Wabash National(WNC) - 2019 Q4 - Annual Report

PART I Business Wabash National Corporation is an innovation leader in transportation and logistics solutions, operating three segments with a focus on innovation, optimization, and growth - Wabash National is a diversified industrial manufacturer with three reportable segments: Commercial Trailer Products (CTP), Diversified Products (DPG), and Final Mile Products (FMP)[17] - The company's strategic framework is built on three pillars: Innovation (leadership in new technologies), Optimization (margin enhancement via lean manufacturing and the Wabash Management System), and Growth (expanding the Final Mile platform and commercializing new composite products)[24][25] Backlog of Orders | Date | Backlog (in millions) | Change (YoY) | | :--- | :--- | :--- | | Dec 31, 2019 | $1,127 | -37.0% | | Dec 31, 2018 | $1,788 | N/A | - As of December 31, 2019, the company had approximately 6,900 full-time employees, a decrease from 7,100 in 2018. The majority of active employees were non-union[70] - The five largest customers accounted for approximately 27% of aggregate net sales in 2019, up from 25% in 2018. No single customer accounted for more than 10% of net sales[52] - The company holds or has applied for 159 U.S. patents and 193 foreign patents, with a significant portfolio related to its proprietary DuraPlate® composite panel technology, which has been used in nearly 800,000 trailers sold through December 2019[62][37] Risk Factors The company faces significant risks from the cyclical truck trailer industry, trade policy, raw material costs, supplier reliance, and potential goodwill impairment - The truck trailer manufacturing industry is highly cyclical, with customer replacement cycles running from five to 12 years. Economic downturns have historically led to reduced demand and production slowdowns[79][80] - Changes in U.S. trade policy, particularly tariffs on foreign goods like steel and aluminum, have caused and may continue to cause price increases and volatility for domestically sourced raw materials, which the company may not be able to pass on to customers[84] - The company relies on a limited number of suppliers for key components and raw materials. Shortages, allocations, or price volatility from these suppliers could adversely affect operations and margins[86][88] - A significant portion of goodwill and intangible assets is concentrated in the Final Mile Products (62%) and Diversified Products (37%) segments. An impairment in the carrying value of these assets, potentially triggered by declining profitability or economic weakness, could negatively affect operating results[112] - The company faces risks related to its substantial indebtedness of approximately $461.0 million as of December 31, 2019. This debt could limit financial flexibility, increase vulnerability to economic downturns, and impact the ability to fund operations or pay dividends[118][119] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[138] Properties Wabash National operates manufacturing and retail facilities across the United States, Mexico, and the United Kingdom, with major locations supporting all segments - The company has major manufacturing facilities in several U.S. states, Mexico, and the United Kingdom. Properties owned by Wabash are subject to security interests held by its lenders[140] Legal Proceedings The company is involved in various legal proceedings and environmental disputes, none of which are expected to have a material adverse effect on its financial condition - The company is a potentially responsible party (PRP) in an environmental dispute concerning the Philip Services Site in South Carolina, related to manifest entries from 1989. The potential settlement payment is considered immaterial[142] - On November 13, 2019, the company received a PRP notice from the Indiana Department of Environmental Management for a site near its Lafayette properties. The company does not expect this matter to have a material adverse effect[143][144] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[145] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Wabash National's common stock trades on the NYSE, with a reinstated quarterly dividend and an active share repurchase program - The company's common stock is traded on the New York Stock Exchange under the ticker symbol 'WNC'[146] - A dividend program was reinstated in December 2016, with regular quarterly cash dividends paid to common stockholders[147] Q4 2019 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Remaining Authorization ($ in millions) | | :--- | :--- | :--- | :--- | :--- | | October 2019 | 75,090 | $13.40 | 68,547 | $79.1 | | November 2019 | 126,476 | $15.72 | 126,476 | $77.1 | | December 2019 | 515,291 | $15.64 | 512,438 | $69.1 | | Total Q4 2019 | 716,857 | $15.42 | 707,461 | $69.1 | Selected Financial Data This section presents selected consolidated financial data for the five-year period ending December 31, 2019, including net sales of $2.32 billion and net income of $89.6 million for fiscal year 2019 Selected Financial Data (2017-2019) | Metric (in thousands, except per share) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net sales | $2,319,136 | $2,267,278 | $1,767,161 | | Gross profit | $306,382 | $283,651 | $260,875 | | Income from operations | $142,786 | $110,987 | $130,816 | | Net income | $89,575 | $69,421 | $111,422 | | Diluted net income per common share | $1.62 | $1.19 | $1.78 | | Total assets | $1,304,591 | $1,304,393 | $1,351,513 | | Total debt and finance leases | $456,091 | $505,911 | $551,413 | Management's Discussion and Analysis of Financial Condition and Results of Operations The company saw increased net sales and improved profitability in 2019, driven by its Final Mile Products segment, while maintaining a balanced capital allocation strategy Results of Operations In 2019, net sales increased, driven by Final Mile Products, while gross profit and margin improved, leading to higher operating income Net Sales by Segment (2019 vs 2018) | Segment | 2019 Sales ($M) | 2018 Sales ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Commercial Trailer Products | $1,521.5 | $1,536.9 | (1.0)% | | Diversified Products | $384.5 | $394.0 | (2.4)% | | Final Mile Products | $441.9 | $358.2 | 23.4% | | Total (after eliminations) | $2,319.1 | $2,267.3 | 2.3% | Gross Profit by Segment (2019 vs 2018) | Segment | 2019 Gross Profit ($M) | 2018 Gross Profit ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Commercial Trailer Products | $177.2 | $168.3 | 5.3% | | Diversified Products | $74.6 | $68.4 | 9.0% | | Final Mile Products | $57.8 | $48.8 | 18.5% | | Total (after eliminations) | $306.4 | $283.7 | 8.0% | - Gross margin increased to 13.2% in 2019 from 12.5% in 2018. The Diversified Products segment saw a 200 basis point margin improvement, primarily due to the divestiture of the low-margin AVTE business[191][192] - There was no impairment expense in 2019, compared to a $25.0 million impairment charge in 2018 related to the AVTE business[199] Liquidity and Capital Resources As of December 31, 2019, the company maintained strong liquidity and reduced total debt, with robust operating cash flow supporting its capital allocation strategy - Cash provided by operating activities totaled $146.3 million in 2019, a significant increase from $112.5 million in 2018[233] - Financing activities used $101.6 million in 2019, primarily for principal payments on the Term Loan ($50.5 million), common stock repurchases ($33.7 million), and dividends ($17.8 million)[237] - Total liquidity (cash on hand plus available borrowing capacity) was $308.1 million at year-end 2019[238][221] Contractual Obligations as of Dec 31, 2019 (in thousands) | Obligation | Total | Due in 2020 | 2021-2022 | 2023-2024 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Debt | $460,980 | $361 | $135,619 | $0 | $325,000 | | Operating Leases | $15,962 | $4,986 | $7,028 | $2,706 | $1,242 | | Purchase Commitments | $83,922 | $83,922 | $0 | $0 | $0 | | Chassis Agreements | $13,473 | $13,473 | $0 | $0 | $0 | Significant Accounting Policies and Critical Accounting Estimates Critical accounting estimates include warranties, legal contingencies, and asset impairment, with goodwill for Final Mile Products showing a narrow fair value margin, indicating future impairment risk - Goodwill is a critical accounting estimate, with $167.7 million allocated to the Final Mile Products (FMP) segment and $140.7 million to the Diversified Products (DPG) segment as of December 31, 2019[256] - An interim goodwill impairment test for the FMP reporting unit as of December 31, 2019, indicated its fair value exceeded its carrying value by only approximately 3%, highlighting a risk of future impairment[257] - The FMP goodwill valuation is sensitive to key assumptions: a 100 basis point decrease in EBITDA margin would have resulted in a ~$19.5 million impairment, and a 50 basis point increase in the discount rate would have caused a ~$5.0 million impairment[258] - Subsequent to year-end, a decline in the company's market capitalization was identified as a potential indicator of impairment, which will be monitored[259] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity price fluctuations, interest rate changes on floating-rate debt, and foreign exchange rates, with commodity risk being significant - The company is exposed to commodity price risk for materials like aluminum, steel, and lumber. A hypothetical 100 basis-point change in prices would change cost of goods sold by approximately $8.4 million over one year, based on purchase commitments of $83.9 million[263] - The company has interest rate risk from its $135.2 million in floating-rate debt under the Term Loan Credit Agreement. A hypothetical 100 basis-point change in the floating rate would change annual interest expense by approximately $1.4 million[264] - Foreign exchange rate risk from the British pound sterling and Mexican peso is considered to have an immaterial impact on results of operations[265][266] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal year 2019, including balance sheets, income statements, cash flows, and detailed notes Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Metric (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net Sales | $2,319,136 | $2,267,278 | $1,767,161 | | Gross Profit | $306,382 | $283,651 | $260,875 | | Income from Operations | $142,786 | $110,987 | $130,816 | | Net Income | $89,575 | $69,421 | $111,422 | Consolidated Balance Sheet Highlights (As of Dec 31) | Metric (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Total Current Assets | $541,389 | $549,419 | | Total Assets | $1,304,591 | $1,304,393 | | Total Current Liabilities | $259,378 | $271,676 | | Total Liabilities | $783,603 | $830,544 | | Total Stockholders' Equity | $520,988 | $473,849 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Metric (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $146,284 | $112,471 | $144,379 | | Net cash used in investing activities | ($36,860) | ($13,173) | ($332,240) | | Net cash (used in) provided by financing activities | ($101,598) | ($158,129) | $215,915 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None[419] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with an unqualified opinion from Ernst & Young LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[420] - Management assessed the effectiveness of internal control over financial reporting based on the COSO 2013 framework and concluded it was effective as of December 31, 2019[426] - Ernst & Young LLP issued an unqualified opinion on the company's internal control over financial reporting as of December 31, 2019[429] Other Information The company reports no other information for this item - None[436] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2020 Proxy Statement, including its Code of Business Conduct and Ethics - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's upcoming Proxy Statement[437][438] - The company has adopted a Code of Business Conduct and Ethics for its senior financial officers, available on its website[439] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2020 Proxy Statement - Information regarding executive compensation is incorporated by reference from the company's upcoming Proxy Statement[440] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the company's 2020 Proxy Statement - Information regarding security ownership and equity compensation plans is incorporated by reference from the company's upcoming Proxy Statement[441] Certain Relationships and Related Transactions, and Director Independence Information regarding related person transactions and director independence is incorporated by reference from the company's 2020 Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the company's upcoming Proxy Statement[442] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2020 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the company's upcoming Proxy Statement[443] PART IV Exhibits and Financial Statement Schedules All required financial statements are included in Item 8, with an Exhibit Index listing all filed or incorporated exhibits - All required financial statements are included in Item 8. An Exhibit Index lists all exhibits filed with or incorporated by reference into the Annual Report[444] Form 10-K Summary The company reports no summary for this item - None[446]