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WNC > SEC Filings for WNC > Form 10-Q on 1-Nov-2011All Recent SEC Filings

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Form 10-Q for WABASH NATIONAL CORP /DE


1-Nov-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 ending 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                    Nine Months Ended
                                                        September 30,                         September 30,
                                                   2011               2010               2011               2010
Net sales                                             100.0 %            100.0 %            100.0 %            100.0 %
Cost of sales                                          96.0               96.2               94.6               97.3
Gross profit                                            4.0                3.8                5.4                2.7

General and administrative expenses                     2.3                4.7                3.0                6.1
Selling expenses                                        1.0                1.6                1.1                1.9
Income (Loss) from operations                           0.7               (2.5 )              1.3               (5.3 )

Decrease (Increase) in fair value of warrant              -                1.9                  -              (30.5 )
Interest expense                                       (0.3 )             (0.5 )             (0.4 )             (0.8 )
Loss on debt extinguishment                               -                  -               (0.1 )                -
Other, net                                                -                  -                0.1               (0.2 )
Income (Loss) before income taxes                       0.4               (1.1 )              0.9              (36.8 )

Income tax expense                                      0.1                  -                  -                  -
Net income (loss)                                       0.3 %             (1.1 ) %            0.9 %            (36.8 ) %

For the three and nine month periods ended September 30, 2011, we recorded net sales of $336.4 million and $845.5 million respectively, compared to $170.8 million and $398.8 million in the prior year periods. Net sales increased for the three and nine month periods ending September 30, 2011 as new trailer volumes increased by approximately 6,800 and 19,100 trailers, or 100.0% and 129.1%, respectively, compared to the prior year periods. Gross profit margin was 4.0% in the third quarter of 2011 compared to 3.8% in the prior year period. The 0.2 percentage point improvement was primarily due to favorable pricing and increased shipment and production levels resulting in lower overhead costs per unit as compared to the prior year period 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 nine months of 2011 and our expectation is that overall shipment and production levels will continue to be strong throughout the remainder of the year.

Though demand levels have improved significantly as compared to the previous year periods and the pricing environment in the current year period for new trailer orders has become more favorable, our current results are being impacted by the shipment of trailer orders that were priced at fixed levels during an environment of soft demand and prior to increases in component and raw material commodities such as steel, aluminum, plastic and tires. Selling, general and administrative expenses slightly increased in the third quarter of 2011 as compared to the same period in 2010 due to higher employee compensation costs. These higher employee compensation costs were the result of the reinstatement of compensation levels that were reduced in 2009 and 2010 in response to the decreased market demand during that time. All compensation reductions implemented in the previous years have now been fully restored. The resulting increased employee compensation costs were only partially offset by lower professional services and decreases in expenses related to employee incentive plans.


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 September 30, 2011

Net Sales

Net sales in the third quarter of 2011 increased $165.6 million, or 97.0%,
compared to the third quarter of 2010. By business segment, net sales and
related units sold were as follows (dollars in millions):

                                Three Months Ended September 30,
                              2011              2010         % Change
Sales by segment
Manufacturing             $      302.7       $    143.8          110.5
Retail and distribution           33.7             27.0           24.8
Total                     $      336.4       $    170.8           97.0

                                     (units)
New trailer units
Manufacturing                   13,000            6,300          106.3
Retail and distribution            600              500           20.0
Total                           13,600            6,800          100.0

Used trailer units               1,100              700           57.1

Manufacturing segment sales were $302.7 million in the third quarter of 2011, an increase of $158.9 million, or 110.5%, compared to the third 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 6,700 units, or 106.3%, compared to the prior year period as a result of overall strengthened market demand across most product lines. Net sales related to our parts, service and other product line increased $6.6 million, or 91.8%, 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. Additionally, average selling prices increased by 2.3% in the third quarter of 2011 compared to the prior year period due to customer and product mix as well as recovery on raw material and component inflation.


Retail and distribution segment sales were $33.7 million in the third quarter of 2011, up $6.7 million, or 24.8%, compared to the prior year third quarter. New trailer sales increased $2.0 million, or 16.2%, due primarily to increased volumes as a result of overall improved market demand. Used trailer sales were up $3.0 million from the prior year period, or 57.9%, due to a 57.1% increase in volumes. Parts, service and other sales were up $1.6 million, or 16.9%, as a result of increased market demand.

Cost of Sales

Cost of sales for the third quarter of 2011 was $323.1 million, an increase of $158.7 million, or 96.6%, compared to the third quarter of 2010. As a percentage of net sales, cost of sales was 96.0% in the third quarter of 2011 compared to 96.2% in the third quarter of 2010.

Manufacturing segment cost of sales, as detailed in the following table, was $292.8 million for the third quarter of 2011, an increase of $153.1 million, or 109.6%, compared to the third quarter of 2010. As a percentage of net sales, cost of sales was 96.7% in the third quarter of 2011 compared to 97.1% in the 2010 period.

                                            Three Months Ended September 30,
Manufacturing Segment                     2011                               2010
                                                  (dollars in millions)
                                             % of Net Sales                   % of Net Sales
Material Costs              $   241.1                   79.6 %   $ 109.2                 75.9 %
Other Manufacturing Costs        51.7                   17.1 %      30.5                 21.2 %
                            $   292.8                   96.7 %   $ 139.7                 97.1 %

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 increased due to higher net sales and were 79.6% of net sales in the 2011 period compared to 75.9% in the 2010 period. The 3.7% increase is primarily the result of increased component costs as well as higher costs for raw material commodities such as tires, steel, aluminum and plastic, which we were unable to fully pass along to our customers. Other manufacturing costs increased due to higher net sales, but decreased as a percentage of net sales from 21.2% in the third quarter of 2010 to 17.1% in the 2011 period. The 4.1% decrease is primarily due to strengthened market demand resulting in allocating our fixed overhead costs over approximately 6,700 more new trailers sold in the current quarter as compared to the prior year period. However, the decreases in other manufacturing costs for the current period were offset by labor inefficiencies caused by the significant increase in headcount incurred in both 2011 and 2010 periods to meet the increased demand for trailers.

Retail and distribution segment cost of sales was $30.4 million in the third quarter of 2011, an increase of $5.6 million, or 22.8%, compared to the 2010 period primarily due to higher net sales. As a percentage of net sales, cost of sales was 90.1% in the third quarter of 2011 compared to 91.4% in the 2010 period. This decrease as a percentage of net sales was primarily the result of product mix.


Gross Profit

Gross profit was $13.3 million in the third quarter of 2011, an improvement of
$6.8 million from the prior year period. Gross profit as a percent of sales was
4.0% for the quarter compared to 3.8% for the same period in 2010. Gross profit
by segment was as follows (in millions):

                                        Three Months Ended September 30,
                                           2011                   2010
           Gross profit by segment
           Manufacturing             $           10.0         $         4.2
           Retail and distribution                3.3                   2.3
           Eliminations                             -                     -
           Total gross profit        $           13.3         $         6.5

The manufacturing segment gross profit for the third quarter of 2011 was $10.0 million, an improvement of $5.8 million from the previous year period. Gross profit as a percentage of sales was 3.2% for the third quarter of 2011 as compared to 2.7% 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 106.3% increase in new trailer volumes as well as a 91.8% increase in parts, service and other volume due to higher demand of our DuraPlate® composite products.

Retail and distribution segment gross profit in the third quarter of 2011 was $3.3 million, an increase of $1.0 million compared to the 2010 period due primarily to the 24.8% increase in net sales. Gross profit as a percentage of sales increased to 9.9% compared to 8.6% for the prior year period primarily due to product mix.

General and Administrative Expenses

General and administrative expenses decreased $0.1 million, or 1.5%, to $7.9 million for the third quarter of 2011 compared to the 2010 period as a $0.2 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 third quarter of 2011, an increase of $0.5 million, or 18.9%, compared to the prior year period. This increase was primarily the result of a $0.2 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 coupled with higher advertising and promotional expenses.

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 September 30, 2011. As a result, the income tax expense for the third quarter of 2011 was $0.1 million.


Nine Months Ended September 30, 2011

Net Sales

Net sales for the first nine months was $845.5 million, an increase of $446.7
million, or 112.0%, compared to the 2010 period. By business segment, net
external sales and related units sold were as follows (dollars in millions):

                                Nine Months Ended September 30,
                             2011              2010          % Change
Sales by segment
Manufacturing             $     743.4       $     326.0          128.0
Retail and distribution         102.1              72.8           40.2
Total                     $     845.5       $     398.8          112.0

                                     (units)
New trailer units
Manufacturing                  31,900            13,700          132.8
Retail and distribution         2,000             1,100           81.8
Total                          33,900            14,800          129.1

Used trailer units              2,600             2,100           23.8

Manufacturing segment sales were $743.4 million for the first nine months of 2011, up $417.4 million, or 128.0%, compared to the first nine months of 2010. The increase in sales is due primarily to a 132.8% increase in new trailer shipments with approximately 31,900 units shipped in the first nine months of 2011 compared to 13,700 units shipped in the prior year period as the overall trailer industry continues to strengthen. Further, sales in the parts, service and other product line increased $19.6 million, or 84.8%, as compared to the prior year period due primarily to increased demand in 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 1.1% decrease in average selling prices in the first nine months of 2011 compared to the prior year period due to customer and product mix.

Retail and distribution segment sales were $102.1 million in the first nine months of 2011, up $29.3 million, or 40.2%, compared to the prior year period. New trailer sales increased $20.8 million, or 75.8%, due to an 81.8% increase in shipments. Used trailer sales were up $1.3 million, or 7.3%, due to a 23.8% increase in shipments offset by product mix. Parts, service and other sales were up $7.2 million, or 26.3%, due to increased market demand.

Cost of Sales

Cost of sales for the first nine months of 2011 was $799.5 million, an increase of $411.4 million, or 106.0%, compared to the 2010 period. As a percentage of net sales, cost of sales was 94.6% for the first nine months of 2011 compared to 97.3% for the 2010 period.


Manufacturing segment cost of sales, as detailed in the following table, was $706.2 million for the first nine months of 2011, an increase of $385.4 million, or 120.1%, compared to the 2010 period. As a percentage of net sales, cost of sales was 95.0% for the first nine months of 2011 compared to 98.4% in the 2010 period.

                                             Nine Months Ended September 30,
 Manufacturing Segment                    2011                               2010
                                                  (dollars in millions)
                                             % of Net Sales                   % of Net Sales
 Material Costs              $   569.7                  76.6 %   $ 244.0                 74.8 %
 Other Manufacturing Costs       136.5                  18.4 %      76.8                 23.6 %
                             $   706.2                  95.0 %   $ 320.8                 98.4 %

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 76.6% of net sales in the 2011 period compared to 74.8% in the 2010 period. The 1.8% increase is primarily the result of increased component costs as well as higher costs for raw material commodities, such as steel, aluminum and plastic, 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 23.6% in the first nine months of 2010 to 18.4% in the 2011 period. The 5.2% decrease is primarily the result of an 18,200 unit increase in new trailer sales as compared to the prior year period, which resulted in allocating our fixed overhead costs over more trailers. However, the decreases in other manufacturing costs for the current period were offset by labor inefficiencies caused by the significant increase in headcount incurred in both 2011 and 2010 periods to meet the increased demand for trailers. Total hourly headcount increased for both the nine month periods ending September 30, 2011 and 2010 by approximately 1,300 associates.

Retail and distribution segment cost of sales was $93.4 million in the first nine months of 2011, an increase of $26.2 million, or 39.0%, compared to the 2010 period due primarily to higher net sales. As a percentage of net sales, cost of sales was 91.4% in the first nine months of 2011 compared to 92.2% in the 2010 period. The 0.8% improvement as a percentage of sales was primarily the result of increased volumes across all segment product lines.

Gross Profit

Gross profit for the first nine months of 2011 was $46.1 million, an increase of
$35.3 million compared to the first nine months of 2010. Gross profit as a
percent of sales was 5.4% compared to 2.7% for the same period in 2010. Gross
profit by segment was as follows (in millions):

                                               Nine Months Ended
                                                 September 30,
                                               2011           2010
                   Gross profit by segment
                   Manufacturing             $    37.2       $  5.2
                   Retail and distribution         8.7          5.7
                   Eliminations                    0.2         (0.1 )
                   Total gross profit        $    46.1       $ 10.8

The manufacturing segment gross profit was $37.2 million for the first nine months of 2011 compared to $5.2 million in the prior year period. Gross profit as a percentage of sales was 4.7% compared to 1.5% for the prior year period. The increase in gross profit and gross profit as a percentage of net sales was primarily due to a 132.8% increase in new trailer volumes as the overall trailer industry has continued to strengthen and an 84.8% increase in parts, service and other volume due to higher demand of our DuraPlate® products.


Retail and distribution segment gross profit was $8.7 million for the first nine months of 2011, an increase of $3.0 million compared to the 2010 period. Gross profit as a percentage of sales was 8.6% compared to 7.8% for the prior year period. The increases in gross profit and gross profit as a percentage of net sales is primarily due to increased volumes for all product lines.

General and Administrative Expenses

General and administrative expenses increased $1.1 million, or 4.6%, to $25.4 million for the first nine months of 2011 compared to the 2010 period primarily due to a $2.0 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 $1.6 million, or 20.8%, to $9.3 million in the first nine months of 2011 compared to the prior year period primarily due to a $1.0 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 coupled with higher advertising and promotional activities.

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 nine month period ending September 30, 2011. As a result, the effective income tax expense for the first nine months of 2011 was $0.1 million.

Liquidity and Capital Resources

Capital Structure

Our capital structure is comprised of a mix of debt and equity. As of September 30, 2011, our debt to equity ratio was approximately 0.8:1.0. 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 the remainder of 2011, we expect to fund operations, working capital requirements and capital expenditures through cash flows from operations as well as available borrowings under our existing Credit Agreement.


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.

In August 2011, we entered into the First Amendment to Credit Agreement (the "Amendment") with the lenders under our Credit Agreement. The Amendment was entered into to permit an increase to the total commitment of the revolving credit facility under the Credit Agreement (the "Revolver") from $150 million to $175 million. Under the Credit Agreement we had the option, subject to certain conditions, to request up to two increases to the $150 million Revolver in minimum increments of $25 million and not to exceed $50 million in the aggregate (any such increase, a "Revolver Increase"). Pursuant to the Amendment, we requested a Revolver Increase of $25 million. All lenders under the Credit . . .

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