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WABASH NATIONAL Corp - Quarter Report: 2019 September (Form 10-Q)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2019
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 

For the transition period from                         to                        _
Commission File Number: 001-10883
WABASH NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
tv505206img03.jpg
52-1375208
(State of Incorporation)
(IRS Employer Identification Number)
 
 
1000 Sagamore Parkway South
 
Lafayette
Indiana
47905
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: (765) 771-5300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
WNC
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of shares of common stock outstanding at November 1, 2019 was 54,092,534.
 


Table of Contents

WABASH NATIONAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
September 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
120,873

 
$
132,690

Accounts receivable, net
171,393

 
181,064

Inventories
274,273

 
184,404

Prepaid expenses and other
54,847

 
51,261

Total current assets
621,386

 
549,419

Property, plant, and equipment, net
210,963

 
206,991

Goodwill
311,134

 
311,084

Intangible assets, net
194,934

 
210,328

Other assets
40,186

 
26,571

Total assets
$
1,378,603

 
$
1,304,393

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$

 
$
1,880

Current portion of finance lease obligations
322

 
299

Accounts payable
188,911

 
153,113

Other accrued liabilities
136,429

 
116,384

Total current liabilities
325,662

 
271,676

Long-term debt
475,122

 
503,018

Finance lease obligations
461

 
714

Deferred income taxes
32,454

 
34,905

Other non-current liabilities
29,846

 
20,231

Total liabilities
863,545

 
830,544

Commitments and contingencies


 


Stockholders’ equity:
 
 
 
Common stock 200,000,000 shares authorized, $0.01 par value, 54,122,624 and 55,135,788 shares outstanding, respectively
750

 
744

Additional paid-in capital
636,756

 
629,039

Retained earnings
207,934

 
150,244

Accumulated other comprehensive losses
(4,895
)
 
(3,343
)
Treasury stock at cost, 20,923,252 and 19,372,735 common shares, respectively
(325,487
)
 
(302,835
)
Total stockholders' equity
515,058

 
473,849

Total liabilities and stockholders’ equity
$
1,378,603

 
$
1,304,393


The accompanying notes are an integral part of these Condensed Consolidated Statements.

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Table of Contents

WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited – dollars in thousands, except per share amounts)


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net sales
$
580,908

 
$
553,073

 
$
1,740,135

 
$
1,657,082

Cost of sales
503,173

 
487,911

 
1,506,060

 
1,442,487

Gross profit
77,735

 
65,162

 
234,075

 
214,595

General and administrative expenses
25,353

 
23,033

 
82,002

 
73,920

Selling expenses
8,998

 
8,690

 
25,715

 
25,591

Amortization of intangible assets
5,115

 
4,937

 
15,353

 
14,818

Acquisition expenses

 

 

 
68

Impairment

 
11,989

 

 
11,989

Income from operations
38,269

 
16,513

 
111,005

 
88,209

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(6,713
)
 
(7,044
)
 
(20,823
)
 
(21,649
)
Other, net
1,333

 
533

 
2,245

 
12,486

Other expense, net
(5,380
)
 
(6,511
)
 
(18,578
)
 
(9,163
)
Income before income tax
32,889

 
10,002

 
92,427

 
79,046

Income tax expense
7,429

 
5,338

 
21,227

 
21,209

Net income
$
25,460

 
$
4,664

 
$
71,200

 
$
57,837

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.47

 
$
0.08

 
$
1.30

 
$
1.01

Diluted
$
0.46

 
$
0.08

 
$
1.28

 
$
0.98

Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
54,413

 
56,798

 
54,975

 
57,486

Diluted
55,019

 
57,742

 
55,502

 
59,218

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.08

 
$
0.075

 
$
0.24

 
$
0.225


The accompanying notes are an integral part of these Condensed Consolidated Statements.

4

Table of Contents

WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited – dollars in thousands)

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
25,460

 
$
4,664

 
$
71,200

 
$
57,837

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment and other
(463
)
 
206

 
(280
)
 
(29
)
Unrealized loss on derivative instruments
(536
)
 
(31
)
 
(1,272
)
 
(31
)
Total other comprehensive (loss) income
(999
)
 
175

 
(1,552
)
 
(60
)
Comprehensive income
$
24,461

 
$
4,839

 
$
69,648

 
$
57,777


The accompanying notes are an integral part of these Condensed Consolidated Statements.

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Table of Contents

WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited – dollars in thousands)
 
Nine Months Ended
September 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
71,200

 
$
57,837

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
16,258

 
15,701

Amortization of intangibles
15,353

 
14,818

Net gain on sale of property, plant and equipment
(40
)
 
(10,164
)
Loss on debt extinguishment
104

 
174

Deferred income taxes
(2,451
)
 
(122
)
Stock-based compensation
7,362

 
8,479

Impairment

 
11,989

Non-cash interest expense
783

 
1,426

Accounts receivable
9,671

 
(48,531
)
Inventories
(89,869
)
 
(66,089
)
Prepaid expenses and other
(2,368
)
 
(3,265
)
Accounts payable and accrued liabilities
57,750

 
76,602

Other, net
(7,535
)
 
(2,171
)
Net cash provided by operating activities
76,218

 
56,684

Cash flows from investing activities
 
 
 
Capital expenditures
(22,244
)
 
(20,344
)
Proceeds from the sale of property, plant, and equipment
785

 
17,775

Other, net

 
3,060

Net cash (used in) provided by investing activities
(21,459
)
 
491

Cash flows from financing activities
 
 
 
Proceeds from exercise of stock options
361

 
961

Dividends paid
(13,443
)
 
(13,566
)
Borrowings under revolving credit facilities
446

 
582

Payments under revolving credit facilities
(446
)
 
(582
)
Principal payments under capital lease obligations
(230
)
 
(216
)
Principal payments under term loan credit facility
(30,470
)
 
(1,410
)
Principal payments under industrial revenue bond

 
(93
)
Debt issuance costs paid
(142
)
 

Convertible senior notes repurchase

 
(80,200
)
Stock repurchase
(22,652
)
 
(44,433
)
Net cash used in financing activities
(66,576
)
 
(138,957
)
Cash and cash equivalents:
 
 
 
Net decrease in cash, cash equivalents, and restricted cash
(11,817
)
 
(81,782
)
Cash, cash equivalents and restricted cash at beginning of period
132,690

 
191,521

Cash, cash equivalents, and restricted cash at end of period
$
120,873

 
$
109,739

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
15,639

 
$
16,263

Cash paid for income taxes
$
18,965

 
$
23,588

The accompanying notes are an integral part of these Condensed Consolidated Statements.

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Table of Contents

WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited – dollars in thousands)

 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Losses
 
Treasury
Stock
 
Total
 
Shares
 
Amount
 
 
 
 
 
Balances at December 31, 2018
55,135,788

 
$
744

 
$
629,039

 
$
150,244

 
$
(3,343
)
 
$
(302,835
)
 
$
473,849

Net income for the period


 


 


 
14,780

 


 


 
14,780

Foreign currency translation and other


 


 


 


 
298

 


 
298

Stock-based compensation
273,158

 
5

 
2,581

 


 


 


 
2,586

Stock repurchase


 


 


 


 


 
(2,635
)
 
(2,635
)
Common stock dividends


 


 


 
(4,512
)
 


 


 
(4,512
)
Unrealized loss on derivative instruments, net of tax


 


 


 


 
(814
)
 


 
(814
)
Common stock issued in connection with:


 


 


 


 


 


 


Stock option exercises
15,187

 


 
54

 


 


 


 
54

Balances at March 31, 2019
55,424,133

 
$
749

 
$
631,674

 
$
160,512

 
$
(3,859
)
 
$
(305,470
)
 
$
483,606

Net income for the period


 


 


 
30,960

 


 


 
30,960

Foreign currency translation and other


 


 


 


 
(115
)
 


 
(115
)
Stock-based compensation
26,639

 

 
2,791

 


 


 


 
2,791

Stock repurchase
(775,081
)
 


 


 


 


 
(11,217
)
 
(11,217
)
Common stock dividends


 


 


 
(4,538
)
 


 


 
(4,538
)
Unrealized loss on derivative instruments, net of tax


 


 


 


 
78

 


 
78

Common stock issued in connection with:


 


 


 


 


 


 


Stock option exercises


 


 


 


 


 


 

Balances at June 30, 2019
54,675,691

 
$
749

 
$
634,465

 
$
186,934

 
$
(3,896
)
 
$
(316,687
)
 
$
501,565

Net income for the period


 


 


 
25,460

 


 


 
25,460

Foreign currency translation and other


 


 


 


 
(463
)
 


 
(463
)
Stock-based compensation
8,176

 

 
1,985

 


 


 
(22
)
 
1,963

Stock repurchase
(590,256
)
 


 


 


 


 
(8,778
)
 
(8,778
)
Common stock dividends


 


 


 
(4,460
)
 


 


 
(4,460
)
Unrealized loss on derivative instruments, net of tax


 


 


 


 
(536
)
 


 
(536
)
Common stock issued in connection with:


 


 


 


 


 


 


Stock option exercises
29,013

 
1

 
306

 


 


 


 
307

Balances at September 30, 2019
54,122,624

 
$
750

 
$
636,756

 
$
207,934

 
$
(4,895
)
 
$
(325,487
)
 
$
515,058



The accompanying notes are an integral part of these Condensed Consolidated Statements.



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Table of Contents

WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(Unaudited – dollars in thousands)


 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Losses
 
Treasury
Stock
 
Total
 
Shares
 
Amount
 
 
 
 
 
Balances at December 31, 2017
57,564,493

 
$
737

 
$
653,435

 
$
98,728

 
$
(2,385
)
 
$
(244,452
)
 
$
506,063

Net income for the period


 


 


 
21,272

 


 


 
21,272

Foreign currency translation and other


 


 


 


 
409

 


 
409

Stock-based compensation
380,588

 
6

 
2,651

 


 


 


 
2,657

Stock repurchase


 


 


 


 


 
(5,412
)
 
(5,412
)
Equity component of convertible senior notes repurchase


 


 
(7,830
)
 


 


 


 
(7,830
)
Common stock dividends


 


 


 
(4,748
)
 


 


 
(4,748
)
Common stock issued in connection with:


 


 


 


 


 


 


Stock option exercises
92,473

 
1

 
860

 


 


 


 
861

Balances at March 31, 2018
58,037,554

 
$
744

 
$
649,116

 
$
115,252

 
$
(1,976
)
 
$
(249,864
)
 
$
513,272

Net income for the period


 


 


 
31,902

 


 


 
31,902

Foreign currency translation and other


 


 


 


 
(644
)
 


 
(644
)
Stock-based compensation
24,040

 

 
2,733

 


 


 


 
2,733

Stock repurchase
(798,992
)
 


 


 


 


 
(16,001
)
 
(16,001
)
Equity component of convertible senior notes repurchase


 


 
(27,689
)
 


 


 


 
(27,689
)
Common stock dividends


 


 


 
(4,407
)
 


 


 
(4,407
)
Common stock issued in connection with:


 


 


 


 


 


 


Stock option exercises
4,514

 

 
49

 


 


 


 
49

Balances at June 30, 2018
57,267,116

 
$
744

 
$
624,209

 
$
142,747

 
$
(2,620
)
 
$
(265,865
)
 
$
499,215

Net income for the period


 


 


 
4,664

 


 


 
4,664

Foreign currency translation and other


 


 


 


 
206

 


 
206

Stock-based compensation


 


 
3,088

 


 


 


 
3,088

Stock repurchase
(1,238,531
)
 


 


 


 


 
(23,020
)
 
(23,020
)
Common stock dividends


 


 


 
(4,286
)
 


 


 
(4,286
)
Unrealized loss on derivative instruments, net of tax


 


 


 


 
(31
)
 


 
(31
)
Common stock issued in connection with:


 


 


 


 


 


 


Stock option exercises
5,658

 

 
51

 


 


 


 
51

Balances at September 30, 2018
56,034,243

 
$
744

 
$
627,348

 
$
143,125

 
$
(2,445
)
 
$
(288,885
)
 
$
479,887


The accompanying notes are an integral part of these Condensed Consolidated Statements.


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Table of Contents

WABASH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Wabash National Corporation (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements contain all material adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company, its results of operations and cash flows. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
2. NEW ACCOUNTING PRONOUNCEMENTS
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-2, “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 Condensed Consolidated Balance Sheets, and lease liabilities, which are reflected in the Other Accrued Liabilities and Other Non-Current Liabilities on the Condensed 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 $15.4 million of noncancelable future rental obligations as of September 30, 2019, as shown in Note 8.
3. REVENUE RECOGNITION
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 Condensed 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 9. Customer deposits are recognized as revenue when the Company performs its obligations under the contract and transfers control of the product.

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Table of Contents

4. INVENTORIES
Inventories consist of the following components (in thousands):
 
September 30,
2019
 
December 31,
2018
Raw materials and components
$
135,878

 
$
115,083

Finished goods
114,829

 
48,698

Work in progress
15,261

 
13,119

Aftermarket parts
7,484

 
6,421

Used trailers
821

 
1,083

 
$
274,273

 
$
184,404


5. PREPAID EXPENSES
Prepaid expenses and other current assets consist of the following (in thousands):
 
September 30,
2019
 
December 31,
2018
Chassis converter pool agreements
$
23,957

 
$
22,273

Assets held for sale
3,009

 
3,039

Income tax receivables
6,487

 
9,872

Insurance premiums & maintenance agreements
10,778

 
3,313

All other
10,616

 
12,764

 
$
54,847

 
$
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 former branch locations and businesses the Company has sold or intends to sell within one year. Insurance premiums and maintenance agreements are charged to expenses over the contractual life, which is generally one year or less. Additionally, prepaid expenses include contract assets related to contracts for which the Company recognizes revenue over time as services are completed. There is no restricted cash included in prepaid expenses and other current assets for the periods ending September 30, 2019 and December 31, 2018.
6. DEBT
Long-term debt consists of the following (in thousands):
 
September 30,
2019
 
December 31,
2018
Senior notes due 2025
$
325,000

 
$
325,000

Term loan credit agreement
155,228

 
185,699

 
480,228

 
510,699

Less: unamortized discount and fees
(5,106
)
 
(5,801
)
Less: current portion

 
(1,880
)
 
$
475,122

 
$
503,018


Senior Notes
On September 26, 2017, the Company issued Senior Notes due 2025 (the “Senior Notes”) 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, beginning on April 1, 2018. 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 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’s and the guarantors’ general unsecured senior obligations and are subordinate to all of the Company’s and the guarantors’ existing and future secured debt to the extent of the assets

10

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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 Senior Notes will mature on October 1, 2025.
The indenture for the Senior Notes restricts the Company’s ability and the ability of certain of its subsidiaries, subject to certain exceptions and qualifications, 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.
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. As of September 30, 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 three- and nine-month periods ended September 30, 2019 were $4.6 million and $13.9 million, respectively, and $4.6 million and $13.8 million for the three- and nine-month periods ended September 30, 2018, respectively. Contractual coupon interest expense and accretion of discount and fees are included in Interest Expense on the Company’s Condensed 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, and Citizens Business Capital, 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 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 (A) equity interests of each direct subsidiary held by the Borrowers and each Revolver Guarantor, and (B) substantially all other tangible and intangible assets of the Borrowers and the Revolver Guarantors, excluding real property (the “Term Priority Collateral”).
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. 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 thereunder.
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.
As of September 30, 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 $288.1 million as of September 30, 2019, and $271.4 million as of September 30, 2018.
Term Loan Credit Agreement
In May 2012, the Company entered into the Term Loan Credit Agreement (as amended, the “Term Loan Credit Agreement”), 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”).

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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, which were used to refinance the outstanding Term Loans.
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. As of September 30, 2019, the Company was in compliance with all covenants.
For the three- and nine-month periods ended September 30, 2019, under the Term Loan Credit Agreement the Company paid interest of $1.9 million and $6.3 million, respectively, and principal of $15.0 million and $30.5 million during each period. For the three- and nine-month periods ended September 30, 2018, the Company paid interest of $2.0 million and $5.9 million, respectively, and principal of $0.5 million and $1.4 million during each period. The Company recognized losses on debt extinguishment totaling approximately $0.1 million in connection with the prepayment of principal in the second and third quarters of 2019, which are included in Other, net in the Condensed Consolidated Statement of Operations. As of September 30, 2019, the Company had $155.2 million outstanding under the Term Loan Credit Agreement, of which none was classified as current on the Company’s Condensed Consolidated Balance Sheets.
For each three-month period ended September 30, 2019 and 2018, the Company incurred charges of less than $0.1 million, and $0.2 million for each nine-month period ended September 30, 2019 and 2018, for amortization of fees and original issuance discount, which is included in Interest Expense in the Condensed Consolidated Statements of Operations.
7. FINANCIAL DERIVATIVE INSTRUMENTS
Commodity Pricing Risk
As of September 30, 2019, the Company was party to commodity swap contracts for specific commodities with notional amounts of approximately $23.6 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 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 September 30, 2019 and December 31, 2018, the fair value carrying amount of the Company’s derivative instruments were recorded as follows (in thousands):
 
 
 
 
Asset / (Liability) Derivatives
 
 
Balance Sheet Caption
 
September 30,
2019
 
December 31,
2018
Derivatives designated as hedging instruments
 
 
 
 
 
 
Commodity swap contracts
 
Prepaid expenses and other
 
$
41

 
$
17

Commodity swap contracts
 
Other accrued liabilities
 
(2,277
)
 
(1,146
)
Total derivatives designated as hedging instruments
 
 
 
$
(2,236
)
 
$
(1,129
)


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The following table summarizes the gain or loss recognized in AOCI as of September 30, 2019 and December 31, 2018 and the amounts reclassified from AOCI into earnings for the three and nine months ended September 30, 2019 and 2018 (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
 
 
 
 
 
 
September 30,
2019
 
December 31,
2018
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
 
 
 
2019
 
2018
 
2019
 
2018
Derivatives instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity swap contracts
 
$
(2,037
)
 
$
(765
)
 
Cost of sales
 
$
(424
)
 
$

 
$
(1,070
)
 
$


Over the next 12 months, the Company expects to reclassify approximately $2.7 million of pretax deferred losses, related to the commodity swap contracts, from AOCI to cost of sales as inventory purchases are settled.
8. LEASES
The Company leases certain industrial spaces, office space, land, and equipment. 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. 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. 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 and liabilities included within the Condensed Consolidated Balance Sheets consist of the following (in thousands):
 
 
Classification
 
September 30, 2019
Right-of-Use Assets
 
 
 
 
Operating
 
Other assets
 
$
12,915

Finance
 
Property, plant and equipment, net of depreciation
 
2,981

Total leased ROU assets
 
 
 
$
15,896

Liabilities
 
 
 
 
Current
 
 
 
 
Operating
 
Other accrued liabilities
 
$
3,658

Finance
 
Current portion of finance lease obligations
 
322

Noncurrent
 
 
 
 
Operating
 
Non-current liabilities
 
9,384

Finance
 
Finance lease obligations
 
461

Total lease liabilities
 
 
 
$
13,825


Lease costs included in the Condensed Consolidated Statements of Operations consist of the following (in thousands):
 
 
Classification
 
Three Months Ended
September 30, 2019
 
Nine Months Ended
September 30, 2019
Operating lease cost
 
Cost of sales, selling expenses and general and administrative expense
 
$
1,200

 
$
3,398

Finance lease cost
 
 
 
 
 
 
Amortization of ROU leased assets
 
Depreciation and amortization
 
36

 
108

Interest on lease liabilities
 
Interest expense
 
16

 
51

Net lease cost
 
 
 
$
1,252

 
$
3,557



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Maturity of the Company’s lease liabilities is as follows (in thousands):
 
 
Operating Leases
 
Finance Leases
 
Total
2019 (remainder)
 
$
1,171

 
$
90

 
$
1,261

2020
 
4,015

 
361

 
4,376

2021
 
3,441

 
361

 
3,802

2022
 
2,103

 
30

 
2,133

2023
 
1,765

 

 
1,765

Thereafter
 
2,093

 

 
2,093

Total lease payments
 
$
14,588

 
$
842

 
$
15,430

Less: interest
 
1,546

 
59

 
 
Present value of lease payments
 
$
13,042

 
$
783

 
 

Leases that the Company has signed but have not yet commenced are immaterial. 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:
 
 
September 30, 2019
Weighted average remaining lease term (years)
 
 
Operating leases
 
4.4

Finance leases
 
2.3

Weighted average discount rate
 
 
Operating leases
 
5.17
%
Finance leases
 
6.16
%

Lease costs included in the Condensed Consolidated Statements of Cash Flows are as follows (in thousands):
 
 
Nine Months Ended
September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
3,271

Operating cash flows from finance leases
 
$
42

Financing cash flows from finance leases
 
$
230

Leased assets obtained in exchange for new operating lease liabilities
 
$
5,218


9. OTHER ACCRUED LIABILITIES
The following table presents the major components of Other Accrued Liabilities (in thousands):
 
September 30,
2019
 
December 31,
2018
Warranty
$
24,342

 
$
22,247

Chassis converter pool agreements
23,957

 
22,273

Payroll and related taxes
27,223

 
16,096

Customer deposits
19,128

 
23,483

Self-insurance
11,795

 
9,890

Accrued interest
9,180

 
4,779

Operating lease obligations
3,658

 

Accrued taxes
5,727

 
7,653

All other
11,419

 
9,963

 
$
136,429

 
$
116,384



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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
5,253

 
5,272

Payments
(3,158
)
 
(3,939
)
Balance as of September 30
$
24,342

 
$
21,465


The Company offers a limited warranty for its products with a coverage period that ranges between one and 5 years, except that the coverage period for DuraPlate® trailer panels is 10 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.
10. 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 in 2017, 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, 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)
September 30, 2019
 

 

 

 

 

Commodity swap contracts
 
Recurring
 
(2,236
)
 

 
(2,236
)
 

Mutual funds
 
Recurring
 
6,499

 
6,499

 

 

Life-insurance contracts
 
Recurring
 
16,180

 

 
16,180

 

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

 



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Estimated Fair Value of Debt
The estimated fair value of debt at September 30, 2019 consists primarily of the Senior Notes due 2025 and borrowings under the Term Loan Credit Agreement (see Note 6). 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 September 30, 2019 and December 31, 2018 were as follows (in thousands):
 
September 30, 2019
 
December 31, 2018
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
 
Level 1
 
Level 2
 
Level 3
Instrument
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior notes due 2025
$
320,411

 
$

 
$
318,500

 
$

 
$
319,941

 
$

 
$
278,688

 
$

Term loan credit agreement
154,711

 

 
155,228

 

 
184,957

 

 
181,985

 

 
$
475,122

 
$

 
$
473,728

 
$

 
$
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 carrying value, net of unamortized premium or discount and unamortized deferred financing costs.
Impairment of Goodwill and Long-Lived Assets
The Company recorded an impairment of goodwill for the Aviation and Truck Equipment business within the Diversified Products reportable segment in the third quarter of 2018 for $4.9 million, based on indicative market value of the reporting unit. The Company also recorded an impairment of all long-lived assets for the same reporting unit within the Diversified Products reportable segment in the third quarter of 2018 of $7.1 million. The aggregate goodwill and long-lived asset impairment charges, which were based on Level 3 fair value measurements, are included in Impairment Expense in the Condensed Consolidated Statements of Operations. There was no impairment of goodwill or long-lived assets during the three- and nine-month periods ended September 30, 2019.
11. COMMITMENTS AND CONTINGENCIES
As of September 30, 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 Condensed 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 (“DHEC”) pertaining to the Philip Services Site located in Rock Hill, South Carolina pursuant to the Comprehensive Environmental Response, Compensation and Liability Act and corresponding South Carolina statutes. PRPs include parties identified through manifest records as having contributed to deliveries of hazardous substances to the Philip Services Site between 1979 and 1999. The DHEC’s allegation that the Company was a PRP arises out of four manifest entries in 1989 under the name of a company unaffiliated with Wabash National (or any of its former or current subsidiaries) that purport to be delivering a de minimis amount of hazardous waste to the Philip Services Site “c/o Wabash National Corporation.” As such, the Philip Services Site PRP Group (“PRP Group”) notified Wabash in August 2014 that 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.

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Table of Contents

Supreme Litigation
Prior to the Company’s acquisition of Supreme, on November 4, 2016, a putative class action lawsuit was filed against Supreme Corporation, Mark D. Weber (Supreme’s former Chief Executive Officer) and Matthew W. Long (Supreme’s former Chief Financial Officer) in the United States District Court for the Central District of California alleging the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 by making material, misleading statements in July 2016 regarding projected backlog. The plaintiff seeks to recover unspecified damages. On February 14, 2017, the Court transferred the venue of the case to the Northern District of Indiana upon the joint stipulation of the plaintiff and the defendants. An amended complaint was filed on April 24, 2017 challenging statements made during a putative class period of October 22, 2015, through October 21, 2016.
On May 24, 2018, the Court granted Supreme’s motion to dismiss all claims for failure to state a claim. On July 13, 2018, the plaintiffs filed a second amended complaint. On August 24, 2018, Supreme filed a second motion to dismiss for failure to state a claim, and requested dismissal with prejudice. On March 29, 2019, the Court granted Supreme’s motion and dismissed plaintiffs’ second amended complaint, with prejudice. Plaintiffs filed a notice of appeal on April 29, 2019, and following an Agreed Stipulation of Dismissal filed jointly by the parties, the U.S. Court of Appeals for the Seventh Circuit dismissed the case on September 24, 2019.
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 September 30, 2019, the Company’s outstanding chassis converter pool with the manufacturer totaled $24.0 million and has included this financing agreement on the Company’s Condensed 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 $6.5 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.

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12. NET INCOME PER SHARE
Per share results have been calculated based on the average number of common shares outstanding. The calculation of basic and diluted net income per share is determined using net income applicable to common stockholders as the numerator and the number of shares included in the denominator as follows (in thousands, except per share amounts):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Basic net income per share:
 
 
 
 
 
 
 
Net income applicable to common stockholders
$
25,460

 
$
4,664

 
$
71,200

 
$
57,837

Weighted average common shares outstanding
54,413

 
56,798

 
54,975

 
57,486

Basic net income per share
$
0.47

 
$
0.08

 
$
1.30

 
$
1.01

 
 
 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
Net income applicable to common stockholders
$
25,460

 
$
4,664

 
$
71,200

 
$
57,837

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
54,413

 
56,798

 
54,975

 
57,486

Dilutive shares from assumed conversion of convertible senior notes

 

 

 
676

Dilutive stock options and restricted stock
606

 
944

 
527

 
1,056

Diluted weighted average common shares outstanding
55,019

 
57,742

 
55,502

 
59,218

Diluted net income per share
$
0.46

 
$
0.08

 
$
1.28

 
$
0.98


The calculation of diluted net income per share for the nine-month period ended September 30, 2018 includes the impact of the Company’s convertible senior notes as the average stock price of the Company’s common stock during the period was above the initial conversion price of approximately $11.70 per share. The convertible notes matured in May 2018, so there were no dilutive shares in 2019.
13. STOCK-BASED COMPENSATION
The Company recognizes all share-based payments based upon their fair value. The Company grants restricted stock units subject to service, performance and/or market conditions. The Company’s policy is to recognize expense for awards that have service conditions only subject to graded vesting using the straight-line attribution method. The fair value of service and performance based units is based on the market price of a share of underlying common stock at the date of grant. The fair value of the market based units is based on a lattice valuation model. The amount of compensation costs related to restricted stock units and performance units not yet recognized was $16.0 million at September 30, 2019 for which the expense will be recognized through 2022.
14. 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 September 30, 2019, $80.0 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.

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Accumulated Other Comprehensive Income
Changes in AOCI by component, net of tax, for the nine months ended September 30, 2019 are summarized as follows (in thousands):
 
 
Foreign Currency Translation
and Other
 
Derivative Instruments
 
Total
Balances at December 31, 2018
 
$
(2,578
)
 
$
(765
)
 
$
(3,343
)
Net unrealized gains (losses) arising during the period(a)
 
298

 
(939
)
 
(641
)
Less: Net realized gains (losses) reclassified to net income(b)
 

 
(125
)
 
(125
)
Net change during the period
 
298

 
(814
)
 
(516
)
Balances at March 31, 2019
 
(2,280
)
 
(1,579
)
 
(3,859
)
Net unrealized gains (losses) arising during the period(c)
 
(115
)
 
(279
)
 
(394
)
Less: Net realized gains (losses) reclassified to net income(d)
 

 
(357
)
 
(357
)
Net change during the period
 
(115
)
 
78

 
(37
)
Balances at June 30, 2019
 
(2,395
)
 
(1,501
)
 
(3,896
)
Net unrealized gains (losses) arising during the period(e)
 
(463
)
 
(854
)
 
(1,317
)
Less: Net realized gains (losses) reclassified to net income(f)
 

 
(318
)
 
(318
)
Net change during the period
 
(463
)
 
(536
)
 
(999
)
Balances at September 30, 2019
 
$
(2,858
)
 
$
(2,037
)
 
$
(4,895
)
—————————
(a) Derivative instruments net of $308 thousand of tax benefit for the three months ended March 31, 2019.
(b) Derivative instruments net of $42 thousand of tax benefit for the three months ended March 31, 2019.
(c) Derivative instruments net of $93 thousand of tax benefit for the three months ended June 30, 2019.
(d) Derivative instruments net of $121 thousand of tax benefit for the three months ended June 30, 2019.
(e) Derivative instruments net of $288 thousand of tax benefit for the three months ended September 30, 2019.
(f) Derivative instruments net of $106 thousand of tax benefit for the three months ended September 30, 2019.
Changes in AOCI by component, net of tax, for the nine months ended September 30, 2018 are summarized as follows (in thousands):
 
 
Foreign Currency Translation
and Other
 
Derivative Instruments
 
Total
Balances at December 31, 2017
 
$
(2,385
)
 
$

 
$
(2,385
)
Net unrealized gains (losses) arising during the period
 
409

 

 
409

Less: Net realized gains (losses) reclassified to net income
 

 

 

Net change during the period
 
409

 

 
409

Balances at March 31, 2018
 
(1,976
)
 

 
(1,976
)
Net unrealized gains (losses) arising during the period
 
(644
)
 

 
(644
)
Less: Net realized gains (losses) reclassified to net income
 

 

 

Net change during the period
 
(644
)
 

 
(644
)
Balances at June 30, 2018
 
(2,620
)
 

 
(2,620
)
Net unrealized gains (losses) arising during the period
 
206

 
(31
)
 
175

Less: Net realized gains (losses) reclassified to net income
 

 

 

Net change during the period
 
206

 
(31
)
 
175

Balances at September 30, 2018
 
$
(2,414
)
 
$
(31
)
 
$
(2,445
)


19

Table of Contents

15. INCOME TAXES
For the three months ended September 30, 2019, the Company recognized income tax expense of $7.4 million compared to $5.3 million for the same period in the prior year. The effective tax rate for this period was 22.6% compared to 53.4% for the same period in the prior year. The Company recognized income tax expense of $21.2 million in the first nine months of 2019 and $21.2 million for the same period in the prior year. The effective tax rates for the first nine months of 2019 and 2018 were 23.0% and 26.8%, respectively. These effective tax rates differ from the US Federal statutory rate of 21% primarily due to the impact of state and local taxes and discrete items related to research and development tax credits.
16. SEGMENTS
a. 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.
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.

20

Table of Contents

Reportable segment information is as follows (in thousands):
Three Months Ended September 30, 2019
 
Commercial
Trailer Products
 
Diversified
Products
 
Final Mile
Products
 
Corporate and
Eliminations
 
Consolidated
Net sales
 
 
 
 
 
 
 
 
 
 
External customers
 
$
380,062

 
$
87,342

 
$
113,504

 
$

 
$
580,908

Intersegment sales
 
282

 
5,839

 

 
(6,121
)


Total net sales
 
$
380,344

 
$
93,181

 
$
113,504

 
$
(6,121
)
 
$
580,908

 
 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
$
36,503

 
$
7,183

 
$
4,628

 
$
(10,045
)
 
$
38,269

Assets
 
$
364,436

 
$
327,343

 
$
507,402

 
$
179,422

 
$
1,378,603

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
Commercial
Trailer Products
 
Diversified
Products
 
Final Mile
Products
 
Corporate and
Eliminations
 
Consolidated
Net sales
 
 
 
 
 
 
 
 
 
 
External customers
 
$
368,301

 
$
97,723

 
$
87,049

 
$

 
$
553,073

Intersegment sales
 
41

 
4,638

 

 
(4,679
)
 

Total net sales
 
$
368,342

 
$
102,361

 
$
87,049

 
$
(4,679
)
 
$
553,073

 
 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
$
32,453

 
$
(6,346
)
 
$
(1,495
)
 
$
(8,099
)
 
$
16,513

Assets
 
$
358,150

 
$
352,494

 
$
475,934

 
$
163,629

 
$
1,350,207

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
Commercial
Trailer Products
 
Diversified
Products
 
Final Mile
Products
 
Corporate and
Eliminations
 
Consolidated
Net sales
 
 
 
 
 
 
 
 
 
 
External customers
 
$
1,120,608

 
$
270,357

 
$
349,170

 
$

 
$
1,740,135

Intersegment sales
 
1,645

 
19,498

 

 
(21,143
)
 

Total net sales
 
$
1,122,253

 
$
289,855

 
$
349,170

 
$
(21,143
)
 
$
1,740,135

 
 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
$
102,742

 
$
24,138

 
$
15,718

 
$
(31,593
)
 
$
111,005

Assets
 
$
364,436

 
$
327,343

 
$
507,402

 
$
179,422

 
$
1,378,603

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
Commercial
Trailer Products
 
Diversified
Products
 
Final Mile
Products
 
Corporate and
Eliminations
 
Consolidated
Net sales
 
 
 
 
 
 
 
 
 
 
External customers
 
$
1,098,182

 
$
275,183

 
$
283,717

 
$

 
$
1,657,082

Intersegment sales
 
89

 
16,466

 

 
(16,555
)
 

Total net sales
 
$
1,098,271

 
$
291,649

 
$
283,717

 
$
(16,555
)
 
$
1,657,082

 
 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
$
102,718

 
$
3,078

 
$
9,372

 
$
(26,959
)
 
$
88,209

Assets
 
$
358,150

 
$
352,494

 
$
475,934

 
$
163,629

 
$
1,350,207


21

Table of Contents

b.  Product Information
The Company offers products primarily in four general categories: (1) new trailers, (2) used trailers, (3) components, parts and service and (4) equipment and other. The following table sets forth the major product categories and their percentage of consolidated net sales (dollars in thousands):
Three Months Ended September 30, 2019
 
Commercial
Trailer Products
 
Diversified
Products
 
Final Mile
Products
 
Eliminations
 
Consolidated
New trailers
 
$
366,938

 
$
51,697

 
$

 
$

 
$
418,635

 
72.1
%
Used trailers
 
86

 
417

 

 

 
503

 
0.1
%
Components, parts and service
 
10,039

 
23,790

 
4,302

 
(5,960
)
 
32,171

 
5.5
%
Equipment and other
 
3,281

 
17,277

 
109,202

 
(161
)
 
129,599

 
22.3
%
Total net sales
 
$
380,344

 
$
93,181

 
$
113,504

 
$
(6,121
)
 
$
580,908

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
Commercial
Trailer Products
 
Diversified
Products
 
Final Mile
Products
 
Eliminations
 
Consolidated
New trailers
 
$
354,003

 
$
44,399

 
$

 
$

 
$
398,402

 
72.0
%
Used trailers
 
1,888

 
775

 

 

 
2,663

 
0.5
%
Components, parts and service
 
8,090

 
29,064

 
2,304

 
(4,676
)
 
34,782

 
6.3
%
Equipment and other
 
4,361

 
28,123

 
84,745

 
(3
)
 
117,226

 
21.2
%
Total net sales
 
$
368,342

 
$
102,361

 
$
87,049

 
$
(4,679
)
 
$
553,073

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
Commercial
Trailer Products
 
Diversified
Products
 
Final Mile
Products
 
Eliminations
 
Consolidated
New trailers
 
$
1,078,599

 
$
146,821

 
$

 
$

 
$
1,225,420

 
70.4
%
Used trailers
 
236

 
1,743

 

 

 
1,979

 
0.1
%
Components, parts and service
 
30,994

 
88,681

 
12,165

 
(20,455
)
 
111,385

 
6.4
%
Equipment and other
 
12,424

 
52,610

 
337,005

 
(688
)
 
401,351

 
23.1
%
Total net sales
 
$
1,122,253

 
$
289,855

 
$
349,170

 
$
(21,143
)
 
$
1,740,135

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
Commercial
Trailer Products
 
Diversified
Products
 
Final Mile
Products
 
Eliminations
 
Consolidated
New trailers
 
$
1,049,452

 
$
115,840

 
$

 
$

 
$
1,165,292

 
70.3
%
Used trailers
 
8,794

 
2,489

 

 

 
11,283

 
0.7
%
Components, parts and service
 
25,780

 
94,958

 
7,340

 
(16,529
)
 
111,549

 
6.7
%
Equipment and other
 
14,245

 
78,362

 
276,377

 
(26
)
 
368,958

 
22.3
%
Total net sales
 
$
1,098,271

 
$
291,649

 
$
283,717

 
$
(16,555
)
 
$
1,657,082

 
100.0
%


22

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report of Wabash National Corporation (together with its subsidiaries, the “Company,” “Wabash,” “we,” “our,” or “us”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words. Our “forward-looking statements” include, but are not limited to, statements regarding:
our business plan;
our ability to effectively integrate Supreme and realize expected synergies and benefits from the Supreme acquisition;
our expected revenues, income or loss;
our ability to manage our indebtedness;
our strategic plan and plans for future operations;
financing needs, plans and liquidity, including for working capital and capital expenditures;
our ability to achieve sustained profitability;
reliance on certain customers and corporate relationships;
availability and pricing of raw materials, including the impact of tariffs or other international trade developments;
availability of capital and financing;
dependence on industry trends;
the outcome of any pending litigation or notice of environmental dispute;
export sales and new markets;
engineering and manufacturing capabilities and capacity, including our ability to attract and retain qualified personnel;
our ability to develop and commercialize new products;
acceptance of new technologies and products;
government regulation; and
assumptions relating to the foregoing.
Although we believe that the expectations expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. Important risks and factors that could cause our actual results to be materially different from our expectations include the factors that are disclosed in “Item 1A-Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018. Each forward-looking statement contained in this Quarterly Report reflects our management’s view only as of the date on which that forward-looking statement was made. We are not obligated to update forward-looking statements or publicly release the result of any revisions to them to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events, except as required by law.

23

Table of Contents

Results of Operations
The following table sets forth certain operating data as a percentage of net sales for the three and nine months ended September 30, 2019 and 2018:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net sales
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of sales
86.6
 %
 
88.2
 %
 
86.5
 %
 
87
 %
Gross profit
13.4
 %
 
11.8
 %
 
13.5
 %
 
13.0
 %
 
 
 
 
 
 
 
 
General and administrative expenses
4.4
 %
 
4.2
 %
 
4.7
 %
 
4.5
 %
Selling expenses
1.5
 %
 
1.6
 %
 
1.5
 %
 
1.5
 %
Amortization of intangibles
0.9
 %
 
0.9
 %
 
0.9
 %
 
0.9
 %
Other operating expenses
 %
 
2.2
 %
 
 %
 
0.7
 %
Income from operations
6.6
 %
 
2.9
 %
 
6.4
 %
 
5.4
 %
 
 
 
 
 
 
 
 
Interest expense
(1.2
)%
 
(1.3
)%
 
(1.2
)%
 
(1.3
)%
Other, net
0.2
 %
 
0.1
 %
 
0.1
 %
 
0.8
 %
Income before income taxes
5.6
 %
 
1.7
 %
 
5.3
 %
 
4.9
 %
 
 
 
 
 
 
 
 
Income tax expense
1.3
 %
 
0.9
 %
 
1.2
 %
 
1.4
 %
Net income
4.3
 %
 
0.8
 %
 
4.1
 %
 
3.5
 %
For the three-month period ended September 30, 2019, we recorded net sales of $580.9 million compared to $553.1 million in the prior year period. Net sales for the three-month period ended September 30, 2019 increased $27.8 million, or 5.0%, compared to the prior year period, due primarily to a 15.7% increase in truck body unit shipments, which contributed to an overall $26.5 million increase in sales within our Final Mile Products segment. Gross profit margin increased to 13.4% in the third quarter of 2019 compared to 11.8% in the prior year period driven by the sale of the Aviation and Truck Equipment (“AVTE”) business and as a result of our pricing efforts. We continue to be encouraged by the strong market demand within all of our reporting segments as well as the expectation that overall industry shipment and production levels will remain above replacement demand for the remainder of 2019 as many key structural and market drivers continue to support healthy demand for new trailers. In addition, we expect to continue our focused efforts to drive ongoing improvements throughout the business, deliver new opportunities to expand our customer base and focus on developing innovative new products that both add value to our customers’ operations and allow us to continue to differentiate our products from the competition.
For the three-month period ended September 30, 2019, selling, general and administrative expenses increased $2.6 million as compared to the same period in 2018. The increase was largely due to higher employee-related costs, including employee incentive programs, compared to the same period in the prior year. As a percentage of net sales, selling, general and administrative expenses increased slightly to 5.9% in the third quarter of 2019 as compared to 5.8% in the prior year period.
Our management team continues to be focused on increasing overall shareholder value by optimizing our manufacturing operations to match the current demand environment, implementing cost savings initiatives and lean manufacturing techniques, strengthening our capital structure, developing innovative products that enable our customers to succeed, improving earnings and continuing diversification of the business into higher margin opportunities that leverage our intellectual and process capabilities.

24

Table of Contents

Three Months Ended September 30, 2019 Compared with the Three Months Ended September 30, 2018
Net Sales
Net sales in the third quarter of 2019 increased $27.8 million, or 5.0%, compared to the third quarter of 2018. By business segment, prior to the elimination of intercompany sales, sales and related units sold were as follows (dollars in thousands):
 
Three Months Ended September 30,
 
Change
 
2019
 
2018
 
Amount
 
%
 
(prior to elimination of intersegment sales)
Sales by Segment
 
 
 
 
 
 
 
Commercial Trailer Products
$
380,344

 
$
368,342

 
$
12,002

 
3.3
 %
Diversified Products
93,181

 
102,361

 
(9,180
)
 
(9.0
)%
Final Mile Products
113,504

 
87,049

 
26,455

 
30.4
 %
Eliminations
(6,121
)
 
(4,679
)
 
(1,442
)
 
 
Total
$
580,908

 
$
553,073

 
$
27,835

 
5.0
 %
 
 
 
 
 
 
 
 
New Trailers
(units)
 
 
 
 
Commercial Trailer Products
13,700

 
14,450

 
(750
)
 
(5.2
)%
Diversified Products
750

 
700

 
50

 
7.1
 %
Total
14,450

 
15,150

 
(700
)
 
(4.6
)%
 
 
 
 
 
 
 
 
Used Trailers
(units)
 
 
 
 
Commercial Trailer Products
25

 
150

 
(125
)
 
(83.3
)%
Diversified Products
10

 
50

 
(40
)
 
(80.0
)%
Total
35

 
200

 
(165
)
 
(82.5
)%
Commercial Trailer Products segment sales, prior to the elimination of intersegment sales, were $380.3 million for the third quarter of 2019, an increase of $12.0 million, or 3.3%, compared to the third quarter of 2018. New trailers shipped during the third quarter of 2019 totaled 13,700 trailers compared to 14,450 trailers in the prior year period, a decrease of 5.2%. The increase in net sales is primarily attributable to the impact of pricing efforts undertaken in response to increases in commodity and labor costs experienced in 2018 and a $2.0 million increase in parts and service revenue compared to the third quarter of 2018. Partially offsetting these increases were lower used trailer sales resulting in a $1.8 million decrease in sales compared to the third quarter of 2018.
Diversified Products segment sales, prior to the elimination of intersegment sales, were $93.2 million for the third quarter of 2019, a decrease of $9.2 million, or 9.0%, compared to the third quarter of 2018. Equipment sales decreased $10.8 million, or 38.6%, compared to the prior year period primarily due to a $10.5 million decrease in sales as a result of the sale of the AVTE business in January 2019. Sales of our parts and service product offerings totaled $23.8 million for the third quarter of 2019, a decrease of $5.3 million or 18.1% as compared to the prior year period, primarily due to lower demand for our decking systems. New trailer sales increased $7.3 million, or 16.4%, from the prior year period driven by higher demand for tank trailers compared to the third quarter of 2018 and pricing efforts undertaken in response to increases in commodity and labor costs experienced in 2018. New trailer shipments for the third quarter of 2019 totaled 750 units compared to 700 units in the prior year period.
Final Mile Products segment sales, prior to the elimination of intersegment sales, were $113.5 million in the third quarter of 2019, an increase of $26.5 million, or 30.4%, compared to the third quarter of 2018. New truck body sales increased $24.1 million, or 29.1%, and parts and service revenue increased $2.4 million, or 56.8%, compared to the prior year period. The increase in truck body sales is primarily due to a 16.8% increase in truck body unit shipments in the third quarter of 2019 compared to the prior year period and the impact of pricing efforts undertaken in response to increases in commodity and labor costs experienced in 2018. The increase in truck body shipments is attributable to improved chassis availability compared to the prior year period, our efforts to increase the visibility of chassis supply resulting in improved production scheduling and less production disruptions compared to the same period in the prior year, and overall demand for our products within the final mile market.
Cost of Sales
Cost of sales was $503.2 million in the third quarter of 2019, an increase of $15.3, or 3.1%, compared to the prior year period. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, and overhead expenses.

25

Table of Contents

Commercial Trailer Products segment cost of sales was $336.4 million in the third quarter of 2019, an increase of $7.2 million, or 2.2%, compared to the prior year period. The increase was primarily driven by a $6.2 million increase in overall manufacturing costs and a $1.0 million increase in materials costs.
Diversified Products segment cost of sales was $75.1 million in the third quarter of 2019, a decrease of $10.2 million, or 12.0%, compared to the prior period. The decrease in cost of sales was primarily due to the sale of the AVTE business, partially offset by higher sales volumes.
Final Mile Product segment cost of sales was $96.7 million in the third quarter of 2019, an increase of $18.6 million, or 23.9%, compared to the prior period. The increase was primarily driven by a $14.3 million increase in materials costs and a $4.4 million increase in other manufacturing costs related to increased sales volumes.
Gross Profit
Gross profit was $77.7 million in the third quarter of 2019, an increase of $12.6 million from the prior year period. Gross profit as a percentage of sales was 13.4% for the third quarter of 2019, compared to 11.8% for the same period in 2018. Gross profit by segment was as follows (dollars in thousands):
 
Three Months Ended September 30,
 
Change
 
2019
 
2018
 
Amount
 
%
Gross Profit by Segment
 
 
 
 
 
 
 
Commercial Trailer Products
$
43,960

 
$
39,137

 
$
4,823

 
12.3
%
Diversified Products
18,042

 
17,018

 
1,024

 
6.0
%
Final Mile Products
16,763

 
8,954

 
7,809

 
87.2
%
Corporate and Eliminations
(1,030
)
 
53

 
(1,083
)
 
 
Total
$
77,735

 
$
65,162

 
$
12,573

 
19.3
%
Commercial Trailer Products segment gross profit was $44.0 million for the third quarter of 2019 compared to $39.1 million for the third quarter of 2018. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 11.6% in the third quarter of 2019 compared to 10.6% in the comparative 2018 period. The increases in gross profit and gross profit as a percentage of sales were attributable to a more favorable sales mix and as a result of our pricing efforts.
Diversified Products segment gross profit was $18.0 million for the third quarter of 2019 compared to $17.0 million in the same quarter of 2018. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 19.4% in the third quarter of 2019 compared to 16.6% in the 2018 period. The increases in gross profit and gross profit as a percentage of net sales compared to the prior year period were primarily driven by the sale of the AVTE business completed in January 2019 and improved operational efficiencies compared to the prior year period.
Final Mile Products segment gross profit was $16.8 million for the third quarter of 2019 compared to $9.0 million in the same quarter of 2018. Gross profit, prior to the elimination of intersegment sales, as a percentage of sales, was 14.8% in the third quarter of 2019 compared to 10.3% in the 2018 period. The increases in gross profit and gross profit as a percentage of net sales compared to the prior year period were primarily driven by higher sales volumes and operational efficiencies as a result of improved chassis availability compared to the prior year period and our pricing efforts.
General and Administrative Expenses
General and administrative expenses for the third quarter of 2019 increased $2.3 million, or 10.1%, from the prior year period. The increase was largely due to $2.1 million of higher employee-related costs, including benefits and incentive programs, compared to the same period in the prior year. As a percentage of net sales, general and administrative expenses were 4.4% for the third quarter of 2019 compared to 4.2% for the third quarter of 2018.
Selling Expenses
Selling expenses were $9.0 million in the third quarter of 2019, an increase of $0.3 million, or 3.5%, compared to the prior year period. The increase was due to an increase of $0.3 million in advertising and promotion efforts, and a $0.2 million increase in employee-related costs, including benefits and incentive programs. These increases were partially offset by lower selling expenses as a result of the sale of the AVTE business in January 2019. As a percentage of net sales, selling expenses were 1.5% for the third quarter of 2019 compared to 1.6% for the third quarter of 2018.

26

Table of Contents

Amortization of Intangibles
Amortization of intangibles was $5.1 million for the third quarter of 2019 compared to $4.9 million in the prior year period. Amortization of intangibles for both periods was the result of expenses recognized for intangible assets recorded from the acquisitions of Walker in May 2012, certain assets of Beall in February 2013, and Supreme in September 2017.
Impairment Expense
Impairment Expense of $12.0 million in the third quarter of 2018 was the result of an impairment charge related to goodwill and long-lived assets within the Diversified Products reportable segment.
Other Income (Expense)
Interest Expense for the third quarter of 2019 totaled $6.7 million compared to $7.0 million in the third quarter of 2018. Interest expense relates to interest and non-cash accretion charges on our Term Loan Credit Agreement and Senior Notes. The decrease from the previous year period is primarily due to our voluntary prepayments totaling approximately $30.0 million against our Term Loan Credit Agreement during the first nine months of 2019.
Other, Net for the third quarter of 2019 represented income of $1.3 million as compared to income of $0.5 million for the prior year period. Income for the current year period is primarily related to interest income and the sale of a building asset that resulted in an immaterial gain. Income for the prior year period is primarily related to the gains recognized on the sale of former branch locations in the third quarter of 2018.
Income Taxes
We recognized income tax expense of $7.4 million in the third quarter of 2019 compared to $5.3 million for the same period in the prior year. The effective tax rate for the third quarter of 2019 and 2018 was 22.6% and 53.4%, respectively. The decrease in the effective tax rate from the prior year period is primarily attributable to the $12.0 million impairment charge in the third quarter of 2018 related to goodwill and long-lived assets within the Diversified Products reportable segment. These effective tax rates differ from the U.S. Federal statutory rate of 21% primarily due to the impact of state and local taxes and discrete items related to research and development tax credits.
Nine Months Ended September 30, 2019 Compared with the Nine Months Ended September 30, 2018
Net Sales
Net sales in the first nine months of 2019 increased $83.1 million, or 5.0%, compared to the first nine months of 2018. By business segment, prior to the elimination of intercompany sales, sales and related units sold were as follows (dollars in thousands):
 
Nine Months Ended September 30,
 
Change
 
2019
 
2018
 
Amount
 
%
 
(prior to elimination of intersegment sales)
Sales by Segment
 
 
 
 
 
 
 
Commercial Trailer Products
$
1,122,253

 
$
1,098,271

 
$
23,982

 
2.2
 %
Diversified Products
289,855

 
291,649

 
(1,794
)
 
(0.6
)%
Final Mile Products
349,170

 
283,717

 
65,453

 
23.1
 %
Eliminations
(21,143
)
 
(16,555
)
 
(4,588
)
 
 
Total
$
1,740,135

 
$
1,657,082

 
$
83,053

 
5.0
 %
 
 
 
 
 
 
 
 
New Trailer Shipments
(units)
 
 
 
 
Commercial Trailer Products
40,350

 
42,750

 
(2,400
)
 
(5.6
)%
Diversified Products
2,200

 
1,900

 
300

 
15.8
 %
Total
42,550

 
44,650

 
(2,100
)
 
(4.7
)%
 
 
 
 
 
 
 
 
Used Trailer Shipments
(units)
 
 
 
 
Commercial Trailer Products
50

 
850

 
(800
)
 
(94.1
)%
Diversified Products
60

 
100

 
(40
)
 
(40.0
)%
Total
110

 
950

 
(840
)
 
(88.4
)%
Commercial Trailer Products segment sales prior to the elimination of intersegment sales were $1,122.3 million for the first nine months of 2019, an increase of $24.0 million, or 2.2%, compared to the first nine months of 2018. Trailers shipped during the first

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nine months of 2019 totaled 40,350 trailers compared to 42,750 trailers in the prior year period, a 5.6% decrease. Pricing actions taken to offset the increased cost of materials resulted in a $29.1 million increase in new trailer sales despite the decrease in shipments compared to the prior year period. Parts and service revenue for the nine-month period of 2019 totaled $31.0 million, an increase of $5.2 million, or 20.2%, from the prior year period due to stronger focus on aftermarket parts and services. Used trailer sales decreased $8.6 million compared to the prior year period primarily due to an 800 unit decrease in used trailer shipments in the first nine months of 2019 compared to the prior year period.
Diversified Products segment sales prior to the elimination of intersegment sales were $289.9 million for the first nine months of 2019, a decrease of $1.8 million, or 0.6%, compared to the same period of 2018. Trailers shipped during the first nine months of 2019 totaled 2,200 trailers compared to 1,900 trailers in the prior year period, a 15.8% increase. The increase in new trailer shipments compared to the prior year period resulted in a $31.0 million increase in sales. Equipment sales decreased $25.8 million, or 32.9%, compared to the prior year period primarily due to a $25.6 million decrease in sales as a result of the sale of the AVTE business in January 2019. Parts and service sales decreased $6.3 million, or 6.6%, compared to the prior year period, primarily due to lower demand for our decking systems.
Final Mile Products segment sales, prior to the elimination of intersegment sales, were $349.2 million for the first nine months of 2019, an increase of $65.5 million, or 23.1% from the first nine months of 2018. Increased truck body unit shipments of 18.3% drove a $59.4 million increase in new truck body sales compared to the prior year period. The increase in truck body shipments is attributable to improved chassis availability compared to the prior year period, our efforts to increase the visibility of chassis supply resulting in improved production scheduling and less production disruptions compared to the same period in the prior year, and overall demand for our products within the final mile market.
Cost of Sales
Cost of sales was $1,506.1 million in the first nine months of 2019, an increase of $63.6 million, or 4.4%, compared to the prior year period. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, and overhead expenses.
Commercial Trailer Products segment cost of sales was $995.4 million in the first nine months of 2019, an increase of $20.3 million, or 2.1%, compared to the prior year period. The increase was primarily driven by a $10.2 million increase in materials costs due to materials cost inflation as compared to the prior year period, as well as a $10.1 million increase in labor and other manufacturing costs.
Diversified Products segment cost of sales was $231.6 million in the first nine months of 2019, a decrease of $9.1 million, or 3.8%, compared to the prior period. The decrease was primarily due to the sale of the AVTE business, partially offset by an increase in materials costs in the current year period.
Final Mile Product segment cost of sales was $297.6 million in the first nine months of 2019, an increase of $55.3 million, or 22.8%, compared to the prior year period. The increase was driven by a $38.9 million increase in materials costs and a $16.4 million increase in other manufacturing costs related to increased sales volumes and product mix.
Gross Profit
Gross profit was $234.1 million in the first nine months of 2019, an increase of $19.5 million from the prior year period. Gross profit as a percentage of sales was 13.5% for the first nine months, compared to 13.0% during the same period in 2018. Gross profit by segment was as follows (dollars in thousands):
 
Nine Months Ended September 30,
 
Change
 
2019
 
2018
 
$
 
%
Gross Profit by Segment
 
 
 
 
 
 
 
Commercial Trailer Products
$
126,806

 
$
123,173

 
$
3,633

 
2.9
%
Diversified Products
58,264

 
51,008

 
7,256

 
14.2
%
Final Mile Products
51,576

 
41,409

 
10,167

 
24.6
%
Corporate
(2,571
)
 
(995
)
 
(1,576
)
 
 
Total
$
234,075

 
$
214,595

 
$
19,480

 
9.1
%
Commercial Trailer Products segment gross profit was $126.8 million for the first nine months of 2019 compared to $123.2 million for the prior year period. Gross profit prior to the elimination of intersegment sales, as a percentage of net sales, was 11.3% in 2019 compared to 11.2% in the prior period. The increases in gross profit and gross profit as a percentage of sales are attributable to our pricing efforts to mitigate the impact of higher material and operating costs.

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Diversified Products segment gross profit was $58.3 million for the first nine months of 2019 compared to $51.0 million in the same period of 2018. Gross profit prior to the elimination of intersegment sales, as a percentage of net sales, was 20.1% in the 2019 period compared to 17.5% in the prior period. The increases in gross profit and gross profit as a percentage of net sales compared to the prior year period were primarily driven by the sale of the AVTE business in January 2019, improved operational efficiencies, and a 12.8% increase in new trailers shipped.
Final Mile Products segment gross profit was $51.6 million for the first nine months of 2019 compared to $41.4 million in the same period of 2018. Gross profit, as a percentage of sales, was 14.8% in the first nine months of 2019, compared to 14.6% in the prior year period. The increases in gross profit and gross profit as a percentage of net sales compared to the prior year period were primarily driven by higher sales volumes and operational efficiencies as a result of improved chassis availability compared to the prior year period and our pricing efforts.
General and Administrative Expenses
General and administrative expenses for the first nine months of 2019 increased $8.1 million, or 10.9%, from the prior year period. The increase was primarily due to a $3.2 million increase in employee-related costs, including benefits and incentive programs, compared to the same period in the prior year, and increases in various other administrative expenses. As a percentage of sales, general and administrative expenses were 4.7% for the 2019 period as compared to 4.5% for the same period of 2018.
Selling Expenses
Selling expenses were $25.7 million in the first nine months of 2019, an increase of $0.1 million, or 0.5%, compared to the prior year period. The increase was due to a $1.0 million increase in employee-related costs, including benefits and incentive programs, and a $0.6 million increase in advertising and promotion efforts. These increases were largely offset by lower selling expenses as a result of the sale of the AVTE business in January 2019. As a percentage of net sales, selling expenses were 1.5% for the 2019 period which is consistent with the same period of 2018.
Amortization of Intangibles
Amortization of intangibles was $15.4 million for the first nine months of 2019 compared to $14.8 million in the prior year period. Amortization of intangibles for both periods was the result of expenses recognized for intangible assets recorded from the acquisitions of Walker in May 2012, certain assets of Beall in February 2013, and Supreme in September 2017.
Impairment Expense
Impairment Expense of $12.0 million in the first nine months of 2018 was the result of an impairment charge related to goodwill and long-lived assets within the Diversified Products reportable segment.
Other Income (Expense)
Interest Expense for the first nine months of 2019 totaled $20.8 million compared to $21.6 million in the prior year period. Interest expense for the current year period is primarily related to interest and non-cash accretion charges on our Term Loan Credit Agreement and Senior Notes. The decrease from the prior year period was due to our voluntary prepayments totaling approximately $30.0 million against our Term Loan Credit Agreement during the first nine months of 2019 and the retirement of the Convertible Notes completed in 2018.
Other, Net for the first nine months of 2019 represented income of $2.2 million as compared to income of $12.5 million for the prior year period. Income for the current year period is primarily related to interest income and the sale of a building asset that resulted in an immaterial gain. Income for the prior year period was primarily related to the gains recognized on the sale of former branch locations throughout 2018.
Income Taxes
The Company recognized income tax expense of $21.2 million in the first nine months of 2019 compared to $21.2 million for the same period in the prior year. The effective tax rate for the first nine months of 2019 and 2018 were 23.0% and 26.8%, respectively. These effective tax rates differ from the U.S. Federal statutory rate of 21% primarily due to the impact of state and local taxes and discrete items related to research and development tax credits.

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Liquidity and Capital Resources
Capital Structure
Our capital structure is comprised of a mix of debt and equity. As of September 30, 2019, our debt to equity ratio, including our capital lease obligations, was approximately 0.9:1.0. Our long-term objective is to generate operating cash flows sufficient to support the growth within our businesses and increase shareholder value. This objective will be achieved through a balanced capital allocation strategy of maintaining strong liquidity, deleveraging our balance sheet, investing in the business, both organically and strategically, and returning capital to our shareholders. During the first nine months of 2019, we made voluntary prepayments totaling approximately $30.0 million against our Term Loan Credit Agreement, paid dividends of approximately $13.4 million, and repurchased shares under our share repurchase program totaling $20.0 million. For the remainder of 2019, we expect to continue our commitment to fund our working capital requirements and capital expenditures while also deleveraging our balance sheet through cash flows from operations as well as available borrowings under our existing Revolving Credit Agreement and returning capital to our shareholders.
Debt Agreements and Related Amendments
Senior Notes
On September 26, 2017, we issued Senior Notes due 2025 (the “Senior Notes”) 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 will pay interest semi-annually in cash on April 1 and October 1 of each year, beginning on April 1, 2018. We 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 are guaranteed on a senior unsecured basis by all of our direct and indirect existing and future domestic restricted subsidiaries, subject to certain restrictions. The Senior Notes and related guarantees are our and our guarantors’ general unsecured senior obligations and are subordinate to all of our and our 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 of existing and future debt of any of our subsidiaries that are not guarantors, to the extent of the assets of those subsidiaries. The Senior Notes will mature on October 1, 2025.
The indenture for the Senior Notes restricts our ability and the ability of certain of our subsidiaries, subject to certain exceptions and qualifications, to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock or with respect to any other interest or participation in, or measured by, our 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 our assets.
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. As of September 30, 2019, we were in compliance with all covenants.
Contractual coupon interest expense and accretion of discount and fees for the Senior Notes for the three- and nine-month periods ended September 30, 2019 were $4.6 million and $13.9 million, respectively, and $4.6 million and $13.8 million for the three- and nine-month periods ended September 30, 2018. Contractual coupon interest expense and accretion of discount and fees are included in Interest Expense on the Company’s Condensed Consolidated Statements of Operations.
Revolving Credit Agreement
On December 21, 2018, we entered into the Second Amended and Restated Credit Agreement (the “Revolving Credit Agreement”), among us, certain of our subsidiaries as borrowers (together with us, the “Borrowers”), the lenders from time to time party thereto, Wells Fargo Capital Finance, LLC and Citizens Business Capital, which amended and restated our existing amended and restated revolving credit agreement, dated as of May 8, 2012.
The Revolving Credit Agreement is guaranteed by certain of our subsidiaries (the “Revolver Guarantors”) and is secured by (i) first priority security interests 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 (A) equity interests of each direct subsidiary held by the Borrowers and each Revolver Guarantors, and (B) substantially all other tangible and intangible assets of the Borrowers and the Revolver Guarantors, excluding real property (the “Term Priority Collateral”).
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 us a $175 million revolving credit facility. We have the option to increase the total commitment under the facility to up to $275 million, subject to certain conditions. Subject to availability, the Revolving Credit Agreement provides for a letter of credit subfacility in an amount not in excess of $15 million,

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and allows for swingline loans in an amount not in excess of $17.5 million. Outstanding borrowings under the Revolving Credit agreement 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 thereunder.
The Revolving Credit Agreement contains customary covenants limiting our ability and certain of our 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, we 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.
As of September 30, 2019, we were in compliance with all covenants of the Credit Agreement.
Term Loan Credit Agreement
In May 2012, we entered into the Term Loan Credit Agreement (as amended, the “Term Loan Credit Agreement”), 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 November 17, 2017, we 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 us term loans in the same aggregate principal amount of the outstanding Term Loans, which were used to refinance the outstanding Term Loans.
The Term Loan Credit Agreement is guaranteed by certain of our 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 our ability to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, pay off subordinated indebtedness, make investments and dispose of assets. As of September 30, 2019, we were in compliance with all covenants.
For the three-month periods ended September 30, 2019 and 2018, under the Term Loan Credit Agreement we paid interest of $1.9 million and $2.0 million, respectively, and principal of $15.0 million and $0.5 million during each period. For the nine-month periods ended September 30, 2019 and 2018, we paid interest of $6.3 million and $5.9 million, respectively, and principal of $30.5 million and $1.4 million in each period. We recognized losses on debt extinguishment totaling approximately $0.1 million in connection with the prepayment of principal in the second and third quarters of 2019, which is included in Other, net in the Condensed Consolidated Statement of Operations. As of September 30, 2019, we had $155.2 million outstanding under the Term Loan Credit Agreement, of which none was classified as current on our Condensed Consolidated Balance Sheet.
For each three-month period ended September 30, 2019 and 2018, we incurred charges of less than $0.1 million for amortization of fees and original issuance discount, which is included in Interest Expense in the Condensed Consolidated Statements of Operations. For each nine-month period ended September 30, 2019 and 2018, we incurred charges of $0.2 million for amortization of fees and original issuance discount.

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Cash Flows
Cash provided by operating activities for the first nine months of 2019 totaled $76.2 million, compared to $56.7 million during the same period in 2018. Cash provided by operations during the current year period was the result of net income adjusted for various non-cash activities including depreciation, amortization, net gain on the sale of assets, deferred taxes, stock-based compensation, accretion of debt discount, and a $24.8 million increase in working capital. Changes in key working capital accounts for 2019 and 2018 are summarized below (in thousands):
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Change
Source (Use) of cash:
 
 
 
 
 
Accounts receivable
$
9,671

 
(48,531
)
 
$
58,202

Inventories
(89,869
)
 
(66,089
)
 
(23,780
)
Accounts payable and accrued liabilities
57,750

 
76,602

 
(18,852
)
Net use of cash
$
(22,448
)
 
$
(38,018
)
 
$
15,570

Accounts receivable decreased by $9.7 million in the first nine months of 2019 as compared to a $48.5 million increase in the prior year period. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, was 27 days in 2019 as compared to 31 days in the same period in 2018. The decrease in accounts receivable during the first nine months of 2019 was primarily due to strong customer collections during the period. Inventory increased by $89.9 million during the first nine months of 2019 as compared to $66.1 million in the 2018 period. Our inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately 8 times in the 2019 period and 9 times in the 2018 period. The increase in inventory for the 2019 period was primarily due to higher finished goods and raw materials inventory resulting from increased demand for the first nine months of 2019, as well as continued strong demand into the fourth quarter. Accounts payable and accrued liabilities increased by $57.8 million in 2019 compared to an increase of $76.6 million for the same period in 2018. Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 34 days in both the 2019 and 2018 periods.
Investing activities used $21.5 million during the first nine months of 2019, as compared to providing $0.5 million during the same period in 2018. Investing activities for the first nine months of 2019 include capital expenditures of $22.2 million. Investing activities for the prior year period were primarily related to proceeds from the sale of certain branch location assets totaling $20.8 million, partially offset by capital expenditures of $20.3 million.
Financing activities used $66.6 million during the first nine months of 2019 as compared to $139.0 million in the same period in 2018. Cash used in financing activities during the current year period primarily relates to principal payments under the term loan credit facility of $30.5 million, common stock repurchases and withholdings of $22.7 million, and cash dividends paid to our shareholders of $13.4 million. Cash used in financing activities in the first nine months of 2018 primarily relates to the repurchase of Convertible Notes totaling $80.2 million, common stock repurchases and withholdings of $44.4 million and cash dividends paid to our shareholders of $13.6 million.
As of September 30, 2019, our liquidity position, defined as cash on hand and available borrowing capacity, amounted to $288.1 million, representing an increase of $16.7 million compared to September 30, 2018 and a decrease of $11.4 million compared to December 31, 2018. Total debt and finance lease obligations amounted to $481.0 million as of September 30, 2019. As we continue to see a strong demand environment within the trailer industry and excellence in operational performance across all of our business segments, we believe our liquidity is adequate to fund our currently planned operations, working capital needs and capital expenditures for the remainder of 2019.
Capital Expenditures
Capital spending amounted to approximately $22.2 million for the first nine months of 2019 and is anticipated to be between $30 million and $35 million for 2019. Capital spending for 2019 has been and is expected to continue to be primarily utilized to support maintenance, growth, and productivity improvement initiatives within our facilities.

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Contractual Obligations and Commercial Commitments
A summary of payments of our contractual obligations and commercial commitments, both on and off balance sheet, as of September 30, 2019 are as follows (in thousands):
 
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term Loan Credit Facility (due 2022)
 
$

 
$

 
$

 
$
155,228

 
$

 
$

 
$
155,228

Revolving Facility (due 2023)
 

 

 

 

 

 

 

Senior Notes (due 2025)
 

 

 

 

 

 
325,000

 
325,000

Finance Leases (including principal and interest)
 
90

 
361

 
361

 
30

 
 
 

 
842

Total debt
 
90

 
361

 
361

 
155,258

 

 
325,000

 
481,070

Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Leases
 
1,171

 
4,015

 
3,441

 
2,103

 
1,765

 
2,093

 
14,588

Total other
 
1,171

 
4,015

 
3,441

 
2,103

 
1,765

 
2,093

 
14,588

Other commercial commitments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Letters of Credit
 
7,769

 

 

 

 

 

 
7,769

Raw Material Purchase Commitments
 
48,967

 
11,642

 

 

 

 

 
60,609

Chassis Converter Pool Agreements
 
30,411

 

 

 

 

 

 
30,411

Total other commercial commitments
 
87,147

 
11,642

 

 

 

 

 
98,789

Total obligations
 
$
88,408

 
$
16,018

 
$
3,802

 
$
157,361

 
$
1,765

 
$
327,093

 
$
594,447

Scheduled payments for our Credit Facility exclude interest payments as rates are variable. Borrowings under the Credit Facility bear interest at a variable rate based on the London Interbank Offer Rate (LIBOR) or a base rate determined by the lender’s prime rate plus an applicable margin, as defined in the agreement. Outstanding borrowings under the Credit Facility bear interest at a rate, at our election, equal to (i) LIBOR plus a margin ranging from 1.50% to 2.00% or (ii) a base rate plus a margin ranging from 0.50% to 1.00%, in each case depending upon the monthly average excess availability under the Credit Facility. We are required to pay a monthly unused line fee equal to 0.25% times the average daily unused availability along with other customary fees and expenses of our agent and lenders.
Scheduled payments for our Term Loan Credit Agreement, as amended, exclude interest payments as rates are variable. Borrowings under the Term Loan Credit Agreement, as amended, bear interest at a variable rate, at our election, equal to (i) LIBOR (subject to a floor of 0.00%) plus a margin of 2.25% or (ii) a base rate plus a margin of 1.25%. The Term Loan Credit Agreement matures in March 2022, subject to certain springing maturity events.
Scheduled payments for our Senior Notes exclude interest payments. The Notes bear interest at the rate of 5.5% per annum from the date of issuance, payable semi-annually on April 1 and October 1.
Finance leases represent future minimum lease payments including interest. Operating leases represent the total future minimum lease payments.
We have standby letters of credit totaling $7.8 million issued in connection with workers compensation claims and surety bonds.
We have $60.6 million in purchase commitments with our suppliers and through financial derivatives through December 2020 for various raw material commodities, including aluminum, steel, nickel and polyethylene as well as other raw material components which are within normal production requirements.
We, through our subsidiary Supreme, obtain most vehicle chassis for our specialized vehicle products directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and to a lesser extent, for unallocated orders. Although each manufacturer’s agreement has different terms and conditions, the agreements generally state that the manufacturer will provide a supply of chassis to be maintained from time to time at our various 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. The manufacturer transfers the chassis to us on a “restricted basis,” retaining 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 us nor permit us to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer). Although we are party to related finance agreements with manufacturers, we have not historically settled, nor expect 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 September 30, 2019 our outstanding chassis converter pool with the manufacturer totaled $24.0 million and we have included this financing agreement on our consolidated balance sheets within prepaid expenses and other and other accrued liabilities. All other chassis programs through

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our Supreme subsidiary are handled as consigned inventory belonging to the manufacturer and totaled approximately $6.5 million.  Under these agreements, if the chassis is not delivered to a customer within a specified time frame we are required to pay a finance or storage charge on the chassis. Additionally, we receive finance support funds from the manufacturer when the chassis are assigned into our chassis pool. Typically, chassis are converted and delivered to customers within 90 days of the receipt of the chassis.
Backlog
Orders that have been confirmed by customers in writing, have defined delivery time frames and can be produced during the next 18 months are included in our backlog. Orders that comprise our backlog may be subject to changes in quantities, delivery, specifications, terms or cancellation. Our backlog of orders was $0.8 billion at September 30, 2019 compared to $1.8 billion at December 31, 2018 and $1.3 billion at September 30, 2018. The current order season is materializing in a manner more consistent with historical periods, excluding 2018. We expect to complete the majority of our backlog orders as of September 30, 2019 within 12 months of this date.
Outlook
The demand environment for trailers remained strong through the third quarter of 2019. Recent estimates from industry analysts, ACT Research Company (“ACT”) and FTR Associates (“FTR”), forecast trailer demand for 2019 and beyond to remain healthy. ACT currently estimates trailer production to be approximately 329,700 trailers for 2019, representing an increase of 2.1% as compared to 2018, and forecasting continued demand levels to be above replacement demand into the foreseeable future with estimated demand for 2020 to be approximately 264,300 and annual average demand for the four-year period ending 2024 to be approximately 271,200 new trailers. FTR anticipates new trailer production to be approximately 326,000 new trailers in 2019, representing an increase of 2.8% as compared to 2018, and projecting a decrease in 2020 with production totaling 275,000 trailers. In spite of a strong forecasted demand environment, there remain downside risks relating to issues with both the domestic and global economies, including slowing economic growth, lower industrial production, and other economic factors in the U.S.
Other potential risks we face for the remainder of 2019 will primarily relate to our ability to effectively manage our manufacturing operations as well as the cost and supply of raw materials, commodities and components. Significant increases in the cost of certain commodities, raw materials or components have had and may continue to have an adverse effect on our results of operations. As has been our practice, we will endeavor to pass raw material and component price increases to our customers in addition to continuing our cost management and hedging activities in an effort to minimize the risk changes in material costs could have on our operating results. In addition, we rely on a limited number of suppliers for certain key components and raw materials in the manufacturing of our products, including tires, axles, suspensions, aluminum extrusions, specialty steel coil, and chassis. At the current and expected demand levels, there may be shortages of supplies of raw materials or components which would have an adverse impact on our ability to meet demand for our products.
We believe we remain well-positioned for long-term success in the trailer industry because: (1) our core customers are among the dominant participants in the trucking industry; (2) our DuraPlate® and other industry leading brand trailers continue to have a strong market acceptance; (3) our focus is on developing solutions that reduce our customers’ trailer maintenance and operating costs providing the best overall value; and (4) our presence throughout North America utilizing our extensive dealer network to market and sell our products. Continuing to identify attractive opportunities to leverage our core competencies, proprietary technology and core manufacturing expertise into new applications and end markets enables us to deliver greater value to our customers and stakeholders.
Critical Accounting Policies and Estimates
We have included a summary of our Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes to the summary provided in that report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In addition to the risks inherent in our operations, we have exposure to financial and market risk resulting from volatility in commodity prices, interest rates and foreign exchange rates. The following discussion provides additional detail regarding our exposure to these risks.
Commodity Prices
We are exposed to fluctuation in commodity prices through the purchase of various raw materials that are processed from commodities such as aluminum, steel, lumber, nickel, copper and polyethylene. Given the volatility of certain commodity prices, this exposure can significantly impact product costs. We manage some of our commodity price changes by entering into fixed price contracts with our suppliers and through financial derivatives. As of September 30, 2019, we had $60.6 million in raw material purchase commitments

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through December 2020 for materials that will be used in the production process, as compared to $147.5 million as of December 31, 2018. We typically do not set prices for our products more than 45-90 days in advance of our commodity purchases and can, subject to competitive market conditions, take into account the cost of the commodity in setting our prices for each order. To the extent that we are unable to offset the increased commodity costs in our product prices, our results would be materially and adversely affected.
Interest Rates
As of September 30, 2019, we had no floating rate debt outstanding under our Revolving Credit Facility and for the third quarter of 2019 we maintained no floating rate borrowings under our Revolving Credit Facility. In addition, as of September 30, 2019, we had outstanding borrowings under our Term Loan Credit Agreement, as amended, totaling approximately $155.2 million that bear interest at a floating rate, subject to a minimum interest rate. Based on the average borrowings under our revolving facility and the outstanding indebtedness under our Term Loan Credit Agreement a hypothetical 100 basis-point change in the floating interest rate would result in a corresponding change in interest expense over a one-year period of approximately $1.6 million. This sensitivity analysis does not account for the change in the competitive environment indirectly related to the change in interest rates and the potential managerial action taken in response to these changes.
Foreign Exchange Rates
We are subject to fluctuations in the British pound sterling and Mexican peso exchange rates that impact transactions with our foreign subsidiaries, as well as U.S. denominated transactions between these foreign subsidiaries and unrelated parties. A ten percent change in the British pound sterling or Mexican peso exchange rates would have an immaterial impact on results of operations. We do not hold or issue derivative financial instruments for speculative purposes.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of September 30, 2019.
Changes in Internal Controls over Financial Reporting
There were no changes in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the third quarter of fiscal year 2019 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
See Item 3 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2018. See also Note 11, “Commitments and Contingencies”, to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
Item 1A. Risk Factors
You should carefully consider the risks described in our Annual Report on Form 10-K for the year ended December 31, 2018 including those under the heading “Risk Factors” appearing in Item 1A of Part I of the Form 10-K and other information contained in this Quarterly Report before investing in our securities. Realization of any of these risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Our Equity Securities
In November 2018, the Company announced that the Board of Directors approved the repurchase of an additional $100 million in shares of common stock over a three year period. This authorization was an increase to the previous $100 million repurchase programs approved in February 2017 and February 2016. The repurchase program is set to expire on February 28, 2022. For the quarter ended September 30, 2019, we repurchased 590,256 shares pursuant to our repurchase program. Additionally, during this period there were 1,485 shares repurchased to cover minimum employee tax withholding obligations upon the vesting of restricted stock awards.

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Period
 
Total Number of
Shares Purchased
 
Average Price
Paid per
Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Maximum Amount That May Yet Be Purchased Under the Plans or Programs
($ in millions)
July 1 - 31, 2019
 
244,030

 
$
15.49

 
244,030

 
$
85.0

August 1 - 31, 2019
 
0

 
$

 
0

 
$
85.0

September 1 - 30, 2019
 
347,711

 
$
14.44

 
346,226

 
$
80.0

Total
 
591,741

 
$
14.87

 
590,256

 
$
80.0

Item 6. Exhibits
(a)
Exhibits
 
 
 
 
 
101
The following materials from Wabash National Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 are filed herewith, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018, (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018, (v) the Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018, and (vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

 
104
Cover Page Interactive Data File (formatting as Inline XBRL and contained in Exhibit 101)

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WABASH NATIONAL CORPORATION
 
 
 
Date: November 6, 2019
By:
/s/ Jeffery L. Taylor
 
 
Jeffery L. Taylor
 
 
Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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