Wabash National Corp (WNC) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Wabash National Third Quarter 2004 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the "1" followed by the "4" on your telephone. As a reminder, this conference is being recorded, Thursday, October 21st 2004.

I would now like to turn the conference call over to Mr. William Greubel, President and CEO of Wabash National. Please go ahead, sir.

Thank you. Good morning. Before we begin, I would like to advise you of two items. As with all these types of presentations, this morning contains certain forward-looking information, including statements about the Company's prospects, the industry outlook, backlog information, financial condition, and alike. As you know, actual results could differ materially from those projected in the forward-looking statements. These statements should be viewed in light of cautionary statements risk factors set forth from time to time in the Company's filings with the Securities & Exchange Commission.

Second, as most of you are aware, on October 12th, we filed a Registration Statement with the Securities & Exchange Commission, in connection with a plan to sell up to 3 million shares of common stock through an underwritten public offering to be managed by Merrill Lynch & Company, Bear Stearns & Company, and BB&T Capital Markets. In addition, up to 450,000 shares may be sold to covering underwriters over allotment options. We intend to use all of the net proceeds from this public offering to repay a portion of outstanding secured bank indebtedness. We anticipate completing the transaction in this quarter.

Welcome to Wabash National's third-quarter earnings call. I am Bill Greubel, CEO. In the conference room, with me, this morning, are Bob Smith, our newly appointed CFO, who has been acting CFO since June 2004 and has been with Wabash National since March of 2003. In addition, Dick Giromini will be in our conference call, who is our Chief Operating Officer. I'd like to welcome all the listeners today on today's telephone conference call as well as those listening via the Wabash National Internet site webcast. We have much to cover today, and we'll try to provide as much information as possible. At the conclusion of prepared portion of our presentation, we will open the call for questions from the listening audience.

The third quarter continued a very acceptable trend in sales and earnings for Wabash National and, especially, in light of continued and somewhat unexpected raw material increases incurred by our industry over the summer months. I am very pleased to report net income of $20.3 million, or 62 cents diluted earnings per share, on sales of $277 million. I am also pleased to note that our retail branch operations did achieve breakeven status, during the quarter.

We are essentially booked through the end of the year on all current working shifts. Our backlog is approximately $283 million. Considering the leanness of orders in the seasonal third quarter, we did quite well to maintain the strong base of orders. Our quote and orders have significantly picked up, as we enter the early-2005 buying season. We continue to believe that the majority of truckload and lessen truckloads leads will be in the market for both growth and replacement units in 2005.

As I've stated earlier, we were a bit surprised with the timing and the extent of increase in steel prices in August. We saw the full blend of this increase from our supply base almost immediately. Although we have factored these increases in our quote system, we were unable to obtain any short-term relief due to our terms and conditions; and as such, our material costs were under order by approximately $70 per unit in September.

Going forward, we should see margins improve. From discussions with our component supplier base and basic raw material suppliers, it is our belief that current pricing levels will moderate upward. We will continue to seek to pass on all increases. As a point of reference, pricing for our products now ranges well over 10% from the last six months, depending upon product type.

For those of you, who follow the truck OEMs, I'm sure you are aware of temporary supply shortages. The trailer OEMs are also experiencing ongoing burnouts, where some suppliers cannot meet ship requirements on an ongoing manner. In the late July and August, we had our share with approximately 1,000 trailers awaiting parts to be finished. These shortages ranged from a date over a week. We continue to pursue just-in-time inventory, but it recently pushed out some lead-times to ensure product availability. The result of this has been an increase in the working capital, as Bob will discuss.

Going forward, raw material would be somewhat higher due to volume and cost. Finished goods will also reflect raw material increases; however, current access unit volumes should trend downward. For the last seven weeks, we have had only minor supply issues. In addition, we have created our critical supply base as to their capability and capacity to support our future expectations and have received assurances that we are covered. While we continue to believe we may have ongoing issues, we have begun to rebalance our supplier share.

The operation side of the business continues to perform excellently; and as Dick will discuss, our retail branch business for the third quarter achieved breakeven status. We continue to see quarterly incremental improvement in all critical aspects of our business. We continue to maintain our focus, flexibility and high expectations of improvement. As is typical with our earnings discussion, Dick and Bob will discuss their areas of responsibility, following the remainder of my comments associated with the state of the industry, our success in the mid-market, and our sales outlook, going forward, in 2004.

As an industry update, the trucking industry continues to show signs of growth and recovery. The first eight months of 2004 have been the bets trailer-only net order months, since 1999. May was the only time this year that had orders well below year-ago numbers. Unit-wise, trailer-only net orders were 154,000 through August. For Wabash National, net orders through August were up 32% compared to the same period in 2003. Through August, year-to-date trailer-only industry production was 150,000 units, a 28% increase over the same period in 2003 and the highest since 2000.

For the first eight months of 2004, Wabash National shipments of trailer-only units improved 20% over the same period in 2003. The American Trucking Association's Truck Tonnage Index came in at a strong 157.9 in August, 10% higher than August 2003. Year-to-date, through August, the index is up 7.2% compared to the same period in 2003. While industry trailer-only backlogs dipped in the past few seasonal months, August backlog was 44% higher than August 2003. At the end of August, the backlog was 107,000 units, a healthy 5.8 months worth of production.

Production levels for Wabash National remains at the high rates we established in the second quarter and are up 20% versus the first quarter. On a daily basis, we should continue at this pace into the first quarter of 2005. The North American trucking community continues to report healthy profitability. Carriers are leveraging increased shipping demand and tight capacity to continue raising freight rates. These situations remain in effect for the foreseeable future. The primary challenge of station carriers is retention of qualified drivers and elevated fuel pricing. These changes will also be with us for an extended period.

We believe that the current trailer market is a mix of both replacement of existing trailers and trailer fleet growth. Most industry analysts know that we are in a primary replacement mode trailer market, which is certainly the case with most large carriers. However, in a recent market study of carriers of varying sizes, we determined that 51% of the fleet surveyed were purchasing trailers for capacity growth. In addition, 55% of the carriers surveyed plan to grow their trailer fleet in 2005, which continues to bode well for our industry.

As a reminder, last quarter, we discussed that we are going to change slightly the way we look at the overall market. Given that Wabash National no longer manufactures flatbed trailers, we believe it's more accurate to focus on vans-only market rather than the overall trailer-only market. The vans-only market is made up of dry vans and refrigerated vans, whereas the trailer-only market includes flatbeds, tanks, drums, specialty trailers that Wabash National does not manufacture. By focusing on vans-only, we can provide our investors with specific detail as to a performance within a particular trailer segment that we participate in.

Through August year-to-date, vans-only net orders are running at 158,000 units annual rate, 21% better than the same period in 2003. Of those vans-only net orders, Wabash National continues to have an improvement in share from 2003 of 2% within an approximately 26% share of net orders. Year-to-date, August vans-only production was 109,000 units, a 25% increase over the same period in 2003.

Vans-only backlog continues to be stronger than overall trailers-only market. Vans-only backlog at the end of August was 82,000 units for six months production. This was a 26% improvement over the same period in 2003. For the industry as a whole, Wabash National is forecasting approximately 170,000 vans-only units to be produced in 2004 and approximately 190,000 units in 2005. Overall, 2004 is shaping up to be the best in the trailer industry since 2000.

Our mid-market focus is bringing the new customers to Wabash at a greater rate than we originally planned. So far, we've added 170 new customers; roughly 15 more than the second quarter, to the Wabash National customer base this year. This diversification has been critical to our success this year. Year-to-date, our key partners accounted for 34% of sales. This compares to 49% of sales for partners for the total of year 2003 and 61% for the total year 2002. We should continue to exceed our expectations in the mid-market. We've been at this now for one year. We have a much clear review of the market and what it takes to successfully do business here. We've got the tools and the product to be successful. Going forward, we will gain steady share in this segment.

Looking at 2004 and beyond. ACT has dropped their trailer-only forecast for 2004 to 230,000 units. This is down 6% from the 246,000 that ACT was forecasting in 2004 in August. Wabash National's forecast for trailer-only industry remains at 230,000 units for the year. For the fourth quarter, we anticipate shipments in the range of 13,200 to 13,200 units. As I've stated before, our production on daily basis should be consistent with the previous quarter and into the first quarter of 2005. Given the cyclicality of the service business, I would expect a slight loss on our retail operations. For 2005, ACT's trailer-only forecast is 277,000 units. Wabash National's trailer-only forecast remains at 260,000 units for 2005. Going forward, ACT continues to forecast numbers in excess of 260,000 units for 2006 through 2008.

The challenges that trailer industry faces have pretty much been already documented. Raw material price increases and driver shortages will continue to restrain the extravagant growth, as we saw in the late 1990s. I understand that the industry will have to eventually replace its aging fleet. Also be aware of the fact that many of our carriers are running at extremely high rates trailer utilization. Although trailer-tracking systems will help, I doubt they will offset the growth in this to inflate this business cycle. I feel we are already in a growth cycle, which was evident from our survey of midsize fleets.

Another indicator is the lack of available used equipment on the market, as more fleets are holding on to their equipment. The constraint of equipment capacity by the major fleets has helped the whole industry, financially. Net-net, 2005 should be another good year. We will continue to see burnouts, as we expand ship capacity in 2005. We are working hard to minimize this. Being one of the largest OEMs does help, as we have developed strong relationships, over the past 20 years. I'm more confident that this issue will be handled, appropriately.

Bob will discuss, in greater detail, our third-quarter results and finance condition after some comments by Dick relative to quarterly operations. Dick?

Thanks, Bill. First, I'll share some brief highlights of our latest progress in the manufacturing segment, and then I'll spend additional time on our progress in the retail distribution segment. As always, my discussions in manufacturing would be related to our five key areas of focus, which includes safety, quality, delivery, productivity and cost.

Our overall safety performance continues to make excellent progress. This past quarter proved to be our best quarter on record. New performance standards were set in both total reportable incident rate and days-away-from-work case rate and are now running at rates more than 50% below the industry averages within our SIC code for each measure. Our workers' compensation cost per exposure hour is now running at less than one half of what it was back in 2002, and we continued with our formal process of identifying and addressing ergonomic opportunities throughout our factory operations to further reduce potential exposure for our associates and drive even further improvement in our inset rates.

Again, as in the safety area, this past quarter proved to be our best ever in the area of quality performance. First pass yield is now at record highs with September coming in at a level of 93%. Additionally, our progress and preparation for ISO 9001 registration is progressing nicely with full readiness, now, targeted around yearend and registration sometime in 2005. Delivery performance as measured by schedule attainment continues at a solid level, at 102% for this past quarter, which actually reflects picking up the slight shortfall from the previous quarter.

Productivity continues at a strong pace with cumulative improvements of 50% reduction in the number of direct labor hours per trailer being realized, since mid-2002, and most importantly being sustained daily. Since I reported to you last quarter, Wabash National was selected as the recipient of "2003 US Senate Productivity Award," with the actually award ceremony having just taken place this week. We're extremely proud to have been recognized for this honor; and certainly, we want to thank all our associates, who helped make it possible.

On the cost side, we continued to generate overall savings through our continuous improvement efforts, now, at cumulative $75 million annualized. This is partially offset by the continued rise in raw materials pricing, as commented on by Bill. Our purchasing team continues to do an excellent job of managing this through effective negotiations with our supply base. And as Bill pointed, we are including any increases into our costing model for pass through to our new quotes to customers. Overall, another good quarter for the manufacturing team. We are able to overcome rising raw material costs, some supply shortages and delays, and some shifting customer orders.

Now, switching to our retail operations. In my wrap-up, during the last conference call, I stated that the retail and distribution group -- and I quote -- "was on target to reach a breakeven level sometime, during the third quarter" -- end of quote. I'm very pleased to be able to report today that the retail teams successfully stepped up and met that challenge. In fact, with the strong performance in September, the segment was profitable for the total quarter. This past quarter also marked the first profitable quarter for the retail business since the fourth quarter of 2000, and September was the first profitable month since November of 2000. That said, much still remains to be done to achieve the level of consistent performance and profit contribution that we desire.

Some highlights. New trailers sales volumes exceeded expectations this past quarter with margin now in line with planned expectations. The used trailers sales volumes continue to lag plan, as availability remains in short supply, but again margins remain strong. Parts sales in September established a new high for the year, and we've been able to maintain margins, as we have grown this business, and in spite of parts procurement price increases of over 10% experienced during the course of this year. In the service area, we remained focused and diligent, and our service continues improvement efforts with formal CI events being conducted on a weekly basis. Our initial round of improvement events, at our Jefferson Rail branch is now complete.

To facilitate in faster implementation of our improvement initiatives throughout our branch network, we have now divided the branch network into three distinct geographical regions with formal events being held weekly at a different branch in different region with service managers from each assigned regions participating in these events. Then, they return back to their home branch to implement their learning's, during the following three weeks, and then the process repeats itself at a new location, and so on.

At the same time, I continue to evaluate each of our branches on their own merits, location, facility condition and adequacy, capability, and potential for future success. While one quarter is not a trend, many of the fundamental weaknesses of our brand system that has led to the past several years of under-performance have been addressed. Going forward, we will continue to focus on improving our service operations through the formal CI process, increase the training and development of our branch sales force, upgrade our facilities, equipment and tooling, and continue to strengthen the capabilities of the leadership team.

Overall, I'm pleased with our recent progress, and thank all of our retail associates for the hard work during this past quarter and throughout the year in helping to make the necessary improvements to that business.

With that, I'll now turn the mike over to Bob Smith, Chief Financial Officer. Bob?

Thanks, Dick. We'll spend a few minutes, now, and walk through the results of the third quarter and our financial condition, as of our September 30th. Our sales, we did 277 million in the quarter on 13,700 new units. Income for the quarter was $20.3 million, or 62 cents a share fully diluted. As most of you are aware, our tax -- our results are tax affected at the minimum alternative rate, which is approximately 2% of pre-tax income, which is due to our net operating loss carry-forward.

Equivalent shares used in the determination of fully diluted earnings include the affect of options and the restricted share reward and our convertible notes. Comparability to prior year is impacted by a debt extinguishments charge that occurred in the third quarter of '03. Also as we've noted in the previous calls this year, we've made a few reclassifications in '04, and those have been reflected in the comparables for '03 to better view the data.

As I mentioned, sales, 277 million on 13,700 units -- this compares with $255 million in sales on 12,700 new units in the second quarter of this year and $250 million of sales on 9,900 units in the comparable period of 2003. You need to remember that 2003 included approximately $18 million of sales related to the wholesale parts and trailer rental leasing operation that was sold a year ago in September.

By segment, sales were: for manufacturing, 240 million; retail and distribution, 62 million that was on 1600 units; corporate eliminations, $25 million on approximately 1,300 units. I would take a minute here and go through the sales by product line. New trailers, $243 million of sales in the quarter, 13,700 shipped, 13,600 built. In second quarter of this year, it was 223 million in sales, 12,700 units shipped, 13,000 built. A year ago, in the third quarter sales for new trailers, 162 million, 9,900 units shipped, 9,200 units built. Used trailer revenue for the period amounted to $14 million on a 1,700 units. Sales are up slightly over the second quarter of '04 when we did 13 million in that sale on 1,900 units. A year ago, we did 17 million in used trailers sales on 3,100 units. The Products and Service business did $16 million in this quarter, $15 million in the second quarter of this year, and 27 million in the quarter a year ago, which included the TDC, a wholesale parts business and several branch locations that were closed in the latter part of '03.

Other income includes primarily, remaining lease portfolio. It amounts to $4 million in the quarter, $4 million in the second quarter of this year, last year was approximately $9 million, and that was related to the rental and leasing businesses that we had in '03, that were subsequently sold.

Gross margin for the period 13.3%. There are two good guys in the quarter, one relating to the sale of bogies, which is similar to the $700,000 good guys we had in the second quarter of this year. We also had about $700,000 worth of rebates on material purchases. On a apples-to-apples type basis, margins were about 12.7%. In the second quarter of this year, the gross margin was 14.4%, and as you will recall from the last call, that included $3 million worth of good guys, so on an adjusted basis just slightly over 13%. A year ago, our gross margin was just under 8%.

If we take a look at the gross profit on an absolute basis, it increased about $20 million in this year's quarter compared to last year's quarter that included the benefit of $3 million of TDC wholesale parts business and the leasing business. So, on a volume -- the growth in gross profit related to volume is about 3,800 additional new units with just about $6 million.

Raw materials cost and the impact of selling prices were essentially a push. The price increases have been -- for raw materials have been effectively offset by selling price increases. Labor and overhead improved approximately $11 million over the year ago, quarter -- primarily due to our approved productivity, cycle time and tight reins on spending. We also again, have the $700,000 worth of profit on refurbished bogies. Well, other items, including the pickup in the branches and the like about $2 million. So, that accounts for the $20 million improvement.

On a sequential basis, our gross profit in this quarter compared to the second quarter was essentially equal. Last year -- excuse me, the second quarter again had the good guys of $2 million. We picked up $1 million to $1.5 million because of the increased volume. Labor and overhead in the quarter was a little tough given the product mix that we were running and the last quarter -- second quarter had the warranty takedown of about 1.4 million in there, so that was the benefit. Or rather including the retail business, the release of the inner company profit elimination offsets that and that yields the 2 million improvement, which is the offset of the good guys.

Going forward, we are looking to continue the pace that we have set in the third quarter. We see volume to be in that 50,000-unit range for the year that we've told you about. Selling prices, we continue to try to keep our selling prices equal to or slightly ahead of the price increases that we've been facing on raw materials. We continue to expect moderate increases of raw materials going forward, and as Bill has mentioned, managing the availability is the challenge.

Production in the third quarter was, as I mentioned a minute ago, a little tough with the RoadRailer units and the startup of the second shift, which was occurred at the beginning of the third quarter. Fourth quarter productions are off to a great start, and it should be a good production quarter for us. The mix of business is always tough to call, but it should be positive, also the improving retail and distribution results that should help us going into next year - into the fourth quarter, excuse me.

Touching on selling, general, administrative, 14.2 million in the third quarter, essentially unchanged from what we had in the second quarter of this year, down a fair amount from last year, which also included the PDC and Apex general and administrative cost. We continue to believe that we are going to be able to take about $1 million out of G&A on an annualized basis, as we move forward. Interest and other, down 5.8 million, again due to reduced interest rates and the amount of borrowings as a result of the re-capitalization efforts we had last year.

Foreign exchange was a slight positive for us in the quarter compared to negative in the third quarter of last year. This is primarily related to the value of the Canadian dollar vis-à-vis the US dollar. Again, taxes, we're being taxed at 2% of the alternative minimum tax rate. This rate will remain in effect through the balance of the year and into the first part of next year. Our NOLs are estimated to be down at approximately $200 million. This is down a bit from our previous estimate, as we've completed our tax returns and trued up our calculations. We have a fully reserved tax benefit on the balance sheet that's worth approximately $70 million, and as I said, this would probably be reverse some time in the early part of 2005.

We talked about depreciation and amortization, roughly $5 million in the third quarter, $15 million for the six months. Capital spending, roughly $6 million year-to-date and we plan to spend approximately $10 million for the year. Headcount, as of September 30th, was 4,200 full-time and temporary associates. This is comparable to what we had at the end of the second quarter. Our backlog at September 30th was just over $280 million and this is down slightly from the $330 million that we had at the June 30th.

A quick look at the balance sheet, at the end of September, we had $15 million in cash. Our liquidity, which is cash plus available borrowings under our credit line, was approximately $80 million at September 30th, up from $72 million in June. Today, our liquidity is just under a $100 million. Accounts receivable, $134 million at September 30th up from the $95 million at June 30th, most of this is a result - all of this is a result of the fact that a very strong sales towards the end of the quarter, which is the similar situation to what we had in Q1 and Q2.

Inventories; $113 million at September 30th was up from a $107 million at the end of June. Several things happening in here, inventories have been increased to meet the production schedules. We've also had the impact of rising raw material cost and the cushion against the disruption in supply that Bill has mentioned; we have increased some of our inventories. Turnover at about 8 times a year is comparable to what we were seeing in the second quarter. The used trailer inventory amounted to approximately $13 million or 1,600 units, this is essentially the same as what we had at the end of June on a dollar basis. We anticipate that inventories will be about a $100 million by the end of the year.

On the debt side, total debt on and off the balance sheet at the end of September was 252 million and that includes approximately $9 million of off balance sheet debt. This is up about $30 million from where we closed at June 30th the need to support the working capital for the increased debt load. We are in compliance with all of our financial covenants under our agreements, and we have reasonably good coverage on all of them. Maximum debt to EBITDA as defined, the required is less than 3.75; we are at 1.5. The minimum fixed debt charge is greater than 125, we are at 3.4. CapEx -- capital spending less than 10, we are roughly 6.

So with that, I will turn it back to Bill.

Thanks, Bob. Just a few notes, one correction in what Bob was saying while reading off a typed note here, that on depreciation and amortization it's 15 million for nine months not six months. We noted that as we were going through.

Just some general comments, I'm certain that a lot of folks have been concerned about raw materials, and especially the word in the market was tiresome. We had a significant challenge put forward to us from one of our tire suppliers, who has the lion share of our business, and they gave us the great news that we were about 27,000 tires short for the fourth quarter -- in the fourth quarter. And we did some very heroic things and there's no material issue, there's no issue whatsoever. And that is one area where we are trying to rebalance, as we go forward, and we feel that we'll have some very good success with that.

The third quarter was a tough quarter in the sense that the pricing came in hot and heavy, our supply base is pretty much saturated now with the potential of holding price back, and we saw our price increases almost the same day that steel increases were announced. Looking into the fourth quarter, I think, we pretty much have got everything behind us and in the quote and order system it's already impacted. We have got some inklings of what's coming in, in the first quarter, and again, we've already put that into our quote and order process.

I think that pricing especially on the steel side were moderate, but to answer a question, I know, it'll be asked before hand. It's important to note that some of our suppliers have been doing a pretty heroic job in trying to support our business with moderating the steel increases that are coming through. Their problem and the problem that we will see in the first quarter is that, a lot of their contracts are coming due this quarter. And they're in the niche now are of renegotiations. Although the industry, our customers and I'm sure that the analysts will see spot steel pricing going down. We will still incur steel related price increases going-forward, as these lower contracts now are renegotiated up. The surcharges either will remain or go away, but $300 steel pricing is no longer here, and a lot of our customers are now negotiating for prices that could be double that.

We have had our ongoing discussions with them and again is as our case, as we were coding out in the first quarter and the second quarter, we're cording with the anticipation that these price increases will come through. If they don't, there is some upside, if they we've covered. And that has been our process going through, and we appreciate the fact that our suppliers have supported us. We don't like the idea of these increases continuing, but it is something that the industry will have to work for and be prepared for our customers are making money, and they are passing through fuel surcharges just like we are trying pass to ourselves. I think again on a net-net basis 2005 is going to be a good year. It's just going to be a good year with a lot higher prices. I will ask the operator to come on and we'll answer any questions you may have.

Thank you very much ladies and gentlemen. If you would like to register for a question, please press the "1" followed by the "4" on your telephone. You will hear a three tone prompt to acknowledge your request. If your question has been answered and you'd like to withdraw your registration, please press the "1" followed by the "3." If you are using a speakerphone, please lift your handset before entering your request. One moment, please, for the first question.

Our first question comes from the line of Peter Nesvold from Bear Stearns. Please proceed with your question.

Hi, guys. You'd mentioned one point at the net commodity cost exposure was about $70 per trailer in September. What was that amount for the full quarter? And number one, number two, how quickly do you think that can improve?

Well, for the fourth quarter, we're pretty much breakeven. So, the anomaly was in September by the end of this quarter we'll be back I think at par again.

How is this trending so far, two weeks in the October?

That's a tough one Peter to answer. It depends a lot on the customer mix and who are making product for, but I think, by the end of the quarter, we'd be in pretty good shape.

OK. There was comment at one point about do a 1,000 trailers with component shortages. I just want to clarify was that at one point during the quarter or was that at the end of the quarter?

No, that really occurred late July and through most of August. August was a tough month. And these could be anything. We're able roll the trailers out. In the some cases, a lot of them which is decals, but the customer, would not start the count down as far as our invoicing nor would we invoice until we had finish the trailers. So, it's a pain in the neck for us to handle. The good news is we took some of our -- just in time inventory and we started running a little bit more stock. We start to getting on a lot of the decals of customer supply; so it was really very issue, and in the last seven actually almost nine weeks, we've had very, very good production. And in October we've had an exceptional month so far.

OK. So from a timing perspective, is your sense of the component declined the supply chain issued, does that start to improve from here or does that something that starts to occur early in 2005 relative to where it was towards at the end of this quarter?

Well, I think, what we have look at is ourselves and some of our competitors started increasing production at the end of the second quarter. And for one individual OEM it was not a big deal, but since all of our suppliers deal with all of the OEMs, what they got really was a step change that came through and they got caught. There is now in the fourth quarter I think two of the competitors in the industry are having mild capacity increases, I don't think would be a problem nor do I think going-forward that we'll have a significant August issue, we will have and we call brownouts meaning we're going to have products that's not going to available for the line it won't be tires and it won't be wheels so we get the trailers out and then we'll fix a multi yard and get them out. But I think we're going to have another issue like we had in August unless all of us decide at the end of the first quarter next year to add capacity.

OK. And then I guess just one of the clarification -- I think you said at one point that the bills per day should remain constant in the fourth quarter and in the first quarter of '05 relative to what it was in third quarter. Is that correct?

Yes. Actually, since we're having a pretty super month given the current expectation per shift, we're doing a little bit better than we had experienced. So again it's based on the mix that we're currently building but as I said October has been a really great month for production.

OK. And I don't want to get into the new degree but can I struck about you guys and get the production days for the next couple of quarter after the call?

Yes.

OK. Great. Thanks for the time.

Our next question comes from the line of Jeff Kaufman from George Weise. Please proceed sir.

Thank you very much. And two quick questions Bill.

Yes.

I could probably answer the first one just by walking out looking at your product but who's the tire manufacturer that's giving up short in the fourth quarter?

They got a big blimp.

OK. I got it. Second question I want try and read between all lines here. You're forecasting basically the Dry Van market to grow 20,000 units next year?

Right.

And if I look at your historical market share and I know -- you 're probably should be good for 7 to 8000 of those units depending on how middle market progresses? Is that a fair statement?

That's yes.

OK. But yes, we're kind of keeping this years targets online even though the middle market program has had better success than you anticipated so that would imply the core customer base has being coming up a little light...

Yes.

Could you talk a little about what's driving that and if that's something where you really expecting people just awaiting for '05 and just kind of walk through the dynamics of that?

Well, I think it's you know it's no secret that the big guys are managing capacity. And it's interesting that they all are doing that. We're seeing limited amount of replacement from them but there is very little growth on that side. I think going-forward they are going it have to expand because I think the mid market is expanding. They're giving away a lot of business right now some of it quite honestly isn't as profitable as they would like but I think in the 2005 and 2006 we're starting to see movement by the partners to increase their replacement cycle as well as picking up some additional trailers for growth they were able to do some of this management Jeff over the last year because their overall capacity utilization of their fleet was not at an optimum level what we've seen over the last -- certainly over the last six to nine months is that the utilization of their fleets are -- is quite high now and there they have to in order just to maintain the level of business that they have with our customers we're going, and have to grow.

OK. So, if I just want to make sure I'm interpreting your comments correctly, '04 was a good year for you operationally the big customers where little disappointing but that just because there was slight capacity and typically you see the middle market customer come around before the big customer has to come out and start ordering and that's you got optimism for 8 to 10,000 unit increase in '05. Is that the right way to think about it?

I think that's good enough.

OK. Thank you.

Thanks Jeff.

Our next question comes from the line of Sean Kilcarr from Fleet Owner Magazine. Please go ahead sir.

Hi, good mornings gentlemen. Thank you. I know you use trailers small part of your business relative to new trailers sales but if I heard Dick correctly, you said that your kind of lagging and where you want to use trailer business to be and I kind of like to ask you -- you know why -- where do that business to be and why it's important to you?

Well it's important right now because those are heavy margins associated with every trailer we can sell. Really, the reason we are in the used trailer business is to offer an offset to our customers as they replace their trailers to find a market for them. For some one like us -- swift or larger fleet, it's a difficult thing to find a market for a thousand of a specific yearend model type of a trailer. We have the branch and the breadth to do that you know in much easier manner. Where do we want to be in the used trailer market is certainly not where we were once before, but we would like to see ourselves in -- on the used side roughly 800 to 1,000 used trailers per month. And we are probably at 60 % to 65% of that right now.

OK. So basically you are looking at it as a way to support your larger customers, kind of move their old units, so they can bring their new units, you know in the service?

Yes.

OK. Thank you very much gentlemen.

Our next question comes from the line of Gary Dean from Jetstream. Please proceed with your question sir.

Hi, good morning.

Hi Gary.

My question is, what's been the free cash flow generation for the company through the first nine months of the year? What do you expect it to be this year?

The free cash flow as you can see from the cash flow statements that were attached to the quarterly report from an operating perspective, we have been consuming cash in support of the working capital built, capital spending has also consumed some of that cash. Over the course of next three month we would expect that to come down, so that by the end of the year the net consumption will be, you know in the $110 million, I would think.

And do you have an expectation to what that's going to be in 2005?

No, not yet. We are still working through, we don't see it to be a significant plus or minus, but depending on the level of activity and the need to maintain a reasonably high level of working capital, particularly as a cushion to a degree against some of the raw material issues that we've been talking about. It will be not a big plus nor big minus.

And last question. You may have commented on the earlier, I was -- I got in a few minutes late. But relative to the secondary offering, what would the -- have you given any thought to refinancing or other options to close issuing the equity, what would be the stated reason for that?

Well the reason that we want to issue the equity is that we would like to become as free of debt as possible. There's an opportunity we believe to accelerate doing some of that, we've also seen again some increased demand on the working capital side of our business, which we want to protect against.

OK.

Thank you.

Ladies and gentlemen as a reminder to register for your question, please press the "one" followed by the "four".

Our next question comes from the line of Adam Alheimer (ph) of BB&T. Please go ahead sir.

Hey guys, it's actually Thom Albrecht. Wanted to go into the '05, I'll look at a little bit more. Bill have you established in '05, CapEx yet can't think in there, it's going to be little higher than 10 million maybe as much as 15 next year?

Well, I think we have two components to CapEx and I am sure that we are going to deal with, one is the --- we are going to the board in December on a new business process system and we are in a midst right now of kind of specking out what we want and understanding what that cost would be? My guess is we are probably in a 10 million range for something like that and that will go over two years. As far as the manufacturing and the operation side of the business, we would probably be in the 10 million to 12 million range. So looking at our provenance with the -- with our lenders right now, we have probably maxed added somewhere around $20 million.

OK, when you talk about business process, you mean like in EPR, SAP or something like that.

Yes, Thom.

OK. And then Bob, do you have any projections at this point of time for free cash flow that you might generate in '05. In other words, where the working capital needs begin sort of level off so we going on constantly have that be a bit of a drag on your ability to generate cash.

I don't think that -- I will answer that question. I don't think that pricing and inventories requirements to support our business will go up substantially more than where we are today. As we pick up more business and we are expecting to do that in 2005, we will need some working capital to support that. But I think that, you know, we got to climb over where we've been. The third quarter was a big quarter for us to understand how we have to run our business in these times. And I think working capital will be higher than what we had anticipated, but on free cash flow right now, I don't think, we can you give you an estimate.

OK. And Bill, did you mentioned the approximate number of trailers you've got lying around or may be that you had at the end of the quarter, built but not shipped?

Yes, it's -- trying to think, it was under 2000, I believe, and we had a pretty good month in September at shipping products. We continue to have a very good month in October. The other thing that we have, Tom, that was a real pain in the neck for us was, we were logistically constrained just as our customers were in getting trailers out. We couldn't get enough drivers to move them. We have worked with our customer base now, where the majority of the trailers are under our care as far as getting them out. And I would rather have that problem than constantly going to a customer and ask -- can I take his dam trailers. And at the end of this quarter coming up with the less logistically constrained as the crisp season will be behind us, and we should have the opportunity to move product out.

OK. So let me just make sure I understood that correctly, you finished the June quarter with approximately 1000, what I would like to call in a corn fields?

Really is better name for it.

Yes. In this quarter, you probably finished closer to 2000. So really weren't able to make an impact but obviously that's going to eventually be converted into revenue. I just want to make sure I hear the right numbers.

Yes, and I think there is a good opportunity that we will see a significant run down in our inventory by the end of the fourth quarter.

OK. And then, can you talk a little bit about pricing philosophy surcharges in other words versus trying to get permanent rate increases. I know if you go back to earlier this year, the whole push was basically permanent rate increases. But I sensed a little bit more willingness to consider surcharges, not only on things like tiers, but may be even on steel. Where are you in that whole pricing discussion philosophy of surcharges versus permanent rate increases?

I think the only surcharge we're going to put out and it's more of a point of trying to educate the consumers on mild automotive wheels. They're going up about between 20 and 30%. It's to the industry; it's not just to us. And you know a lot of our customers are saying, while we're hearing, you know, steel spot prices are going down and you know, they are going down $5 a ton, which is just a drop in the bucket.

Right.

What we really want to do is educate our customer base that you will see spot price -- pricing move, but you're also going to see some of our key suppliers have contractual pricing agreements. Those agreements have expired or will expire in the next -- either this quarter or next quarter, and because of that, they have to renegotiate from a level that will never again be seen to a level that's more realistic today, and that will mean increases. We're quite upset with the wheel side of the business, because we think there might be a bit of gauging in that. But, we are passing the letter that came to us, right along to our customers and saying, if you can buy wheels cheaper, do it, but here is the price. Overall I'll tell them, on pricing, we continue to pass true price increases. If we get a whim of a price coming up, we put it into our core model system. And we'd rather go back at sometime and say, hey, you know, we over priced, which has not been the case so far. I don't think we'll see pricing going down in 2005, but I do think at some point in time, you'll see it leveling all. And, at that point, depending upon, what we got quoted, we should see, as I said in the past, some margin improvements on the basis of that.

OK. And Bill, forgive me, but what was your market share of the driving arena in Q3, did you give that? I know you've given a lot of numbers earlier on?

Roughly at 26%.

OK. Next up, what would be the comparative number either versus Q2 or, more importantly, a year ago?

Well, certainly, since the beginning of the year, we're up roughly two percentage points.

OK.

I mean, it's been really good in the mid market. We've got a lot of successes now whether we are going to a buying season. There is tough competition out there, and we are not giving away the trailers. And we're going to compete with the best products that we have and the best service. I keep on going back, this is an industry that -- it seems that Wabash National is the only one interested in coming out with 10-year trailer. Lot of people kind of scuffed at us and laughed, they're not anymore, and this is going to pay big dividend as we go forward. So, we're pretty exited about the market going forward.

OK. Good. Thanks for your comments. Keep up the good work.

As there no further question at this time, I would now like to turn the call back to you. Please proceed with your presentation or closing remark.

Thanks everyone for attending. I know it's a busy day for all. We'll be out in the market over the next week or so, and look forward to talking to some of you. Thanks again. That's it.