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| WNC > SEC Filings for WNC > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-2009
Quarterly Report
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;
• dependence on industry trends;
• the outcome of any pending litigation;
• export sales and new markets;
• 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, 2008 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,
2009 2008 2009 2008
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 106.1 94.7 112.6 95.4
Gross profit (6.1 ) 5.3 (12.6 ) 4.6
General and administrative expenses 9.9 5.2 10.5 6.1
Selling expenses 3.3 1.6 3.7 1.8
Loss from operations (19.3 ) (1.5 ) (26.8 ) (3.3 )
Interest expense (1.5 ) (0.5 ) (1.4 ) (0.6 )
Other, net - (0.1 ) 0.1 -
Loss before income taxes (20.8 ) (2.1 ) (28.1 ) (3.9 )
Income tax benefit - (0.5 ) 0.1 (1.3 )
Net loss (20.8 ) % (1.6 ) % (28.2 ) % (2.6 ) %
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In the three and six month periods ended June 30, 2009, we recorded net sales of $86.2 million and $164.1 million, respectively, compared to $201.5 million and $362.5 million in the prior year periods as new trailer units declined 60.0% and 58.7% for the three and six month periods ending June 30, 2009, respectively, as compared to the prior year periods. We continue to be affected by, and concerned with, the global economy, especially the credit markets, as well as the decline in the housing and construction-related markets in the U.S. Gross profit margin was negative 6.1% in the second quarter of 2009 compared to 5.3% in the second quarter of 2008. However, this represents an improvement of 13.8% in gross profit margin in the three month period ended June 30, 2009 from the three month period ended March 31, 2009, which was primarily as a result of our cost reduction initiatives, including a reduction in hourly headcount of over 800 employees and elimination of over 100 salaried positions, and an 18.5% improvement in new trailer volumes. Gross profit margin versus the prior year period was negatively impacted by reduced volumes and higher raw material and component costs. Operating income was positively impacted in the second quarter by a decrease in general and administrative and selling expenses compared to the 2008 period due to a reduction in headcount and salaries, employee related expenses and professional fees. These expense reductions are primarily a result of our cost cutting initiatives and efforts to adjust our cost structure to match the current market demand.
Our management team continues to be focused on rightsizing our operations to match the current demand environment, implementing our cost savings initiatives, strengthening our capital structure, developing innovative products, improving earnings and selective 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, 2009
Net Sales
Net sales in the second quarter of 2009 decreased $115.3 million, or 57.2%,
compared to the second quarter of 2008. By business segment, net external sales
and related units sold were as follows (dollars in millions):
Three Months Ended June 30,
2009 2008 % Change
Sales by segment
Manufacturing $ 68.0 $ 160.7 (57.7 )
Retail and distribution 18.2 40.8 (55.4 )
Total $ 86.2 $ 201.5 (57.2 )
(units)
New trailer units
Manufacturing 3,000 7,200 (58.3 )
Retail and distribution 200 800 (75.0 )
Total 3,200 8,000 (60.0 )
Used trailer units 800 2,000 (60.0 )
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Manufacturing segment sales were $68.0 million in the second quarter of 2009, down $92.7 million, or 57.7%, compared to the second quarter of 2008. The reduction in sales is due primarily to the continued weak market demand as new trailer sales volume decreased approximately 4,200 units, or 58.3%. Average selling prices declined slightly in the second quarter of 2009 as compared to the prior year period due to customer and product mix.
Retail and distribution segment sales were $18.2 million in the second quarter of 2009, down $22.6 million, or 55.4% compared to the prior year second quarter. Weak market demand across all product lines yielded reduced volumes as compared to the previous year period. New trailer sales decreased $15.5 million, or 79.2%, due to a 75.0% reduction in volumes and used trailer sales were down $5.0 million, or 45.7%, due to a 60.0% reduction in volumes. The decreases in used trailer sales volume were partially offset by higher average selling prices as compared to the prior year period due to the mix of used trailers sold. Parts and service sales were down $2.1 million, or 20.2%.
Cost of Sales
Cost of sales for the second quarter of 2009 was $91.4 million, a decrease of $99.3 million, or 52.1% compared to the second quarter of 2008. As a percentage of net sales, cost of sales was 106.1% in the second quarter of 2009 compared to 94.7% in the second quarter of 2008.
Manufacturing segment cost of sales, as detailed in the following table, was $74.2 million for the second quarter of 2009, a decrease of $78.5 million, or 51.4%, compared to the 2008 period. As a percentage of net sales, cost of sales was 109.1% in the second quarter of 2009 compared to 95.0% in the 2008 period.
Three Months Ended June 30,
Manufacturing Segment 2009 2008
(dollars in millions)
% of Net % of Net
Sales Sales
Material Costs $ 54.0 79.3 % $ 114.2 71.1 %
Other Manufacturing Costs 20.2 29.8 % 38.5 23.9 %
$ 74.2 109.1 % $ 152.7 95.0 %
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As shown in the table above, 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 79.3% of net sales compared to 71.1% in the 2008 period. The 8.2% increase results from increases in raw material commodity and component costs, primarily steel and aluminum that could not be offset by increases in selling prices. In addition, our other manufacturing costs increased from 23.9% of net sales in the second quarter of 2008 to 29.8% in the 2009 period. The 5.9% increase is primarily the result of the inability to reduce fixed costs in proportion to the 58.3% decrease in new trailer volumes.
Retail and distribution segment cost of sales was $17.3 million in the second quarter of 2009, a decrease of $21.0 million, or 54.8%, compared to the 2008 period. As a percentage of net sales, cost of sales was 95.1% in the second quarter of 2009 compared to 93.9% in the 2008 period. The 1.2% increase was primarily the result of a 12.6% increase in direct and indirect labor and overhead expenses due to the inability to reduce these costs in proportion to the 75.0% and 60.0% reductions in new and used trailer volumes, respectively. This increase was offset by an 11.4% decrease in raw material cost as a percent of net sales due to continued pricing pressures for new and used trailers as well as an increase in parts and services activities as a percentage of the total segment's net sales.
Gross Profit
Gross profit was negative $5.2 million in the second quarter of 2009, down $16.0 million from the prior year period. Gross profit as a percent of sales was negative 6.1% for the quarter compared to 5.3% for the same period in 2008. Gross profit by segment was as follows (in millions):
Three Months Ended June 30,
2009 2008
Gross profit by segment
Manufacturing $ (6.2 ) $ 8.0
Retail and distribution 0.9 2.5
Eliminations 0.1 0.3
Total gross profit $ (5.2 ) $ 10.8
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The manufacturing segment lost $6.2 million in gross profit in the second quarter of 2009 due to a 58.3% decline in new trailer volumes coupled with higher raw material and component part costs as compared to the prior year period.
Retail and distribution segment gross profit in the second quarter of 2009 was $0.9 million, a decrease of $1.6 million compared to the 2008 period. Gross profit as a percentage of sales was 4.9% compared to 6.1% for the prior year period due to decreased trailer and parts and service volumes coupled with continued pricing pressures for new and used trailer sales.
General and Administrative Expenses
General and administrative expenses decreased $1.9 million, or 18.6%, to $8.5 million in the second quarter of 2009 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 $1.4 million reduction in salaries and employee related costs due to headcount and base pay reductions made in the current year.
Selling Expenses
Selling expenses were $2.9 million in the second quarter of 2009, a decrease of $0.4 million, or 12.3%, 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 $0.3 million reduction in salaries and employee related costs due to both headcount and base pay reductions made in 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 have recorded a full valuation allowance against our deferred tax assets created during the quarter ending June 30, 2009. As a result, income tax benefit for the second quarter of 2009 was less than $0.1 million.
Six Months Ended June 30, 2009
Net Sales
Net sales for the first six months were $164.1 million, a decrease of $198.4 million, or 54.7%, compared to the 2008 period. By business segment, net external sales and related units sold were as follows (dollars in millions):
Six Months Ended June 30,
2009 2008 % Change
Sales by segment
Manufacturing $ 125.3 $ 293.3 (57.3 )
Retail and distribution 38.8 69.2 (43.9 )
Total $ 164.1 $ 362.5 (54.7 )
(units)
New trailer units
Manufacturing 5,600 13,100 (57.3 )
Retail and distribution 300 1,200 (75.0 )
Total 5,900 14,300 (58.7 )
Used trailer units 1,700 3,100 (45.2 )
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Manufacturing segment sales were $125.3 million for the first six months of 2009, down $168.0 million, or 57.3%, compared to the first six months of 2008. The reduction in sales is due primarily to the continued weak market demand as new trailer sales decreased approximately 7,500 units, or 57.3%, as well as a slight decrease in average selling prices in the first six months of 2009 as compared to the prior year period due to customer and product mix.
Retail and distribution segment sales were $38.8 million in the first six months of 2009, down $30.4 million, or 43.9%, compared to the prior year period. Weak market demand across all segment product lines yielded reduced volumes as compared to the previous year period. New trailer sales decreased $20.4 million, or 66.2%, due to a 75.0% reduction in volumes and used trailer sales were down $7.0 million, or 38.1%, due to a 45.2% reduction in volumes. The decreases in used trailer sales volume were partially offset by higher average selling prices as compared to the prior year period due to the mix of used trailers sold. Parts and service sales were down $2.8 million, or 14.0%.
Cost of Sales
Cost of sales for the first six months of 2009 was $184.9 million, a decrease of $161.0 million, or 46.6% compared to the 2008 period. As a percentage of net sales, cost of sales was 112.6% for the first six months of 2009 compared to 95.4% for the 2008 period.
Manufacturing segment cost of sales, as detailed in the following table, was $146.3 million for the first six months of 2009, a decrease of $135.6 million, or 48.1%, compared to the 2008 period. As a percentage of net sales, cost of sales was 116.8% for the first six months of 2009 compared to 96.1% in the 2008 period.
Six Months Ended June 30,
Manufacturing Segment 2009 2008
(dollars in millions)
% of Net % of Net
Sales Sales
Material Costs $ 99.5 79.4 % $ 209.7 71.5 %
Other Manufacturing Costs 46.8 37.4 % 72.2 24.6 %
$ 146.3 116.8 % $ 281.9 96.1 %
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As shown in the table above, 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 79.4% of net sales compared to 71.5% in the 2008 period. The 7.9% increase results from increases in raw material commodity and component costs, primarily steel and aluminum, which could not be offset by increases in selling prices. In addition, our other manufacturing costs increased from 24.6% of net sales in the first six months of 2008 to 37.4% in the 2009 period. The 12.8% increase is primarily the result of the inability to reduce fixed costs in proportion to the 57.3% decrease in new trailer volumes.
Retail and distribution segment cost of sales was $38.7 million in the first six months of 2009, a decrease of $26.2 million, or 40.4%, compared to the 2008 period. As a percentage of net sales, cost of sales was 99.4% in the first six months of 2009 compared to 93.7% in the 2008 period. The 5.7% increase was primarily the result of a 12.9% increase in direct and indirect labor and overhead expenses due to the inability to reduce these costs in proportion to the 75.0% and 45.2% reductions in new and used trailer volumes, respectively. This increase was offset by a 7.2% decrease in raw material cost as a percent of net sales due to continued pricing pressures for new and used trailers as well as an increase in parts and services activities as a percentage of the total segment.
Gross Profit
Gross profit for the first six months of 2009 was negative $20.7 million, a
decrease of $37.4 million compared to the first six months of 2008. Gross profit
as a percent of sales was negative 12.6% compared to 4.6% for the same period in
2008. Gross profit by segment was as follows (in millions):
Six Months Ended June 30,
2009 2008
Gross profit by segment
Manufacturing $ (21.1 ) $ 11.6
Retail and distribution 0.3 4.4
Eliminations 0.1 0.7
Total gross profit $ (20.7 ) $ 16.7
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The manufacturing segment lost $21.1 million in gross profit in the first six months of 2009 due to a 57.3% decline in new trailer volumes coupled with higher raw material and component part costs as compared to the prior year period.
Retail and distribution segment gross profit was $0.3 million for the first six months of 2009, a decrease of $4.1 million compared to the 2008 period. Gross profit as a percentage of sales was 0.8% compared to 6.4% for the prior year period due to decreased trailer and parts and service volumes coupled with continued pricing pressures for new trailer sales.
General and Administrative Expenses
General and administrative expenses decreased $4.8 million, or 21.8%, to $17.2 million in the first six months of 2009 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 $2.6 million reduction in salaries and employee related costs due to headcount and base pay reductions made in the current year.
Selling Expenses
Selling expenses decreased $0.7 million, or 9.8%, to $6.1 million in the first six months of 2009 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 $0.3 million reduction in salaries and employee related costs due to both headcount and base pay reductions made in 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, 2009. As a result, effective income tax expense for the first six months of 2009 was less than $0.1 million compared to a benefit of $4.7 million for the prior year period. The effective tax rate for the first six months of 2009 was effectively 0.0% compared to 32.9% for the prior year period.
Liquidity and Capital Resources
Capital Structure
In light of recent and ongoing economic conditions that have negatively impacted our operating results and caused instability in the capital markets, on July 17, 2009, we entered into a Securities Purchase Agreement (the "Securities Purchase Agreement') with Trailer Investments, LLC ("Trailer Investments"), an entity formed for this purpose by Lincolnshire Equity Fund III, L.P., a private equity investment fund managed by Lincolnshire Management, Inc., pursuant to which on August 3, 2009 Trailer Investments invested $35 million in the Company for a combination of preferred stock and common stock warrants. Concurrently with entering into the Securities Purchase Agreement, we entered into a Third Amended and Restated Loan and Security Agreement (the "Amended Facility") that amended and restated our current Revolving Facility. The Amended Facility has a capacity of $100 million, subject to a borrowing base, and borrowings outstanding totaled $25.5 million at August 3, 2009, the effective date of the Amended Facility. The maturity date of the Amended Facility is August 3, 2012. In connection with the Amended Facility, the lenders waived certain events of default that had occurred under the previous credit facility and waived the right to receive default interest during the time the events of default had continued. These agreements are more fully described in the Subsequent Event section below.
As of June 30, 2009, our debt to equity ratio was approximately 0.6:1.0. The increase in our debt to equity ratio as compared to our ratio a year earlier is primarily due to the increase in our retained deficit resulting from losses incurred in 2008 and the first six months of 2009. Our long-term objective is to generate operating cash flows sufficient to fund normal working capital requirements, to fund capital expenditures, to be positioned to take advantage of market opportunities and, subject to the limitations in our Amended Facility and the documents creating our preferred stock, to fund potential dividends or stock repurchases. For 2009 we expect to fund operating losses, working capital requirements and capital expenditures through cash flows from operations as well as available borrowings under our Revolving Facility.
Cash Flow
Cash used in operating activities for the six months ended June 30, 2009
amounted to $4.0 million compared to $16.6 million provided by operating
activities in the same period of 2008. The change was primarily a result of a
$33.1 million reduction in net income, adjusted for non-cash items, offset by a
$12.5 million improvement in working capital. Changes in key working capital
accounts for the first six months of 2009 compared to the prior year period are
summarized below (in millions):
2009 2008 Change
Accounts receivable $ 19.9 $ 19.7 $ 0.2
Inventories 25.2 (20.1 ) 45.3
Accounts payable and accrued liabilities (16.4 ) 17.0 (33.4 )
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During 2009, accounts receivable decreased by $19.9 million as compared to a $19.7 million decrease in 2008. The decrease for 2009 was primarily a result of a reduction in sales volumes as reported within our Consolidated Statements of Operations coupled with an improvement in the timing of cash receipts from customers. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, improved to approximately 21 days in 2009 compared to 23 days in 2008. Inventory decreased $25.2 million during 2009 compared to an increase of $20.1 million in 2008. Inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately six times in both 2009 and 2008. The decrease in inventory for the 2009 period is due to lower new and used trailer inventories resulting from reduced demand as well as the continued improvements in our inventory management system. Accounts payable and accrued liabilities decreased $16.4 million in 2009 compared to an increase of $17.0 million in 2008. The decrease in the current year period was primarily due to lower production volumes. Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 33 days for the 2009 period compared to 31 days for the same period last year.
Investing activities used $0.6 million during the first six months of 2009 compared to $3.7 million in the prior year period. The decrease of $3.1 million from the prior year was due to limiting capital spending to required replacement projects and cost reduction initiatives.
Financing activities used $18.4 million during the first six months of 2009 for debt payments as payments were made on outstanding borrowings under the Revolving Facility. Dividend payments were suspended as of December 2008.
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