Wabash National Corporation (NYSE: WNC) — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports unaudited fourth-quarter results. Figures below are U.S. dollars unless noted.
Business context
Wabash designs, manufactures and markets truck and tank trailers, transportation equipment and engineered products. Its reporting segments are Commercial Trailer Products, Diversified Products and Retail. In the fourth quarter, wood flooring operations were moved from Diversified Products to Commercial Trailer Products; prior segment results were restated. The company cited a recovering, cyclical trailer market and continued its strategy of improving manufacturing efficiency and diversifying into other products and markets.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Net sales | $1,863.3 million | $1,635.7 million |
| Gross profit / margin | $232.6 million / 12.5% | $215.1 million / 13.2% |
| Operating income / margin | $122.4 million / 6.6% | $103.2 million / 6.3% |
| Net income | $60.9 million | $46.5 million |
| Diluted EPS | $0.85 | $0.67 |
| Operating cash flow | $92.6 million | $128.7 million |
| Capital expenditures | $20.0 million | $18.4 million |
| Working capital | $298.8 million | $232.6 million |
| Cash and cash equivalents | $146.1 million | $113.3 million |
| Total debt and capital leases | $332.5 million | $370.6 million |
Sales increased 13.9%, driven mainly by Commercial Trailer Products, whose external sales rose 20.8%; total new trailer shipments increased 22.5% to 57,350. Net income rose, but gross margin declined as Diversified Products experienced lower selling prices, unfavorable mix and competitive pressure. Operating cash flow fell by $36.0 million, primarily reflecting a $37.4 million increase in working capital.
At year-end, reported liquidity—cash plus available revolving-credit capacity—was $289.9 million. The $150 million revolving facility had no outstanding borrowings. The company reported a 0.3:1.0 senior secured leverage ratio and compliance with its debt covenants. The $150 million convertible notes mature in 2018; the term loan balance was $192.8 million and matures in 2019, subject to an accelerated-maturity provision linked to the notes.
Fourth quarter: Sales were $527.5 million versus $458.4 million in Q4 2013; gross profit was $62.7 million versus $52.6 million; net income was $19.1 million versus $10.4 million. Diluted EPS was $0.27 versus $0.15.
Material changes versus the prior period
- Higher trailer shipments and pricing gains lifted sales and operating income; Commercial Trailer Products shipments increased 23.6% year over year.
- Consolidated gross margin decreased 0.7 percentage points to 12.5%. Diversified Products gross profit fell $5.2 million to $103.4 million, and its margin declined from 24.4% to 22.8%.
- Interest expense declined to $22.2 million from $26.3 million, reflecting voluntary term-loan repayments and lower rates after repricing. The company made $42.1 million of term-loan principal payments in 2014.
- Cash taxes paid rose to $20.2 million from $0.9 million. Wabash used all remaining U.S. federal net operating loss and tax-credit carryforwards during 2014.
- Backlog increased to approximately $1.087 billion from $711 million; management expected to complete most orders within 12 months. Backlog orders may be changed or cancelled.
Outlook, risks and unusual items
- Management forecast 60,000–64,000 total new trailer sales in 2015 and anticipated approximately $25 million of capital expenditures. It expected continued strong demand, pricing and productivity improvements, while noting that industry forecasts vary.
- Key risks include the cyclical trailer market, customer demand and concentration, competition, commodity prices and supply availability, execution of diversification plans, and possible impairment of acquisition-related goodwill and intangibles.
- The company authorized a share-repurchase program of up to $60 million through December 31, 2016; no purchases were made under the program in Q4 2014. No common dividends were paid in 2014.
- A Brazilian joint-venture lawsuit remains on appeal. A lower court judgment was approximately R$26.7 million (then described as about $10 million), excluding potentially substantial interest, fees or inflation adjustments. The judgment was not enforceable during the appeal; no loss was accrued because the outcome and possible loss could not be reasonably estimated.
- Other disclosed matters include environmental proceedings and a disputed $2.9 million Walker acquisition-related claim. The company said it did not expect these matters to materially affect its financial condition, while acknowledging litigation outcomes are uncertain.
- Other, net included a $1.0 million loss on early extinguishment of debt and a $0.6 million loss related to transitioning three retail branches to independent dealers. The company reported an unqualified audit opinion and effective internal control over financial reporting.
Important facts for investors to verify
- Whether backlog converts to revenue as expected and whether 2015 shipment and margin targets are achieved.
- Whether weaker Diversified Products margins and lower operating cash flow persist as volumes and working-capital needs change.
- Cash-tax requirements after the exhaustion of federal tax carryforwards, and liquidity under higher working-capital or capital-spending needs.
- The status and potential financial exposure of the Brazilian litigation, including any interest or adjustments imposed on a final judgment.
- Debt maturities, the convertible-note settlement/refinancing requirement, covenant headroom and the terms of any future buybacks or dividends.
- Exposure to raw-material cost increases and the company’s ability to pass them through; year-end purchase commitments for raw materials were $71.3 million.