NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Wabash National Corporation (the “Company,” “Wabash” or “Wabash National”) manufactures a diverse range of products including: dry freight and refrigerated trailers, platform trailers, bulk tank trailers, dry and refrigerated truck bodies, truck-mounted tanks, intermodal equipment, structural composite panels and products, trailer aerodynamic solutions, and specialty food grade and pharmaceutical equipment. Its innovative products are sold under the following brand names: Wabash National®, Beall®, Benson®, Brenner® Tank, Bulk Tank International, DuraPlate®, Extract Technology®, Supreme®, Transcraft®, Walker Engineered Products, and Walker Transport.
2. SUMMARY OF SIGNFICANT ACCOUNTING POLICIES
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.
Reclassifications. Certain prior period amounts have been reclassified to conform to the current year presentation.
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.
Cash and Cash Equivalents. Cash and cash equivalents include all highly liquid investments with a maturity of three months or less at the time of purchase.
Accounts Receivable. Accounts receivable are shown net of allowance for doubtful accounts and primarily include trade receivables. The Company records and maintains a provision for doubtful accounts for customers based upon a variety of factors including the Company’s historical collection experience, the length of time the account has been outstanding and the financial condition of the customer. If the circumstances related to specific customers were to change, the Company’s estimates with respect to the collectability of the related accounts could be further adjusted. The Company’s policy is to write-off receivables when they are determined to be uncollectible. Provisions to the allowance for doubtful accounts are charged to Selling and General and administrative expenses in the Consolidated Statements of Operations. The following table presents the changes in the allowance for doubtful accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
665
|
|
|
$
|
869
|
|
|
$
|
951
|
|
Provision
|
282
|
|
|
63
|
|
|
119
|
|
Write-offs, net of recoveries
|
(277
|
)
|
|
(267
|
)
|
|
(201
|
)
|
Balance at end of year
|
$
|
670
|
|
|
$
|
665
|
|
|
$
|
869
|
|
Inventories. Inventories are stated at the lower of cost, determined on either the first-in, first-out or average cost method, or net realizable value. The cost of manufactured inventory includes raw material, labor and overhead.
Prepaid Expenses and Other. Prepaid expenses and other as of December 31, 2019 and 2018 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Chassis converter pool agreements
|
$
|
10,164
|
|
|
$
|
22,273
|
|
Income tax receivables
|
8,701
|
|
|
9,872
|
|
Insurance premiums & maintenance agreements
|
3,217
|
|
|
3,313
|
|
Assets held for sale
|
3,020
|
|
|
3,039
|
|
All other
|
16,120
|
|
|
12,764
|
|
|
$
|
41,222
|
|
|
$
|
51,261
|
|
Chassis converter pool agreements represent chassis transferred to the Company on a restricted basis by the manufacturer, who retains the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales to the manufacturer’s dealers. Assets held for sale are related to the Company’s
locations which are being actively marketed for sale and unused land parcels. Insurance premiums and maintenance agreements are charged to expense over the contractual life, which is generally one year or less. Other prepaid items consist primarily of contract assets related to contracts for which the Company recognizes revenue on an over time basis and investments held by the Company’s captive insurance subsidiary. As of December 31, 2019 and 2018, there was no restricted cash included in prepaid expenses and other current assets.
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.
Goodwill. Goodwill represents the excess purchase price over fair value of the net assets acquired. The Company determines its reporting units at the individual operating segment level, or one level below, when there is discrete financial information available that is regularly reviewed by segment management for evaluating operating results. The Company reviews goodwill for impairment, at the reporting unit level, annually on October 1 and whenever events or changes in circumstances indicate its carrying value may not be recoverable. In accordance with ASC 350, Intangibles - Goodwill and Other, goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative process.
The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity has an unconditional option to bypass the qualitative assessment in any period and proceed directly to performing the quantitative impairment test, which is the option the Company has historically chosen.
For reporting units in which the Company performs the quantitative analysis, the Company compares the carrying value, including goodwill, of each reporting unit with its estimated fair value. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is greater than the fair value, the difference is recognized as an impairment loss charged to the reporting unit. After an impairment loss is recognized, the adjusted carrying amount of goodwill shall be its new accounting basis.
The Company exercised its unconditional option to bypass the qualitative assessment of goodwill for all of its reporting units and instead prepared a quantitative assessment to estimate the fair value of each reporting unit at the annual testing date of October 1, 2019 utilizing a combination of the income approach and the market approach, weighted equally. Based on the quantitative assessment performed, all of the Company’s reporting units exceeded their carrying values; as such, there was no goodwill impairment as a result of the 2019 annual goodwill impairment test.
In the fourth quarter of 2019, the FMP reporting unit did not perform in-line with internal expectations, driven by several operational inefficiencies, which the Company identified as an indicator of impairment. As a result, the Company performed an interim quantitative assessment as of December 31, 2019, utilizing a combination of the income and market approaches, which were weighted evenly. No impairment was indicated as the fair value of the reporting unit exceeded its carrying value. The results of the quantitative analysis performed indicated the fair value of the FMP reporting unit exceeded the carrying value by approximately 3%. Key assumptions used in the analysis were a discount rate of 16.0%, EBITDA margin, and a terminal growth rate of 3.00%. The primary driver in the reduction of the fair value of the FMP reporting unit was a reduction of expected future cash flows. Future events and changing market conditions may, however, lead the Company to re-evaluate the assumptions used to test for goodwill impairment, including key assumptions used in our expected EBITDA margins and cash flows, as well as other key assumptions with respect to matters out of our control, such as discount rates and market multiple comparables.
In the third quarter of 2018, the Aviation and Truck Equipment (“AVTE”) reporting unit within the Diversified Products reportable segment did not perform in-line with forecasted results driven by unfavorable market conditions that the Company believed would continue to impact the reporting unit for the foreseeable future. As a result, an indicator of impairment was identified, and the Company performed an interim quantitative assessment as of September 30, 2018, utilizing a combination of the income and market approaches. The results of the quantitative analysis indicated the carrying value of the reporting unit exceeded the fair value of the reporting unit and, accordingly, a goodwill impairment of $4.9 million was recorded.
Long-Lived Assets. 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.
In the third quarter of 2018, due to the impairment indicators noted above related to the AVTE reporting unit with the Diversified Products reportable segment, the Company performed an interim impairment assessment of the long-lived assets of the AVTE
reporting unit, including intangible assets and property, plant and equipment. Based on the results of our analysis it was determined that the carrying values of the trade names and property, plant and equipment of the AVTE reporting unit exceeded their fair values and, accordingly, an asset impairment charge totaling $7.1 million was recorded.
AVTE Impairments. On January 22, 2019 the Company announced the divestiture of the AVTE business. In the fourth quarter of 2018, with the financial framework of the agreement to sell the AVTE business largely agreed to with the buyers, the Company evaluated the remaining assets of AVTE for impairment based on the economics of the, then proposed, transaction. As a result of the Company’s impairment analysis, an impairment of $13.0 million was recorded to fully impair all current assets of the AVTE business.
Other Assets. 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, 2019 and 2018, the Company had software costs, net of amortization, of $7.2 million and $7.9 million, respectively. Amortization expense for 2019, 2018, and 2017 was $1.7 million, $1.5 million, and $1.3 million, respectively.
Warranties. The Company offers a limited warranty for its products with a coverage period that ranges between one and five years, except that the coverage period for DuraPlate® trailer panels is ten years. The Company passes through component manufacturers’ warranties to our customers. The Company’s policy is to accrue the estimated cost of warranty coverage at the time of the sale.
The following table presents the changes in the product warranty accrual included in Other accrued liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Balance as of January 1
|
$
|
22,247
|
|
|
$
|
20,132
|
|
Provision for warranties issued in current year
|
8,027
|
|
|
8,026
|
|
Liability adjustment due to divestiture of business
|
—
|
|
|
(420
|
)
|
Net adjustment to warranty accrual
|
(2,320
|
)
|
|
—
|
|
Payments
|
(5,379
|
)
|
|
(5,491
|
)
|
Balance as of December 31
|
$
|
22,575
|
|
|
$
|
22,247
|
|
Self Insured Liabilities. 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 following table presents the changes in the self-insurance accrual included in Other accrued liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Balance as of January 1
|
$
|
9,890
|
|
|
$
|
9,996
|
|
Expense
|
57,733
|
|
|
66,493
|
|
Payments
|
(54,689
|
)
|
|
(66,599
|
)
|
Balance as of December 31
|
$
|
12,934
|
|
|
$
|
9,890
|
|
Income Taxes. 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.
Used Trailer Trade Commitments. The Company may accept trade-in of used trailers when a customer enters into a contract to purchase a new trailer. However, in the contracts for the sale of the new trailers, there is no commitment to repurchase that trailer or a similar trailer in the future. As of December 31, 2019, the Company had $3.5 million in outstanding trade commitments, which also represented the estimated net realizable value of the underlying used trailer, and no outstanding trade commitments as of December 31, 2018. 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.
Concentration of Credit Risk. Financial instruments that potentially subject 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.
Research and Development. Research and development expenses are charged to Cost of sales and General and administrative expenses in the Consolidated Statements of Operations as incurred and were $19.5 million, $8.8 million, and $3.9 million in 2019, 2018 and 2017, respectively.
3. NEW ACCOUNTING PRONOUNCEMENTS
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”. This update requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company has identified its existing lease contracts and calculated the right-of-use (“ROU”) assets, which are reflected in Other assets on the Consolidated Balance Sheets, and lease liabilities, which are reflected in the Other accrued liabilities and Other non-current liabilities on the Consolidated Balance Sheets. This guidance was effective for the Company as of January 1, 2019. Adoption of the new standard resulted in the recording of ROU assets and lease liabilities of $9.9 million as of January 1, 2019. The FASB has issued further ASUs related to the standard providing an optional transition method allowing entities to not recast comparative periods. The Company elected the practical expedients upon transition that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. The Company did not reassess whether any contracts entered into prior to adoption are leases. The Company has approximately $16.7 million of noncancelable future rental obligations as of December 31, 2019, as shown in Note 11.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” which introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities, and net investments in leases as well as reinsurance and trade receivables. In November 2018, the FASB issued ASU 2018-19, which clarifies that operating lease receivables are outside the scope of the new standard. This standard will be effective for us beginning January 1, 2020. The Company expects that the new credit losses model will not have a material impact on its consolidated financial statements.
4. REVENUE RECOGNITION
The Company adopted FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective January 1, 2018. The adoption of Topic 606 did not have a material impact on the consolidated financial statements. The Company recognizes revenue from the sale of its products when obligations under the terms of a contract with our customers are satisfied; this occurs with the transfer of control of our products and replacement parts or throughout the completion of service work. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring promised goods or services to a customer and excludes 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. For shipping and handling costs that take place after the transfer of control, the Company is applying the practical expedient and treating it as a fulfillment cost. Incidental items that are immaterial in the context of the contract are recognized as expense. For performance obligations satisfied over time, which include certain equipment-related sales within our Diversified Products reportable segment that have no alternative use and contain an enforceable right to payment, as well as service work whereby the customer simultaneously receives and consumes the benefits provided, the Company recognizes revenue on the basis of the Company’s efforts or inputs to the satisfaction of these performance obligations, measured by actual total cost incurred to the total estimated costs for each project. Total revenue recognized over time was not material to the consolidated financial statements for all periods presented.
The Company has identified three separate and distinct performance obligations: 1) the sale of a trailer or equipment, 2) the sale of replacement parts, and 3) service work. For trailer, truck body, equipment, and replacement part sales, control is transferred and revenue is recognized from the sale upon shipment to or pick up by the customer in accordance with the contract terms. The Company does not have any material extended payment terms as payment is received shortly after the point of sale. Accounts receivable are recorded when the right to consideration becomes unconditional. The Company does have customers who pay for the product prior to the transfer of control which is recorded as customer deposits in Other accrued liabilities as shown in Note 8. Customer deposits are recognized as revenue when the Company performs its obligations under the contract and transfers control of the product.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill.
During the fourth quarters of 2019, 2018, and 2017, the Company completed its goodwill impairment test using the quantitative assessment. During the third quarter of 2018, the Company performed an interim impairment analysis after identifying indicators of impairment based on the results of the AVTE reporting unit. Based on this assessment, it was determined that all of the goodwill allocated to the AVTE reporting unit was impaired resulting in an impairment charge for the Diversified Products reporting segment of $4.9 million. Based on all other assessments performed in each of the last three years, the Company believed it was more likely than not that the fair value of its reporting units were greater than their carrying amount and no additional impairment of goodwill was recognized.
For the year ended December 31, 2019, the changes in the carrying amounts of goodwill were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Trailer Products
|
|
Diversified Products
|
|
Final Mile Products
|
|
Total
|
Balance at December 31, 2017
|
|
|
|
|
|
|
|
Goodwill
|
$
|
4,288
|
|
|
$
|
145,604
|
|
|
$
|
169,235
|
|
|
$
|
319,127
|
|
Accumulated impairment losses
|
(1,663
|
)
|
|
—
|
|
|
—
|
|
|
(1,663
|
)
|
Net balance at December 31, 2017
|
2,625
|
|
|
145,604
|
|
|
169,235
|
|
|
317,464
|
|
Acquisition of Supreme
|
—
|
|
|
—
|
|
|
(1,520
|
)
|
|
(1,520
|
)
|
Effects of foreign currency
|
—
|
|
|
84
|
|
|
—
|
|
|
84
|
|
Goodwill impairments during 2018
|
—
|
|
|
(4,944
|
)
|
|
—
|
|
|
(4,944
|
)
|
Balance at December 31, 2018
|
|
|
|
|
|
|
|
Goodwill
|
4,288
|
|
|
145,688
|
|
|
167,715
|
|
|
317,691
|
|
Accumulated impairment losses
|
(1,663
|
)
|
|
(4,944
|
)
|
|
—
|
|
|
(6,607
|
)
|
Net balance as of December 31, 2018
|
2,625
|
|
|
140,744
|
|
|
167,715
|
|
|
311,084
|
|
Effects of foreign currency
|
—
|
|
|
(58
|
)
|
|
—
|
|
|
(58
|
)
|
Impact of divestiture on goodwill
|
—
|
|
|
(4,944
|
)
|
|
—
|
|
|
(4,944
|
)
|
Impact of divestiture on accumulated impairment losses
|
—
|
|
|
4,944
|
|
|
—
|
|
|
4,944
|
|
Balance as of December 31, 2019
|
|
|
|
|
|
|
|
Goodwill
|
4,288
|
|
|
140,686
|
|
|
167,715
|
|
|
312,689
|
|
Accumulated impairment losses
|
(1,663
|
)
|
|
—
|
|
|
—
|
|
|
(1,663
|
)
|
Net balance as of December 31, 2019
|
$
|
2,625
|
|
|
$
|
140,686
|
|
|
$
|
167,715
|
|
|
$
|
311,026
|
|
Intangible Assets.
As of December 31, 2019, 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
|
|
$
|
53,103
|
|
|
$
|
(17,962
|
)
|
|
$
|
35,141
|
|
Customer relationships
|
13 years
|
|
282,863
|
|
|
(132,903
|
)
|
|
149,960
|
|
Technology
|
12 years
|
|
14,045
|
|
|
(9,248
|
)
|
|
4,797
|
|
Total
|
|
|
$
|
350,011
|
|
|
$
|
(160,113
|
)
|
|
$
|
189,898
|
|
As of December 31, 2018, 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
|
|
$
|
53,103
|
|
|
$
|
(15,307
|
)
|
|
$
|
37,796
|
|
Customer relationships
|
13 years
|
|
282,736
|
|
|
(116,222
|
)
|
|
166,514
|
|
Technology
|
12 years
|
|
14,045
|
|
|
(8,027
|
)
|
|
6,018
|
|
Total
|
|
|
$
|
349,884
|
|
|
$
|
(139,556
|
)
|
|
$
|
210,328
|
|
Intangible asset amortization expense was $20.5 million, $19.5 million, and $17.0 million for 2019, 2018, and 2017, respectively. Annual intangible asset amortization expense for the next 5 fiscal years is estimated to be $21.4 million in 2020; $23.5 million in 2021; $18.1 million in 2022; $15.4 million in 2023; and $15.2 million in 2024.
6. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Raw materials and components
|
$
|
105,332
|
|
|
$
|
115,083
|
|
Finished goods
|
58,224
|
|
|
48,698
|
|
Work in progress
|
14,269
|
|
|
13,119
|
|
Used trailers
|
2,499
|
|
|
1,083
|
|
Aftermarket parts
|
6,590
|
|
|
6,421
|
|
|
$
|
186,914
|
|
|
$
|
184,404
|
|
7. PROPERTY, PLANT 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 $20.2 million, $19.7 million, and $16.7 million in 2019, 2018, and 2017, respectively, and includes amortization of assets recorded in connection with the Company’s finance lease agreements. As of December 31, 2019 and 2018, the assets related to the Company’s finance lease agreements are recorded within Property, plant and equipment, net in the Consolidated Balance Sheets in the amount of $2.9 million and $3.1 million, respectively, net of accumulated depreciation of $1.7 million and $1.6 million, respectively.
Property, plant and equipment, net consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Land
|
$
|
36,794
|
|
|
$
|
35,485
|
|
Buildings and building improvements
|
146,210
|
|
|
141,098
|
|
Machinery and equipment
|
287,332
|
|
|
266,803
|
|
Construction in progress
|
36,179
|
|
|
31,772
|
|
|
506,515
|
|
|
475,158
|
|
Less: accumulated depreciation
|
(285,169
|
)
|
|
(268,167
|
)
|
|
$
|
221,346
|
|
|
$
|
206,991
|
|
8. OTHER ACCRUED LIABILITIES
The following table presents the major components of Other accrued liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Customer deposits
|
$
|
19,324
|
|
|
$
|
23,483
|
|
Chassis converter pool agreements
|
10,164
|
|
|
22,273
|
|
Warranty
|
22,575
|
|
|
22,247
|
|
Payroll and related taxes
|
25,263
|
|
|
16,096
|
|
Self-insurance
|
12,934
|
|
|
9,890
|
|
Accrued interest
|
4,696
|
|
|
4,779
|
|
Operating lease obligations
|
4,369
|
|
|
—
|
|
Accrued taxes
|
10,344
|
|
|
7,653
|
|
All other
|
14,561
|
|
|
9,963
|
|
|
$
|
124,230
|
|
|
$
|
116,384
|
|
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Senior notes due 2025
|
$
|
325,000
|
|
|
$
|
325,000
|
|
Term loan credit agreement
|
135,228
|
|
|
185,699
|
|
|
460,228
|
|
|
510,699
|
|
Less: unamortized discount and fees
|
(4,842
|
)
|
|
(5,801
|
)
|
Less: current portion
|
—
|
|
|
(1,880
|
)
|
|
$
|
455,386
|
|
|
$
|
503,018
|
|
Convertible Senior Notes
In April 2012, the Company issued Convertible Senior Notes due 2018 (the “Convertible Notes”) with an aggregate principal amount of $150 million in a public offering. The Convertible Notes bear interest at a rate of 3.375% per annum from the date of issuance, payable semi-annually on May 1 and November 1, and matured on May 1, 2018. The Convertible Notes were senior unsecured obligations of the Company ranking equally with its existing and future senior unsecured debt. The Company used the net proceeds of $145.1 million from the sale of the Convertible Notes to fund a portion of the purchase price of the acquisition of Walker Group Holdings (“Walker”) in May 2012. The Company accounted separately for the liability and equity components of the Convertible Notes in accordance with authoritative guidance for convertible debt instruments that may be settled in cash upon conversion.
During 2018, the Company used $80.2 million in cash, excluding interest, to settle $44.6 million in principal of the Convertible Notes of which none were converted to common shares. The excess of the cash settlement amount over the principal value of the Convertible Notes was accounted for as a reacquisition of equity, resulting in a $35.5 million reduction to additional paid-in capital during 2018. For the years ended December 31, 2018 and December 31, 2017, we recognized a loss on debt extinguishment of $0.2 million and $0.1 million, respectively, related to settlements and the retirement of the Convertible Notes, which is included in Other, net on the Company’s Consolidated Statements of Operations.
Contractual coupon interest expense and accretion of discount and fees on the liability component for the Convertible Notes for the years ended December 31, 2019, 2018, and 2017 included in Interest expense on the Company’s Consolidated Statements of Operations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Contractual coupon interest expense
|
$
|
—
|
|
|
$
|
470
|
|
|
$
|
1,570
|
|
Accretion of discount and fees on the liability component
|
$
|
—
|
|
|
$
|
461
|
|
|
$
|
1,537
|
|
Senior Notes
On September 26, 2017, the Company issued Senior Notes due 2025 (the “Senior Notes”) in an offering pursuant to Rule 144A or Regulation S under the Securities Act of 1933, as amended, with an aggregate principal amount of $325 million. The Senior Notes bear interest at the rate of 5.50% per annum from the date of issuance, and pay interest semi-annually in cash on April 1 and October 1 of each year. The Company used the net proceeds of $318.9 million from the sale of the Senior Notes to finance a portion of the acquisition of Supreme and to pay related fees and expenses.
The Senior Notes will mature on October 1, 2025. At any time prior to October 1, 2020, the Company may redeem some or all of the Senior Notes for cash at a redemption price equal to 100% of the aggregate principal amount of the Senior Notes being redeemed plus an applicable make-whole premium set forth in the indenture for the Senior Notes and accrued and unpaid interest to, but not including, the redemption date. Prior to October 1, 2020, the Company may redeem up to 40% of the Senior Notes at a redemption price of 105.50% of the principal amount, plus accrued and unpaid interest to, but not including, the redemption date, with the proceeds of certain equity offerings so long as if, after any such redemption occurs, at least 60% of the aggregate principal amount of the Senior Notes remains outstanding. On and after October 1, 2020, the Company may redeem some or all of the Senior Notes at redemption prices (expressed as percentages of principal amount) equal to 102.750% for the twelve-month period beginning on October 1, 2020, 101.375% for the twelve-month period beginning October 1, 2021 and 100.000% beginning on October 1, 2022, plus accrued and unpaid interest to, but not including, the redemption date. Upon the occurrence of a Change of Control (as defined in the indenture for the Senior Notes), unless the Company has exercised its optional redemption right in respect of the Senior Notes, the holders of the Senior Notes have the right to require the Company to repurchase all or a portion of the Senior Notes at a price equal to 101% of the aggregate principal amount of the Senior Notes, plus any accrued and unpaid interest to, but not including, the date of repurchase.
The Senior Notes are guaranteed on a senior unsecured basis by all direct and indirect existing and future domestic restricted subsidiaries, subject to certain restrictions. The Senior Notes and related guarantees are the Company and the guarantors’ general unsecured senior obligations and are subordinate to all of the Company and the guarantors’ existing and future secured debt to the extent of the assets securing that secured obligation. In addition, the Senior Notes are structurally subordinate to any existing and future debt of any of the Company’s subsidiaries that are not guarantors, to the extent of the assets of those subsidiaries.
The indenture for the Senior Notes restricts the Company’s ability and the ability of certain of its subsidiaries to: (i)incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock or with respect to any other interest or participation in, or measured by, its profits; (iii) make loans and certain investments; (iv) sell assets; (v) create or incur liens; (vi) enter into transactions with affiliates; and (vii) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications. During any time when the Senior Notes are rated investment grade by Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no event of default has occurred or is continuing, many of such covenants will be suspended and the Company and its subsidiaries will not be subject to such covenants during such period.
The indenture for the Senior Notes contains customary events of default, including payment defaults, breaches of covenants, failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. If an event of default occurs and is continuing, the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, may be declared immediately due and payable. These amounts automatically become due and payable if an event of default relating to certain events of bankruptcy, insolvency or reorganization occurs. As of December 31, 2019, the Company was in compliance with all covenants.
Contractual coupon interest expense and accretion of discount and fees for the Senior Notes for the years ended December 31, 2019, 2018 and 2017, was $18.5 million, $18.5 million and $4.8 million, respectively and is included in Interest expense on the Company’s Consolidated Statements of Operations.
Revolving Credit Agreement
On December 21, 2018, the Company entered into the Second Amended and Restated Credit Agreement (the “Revolving Credit Agreement”), among the Company, certain of its subsidiaries as borrowers (together with the Company, the “Borrowers”), the lenders from time to time party thereto, Wells Fargo Capital Finance, LLC, as the administrative agent, joint lead arranger and joint bookrunner (the “Revolver Agent”), and Citizens Business Capital, a division of Citizens Asset Finance, Inc., as syndication agent, joint lead arranger and joint bookrunner, which amended and restated the Company’s existing amended and restated revolving credit agreement, dated as of May 8, 2012.
The Revolving Credit Agreement is guaranteed by certain subsidiaries of the Company (the “Revolver Guarantors”) and is secured by (i) first priority security interests (subject only to customary permitted liens and certain other permitted liens) in substantially all personal property of the Borrowers and the Revolver Guarantors, consisting of accounts receivable, inventory, cash, deposit and securities accounts and any cash or other assets in such accounts and, to the extent evidencing or otherwise related to such property, all general intangibles, licenses, intercompany debt, letter of credit rights, commercial tort claims, chattel paper, instruments, supporting obligations, documents and payment intangibles (collectively, the “Revolver Priority Collateral”), and (ii)
second-priority liens on and security interests in (subject only to the liens securing the Term Loan Credit Agreement (as defined below), customary permitted liens and certain other permitted liens) (A) equity interests of each direct subsidiary held by the Borrowers and each Revolver Guarantor (subject to customary limitations in the case of the equity of foreign subsidiaries), and (B) substantially all other tangible and intangible assets of the Borrowers and the Revolver Guarantors including equipment, general intangibles, intercompany notes, insurance policies, investment property and intellectual property (in each case, except to the extent constituting Revolver Priority Collateral), but excluding real property (collectively, including certain material owned real property that does not constitute collateral under the Revolving Credit Agreement, the “Term Priority Collateral”). The respective priorities of the security interests securing the Revolving Credit Agreement and the Term Loan Credit Agreement are governed by an Intercreditor Agreement, dated as of May 8, 2012, between the Revolver Agent and the Term Agent (as defined below), as amended (the “Intercreditor Agreement”). The Revolving Credit Agreement has a scheduled maturity date of December 21, 2023, subject to certain springing maturity events.
Under the Revolving Credit Agreement, the lenders agree to make available to the Company a $175 million revolving credit facility. The Company has the option to increase the total commitment under the facility to up to $275 million, subject to certain conditions, including obtaining commitments from any one or more lenders, whether or not currently party to the Revolving Credit Agreement, to provide such increased amounts. Availability under the Revolving Credit Agreement will be based upon quarterly (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 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 $17.5 million. Outstanding borrowings under the Revolving Credit agreement will bear interest at an annual rate, at the Borrowers’ election, equal to (i) LIBOR plus a margin ranging from 1.25% to 1.75% or (ii) a base rate plus a margin ranging from 0.25% to 0.75%, 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 0.20% times the average daily unused availability along with other customary fees and expenses of the Revolver Agent and the lenders.
The 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 will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 as of the end of any period of 12 fiscal months (commencing with the month ending December 31, 2018) when excess availability under the Revolving Credit Agreement is less than 10% of the total revolving commitment.
If availability under the 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 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 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.
In connection with the Second Amended and Restated Credit Agreement, the Company recognized a loss on debt extinguishment of $0.1 million during 2018, which is included in Other, net on the Company’s Consolidated Statements of Operations. As of December 31, 2019 and 2018, the Company had no outstanding borrowings under the Credit Agreement and was in compliance with all covenants. The Company’s liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $308.1 million as of December 31, 2019 and $299.5 million as of December 31, 2018.
Term Loan Credit Agreement
In May 2012, the Company entered into the Term Loan Credit Agreement (as amended, the “Term Loan Credit Agreement”), dated as of May 8, 2012, among the Company, the several lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent (the “Term Agent”), joint lead arranger and joint bookrunner, and Wells Fargo Securities, LLC, as joint lead arranger and joint bookrunner, which provides for, among other things, (x) a senior secured term loan of $188.0 million that matures on March 19, 2022, subject to certain springing maturity events (the “Term Loans”), and (y) an uncommitted accordion feature to provide for additional senior secured term loans of up to $75 million plus an unlimited amount provided that the senior secured leverage ratio would not exceed 3.00 to 1.00, subject to certain conditions (the “Term Loan Facility”).
On February 24, 2017, the Company entered into Amendment No. 3 to the Term Loan Credit Agreement (“Amendment No. 3”). As of February 24, 2017, $189.5 million of the Tranche B-2 Loans were outstanding. Under Amendment No. 3, the lenders agreed to provide to the Company term loans in the same aggregate principal amount of the outstanding Tranche B-2 Loans (the “Tranche B-3 Loans”), which were used to refinance the outstanding Tranche B-2 Loans.
In connection with, and in order to permit under the Term Loan Credit Agreement, the Senior Notes offering and the acquisition of Supreme, on August 18, 2017, the Company entered into Amendment No. 4 to the Term Loan Credit Agreement (“Amendment No. 4”). Amendment No. 4 also permitted the Company to incur certain other indebtedness in connection with the Supreme acquisition and to acquire certain liens and obligations of Supreme upon the consummation of the Supreme acquisition.
Furthermore, on November 17, 2017, the Company entered into Amendment No. 5 to the Term Loan Credit Agreement (“Amendment No. 5”). As of the Amendment No. 5 date, $188.0 million of the Term Loans were outstanding. Under Amendment No. 5, the lenders agreed to provide to the Company term loans in the same aggregate principal amount of the outstanding Term Loans (“Tranche B-4 Loans”), which were used to refinance the outstanding Term Loans.
The Tranche B-4 Loans bear interest at a rate, at the Company’s election, equal to (i) LIBOR (subject to a floor of 0%) plus a margin of 225 basis points or (ii) a base rate (subject to a floor of 0%) plus a margin of 125 basis points. The Company is not subject to any financial covenants under the Term Loan Facility.
The Term Loan Credit Agreement is guaranteed by certain of the Company’s subsidiaries, 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.
The Term Loan Credit Agreement 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 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 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, 2019, the Company was in compliance with all covenants.
For the years ended December 31, 2019, 2018 and 2017, under the Term Loan Credit Agreement the Company paid interest of $7.8 million, $8.0 million and $7.4 million, respectively, and paid principal of $50.5 million, $1.9 million, and $1.9 million, respectively. During 2019, the Company recognized losses on debt extinguishment totaling approximately $0.2 million in connection with the prepayment of principal. In connection with Amendment No. 3 and Amendment No. 5, the Company recognized a loss on debt extinguishment of approximately $0.7 million during 2017. The losses on debt extinguishment are included in Other, net on the Company’s Consolidated Statements of Operations. As of December 31, 2019 and December 31, 2018, the Company had $135.2 million and $185.7 million, respectively, outstanding under the Term Loan Credit Agreement, of which none and $1.9 million, respectively, was classified as current on the Company’s Consolidated Balance Sheets.
For the years ended December 31, 2019, 2018, and 2017, the Company incurred charges of $0.2 million in each period for amortization of fees and original issuance discount which is included in Interest expense in the Consolidated Statements of Operations.
10. FINANCIAL DERIVATIVE INSTRUMENTS
Commodity Pricing Risk
As of December 31, 2019, the Company was party to commodity swap contracts for specific commodities with notional amounts of approximately $81.5 million. The Company uses commodity swap contracts to mitigate the risks associated with fluctuations in commodity prices impacting its cash flows related to inventory purchases from suppliers. The Company does not hedge all commodity price risk.
At inception, the Company designated the commodity swap contracts as cash flow hedges. The contracts mature at specified monthly settlement dates through January 2021. The change in fair value effective portion of the hedging transaction is recognized in Accumulated Other Comprehensive Income (“AOCI”) and transferred to earnings when the forecasted hedged transaction takes place or when the forecasted hedged transaction is no longer probable to occur.
Financial Statement Presentation
As of December 31, 2019 and 2018, the fair value carrying amount of the Company’s derivative instruments were recorded as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset / (Liability) Derivatives
|
|
|
Balance Sheet Caption
|
|
December 31, 2019
|
|
December 31, 2018
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
Commodity swap contracts
|
|
Prepaid expenses and other
|
|
$
|
1,290
|
|
|
$
|
17
|
|
Commodity swap contracts
|
|
Other accrued liabilities
|
|
(3,216
|
)
|
|
(1,146
|
)
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
(1,926
|
)
|
|
$
|
(1,129
|
)
|
The following table summarizes the gain or loss recognized in AOCI as of December 31, 2019 and 2018 and the amounts reclassified from AOCI into earnings for the years ended December 31, 2019, 2018, and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in
AOCI on Derivatives
(Effective Portion, net of tax)
|
|
Location of Gain (Loss) Reclassified from AOCI into Earnings
(Effective Portion)
|
|
Amount of Gain (Loss) Reclassified from AOCI into Earnings
|
|
|
|
|
Year Ended December 31,
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
2019
|
|
2018
|
|
2017
|
Derivatives instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity swap contracts
|
|
$
|
(2,112
|
)
|
|
$
|
(765
|
)
|
|
Cost of sales
|
|
$
|
(2,297
|
)
|
|
$
|
142
|
|
|
$
|
—
|
|
Over the next 12 months, the Company expects to reclassify approximately $2.8 million of pretax deferred losses related to the commodity swap contracts from AOCI to cost of sales as inventory purchases are settled.
11. LEASES
The Company records a right-of-use ("ROU") asset and lease liability for substantially all leases for which it is a lessee, in accordance with ASC 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has no significant lease agreements in place for which the Company is a lessor. At inception of a contract, the Company considers all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not the contract conveys the right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration.
The Company leases certain industrial spaces, office space, land, and equipment. Some leases include one or more options to renew, with renewal terms that can extend the lease term from generally one to 5 years. The exercise of lease renewal options is at the Company’s sole discretion, and are included in the lease term only to the extent such renewal options are reasonably certain of being exercised upon lease commencement. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Leased assets obtained in exchange for new operating lease liabilities during the year ended December 31, 2019 were approximately $2.3 million. As of December 31, 2019, leases that the Company has signed but have not yet commenced are immaterial.
Leased assets and liabilities included within the Consolidated Balance Sheets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Classification
|
|
December 31, 2019
|
Right-of-Use Assets
|
|
|
|
|
Operating
|
|
Other assets
|
|
$
|
14,246
|
|
Finance
|
|
Property, plant and equipment, net
|
|
2,945
|
|
Total leased ROU assets
|
|
|
|
$
|
17,191
|
|
Liabilities
|
|
|
|
|
Current
|
|
|
|
|
Operating
|
|
Other accrued liabilities
|
|
$
|
4,369
|
|
Finance
|
|
Current portion of finance lease obligations
|
|
327
|
|
Noncurrent
|
|
|
|
|
Operating
|
|
Non-current liabilities
|
|
10,041
|
|
Finance
|
|
Finance lease obligations
|
|
378
|
|
Total lease liabilities
|
|
|
|
$
|
15,115
|
|
Lease costs included in the Consolidated Statements of Operations consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
Twelve Months Ended December 31, 2019
|
Operating lease cost
|
|
Cost of sales, selling expenses and general and administrative expense
|
|
$
|
5,172
|
|
Finance lease cost
|
|
|
|
|
Amortization of ROU leased assets
|
|
Depreciation and amortization
|
|
144
|
|
Interest on lease liabilities
|
|
Interest expense
|
|
65
|
|
Net lease cost
|
|
|
|
$
|
5,381
|
|
Maturity of the Company’s lease liabilities is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
2020
|
|
$
|
4,986
|
|
|
$
|
361
|
|
|
$
|
5,347
|
|
2021
|
|
4,477
|
|
|
361
|
|
|
4,838
|
|
2022
|
|
2,551
|
|
|
30
|
|
|
2,581
|
|
2023
|
|
1,855
|
|
|
—
|
|
|
1,855
|
|
2024
|
|
851
|
|
|
—
|
|
|
851
|
|
Thereafter
|
|
1,242
|
|
|
—
|
|
|
1,242
|
|
Total lease payments
|
|
$
|
15,962
|
|
|
$
|
752
|
|
|
$
|
16,714
|
|
Less: interest
|
|
1,552
|
|
|
47
|
|
|
|
Present value of lease payments
|
|
$
|
14,410
|
|
|
$
|
705
|
|
|
|
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Remaining lease term and discount rates are as follows:
|
|
|
|
|
|
|
December 31, 2019
|
Weighted average remaining lease term (years)
|
|
|
Operating leases
|
|
4.0
|
|
Finance leases
|
|
2.1
|
|
Weighted average discount rate
|
|
|
Operating leases
|
|
5.17
|
%
|
Finance leases
|
|
6.16
|
%
|
Lease costs included in the Consolidated Statements of Cash Flows are as follows (in thousands):
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
Operating cash flows from operating leases
|
|
$
|
5,016
|
|
Operating cash flows from finance leases
|
|
$
|
53
|
|
Financing cash flows from finance leases
|
|
$
|
308
|
|
12. 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 include mutual funds, which are classified as Level 1, and life-insurance contracts valued based on the performance of underlying mutual funds, which are classified as Level 2. Additionally, upon the Company’s acquisition of Supreme, the Company acquired a pool of investments made by a wholly owned captive insurance subsidiary. These investments are comprised of mutual funds, which are classified as Level 1.
The fair value of the Company’s derivatives is estimated with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes.
Fair value measurements and the fair value hierarchy level for the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frequency
|
|
Asset / (Liability)
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Commodity swap contracts
|
|
Recurring
|
|
$
|
(1,926
|
)
|
|
$
|
—
|
|
|
$
|
(1,926
|
)
|
|
$
|
—
|
|
Mutual funds
|
|
Recurring
|
|
$
|
7,367
|
|
|
$
|
7,367
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Life-insurance contracts
|
|
Recurring
|
|
$
|
15,072
|
|
|
$
|
—
|
|
|
$
|
15,072
|
|
|
$
|
—
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Commodity swap contracts
|
|
Recurring
|
|
$
|
(1,129
|
)
|
|
$
|
—
|
|
|
$
|
(1,129
|
)
|
|
$
|
—
|
|
Mutual funds
|
|
Recurring
|
|
$
|
4,140
|
|
|
$
|
4,140
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Life-insurance contracts
|
|
Recurring
|
|
$
|
15,333
|
|
|
$
|
—
|
|
|
$
|
15,333
|
|
|
$
|
—
|
|
Estimated Fair Value of Debt
The estimated fair value of debt at December 31, 2019 consists primarily of the Senior Notes due 2025 and borrowings under the Term Loan Credit Agreement (see Note 10). The fair value of the Senior Notes due 2025, Term Loan Credit Agreement, and the Revolving Credit Facility are based upon third party pricing sources, which generally do not represent daily market activity or represent data obtained from an exchange, and are classified as Level 2. The interest rates on the Company’s borrowings under the Revolving Credit Facility are adjusted regularly to reflect current market rates and thus carrying value approximates fair value for these borrowings. All other debt approximates 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, 2019 and December 31, 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
Carrying
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Carrying
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes due 2025
|
$
|
320,572
|
|
|
$
|
—
|
|
|
$
|
320,572
|
|
|
$
|
—
|
|
|
$
|
319,941
|
|
|
$
|
—
|
|
|
$
|
278,688
|
|
|
$
|
—
|
|
Term loan credit agreement
|
134,814
|
|
|
—
|
|
|
134,814
|
|
|
—
|
|
|
184,957
|
|
|
—
|
|
|
181,985
|
|
|
—
|
|
|
$
|
455,386
|
|
|
$
|
—
|
|
|
$
|
455,386
|
|
|
$
|
—
|
|
|
$
|
504,898
|
|
|
$
|
—
|
|
|
$
|
460,673
|
|
|
$
|
—
|
|
The fair value of debt is based on current public market prices for disclosure purposes only. Unrealized gains or losses are not recognized in the financial statements as long-term debt is presented at the carrying value, net of unamortized premium or discount and unamortized deferred financing costs in the financial statements.
13. COMMITMENTS AND CONTINGENCIES
a. Litigation
As of December 31, 2019, the Company was named as a defendant or was otherwise involved in numerous legal proceedings and governmental examinations, in connection with the conduct of its business activities, in various jurisdictions, both in the United States and internationally. On the basis of information currently available to it, management does not believe that existing proceedings and investigations will have a material impact on our consolidated financial condition or liquidity if determined in a manner adverse to the Company. However, such matters are unpredictable, and we could incur judgments or enter into settlements for current or future claims that could materially and adversely affect our financial statements. Costs associated with the litigation and settlements of legal matters are reported within General and administrative expenses in the Consolidated Statements of Operations.
Environmental Disputes
In August 2014, the Company received notice as a potentially responsible party (“PRP”) by the South Carolina Department of Health and Environmental Control (the “DHEC”) pertaining to the Philip Services Site located in Rock Hill, South Carolina pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and corresponding South Carolina statutes. PRPs include parties identified through manifest records as having contributed to deliveries of hazardous substances to the Philip Services Site between 1979 and 1999. The DHEC’s allegation that the Company was a PRP arises out of four manifest entries in 1989 under the name of a company unaffiliated with Wabash National (or any of its former or current subsidiaries) that purport to be delivering a de minimis amount of hazardous waste to the Philip Services Site “c/o Wabash National Corporation.” As such, the Philip Services Site PRP Group (the “PRP Group”) notified Wabash in August 2014 that it was offering the Company the opportunity to resolve any liabilities associated with the Philip Services Site by entering into a Cash Out and Reopener Settlement Agreement (the “Settlement Agreement”) with the PRP Group, as well as a Consent Decree with the DHEC. The Company has accepted the offer from the PRP Group to enter into the Settlement Agreement and Consent Decree, while reserving its rights to contest its liability for any deliveries of hazardous materials to the Philips Services Site. The requested settlement payment is immaterial to the Company’s financial conditions or operations, and as a result, if the Settlement Agreement and Consent Decree are finalized, the payment to be made by the Company thereunder is not expected to have a material adverse effect on the Company’s financial condition or results of operations.
On November 13, 2019, the Company received a notice as a PRP by the Indiana Department of Environmental Management related to substances found at a property located at 817 South Earl Avenue, Lafayette, Indiana (“the Site”). The Site is not owned by the Company but is in close proximity to certain of our owned properties. The notice alleges that the Company is a PRP in addition to several other PRPs for hazardous substances contaminating the site under both Indiana state law and the CERCLA. Review of publicly available records reveal that the Site is owned by Raisor Development Group, LLC and currently operates as “Premier Auto Detailing & Wash”. As of December 31, 2019, based on the information available the Company does not expect this matter to 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, 2019, the Company had reserved estimated remediation costs of $0.1 million for activities at existing and former properties which are recorded within Other accrued liabilities on the Consolidated Balance Sheets.
c. Letters of Credit
As of December 31, 2019, the Company had standby letters of credit totaling $7.4 million issued in connection with workers compensation claims and surety bonds.
d. Purchase Commitments
The Company has $83.9 million in purchase commitments at December 2019 for various raw material commodities, including aluminum, steel, nickel, and polyethylene, as well as other raw material components which are within normal production requirements.
e. Chassis Converter Pool Agreements
The Company, through Supreme, obtains most vehicle chassis for its specialized vehicle products directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and in some cases, for unallocated orders. The agreements generally state that the manufacturer will provide a supply of chassis to be maintained at the Company’s facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. In addition, the manufacturer typically retains the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to the Company nor permit the Company to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer). Although the Company is party to related finance agreements with manufacturers, the Company has not historically settled, nor expects to in the future settle, any related obligations in cash. Instead, the obligation is settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. Accordingly, as of December 31, 2019 the Company’s outstanding chassis converter pool with the manufacturer totaled $10.2 million and has included this financing agreement on the Company’s Consolidated Balance Sheets within Prepaid
expenses and other and Other accrued liabilities. All other chassis programs through its Supreme subsidiary are handled as consigned inventory belonging to the manufacturer and totaled approximately $3.3 million. Under these agreements, if the chassis is not delivered to a customer within a specified time frame the Company is required to pay a finance or storage charge on the chassis. Additionally, the Company receives finance support funds from manufacturers when the chassis are assigned into the Company’s chassis pool. Typically, chassis are converted and delivered to customers within 90 days of the receipt of the chassis by the Company.
14. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Basic net income per share:
|
|
|
|
|
|
Net income applicable to common stockholders
|
$
|
89,575
|
|
|
$
|
69,421
|
|
|
$
|
111,422
|
|
Weighted average common shares outstanding
|
54,695
|
|
|
56,996
|
|
|
59,358
|
|
Basic net income per share
|
$
|
1.64
|
|
|
$
|
1.22
|
|
|
$
|
1.88
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
Net income applicable to common stockholders
|
$
|
89,575
|
|
|
$
|
69,421
|
|
|
$
|
111,422
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
54,695
|
|
|
56,996
|
|
|
59,358
|
|
Dilutive shares from assumed conversion of convertible senior notes
|
—
|
|
|
455
|
|
|
1,726
|
|
Dilutive stock options and restricted stock
|
595
|
|
|
979
|
|
|
1,515
|
|
Diluted weighted average common shares outstanding
|
55,290
|
|
|
58,430
|
|
|
62,599
|
|
Diluted net income per share
|
$
|
1.62
|
|
|
$
|
1.19
|
|
|
$
|
1.78
|
|
For the years ended December 31, 2019, 2018, and 2017, there were no options excluded from average diluted shares outstanding as the average market price of the common shares was greater than the exercise price. In addition, the calculation of diluted net income per share for the years ending December 31, 2018 and 2017 includes the impact of the Company’s Convertible Senior Notes as the average stock price of the Company’s common stock during these periods was above the initial conversion price of approximately $11.70 per share. The convertible notes matured in May 2018, so there were no dilutive shares in 2019.
15. STOCK-BASED COMPENSATION
On May 18, 2017, the shareholders of the Company approved the 2017 Omnibus Incentive Plan (the “2017 Incentive Plan”) which authorizes 3,150,000 shares for issuance under the plan. Awards granted under the 2017 Incentive Plan may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, other share-based awards, and cash awards to directors, officers, and other eligible employees of the Company.
The Company recognizes all share-based awards to eligible employees based upon their fair value. The Company’s policy is to recognize expense for awards that have service conditions only subject to graded vesting using the straight-line attribution method. Total stock-based compensation expense was $9.0 million, $10.2 million and $10.4 million in the years ended December 31, 2019, 2018 and 2017, respectively. The amount of compensation costs related to nonvested stock options and restricted stock not yet recognized was $12.6 million at December 31, 2019, for which the weighted average remaining life was 1.8 years.
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 and market conditions. These shares are valued at the market price on the date of grant and are forfeitable in the event of terminated employment prior to vesting.
A summary of all restricted stock activity during 2019 is as follows:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Restricted Stock Outstanding at December 31, 2018
|
1,495,564
|
|
|
$
|
20.77
|
|
Granted
|
853,994
|
|
|
15.22
|
|
Vested
|
(514,006
|
)
|
|
12.53
|
|
Forfeited
|
(143,853
|
)
|
|
23.30
|
|
Restricted Stock Outstanding at December 31, 2019
|
1,691,699
|
|
|
$
|
20.24
|
|
During 2019, 2018, and 2017, the Company granted 853,994, 593,705 and 794,700 shares of restricted stock, respectively, with aggregate fair values on the date of grant of $13.0 million, $14.6 million, and $17.2 million, respectively. The total fair value of restricted stock that vested during 2019, 2018 and 2017 was $7.4 million, $15.0 million and $13.5 million, respectively.
Stock Options
Stock options are awarded with an exercise price equal to the market price of the underlying stock on the date of grant, become fully exercisable three years after the date of grant and expire ten years after the date of grant. No stock options have been granted by the Company since February 2015.
A summary of all stock option activity during 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
|
|
Aggregate
Intrinsic Value
($ in millions)
|
Options Outstanding at December 31, 2018
|
633,593
|
|
|
$
|
11.26
|
|
|
3.8
|
|
$
|
1.3
|
|
Exercised
|
(91,200
|
)
|
|
$
|
9.30
|
|
|
|
|
$
|
0.5
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Expired
|
(10,451
|
)
|
|
$
|
13.98
|
|
|
|
|
|
Options Outstanding at December 31, 2019
|
531,942
|
|
|
$
|
11.54
|
|
|
3.1
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
|
Options Exercisable at December 31, 2019
|
531,942
|
|
|
$
|
11.59
|
|
|
3.2
|
|
$
|
1.6
|
|
The total intrinsic value of stock options exercised during 2019, 2018, and 2017 was $0.5 million, $1.5 million and $4.4 million, respectively.
16. STOCKHOLDERS’ EQUITY
Share Repurchase Program
On November 14, 2018, the Board of Directors approved the extension of the Company’s existing stock repurchase program for an additional three-year period and authorizing up to an additional $100 million in repurchases. Stock repurchases under this program may be made in the open market or in private transactions at times and in amounts determined by the Company. As of December 31, 2019, $69.1 million remained available under the program.
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.
Accumulated Other Comprehensive Income
Changes in AOCI by component, net of tax, for the years ended December 31, 2019, 2018, and 2017 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
and Other
|
|
Derivative Instruments
|
|
Total
|
Balances at December 31, 2016
|
|
$
|
(2,847
|
)
|
|
$
|
—
|
|
|
$
|
(2,847
|
)
|
Net unrealized gains (losses) arising during the period
|
|
462
|
|
|
—
|
|
|
462
|
|
Less: Net realized gains (losses) reclassified to net income
|
|
—
|
|
|
—
|
|
|
—
|
|
Net change during the period
|
|
462
|
|
|
—
|
|
|
462
|
|
Balances at December 31, 2017
|
|
(2,385
|
)
|
|
—
|
|
|
(2,385
|
)
|
Net unrealized gains (losses) arising during the period(a)
|
|
(193
|
)
|
|
(660
|
)
|
|
(853
|
)
|
Less: Net realized gains (losses) reclassified to net income(b)
|
|
—
|
|
|
105
|
|
|
105
|
|
Net change during the period
|
|
(193
|
)
|
|
(765
|
)
|
|
(958
|
)
|
Balances at December 31, 2018
|
|
(2,578
|
)
|
|
(765
|
)
|
|
(3,343
|
)
|
Net unrealized gains (losses) arising during the period(c)
|
|
712
|
|
|
(3,059
|
)
|
|
(2,347
|
)
|
Less: Net realized gains (losses) reclassified to net income(d)
|
|
—
|
|
|
(1,712
|
)
|
|
(1,712
|
)
|
Net change during the period
|
|
712
|
|
|
(1,347
|
)
|
|
(635
|
)
|
Balances at December 31, 2019
|
|
$
|
(1,866
|
)
|
|
$
|
(2,112
|
)
|
|
$
|
(3,978
|
)
|
—————————
(a) Derivative instruments net of $230 thousand of tax benefit for the year ended December 31, 2018.
(b) Derivative instruments net of $37 thousand of tax expense for the year ended December 31, 2018.
(c) Derivative instruments net of $1,031 thousand of tax benefit for the year ended December 31, 2019.
(d) Derivative instruments net of $585 thousand of tax benefit for the year ended December 31, 2019.
17. EMPLOYEE SAVINGS PLANS
Substantially all of the Company’s employees are eligible to participate in a defined contribution plan under Section 401(k) of the Internal Revenue Code. The Company also provides a non-qualified defined contribution plan for senior management and certain key employees. Both plans provide for the Company to match, in cash, a percentage of each employee’s contributions up to certain limits. The Company’s matching contribution and related expense for these plans was approximately $10.2 million, $7.9 million, and $7.3 million for 2019, 2018, and 2017, respectively.
18. INCOME TAXES
Income Before Income Taxes
The consolidated income before income taxes for 2019, 2018, and 2017 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Domestic
|
$
|
116,886
|
|
|
$
|
94,978
|
|
|
$
|
121,897
|
|
Foreign
|
845
|
|
|
1,026
|
|
|
641
|
|
Total income before income taxes
|
$
|
117,731
|
|
|
$
|
96,004
|
|
|
$
|
122,538
|
|
Income Tax Expense
The Tax Cuts and Jobs Act of 2017 (“the Act”) was enacted on December 22, 2017, and, among other changes, reduced the federal statutory tax rate from 35.0% to 21.0%. In accordance with U.S. GAAP for income taxes, as well as SEC Staff Accounting Bulletin No. 118 (“SAB 118”), the Company made reasonable estimates of the impact of the Act and recorded these estimates in its results for the year ended December 31, 2017. SAB 118 allowed for a measurement period of up to one year, from the date of enactment, to complete the Company’s accounting for the impact of the Act. During the provisional period prescribed by SAB 118, the Company reversed $1.3 million of deferred tax assets with regards to incentive compensation for executives whose compensation is subject to the updated Internal Revenue Code Section 162(m) limitation amounts.
The Act also included a provision that functions as a global minimum tax referred to as Global Intangible Low-taxed Income (“GILTI”) that applies to certain income generated by Controlled Foreign Corporations (“CFC”). U.S. shareholders are required to include on a current basis the aggregate amount of certain income generated by its CFC, regardless of repatriation. For the years ended December 31, 2019 and 2018, the Company calculated the tax but the impact on the financial statements is not material.
The consolidated income tax expense for 2019, 2018 and 2017 consists of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
$
|
18,167
|
|
|
$
|
22,120
|
|
|
$
|
21,316
|
|
State
|
6,233
|
|
|
7,271
|
|
|
4,327
|
|
Foreign
|
336
|
|
|
168
|
|
|
155
|
|
|
24,736
|
|
|
29,559
|
|
|
25,798
|
|
Deferred
|
|
|
|
|
|
Federal
|
2,760
|
|
|
(1,613
|
)
|
|
(16,065
|
)
|
State
|
620
|
|
|
(1,312
|
)
|
|
1,459
|
|
Foreign
|
40
|
|
|
(51
|
)
|
|
(76
|
)
|
|
3,420
|
|
|
(2,976
|
)
|
|
(14,682
|
)
|
Total consolidated expense
|
$
|
28,156
|
|
|
$
|
26,583
|
|
|
$
|
11,116
|
|
The following table provides a reconciliation of differences from the U.S. Federal statutory rates as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Pretax book income
|
$
|
117,731
|
|
|
$
|
96,004
|
|
|
$
|
122,538
|
|
|
|
|
|
|
|
Federal tax expense at applicable statutory rate
|
24,723
|
|
|
20,161
|
|
|
42,888
|
|
State and local income taxes (net of federal benefit)
|
5,513
|
|
|
4,737
|
|
|
5,047
|
|
Benefit of domestic production deduction
|
—
|
|
|
—
|
|
|
(3,450
|
)
|
Change in income tax reserves
|
—
|
|
|
—
|
|
|
(11,925
|
)
|
Tax credits
|
(3,301
|
)
|
|
—
|
|
|
—
|
|
Remeasurement of deferred taxes
|
—
|
|
|
(421
|
)
|
|
(19,796
|
)
|
Nondeductible officer compensation
|
—
|
|
|
1,152
|
|
|
—
|
|
Compensation expense
|
1,317
|
|
|
(1,009
|
)
|
|
(1,943
|
)
|
Other
|
(96
|
)
|
|
1,963
|
|
|
295
|
|
Total income tax expense
|
$
|
28,156
|
|
|
$
|
26,583
|
|
|
$
|
11,116
|
|
Deferred Taxes
The Company’s deferred income taxes are primarily due to temporary differences between financial and income tax reporting for incentive compensation, depreciation of property, plant and equipment, amortization of intangibles, and other accrued liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Companies are required to assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified.
The Company assesses, on a quarterly basis, the realizability of its deferred tax assets by evaluating all available evidence, both positive and negative, including: (1) the cumulative results of operations in recent years, (2) the nature of recent losses, if applicable, (3) estimates of future taxable income, (4) the length of net operating loss carryforwards (“NOLs”) and (5) the uncertainty associated with a possible change in ownership, which imposes an annual limitation on the use of these carryforwards.
As of December 31, 2019 and 2018, the Company retained a valuation allowance of $0.8 million and $0.8 million, respectively, against deferred tax assets related to various state and local NOLs that are subject to restrictive rules for future utilization.
As of December 31, 2019 and 2018, the Company had no U.S. federal tax NOLs. The Company had various multi-state income tax NOLs aggregating approximately $46.4 million which will expire between 2020 and 2030, if unused.
The components of deferred tax assets and deferred tax liabilities as of December 31, 2019 and 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Deferred tax assets
|
|
|
|
|
|
Tax credits and loss carryforwards
|
$
|
672
|
|
|
$
|
657
|
|
Accrued liabilities
|
7,489
|
|
|
7,285
|
|
Incentive compensation
|
14,420
|
|
|
12,132
|
|
Other
|
5,423
|
|
|
6,747
|
|
|
28,004
|
|
|
26,821
|
|
Deferred tax liabilities
|
|
|
|
Property, plant and equipment
|
(17,899
|
)
|
|
(14,695
|
)
|
Intangibles
|
(44,477
|
)
|
|
(42,343
|
)
|
Other
|
(2,379
|
)
|
|
(3,841
|
)
|
|
(64,755
|
)
|
|
(60,879
|
)
|
Net deferred tax liability before valuation allowances and reserves
|
(36,751
|
)
|
|
(34,058
|
)
|
Valuation allowances
|
(825
|
)
|
|
(847
|
)
|
Net deferred tax liability
|
$
|
(37,576
|
)
|
|
$
|
(34,905
|
)
|
Tax Reserves
The Company’s policy with respect to interest and penalties associated with reserves or allowances for uncertain tax positions is to classify such interest and penalties in Income tax expense on the Consolidated Statements of Operations. As of December 31, 2019 and 2018, the total amount of unrecognized income tax benefits, including interest and penalties, was approximately $2.1 million and $1.8 million, respectively, all of which, if recognized, would impact the effective income tax rate of the Company. As of December 31, 2019 and 2018, the Company had recorded a total of $0.7 million and $0.6 million, respectively, of accrued interest and penalties related to uncertain tax positions. The Company expects 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, 2019, the Company is subject to unexpired statutes of limitation for U.S. federal income taxes for the years 2016 through 2018. The Company is also subject to unexpired statutes of limitation for Indiana state income taxes for the years 2016 through 2018.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, was as follows (in thousands) and all balances as of December 31, 2019 were included in either Other noncurrent liabilities or Deferred income taxes in the Company’s Consolidated Balance Sheets:
|
|
|
|
|
|
Unrecognized Tax Benefits
|
Balance at January 1, 2018
|
$
|
495
|
|
Increase in prior year tax positions
|
682
|
|
Balance at December 31, 2018
|
1,177
|
|
Increase in prior year tax positions
|
245
|
|
Balance at December 31, 2019
|
$
|
1,422
|
|
19. SEGMENTS
Segment Reporting
The Company manages its business in three segments: Commercial Trailer Products, Diversified Products, and Final Mile Products. The Commercial Trailer Products segment manufactures standard and customized van and platform trailers and other transportation related equipment for customers who purchase directly from the Company or through independent dealers. The Diversified Products segment, comprised of three strategic business units including, Tank Trailer, Process Systems and Composites, focuses on the Company’s commitment to expand its customer base, diversify its product offerings and revenues and extend its market leadership by leveraging its proprietary DuraPlate® panel technology, drawing on its core manufacturing expertise and making available products that are complementary to truck and tank trailers and transportation equipment. The Final Mile Products segment manufactures truck bodies for customers in the final mile space.
Previously, the Company managed its business in two segments: Commercial Trailer Products and Diversified Products. In 2017, the Company completed the acquisition of Supreme. As a result, the Company created a new reporting segment referred to as the Final Mile Products segment, which includes the Supreme operations and certain other truck body operations which were previously included in the Commercial Trailer Products segment. The Company has not restated the historical comparative periods due to the immaterial impact of the existing truck body activities on the presented segments and periods.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that the Company evaluates segment performance based on income from operations. The Company has not allocated certain corporate related administrative costs, interest and income taxes included in the corporate and eliminations segment to the Company’s other reportable segments. The Company accounts for intersegment sales and transfers at cost plus a specified mark-up.
Reportable segment information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Trailer Products
|
|
Diversified
Products
|
|
Final Mile
Products
|
|
Corporate and
Eliminations
|
|
Consolidated
|
2019
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
External customers
|
$
|
1,519,592
|
|
|
$
|
357,634
|
|
|
$
|
441,910
|
|
|
$
|
—
|
|
|
$
|
2,319,136
|
|
Intersegment sales
|
1,949
|
|
|
26,882
|
|
|
—
|
|
|
(28,831
|
)
|
|
—
|
|
Total net sales
|
$
|
1,521,541
|
|
|
$
|
384,516
|
|
|
$
|
441,910
|
|
|
$
|
(28,831
|
)
|
|
$
|
2,319,136
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
10,667
|
|
|
$
|
18,621
|
|
|
$
|
11,361
|
|
|
$
|
1,708
|
|
|
$
|
42,357
|
|
Income (Loss) from operations
|
$
|
145,877
|
|
|
$
|
29,748
|
|
|
$
|
9,804
|
|
|
$
|
(42,643
|
)
|
|
$
|
142,786
|
|
Assets
|
$
|
362,328
|
|
|
$
|
317,246
|
|
|
$
|
511,862
|
|
|
$
|
113,155
|
|
|
$
|
1,304,591
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
External customers
|
$
|
1,536,687
|
|
|
$
|
372,342
|
|
|
$
|
358,249
|
|
|
$
|
—
|
|
|
$
|
2,267,278
|
|
Intersegment sales
|
252
|
|
|
21,629
|
|
|
—
|
|
|
(21,881
|
)
|
|
—
|
|
Total net sales
|
$
|
1,536,939
|
|
|
$
|
393,971
|
|
|
$
|
358,249
|
|
|
$
|
(21,881
|
)
|
|
$
|
2,267,278
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
9,631
|
|
|
$
|
21,177
|
|
|
$
|
8,314
|
|
|
$
|
1,561
|
|
|
$
|
40,683
|
|
Income (Loss) from operations
|
$
|
141,795
|
|
|
$
|
(3,033
|
)
|
|
$
|
7,907
|
|
|
$
|
(35,682
|
)
|
|
$
|
110,987
|
|
Assets
|
$
|
355,183
|
|
|
$
|
349,423
|
|
|
$
|
484,634
|
|
|
$
|
115,153
|
|
|
$
|
1,304,393
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
External customers
|
$
|
1,348,251
|
|
|
$
|
348,449
|
|
|
$
|
70,461
|
|
|
$
|
—
|
|
|
$
|
1,767,161
|
|
Intersegment sales
|
131
|
|
|
12,909
|
|
|
—
|
|
|
(13,040
|
)
|
|
—
|
|
Total net sales
|
$
|
1,348,382
|
|
|
$
|
361,358
|
|
|
$
|
70,461
|
|
|
$
|
(13,040
|
)
|
|
$
|
1,767,161
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
9,975
|
|
|
$
|
22,236
|
|
|
$
|
1,152
|
|
|
$
|
1,690
|
|
|
$
|
35,053
|
|
Income (Loss) from operations
|
$
|
151,999
|
|
|
$
|
20,376
|
|
|
$
|
(2,098
|
)
|
|
$
|
(39,461
|
)
|
|
$
|
130,816
|
|
Assets
|
$
|
311,705
|
|
|
$
|
340,651
|
|
|
$
|
404,246
|
|
|
$
|
294,911
|
|
|
$
|
1,351,513
|
|
Customer Concentration
The Company is subject to a concentration of risk as the five largest customers together accounted for approximately 27%, 25% and 24% of the Company’s aggregate net sales in 2019, 2018 and 2017, respectively. In addition, for each of the last three years there were no customers whose revenue individually represented 10% or more of our aggregate net sales. International sales accounted for less than 10% in each of the last three years.
Product Information
The Company offers products primarily in four general categories: (1) new trailers, (2) used trailers, (3) components, parts and service, and (4) equipment and other. The following table sets forth the major product categories and their percentage of consolidated net sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
Commercial Trailer Products
|
|
Diversified Products
|
|
Final Mile Products
|
|
Eliminations
|
|
Consolidated
|
New trailers
|
|
$
|
1,464,636
|
|
|
$
|
198,043
|
|
|
|
|
|
$
|
—
|
|
|
$
|
1,662,679
|
|
|
71.7
|
%
|
Used trailers
|
|
435
|
|
|
2,044
|
|
|
—
|
|
|
—
|
|
|
2,479
|
|
|
0.1
|
%
|
Components, parts and service
|
|
40,344
|
|
|
113,024
|
|
|
15,023
|
|
|
(27,902
|
)
|
|
140,489
|
|
|
6.1
|
%
|
Equipment and other
|
|
16,126
|
|
|
71,405
|
|
|
426,887
|
|
|
(929
|
)
|
|
513,489
|
|
|
22.1
|
%
|
Total net external sales
|
|
$
|
1,521,541
|
|
|
$
|
384,516
|
|
|
$
|
441,910
|
|
|
$
|
(28,831
|
)
|
|
$
|
2,319,136
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
Commercial Trailer Products
|
|
Diversified Products
|
|
Final Mile Products
|
|
Eliminations
|
|
Consolidated
|
New trailers
|
|
$
|
1,473,583
|
|
|
$
|
164,790
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,638,373
|
|
|
72.2
|
%
|
Used trailers
|
|
9,618
|
|
|
3,514
|
|
|
—
|
|
|
—
|
|
|
13,132
|
|
|
0.6
|
%
|
Components, parts and service
|
|
34,994
|
|
|
122,099
|
|
|
9,968
|
|
|
(21,811
|
)
|
|
145,250
|
|
|
6.4
|
%
|
Equipment and other
|
|
18,744
|
|
|
103,568
|
|
|
348,281
|
|
|
(70
|
)
|
|
470,523
|
|
|
20.8
|
%
|
Total net external sales
|
|
$
|
1,536,939
|
|
|
$
|
393,971
|
|
|
$
|
358,249
|
|
|
$
|
(21,881
|
)
|
|
$
|
2,267,278
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
Commercial Trailer Products
|
|
Diversified Products
|
|
Final Mile Products
|
|
Eliminations
|
|
Consolidated
|
New trailers
|
|
$
|
1,273,584
|
|
|
$
|
140,105
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,413,689
|
|
|
80.0
|
%
|
Used trailers
|
|
10,720
|
|
|
3,278
|
|
|
—
|
|
|
—
|
|
|
13,998
|
|
|
0.8
|
%
|
Components, parts and service
|
|
48,008
|
|
|
117,681
|
|
|
1,877
|
|
|
(13,040
|
)
|
|
154,526
|
|
|
8.7
|
%
|
Equipment and other
|
|
16,070
|
|
|
100,294
|
|
|
68,584
|
|
|
—
|
|
|
184,948
|
|
|
10.5
|
%
|
Total net external sales
|
|
$
|
1,348,382
|
|
|
$
|
361,358
|
|
|
$
|
70,461
|
|
|
$
|
(13,040
|
)
|
|
$
|
1,767,161
|
|
|
100.0
|
%
|
20. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for fiscal years 2019, 2018 and 2017 (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2019
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
533,174
|
|
|
$
|
626,053
|
|
|
$
|
580,908
|
|
|
$
|
579,001
|
|
Gross profit
|
|
$
|
68,690
|
|
|
$
|
87,650
|
|
|
$
|
77,735
|
|
|
$
|
72,307
|
|
Net income
|
|
$
|
14,780
|
|
|
$
|
30,960
|
|
|
$
|
25,460
|
|
|
$
|
18,375
|
|
Basic net income per share(1)
|
|
$
|
0.27
|
|
|
$
|
0.56
|
|
|
$
|
0.47
|
|
|
$
|
0.34
|
|
Diluted net income per share(1)
|
|
$
|
0.27
|
|
|
$
|
0.56
|
|
|
$
|
0.46
|
|
|
$
|
0.34
|
|
2018
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
491,319
|
|
|
$
|
612,690
|
|
|
$
|
553,073
|
|
|
$
|
610,196
|
|
Gross profit
|
|
$
|
64,119
|
|
|
$
|
85,315
|
|
|
$
|
65,162
|
|
|
$
|
69,056
|
|
Net income
|
|
$
|
21,272
|
|
|
$
|
31,902
|
|
|
$
|
4,664
|
|
|
$
|
11,584
|
|
Basic net income per share(1)
|
|
$
|
0.37
|
|
|
$
|
0.55
|
|
|
$
|
0.08
|
|
|
$
|
0.21
|
|
Diluted net income per share(1)
|
|
$
|
0.35
|
|
|
$
|
0.54
|
|
|
$
|
0.08
|
|
|
$
|
0.21
|
|
2017
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
362,716
|
|
|
$
|
435,903
|
|
|
$
|
425,098
|
|
|
$
|
543,444
|
|
Gross profit
|
|
$
|
59,357
|
|
|
$
|
67,679
|
|
|
$
|
60,963
|
|
|
$
|
72,876
|
|
Net income
|
|
$
|
20,173
|
|
|
$
|
22,945
|
|
|
$
|
18,947
|
|
|
$
|
49,357
|
|
Basic net income per share(1)
|
|
$
|
0.34
|
|
|
$
|
0.38
|
|
|
$
|
0.32
|
|
|
$
|
0.84
|
|
Diluted net income per share(1)
|
|
$
|
0.32
|
|
|
$
|
0.36
|
|
|
$
|
0.30
|
|
|
$
|
0.80
|
|
—————————
|
|
(1)
|
Basic and diluted net income per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly net income per share may differ from annual net income per share due to rounding.
|