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NONCONTROLLING INTEREST AND VARIABLE INTEREST ENTITIES (VIEs) | 9 Months Ended
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Sep. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
NONCONTROLLING INTREST AND VARIABLE INTEREST ENTITIES (VIEs) | NONCONTROLLING INTEREST AND VARIABLE INTEREST ENTITIES (“VIEs”) VIEs & Consolidation The Company consolidates those entities in which it has a direct or indirect controlling financial interest based on either the variable interest model (the “VIE model”) or the voting interest model (the “VOE model”). VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (ii) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE through its interest in the VIE. To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Company considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (typically management and representation on the board of directors as well as control of the overall strategic direction of the entity) and have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE. To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of its economic interests, which primarily include the obligation to absorb losses or fund expenditures or losses (if needed), that are deemed to be variable interests in the VIE. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing the significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Company. At the VIE’s inception, the Company determines whether it is the primary beneficiary and if the VIE should be consolidated based on the facts and circumstances. The Company then performs on-going reassessments of the VIE based on reconsideration events and reevaluates whether a change to the consolidation conclusion is required each reporting period. If the Company is not deemed to be the primary beneficiary in a VIE, the Company accounts for the investment or other variable interests in a VIE in accordance with the applicable GAAP. Entities that do not qualify as a VIE are assessed for consolidation under the VOE model. Under the VOE model, the Company consolidates the entity if it determines that it, directly or indirectly, has greater than 50% of the voting shares and that other equity holders do not have substantive voting, participating or liquidation rights. The Company has no entities consolidated under the VOE model. At each reporting period, the Company reassesses whether it remains the primary beneficiary for VIEs consolidated under the VIE model. If the Company concludes it is not the primary beneficiary of a VIE, the Company evaluates whether it has the ability to exercise significant influence over operating and financial policies of the entity requiring the equity method of accounting. The Company’s judgment regarding the level of influence over an equity method investment includes, but is not limited to, considering key factors such as the Company’s ownership interest (generally represented by ownership of at least 20 percent but not more than 50 percent), representation on the board of directors, participation in policy making decisions, technological dependency, and material intercompany transactions. Generally, under the equity method, investments are recorded at cost and subsequently adjusted by the Company’s share of equity in income or losses after the date of the initial investment. Equity in income or losses is recorded according to the Company’s level of ownership; if losses accumulate, the Company records its share of losses until the investment has been fully depleted. If the Company’s investment has been fully depleted, the Company recognizes additional losses only when it is committed to provide further financial support. Dividends received from equity method, reduce the amount of the Company’s investment when received and do not impact the Company’s earnings. The Company evaluates its equity method investments for an other-than-temporary impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. Linq Venture Holdings LLC During the fourth quarter of 2023, the Company continued to unify and expand its parts and services capabilities and ecosystem by executing an agreement with a partner to create a new legal entity (Linq Venture Holdings LLC, “Linq”) to develop and scale a digital marketplace in and for the transportation and logistics distribution industry. Linq is intended to be the digital channel to market Wabash equipment and parts & services, as well as non-Wabash parts & services, in a digital marketplace format to end-customers as well as dealers. The Company holds 49% ownership of the membership units in Linq while its partner holds 51%. Initial capital contributions to Linq were in proportion to the respective ownership interests. The Company’s initial capital contribution was approximately $2.5 million while its partner’s contribution was approximately $2.6 million. At its formation, Linq had no debt or other financial obligations other than typical operating expenses and costs. Creditors of Linq do not have recourse to the general credit of the Company. The operating agreement requires excess cash distributions, as defined in the agreement, no later than 30 days after the end of the second and fourth quarters of each year in proportion to the respective ownership interests. The operating agreement provides the Company’s partner with put rights that would require the Company to purchase its partner’s interest in Linq. In addition, the operating agreement provides the Company with call rights that would allow it to purchase its partner’s interest in Linq. These put and call rights vary depending upon when they may be exercised, which is generally from formation of Linq up to and including the seven-year anniversary of formation. Upon receiving notice that the Company’s partner has exercised the put right or the Company has exercised the call right, a valuation will occur as stipulated within the operating agreement. Generally, the valuation stipulated within the operating agreement is materially equivalent to a fair value calculation. Such put and call rights have not been exercised by the Company’s partner or the Company as of the current period end date. Because Linq does not have sufficient equity at risk to permit it to carry on its activities without additional financial support, the Company concluded that Linq is a VIE. The Company has the ability to significantly influence the activities of Linq through minority representation on the Board of Directors as well as through participation in certain management and strategic decisions of Linq. The Company’s partner is responsible for the overall development and management of the digital marketplace, the primary purpose for which Linq was formed. Both the Company and its partner have a requirement to provide funding to Linq if needed. As part of the formation of Linq, the Company executed a credit agreement with Linq whereby a $10.0 million revolving line of credit (the “Wabash Note”) with a 7% simple accrued interest rate, paid quarterly, is available to Linq. The commitment under the Wabash Note may be increased to $35.0 million subject to the approval of the Board of Directors as stipulated in the operating agreement. In the three-month period ended September 30, 2024, $3.1 million was borrowed under the Wabash Note and as of September 30, 2024, there was $8.7 million outstanding. Interest income resulting from the Wabash Note for the three and nine-month periods ended September 30, 2024 was $0.1 million and $0.2 million, respectively. Interest income under the Wabash Note is included in Other, net in the Company’s Condensed Consolidated Statements of Operations. The Company did not provide financial or other support to Linq that it was not contractually obligated to provide. Given the facts and circumstances specific to Linq, the Company concluded that it is not the primary beneficiary of this VIE. However, the Company has the ability to exercise significant influence over the operating and financial policies of Linq. The Company’s maximum exposure to loss in this unconsolidated VIE is limited to the Company’s initial capital contribution and any amounts borrowed under the Wabash Note. The partner’s put right does not have a standalone value as it based upon a fair value calculation when exercised, as stipulated in the operating agreement. The Company’s equity method investment in Linq is recorded in Investment in unconsolidated entity on its Condensed Consolidated Balance Sheets. Any amounts borrowed under the Wabash Note are recorded in Other assets on the Company’s Condensed Consolidated Balance Sheets and within Investment in unconsolidated entity cash outflows presented in the investing cash flows of the Company’s Condensed Consolidated Statements of Cash Flows. Linq is considered operationally integral. The Company’s share of the results from its equity method investment is included in Loss from unconsolidated entity in the Condensed Consolidated Statements of Operations. The following table is a rollforward of activities related to the Company’s unconsolidated entity (in thousands):
| 2024 |  | 2023
Balance at January 1 | $ | 1,647 |  |  | $ | — |
Loss from unconsolidated entity | (1,486) |  |  | — |
Balance at March 31 | 161 |  |  | — |
Loss from unconsolidated entity | (1,415) |  |  | — |
Equity deficit applied to note (1) | 1,254 |  |  | — |
Balance at June 30 | — |  |  | — |
Loss from unconsolidated entity | (1,676) |  |  | — |
Equity deficit applied to note (1) | 1,676 |  |  | — |
Balance at September 30 | $ | — |  |  | $ | — |
(1) As the Company is not required to advance additional funds to Linq, excess losses beyond its initial investment have been recorded against the basis of its other investments in Linq, which is comprised of the loan receivable for amounts borrowed under the Wabash Note. Wabash Parts LLC During the second quarter of 2022, the Company unified and expanded its parts and distribution capabilities by executing an agreement with a partner to create a new legal entity (Wabash Parts LLC, “WP”) to operate a parts and services distribution platform. The Company holds 50% ownership in WP while its partner holds the remaining 50%. Initial capital contributions were insignificant. WP has no debt or other financial obligations other than typical operating expenses and costs. Creditors of WP do not have recourse to the general credit of the Company. The operating agreement requires excess cash distributions, as defined in the agreement, no later than 30 days after the end of the second and fourth quarters of each year in proportion to the respective ownership interests. The operating agreement provides the Company’s partner with a put right that would require the Company to purchase its partner’s interest in WP. Upon receiving notice that the Company’s partner has exercised the put right, a valuation will occur as stipulated within the operating agreement. Such put right has not been exercised by the Company’s partner and is therefore not mandatorily redeemable as of the current period end date, however the existence of the put right that is beyond the Company’s control requires the noncontrolling interest to be presented in the temporary equity section of the Company’s Condensed Consolidated Balance Sheets. Because the entity does not have sufficient equity at risk to permit it to carry on its activities without additional financial support, the Company concluded that WP is a VIE. The Company has the power to direct the activities of WP through majority representation on the Board of Directors as well as control related to the management and overall strategic direction of the entity. In addition, the Company has the obligation to absorb the benefits and losses of WP that could potentially be significant to the entity. The Company also has a requirement to provide funding to the entity if needed. Given the facts and circumstances specific to WP, the Company concluded that it is the primary beneficiary and, as such, is required to consolidate the entity. WP’s results of operations are included in the Parts & Services operating and reportable segment. Through September 30, 2024, the Company did not provide financial or other support to this VIE that it was not contractually obligated to provide. As of September 30, 2024, the Company does not have any obligations to provide financial support to WP. The following table presents the assets and liabilities of the WP VIE consolidated on the Company’s Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 (in thousands):
| September 30, 2024 |  | December 31, 2023
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 3,358 |  |  | $ | 3,020 |
Accounts receivable, net | 2,973 |  |  | 1,540 |
Inventories, net | 19 |  |  | 85 |
Prepaid expenses and other | 57 |  |  | 68 |
Total current assets | 6,407 |  |  | 4,713 |
Property, plant, and equipment, net | — |  |  | — |
Other assets | 363 |  |  | 543 |
Total assets | $ | 6,770 |  |  | $ | 5,256 |
Liabilities |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 5,428 |  |  | $ | 4,024 |
Other accrued liabilities | 24 |  |  | 26 |
Total current liabilities | 5,452 |  |  | 4,050 |
Other non-current liabilities | — |  |  | — |
Total liabilities | $ | 5,452 |  |  | $ | 4,050 |
The following table is a rollforward of activities in the Company’s noncontrolling interest (in thousands):
| 2024 |  | 2023
Balance at January 1 | $ | 603 |  |  | $ | 512 |
Net income attributable to noncontrolling interest | 120 |  |  | 183 |
Other comprehensive income (loss) | — |  |  | — |
Distributions paid to noncontrolling interest | (603) |  |  | — |
Balance at March 31 | 120 |  |  | 695 |
Net income attributable to noncontrolling interest | 246 |  |  | 146 |
Other comprehensive income (loss) | — |  |  | — |
Distributions declared to noncontrolling interest | — |  |  | (512) |
Balance at June 30 | 366 |  |  | 329 |
Net income attributable to noncontrolling interest | 293 |  |  | 152 |
Other comprehensive income (loss) | — |  |  | — |
Distributions declared to noncontrolling interest | — |  |  | — |
Balance at September 30 | $ | 659 |  |  | $ | 481 |

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 810 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/810/tableOfContent + Details
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