Wabash National Earnings 2019-06-30

WNC 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Document

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 June 30, 2019



☐	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 Incorporate)		(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 July 25, 2019 was 54,456,563.

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WABASH NATIONAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS



		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets at June 30, 2019 and December 31, 2018	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	6

	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30

Item 4.	Controls and Procedures	31

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 6.	Exhibits	32

	Signature	33

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Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

WABASH NATIONAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



	June 30, 2019			December 31, 2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	140,155		$	132,690
Accounts receivable, net	170,177			181,064
Inventories	264,567			184,404
Prepaid expenses and other	40,550			51,261
Total current assets	615,449			549,419
Property, plant, and equipment, net	208,718			206,991
Goodwill	311,085			311,084
Intangible assets, net	200,089			210,328
Other assets	39,488			26,571
Total assets	$	1,374,829		$	1,304,393
Liabilities and Stockholders’ Equity
Current Liabilities:
Current portion of long-term debt	$	—		$	1,880
Current portion of finance lease obligations	317			299
Accounts payable	200,641			153,113
Other accrued liabilities	120,356			116,384
Total current liabilities	321,314			271,676
Long-term debt	489,865			503,018
Finance lease obligations	544			714
Deferred income taxes	32,691			34,905
Other non-current liabilities	28,850			20,231
Total liabilities	873,264			830,544
Commitments and contingencies
Stockholders’ equity:
Common stock 200,000,000 shares authorized, $0.01 par value, 54,675,691 and 55,135,788 shares outstanding, respectively	749			744
Additional paid-in capital	634,465			629,039
Retained earnings	186,934			150,244
Accumulated other comprehensive losses	(3,896		)	(3,343		)
Treasury stock at cost, 20,331,511 and 19,372,735 common shares, respectively	(316,687		)	(302,835		)
Total stockholders' equity	501,565			473,849
Total liabilities and stockholders’ equity	$	1,374,829		$	1,304,393

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

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WABASH NATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net sales	$	626,053		$	612,690		$	1,159,227		$	1,104,009
Cost of sales	538,403			527,375			1,002,887			954,576
Gross profit	87,650			85,315			156,340			149,433
General and administrative expenses	26,509			25,778			56,649			50,887
Selling expenses	8,494			8,556			16,717			16,901
Amortization of intangible assets	5,109			4,940			10,238			9,881
Acquisition expenses	—			—			—			68
Income from operations	47,538			46,041			72,736			71,696
Other income (expense):
Interest expense	(7,020		)	(7,151		)	(14,110		)	(14,605		)
Other, net	1,081			4,037			912			11,953
Other expense, net	(5,939		)	(3,114		)	(13,198		)	(2,652		)
Income before income tax	41,599			42,927			59,538			69,044
Income tax expense	10,639			11,025			13,798			15,870
Net income	$	30,960		$	31,902		$	45,740		$	53,174

Net income per share:
Basic	$	0.56		$	0.55		$	0.83		$	0.92
Diluted	$	0.56		$	0.54		$	0.82		$	0.89
Weighted average common shares outstanding (in thousands):
Basic	55,197			57,879			55,233			57,836
Diluted	55,668			59,274			55,719			60,023

Dividends declared per share	$	0.080		$	0.075		$	0.160		$	0.150

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

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WABASH NATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	30,960		$	31,902		$	45,740		$	53,174
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment and other	(115		)	(644		)	183			(236		)
Unrealized loss on derivative instruments	78			—			(736		)	—
Total other comprehensive (loss) income	(37		)	(644		)	(553		)	(236		)
Comprehensive income	$	30,923		$	31,258		$	45,187		$	52,938

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

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WABASH NATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities
Net income	$	45,740		$	53,174
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	10,957			10,330
Amortization of intangibles	10,238			9,881
Net loss (gain) on sale of property, plant and equipment	481			(9,743		)
Loss on debt extinguishment	53			174
Deferred income taxes	(2,214		)	(81		)
Stock-based compensation	5,377			5,390
Non-cash interest expense	523			1,110
Accounts receivable	10,886			(46,564		)
Inventories	(80,163		)	(56,057		)
Prepaid expenses and other	(325		)	1,756
Accounts payable and accrued liabilities	58,210			72,792
Other, net	1,210			(1,691		)
Net cash provided by operating activities	60,973			40,471
Cash flows from investing activities
Capital expenditures	(14,995		)	(11,117		)
Proceeds from the sale of property, plant, and equipment	38			16,426
Other, net	—			3,060
Net cash (used in) provided by investing activities	(14,957		)	8,369
Cash flows from financing activities
Proceeds from exercise of stock options	55			910
Dividends paid	(9,061		)	(9,271		)
Borrowings under revolving credit facilities	288			423
Payments under revolving credit facilities	(288		)	(423		)
Principal payments under capital lease obligations	(152		)	(143		)
Principal payments under term loan credit facility	(15,470		)	(940		)
Principal payments under industrial revenue bond	—			(92		)
Debt issuance costs paid	(71		)	—
Convertible senior notes repurchase	—			(80,200		)
Stock repurchase	(13,852		)	(21,413		)
Net cash used in financing activities	(38,551		)	(111,149		)
Cash and cash equivalents:
Net increase (decrease) in cash, cash equivalents, and restricted cash	7,465			(62,309		)
Cash, cash equivalents and restricted cash at beginning of period	132,690			191,521
Cash, cash equivalents, and restricted cash at end of period	$	140,155		$	129,212
Supplemental disclosures of cash flow information:
Cash paid for interest	$	13,661		$	14,071
Cash paid for income taxes	$	10,567		$	12,700

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

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WABASH NATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)



	Common Stock				Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Losses			Treasury Stock			Total
	Shares		Amount		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Losses			Treasury Stock			Total
Balances at December 31, 2018	55,135,788		$	744	$	629,039	$	150,244		$	(3,343	)	$	(302,835	)	$	473,849
Net income for the year							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		)
Equity component of convertible senior notes repurchase																—
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 year							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		)
Equity component of convertible senior notes repurchase																—
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

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

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WABASH NATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(Dollars in thousands)

(Unaudited)



	Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Losses			Treasury Stock			Total
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Losses			Treasury Stock			Total
Balances at December 31, 2017	57,564,493		$	737	$	653,435		$	98,728		$	(2,385	)	$	(244,452	)	$	506,063
Net income for the year								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 year								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

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

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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 exist 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 $15.1 million of noncancelable future rental obligations as of June 30, 2019, as shown in Note 8.

3. REVENUE RECOGNITION

The Company adopted FASB ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” effective January 1, 2018. The adoption of Topic 606 did not have a material impact on the consolidated financial statements. The Company recognizes revenue from the sale of its products when obligations under the terms of a contract with our customers are satisfied; this occurs with the transfer of control of our products and replacement parts or throughout the completion of service work. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring promised goods or services to a customer and excludes all taxes collected from the customer. Shipping and handling fees are included in Net Sales and the associated costs included in Cost of Sales in the 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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4. INVENTORIES

Inventories consist of the following components (in thousands):



	June 30, 2019		December 31, 2018
Raw materials and components	$	139,236	$	115,083
Finished goods	99,351		48,698
Work in progress	18,095		13,119
Aftermarket parts	7,307		6,421
Used trailers	578		1,083
	$	264,567	$	184,404

5. PREPAID EXPENSES

Prepaid expenses and other current assets consist of the following (in thousands):



	June 30, 2019		December 31, 2018
Chassis converter pool agreements	$	11,704	$	22,273
Assets held for sale	3,009		3,039
Income tax receivables	205		9,872
Insurance premiums & maintenance agreements	11,184		3,313
All other	14,448		12,764
	$	40,550	$	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 costs in excess of billings on contracts for which the Company recognizes revenue over time as services are completed. There is no restricted cash included in prepaid expenses and other for the periods ending June 30, 2019 and December 31, 2018.

6. DEBT

Long-term debt consists of the following (in thousands):



	June 30, 2019			December 31, 2018
Senior notes due 2025	$	325,000		$	325,000
Term loan credit agreement	170,228			185,699
	495,228			510,699
Less: unamortized discount and fees	(5,363		)	(5,801		)
Less: current portion	—			(1,880		)
	$	489,865		$	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

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obligations and are subordinate to all of the Company’s and the guarantors’ existing and future secured debt to the extent of the assets securing that secured obligation. In addition, the Senior Notes are structurally subordinate to any existing and future debt of any of the Company’s subsidiaries that are not guarantors, to the extent of the assets of those subsidiaries. The 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 June 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 six-month periods ended June 30, 2019 and 2018, was $4.6 million and $9.2 million, respectively, and is 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 June 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 $307.4 million as of June 30, 2019, and $287.7 million as of June 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 June 30, 2019, the Company was in compliance with all covenants.

For the three- and six-month periods ended June 30, 2019, under the Term Loan Credit Agreement the Company paid interest of $2.2 million and $4.4 million, respectively, and principal of $15.0 million and $15.5 million during each period. For the three- and six-month periods ended June 30, 2018, the Company paid interest of $2.0 million and $3.9 million, respectively, and principal of $0.5 million and $0.9 million during each period. The Company recognized a loss on debt extinguishment of $0.1 million in connection with the prepayment of principal in the second quarter of 2019, included in Other, net in the Condensed Consolidated Statement of Operations. As of June 30, 2019, the Company had $170.2 million outstanding under the Term Loan Credit Agreement, of which none was classified as current on the Company’s Condensed Consolidated Balance Sheet.

For each three-month period ended June 30, 2019 and 2018, the Company incurred charges of less than $0.1 million, and $0.1 million for each six-month period ended June 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 June 30, 2019, the Company was party to commodity swap contracts for specific commodities with notional amounts of approximately $31.4 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 April 2020. 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 June 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	June 30, 2019			December 31, 2018
Derivatives designated as hedging instruments
Commodity swap contracts	Prepaid expenses and other	$	32		$	17
Commodity swap contracts	Other accrued liabilities	(2,013		)	(1,146		)
Total derivatives designated as hedging instruments		$	(1,981	)	$	(1,129	)

Table of Contents

The following table summarizes the gain or loss recognized in AOCI as of June 30, 2019 and December 31, 2018 and the amounts reclassified from AOCI into earnings for the three and six months ended June 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
								Amount of Gain (Loss) Reclassified from AOCI into Earnings
	June 30, 2019			December 31, 2018				Three Months Ended June 30,					Six Months Ended June 30,
	June 30, 2019			December 31, 2018				2019			2018		2019			2018
Derivatives instruments
Commodity swap contracts	$	(1,501	)	$	(765	)	Cost of sales	$	(478	)	$	—	$	(646	)	$	—

Over the next 12 months, the Company expects to reclassify approximately $2.0 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 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 obtained in exchange for new operating lease liabilities in the current period were not material.

Leased assets and liabilities included within the Condensed Consolidated Balance Sheets consist of the following (in thousands):



	Classification	June 30, 2019
Right-of-Use Assets
Operating	Other assets	$	12,562
Finance	Property, plant and equipment, net of depreciation	3,017
Total Leased ROU Assets		$	15,579
Liabilities
Current
Operating	Other accrued liabilities	$	3,870
Finance	Current portion of finance lease obligations	317
Noncurrent
Operating	Non-current liabilities	8,767
Finance	Finance lease obligations	544
Total lease liabilities		$	13,498

Lease costs included in the Condensed Consolidated Statements of Operations consist of the following (in thousands):



	Classification	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	Cost of sales, selling expenses and general and administrative expense	$	1,126	$	2,198
Finance lease cost
Amortization of ROU leased assets	Depreciation and amortization	36		72
Interest on lease liabilities	Interest expense	17		35
Net lease cost		$	1,179	$	2,305

Table of Contents

Maturity of the Company’s lease liabilities is as follows (in thousands):



	Operating Leases		Finance Leases		Total
2019 (remainder)	$	2,153	$	180	$	2,333
2020	3,621		361		3,982
2021	3,032		361		3,393
2022	1,797		30		1,827
2023	1,594		—		1,594
Thereafter	2,008		—		2,008
Total lease payments	$	14,205	$	932	$	15,137
Less: interest	1,568		71
Present value of lease payments	$	12,637	$	861

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 commencement date in determining the present value of lease payments. Remaining lease term and discount rates are as follows:



	June 30, 2019
Weighted average remaining lease term (years)
Operating leases	4.6
Finance leases	2.6
Weighted average discount rate
Operating leases	5.16	%
Finance leases	6.16	%

Lease costs included in the Condensed Consolidated Statements of Cash Flows are as follows (in thousands):



	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,124
Operating cash flows from finance leases	$	35
Financing cash flows from finance leases	$	152

9. OTHER ACCRUED LIABILITIES

The following table presents the major components of Other Accrued Liabilities (in thousands):



	June 30, 2019		December 31, 2018
Warranty	$	23,509	$	22,247
Chassis converter pool agreements	11,704		22,273
Payroll and related taxes	21,530		16,096
Customer deposits	28,945		23,483
Self-insurance	12,772		9,890
Accrued interest	4,705		4,779
Operating lease obligations	3,870		—
Accrued taxes	2,320		7,653
All other	11,001		9,963
	$	120,356	$	116,384

Table of Contents

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	$

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$14.84	55	$823

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-07-31	Earnings, Exhibits
8-K	2019-05-22	Shareholder Vote
8-K	2019-05-21	Regulation FD, Exhibits
8-K	2019-05-01	Earnings, Exhibits
8-K	2019-05-01	Regulation FD, Exhibits
8-K	2019-01-30	Regulation FD, Exhibits
8-K	2019-01-29	Earnings, Exhibits
8-K	2018-12-21	Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K	2018-12-03	Regulation FD, Exhibits
8-K	2018-11-14	Other Events, Exhibits
8-K	2018-11-14	Other Events
8-K	2018-11-07	Officers
8-K	2018-11-06	Regulation FD, Exhibits
8-K	2018-10-30	Earnings, Exhibits
8-K	2018-10-12	Earnings, Exhibits
8-K	2018-09-14	Regulation FD, Exhibits
8-K	2018-09-13	Regulation FD, Exhibits
8-K	2018-07-31	Earnings, Exhibits
8-K	2018-05-30	Regulation FD, Exhibits
8-K	2018-05-16	Regulation FD, Exhibits
8-K	2018-05-15	Officers, Shareholder Vote
8-K	2018-02-13	Regulation FD, Exhibits
8-K	2018-01-30	Earnings, Exhibits

REG	Regency Centers	10,950
MTG	MGIC Investment	5,000
IMMR	Immersion	331
ENOB	Enochian Biosciences	221
HEAR	Turtle Beach	155
TACT	Transact Technologies	69
AIQ	Alliance Healthcare Services	42
AHPI	Allied Healthcare Products	7
SBSAA	Spanish Broadcasting System	0
TDNT	Trident Brands	0

EX-31.01	wnc-20190630xex3101.htm
EX-31.02	wnc-20190630xex3102.htm
EX-32.01	wnc-20190630xex3201.htm