NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION OF THE BUSINESS
|
Wabash National Corporation (the “Company”) designs, manufactures and markets standard and customized truck and tank trailers, intermodal equipment and transportation related products under the Wabash
â
, Wabash National
®
, DuraPlate
®
, DuraPlate HD
®
, DuraPlate
®
XD-35
®
, DuraPlate AeroSkirt
®
, ArcticLite
®
, FreightPro
®
, RoadRailer
®
, TrustLock Plus
®
, Transcraft
®
, Eagle
®
, Eagle II
®
, D-Eagle
®
, Benson
®
, Walker Transport, Walker Stainless Equipment, Walker Defense Group, Walker Barrier Systems, Walker Engineered Products, Brenner
®
Tank, Garsite, Progress Tank, TST
®
, Bulk Tank International, Extract Technology
®
, and Beall
®
brand name or trademarks.
The Company’s wholly-owned subsidiaries, Wabash National Trailer Centers, Inc. and Brenner Tank Services, LLC, sell new and used trailers through its retail network and provides aftermarket parts and service for the Company’s and competitors’ trailers and related equipment.
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.
b.
Use of Estimates
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.
c.
Revenue Recognition
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 long-term contracts are recorded on a percentage of completion method, measured by the actual labor incurred to the estimated total labor 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
The Company has commitments with certain customers to accept used trailers on trade for new trailer purchases.
These commitments arise in the normal course of business related to future new trailer orders at the time a new trailer order is placed by the customer.
The Company acquired used trailers on trade of approximately $
26.2
million, $
19.5
million and $
16.2
million in 2013, 2012 and 2011, respectively.
As of December 31, 2013 and 2012, the Company had approximately $
15.6
million and $
10.8
million, respectively, of outstanding trade commitments.
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 approximately $
15.3
million and $
10.8
million as of December 31, 2013 and 2012, 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.
f.
Accounts Receivable
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 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 both
General and Administrative Expenses
and
Selling 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,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Balance at beginning of year
|
|
$
|
858
|
|
$
|
1,233
|
|
$
|
2,241
|
|
Provision
|
|
|
908
|
|
|
(153)
|
|
|
(981)
|
|
Write-offs, net of recoveries
|
|
|
292
|
|
|
(222)
|
|
|
(27)
|
|
Balance at end of year
|
|
$
|
2,058
|
|
$
|
858
|
|
$
|
1,233
|
|
g.
Inventories
Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or market.
The cost of manufactured inventory includes raw material, labor and overhead.
Inventories consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Raw materials and components
|
|
$
|
54,699
|
|
$
|
57,187
|
|
Work in progress
|
|
|
20,749
|
|
|
24,849
|
|
Finished goods
|
|
|
82,673
|
|
|
82,930
|
|
Aftermarket parts
|
|
|
10,389
|
|
|
9,882
|
|
Used trailers
|
|
|
15,663
|
|
|
14,639
|
|
|
|
$
|
184,173
|
|
$
|
189,487
|
|
h.
Prepaid Expenses and Other
Prepaid expenses and other as of December 31, 2013 and 2012 were $
9.6
million and $
8.2
million, respectively
.
Prepaid expenses and other primarily includes items such as insurance premiums, maintenance agreements, restricted cash balances and other receivables.
Insurance premiums and maintenance agreements are charged to expense over the contractual life, which is generally one year or less.
As of December 31, 2012, the Company had restricted cash balances totaling $
2.5
million pertaining to a financing arrangement for the expansion of its production facility in Cadiz, Kentucky which was fully utilized in 2013.
Other receivables primarily consist of costs in excess of billings on long-term contracts for which the Company recognizes revenue on a percentage of completion basis.
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 $
15.7
million, $
12.7
million and $
10.2
million for 2013, 2012 and 2011, respectively, and includes amortization of assets recorded in connection with the Company’s capital lease agreements.
In February 2012, the Company renegotiated a new, ten-year lease extension for its manufacturing facility in Cadiz, Kentucky resulting in a capital lease obligation for this facility of $
2.7
million and a cash payment at closing of $
0.8
million.
Additionally, in connection with the purchase of certain assets of Beall in February 2013, the Company entered into a separate ten-year capital lease agreement for Beall’s manufacturing facility in Portland, Oregon, with an obligation totaling $
4.3
million.
As of December 31, 2013 and 2012, 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 $
10.9
million and $
6.5
million, respectively, net of accumulated depreciation of $
2.4
million and $
1.4
million, respectively.
Property, plant and equipment consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Land
|
|
$
|
26,398
|
|
$
|
23,986
|
|
Buildings and building improvements
|
|
|
112,208
|
|
|
106,679
|
|
Machinery and equipment
|
|
|
200,567
|
|
|
184,859
|
|
Construction in progress
|
|
|
9,543
|
|
|
8,753
|
|
|
|
$
|
348,716
|
|
$
|
324,277
|
|
Less: accumulated depreciation
|
|
|
(206,634)
|
|
|
(192,131)
|
|
|
|
$
|
142,082
|
|
$
|
132,146
|
|
As of December 31, 2013, 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
|
|
$
|
39,222
|
|
$
|
(6,291)
|
|
$
|
32,931
|
|
Customer relationships
|
|
10 years
|
|
|
152,109
|
|
|
(40,112)
|
|
|
111,997
|
|
Technology
|
|
12 years
|
|
|
16,517
|
|
|
(2,264)
|
|
|
14,253
|
|
Other
|
|
9 years
|
|
|
17,939
|
|
|
(17,939)
|
|
|
-
|
|
Total
|
|
12 years
|
|
$
|
225,787
|
|
$
|
(66,606)
|
|
$
|
159,181
|
|
As of December 31, 2012, 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
|
|
$
|
37,600
|
|
$
|
(4,336)
|
|
$
|
33,264
|
|
Customer relationships
|
|
10 years
|
|
|
146,000
|
|
|
(21,738)
|
|
|
124,262
|
|
Technology
|
|
12 years
|
|
|
15,300
|
|
|
(850)
|
|
|
14,450
|
|
Other
|
|
9 years
|
|
|
17,939
|
|
|
(17,925)
|
|
|
14
|
|
Total
|
|
12 years
|
|
$
|
216,839
|
|
$
|
(44,849)
|
|
$
|
171,990
|
|
Intangible asset amortization expense was $
21.8
million, $
10.6
million and $
3.0
million for 2013, 2012 and 2011, respectively.
Annual intangible asset amortization expense for the next 5 fiscal years is estimated to be $
21.9
million in 2014; $
21.3
million in 2015; $
20.1
million in 2016; $
16.9
million in 2017 and $
15.5
million in 2018.
k.
Goodwill
The changes in the carrying amounts of goodwill, all of which is included in the Company’s Diversified Products segment as of December 31, 2013 except for approximately $
10.2
million allocated to the Company’s Retail segment, for the years ended December 31, 2013 and 2012 were as follows (in thousands):
Balance as of December 31, 2011
|
|
$
|
-
|
|
|
|
|
|
|
Goodwill acquired
|
|
|
146,444
|
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
$
|
146,444
|
|
|
|
|
|
|
Goodwill acquired
|
|
|
1,784
|
|
Acquisition adjustment - Walker
|
|
|
2,054
|
|
Effects of foreign currency
|
|
|
(315)
|
|
|
|
|
|
|
Balance as of December 31, 2013
|
|
$
|
149,967
|
|
Goodwill represents the excess purchase price over fair value of the net assets acquired. The Company reviews goodwill for impairment 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 (Topic 350): Testing Goodwill for Impairment, ("ASU 2011-08"). Under this guidance, 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. 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.
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.
Based on the result of the qualitative assessment of the Company's reporting units, the Company believes it is more likely than not that the fair value of its reporting units are greater than their carrying amount. No impairment was recognized in 2013, 2012 or 2011.
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, 2013 and 2012, the Company had software costs, net of amortization, of $
0.2
million and $
0.9
million, respectively. Amortization expense for 2013, 2012 and 2011 was $
0.7
million, $
2.3
million and $
2.3
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,
|
|
|
|
2013
|
|
2012
|
|
Warranty
|
|
$
|
14,719
|
|
$
|
14,886
|
|
Payroll and related taxes
|
|
|
29,399
|
|
|
23,342
|
|
Self-insurance
|
|
|
9,399
|
|
|
7,702
|
|
Accrued taxes
|
|
|
8,520
|
|
|
5,578
|
|
Customer deposits
|
|
|
30,730
|
|
|
43,158
|
|
All other
|
|
|
6,591
|
|
|
10,207
|
|
|
|
$
|
99,358
|
|
$
|
104,873
|
|
The following table presents the changes in the product warranty accrual included in
Other Accrued Liabilities
(in thousands):
|
|
2013
|
|
2012
|
|
Balance as of January 1
|
|
$
|
14,886
|
|
$
|
11,437
|
|
Provision for warranties issued in current year
|
|
|
6,269
|
|
|
5,521
|
|
Walker acquisition
|
|
|
-
|
|
|
3,887
|
|
Provisions for (Recovery of) pre-existing warranties, net
|
|
|
(779)
|
|
|
(750)
|
|
Payments
|
|
|
(5,657)
|
|
|
(5,209)
|
|
Balance as of December 31
|
|
$
|
14,719
|
|
$
|
14,886
|
|
The Company offers a limited warranty for its products with a coverage period that ranges between one and five years, provided that the coverage period for DuraPlate® trailer panels beginning with those panels manufactured in 2005 or after is ten years. The Company passes through component manufacturers’ warranties to our customers. The Company’s policy is to accrue the estimated cost of warranty coverage at the time of the sale.
The following table presents the changes in the self-insurance accrual included in
Other Accrued Liabilities
(in thousands):
|
|
Self-Insurance
|
|
|
|
Accrual
|
|
Balance as of January 1, 2012
|
|
$
|
5,390
|
|
Expense
|
|
|
25,336
|
|
Walker acquisition
|
|
|
2,034
|
|
Payments
|
|
|
(25,058)
|
|
Balance as of December 31, 2012
|
|
$
|
7,702
|
|
Expense
|
|
|
38,191
|
|
Payments
|
|
|
(36,494)
|
|
Balance as of December 31, 2013
|
|
$
|
9,399
|
|
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 s
ubject us to significant concentrations of credit risk consist principally of cash, cash equivalents and customer receivables. We place our cash and cash equivalents with high quality financial institutions. Generally, we do 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 $
2.2
million, $
1.7
million and $
1.0
million in 2013, 2012 and 2011, respectively.
|
r.
|
New Accounting Pronouncements
|
In February 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amends ASC 220, Comprehensive Income. This ASU requires the disclosure of amounts reclassified out of accumulated other comprehensive income by component and by net income line item. The disclosure may be provided either on the face of the financial statements or in the notes. ASU 2013-02 is effective for annual and interim impairment tests performed for fiscal years beginning after December 15, 2012. The adoption did not have a material effect on the Company’s audited consolidated financial statements.
Assets of Beall Corporation
On February 4, 2013, the Company completed the acquisition of certain assets of the tank and trailer business of Beall Corporation, a Portland, Oregon-based manufacturer of aluminum tank trailers and related equipment.
Beall Corporation began Chapter 11 reorganization proceedings in September of 2012, followed by a bankruptcy-court approved auction of its assets in December.
The Company was the winning bidder for certain assets of Beall’s tank and trailer business, including equipment, inventory, certain product designs, intellectual property and other related assets.
The aggregate consideration paid by the Company for the acquired assets and the assumed liabilities was $
13.9
million and was allocated to the opening balance sheet as follows (in thousands):
Current assets
|
$
|
1,035
|
Property, plant and equipment
|
|
2,714
|
Intangibles
|
|
8,860
|
Goodwill
|
|
1,784
|
Total assets
|
$
|
14,393
|
|
|
|
Current liabilities
|
$
|
(462)
|
Total liabilities
|
$
|
(462)
|
|
|
|
Acquisition
|
$
|
13,931
|
Intangible assets of $
8.9
million were recorded as a result of the purchase of the Beall assets.
The intangible assets consist of the following (in thousands):
|
|
Amount
|
|
Useful Life
|
|
Tradenames and Trademarks
|
|
$
|
1,622
|
|
20 years
|
|
Technology
|
|
|
1,217
|
|
8 years
|
|
Customer relationships
|
|
|
6,021
|
|
8 years
|
|
|
|
$
|
8,860
|
|
|
|
Goodwill of $
1.8
million was recorded as a result of the Beall asset purchase.
Goodwill is comprised of operational synergies that are expected to be realized in both the short and long-term and the opportunity to complement our existing Diversified Products business through product line expansion and geographic growth.
The Company expects the amount recorded as goodwill to be fully deductible for tax purposes.
In connection with the purchase of certain assets of Beall, the Company entered into a separate ten year capital lease agreement for Beall’s manufacturing facility in Portland, Oregon, with payments totaling approximately $
4.7
million for such ten year period.
Walker Group Holdings LLC
On May 8, 2012, the Company completed the acquisition (the “Walker Acquisition”) of all the equity interests of Walker Group Holdings LLC (“Walker”) from Walker Group Resources LLC, the parent of Walker (“Seller”), pursuant to the Purchase and Sale Agreement, dated March 26, 2012, by and among the Company, Walker and Seller (the “Purchase and Sale Agreement”).
The aggregate consideration paid by the Company for the Walker Acquisition was $
377.0
million in cash.
The amount of working capital acquired at the date of acquisition, previously in dispute between the Company and the Seller, was resolved during the second quarter of 2013 and the outcome required the Company to make an additional payment of $
2.1
million, which was recorded to Goodwill.
The Company financed the Walker Acquisition and related fees and expenses using the proceeds of the Company’s offering of
3.375
% Convertible Senior Notes due
2018
and the Company’s borrowings under the Term Loan Credit Agreement (as described in further detail in Note 6).
Walker
is a manufacturer of liquid-transportation systems and engineered products based in New Lisbon, Wisconsin.
Walker manufacturing operations are integrated into the Company’s Diversified Products segment while Walker retail operations are integrated into the Retail segment in a manner that is consistent with its focus to leverage operational and market synergies.
Walker has manufacturing facilities for its liquid-transportation products in New Lisbon, Wisconsin; Fond du Lac, Wisconsin; Kansas City, Missouri; Kansas City, Kansas; and Queretaro, Mexico with parts and service centers in Houston, Texas; Baton Rouge, Louisiana; Findlay, Ohio; Chicago, Illinois; Mauston, Wisconsin; West Memphis, Arkansas; and Ashland, Kentucky.
Manufacturing facilities for Walker’s engineered products are located in New Lisbon, Wisconsin; Elroy, Wisconsin; and Huddersfield, United Kingdom with parts and service centers in Tavares, Florida; Dallas, Texas; and Philadelphia, Pennsylvania.
The aggregate purchase price of $377.0 million was allocated to the opening balance sheet of Walker at May 8, 2012, the date of acquisition, as follows (in thousands):
Cash
|
|
$
|
10,982
|
|
Current assets
|
|
|
93,409
|
|
Property, plant and equipment
|
|
|
32,541
|
|
Intangibles
|
|
|
162,800
|
|
Deferred income taxes
|
|
|
4,640
|
|
Goodwill
|
|
|
148,498
|
|
Total assets
|
|
$
|
452,870
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(74,722)
|
|
Deferred income taxes
|
|
|
(1,100)
|
|
Total liabilities
|
|
$
|
(75,822)
|
|
|
|
|
|
|
|
|
$
|
377,048
|
|
|
|
|
|
|
Acquisition, net of cash acquired
|
|
$
|
366,066
|
|
Intangible assets of $
162.8
million were recorded as a result of the acquisition.
The intangible assets consist of the following (in thousands):
|
|
Amount
|
|
Useful Life
|
|
Backlog
|
|
$
|
900
|
|
|
Less than 1 year
|
|
Tradenames and Trademarks
|
|
|
27,600
|
|
|
20 years
|
|
Technology
|
|
|
15,300
|
|
|
12 years
|
|
Customer relationships
|
|
|
119,000
|
|
|
10 years
|
|
|
|
$
|
162,800
|
|
|
|
|
Goodwill of $
148.5
million was recorded as a result of the Walker Acquisition in the Diversified Products and Retail segments.
Goodwill is comprised of operational synergies that are expected to be realized in both the short and long-term and the opportunity to enter new market sectors with higher margin potential, which will enable us to deliver greater value to our customers and shareholders.
The Company expects the amount recorded as goodwill for the Walker Acquisition to be fully deductible for tax purposes.
The results of Walker are included in the Consolidated Statements of Operations from the date of acquisition.
Revenue for the years ended December 31, 2013 and 2012 was $
399.8
million and $
270.1
, respectively. Income before income taxes for the same 2013 and 2012 periods was $
50.8
million and $
34.4
million, respectively.
The following unaudited pro forma information is shown below as if the acquisition of Walker had been completed as of the beginning of the earliest period presented (in thousands, except per share amounts):
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
Sales
|
|
$
|
1,597,920
|
|
$
|
1,530,922
|
|
Operating income
|
|
$
|
98,019
|
|
$
|
52,213
|
|
Net income
|
|
$
|
123,030
|
|
$
|
17,428
|
|
Basic net income per share
|
|
$
|
1.79
|
|
$
|
0.25
|
|
Diluted net income per share
|
|
$
|
1.78
|
|
$
|
0.25
|
|
The information presented above is for informational purposes only and is not necessarily indicative of the actual results that would have occurred had the acquisition been consummated at January 1, 2011, nor is it necessarily indicative of future operating results of the combined companies under the ownership and management of the Company.
The Company incurred various costs related to both the Walker Acquisition and the purchase of certain assets of Beall including fees paid to an investment banker for acquisition services and the related bridge financing commitment, as well as professional fees for diligence, legal and accounting services.
These costs totaled $
0.9
million and $
14.4
million for 2013 and 2012, respectively, and have been recorded as
Acquisition Expenses
in the Consolidated Statements of Operations.
4.
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,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Basic net income per share
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
46,529
|
|
$
|
105,631
|
|
$
|
15,042
|
|
Undistributed earnings allocated to participating securities
|
|
|
(457)
|
|
|
(904)
|
|
|
(84)
|
|
Net income applicable to common stockholders
excluding amounts applicable to participating securities
|
|
$
|
46,072
|
|
$
|
104,727
|
|
$
|
14,958
|
|
Weighted average common shares outstanding
|
|
|
68,460
|
|
|
68,325
|
|
|
68,086
|
|
Basic net income per share
|
|
$
|
0.67
|
|
$
|
1.53
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
46,529
|
|
$
|
105,631
|
|
$
|
15,042
|
|
Undistributed earnings allocated to participating securities
|
|
|
(457)
|
|
|
(904)
|
|
|
(84)
|
|
Net income applicable to common stockholders excluding
amounts applicable to participating securities
|
|
$
|
46,072
|
|
$
|
104,727
|
|
$
|
14,958
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
68,460
|
|
|
68,325
|
|
|
68,086
|
|
Dilutive shares from assumed conversion of convertible senior
notes
|
|
|
63
|
|
|
-
|
|
|
-
|
|
Dilutive stock options and restricted stock
|
|
|
558
|
|
|
239
|
|
|
332
|
|
Diluted weighted average common shares outstanding
|
|
|
69,081
|
|
|
68,564
|
|
|
68,418
|
|
Diluted net income per share
|
|
$
|
0.67
|
|
$
|
1.53
|
|
$
|
0.22
|
|
Average diluted shares outstanding for the periods ended December 31, 2013, 2012 and 2011 exclude options to purchase common shares totaling
1,121
,
1,676
and
1,376
, respectively, because the exercise prices were greater than the average market price of the common shares.
In addition, for 2013 the calculation of diluted net income per share includes the impact of the Company’s Notes as the average stock price of the Company’s common stock for the quarter ended December 31, 2013 was above the initial conversion price of approximately $
11.70
per share.
5.
LEASE ARRANGEMENTS
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, 2013 are as follows (in thousands):
|
|
Capital
Leases
|
|
Operating
Leases
|
|
2014
|
|
|
1,915
|
|
|
2,739
|
|
2015
|
|
|
1,529
|
|
|
1,727
|
|
2016
|
|
|
1,220
|
|
|
1,361
|
|
2017
|
|
|
1,007
|
|
|
1,092
|
|
2018
|
|
|
934
|
|
|
746
|
|
Thereafter
|
|
|
3,006
|
|
|
565
|
|
Total minimum lease payments
|
|
$
|
9,611
|
|
$
|
8,230
|
|
Interest
|
|
|
(1,151)
|
|
|
|
|
Present value of net minimum lease payments
|
|
$
|
8,460
|
|
|
|
|
Total rental expense was $
4.6
million, $
3.6
million and $
3.0
million for 2013, 2012 and 2011, respectively.
As of December 31, 2013 the total minimum rentals to be received in future periods under these lease commitments was less than $
0.1
million.
6.
DEBT
Long-term debt consists of the following (in thousands):
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Convertible senior notes
|
|
$
|
150,000
|
|
$
|
150,000
|
|
Term loan credit agreement
|
|
|
234,923
|
|
|
297,750
|
|
Industrial revenue bond
|
|
|
2,119
|
|
|
2,500
|
|
|
|
$
|
387,042
|
|
$
|
450,250
|
|
Less: unamortized discount
|
|
|
(24,907)
|
|
|
(30,020)
|
|
Less: current portion
|
|
|
(3,245)
|
|
|
(3,381)
|
|
|
|
$
|
358,890
|
|
$
|
416,849
|
|
Maturities of long-term debt for the five years succeeding December 31, 2013 and thereafter are as follows (in thousands):
2014
|
|
$
|
3,245
|
|
2015
|
|
|
3,266
|
|
2016
|
|
|
3,287
|
|
2017
|
|
|
3,309
|
|
2018
|
|
|
152,862
|
|
Thereafter
|
|
|
221,073
|
|
Maturities of long-term debt
|
|
$
|
387,042
|
|
Convertible Senior Notes
On April 23, 2012, the Company issued Convertible Senior Notes due
2018
(the “Notes”) with an aggregate principal amount of $
150
million in a public offering. The Notes bear interest at the rate of
3.375
% per annum from the date of issuance, payable
semi-annually
on May 1 and November 1, commencing on November 1, 2012. 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.
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 approximately $
145.1
million from the sale of the Notes to fund a portion of the purchase price of the Walker Acquisition.
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 convertible senior notes without the conversion option. Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with similar maturity, the Company estimated the implied interest rate of the Notes to be
7.0
%, assuming no conversion option. Assumptions used in the estimate represent what market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the Notes, which resulted in a fair value of the liability component of $
123.8
million upon issuance, calculated as the present value of implied future payments based on the $
150.0
million aggregate principal amount. The $
21.7
million difference between the cash proceeds before offering expenses of $
145.5
million and the estimated fair value of the liability component was recorded in additional paid-in capital. The discount on the liability portion of the Notes is being amortized.
The Company applies the treasury stock method in the calculating the dilutive impact of the Notes. For the year ended December 31, 2013, the Notes had a dilutive impact. If the Notes were converted as of December 31, 2013, the if-converted value would exceed the principal amount by approximately $
8
million.
The following table summarizes information about the equity and liability components of the Notes (dollars in thousands). The fair value of the notes outstanding were measured based on quoted market prices.
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Principal amount of convertible notes outstanding
|
|
$
|
150,000
|
|
$
|
150,000
|
|
Unamortized discount of liability component
|
|
|
(19,372)
|
|
|
(23,082)
|
|
Net carrying amount of liability component
|
|
|
130,628
|
|
|
126,918
|
|
Less: current portion
|
|
|
-
|
|
|
-
|
|
Long-term debt
|
|
$
|
130,628
|
|
$
|
126,918
|
|
Carrying value of equity component, net of issuance costs
|
|
$
|
20,993
|
|
$
|
20,993
|
|
Remaining amortization period of discount on the liability component
|
|
|
4.3 years
|
|
|
5.3 years
|
|
Contractual coupon interest expense and accretion of discount on the liability component for the Note for the years ended December 31, 2013 and 2012 were as follow (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
Contractual coupon interest expense
|
|
$
|
5,063
|
|
$
|
3,488
|
|
Accretion of discount on the liability component
|
|
$
|
3,710
|
|
$
|
2,411
|
|
Revolving Credit Agreement
On May 8, 2012 and in connection with the completion of the Walker acquisition (see Note 3) and entering into the Term Loan Credit Agreement, as amended (as defined below), the Company repaid approximately $
51
million of borrowings under its then-existing senior secured revolving credit facility, dated June 28, 2011, and entered into an amendment and restatement of that credit agreement among the Company, certain of its subsidiaries (together with the Company, the “Borrowers”), Wells Fargo Capital Finance, LLC, as joint lead arranger, joint bookrunner and administrative agent (the “Revolver Agent”), RBS Citizens Business Capital, a division of RBS Citizens, N.A., as joint lead arranger, joint bookrunner and syndication agent, and the other lenders named therein, as amended (the “Amended and Restated Revolving Credit Agreement”). Also on May 8, 2012, certain of the Company’s subsidiaries (the “Revolver Guarantors”) entered into a general continuing guarantee of the Borrowers’ obligations under the Amended and Restated Revolving Credit Agreement in favor of the lenders (the “Revolver Guarantee”).
The Amended and Restated Revolving Credit Agreement is guaranteed by the Revolver Guarantors and is secured by (i) first priority security interests (subject only to customary permitted liens and certain other permitted liens) in substantially all personal property of the Borrowers and the Revolver Guarantors, consisting of accounts receivable, inventory, cash, deposit and securities accounts and any cash or other assets in such accounts and, to the extent evidencing or otherwise related to such property, all general intangibles, licenses, intercompany debt, letter of credit rights, commercial tort claims, chattel paper, instruments, supporting obligations, documents and payment intangibles (collectively, the “Revolver Priority Collateral”), and (ii) second-priority liens on and security interests in (subject only to the liens securing the Term Loan Credit Agreement, as amended, customary permitted liens and certain other permitted liens) (A) equity interests of each direct subsidiary held by the Borrower and each Revolving Guarantor (subject to customary limitations in the case of the equity of foreign subsidiaries), and (B) substantially all other tangible and intangible assets of the Borrowers and the Revolving Guarantors including equipment, general intangibles, intercompany notes, insurance policies, investment property, intellectual property and material owned real property (in each case, except to the extent constituting Revolver Priority Collateral) (collectively, the “Term Priority Collateral”). The respective priorities of the security interests securing the Amended and Restated Revolving Credit Agreement and the Term Loan Credit Agreement, as amended, are governed by an Intercreditor Agreement, dated May 8, 2012, between the Revolver Agent and the Term Agent (as defined below) (the “Intercreditor Agreement”). The Amended and Restated Revolving Credit Agreement has a scheduled maturity date of May 8, 2017.
Under the Amended and Restated Revolving Credit Agreement, the lenders agree to make available to the Company a $
150
million revolving credit facility. The Company has the option to increase the total commitment under the facility to $
200
million, subject to certain conditions, including (i) obtaining commitments from any one or more lenders, whether or not currently party to the Amended and Restated Revolving Credit Agreement, to provide such increased amounts and (ii) the available amount of increases to the facility being reduced by the amount of any incremental loans advanced under the Term Loan Credit Agreement, as amended, in excess of $
25
million. Availability under the Amended and Restated Revolving Credit Agreement will be based upon monthly (or more frequent under certain circumstances) borrowing base certifications of the Borrowers’ eligible inventory and eligible accounts receivable, and will be reduced by certain reserves in effect from time to time. Subject to availability, the Amended and Restated Revolving Credit Agreement provides for a letter of credit subfacility in an amount not in excess of $
15
million, and allows for swingline loans in an amount not in excess of $
10
million. Outstanding borrowings under the Amended and Restated Revolving Credit Agreement will bear interest at a rate, at the Borrowers’ election, equal to (i) LIBOR plus a margin ranging from
1.75
% to
2.25
% or (ii) a base rate plus a margin ranging from
0.75
% to
1.25
%, in each case depending upon the monthly average excess availability under the revolving loan facility. The Borrowers are required to pay a monthly unused line fee equal to
0.375
% times the average daily unused availability along with other customary fees and expenses of the Revolver Agent and the lenders.
The Amended and Restated Revolving Credit Agreement contains customary covenants limiting the ability of the Company and certain of its affiliates to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. In addition, the Company is required to maintain a minimum fixed charge coverage ratio of not less than
1.1
to
1.0
as of the end of any period of 12 fiscal months when excess availability under the Amended and Restated Revolving Credit Agreement is less than
12.5
% of the total revolving commitment.
If availability under the Amended and Restated Revolving Credit Agreement is less than
15
% of the total revolving commitment or if there exists an event of default, amounts in any of the Borrowers’ and the Revolver Guarantors’ deposit accounts (other than certain excluded accounts) will be transferred daily into a blocked account held by the Revolver Agent and applied to reduce the outstanding amounts under the facility.
Subject to the terms of the Intercreditor Agreement, if the covenants under the Amended and Restated Revolving Credit Agreement are breached, the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral. Other customary events of default in the Amended and Restated Revolving Credit Agreement include, without limitation, failure to pay obligations when due, initiation of insolvency proceedings, defaults on certain other indebtedness, and the incurrence of certain judgments that are not stayed, satisfied, bonded or discharged within 30 days.
As of December 31, 2013, the Company had no outstanding borrowings under the Amended and Restated Revolving Credit Agreement and was in compliance with all covenants. The Company’s liquidity position, defined as cash on hand and available borrowing capacity on the revolving credit facility, amounted to $
254.3
million as of December 31, 2013.
Term Loan Credit Agreement
On May 8, 2012 and in connection with the completion of the Walker Acquisition (see Note 3), 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 provided for a senior secured term loan facility of $
300
million to be advanced at closing and provides for a senior secured incremental term loan facility of up to $
75
million, subject to certain conditions, including (i) 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 (ii) the available amount of incremental loans being reduced by the amount of any increases in the maximum revolver amount under the Amended and Restated Revolving Credit Agreement (discussed above). Also on May 8, 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”).
On April 25, 2013, the Company entered into Amendment No.1 to Credit Agreement (the “Amendment”), which was effective on May 9, 2013, and amended the Term Loan Credit Agreement. As of April 25, 2013, there was approximately $
297.0
million of term loans outstanding under the Term Loan Credit Agreement (the “Initial Loans”), of which the Company prepaid $
20.0
million in connection with the Amendment. Under the Amendment, the lenders agreed to provide to the Company term loans in an aggregate principal amount of $
277.0
million, which were exchanged for and used to refinance the Initial Loans (the “Tranche B-1 Loans”). The Tranche B-1 Loans mature on May 8, 2019, but provide for an accelerated maturity in the event the Company’s outstanding
3.375
% Convertible Senior Notes due
2018
are not converted, redeemed, repurchased or refinanced in full on or before the date that is
91
days prior to the maturity date thereof. The Tranche B-1 Loans shall amortize in equal quarterly installments in aggregate amounts equal to
0.25
% of the Tranche B-1 Loan amount, 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
3.50
% or (ii) a base rate plus a margin of
2.50
%.
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 Amendment amended the Term Loan Credit Agreement, by among other things, removing the covenant that we be required to maintain a minimum interest coverage ratio, and providing for a
1
% prepayment premium in the event that the Company enters into a refinancing of, or amendment in respect of, the Tranche B-1 Loans on or prior to the first anniversary of the effective date of the Amendment that, in either case, results in the all-in yield of such refinancing or amendment being less than the all-in yield on the Tranche B-1 Loans. As amended, the Term Loan Credit Agreement will continue to require the Company to maintain a maximum senior secured leverage ratio tested as of the last day of each fiscal quarter for the four consecutive fiscal quarters then ending of not more than (A)
4.5
to
1.0
through September 30, 2013, (B)
4.0
to
1.0
thereafter through September 30, 2015, and (C)
3.5
to
1.0
thereafter. The Term Loan Credit Agreement, as amended, also contains conditions providing for either voluntary or mandatory prepayments. Conditions for mandatory prepayments include but are not limited to asset sales with proceeds in excess of $
1
million and the amount of excess cash flows, as defined in the Term Loan Credit Agreement, as amended, to be calculated annually with the delivery of financial statements beginning with the fiscal year ending December 31, 2012.
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.
As of December 31, 2013, the Company’s senior secured leverage ratio was
0.9:1.0
, and was in compliance with all covenants under the Amendment.
For the years ended December 31, 2013 and 2012, the Company has paid interest of $
14.9
million and $
10.9
million, respectively, and principal of $
62.8
million and $
2.3
million, respectively, related to the Term Loan Credit Agreement, as amended. As of December 31, 2013, the Company had $
234.9
million outstanding under the Term Loan Credit Agreement, as amended, of which $
2.8
million was classified as current on the Company’s Consolidated Balance Sheet. In connection with the closing of the Term Loan Credit Agreement in May 2012 and the Amendment in April 2013, the Company paid a total of $
8.5
million in original issuance discount fees which will be amortized over the life of the facility using the effective interest rate method. For the years ended December 31, 2013 and 2012, the Company charged $
0.9
million and $
0.6
million, respectively, of amortization for original issuance discount fees as
Interest Expense
in the Consolidated Statements of Operations. Additionally, for the year ended December 31, 2013, the Company has charged $
1.4
million of accelerated amortization in connection with $
60
million of voluntary principal payments made in 2013 on its Term Loan Credit Agreement, as amended, as
Loss on debt extinguishment
in the Consolidated Statements of Operations.
Other Debt Facilities
On November 27, 2012, the Company entered into a loan agreement with GE Government Finance, Inc. as lender and the County of Trigg, Kentucky as issuer for a $
2.5
million Industrial Revenue Bond. The funds received were used to purchase the equipment needed for the expansion of the Company’s Cadiz, Kentucky facility. The loan bears interest at a rate of
4.25
% and matures in March 2018. As of December 31, 2013, the Company had $
2.1
million outstanding of which $
0.5
million was classified as current on our Consolidated Balance Sheet.
|
7.
|
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, $
0.5
million of which are classified as Level 1, and life-insurance contracts valued based on the performance of underlying mutual funds, $
5.1
million of which are classified as Level 2 as compared to $
0.4
million and $
3.0
million for mutual funds and life insurance contracts at December 31, 2012, respectively.
Nonrecurring Fair Value Measurements
Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
The Company reviews for goodwill impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable. The fair value of the reporting units is determined using the income approach. The income approach focuses on the income-producing capability of an asset, measuring the current value of the asset by calculating the present value of its future economic benefits such as cash earnings, cost savings, corporate tax structure and product offerings. Value indications are developed by discounting expected cash flows to their present value at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation and risks associated with the reporting unit. These assets would generally be classified within Level 3, in the event that the Company were required to measure and record such assets at fair value within its consolidated financial statements.
The Company periodically evaluates the carrying value of long-lived assets to be held and used, including definite-lived intangible assets and property plant and equipment, when events or circumstances warrant such a review. Fair value is determined primarily using anticipated cash flows assumed by a market participant discounted at a rate commensurate with the risk involved and these assets would generally be classified within Level 3, in the event that the Company were required to measure and record such assets at fair value within its consolidated financial statements.
Assets and liabilities acquired in business combinations are recorded at their fair value as of the date of acquisition. Refer to Note 3 for the fair values of assets acquired and liabilities assumed in connection with the acquisitions of Walker and certain assets of Beall.
The carrying amounts of accounts receivable and accounts payable reported in the Consolidated Balance Sheets approximate fair value.
Estimated Fair Value of Debt
The estimated fair value of long-term debt at December 31, 2013 consists primarily of the Company’s Notes and borrowings under its Term Loan Credit Agreement, as amended (see Note 6). The fair value of the Notes, the Term Loan Credit Agreement, as amended and the revolving credit facility are based upon third party pricing sources, which generally does not represent daily market activity, nor does it represent data obtained from an exchange, and are classified as Level 2. The interest rates on the Company’s borrowings under the revolving credit facility are adjusted regularly to reflect current market rates and thus carrying value approximates fair value for these borrowings. All other debt and capital lease obligations approximate their fair value as determined by discounted cash flows and are classified as Level 3.
The Company’s carrying and estimated fair value of debt, at December 31, 2013 and 2012 were as follows:
|
|
December 31, 2013
|
|
December 31, 2012
|
|
|
|
Carrying
|
|
Fair Value
|
|
Carrying
|
|
Fair Value
|
|
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible senior notes
|
|
$
|
130,628
|
|
$
|
-
|
|
$
|
197,718
|
|
$
|
-
|
|
$
|
126,918
|
|
$
|
-
|
|
$
|
165,563
|
|
$
|
-
|
|
Term loan credit agreement
|
|
|
229,388
|
|
|
-
|
|
|
236,684
|
|
|
-
|
|
|
290,812
|
|
|
-
|
|
|
300,728
|
|
|
-
|
|
Industrial revenue bond
|
|
|
2,119
|
|
|
-
|
|
|
-
|
|
|
2,119
|
|
|
2,500
|
|
|
-
|
|
|
-
|
|
|
2,500
|
|
Capital lease obligations
|
|
|
8,460
|
|
|
-
|
|
|
-
|
|
|
8,460
|
|
|
4,921
|
|
|
-
|
|
|
-
|
|
|
4,921
|
|
|
|
$
|
370,595
|
|
$
|
-
|
|
$
|
434,402
|
|
$
|
10,579
|
|
$
|
425,151
|
|
$
|
-
|
|
$
|
466,291
|
|
$
|
7,421
|
|
8.
STOCKHOLDERS’ EQUITY
a.
Common and Preferred Stock
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.
The Company has a series of
300,000
shares of preferred stock designated as Series D Junior Participating Preferred Stock, par value $
0.01
per share.
As of December 31, 2013 and 2012, the Company had no Series D Junior Participating shares issued or outstanding.
b.
Stockholders’ Rights Plan
The Company has a Stockholders’ Rights Plan (the “Rights Plan”) that is designed to deter coercive or unfair takeover tactics in the event of an unsolicited takeover attempt.
It is not intended to prevent a takeover on terms that are favorable and fair to all stockholders and will not interfere with a merger approved by our board of directors.
Each right entitles stockholders to buy one one-thousandth of a share of Series D Junior Participating Preferred Stock at an exercise price of $
120
.
The rights will be exercisable only if a person or a group acquires or announces a tender or exchange offer to acquire 20% or more of our common stock or if we enter into other business combination transactions not approved by our board of directors
.
In the event the rights become exercisable, the Rights Plan allows for our stockholders to acquire our stock or the stock of the surviving corporation, whether or not we are the surviving corporation, having a value twice that of the exercise price of the rights.
These rights pursuant to the Rights Plan will expire
December 28, 2015
or are redeemable for $
0.01
per right by the Board under certain circumstances.
9.
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 payments 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 $
7.5
million, $
5.1
million and $
3.4
million in 2013, 2012 and 2011, respectively.
The amount of compensation costs related to nonvested stock options and restricted stock not yet recognized was $
7.4
million at December 31, 2013, 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 on the date of grant, become fully exercisable
three
years after the date of grant and expire
ten
years after the date of grant.
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
|
|
2013
|
|
2012
|
|
2011
|
|
Risk-free interest rate
|
|
2.02%
|
|
1.99%
|
|
3.49%
|
|
Expected volatility
|
|
75.3%
|
|
78.8%
|
|
78.8%
|
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
|
Expected term
|
|
5 yrs.
|
|
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 2013 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, 2012
|
|
1,882,554
|
|
$
|
11.92
|
|
6.2
|
|
$
|
0.8
|
|
Granted
|
|
361,220
|
|
$
|
9.61
|
|
|
|
|
|
|
Exercised
|
|
(85,917)
|
|
$
|
6.99
|
|
|
|
$
|
0.3
|
|
Forfeited
|
|
(82,975)
|
|
$
|
9.58
|
|
|
|
|
|
|
Expired
|
|
(75,194)
|
|
$
|
11.37
|
|
|
|
|
|
|
Options Outstanding at December 31, 2013
|
|
1,999,688
|
|
$
|
11.57
|
|
6.0
|
|
$
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at December 31, 2013
|
|
1,235,826
|
|
$
|
12.88
|
|
4.5
|
|
$
|
2.1
|
|
During 2013, 2012 and 2011, the Company granted
361,220
,
487,950
, and
410,531
stock options with aggregate fair values on the date of grant of $
2.2
million, $
3.4
million and $
2.7
million, respectively.
The weighted average estimated fair value of the stock options granted in 2013, 2012 and 2011 were $
6.13
, $
6.94
and $
6.70
per stock option, respectively.
The total intrinsic value of stock options exercised during 2013, 2012 and 2011 was $
0.3
million, $
0.3
million and $
0.4
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 2013 is as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Restricted Stock Outstanding at December 31, 2012
|
|
773,950
|
|
$
|
9.89
|
|
Granted
|
|
521,181
|
|
$
|
9.63
|
|
Vested
|
|
(62,183)
|
|
$
|
6.19
|
|
Forfeited
|
|
(86,017)
|
|
$
|
8.78
|
|
Restricted Stock Outstanding at December 31, 2013
|
|
1,146,931
|
|
$
|
10.06
|
|
During 2013, 2012 and 2011, the Company granted
521,181
,
404,250
and
377,869
shares of restricted stock, respectively, with aggregate fair values on the date of grant of $
5.0
million, $
4.0
million and $
3.7
million, respectively.
The total fair value of restricted stock that vested during 2013, 2012 and 2011 was $
0.6
million, $
1.9
million and $
1.9
million, respectively.
Cash-Settled Performance Units and Stock Appreciation Rights
In March 2010, the Company awarded eligible employees
326,250
cash-settled stock appreciation rights and
434,661
cash-settled performance units.
The stock appreciation rights vested at the end of a
three
year period and provided each participant with the right to receive payment in cash representing the appreciation in the market value of the Company’s common stock from the grant date to the award’s vesting date.
The per share exercise price of a stock appreciation right is equal to the closing market price of the Company’s stock on the date of grant.
As of December 31, 2013, all stock appreciation rights awarded by the Company were fully vested.
The total fair value of cash-settled stock appreciation rights that vested in 2013 was $
0.8
million.
As of December 31, 2012 and 2011, the weighted average fair market value of each remaining stock appreciation right was $
1.52
and $
2.68
, respectively.
The performance units vested at the end of a
three
year period and provided each participant with the right to receive payments in cash for the lesser of the market value of the Company’s stock on the date of grant or the vesting date.
As of December 31, 2013, all cash-settled performance units awarded by the Company were fully vested.
The total fair value of cash-settled performance units that vested in 2013 was $
3.0
million.
As of December 31, 2012 and 2011, the weighted average fair market value of each performance unit was $
7.45
.
The number of performance units actually awarded to eligible employees was based on the achievement of specific financial performance metrics.
|
10.
|
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. As of September 1, 2008, the Company reduced the matching contribution for its 401(k) plan and suspended all matching contributions to the non-qualified plan. As of April 1, 2009, the Company temporarily suspended all matching contributions for its 401(k) plan. The temporary suspension of all matching contributions was effective throughout 2011 and, therefore, no matching expenses were incurred in 2011. Subsequently, as of January 1, 2012, the Company reinstated the temporary suspension of all matching contributions and the related expense for these plans for 2013 and 2012 totaled $
4.4
million and $
3.1
million, respectively.
11.
INCOME TAXES
|
a.
|
Income Before Income Taxes
|
The consolidated income before income taxes for 2013, 2012 and 2011 consists of the following (in thousands):
|
|
2013
|
|
2012
|
|
2011
|
|
Domestic
|
|
$
|
77,465
|
|
$
|
48,533
|
|
$
|
15,213
|
|
Foreign
|
|
|
158
|
|
|
130
|
|
|
-
|
|
Total income before income taxes
|
|
$
|
77,623
|
|
$
|
48,663
|
|
$
|
15,213
|
|
The consolidated income tax expense for 2013, 2012 and 2011 consists of the following components (in thousands):
|
|
2013
|
|
2012
|
|
2011
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
197
|
|
$
|
-
|
|
$
|
14
|
|
State
|
|
|
717
|
|
|
174
|
|
|
157
|
|
Foreign
|
|
|
130
|
|
|
141
|
|
|
-
|
|
|
|
$
|
1,044
|
|
$
|
315
|
|
$
|
171
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
26,753
|
|
$
|
(46,378)
|
|
$
|
-
|
|
State
|
|
|
3,412
|
|
|
(10,871)
|
|
|
-
|
|
Foreign
|
|
|
(115)
|
|
|
(34)
|
|
|
-
|
|
|
|
$
|
30,050
|
|
$
|
(57,283)
|
|
$
|
-
|
|
Total consolidated expense (benefit)
|
|
$
|
31,094
|
|
$
|
(56,968)
|
|
$
|
171
|
|
The Company’s following table provides a reconciliation of differences from the U.S. Federal statutory rate of
35
% as follows (in thousands):
|
|
2013
|
|
2012
|
|
2011
|
|
Pretax book income
|
|
$
|
77,623
|
|
$
|
48,663
|
|
$
|
15,213
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax expense at 35% statutory rate
|
|
|
27,168
|
|
|
17,032
|
|
|
5,325
|
|
State and local income taxes
|
|
|
3,870
|
|
|
2,619
|
|
|
917
|
|
Foreign tax rate differential
|
|
|
(41)
|
|
|
(14)
|
|
|
-
|
|
Reversal of income tax valuation allowance against net deferred
tax assets
|
|
|
-
|
|
|
(59,887)
|
|
|
-
|
|
(Utilization of) Provisions for valuation allowance for net operating
losses and credit carrryforwards - U.S. and states
|
|
|
-
|
|
|
(19,528)
|
|
|
(6,060)
|
|
Other
|
|
|
97
|
|
|
2,810
|
|
|
(11)
|
|
Total income tax expense (benefit)
|
|
$
|
31,094
|
|
$
|
(56,968)
|
|
$
|
171
|
|
The Company’s deferred income taxes are primarily due to temporary differences between financial and income tax reporting for the depreciation of property, plant and equipment, amortization of intangibles, compensation adjustments, inventory adjustments, other accrued liabilities and tax credits and losses carried forward.
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. During 2012 and 2011, the Company utilized previously recognized net valuation allowances primarily due to accumulation of pretax income. 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, (3) estimates of future taxable income, (4) the length of operating loss carryforward periods 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, 2011, the Company had been in a cumulative three-year pre-tax loss position since the quarter ended December 31, 2009. The cumulative three-year loss is considered significant negative evidence which is objective and verifiable. Positive evidence considered by the Company in its assessment included lengthy operating loss carryforward periods, a lack of unused expired operating loss carryforwards in the Company’s history and estimates of future taxable income. However, there was uncertainty as to the Company’s ability to meet its estimates of future taxable income in order to recover its deferred tax assets in the United States.
After considering both the positive and negative evidence management determined that it was not more-likely-than-not that it would realize the value of its deferred tax assets. As a result, the Company continued to record a full valuation allowance against its net deferred tax assets as of December 31, 2011.
By the end of 2012, management concluded that profitability in recent years and a business outlook showing continued profitability combined with a lengthy operating loss carryforward period, provided assurance that the future tax benefits more likely than not will be realized. Accordingly, during the fourth quarter of 2012, the Company released $
59.9
million of valuation allowance against its net deferred tax assets, resulting in a benefit in the provision for income taxes. As of December 31, 2013 and 2012, the Company retained a valuation allowance against $
1.4
and $
1.9
million, respectively, of deferred tax assets related to various state and local operating loss carryforwards that are subject to restrictive rules for future utilization.
As of December 31, 2013, the Company has U.S. federal tax net operating loss carryforwards (“NOLs”) of approximately $
28
million, which will expire beginning in
2029
, if unused, and which may be subject to other limitations under Internal Revenue Service (the “IRS”) rules. The Company has various, multistate income tax net operating loss carryforwards, which have been recorded as a deferred income tax asset, of approximately $
8
million, before valuation allowances. The Company also has various U.S. federal income tax credit carryforwards, which will expire beginning in
2023
, if unused.
The Company’s NOLs, including any future NOLs that may arise, are subject to limitations on use under the IRS rules, including Section 382 of the Internal Revenue Code of 1986 (“Section 382”), as revised. Section 382 limits the ability of a company to utilize NOLs in the event of an ownership change. The Company would undergo an ownership change if, among other things, the stockholders, or group of stockholders, who own or have owned, directly or indirectly, 5% or more of the value of the Company’s stock or are otherwise treated as 5% stockholders under Section 382 and the regulations promulgated thereunder increase their aggregate percentage ownership of the Company’s stock by more than 50 percentage points over the lowest percentage of its stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change.
In the event of an ownership change, Section 382 imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOLs and certain recognized built-in losses. The limitation imposed by Section 382 for any post-change year would be determined by multiplying the value of our stock immediately before the ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate in effect at the time of the ownership change. Any unused annual limitation may be carried over to later years, and the limitation may under certain circumstances be increased by built-in gains that may be present in assets held by us at the time of the ownership change that are recognized in the five-year period after the ownership change. It is expected that any loss of the Company’s NOLs would cause its effective tax rate to go up significantly if the Company sustains its profitability, excluding impacts of valuation allowance.
On May 28, 2010 a change of ownership did occur resulting from the issuance of
11,750,000
shares of common stock, which invoked a limitation on the utilization of pre-ownership change U.S. Federal NOLs under Section 382. Pre-ownership change U.S. Federal NOLs at December 31, 2013 are $
19
million. Management has estimated the annual U.S. Federal NOL limitations under IRC Section 382 are $
19
million for 2014. To the extent the annual limitation is not reached, any remaining limitation can be carried forward to future years. Post-ownership change U.S. Federal NOLs at December 31, 2013 are $
9
million, which is currently not subject to utilization limits.
The components of deferred tax assets and deferred tax liabilities as of December 31, 2013 and 2012 were as follows (in thousands):
|
|
2013
|
|
2012
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
Tax credits and loss carryforwards
|
|
$
|
18,779
|
|
$
|
51,811
|
|
Accrued liabilities
|
|
|
6,964
|
|
|
6,816
|
|
Incentive compensation
|
|
|
16,621
|
|
|
12,913
|
|
Other
|
|
|
4,736
|
|
|
6,897
|
|
|
|
$
|
47,100
|
|
$
|
78,437
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(295)
|
|
|
(163)
|
|
Intangibles
|
|
|
(4,993)
|
|
|
(4,026)
|
|
Prepaid assets
|
|
|
(690)
|
|
|
(1,160)
|
|
Convertible note discount
|
|
|
(6,585)
|
|
|
(7,846)
|
|
Other
|
|
|
(29)
|
|
|
(231)
|
|
|
|
$
|
(12,592)
|
|
$
|
(13,426)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowances and reserves
|
|
$
|
34,508
|
|
$
|
65,011
|
|
Valuation allowances
|
|
|
(1,438)
|
|
|
(1,852)
|
|
Net deferred tax asset
|
|
$
|
33,070
|
|
$
|
63,159
|
|
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 in the Statements of Operations. As of December 31, 2013 and 2012, the total amount of unrecognized income tax benefits was approximately $
11.0
million for each period, respectively, all of which, if recognized, would impact the effective income tax rate of the Company. As of December 31, 2013 and 2012, the Company had recorded a total of $
0.4
million for each period 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, 2013, the Company is subject to unexpired statutes of limitation for U.S. federal income taxes for the years
2002
through
2013
. The Company is also subject to unexpired statutes of limitation for Indiana state income taxes for the years 2002 through 2013.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands) and all balances as of December 31, 2013 are included in
Other Noncurrent Liabilities
in the Company’s consolidated Balance Sheet:
Balance at January 1, 2012
|
|
$
|
10,095
|
|
|
|
|
|
|
Increase in prior year tax positions
|
|
|
885
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
10,980
|
|
|
|
|
|
|
Decrease in prior year tax positions
|
|
|
(9)
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
10,971
|
|
12.
COMMITMENTS AND CONTINGENCIES
a.
Litigation
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, 2013, the Company was named as a defendant or was otherwise involved in numerous legal proceedings and governmental examinations in various jurisdictions, both in the United States and internationally.
The Company has recorded liabilities for certain of its outstanding legal proceedings and governmental examinations. A liability is accrued when it is both (a) probable that a loss with respect to the legal proceeding has occurred and (b) the amount of loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal proceedings and governmental examinations that could cause an increase or decrease in the amount of the liability that has been previously accrued. These legal proceedings, as well as governmental examinations, involve various lines of business of the Company and a variety of claims (including, but not limited to, common law tort, contract, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against the Company specify the damages claimed by the plaintiff, many seek a not-yet-quantified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against the Company are stated, the claimed amount may be exaggerated and/or unsupported. As a result, it is not currently possible to estimate a range of possible loss beyond previously accrued liabilities relating to some matters including those described below. Such previously accrued liabilities may not represent the Company's maximum loss exposure. The legal proceedings and governmental examinations underlying the estimated range will change from time to time and actual results may vary significantly from the currently accrued liabilities.
Based on its current knowledge, and taking into consideration its litigation-related liabilities, the Company believes it is not a party to, nor is any of its properties the subject of, any pending legal proceeding or governmental examination other than the matters below, which are addressed individually, that would have a material adverse effect on the Company's consolidated financial condition or liquidity if determined in a manner adverse to the Company. However, in light of the uncertainties involved in such matters, the ultimate outcome of a particular matter could be material to the Company's operating results for a particular period depending on, among other factors, the size of the loss or liability imposed and the level of the Company's income for that period. Costs associated with the litigation and settlements of legal matters are reported within
General and Administrative Expenses
in the Consolidated Statements of Operations.
Brazil Joint Venture
In March 2001, Bernard Krone Indústria e Comércio de Máquinas Agrícolas Ltda.
(“BK”) filed suit against the Company in the Fourth Civil Court of Curitiba in the State of Paraná, Brazil.
Because of the bankruptcy of BK, this proceeding is now pending before the Second Civil Court of Bankruptcies and Creditors Reorganization of Curitiba, State of Paraná (No. 232/99).
The case grows out of a joint venture agreement between BK and the Company related to marketing of RoadRailer trailers in Brazil and other areas of South America.
When BK was placed into the Brazilian equivalent of bankruptcy late in 2000, the joint venture was dissolved.
BK subsequently filed its lawsuit against the Company alleging that it was forced to terminate business with other companies because of the exclusivity and non-compete clauses purportedly found in the joint venture agreement.
BK asserted damages, exclusive of any potentially court-imposed interest or inflation adjustments, of approximately R$
20.8
million (Brazilian Reais).
BK did not change the amount of damages it asserted following its filing of the case in 2001.
A bench (non-jury) trial was held on March 30, 2010 in Curitiba, Paraná, Brazil.
On November 22, 2011, the Fourth Civil Court of Curitiba partially granted BK’s claims, and ordered Wabash to pay BK lost profits, compensatory, economic and moral damages in excess of the amount of compensatory damages asserted by BK.
The total ordered damages amount is approximately R$
26.7
million (Brazilian Reais), which is approximately $
11.4
million U.S. dollars using current exchange rates and exclusive of any potentially court-imposed interest, fees or inflation adjustments (which are currently estimated at a maximum of approximately $
60
million, at current exchange rates, but may change with the passage of time and/or the discretion of the court at the time of final judgment in this matter).
Due, in part, to the amount and type of damages awarded by the Fourth Civil Court of Curitiba, Wabash immediately filed for clarification of the judgment.
The Fourth Civil Court has issued its clarification of judgment, leaving the underlying decision unchanged and referring the parties to the State of Paraná Court of Appeals for any further appeal of the decision.
As such, Wabash filed its notice of appeal with the Court of Appeals, as well as its initial appeal papers, on April 22, 2013.
The Court of Appeals has the authority to re-hear all facts presented to the lower court, as well as to reconsider the legal questions presented in the case, and to render a new judgment in the case without regard to the lower court’s findings.
Pending outcome of this appeal process, the judgment is not enforceable by the plaintiff.
As of this time, the appeal is pending, the full panel of appeal judges has not yet been assigned, and the parties have not made additional arguments before the Court of Appeals.
Any ruling from the Court of Appeals is not expected before the second quarter of 2014, and, accordingly, the judgment rendered by the lower court cannot be enforced prior to that time, and may be overturned or reduced as a result of this process.
The Company believes that the claims asserted by BK are without merit and it intends to continue to vigorously defend its position.
The Company has not recorded a charge with respect to this loss contingency as of December 31, 2013.
Furthermore, at this time, the Company does not have sufficient information to predict the ultimate outcome of the case and is unable to estimate the amount of any reasonable possible loss or range of loss that it may be required to pay at the conclusion of the case.
The Company will reassess the need for the recognition of a loss contingency upon official assignment of the case to a judging panel in the Court of Appeals, upon a decision to settle this case with the plaintiffs or an internal decision as to an amount that the Company would be willing to settle or upon the outcome of the appeals process.
Intellectual Property
In October 2006, the Company filed a patent infringement suit against Vanguard National Corporation (“Vanguard”) regarding the Company’s U.S. Patent Nos. 6,986,546 and 6,220,651 in the U.S. District Court for the Northern District of Indiana (Civil Action No. 4:06-cv-135).
The Company amended the Complaint in April 2007.
In May 2007, Vanguard filed its Answer to the Amended Complaint, along with Counterclaims seeking findings of non-infringement, invalidity, and unenforceability of the subject patents.
The Company filed a reply to Vanguard’s counterclaims in May 2007, denying any wrongdoing or merit to the allegations as set forth in the counterclaims.
The case has currently been stayed by agreement of the parties while the U.S. Patent and Trademark Office (“Patent Office”) undertakes a reexamination of U.S. Patent Nos. 6,986,546.
In June 2010, the Patent Office notified the Company that the reexamination is complete and the Patent Office has reissued U.S. Patent No. 6,986,546 without cancelling any claims of the patent.
The parties have not yet petitioned the Court to lift the stay, and it is unknown at this time when the parties’ petition to lift the stay may be filed or granted.
The Company believes that its claims against Vanguard have merit and that the claims asserted by Vanguard are without merit.
The Company intends to vigorously defend its position and intellectual property.
The Company 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
On May 8, 2012, the Company completed the Walker Acquisition pursuant to the Purchase and Sale Agreement for $
377.0
million in cash.
In connection with the Acquisition there is an outstanding claim of approximately $
2.9
million for unpaid benefits owed by the Seller that is currently in dispute and that is not expected to have a material adverse effect on the Company’s financial condition or results of operations.
Environmental Disputes
Bulk Tank International, S. de R.L. de C.V. (“Bulk”), one of the Walker companies acquired by the Company on May 8, 2012, 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 (“Compliance Agreements”).
Bulk completed all required corrective actions and received a Certification of Clean Industry from PROPAEG; Bulk is seeking the same certification from PROFEPA, which the Company expects it will receive following an audit and review to be conducted by PROFEPA in late February 2014.
The Company does not expect that this matter will have a material adverse effect on its financial condition or results of operations.
In January 2012, the Company was noticed as a potentially responsible party (“PRP”) by the U.S. Environmental Protection Agency (“EPA”) and the Louisiana Department of Environmental Quality (“LDEQ”) pertaining to the Marine Shale Processors Site located in Amelia, Louisiana (“MSP Site”) pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and corresponding Louisiana statutes.
PRPs include current and former owners and operators of facilities at which hazardous substances were allegedly disposed.
The EPA’s allegation that the Company is a PRP arises out of one alleged shipment of waste to the MSP Site in 1992 from the Company’s branch facility in Dallas, Texas.
As such, the MSP Site PRP Group notified the Company in January 2012 that, as a result of a March 18, 2009 Cooperative Agreement for Site Investigation and Remediation entered into between the MSP Site PRP Group and the LDEQ, the Company was being offered a “De Minimis Cash-Out Settlement” to contribute to the remediation costs, which would remain open until February 29, 2012.
The Company chose not to enter into the settlement and has denied any liability.
In addition, the Company has requested that the MSP Site PRP Group remove the Company from the list of PRPs for the MSP Site, based upon the following facts.
The Company acquired this branch facility in 1997 five years after the alleged shipment - as part of the assets the Company acquired out of the Fruehauf Trailer Corporation (“Fruehauf”) bankruptcy (Case No. 96-1563, United States Bankruptcy Court, District of Delaware (“Bankruptcy Court”)).
As part of the Asset Purchase Agreement regarding the Company’s purchase of assets from Fruehauf, Wabash did not assume liability for “Off-Site Environmental Liabilities,” which are defined to include any environmental claims arising out of the treatment, storage, disposal or other disposition of any Hazardous Substance at any location other than any of the acquired locations/assets.
The Bankruptcy Court, in an Order dated May 26, 1999, also provided that, except for those certain specified liabilities assumed by the Company under the terms of the Asset Purchase Agreement, the Company and its subsidiaries shall not be subject to claims asserting successor liability.
The “no successor liability” language of the Asset Purchase Agreement and the Bankruptcy Court Order form the basis for the Company’s request that it be removed from the list of PRPs for the MSP Site.
The MSP Site PSP Group is currently considering the Company’s request, but has provided no timeline to the Company for a response.
However, the MSP Site PSP Group has agreed to indefinitely extend the time period by which the Company must respond to the De Minimis Cash-Out Settlement offer.
The Company does not expect that this proceeding will have a material adverse effect on its financial condition or results of operations.
In September 2003, the Company was noticed as a PRP by the EPA pertaining to the Motorola 52nd Street, Phoenix, Arizona Superfund Site (the “Superfund Site”) pursuant to CERCLA.
The EPA’s allegation that the Company was a PRP arises out of the Company’s acquisition of a former branch facility located approximately five miles from the original Superfund Site.
The Company acquired this facility in 1997, operated the facility until 2000, and sold the facility to a third party in 2002.
In June 2010, the Company was contacted by the Roosevelt Irrigation District (“RID”) informing it that the Arizona Department of Environmental Quality (“ADEQ”) had approved a remediation plan in excess of $
100
million for the RID portion of the Superfund Site, and demanded that the Company contribute to the cost of the plan or be named as a defendant in a CERCLA action to be filed in July 2010.
The Company initiated settlement discussions with the RID and the ADEQ in July 2010 to provide a full release from the RID, and a covenant not-to-sue and contribution protection regarding the former branch property from the ADEQ, in exchange for payment from the Company.
If the settlement is approved by all parties, it will prevent any third party from successfully bringing claims against the Company for environmental contamination relating to this former branch property.
The Company has been awaiting approval from the ADEQ since the settlement was first proposed in July 2010.
Based on communications with the RID and ADEQ in December 2013, the Company does not expect to receive a response regarding the approval of the settlement from the ADEQ for, at least, several additional months.
Based upon the Company’s limited period of ownership of the former branch property, and the fact that it no longer owns the former branch property, it does not anticipate that the ADEQ will reject the proposed settlement, but no assurance can be given at this time as to the ADEQ’s response to the settlement proposal.
The proposed settlement terms have been accrued and did not have a material adverse effect on the Company’s financial condition or results of operations, and it believes that any ongoing proceedings will not have a material adverse effect on the Company’s financial condition or results of operations.
In January 2006, the Company received a letter from the North Carolina Department of Environment and Natural Resources indicating that a site that the Company formerly owned near Charlotte, North Carolina has been included on the state's October 2005 Inactive Hazardous Waste Sites Priority List.
The letter states that the Company was being notified in fulfillment of the state's “statutory duty” to notify those who own and those who at present are known to be responsible for each Site on the Priority List.
No action is being requested from the Company at this time, and the Company has received no further notices or 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, 2013, in addition to a reserve of $
0.2
million relating to the ADEQ proposed settlement discussed above, the Company had reserved estimated remediation costs of $
0.7
million for activities at existing and former properties which are recorded within
Other Accrued Liabilities
in the Consolidated Balance Sheet.
c.
Letters of Credit
As of December 31, 2013, the Company had standby letters of credit totaling $
8.9
million issued in connection with workers compensation claims and surety bonds.
d.
Purchase Commitments
The Company has $
32.8
million in purchase commitments through December 2014 for various raw material commodities, including aluminum, steel, nickel and copper as well as other raw material components which are within normal production requirements.
|
13.
|
SEGMENTS AND RELATED INFORMATION
|
The Company manages its business in three segments: Commercial Trailer Products, Diversified Products and Retail.
The Commercial Trailer Products segment produces and sells new trailers to the Retail segment and to customers who purchase trailers directly from the Company or through independent dealers.
The Diversified Products segment focuses on the Company’s commitment to expand its customer base, diversify its product offerings and revenues and extend its market leadership by leveraging its proprietary DuraPlate
®
panel technology, drawing on its core manufacturing expertise and making available products that are complementary to truck and tank trailers and transportation equipment.
The results related to the purchased Beall assets from the date of the purchase, February 4, 2013, are included in the Diversified Products segment.
The Retail segment includes the sale of new and used trailers, as well as the sale of after-market parts and service, through its retail branch network.
The 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 segment.
The Company accounts for intersegment sales and transfers at cost plus a specified mark-up.
The Company manages its assets and capital spending on a consolidated basis, not by operating segment, as the assets and capital spending of the Diversified Products segment are intermixed with those of the Commercial Trailer Products segment.
Therefore, our chief operating decision maker does not review any asset or capital spending information by operating segment and, accordingly, we do not report asset or capital spending information by operating segment.
Reportable segment information is as follows (in thousands):
|
|
Commercial
|
|
Diversified
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
Trailer Products
|
|
Products
|
|
Retail
|
|
Eliminations
|
|
Consolidated
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
1,009,527
|
|
$
|
446,013
|
|
$
|
180,146
|
|
$
|
-
|
|
$
|
1,635,686
|
|
Intersegment sales
|
|
|
71,718
|
|
|
55,967
|
|
|
1,340
|
|
|
(129,025)
|
|
$
|
-
|
|
Total net sales
|
|
$
|
1,081,245
|
|
$
|
501,980
|
|
$
|
181,486
|
|
$
|
(129,025)
|
|
$
|
1,635,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,452
|
|
|
23,995
|
|
|
2,029
|
|
|
1,860
|
|
|
38,336
|
|
Income (Loss) from operations
|
|
|
51,485
|
|
|
64,808
|
|
|
2,885
|
|
|
(15,987)
|
|
|
103,191
|
|
Reconciling items to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,308
|
|
Loss on debt extinguishment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,889
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,629)
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,094
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
993,862
|
|
$
|
310,982
|
|
$
|
157,010
|
|
$
|
-
|
|
$
|
1,461,854
|
|
Intersegment sales
|
|
|
69,427
|
|
|
45,011
|
|
|
635
|
|
|
(115,073)
|
|
$
|
-
|
|
Total net sales
|
|
$
|
1,063,289
|
|
$
|
355,993
|
|
$
|
157,645
|
|
$
|
(115,073)
|
|
$
|
1,461,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,014
|
|
|
11,029
|
|
|
710
|
|
|
2,812
|
|
|
25,565
|
|
Income (Loss) from operations
|
|
|
47,314
|
|
|
49,824
|
|
|
2,922
|
|
|
(29,576)
|
|
|
70,484
|
|
Reconciling items to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,724
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,968)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
1,010,131
|
|
$
|
52,048
|
|
$
|
125,065
|
|
$
|
-
|
|
$
|
1,187,244
|
|
Intersegment sales
|
|
|
61,163
|
|
|
54,432
|
|
|
-
|
|
|
(115,595)
|
|
$
|
-
|
|
Total net sales
|
|
$
|
1,071,294
|
|
$
|
106,480
|
|
$
|
125,065
|
|
$
|
(115,595)
|
|
$
|
1,187,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,273
|
|
|
1,866
|
|
|
631
|
|
|
2,821
|
|
|
15,591
|
|
Income (Loss) from operations
|
|
|
18,536
|
|
|
14,630
|
|
|
(275)
|
|
|
(13,101)
|
|
|
19,790
|
|
Reconciling items to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,136
|
|
Loss on debt extinguishment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227)
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,042
|
|
|
b.
|
Customer Concentration
|
The Company is subject to a concentration of risk as the five largest customers together accounted for approximately
17
%,
23
% and
32
% of the Company’s aggregate net sales in 2013, 2012 and 2011, respectively, with one customer representing approximately
13
% of net sales in 2011.
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
|
|
Retail
|
|
Consolidated
|
|
2013
|
|
$
|
|
$
|
|
$
|
|
$
|
|
%
|
|
New trailers
|
|
959,116
|
|
204,812
|
|
82,995
|
|
1,246,923
|
|
76.2
|
|
Used trailers
|
|
33,443
|
|
3,158
|
|
12,814
|
|
49,415
|
|
3.0
|
|
Components, parts and service
|
|
7,387
|
|
92,869
|
|
80,070
|
|
180,326
|
|
11.0
|
|
Equipment and other
|
|
9,581
|
|
145,174
|
|
4,267
|
|
159,022
|
|
9.8
|
|
Total net external sales
|
|
1,009,527
|
|
446,013
|
|
180,146
|
|
1,635,686
|
|
100.0
|
|
|
|
Commercial
|
|
Diversified
|
|
|
|
|
|
|
|
|
|
Trailer Products
|
|
Products
|
|
Retail
|
|
Consolidated
|
|
2012
|
|
$
|
|
$
|
|
$
|
|
$
|
|
%
|
|
New trailers
|
|
959,094
|
|
131,236
|
|
73,524
|
|
1,163,854
|
|
79.6
|
|
Used trailers
|
|
23,534
|
|
1,887
|
|
14,762
|
|
40,183
|
|
2.7
|
|
Components, parts and service
|
|
2,323
|
|
64,145
|
|
65,279
|
|
131,747
|
|
9.0
|
|
Equipment and other
|
|
8,911
|
|
113,714
|
|
3,445
|
|
126,070
|
|
8.7
|
|
Total net external sales
|
|
993,862
|
|
310,982
|
|
157,010
|
|
1,461,854
|
|
100.0
|
|
|
|
Commercial
|
|
Diversified
|
|
|
|
|
|
|
|
|
|
Trailer Products
|
|
Products
|
|
Retail
|
|
Consolidated
|
|
2011
|
|
$
|
|
$
|
|
$
|
|
$
|
|
%
|
|
New trailers
|
|
983,896
|
|
-
|
|
66,578
|
|
1,050,474
|
|
88.5
|
|
Used trailers
|
|
13,386
|
|
-
|
|
13,103
|
|
26,489
|
|
2.2
|
|
Components, parts and service
|
|
2,847
|
|
44,114
|
|
45,289
|
|
92,250
|
|
7.8
|
|
Equipment and other
|
|
10,002
|
|
7,934
|
|
95
|
|
18,031
|
|
1.5
|
|
Total net external sales
|
|
1,010,131
|
|
52,048
|
|
125,065
|
|
1,187,244
|
|
100.0
|
|
14.
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for fiscal years 2013, 2012 and 2011 (dollars in thousands, except per share amounts):
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
324,229
|
|
$
|
413,126
|
|
$
|
439,977
|
|
$
|
458,354
|
|
Gross profit
|
|
|
42,186
|
|
|
58,853
|
|
|
61,497
|
|
|
52,587
|
|
Net income
(1)
|
|
|
5,735
|
|
|
14,135
|
|
|
16,236
|
|
|
10,423
|
|
Basic net income per share
|
|
|
0.08
|
|
|
0.20
|
|
|
0.24
|
|
|
0.15
|
|
Diluted net income per share
(3)
|
|
|
0.08
|
|
|
0.20
|
|
|
0.23
|
|
|
0.15
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
277,682
|
|
$
|
362,408
|
|
$
|
405,917
|
|
$
|
415,847
|
|
Gross profit
|
|
|
19,729
|
|
|
39,681
|
|
|
50,074
|
|
|
54,339
|
|
Net income
(1)(2)
|
|
|
5,064
|
|
|
1,942
|
|
|
18,441
|
|
|
80,184
|
|
Basic and diluted net income per share
(3)
|
|
|
0.07
|
|
|
0.03
|
|
|
0.27
|
|
|
1.16
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
221,984
|
|
$
|
287,095
|
|
$
|
336,433
|
|
$
|
341,732
|
|
Gross profit
|
|
|
16,501
|
|
|
16,240
|
|
|
13,320
|
|
|
20,659
|
|
Net income
|
|
|
3,197
|
|
|
3,302
|
|
|
1,092
|
|
|
7,451
|
|
Basic and diluted net income per share
(3)
|
|
|
0.05
|
|
|
0.05
|
|
|
0.02
|
|
|
0.11
|
|
|
(1)
|
Net income includes pre-tax charges of $
1.7
million, $
13.6
million, $
2.4
million and $
0.5
million for the first, second, third and fourth quarters of 2012, respectively, and $
0.6
million, $
0.2
million and less than $
0.1
million for the first, second and third quarters of 2013, respectively, in connection with acquisition related charges associated with the Company’s acquisition of Walker as well as the purchase of certain assets of Beall.
|
|
(2)
|
Net income for the fourth quarter of 2012 includes an income tax benefit of $
59.0
million primarily related to the reversal of a U.S. valuation allowance against its deferred tax assets.
|
|
(3)
|
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.
|