The accompanying notes are an integral part
of these Consolidated Statements.
The accompanying notes are an integral part
of these Consolidated Statements.
The accompanying notes are an integral part
of these Consolidated Statements.
The accompanying notes are an integral
part of these Consolidated Statements.
The accompanying notes are an integral part
of these Consolidated Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF THE BUSINESS
|
Wabash National Corporation
(the “Company,” “Wabash” or “Wabash National”) manufactures a diverse range of products including:
dry freight and refrigerated trailers, platform trailers, bulk tank trailers, dry and refrigerated truck bodies, truck-mounted
tanks, intermodal equipment, aircraft refueling equipment, structural composite panels and products, trailer aerodynamic solutions,
and specialty food grade and pharmaceutical equipment. Its innovative products are sold under the following brand names: Wabash
National
®
, Beall
®
, Benson
®
, Brenner
®
Tank, Bulk Tank International,
DuraPlate
®
, Extract Technology
®
, Garsite, Progress Tank, Transcraft
®
, Walker Engineered
Products, and Walker Transport.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
a.
|
Basis of Consolidation
|
The consolidated financial
statements reflect the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany
profits, transactions and balances have been eliminated in consolidation.
The preparation of
consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that directly affect the amounts reported in its consolidated financial statements and accompanying notes.
Actual results could differ from these estimates.
The Company recognizes
revenue from the sale of its products when the customer has made a fixed commitment to purchase a product for a fixed or determinable
price, collection is reasonably assured under the Company’s normal billing and credit terms and ownership and all risk of
loss has been transferred to the buyer, which is normally upon shipment to or pick up by the customer. Revenues on certain contracts
are recorded on a percentage of completion method, measured by actual total cost incurred to the total estimated costs for each
project. Revenues exclude all taxes collected from the customer. Shipping and handling fees are included in
Net Sales
and
the associated costs included in
Cost of Sales
in the Consolidated Statements of Operations.
|
d.
|
Used Trailer Trade Commitments and Residual Value Guarantees
|
In the normal course
of business, the Company may accept used trailers on trade for new trailer purchases. These commitments arise related to future
new trailer orders at the time a new trailer order is placed by the customer. The Company acquired used trailers on trade of $4.6
million, $12.8 million, and $26.8 million in 2016, 2015, and 2014, respectively. As of December 31, 2016, the Company had no outstanding
trade commitments, and $2.1 million in outstanding trade commitments as of December 31, 2015. On occasion, the amount of the trade
allowance provided for in the used trailer commitments, or cost, may exceed the net realizable value of the underlying used trailer.
In these instances, the Company’s policy is to recognize the loss related to these commitments at the time the new trailer
revenue is recognized. Net realizable value of used trailers is measured considering market sales data for comparable types of
trailers. The net realizable value of the used trailers subject to the remaining outstanding trade commitments was estimated by
the Company to be $0.0 million and $10.0 million as of December 31, 2016 and 2015, respectively.
|
e.
|
Cash and Cash Equivalents
|
Cash and cash equivalents
include all highly liquid investments with a maturity of three months or less at the time of purchase.
Accounts receivable
are shown net of allowance for doubtful accounts and primarily include trade receivables. The Company records and maintains a provision
for doubtful accounts for customers based upon a variety of factors including the Company’s historical collection experience,
the length of time the account has been outstanding and the financial condition of the customer. If the circumstances related to
specific customers were to change, the Company’s estimates with respect to the collectability of the related accounts could
be further adjusted. The Company’s policy is to write-off receivables when they are determined to be uncollectible. Provisions
to the allowance for doubtful accounts are charged to
Selling, General, and Administrative Expenses
in the Consolidated
Statements of Operations. The following table presents the changes in the allowance for doubtful accounts (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at beginning of year
|
|
$
|
956
|
|
|
$
|
1,047
|
|
|
$
|
2,058
|
|
Provision
|
|
|
117
|
|
|
|
145
|
|
|
|
178
|
|
Write-offs, net of recoveries
|
|
|
(122
|
)
|
|
|
(236
|
)
|
|
|
(1,189
|
)
|
Balance at end of year
|
|
$
|
951
|
|
|
$
|
956
|
|
|
$
|
1,047
|
|
Inventories are stated
at the lower of cost, determined on either the first-in, first-out or average cost method, or market. The cost of manufactured
inventory includes raw material, labor and overhead. Inventories consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Finished goods
|
|
$
|
57,297
|
|
|
$
|
67,260
|
|
Raw materials and components
|
|
|
53,388
|
|
|
|
65,790
|
|
Work in progress
|
|
|
18,422
|
|
|
|
18,201
|
|
Aftermarket parts
|
|
|
8,356
|
|
|
|
8,714
|
|
Used trailers
|
|
|
2,490
|
|
|
|
7,017
|
|
|
|
$
|
139,953
|
|
|
$
|
166,982
|
|
|
h.
|
Prepaid Expenses and Other
|
Prepaid expenses and
other as of December 31, 2016 and 2015 were $24.4 million and $8.4 million, respectively
.
The balances as of December 31,
2016 include $5.8 million of assets held for sale related to three of the Company’s former branch locations. Prepaid expenses
and other for both periods include items such as insurance premiums, maintenance agreements, and income tax and other receivables.
Insurance premiums and maintenance agreements are charged to expense over the contractual life, which is generally one year or
less. Additionally, costs in excess of billings on contracts for which the Company recognizes revenue on a percentage of completion
basis are included in this category.
|
i.
|
Property, Plant and Equipment
|
Property, plant and
equipment are recorded at cost, net of accumulated depreciation. Maintenance and repairs are charged to expense as incurred, while
expenditures that extend the useful life of an asset are capitalized. Depreciation is recorded using the straight-line method over
the estimated useful lives of the depreciable assets. The estimated useful lives are up to 33 years for buildings and building
improvements and range from three to ten years for machinery and equipment. Depreciation expense, which is recorded in
Cost
of Sales
and
General and Administrative Expenses
in the Consolidated Statements of Operations, as appropriate, on property,
plant and equipment was $15.9 million, $16.0 million, and $16.5 million in 2016, 2015, and 2014, respectively, and includes amortization
of assets recorded in connection with the Company’s capital lease agreements. As of December 31, 2016 and 2015, the assets
related to the Company’s capital lease agreements are recorded within
Property, Plant and Equipment
in the Consolidated
Balance Sheet for the amount of $4.3 million and $5.0 million, respectively, net of accumulated depreciation of $1.9 million and
$2.6 million, respectively.
Property, plant and
equipment consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
20,958
|
|
|
$
|
22,978
|
|
Buildings and building improvements
|
|
|
110,789
|
|
|
|
114,216
|
|
Machinery and equipment
|
|
|
231,094
|
|
|
|
220,814
|
|
Construction in progress
|
|
|
12,116
|
|
|
|
13,741
|
|
|
|
$
|
374,957
|
|
|
$
|
371,749
|
|
Less: accumulated depreciation
|
|
|
(240,819
|
)
|
|
|
(231,311
|
)
|
|
|
$
|
134,138
|
|
|
$
|
140,438
|
|
As of December 31,
2016, the balances of intangible assets, other than goodwill, were as follows (in thousands):
|
|
Weighted Average
Amortization Period
|
|
Gross Intangible
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net Intangible
Assets
|
|
Tradenames and trademarks
|
|
20 years
|
|
$
|
37,894
|
|
|
$
|
(11,864
|
)
|
|
$
|
26,030
|
|
Customer relationships
|
|
10 years
|
|
|
151,090
|
|
|
|
(92,686
|
)
|
|
|
58,404
|
|
Technology
|
|
12 years
|
|
|
16,517
|
|
|
|
(6,546
|
)
|
|
|
9,971
|
|
Total
|
|
|
|
$
|
205,501
|
|
|
$
|
(111,096
|
)
|
|
$
|
94,405
|
|
As of December 31,
2015, the balances of intangible assets, other than goodwill, were as follows (in thousands):
|
|
Weighted Average
Amortization Period
|
|
Gross Intangible
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net Intangible
Assets
|
|
Tradenames and trademarks
|
|
20 years
|
|
$
|
37,894
|
|
|
$
|
(9,970
|
)
|
|
$
|
27,924
|
|
Customer relationships
|
|
10 years
|
|
|
151,634
|
|
|
|
(76,340
|
)
|
|
|
75,294
|
|
Technology
|
|
12 years
|
|
|
16,517
|
|
|
|
(5,119
|
)
|
|
|
11,398
|
|
Total
|
|
|
|
$
|
206,045
|
|
|
$
|
(91,429
|
)
|
|
$
|
114,616
|
|
Intangible asset amortization
expense was $19.9 million, $21.3 million, and $21.9 million for 2016, 2015, and 2014, respectively. Annual intangible asset amortization
expense for the next 5 fiscal years is estimated to be $16.9 million in 2017; $15.4 million in 2018; $14.5 million in 2019; $13.7
million in 2020; and $12.0 million in 2021.
Goodwill represents
the excess purchase price over fair value of the net assets acquired. The Company reviews goodwill for impairment, at the reporting
unit level, annually on October 1 and whenever events or changes in circumstances indicate its carrying value may not be recoverable.
In accordance with ASC 350,
Intangibles – Goodwill and Other
, goodwill is reviewed for impairment utilizing either
a qualitative assessment or a two-step quantitative process.
The Company has the
option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In assessing the qualitative
factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount,
the Company assesses relevant events and circumstances that may impact the fair value and the carrying amount of the reporting
unit. The identification of relevant events and circumstances and how these may impact a reporting unit's fair value or carrying
amount involve significant judgments and assumptions. The judgments and assumptions include the identification of macroeconomic
conditions, industry and market conditions, cost factors, overall financial performance and Company specific events and making
the assessment on whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any
such impact. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not
that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
For reporting units
in which the Company performs the two-step quantitative analysis, the first step compares the carrying value, including goodwill,
of each reporting unit with its estimated fair value. If the fair value of the reporting unit exceeds its carrying value, the goodwill
is not considered impaired. If the carrying value is greater than the fair value, this suggests that an impairment may exist and
a second step is required in which the implied fair value of goodwill is calculated as the excess of the fair value of the reporting
unit over the fair values assigned to its assets and liabilities. If this implied fair value is less than the carrying value, the
difference is recognized as an impairment loss charged to the reporting unit. In assessing goodwill using this quantitative approach,
the Company establishes fair value for the purpose of impairment testing by averaging the fair value using an income and market
approach. The income approach employs a discounted cash flow model incorporating similar pricing concepts used to calculate fair
value in an acquisition due diligence process and a discount rate that takes into account the Company’s estimated average
cost of capital. The market approach employs market multiples based on comparable publicly traded companies in similar industries
as the reporting unit. Estimates of fair value are established using current and forward multiples adjusted for size and performance
of the reporting unit relative to peer companies.
During the second quarter
of 2016, with the realignment of the Company’s reporting segments, the Company performed an analysis to determine the allocations
of goodwill and test for impairment. Based on this analysis, the Company determined that the portion of goodwill allocated to the
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. In the fourth quarter of 2016 and 2014,
the Company completed its goodwill impairment test using the quantitative assessment. Furthermore, for 2015, the Company completed
its goodwill impairment testing during the fourth quarter using the qualitative approach. Based on the testing performed in each
of these years, the Company believed it was more likely than not that the fair value of its reporting units were greater than their
carrying amount and no additional impairment of goodwill was recognized. Additionally, in 2014, the Company’s former retail
reporting unit recognized a partial disposal of goodwill in the amount of $0.5 million resulting from the transitioning of three
retail branch locations to independent dealer facilities during the second quarter of 2014.
The changes in the
carrying amounts of goodwill, all of which are included in the Company’s Diversified Products segment as of December 31,
2016, except for approximately $2.6 million allocated to the Company’s Commercial Trailer Products segment, for the years
ended December 31, 2016 and 2015 were as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Balance as of January 1
|
|
$
|
149,718
|
|
|
$
|
149,603
|
|
|
|
|
|
|
|
|
|
|
Effects of foreign currency
|
|
|
312
|
|
|
|
115
|
|
Impairment of goodwill
|
|
|
(1,663
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
$
|
148,367
|
|
|
$
|
149,718
|
|
The Company capitalizes
the cost of computer software developed or obtained for internal use. Capitalized software is amortized using the straight-line
method over three to seven years. As of December 31, 2016 and 2015, the Company had software costs, net of amortization, of $5.4
million and $2.7 million, respectively. Amortization expense for 2016, 2015 and 2014 was $1.0 million, $0.7 million, and $0.5 million,
respectively.
Long-lived assets,
consisting primarily of intangible assets and property, plant and equipment, are reviewed for impairment whenever facts and circumstances
indicate that the carrying amount may not be recoverable. Specifically, this process involves comparing an asset’s carrying
value to the estimated undiscounted future cash flows the asset is expected to generate over its remaining life. If this process
were to result in the conclusion that the carrying value of a long-lived asset would not be recoverable, a write-down of the asset
to fair value would be recorded through a charge to operations. Fair value is determined based upon discounted cash flows or appraisals
as appropriate.
|
n.
|
Other Accrued Liabilities
|
The following table
presents the major components of
Other Accrued Liabilities
(in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Payroll and related taxes
|
|
$
|
26,793
|
|
|
$
|
34,427
|
|
Warranty
|
|
|
20,520
|
|
|
|
19,709
|
|
Customer deposits
|
|
|
19,302
|
|
|
|
14,877
|
|
Self-insurance
|
|
|
8,387
|
|
|
|
7,677
|
|
Accrued taxes
|
|
|
6,400
|
|
|
|
8,075
|
|
All other
|
|
|
10,912
|
|
|
|
8,277
|
|
|
|
$
|
92,314
|
|
|
$
|
93,042
|
|
The following table
presents the changes in the product warranty accrual included in
Other Accrued Liabilities
(in thousands):
|
|
2016
|
|
|
2015
|
|
Balance as of January 1
|
|
$
|
19,709
|
|
|
$
|
15,462
|
|
Provision for warranties issued in current year
|
|
|
6,601
|
|
|
|
9,714
|
|
Provision for (Recovery of ) pre-existing warranties
|
|
|
560
|
|
|
|
(409
|
)
|
Payments
|
|
|
(6,350
|
)
|
|
|
(5,058
|
)
|
Balance as of December 31
|
|
$
|
20,520
|
|
|
$
|
19,709
|
|
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 is ten years. The Company passes through component manufacturers’ warranties
to its customers. The Company’s policy is to accrue the estimated cost of warranty coverage at the time of the sale.
The following table
presents the changes in the self-insurance accrual included in
Other Accrued Liabilities
(in thousands):
|
|
2016
|
|
|
2015
|
|
Balance as of January 1
|
|
$
|
7,677
|
|
|
$
|
7,494
|
|
Expense
|
|
|
41,470
|
|
|
|
40,023
|
|
Payments
|
|
|
(40,760
|
)
|
|
|
(39,840
|
)
|
Balance as of December 31
|
|
$
|
8,387
|
|
|
$
|
7,677
|
|
The Company is self-insured
up to specified limits for medical and workers’ compensation coverage. The self-insurance reserves have been recorded to
reflect the undiscounted estimated liabilities, including claims incurred but not reported, as well as catastrophic claims as appropriate.
The Company determines
its provision or benefit for income taxes under the asset and liability method. The asset and liability method measures the expected
tax impact at current enacted rates of future taxable income or deductions resulting from differences in the tax and financial
reporting basis of assets and liabilities reflected in the Consolidated Balance Sheets. Future tax benefits of tax losses and credit
carryforwards are recognized as deferred tax assets. Deferred tax assets are reduced by a valuation allowance to the extent management
determines that it is more-likely-than-not the Company would not realize the value of these assets.
The Company accounts
for income tax contingencies by prescribing a “more-likely-than-not” recognition threshold that a tax position is required
to meet before being recognized in the financial statements.
|
p.
|
Concentration of Credit Risk
|
Financial instruments
that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents
and customer receivables. The Company places its cash and cash equivalents with high quality financial institutions. Generally,
the Company does not require collateral or other security to support customer receivables.
|
q.
|
Research and Development
|
Research and development
expenses are charged to earnings as incurred and were $6.4 million, $4.8 million and $1.7 million in 2016, 2015 and 2014, respectively.
|
r.
|
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
. Furthermore, the FASB issued additional amendments and technical corrections related to
ASU 2014-09 during 2016, which are considered in our evaluation of this standard. 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 of these standards will
be the first quarter of fiscal year 2018 using one of two retrospective application methods. The Company is currently developing
an implementation plan to adopt this new standard and in the process of reviewing a majority of its revenue streams and the related
performance obligations and pricing arrangements. In addition, the Company is also evaluating contractual terms, such as customer
acceptance clauses, payment terms, shipping instructions, and timing of shipments, against the new standards to determine the impact
on the Company’s financial statements. As part of this plan, the Company is evaluating which method to apply and assessing
the potential impact of the adoption on its financial statements and related disclosures. The Company expects to conclude this
evaluation in 2017.
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. The Company
adopted the guidance in 2016 and, as a result, this standard did not have a material impact on its financial statements.
In April 2015, the
FASB issued ASU No. 2015-03,
Imputation of Interest
. Also, in August 2015, the FASB issued ASU No. 2015-15,
Imputation
of Interest, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Agreements.
These
ASUs simplified the presentation of debt issuance costs to 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 these ASUs. Furthermore, ASU No. 2015-15 provided authoritative guidance permitting an entity to defer
and present debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term
of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.
These ASUs were effective for annual and interim reporting periods beginning after December 15, 2015 and required a retrospective
approach. The Company adopted the guidance in 2016 and, as a result, it did not have a material impact on financial statements.
In July 2015, the FASB
issued ASU No. 2015-11,
simplifying the Measurement of Inventory
. This ASU, which applies to inventory that is measured
using any method other than the last-in, first-out (LIFO) or retail inventory method, requires that entities measure inventory
at the lower of cost or net realizable value. The guidance is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2016 and should be applied on a prospective basis. The Company adopted the guidance in 2016 and, as
a result, this standard did not have a material impact on its financial statements.
In November 2015, the
FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.
This amendment changes
how deferred taxes are recognized by eliminating the requirement of presenting deferred tax liabilities and assets as current and
noncurrent on the balance sheet. Instead, the requirement will be to classify all deferred tax liabilities and assets as noncurrent.
ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that
reporting period, with earlier adoption permitted. ASU 2015-17 can be adopted either prospectively or retrospectively to all periods
presented. The Company adopted ASU 2015-17 prospectively beginning with the first quarter of 2016 and deferred income taxes are
now presented as non-current.
In February 2016, the
FASB issued ASU 2016-02,
Leases (Topic 842)
. This update requires lessees to recognize, on the balance sheet, assets and
liabilities for the rights and obligations created by leases of greater than twelve months. Leases will be classified as
either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This
guidance will be effective for the Company as of January 1, 2019. A modified retrospective transition method is required.
The Company is currently evaluating the impact the adoption of this guidance will have on its consolidated financial statements.
In March 2016, the
FASB issued ASU No. 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting
, which changed the accounting for certain aspects of employee share-based payments. The ASU requires companies to
recognize additional tax benefits or expenses related to the vesting or settlement of employee share-based awards (the difference
between the actual tax benefit and the tax benefit initially recognized for financial reporting purposes) as income tax benefit
or expense in earnings, rather than in additional paid-in capital, in the reporting period in which they occur. The ASU also requires
companies to classify cash flows resulting from employee share-based payments, including the additional tax benefits or expenses
related to the vesting or settlement of share-based awards, as cash flows from operating activities rather than financing activities.
Although this change will reduce some of the administrative complexities of tracking share-based awards, it will increase the volatility
of our income tax expense and cash flows from operations. The new standard is effective for annual reporting periods beginning
after December 15, 2016, with early adoption permitted. The Company early adopted the ASU during the fourth quarter of 2016 and
are therefore required to report the impacts as though the ASU had been adopted on January 1, 2016. Accordingly, the Company recognized
an immaterial income tax benefit as an increase to earnings during the year ended December 31, 2016. Additionally, the Company
recognized additional income tax benefits as an increase to operating cash flows for the year ended December 31, 2016. The new
accounting standard did not impact any periods prior to January 1, 2016, as the Company applied the changes in the ASU on a prospective
basis.
In November 2016, the
FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230), Restricted Cash,
which requires entities to show the changes
in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. When cash,
cash equivalents, restricted cash and restricted cash equivalents are presented in more than one item on the balance sheet, a reconciliation
of the totals in the statement of cash flows to the related captions in the balance sheet is required. This guidance will be effective
for the Company as of January 1, 2018. Entities will be required to apply the guidance retrospectively. The Company is currently
evaluating the impact the adoption of this guidance will have on its consolidated financial statements.
|
3.
|
PER SHARE OF COMMON STOCK
|
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):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Basic net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
119,433
|
|
|
$
|
104,289
|
|
|
$
|
60,930
|
|
Undistributed earnings allocated to participating securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(481
|
)
|
Net income applicable to common stockholders excluding amounts applicable to participating securities
|
|
$
|
119,433
|
|
|
$
|
104,289
|
|
|
$
|
60,449
|
|
Weighted average common shares outstanding
|
|
|
63,729
|
|
|
|
67,201
|
|
|
|
68,895
|
|
Basic net income per share
|
|
$
|
1.87
|
|
|
$
|
1.55
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
119,433
|
|
|
$
|
104,289
|
|
|
$
|
60,930
|
|
Undistributed earnings allocated to participating securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(481
|
)
|
Net income applicable to common stockholders excluding amounts applicable to participating securities
|
|
$
|
119,433
|
|
|
$
|
104,289
|
|
|
$
|
60,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
63,729
|
|
|
|
67,201
|
|
|
|
68,895
|
|
Dilutive shares from assumed conversion of convertible senior notes
|
|
|
794
|
|
|
|
1,128
|
|
|
|
1,354
|
|
Dilutive stock options and restricted stock
|
|
|
1,239
|
|
|
|
1,039
|
|
|
|
814
|
|
Diluted weighted average common shares outstanding
|
|
|
65,762
|
|
|
|
69,368
|
|
|
|
71,063
|
|
Diluted net income per share
|
|
$
|
1.82
|
|
|
$
|
1.50
|
|
|
$
|
0.85
|
|
Average diluted shares
outstanding for the periods ended December 31, 2016, 2015 and 2014 exclude options to purchase common shares totaling 503, 666
and 581, 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 each period 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 leases
office space, manufacturing, warehouse and service facilities and equipment for varying periods under both operating and capital
lease agreements. Future minimum lease payments required under these lease commitments as of December 31, 2016 are as follows (in
thousands):
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
2017
|
|
|
605
|
|
|
|
3,123
|
|
2018
|
|
|
460
|
|
|
|
2,027
|
|
2019
|
|
|
361
|
|
|
|
1,033
|
|
2020
|
|
|
361
|
|
|
|
211
|
|
2021
|
|
|
361
|
|
|
|
41
|
|
Thereafter
|
|
|
30
|
|
|
|
-
|
|
Total minimum lease payments
|
|
$
|
2,178
|
|
|
$
|
6,435
|
|
Interest
|
|
|
(276
|
)
|
|
|
|
|
Present value of net minimum lease payments
|
|
$
|
1,902
|
|
|
|
|
|
Total rental expense
was $6.2 million, $6.2 million, and $5.8 million for 2016, 2015, and 2014, respectively.
Long-term debt consists
of the following (in thousands):
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Convertible senior notes
|
|
$
|
48,951
|
|
|
$
|
131,000
|
|
Term loan credit agreement
|
|
|
189,470
|
|
|
|
191,399
|
|
Other debt
|
|
|
676
|
|
|
|
1,149
|
|
|
|
$
|
239,097
|
|
|
$
|
323,548
|
|
Less: unamortized discount and fees
|
|
|
(3,164
|
)
|
|
|
(11,052
|
)
|
Less: current portion
|
|
|
(2,468
|
)
|
|
|
(37,611
|
)
|
|
|
$
|
233,465
|
|
|
$
|
274,885
|
|
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 a 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 December 31, 2016,
the Notes were not convertible based on the above criteria. If the Notes outstanding at December 31, 2016 were converted as of
December 31, 2016, the if-converted value would exceed the principal amount by approximately $17 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 (as defined below). 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.
During 2016 the Company
executed multiple agreements with existing holders of the Notes to repurchase $82.0 million in principal of such Notes for $98.9
million, excluding accrued interest. Additionally, in December 2015, the Company acquired $19.0 million in principal for $22.9
million, excluding accrued interest. For the years ended December 31, 2016 and 2015, the Company recognized a loss on debt extinguishment
of $1.9 million and $0.2 million, respectively, in connection with the repurchase activity, which was included in
Other, net
on the Company’s Consolidated Statements of Operations.
The Company applies
the treasury stock method in calculating the dilutive impact of the Notes. For the years ended December 31, 2016 and 2015, the
Notes had a dilutive impact.
The following table
summarizes information about the equity and liability components of the Notes (dollars in thousands).
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Principal amount of the Notes outstanding
|
|
$
|
48,951
|
|
|
$
|
131,000
|
|
Unamortized discount and fees of liability component
|
|
|
(2,183
|
)
|
|
|
(9,888
|
)
|
Net carrying amount of liability component
|
|
|
46,768
|
|
|
|
121,112
|
|
Less: current portion
|
|
|
-
|
|
|
|
(35,165
|
)
|
Long-term debt
|
|
$
|
46,768
|
|
|
$
|
85,947
|
|
Carrying value of equity component, net of issuance costs
|
|
$
|
(3,971
|
)
|
|
$
|
15,810
|
|
Remaining amortization period of discount on the liability component
|
|
|
1.3 years
|
|
|
|
2.3 years
|
|
Contractual coupon
interest expense and accretion of discount and fees on the liability component for the Notes for years ended December 31, 2016,
2015 and 2014 included in
Interest Expense
on the Company’s Consolidated Statements of Operations were as follow (in
thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Contractual coupon interest expense
|
|
$
|
3,198
|
|
|
$
|
5,063
|
|
|
$
|
5,063
|
|
Accretion of discount and fees on the liability component
|
|
$
|
2,902
|
|
|
$
|
4,324
|
|
|
$
|
4,037
|
|
Revolving Credit
Agreement
In June 2015, the Company
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 the Company,
certain of its 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 the
Company, certain subsidiaries of the Company from time to time party thereto (together with the Company, 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 the
Company’s 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 the Company is not then maintaining, and continues 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 the Company 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 December 31,
2016 the Company had no outstanding borrowings under the 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 Credit Facility, amounted to $333.0 million
as of December 31, 2016.
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 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 the Company paid $20.0 million in connection with Amendment No. 1. Under Amendment No. 1, 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”).
In March 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 in March 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 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
amended 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 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, and (iii) amending certain negative covenants. 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.
Furthermore, on February
24, 2017, the Company entered into Amendment No. 3 to Credit Agreement (“Amendment No. 3”). As of February 24, 2017,
there was $189.5 million of the Tranche B-2 Loans outstanding. Under Amendment No. 3, the lenders agreed to provide to the Company
term loans in the same aggregate principal amount of the outstanding Tranche B-2 Loans (the “Tranche B-3 Loans”), which
were used to refinance the outstanding Tranche B-2 Loans. The Tranche B-3 Loans shall amortize in equal quarterly installments
in aggregate amounts equal to 0.25% of the initial principal amount of the Tranche B-3 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 0%) plus a margin
of 2.75% or (ii) a base rate (subject to a floor of 0%) plus a margin of 1.75%. Amendment No. 3 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-3 Loans
on or prior to the six month anniversary of the effective date of Amendment No. 3 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-3 Loans. Except as amended by Amendment
No. 3, the remaining terms of the Credit Agreement remain in full force and effect.
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 years ended
December 31, 2016, 2015 and 2014, under the Term Loan Credit Agreement the Company paid interest of $8.3 million, $8.5 million
and $10.0, respectively, and principal of $1.9 million, $1.4 million and $42.1 million, respectively. As of December 31, 2016,
the Company had $189.5 million outstanding under the Term Loan Credit Agreement, of which $1.9 million was classified as current
on the Company’s Consolidated Balance Sheet.
For the years ended
December 31, 2016, 2015 and 2014, the Company incurred charges of approximately $0.2 million, $0.3 million and $1.1 million, respectively,
for amortization of fees and original issuance discount which is included in
Interest Expense
in the Consolidated Statements
of Operations.
|
6.
|
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, $2.2 million of which are classified as Level 1, and life-insurance contracts valued
based on the performance of underlying mutual funds, $10.4 million of which are classified as Level 2.
Estimated Fair Value
of Debt
The estimated fair
value of long-term debt at December 31, 2016 consists primarily of the Notes and borrowings under the Term Loan Credit Agreement
(see Note 3). The fair value of the Notes, the Term Loan Credit Agreement and the Credit Facility are based upon third party pricing
sources, which generally do not represent daily market activity or represent data obtained from an exchange, and are classified
as Level 2. The interest rates on the Company’s borrowings under the 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 December 31, 2016 and December 31, 2015 were as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible senior notes
|
|
$
|
46,768
|
|
|
$
|
-
|
|
|
$
|
69,721
|
|
|
$
|
-
|
|
|
$
|
121,112
|
|
|
$
|
-
|
|
|
$
|
155,694
|
|
|
$
|
-
|
|
Term loan credit agreement
|
|
|
188,540
|
|
|
|
-
|
|
|
|
189,470
|
|
|
|
-
|
|
|
|
190,311
|
|
|
|
-
|
|
|
|
190,442
|
|
|
|
-
|
|
Other debt
|
|
|
653
|
|
|
|
-
|
|
|
|
-
|
|
|
|
653
|
|
|
|
1,106
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,106
|
|
Capital lease obligations
|
|
|
1,875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,875
|
|
|
|
2,648
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,648
|
|
|
|
$
|
237,836
|
|
|
$
|
-
|
|
|
$
|
259,191
|
|
|
$
|
2,528
|
|
|
$
|
315,177
|
|
|
$
|
-
|
|
|
$
|
346,136
|
|
|
$
|
3,754
|
|
On February 1, 2016, the
Company’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $100 million
of its common stock over a two year period. Stock repurchases under this program may be made in open market or in private transactions
at times and in amounts that management deems appropriate. As of December 31, 2016, $23.0 million remained available under the
program.
The Board of Directors
has the authority to issue common and unclassed preferred stock of up to 200 million shares and 25 million shares, respectively,
with par value of $0.01 per share as well as to fix dividends, voting and conversion rights, redemption provisions, liquidation
preferences and other rights and restrictions.
|
8.
|
STOCK-BASED COMPENSATION
|
In May 2011, the Company
adopted and shareholders approved the 2011 Omnibus Incentive Plan (the “Omnibus Plan”). This plan provides for the
issuance of stock options, restricted stock, stock appreciation rights and performance units to directors, officers and other eligible
employees of the Company. The Omnibus Plan makes available approximately 7.5 million shares for issuance, subject to adjustments
for stock dividends, recapitalizations and the like.
The Company recognizes
all share-based awards to eligible employees based upon their fair value. 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. Total stock-based
compensation expense was $12.0 million, $10.0 million and $7.8 million in 2016, 2015 and 2014, respectively. The amount of compensation
costs related to nonvested stock options and restricted stock not yet recognized was $12.0 million at December 31, 2016, for which
the weighted average remaining life was 1.7 years.
Stock Options
Stock options are awarded
with an exercise price equal to the market price of the underlying stock on the date of grant, become fully exercisable three years
after the date of grant and expire ten years after the date of grant. No stock options were granted by the Company in 2016. The
fair value of stock option awards is estimated on the date of grant using a binomial option-pricing model that uses the assumptions
noted in the following table:
Valuation Assumptions
|
|
2015
|
|
|
2014
|
|
Risk-free interest rate
|
|
|
2.14
|
%
|
|
|
2.73
|
%
|
Expected volatility
|
|
|
72.5
|
%
|
|
|
72.0
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term
|
|
|
5 yrs.
|
|
|
|
5 yrs.
|
|
The expected volatility
is based upon the Company’s historical experience. The expected term represents the period of time that options granted are
expected to be outstanding. The risk-free interest rate utilized for periods throughout the contractual life of the options are
based on U.S. Treasury security yields at the time of grant.
A summary of all stock
option activity during 2016 is as follows:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value ($ in
millions)
|
|
Options Outstanding at December 31, 2015
|
|
|
1,820,956
|
|
|
$
|
11.61
|
|
|
|
5.2
|
|
|
$
|
2.3
|
|
Exercised
|
|
|
(417,442
|
)
|
|
$
|
11.57
|
|
|
|
|
|
|
$
|
1.3
|
|
Forfeited
|
|
|
(17,300
|
)
|
|
$
|
14.64
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(112,460
|
)
|
|
$
|
16.71
|
|
|
|
|
|
|
|
|
|
Options Outstanding at December 31, 2016
|
|
|
1,273,754
|
|
|
$
|
11.13
|
|
|
|
5.1
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at December 31, 2016
|
|
|
1,093,165
|
|
|
$
|
10.67
|
|
|
|
4.6
|
|
|
$
|
5.6
|
|
The Company granted 190,810
and 200,720 stock options in 2015 and 2014, respectively, with aggregate fair values on the date of grant of $1.7 million for both
years. The weighted average estimated fair value of the stock options granted in 2015 and 2014 were $8.82 and $8.34 per stock option,
respectively. The total intrinsic value of stock options exercised during 2016, 2015 and 2014 was $1.3 million, $0.6 million and
$0.7 million, respectively.
Restricted Stock
Restricted stock awards
vest over a period of one to three years and may be based on the achievement of specific financial performance metrics. These shares
are valued at the market price on the date of grant, are forfeitable in the event of terminated employment prior to vesting and
could include the right to vote and receive dividends.
A summary of all restricted stock activity during
2016 is as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Restricted Stock Outstanding at December 31, 2015
|
|
|
1,538,116
|
|
|
$
|
13.25
|
|
Granted
|
|
|
1,105,010
|
|
|
$
|
13.26
|
|
Vested
|
|
|
(618,145
|
)
|
|
$
|
9.91
|
|
Forfeited
|
|
|
(61,256
|
)
|
|
$
|
14.36
|
|
Restricted Stock Outstanding at December 31, 2016
|
|
|
1,963,725
|
|
|
$
|
14.20
|
|
During 2016, 2015 and 2014,
the Company granted 1,105,010, 667,126 and 572,052 shares of restricted stock, respectively, with aggregate fair values on the
date of grant of $14.7 million, $9.9 million and $7.9 million, respectively. The total fair value of restricted stock that vested
during 2016, 2015 and 2014 was $7.4 million, $5.6 million and $5.2 million, respectively.
|
9.
|
EMPLOYEE SAVINGS PLANS
|
Substantially all of the
Company’s employees are eligible to participate in a defined contribution plan under Section 401(k) of the Internal Revenue
Code. The Company also provides a non-qualified defined contribution plan for senior management and certain key employees. Both
plans provide for the Company to match, in cash, a percentage of each employee’s contributions up to certain limits. The
Company’s matching contribution and related expense for these plans was approximately $7.0 million, $7.3 million, and $5.9
million for 2016, 2015, and 2014, respectively.
|
a.
|
Income Before Income Taxes
|
The consolidated income
(loss) before income taxes for 2016, 2015 and 2014 consists of the following (in thousands):
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Domestic
|
|
$
|
185,042
|
|
|
$
|
163,325
|
|
|
$
|
98,246
|
|
Foreign
|
|
|
375
|
|
|
|
(14
|
)
|
|
|
216
|
|
Total income before income taxes
|
|
$
|
185,417
|
|
|
$
|
163,311
|
|
|
$
|
98,462
|
|
The consolidated income
tax expense for 2016, 2015 and 2014 consists of the following components (in thousands):
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
51,489
|
|
|
$
|
58,090
|
|
|
$
|
19,036
|
|
State
|
|
|
10,307
|
|
|
|
8,627
|
|
|
|
1,805
|
|
Foreign
|
|
|
144
|
|
|
|
54
|
|
|
|
118
|
|
|
|
$
|
61,940
|
|
|
$
|
66,771
|
|
|
$
|
20,959
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
3,448
|
|
|
$
|
(7,930
|
)
|
|
$
|
12,913
|
|
State
|
|
|
686
|
|
|
|
288
|
|
|
|
3,778
|
|
Foreign
|
|
|
(90
|
)
|
|
|
(107
|
)
|
|
|
(118
|
)
|
|
|
$
|
4,044
|
|
|
$
|
(7,749
|
)
|
|
$
|
16,573
|
|
Total consolidated expense
|
|
$
|
65,984
|
|
|
$
|
59,022
|
|
|
$
|
37,532
|
|
The following table provides
a reconciliation of differences from the U.S. Federal statutory rate of 35% as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Pretax book income
|
|
$
|
185,417
|
|
|
$
|
163,311
|
|
|
$
|
98,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax expense at 35% statutory rate
|
|
|
64,896
|
|
|
|
57,159
|
|
|
|
34,462
|
|
State and local income taxes
|
|
|
7,145
|
|
|
|
6,190
|
|
|
|
4,808
|
|
Benefit of domestic production deduction
|
|
|
(5,065
|
)
|
|
|
(5,255
|
)
|
|
|
(2,010
|
)
|
Other
|
|
|
(992
|
)
|
|
|
928
|
|
|
|
272
|
|
Total income tax expense
|
|
$
|
65,984
|
|
|
$
|
59,022
|
|
|
$
|
37,532
|
|
The Company’s deferred
income taxes are primarily due to temporary differences between financial and income tax reporting for incentive compensation,
depreciation of property, plant and equipment, amortization of intangibles, inventory adjustments, other accrued liabilities and
net operating loss carryforwards (“NOLs”).
Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Companies are required to assess whether valuation allowances should be established against
their deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more
likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified.
The Company assesses, on
a quarterly basis, the realizability of its deferred tax assets by evaluating all available evidence, both positive and negative,
including: (1) the cumulative results of operations in recent years, (2) the nature of recent losses, if applicable, (3) estimates
of future taxable income, (4) the length of NOLs and (5) the uncertainty associated with a possible change in ownership, which
imposes an annual limitation on the use of these carryforwards.
As of December 31, 2016
and 2015, the Company retained a valuation allowance of $1.2 and $1.2 million, respectively, against deferred tax assets related
to various state and local NOLs that are subject to restrictive rules for future utilization.
As of December 31, 2016,
the Company had no U.S. federal tax NOLs. The Company had various multistate income tax NOLs, which have been recorded as a deferred
income tax asset of approximately $2.3 million, before valuation allowances. These NOLs will expire beginning in 2017, if unused.
The components of deferred
tax assets and deferred tax liabilities as of December 31, 2016 and 2015 were as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Tax credits and loss carryforwards
|
|
$
|
260
|
|
|
$
|
563
|
|
Accrued liabilities
|
|
|
9,852
|
|
|
|
9,211
|
|
Incentive compensation
|
|
|
21,206
|
|
|
|
24,682
|
|
Other
|
|
|
4,084
|
|
|
|
3,909
|
|
|
|
$
|
35,402
|
|
|
$
|
38,365
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(5,823
|
)
|
|
|
(4,000
|
)
|
Intangibles
|
|
|
(5,299
|
)
|
|
|
(5,325
|
)
|
Prepaid assets
|
|
|
(689
|
)
|
|
|
(697
|
)
|
Convertible note discount
|
|
|
(715
|
)
|
|
|
(3,234
|
)
|
Other
|
|
|
(1,860
|
)
|
|
|
(1,658
|
)
|
|
|
$
|
(14,386
|
)
|
|
$
|
(14,914
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowances and reserves
|
|
$
|
21,016
|
|
|
$
|
23,451
|
|
Valuation allowances
|
|
|
(1,172
|
)
|
|
|
(1,159
|
)
|
Net deferred tax asset
|
|
$
|
19,844
|
|
|
$
|
22,292
|
|
The Company’s policy
with respect to interest and penalties associated with reserves or allowances for uncertain tax positions is to classify such interest
and penalties in
Income Tax Expense
on the Consolidated Statement of Operations. As of December 31, 2016 and 2015, the total
amount of unrecognized income tax benefits was approximately $12.7 million and $11.7 million, respectively, all of which, if recognized,
would impact the effective income tax rate of the Company. As of December 31, 2016 and 2015, the Company had recorded a total of
$1.8 and $1.1 million, respectively of accrued interest and penalties related to uncertain tax positions. The Company foresees
no significant changes to the facts and circumstances underlying its reserves and allowances for uncertain income tax positions
as reasonably possible during the next 12 months. As of December 31, 2016, the Company is subject to unexpired statutes of limitation
for U.S. federal income taxes for the years 2003 through 2016. The Company is also subject to unexpired statutes of limitation
for Indiana state income taxes for the years 2014 through 2016.
A reconciliation of the
beginning and ending amount of unrecognized tax benefits was as follows (in thousands) and all balances as of December 31, 2016
were included in either
Other Noncurrent Liabilities
or
Deferred Income Taxes
in the Company’s Consolidated
Balance Sheet:
Balance at January 1, 2015
|
|
$
|
10,648
|
|
|
|
|
|
|
Decrease in prior year tax positions
|
|
|
(23
|
)
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
10,625
|
|
|
|
|
|
|
Decrease in prior year tax positions
|
|
|
-
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
10,625
|
|
|
11.
|
COMMITMENTS AND 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 December 31, 2016, 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, 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 Condensed 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 was approximately R$26.7 million (Brazilian Reais),
which was approximately $8.2 million U.S. dollars using the exchange rate as of December 31, 2016 and exclusive of any potentially
court-imposed interest, fees or inflation adjustments. On October 5, 2016, the Court of Appeals re-heard all facts and legal questions
presented in the case, and ruled in favor of the Company on all claims at issue. In doing so, the Court of Appeals dismissed all
claims against the Company and vacated the judgment and damages previously ordered by the Fourth Civil Court of Curitiba. Unless
BK appeals the ruling and a higher court finds in favor of BK on any of its claims, the judgment of the Court of Appeals is final.
As a result of the Court of Appeals ruling, the Company does not expect that this proceeding will have a material adverse effect
on its financial condition or results of operations; however, it will continue to monitor these legal proceedings in the event
BK further appeals the ruling of the Court of Appeals.
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 was stayed
by agreement of the parties while the U.S. Patent and Trademark Office (“Patent Office”) undertook a reexamination
of U.S. Patent No. 6,986,546. In June 2010, the Patent Office notified the Company that the reexamination was completed and the
Patent Office 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 may do so.
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 believes that the resolution of this lawsuit will not 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
that is currently in dispute and that, if required to be paid by the Company, 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 in 2017, following the conclusion of a final audit process that commenced
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 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.
|
b.
|
Environmental Litigation Commitments and Contingencies
|
The Company generates and
handles certain material, wastes and emissions in the normal course of operations that are subject to various and evolving federal,
state and local environmental laws and regulations.
The Company assesses its
environmental liabilities on an on-going basis by evaluating currently available facts, existing technology, presently enacted
laws and regulations as well as experience in past treatment and remediation efforts. Based on these evaluations, the Company estimates
a lower and upper range for treatment and remediation efforts and recognizes a liability for such probable costs based on the information
available at the time. As of December 31, 2016, the Company had reserved estimated remediation costs of $0.4 million for activities
at existing and former properties which are recorded within
Other Accrued Liabilities
in the Consolidated Balance Sheet.
As of December 31, 2016,
the Company had standby letters of credit totaling $5.4 million issued in connection with workers compensation claims and surety
bonds.
The Company has $57.8 million
in purchase commitments through December 2017 for various raw material commodities, including aluminum, steel and nickel as well
as other raw material components which are within normal production requirements.
|
12.
|
SEGMENTS AND RELATED INFORMATION
|
During the second quarter
of 2016, the Company realigned its reporting segments into two segments, Commercial Trailer Products and Diversified Products.
As a result of the realignment, the businesses previously operating within the former retail segment are now reported under one
of these two segments. The Company undertook the realignment in an effort to strengthen the alignment between its manufacturing
businesses and its retail sales and service operations, improve profitability and capitalize on growth opportunities. Additionally,
the Company performed an analysis to determine the allocations of goodwill and test for impairment. Based on this analysis, the
Company determined that the portion of goodwill allocated to the retail branch operations was impaired resulting in an impairment
charge of $1.7 million in the second quarter of 2016 for the Commercial Trailer Products segment.
The Commercial Trailer
Products segment manufactures standard and customized van and platform trailers, truck bodies and other transportation related
equipment to customers who purchase directly from the Company, through independent dealers or Company owned branch locations through
which the Company offers additional service and support. The Diversified Products segment, comprised of four strategic business
units including, Tank Trailer, Aviation & Truck Equipment, Process Systems and Composites, 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. Financial performance for each of the Company’s reporting
segments below has been restated to reflect the realignment.
The accounting policies
of the segments are the same as those described in the summary of significant accounting policies except that the Company evaluates
segment performance based on income from operations. 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.
Reportable segment information is as follows (in
thousands):
|
|
Commercial
|
|
|
Diversified
|
|
|
Corporate and
|
|
|
|
|
|
|
Trailer Products
|
|
|
Products
|
|
|
Eliminations
|
|
|
Consolidated
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
1,506,070
|
|
|
$
|
339,374
|
|
|
$
|
-
|
|
|
$
|
1,845,444
|
|
Intersegment sales
|
|
|
40
|
|
|
|
13,030
|
|
|
|
(13,070
|
)
|
|
|
-
|
|
Total net sales
|
|
$
|
1,506,110
|
|
|
$
|
352,404
|
|
|
$
|
(13,070
|
)
|
|
$
|
1,845,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,345
|
|
|
|
22,970
|
|
|
|
1,454
|
|
|
|
36,769
|
|
Income (Loss) from operations
|
|
|
212,351
|
|
|
|
24,595
|
|
|
|
(34,414
|
)
|
|
|
202,532
|
|
Reconciling items to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,663
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,452
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,984
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
119,433
|
|
Assets
|
|
$
|
312,848
|
|
|
$
|
370,338
|
|
|
$
|
215,547
|
|
|
$
|
898,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
1,582,019
|
|
|
$
|
445,470
|
|
|
$
|
-
|
|
|
$
|
2,027,489
|
|
Intersegment sales
|
|
|
222
|
|
|
|
11,457
|
|
|
|
(11,679
|
)
|
|
|
-
|
|
Total net sales
|
|
$
|
1,582,241
|
|
|
$
|
456,927
|
|
|
$
|
(11,679
|
)
|
|
$
|
2,027,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,674
|
|
|
|
23,888
|
|
|
|
1,436
|
|
|
|
37,998
|
|
Income (Loss) from operations
|
|
|
159,385
|
|
|
|
51,078
|
|
|
|
(30,094
|
)
|
|
|
180,369
|
|
Reconciling items to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,548
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,490
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,022
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
104,289
|
|
Assets
|
|
$
|
336,235
|
|
|
$
|
397,892
|
|
|
$
|
215,543
|
|
|
$
|
949,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
1,380,195
|
|
|
$
|
483,120
|
|
|
$
|
-
|
|
|
$
|
1,863,315
|
|
Intersegment sales
|
|
|
428
|
|
|
|
11,872
|
|
|
|
(12,300
|
)
|
|
|
-
|
|
Total net sales
|
|
$
|
1,380,623
|
|
|
$
|
494,992
|
|
|
$
|
(12,300
|
)
|
|
$
|
1,863,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,331
|
|
|
|
24,868
|
|
|
|
1,630
|
|
|
|
38,829
|
|
Income (Loss) from operations
|
|
|
82,290
|
|
|
|
57,635
|
|
|
|
(17,539
|
)
|
|
|
122,386
|
|
Reconciling items to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,165
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,759
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,532
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,930
|
|
Assets
|
|
$
|
342,015
|
|
|
$
|
422,322
|
|
|
$
|
163,109
|
|
|
$
|
927,446
|
|
|
b.
|
Customer Concentration
|
The Company is subject
to a concentration of risk as the five largest customers together accounted for approximately 24%, 25% and 20% of the Company’s
aggregate net sales in 2016, 2015 and 2014, respectively. In addition, for each of the last three years there were no customers
whose revenue individually represented 10% or more of the Company’s aggregate net sales. International sales, primarily to
Canadian customers, accounted for less than 10% in each of the last three years.
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
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
Trailer Products
|
|
|
Products
|
|
|
Eliminations
|
|
|
Consolidated
|
|
2016
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
New trailers
|
|
|
1,421,586
|
|
|
|
129,639
|
|
|
|
(89
|
)
|
|
|
1,551,136
|
|
|
|
84.1
|
|
Used trailers
|
|
|
11,998
|
|
|
|
3,176
|
|
|
|
-
|
|
|
|
15,174
|
|
|
|
0.8
|
|
Components, parts and service
|
|
|
56,191
|
|
|
|
111,519
|
|
|
|
(12,955
|
)
|
|
|
154,755
|
|
|
|
8.4
|
|
Equipment and other
|
|
|
16,335
|
|
|
|
108,070
|
|
|
|
(26
|
)
|
|
|
124,379
|
|
|
|
6.7
|
|
Total net external sales
|
|
|
1,506,110
|
|
|
|
352,404
|
|
|
|
(13,070
|
)
|
|
|
1,845,444
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Diversified
|
|
|
|
|
|
|
|
|
|
Trailer Products
|
|
|
Products
|
|
|
Eliminations
|
|
|
Consolidated
|
|
2015
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
New trailers
|
|
|
1,474,201
|
|
|
|
218,028
|
|
|
|
-
|
|
|
|
1,692,229
|
|
|
|
83.5
|
|
Used trailers
|
|
|
31,022
|
|
|
|
4,558
|
|
|
|
-
|
|
|
|
35,580
|
|
|
|
1.8
|
|
Components, parts and service
|
|
|
60,482
|
|
|
|
119,696
|
|
|
|
(11,628
|
)
|
|
|
168,550
|
|
|
|
8.3
|
|
Equipment and other
|
|
|
16,536
|
|
|
|
114,645
|
|
|
|
(51
|
)
|
|
|
131,130
|
|
|
|
6.4
|
|
Total net external sales
|
|
|
1,582,241
|
|
|
|
456,927
|
|
|
|
(11,679
|
)
|
|
|
2,027,489
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Diversified
|
|
|
|
|
|
|
|
|
|
Trailer Products
|
|
|
Products
|
|
|
Eliminations
|
|
|
Consolidated
|
|
2014
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
New trailers
|
|
|
1,267,610
|
|
|
|
226,215
|
|
|
|
-
|
|
|
|
1,493,825
|
|
|
|
80.2
|
|
Used trailers
|
|
|
41,027
|
|
|
|
4,088
|
|
|
|
-
|
|
|
|
45,115
|
|
|
|
2.4
|
|
Components, parts and service
|
|
|
55,429
|
|
|
|
127,460
|
|
|
|
(12,300
|
)
|
|
|
170,589
|
|
|
|
9.2
|
|
Equipment and other
|
|
|
16,557
|
|
|
|
137,229
|
|
|
|
-
|
|
|
|
153,786
|
|
|
|
8.2
|
|
Total net external sales
|
|
|
1,380,623
|
|
|
|
494,992
|
|
|
|
(12,300
|
)
|
|
|
1,863,315
|
|
|
|
100.0
|
|
|
13.
|
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
The following is a summary
of the unaudited quarterly results of operations for fiscal years 2016, 2015 and 2014 (dollars in thousands, except per share amounts):
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
447,676
|
|
|
$
|
471,439
|
|
|
$
|
464,272
|
|
|
$
|
462,057
|
|
Gross profit
|
|
|
79,526
|
|
|
|
91,064
|
|
|
|
83,459
|
|
|
|
71,485
|
|
Net income
|
|
|
27,523
|
|
|
|
35,532
|
|
|
|
33,378
|
|
|
|
23,000
|
|
Basic net income per share
(1)
|
|
|
0.42
|
|
|
|
0.55
|
|
|
|
0.52
|
|
|
|
0.37
|
|
Diluted net income per share
(1)
|
|
|
0.42
|
|
|
|
0.53
|
|
|
|
0.51
|
|
|
|
0.36
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
437,597
|
|
|
$
|
514,831
|
|
|
$
|
531,350
|
|
|
$
|
543,711
|
|
Gross profit
|
|
|
57,197
|
|
|
|
72,405
|
|
|
|
86,022
|
|
|
|
87,819
|
|
Net income
|
|
|
10,474
|
|
|
|
28,649
|
|
|
|
31,880
|
|
|
|
33,286
|
|
Basic net income per share
(1)
|
|
|
0.15
|
|
|
|
0.42
|
|
|
|
0.48
|
|
|
|
0.50
|
|
Diluted net income per share
(1)
|
|
|
0.15
|
|
|
|
0.41
|
|
|
|
0.47
|
|
|
|
0.50
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
358,120
|
|
|
$
|
486,021
|
|
|
$
|
491,697
|
|
|
$
|
527,477
|
|
Gross profit
|
|
|
46,672
|
|
|
|
61,613
|
|
|
|
61,628
|
|
|
|
62,721
|
|
Net income
|
|
|
7,296
|
|
|
|
16,239
|
|
|
|
18,307
|
|
|
|
19,088
|
|
Basic net income per share
(1)
|
|
|
0.11
|
|
|
|
0.23
|
|
|
|
0.26
|
|
|
|
0.28
|
|
Diluted net income per share
(1)
|
|
|
0.10
|
|
|
|
0.23
|
|
|
|
0.25
|
|
|
|
0.27
|
|
|
(1)
|
Basic and diluted net income per share is computed
independently for each of the quarters presented. Therefore, the sum of the quarterly net income per share may differ from annual
net income per share due to rounding.
|