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WNC > SEC Filings for WNC > Form 10-Q on 1-Nov-2012All Recent SEC Filings

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Form 10-Q for WABASH NATIONAL CORP /DE


1-Nov-2012

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;

the benefits of, and our plans relating to, our recently completed acquisition of Walker, the amount of transaction costs associated with the acquisition, our ability to manage the cost of the financing of the acquisition and related indebtedness and our ability to effectively integrate Walker and realize expected synergies and benefits from the Walker Acquisition;

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; and

government regulation.

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, 2011 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:



                                        Three Months Ended          Nine Months Ended
                                           September 30,               September 30,
                                         2012          2011          2012         2011
Net sales                                  100.0 %      100.0 %        100.0 %     100.0 %
Cost of sales                               87.7         96.0           89.5        94.6
Gross profit                                12.3          4.0           10.5         5.4

General and administrative expenses          3.1          2.1            3.0         2.7
Selling expenses                             1.8          1.0            1.6         1.1
Amortization of intangibles                  0.7          0.2            0.7         0.3
Acquisition expenses                           -            -            1.3           -
Income from operations                       6.7          0.7            3.9         1.3

Interest expense                            (1.9 )       (0.3 )         (1.3 )      (0.4 )
Loss on debt extinguishment                    -            -              -        (0.1 )
Other, net                                   0.1            -              -         0.1
Income before income taxes                   4.9          0.4            2.6         0.9

Income tax expense                           0.4          0.1            0.2           -
Net income                                   4.5 %        0.3 %          2.4 %       0.9 %

For the three and nine month periods ended September 30, 2012, we recorded net sales of $405.9 million and $1,046.0 million, respectively, compared to $336.4 million and $845.5 million in the prior year periods. Net sales for the three and nine month periods ending September 30, 2012 increased due to the acquisition of Walker, completed on May 8, 2012, which generated net sales of $96.5 million for the third quarter and $140.8 million from the date of acquisition through the end of the third quarter. Compared to the prior year periods new trailer volumes decreased by approximately 1,400 units or 10.3% and increased by 600 units or 1.8% for the three and nine month periods ending September 30, 2012, respectively. Sales of our Diversified Products segment increased for the three and nine month periods by $96.0 million and $157.4 million, or 941% and 470%, respectively, due to the inclusion of Walker operations. Gross profit margin was 12.3% in the third quarter of 2012 compared to 4.0% in the prior year period. The increase in gross profit margin is primarily due to improved pricing on new trailers and the diversification into higher margin opportunities through the acquisition of Walker. We continue to be encouraged by the overall trailer market throughout the first nine months of 2012, and our expectation is that overall industry shipment and production levels will remain above replacement demand for both the remainder of 2012 and 2013 as key structural and market drivers continue to support healthy demand for new trailers. In addition, we expect to continue to deliver improvements in our financial and operational results as we further optimize our production facilities, implement synergies related to the acquisition of Walker, and continue to expand our Diversified Products customer base and product offerings.

Selling, general and administrative expenses increased in the third quarter of 2012 as compared to the same period in 2011 due primarily to the acquisition of Walker as well as higher salaries and other employee related costs due to the full reinstatement of compensation levels that were reduced in previous years to adjust our cost structure to match market demand and conditions. As a percentage of net sales, selling, general and administrative expenses increased to 4.9% as compared to 3.1% in the prior year period.

Our management team continues to be focused on positioning the Company to optimize profits as the industry continues to improve, maintaining our cost savings initiatives, strengthening our capital structure, developing innovative products 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, 2012



Net Sales



Net sales in the third quarter of 2012 increased $69.5 million, or 20.7%,
compared to the third quarter of 2011. By business segment, net external sales
and related units sold were as follows (dollars in millions):



                                     Three Months Ended September 30,
                                                               Change
                                2012         2011          $            %
Sales by Segment
Commercial Trailer Products   $  259.7     $  296.8     $  (37.1 )     (12.5 )
Diversified Products             106.2         10.2         96.0       941.2
Retail                            40.0         29.4         10.6        36.1
Total                         $  405.9     $  336.4     $   69.5        20.7

New Trailers                          (units)
Commercial Trailer Products     10,500       13,000       (2,500 )     (19.2 )
Diversified Products               800            -          800           -
Retail                             900          600          300        50.0
Total                           12,200       13,600       (1,400 )     (10.3 )

Used Trailers                         (units)
Commercial Trailer Products      1,000          600          400        66.7
Retail                             400          500         (100 )     (20.0 )
Total                            1,400        1,100          300        27.3

Commercial Trailer Products segment sales were $259.7 million for the third quarter of 2012, down $37.1 million, or 12.5%, compared to the third quarter of 2011. The decrease in sales is due primarily to a 19.2% decrease in new trailer shipments as approximately 10,500 trailers shipped in the third quarter of 2012 compared to 13,000 trailers shipped in the prior year period. Average selling prices increased by 7.4% in the third quarter of 2012, compared to the prior year period, due to increased pricing necessary to offset higher raw material costs as well as favorable customer and product mix. Used trailer sales increased $3.4 million, or 78.3%, compared to the previous year period as a result of a 66.7% increase in shipments due to increased demand and availability of used trailers.

Diversified Products segment sales, net of intersegment sales, were $106.2 million for the third quarter of 2012, up $96.0 million, or 941.2%, compared to the same period in 2011. The increase in sales is due to the acquisition of Walker, which contributed $96.5 million in the current year period. Excluding Walker, Diversified Products segment sales for the current quarter was $9.7 million, a decrease of $0.5 million, or 4.9%, as compared to the previous year period.

Retail segment sales were $40.0 million in the third quarter of 2012, up $10.6 million, or 36.1%, compared to the prior year period. The increase in sales is primarily due to a $9.9 million, or 70.1%, increase in new trailer sales as trailers shipped during the current quarter increased approximately 300 units as compared to the prior year period. Used trailer sales remained relatively unchanged compared to the prior year period as decreased shipments during the current year period were offset by an increase in average selling prices due to mix as compared to the prior year period.

Cost of Sales

Cost of sales for the third quarter of 2012 was $355.8 million, an increase of $32.7 million, or 10.1%, compared to the third quarter of 2011. As a percentage of net sales, cost of sales was 87.7% in the third quarter of 2012 compared to 96.0% in the third quarter of 2011.

Commercial Trailer Products segment cost of sales, as detailed in the following table, was $239.4 million for the third quarter of 2012, a decrease of $50.2 million, or 17.3%, compared to the third quarter of 2011. As a percentage of net sales, cost of sales was 92.2% for the current quarter compared to 97.6% in the prior year period.

                                                Three Months Ended September 30,
Commercial Trailer Products Segment              2012                         2011
                                                      (dollars in millions)
                                                       % of Net                   % of Net
                                                        Sales                      Sales
Material Costs                        $   193.3             74.4 %   $ 239.8           80.8 %
Other Manufacturing Costs                  46.1             17.8 %      49.8           16.8 %
                                      $   239.4             92.2 %   $ 289.6           97.6 %

Cost of sales is comprised 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 were 74.4% of net sales in the third quarter of 2012 compared to 80.8% for the same period in 2011. The 6.4% decrease resulted from increases in the overall average selling prices for new trailers necessary to offset increased raw material, commodity and component costs. Other manufacturing costs decreased $3.7 million in the current year period, as compared to the prior year period, resulting from decreases in new trailer production volumes as compared to the prior year. As a percentage of sales, other manufacturing costs increased from 16.8% in the third quarter of 2011 to 17.8% in the 2012 period.

Diversified Products segment cost of sales was $80.2 million in the third quarter of 2012, an increase of $73.3 million, or 1,059.3%, compared to the same 2011 period due primarily to the acquisition of Walker in the current year. As a percentage of net sales prior to the elimination of intersegment sales, cost of sales was 77.6% in the third quarter of 2012 compared to 87.8% in the third quarter of 2011. The 10.2% decrease as a percentage of net sales was primarily the result of the inclusion of Walker during the current year period and an increased percentage of net sales from higher-margined product lines as compared to the previous year period.

Retail segment cost of sales was $36.5 million in the third quarter of 2012, an increase of $9.9 million, or 36.9%, compared to the same 2011 period. As a percentage of net sales, cost of sales was 91.3% in the third quarter of 2012, compared to 90.8% in the third quarter of 2011. This increase as a percentage of net sales was primarily the result of increased new trailer sales, which carry a lower gross margin than our parts and service product line.

Gross Profit

Gross profit was $50.1 million in the third quarter of 2012, an improvement of $36.8 million from the prior year period. Gross profit as a percent of sales was 12.3% for the current quarter, compared to 4.0% for the same period in 2011. Gross profit by segment was as follows (in millions):

                                    Three Months Ended September 30,
                                                               Change
                                2012          2011         $           %
Gross Profit by Segment:
Commercial Trailer Products   $   20.3       $   7.2     $ 13.1       181.9
Diversified Products              26.0           3.3       22.7       687.9
Retail                             3.5           2.7        0.8        29.6
Corporate and Eliminations         0.3           0.1        0.2       200.0
Total                         $   50.1       $  13.3     $ 36.8       276.7

Commercial Trailer Products segment gross profit was $20.3 million for the third quarter of 2012 compared to $7.2 million for the third quarter of 2011. Gross profit as a percentage of sales was 7.8% in the third quarter of 2012 as compared to 2.4% in the 2011 period. The increase in gross profit as a percentage of net sales was primarily driven by improved pricing necessary to offset increases in material costs.

Diversified Products segment gross profit was $26.0 million for the third quarter of 2012 compared to $3.3 million in the third quarter of 2011 primarily due to the acquisition of Walker. Gross profit, prior to the elimination of intersegment sales, as a percentage of sales was 22.4% in the third quarter of 2012 compared to 12.2% in the third quarter of 2011. The 10.2% increase as a percentage of net sales was largely the result of the inclusion of Walker during the current year period as well as improved margins from our wood floor operations due to productivity improvements during the current year period as compared to the previous year period.

Retail segment gross profit was $3.5 million for the third quarter of 2012, an increase of $0.8 million compared to the same period in 2011. Gross profit as a percentage of sales for the third quarter of 2012 was 8.7% compared to 9.2% for the prior year period. The decrease in gross profit margin, compared to the prior year period, is primarily due to an increase in new trailer sales, which carry a lower gross margin than our parts and service product line.

General and Administrative Expenses

General and administrative expenses of $12.5 million for the third quarter of 2012 increased $5.4 million, or 75.3%, from the prior year period. The increase was largely due to the inclusion of Walker which added $3.6 million during the current year period. In addition, salaries and other employee related costs, excluding Walker, increased $1.5 million in the current year period due to the full reinstatement of compensation and benefit levels that were reduced in previous years to adjust our cost structure to match market demand as well as the mark-to-market of certain stock based compensation awards. As a percentage of sales, general and administrative expenses increased to 3.1% for the current quarter as compared to 2.1% for the third quarter of 2011.

Selling Expenses

Selling expenses were $7.1 million in the third quarter of 2012, an increase of $4.0 million, or 126.1%, compared to the prior year period primarily due to the inclusion of Walker which added $3.5 million during the current year period. Additionally, salaries and other employee related costs, excluding Walker, increased $0.5 million in the current year period due to the full reinstatement of compensation and benefit levels that were reduced in previous years to adjust our cost structure to match market demand as well as the mark-to-market of certain stock based compensation awards. As a percentage of net sales, selling expenses were 1.8% for the third quarter of 2012 compared to 0.9% for the prior year period.

Amortization of Intangibles

Amortization of intangibles was $3.0 million for the third quarter of 2012, an increase of $2.2 million, or 304.3%, compared to the prior year period due to amortization expense recognized for intangible assets recorded from the Walker Acquisition.

Other Income (Expense)

Interest expense for the third quarter of 2012 totaled $7.8 million, an increase of $6.7 million primarily due to interest and non-cash accretion charges of $1.1 million related to our Convertible Senior Notes and Term Loan Credit Agreement entered into in connection with the Walker Acquisition.

Income Taxes

After considering available evidence, both positive and negative, we have recorded a full valuation allowance against our net deferred tax assets as of September 30, 2012. Please refer to our "Critical Accounting Policies and Estimates" section below for additional information our position with respect to the expected timing to release all or a portion of our full valuation allowances.

The acquisition of Walker on May 8, 2012, preliminarily created goodwill in the amount of $149.9 million which will have an indefinite life for book purposes. However, for tax purposes the value of this goodwill will be fully deductible over 15 years. This book to tax difference will create a deferred tax liability which, according to ASC 740, cannot be netted against other deferred tax assets and liabilities with specific identifiable lives and offset by the valuation allowance. As a result, a deferred tax liability and deferred tax expense of $1.0 million was recognized for the three month period ending September 30, 2012.

Nine Months Ended September 30, 2012

Net Sales

Net sales for the first nine months of 2012 were $1.0 billion, an increase of $200.5 million, or 23.7%, compared to the 2011 period. By business segment, net external sales and related units sold were as follows (dollars in millions):

                                     Nine Months Ended September 30,
                                                               Change
                                2012          2011          $           %
Sales by Segment
Commercial Trailer Products   $   756.6     $  719.5     $  37.1         5.2
Diversified Products              190.9         33.5       157.4       469.9
Retail                             98.5         92.5         6.0         6.5
Total                         $ 1,046.0     $  845.5     $ 200.5        23.7

New Trailers                          (units)
Commercial Trailer Products      31,400       31,900        (500 )      (1.6 )
Diversified Products              1,200            -       1,200           -
Retail                            1,900        2,000        (100 )      (5.0 )
Total                            34,500       33,900         600         1.8

Used Trailers                         (units)
Commercial Trailer Products       2,300        1,400         900        64.3
Diversified Products                100            -         100           -
Retail                            1,200        1,200           -           -
Total                             3,600        2,600       1,000        38.5

Commercial Trailer Products segment sales were $756.6 million for the first nine months of 2012, up $37.1 million, or 5.2%, compared to the first nine months of 2011. The increase in sales is primarily due to a 5.6% increase in average selling prices for the first nine months of 2012 compared to the prior year period due to increased pricing necessary to offset higher raw material costs as well as favorable customer and product mix. Used trailer sales increased $7.0 million, or 72.0%, compared to the previous year period resulting primarily from a 64.3% increase in shipments due to increased market demand.

Diversified Products segment sales, net of intersegment sales, were $190.9 million for the first nine months of 2012, up $157.4 million, or 469.9%, compared to the same period in 2011. The increase in sales is primarily due to the inclusion of Walker, which added net sales of $140.8 million since the date of acquisition, as well as increased demand across all our Wabash Composites and Energy and Environmental Solutions product offerings and new business opportunities identified as we continue to gain positive momentum in our efforts to diversify our business and increase our market penetration and overall acceptance of our product offerings.

Retail segment sales were $98.5 million in the first nine months of 2012, up $6.0 million, or 6.5%, compared to the prior year period. New trailer sales increased $2.1 million, or 4.4%, as favorable customer and product mix, resulting in a 10.3% increase in average selling prices, more than offset the approximate 100 unit decline in shipments during the current year period as compared to the prior year period. Used trailer sales increased $1.9 million, or 20.0%, due to increases in average selling price. Parts and service sales were up $1.9 million, or 5.6%, due to increased market demand.

Cost of Sales

Cost of sales for the first nine months of 2012 was $936.5 million, an increase of $137.1 million, or 17.1%, compared to the 2011 period. As a percentage of net sales, cost of sales was 89.5% for the first nine months of 2012 compared to 94.6% for the 2011 period.

Commercial Trailer Products segment cost of sales, as detailed in the following table, was $705.7 million for the first nine months of 2012, an increase of $12.5 million, or 1.8%, compared to the first nine months of 2011. As a percentage of net sales, cost of sales was 93.3% for the first nine months compared to 96.3% in the prior year period.

                                                  Nine Months Ended September 30,
  Commercial Trailer Products Segment             2012                         2011
                                                       (dollars in millions)
                                                        % of Net                   % of Net
                                                         Sales                      Sales
  Material Costs                        $   565.8            74.8 %   $ 561.6           78.1 %
  Other Manufacturing Costs                 139.9            18.5 %     131.6           18.2 %
                                        $   705.7            93.3 %   $ 693.2           96.3 %

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 were 74.8% of net sales in the first nine months of 2012 compared to 78.1% for the prior year period. The 3.3% decrease was the result of increases in average selling prices for new trailers necessary to offset increased raw material, commodity and component costs as well as favorable customer and product mix. Other manufacturing costs increased $8.3 million in the current year period as compared to the prior year period primarily due to additional costs related to increases in new trailer production volumes. As a percentage of sales, other manufacturing costs increased slightly from 18.2% in the prior year period to 18.5% in the 2012 period.

Diversified Products segment cost of sales was $140.7 million in the first nine months of 2012, an increase of $119.4 million, or 560.0%, compared to the same 2011 period primarily resulting from the acquisition of Walker during the current year period. As a percentage of net sales prior to the elimination of intersegment sales, cost of sales was 77.6% in the first nine months of 2012 compared to 83.5% in the first nine months of 2011. The 5.9% decrease as a percentage of net sales was primarily the result of an increased percentage of net sales from our higher-margined product lines as compared to the previous year period.

Retail segment cost of sales was $89.5 million in the first nine months of 2012, an increase of $4.5 million, or 5.3%, compared to the same 2011 period. As a percentage of net sales, cost of sales was 90.9% in the first nine months of 2012 compared to 92.0% in the first nine months of 2011. This improvement as a percentage of net sales was primarily the result of product mix as an increased percentage of net sales from the higher margin parts and service product line for the 2012 period as compared to the prior year period.

Gross Profit

Gross profit was $109.5 million in the first nine months of 2012, an improvement of $63.4 million from the prior year period. Gross profit as a percent of sales was 10.5% for the first nine months compared to 5.4% for the same period in 2011. Gross profit by segment was as follows (in millions):

                                              Nine Months Ended September 30,
                                                                       Change
                                          2012         2011        $           %
          Gross Profit by Segment:
          Commercial Trailer Products   $    50.9     $ 26.3     $ 24.6         93.5
          Diversified Products               50.1       12.2       37.9        310.7
          Retail                              9.0        7.5        1.5         20.0
          Corporate and Eliminations         (0.5 )      0.1       (0.6 )     (600.0 )
          Total                         $   109.5     $ 46.1     $ 63.4        137.5

Commercial Trailer Products segment gross profit was $50.9 million for the first nine months of 2012 compared to $26.3 million in the prior year period. Gross profit as a percentage of sales was 6.7% in the first nine months of 2012 as compared to 3.6% for the prior year period. The increase in gross profit as a percentage of net sales was primarily driven by improved pricing necessary to offset increased material costs.

Diversified Products segment gross profit was $50.1 million for the first nine . . .

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