Wabash National Corporation — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual report; fourth-quarter figures are included as unaudited supplemental data. Wabash designs and manufactures truck and tank trailers, transportation equipment and engineered products, and operates a retail parts, service and trailer network.
Financial performance
| Metric | FY 2013 | FY 2012 | Change / context |
|---|---|---|---|
| Net sales | $1,635.7 million | $1,461.9 million | Up 11.9% |
| Gross profit / margin | $215.1 million / 13.2% | $163.8 million / 11.2% | Up 31.3%; margin improved 2.0 percentage points |
| Operating income / margin | $103.2 million / 6.3% | $70.5 million / 4.8% | Operating income up 46.4% |
| Net income / diluted EPS | $46.5 million / $0.67 | $105.6 million / $1.53 | Lower year over year, principally because 2012 included a $59.9 million deferred-tax valuation-allowance release |
| Cash from operations | $128.7 million | $76.0 million | Up from prior year |
| Capital expenditures | $18.4 million | $14.9 million | 2014 spending forecast at approximately $20 million |
FY 2013 income tax expense was $31.1 million, an effective rate of 40.1%; 2012 had a $57.0 million tax benefit. Management expected an approximately 40% effective tax rate in 2014 and higher cash taxes as remaining federal tax-loss and credit carryforwards were expected to be used.
Year-end cash was $113.3 million; working capital was $241.8 million. Reported debt and capital lease obligations totaled $370.6 million. The company reported liquidity of $254.3 million, defined as cash plus available revolving-credit capacity, and no revolver borrowings outstanding. Term-loan principal outstanding was $234.9 million and convertible notes had $150 million principal outstanding. The senior secured leverage ratio was 0.9:1.0, and the company reported compliance with its debt covenants.
Segments and material changes
- Commercial Trailer Products: External sales of $1,009.5 million, up 1.6%; segment operating income was $51.5 million. New trailer shipments were 40,800, unchanged from 2012. Management attributed margin improvement largely to higher pricing and product mix.
- Diversified Products: External sales of $446.0 million, up 43.4%; segment operating income was $64.8 million. Growth primarily reflected the first full year of Walker ownership and the February 2013 acquisition of certain Beall assets. This segment generated 54% of gross profit before intersegment eliminations, per management.
- Retail: External sales of $180.1 million, up 14.8%; segment operating income was $2.9 million. Added Walker parts-and-service locations contributed to growth.
- Beall assets were acquired for approximately $13.9 million. Walker, acquired in 2012 for $377 million, contributed $399.8 million of 2013 revenue and $50.8 million of pretax income.
- Debt declined during 2013: the company made approximately $62.8 million of term-loan principal payments, including $60 million in voluntary payments. Interest expense rose to $26.3 million from $21.7 million, largely due to acquisition-related financing.
Fourth quarter: Sales were $458.4 million versus $415.8 million in Q4 2012. Gross profit was $52.6 million versus $54.3 million; net income was $10.4 million versus $80.2 million. The prior-year quarter included a substantial tax benefit, so net income comparisons are not directly indicative of underlying operating performance.
Outlook, risks and unusual items
- Management forecast 2014 new-trailer sales of 47,000–50,000 units and anticipated continued pricing and margin improvement. Industry forecasts cited in the filing varied: ACT projected approximately 242,000 trailers for 2014, while FTR projected approximately 238,000.
- Year-end backlog was approximately $711 million, versus $666 million a year earlier. Orders may be changed or cancelled and are not a guarantee of future revenue.
- Management described trailer demand as healthy but emphasized industry cyclicality, economic and customer-financing conditions, competitive pricing, and volatility or shortages in steel, aluminum, plastics, wood, tires and other components. Raw-material purchase commitments were $32.8 million through December 2014.
- Brazil litigation remains a significant contingency: a lower court judgment ordered damages of about R$26.7 million (then approximately $11.4 million), excluding potentially substantial interest, fees or inflation adjustments. Wabash appealed; the judgment was not enforceable while the appeal was pending. No loss was accrued, and the company said it could not estimate a reasonable loss range.
- Other disclosed matters include environmental proceedings and an approximately $2.9 million disputed Walker seller claim; management did not expect these matters to materially affect financial condition or results. The company reported $0.7 million of estimated remediation reserves in addition to a $0.2 million reserve for a proposed Arizona settlement.
- Goodwill and acquired intangible assets are substantial, concentrated mainly in Diversified Products; no impairment was recorded in 2013. Annual intangible amortization was expected to remain elevated, at approximately $21.9 million in 2014.
- No common dividends were declared or paid in 2013. The independent auditor issued an unqualified opinion on the financial statements and internal controls. Management and auditor excluded certain acquired Beall assets from the 2013 internal-control evaluation.
Investor verification priorities
- Assess how much of sales and margin growth reflects durable pricing, operational gains and organic diversification versus acquired businesses.
- Track conversion and cancellation risk in the $711 million backlog, and compare actual 2014 shipments and margins with management’s forecasts.
- Verify liquidity availability, debt amortization and refinancing needs, including the 2018 convertible notes and their interaction with the term loan maturity provisions.
- Monitor cash taxes after expected use of federal tax carryforwards, and distinguish tax-related changes from operating performance.
- Follow the Brazil appeal and potential exposure, which was not accrued and could not be reliably estimated in the filing.
- Review integration and control remediation for Beall, and monitor impairment sensitivity in goodwill and acquired intangible assets.