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WNC > SEC Filings for WNC > Form 10-Q on 3-Aug-2011All Recent SEC Filings

Show all filings for WABASH NATIONAL CORP /DE | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for WABASH NATIONAL CORP /DE


3-Aug-2011

Quarterly Report


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;

• our ability to diversify the product offerings of non-trailer businesses;

• 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;

• 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, 2010 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               Percentage of Net Sales
                                                     Three Months Ended                     Six Months Ended
                                                          June 30,                              June 30,
                                                   2011               2010               2011               2010
Net sales                                             100.0 %            100.0 %            100.0 %            100.0 %
Cost of sales                                          94.3               96.5               93.6               98.1
Gross profit                                            5.7                3.5                6.4                1.9

General and administrative expenses                     2.8                5.7                3.4                7.1
Selling expenses                                        1.1                1.6                1.2                2.2
Income (Loss) from operations                           1.8               (3.8 )              1.8               (7.4 )

Decrease (Increase) in fair value of warrant              -                1.3                  -              (54.8 )
Interest expense                                       (0.4 )             (0.7 )             (0.4 )             (0.9 )
Loss on debt extinguishment                            (0.2 )                -               (0.1 )                -
Other, net                                                -               (0.5 )                -               (0.4 )
Income (Loss) before income taxes                       1.2               (3.7 )              1.3              (63.5 )

Income tax expense                                        -                  -                  -                  -
Net income (loss)                                       1.2 %             (3.7 ) %            1.3 %            (63.5 ) %

For the three and six month period ended June 30, 2011, we recorded net sales of $287.1 million and $509.1 million respectively, compared to $149.7 million and $228.0 million in the prior year periods. Net sales increased for the three and six month periods ending June 30, 2011 as new trailer volumes increased by approximately 6,000 and 12,300 trailers, or 111.1% and 153.8%, respectively, compared to the prior year periods. Gross profit margin was 5.7% in the second quarter of 2011 compared to 3.5% in the prior year period. The 2.2 percentage point improvement in gross profit was primarily driven by increased shipment and production levels resulting in lower overhead costs per unit as compared to the prior year period, which was partially offset by higher material costs as a percentage of sales. We continue to be encouraged with the strengthening of the overall trailer market throughout the first six months of 2011 and our expectation is that overall shipment and production levels will continue to improve throughout the remainder of the year. Though demand levels have improved significantly and the pricing environment for new trailers has become more favorable, we continue to be challenged with rising raw material commodities and component costs, primarily with aluminum, steel, plastic and lumber. Selling, general and administrative expenses remained flat in the second quarter of 2011 as compared to the same period in 2010 as higher employee compensation costs due to the reinstatement of compensation levels that were reduced during 2009 and 2010 in order to adjust our cost structure to match the market demand at that time were offset by lower spending on professional services. As of July 2011, all compensation reductions implemented in the previous year have been restored and the impact of the complete restoration is expected to increase the cost structure going forward by less than $1.0 million per quarter.


Our management team continues to be focused on sizing 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 continues to recover, selecting product introductions that meet the needs of our customers and diversifying our product offering through growth in non-trailer products.

As a recognized industry leader, we continue to focus on product innovation, lean manufacturing, strategic sourcing and workforce optimization in order to strengthen our industry position and improve operating results.

Three Months Ended June 30, 2011

Net Sales

Net sales in the second quarter of 2011 increased $137.4 million, or 91.8%,
compared to the second quarter of 2010. By business segment, net sales and
related units sold were as follows (dollars in millions):

                                Three Months Ended June 30,
                             2011           2010        % Change
Sales by segment
Manufacturing             $     247.6      $ 124.8           98.4
Retail and distribution          39.5         24.9           58.6
Total                     $     287.1      $ 149.7           91.8

                                  (units)
New trailer units
Manufacturing                  10,500        5,100          105.9
Retail and distribution           900          300          200.0
Total                          11,400        5,400          111.1

Used trailer units                800          800              -

Manufacturing segment sales were $247.6 million in the second quarter of 2011, an increase of $122.8 million, or 98.4%, compared to the second quarter of 2010 due primarily to increased new trailer volumes reflecting higher customer demand as well as the continued growth of non-trailer DuraPlate® products. New trailer sales volumes for the manufacturing segment increased 5,400 units, or 105.9%, compared to the prior year period as a result of overall strengthened market demand across most product lines. Net sales related to our parts and service product line increased $5.8 million, or 66.3%, compared to the prior year period due primarily to the increased demand for our DuraPlate® composite products as we continue to diversify our product offerings. These increases in market demand for both new trailers and parts and service were partially offset by a 3.8% decrease in average selling prices in the second quarter of 2011 compared to the prior year period due to customer and product mix.

Retail and distribution segment sales were $39.5 million in the second quarter of 2011, up $14.6 million, or 58.6%, compared to the prior year second quarter. New trailer sales increased $13.0 million, or 170.7%, due primarily to increased volumes as a result of overall improved market demand. Used trailer sales were down $2.0 million, or 24.4%, due to product mix. Parts and service sales were up $3.6 million, or 39.6%, as a result of increased market demand.


Cost of Sales

Cost of sales for the second quarter of 2011 was $270.9 million, an increase of $126.5 million, or 87.6%, compared to the second quarter of 2010. As a percentage of net sales, cost of sales was 94.3% in the second quarter of 2011 compared to 96.5% in the second quarter of 2010.

Manufacturing segment cost of sales, as detailed in the following table, was $234.5 million for the second quarter of 2011, an increase of $113.1 million, or 93.2%, compared to the second quarter of 2010. As a percentage of net sales, cost of sales was 94.7% in the second quarter of 2011 compared to 97.3% in the 2010 period.

                                               Three Months Ended June 30,
        Manufacturing Segment                2011                       2010
                                                  (dollars in millions)
                                                 % of Net                   % of Net
                                                  Sales                      Sales
        Material Costs              $ 187.3           75.6 %   $  92.4           74.0 %
        Other Manufacturing Costs      47.2           19.1 %      29.0           23.3 %
                                    $ 234.5           94.7 %   $ 121.4           97.3 %

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 increased due to higher net sales and were 75.6% of net sales in the 2011 period compared to 74.0% in the 2010 period. The 1.6% increase is primarily the result of increased raw material commodity and component costs, primarily steel, plastic, tires and lumber, which we were unable to fully pass along to our customers. Other manufacturing costs increased due to higher net sales and decreased as a percentage of net sales from 23.3% in the second quarter of 2010 to 19.1% in the 2011 period. The 4.2% decrease is primarily due to strengthened market demand resulting in allocating our fixed overhead costs over approximately 5,400 more new trailers sold in the current quarter as compared to the prior year period.

Retail and distribution segment cost of sales was $36.5 million in the second quarter of 2011, an increase of $13.6 million, or 59.7%, compared to the 2010 period primarily due to higher net sales. As a percentage of net sales, cost of sales was 92.5% in the second quarter of 2011 compared to 92.0% in the 2010 period. This increase as a percentage of net sales was primarily the result of product mix.

Gross Profit

Gross profit was $16.2 million in the second quarter of 2011, an improvement of $10.9 million from the prior year period. Gross profit as a percent of sales was 5.7% for the quarter compared to 3.5% for the same period in 2010. Gross profit by segment was as follows (in millions):


                                          Three Months Ended June 30,
                                          2011                  2010
            Gross profit by segment
            Manufacturing             $        13.1         $         3.4
            Retail and distribution             3.0                   2.0
            Eliminations                        0.1                  (0.1 )
            Total gross profit        $        16.2         $         5.3

The manufacturing segment gross profit for the second quarter of 2011 was $13.1 million, an improvement of $9.7 million from the previous year period. Gross profit as a percentage of sales was 5.0% for the second quarter of 2011 as compared to 2.6% for the same period in 2010. The increase in gross profit and gross profit as a percentage of net sales was primarily driven by the 105.9% increase in new trailer volumes as well as a 66.3% increase in parts and services volume due to higher demand of our DuraPlate® composite products.

Retail and distribution segment gross profit in the second quarter of 2011 was $3.0 million, an increase of $1.0 million compared to the 2010 period due primarily to the 58.6% increase in net sales. Gross profit as a percentage of sales decreased to 7.5% compared to 8.0% for the prior year period primarily due to product mix.

General and Administrative Expenses

General and administrative expenses of $8.0 million for the second quarter of 2011 decreased $0.6 million, or 6.6%, from the prior year period as a $0.4 million increase in employee compensation related costs due to the reinstatement of certain cost cutting initiatives that were implemented during 2009 and 2010 in order to adjust our cost structure to match market demand at that time was more than offset by reduced professional services.

Selling Expenses

Selling expenses were $3.2 million in the second quarter of 2011, an increase of $0.7 million, or 26.6%, compared to the prior year period. This increase was primarily the result of a $0.5 million increase in salaries and other employee related costs due to a reinstatement of compensation levels that were reduced during 2009 and 2010 in order to adjust our cost structure to match market demand at that time.

Other Income (Expense)

Loss on debt extinguishment of $0.7 million represents a write-off of debt issuance costs recognized due to the extinguishment of the Company's previous revolving credit facility during the second quarter of 2011.

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 net deferred tax assets as of June 30, 2011. As a result, the income tax expense for the second quarter of 2011 was less than $0.1 million.


Six Months Ended June 30, 2011

Net Sales

Net sales for the first six months were $509.1 million, an increase of $281.1
million, or 123.3%, compared to the 2010 period. By business segment, net
external sales and related units sold were as follows (dollars in millions):

                                Six Months Ended June 30,
                             2011         2010        % Change
Sales by segment
Manufacturing             $    440.6     $ 182.2          141.8
Retail and distribution         68.5        45.8           49.6
Total                     $    509.1     $ 228.0          123.3

                                 (units)
New trailer units
Manufacturing                 18,900       7,400          155.4
Retail and distribution        1,400         600          133.3
Total                         20,300       8,000          153.8

Used trailer units             1,400       1,400              -

Manufacturing segment sales were $440.6 million for the first six months of 2011, up $258.4 million, or 141.8%, compared to the first six months of 2010. The increase in sales is due primarily to a 155.4% increase in new trailer shipments with approximately 18,900 units shipped in the first six months of 2011 compared to 7,400 units shipped in the prior year period as the overall trailer industry continues to strengthen. Further, parts and services sales increased $11.1 million, or 82.2%, due primarily to increased demand in our DuraPlate® composite products. These increases in market demand for both new trailers and parts and service were partially offset by a 3.8% decrease in average selling prices in the first six months of 2011 compared to the prior year period due to customer and product mix.

Retail and distribution segment sales were $68.5 million in the first six months of 2011, up $22.7 million, or 49.6%, compared to the prior year period. New trailer sales increased $18.8 million, or 122.9%, due to a 133.3% increase in shipments. Used trailer sales were down $1.7 million, or 13.4%, due to unfavorable product mix. Parts and service sales were up $5.6 million, or 31.5%, due to increased market demand.

Cost of Sales

Cost of sales for the first six months of 2011 was $476.3 million, an increase of $252.7 million, or 113.0%, compared to the 2010 period. As a percentage of net sales, cost of sales was 93.6% for the first six months of 2011 compared to 98.1% for the 2010 period.


Manufacturing segment cost of sales, as detailed in the following table, was $413.4 million for the first six months of 2011, an increase of $232.3 million, or 128.3%, compared to the 2010 period. As a percentage of net sales, cost of sales was 93.8% for the first six months of 2011 compared to 99.4% in the 2010 period.

                                                Six Months Ended June 30,
        Manufacturing Segment                2011                       2010
                                                  (dollars in millions)
                                                 % of Net                   % of Net
                                                  Sales                      Sales
        Material Costs              $ 328.7           74.6 %   $ 134.8           74.0 %
        Other Manufacturing Costs      84.7           19.2 %      46.3           25.4 %
                                    $ 413.4           93.8 %   $ 181.1           99.4 %

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 increased due to higher net sales and were 74.6% of net sales in the 2011 period compared to 74.0% in the 2010 period. The 0.6% increase is primarily the result of increased raw material commodity and component costs, primarily steel, aluminum, plastic and lumber, which we were unable to fully pass along to our customers. However, other manufacturing costs increased due to higher net sales and decreased as a percentage of net sales from 25.4% in the first six months of 2010 to 19.2% in the 2011 period. The 6.2% decrease is primarily the result of an 11,500 unit increase in new trailer sales as compared to the prior year period which resulted in allocating our fixed overhead costs over more trailers.

Retail and distribution segment cost of sales was $63.0 million in the first six months of 2011, an increase of $20.6 million, or 48.4%, compared to the 2010 period due primarily to higher net sales. As a percentage of net sales, cost of sales was 92.1% in the first six months of 2011 compared to 92.7% in the 2010 period. The 0.6% improvement as a percentage of sales was primarily the result of increased volumes for both new trailer and parts and service product lines.

Gross Profit

Gross profit for the first six months of 2011 was $32.7 million, an increase of
$28.4 million compared to the first six months of 2010. Gross profit as a
percent of sales was 6.4% compared to 1.9% for the same period in 2010. Gross
profit by segment was as follows (in millions):

                                           Six Months Ended June 30,
                                             2011                2010
               Gross profit by segment
               Manufacturing             $        27.2         $    1.1
               Retail and distribution             5.4              3.3
               Eliminations                        0.1             (0.1 )
               Total gross profit        $        32.7         $    4.3

The manufacturing segment gross profit was $27.2 million for the first six months of 2011 compared to $1.1 million in the prior year period. Gross profit as a percentage of sales was 5.8% compared to 0.6% for the prior year period. The increase in gross profit and gross profit as a percentage of net sales was primarily due to a 155.4% increase in new trailer volumes as the overall trailer industry has continued to strengthen and an 82.2% increase in parts and services volume due to higher demand of our DuraPlate® products.


Retail and distribution segment gross profit was $5.4 million for the first six months of 2011, an increase of $2.1 million compared to the 2010 period. Gross profit as a percentage of sales was 7.9% compared to 7.3% for the prior year period. The increases in gross profit and gross profit as a percentage of net sales is primarily due to increased new trailer and parts and service volumes.

General and Administrative Expenses

General and administrative expenses increased $1.2 million, or 7.6%, to $17.5 million for the first six months of 2011 compared to the 2010 period primarily due to a $1.9 million increase in salaries and other employee related costs due to the reinstatement of compensation levels that were reduced during 2009 and 2010 to adjust our cost structure to match the current market demand. This increase was partially offset by lower professional services primarily related to legal defense costs in the current year period.

Selling Expenses

Selling expenses increased $1.1 million, or 21.9%, to $6.1 million in the first six months of 2011 compared to the prior year period primarily due to a $0.8 million increase in salaries and other employee related costs due to the reinstatement of the compensation levels that were reduced during 2009 and 2010 to adjust our cost structure to match the current market demand.

Other Income (Expense)

Loss on debt extinguishment of $0.7 million represents a write-off of debt issuance costs recognized due to the extinguishment of the Company's previous revolving credit facility during the second quarter of 2011.

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 continue to record a full valuation allowance against our deferred tax assets created during the six month period ending June 30, 2011. As a result, the effective income tax expense for the first six months of 2011 was less than $0.1 million.

Liquidity and Capital Resources

Capital Structure

Our capital structure is comprised of a mix of debt and equity. As of June 30, 2011, our debt to equity ratio was approximately 0.5:1.0. Our long-term objective is to generate operating cash flows sufficient to fund normal working capital requirements, to fund capital expenditures and to be positioned to take advantage of market opportunities. For 2011, we expect to fund operations, working capital requirements and capital expenditures through cash flows from operations as well as available borrowings.


Debt Agreements and Related Amendments

In June 2011, we entered into a Credit Agreement (the "Credit Agreement") with Wells Fargo Capital Finance, LLC, as joint lead arranger, joint bookrunner and administrative agent (the "Agent"), and RBS Citizens Business Capital, a division of RBS Citizens, N.A., as joint lead arranger, joint bookrunner and syndication agent, as well as certain other lender participants. The Credit Agreement is secured by a first priority security interest on substantially all of our assets. The Credit Agreement has a scheduled maturity date of June 28, 2016. The Credit Agreement replaces our previous $100 million revolving credit facility. Accordingly, concurrent with the closing of the Credit Agreement, our previous revolving credit agreement was extinguished. We did not incur any early termination penalties in connection with the termination of the previous facility.

Under the Credit Agreement, we have a $150 million revolving credit facility (the "Revolver"). We have the option to increase the total commitment under the Revolver to $200 million, subject to certain conditions, including obtaining commitments from any one or more lenders, whether or not currently a party to the Credit Agreement, to provide such increased amounts. Availability under the Revolver is based upon monthly (or more frequent under certain circumstances) borrowing base valuations of our inventory, accounts receivable, equipment and real property and is reduced by certain reserves in effect from time to time. A portion of the borrowings under the Revolver not in excess of $15 million is available for the issuance of letters of credit. Another portion of the borrowings under the Revolver not in excess of $10 million may be utilized for swingline loans. Outstanding borrowings under the Revolver bear interest at a rate, at our election, equal to (i) LIBOR plus a margin ranging from 2.00% to 2.50% or (ii) the Agent's prime rate plus a margin ranging from 1.00% to 1.50%, in each case depending upon the average daily unused availability under the Revolver. 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 the Agent and the lenders.

The Credit Agreement contains customary covenants limiting our ability to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, pay off subordinated indebtedness, make investments and dispose of assets. In addition, we are required to maintain a minimum fixed charge coverage ratio of 1.1 to 1.0 . . .

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