The accompanying notes are an integral part
of these Condensed Consolidated Statements.
The accompanying notes are an integral part of these
Condensed Consolidated Statements.
The accompanying notes are an integral part of these Condensed
Consolidated Statements.
The accompanying notes are an integral part
of these Condensed Consolidated Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
The condensed consolidated financial statements of Wabash National
Corporation (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying condensed consolidated financial statements contain all material adjustments
(consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company,
its results of operations and cash flows. The condensed consolidated financial statements included herein should be read in conjunction
with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2016.
Inventories are stated
at the lower of cost, determined either on the first-in, first-out or average cost method, or market. The cost of manufactured
inventory includes raw materials, labor and overhead. Inventories consist of the following (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Finished goods
|
|
$
|
97,486
|
|
|
$
|
57,297
|
|
Raw materials and components
|
|
|
60,269
|
|
|
|
53,388
|
|
Work in progress
|
|
|
20,929
|
|
|
|
18,422
|
|
Aftermarket parts
|
|
|
7,898
|
|
|
|
8,356
|
|
Used trailers
|
|
|
3,638
|
|
|
|
2,490
|
|
|
|
$
|
190,220
|
|
|
$
|
139,953
|
|
Long-term debt consists
of the following (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Convertible senior notes
|
|
$
|
48,951
|
|
|
$
|
48,951
|
|
Term loan credit agreement
|
|
|
188,996
|
|
|
|
189,470
|
|
Other debt
|
|
|
499
|
|
|
|
676
|
|
|
|
$
|
238,446
|
|
|
$
|
239,097
|
|
Less: unamortized discount and fees
|
|
|
(2,455
|
)
|
|
|
(3,164
|
)
|
Less: current portion
|
|
|
(49,584
|
)
|
|
|
(2,468
|
)
|
|
|
$
|
186,407
|
|
|
$
|
233,465
|
|
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 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 Notes are convertible by their holders
into cash, shares of the Company’s common stock or any combination thereof at the Company’s election, at an initial
conversion rate of 85.4372 shares of the Company’s common stock per $1,000 in principal amount of Notes, which is equal to
an initial conversion price of approximately $11.70 per share, only under the following circumstances: (A) before November 1, 2017
(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2012 (and only during such calendar quarter),
if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of
30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal
to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive
trading day period (the “measurement period”) in which the trading price (as defined in the indenture for the Notes)
per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last
reported sale price of the Company’s common stock and the conversion rate on each such trading day; and (3) upon the occurrence
of specified corporate events as described in the indenture for the Notes; and (B) at any time on or after November 1, 2017 until
the close of business on the second business day immediately preceding the maturity date.
As of March 31, 2017, the Company determined
that the Notes would be convertible during the calendar quarter ending June 30, 2017 based on the criteria in (A) above and, as
a result, the Notes were classified as current within the Condensed Consolidated Balance Sheet. If the Notes outstanding at March
31, 2017 had been converted as of March 31, 2017, the if-converted value would exceed the principal amount by approximately $38
million. It is the Company’s intent to settle conversions in cash for both the principal portion and the excess of the conversion
value over the principal portion.
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 requires 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. The Company recognized a loss on debt extinguishment of $0.5 million from the first quarter
2016 repurchase activity, which is included in
Other, net
on the Company’s Condensed Consolidated Statements of Operations.
The Company applies
the treasury stock method in calculating the dilutive impact of the Notes. For the quarter ended March 31, 2017, the Notes had
a dilutive impact.
The following table
summarizes information about the equity and liability components of the Notes (dollars in thousands).
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Principal amount of the Notes outstanding
|
|
$
|
48,951
|
|
|
$
|
48,951
|
|
Unamortized discount and fees of liability component
|
|
|
(1,789
|
)
|
|
|
(2,183
|
)
|
Net carrying amount of liability component
|
|
|
47,162
|
|
|
|
46,768
|
|
Less: current portion
|
|
|
(47,162
|
)
|
|
|
-
|
|
Long-term debt
|
|
$
|
-
|
|
|
$
|
46,768
|
|
Carrying value of equity component, net of issuance costs
|
|
$
|
(3,971
|
)
|
|
$
|
(3,971
|
)
|
Remaining amortization period of discount on the liability component
|
|
|
1.1 years
|
|
|
|
1.3 years
|
|
Contractual coupon
interest expense and accretion of discount and fees on the liability component for the Notes for the three month period ended March
31, 2017 and 2016 included in
Interest Expense
on the Company’s Condensed Consolidated Statements of Operations were
as follow (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Contractual coupon interest expense
|
|
$
|
413
|
|
|
$
|
908
|
|
Accretion of discount and fees on the liability component
|
|
$
|
394
|
|
|
$
|
808
|
|
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 March 31, 2017
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 $378.9 million
as of March 31, 2017.
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 three months
ended March 31, 2017 and 2016, under the Term Loan Credit Agreement the Company paid interest of $2.0 million and $2.1 million,
respectively, and principal of $0.5 million during each period. In connection with Amendment No. 3 the Company recognized a loss
on debt extinguishment of $0.6 million during the first quarter of 2017 which was included in
Other, net
on the Company’s
Condensed Consolidated Statements of Operations. As of March 31, 2017, the Company had $189.0 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 each three month period ended March
31, 2017 and 2016, the Company incurred charges of less than $0.1 million for amortization of fees and original issuance discount,
which is included in
Interest Expense
in the Condensed Consolidated Statements of Operations.
|
4.
|
FAIR VALUE MEASUREMENTS
|
The Company’s
fair value measurements are based upon a three-level valuation hierarchy. These valuation techniques are based upon the transparency
of inputs (observable and unobservable) to the valuation of an asset or liability as of the measurement date. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.
These two types of inputs create the following fair value hierarchy:
|
·
|
Level 1 — Valuation is based on quoted prices for identical assets or liabilities in active
markets;
|
|
·
|
Level 2 — Valuation is based on quoted prices for similar assets or liabilities in active
markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for the full term of the
financial instrument; and
|
|
·
|
Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair
value measurement.
|
Recurring Fair Value
Measurements
The Company maintains
a non-qualified deferred compensation plan which is offered to senior management and other key employees. The amount owed to participants
is an unfunded and unsecured general obligation of the Company. Participants are offered various investment options with which
to invest the amount owed to them, and the plan administrator maintains a record of the liability owed to participants by investment.
To minimize the impact of the change in market value of this liability, the Company has elected to purchase a separate portfolio
of investments through the plan administrator similar to those chosen by the participant.
The investments purchased
by the Company (asset) include mutual funds, $2.4 million of which are classified as Level 1, and life-insurance contracts valued
based on the performance of underlying mutual funds, $10.9 million of which are classified as Level 2.
Estimated Fair Value
of Debt
The estimated fair
value of debt at March 31, 2017 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 March 31, 2017 and December 31, 2016 were as follows:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible senior notes
|
|
$
|
47,162
|
|
|
$
|
-
|
|
|
$
|
88,685
|
|
|
$
|
-
|
|
|
$
|
46,768
|
|
|
$
|
-
|
|
|
$
|
69,721
|
|
|
$
|
-
|
|
Term loan credit agreement
|
|
|
188,374
|
|
|
|
-
|
|
|
|
189,941
|
|
|
|
-
|
|
|
|
188,540
|
|
|
|
-
|
|
|
|
189,470
|
|
|
|
-
|
|
Other debt
|
|
|
482
|
|
|
|
-
|
|
|
|
-
|
|
|
|
482
|
|
|
|
653
|
|
|
|
-
|
|
|
|
-
|
|
|
|
653
|
|
Capital lease obligations
|
|
|
1,705
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,705
|
|
|
|
1,875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,875
|
|
|
|
$
|
237,723
|
|
|
$
|
-
|
|
|
$
|
278,626
|
|
|
$
|
2,187
|
|
|
$
|
237,836
|
|
|
$
|
-
|
|
|
$
|
259,191
|
|
|
$
|
2,528
|
|
|
5.
|
STOCK-BASED COMPENSATION
|
The Company recognizes
all share-based payments based upon their fair value. The Company values stock option awards using a binomial option-pricing model,
which incorporates various assumptions including expected volatility, expected term, dividend yield and risk-free interest rates.
The expected volatility is based upon the Company’s historical experience. The expected term represents the period of time
that options granted are expected to be outstanding. The risk-free interest rate utilized for periods throughout the contractual
life of the options are based upon U.S. Treasury security yields at the time of grant. The Company grants restricted stock units
subject to service, performance and/or market conditions. The Company’s policy is to recognize expense for awards that have
service conditions only subject to graded vesting using the straight-line attribution method. The fair value of service and performance
based units is based on the market price of a share of underlying common stock at the date of grant. The fair value of the market
based units is based on a lattice valuation model. The amount of compensation costs related to stock options, restricted stock
units and performance units not yet recognized was $21.1 million at March 31, 2017 for which the expense will be recognized through
2020.
The Company is involved
in a number of legal proceedings concerning matters arising in connection with the conduct of its business activities, and is periodically
subject to governmental examinations (including by regulatory and tax authorities), and information gathering requests (collectively,
"governmental examinations"). As of March 31, 2017, 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 $8.5 million U.S. dollars using the exchange rate as of March 31, 2017 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”), one of the companies acquired in the Walker acquisition, 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.
Per share results have
been calculated based on the average number of common shares outstanding. The calculation of basic and diluted net income per share
is determined using net income applicable to common stockholders as the numerator and the number of shares included in the denominator
as follows (in thousands, except per share amounts):
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Basic net income per share:
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
20,173
|
|
|
$
|
27,524
|
|
Weighted average common shares outstanding
|
|
|
60,143
|
|
|
|
65,037
|
|
Basic net income per share
|
|
$
|
0.34
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
20,173
|
|
|
$
|
27,524
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
60,143
|
|
|
|
65,037
|
|
Dilutive shares from assumed conversion of convertible senior notes
|
|
|
1,683
|
|
|
|
-
|
|
Dilutive stock options and restricted stock
|
|
|
1,564
|
|
|
|
1,187
|
|
Diluted weighted average common shares outstanding
|
|
|
63,390
|
|
|
|
66,224
|
|
Diluted net income per share
|
|
$
|
0.32
|
|
|
$
|
0.42
|
|
Average diluted shares
outstanding for the three month period ended March 31, 2016 excludes options to purchase 748 common shares, because the exercise
prices were greater than the average market price of the common shares. The calculation of diluted net income per share for the
three month period ended March 31, 2017 includes the impact of the Company’s Notes as the average stock price of the Company’s
common stock during the period was above the initial conversion price of approximately $11.70 per share.
The Company recognized
income tax expense of $8.4 million in the first three months of 2017 compared to $16.2 million for the same period in the prior
year. The effective tax rate for the first three months of 2017 and 2016 were 29.5% and 37.0%, respectively. These effective tax
rates differ 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, in 2017, the recognition of excess tax benefits on stock-based
compensation.
|
9.
|
OTHER ACCRUED LIABILITIES
|
The following table
presents major components of
Other Accrued Liabilities
(in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Customer deposits
|
|
$
|
24,921
|
|
|
$
|
19,302
|
|
Warranty
|
|
|
19,796
|
|
|
|
20,520
|
|
Payroll and related taxes
|
|
|
18,336
|
|
|
|
26,793
|
|
Accrued taxes
|
|
|
12,119
|
|
|
|
6,400
|
|
Self-insurance
|
|
|
9,489
|
|
|
|
8,387
|
|
All other
|
|
|
10,521
|
|
|
|
10,912
|
|
|
|
$
|
95,182
|
|
|
$
|
92,314
|
|
The following table
presents the changes in the product warranty accrual included in
Other Accrued Liabilities
(in thousands):
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Balance as of January 1
|
|
$
|
20,520
|
|
|
$
|
19,709
|
|
Provision for warranties issued in current year
|
|
|
1,179
|
|
|
|
1,640
|
|
(Recovery of) Provision for pre-existing warranties
|
|
|
(224
|
)
|
|
|
1,682
|
|
Payments
|
|
|
(1,679
|
)
|
|
|
(1,441
|
)
|
Balance as of March 31
|
|
$
|
19,796
|
|
|
$
|
21,590
|
|
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 our customers. The Company’s policy is to accrue the estimated cost of warranty coverage at the time of the sale.
a. Segment Reporting
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 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 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
|
|
|
|
|
Three Months Ended March 31,
|
|
Trailer Products
|
|
|
Products
|
|
|
Eliminations
|
|
|
Consolidated
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External Customers
|
|
$
|
274,750
|
|
|
$
|
87,966
|
|
|
$
|
-
|
|
|
$
|
362,716
|
|
Intersegment Sales
|
|
|
39
|
|
|
|
1,944
|
|
|
|
(1,983
|
)
|
|
|
-
|
|
Total Net Sales
|
|
$
|
274,789
|
|
|
$
|
89,910
|
|
|
$
|
(1,983
|
)
|
|
$
|
362,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
$
|
33,392
|
|
|
$
|
4,604
|
|
|
$
|
(7,732
|
)
|
|
$
|
30,264
|
|
Assets
|
|
$
|
323,001
|
|
|
$
|
375,338
|
|
|
$
|
250,944
|
|
|
$
|
949,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External Customers
|
|
$
|
364,031
|
|
|
$
|
83,645
|
|
|
$
|
-
|
|
|
$
|
447,676
|
|
Intersegment Sales
|
|
|
9
|
|
|
|
2,644
|
|
|
|
(2,653
|
)
|
|
|
-
|
|
Total Net Sales
|
|
$
|
364,040
|
|
|
$
|
86,289
|
|
|
$
|
(2,653
|
)
|
|
$
|
447,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
$
|
50,257
|
|
|
$
|
6,990
|
|
|
$
|
(9,062
|
)
|
|
$
|
48,185
|
|
Assets
|
|
$
|
386,598
|
|
|
$
|
396,092
|
|
|
$
|
192,980
|
|
|
$
|
975,670
|
|
b. Product Information
The Company offers
products primarily in four general categories: (1) new trailers, (2) used trailers, (3) components, parts and service and (4) equipment
and other. The following table sets forth the major product categories and their percentage of consolidated net sales (dollars
in thousands):
|
|
Commercial
|
|
|
Diversified
|
|
|
Corporate and
|
|
|
|
|
|
|
|
|
|
Trailer Products
|
|
|
Products
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Three Months Ended March 31,
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Trailers
|
|
|
257,190
|
|
|
|
30,695
|
|
|
|
-
|
|
|
|
287,885
|
|
|
|
79.4
|
|
Used Trailers
|
|
|
887
|
|
|
|
1,219
|
|
|
|
-
|
|
|
|
2,106
|
|
|
|
0.6
|
|
Components, parts and service
|
|
|
12,743
|
|
|
|
33,675
|
|
|
|
(1,983
|
)
|
|
|
44,435
|
|
|
|
12.3
|
|
Equipment and other
|
|
|
3,969
|
|
|
|
24,321
|
|
|
|
-
|
|
|
|
28,290
|
|
|
|
7.7
|
|
Total net sales
|
|
|
274,789
|
|
|
|
89,910
|
|
|
|
(1,983
|
)
|
|
|
362,716
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Trailers
|
|
|
342,033
|
|
|
|
29,776
|
|
|
|
-
|
|
|
|
371,809
|
|
|
|
83.1
|
|
Used Trailers
|
|
|
3,852
|
|
|
|
901
|
|
|
|
-
|
|
|
|
4,753
|
|
|
|
1.1
|
|
Components, parts and service
|
|
|
14,203
|
|
|
|
27,388
|
|
|
|
(2,653
|
)
|
|
|
38,938
|
|
|
|
8.7
|
|
Equipment and other
|
|
|
3,952
|
|
|
|
28,224
|
|
|
|
-
|
|
|
|
32,176
|
|
|
|
7.1
|
|
Total net sales
|
|
|
364,040
|
|
|
|
86,289
|
|
|
|
(2,653
|
)
|
|
|
447,676
|
|
|
|
100.0
|
|
|
11.
|
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. The Company is planning to use the modified retrospective method to transition
to the new standard and is still evaluating the potential impact of the adoption on its financial statements and related disclosures.
The Company expects to conclude this evaluation in 2017.
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 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.