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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 March 31, 2022
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 | | 52-1375208 |
(State of Incorporation) | (IRS Employer Identification Number) |
| |
3900 McCarty Lane | |
Lafayette | Indiana | 47905 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (765) 771-5310
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 April 20, 2022 was 49,032,640.
WABASH NATIONAL CORPORATION
FORM 10-Q
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (Unaudited) | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 72,794 | | | $ | 71,778 | |
Accounts receivable, net | 290,035 | | | 176,511 | |
Inventories, net | 286,734 | | | 237,621 | |
Prepaid expenses and other | 46,374 | | | 43,795 | |
Total current assets | 695,937 | | | 529,705 | |
Property, plant, and equipment, net | 232,037 | | | 232,425 | |
Goodwill | 188,438 | | | 188,443 | |
Intangible assets, net | 109,402 | | | 114,441 | |
Other assets | 41,043 | | | 42,057 | |
Total assets | $ | 1,266,857 | | | $ | 1,107,071 | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Current portion of long-term debt | $ | — | | | $ | — | |
Current portion of finance lease obligations | — | | | 59 | |
Accounts payable | 258,643 | | | 173,950 | |
Other accrued liabilities | 114,017 | | | 115,316 | |
Total current liabilities | 372,660 | | | 289,325 | |
Long-term debt | 484,354 | | | 428,315 | |
| | | |
Deferred income taxes | 40,510 | | | 36,019 | |
Other non-current liabilities | 27,080 | | | 27,873 | |
Total liabilities | 924,604 | | | 781,532 | |
Commitments and contingencies | | | |
Stockholders’ equity: | | | |
Common stock 200,000,000 shares authorized, $0.01 par value, 49,032,640 and 48,954,482 shares outstanding, respectively | 764 | | | 759 | |
Additional paid-in capital | 656,863 | | | 653,978 | |
Retained earnings | 100,120 | | | 92,111 | |
Accumulated other comprehensive income | 14,687 | | | 859 | |
Treasury stock at cost, 27,454,978 and 27,013,275 common shares, respectively | (430,181) | | | (422,168) | |
Total stockholders' equity | 342,253 | | | 325,539 | |
Total liabilities and stockholders’ equity | $ | 1,266,857 | | | $ | 1,107,071 | |
The accompanying notes are an integral part of these Condensed Consolidated Statements.
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited – dollars in thousands, except per share amounts)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Net sales | $ | 546,761 | | | $ | 392,003 | | | | | |
Cost of sales | 488,706 | | | 344,837 | | | | | |
Gross profit | 58,055 | | | 47,166 | | | | | |
General and administrative expenses | 26,332 | | | 22,867 | | | | | |
Selling expenses | 6,209 | | | 6,665 | | | | | |
Amortization of intangible assets | 5,039 | | | 5,798 | | | | | |
| | | | | | | |
Impairment and other, net | 340 | | | 621 | | | | | |
Income from operations | 20,135 | | | 11,215 | | | | | |
Other income (expense): | | | | | | | |
Interest expense | (4,913) | | | (6,150) | | | | | |
Other, net | (71) | | | (14) | | | | | |
Other expense, net | (4,984) | | | (6,164) | | | | | |
Income before income tax expense | 15,151 | | | 5,051 | | | | | |
Income tax expense | 3,077 | | | 1,834 | | | | | |
Net income | $ | 12,074 | | | $ | 3,217 | | | | | |
| | | | | | | |
Net income per share: | | | | | | | |
Basic | $ | 0.25 | | | $ | 0.06 | | | | | |
Diluted | $ | 0.24 | | | $ | 0.06 | | | | | |
Weighted average common shares outstanding (in thousands): | | | | | | | |
Basic | 49,004 | | | 52,126 | | | | | |
Diluted | 49,730 | | | 53,044 | | | | | |
| | | | | | | |
Dividends declared per share | $ | 0.08 | | | $ | 0.08 | | | | | |
The accompanying notes are an integral part of these Condensed Consolidated Statements.
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited – dollars in thousands)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Net income | $ | 12,074 | | | $ | 3,217 | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustment | 243 | | | (303) | | | | | |
Unrealized gain on derivative instruments | 13,585 | | | 14,530 | | | | | |
Total other comprehensive income | 13,828 | | | 14,227 | | | | | |
Comprehensive income | $ | 25,902 | | | $ | 17,444 | | | | | |
The accompanying notes are an integral part of these Condensed Consolidated Statements.
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited – dollars in thousands) | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Cash flows from operating activities | | | |
Net income | $ | 12,074 | | | $ | 3,217 | |
Adjustments to reconcile net income to net cash used in operating activities | | | |
Depreciation | 8,225 | | | 6,432 | |
Amortization of intangibles | 5,039 | | | 5,798 | |
Net gain on sale of property, plant and equipment | (645) | | | (193) | |
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Deferred income taxes | (50) | | | 661 | |
Stock-based compensation | 2,277 | | | 2,032 | |
Impairment | 986 | | | 817 | |
Non-cash interest expense | 213 | | | 296 | |
Accounts receivable | (113,524) | | | (33,059) | |
Inventories | (49,113) | | | (63,422) | |
Prepaid expenses and other | 2,913 | | | (7,031) | |
Accounts payable and accrued liabilities | 98,284 | | | 61,789 | |
Other, net | (1,246) | | | 259 | |
Net cash used in operating activities | (34,567) | | | (22,404) | |
Cash flows from investing activities | | | |
Cash payments for capital expenditures | (9,949) | | | (4,165) | |
Proceeds from the sale of assets | 1,445 | | | 203 | |
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Net cash used in investing activities | (8,504) | | | (3,962) | |
Cash flows from financing activities | | | |
Proceeds from exercise of stock options | 613 | | | 1,235 | |
Dividends paid | (4,337) | | | (4,253) | |
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Borrowings under revolving credit facilities | 56,284 | | | 114 | |
Payments under revolving credit facilities | (318) | | | (114) | |
Principal payments under finance lease obligations | (59) | | | (85) | |
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Debt issuance costs paid | (83) | | | — | |
Stock repurchases | (8,013) | | | (19,321) | |
Net cash provided by (used in) financing activities | 44,087 | | | (22,424) | |
Cash and cash equivalents: | | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 1,016 | | | (48,790) | |
Cash, cash equivalents, and restricted cash at beginning of period | 71,778 | | | 217,677 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 72,794 | | | $ | 168,887 | |
Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | $ | 273 | | | $ | 1,436 | |
Refunds received for income taxes | $ | (8,825) | | | $ | (403) | |
Period end balance of payables for property, plant, and equipment | $ | 2,960 | | | $ | 1,781 | |
The accompanying notes are an integral part of these Condensed Consolidated Statements.
WABASH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited – dollars in thousands)
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| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Treasury Stock | | Total |
| Shares | | Amount | | | | | |
Balances at December 31, 2021 | 48,954,482 | | | $ | 759 | | | $ | 653,978 | | | $ | 92,111 | | | $ | 859 | | | $ | (422,168) | | | $ | 325,539 | |
Net income for the period | | | | | | | 12,074 | | | | | | | 12,074 | |
Foreign currency translation | | | | | | | | | 243 | | | | | 243 | |
Stock-based compensation | 277,124 | | | 5 | | | 2,272 | | | | | | | | | 2,277 | |
Stock repurchase | (247,174) | | | | | | | | | | | (8,013) | | | (8,013) | |
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Common stock dividends | | | | | | | (4,065) | | | | | | | (4,065) | |
Unrealized gain on derivative instruments, net of tax | | | | | | | | | 13,585 | | | | | 13,585 | |
Common stock issued in connection with: | | | | | | | | | | | | | |
Stock option exercises | 48,208 | | | | | 613 | | | | | | | | | 613 | |
Balances at March 31, 2022 | 49,032,640 | | | $ | 764 | | | $ | 656,863 | | | $ | 100,120 | | | $ | 14,687 | | | $ | (430,181) | | | $ | 342,253 | |
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| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Treasury Stock | | Total |
| Shares | | Amount | | | | | |
Balances at December 31, 2020 | 52,536,482 | | | $ | 755 | | | $ | 644,695 | | | $ | 107,233 | | | $ | 7,633 | | | $ | (355,437) | | | $ | 404,879 | |
Net income for the period | | | | | | | 3,217 | | | | | | | 3,217 | |
Foreign currency translation | | | | | | | | | (303) | | | | | (303) | |
Stock-based compensation | 101,083 | | | 1 | | | 2,031 | | | | | | | | | 2,032 | |
Stock repurchase | (1,038,674) | | | | | | | | | | | (19,321) | | | (19,321) | |
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Common stock dividends | | | | | | | (3,967) | | | | | | | (3,967) | |
Unrealized gain on derivative instruments, net of tax | | | | | | | | | 14,530 | | | | | 14,530 | |
Common stock issued in connection with: | | | | | | | | | | | | | |
Stock option exercises | 112,400 | | | 1 | | | 1,234 | | | | | | | | | 1,235 | |
Balances at March 31, 2021 | 51,711,291 | | | $ | 757 | | | $ | 647,960 | | | $ | 106,483 | | | $ | 21,860 | | | $ | (374,758) | | | $ | 402,302 | |
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The accompanying notes are an integral part of these Condensed Consolidated Statements.
WABASH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION & DESCRIPTION OF THE BUSINESS
The condensed consolidated financial statements of Wabash National Corporation (the “Company,” “Wabash,” “we,” “our,” or “us”) 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 (“GAAP”) 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 its 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, 2021.
As further described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, on January 10, 2022, the Company completed its review and approval of its plan for rebranding as Wabash®. As part of the planning process, the Company assessed its usage of trade names and brand names in connection with the long-term growth strategy as One Wabash. Under the plan as approved, the Company no longer plans to use certain trade names or brand names, and will predominantly use Wabash (or variations thereof) to refer to the Company.
2. NEW ACCOUNTING PRONOUNCEMENTS
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. ASU No. 2020-04 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company will adopt this standard when LIBOR is discontinued. The Company is evaluating the impact the new standard will have on our condensed consolidated financial statements and related disclosures but does not anticipate a material impact.
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 applies the practical expedient and treats such costs 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 Parts & Services 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 condensed 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 10. Customer deposits are recognized as revenue when the Company performs its obligations under the contract and transfers control of the product.
4. GOODWILL & OTHER INTANGIBLE ASSETS
Segment Realignment
As further described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, beginning in September 2021 the Company realigned its operating and reportable segments. Based on these changes, the Company has established two operating and reportable segments: Transportation Solutions (“TS”) and Parts & Services (“P&S”). These operating and reportable segments have also been determined to be the applicable reporting units for purposes of goodwill assignment and evaluation.
As of March 31, 2022, goodwill allocated to the TS and P&S segments was approximately $120.5 million and $67.9 million, respectively. The Company considered whether there were any indicators of impairment during the three months ended March 31, 2022 and concluded there were none.
Extract Technology® Divestiture
During the second quarter of 2021, the Company sold its Extract Technology® (“Extract”) business that manufactured stainless steel isolators and downflow booths, as well as custom-fabricated equipment, including workstations and drum booths for the pharmaceutical, fine chemical, biotech, and nuclear end markets. Prior to the divestiture, Extract was an operating unit within the Parts & Services reporting unit. In accordance with the relevant accounting guidance, as part of the sale the Company allocated $11.1 million of goodwill based upon the relative fair value of the Extract operating unit compared to the reporting unit as a whole. This goodwill was included in the carrying value of the disposed assets and the resulting net gain recognized in connection with the sale. Prior to and subsequent to the divestiture, the Company performed an impairment assessment for the reporting unit and concluded the fair value of the reporting unit continued to exceed the carrying value.
The changes in the carrying amounts of goodwill from December 31, 2020 through the three-month period ended March 31, 2022 were as follows (in thousands):
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| Transportation Solutions | | Parts & Services | | | | Total |
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Balance at December 31, 2020 | | | | | | | |
Goodwill | $ | 188,775 | | | $ | 119,185 | | | | | $ | 307,960 | |
Accumulated impairment losses | (68,257) | | | (40,143) | | | | | (108,400) | |
Net balance as of December 31, 2020 | 120,518 | | | 79,042 | | | | | 199,560 | |
Impact of divestiture on goodwill | — | | | (11,101) | | | | | (11,101) | |
Effects of foreign currency | (11) | | | (5) | | | | | (16) | |
Balance at December 31, 2021 | | | | | | | |
Goodwill | 188,764 | | | 108,079 | | | | | 296,843 | |
Accumulated impairment losses | (68,257) | | | (40,143) | | | | | (108,400) | |
Net balance as of December 31, 2021 | 120,507 | | | 67,936 | | | | | 188,443 | |
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Effects of foreign currency | (3) | | | (2) | | | | | (5) | |
Balance at March 31, 2022 | | | | | | | |
Goodwill | 188,761 | | | 108,077 | | | | | 296,838 | |
Accumulated impairment losses | (68,257) | | | (40,143) | | | | | (108,400) | |
Net balance as of March 31, 2022 | $ | 120,504 | | | $ | 67,934 | | | | | $ | 188,438 | |
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5. INVENTORIES, NET
Inventories are stated at the lower of cost, determined on either the first-in, first-out or average cost method, or net realizable value. Inventories, net of reserves, consist of the following components (in thousands):
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| March 31, 2022 | | December 31, 2021 |
Raw materials and components | $ | 198,678 | | | $ | 174,915 | |
Finished goods | 67,880 | | | 42,933 | |
Work in progress | 13,732 | | | 14,133 | |
Aftermarket parts | 5,445 | | | 4,903 | |
Used trailers | 999 | | | 737 | |
| $ | 286,734 | | | $ | 237,621 | |
6. PREPAID EXPENSES AND OTHER
Prepaid expenses and other current assets consist of the following (in thousands):
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| March 31, 2022 | | December 31, 2021 |
Chassis converter pool agreements | $ | 4,923 | | | $ | 18,185 | |
Assets held for sale | — | | | 350 | |
Income tax receivables | 3,836 | | | 10,386 | |
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Insurance premiums & maintenance/subscription agreements | 7,054 | | | 3,290 | |
Commodity swap contracts | 27,067 | | | 7,963 | |
All other | 3,494 | | | 3,621 | |
| $ | 46,374 | | | $ | 43,795 | |
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 as of December 31, 2021 related to property, plant, and equipment assets that were unused and were actively being marketed for sale. Insurance premiums and maintenance/subscription agreements are charged to expense over the contractual life, which is generally one year or less. As further described in Note 8, commodity swap contracts relate to our hedging activities (that are in an asset position) to mitigate the risks associated with fluctuations in commodity prices. Other items primarily consist of investments held by the Company’s captive insurance subsidiary as well as other various prepaid and other assets. As of March 31, 2022 and December 31, 2021, there was no restricted cash included in prepaid expenses and other current assets.
7. DEBT
Long-term debt consists of the following (in thousands):
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| March 31, 2022 | | December 31, 2021 |
Senior Notes due 2028 | $ | 400,000 | | | $ | 400,000 | |
Revolving Credit Agreement | 89,001 | | | 33,035 | |
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| 489,001 | | | 433,035 | |
Less: unamortized discount and fees | (4,647) | | | (4,720) | |
Less: current portion | — | | | — | |
| $ | 484,354 | | | $ | 428,315 | |
Senior Notes due 2028
On October 6, 2021, the Company closed on an offering of $400 million in aggregate principal amount of its 4.50% unsecured Senior Notes due 2028 (the “New Senior Notes”). The New Senior Notes were issued pursuant to an indenture dated as of October 6, 2021, by and among the Company, certain subsidiary guarantors named therein (the “Guarantors”) and Wells Fargo Bank, National Association, as trustee (the “Indenture”). The New Senior Notes bear interest at the rate of 4.50% and pay interest semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2022. The New Senior Notes will mature on October 15, 2028. At any time prior to October 15, 2024, the Company may redeem some or all of the New Senior Notes for cash at a redemption price equal to 100% of the aggregate principal amount of the New Senior Notes being redeemed plus an applicable make-whole premium set forth in the Indenture and accrued and unpaid interest to, but not including, the redemption date.
Prior to October 15, 2024, the Company may redeem up to 40% of the New Senior Notes at a redemption price of 104.500% of the principal amount, plus accrued and unpaid interest to, but not including, the redemption date, with the proceeds of certain equity offerings so long as if, after any such redemption occurs, at least 60% of the aggregate principal amount of the New Senior Notes remain outstanding. On and after October 15, 2024, the Company may redeem some or all of the New Senior Notes at redemption prices (expressed as percentages of principal amount) equal to 102.250% for the twelve-month period beginning on October 15, 2024, 101.125% for the twelve-month period beginning October 15, 2025 and 100.000% beginning on October 15, 2026, plus accrued and unpaid interest to, but not including, the redemption date. Upon the occurrence of a Change of Control (as defined in the Indenture), unless the Company has exercised its optional redemption right in respect of the New Senior Notes, the holders of the New Senior Notes will have the right to require the Company to repurchase all or a portion of the New Senior Notes at a price equal to 101% of the aggregate principal amount of the New Senior Notes, plus any accrued and unpaid interest to, but not including, the date of repurchase.
The New 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 New Senior Notes and related guarantees are the Company’s and the Guarantors’ general unsecured senior obligations and will be subordinated to all of the Company and the Guarantors’ existing and future secured debt to the extent of the assets securing that secured obligation. In addition, the New Senior Notes are structurally subordinated 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.
Subject to a number of exceptions and qualifications, the Indenture restricts the Company’s ability and the ability of certain of its subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock or with respect to any other interest or participation in, or measured by, its profits; (iii) make loans and certain investments; (iv) sell assets; (v) create or incur liens; (vi) enter into transactions with affiliates; and (vii) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications.
During any time when the New Senior Notes are rated investment grade by at least two of Moody’s, Fitch and Standard & Poor’s Ratings Services and no Default (as defined in the Indenture) has occurred and is continuing, many of such covenants will be suspended and the Company and its subsidiaries will cease to be subject to such covenants during such period.
The Indenture contains customary events of default, including payment defaults, breaches of covenants, failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. If an event of default occurs and is continuing, the principal amount of the New Senior Notes, plus accrued and unpaid interest, if any, may be declared immediately due and payable. These amounts automatically become due and payable if an event of default relating to certain events of bankruptcy, insolvency or reorganization occurs. As of March 31, 2022, the Company was in compliance with all covenants.
Contractual coupon interest expense and accretion of fees for the New Senior Notes for the three-month period ended March 31, 2022 was $4.5 million and $0.2 million, respectively, and are included in Interest expense in the Company’s Condensed Consolidated Statements of Operations. There was no contractual coupon interest expense and accretion of fees for the New Senior Notes during the three-month period ended March 31, 2021.
Contractual coupon interest expense and accretion of discount and fees for the Senior Notes due 2025, which were redeemed in full during the fourth quarter of 2021, for the three-month period ended March 31, 2021 was $4.5 million, which 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 “Second Amended and Restated Credit Agreement”) among the Company, certain of its subsidiaries as borrowers (together with the Company, the “Borrowers”), the lenders from time to time party thereto, Wells Fargo Capital Finance, LLC as the administrative agent, joint lead arranger and joint bookrunner (the “Revolver Agent”), and Citizens Business Capital, a division of Citizens Asset Finance, Inc., as syndication agent, joint lead arranger and joint bookrunner, which amended and restated the Company’s existing amended and restated revolving credit agreement, dated as of May 8, 2012.
On September 28, 2020, the Company entered into the First Amendment to Second Amended and Restated Credit Agreement (the “First Amendment”) among the Company, certain of its subsidiaries party thereto, the lenders party thereto, and the Revolver Agent. The First Amendment primarily made conforming changes to the provisions in the Revolving Credit Agreement to reflect modifications made under the Term Loan Credit Agreement, dated September 20, 2020, among the Company, the lenders from time to time parties thereto, and Wells Fargo Bank, National Association, as the administrative agent, providing for a secured loan facility of $150 million (the “New Term Loan Credit Agreement”).
On September 28, 2021, the Company entered into an Increase Agreement Regarding Incremental Revolver Commitments and Second Amendment to Second Amended and Restated Credit Agreement (the “Second Amendment”, and together with the First Amendment and Second Amended and Restated Credit Agreement, the “Revolving Credit Agreement” or “Revolving Facility”), which exercised an option under the Revolving Credit Agreement to increase the total revolving credit commitments by $50 million from $175 million to $225 million. The Revolving Credit Agreement continues to include an increase option, which would allow the Company, subject to certain terms and conditions set forth in the Revolving Credit Agreement (including the approval of the lenders providing the applicable increase), to increase the total revolving credit commitments under the Revolving Credit Agreement by a further $50 million to a maximum of $275 million.
The Revolving Credit Agreement is guaranteed by certain subsidiaries of the Company (the “Revolver Guarantors”) and is secured by (i) first priority security interests (subject only to customary permitted liens and certain other permitted liens) in substantially all personal property of the Borrowers and the Revolver Guarantors, consisting of accounts receivable, inventory, cash, deposit and securities accounts and any cash or other assets in such accounts and, to the extent evidencing or otherwise related to such property, all general intangibles, licenses, intercompany debt, letter of credit rights, commercial tort claims, chattel paper, instruments, supporting obligations, documents and payment intangibles (collectively, the “Revolver Priority Collateral”), and (ii) second-priority liens on and security interests in customary permitted liens and certain other permitted liens (A) equity interests of each direct subsidiary held by the Borrowers and each Revolver Guarantor (subject to customary limitations in the case of the equity of foreign subsidiaries), and (B) substantially all other tangible and intangible assets of the Borrowers and the Revolver Guarantors including equipment, general intangibles, intercompany notes, insurance policies, investment property and intellectual property (in each case, except to the extent constituting Revolver Priority Collateral), but excluding real property (collectively, including certain material owned real property that does not constitute collateral under the Revolving Credit Agreement, the “Term Priority Collateral”). The Revolving Credit Agreement has a scheduled maturity date of December 21, 2023.
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 bear interest at an annual rate, at the Borrowers’ election, equal to (i) London Interbank Offer Rate (“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 when excess availability under the Revolving Credit Agreement is less than 10% of the total revolving commitment. The Company was in compliance with all covenants as of March 31, 2022.
If availability under the Revolving Credit Agreement is less than 15% of the total revolving commitment or if there exists an event of default, amounts in any of the Borrowers’ and the Revolver Guarantors’ deposit accounts (other than certain excluded accounts) will be transferred daily into a blocked account held by the Revolver Agent and applied to reduce the outstanding amounts under the facility.
If the covenants under the Revolving Credit Agreement are breached, the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral. Other customary events of default in the Revolving Credit Agreement include, without limitation, failure to pay obligations when due, initiation of insolvency proceedings, defaults on certain other indebtedness, and the incurrence of certain judgments that are not stayed, satisfied, bonded or discharged within 30 days.
During the three-month period ended March 31, 2022, the Company borrowed $56.0 million under the Revolving Credit Agreement. As of March 31, 2022, there was $89.0 million outstanding under the Revolving Credit Facility. Interest expense under the Revolving Credit Agreement for the three-month period ended March 31, 2022, was approximately $0.3 million. During the three-month period ended March 31, 2021, and as of March 31, 2021, there were no amounts outstanding under the Revolving Facility. The Company paid no interest under the Revolving Credit Agreement during the three-month period ended March 31, 2021.
The Company’s liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Facility, amounted to $203.1 million as of March 31, 2022 and $258.0 million as of December 31, 2021.
During the fourth quarter of 2021, the Company drew $50.0 million under the Revolving Credit Agreement, a portion of which was used along with the proceeds of the New Senior Notes to fund the redemption in full of the Senior Notes due 2025, to repay in full the $108.8 million of outstanding borrowings under the New Term Loan Credit Agreement, and to pay all related fees and expenses of the New Senior Notes.
New Term Loan Credit Agreement
As of March 31, 2021, the Company had $138.8 million outstanding under the New Term Loan Credit Agreement (which was repaid in full during the fourth quarter of 2021), none of which was classified as current on the Company’s Condensed Consolidated Balance Sheets. For the three-month period ended March 31, 2021, under the New Term Loan Credit Agreement the Company paid interest of $1.4 million and made no principal payments.
For the three-month period ended March 31, 2021, the Company incurred charges of less than $0.1 million for amortization of fees and original issuance discount, which are included in Interest expense in the Condensed Consolidated Statements of Operations.
8. FINANCIAL DERIVATIVE INSTRUMENTS
Commodity Pricing Risk
As of March 31, 2022, the Company was party to commodity swap contracts for specific commodities with notional amounts of approximately $131.7 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 and will be recognized into earnings through January 2023. 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 March 31, 2022 and December 31, 2021, the fair value carrying amount of the Company’s derivative instruments were recorded as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | Asset / (Liability) Derivatives |
| | Balance Sheet Caption | | March 31, 2022 | | December 31, 2021 |
Derivatives designated as hedging instruments | | | | | | |
Commodity swap contracts | | Prepaid expenses and other | | $ | 27,067 | | | $ | 7,963 | |
Commodity swap contracts | | Accounts payable and Other accrued liabilities | | (4,353) | | | (5,121) | |
Total derivatives designated as hedging instruments | | | | $ | 22,714 | | | $ | 2,842 | |
The following table summarizes the gain or loss recognized in AOCI as of March 31, 2022 and December 31, 2021 and the amounts reclassified from AOCI into earnings for the three months ended March 31, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Gain 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 |
| | | |
| | March 31, 2022 | | December 31, 2021 | | | Three Months Ended March 31, | | |
| | | | | 2022 | | 2021 | | | | |
Derivatives instruments | | | | | | | | | | | | | | |
Commodity swap contracts | | $ | 16,433 | | | $ | 2,848 | | | Cost of sales | | $ | 5,298 | | | $ | 1,035 | | | | | |
Over the next 12 months, the Company expects to reclassify approximately $21.9 million of pretax deferred gains, related to the commodity swap contracts, from AOCI to cost of sales as inventory purchases are settled.
9. LEASES
The Company records a right-of-use ("ROU") asset and lease liability for substantially all leases for which it is a lessee, in accordance with Accounting Standards Codification (“ASC”) 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has no significant lease agreements in place for which the Company is a lessor. At inception of a contract, the Company considers all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not the contract conveys the right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration.
The Company leases certain industrial spaces, office spaces, land, and equipment. Some leases include one or more options to renew, with renewal terms that can extend the lease term from generally one to 5 years. The exercise of lease renewal options is at the Company’s sole discretion, and are included in the lease term only to the extent such renewal options are reasonably certain of being exercised at lease commencement. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. During the three months ended March 31, 2022, leased assets obtained in exchange for new operating lease liabilities totaled approximately $1.3 million. During the three months ended March 31, 2021, leased assets obtained in exchange for new operating lease liabilities were insignificant. As of March 31, 2022, obligations related to operating leases that the Company has executed but have not yet commenced totaled approximately $1.4 million on a non-discounted basis, which the Company generally expects to be recognized over the next five years.
During the three months ended March 31, 2022, the Company entered into sale-leaseback-sublease transactions. Amounts related to these transactions during the first quarter of 2022 were insignificant. In addition, certain of the transactions occurred with a related party—such transactions were at market value and arm’s length.
Leased assets and liabilities included within the Condensed Consolidated Balance Sheets consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Classification | | March 31, 2022 | | December 31, 2021 |
Right-of-Use Assets | | | | | | |
Operating | | Other assets | | $ | 11,754 | | | $ | 11,379 | |
| | | | | | |
| | | | | | |
Liabilities | | | | | | |
Current | | | | | | |
Operating | | Other accrued liabilities | | $ | 3,746 | | | $ | 3,507 | |
Finance | | Current portion of finance lease obligations | | — | | | 59 | |
Noncurrent | | | | | | |
Operating | | Non-current liabilities | | 8,008 | | | 7,872 | |
Finance | | Finance lease obligations | | — | | | — | |
Total lease liabilities | | | | $ | 11,754 | | | $ | 11,438 | |
Lease costs included in the Condensed Consolidated Statements of Operations consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Classification | | Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2021 |
Operating lease cost | | Cost of sales, selling expenses and general and administrative expense | | $ | 1,109 | | | $ | 1,255 | |
Finance lease cost | | | | | | |
Amortization of ROU leased assets | | Depreciation and amortization within Cost of sales | | 36 | | | 36 | |
Interest on lease liabilities | | Interest expense | | 1 | | | 8 | |
Net lease cost | | | | $ | 1,146 | | | $ | 1,299 | |
Maturity of the Company’s lease liabilities as of March 31, 2022 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases | | Total |
2022 (remainder) | | $ | 3,248 | | | $ | — | | | $ | 3,248 | |
2023 | | 3,600 | | | — | | | 3,600 | |
2024 | | 2,485 | | | — | | | 2,485 | |
2025 | | 1,476 | | | — | | | 1,476 | |
2026 | | 990 | | | — | | | 990 | |
Thereafter | | 1,173 | | | — | | | 1,173 | |
Total lease payments | | $ | 12,972 | | | $ | — | | | $ | 12,972 | |
Less: interest | | 1,218 | | | — | | | |
Present value of lease payments | | $ | 11,754 | | | $ | — | | | |
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:
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Weighted average remaining lease term (years) | | | | |
Operating leases | | 4.0 | | 4.3 |
Finance leases | | 0.0 | | 0.1 |
Weighted average discount rate | | | | |
Operating leases | | 5.10 | % | | 5.12 | % |
Finance leases | | — | % | | 6.16 | % |
Lease costs included in the Condensed Consolidated Statements of Cash Flows are as follows (in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2021 |
Cash paid for amounts included in the measurement of lease liabilities | | | | |
Operating cash flows from operating leases | | $ | 1,120 | | | $ | 1,258 | |
Operating cash flows from finance leases | | $ | 1 | | | $ | 5 | |
Financing cash flows from finance leases | | $ | 59 | | | $ | 85 | |
10. OTHER ACCRUED LIABILITIES
The following table presents the major components of Other accrued liabilities (in thousands):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Warranty | $ | 22,144 | | | $ | 22,045 | |
Chassis converter pool agreements | 4,923 | | | 18,185 | |
Payroll and related taxes | 15,550 | | | 15,679 | |
Customer deposits | 21,972 | | | 17,646 | |
Self-insurance | 11,158 | | | 11,152 | |
Accrued interest | 8,799 | | | 4,288 | |
Operating lease obligations | 3,746 | | | 3,507 | |
Accrued taxes | 13,762 | | | 8,425 | |
All other | 11,963 | | | 14,389 | |
| $ | 114,017 | | | $ | 115,316 | |
The following table presents the changes in the product warranty accrual included in Other accrued liabilities (in thousands):
| | | | | | | | | | | |
| 2022 | | 2021 |
Balance as of January 1 | $ | 22,045 | | | $ | 20,570 | |
Provision for warranties issued in current year | 946 | | | 1,397 | |
| | | |
Payments | (847) | | | (1,309) | |
Balance as of March 31 | $ | 22,144 | | | $ | 20,658 | |
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.
11. 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, and are classified as Level 2.
Fair value measurements and the fair value hierarchy level for the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 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) |
March 31, 2022 | | | | | | | | | | |
Commodity swap contracts | | Recurring | | $ | 22,714 | | | $ | — | | | $ | 22,714 | | | $ | — | |
Mutual funds | | Recurring | | $ | 6,097 | | | $ | 6,097 | | | $ | — | | | $ | — | |
Life-insurance contracts | | Recurring | | $ | 17,391 | | | $ | — | | | $ | 17,391 | | | $ | — | |
December 31, 2021 | | | | | | | | | | |
Commodity swap contracts | | Recurring | | $ | 2,842 | | | $ | — | | | $ | 2,842 | | | $ | — | |
Mutual funds | | Recurring | | $ | 6,183 | | | $ | 6,183 | | | $ | — | | | $ | — | |
Life-insurance contracts | | Recurring | | $ | 18,670 | | | $ | — | | | $ | 18,670 | | | $ | — | |
Estimated Fair Value of Debt
The estimated fair value of debt at March 31, 2022 consists primarily of the Senior Notes due 2028 and borrowings under the Revolving Credit Agreement (see Note 7). The fair value of the Senior Notes due 2028 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 Facility are adjusted regularly to reflect current market rates and thus carrying value approximates fair value for any borrowings.
The Company’s carrying and estimated fair value of debt at March 31, 2022 and December 31, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| | Level 1 | | Level 2 | | Level 3 | | | Level 1 | | Level 2 | | Level 3 |
Instrument | | | | | | | | | | | | | | | |
Senior Notes due 2028 | $ | 395,353 | | | $ | — | | | $ | 357,795 | | | $ | — | | | $ | 395,280 | | | $ | — | | | $ | 399,727 | | | $ | — | |
Revolving Facility | 89,001 | | | — | | | 89,001 | | | — | | | 33,035 | | | — | | | 33,035 | | | — | |
| | | | | | | | | | | | | | | |
| $ | 484,354 | | | $ | — | | | $ | 446,796 | | | $ | — | | | $ | 428,315 | | | $ | — | | | $ | 432,762 | | | $ | — | |
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 in the condensed consolidated financial statements.
12. COMMITMENTS AND CONTINGENCIES
As of March 31, 2022, 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 (the “DHEC”) pertaining to the Philip Services Site located in Rock Hill, South Carolina pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and corresponding South Carolina statutes. PRPs include parties identified through manifest records as having contributed to deliveries of hazardous substances to the Philip Services Site between 1979 and 1999. The DHEC’s allegation that the Company was a PRP arises out of four manifest entries in 1989 under the name of a company unaffiliated with Wabash National Corporation (or any of its former or current subsidiaries) that purport to be delivering a de minimis amount of hazardous waste to the Philip Services Site “c/o Wabash National Corporation.” As such, the Philip Services Site PRP Group (the “PRP Group”) notified Wabash in August 2014 that it was offering the Company the opportunity to resolve any liabilities associated with the Philip Services Site by entering into a Cash Out and Reopener Settlement Agreement (the “Settlement Agreement”) with the PRP Group, as well as a Consent Decree with the DHEC. The Company has accepted the offer from the PRP Group to enter into the Settlement Agreement and Consent Decree, while reserving its rights to contest its liability for any deliveries of hazardous materials to the Philips Services Site. The requested settlement payment is immaterial to the Company’s financial conditions and results of operations, and as a result, if the Settlement Agreement and Consent Decree are finalized, the payment to be made by the Company thereunder is not expected to have a material adverse effect on the Company’s financial condition or results of operations.
On November 13, 2019, the Company received a notice that it was considered one of several PRPs by the Indiana Department of Environmental Management (“IDEM”) under CERCLA and state law related to substances found in soil and groundwater at a property located at 817 South Earl Avenue, Lafayette, Indiana (the “Site”). The Company has never owned or operated the Site, but the Site is near certain of the Company’s owned properties. The Company has agreed to implement a limited work plan to further investigate the source of the contamination at the Site and have worked with IDEM and other PRPs to finalize the terms of the work plan. The Company submitted its initial site investigation report to IDEM during the third quarter of 2020, indicating that the data collected by the Company’s consultant confirmed that the Company’s properties are not the source of contamination at the Site. IDEM issued to the PRPs a request for a Further Site Investigation (“FSI”) work plan, and with IDEM’s permission the Company submitted a Work Plan Addendum on December 17, 2020 for limited additional groundwater sampling work in lieu of a full FSI work plan. IDEM approved the Work Plan Addendum and the additional work was completed in 2021. The Company submitted to IDEM the final, written report in December 2021, which states that its position is that the Company is not a responsible party and has no liability for any contamination. As of March 31, 2022, based on the information available, the Company does not expect this matter to have a material adverse effect on its financial condition or results of operations.
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 March 31, 2022, the Company’s outstanding chassis converter pool with the manufacturer totaled $4.9 million and the Company 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 $0.5 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.
13. NET INCOME PER SHARE
Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the period, including vested shares deferred under our non-qualified deferred compensation plan. Diluted earnings per share is determined based on the weighted average number of common shares outstanding during the period combined with the incremental average common shares that would have been outstanding assuming the conversion of all potentially dilutive common shares into common shares as of the earliest date possible. 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 shown below (in thousands, except per share amounts).
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Basic net income per share: | | | | | | | |
Net income applicable to common stockholders | $ | 12,074 | | | $ | 3,217 | | | | | |
Weighted average common shares outstanding | 49,004 | | | 52,126 | | | | | |
Basic net income per share | $ | 0.25 | | | $ | 0.06 | | | | | |
| | | | | | | |
Diluted net income per share: | | | | | | | |
Net income applicable to common stockholders | $ | 12,074 | | | $ | 3,217 | | | | | |
| | | | | | | |
Weighted average common shares outstanding | 49,004 | | | 52,126 | | | | | |
Dilutive stock options and restricted stock | 726 | | | 918 | | | | | |
Diluted weighted average common shares outstanding | 49,730 | | | 53,044 | | | | | |
Diluted net income per share | $ | 0.24 | | | $ | 0.06 | | | | | |
14. STOCK-BASED COMPENSATION
The Company recognizes all share-based payments based upon their grant date fair value. The Company grants restricted stock units subject to specific 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 values of the awards that contain market conditions are estimated using a Monte Carlo simulation approach in a risk-neutral framework to model future stock price movements based upon historical volatility, risk-free rates of return, and correlation matrix. The amount of compensation costs related to restricted stock units and performance units not yet recognized was $17.9 million at March 31, 2022, for which the expense will be recognized through 2025.
15. STOCKHOLDERS’ EQUITY
Share Repurchase Program
In August 2021, the Company announced that the Board of Directors approved the repurchase of an additional $150 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 November 2018, February 2017, and February 2016. The repurchase program is set to expire in August 2024. 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 March 31, 2022, $131.4 million remained available under the program.
Common and Preferred Stock
The Board of Directors has the authority to issue common and unclassed preferred stock of up to 200 million shares and 25 million shares, respectively, with par value of $0.01 per share, as well as to fix dividends, voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions.
Accumulated Other Comprehensive Income (Loss)
Changes in AOCI by component, net of tax, for the three months ended March 31, 2022 are summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation | | Derivative Instruments | | Total |
Balances at December 31, 2021 | | $ | (1,989) | | | $ | 2,848 | | | $ | 859 | |
Net unrealized gains (losses) arising during the period(a) | | 243 | | | 17,555 | | | 17,798 | |
Less: Net realized gains (losses) reclassified to net income(b) | | — | | | 3,970 | | | 3,970 | |
Net change during the period | | 243 | | | 13,585 | | | 13,828 | |
Balances at March 31, 2022 | | $ | (1,746) | | | $ | 16,433 | | | $ | 14,687 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
—————————
(a) Derivative instruments net of $5.9 million of tax liability for the three months ended March 31, 2022.
(b) Derivative instruments net of $1.3 million of tax liability for the three months ended March 31, 2022.
Changes in AOCI by component, net of tax, for the three months ended March 31, 2021 are summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation | | Derivative Instruments | | Total |
Balances at December 31, 2020 | | $ | (2,182) | | | $ | 9,815 | | | $ | 7,633 | |
Net unrealized gains (losses) arising during the period(c) | | (303) | | | 15,305 | | | 15,002 | |
Less: Net realized gains (losses) reclassified to net loss(d) | | — | | | 775 | | | 775 | |
Net change during the period | | (303) | | | 14,530 | | |