|
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Quarterly Report
of Wabash National Corporation (the “Company,” “Wabash” or “we”) contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934 (the “Exchange Act”). Forward-looking statements may include the words “may,” “will,”
“estimate,” “intend,” “continue,” “believe,” “expect,” “plan”
or “anticipate” and other similar words. Our “forward-looking statements” include, but are not limited
to, statements regarding:
|
•
|
our expected revenues, income or loss;
|
|
•
|
our
ability to manage our indebtedness;
|
|
•
|
our
strategic plan and plans for future operations;
|
|
•
|
financing
needs, plans and liquidity, including for working capital and capital expenditures;
|
|
•
|
our
ability to achieve sustained profitability;
|
|
•
|
reliance
on certain customers and corporate relationships;
|
|
•
|
availability
and pricing of raw materials;
|
|
•
|
availability
of capital and financing;
|
|
•
|
dependence
on industry trends;
|
|
•
|
the
outcome of any pending litigation or notice of environmental dispute;
|
|
•
|
export
sales and new markets;
|
|
•
|
engineering
and manufacturing capabilities and capacity;
|
|
•
|
acceptance
of new technology and products;
|
|
•
|
government
regulation; and
|
|
•
|
assumptions
relating to the foregoing.
|
Although we believe
that the expectations expressed in our forward-looking statements are reasonable, actual results could differ materially from
those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well
as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed
in this Quarterly Report. Important risks and factors that could cause our actual results to be materially different from our
expectations include the factors that are disclosed in “Item 1A. Risk Factors” in our Form 10-K for the year ended
December 31, 2015. Each forward-looking statement contained in this Quarterly Report reflects our management’s view only
as of the date on which that forward-looking statement was made. We are not obligated to update forward-looking statements or
publicly release the result of any revisions to them to reflect events or circumstances after the date of this Quarterly Report
or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
The following table
sets forth certain operating data as a percentage of net sales for the periods indicated:
|
|
Percentage of Net Sales
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
80.7
|
|
|
|
85.9
|
|
|
|
81.4
|
|
|
|
86.4
|
|
Gross profit
|
|
|
19.3
|
|
|
|
14.1
|
|
|
|
18.6
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
3.9
|
|
|
|
3.5
|
|
|
|
4.1
|
|
|
|
3.8
|
|
Selling expenses
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
1.4
|
|
Amortization of intangibles
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
1.1
|
|
Impairment of goodwill
|
|
|
0.3
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
-
|
|
Income from operations
|
|
|
12.5
|
|
|
|
8.2
|
|
|
|
11.7
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.8
|
)
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
|
|
(1.0
|
)
|
Other, net
|
|
|
(0.1
|
)
|
|
|
1.5
|
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
Income before income taxes
|
|
|
11.6
|
|
|
|
8.8
|
|
|
|
10.7
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
4.1
|
|
|
|
3.2
|
|
|
|
3.8
|
|
|
|
2.4
|
|
Net income
|
|
|
7.5
|
%
|
|
|
5.6
|
%
|
|
|
6.9
|
%
|
|
|
4.1
|
%
|
For the three and
six month period ended June 30, 2016, we recorded net sales of $471.4 million and $919.1 million, respectively, compared to $514.8
million and $952.4 million, respectively, in the prior year periods. Net sales for the three month period ended June 30, 2016
decreased $43.4 million, or 8.4%, compared to the prior year period, due primarily to a decrease in new trailer shipments of approximately
1,000 units, or 5.9%, as well as a decrease in used trailers shipments of approximately 300 units, or 46.2%. Gross profit margin
increased to 19.3% in the second quarter of 2016 compared to 14.1% in the prior year period driven improved pricing and continued
manufacturing efficiencies. We continue to be encouraged by the strong demand within the dry and refrigerated trailer segment
throughout the first six months of 2016, and our expectation is that overall industry shipment and production levels will remain
above replacement demand for the remainder of 2016 as many key structural and market drivers continue to support healthy demand
for new trailers.
For the three month
period ended June 30, 2016, selling, general and administrative expenses increased $0.5 million as compared to the same period
in 2015 primarily due to increases in outside services and professional fees. As a percentage of net sales, selling, general and
administrative expenses increased to 5.4% in the second quarter of 2016 as compared to 4.9% in the prior year period.
During the second
quarter of 2016, we realigned our reporting segments and, as a result, the businesses previously operating within the former retail
segment are now reported under either Commercial Trailer Products or Diversified Products in effort to strengthen the alignment
between the our manufacturing businesses and the retail sales and service operations, improve profitability and capitalize on
growth opportunities. As a result of the realignment of reporting segments, we now manage our business in two segments: Commercial
Trailer Products and Diversified Products. The Commercial Trailer Products segment produces and sells new trailers to customers
who purchase trailers directly from the Company, through independent dealers and Company owned branch locations. The Diversified
Products segment focuses on our commitment to expand our customer base, diversify our product offerings and revenues and extend
our market leadership by leveraging the proprietary DuraPlate® panel technology, drawing on our core manufacturing expertise
and making available products that are complementary to truck and tank trailers and transportation equipment. The prior year financial
performance for each of our reporting segments below has been restated to reflect the realignment.
Our management team
continues to be focused on increasing overall shareholder value by optimizing our manufacturing 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, less cyclical opportunities that leverage our intellectual and process capabilities.
Three Months Ended June 30, 2016
Net Sales
Net sales in the second
quarter of 2016 decreased $43.4 million, or 8.4%, compared to the second quarter of 2015. By business segment, prior to the elimination
of intercompany sales, sales and related units sold were as follows (dollars in thousands):
|
|
Three Months Ended June 30,
|
|
(prior to elimination of intersegment sales)
|
|
|
|
|
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
$
|
|
|
%
|
|
Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Trailer Products
|
|
$
|
382,212
|
|
|
$
|
412,664
|
|
|
$
|
(30,452
|
)
|
|
|
(7.4
|
)
|
Diversified Products
|
|
|
92,870
|
|
|
|
105,306
|
|
|
|
(12,436
|
)
|
|
|
(11.8
|
)
|
Eliminations
|
|
|
(3,644
|
)
|
|
|
(3,139
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
471,438
|
|
|
$
|
514,831
|
|
|
$
|
(43,393
|
)
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Trailers
|
|
|
(units)
|
|
|
|
|
|
|
|
|
|
Commercial Trailer Products
|
|
|
15,350
|
|
|
|
16,100
|
|
|
|
(750
|
)
|
|
|
(4.7
|
)
|
Diversified Products
|
|
|
550
|
|
|
|
800
|
|
|
|
(250
|
)
|
|
|
(31.3
|
)
|
Total
|
|
|
15,900
|
|
|
|
16,900
|
|
|
|
(1,000
|
)
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used Trailers
|
|
|
(units)
|
|
|
|
|
|
|
|
|
|
Commercial Trailer Products
|
|
|
300
|
|
|
|
600
|
|
|
|
(300
|
)
|
|
|
(50.0
|
)
|
Diversified Products
|
|
|
50
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
350
|
|
|
|
650
|
|
|
|
(300
|
)
|
|
|
(46.2
|
)
|
Commercial Trailer
Products segment sales prior to the elimination of intersegment sales were $382.2 million for the second quarter of 2016, a decrease
of $30.5 million, or 7.4%, compared to the second quarter of 2015. Trailers shipped during the second quarter of 2016 totaled
15,350 trailers compared to 16,100 trailers in the prior year period, a 4.7% decrease. The decrease in trailer shipments as well
as an approximate 3.9% decrease in the average selling price of trailers due to product mix as compared to the prior year period
primarily drove the decrease in sales. Used trailer sales decreased $5.8 million, or 62.8%, compared to the prior year period
primarily due to 300 fewer used trailers shipped in the second quarter of 2016 compared to the prior year period.
Diversified Products
segment sales prior to the elimination of intersegment sales were $92.9 million for the second quarter of 2016, down $12.4 million,
or 11.8%, compared to the second quarter of 2015. New trailer sales decreased $17.0 million, or 33.2%, from the prior year period
as new trailer shipments during the second quarter of 2016 totaled 550 units, a decrease from the 800 trailers shipped during
the prior year period, due primarily to lower demand for tank trailers within the chemical and energy end markets. Sales of our
components, parts and service product offerings increased $1.2 million, or 4.0%, as compared to the prior year period due to higher
volume. Equipment sales increased $3.6 million, or 16.2%, compared to the prior year period as a result of higher demand for our
engineered products.
Cost of Sales
Cost of sales for
the second quarter of 2016 was $380.4 million, a decrease of $62.1 million, or 14.0%, compared to the second quarter of 2015.
As a percentage of net sales, cost of sales was 80.7% in the second quarter of 2016 compared to 85.9% in the second quarter of
2015.
Commercial Trailer
Products segment cost of sales, prior to the elimination of intersegment sales, as detailed in the following table, was $313.2
million for the second quarter of 2016, a decrease of $50.4 million, or 13.9%, compared to the second quarter of 2015. As a percentage
of net sales, cost of sales was 81.9% for the current quarter compared to 88.1% in the prior year period.
|
|
Three Months Ended June 30,
|
|
Commercial Trailer Products Segment
|
|
2016
|
|
|
2015
|
|
(prior to elimination of intersegment sales)
|
|
(dollars in thousands)
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
Sales
|
|
Material Costs
|
|
$
|
238,172
|
|
|
|
62.3
|
%
|
|
$
|
285,412
|
|
|
|
69.1
|
%
|
Other Manufacturing Costs
|
|
|
75,013
|
|
|
|
19.6
|
%
|
|
|
78,212
|
|
|
|
19.0
|
%
|
|
|
$
|
313,185
|
|
|
|
81.9
|
%
|
|
$
|
363,624
|
|
|
|
88.1
|
%
|
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. Commercial Trailer Products material costs were 62.3% of net
sales in the second quarter of 2016 compared to 69.1% for the same period in 2015. The 690 basis point decrease was primarily
driven by favorable material costs including cost optimization through product design and sourcing as compared to the prior year
period. Other manufacturing costs decreased $3.2 million in the current year period as compared to the prior year period, resulting
from lower variable costs related to lower trailer volumes. As a percentage of sales, other manufacturing costs increased from
19.0% in the second quarter of 2015 to 19.6% in the 2016 period.
Diversified Products
segment cost of sales was $69.9 million in the second quarter of 2016, a decrease of $11.7 million, or 14.3%, compared to the
same period in 2015. As a percentage of net sales, prior to the elimination of intersegment sales, cost of sales was 75.3% in
the second quarter of 2016 as compared to 77.5% in the 2015 period. This 220 basis point reduction was primarily due to operational
efficiencies, favorable material costs and product mix.
Gross Profit
Gross profit was $91.1
million in the second quarter of 2016, an increase of $18.7 million from the prior year period. Gross profit as a percentage of
sales was 19.3% for the current quarter and 14.1% for the same period in 2015. Gross profit by segment was as follows (dollars
in thousands):
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
$
|
|
|
%
|
|
Gross Profit by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Trailer Products
|
|
$
|
69,027
|
|
|
$
|
49,040
|
|
|
$
|
19,987
|
|
|
|
40.8
|
|
Diversified Products
|
|
|
22,938
|
|
|
|
23,687
|
|
|
|
(749
|
)
|
|
|
(3.2
|
)
|
Corporate
|
|
|
(901
|
)
|
|
|
(322
|
)
|
|
|
(579
|
)
|
|
|
|
|
Total
|
|
$
|
91,064
|
|
|
$
|
72,405
|
|
|
$
|
18,659
|
|
|
|
25.8
|
|
Commercial Trailer
Products segment gross profit was $69.0 million for the second quarter of 2016 compared to $49.0 million for the second quarter
of 2015. Gross profit prior to the elimination of intersegment sales, as a percentage of net sales, was 18.1% in the second quarter
of 2016 compared to 11.9% in the 2015 period. The increase in gross profit margin as compared to the prior year period was primarily
driven by an improved pricing environment and operational efficiencies.
Diversified Products
segment gross profit was $22.9 million for the second quarter of 2016 compared to $23.7 million in the same quarter of 2015. Gross
profit prior to the elimination of intersegment sales, as a percentage of net sales, was 24.7% in the second quarter of 2016 compared
to 22.5% in the 2015 period. The increase in gross profit as a percentage of net sales compared to the prior year period was due
primarily to the shipment of a more favorable mix of products, material costs and operational efficiencies.
General and Administrative Expenses
General and administrative
expenses for the second quarter of 2016 increased $0.6 million, or 3.6%, from the prior year period, primarily as a result of
a $0.6 million increase in outside service and professional fee expenditures. As a percentage of sales, general and administrative
expenses were 3.9% for the current quarter as compared to 3.5% for the second quarter of 2015.
Selling Expenses
Selling expenses were
$7.0 million in the second quarter of 2016, a decrease of $0.1 million, or 1.9%, compared to the prior year period as decreases
in salaries and employee related costs were partially offset by higher advertising and promotion expenses. As a percentage of
net sales, selling expenses were 1.5% for the second quarter of 2016, up slightly from 1.4% for the second quarter of 2015.
Amortization of Intangibles
Amortization of intangibles
was $5.0 million for the second quarter of 2016 compared to $5.3 million in the prior year period. Amortization of intangibles
for both periods were primarily the result of expenses recognized for intangible assets recorded from the acquisition of Walker
Group Holdings (“Walker”) in May 2012 and certain assets of Beall Corporation (“Beall”) in February 2013.
Impairment of Goodwill
We review goodwill
for impairment, at the reporting unit level, annually and whenever events or circumstances indicate that the carrying value of
goodwill may not be recoverable. During the second quarter of 2016, with the realignment of our reporting segments we performed
an analysis to determine the allocations of goodwill and test for impairment. Based on the testing performed, we determined that
the portion of goodwill allocated to our retail branch operations was impaired as the fair value of the reporting unit did not
exceed its carrying value resulting in an impairment charge for the Commercial Trailer Products reporting segment of $1.7 million.
Other Income (Expense)
Interest expense
for the second quarter of 2016 totaled $3.9 million compared to $4.8 million in the second quarter of 2015. Interest expense
for both periods is primarily related to interest and non-cash accretion charges on our Notes (as defined below) and Term Loan
Credit Agreement (as defined below). The decrease from the prior year period is primarily due to the repurchase of Notes completed
in the fourth quarter of 2015 and the first quarter of 2016.
Other, net
for
the second quarter of 2016 represented an expense of $0.2 million as compared to income of $8.1 million for the prior year period.
The prior year period primarily consists of an $8.3 million gain on the sale of real estate in Fontana, California and Portland,
Oregon, within the former Retail segment, partially offset by losses incurred in connection with the amendment to our Credit Agreement.
Income Taxes
We recognized income
tax expense of $19.2 million in the second quarter 2016 compared to $16.7 million for the same period in the prior year. The effective
tax rate for the second quarter of 2016 was 35.1%, which differs from the U.S. Federal statutory rate of 35% primarily due to
the impact of state and local taxes offset by the benefit of the U.S. Internal Revenue Code domestic manufacturing deduction and
the benefit from the repurchase of our Notes.
Six Months Ended June 30, 2016
Net Sales
Net sales in the first
six months of 2016 decreased $33.3 million, or 3.5%, compared to the first six months of 2015. By business segment, prior to the
elimination of intercompany sales, sales and related units sold were as follows (dollars in thousands):
|
|
Six Months Ended June 30,
|
|
(prior to elimination of intersegment sales)
|
|
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
$
|
|
|
%
|
|
Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Trailer Products
|
|
$
|
746,252
|
|
|
$
|
741,853
|
|
|
$
|
4,399
|
|
|
|
0.6
|
|
Diversified Products
|
|
|
179,159
|
|
|
|
216,446
|
|
|
|
(37,287
|
)
|
|
|
(17.2
|
)
|
Eliminations
|
|
|
(6,297
|
)
|
|
|
(5,871
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
919,114
|
|
|
$
|
952,428
|
|
|
$
|
(33,314
|
)
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Trailers
|
|
|
(units)
|
|
|
|
|
|
|
|
|
|
Commercial Trailer Products
|
|
|
29,350
|
|
|
|
29,550
|
|
|
|
(200
|
)
|
|
|
(0.7
|
)
|
Diversified Products
|
|
|
1,050
|
|
|
|
1,700
|
|
|
|
(650
|
)
|
|
|
(38.2
|
)
|
Total
|
|
|
30,400
|
|
|
|
31,250
|
|
|
|
(850
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used Trailers
|
|
|
(units)
|
|
|
|
|
|
|
|
|
|
Commercial Trailer Products
|
|
|
550
|
|
|
|
900
|
|
|
|
(350
|
)
|
|
|
(38.9
|
)
|
Diversified Products
|
|
|
50
|
|
|
|
100
|
|
|
|
(50
|
)
|
|
|
(50.0
|
)
|
Total
|
|
|
600
|
|
|
|
1,000
|
|
|
|
(400
|
)
|
|
|
(40.0
|
)
|
Commercial Trailer
Products segment sales prior to the elimination of intersegment sales were $746.3 million for the first six months of 2016, an
increase of $4.4 million, or 0.6%, compared to the first six months of 2015. Trailers shipped during the first six months of 2016
totaled 29,350 trailers compared to 29,550 trailers in the prior year period, a 0.7% decrease. The increase in sales was due primarily
to an improved pricing environment and favorable product mix partially offset by the fewer trailer shipments. Used trailer sales
decreased $6.4 million, or 46.6%, compared to the prior year period primarily due to 350 fewer used trailers shipped in the first
six months of 2016 compared to the prior year period.
Diversified Products
segment sales prior to the elimination of intersegment sales were $179.2 million for the first six months of 2016, down $37.3
million, or 17.2%, compared to the same period of 2015. New trailer sales decreased $41.2 million, or 39.2%, from the prior year
period as new trailer shipments during the first half of 2016 totaled 1,050 units, a decrease of 650 trailers, or 38.2%, as compared
to the prior year period, due primarily to a decrease in demand for tank trailers within the chemical and energy end markets.
Sales of our components, parts and service product offerings decreased $1.6 million, or 2.6%, as compared to the prior year period
due to lower volume. Equipment sales increased $6.0 million, or 12.6%, compared to the prior year period as a result of higher
demand for our engineered products.
Cost of Sales
Cost of sales for
the first six months of 2016 was $748.5 million, a decrease of $74.3 million, or 9.0%, compared to the same period of 2015. As
a percentage of net sales, cost of sales was 81.4% in the first six months of 2016 compared to 86.4% in the first six months of
2015.
Commercial Trailer
Products segment cost of sales, prior to the elimination of intersegment sales, as detailed in the following table, was $616.8
million for the first half of 2016, a decrease of $43.7 million, or 6.6%, compared to the same period of 2015. As a percentage
of net sales, cost of sales was 82.7% for the first six months of 2016 compared to 89.0% in the prior year period.
|
|
Six Months Ended June 30,
|
|
Commercial Trailer Products Segment
|
|
2016
|
|
|
2015
|
|
(prior to elimination of intersegment sales)
|
|
(dollars in thousands)
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
Sales
|
|
Material Costs
|
|
$
|
463,044
|
|
|
|
62.1
|
%
|
|
$
|
513,534
|
|
|
|
69.2
|
%
|
Other Manufacturing Costs
|
|
|
153,785
|
|
|
|
20.6
|
%
|
|
|
147,007
|
|
|
|
19.8
|
%
|
|
|
$
|
616,829
|
|
|
|
82.7
|
%
|
|
$
|
660,541
|
|
|
|
89.0
|
%
|
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. Commercial Trailer Products material
costs were 62.1% of net sales in the first six months of 2016 compared to 69.2% for the same period in 2015. The 710 basis
point decrease was primarily driven by improved pricing, favorable material costs including cost optimization through product
design and sourcing as compared to the prior year period. Other manufacturing costs increased $6.8 million in the current
year period as compared to the prior year period, primarily related to product mix and increased costs associated with
introduction of new truck body product line. As a percentage of sales, other manufacturing costs increased from 19.8% in the
first six months of 2015 to 20.6% in the 2016 period.
Diversified Products
segment cost of sales was $136.0 million in the first six months of 2016, a decrease of $31.4 million, or 18.8%, compared to the
same period in 2015. As a percentage of net sales, prior to the elimination of intersegment sales, cost of sales was 75.9% in
the first six months of 2016 as compared to 77.3% in the 2015 period. This 140 basis point decrease as a percentage of net sales
was due primarily to product mix, lower material costs and continued operational efficiencies.
Gross Profit
Gross profit was $170.6
million in the first six months of 2016, an increase of $41.0 million from the prior year period. Gross profit as a percentage
of sales was 18.6% for the current quarter and 13.6% for the same period in 2015. Gross profit by segment was as follows (dollars
in thousands):
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
$
|
|
|
%
|
|
Gross Profit by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Trailer Products
|
|
$
|
129,423
|
|
|
$
|
81,312
|
|
|
$
|
48,111
|
|
|
|
59.2
|
|
Diversified Products
|
|
|
43,148
|
|
|
|
49,032
|
|
|
|
(5,884
|
)
|
|
|
(12.0
|
)
|
Corporate
|
|
|
(1,981
|
)
|
|
|
(741
|
)
|
|
|
(1,240
|
)
|
|
|
|
|
Total
|
|
$
|
170,590
|
|
|
$
|
129,603
|
|
|
$
|
40,987
|
|
|
|
31.6
|
|
Commercial Trailer
Products segment gross profit was $129.4 million for the first six months of 2016 compared to $81.3 million for the prior year
period. Gross profit prior to the elimination of intersegment sales, as a percentage of net sales, was 17.3% in 2016 compared
to 11.0% in the 2015 period. The increase in gross profit margin as compared to the prior year period was primarily driven by
an improved pricing environment, favorable material costs and operational efficiencies.
Diversified Products
segment gross profit was $43.1 million for the first half of 2016 compared to $49.0 million in the same period of 2015. Gross
profit prior to the elimination of intersegment sales, as a percentage of net sales, was 24.1% in the 2016 period compared to
22.7% in the 2015 period. The increase in gross profit as a percentage of net sales compared to the prior year period was due
primarily to the shipment of a more favorable mix of products, favorable material costs as well as operational efficiencies.
General and Administrative Expenses
General and administrative
expenses for the first six months of 2016 increased $2.0 million, or 5.5%, from the prior year period as a result of a $1.0 million
increase in information technology cost attributable to infrastructure upgrades, a $0.6 million increase in outside services and
professional fees, and $0.4 million increase in various other operating expenses. As a percentage of sales, general and administrative
expenses were 4.1% for the 2016 period as compared to 3.8% for the same period of 2015.
Selling Expenses
Selling expenses were
$14.0 million in the first six months of 2016, an increase of $0.3 million, or 1.8%, compared to the prior year period, as a result
of a $0.2 million increase in advertising and promotional efforts. As a percentage of net sales, selling expenses were 1.5% for
the 2016 period, up slightly from 1.4% for the prior year period.
Amortization of Intangibles
Amortization of intangibles
was $10.0 million for the first six months of 2016 compared to $10.6 million in the prior year period. Amortization of intangibles
for both periods were primarily the result of expenses 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 six months of 2016 totaled $8.0 million compared to $10.0 million in the prior year period. Interest expense
for both periods is primarily related to interest and non-cash accretion charges on our Notes and Term Loan Credit Agreement.
The decrease from the prior year period is primarily due to Notes repurchases completed in the fourth quarter of 2015 and the
first quarter of 2016.
Other, net
for
the first six months of 2016 represented an expense of $0.6 million as compared to income of $2.7 million for the prior year
period. The current year period primarily consists of loss on early extinguishment of debt of $0.5 million related to the
Notes repurchase in February 2016. The prior year period primarily consists of an $8.3 million gain on the sale of real
estate in Fontana, California and Portland, Oregon within our former Retail segment, partially offset by $5.6 million of
accelerated amortization and related fees in connection with the refinancing of our Term Loan Credit Agreement and amending
our Credit Agreement.
Income Taxes
We recognized income
tax expense of $35.4 million in the first half of 2016 compared to $22.9 million for the same period in the prior year. The effective
tax rate for the six months of 2016 was 35.9%, which differs from the U.S. Federal statutory rate of 35% primarily due to the
impact of state and local taxes offset by the benefit of the U.S. Internal Revenue Code domestic manufacturing deduction and the
benefit from the repurchase of our Notes.
Liquidity and Capital Resources
Capital Structure
Our capital structure
is comprised of a mix of debt and equity. As of June 30, 2016, our debt to equity ratio was approximately 0.6:1.0. Our long-term
objective is to generate operating cash flows sufficient to support the growth within our businesses and increase shareholder
value. This objective will be achieved through a balanced capital allocation strategy of maintaining strong liquidity, deleveraging
our balance sheet, investing in the business, both organically and strategically, and returning capital to our shareholders. For
the remainder of 2016, we expect to continue our commitment to fund our working capital requirements and capital expenditures
while also returning capital to our shareholders and deleveraging our balance sheet through cash flows from operations as well
as available borrowings under our existing Credit Agreement (as defined below).
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 June 30, 2016, the Notes were not convertible based on the
above criteria. If the Notes outstanding at June 30, 2016 were converted as of June 30, 2016, the if-converted value would exceed
the principal amount by approximately $8 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 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.
In December 2015,
we executed agreements with existing holders of the Notes to repurchase $54.2 million in principal amount of such Notes, of which
$19.0 million was acquired in that month for $22.9 million, excluding accrued interest. The remaining $35.2 million in principal
amount of the Notes was acquired in February 2016 for $42.1 million, excluding accrued interest. We recognized a loss on debt
extinguishment of $0.5 million from the February 2016 repurchase, which is included in
Other, net
on our Condensed Consolidated
Statements of Operations.
Revolving Credit Agreement
In June 2015, we entered
into a Joinder and First Amendment to Amended and Restated Credit Agreement, First Amendment to Amended and Restated Security
Agreement and First Amendment to Amended and Restated Guaranty Agreement (the “Amendment”) by and among us, certain
of our subsidiaries designated as Loan Parties (as defined in the Amendment), Wells Fargo Capital Finance, LLC, as arranger and
administrative agent (the “Agent”), and the other lenders party thereto. The Amendment amends, among other things,
the Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), dated as of May 8, 2012, among us,
certain of our subsidiaries from time to time party thereto (together with us, the “Borrowers”), the several lenders
from time to time party thereto, and the Agent and provides for, among other things, a five year, $175 million senior secured
revolving credit facility (the “Credit Facility”).
The Amendment, among
other things, (i) increases the total commitments under the Credit Facility from $150 million to $175 million, and (ii) extends
the maturity date of the Credit Facility from May 2017 to June 2020, but provides 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 121 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, (x) Liquidity of at least $125 million and (y) availability under the Credit Facility of at
least $25 million. Liquidity, as defined in the Credit Agreement, reflects the difference between (i) the sum of (A) unrestricted
cash and cash equivalents and (B) availability under the Credit Facility and (ii) the amount necessary to fully redeem the Notes.
In addition, the Amendment
(i) provides that borrowings under the Credit Facility will bear interest, at the Borrowers’ election, at (x) LIBOR plus
a margin ranging from 150 basis points to 200 basis points (in lieu of the previous range from 175 basis points to 225 basis points),
or (y) a base rate plus a margin ranging from 50 basis points to 100 basis points (in lieu of the previous range from 75 basis
points to 125 basis points), in each case, based upon the monthly average excess availability under the Credit Facility, (ii)
provides that the monthly unused line fee shall be equal to 25 basis points (which amount was previously 37.5 basis points) times
the average unused availability under the Credit Facility, (iii) provides that if availability under the Credit Facility is less
than 12.5% (which threshold was previously 15%) of the total commitment under the Credit Facility or if there exists an event
of default, amounts in any of the Borrowers’ and the subsidiary guarantors’ deposit accounts (other than certain excluded
accounts) will be transferred daily into a blocked account held by the Agent and applied to reduce the outstanding amounts under
the Credit Facility, (iv) provides that we will be 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 Credit Facility is less than 10%
(which threshold was previously 12.5%) of the total commitment under the Credit Facility and (v) amends certain negative covenants
in the Credit Agreement.
The Credit Agreement
is guaranteed by certain of the Company’s subsidiaries (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 (as
defined below) customary permitted liens and certain other permitted liens) (A) equity interests of each direct subsidiary held
by the Borrower and each Revolver 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 Revolver 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 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”).
Subject to the terms
of the Intercreditor Agreement, if the covenants under the 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 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 June 30, 2016,
we were in compliance with all covenants of the Credit Agreement.
Term Loan Credit Agreement
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 our 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 No. 1”), which became effective on May 9, 2013. As
of the Amendment No. 1 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 Amendment No. 1. Under Amendment No. 1, 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”).
In March 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 in March 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 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
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 existing 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 3.0 to 1.0, 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 six months
ended June 30, 2016 and 2015, under the Term Loan Credit Agreement we paid interest of $4.2 million and $4.3 million, respectively,
and principal of $1.0 million and $0.5 million, respectively. As of June 30, 2016, we had $190.4 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.
For the six months
ended June 30, 2016 and 2015, we incurred charges of approximately $0.1 million and $0.2 million, respectively, for amortization
of fees and original issuance discount which is included in
Interest Expense
in the Condensed Consolidated Statements of
Operations.
Cash Flow
Cash provided by operating
activities for the first six months of 2016 totaled $76.3 million, compared to $42.5 million during the same period in 2015. Cash
provided by operations during the current year period was the result of net income adjusted for various non-cash activities of
$92.1 million, including depreciation, amortization, deferred income taxes, stock-based compensation, non-cash interest expense,
loss on debt extinguishment and impairment of goodwill, partially offset by a $15.8 million increase in working capital. Increases
in working capital for the current year period can be attributed primarily to increased levels of finished goods, as well as an
increase in purchasing activities resulting from higher raw material requirements necessary to meet current production demand
partially offset by an increase in accounts payable activity. Changes in key working capital accounts for the first six months
of 2016 as compared to the same period in 2015 are summarized below (in millions):
Source (Use) of cash:
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Accounts receivable
|
|
$
|
20,873
|
|
|
$
|
(7,106
|
)
|
|
$
|
27,979
|
|
Inventories
|
|
|
(46,034
|
)
|
|
|
(66,756
|
)
|
|
|
20,722
|
|
Accounts payable and accrued liabilities
|
|
|
25,154
|
|
|
|
57,362
|
|
|
|
(32,208
|
)
|
Net use of cash
|
|
$
|
(7
|
)
|
|
$
|
(16,500
|
)
|
|
$
|
16,493
|
|
Accounts receivable
decreased by $20.9 million in the first six months of 2016 as compared to an increase of $7.1 million in the prior year period.
Days sales outstanding, a measure of working capital efficiency that measures the average amount of time a receivable is outstanding,
was 25 days in both the 2016 and 2015 periods. The increase in accounts receivable during the first six months of 2016 was primarily
due to the increase in demand as well as the timing of shipments and customer collections during the quarter. Inventory increased
by $46.0 million during the first six months of 2016 as compared to an increase of $66.8 million in the 2015 period. The increase
in inventory for the 2016 period was primarily due to higher finished goods inventory resulting from production levels exceeding
shipments for the first six months of 2016. Our inventory turns, a commonly used measure of working capital efficiency that measures
how quickly on average inventory turns per year, was approximately eight times in the 2016 period compared to approximately seven
times in the 2015 period. Accounts payable and accrued liabilities increased by $25.2 million in 2016 compared to an increase
of $57.4 million for the same period in 2015. The increase during the first six months of 2016 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 average amount of time a payable is outstanding, was 26 days in 2016 as compared
to 28 days in the same period in 2015.
Investing activities
used $8.1 million during the first six months of 2016 compared to $2.2 million used during the same period in 2015. Investing
activities for the first six months of 2016 were comprised primarily of capital expenditures totaling $8.1 million. Investing
activities for the first six months of 2015 include proceeds from the sale of property, plant and equipment of $13.2 million,
which comprised primarily of the sale of real estate in our former Retail segment, and was more than offset by capital expenditures
of $5.4 million as well as $10.0 million of restricted cash available to be used for asset reinvestments under our Term Loan Credit
Agreement.
Financing activities
used $59.4 million during the first six months of 2016 as compared to $46.8 million used in the same period in 2015. Cash used
in financing activities during the current year period primarily relates to the repurchase of Notes totaling $42.1 million and
common stock repurchases through our share repurchase program of $15.9 million. Cash used in financing activities in the first
six months of 2015 primarily relates to the repurchase of common stock through our share repurchase program totaling $40.0 million,
restricted cash of $3.1 million to be used as mandatory debt reduction in accordance with our Term Loan Credit Agreement and debt
issuance costs of $2.5 million incurred in relation to Amendment No. 2 to our Term Loan Credit Agreement and the amendment to
our Credit Agreement.
As of June 30, 2016,
our liquidity position, defined as cash on hand and available borrowing capacity, amounted to $356.9 million, representing an
increase of $48.6 million and $9.0 million compared to June 30, 2015 and December 31, 2015, respectively. Total debt and capital
lease obligations amounted to $282.5 million as of June 30, 2016. In February 2016, we repurchased $35.2 million in principal
of the Notes for $42.1 million. As we continue to see strong demand in the overall trailer industry, and based on our operating
performance metrics, we believe our liquidity is adequate to fund operations, working capital needs and capital expenditures for
the remainder of 2016.
Capital Expenditures
Capital spending amounted
to $8.1 million for the first six months of 2016 and is anticipated to range between $25 million to $30 million for 2016. Capital
spending for 2016 has been and is expected to continue to be primarily utilized to support maintenance, growth and productivity
improvement initiatives within our facilities.
Off-Balance Sheet Transactions
As of June 30, 2016,
we had approximately $7.4 million in operating lease commitments. We did not enter into any material off-balance sheet debt or
operating lease transactions during the quarter ended June 30, 2016.
Contractual Obligations and Commercial Commitments
A summary of payments
of our contractual obligations and commercial commitments, both on and off balance sheet, as of June 30, 2016 for the remaining
six months of 2016 and the calendar years thereafter are as follows (in thousands):
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEBT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility (due 2020)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Convertible Senior Notes (due 2018)
|
|
|
-
|
|
|
|
-
|
|
|
|
95,835
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95,835
|
|
Term Loan Credit Facility (due 2022)
|
|
|
963
|
|
|
|
1,928
|
|
|
|
1,928
|
|
|
|
1,928
|
|
|
|
1,928
|
|
|
|
181,759
|
|
|
|
190,434
|
|
Other Debt
|
|
|
261
|
|
|
|
539
|
|
|
|
93
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
893
|
|
Capital Leases (including principal and interest)
|
|
|
430
|
|
|
|
594
|
|
|
|
461
|
|
|
|
361
|
|
|
|
361
|
|
|
|
390
|
|
|
|
2,597
|
|
TOTAL DEBT
|
|
|
1,654
|
|
|
|
3,061
|
|
|
|
98,317
|
|
|
|
2,289
|
|
|
|
2,289
|
|
|
|
182,149
|
|
|
|
289,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
1,712
|
|
|
|
2,869
|
|
|
|
1,783
|
|
|
|
849
|
|
|
|
165
|
|
|
|
8
|
|
|
|
7,386
|
|
TOTAL OTHER
|
|
|
1,712
|
|
|
|
2,869
|
|
|
|
1,783
|
|
|
|
849
|
|
|
|
165
|
|
|
|
8
|
|
|
|
7,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMMERCIAL COMMITMENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of Credit
|
|
|
5,652
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,652
|
|
Raw Material Purchase Commitments
|
|
|
40,361
|
|
|
|
5,740
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,101
|
|
TOTAL OTHER COMMERCIAL COMMITMENTS
|
|
|
46,013
|
|
|
|
5,740
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OBLIGATIONS
|
|
|
49,379
|
|
|
|
11,670
|
|
|
|
100,100
|
|
|
|
3,138
|
|
|
|
2,454
|
|
|
|
182,157
|
|
|
|
348,898
|
|
Scheduled payments
for our Credit Facility exclude interest payments as rates are variable. Borrowings under the Credit 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 Credit Facility bear interest at a rate, at
our election, equal to (i) LIBOR plus a margin ranging from 1.50% to 2.00% or (ii) a base rate plus a margin ranging from 0.50%
to 1.00%, in each case depending upon the monthly average excess availability under the Credit Facility. We are required to pay
a monthly unused line fee equal to 0.25% times the average daily unused availability along with other customary fees and expenses
of our agent and lenders.
Scheduled payments
for our 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%. The Term Loan Credit Agreement matures in March 2022, but provides
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.
Capital leases represent
future minimum lease payments including interest. Operating leases represent the total future minimum lease payments.
We have standby letters
of credit totaling $5.7 million issued in connection with workers compensation claims and surety bonds.
We have $46.1 million
in purchase commitments through March 2017 for various raw material commodities, including aluminum, steel and nickel as well
as other raw material components which are within normal production requirements.
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
$860 million at June 30, 2016 compared to $1,209 million at December 31, 2015 and $1,155 million at June 30, 2015. We expect to
complete the majority of our existing backlog orders within the next 12 months.
OUTLOOK
The demand
environment for trailers remained strong through the first six months of 2016, as evidenced by our strong backlog, a trailer
demand forecast by industry forecasters above replacement demand levels for the next several years and our ability to
increase prices and improve margins. Recent estimates from industry analysts, ACT Research Company
(“ACT”) and FTR Associates (“FTR”), forecast demand for 2016 and beyond to remain healthy. ACT
currently estimates demand to be approximately 293,000 trailers for 2016, representing a decrease of 4.7% as compared to
2015, and forecasting continued demand levels to be above replacement into the foreseeable future with estimated annual
average demand for the five year period ending 2021 to be approximately 255,000 new trailers. FTR anticipates new trailer
demand to be approximately 281,000 new trailers in 2016, representing a decrease of 7.5% as compared to 2015 as well as
projecting a decrease in 2017 with demand totaling 251,000 trailers. In spite of strong forecasted demand, 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 for the remainder of 2016 will primarily relate to our ability to effectively manage our
manufacturing operations as well as 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 will 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 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, 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 success in the trailer industry because: (1) our core customers are among the dominant 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 presence throughout North America utilizing both our extensive independent
dealer network in addition to the Company-owned branch locations to market and sell our products.
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 2016 total new trailers sold will be between 60,000 and 62,000, which reflects trailer
volumes 4% to 7% lower than 2015 demand levels, primarily the result of weaker demand for platform and liquid tank trailers
as well as a road construction project impacting the production of our dry van trailers in 2016. While our expectations for
2016 trailer volumes are similar to the demand levels forecasted by industry analysts, our focus on continuing to grow
margins within our Commercial Trailer Products segment and the continued productivity and cost optimization initiatives
through all of our businesses, we expect to see continued improvements as compared to the prior year.
We are not relying
solely on strong new trailer volumes and price recovery to improve operations and enhance our profitability. We believe our corporate
strategy to continue our transformation into a diversified industrial manufacturer will provide us the opportunity to address
new markets, enhance our financial profile and reduce the cyclicality within our business. 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 remain committed to enhancing and diversifying our business model through the organic
and strategic initiatives. Through our two operating segments we offer a wide array of products and customer-specific solutions
that we believe provide a good foundation for achieving these goals. 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, 2015. There have been no material changes to the summary provided in that report.