Wabash National Corporation — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; the filing also reports fourth-quarter results. Wabash designs and manufactures truck and tank trailers, transportation equipment, engineered products, and related retail parts and services.
Financial performance and liquidity
- FY revenue: $1.462 billion, up 23.1% from $1.187 billion in 2011. Growth primarily reflected the May 2012 acquisition of Walker.
- Profit: Gross profit was $163.8 million (11.2% margin), versus $66.7 million (5.6%) in 2011. Operating income was $70.5 million, compared with $19.8 million. Net income was $105.6 million, or $1.53 per diluted share, versus $15.0 million, or $0.22 per share.
- Fourth quarter: Revenue was $415.8 million, gross profit $54.3 million, and net income $80.2 million, or $1.16 per share. Q4 net income included a $59.0 million income-tax benefit, primarily from releasing a deferred-tax valuation allowance.
- Cash flow: Operating activities provided $76.0 million, compared with $1.2 million used in 2011. Capital expenditures were $14.9 million. Investing activities used $380.8 million, including $364.0 million for the Walker acquisition, net of cash acquired.
- Balance sheet and liquidity: Cash was $81.4 million; working capital was $221.4 million. Total debt and capital leases had a reported carrying value of $425.2 million, versus $69.8 million a year earlier. Debt principal before the convertible-note discount was $450.3 million. Management reported liquidity of $224.3 million, comprising cash and available revolving-credit capacity.
- Margins and segments: Commercial Trailer Products external sales were $993.9 million, down 1.6%; Diversified Products sales were $311.0 million, up from $52.0 million, principally due to Walker; Retail sales were $157.0 million, up 25.5%. Diversified Products generated $78.0 million of gross profit, compared with $69.6 million from Commercial Trailer Products.
Changes versus 2011
- Gross margin improved to 11.2% from 5.6%, with management citing trailer pricing and margin recovery, product mix, and Walker’s contribution.
- Commercial Trailer Products shipments fell 8.9% to 40,800; higher average selling prices partly offset the volume decline. Total new trailer shipments, including other segments, fell 4.2% to 45,600.
- Interest expense rose to $21.7 million from $4.1 million, primarily because of debt issued to finance Walker. Acquisition expenses were $14.4 million, and amortization of intangibles rose to $10.6 million.
- Net income growth substantially reflected the $57.0 million annual income-tax benefit, including the $59.9 million valuation-allowance reversal, rather than operating performance alone.
- Walker expanded the business into liquid-transportation systems and engineered products. It was acquired for $375 million in cash, subject to working-capital adjustments; the filing reports $270.1 million of Walker revenue included from acquisition through year-end.
Outlook, risks, and unusual items
- Management forecast 2013 new-trailer sales of 45,000–48,000 units and anticipated continued margin improvement. Industry forecasts cited in the filing differed: ACT projected about 255,000 industry shipments for 2013, while FTR projected about 217,000.
- Management expected approximately $20 million of 2013 capital expenditures and estimated a 2013 effective tax rate of about 40%; it did not expect cash taxes to differ materially from 2012’s approximately $0.6 million because of tax-loss carryforwards.
- Key risks include the cyclical trailer market, raw-material cost volatility and supplier concentration, customer concentration and credit risk, competition, and integration and realization of Walker synergies. Five largest customers represented 23% of 2012 sales. Management noted the backlog was approximately $666 million, but orders may be changed or cancelled.
- Debt increased materially to finance Walker. The term loan and revolver impose financial and other covenants; Wabash reported compliance at year-end. The term loan had $297.8 million outstanding and floating-rate exposure; a 100-basis-point rate change was estimated to affect annual interest expense by $0.4 million.
- A Brazilian joint-venture lawsuit remains unresolved. A lower court judgment was approximately R$26.7 million (about $13.1 million), excluding potentially substantial interest, fees, and inflation adjustments; the judgment was unenforceable pending clarification and appeal. Wabash recorded no charge and could not estimate a reasonable loss range.
- After year-end, Wabash acquired certain Beall tank-trailer assets for approximately $15 million in cash. The Walker working-capital purchase-price adjustment was also in dispute at the filing date.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management’s and the auditor’s control assessment excluded Walker, which represented $482.6 million of year-end assets and $270.1 million of 2012 sales.
Important facts for investors to verify
- Separate recurring operating earnings from the large, non-cash tax benefit that drove reported net income, especially in Q4.
- Reconcile debt principal, carrying value after the convertible-note discount, capital leases, and reported available liquidity; review covenant headroom and refinancing requirements.
- Assess Walker’s standalone contribution, integration progress, acquisition accounting, and the outcome of the working-capital adjustment dispute.
- Track trailer volumes and pricing against management’s 2013 sales forecast and the divergent industry forecasts; monitor backlog conversion and cancellations.
- Review developments in the Brazilian litigation and the Beall acquisition, as well as the effect of the Walker control-assessment exclusion.