UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF |
|
|
THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY
PERIOD ENDED March 31, 2015
OR
| ¨ | TRANSITION
REPORT UNDER SECTION 13 OR 15 (d) OF |
|
|
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________
to __________
Commission File Number: 1-10883
|
WABASH
NATIONAL CORPORATION |
|
|
(Exact name of registrant as specified in its charter) |
|
Delaware |
|
52-1375208 |
(State of Incorporation) |
(IRS Employer |
|
Identification Number) |
1000 Sagamore Parkway South, |
|
Lafayette, Indiana |
47905 |
(Address of Principal |
(Zip Code) |
Executive Offices) |
|
Registrant’s telephone number, including
area code: (765) 771-5300
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x
No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes x
No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer ¨ |
Accelerated filer x |
Non-accelerated filer ¨ (Do not check if a
smaller reporting company) |
Smaller reporting company ¨ |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨
No x
The number of shares of common stock outstanding at April 22, 2015
was 67,916,535.
WABASH NATIONAL CORPORATION
INDEX
FORM 10-Q
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
CURRENT ASSETS | |
| | | |
| | |
Cash and cash equivalents | |
$ | 125,609 | | |
$ | 146,113 | |
Accounts receivable | |
| 156,892 | | |
| 135,206 | |
Inventories | |
| 243,002 | | |
| 177,144 | |
Deferred income taxes | |
| 15,437 | | |
| 16,993 | |
Prepaid expenses and other | |
| 6,987 | | |
| 10,203 | |
Total current assets | |
$ | 547,927 | | |
$ | 485,659 | |
| |
| | | |
| | |
PROPERTY, PLANT AND EQUIPMENT | |
| 141,247 | | |
| 142,892 | |
| |
| | | |
| | |
DEFERRED INCOME TAXES | |
| 770 | | |
| - | |
| |
| | | |
| | |
GOODWILL | |
| 149,690 | | |
| 149,603 | |
| |
| | | |
| | |
INTANGIBLE ASSETS | |
| 131,641 | | |
| 137,100 | |
| |
| | | |
| | |
OTHER ASSETS | |
| 13,697 | | |
| 13,397 | |
| |
$ | 984,972 | | |
$ | 928,651 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Current portion of long-term debt | |
$ | 2,429 | | |
$ | 496 | |
Current portion of capital lease obligations | |
| 1,399 | | |
| 1,458 | |
Accounts payable | |
| 142,907 | | |
| 96,213 | |
Other accrued liabilities | |
| 99,621 | | |
| 88,690 | |
Total current liabilities | |
$ | 246,356 | | |
$ | 186,857 | |
| |
| | | |
| | |
LONG-TERM DEBT | |
| 326,629 | | |
| 324,777 | |
| |
| | | |
| | |
CAPITAL LEASE OBLIGATIONS | |
| 5,457 | | |
| 5,796 | |
| |
| | | |
| | |
DEFERRED INCOME TAXES | |
| 3,205 | | |
| 2,349 | |
| |
| | | |
| | |
OTHER NONCURRENT LIABILITIES | |
| 19,111 | | |
| 18,040 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| | | |
| | |
Common stock 200,000,000 shares authorized, $0.01 par value, 68,025,222
and 68,998,069 shares outstanding, respectively | |
| 713 | | |
| 709 | |
Additional paid-in capital | |
| 638,740 | | |
| 635,606 | |
Accumulated deficit | |
| (205,723 | ) | |
| (216,198 | ) |
Accumulated other comprehensive income | |
| (939 | ) | |
| (637 | ) |
Treasury stock at cost, 3,385,525 and 1,987,073 common
shares, respectively | |
| (48,577 | ) | |
| (28,648 | ) |
Total stockholders' equity | |
$ | 384,214 | | |
$ | 390,832 | |
| |
$ | 984,972 | | |
$ | 928,651 | |
The accompanying notes are an integral part
of these Condensed Consolidated Statements.
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
NET SALES | |
$ | 437,597 | | |
$ | 358,120 | |
| |
| | | |
| | |
COST OF SALES | |
| 380,400 | | |
| 311,448 | |
| |
| | | |
| | |
Gross profit | |
$ | 57,197 | | |
$ | 46,672 | |
| |
| | | |
| | |
GENERAL AND ADMINISTRATIVE EXPENSES | |
| 18,051 | | |
| 14,472 | |
| |
| | | |
| | |
SELLING EXPENSES | |
| 6,569 | | |
| 7,264 | |
| |
| | | |
| | |
AMORTIZATION OF INTANGIBLES | |
| 5,314 | | |
| 5,471 | |
| |
| | | |
| | |
Income from operations | |
$ | 27,263 | | |
$ | 19,465 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest expense | |
| (5,173 | ) | |
| (5,717 | ) |
Loss on debt extinguishment | |
| (5,286 | ) | |
| - | |
Other, net | |
| (96 | ) | |
| 32 | |
| |
| | | |
| | |
Income before income taxes | |
$ | 16,708 | | |
$ | 13,780 | |
| |
| | | |
| | |
INCOME TAX EXPENSE | |
| 6,234 | | |
| 6,484 | |
| |
| | | |
| | |
Net income | |
$ | 10,474 | | |
$ | 7,296 | |
| |
| | | |
| | |
BASIC NET INCOME PER SHARE | |
$ | 0.15 | | |
$ | 0.11 | |
| |
| | | |
| | |
DILUTED NET INCOME PER SHARE | |
$ | 0.15 | | |
$ | 0.10 | |
The accompanying notes are an integral part
of these Condensed Consolidated Statements.
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(Dollars in thousands)
(Unaudited)
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
NET INCOME | |
$ | 10,474 | | |
$ | 7,296 | |
| |
| | | |
| | |
Other comprehensive income (loss): | |
| | | |
| | |
Foreign currency translation adjustment | |
| (303 | ) | |
| 161 | |
Total other comprehensive income (loss) | |
| (303 | ) | |
| 161 | |
| |
| | | |
| | |
COMPREHENSIVE INCOME | |
$ | 10,171 | | |
$ | 7,457 | |
The accompanying notes are an integral part
of these Condensed Consolidated Statements.
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Dollars in thousands)
(Unaudited)
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash flows from operating activities | |
| | | |
| | |
Net income | |
$ | 10,474 | | |
$ | 7,296 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities | |
| | | |
| | |
Depreciation | |
| 4,138 | | |
| 4,042 | |
Amortization of intangibles | |
| 5,314 | | |
| 5,471 | |
Deferred income taxes | |
| 1,642 | | |
| 5,988 | |
Loss on debt extinguishment | |
| 5,286 | | |
| - | |
Stock-based compensation | |
| 2,420 | | |
| 1,640 | |
Accretion of debt discount | |
| 1,185 | | |
| 1,195 | |
Changes in operating assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (21,686 | ) | |
| 1,494 | |
Inventories | |
| (65,843 | ) | |
| (78,742 | ) |
Prepaid expenses and other | |
| 3,216 | | |
| (1,565 | ) |
Accounts payable and accrued liabilities | |
| 57,625 | | |
| 8,815 | |
Other, net | |
| 458 | | |
| 311 | |
Net cash provided by (used in) operating activities | |
$ | 4,229 | | |
$ | (44,055 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Capital expenditures | |
| (2,975 | ) | |
| (2,078 | ) |
Net cash used in investing activities | |
$ | (2,975 | ) | |
$ | (2,078 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Proceeds from exercise of stock options | |
| 719 | | |
| 1,517 | |
Borrowings under revolving credit facilities | |
| 163 | | |
| 175 | |
Payments under revolving credit facilities | |
| (163 | ) | |
| (175 | ) |
Principal payments under capital lease obligations | |
| (432 | ) | |
| (603 | ) |
Proceeds from issuance of term loan credit facility | |
| 192,845 | | |
| - | |
Principal payments under term loan credit facility | |
| (192,845 | ) | |
| (693 | ) |
Principal payments under industrial revenue bond | |
| (122 | ) | |
| (117 | ) |
Debt issuance costs paid | |
| (1,994 | ) | |
| - | |
Stock repurchase | |
| (19,929 | ) | |
| (1,497 | ) |
Net cash used in financing activities | |
$ | (21,758 | ) | |
$ | (1,393 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
$ | (20,504 | ) | |
$ | (47,526 | ) |
Cash and cash equivalents at beginning of period | |
| 146,113 | | |
| 113,262 | |
Cash and cash equivalents at end of period | |
$ | 125,609 | | |
$ | 65,736 | |
The accompanying notes are an integral part
of these Condensed Consolidated Statements.
WABASH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
| 1. | DESCRIPTION OF THE BUSINESS |
The condensed consolidated financial statements
of Wabash National Corporation (the “Company”) have been prepared without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements contain
all material adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial
position of the Company, its results of operations and cash flows. The condensed consolidated financial statements included herein
should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s
2014 Annual Report on Form 10-K.
Inventories
are stated at the lower of cost, primarily determined on the first-in, first-out (FIFO) method, or market. The cost of manufactured
inventory includes raw material, labor and overhead. Inventories consist of the following (in thousands):
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Raw materials and components | |
$ | 76,584 | | |
$ | 63,847 | |
Work in progress | |
| 24,730 | | |
| 23,145 | |
Finished goods | |
| 111,776 | | |
| 68,923 | |
Aftermarket parts | |
| 8,911 | | |
| 8,446 | |
Used trailers | |
| 21,001 | | |
| 12,783 | |
| |
$ | 243,002 | | |
$ | 177,144 | |
Long-term debt consists
of the following (in thousands):
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Convertible senior notes | |
$ | 150,000 | | |
$ | 150,000 | |
Term loan credit agreement | |
| 192,845 | | |
| 192,845 | |
Industrial revenue bond | |
| 1,522 | | |
| 1,645 | |
| |
$ | 344,367 | | |
$ | 344,490 | |
Less: unamortized discount | |
| (15,309 | ) | |
| (19,217 | ) |
Less: current portion | |
| (2,429 | ) | |
| (496 | ) |
| |
$ | 326,629 | | |
$ | 324,777 | |
Convertible Senior
Notes
In April 2012, the Company
issued Convertible Senior Notes due 2018 (the “Notes”) with an aggregate principal amount of $150 million in a public
offering. The Notes bear interest at the rate of 3.375% per annum from the date of issuance, payable semi-annually on May 1 and
November 1. The Notes are senior unsecured obligations of the Company ranking equally with its existing and future senior unsecured
debt.
The Notes are convertible
by their holders into cash, shares of the Company’s common stock or any combination thereof at the Company’s election,
at an initial conversion rate of 85.4372 shares of the Company’s common stock per $1,000 in principal amount of Notes, which
is equal to an initial conversion price of approximately $11.70 per share, only under the following circumstances: (A) before
November 1, 2017 (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2012 (and only during
such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive)
during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is
greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period
after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in
the indenture for the Notes) per $1,000 principal amount of Notes for each trading day of the measurement period was less than
98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading
day; and (3) upon the occurrence of specified corporate events as described in the indenture for the Notes; and (B) at any time
on or after November 1, 2017 until the close of business on the second business day immediately preceding the maturity date. As
of March 31, 2015, the Notes were not convertible based on the above criteria. If the Notes were converted as of March 31, 2015,
the if-converted value would exceed the principal amount by approximately $31 million.
It is the Company’s
intent to settle conversions through a net share settlement, which involves repayment of cash for the principal portion and delivery
of shares of common stock for the excess of the conversion value over the principal portion. The Company used the net proceeds
of $145.1 million from the sale of the Notes to fund a portion of the purchase price of the acquisition of Walker Group Holdings
(“Walker”) in May 2012.
The Company accounts separately for the
liability and equity components of the Notes in accordance with authoritative guidance for convertible debt instruments that may
be settled in cash upon conversion. The guidance required the carrying amount of the liability component to be estimated by measuring
the fair value of a similar liability that does not have an associated conversion feature. The Company determined that senior,
unsecured corporate bonds traded on the market represent a similar liability to the Notes without the conversion option. Based
on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with
similar maturity, the Company estimated the implied interest rate of the Notes to be 7.0%, assuming no conversion option. Assumptions
used in the estimate represent what market participants would use in pricing the liability component, including market interest
rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest
rate was applied to the Notes, which resulted in a fair value of the liability component of $123.8 million upon issuance, calculated
as the present value of implied future payments based on the $150.0 million aggregate principal amount. The $21.7 million difference
between the cash proceeds before offering expenses of $145.5 million and the estimated fair value of the liability component was
recorded in additional paid-in capital. The discount on the liability portion of the Notes is being amortized over the life of
the Notes using the effective interest rate method.
The Company applies the
treasury stock method in calculating the dilutive impact of the Notes. For the three month period ended March 31, 2015, the Notes
had a dilutive impact.
The following table summarizes
information about the equity and liability components of the Notes (dollars in thousands). The fair value of the Notes outstanding
were measured based on quoted market prices.
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Principal amount of the Notes outstanding | |
$ | 150,000 | | |
$ | 150,000 | |
Unamortized discount of liability component | |
| (14,362 | ) | |
| (15,399 | ) |
Net carrying amount of liability component | |
| 135,638 | | |
| 134,601 | |
Less: current portion | |
| - | | |
| - | |
Long-term debt | |
$ | 135,638 | | |
$ | 134,601 | |
Carrying value of equity component, net of issuance costs | |
$ | 20,993 | | |
$ | 20,993 | |
Remaining amortization period of discount on the liability component | |
| 3.1 years | | |
| 3.3 years | |
Contractual coupon interest
expense and accretion of discount on the liability component for the Notes for the three month periods ended March 31, 2015 and
2014 were as follow (in thousands):
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Contractual coupon interest expense | |
$ | 1,266 | | |
$ | 1,266 | |
Accretion of discount on the liability component | |
$ | 1,037 | | |
$ | 968 | |
Revolving Credit Agreement
In May 2012 the Company
entered into an amendment and restatement of its then-existing senior secured revolving credit facility among the Company, certain
of its subsidiaries (together with the Company, the “Borrowers”), Wells Fargo Capital Finance, LLC, as joint lead
arranger, joint bookrunner and administrative agent (the “Revolver Agent”), RBS Citizens Business Capital, a division
of RBS Citizens, N.A., as joint lead arranger, joint bookrunner and syndication agent, and the other lenders named therein, as
amended (the “Amended and Restated Revolving Credit Agreement”). Also in May 2012, certain of the Company’s
subsidiaries (the “Revolver Guarantors”) entered into a general continuing guarantee of the Borrowers’ obligations
under the Amended and Restated Revolving Credit Agreement in favor of the lenders (the “Revolver Guarantee”).
The Amended and Restated
Revolving Credit Agreement is guaranteed by the Revolver Guarantors and is secured by (i) first priority security interests (subject
only to customary permitted liens and certain other permitted liens) in substantially all personal property of the Borrowers and
the Revolver Guarantors, consisting of accounts receivable, inventory, cash, deposit and securities accounts and any cash or other
assets in such accounts and, to the extent evidencing or otherwise related to such property, all general intangibles, licenses,
intercompany debt, letter of credit rights, commercial tort claims, chattel paper, instruments, supporting obligations, documents
and payment intangibles (collectively, the “Revolver Priority Collateral”), and (ii) second-priority liens on and
security interests in (subject only to the liens securing the Term Loan Credit Agreement customary permitted liens and certain
other permitted liens) (A) equity interests of each direct subsidiary held by the Borrower and each Revolving Guarantor (subject
to customary limitations in the case of the equity of foreign subsidiaries), and (B) substantially all other tangible and intangible
assets of the Borrowers and the Revolving Guarantors including equipment, general intangibles, intercompany notes, insurance policies,
investment property, intellectual property and material owned real property (in each case, except to the extent constituting Revolver
Priority Collateral) (collectively, the “Term Priority Collateral”). The respective priorities of the security interests
securing the Amended and Restated Revolving Credit Agreement and the Term Loan Credit Agreement are governed by an Intercreditor
Agreement between the Revolver Agent and the Term Agent (as defined below) (the “Intercreditor Agreement”). The Amended
and Restated Revolving Credit Agreement has a scheduled maturity date of May 8, 2017.
Under the Amended and
Restated Revolving Credit Agreement, the lenders agreed to make available to the Company a $150 million revolving credit facility.
The Company has the option to increase the total commitment under the facility to $200 million, subject to certain conditions,
including (i) obtaining commitments from any one or more lenders, whether or not currently party to the Amended and Restated Revolving
Credit Agreement, to provide such increased amounts and (ii) the available amount of increases to the facility being reduced by
the amount of any incremental loans advanced under the Term Loan Credit Agreement in excess of $25 million. Availability under
the Amended and Restated Revolving Credit Agreement will be based upon monthly (or more frequent under certain circumstances)
borrowing base certifications of the Borrowers’ eligible inventory and eligible accounts receivable, and will be reduced
by certain reserves in effect from time to time. Subject to availability, the Amended and Restated Revolving Credit Agreement
provides for a letter of credit subfacility in an amount not in excess of $15 million, and allows for swingline loans in an amount
not in excess of $10 million. Outstanding borrowings under the Amended and Restated Revolving Credit Agreement will bear interest
at a rate, at the Borrowers’ election, equal to (i) LIBOR plus a margin ranging from 1.75% to 2.25% or (ii) a base rate
plus a margin ranging from 0.75% to 1.25%, in each case depending upon the monthly average excess availability under the revolving
loan facility. The Borrowers are required to pay a monthly unused line fee equal to 0.375% times the average daily unused availability
along with other customary fees and expenses of the Revolver Agent and the lenders.
The Amended and Restated
Revolving Credit Agreement contains customary covenants limiting the ability of the Company and certain of its affiliates to,
among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates,
merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. In addition, the Company is required
to maintain a minimum fixed charge coverage ratio of not less than 1.1 to 1.0 as of the end of any period of 12 fiscal months
when excess availability under the Amended and Restated Revolving Credit Agreement is less than 12.5% of the total revolving commitment.
If availability under
the Amended and Restated Revolving Credit Agreement is less than 15% of the total revolving commitment or if there exists an event
of default, amounts in any of the Borrowers’ and the Revolver Guarantors’ deposit accounts (other than certain excluded
accounts) will be transferred daily into a blocked account held by the Revolver Agent and applied to reduce the outstanding amounts
under the facility.
Subject to the terms of
the Intercreditor Agreement, if the covenants under the Amended and Restated Revolving Credit Agreement are breached, the lenders
may, subject to various customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral.
Other customary events of default in the Amended and Restated Revolving Credit Agreement include, without limitation, failure
to pay obligations when due, initiation of insolvency proceedings, defaults on certain other indebtedness, and the incurrence
of certain judgments that are not stayed, satisfied, bonded or discharged within 30 days.
As of March 31, 2015,
the Company had no outstanding borrowings under the Amended and Restated Revolving Credit Agreement and was in compliance with
all covenants. The Company’s liquidity position, defined as cash on hand and available borrowing capacity on the revolving
credit facility, amounted to $269.4 million as of March 31, 2015.
Term Loan Credit Agreement
In May 2012 the Company
entered into a credit agreement among the Company, the several lenders from time to time party thereto, Morgan Stanley Senior
Funding, Inc., as administrative agent, joint lead arranger and joint bookrunner (the “Term Agent”), and Wells Fargo
Securities, LLC, as joint lead arranger and joint bookrunner (the “Term Loan Credit Agreement”), which initially provided,
among other things, for a senior secured term loan facility of $300 million. Also in May 2012, certain of the Company’s
subsidiaries (the “Term Guarantors”) entered into a general continuing guarantee of the Company’s obligations
under the Term Loan Credit Agreement in favor of the Term Agent (the “Term Guarantee”).
In April 2013, the Company
entered into Amendment No.1 to Credit Agreement (the “Amendment”), which became effective on May 9, 2013 and amended
the Term Loan Credit Agreement. As of the Amendment date, there was $297.0 million of term loans outstanding under the Term Loan
Credit Agreement (the “Initial Loans”), of which the Company paid $20.0 million in connection with the Amendment.
Under the Amendment, the lenders agreed to provide to the Company term loans in an aggregate principal amount of $277.0 million,
which were exchanged for and used to refinance the Initial Loans (the “Tranche B-1 Loans”).
On March 19, 2015, the
Company entered into Amendment No. 2 to Credit Agreement (“Amendment No. 2”). As of the Amendment No. 2 date, there
was $192.8 million of the Tranche B-1 Loans outstanding. Under Amendment No. 2, the lenders agreed to provide to the Company term
loans in an aggregate principal amount of $192.8 million (the “Tranche B-2 Loans”), which were used to refinance the
outstanding Tranche B-1 Loans. The Tranche B-2 Loans mature on March 19, 2022, but provide for an accelerated maturity in the
event the Company’s outstanding Notes are not converted, redeemed, repurchased or refinanced in full on or before the date
that is 91 days prior to the maturity date thereof and the Company is not then maintaining, and continues to maintain until the
Notes are converted, redeemed, repurchased or refinanced in full, liquidity of at least $125 million. Liquidity, as defined in
the Term Loan Credit Agreement, reflects the difference between (i) the sum of (A) unrestricted cash and cash equivalents and
(B) the amount available and permitted to be drawn under the Company’s existing Amended and Restated Revolving Credit Agreement
and (ii) the amount necessary to fully redeem the Notes. The Tranche B-2 Loans shall amortize in equal quarterly installments
in aggregate amounts equal to 0.25% of the original principal amount of the Tranche B-2 Loans, with the balance payable at maturity,
and will bear interest at a rate, at the Company’s election, equal to (i) LIBOR (subject to a floor of 1.00%) plus a margin
of 3.25% or (ii) a base rate plus a margin of 2.25%.
Amendment No. 2 also provides for a
1% prepayment premium applicable in the event that the Company enters into a refinancing of, or amendment in respect of, the Tranche
B-2 Loans on or prior to the first anniversary of the effective date of Amendment No. 2 that, in either case, results in the all-in
yield (including, for purposes of such determination, the applicable interest rate, margin, original issue discount, upfront fees
and interest rate floors, but excluding any customary arrangement, structuring, commitment or underwriting fees) of such refinancing
or amendment being less than the all-in yield (determined on the same basis) on the Tranche B-2 Loans.
Additionally, Amendment
No. 2 amends the Term Loan Credit Agreement by (i) removing the maximum senior secured leverage ratio test, (ii) modifying the
accordion feature, as described in the Term Loan Credit Agreement, to provide for a senior secured incremental term loan facility
in an aggregate amount not to exceed the greater of (A) $75 million (less the aggregate amount of (1) any increases in the maximum
revolver amount under the Company’s existing Amended and Restated Revolving Credit Agreement and (2) certain permitted indebtedness
incurred for the purpose of prepaying or repurchasing the Convertible Notes) and (B) an amount such that the senior secured leverage
ratio would not be greater than 3.00 to 1.00, subject to certain conditions, including obtaining commitments from any one or more
lenders, whether or not currently party to the Term Loan Credit Agreement, to provide such increased amounts. The senior secured
leverage ratio is defined in the Term Loan Credit Agreement and reflects a ratio of consolidated net total secured indebtedness
to consolidated EBITDA and (iii) amending certain negative covenants.
The Term Loan Credit Agreement,
as amended, is guaranteed by the Term Guarantors and is secured by (i) first-priority liens on and security interests in the Term
Priority Collateral, and (ii) second-priority security interests in the Revolver Priority Collateral. In addition, the Term Loan
Credit Agreement, as amended, contains customary covenants limiting the Company’s ability to, among other things, pay cash
dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, pay off
subordinated indebtedness, make investments and dispose of assets.
Subject to the terms of
the Intercreditor Agreement, if the covenants under the Term Loan Credit Agreement, as amended, are breached, the lenders may,
subject to various customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral.
Other customary events of default in the Term Loan Credit Agreement, as amended, include, without limitation, failure to pay obligations
when due, initiation of insolvency proceedings, defaults on certain other indebtedness, and the incurrence of certain judgments
that are not stayed, satisfied, bonded or discharged within 60 days.
For the three months ended
March 31, 2015 and 2014, under the Term Loan Credit Agreement the Company paid interest of $2.2 million and $2.7 million, respectively,
and principal of $0.7 million during the 2014 period. As of March 31, 2015, the Company had $192.8 million outstanding under the
Term Loan Credit Agreement, of which $1.9 million was classified as current on the Company’s Condensed Consolidated Balance
Sheet as Amendment No. 2 of the Term Loan Credit Agreement requires a mandatory 1% per year principal payment. In connection with
Amendment No. 2 of the Term Loan Credit Agreement, the Company paid a total of $0.9 million in original issuance discount fees
which are being amortized over the life of the amended facility using the effective interest rate method.
For the three months ended
March 31, 2015 and 2014, the Company charged $0.1 million and $0.2 million, respectively, of amortization for original issuance
discount fees as Interest Expense in the Condensed Consolidated Statements of Operations. In addition, for the three months
ended March 31, 2015 the Company charged $5.3 million of accelerated amortization and related fees in connection with Amendment
No. 2 as a Loss on Debt Extinguishment in the Condensed Consolidated Statements of Operations.
Other Debt Facilities
In November 2012, the
Company entered into a loan agreement with GE Government Finance, Inc. as lender and the County of Trigg, Kentucky as issuer for
a $2.5 million Industrial Revenue Bond. The funds received were used to purchase the equipment needed for the expansion of the
Company’s Cadiz, Kentucky facility. The loan bears interest at a rate of 4.25% and matures in March 2018. As of March 31,
2015, the Company had $1.5 million outstanding, of which $0.5 million was classified as current on the Condensed Consolidated
Balance Sheet.
| 4. | FAIR VALUE MEASUREMENTS |
The Company’s fair
value measurements are based upon a three-level valuation hierarchy. These valuation techniques are based upon the transparency
of inputs (observable and unobservable) to the valuation of an asset or liability as of the measurement date. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.
These two types of inputs create the following fair value hierarchy:
| · | Level
1 — Valuation is based on quoted prices for identical assets or liabilities in
active markets; |
| · | Level
2 — Valuation is based on quoted prices for similar assets or liabilities in active
markets, or other inputs that are observable for the asset or liability, either directly
or indirectly, for the full term of the financial instrument; and |
| · | Level
3 — Valuation is based upon other unobservable inputs that are significant to the
fair value measurement. |
Recurring Fair Value
Measurements
The Company maintains
a non-qualified deferred compensation plan which is offered to senior management and other key employees. The amount owed to participants
is an unfunded and unsecured general obligation of the Company. Participants are offered various investment options with which
to invest the amount owed to them, and the plan administrator maintains a record of the liability owed to participants by investment.
To minimize the impact of the change in market value of this liability, the Company has elected to purchase a separate portfolio
of investments through the plan administrator similar to those chosen by the participant.
The investments purchased
by the Company (asset) include mutual funds, $1.0 million of which are classified as Level 1, and life-insurance contracts valued
based on the performance of underlying mutual funds, $7.8 million of which are classified as Level 2.
Nonrecurring Fair Value
Measurements
Certain nonfinancial assets
and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances,
such as when there is evidence of impairment.
The Company reviews for
goodwill impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable.
The fair value of the reporting units is determined using the income approach. The income approach focuses on the income-producing
capability of an asset, measuring the current value of the asset by calculating the present value of its future economic benefits
such as cash earnings, cost savings, corporate tax structure and product offerings. Value indications are developed by discounting
expected cash flows to their present value at a rate of return that incorporates the risk-free rate for the use of funds, the
expected rate of inflation and risks associated with the reporting unit. These assets would generally be classified within Level
3, in the event that the Company were required to measure and record such assets at fair value within its unaudited condensed
consolidated financial statements.
The Company periodically
evaluates the carrying value of long-lived assets to be held and used, including definite-lived intangible assets and property
plant and equipment, when events or circumstances warrant such a review. Fair value is determined primarily using anticipated
cash flows assumed by a market participant discounted at a rate commensurate with the risk involved and these assets would generally
be classified within Level 3, in the event that the Company were required to measure and record such assets at fair value within
its unaudited condensed consolidated financial statements.
Assets and liabilities
acquired in business combinations are recorded at their fair value as of the date of acquisition.
The carrying amounts of
accounts receivable and accounts payable reported in the Condensed Consolidated Balance Sheets approximate fair value.
Estimated Fair Value
of Debt
The estimated fair value
of long-term debt at March 31, 2015 consists primarily of the Notes and borrowings under its Term Loan Credit Agreement (see Note
3). The fair value of the Notes, the Term Loan Credit Agreement and the revolving credit facility are based upon third party pricing
sources, which generally does not represent daily market activity, nor does it represent data obtained from an exchange, and are
classified as Level 2. The interest rates on the Company’s borrowings under the revolving credit facility are adjusted regularly
to reflect current market rates and thus carrying value approximates fair value for these borrowings. All other debt and capital
lease obligations approximate their fair value as determined by discounted cash flows and are classified as Level 3.
The Company’s carrying
and estimated fair value of debt at March 31, 2015 and December 31, 2014 were as follows:
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
Carrying | | |
Fair Value | | |
Carrying | | |
Fair Value | |
| |
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Instrument | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Convertible senior notes | |
$ | 135,638 | | |
$ | - | | |
$ | 199,785 | | |
$ | - | | |
$ | 134,601 | | |
$ | - | | |
$ | 188,490 | | |
$ | - | |
Term loan credit agreement | |
| 191,898 | | |
| - | | |
| 193,568 | | |
| - | | |
| 189,027 | | |
| - | | |
| 192,845 | | |
| - | |
Industrial revenue bond | |
| 1,522 | | |
| - | | |
| - | | |
| 1,522 | | |
| 1,645 | | |
| - | | |
| - | | |
| 1,645 | |
Capital lease obligations | |
| 6,856 | | |
| - | | |
| - | | |
| 6,856 | | |
| 7,254 | | |
| - | | |
| - | | |
| 7,254 | |
| |
$ | 335,914 | | |
$ | - | | |
$ | 393,353 | | |
$ | 8,378 | | |
$ | 332,527 | | |
$ | - | | |
$ | 381,335 | | |
$ | 8,899 | |
| 5. | STOCK-BASED COMPENSATION |
The Company recognizes
all share-based payments based upon their fair value. To value new stock option awards the Company uses a binomial option-pricing
model, which incorporates various assumptions including expected volatility, expected term, dividend yield and risk-free interest
rates. The expected volatility is based upon the Company’s historical experience. The expected term represents the period
of time that options granted are expected to be outstanding. The risk-free interest rate utilized for periods throughout the contractual
life of the options are based upon U.S. Treasury security yields at the time of grant. The Company also grants restricted stock
units subject to service, performance and/or market conditions. The Company’s policy is to recognize expense for awards
that have service conditions only subject to graded vesting using the straight-line attribution method. The fair value of service
and performance based units is based on the market price of a share of underlying common stock at the date of grant. The fair
value of the market based units is based on a lattice valuation model. The amount of compensation costs related to stock options,
restricted stock units and performance units not yet recognized was $16.0 million at March 31, 2015, for which the expense will
be recognized through 2018.
6. CONTINGENCIES
The Company is involved
in a number of legal proceedings concerning matters arising in connection with the conduct of its business activities, and is
periodically subject to governmental examinations (including by regulatory and tax authorities), and information gathering requests
(collectively, "governmental examinations"). As of March 31, 2015, the Company was named as a defendant or was otherwise
involved in numerous legal proceedings and governmental examinations in various jurisdictions, both in the United States and internationally.
The Company has recorded
liabilities for certain of its outstanding legal proceedings and governmental examinations. A liability is accrued when it is
both (a) probable that a loss with respect to the legal proceeding has occurred and (b) the amount of loss can be reasonably estimated.
The Company evaluates, on a quarterly basis, developments in legal proceedings and governmental examinations that could cause
an increase or decrease in the amount of the liability that has been previously accrued. These legal proceedings, as well as governmental
examinations, involve various lines of business of the Company and a variety of claims (including, but not limited to, common
law tort, contract, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal
theories. While some matters pending against the Company specify the damages claimed by the plaintiff, many seek a not-yet-quantified
amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against the Company
are stated, the claimed amount may be exaggerated and/or unsupported. As a result, it is not currently possible to estimate a
range of possible loss beyond previously accrued liabilities relating to some matters including those described below. Such previously
accrued liabilities may not represent the Company's maximum loss exposure. The legal proceedings and governmental examinations
underlying the estimated range will change from time to time and actual results may vary significantly from the currently accrued
liabilities.
Based on its current knowledge,
and taking into consideration its litigation-related liabilities, the Company believes it is not a party to, nor are any of its
properties the subject of, any pending legal proceeding or governmental examination other than the matters below, which are addressed
individually, that would have a material adverse effect on the Company's consolidated financial condition or liquidity if determined
in a manner adverse to the Company. However, in light of the uncertainties involved in such matters, the ultimate outcome of a
particular matter could be material to the Company's operating results for a particular period depending on, among other factors,
the size of the loss or liability imposed and the level of the Company's income for that period. Costs associated with the litigation
and settlements of legal matters are reported within General and Administrative Expenses in the Consolidated Statements
of Operations.
Brazil Joint Venture
In March 2001, Bernard
Krone Indústria e Comércio de Máquinas Agrícolas Ltda. (“BK”) filed suit against the Company
in the Fourth Civil Court of Curitiba in the State of Paraná, Brazil. Because of the bankruptcy of BK, this proceeding
is now pending before the Second Civil Court of Bankruptcies and Creditors Reorganization of Curitiba, State of Paraná
(No. 232/99).
The case grows out of
a joint venture agreement between BK and the Company related to marketing of RoadRailer trailers in Brazil and other areas of
South America. When BK was placed into the Brazilian equivalent of bankruptcy late in 2000, the joint venture was dissolved. BK
subsequently filed its lawsuit against the Company alleging that it was forced to terminate business with other companies because
of the exclusivity and non-compete clauses purportedly found in the joint venture agreement. BK asserted damages, exclusive of
any potentially court-imposed interest or inflation adjustments, of approximately R$20.8 million (Brazilian Reais). BK did not
change the amount of damages it asserted following its filing of the case in 2001.
A bench (non-jury) trial
was held on March 30, 2010 in Curitiba, Paraná, Brazil. On November 22, 2011, the Fourth Civil Court of Curitiba partially
granted BK’s claims, and ordered Wabash to pay BK lost profits, compensatory, economic and moral damages in excess of the
amount of compensatory damages asserted by BK. The total ordered damages amount is approximately R$26.7 million (Brazilian Reais),
which is approximately $8.2 million U.S. dollars using current exchange rates and exclusive of any potentially court-imposed interest,
fees or inflation adjustments (which are currently estimated at a maximum of approximately $57 million, at current exchange rates,
but may change with the passage of time and/or the discretion of the court at the time of final judgment in this matter). Due,
in part, to the amount and type of damages awarded by the Fourth Civil Court of Curitiba, Wabash immediately filed for clarification
of the judgment. The Fourth Civil Court has issued its clarification of judgment, leaving the underlying decision unchanged and
referring the parties to the State of Paraná Court of Appeals for any further appeal of the decision. As such, Wabash filed
its notice of appeal with the Court of Appeals, as well as its initial appeal papers, on April 22, 2013. The Court of Appeals
has the authority to re-hear all facts presented to the lower court, as well as to reconsider the legal questions presented in
the case, and to render a new judgment in the case without regard to the lower court’s findings. Pending outcome of this
appeal process, the judgment is not enforceable by the plaintiff. Any ruling from the Court of Appeals is not expected before
the second half of 2015, and, accordingly, the judgment rendered by the lower court cannot be enforced prior to that time, and
may be overturned or reduced as a result of this process. The Company believes that the claims asserted by BK are without merit
and it intends to continue to vigorously defend its position. The Company has not recorded a charge with respect to this loss
contingency as of March 31, 2015. Furthermore, at this time, the Company does not have sufficient information to predict the ultimate
outcome of the case and is unable to reasonably estimate the amount of any possible loss or range of loss that it may be required
to pay at the conclusion of the case. The Company will reassess the need for the recognition of a loss contingency upon official
assignment of the case in the Court of Appeals, upon a decision to settle this case with the plaintiffs or an internal decision
as to an amount that the Company would be willing to settle or upon the outcome of the appeals process.
Intellectual Property
In October 2006, the Company
filed a patent infringement suit against Vanguard National Corporation (“Vanguard”) regarding the Company’s
U.S. Patent Nos. 6,986,546 and 6,220,651 in the U.S. District Court for the Northern District of Indiana (Civil Action No. 4:06-cv-135).
The Company amended the Complaint in April 2007. In May 2007, Vanguard filed its Answer to the Amended Complaint, along with Counterclaims
seeking findings of non-infringement, invalidity, and unenforceability of the subject patents. The Company filed a reply to Vanguard’s
counterclaims in May 2007, denying any wrongdoing or merit to the allegations as set forth in the counterclaims. The case has
currently been stayed by agreement of the parties while the U.S. Patent and Trademark Office (“Patent Office”) undertakes
a reexamination of U.S. Patent Nos. 6,986,546. In June 2010, the Patent Office notified the Company that the reexamination is
complete and the Patent Office has reissued U.S. Patent No. 6,986,546 without cancelling any claims of the patent. The parties
have not yet petitioned the Court to lift the stay, and it is unknown at this time when the parties’ petition to lift the
stay may be filed or granted.
The Company believes that
its claims against Vanguard have merit and that the claims asserted by Vanguard are without merit. The Company intends to vigorously
defend its position and intellectual property. The Company does not believe that the resolution of this lawsuit will have a material
adverse effect on its financial position, liquidity or future results of operations. However, at this stage of the proceeding,
no assurance can be given as to the ultimate outcome of the case.
Walker Acquisition
In connection with the
Company’s acquisition of Walker in May 2012, there is an outstanding claim of approximately $2.9 million for unpaid benefits
owed by the Seller that is currently in dispute and that is not expected to have a material adverse effect on the Company’s
financial condition or results of operations.
Environmental Disputes
In August 2014, the Company
was noticed as a potentially responsible party (“PRP”) by the South Carolina Department of Health and Environmental
Control (“DHEC”) pertaining to the Philip Services Site located in Rock Hill, South Carolina pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”) and corresponding South Carolina statutes. PRPs
include parties identified through manifest records as having contributed to deliveries of hazardous substances to the Philip
Services Site between 1979 and 1999. The DHEC’s allegation that the Company was a PRP arises out of four manifest entries
in 1989 under the name of a company unaffiliated with Wabash National (or any of its former or current subsidiaries) that purport
to be delivering a de minimis amount of hazardous waste to the Philip Services Site “c/o Wabash National Corporation.”
As such, the Philip Services Site PRP Group (“PRP Group”) notified Wabash in August 2014 that is was offering the
Company the opportunity to resolve any liabilities associated with the Philip Services Site by entering into a Cash Out and Reopener
Settlement Agreement (the “Settlement Agreement”) with the PRP Group, as well as a Consent Decree with the DHEC. The
Company has accepted the offer from the PRP Group to enter into the Settlement Agreement and Consent Decree, while reserving its
rights to contest its liability for any deliveries of hazardous materials to the Philips Services Site. The requested settlement
payment is immaterial to the Company’s financial conditions or operations, and as a result, if the Settlement Agreement
and Consent Decree are finalized, the payment to be made by the Company thereunder is not expected to have a material adverse
effect on the Company’s financial condition or results of operations.
Bulk Tank International,
S. de R.L. de C.V. (“Bulk”) entered into agreements in 2011 with the Mexican federal environmental agency, PROFEPA,
and the applicable state environmental agency, PROPAEG, pursuant to PROFEPA’s and PROPAEG’s respective environmental
audit programs to resolve noncompliance with federal and state environmental laws at Bulk’s Guanajuato facility. Bulk completed
all required corrective actions and received a Certification of Clean Industry from PROPAEG, and is seeking the same certification
from PROFEPA, which the Company expects it will receive following the conclusion of a final audit process that occurred in December
2014. As a result, the Company does not expect that this matter will have a material adverse effect on its financial condition
or results of operations.
In January 2012, the Company
was noticed as a PRP by the U.S. Environmental Protection Agency (“EPA”) and the Louisiana Department of Environmental
Quality (“LDEQ”) pertaining to the Marine Shale Processors Site located in Amelia, Louisiana (“MSP Site”)
pursuant to CERCLA and corresponding Louisiana statutes. PRPs include current and former owners and operators of facilities at
which hazardous substances were allegedly disposed. The EPA’s allegation that the Company is a PRP arises out of one alleged
shipment of waste to the MSP Site in 1992 from the Company’s branch facility in Dallas, Texas. As such, the MSP Site PRP
Group notified the Company in January 2012 that, as a result of a March 18, 2009 Cooperative Agreement for Site Investigation
and Remediation entered into between the MSP Site PRP Group and the LDEQ, the Company was being offered a “De Minimis Cash-Out
Settlement” to contribute to the remediation costs, which would remain open until February 29, 2012. The Company chose not
to enter into the settlement and has denied any liability. In addition, the Company has requested that the MSP Site PRP Group
remove the Company from the list of PRPs for the MSP Site, based upon the following facts: the Company acquired this branch facility
in 1997 – five years after the alleged shipment - as part of the assets the Company acquired out of the Fruehauf Trailer
Corporation (“Fruehauf”) bankruptcy (Case No. 96-1563, United States Bankruptcy Court, District of Delaware (“Bankruptcy
Court”)); as part of the Asset Purchase Agreement regarding the Company’s purchase of assets from Fruehauf, the Company
did not assume liability for “Off-Site Environmental Liabilities,” which are defined to include any environmental
claims arising out of the treatment, storage, disposal or other disposition of any Hazardous Substance at any location other than
any of the acquired locations/assets; the Bankruptcy Court, in an Order dated May 26, 1999, also provided that, except for those
certain specified liabilities assumed by the Company under the terms of the Asset Purchase Agreement, the Company and its subsidiaries
shall not be subject to claims asserting successor liability; and the “no successor liability” language of the Asset
Purchase Agreement and the Bankruptcy Court Order form the basis for the Company’s request that it be removed from the list
of PRPs for the MSP Site. The MSP Site PRP Group is currently considering the Company’s request, but has provided no timeline
to the Company for a response. However, the MSP Site PRP Group has agreed to indefinitely extend the time period by which the
Company must respond to the De Minimis Cash-Out Settlement offer. The Company does not expect that this proceeding will have a
material adverse effect on its financial condition or results of operations.
In September 2003, the
Company was noticed as a PRP by the EPA pertaining to the Motorola 52nd Street, Phoenix, Arizona Superfund Site (the “Superfund
Site”) pursuant to CERCLA. The EPA’s allegation that the Company was a PRP arises out of the Company’s acquisition
of a former branch facility located approximately five miles from the original Superfund Site. The Company acquired this facility
in 1997, operated the facility until 2000, and sold the facility to a third party in 2002. In June 2010, the Company was contacted
by the Roosevelt Irrigation District (“RID”) informing it that the Arizona Department of Environmental Quality (“ADEQ”)
had approved a remediation plan in excess of $100 million for the RID portion of the Superfund Site, and demanded that the Company
contribute to the cost of the plan or be named as a defendant in a CERCLA action to be filed in July 2010. The Company initiated
settlement discussions with the RID and the ADEQ in July 2010 to provide a full release from the RID, and a covenant not-to-sue
and contribution protection regarding the former branch property from the ADEQ, in exchange for payment from the Company. If the
settlement is approved by all parties, it will prevent any third party from successfully bringing claims against the Company for
environmental contamination relating to this former branch property. The Company has been awaiting approval from the ADEQ since
the settlement was first proposed in July 2010. Based on communications with the RID and ADEQ in March 2015, the Company does
not expect to receive a response regarding the approval of the settlement from the ADEQ for, at least, several additional months.
Based upon the Company’s limited period of ownership of the former branch property, and the fact that it no longer owns
the former branch property, it does not anticipate that the ADEQ will reject the proposed settlement, but no assurance can be
given at this time as to the ADEQ’s response to the settlement proposal. The proposed settlement terms have been accrued
and did not have a material adverse effect on the Company’s financial condition or results of operations, and the Company
believes that any ongoing proceedings will not have a material adverse effect on the Company’s financial condition or results
of operations.
In January 2006, the Company
received a letter from the North Carolina Department of Environment and Natural Resources indicating that a site that the Company
formerly owned near Charlotte, North Carolina has been included on the state's October 2005 Inactive Hazardous Waste Sites Priority
List. The letter states that the Company was being notified in fulfillment of the state's “statutory duty” to notify
those who own and those who at present are known to be responsible for each Site on the Priority List. Following receipt of this
notice, no action has ever been requested from the Company, and since 2006 the Company has not received any further communications
regarding this matter from the state of North Carolina. The Company does not expect that this designation will have a material
adverse effect on its financial condition or results of operations.
7. NET
INCOME PER SHARE
Per share results have
been calculated based on the average number of common shares outstanding. The calculation of basic and diluted net income per
share is determined using net income applicable to common stockholders as the numerator and the number of shares included in the
denominator as follows (in thousands, except per share amounts):
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Basic net income per share: | |
| | | |
| | |
Net income applicable to common stockholders | |
$ | 10,474 | | |
$ | 7,296 | |
Undistributed earnings allocated to participating securities | |
| - | | |
| (61 | ) |
Net income applicable to common stockholders excluding amounts applicable to participating securities | |
$ | 10,474 | | |
$ | 7,235 | |
Weighted average common shares outstanding | |
| 68,731 | | |
| 68,669 | |
Basic net income per share | |
$ | 0.15 | | |
$ | 0.11 | |
| |
| | | |
| | |
Diluted net income per share: | |
| | | |
| | |
Net income applicable to common stockholders | |
$ | 10,474 | | |
$ | 7,296 | |
Undistributed earnings allocated to participating securities | |
| - | | |
| (61 | ) |
Net income applicable to common stockholders excluding amounts applicable to participating securities | |
$ | 10,474 | | |
$ | 7,235 | |
| |
| | | |
| | |
Weighted average common shares outstanding | |
| 68,731 | | |
| 68,669 | |
Dilutive shares from assumed conversion of convertible senior notes | |
| 1,729 | | |
| 1,591 | |
Dilutive stock options and restricted stock | |
| 1,095 | | |
| 828 | |
Diluted weighted average common shares outstanding | |
| 71,555 | | |
| 71,088 | |
Diluted net income per share | |
$ | 0.15 | | |
$ | 0.10 | |
Average diluted shares
outstanding for the three month periods ended March 31, 2015 and 2014 exclude options to purchase common shares totaling 557 and
576, respectively, because the exercise prices were greater than the average market price of the common shares. In addition, the
calculation of diluted net income per share for the quarters ended March 31, 2015 and 2014 includes the impact of the Company’s
Notes as the average stock price of the Company’s common stock during these periods was above the initial conversion price
of approximately $11.70 per share.
The
Company recognized income tax expense of $6.2 million in the first three months of 2015 compared to $6.5 million for the same
period in the prior year. The effective tax rate for the first three months of 2015 was 37.3%, which differs from the U.S. Federal
statutory rate of 35% primarily due to the impact of state and local taxes and the benefit of the U.S. Internal Revenue Code domestic
manufacturing deduction. The effective tax rate for the first three months of 2014 was 47.1%, which differs from the U.S. Federal
statutory rate of 35% primarily due to the impact of state and local taxes and the revaluation of the Company’s net deferred
tax assets due to a reduction in its state and local statutory income tax rates.
| 9. | OTHER ACCRUED LIABILITIES |
The following table presents
major components of Other Accrued Liabilities (in thousands):
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
Customer deposits | |
$ | 31,488 | | |
$ | 21,680 | |
Payroll and related taxes | |
| 21,308 | | |
| 30,362 | |
Warranty | |
| 15,537 | | |
| 15,462 | |
Accrued taxes | |
| 12,913 | | |
| 8,371 | |
Self-insurance | |
| 8,655 | | |
| 7,543 | |
All other | |
| 9,720 | | |
| 5,272 | |
| |
$ | 99,621 | | |
$ | 88,690 | |
The following table presents
the changes in the product warranty accrual included in Other Accrued Liabilities (in thousands):
| |
2015 | | |
2014 | |
Balance as of January 1 | |
$ | 15,462 | | |
$ | 14,719 | |
Provision for warranties issued in current year | |
| 1,681 | | |
| 1,179 | |
Recovery of pre-existing warranties | |
| (260 | ) | |
| - | |
Payments | |
| (1,346 | ) | |
| (1,285 | ) |
Balance as of March 31 | |
$ | 15,537 | | |
$ | 14,613 | |
The
Company offers a limited warranty for its products with a coverage period that ranges between one and five years, except that
the coverage period for DuraPlate® trailer panels beginning with those manufactured in 2005 or after is ten years.
The Company passes through component manufacturers’ warranties to our customers. The Company’s policy is to accrue
the estimated cost of warranty coverage at the time of the sale.
On March 30, 2015, the
Company executed an amendment to its Stockholders’ Rights Plan (the “Rights Plan”) pursuant to which the final
expiration date was advanced from December 28, 2015 to March 30, 2015. As a result of the Amendment, effective as of the close
of business on March 30, 2015, the Rights Plan expired and all rights, as defined in the Rights Plan, are no longer outstanding.
a. Segment Reporting
The Company manages its
business in three segments: Commercial Trailer Products, Diversified Products and Retail. The Commercial Trailer Products segment
produces and sells new trailers to the Retail segment and to customers who purchase trailers directly from the Company or through
independent dealers. The Diversified Products segment focuses on the Company’s commitment to expand its customer base, diversify
its product offerings and revenues and extend its market leadership by leveraging its proprietary DuraPlate® panel
technology, drawing on its core manufacturing expertise and making available products that are complementary to truck and tank
trailers and transportation equipment. The Retail segment includes the sale of new and used trailers, as well as the sale of after-market
parts and service, through its retail branch network. The Company has not allocated certain corporate related administrative costs,
interest and income taxes included in the corporate and eliminations segment to the Company’s other reportable segments.
The Company accounts for intersegment sales and transfers at cost plus a specified mark-up. The Company manages its assets on
a consolidated basis, not by operating segment, as the assets of the Diversified Products segment are intermixed with those of
the Commercial Trailer Products segment. Therefore, our chief operating decision maker does not review any asset information by
operating segment and, accordingly, we do not report asset information by operating segment. Reportable segment information is
as follows (in thousands):
| |
Commercial | | |
Diversified | | |
| | |
Corporate and | | |
| |
Three Months Ended March 31, | |
Trailer Products | | |
Products | | |
Retail | | |
Eliminations | | |
Consolidated | |
2015 | |
| | |
| | |
| | |
| | |
| |
Net sales | |
| | | |
| | | |
| | | |
| | | |
| | |
External customers | |
$ | 293,742 | | |
$ | 101,041 | | |
$ | 42,814 | | |
$ | - | | |
$ | 437,597 | |
Intersegment sales | |
| 20,762 | | |
| 2,951 | | |
| 326 | | |
| (24,039 | ) | |
| - | |
Total net sales | |
$ | 314,504 | | |
$ | 103,992 | | |
$ | 43,140 | | |
$ | (24,039 | ) | |
$ | 437,597 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (Loss) from operations | |
$ | 22,770 | | |
$ | 10,611 | | |
$ | 1,126 | | |
$ | (7,244 | ) | |
$ | 27,263 | |
Reconciling items to income before income taxes | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| | | |
| | | |
| | | |
| | | |
| (5,173 | ) |
Loss on debt extinguishment | |
| | | |
| | | |
| | | |
| | | |
| (5,286 | ) |
Other, net | |
| | | |
| | | |
| | | |
| | | |
| (96 | ) |
Income before income taxes | |
| | | |
| | | |
| | | |
| | | |
$ | 16,708 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
Net sales | |
| | | |
| | | |
| | | |
| | | |
| | |
External customers | |
$ | 207,498 | | |
$ | 105,263 | | |
$ | 45,359 | | |
$ | - | | |
$ | 358,120 | |
Intersegment sales | |
| 20,453 | | |
| 2,790 | | |
| 277 | | |
| (23,520 | ) | |
| - | |
Total net sales | |
$ | 227,951 | | |
$ | 108,053 | | |
$ | 45,636 | | |
$ | (23,520 | ) | |
$ | 358,120 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (Loss) from operations | |
$ | 8,760 | | |
$ | 13,397 | | |
$ | 1,050 | | |
$ | (3,742 | ) | |
$ | 19,465 | |
Reconciling items to income before income taxes | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| | | |
| | | |
| | | |
| | | |
| (5,717 | ) |
Other, net | |
| | | |
| | | |
| | | |
| | | |
| 32 | |
Income before income taxes | |
| | | |
| | | |
| | | |
| | | |
$ | 13,780 | |
b. Product Information
The
Company offers products primarily in four general categories: (1) new trailers, (2) used trailers, (3) components, parts and service
and (4) equipment and other. The following table sets forth the major product categories and their percentage of consolidated
net sales (dollars in thousands):
| |
Commercial | | |
Diversified | | |
| | |
| |
| |
Trailer Products | | |
Products | | |
Retail | | |
Consolidated | |
Three Months Ended March 31, | |
$ | | |
$ | | |
$ | | |
$ | | |
% | |
2015 | |
| | |
| | |
| | |
| | |
| |
New trailers | |
| 287,420 | | |
| 54,017 | | |
| 19,834 | | |
| 361,271 | | |
| 82.6 | |
Used trailers | |
| 1,843 | | |
| 1,169 | | |
| 2,571 | | |
| 5,583 | | |
| 1.3 | |
Components, parts and service | |
| 1,266 | | |
| 20,609 | | |
| 19,941 | | |
| 41,816 | | |
| 9.6 | |
Equipment and other | |
| 3,213 | | |
| 25,246 | | |
| 468 | | |
| 28,927 | | |
| 6.5 | |
Total net external sales | |
| 293,742 | | |
| 101,041 | | |
| 42,814 | | |
| 437,597 | | |
| 100.0 | |
| |
Commercial | | |
Diversified | | |
| | |
| | |
| |
| |
Trailer Products | | |
Products | | |
Retail | | |
Consolidated | |
2014 | |
$ | | |
$ | | |
$ | | |
$ | | |
% | |
New trailers | |
| 193,000 | | |
| 54,847 | | |
| 20,271 | | |
| 268,118 | | |
| 74.9 | |
Used trailers | |
| 11,248 | | |
| 1,178 | | |
| 3,639 | | |
| 16,065 | | |
| 4.5 | |
Components, parts and service | |
| 580 | | |
| 20,420 | | |
| 20,698 | | |
| 41,698 | | |
| 11.6 | |
Equipment and other | |
| 2,670 | | |
| 28,818 | | |
| 751 | | |
| 32,239 | | |
| 9.0 | |
Total net external sales | |
| 207,498 | | |
| 105,263 | | |
| 45,359 | | |
| 358,120 | | |
| 100.0 | |
12. | | NEW ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial
Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue
from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification
(“ASC”) 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the
transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty
of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets
recognized from costs incurred to obtain or fulfill a contract. The effective date will be the first quarter of fiscal year 2018
using one of two retrospective application methods. The Company is currently assessing the potential impact of the adoption of
ASU 2014-09 on its financial statements and related disclosures and has not yet decided on a transition method.
In August 2014, the FASB
issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern, which requires management to evaluate
whether there is substantial doubt about an entity’s ability to continue as a going concern and provide related footnote
disclosures. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2016. Early
adoption is permitted for financial statements that have not been previously issued. The standard allows for either a full retrospective
or modified retrospective transition method. The Company does not expect this standard to have a material impact on the Company’s
financial statements upon adoption.
In April 2015, the FASB
issued ASU No. 2015-03, Imputation of Interest. This ASU simplifies the presentation of debt issuance costs as the amendments
in this update require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount
of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs
are not affected by the amendments in this update. ASU 2015-03 is effective for annual and interim reporting periods beginning
after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The standard
requires a retrospective approach where the balance sheet of each individual period presented should be adjusted to reflect the
period-specific effects of applying the new guidance. The standard also requires compliance with applicable disclosures for a
change in an accounting principle. The Company does expect this standard to have a material impact on the Company’s consolidated
financial statements upon adoption and is currently evaluating the impacts of the update.
| 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:
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• |
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our business plan; |
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• |
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the benefits of, and our plans relating to
the acquisitions of Walker Group Holdings (“Walker”) and certain assets of Beall Corporation (“Beall”),
the amount of transaction costs associated with the acquisitions and our ability to effectively integrate Walker and the Beall
assets and realize the expected synergies and benefits; |
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• |
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the benefits of, and our plans relating to
the transitioning of our three former West Coast retail branch locations to independent dealer facilities and our ability
to realize the expected benefits of expanding our dealer network and continuing to grow and diversify our Retail operations;
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• |
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our expected revenues, income or loss and capital expenditures; |
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• |
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our ability to manage our indebtedness; |
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• |
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our strategic plan and plans for future operations; |
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• |
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financing needs, plans and liquidity, including for working capital
and capital expenditures; |
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• |
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our ability to achieve sustained profitability; |
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• |
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reliance on certain customers and corporate relationships; |
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• |
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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; |
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• |
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availability and pricing of raw materials; |
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availability of capital and financing; |
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• |
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dependence on industry trends; |
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the outcome of any pending litigation; |
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export sales and new markets; |
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• |
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engineering and manufacturing capabilities and capacity; |
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acceptance of new technology and products; |
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government regulation; and |
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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 ended December 31, 2014. 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
March 31, | |
| |
2015 | | |
2014 | |
Net sales | |
| 100.0 | % | |
| 100.0 | % |
Cost of sales | |
| 86.9 | | |
| 87.0 | |
Gross profit | |
| 13.1 | | |
| 13.0 | |
| |
| | | |
| | |
General and administrative expenses | |
| 4.1 | | |
| 4.0 | |
Selling expenses | |
| 1.6 | | |
| 2.0 | |
Amortization of intangibles | |
| 1.2 | | |
| 1.6 | |
Income from operations | |
| 6.2 | | |
| 5.4 | |
| |
| | | |
| | |
Interest expense | |
| (1.2 | ) | |
| (1.6 | ) |
Loss on debt extinguishment | |
| (1.2 | ) | |
| - | |
Income before income taxes | |
| 3.8 | | |
| 3.8 | |
| |
| | | |
| | |
Income tax expense | |
| 1.4 | | |
| 1.8 | |
Net income | |
| 2.4 | % | |
| 2.0 | % |
For the three month period
ended March 31, 2015, we recorded net sales of $437.6 million compared to $358.1 million in the prior year period. Net sales for
the three month period ended March 31, 2015 increased $79.5 million, or 22.2%, compared to the prior year period due to an increase
in new trailer shipments of approximately 4,400 units, or 44.2%. Gross profit margin was in line with the prior year period as
improved pricing and volume on new trailers were offset by lower volume of non-trailer products during the quarter. We continue
to be encouraged by the strong demand in the overall trailer market throughout the first three months of 2015, and our expectation
is that overall industry shipment and production levels will remain above replacement demand for the remainder of 2015 as many
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 and continue to expand
our customer base and focus on developing innovative new products that both add value to our customers’ operations and allow
us to continue to differentiate our products from the competition.
Selling, general and administrative
expenses increased $2.9 million in the first quarter of 2015 as compared to the same period in 2014. This increase is primarily
due to higher salaries and employee related costs, including employee incentive programs, of $2.7 million. As a percentage of
net sales, selling, general and administrative expenses decreased to 5.7% as compared to 6.0% in the prior year period.
Our management team continues
to be focused on increasing overall shareholder value by optimizing our manufacturing and retail operations to match the current
demand environment, implementing cost savings initiatives and lean manufacturing techniques, strengthening our capital structure,
developing innovative products that enable our customers to succeed, improving earnings and continuing diversification of the
business into higher margin opportunities that leverage our intellectual and process capabilities. 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 March 31, 2015
Net Sales
Net sales in the first
quarter of 2015 increased $79.5 million, or 22.2%, compared to the first quarter of 2014. By business segment, net external sales
and related units sold were as follows (dollars in millions):
| |
Three Months Ended March 31, | |
| |
| | |
| | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | |
Sales by Segment | |
| | | |
| | | |
| | | |
| | |
Commercial Trailer Products | |
$ | 293.8 | | |
$ | 207.4 | | |
$ | 86.4 | | |
| 41.7 | |
Diversified Products | |
| 101.0 | | |
| 105.3 | | |
| (4.3 | ) | |
| (4.1 | ) |
Retail | |
| 42.8 | | |
| 45.4 | | |
| (2.6 | ) | |
| (5.7 | ) |
Total | |
$ | 437.6 | | |
$ | 358.1 | | |
$ | 79.5 | | |
| 22.2 | |
| |
| | | |
| | | |
| | | |
| | |
New Trailers | |
| (units) | | |
| | |
|
|
|
|
Commercial Trailer Products | |
| 12,750 | | |
| 8,350 | | |
| 4,400 | | |
| 52.7 | |
Diversified Products | |
| 850 | | |
| 800 | | |
| 50 | | |
| 6.3 | |
Retail | |
| 750 | | |
| 800 | | |
| (50 | ) | |
| (6.3 | ) |
Total | |
| 14,350 | | |
| 9,950 | | |
| 4,400 | | |
| 44.2 | |
| |
| | | |
| | | |
| | | |
| | |
Used Trailers | |
| (units) | | |
| | |
|
|
|
|
Commercial Trailer Products | |
| 100 | | |
| 1,700 | | |
| (1,600 | ) | |
| (94.1 | ) |
Diversified Products | |
| 50 | | |
| 50 | | |
| - | | |
| - | |
Retail | |
| 200 | | |
| 400 | | |
| (200 | ) | |
| (50.0 | ) |
Total | |
| 350 | | |
| 2,150 | | |
| (1,800 | ) | |
| (83.7 | ) |
Commercial Trailer Products
segment sales were $293.8 million for the first quarter of 2015, an increase of $86.4 million, or 41.7%, compared to the first
quarter of 2014. Trailers shipped during the first quarter of 2015 totaled 12,700 trailers compared to 8,350 trailers in the prior
year period, a 52.1% increase, due to strong customer demand and resulted in an increase in sales. The increase in trailer shipments
and improved pricing was offset by product mix, which lowered average selling prices by 2.5% as compared to the prior year period.
Used trailer sales decreased $9.4 million, or 83.6%, compared to the previous year period primarily due to decreased availability
of product through fleet trade packages, as approximately 1,600 fewer used trailers shipped in the first quarter of 2015 compared
to the prior year period.
Diversified Products segment
sales were $101.0 million for the first quarter of 2015, down $4.3 million, or 4.1%, compared to the first quarter of 2014. New
trailer shipments in the first quarter of 850 remained comparable to the prior year period, while new trailer sales decreased
$0.8 million, or 1.5%, as a result of product mix and competitive market pressures within certain product lines, which lowered
average selling prices by 5.3% as compared to the prior year period. Sales of our composite product offerings increased $0.3 million,
or 1.8%, as compared to the previous year period. Equipment sales decreased $3.6 million, or 12.4%, compared to the prior year
period as a result of lower demand for our non-trailer truck mounted equipment and other engineered products.
Retail segment sales were
$42.8 million in the first quarter of 2015, down $2.6 million, or 5.7%, compared to the prior year period. New trailer shipments
in the first quarter of 750 remained comparable to the prior year period, while new trailer sales decreased $0.4 million, or 2.2%.
Used trailer sales were down $1.1 million as approximately 200 fewer used trailers shipped in the first quarter of 2015 compared
to the prior year period. The reduction in used trailer shipments was partially offset by a 33.4% increase in used trailer average
selling prices as a result of favorable product mix. Parts and service sales were down $0.8 million, or 3.7%, compared with the
prior year period primarily due to fewer retail locations as a result of the transition of three of our former West Coast branches
to independent dealer locations in May 2014.
Cost of Sales
Cost of sales for the
first quarter of 2015 was $380.4 million, an increase of $69.0 million, or 22.1%, compared to the first quarter of 2014. As a
percentage of net sales, cost of sales was 86.9% in the first quarter of 2015 compared to 87.0% in the first quarter of 2014.
Commercial Trailer Products
segment cost of sales, as detailed in the following table, was $264.1 million for the first quarter of 2015, an increase of $71.6
million, or 37.2%, compared to the first quarter of 2014. As a percentage of net sales, cost of sales was 89.9% for the current
quarter compared to 92.8% in the prior year period.
| |
Three Months Ended March 31, | |
Commercial Trailer Products Segment | |
2015 | | |
2014 | |
| |
(dollars in millions) | |
| |
| | |
% of Net
Sales | | |
| | |
% of Net
Sales | |
Material Costs | |
$ | 209.3 | | |
| 71.2 | % | |
$ | 150.4 | | |
| 72.5 | % |
Other Manufacturing Costs | |
| 54.8 | | |
| 18.7 | % | |
| 42.1 | | |
| 20.3 | % |
| |
$ | 264.1 | | |
| 89.9 | % | |
$ | 192.5 | | |
| 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 71.2% of net sales in the first quarter
of 2015 compared to 72.5% for the same period in 2014. The 1.3% decrease was primarily driven by improved pricing as compared
to the prior year period. Other manufacturing costs increased $12.7 million in the current year period as compared to the prior
year period, resulting from increased variable costs related to increases in new trailer production volumes. As a percentage of
sales, other manufacturing costs decreased from 20.3% in the first quarter of 2014 to 18.7% in the 2015 period due to increased
leverage of fixed costs from higher production.
Diversified Products segment
cost of sales was $77.7 million in the first quarter of 2015, a decrease of $1.8 million, or 2.3%, compared to the same period
in 2014. As a percentage of net sales prior to the elimination of intersegment sales, cost of sales was 77.5% in the first quarter
of 2015 compared to 76.2% in the first quarter of 2014. The 1.3% increase as a percentage of net sales was primarily the result
of lower volumes for non-trailer related products and competitive market pressures within certain product lines of tank trailer
businesses.
Retail segment cost of
sales was $38.0 million in the first quarter of 2015 as compared to $40.0 million in the prior year period. As a percentage of
net sales, cost of sales was 88.7% for the first quarter of 2015 compared to 88.1% for the same period in 2014. The increase in
cost of sales as a percentage of net sales was primarily the result of product mix driven by a decreased percentage of sales from
our higher margin parts and service product line in the first quarter of 2015 as compared to the previous year period.
Gross Profit
Gross profit was $57.2
million in the first quarter of 2015, an increase of $10.5 million from the prior year period. Gross profit as a percentage of
sales was 13.1% for the current quarter and 13.0% for the same period in 2014. Gross profit by segment was as follows (in millions):
| |
Three Months Ended March 31, | |
| |
| | |
| | |
Change | |
| |
2015 | | |
2014 | | |
$ | | |
% | |
Gross Profit by Segment: | |
| | | |
| | | |
| | | |
| | |
Commercial Trailer Products | |
$ | 29.6 | | |
$ | 15.0 | | |
$ | 14.6 | | |
| 97.3 | |
Diversified Products | |
| 23.4 | | |
| 25.8 | | |
| (2.4 | ) | |
| (9.3 | ) |
Retail | |
| 4.9 | | |
| 5.4 | | |
| (0.5 | ) | |
| (9.3 | ) |
Corporate and Eliminations | |
| (0.7 | ) | |
| 0.5 | | |
| (1.2 | ) | |
| | |
Total | |
$ | 57.2 | | |
$ | 46.7 | | |
$ | 10.5 | | |
| 22.5 | |
Commercial Trailer Products
segment gross profit was $29.6 million for the first quarter of 2015 compared to $15.0 million for the first quarter of 2014.
Gross profit prior to the elimination of intersegment sales, as a percentage of net sales, was 9.4% in the first quarter of 2015
compared to 6.6% in the 2014 period. The increase in gross profit margin as compared to the prior year period was primarily driven
by the increase in new trailer volumes and improved pricing.
Diversified Products segment
gross profit was $23.4 million for the first quarter of 2015 compared to $25.8 million in the first quarter of 2014. Gross profit
prior to the elimination of intersegment sales, as a percentage of sales, was 22.5% in the first quarter of 2015 compared to 23.8%
in the first quarter of 2014. The decreases in gross profit and gross profit as a percentage of net sales, as compared to the
prior year period, are due primarily to lower volume of non-trailer products and average selling prices for tank trailers due
to product and customer mix, as well as competitive market pressures within certain product lines of tank trailer businesses.
Retail segment gross profit
was $4.9 million for the first quarter of 2015 compared to $5.4 million in the first quarter of 2014. Gross profit prior to the
elimination of intersegment sales, as a percentage of sales, for the first quarter of 2015 was 11.2% compared to 11.8% for the
prior year period. The decrease in gross profit margin was the result of product mix.
General and Administrative Expenses
General and administrative
expenses for the first quarter of 2015 increased $3.6 million, or 24.7%, from the prior year period as a result of a $3.0 million
increase in salaries and employee related costs, including employee incentive programs, and a $0.3 million increase in outside
professional fees and technology costs. As a percentage of sales, general and administrative expenses were 4.1% for the current
quarter as compared to 4.0% for the first quarter of 2014.
Selling Expenses
Selling expenses were
$6.6 million in the first quarter of 2015, a decrease of $0.7 million, or 9.6%, compared to the prior year period primarily due
to a $0.3 million decrease in salaries and employee related costs, including employee incentive programs and a $0.4 million decrease
in advertising and promotional costs. As a percentage of net sales, selling expenses were 1.5% for the first quarter of 2015 compared
to 2.0% for the prior year period.
Amortization of Intangibles
Amortization of intangibles
was $5.3 million for the first quarter of 2015 compared to $5.5 million in the prior year period. Amortization of intangibles
for both periods primarily includes amortization expense recognized for intangible assets recorded from the acquisition of Walker
in May 2012 and certain assets of Beall in February 2013.
Other Income (Expense)
Interest expense for the first quarter
of 2015 totaled $5.2 million compared to $5.7 million in the first quarter of 2014. Interest expense for both periods is primarily
related to interest and non-cash accretion charges on our Convertible Senior Notes and Term Loan Credit Agreement. The decrease
from the previous year period is primarily due to lower outstanding loan commitments through voluntary debt payments made over
the previous year.
Loss on Debt Extinguishment
for the first quarter of 2015 of $5.3 million represents charges for the accelerated amortization and related fees in connection
with the refinancing of our Term Loan Credit Agreement in March 2015 (see “Term Loan Agreement and Related Amendments”
section below for further details).
Income Taxes
We recognized income tax
expense of $6.2 million in the first quarter 2015 compared to $6.5 million for the same period in the prior year. The effective
tax rate for the first three months of 2015 was 37.3%, which differs from the U.S. Federal statutory rate of 35% primarily due
to the impact of state and local taxes and the benefit of the U.S. Internal Revenue Code domestic manufacturing deduction.
Liquidity and Capital Resources
Capital Structure
Our capital structure
is comprised of a mix of debt and equity. As of March 31, 2015 our debt to equity ratio was 0.9:1.0. Our long-term objective is
to generate operating cash flows sufficient to fund normal working capital and capital expenditure requirements and position ourselves
to take advantage of market opportunities, including the ability to improve our capital structure through debt repayments and
share repurchases. For the remainder of 2015, we expect to fund operations, working capital requirements and capital expenditures
through cash flows from operations, as well as from available borrowings under our Amended and Restated Revolving Credit Agreement
(as described below in “Debt Agreements and Related Amendments” section).
Debt Agreements and Related Amendments
Convertible Senior Notes
In April 2012, we issued
Convertible Senior Notes due 2018 (the “Notes”) with an aggregate principal amount of $150 million in a public offering.
The Notes bear interest at the rate of 3.375% per annum from the date of issuance, payable semi-annually on May 1 and November
1. The Notes are senior unsecured obligations and rank equally with our existing and future senior unsecured debt.
The
Notes are convertible by their holders into cash, shares of our common stock or any combination thereof at our election, at an
initial conversion rate of 85.4372 shares of our common stock per $1,000 in principal amount of Notes, which is equal to an initial
conversion price of approximately $11.70 per share, only under the following circumstances: (A) before November 1, 2017 (1) during
any calendar quarter commencing after the calendar quarter ending on June 30, 2012 (and only during such calendar quarter), if
the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of
30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal
to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive
trading day period (the “measurement period”) in which the trading price (as defined in the indenture for the Notes)
per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last
reported sale price of our common stock and the conversion rate on each such trading day; and (3) upon the occurrence of specified
corporate events as described in the indenture for the Notes; and (B) at any time on or after November 1, 2017 until the close
of business on the second business day immediately preceding the maturity date. As of March 31, 2015, the Notes were not convertible
based on the above criteria. If the Notes were converted as of March 31, 2015, the if-converted
value would exceed the principal amount by approximately $31 million.
It is our intent to settle
conversions through a net share settlement, which involves repayment of cash for the principal portion and delivery of shares
of common stock for the excess of the conversion value over the principal portion. We used the net proceeds of $145.1 million
from the sale of the Notes to fund a portion of the purchase price of the acquisition of Walker Group Holdings (“Walker”)
in May 2012.
We account separately
for the liability and equity components of the Notes in accordance with authoritative guidance for convertible debt instruments
that may be settled in cash upon conversion. The guidance required the carrying amount of the liability component to be estimated
by measuring the fair value of a similar liability that does not have an associated conversion feature. We determined that senior,
unsecured corporate bonds traded on the market represent a similar liability to the Notes without the conversion option. Based
on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with
similar maturity, we estimated the implied interest rate of the Notes to be 7.0%, assuming no conversion option. Assumptions used
in the estimate represent what market participants would use in pricing the liability component, including market interest rates,
credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest rate
was applied to the Notes, which resulted in a fair value of the liability component of $123.8 million upon issuance, calculated
as the present value of implied future payments based on the $150.0 million aggregate principal amount. The $21.7 million difference
between the cash proceeds before offering expenses of $145.5 million and the estimated fair value of the liability component was
recorded in additional paid-in capital. The discount on the liability portion of the Notes is being amortized over the life of
the Notes using the effective interest rate method.
Revolving Credit Agreement
In May 2012 we entered
into an amendment and restatement of our then-existing senior secured revolving credit facility among us, certain of our subsidiaries
(collectively, the “Borrowers”), Wells Fargo Capital Finance, LLC, as joint lead arranger, joint bookrunner and administrative
agent (the “Revolver Agent”), RBS Citizens Business Capital, a division of RBS Citizens, N.A., as joint lead arranger,
joint bookrunner and syndication agent, and the other lenders named therein, as amended (the “Amended and Restated Revolving
Credit Agreement”). Also in May 2012, certain of our subsidiaries (the “Revolver Guarantors”) entered into a
general continuing guarantee of the Borrowers’ obligations under the Amended and Restated Revolving Credit Agreement in
favor of the lenders (the “Revolver Guarantee”).
The Amended and Restated
Revolving Credit Agreement is guaranteed by the Revolver Guarantors and is secured by (i) first priority security interests (subject
only to customary permitted liens and certain other permitted liens) in substantially all personal property of the Borrowers and
the Revolver Guarantors, consisting of accounts receivable, inventory, cash, deposit and securities accounts and any cash or other
assets in such accounts and, to the extent evidencing or otherwise related to such property, all general intangibles, licenses,
intercompany debt, letter of credit rights, commercial tort claims, chattel paper, instruments, supporting obligations, documents
and payment intangibles (collectively, the “Revolver Priority Collateral”), and (ii) second-priority liens on and
security interests in (subject only to the liens securing the Term Loan Credit Agreement customary permitted liens and certain
other permitted liens) (A) equity interests of each direct subsidiary held by the Borrower and each Revolving Guarantor (subject
to customary limitations in the case of the equity of foreign subsidiaries), and (B) substantially all other tangible and intangible
assets of the Borrowers and the Revolving Guarantors including equipment, general intangibles, intercompany notes, insurance policies,
investment property, intellectual property and material owned real property (in each case, except to the extent constituting Revolver
Priority Collateral) (collectively, the “Term Priority Collateral”). The respective priorities of the security interests
securing the Amended and Restated Revolving Credit Agreement and the Term Loan Credit Agreement are governed by an Intercreditor
Agreement between the Revolver Agent and the Term Agent (as defined below) (the “Intercreditor Agreement”). The Amended
and Restated Revolving Credit Agreement has a scheduled maturity date of May 8, 2017.
Under the Amended and
Restated Revolving Credit Agreement, the lenders agreed to make available to us a $150 million revolving credit facility. We have
the option to increase the total commitment under the facility to $200 million, subject to certain conditions, including (i) obtaining
commitments from any one or more lenders, whether or not currently party to the Amended and Restated Revolving Credit Agreement,
to provide such increased amounts and (ii) the available amount of increases to the facility being reduced by the amount of any
incremental loans advanced under the Term Loan Credit Agreement in excess of $25 million. Availability under the Amended and Restated
Revolving Credit Agreement will be based upon monthly (or more frequent under certain circumstances) borrowing base certifications
of the Borrowers’ eligible inventory and eligible accounts receivable, and will be reduced by certain reserves in effect
from time to time. Subject to availability, the Amended and Restated Revolving Credit Agreement provides for a letter of credit
subfacility in an amount not in excess of $15 million, and allows for swingline loans in an amount not in excess of $10 million.
Outstanding borrowings under the Amended and Restated Revolving Credit Agreement will bear interest at a rate, at the Borrowers’
election, equal to (i) LIBOR plus a margin ranging from 1.75% to 2.25% or (ii) a base rate plus a margin ranging from 0.75% to
1.25%, in each case depending upon the monthly average excess availability under the revolving loan facility. The Borrowers are
required to pay a monthly unused line fee equal to 0.375% times the average daily unused availability along with other customary
fees and expenses of the Revolver Agent and the lenders.
The Amended and Restated
Revolving Credit Agreement contains customary covenants limiting our ability to, among other things, pay cash dividends, incur
debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness,
make investments and dispose of assets. In addition, we are required to maintain a minimum fixed charge coverage ratio of not
less than 1.1 to 1.0 as of the end of any period of 12 fiscal months when excess availability under the Amended and Restated Revolving
Credit Agreement is less than 12.5% of the total revolving commitment.
If availability under
the Amended and Restated Revolving Credit Agreement is less than 15% of the total revolving commitment or if there exists an event
of default, amounts in any of the Borrowers’ and the Revolver Guarantors’ deposit accounts (other than certain excluded
accounts) will be transferred daily into a blocked account held by the Revolver Agent and applied to reduce the outstanding amounts
under the facility.
Subject to the terms of
the Intercreditor Agreement, if the covenants under the Amended and Restated Revolving Credit Agreement are breached, the lenders
may, subject to various customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral.
Other customary events of default in the Amended and Restated Revolving Credit Agreement include, without limitation, failure
to pay obligations when due, initiation of insolvency proceedings, defaults on certain other indebtedness, and the incurrence
of certain judgments that are not stayed, satisfied, bonded or discharged within 30 days.
As of March 31, 2015,
we were in compliance with all covenants of the Amended and Restated Revolving Credit Agreement.
Term Loan Credit Agreement and Related Amendments
In May 2012 we entered
into a credit agreement among us, the several lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as
administrative agent, joint lead arranger and joint bookrunner (the “Term Agent”), and Wells Fargo Securities, LLC,
as joint lead arranger and joint bookrunner (the “Term Loan Credit Agreement”), which initially provided, among other
things, for a senior secured term loan facility of $300 million. Also in May 2012, certain of our subsidiaries (the “Term
Guarantors”) entered into a general continuing guarantee of the Company’s obligations under the Term Loan Credit Agreement
in favor of the Term Agent (the “Term Guarantee”).
In April 2013, we entered
into Amendment No.1 to Credit Agreement (the “Amendment”), which became effective on May 9, 2013 and amended the Term
Loan Credit Agreement. As of the Amendment date, there was $297.0 million of term loans outstanding under the Term Loan Credit
Agreement (the “Initial Loans”), of which we paid $20.0 million in connection with the Amendment. Under the Amendment,
the lenders agreed to provide us term loans in an aggregate principal amount of $277.0 million, which were exchanged for and used
to refinance the Initial Loans (the “Tranche B-1 Loans”).
On March 19, 2015, we
entered into Amendment No. 2 to Credit Agreement (“Amendment No. 2”). As of the Amendment No. 2 date, there was $192.8
million of the Tranche B-1 Loans outstanding. Under Amendment No. 2, the lenders agreed to provide to us term loans in an aggregate
principal amount of $192.8 million (the “Tranche B-2 Loans”), which were used to refinance the outstanding Tranche
B-1 Loans. The Tranche B-2 Loans mature on March 19, 2022, but provide for an accelerated maturity in the event our outstanding
Notes are not converted, redeemed, repurchased or refinanced in full on or before the date that is 91 days prior to the maturity
date thereof and we are not then maintaining, and continue to maintain until the Notes are converted, redeemed, repurchased or
refinanced in full, liquidity of at least $125 million. Liquidity, as defined in the Term Loan Credit Agreement, reflects the
difference between (i) the sum of (A) unrestricted cash and cash equivalents and (B) the amount available and permitted to be
drawn under our existing Amended and Restated Revolving Credit Agreement and (ii) the amount necessary to fully redeem the Notes.
The Tranche B-2 Loans shall amortize in equal quarterly installments in aggregate amounts equal to 0.25% of the original principal
amount of the Tranche B-2 Loans, with the balance payable at maturity, and will bear interest at a rate, at our election, equal
to (i) LIBOR (subject to a floor of 1.00%) plus a margin of 3.25% or (ii) a base rate plus a margin of 2.25%.
Amendment No. 2 also provides for a 1% prepayment
premium applicable in the event that we enter into a refinancing of, or amendment in respect of, the Tranche B-2 Loans on or prior
to the first anniversary of the effective date of Amendment No. 2 that, in either case, results in the all-in yield (including,
for purposes of such determination, the applicable interest rate, margin, original issue discount, upfront fees and interest rate
floors, but excluding any customary arrangement, structuring, commitment or underwriting fees) of such refinancing or amendment
being less than the all-in yield (determined on the same basis) on the Tranche B-2 Loans.
Additionally, Amendment
No. 2 amends the Term Loan Credit Agreement by (i) removing the maximum senior secured leverage ratio test, (ii) modifying the
accordion feature, as defined in the Term Loan Credit Agreement, to provide for a senior secured incremental term loan facility
in an aggregate amount not to exceed the greater of (A) $75 million (less the aggregate amount of (1) any increases in the maximum
revolver amount under the existing Amended and Restated Revolving Credit Agreement and (2) certain permitted indebtedness incurred
for the purpose of prepaying or repurchasing the Notes) and (B) an amount such that the senior secured leverage ratio would not
be greater than 3.00 to 1.00, subject to certain conditions, including obtaining commitments from any one or more lenders, whether
or not currently party to the Term Loan Credit Agreement, to provide such increased amounts. The senior secured leverage ratio
is defined in the Term Loan Credit Agreement and reflects a ratio of consolidated net total secured indebtedness to consolidated
EBITDA and (iii) amending certain negative covenants.
The Term Loan Credit Agreement,
as amended, is guaranteed by the Term Guarantors and is secured by (i) first-priority liens on and security interests in the Term
Priority Collateral, and (ii) second-priority security interests in the Revolver Priority Collateral. In addition, the Term Loan
Credit Agreement, as amended, contains customary covenants limiting our ability to, among other things, pay cash dividends, incur
debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, pay off subordinated indebtedness,
make investments and dispose of assets.
Subject to the terms of
the Intercreditor Agreement, if the covenants under the Term Loan Credit Agreement, as amended, are breached, the lenders may,
subject to various customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral.
Other customary events of default in the Term Loan Credit Agreement, as amended, include, without limitation, failure to pay obligations
when due, initiation of insolvency proceedings, defaults on certain other indebtedness, and the incurrence of certain judgments
that are not stayed, satisfied, bonded or discharged within 60 days.
For the three months ended
March 31, 2015 and 2014, under the Term Loan Credit Agreement we paid interest of $2.2 million and $2.7 million, respectively,
and principal of $0.7 million during the 2014 period. As of March 31, 2015, we had $192.8 million outstanding under the Term Loan
Credit Agreement, of which $1.9 million was classified as current on our Condensed Consolidated Balance Sheet as a result of Amendment
No. 2 which requires a mandatory 1% per year principal payment. In addition and in connection with Amendment No. 2 of the Term
Loan Credit Agreement, we paid a total of $0.9 million in original issuance discount fees which are being amortized over the life
of the amended facility using the effective interest rate method.
For the three months ended
March 31, 2015 and 2014, we charged $0.1 million and $0.2 million, respectively, of amortization for original issuance discount
fees as Interest Expense in the Condensed Consolidated Statements of Operations. In addition, for the three months ended
March 31, 2015 we charged $5.3 million of accelerated amortization and related fees in connection with Amendment No. 2 as a Loss
on Debt Extinguishment in the Condensed Consolidated Statements of Operations.
Cash Flow
Cash provided by operating
activities for the first three months of 2015 totaled $4.2 million, compared to $44.1 million used during the same period in 2014.
Cash provided by operations during the current year period was the result of net income adjusted for various non-cash activities,
including depreciation, amortization, deferred income taxes, stock-based compensation, accretion of debt discount, and loss on
debt extinguishment of $30.5 million, partially offset by a $26.2 million increase in working capital. Increases in working capital
for the current year period can be attributed to increased production of finished goods as well as an increase in purchasing activities
resulting from higher raw material requirements necessary to meet current production demand. Changes in key working capital accounts
for the first three months of 2015 as compared to the same period in 2014 are summarized below (in millions):
Source (Use) of cash: | |
2015 | | |
2014 | | |
Change | |
Accounts receivable | |
$ | (21.7 | ) | |
$ | 1.5 | | |
$ | (23.2 | ) |
Inventories | |
| (65.8 | ) | |
| (78.7 | ) | |
| 12.9 | |
Accounts payable and accrued liabilities | |
| 57.6 | | |
| 8.8 | | |
| 48.8 | |
Net use of cash | |
| (29.9 | ) | |
| (68.4 | ) | |
| 38.5 | |
Accounts receivable increased
by $21.7 million in the first three months of 2015 as compared to a decrease of $1.5 million in the prior year period. Days sales
outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, increased to
32 days as of March 31, 2015, compared to 30 days as of the same period in 2014. The increase in accounts receivable during the
first three months of 2015 was primarily due to timing of shipments and customer collections during the quarter. Inventory increased
by $65.8 million during the first three months of 2015 as compared to an increase of $78.7 million in the 2014 period. The increase
in inventory for the 2015 period was primarily due to higher finished goods inventory resulting from production levels exceeding
shipments for the first three months of 2015. Our inventory turns, a commonly used measure of working capital efficiency that
measures how quickly inventory turns per year, was approximately 7 times in the 2015 period compared to approximately 6 times
in the 2014 period. Accounts payable and accrued liabilities increased by $57.6 million in 2015 compared to an increase of $8.8
million for the same period in 2014. The increase during the first three months of 2015 was primarily due to increased production
levels and increased purchasing activities required to meet current demand. Days payable outstanding, a measure of working capital
efficiency that measures the amount of time a payable is outstanding, was 34 days in 2015 as compared to 37 days in the same period
in 2014.
Investing activities used
$3.0 million during the first three months of 2015 compared to $2.1 million used in the same period in 2014. Cash used in investing
activities during the 2015 and 2014 periods was related to capital expenditures to support maintenance, growth and productivity
improvement initiatives at our facilities.
Financing activities used
$21.8 million during the first three months of 2015 as compared to $1.4 million used in the same period in 2014. Cash used in
financing activities during the current year period primarily relate to the repurchase of common stock through our share repurchase
program of $18.3 million. In addition, during the first quarter of 2015 we entered into Amendment No. 2 to our term loan credit
agreement which resulted in debt issuance payments of $2.0 million.
As of March 31, 2015,
our liquidity position, defined as cash on hand and available borrowing capacity, amounted to $269.4 million, representing an
increase of $63.5 million and a decrease of $20.5 million as compared to March 31, 2014 and December 31, 2014, respectively. Total
debt and capital lease obligations amounted to $335.9 million as of March 31, 2015. As we continue to see improvements to the
overall trailer industry, as well as our operating performance metrics, we believe our liquidity is adequate to fund operations,
working capital needs and capital expenditures for the remainder of 2015.
Capital Expenditures
Capital spending amounted
to $3.0 million for the first three months of 2015 and is anticipated to be approximately $25 million for 2015. Capital spending
for 2015 has been and is expected to continue to be primarily utilized for maintenance related projects and to support maintenance,
growth and productivity improvement initiatives within our facilities.
Off-Balance Sheet Transactions
As of March 31, 2015,
we had approximately $8.2 million in operating lease commitments. We did not enter into any material off-balance sheet debt or
operating lease transactions during the quarter ended March 31, 2015.
Contractual Obligations and Commercial Commitments
A summary of payments
of our contractual obligations and commercial commitments, both on and off balance sheet, as of March 31, 2015 for the remaining
nine months of 2015 and the calendar years thereafter are as follows (in millions):
| |
2015 | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
Thereafter | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
DEBT: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Revolving Facility (due 2017) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Convertible Senior Notes (due 2018) | |
| - | | |
| - | | |
| - | | |
| 150.0 | | |
| - | | |
| - | | |
| 150.0 | |
Term Loan Credit Facility (due 2022) | |
| 1.4 | | |
| 1.9 | | |
| 1.9 | | |
| 1.9 | | |
| 1.9 | | |
| 183.8 | | |
| 192.8 | |
Industrial Revenue Bond | |
| 0.5 | | |
| 0.5 | | |
| 0.5 | | |
| 0.1 | | |
| - | | |
| - | | |
| 1.6 | |
Capital Leases (including principal and interest) | |
| 1.3 | | |
| 1.4 | | |
| 1.1 | | |
| 0.9 | | |
| 0.8 | | |
| 2.2 | | |
| 7.7 | |
TOTAL DEBT | |
$ | 3.2 | | |
$ | 3.8 | | |
$ | 3.5 | | |
$ | 152.9 | | |
$ | 2.7 | | |
$ | 186.0 | | |
$ | 352.1 | |
OTHER: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Leases | |
$ | 2.2 | | |
$ | 2.5 | | |
$ | 1.9 | | |
$ | 0.9 | | |
$ | 0.5 | | |
$ | 0.2 | | |
$ | 8.2 | |
TOTAL OTHER | |
$ | 2.2 | | |
$ | 2.5 | | |
$ | 1.9 | | |
$ | 0.9 | | |
$ | 0.5 | | |
$ | 0.2 | | |
$ | 8.2 | |
OTHER COMMERCIAL COMMITMENTS: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Letters of Credit | |
$ | 6.2 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 6.2 | |
Raw Material Purchase Commitments | |
| 72.5 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 72.5 | |
Used Trailer Purchase Commitments | |
| 0.8 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 0.8 | |
TOTAL OTHER COMMERCIAL | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
COMMITMENTS | |
$ | 79.5 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 79.5 | |
TOTAL OBLIGATIONS | |
$ | 84.9 | | |
$ | 6.3 | | |
$ | 5.4 | | |
$ | 153.8 | | |
$ | 3.2 | | |
$ | 186.2 | | |
$ | 439.8 | |
Scheduled payments for
our Revolving Facility exclude interest payments as rates are variable. Borrowings under the Revolving Facility bear interest
at a variable rate based on the London Interbank Offer Rate (LIBOR) or a base rate determined by the lender’s prime rate
plus an applicable margin, as defined in the agreement. Outstanding borrowings under the Revolving Facility bear interest at a
rate, at our election, equal to (i) LIBOR plus a margin ranging from 1.75% to 2.25% or (ii) a base rate plus a margin ranging
from 0.75% to 1.25%, in each case depending upon the monthly average excess availability under the Revolving Facility. We are
required to pay a monthly unused line fee equal to 0.375% times the average daily unused availability along with other customary
fees and expenses of our agent and lenders.
Scheduled payments for
our Convertible Senior Notes exclude interest payments which bear interest at the rate of 3.375% per annum from the date of issuance,
payable semi-annually on May 1 and November 1.
Scheduled payments for
our Term Loan Credit Agreement, as amended, exclude interest payments as rates are variable. Borrowings under the Term Loan Credit
Agreement, as amended, bear interest at a variable rate, at our election, equal to (i) LIBOR (subject to a floor of 1.00%) plus
a margin of 3.25% or (ii) a base rate plus a margin of 2.25%.
Capital leases represent
future minimum lease payments including interest. Operating leases represent the total future minimum lease payments.
We have $72.5 million
in purchase commitments through December 2015 for various raw material commodities, including aluminum, steel, nickel and copper
as well as other raw material components which are within normal production requirements.
We have used trailer purchase
commitments totaling $0.8 million related to commitments with certain customers to accept used trailers on trade for new trailer
purchases. These commitments arise in the normal course of business related to future new trailer orders at the time a new trailer
order is placed by the customer.
We have standby letters
of credit totaling $6.2 million issued in connection with workers compensation claims and surety bonds.
Backlog
Orders that have been
confirmed by customers in writing and can be produced during the next 18 months are included in our backlog. Orders that comprise
our backlog may be subject to changes in quantities, delivery, specifications and terms. Our backlog of orders was approximately
$1,206 million at March 31, 2015 compared to $1,087 million at December 31, 2014 and $791 million at March 31, 2014. We expect
to complete the majority of our existing backlog orders within the next 12 months.
OUTLOOK
The demand environment
for trailers remained healthy during the first three months of 2015, as evidenced by our strong backlog, a trailer demand forecast
by industry forecasters significantly above replacement demand levels for the next several years and our ability to increase prices
to improve and recapture lost margins. Recent estimates from industry analysts, ACT Research Company (“ACT”) and FTR
Associates (“FTR”), forecast strong demand levels in 2015 and beyond, with ACT currently estimating demand to be approximately
303,000 trailers for 2015, representing an increase of 11.8% as compared to 2014, and forecasting continued strong demand levels
into the foreseeable future with estimated annual average demand for the five year period ending 2020 in excess of 271,000 new
trailers. FTR anticipates new trailer demand to be approximately 291,000 new trailers in 2015, representing an increase of 9.7%
as compared to 2014 while projecting a decrease in 2016 with demand totaling 265,000 trailers. Nevertheless, there remain downside
risks relating to issues with both the domestic and global economies, including the housing and construction-related markets in
the U.S.
Other potential risks
we face as we proceed further into 2015 will primarily relate to our ability to manage the cost and supply of raw materials, commodities
and components. Significant increases in the cost of certain commodities, raw materials or components could have an adverse effect
on our results of operations. As has been our practice, we endeavor to pass raw material and component price increases to our
customers in addition to continuing our cost management and hedging activities in an effort to minimize the risk that changes
in material costs could have on our operating results. In addition, we rely on a limited number of suppliers for certain key components
and raw materials in the manufacturing of our products, including tires, landing gear, axles, suspensions aluminum extrusions
and specialty steel coil. At the current and expected demand levels throughout 2015, there may be shortages of supplies of raw
materials or components which would have an adverse impact on our ability to meet demand for our products.
We believe we are well-positioned
for long-term growth in the trailer industry because: (1) our core customers are among the strongest participants in the trucking
industry; (2) our DuraPlate® and other industry leading brand trailers continue to have increased market acceptance;
(3) our focus is on developing solutions that reduce our customers’ trailer maintenance and operating costs providing the
best overall value; and (4) our continued expansion of our presence through our Company-owned branch locations and independent
dealer network.
Based on the published industry demand forecasts,
customer feedback regarding their current requirements, our existing backlog of orders and our continued efforts to be selective
in our order acceptance to ensure we obtain appropriate value for our products, we estimate that for the full year 2015 total
new trailers sold will be between 62,000 and 66,000, which reflects trailer volumes 8% to 15% higher than 2014 demand levels.
As a result of our commitment to recapture margins within our Commercial Trailer Products segment, our expectation for growth
in trailer volumes is similar to the expected industry growth rate, and we have already begun to realize the improvements in pricing
and profitability and we expect continued improvements during 2015.
We are not
relying solely on volume and price recovery within the trailer industry to improve operations and enhance our profitability. We
believe our strategic initiative to become a diversified industrial manufacturer will provide us the opportunity to address new
markets, enhance our financial profile and reduce the cyclicality within our business. The Diversified Products segment has continued
to generate strong revenues and earnings. While demand for some of these products is dependent on the development of new products,
customer acceptance of our product solutions and the general expansion of our customer base and distribution channels, we anticipate
the long-term growth rate of demand for these products to be equal to or slightly higher than the U.S. gross domestic product.
The completion of recent acquisitions has enabled us to further diversify our business, enhance our leadership position in trailer
manufacturing and related products and technologies and recognize additional growth and value creation as we actively pursue margin
enhancing synergies. In addition, we have been and will continue to focus on developing innovative new products that both add
value to our customers’ operations and allow us to continue to differentiate our products from the competition.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We
have included a summary of our Critical Accounting Policies and Estimates in our annual report on Form 10-K for the year ended
December 31, 2014. There have been no material changes to the summary provided in that report.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS |
In
addition to the risks inherent in our operations, we have exposure to financial and market risk resulting from volatility in commodity
prices and interest rates. The following discussion provides additional detail regarding our exposure to these risks.
Commodity Prices
We
are exposed to fluctuations in commodity prices through the purchase of various raw materials that are processed from commodities
such as aluminum, steel, lumber, nickel and copper, as well as other raw material components. Given the historical volatility
of certain commodity prices, this exposure can materially impact product costs. We manage commodity price changes by entering
into fixed price contracts with our suppliers. As of March 31, 2015, we had $72.5 million in raw material purchase commitments
through December 2015 for materials that will be used in the production process, as compared to $71.3 million as of December 31,
2014. With the exception of certain long-term agreements with our core customers, we typically do not set prices for our products
more than 45-90 days in advance of our commodity purchases and can, subject to competitive market conditions, take into account
the cost of the commodity in setting our prices for each order. To the extent that we are unable to offset the increased commodity
costs in product prices, our results would be materially and adversely affected.
Interest Rates
As
of March 31, 2015, we had no floating rate debt outstanding under our revolving facility. During the three month period ended
March 31, 2015, we maintained an average floating rate borrowing level of less than $0.1 million under our revolving line of credit.
In addition, as of March 31, 2015, we had outstanding borrowings under our Term Loan Credit Agreement totaling $192.8 million
that bear interest at a floating rate, subject to a minimum interest rate. Based on the average borrowings under our revolving
facility and the outstanding indebtedness under our Term Loan Credit Agreement, a hypothetical 100 basis-point change in the floating
interest rate would result in a corresponding change in interest expense over a one-year period of $0.3 million. This sensitivity
analysis does not account for the change in the competitive environment indirectly related to the change in interest rates and
the potential managerial action taken in response to these changes.
Foreign Exchange Rates
We are subject to fluctuations
in the British pound sterling and Mexican peso exchange rates that impact transactions with our foreign subsidiaries, as well
as U.S. denominated transactions between these foreign subsidiaries and unrelated parties. A five percent change in the British
pound sterling or Mexican peso exchange rates would have an immaterial impact on results of operations. We do not hold or issue
derivative financial instruments for speculative purposes.
| ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Based on an evaluation
under the supervision and with the participation of the Company’s management, the Company’s principal executive officer
and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective
as of March 31, 2015.
Changes in Internal Controls over Financial Reporting
There were no changes
in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act, during the first quarter of fiscal year 2015 that have materially affected or are reasonably likely to materially affect
the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
See
Item 3 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2014. See also Note 6, “Contingencies”,
to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
You should carefully consider
the risks described in our Annual Report on Form 10-K, for the year ended December 31, 2014, including those under the heading
“Risk Factors” appearing in Item 1A of Part I of the Form 10-K and other information contained in this Quarterly Report
before investing in our securities. Realization of any of these risks could have a material adverse effect on our business, financial
condition, cash flows and results of operations.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS |
Purchases of Our Equity Securities
For the quarter ended
March 31, 2015, we repurchased a total of 113,676 shares to cover minimum employee tax withholding obligations upon the vesting
of restricted stock awards. Additionally, during this period there were 1,284,776 share repurchases made pursuant to our repurchase
program.
Period | |
Total Number of Shares Purchased | | |
Average Price Paid per Share | | |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | |
Maximum Amount That May Yet Be Purchased Under the Plans or Programs ($ in millions) | |
January 2015 | |
| — | | |
$ | - | | |
| — | | |
$ | 60.0 | |
February 2015 | |
| 676,476 | | |
$ | 14.18 | | |
| 562,800 | | |
$ | 52.0 | |
March 2015 | |
| 721,976 | | |
$ | 14.32 | | |
| 721,976 | | |
$ | 41.7 | |
Total | |
| 1,398,452 | | |
$ | 14.25 | | |
| 1,284,776 | | |
$ | 41.7 | |
(a) |
|
Exhibits: |
|
|
|
|
3.01 |
|
Certificate of Elimination of Series D Junior
Participating Preferred Stock of Wabash National Corporation (incorporated by reference to Exhibit 3.1 to the Current Report
on Form 8-K filed by the Company with the Securities and Exchange Commission on March 30, 2015) |
|
|
4.01 |
|
Amendment No. 2 to Rights Agreement dated March
30, 2015 (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by the Company with the Securities
and Exchange Commission on March 30, 2015) |
|
|
10.01 |
|
Amendment No. 2 to Credit Agreement, dated
March 19, 2015, among Wabash National Corporation, Morgan Stanley Senior Funding, Inc. and each lender party thereto (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission
on March 23, 2015) |
|
|
31.01 |
|
Certification of Principal Executive Officer |
|
|
31.02 |
|
Certification of Principal Financial Officer |
|
|
32.01 |
|
Written Statement of Chief Executive Officer
and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
|
|
101 |
|
Interactive Data File Pursuant to Rule 405
of Regulation S-T |
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
WABASH NATIONAL CORPORATION |
|
|
|
Date: April 27, 2015 |
By: |
/s/ Jeffery L. Taylor |
|
|
Jeffery L. Taylor |
|
|
Senior Vice President and Chief Financial Officer (Principal Financial
Officer) |
Exhibit 31.01
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002
I, Richard J. Giromini, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Wabash National Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: April 27, 2015 |
By: |
/s/ Richard J. Giromini |
|
|
Richard J. Giromini |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 31.02
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002
I, Jeffery L. Taylor, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Wabash National Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: April 27, 2015 |
By: |
/s/ Jeffery L. Taylor |
|
|
Jeffery L. Taylor |
|
|
Senior Vice President and Chief Financial Officer |
|
|
(Principal Financial Officer) |
Exhibit 32.01
Written Statement of Chief Executive Officer
and Chief Financial Officer
Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350)
The undersigned, the Chief Executive Officer
and the Chief Financial Officer of Wabash National Corporation (the "Company"), each hereby certifies that, to his knowledge,
on April 27, 2015:
| (a) | the Form 10Q, Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act
of 1934 of the Company for the quarter ended March 31, 2015 filed on April 27, 2015 with the Securities and Exchange Commission
(the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and |
| (b) | information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company. |
|
/s/ Richard J. Giromini |
|
Richard J. Giromini |
|
President and Chief Executive Officer |
|
April 27, 2015 |
|
|
|
/s/ Jeffery L. Taylor |
|
Jeffery L. Taylor |
|
Senior Vice President and Chief Financial Officer |
|
April 27, 2015 |
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