, a
measure of working capital efficiency that measures the amount of time a
receivable is outstanding, increased to approximately 24 days in 2010 compared
to 21 days in 2009. The increases for 2010 were primarily the result
of the timing of shipments as trailer demands increased throughout the current
year period and a 38.9% increase in our consolidated net sales as compared to
the prior year period. Inventory increased $36.1 million during 2010
compared to a decrease of $25.2 million in 2009. The increase in
inventory for the 2010 period was due to higher new trailer inventories and raw
materials resulting from increased order levels for 2010 as compared to 2009;
however, inventory turns, a commonly used measure of working capital efficiency
that measures how quickly inventory turns per year, was approximately six times
in 2010 and 2009. Accounts payable and accrued liabilities increased
$44.8 million in 2010 compared to a decrease of $16.4 million in
2009. The increase in the current year period was also due primarily
to higher production levels. Days payable outstanding, a measure of
working capital efficiency that measures the amount of time a payable is
outstanding, was 44 days for the 2010 period compared to 33 days for the same
period last year due to higher production levels in excess of shipments
throughout the current quarter.
Investing
activities used $0.2 million during the first six months of 2010 compared to
$0.6 million in the prior year period. The uses of cash from
investing activities for both 2010 and 2009 periods have been limited to capital
spending for required replacement projects and other cost reduction
initiatives. The current year period has been further offset by
proceeds received from the sale of our Transcraft production facility located in
Anna, Illinois.
Financing
activities provided $24.0 million during the first six months of 2010 primarily
as a result of closing on the Offering of our common stock on May 28,
2010. We generated gross proceeds of $76.4 million from the Offering
and used the net proceeds to redeem all of our outstanding preferred stock and
repay a portion of our outstanding indebtedness on our revolving credit
facility.
30
As of
June 30, 2010, our liquidity position, defined as cash on hand and available
borrowing capacity, net of availability reserves as established in our revolving
credit facility, amounted to $67.7 million, an improvement of $46.7 million from
December 31, 2009. As a result of closing on the Offering of our
common stock on May 28, 2010 and concurrent with our redemption of all
outstanding Series E-G Preferred Stock, as described in the Capital Structure
section above, we believe our liquidity is adequate to meet our expected
operating results, working capital needs and capital expenditures for the
remainder of 2010.
In light
of current uncertain market and economic conditions, we continue to aggressively
manage our cost structure, capital expenditures and cash position. We
implemented various cost reduction actions in the previous year that have
provided reductions to our overhead and operating costs, including, reductions
in hourly and salary headcount, compensation and benefits. In
addition, we have optimized our operations through plant, assembly line and
warehouse consolidation projects.
Capital
Expenditures
Capital
spending amounted to approximately $0.8 million for the first six months of 2010
and is anticipated to be approximately $2.0 million in the aggregate for
2010. The spending for 2010 is expected to be limited to the
consolidation of our Transcraft production facilities, required replacement
projects and cost reduction initiatives in efforts to manage cash flows and
enhance liquidity.
Off-Balance
Sheet Transactions
As of June 30, 2010, we had
approximately $1.7 million in operating lease commitments. We did not
enter into any material off-balance sheet debt or operating lease transactions
during the quarter ended June 30, 2010.
Contractual Obligations and
Commercial Commitments
We have
included a summary of our Contractual Obligations and Commercial Commitments in
our annual report on Form 10-K for the year ended December 31, 2009 and with the
exception of the early redemption of all our outstanding Series E-G Preferred
Stock in connection with the closing of our Offering, as discussed in Note 4 of
the Condensed Consolidated Financial Statements, there have been no material
changes to the summary provided in that report.
Backlog
Orders
that have been confirmed by customers in writing and can be produced during the
next 18 months are included in backlog. Orders that comprise the backlog may be
subject to changes in quantities, delivery, specifications and terms. Our
backlog of orders was approximately $377 million at June 30, 2010 compared to
$137 million at December 31, 2009 and $128 million at June 30,
2009. We expect to complete the majority of our existing backlog
orders within the next 12 months.
OUTLOOK
While the
demand environment for trailers is improving, as evidenced by our backlog, we
remain cautious as to its sustainability. According to the most
recent A.C.T. Research Company, LLC (“ACT”) estimates, total trailer industry
shipments for 2010 are expected to be up 37% from 2009 to approximately 107,000
units. By product type, ACT is estimating that van trailer shipments
will be up approximately 47% in 2010 compared to 2009. ACT is
forecasting that platform trailer shipments will decline approximately 7% and
dump trailer shipments will increase approximately 28% in 2010. For
2011, ACT estimates that shipments will grow approximately 59% to a total of
171,000 units. Downside concerns for 2010 relate to continued issues
with the global economy, unemployment, tight credit markets, as well as
depressed housing and construction-related markets in the U.S. Taking
into consideration recent economic and industry forecasts, as well as
discussions with customers and suppliers, management expects demand for new
trailers to improve as we move through 2010 and the economy continues to
improve. Even so, the trailer industry will continue to be challenged
and, although our financial condition is expected to improve with increased
volume, we expect to incur net losses in 2010, which will further reduce our
stockholders’ equity.
31
We
believe we are well-positioned for long-term growth in the industry because: (1)
our core customers are among the dominant participants in the trucking industry;
(2) our DuraPlate
®
trailer
continues to have increased market acceptance; (3) our focus is on developing
solutions that reduce our customers’ trailer maintenance costs; and (4) we
expect some expansion of our presence into the mid-market carriers.
While our
expectations for industry volumes are generally in line with those of ACT,
pricing will continue to be difficult in 2010 due to overcapacity and fierce
competitive activity. In addition, raw material and component costs
have risen and remain volatile as overall demand will drive an increase in
prices as the economy improves. As has been our policy, we will
endeavor to pass along raw material and component price increases to our
customers. We have a focus on continuing to develop innovative new
products that both add value to our customers’ operations and allow us to
continue to differentiate our products from the competition in order to return
to profitability.
Based on
industry forecasts, conversations with our customers regarding their current
requirements and our existing backlog of orders, we estimate that for the full
year 2010 total new trailers sold will be between 23,000 and 25,000, an increase
from 2009 of 80% to 95%.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
We have included a summary of our
Critical Accounting Policies and Estimates in our annual report on Form 10-K,
for the year ended December 31, 2009. There have been no material
changes to the summary provided in that report.
|
ITEM
3.
|
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
|
In addition to the risks inherent in
our operations, we have exposure to financial and market risk resulting from
volatility in commodity prices and interest rates. The following
discussion provides additional detail regarding our exposure to these
risks.
Commodity
Prices
We are
exposed to fluctuations in commodity prices through the purchase of raw
materials that are processed from commodities such as aluminum, steel, wood and
polyethylene. Given the historical volatility of certain commodity
prices, this exposure can materially impact product
costs. Historically, we have managed aluminum price changes by
entering into fixed price contracts with our suppliers. As of
June 30,
2010, we had $23.6 million in raw material purchase commitments through December
2011 for materials that will be used in the production process. We
typically do not set prices for our products more than 45-90 days in advance of
our commodity purchases and can, subject to competitive market conditions, take
into account the cost of the commodity in setting our prices for each
order. To the extent that we are unable to offset the increased
commodity costs in product prices, our results would be materially and adversely
affected.
32
Interest
Rates
As of
June 30, 2010, we had $27.6 million of floating rate debt outstanding under our
revolving facility. A hypothetical 100 basis-point change in the
floating interest rate from the current level would result in a corresponding
$0.3 million change in interest expense over a one-year period. This
sensitivity analysis does not account for the change in the competitive
environment indirectly related to the change in interest rates and the potential
managerial action taken in response to these changes.
|
ITEM
4.
|
CONTROLS AND
PROCEDURES
|
Disclosure
Controls and Procedures
Based on
an evaluation under the supervision and with the participation of the Company’s
management, the Company’s principal executive officer and principal financial
officer have concluded that the Company’s disclosure controls and procedures (as
defined in Rules 14a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) were effective as of June 30,
2010.
Changes
in Internal Controls
There were no changes in the Company’s
internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act, during the first half of fiscal 2010 that have
materially affected or are reasonably likely to materially affect the Company’s
internal control over financial reporting.
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
Brazil
Joint Venture
In March 2001, Bernard Krone Indústria
e Comércio de Máquinas Agrícolas Ltda. ("BK") filed suit against the Company in
the Fourth Civil Court of Curitiba in the State of Paraná,
Brazil. Because of the bankruptcy of BK, this proceeding is now
pending before the Second Civil Court of Bankruptcies and Creditors
Reorganization of Curitiba, State of Paraná (No. 232/99).
The case grows out of a joint venture
agreement between BK and the Company related to marketing of RoadRailer trailers
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 the 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 intend to vigorously defend our position. A trial
was held on March 30, 2010 in Curitiba, Paraná, Brazil. A ruling on
the evidence presented at the trial is not expected for several
months. 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 assurances can be
given as to the ultimate outcome of the case.
33
Environmental
Disputes
In
September 2003, we were noticed as a potentially responsible party (PRP) by the
U.S. Environmental Protection Agency (“EPA”) pertaining to the Motorola 52nd
Street, Phoenix, Arizona Superfund Site (the “Superfund Site”) pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
(“CERCLA”). PRPs include current and former owners and operators of
facilities at which hazardous substances were allegedly disposed. The
EPA’s allegation that we were a PRP arises out of our acquisition of a former
branch facility located approximately five miles from the original Superfund
Site. We acquired this facility in 1997, operated the facility until
2000, and sold the facility to a third party in 2002. In June 2010,
we were contacted by the Roosevelt Irrigation District (“RID”) informing it that
the Arizona Department of Environmental Quality (“ADEQ”) had approved a
remediation plan in excess of $100 million for the RID portion of the Superfund
Site, and demanded that we contribute to the cost of the plan or be named as a
defendant in a CERCLA action to be filed in July 2010. We initiated
settlement discussions with the RID and the ADEQ in July 2010 to provide a full
release from the RID, and a covenant not-to-sue and contribution protection
regarding the former branch property from the ADEQ, in exchange for payment from
us. If the settlement is approved by all parties, it will prevent any
third party from successfully bringing claims against us for environmental
contamination relating to this former branch property. We are
awaiting approval from the ADEQ for the settlement we proposed in July 2010; we
do not expect to receive a response from the ADEQ for several
months. Based upon our limited period of ownership of the former
branch property, and the fact that we no longer own the former branch property,
we do not anticipate that the ADEQ will reject the proposed settlement, but no
assurance can be given at this time as to the ADEQ’s response to the settlement
proposal. The proposed settlement terms have been accrued and did not
have a material adverse effect on our financial condition or results of
operations, and we believe that any ongoing proceedings will not have a material
adverse effect on the Company’s financial condition or results of
operations.
|
ITEM
1A.
|
RISK
FACTORS
|
You
should carefully consider the risks described in our Annual Report on Form 10-K,
for the year ended December 31, 2009, including those under the heading “Risk
Factors” appearing in Item 1A of Part I of the Form 10-K, and other information
contained in this Quarterly Report before investing in our
securities. Realization of any of these risks could have a material
adverse effect on our business, financial condition, cash flows and results of
operations.
34
|
ITEM
6.
|
EXHIBITS
|
|
(a)
|
Exhibits
:
|
|
10.01
|
Consent
and Amendment No. 1 to the Third Amended and Restated Loan and Security
Agreement, by and among the Company and certain of its subsidiaries
identified on the signature page thereto, Bank of America, N.A., as a
Lender and as Agent, as the other Lender parties thereto (Incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on May 21, 2010 (File No.
1-10883))
|
|
10.02
|
Consent
and Waiver dated May 24, 2010 between the Company and Trailer Investments
(Incorporated by reference to Exhibit 1.2 to the Registrant’s Current
Report on Form 8-K filed on May 26, 2010 (File No.
1-10883))
|
|
10.03
|
Replacement
Warrant to Purchase Shares of Common Stock issued on May 28, 2010
(Incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed on June 3, 2010 (File No.
1-10883))
|
|
31.01
|
Certification
of Principal Executive Officer
|
|
31.02
|
Certification
of Principal Financial Officer
|
|
32.01
|
Written
Statement of Chief Executive Officer and Chief Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350)
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
WABASH
NATIONAL CORPORATION
|
||||
|
Date: August
3, 2010
|
By:
|
/s/ Mark J. Weber
|
||
|
Mark
J. Weber
|
||||
|
Senior
Vice President and Chief Financial Officer
(Principal
Financial Officer)
|
||||
35
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations 18Item 3. Quantitative and Qualitative Disclosures About Market Risks 32Item 4. Controls and Procedures 33Part II Other InformationItem 1. Legal Proceedings 33Item 1A. Risk Factors 34Item 6. Exhibits 35Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RisksItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits