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WNC > SEC Filings for WNC > Form 10-Q on 30-Jul-2013All Recent SEC Filings

Show all filings for WABASH NATIONAL CORP /DE

Form 10-Q for WABASH NATIONAL CORP /DE


30-Jul-2013

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 the acquisition of Walker Group Holdings ("Walker") and our recently completed acquisition of certain assets of Beall Corporation ("Beall"), the amount of transaction costs associated with the acquisitions, our ability to manage our indebtedness and our ability to effectively integrate Walker and the Beall assets and realize the expected synergies and benefits;

our expected revenues, income or loss and capital expenditures;

our strategic plan and 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 and opportunities to leverage the acquired Walker and Beall businesses to grow sales in our existing products;

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;

government regulation; and

assumptions relating to the foregoing.

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, 2012 and elsewhere herein. 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:



                                                   Percentage of Net Sales
                                        Three Months Ended          Six Months Ended
                                             June 30,                   June 30,
                                         2013          2012         2013         2012
Net sales                                  100.0 %      100.0 %       100.0 %     100.0 %
Cost of sales                               85.8         89.1          86.3        90.7
Gross profit                                14.2         10.9          13.7         9.3

General and administrative expenses          3.5          2.7           3.9         2.9
Selling expenses                             1.9          1.5           2.1         1.4
Amortization of intangibles                  1.3          1.0           1.5         0.7
Acquisition expenses                         0.1          3.4           0.1         2.1
Income from operations                       7.4          2.3           6.1         2.2

Interest expense                            (1.6 )       (1.5 )        (1.9 )      (1.0 )
Other, net                                  (0.1 )          -           0.3           -
Income before income taxes                   5.7          0.8           4.5         1.2

Income tax expense                           2.3          0.3           1.8         0.1
Net income                                   3.4 %        0.5 %         2.7 %       1.1 %

For the three and six month periods ended June 30, 2013, we recorded net sales of $413.1 million and $737.4 million, respectively, compared to $362.4 million and $640.1 million, respectively, in the prior year periods. Net sales for the three and six month periods ended June 30, 2013 increased compared to the prior year periods due to the acquisition of Walker, completed on May 8, 2012, which generated net sales of $103.1 million and $198.3, respectively, as compared to net sales of $44.3 for the prior year periods from the date of acquisition through the end of the second quarter. Compared to the prior year periods new trailer volumes decreased by approximately 700 units, or 5.8%, and 2,400 units, or 10.7%, for the three and six month periods ended June 30, 2013, respectively. Gross profit margin was 14.2% in the second quarter of 2013 compared to 10.9% 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 made available through the acquisition of Walker. We continue to be encouraged by the overall trailer market throughout the first six months of 2013, and our expectation is that overall industry shipment and production levels will remain above replacement demand for the remainder of 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 acquisitions of Walker and certain assets of Beall, and continue to expand our Diversified Products customer base and product offerings.

Selling, general and administrative expenses increased in the second quarter of 2013 as compared to the same period in 2012 due primarily to the acquisition of Walker, as well as higher salaries and employee related costs. As a percentage of net sales, selling, general and administrative expenses increased to 5.4% as compared to 4.2% 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 June 30, 2013



Net Sales



Net sales in the second quarter of 2013 increased $50.7 million, or 14.0%,
compared to the second quarter of 2012. By business segment, net external sales
and related units sold were as follows (dollars in millions):



                                                Three Months Ended June 30,
                                                                        Change
                                         2013         2012          $            %
         Sales by Segment
         Commercial Trailer Products   $  244.1     $  263.4     $  (19.3 )      (7.3 )
         Diversified Products             121.4         61.1         60.3        98.7
         Retail                            47.6         37.9          9.7        25.6
         Total                         $  413.1     $  362.4     $   50.7        14.0

         New Trailers                         (units)
         Commercial Trailer Products      9,800       11,000       (1,200 )     (10.9 )
         Diversified Products               800          500          300        60.0
         Retail                             800          600          200        33.3
         Total                           11,400       12,100         (700 )      (5.8 )

         Used Trailers                        (units)
         Commercial Trailer Products        700          700            -           -
         Retail                             400          400            -           -
         Total                            1,100        1,100            -           -

Commercial Trailer Products segment sales were $244.1 million for the second quarter of 2013, a decrease of $19.3 million, or 7.3%, compared to the second quarter of 2012. The decrease in sales is due primarily to a 10.9% reduction in new trailer shipments as approximately 9,800 trailers shipped in the second quarter of 2013 compared to 11,000 trailers shipped in the prior year period. However, as compared to the prior period, average new trailer selling prices increased by 2.4% in the second quarter of 2013. The increase is primarily due to increased pricing necessary to recapture lost margins, as well as favorable customer and product mix. Used trailer sales increased $1.4 million, or 29.8%, compared to the previous year period. The increase primarily results from a favorable product mix as demand for used trailers remained constant during the current and prior year periods.

Diversified Products segment sales were $121.4 million for the second quarter of 2013, up $60.3 million, or 98.7%, compared to the same period in 2012. The increase in sales is primarily due to the acquisitions of Walker and certain assets of Beall, which contributed $97.2 million in the current year period. Excluding the impact of these acquisitions, Diversified Products segment sales for the current quarter were $24.2 million, an increase of $2.8 million, or 12.9%, as compared to the previous year period as our efforts to diversify our business and increase our market penetration and acceptance of our product offerings gained momentum and demand for our composite product offerings increased.

Retail segment sales were $47.6 million in the second quarter of 2013, up $9.7 million, or 25.6%, compared to the prior year period. This increase in sales was partly due to the addition of six tank trailer parts and service locations as a result of the Walker acquisition, generating $3.8 million more in sales for the current year period than compared to the previous year. Excluding the parts and service locations acquired from Walker, Retail segment sales were $39.3 million, an increase of 17.8%, as compared to the prior year. New trailer sales increased $6.4 million, or 38.5%, as approximately 200 additional units were shipped during the current year as compared to the prior year period. Used trailer sales decreased $0.6 million, or 14.8%, primarily due to product mix as demand for used trailers was consistent with the prior year period. Parts and service sales were up $3.6 million, or 22.2%.

Cost of Sales

Cost of sales for the second quarter of 2013 was $354.3 million, an increase of $31.5 million, or 9.8%, compared to the second quarter of 2012. As a percentage of net sales, cost of sales was 85.7% in the second quarter of 2013 compared to 89.1% in the second quarter of 2012.

Commercial Trailer Products segment cost of sales, as detailed in the following table, was $222.9 million for the second quarter of 2013, a decrease of $21.5 million, or 8.8%, compared to the second quarter of 2012. As a percentage of net sales, cost of sales was 91.3% for the current quarter compared to 92.8% in the prior year period.

                                                    Three Months Ended June 30,
   Commercial Trailer Products Segment            2013                       2012
                                                       (dollars in millions)
                                                      % of Net                   % of Net
                                                       Sales                      Sales
   Material Costs                        $ 175.8           72.0 %   $ 196.4           74.6 %
   Other Manufacturing Costs                47.1           19.3 %      48.0           18.2 %
                                         $ 222.9           91.3 %   $ 244.4           92.8 %

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 72.0% of net sales in the second quarter of 2013 compared to 74.6% for the same period in 2012. The 2.6% decrease was primarily driven by increases in the overall average selling prices for new trailers as raw material, commodity and component costs remained relatively consistent. Other manufacturing costs decreased $0.9 million in the current year period, as compared to the prior year period, resulting from lower variable costs related to decreases in new trailer production volumes. As a percentage of sales, other manufacturing costs increased from 18.2% in the second quarter of 2012 to 19.3% in the 2013 period due to reduced leverage of fixed costs from lower production.

Diversified Products segment cost of sales was $89.6 million in the second quarter of 2013, an increase of $45.1 million, or 101.4%, compared to the same 2012 period due primarily to the acquisition of Walker. As a percentage of net sales prior to the elimination of intersegment sales, cost of sales was 76.6% in the second quarter of 2013 compared to 77.1% in the second quarter of 2012. The 0.5% 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 our higher-margined product lines as compared to the previous year period.

Retail segment cost of sales was $42.2 million in the second quarter of 2013, an increase of $8.3 million, or 24.5%, compared to the same 2012 period. As a percentage of net sales, cost of sales was 88.4% for the second quarter of 2013 compared to 89.1% for the same period in 2012. The increase in cost of sales was primarily due to the addition of six tank trailer parts and service locations from the Walker acquisition, which added $3.0 million more in cost of sales for the current year period than compared to the previous year, as well as an increase in new trailer shipments for the quarter. The improvement in cost of sales as a percentage of net sales was primarily the result of product mix driven by an increased percentage of sales from our higher margin parts and service product line in the second quarter of 2013 as compared to the previous year period.

Gross Profit

Gross profit was $58.9 million in the second quarter of 2013, an improvement of $19.2 million from the prior year period. Gross profit as a percent of sales was 14.2% for the current quarter, compared to 10.9% for the same period in 2012. Gross profit by segment was as follows (in millions):

                                                Three Months Ended June 30,
                                                                      Change
                                           2013       2012        $           %
            Gross Profit by Segment:
            Commercial Trailer Products   $ 21.2     $ 18.9     $  2.3        12.2
            Diversified Products            31.7       16.6       15.1        91.0
            Retail                           5.5        4.1        1.4        34.1
            Corporate and Eliminations       0.5        0.1        0.4       400.0
            Total                         $ 58.9     $ 39.7     $ 19.2        48.4

Commercial Trailer Products segment gross profit was $21.2 million for the second quarter of 2013 compared to $18.9 million for the second quarter of 2012. Gross profit, prior to the elimination of intersegment sales, as a percentage of sales was 7.9% in the second quarter of 2013 as compared to 6.7% in the 2012 period. The increase in gross profit margin was primarily driven by improved pricing necessary to recapture lost margins.

Diversified Products segment gross profit was $31.7 million for the second quarter of 2013 compared to $16.6 million in the second quarter of 2012. This increase of $15.1 million, or 91.0%, was primarily due to the acquisition of Walker. Gross profit, prior to the elimination of intersegment sales, as a percentage of sales, was 23.4% in the second quarter of 2013 compared to 22.9% in the second quarter of 2012. The 0.5% 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 continued productivity improvements during the current year period as compared to the previous year period.

Retail segment gross profit was $5.5 million for the second quarter of 2013, an increase of $1.4 million compared to the same period in 2012. Gross profit, prior to the elimination of intersegment sales, as a percentage of sales for the second quarter of 2013 was 11.5% compared to 10.8% for the prior year period. The increase in gross profit and gross profit margin is primarily due to the addition of six tank trailer parts and service locations from the Walker acquisition.

General and Administrative Expenses

General and administrative expenses increased $5.0 million, or 50.4%, from the prior year period. The increase was largely due to the inclusion of a full quarter of Walker and Beall, which added expenses of approximately $3.6 million during the current year period as compared to approximately $2.0 million in the prior year. In addition, employee related costs, excluding Walker and Beall, increased $1.8 million in the current year period due to higher salaries and employee related costs, as well as the mark-to-market of certain stock based compensation awards. The remainder of the increase is primarily attributable to higher outside professional fees and technology costs. As a percentage of sales, general and administrative expenses increased to 3.5% for the current quarter as compared to 2.7% for the second quarter of 2012.

Selling Expenses

Selling expenses were $7.7 million in the second quarter of 2013, an increase of $2.3 million, or 41.1%, compared to the prior year period primarily due to the inclusion of a full quarter of Walker and Beall, which added expenses of approximately $3.6 million during the current year period as compared to approximately $2.1 million in the prior year. In addition, employee related costs, excluding Walker and Beall, increased $0.7 million in the current year period due to employee incentive programs as well as the mark-to-market of certain stock based compensation awards. As a percentage of net sales, selling expenses were 1.9% for the second quarter of 2013 compared to 1.5% for the prior year period.

Amortization of Intangibles

Amortization of intangibles was $5.5 million for the second quarter of 2013, an increase of $2.0 million, or 57.9%, compared to the prior year period due to amortization expense recognized for intangible assets recorded from the acquisitions of Walker and certain assets of Beall.

Acquisition Expenses

Acquisition expenses totaling $0.2 million for the second quarter of 2013 represent acquisition related costs incurred in connection with the acquisitions of Walker and certain assets of Beall.

Other Income (Expense)

Interest expensefor the second quarter of 2013 totaled $6.6 million, an increase of $1.1 million primarily due to interest and non-cash accretion charges related to our Convertible Senior Notes and Term Loan Credit Agreement entered into in connection with the Walker Acquisition. In addition, Other, net for the second quarter of 2013 includes a loss on the early extinguishment of debt of $0.7 million which represents the write-off of debt issuance costs recognized on the amendment to our Term Loan Credit Agreement.

Income Taxes

We recognized income tax expense of $9.4 million in the second quarter of 2013 compared to expense of $1.1 million in the second quarter of 2012. The effective tax rate for the second quarter of 2013 was 40.0%, which differs from the U.S. Federal statutory rate of 35% primarily due to the impact of state and local taxes. During the fourth quarter of 2012, we released $59.9 million of valuation allowance against our net deferred tax assets and, as of June 30, 2013, we had an estimated $79 million of remaining U.S. Federal income tax net operating loss carryforwards, which will begin to expire in 2028 if unused, and which may be subject to other limitations under IRS rules. We also have various multi-state income tax net operating loss carryforwards, which have been recorded as a deferred income tax asset, of approximately $9 million, before valuation allowances. We also have various U.S. Federal income tax credit carryforwards which will expire beginning in 2023, if unused. As a result, for the remainder of 2013 we estimate our effective tax rate to be approximately forty percent. However, due to our remaining income tax net operating loss carryforwards, we do not anticipate our cash taxes to be materially different from those paid in 2012 of approximately $0.6 million.

Six Months Ended June 30, 2013



Net Sales



Net sales for the first six months of 2013 increased $97.3 million, or 15.2%,
compared to the 2012 period. By business segment, net external sales and related
units sold were as follows (dollars in millions):



                                                 Six Months Ended June 30,
                                                                        Change
                                         2013         2012          $            %
         Sales by Segment
         Commercial Trailer Products   $  428.1     $  496.9     $  (68.8 )     (13.8 )
         Diversified Products             220.9         80.1        140.8       175.8
         Retail                            88.4         63.1         25.3        40.1
         Total                         $  737.4     $  640.1     $   97.3        15.2

         New Trailers                         (units)
         Commercial Trailer Products     17,100       20,900       (3,800 )     (18.2 )
         Diversified Products             1,400          500          900       180.0
         Retail                           1,500        1,000          500        50.0
         Total                           20,000       22,400       (2,400 )     (10.7 )

         Used Trailers                        (units)
         Commercial Trailer Products      1,400        1,300          100         7.7
         Diversified Products               100            -          100           -
         Retail                             600          800         (200 )     (25.0 )
         Total                            2,100        2,100            -           -

Commercial Trailer Products segment sales were $428.1 million for the first six months of 2013, down $68.8 million, or 13.8%, compared to the first six months of 2012. The decrease in sales is due primarily to an 18.2% decrease in new trailer shipments as approximately 17,100 trailers shipped in the first six months of 2013 compared to 20,900 trailers shipped in the prior year period. However, the decrease in new trailer shipments were partially offset by a 3.7% increase in average selling prices in the first six months of 2013 compared to the prior year period, due to increased pricing necessary to recapture lost margins, as well as favorable customer and product mix. Used trailer sales increased $2.3 million, or 26.1%, compared to the previous year period. The increase was attributable to a 17.7% increase in the average unit selling price and a 7.7% increase in shipments due to increased market demand.

Diversified Products segment sales were $220.9 million for the first six months of 2013, up $140.8 million, or 175.8%, compared to the same period in 2012. The increase in sales is primarily due to the acquisitions of Walker and certain assets of Beall, which contributed $145.3 million more in sales during the current six month period than compared to the prior year period. 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 $88.4 million in the first six months of 2013, up $25.3 million, or 40.1%, compared to the prior year period. This increase in sales was partly due to the addition of six tank trailer parts and service locations as a result of the Walker acquisition, generating $11.6 million more in sales during the six month period than compared to the previous year period. Excluding the parts and service locations acquired from Walker, Retail segment sales were $72.0 million, an increase of 23.2%, as compared to the prior year. New trailer sales increased $13.4 million, or 50.8%, as approximately 500 additional units were shipped during the current year as compared to the prior year period. Used trailer sales decreased $1.4 million, or 18.4%, primarily due to a 25.0% decrease in shipments compared to the prior year period. Parts and service sales were up $11.5 million, or 41.1%.

Cost of Sales

Cost of sales for the first six months of 2013 was $636.3 million, an increase of $55.6 million, or 9.6%, compared to the 2012 period. As a percentage of net sales, cost of sales was 86.3% for the first six months of 2013 compared to 90.7% for the 2012 period.

Commercial Trailer Products segment cost of sales, as detailed in the following table, was $395.4 million for the first six months of 2013, a decrease of $70.9 million, or 15.2%, compared to the first six months of 2012. As a percentage of net sales, cost of sales was 92.4% for the first six months compared to 93.8% in the prior year period.

                                                  Six Months Ended June 30,
Commercial Trailer Products Segment            2013                       2012
                                                    (dollars in millions)
                                                   % of Net                   % of Net
                                                    Sales                      Sales
Material Costs                        $ 311.3           72.7 %   $ 372.6           75.0 %
Other Manufacturing Costs                84.1           19.7 %      93.7           18.8 %
                                      $ 395.4           92.4 %   $ 466.3           93.8 %

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 72.7% of net sales in the first six months of 2013 compared to 75.0% for the prior year period. The 2.3% decrease was primarily driven by increases in average selling prices for new trailers as raw material, commodity and component costs remained relatively consistent as well as favorable customer and product mix. Other manufacturing costs decreased $9.6 million in the current year period, as compared to the prior year period, resulting from lower variable costs related to decreases in new trailer production volumes. As a percentage of sales, other manufacturing costs increased from 18.8% in the prior year period to 19.7% in the 2013 period due to reduced leverage of fixed costs from lower production.

Diversified Products segment cost of sales was $163.3 million in the first six . . .

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