WABASH NATIONAL Corp (WNC)

ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes the matters that we consider to be important to understanding the results of our operations for the years ending December 31, 2024 and December 31, 2023. In addition, we address our capital resources and liquidity as of December 31, 2024. Our discussion begins with our assessment of the condition of the North American trailer industry along with a summary of the actions we have taken to strengthen the Company. We then analyze the results of our operations for the last two years, including trends in the overall business and our operating segments, followed by a discussion of our cash flows and liquidity, capital market events, our debt obligations, and our contractual commitments. We conclude with a review of critical accounting judgments and estimates and information on recent accounting pronouncements that we adopted during the year, if any, as well as those not yet adopted that may have an impact on our financial accounting practices, if any.

For discussion of results of operations for the year ended December 31, 2023 compared to the results of operations for the year ended December 31, 2022, see Part II, Item 7,—”Management's Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Annual Report on Form 10-K, filed with the SEC on February 22, 2024.

Executive Summary

In 2024, the company continued to build on our record setting financial and strategic accomplishments of 2023 by demonstrating improved resilience during an industry down-cycle and maintaining a forward posture by continuing to invest in strategic growth in a manner that's unprecedented relative to market conditions. Operating loss in 2024 totaled $356.1 million and the operating margin was (18.3)%. The Company’s operating loss includes a $450.0 million non-cash charge for punitive damages stemming from the Product Liability Matter as further described in Note 14 in the Notes to Consolidated Financial Statements. Additional discussion related to financial results are included in the “Results of Operations” section below.

Throughout 2024, we have continued to create more points of connection with our customers with greater focus on Parts & Services as well as innovative offerings like Trailers as a Service (TaaS)℠ that allow us to add recurring, longer-term value beyond an initial transaction. These advancements have not only deepened our customer engagement but have also enriched our collaborations with supplier and technology partners. We have solidified specific partnerships that are enabling us to grow our recurring revenue within the transportation, logistics and infrastructure ecosystem. Our Wabash Parts joint venture rapidly established significant distribution capabilities that allow our dealer network efficient access to our comprehensive portfolio of aftermarket parts. Linq Venture Holdings, LLC continues to play a crucial role in advancing our digital capabilities, which aim to revolutionize the online experience for our dealers, traditional and non-traditional suppliers of both parts and services and a broad set of customers spanning across the vast transportation and logistics landscape. Additionally, our 2023 investment to add 20% more dry van manufacturing capacity has reinforced our go-to-market strategy with a portfolio-based selling approach that leverages the breadth of our products.

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In addition to our commitment to sustain profitable growth within each of our existing reporting segments, our long-term strategic initiatives include a focus on diversification efforts, both organic and strategic, to continue to transform Wabash into a lean, visionary leader of connected solutions with a higher growth and margin profile to successfully deliver a greater value to our shareholders. Our strategy is centered around our ability to scale core competencies by growing in and around core markets with known customers.

Our ability to generate solid margins and cash flows and a healthy balance sheet should position the Company with ample resources to (1) fund our internal capital needs to support both organic growth and productivity improvements, (2) optimize our debt leverage and other financial ratios, (3) return capital to shareholders, and (4) selectively pursue strategic acquisitions. We will continue our internal effort to strategically identify potential acquisition or partnership targets that we believe can create shareholder value and accelerate our growth and diversification efforts, while leveraging our strong competencies in manufacturing execution, sourcing and innovative engineering leadership to assure strong value creation. Organically, our focus is on profitably growing and diversifying our operations through leveraging our existing assets, capabilities, and technology into higher margin products and markets and thereby providing value-added customer solutions.

Throughout 2024, we demonstrated our commitment to being responsible stewards of the business by maintaining a balanced approach to capital allocation. The resilience of our operations and our strong financial position provided us the opportunity to take specific actions as part of our ongoing commitment to prudently manage the overall financial risks of the Company, returning capital to our shareholders, and deleveraging our balance sheet. These actions included repurchasing $64.4 million (inclusive of excise tax) of common stock under the share repurchase program approved by our Board of Directors and paying dividends of $14.8 million. In addition, as further described in the “Liquidity and Capital Resources” section below, in September 2022 we amended our Revolving Credit Agreement. The amendment increased the total credit facility to $350 million, extended the maturity to September 2027, which is the nearest maturity date of our long-term debt, and as of December 31, 2024, there were no amounts outstanding under the Revolving Credit Agreement. Collectively, these actions demonstrate our confidence in the financial outlook of the Company and our ability to generate cash flow, both near and long term, and reinforce our overall commitment to deliver shareholder value while maintaining the flexibility to continue to execute our strategic plan for profitable growth and diversification.

In addition to overall industry risks, there are downside risks relating to issues with both the domestic and global economies, including the housing, energy, and construction-related markets in the U.S. Other potential risks as we proceed into 2025 primarily relate to the fact that we rely on a limited number of suppliers for certain key components and raw materials in the manufacturing of our products, including tires, landing gear, axles, suspensions, aluminum extrusions, chassis and specialty steel coil. While we have taken actions to mitigate certain of these risks, there may be additional or increased shortages of supplies of raw materials or components which would have an adverse impact on our ability to meet demand for our products. Despite these risks, we believe we are well positioned to capitalize on a historically normalized overall demand level while maintaining or growing margins through improvements in product pricing as well as productivity and other operational excellence initiatives.

As we enter 2025, we will continue to adjust to changes in the current environment, preserve the strength of our balance sheet, prioritize the safety of our employees, and ensure the liquidity and financial well-being of the Company. We believe we remain well-positioned for both near-term and long-term success in the transportation, logistics, and infrastructure industries because: (1) our core customers are among the major participants in these industries; (2) our technology and innovation provides value-added solutions for our customers by reducing operating costs, improving revenue opportunities, and solving unique transportation problems; (3) our Wabash Management System (“WMS”) principles and processes and enterprise-wide lean efforts drive focus on the interconnected processes that are critical for success across our business; (4) our significant brand recognition, presence throughout North America, and the utilization of our extensive dealer network to market and sell our products; and (5) our One Wabash approach to create a consistent, superior experience for all customers who seek our connected solutions in the transportation, logistics, and infrastructure markets. By continuing to be a premier provider of diverse solutions aimed at optimizing end-to-end supply chains across the transportation, logistics, and infrastructure industries we expect to leverage our existing assets and capabilities into higher margin products and markets by delivering connected value-added customer solutions.

Operating Performance

We generally measure our operating performance in five key areas – Safety/Morale, Quality, Delivery, Cost Reduction, and Environment. We maintain a continuous improvement mindset in each of these key performance areas.

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Safety/Morale. The safety of our employees is our number one priority. We demonstrate this core value by working on innovations to protect the people who operate our equipment and partnering with others to promote higher standards in transportation and manufacturing. We continually focus on reducing the severity and frequency of workplace injuries to create a safe environment for our employees and minimize workers compensation costs. We believe that our improved environmental, health, and safety management translates into higher labor productivity and lower costs as a result of less time away from work and improved system management. See the “Human Capital Resources and Management” section in Part I, Item 1, "Business" of this Annual Report on Form 10-K for additional detail on our commitment to safety and human capital.

Quality. Our commitment to quality and safety is backed by a robust concern reporting system and associated processes. Any Wabash employee can report a potential safety-related concern that could cause unreasonable risk of harm to our customers. Potential or reported safety concerns are routed to a cross-functional Product Safety Team that includes members from Quality, Warranty, Engineering, Sales and Strategic Sourcing. The Product Safety Team investigates submissions and serves as an initial filter of potential safety issues. Issues that need to be escalated are sent to the Product Safety Council, which consists of executive team members who will coach and give final direction to the Product Safety Team. We monitor product quality on a continual basis through a number of means for both internal and external performance as follows:

▪Internal performance. Key process indicators for our quality measurement include both First Time Quality (“FTQ”) and Defects Per Unit (“DPU”). FTQ is a performance metric that measures the impact of all aspects of the business on our ability to ship our products at the end of the production process and DPU is a measurement of defects found at the end of the production process. As with previous years, the expectations of the highest quality product continue to increase while maintaining FTQ performance and reducing rework. In addition, we currently maintain ISO 9001 registrations at our Lafayette, Indiana (since 2012) and Cadiz, Kentucky facilities (since 2014).

▪External performance. We actively track our warranty claims and costs to identify and drive improvement opportunities in quality and reliability for our customers. Early life-cycle warranty claims for our van trailers are trended for performance monitoring. Using a unit-based warranty reporting process to track performance and document failure rates, early life-cycle warranty units per 100 van trailers shipped averaged approximately 2.8, 2.6, and 1.8 units in 2024, 2023 and 2022, respectively. Continued low claim rates have been driven by our successful execution of continuous improvement programs centered on process variation reduction and responding to the input from our customers. We expect that these activities will continue to allow us to manage our total warranty cost profile.

In addition to managing a robust quality management system for Wabash’s operations for internal and external performance, we expect all direct and indirect suppliers to meet certain standards of quality, engineering, delivery, and management. Our supplier audit process is a comprehensive assessment performed at the supplier’s facility focusing on their system capabilities and how they measure to Wabash’s established requirements. Based on a supplier’s overall rating, action plans are developed to identify improvement opportunities, corrective actions, and timelines to ensure proper closure.

Delivery/Productivity. We measure productivity on many fronts. Some key indicators include production line throughput, labor hours per trailer or truck body, labor cost as a percentage of revenue, scrap rates, and inventory levels. Improvements over the last several years in these areas have translated into significant improvements in our ability to better manage inventory flow, control costs, and analyze material and contribution margins.

▪During the past several years, we have focused on productivity enhancements across all of our product lines within manufacturing assembly and sub-assembly areas through developing the capability for mixed model production.

▪Through deployment of the Wabash Management System (“WMS”), all of our business reporting segments have focused on increasing velocity at all our manufacturing locations. We have engaged in extensive lean training and over the last three years have deployed purposeful capital to accelerate our productivity initiatives.

▪Our manufacturing leadership teams have developed competencies to isolate process constraints, and then address those constraints through multiple avenues that drive additional throughput and cost reductions.

Cost Reduction and our Operating System. The WMS allows us to develop and scale high standards of excellence across the organization. We believe in our One Wabash approach and standardized processes to drive and monitor performance inside our manufacturing facilities. Continuous improvement is a fundamental component of our operational excellence focus. Our focus on leveraging One Wabash and the WMS mindset across the Company, for example, has allowed us to make strides in all areas of manufacturing including safety, quality, on-time delivery, cost reduction, employee morale, and environment. We continue to maintain focus on continuous improvement. In the past several years, we made adjustments throughout our processes to align variable and fixed costs with capacity and created leaner internal processes in multiple areas. In addition, we continued to invest capital in our processes to reduce variable cost, lowered inherent safety risk in our processes, improved overall consistency in our manufacturing processes, and maintained our assets to capitalize on any economic and/or industry upswings.

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Environment. We have been on a sustainability journey since the Company’s inception. Uniquely incentivized to improve product designs by utilizing new composite materials to reduce the weight and improve the durability of our products, we are a leader in creating value for customers by facilitating improved fuel efficiency and ensuring the quality and longevity of our equipment. We commit to our employees, customers and shareholders to manage all of our business activities in a responsible manner with respect for the environment through pollution prevention and with our highest priority being the health and safety of our employees. Energy conservation efforts are another critical part of our commitment to continuous improvement and environmental stewardship, and we require energy conservation efforts across all of our facilities. This policy includes improving operational efficiency as well as upgrading to energy-conserving equipment where possible.

We demonstrate our commitment to sustainability by maintaining ISO 14001 registration of our Environmental Management System at our Lafayette, Indiana; Cadiz, Kentucky; San José Iturbide, Mexico; and Harrison, Arkansas locations. In 2005, our Lafayette, Indiana facility was one of the first trailer manufacturing operations in the world to be ISO 14001 registered. Being ISO 14001 registered requires us to demonstrate quantifiable and third-party verified environmental improvements. In addition, our San José Iturbide, Mexico facility was recognized with Clean Industry certification from Mexico’s Federal Agency of Environmental Protection for adhering to environmental care in its manufacturing processes.

During 2023, our recycling programs and use of recycled materials saved 336,000 cubic yards of landfill space (a decrease of 2.7% from 2022), 82,122,000 kilowatt-hours of electricity (a decrease of 4.2% from 2022), 80,000 metric tons of greenhouse gas emissions (a decrease of 3.6% from 2022), and 40,000 mature trees (an increase of 6.1% from 2021). In addition, in December 2024, we were recognized among Newsweek’s America’s Most Responsible Companies 2025.

Additionally, Wabash views remanufacturing as an opportunity to help customers extend the useful life of their equipment, which reduces the amount of raw materials needed to produce new machinery. In 2023, revenue from remanufacturing totaled approximately $12.8 million (an increase of 23.1% from 2022).

In addition, manufacturers across multiple industries choose our proprietary DuraPlate® composite technology for its versatility and strength. Each DuraPlate® panel and product contains between 15% and 30% post-consumer resin (“PCR”). By using PCR in the manufacture of DuraPlate®, Wabash has diverted the equivalent of more than 1.86 billion plastic bottles from landfills including 127 million bottles in 2023. Furthermore, at the end of the product lifespan, DuraPlate® is recyclable.

Our annual Corporate Responsibility Report is available on our website (ir.onewabash.com) and references the ongoing environmental, social, and governance (“ESG”) initiatives that demonstrate our commitment to sustainability and social responsibility. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted.

Industry Trends

Trucking in the U.S., according to the American Trucking Association (“ATA”), was estimated to be a $906 billion industry in 2024, representing a decrease of approximately 4% from ATA’s 2023 estimate. Trailer demand is a direct function of the amount of freight to be transported. To monitor the state of the industry, we evaluate a number of indicators related to trailer manufacturing and the transportation industry. Recent trends we have observed include the following:

Transportation / Trailer Cycle. The trailer industry generally follows the transportation industry cycles. The most recent estimates from industry forecasters ACT Research Co. (“ACT”) and FTR Associates (“FTR”) indicate total United States trailer production levels for 2024 of approximately 235,000 and 224,000, respectively, which represents a decrease of approximately 26.1% and 28.7%, respectively, from 2023 production levels.

Current estimates from ACT and FTR for 2025 United States trailer production are 217,000 and 234,000, respectively, representing a decrease of approximately 7.7% and an increase of 4.5%, respectively, versus 2024. These estimates are generally in-line with our expectations as trailer manufacturers manage a continued softening of 2025 demand compared to previous years.

ACT is forecasting annual new trailer production levels for 2026, 2027, 2028, and 2029 of approximately 255,000, 302,000, 307,000, and 289,000, respectively. In addition, FTR is forecasting annual new trailer production levels of 280,000 in 2026. These estimates are generally more consistent with historical trailer industry production levels, and in some years higher than historical production levels. However, overall economic uncertainty and softening demand in the industry for certain of our products could continue to impact these estimates. This uncertainty and softening are evident in the ACT and FTR forecasts, particularly for 2025 production. However, we believe that our strategic plan and actions taken over the last several years have positioned us to remain well-suited to adapt to changes in the industry and demand environment due to our strong balance sheet, liquidity profile, and diversification.

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Transportation Regulations and Legislation. There are several different areas within both federal and state government regulations and legislation that are expected to have an impact on trailer demand, including:

▪On July 15, 2022, the National Highway Traffic Safety Administration (“NHTSA”) issued the final rule to upgrade Federal Motor Vehicle Safety Standard (“FMVSS”) No. 223, ‘‘Rear impact guards,’’ and FMVSS No. 224, ‘‘Rear impact protection,’’ which together provide protection for occupants of passenger vehicles in crashes into the rear of trailers. This final rule adopts requirements of Canada Motor Vehicle Safety Standard (“CMVSS”) No. 223, ‘‘Rear impact guards’’ for energy absorption, loadings, and the definition for rear extremity. Additionally, it defines requirements for maintaining load paths during the energy absorption test. The final rule became effective on January 11, 2023, with a compliance date of July 15, 2024. All Wabash van, tank, and platform trailer products were certified to be compliant with the final rule before July 2024 when the rule enforcement began.

▪The Canadian Department of the Environment continues to delay the trailer portions of Canada’s greenhouse gas regulations (“GHG2”), essentially following the California Air Resource Board (“CARB”) who will provide at least a six-month notice prior to commencement of enforcing GHG2. This rule mirrored the EPA GHG2 regulations and would only apply to Wabash trailers registered in Canada.

▪On December 3, 2019, CARB issued an official advisory notifying trailer manufacturers that CARB will be suspending enforcement of GHG2 trailer requirements and will provide at least a six-month written notice prior to commencement of enforcing GHG2. If we were to receive CARB’s six-month advance notice of enforcement, more stringent van trailer standards became effective in model year 2024 and would again in model year 2027—requiring more advanced fuel efficiency technologies, such as rear boat tails and higher percentage improvement side skirts and tires. CARB continues to suspend enforcement as a six-month written notice has not been issued. We will continue to monitor the status of the regulation.

▪CARB Advanced Clean Fleet (“ACF”) legislation sets requirements for organizations to reduce the overall emissions of the vehicle fleets they operate. These standards applied to fleets owned and operated by Wabash at the Moreno Valley and Perris, California facilities as well as many Wabash customers who own and operate fleets in California. However, CARB recently withdrew a waiver request from EPA and will not enforce ACF regulations for high-priority (large commercial) and drayage fleets. State and local government fleets remain subject to the regulation.

▪CARB’s Advanced Clean Truck regulations impact the truck body chassis manufacturers that supply to Wabash by setting an annual zero emission sales requirement. This regulation, while being challenged by multiple states, is expected to drive larger market penetration of electric commercial trucks over the next 10 years as requirements are ramped up.

▪In 2024, CARB zero-emissions Transport Refrigeration Unit (“TRU”) rules went into effect. Like ACF, these requirements impacted Wabash customers and worked to drive greater demand for electric TRUs that are installed on Wabash vehicles. CARB requested and received a partial waiver from EPA for TRUs. CARB withdrew the portion of the waiver request that covered the TRU zero emission requirements. While CARB withdrew their waiver request for some of their zero emissions related regulations, we believe that innovation will continue to drive the industry toward a lower emission solution that provides a value proposition to the customers over and above a compliance-only driven solution.

▪EPA’s American Innovation and Manufacturing Act (“AIM”) continues to phase-down the production and consumption of hydrofluorocarbons (“HFCs”) in the United States. The AIM Act currently mandates that EPA provide Wabash with application-specific allowances to manufacture EcoNex™ Technology products. Such allowances operate to increase certainty that HFCs are made available to Wabash during the time that the application-specific provisions are active. EPA is evaluating extending the allocation program with a rule expected in 2025.

▪Updates to the proposed CARB 2024 Heavy-Duty Engine and Vehicle Omnibus regulation provided greater flexibility to chassis manufacturers for 2024–2026 engine model years. While this should help OEMs as they develop near-term engine updates, OEMs will be required to comply with 2027 emission regulations in the long-term. While the number of chassis manufacturers registering EVs continued to grow (albeit largely in the traditional OEM space), hydrogen fuel cell manufacturers also started to register. While the numbers were small (primarily testing and over-the-road applications), this was a positive sign for the future of work trucks. In December 2024, the EPA issued a waiver officially giving CARB federal permission to enforce the rule.

▪PFAS regulations are being developed and issued by EPA and various states. We are monitoring the regulations and their applicability to our operations and products.

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Other Developments. Other developments and potential impacts on the industry include:

▪While EPA and NHTSA are unable to regulate trailers due to a previous ruling, which reduces the risk to trailer manufacturers in the near term, CARB continues to seek additional states to join their position in attempting to drive regulation at the state level.

▪While we believe the need for trailer equipment will be positively impacted by the legislative and regulatory changes addressed above, these demand drivers could be offset by factors that contribute to the increased concentration and density of loads.

▪Trucking company profitability, which can be influenced by factors such as fuel prices, freight tonnage volumes, and government regulations, is highly correlated with the overall economy of the U.S.; carrier profitability significantly impacts demand for, and the financial ability to, purchase new trailers.

▪We expect that the majority of freight in our industry will continue to be moved by truck and, according to ATA, total freight transportation revenue is expected to increase from an estimated $906 trillion in 2024 to $1.46 trillion in 2035.

▪The expected transition from diesel tractors (and their coolant systems) to electric or fuel cell vehicles changes how heated or cooled trailers can regulate temperature. This creates a market need for alternate heating and cooling solutions.

▪The impacts of the continued near-shoring trend should be positive for trucking. It will continue to impact current supply chain routes, with possible movement of logistics hubs.

▪Oversupply of refrigerated trailers in 2022-2023 has led to a surplus of inventory in the market, which put downward pressure on supply for the majority of 2024. The long-term outlook of the market still remains strong, and there is expected to be a return to normal levels by early or mid-2025.

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Results of Operations

The following table sets forth certain operating data as a percentage of net sales for the periods indicated:

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2024 Compared to 2023

Net Sales

Net sales in 2024 decreased $589.8 million, or 23.3%, compared to 2023. By business segment, net sales prior to intersegment eliminations and related trailer units sold were as follows (dollars in thousands):

TS segment sales, prior to the elimination of intersegment sales, were $1,755.1 million in 2024, a decrease of $583.5 million, or 24.9% compared to 2023. The decrease in sales was primarily due to a decline in shipments due to lower demand. New trailers shipped during 2024 totaled 32,100 compared to 44,450 trailers in prior year, a decrease of 27.8%. New truck bodies shipped during 2024 totaled 14,255 compared to 16,070 truck bodies in prior year, a decrease of 11.3%. The decrease in shipments was primarily driven by lower demand due to the softening freight market. Pricing did not see any significant year over year degradation due in part to our continued efforts to tie pricing to key commodity indicators, our curated customer portfolio, and improved pricing processes.

P&S segment sales, prior to the elimination of intersegment sales, were $205.1 million in 2024, a decrease of $15.8 million, or 7.2%, compared to 2023. The overall decrease in sales for this segment was due primarily to lower sales in our Process Systems and Components businesses of $13.0 million and $14.4 million, respectively, due to decreased demand. The overall decrease in sales was partially offset by higher sales within our Upfitting Solutions and Services business of $10.7 million.

Cost of Sales

Cost of sales was $1,681.7 million in 2024, a decrease of $356.6 million, or 17.5%, compared to 2023. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, overhead expenses, and depreciation.

TS segment cost of sales was $1,537.5 million in 2024, a decrease of $361.2 million, or 19.0%, compared to 2023. The decrease in cost of sales, which was primarily driven by lower shipment volumes, resulted in a decrease in materials costs of $305.6 million, or 23.5%, a decrease in labor and employee related costs of $55.2 million, or 14.6%, along with a decrease in certain other manufacturing costs.

P&S segment cost of sales, prior to the elimination of intersegment sales, was $157.6 million in 2024, a decrease of $4.9 million, or 3.0%, compared to 2023. The decrease in cost of sales, which was primarily driven by lower sales, resulted in a decrease in materials costs of $13.4 million, or 11.3%. This was partially offset by an increase in labor and employee related costs of $5.4 million, or 20.7%, and an increase in certain other overhead costs associated with growth initiatives within the segment.

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Gross Profit

Gross profit was $265.1 million in 2024, a decrease of $233.1 million, or 46.8% from 2023. Gross profit as a percentage of sales, or gross margin, was 13.6% in 2024 as compared to 19.6% in 2023. Gross profit by segment was as follows (in thousands):

TS segment gross profit was $217.6 million in 2024 compared to $439.9 million in 2023, a decrease of $222.2 million. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 12.4% in 2024 as compared to 18.8% in 2023, a decrease of 6.4%. The overall decrease in gross profit from the prior year period was primarily driven by the decline in shipments across all of our product lines. Various fixed costs that remained constant reduced gross profit as a percentage of net sales.

P&S segment gross profit was $47.5 million in 2024 compared to $58.3 million in 2023. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 23.1% in 2024 compared to 26.4% in 2023, a decrease of 3.3%. The overall decrease in gross profit was primarily related to the year over year decrease in sales.

General and Administrative Expenses

General and administrative expenses were $580.7 million in 2024, an increase of $434.0 million, or 295.9%, compared to 2023. The increase from the prior year period was due to an increase in professional and outside services costs of $447.3 million, which includes the estimated liability of $450.0 million for the Product Liability Matter, as defined and further described in Note 14 in the Notes to Consolidated Financial Statements. This was partially offset by a decrease in general and administrative employee-related costs, including benefits and incentive programs, of approximately $14.4 million. As a percentage of sales, general and administrative expenses were 29.8% for the 2024 period as compared to 5.8% for the same period of 2023. The overall increase in general and administrative expenses as a percentage of net sales was primarily attributable to the Product Liability Matter.

Selling Expenses

Selling expenses were $28.0 million in 2024, an increase of $1.5 million, or 5.7%, compared to 2023. The increase was primarily attributable to an increase in advertising and promotional expense of approximately $3.5 million, which is due in part to expenses incurred during the 2024 period related to our Ignite Conference. These increases were partially offset by a decrease in sales employee-related costs, including benefits and incentive programs, of approximately $1.7 million. As a percentage of net sales, selling expenses were 1.4% in 2024 compared to 1.0% in 2023. The overall increase in selling expenses as a percentage of net sales was primarily attributable to the increase in advertising and promotional expense, which outpaced the increase in sales.

Amortization of Intangibles

Amortization of intangibles was $12.0 million in 2024 compared to $12.8 million in 2023. Amortization of intangibles was the result of expenses recognized for intangible assets recorded from previous acquisitions. In 2024, certain technology-related intangible assets became fully amortized. There were no intangible assets that became fully amortized 2023.

Impairment and Other, Net

Impairment and other, net was a net loss of $0.5 million during 2024 and a net loss of $0.2 million during 2023. Activity during the current year period primarily related to the impairment of $1.0 million of construction-in-progress projects that were no longer expected to be completed and the write-off of certain property, plant, and equipment and IT-related assets. These items were partially offset by the sale of a building (and the related land) as further described in Note 21 in the Notes to Consolidated Financial Statements, which resulted in a gain of approximately $0.5 million.

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Other Income

Interest expense in 2024 totaled $19.8 million compared to $19.9 million in 2023. Interest expense relates to interest and non-cash accretion charges on our Senior Notes and Revolving Credit Agreement. Interest expense in the current year period was lower than in the 2023 period due to lower average outstanding balances under the Revolving Credit Facility.

Other, net for 2024 represented income of $5.4 million as compared to income of $3.4 million for 2023. Income for both the current and prior year period primarily relates to interest income.

Income Taxes

We recognized income tax benefit of $93.5 million in 2024 compared to income tax expense of $62.8 million in 2023. The effective tax rate for 2024 was 24.8% compared to 21.3% for 2023. The effective tax rate for both 2024 and 2023 differs from the U.S. Federal statutory rate of 21.0% primarily due to the impact of state and local taxes and discrete items, including stock-based compensation. Net cash paid for income taxes in 2024 was $29.8 million compared to net cash paid during 2023 of $82.6 million.

Liquidity and Capital Resources

Capital Structure

Our capital structure is comprised of a mix of debt and equity. As of December 31, 2024, our debt-to-equity ratio was approximately 2.1:1.0. Our long-term objective is to generate operating cash flows sufficient to support the growth within our businesses and increase shareholder value. This objective will be achieved through a balanced capital allocation strategy of sustaining strong liquidity, maintaining healthy leverage ratios, investing in the business both organically and strategically, and returning capital to our shareholders. Our Board of Directors designated a Finance Committee to assist the Board in overseeing the Company’s capital structure, financing, investment, and other financial matters of importance.

Throughout 2024, in keeping with this balanced approach, we repurchased $64.4 million (inclusive of excise tax) of common stock under the share repurchase program approved by our Board of Directors and paid dividends of $14.8 million. Additionally, as described in the “Debt Agreements and Related Amendments” section below, in September 2022 we amended our Revolving Credit Agreement. The amendment increased the total revolving commitments to $350 million and extended the maturity to September 2027, the nearest maturity date of our long-term debt. As of December 31, 2024, there were no amounts outstanding under the Revolving Credit Agreement. Collectively, these demonstrate our confidence in the Company’s long-term financial outlook and ability to generate cash flow both near and long term. They reinforce our commitment to delivering shareholder value while maintaining the flexibility to execute our strategic plan for profitable growth and diversification.

Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $421.9 million as of December 31, 2024, compared to $516.1 million as of December 31, 2023, an decrease of 18%. The decrease from the prior year is primarily attributable to a lower cash balance at December 31, 2024, due to a reduction in cash provided by operating activities in 2024 versus 2023. For 2025, we expect to continue our commitment to fund our working capital requirements and capital expenditures from net cash provided by operations or available borrowing capacity under the Revolving Credit Agreement, as needed. Along with these investments, we will also maintain our assets to react to any economic and/or industry changes, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

Debt Agreements and Related Amendments

Senior Notes

On October 6, 2021, we closed on an offering of $400 million in aggregate principal amount of our 4.50% unsecured Senior Notes (the “Senior Notes”). The Senior Notes were issued pursuant to an indenture dated as of October 6, 2021, by and among us, certain subsidiary guarantors named therein (the “Guarantors”) and Wells Fargo Bank, National Association, as trustee (the “Indenture”). The 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. The Senior Notes will mature on October 15, 2028. At any time prior to October 15, 2024, we may redeem some or all of the Senior Notes for cash at a redemption price equal to 100% of the aggregate principal amount of the Senior Notes being redeemed plus an applicable make-whole premium set forth in the Indenture and accrued and unpaid interest to, but not including, the redemption date.

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Prior to October 15, 2024, we may redeem up to 40% of the 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, provided that after any such redemption, at least 60% of the aggregate principal amount of the Senior Notes remain outstanding. On and after October 15, 2024, we may redeem some or all of the 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 we have exercised our optional redemption right in respect of the Senior Notes, the holders of the Senior Notes will have the right to require us to repurchase all or a portion of the Senior Notes at a price equal to 101% of the aggregate principal amount of the Senior Notes, plus any accrued and unpaid interest to, but not including, the date of repurchase.

The Senior Notes are guaranteed on a senior unsecured basis by all direct and indirect existing and future domestic restricted subsidiaries, subject to certain restrictions. The Senior Notes and related guarantees are our and the Guarantors’ general unsecured senior obligations and will be subordinated to all of our 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 subordinated to any existing and future debt of any of our 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 our ability and the ability of certain of our subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock or with respect to any other interest or participation in, or measured by, our profits; (iii) make loans and certain investments; (iv) sell assets; (v) create or incur liens; (vi) enter into transactions with affiliates; and (vii) consolidate, merge or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications.

During any time when the 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 we and our 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 Senior Notes, plus accrued and unpaid interest, if any, may be declared immediately due and payable. These amounts automatically become due and payable if an event of default relating to certain events of bankruptcy, insolvency or reorganization occurs. As of December 31, 2024, we were in compliance with all covenants.

Contractual coupon interest expense and accretion of fees for the Senior Notes for the years ended December 31, 2024, 2023 and 2022 were $18.0 million and $0.7 million, $18.0 million and $0.6 million, and $18.0 million and $0.6 million, respectively.

Contractual coupon interest expense and accretion of discount and fees are included in Interest expense on the Company’s Consolidated Statements of Operations.

Revolving Credit Agreement

On September 23, 2022, we entered into the Third Amendment to the Second Amended and Restated Credit Agreement among us, certain of our subsidiaries as borrowers (together with us, the “Borrowers”), certain of our subsidiaries as guarantors, the lenders party thereto, and Wells Fargo Capital Finance, LLC, as the administrative agent (the “Agent”), which amended our existing Second Amended and Restated Credit Agreement, dated as of December 21, 2018 (as amended from time to time, the “Revolving Credit Agreement”).

Under the Revolving Credit Agreement, the lenders agree to make available a $350 million revolving credit facility to the Borrowers with a scheduled maturity date of September 23, 2027. We have the option to increase the total commitments under the facility by up to an additional $175 million, subject to certain conditions, including obtaining agreements from one or more lenders, whether or not party to the Revolving Credit Agreement, to provide such additional commitments. Availability under the Revolving Credit Agreement is based upon quarterly (or more frequent under certain circumstances) borrowing base certifications of the Borrowers’ eligible inventory, eligible leasing inventory and eligible accounts receivable, and is reduced by certain reserves in effect from time to time.

Subject to availability, the Revolving Credit Agreement provides for a letter of credit subfacility in the amount of $25 million and allows for swingline loans in the amount of $35 million. Outstanding borrowings under the Revolving Credit Agreement bear interest at an annual rate, at the Borrowers’ election, equal to (i) adjusted term Secured Overnight Financing Rate 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 Credit Agreement. The Borrowers are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of the Agent and the lenders.

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The Revolving Credit Agreement is guaranteed by certain of our subsidiaries (the “Guarantors”) and is secured by substantially all personal property of the Borrowers and the Guarantors.

The Revolving Credit Agreement contains customary covenants limiting our ability and certain of our subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. In addition, we will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 as of the end of any period of 12 fiscal months when excess availability under the Revolving Credit Agreement is less than the greater of (a) 10% of the lesser of (i) the total revolving commitments and (ii) the borrowing base (such lesser amount, the “Line Cap”) and (b) $25 million. As of December 31, 2024, we were in compliance with all covenants.

If availability under the Revolving Credit Agreement is less than the greater of (i) 10% of the Line Cap and (ii) $25 million for three consecutive business days, or if there exists an event of default, amounts in any of the Borrowers’ and the Guarantors’ deposit accounts (other than certain excluded accounts) will be transferred daily into a blocked account held by the Agent and applied to reduce the outstanding amounts under the facility.

The Revolving Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the lenders may, among other things, require the immediate payment of all amounts outstanding and foreclose on collateral. In addition, in the case of an event of default arising from certain events of bankruptcy or insolvency, the lenders’ obligations under the Revolving Credit Agreement would automatically terminate, and all amounts outstanding under the Revolving Credit Agreement would automatically become due and payable.

Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Agreement, amounted to $421.9 million as of December 31, 2024 and $516.1 million as of December 31, 2023, a decrease of $94.2 million (or 18%). The decrease from the prior year is primarily attributable to a lower cash balance at December 31, 2024, due to a reduction in cash provided by operating activities in 2024 versus 2023. The decrease from the prior year is primarily attributable to a lower cash balance at December 31, 2024, due to a reduction in cash provided by operating activities in 2024 versus 2023. For the year ended December 31, 2024, we had payments of principal totaling $0.9 million and borrowings of principal totaling $0.9 million under the Revolving Credit Agreement. As of December 31, 2024, there were no amounts outstanding.

During the year ended December 31, 2023, we had payments of principal totaling $104.2 million and borrowings of principal totaling $104.2 million under the Revolving Credit Agreement. As of December 31, 2023, there were no amounts outstanding.

Interest expense under the Revolving Credit Agreement for the years ended December 31, 2024, 2023, and 2022, was approximately $0.8 million, $0.9 million, and $1.7 million, respectively. Interest expense under the Revolving Credit Agreement is included in Interest expense on the Company’s Consolidated Statements of Operations.

Cash Flow

2024 Compared to 2023

Cash provided by operating activities for 2024 totaled $117.3 million, compared to cash provided by operating activities of $319.6 million in 2023. The cash provided by operations during the current year was the result of net loss adjusted for various non-cash activities, including depreciation, amortization, deferred taxes, stock-based compensation, and a $436.2 million decrease in our working capital. Changes in key working capital accounts for 2024 and 2023 are summarized below (in thousands):

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Accounts receivable decreased $39.0 million in 2024 and decreased $72.6 million in 2023. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, was approximately 31 days and 28 days for the year-ended December 31, 2024 and 2023, respectively. The decrease in accounts receivable in 2024 was primarily due to the decrease in shipments compared to 2023. Inventories decreased in 2024 by $8.8 million compared to an increase in 2023 of $23.8 million. The overall decrease in inventory for 2024 was primarily attributable to the lower inventory requirements of reduced production compared to prior year. Our inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, were approximately 6 times in both 2024 and 2023, respectively. Accounts payable and accrued liabilities decreased $68.7 million in 2024 compared to an increase of $5.8 million for 2023. Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 35 days in 2024 and 29 days in 2023.

Investing activities used $94.8 million during 2024 compared to $106.0 million used in 2023. Investing activities for 2024 included capital expenditures for property, plant, and equipment of $72.2 million, which was an decrease compared to $98.1 million during 2023. In addition, expenditures related to revenue generating assets totaled approximately $6.9 million and expenditures related to investment in unconsolidated entities totaled approximately $20.1 million, which is further detailed in Note 6 in the Notes to Consolidated Financial Statements. Cash used in investing activities in 2024 and 2023 was primarily related to capital expenditures to support growth and improvement initiatives at our facilities. In 2024, investing activities included $4.4 million proceeds from the sale of assets compared to approximately $0.2 million in 2023.

Financing activities used $86.3 million during 2024 as compared to using $92.5 million during 2023. Net cash used in 2024 primarily relates to common stock repurchases of $70.9 million and cash dividend payments to our shareholders of $14.8 million. Borrowings under our Revolving Credit Agreement totaled $0.9 million which were fully offset by principal, interest, and unused fee payments made under our Revolving Credit Agreement of $0.9 million. We repurchased common stock of $76.2 million and paid cash dividends to our shareholders of $15.9 million in 2023.

Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $421.9 million as of December 31, 2024 and $516.1 million as of December 31, 2023, a decrease of 18%. Total debt obligations amounted to $400.0 million as of December 31, 2024. The decrease in liquidity from the prior year is primarily attributable to a lower cash balance at December 31, 2024, due to a reduction in cash provided by operating activities in 2024 versus 2023

For 2025 and forward, we expect to continue our commitment to fund our working capital requirements and capital expenditures from net cash provided by operations or available borrowing capacity under the Revolving Credit Agreement (as needed). Along with these investments, we will also maintain our assets to capitalize on any economic and/or industry upswings, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

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Contractual Obligations and Commercial Commitments

A summary of our contractual obligations and commercial commitments, both on and off-balance sheet, as of December 31, 2024 are as follows (in thousands):

1 Future interest payments on variable rate long-term debt (if any) are estimated based on the rate in effect as of December 31, 2024, and only include interest payments (not unused line fees). However, as of December 31, 2024, there was no variable rate debt (Revolving Credit Agreement) outstanding.

Borrowings under the Revolving Credit Agreement bear interest at a variable rate based on the Secured Overnight Financing Rate (“SOFR”) or a base rate determined by the lender’s prime rate plus an applicable margin, as defined in the agreement. Any outstanding borrowings under the Revolving Credit Agreement bear interest at a rate, at our election, equal to (i) adjusted term SOFR 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 Credit Agreement. We are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of our agent and lenders. During the year ended December 31, 2024, we had payments of principal of $0.9 million and borrowings of principal of $0.9 million under the Revolving Credit Agreement, and as of December 31, 2024, there were no amounts outstanding.

The Senior Notes bear interest at the rate of 4.5% per annum from the date of issuance, payable semi-annually on April 15 and October 15.

Operating leases represent the total future minimum lease payments for leases that have commenced. As of December 31, 2024, obligations related to operating leases that we have executed but have not yet commenced were nominal.

We have standby letters of credit totaling $4.9 million issued in connection with workers compensation claims and surety bonds.

We have $15.0 million in purchase commitments through December 2025 for various raw material commodities, including aluminum, steel, polyethylene, and nickel, as well as other raw material components which are within normal production requirements.

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We obtain vehicle chassis for our specialized vehicle products directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and to a lesser extent, for unallocated orders. Although each manufacturer’s agreement has different terms and conditions, the agreements generally state that the manufacturer will provide a supply of chassis to be maintained from time to time at our various facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. The manufacturer transfers the chassis to us on a “restricted basis” retaining the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to us nor permit us to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer). Although we are party to related finance agreements with manufacturers, we have not historically settled, nor do we expect to in the future settle, any related obligations in cash. Instead, the obligation is settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. Accordingly, as of December 31, 2024, our outstanding chassis converter pool with the manufacturer totaled $57.1 million and has included this financing agreement on our Consolidated Balance Sheets within Prepaid expenses and other and Other accrued liabilities. All other chassis programs are handled as consigned inventory belonging to the manufacturer and totaled approximately $3.2 million. Under these agreements, if the chassis is not delivered to a customer within a specified time frame, we are required to pay a finance or storage charge on the chassis. Additionally, we receive finance support funds from manufacturers when the chassis are assigned into our chassis pool. Typically, chassis are converted and delivered to customers within 90 days of our receipt of the chassis.

The total amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $1.5 million at December 31, 2024. Payment of these obligations would result from settlements with taxing authorities. Due to the difficulty in determining the timing of settlements, these obligations are not included in the table above. We do not expect to make a tax payment related to these obligations within the next year that would significantly impact liquidity.

Significant Accounting Policies and Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. Our significant accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, evaluation of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate.

We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time we were making the estimate or changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.

Legal and Other Contingencies. The outcomes of legal proceedings and claims brought against us and other loss contingencies are subject to significant uncertainty. We establish legal contingency reserves when we determine that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In determining the appropriate accounting for loss contingencies, we consider the likelihood of loss or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss. We regularly evaluate current information available to us to determine whether an accrual should be established or adjusted. Estimating the probability that a loss will occur and estimating the amount of a loss or a range of loss involves significant judgment and such matters are unpredictable. We could incur judgments or enter into settlements for current or future claims that could materially impact our results of operations.

Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. We review, on at least a quarterly basis, the financial performance of each business unit for indicators of impairment. In reviewing for impairment indicators, we also consider events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities, and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.

Goodwill. We assess goodwill for impairment at the reporting unit level on an annual basis as of October 1st, after the annual planning process is complete. More frequent evaluations may be required if we experience changes in our business climate or as a result of other triggering events that may take place. If the carrying value exceeds fair value, the asset is considered impaired and is reduced to its fair value.

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In assessing goodwill for impairment, we may choose to initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, then an impairment analysis for goodwill is performed at the reporting unit level using a quantitative approach. The quantitative test is a comparison of the fair value of the reporting unit, determined using a combination of the income and market approaches, to its recorded amount. If the recorded amount exceeds the fair value, an impairment is recorded to reduce the carrying amount to fair value, but will not exceed the amount of goodwill that is recorded.

The process of evaluating goodwill for impairment is subjective and requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent fair value analysis for the reporting unit. When performing a quantitative goodwill impairment test, we generally determine fair value using a combination of an income-based approach and a market-based approach. The fair value determination consists primarily of using significant unobservable inputs (Level 3) under the fair value measurement standards. We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, the amounts and timing of expected future cash flows which is largely dependent on expected EBITDA margins, the discount rate applied to those cash flows, and terminal growth rates. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends and long-term operating strategies and initiatives. The discount rate used by each reporting unit is based on our assumption of a prudent investor’s required rate of return assuming the risk of investing in a particular company. The terminal growth rate reflects the sustainable operating income a reporting unit could generate in a perpetual state as a function of revenue growth, inflation, and future margin expectations.

Annual Goodwill Impairment Test

As of December 31, 2024, goodwill allocated to our TS and P&S segments was approximately $120.5 million and $67.9 million, respectively. For the 2024 annual goodwill impairment test conducted as of October 1st, 2024, the Company chose to use a quantitative assessment to determine if it was more likely than not that the fair value of the TS and P&S reporting units were less than their respective carrying amounts. In accordance with the relevant accounting guidance, in order to perform the quantitative assessment, the Company considered many factors including, but not limited to, general economic conditions, industry and market conditions, financial performance and key business drivers, future operating plans, and potential changes to significant assumptions used in the most recent quantitative fair value analysis for each reporting unit (which was conducted in connection with the Company’s segment realignment beginning in September 2021). Based on the analysis of the factors and considerations described above, the Company concluded that it was more likely than not that the fair value of each reporting unit continued to be greater than the respective carrying value. Therefore, no impairment charges were recorded.

During the fourth quarters of 2023 and 2022, the Company completed its annual goodwill impairment test using the qualitative assessment. Based on all assessments performed, the Company believed it was more likely than not that the fair value of its reporting units were greater than their carrying amount and no additional impairment of goodwill was recognized.

Other

Inflation

Inflation impacts prices paid for labor, materials and supplies. Significant increases in the costs of production or certain commodities, raw materials, and components could have an adverse impact on our results of operations. As has been our practice, we will endeavor to offset the impact of inflation through selective price increases, productivity improvements, and hedging activities. Our ability to mitigate the impact of inflation through selective price increases may be limited by our backlog in cases of orders without inflation-based price adjustment provisions.

New Accounting Pronouncements

For information related to new accounting standards, see Note 3 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

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ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes the matters that we consider to be important to understanding the results of our operations for each of the two years in the period ended December 31, 2023, and our capital resources and liquidity as of December 31, 2023. Our discussion begins with our assessment of the condition of the North American trailer industry along with a summary of the actions we have taken to strengthen the Company. We then analyze the results of our operations for the last two years, including trends in the overall business and our operating segments, followed by a discussion of our cash flows and liquidity, capital market events, our debt obligations, and our contractual commitments. We conclude with a review of critical accounting judgments and estimates and information on recent accounting pronouncements that we adopted during the year, if any, as well as those not yet adopted that may have an impact on our financial accounting practices, if any.

For discussion of results of operations for the year ended December 31, 2022 compared to the results of operations for the year ended December 31, 2021, see Part II, Item 7,—”Management's Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Annual Report on Form 10-K, filed with the SEC on February 23, 2023.

Executive Summary

The most recent estimates from industry forecasters ACT Research Co. (“ACT”) and FTR Associates (“FTR”) indicate total United States trailer production levels for 2023 of approximately 311,000 and 322,000, respectively, which represents an increase of approximately 0.8% and 4.4%, respectively, from 2022 production levels.

Current estimates from ACT and FTR for 2024 United States trailer production are 254,000 and 240,000, respectively, representing decreases from 2023 of approximately 18.2% and 25.5%, respectively. These estimates are generally in-line with our expectations as trailer manufacturers manage a softening of 2024 demand compared to previous years.

In addition, ACT is forecasting annual new trailer production levels for 2025, 2026, 2027, and 2028 of approximately 291,000, 296,000, 309,000, and 300,000, respectively. These estimates are generally more consistent with historical trailer industry production levels, and in some years higher than historical production levels. However, overall economic uncertainty and softening demand in the industry for certain of our products could continue to impact these estimates. This uncertainty and softening are evident in the ACT and FTR forecasts, particularly for 2024 production. However, we believe that our strategic plan and actions taken over the last several years have positioned us to remain well-suited to adapt to changes in the industry and demand environment due to our strong balance sheet, liquidity profile, and diversification.

Despite uncertainty over the past several years due to the COVID-19 pandemic and related impacts, primarily centered around supply chain disruptions and labor shortages, we have maintained a solid position from a liquidity perspective. While we are focused in the near-term on executing on demand that has fallen back to a more normalized environment, we continue to work on strategic initiatives to profitably grow the Company in the long-term. In 2023, we added 20% more dry van manufacturing capacity which we believe will allow us to go-to-market with a portfolio-based selling approach that leverages the breadth of our products. We have also created more points of connection with our customers with greater focus on Parts & Services as well as innovative offerings like Trailers as a Service that allow us to add recurring, longer-term value beyond an initial transaction. These advancements have not only deepened our customer engagement but have also enriched our collaborations with supplier and technology partners. We have solidified specific partnerships that are enabling us to grow our recurring revenue within the transportation, logistics and distribution ecosystem. Our Wabash Parts joint venture rapidly established significant distribution capabilities that allow our dealer network efficient access to our comprehensive portfolio of aftermarket parts. Fernweh Group is now playing a crucial role in advancing our digital capabilities, which aim to revolutionize the online experience for our dealers, traditional and non-traditional suppliers of both parts and services and a broad set of customers spanning across the vast transportation and logistics landscape.

The Company’s record operating performance throughout 2023 highlights the success of our adaptability, balanced growth, and diversification, all of which are driven by our long-term strategic plan to transform the Company into the visionary leader of connected solutions for the transportation, logistics, and distribution industries. In December 2023, Wabash was named to Forbes list of America’s Most Successful Small-Cap Companies 2024. Operating income in 2023 totaled a Wabash record $311.9 million and operating margin was 12.3%, both of which are significant increases from 2022 driven in part by record sales and strong demand for our products. Additional discussion related to financial results are included in the “Results of Operations” section below.

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In addition to our commitment to sustain profitable growth within each of our existing reporting segments, our long-term strategic initiatives include a focus on diversification efforts, both organic and strategic, to continue to transform Wabash into a lean, visionary leader of connected solutions with a higher growth and margin profile to successfully deliver a greater value to our shareholders. Our strategy is centered around our ability to scale core competencies by growing in and around core markets with known customers—this strategy is evidenced by our multi-year order agreement with J.B. Hunt Transport Inc., which we announced in January 2023.

Key strategic initiatives include, but are not limited to, cold chain, recurrent revenue, and logistics network efficiency. Our ability to generate solid margins and cash flows and a healthy balance sheet should position the Company with ample resources to (1) fund our internal capital needs to support both organic growth and productivity improvements, (2) optimize our debt leverage and other financial ratios, (3) return capital to shareholders, and (4) selectively pursue strategic acquisitions. We will continue our internal effort to strategically identify potential acquisition or partnership targets that we believe can create shareholder value and accelerate our growth and diversification efforts, while leveraging our strong competencies in manufacturing execution, sourcing and innovative engineering leadership to assure strong value creation. Organically, our focus is on profitably growing and diversifying our operations through leveraging our existing assets, capabilities, and technology into higher margin products and markets and thereby providing value-added customer solutions.

Throughout 2023, we demonstrated our commitment to be responsible stewards of the business by maintaining a balanced approach to capital allocation. Our operational performance, healthy backlog, industry outlook, and financial position provided us the opportunity to take specific actions as part of the ongoing commitment to prudently manage the overall financial risks of the Company, returning capital to our shareholders, and deleveraging our balance sheet. These actions included repurchasing $66.6 million (inclusive of excise tax) of common stock under the share repurchase program approved by our Board of Directors and paying dividends of $15.9 million. In addition, as further described in the “Liquidity and Capital Resources” section below, in September 2022 we amended our Revolving Credit Agreement. The amendment increased the total credit facility to $350 million, extended the maturity to September 2027, which is the nearest maturity date of our long-term debt, and as of December 31, 2023, there were no amounts outstanding under the Revolving Credit Agreement. During the fourth quarter of 2023, our credit rating was upgraded by Moody’s which followed another upgrade by S&P earlier in the year. Collectively, these actions demonstrate our confidence in the financial outlook of the Company and our ability to generate cash flow, both near and long term, and reinforce our overall commitment to deliver shareholder value while maintaining the flexibility to continue to execute our strategic plan for profitable growth and diversification.

In addition to overall industry risks, there are downside risks relating to issues with both the domestic and global economies, including the housing, energy, and construction-related markets in the U.S. Other potential risks as we proceed into 2024 primarily relate to the fact that we rely on a limited number of suppliers for certain key components and raw materials in the manufacturing of our products, including tires, landing gear, axles, suspensions, aluminum extrusions, chassis and specialty steel coil. While we have taken actions to mitigate certain of these risks, which include our previously announced supply agreements with Hydro, Ryerson and Rockland Flooring, at current and expected demand levels, there may be additional or increased shortages of supplies of raw materials or components which would have an adverse impact on our ability to meet demand for our products. Despite these risks, we believe we are well positioned to capitalize on a historically normalized overall demand level while maintaining or growing margins through improvements in product pricing as well as productivity and other operational excellence initiatives.

As we enter 2024, we will continue to adjust to changes in the current environment, preserve the strength of our balance sheet, prioritize the safety of our employees, and ensure the liquidity and financial well-being of the Company. We believe we remain well-positioned for both near-term and long-term success in the transportation, logistics, and distribution industries because: (1) our core customers are among the major participants in these industries; (2) our technology and innovation provides value-added solutions for our customers by reducing operating costs, improving revenue opportunities, and solving unique transportation problems; (3) our Wabash Management System (“WMS”) principles and processes and enterprise-wide lean efforts drive focus on the interconnected processes that are critical for success across our business; (4) our significant brand recognition, presence throughout North America, and the utilization of our extensive dealer network to market and sell our products; and (5) our One Wabash approach to create a consistent, superior experience for all customers who seek our connected solutions in the transportation, logistics, and distribution markets. By continuing to be an innovation leader in the transportation, logistics, and distribution industries we expect to leverage our existing assets and capabilities into higher margin products and markets by delivering connected value-added customer solutions.

Operating Performance

We generally measure our operating performance in five key areas – Safety/Morale, Quality, Delivery, Cost Reduction, and Environment. We maintain a continuous improvement mindset in each of these key performance areas.

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Safety/Morale. The safety of our employees is our number one priority. We demonstrate this core value by working on innovations to protect the people who operate our equipment and partnering with others to promote higher standards in transportation and manufacturing. We continually focus on reducing the severity and frequency of workplace injuries to create a safe environment for our employees and minimize workers compensation costs. We believe that our improved environmental, health, and safety management translates into higher labor productivity and lower costs as a result of less time away from work and improved system management. See the “Human Capital Resources and Management” section in Part I, Item 1, "Business" of this Annual Report on Form 10-K for additional detail on our commitment to safety and human capital.

Quality. Our commitment to quality and safety is backed by a robust concern reporting system and associated processes. Any Wabash employee can report a potential safety-related concern that could cause unreasonable risk of harm to our customers. Potential or reported safety concerns are routed to a cross-functional Product Safety Team that includes members from Quality, Warranty, Engineering, Sales and Strategic Sourcing. The Product Safety Team investigates submissions and serves as an initial filter of potential safety issues. Issues that need to be escalated are sent to the Product Safety Council, which consists of executive team members who will coach and give final direction to the Product Safety Team. We monitor product quality on a continual basis through a number of means for both internal and external performance as follows:

▪Internal performance. Key process indicators for our quality measurement include both First Time Quality (“FTQ”) and Defects Per Unit (“DPU”). FTQ is a performance metric that measures the impact of all aspects of the business on our ability to ship our products at the end of the production process and DPU is a measurement of defects found at the end of the production process. As with previous years, the expectations of the highest quality product continue to increase while maintaining FTQ performance and reducing rework. In addition, we currently maintain ISO 9001 registrations at our Lafayette, Indiana (since 2012) and Cadiz, Kentucky facilities (since 2014).

▪External performance. We actively track our warranty claims and costs to identify and drive improvement opportunities in quality and reliability. Early life-cycle warranty claims for our van trailers are trended for performance monitoring. Using a unit-based warranty reporting process to track performance and document failure rates, early life-cycle warranty units per 100 van trailers shipped averaged approximately 1.8, 1.5, and 1.9 units in 2023, 2022 and 2021, respectively. Continued low claim rates have been driven by our successful execution of continuous improvement programs centered on process variation reduction and responding to the input from our customers. We expect that these activities will continue to drive down our total warranty cost profile.

In addition to managing a robust quality management system for Wabash’s operations for internal and external performance, we expect all direct and indirect suppliers to meet certain standards of quality, engineering, delivery, and management. Our supplier audit process is a comprehensive assessment performed at the supplier’s facility focusing on their system capabilities and how they measure to Wabash’s established requirements. Based on a supplier’s overall rating, action plans are developed to identify improvement opportunities, corrective actions, and timelines to ensure proper closure.

Delivery/Productivity. We measure productivity on many fronts. Some key indicators include production line throughput, labor hours per trailer or truck body, labor cost as a percentage of revenue, scrap rates, and inventory levels. Improvements over the last several years in these areas have translated into significant improvements in our ability to better manage inventory flow, control costs, and analyze material and contribution margins.

▪During the past several years, we have focused on productivity enhancements across all of our product lines within manufacturing assembly and sub-assembly areas through developing the capability for mixed model production.

▪Through deployment of the Wabash Management System (“WMS”), all of our business reporting segments have focused on increasing velocity at all our manufacturing locations. We have engaged in extensive lean training and over the last three years have deployed purposeful capital to accelerate our productivity initiatives.

▪Our manufacturing leadership teams have developed competencies to isolate process constraints, and then address those constraints through multiple avenues that drive additional throughput and cost reductions.

Cost Reduction and our Operating System. The WMS allows us to develop and scale high standards of excellence across the organization. We believe in our One Wabash approach and standardized processes to drive and monitor performance inside our manufacturing facilities. Continuous improvement is a fundamental component of our operational excellence focus. Our focus on leveraging One Wabash and the WMS mindset across the Company, for example, has allowed us to make strides in all areas of manufacturing including safety, quality, on-time delivery, cost reduction, employee morale, and environment. We continue to maintain focus on continuous improvement. In the past several years, we made adjustments throughout our processes to align variable and fixed costs with capacity and created leaner internal processes in multiple areas. In addition, we continued to invest capital in our processes to reduce variable cost, lowered inherent safety risk in our processes, improved overall consistency in our manufacturing processes, and maintained our assets to capitalize on any economic and/or industry upswings.

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Environment. We have been on a sustainability journey since the Company’s inception. Uniquely incentivized to improve product designs by utilizing new composite materials to reduce the weight and improve the durability of our products, we are a leader in creating value for customers by facilitating improved fuel efficiency and ensuring the quality and longevity of our equipment. We commit to our employees, customers and shareholders to manage all of our business activities in a responsible manner with respect for the environment through pollution prevention and with our highest priority being the health and safety of our employees. Energy conservation efforts are another critical part of our commitment to continuous improvement and environmental stewardship, and we require energy conservation efforts across all of our facilities. This policy includes improving operational efficiency as well as upgrading to energy-conserving equipment where possible.

We demonstrate our commitment to sustainability by maintaining ISO 14001 registration of our Environmental Management System at our Lafayette, Indiana; Cadiz, Kentucky; San José Iturbide, Mexico; and Harrison, Arkansas locations. In 2005, our Lafayette, Indiana facility was one of the first trailer manufacturing operations in the world to be ISO 14001 registered. Being ISO 14001 registered requires us to demonstrate quantifiable and third-party verified environmental improvements. In addition, our San José Iturbide, Mexico facility was recognized with Clean Industry certification from Mexico’s Federal Agency of Environmental Protection for adhering to environmental care in its manufacturing processes.

During 2022, our recycling programs and use of recycled materials saved 346,000 cubic yards of landfill space (an increase of 49,000, or 17%, from 2021), 85,700,000 kilowatt-hours of electricity (an increase of 21,400,000, or 33%, from 2021), 83,000 metric tons of greenhouse gas emissions (an increase of 26,300, or 46%, from 2021), and 38,000 mature trees (an increase of 6,800, or 22%, from 2021). In addition, in December 2023 we were recognized among Newsweek’s America’s Most Responsible Companies 2024.

Additionally, Wabash views remanufacturing as an opportunity to help customers extend the useful life of their equipment, which reduces the amount of raw materials needed to produce new machinery. In 2022, revenue from remanufacturing totaled approximately $10.4 million.

In addition, manufacturers across multiple industries choose our proprietary DuraPlate® composite technology for its versatility and strength. Each DuraPlate® panel and product contains between 15% and 30% post-consumer resin (“PCR”). By using PCR in the manufacture of DuraPlate®, Wabash has diverted more than 1.7 billion plastic bottles from landfills including 130 million bottles in 2022. Furthermore, at the end of the product lifespan, DuraPlate® is 100% recyclable.

Our annual Corporate Responsibility Report is available on our website (ir.onewabash.com) and references the ongoing environmental, social, and governance (“ESG”) initiatives that demonstrate our commitment to sustainability and social responsibility. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted.

Industry Trends

Trucking in the U.S., according to the American Trucking Association (“ATA”), was estimated to be a $940.8 billion industry in 2022, representing approximately 81% of the total U.S. transportation industry revenue. From a financial (e.g., value) industry perspective, this represents an increase of approximately 7.5% from ATA’s 2021 estimate and is consistent with the prior year as a percentage of the total U.S. transportation industry revenue (81% in both 2022 and 2021). Furthermore, ATA estimates that approximately 72.6% of all domestic freight tonnage in 2022 was carried by trucks, and 327.5 billion miles were traveled by registered trucks in 2021. Trailer demand is a direct function of the amount of freight to be transported. To monitor the state of the industry, we evaluate a number of indicators related to trailer manufacturing and the transportation industry. Recent trends we have observed include the following:

Transportation / Trailer Cycle. The trailer industry generally follows the transportation industry cycles. Data related to new trailer shipments over the last nine years is shown below.

The most recent estimates from industry forecasters ACT Research Co. (“ACT”) and FTR Associates (“FTR”) indicate total United States trailer production levels for 2023 of approximately 311,000 and 322,000, respectively, which each represent an increase of approximately 0.8% and 4.4%, respectively, from 2022 production levels.

Current estimates from ACT and FTR for 2024 United States trailer production are 254,000 and 240,000, respectively, representing a decrease from 2023 of approximately 18.2% and 25.5%, respectively. These estimates are generally in-line with our expectations as trailer manufacturers manage a softening 2024 demand compared to previous years.

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In addition, ACT is forecasting annual new trailer production levels for 2025, 2026, 2027, and 2028 of approximately 291,000, 296,000, 309,000, and 300,000, respectively. These estimates are generally more consistent with historical trailer industry production levels, and in some years higher than historical production levels. However, overall economic uncertainty and softening demand in the industry for certain of our products could continue to impact these estimates. This uncertainty and softening are evident in the ACT and FTR forecasts, particularly for 2024 production. However, we believe that our strategic plan and actions taken over the last several years have positioned us to remain well-suited to adapt to changes in the industry and demand environment due to our strong balance sheet, liquidity profile, and diversification.

Transportation Regulations and Legislation. There are several different areas within both federal and state government regulations and legislation that are expected to have an impact on trailer demand, including:

▪On July 15, 2022, the National Highway Traffic Safety Administration (“NHTSA”) issued the final rule to upgrade Federal Motor Vehicle Safety Standard (“FMVSS”) No. 223, ‘‘Rear impact guards,’’ and FMVSS No. 224, ‘‘Rear impact protection,’’ which together provide protection for occupants of passenger vehicles in crashes into the rear of trailers. This final rule adopts requirements of Canada Motor Vehicle Safety Standard (“CMVSS”) No. 223, ‘‘Rear impact guards’’ for energy absorption, loadings, and the definition for rear extremity. Additionally, it defines an acceptable elimination of load path during the energy absorption test. The final rule became effective on January 11, 2023, with a compliance date of July 15, 2024. The majority of our trailer products comply with the final rule, while certain tank trailer configurations are being validated to ensure compliance by July 2024 when the rule becomes effective.

▪On May 14, 2022, the Canadian Department of the Environment announced an interim order delaying the trailer portions of Canada’s greenhouse gas regulations (“GHG2”) until mid-2024 at the earliest, essentially following the California Air Resource Board (“CARB”) who will provide at least a six-month notice prior to commencement of enforcing GHG2. This rule mirrored the EPA GHG2 regulations and would only apply to Wabash trailers registered in Canada.

▪In December 2017, the CARB unveiled its own proposal for new greenhouse gas standards for medium- and heavy-duty trucks and trailers that operate in California. On September 27, 2018, CARB approved for adoption the California Phase 2 GHG regulation. That regulation largely aligns California’s GHG emission standards and test procedures with the federal Phase 2 GHG emission standards and test procedures, however it would remain applicable to Wabash trailers registered in the state of California. The CARB requirements to be met for model years 2021, 2024, and 2027 become progressively more stringent and are driven by tire rolling resistance and pressure monitoring, aerodynamic drag, and weight—all of which effect CO2 emissions.

▪On December 3, 2019, CARB issued an official advisory notifying trailer manufacturers that CARB will be suspending enforcement of GHG2 trailer requirements and will provide at least a six-month written notice prior to commencement of enforcing GHG2. CARB continues to process and approve voluntary applications during the suspension period. If we were to receive CARB’s six-month advance notice of enforcement, more stringent van trailer standards would become effective in model year 2024 and model year 2027—requiring more advanced fuel efficiency technologies, such as rear boat tails and higher percentage improvement side skirts and tires. (While CARB’s 2021 requirements remain intact, they are not enforced—however, if we were to receive the six-month advance notice of enforcement prior to 2024, the 2021 objectives would become the requirement.) CARB continues to suspend enforcement as a six-month written notice has not been issued. We will continue preparations to become compliant if and when official notice has been received for commencement of the regulation.

▪CARB Advanced Clean Fleet (“ACF”) legislation sets requirements for organizations to reduce the overall emissions of the vehicle fleets they operate. These standards apply to fleets owned and operated by Wabash at the Moreno Valley and Perris, California facilities. ACF also affects many Wabash customers who own and operate fleets in California and is expected to increase demand for electric vehicles over the next 10 years as the requirements are ramped up.

▪CARB’s Advanced Clean Truck regulations impact the truck body chassis manufacturers that supply to Wabash by setting an annual zero emission sales requirement. This regulation is expected to drive larger market penetration of electric commercial trucks over the next 10 years as requirements are ramped up.

▪In 2024, CARB zero-emissions Transport Refrigeration Unit (“TRU”) rules become effective. Like ACF, these requirements impact Wabash customers and will drive greater demand for electric TRUs that are installed on Wabash vehicles.

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▪EPA’s American Innovation and Manufacturing Act (“AIM”) continues to phase-down the production and consumption of hydrofluorocarbons (“HFCs”) in the United States. The AIM Act currently mandates that EPA provide Wabash with application-specific allowances to manufacture EcoNex™ Technology products. Such allowances operate to increase certainty that HFCs are made available to Wabash during the time that the application-specific provisions are active.

▪Updates to the proposed CARB 2024 Heavy-Duty Engine and Vehicle Omnibus regulation provided greater flexibility to chassis manufacturers for 2024–2026 engine model years. While this should help OEMs as they develop near-term engine updates, OEMs will be required to comply with 2027 emission regulations in the long-term. While the number of chassis manufacturers registering EVs continued to grow (albeit largely in the traditional OEM space), hydrogen fuel cell manufacturers also started to register. While the numbers were small (primarily testing and over-the-road applications), this was a positive sign for the future of work trucks.

Other Developments. Other developments and potential impacts on the industry include:

▪While EPA and NHTSA are unable to regulate trailers due to a previous ruling, which reduces the risk to trailer manufacturers in the near term, CARB continues to seek additional states to join their position in attempting to drive regulation at the state level.

▪While we believe the need for trailer equipment will be positively impacted by the legislative and regulatory changes addressed above, these demand drivers could be offset by factors that contribute to the increased concentration and density of loads.

▪Trucking company profitability, which can be influenced by factors such as fuel prices, freight tonnage volumes, and government regulations, is highly correlated with the overall economy of the U.S.; carrier profitability significantly impacts demand for, and the financial ability to, purchase new trailers.

▪We expect that the majority of freight in our industry will continue to be moved by truck and, according to ATA, total freight transportation revenue is expected to increase from an estimated $1.04 trillion in 2022 to $1.51 trillion in 2034.

▪The expected transition from diesel tractors (and their coolant systems) to electric or fuel cell vehicles changes how heated or cooled trailers can regulate temperature. This creates a market need for alternate heating and cooling solutions.

▪The impacts of the continued near-shoring trend should be positive for trucking. It will continue to impact current supply chain routes, with possible movement of logistics hubs.

▪Oversupply of refrigerated trailers in 2022-2023 has led to a surplus of inventory in the market, which will put downward pressure on supply for the majority of 2024. The long-term outlook of the market still remains strong, and there is expected to be a return to normal levels by the end of 2024.

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Results of Operations

The following table sets forth certain operating data as a percentage of net sales for the periods indicated:

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2023 Compared to 2022

Net Sales

Net sales in 2023 increased $34.4 million, or 1.4%, compared to 2022. By business segment, net sales prior to intersegment eliminations and related trailer units sold were as follows (dollars in thousands):

TS segment sales, prior to the elimination of intersegment sales, were $2,338.6 million in 2023, an increase of $17.7 million, or 0.8%, compared to 2022. The increase in sales was primarily due to higher revenue per trailer unit along with an increase in truck body shipments. Trailers shipped in 2023 decreased 14.9% as 44,450 trailers were shipped in 2023 compared to 52,210 trailer shipments in 2022. New truck bodies shipped during 2023 totaled 16,070 compared to 14,800 truck bodies in prior year, an increase of 8.6% primarily due to strong demand. The decrease in trailer shipments was primarily driven by our previously announced intentional ramp-down of manufacturing conventional refrigerated van trailers and fewer dry van shipments. While new trailer shipments decreased from the prior year period, higher revenue per new trailer unit along with the increase in truck body shipments and truck body revenue per unit resulted in an overall increase in new trailer and truck body revenue. The increases were primarily due to increased pricing to account for inflation, our curated customer portfolio, and improved pricing processes.

P&S segment sales, prior to the elimination of intersegment sales, were $220.9 million in 2023, an increase of $27.4 million, or 14.2%, compared to 2022. The overall increase in sales was primarily attributable to a $16.6 million increase in our upfitting solutions and services businesses based on strong demand for these offerings. There was also an increase in sales within our Engineered Products business of approximately $10.8 million, which was largely due to product mix and higher revenue per unit. In addition, the Wabash Parts LLC parts and distribution entity had higher sales in the current year period of approximately $7.9 million, which was primarily attributable to the fact that the entity was established with our partner during the second quarter of 2022 as further described in Note 6 in the Notes to Consolidated Financial Statements.

Cost of Sales

Cost of sales was $2,038.3 million in 2023, a decrease of $141.1 million, or 6.5%, compared to 2022. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, overhead expenses, and depreciation.

TS segment cost of sales was $1,898.7 million in 2023, a decrease of $144.3 million, or 7.1%, compared to 2022. The decrease in cost of sales, which was primarily driven by lower shipment volumes, was due to a decrease in materials costs of $160.8 million, or 11.0%, along with a decrease in certain other manufacturing costs. These decreases were partially offset by an increase in labor and employee-related costs of approximately $15.0 million as well as an increase in operating supplies and maintenance and repairs costs totaling approximately $13.3 million.

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P&S segment cost of sales, prior to the elimination of intersegment sales, was $162.6 million in 2023, an increase of $13.9 million, or 9.4%, compared to 2022. The increase in cost of sales for this segment was due in part to an increase in materials costs of approximately $4.4 million, or 3.9%. In addition, there was an increase in labor and employee-related costs of approximately $5.1 million, and an increase in outside services, freight, and lease/rent costs of approximately $2.4 million in the aggregate.

Gross Profit

Gross profit was $498.2 million in 2023, an increase of $175.5 million, or 54.4% from 2022. Gross profit as a percentage of sales, or gross margin, was 19.6% in 2023 as compared to 12.9% in 2022. Gross profit by segment was as follows (in thousands):

TS segment gross profit was $439.9 million in 2023 compared to $277.8 million in 2022, an increase of $162.0 million. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 18.8% in 2023 as compared to 12.0% in 2022, an increase of 6.8%. The overall increase in gross profit from the prior year period was primarily driven by an increase in our dry van products of approximately $95.2 million. In addition, our truck bodies, tank trailers, and platforms had increases from the prior year period. Each of these increases, as well as the increase in gross profit as a percentage of net sales, was primarily attributable to higher revenue per new trailer unit and truck body due to increased pricing to account for inflation, our curated customer portfolio, and improved pricing processes.

P&S segment gross profit was $58.3 million in 2023 compared to $44.8 million in 2022. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 26.4% in 2023 compared to 23.2% in 2022, an increase of 3.2%. The overall increase in gross profit was primarily related to an increase within our Engineered Products business of approximately $6.1 million. In addition, our upfitting solutions and services businesses increased approximately $4.7 million from the prior year period on strong demand for these offerings. Finally, our Composites business, which focuses on the use of DuraPlate® composite panels beyond the semi-trailer market, increased approximately $2.4 million compared to the prior year period due in part to increased pricing.

General and Administrative Expenses

General and administrative expenses were $146.7 million in 2023, an increase of $33.6 million, or 29.7%, compared to 2022. The increase from the prior year period was due in part to an increase of approximately $18.3 million in professional fees and outside services costs, which includes the estimated liability for the Matters, as defined and further described in Note 14 in the Notes to Consolidated Financial Statements. There was also an increase in general and administrative employee-related costs, including benefits and incentive programs, of approximately $12.0 million. In addition, maintenance and repairs expense and lease/rental costs increased in total by approximately $2.7 million. As a percentage of sales, general and administrative expenses were 5.8% for the 2023 period as compared to 4.5% for the same period of 2022. The overall increase in general and administrative expenses as a percentage of net sales was primarily attributable to the increase in professional and outside services costs and employee-related costs, which outpaced the increase in sales.

Selling Expenses

Selling expenses were $26.5 million in 2023, a decrease of $0.5 million, or 2.0%, compared to 2022. The decrease was primarily attributable to a decrease in advertising and promotional expense of approximately $1.6 million, which is due in part to expenses incurred during the 2022 period related to our Ignite Conference. In addition, there was a decrease in professional fees and outside services costs of approximately $1.4 million. These decreases were partially offset by an increase in sales employee-related costs, including benefits and incentive programs, of approximately $1.6 million. There was also an increase in our reserve for expected credit losses and travel-related expenses totaling approximately $0.8 million. As a percentage of net sales, selling expenses were 1.0% in 2023 compared to 1.1% in 2022. The overall decrease in selling expenses as a percentage of net sales was primarily attributable to the increase in sales and the decrease in advertising and promotional expense and professional fees and outside services costs.

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Amortization of Intangibles

Amortization of intangibles was $12.8 million in 2023 compared to $15.2 million in 2022. Amortization of intangibles was the result of expenses recognized for intangible assets recorded from previous acquisitions. The decrease from the prior year period is related to certain of the intangible assets that became fully amortized during the second quarter of 2022.

Impairment and Other, Net

Impairment and other, net was a net loss of $0.2 million during 2023 and a net loss of $0.7 million during 2022. Activity during the prior year period primarily related to the impairment of $1.0 million of construction-in-progress projects that were no longer expected to be completed and the write-off of certain property, plant, and equipment and IT-related assets. These items were partially offset by the sale of a building (and the related land) as further described in Note 21 in the Notes to Consolidated Financial Statements, which resulted in a gain of approximately $0.7 million.

Other Income

Interest expense in 2023 totaled $19.9 million compared to $20.5 million in 2022. Interest expense relates to interest and non-cash accretion charges on our Senior Notes due 2028 and Revolving Credit Agreement. Interest expense in the current year period was lower than in the 2022 period due to lower average outstanding balances under the Revolving Credit Facility.

Other, net for 2023 represented income of $3.4 million as compared to income of $0.3 million for 2022. Income for both the current and prior year period primarily relates to interest income.

Income Taxes

We recognized income tax expense of $62.8 million in 2023 compared to income tax expense of $33.7 million in 2022. The effective tax rate for 2023 was 21.3% compared to 23.0% for 2022. The effective tax rate for both 2023 and 2022 differs from the U.S. Federal statutory rate of 21% primarily due to the impact of state and local taxes and discrete items, including stock-based compensation. Net cash paid for income taxes in 2023 was $82.6 million compared to net cash paid during 2022 of $18.3 million.

Liquidity and Capital Resources

Capital Structure

Our capital structure is comprised of a mix of debt and equity. As of December 31, 2023, our debt-to-equity ratio was approximately 0.7:1.0. Our long-term objective is to generate operating cash flows sufficient to support the growth within our businesses and increase shareholder value. This objective will be achieved through a balanced capital allocation strategy of sustaining strong liquidity, maintaining healthy leverage ratios, investing in the business, both organically and strategically, and returning capital to our shareholders. Our Board of Directors designated a Finance Committee for the primary purpose of assisting the Board in its oversight of the Company’s capital structure, financing, investment, and other financial matters of importance to the Company.

Throughout 2023, and in keeping to this balanced approach, we repurchased $66.6 million (inclusive of excise tax) of common stock under the share repurchase program approved by our Board of Directors and paid dividends of $15.9 million. Also, as further described below in the “Debt Agreements and Related Amendments” section below, in September 2022 we amended our Revolving Credit Agreement. The amendment increased the total revolving commitments to $350 million and extended the maturity to September 2027, which is the nearest maturity date of our long-term debt. As of December 31, 2023, there were no amounts outstanding under the Revolving Credit Agreement. During the fourth quarter of 2023, our credit rating was upgraded by Moody’s which followed another upgrade by S&P earlier in the year. Collectively, these actions demonstrate our confidence in the financial outlook of the Company and our ability to generate cash flow, both near and long term, and reinforce our overall commitment to deliver shareholder value while maintaining the flexibility to continue to execute our strategic plan for profitable growth and diversification.

Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $516.1 million as of December 31, 2023 and $401.2 million as of December 31, 2022, an increase of 29%. The increase from the prior year is primarily attributable to a higher cash balance at December 31, 2023 due to positive cash flow from operating activities. For 2024, we expect to continue our commitment to fund our working capital requirements and capital expenditures from net cash provided by operations or available borrowing capacity under the Revolving Credit Agreement (as needed). Along with these investments, we will also maintain our assets to react to any economic and/or industry changes, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

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Debt Agreements and Related Amendments

Senior Notes due 2028

On October 6, 2021, we closed on an offering of $400 million in aggregate principal amount of our 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 us, 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. The New Senior Notes will mature on October 15, 2028. At any time prior to October 15, 2024, we 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, we 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, we 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 we have exercised our optional redemption right in respect of the New Senior Notes, the holders of the New Senior Notes will have the right to require us 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 our and the Guarantors’ general unsecured senior obligations and will be subordinated to all of our 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 our 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 our ability and the ability of certain of our subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock or with respect to any other interest or participation in, or measured by, our profits; (iii) make loans and certain investments; (iv) sell assets; (v) create or incur liens; (vi) enter into transactions with affiliates; and (vii) consolidate, merge or sell all or substantially all of our assets. 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 we and our 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 December 31, 2023, we were in compliance with all covenants.

The sale of the New Senior Notes resulted in net proceeds of approximately $395 million, after deducting financing fees and other offering expenses. We used the net proceeds of the New Senior Notes and a portion of the $50 million draw from the increased capacity under the Revolving Credit Agreement 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 term loan credit agreement entered into on September 28, 2020 (the “New Term Loan Credit Agreement”) among us, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as the administrative agent, and to pay all related fees and expenses. (The New Term Loan Credit Agreement refinanced and replaced that certain Term Loan Credit Agreement, dated as of May 8, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, the “Old Term Loan Credit Agreement”), among us, the lenders party thereto and Morgan Stanley Senior Funding, Inc., as the administrative agent.) Debt extinguishment charges totaling $9.1 million were recorded during the fourth quarter of 2021 in connection with the redemption in full of the Senior Notes due 2025 and the repayment in full of the outstanding borrowings under the New Term Loan Credit Agreement. The loss on debt extinguishment charges is included in Other, net on our Consolidated Statements of Operations.

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Contractual coupon interest expense and accretion of fees for the New Senior Notes for the years ended December 31, 2023, 2022 and 2021 were $18.0 million and $0.6 million, $18.0 million and $0.6 million, and $4.3 million and $0.1 million, respectively.

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 as described above, for the year ended December 31, 2021, was $13.3 million and $0.5 million, respectively.

Contractual coupon interest expense and accretion of discount and fees are included in Interest expense on the Company’s Consolidated Statements of Operations.

Revolving Credit Agreement

On September 23, 2022, we entered into the Third Amendment to the Second Amended and Restated Credit Agreement among us, certain of our subsidiaries as borrowers (together with us, the “Borrowers”), certain of our subsidiaries as guarantors, the lenders party thereto, and Wells Fargo Capital Finance, LLC, as the administrative agent (the “Agent”), which amended our existing Second Amended and Restated Credit Agreement, dated as of December 21, 2018 (as amended from time to time, the “Revolving Credit Agreement”).

Under the Revolving Credit Agreement, the lenders agree to make available a $350 million revolving credit facility to the Borrowers with a scheduled maturity date of September 23, 2027. We have the option to increase the total commitments under the facility by up to an additional $175 million, subject to certain conditions, including obtaining agreements from one or more lenders, whether or not party to the Revolving Credit Agreement, to provide such additional commitments. Availability under the Revolving Credit Agreement is based upon quarterly (or more frequent under certain circumstances) borrowing base certifications of the Borrowers’ eligible inventory, eligible leasing inventory and eligible accounts receivable, and is reduced by certain reserves in effect from time to time.

Subject to availability, the Revolving Credit Agreement provides for a letter of credit subfacility in the amount of $25 million and allows for swingline loans in the amount of $35 million. Outstanding borrowings under the Revolving Credit Agreement bear interest at an annual rate, at the Borrowers’ election, equal to (i) adjusted term Secured Overnight Financing Rate 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 Credit Agreement. The Borrowers are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of the Agent and the lenders.

The Revolving Credit Agreement is guaranteed by certain of our subsidiaries (the “Guarantors”) and is secured by substantially all personal property of the Borrowers and the Guarantors.

The Revolving Credit Agreement contains customary covenants limiting our ability and certain of our subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. In addition, we will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 as of the end of any period of 12 fiscal months when excess availability under the Revolving Credit Agreement is less than the greater of (a) 10% of the lesser of (i) the total revolving commitments and (ii) the borrowing base (such lesser amount, the “Line Cap”) and (b) $25 million. As of December 31, 2023, we were in compliance with all covenants.

If availability under the Revolving Credit Agreement is less than the greater of (i) 10% of the Line Cap and (ii) $25 million for three consecutive business days, or if there exists an event of default, amounts in any of the Borrowers’ and the Guarantors’ deposit accounts (other than certain excluded accounts) will be transferred daily into a blocked account held by the Agent and applied to reduce the outstanding amounts under the facility.

The Revolving Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the lenders may, among other things, require the immediate payment of all amounts outstanding and foreclose on collateral. In addition, in the case of an event of default arising from certain events of bankruptcy or insolvency, the lenders’ obligations under the Revolving Credit Agreement would automatically terminate, and all amounts outstanding under the Revolving Credit Agreement would automatically become due and payable.

Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Agreement, amounted to $516.1 million as of December 31, 2023 and $401.2 million as of December 31, 2022, an increase of $114.9 million (or 29%). The increase from the prior year is primarily attributable to a higher cash balance due to favorable cash flow from operations.

During the year ended December 31, 2023, we had payments of principal of $104.2 million and borrowings of principal of $104.2 million under the Revolving Credit Agreement, and as of December 31, 2023, there were no amounts outstanding.

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During the year ended December 31, 2022, we had net payments of principal of $130.6 million and net borrowings of principal of $97.6 million under the Revolving Credit Agreement, and as of December 31, 2022, there were no amounts outstanding.

Interest expense under the Revolving Credit Agreement for the years ended December 31, 2023, 2022, and 2021, was approximately $0.9 million, $1.7 million, and $0.6 million, respectively. Interest expense under the Revolving Credit Agreement is included in Interest expense on the Company’s Consolidated Statements of Operations.

New and Old Term Loan Credit Agreements

As described above, in October 2021, we used the net proceeds of the New Senior Notes and a portion of the $50 million draw from the increased capacity under the Revolving Credit Agreement to repay in full the $108.8 million of outstanding borrowings under the New Term Loan Credit Agreement. In addition to the full repayment during the fourth quarter, during the second quarter of 2021, we made principal payments totaling $30.0 million and recognized loss on debt extinguishment charges of approximately $0.5 million. The extinguishment charges are included in Other, net in the Consolidated Statements of Operations.

For the year ended December 31, 2021, under the New Term Loan Credit Agreement we paid interest of $3.9 million. For the year ended December 31, 2021, we incurred charges of $0.2 million for amortization of fees and original issuance discount, which are included in Interest expense in the Consolidated Statements of Operations.

Cash Flow

2023 Compared to 2022

Cash provided by operating activities for 2023 totaled $319.6 million, compared to cash provided by operating activities of $124.1 million in 2022. The cash provided by operations during the current year was the result of net income adjusted for various non-cash activities, including depreciation, amortization, deferred taxes, stock-based compensation, and a $42.1 million decrease in our working capital. Changes in key working capital accounts for 2023 and 2022 are summarized below (in thousands):

Accounts receivable decreased $72.6 million in 2023 and increased $79.1 million in 2022. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, was approximately 28 days and 35 days for the year-ended December 31, 2023 and 2022, respectively. The decrease in accounts receivable in 2023 was primarily due to the decrease in shipments during the second half of 2023 compared to 2022 as well as the timing of shipments and receipt of customer payments. Inventories increased in 2023 by $23.8 million compared to an increase in 2022 of $6.2 million. The overall increase in inventory for 2023 was primarily attributable to higher finished goods inventory compared to prior year. Our inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately 6 times in 2023 and 7 times 2022. Accounts payable and accrued liabilities increased $5.8 million in 2023 compared to an increase of $46.1 million for 2022. Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 29 days in 2023 and 30 days in 2022.

Investing activities used $106.0 million during 2023 compared to $55.3 million used in 2022. Investing activities for 2023 included capital expenditures for property, plant, and equipment of $98.1 million, which was an increase compared to $57.1 million during 2022. In addition, expenditures related to revenue generating assets totaled approximately $5.7 million and expenditures related to investment in Linq Venture Holdings, LLC totaled approximately $2.5 million, which is further detailed in Note 6 in the Notes to Consolidated Financial Statements. Cash used in investing activities in 2023 and 2022 was primarily related to capital expenditures to support growth and improvement initiatives at our facilities. In 2023, investing activities included $0.2 million proceeds from the sale of assets compared to approximately $1.8 million in 2022.

Financing activities used $92.5 million during 2023 as compared to using $82.3 million during 2022. Net cash used in 2023 primarily relates to common stock repurchases of $76.2 million and cash dividend payments to our shareholders of $15.9 million. Borrowings under our Revolving Credit Agreement totaled $104.2 million which were fully offset by principal, interest, and unused fee payments made under our Revolving Credit Agreement of $104.2 million. Net cash used in financing activities in 2022 due in part to net payments on our Revolving Credit Agreement of $33.0 million. We also repurchased common stock of $34.3 million and paid cash dividends to our shareholders of $16.0 million in 2022.

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Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $516.1 million as of December 31, 2023 and $401.2 million as of December 31, 2022, an increase of 29%. The increase from prior year is primarily attributable to a higher cash balance, a result of higher net cash provided by operating activities in 2023. Total debt obligations amounted to $400.0 million as of December 31, 2023.

For 2024 and forward, we expect to continue our commitment to fund our working capital requirements and capital expenditures from net cash provided by operations or available borrowing capacity under the Revolving Credit Agreement (as needed). Along with these investments, we will also maintain our assets to capitalize on any economic and/or industry upswings, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

Contractual Obligations and Commercial Commitments

A summary of our contractual obligations and commercial commitments, both on and off-balance sheet, as of December 31, 2023 are as follows (in thousands):

1 Future interest payments on variable rate long-term debt (if any) are estimated based on the rate in effect as of December 31, 2023, and only include interest payments (not unused line fees). However, as of December 31, 2023, there was no variable rate debt (Revolving Credit Agreement) outstanding.

Borrowings under the Revolving Credit Agreement bear interest at a variable rate based on the Secured Overnight Financing Rate (“SOFR”) or a base rate determined by the lender’s prime rate plus an applicable margin, as defined in the agreement. Any outstanding borrowings under the Revolving Credit Agreement bear interest at a rate, at our election, equal to (i) adjusted term SOFR 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 Credit Agreement. We are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of our agent and lenders. During the year ended December 31, 2023, we had payments of principal of $104.2 million and borrowings of principal of $104.2 million under the Revolving Credit Agreement, and as of December 31, 2023, there were no amounts outstanding.

The Senior Notes due 2028 bear interest at the rate of 4.5% per annum from the date of issuance, payable semi-annually on April 15 and October 15.

Operating leases represent the total future minimum lease payments for leases that have commenced. As of December 31, 2023, obligations related to operating leases that we have executed but have not yet commenced were nominal.

We have standby letters of credit totaling $6.0 million issued in connection with workers compensation claims and surety bonds.

We have $35.7 million in purchase commitments through December 2024 for various raw material commodities, including aluminum, steel, polyethylene, and nickel, as well as other raw material components which are within normal production requirements.

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We obtain vehicle chassis for our specialized vehicle products directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and to a lesser extent, for unallocated orders. Although each manufacturer’s agreement has different terms and conditions, the agreements generally state that the manufacturer will provide a supply of chassis to be maintained from time to time at our various facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. The manufacturer transfers the chassis to us on a “restricted basis” retaining the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to us nor permit us to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer). Although we are party to related finance agreements with manufacturers, we have not historically settled, nor do we expect to in the future settle, any related obligations in cash. Instead, the obligation is settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. Accordingly, as of December 31, 2023, our outstanding chassis converter pool with the manufacturer totaled $27.3 million and has included this financing agreement on our Consolidated Balance Sheets within Prepaid expenses and other and Other accrued liabilities. All other chassis programs are handled as consigned inventory belonging to the manufacturer and totaled approximately $0.9 million. Under these agreements, if the chassis is not delivered to a customer within a specified time frame, we are required to pay a finance or storage charge on the chassis. Additionally, we receive finance support funds from manufacturers when the chassis are assigned into our chassis pool. Typically, chassis are converted and delivered to customers within 90 days of our receipt of the chassis.

The total amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $4.8 million at December 31, 2023. Payment of these obligations would result from settlements with taxing authorities. Due to the difficulty in determining the timing of settlements, these obligations are not included in the table above. We do not expect to make a tax payment related to these obligations within the next year that would significantly impact liquidity.

Significant Accounting Policies and Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. Our significant accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, evaluation of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate.

We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time we were making the estimate or changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.

Legal and Other Contingencies. The outcomes of legal proceedings and claims brought against us and other loss contingencies are subject to significant uncertainty. We establish legal contingency reserves when we determine that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In determining the appropriate accounting for loss contingencies, we consider the likelihood of loss or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss. We regularly evaluate current information available to us to determine whether an accrual should be established or adjusted. Estimating the probability that a loss will occur and estimating the amount of a loss or a range of loss involves significant judgment and such matters are unpredictable. We could incur judgments or enter into settlements for current or future claims that could materially impact our results of operations.

Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. We review, on at least a quarterly basis, the financial performance of each business unit for indicators of impairment. In reviewing for impairment indicators, we also consider events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities, and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.

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Impairment of Trade Name and Trademark Intangible Assets (2021)

As further described in Note 5 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, on January 10, 2022, we completed our review and approval of our plan for rebranding as Wabash®. As part of the planning process, we assessed our usage of trade names and brand names in connection with the long-term growth strategy as One Wabash. Under the plan as approved, we no longer use certain trade names or brand names, and predominantly use Wabash (or variations thereof) to refer to the Company. The decision resulted in non-cash impairment charges of approximately $28.3 million during the fourth quarter of 2021 related to trade name and trademark intangible assets due to the significant reduction in the related useful lives of these assets.

Goodwill. We assess goodwill for impairment at the reporting unit level on an annual basis as of October 1st, after the annual planning process is complete. More frequent evaluations may be required if we experience changes in our business climate or as a result of other triggering events that may take place. If the carrying value exceeds fair value, the asset is considered impaired and is reduced to its fair value.

In assessing goodwill for impairment, we may choose to initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, then an impairment analysis for goodwill is performed at the reporting unit level using a quantitative approach. The quantitative test is a comparison of the fair value of the reporting unit, determined using a combination of the income and market approaches, to its recorded amount. If the recorded amount exceeds the fair value, an impairment is recorded to reduce the carrying amount to fair value, but will not exceed the amount of goodwill that is recorded.

The process of evaluating goodwill for impairment is subjective and requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent fair value analysis for the reporting unit. When performing a quantitative goodwill impairment test, we generally determine fair value using a combination of an income-based approach and a market-based approach. The fair value determination consists primarily of using significant unobservable inputs (Level 3) under the fair value measurement standards. We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, the amounts and timing of expected future cash flows which is largely dependent on expected EBITDA margins, the discount rate applied to those cash flows, and terminal growth rates. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends and long-term operating strategies and initiatives. The discount rate used by each reporting unit is based on our assumption of a prudent investor’s required rate of return assuming the risk of investing in a particular company. The terminal growth rate reflects the sustainable operating income a reporting unit could generate in a perpetual state as a function of revenue growth, inflation, and future margin expectations.

Annual Goodwill Impairment Test

As of December 31, 2023, goodwill allocated to our TS and P&S segments was approximately $120.5 million and $67.9 million, respectively. For the 2023 annual goodwill impairment test conducted as of October 1st, 2023, the Company chose to evaluate qualitative factors to determine if it was more likely than not that the fair value of the TS and P&S reporting units were less than their respective carrying amounts. In accordance with the relevant accounting guidance, in order to perform the qualitative assessment, the Company considered many factors including, but not limited to, general economic conditions, industry and market conditions, financial performance and key business drivers, future operating plans, and potential changes to significant assumptions used in the most recent quantitative fair value analysis for each reporting unit (which was conducted in connection with the Company’s segment realignment beginning in September 2021 as further described below). Based on the analysis of the factors and considerations described above, the Company concluded that it was more likely than not that the fair value of each reporting unit continued to be greater than the respective carrying value. Therefore, no impairment charges were recorded and a quantitative analysis was not performed.

During the fourth quarters of 2022 and 2021, the Company completed its annual goodwill impairment test using the qualitative assessment. Based on all assessments performed, the Company believed it was more likely than not that the fair value of its reporting units were greater than their carrying amount and no additional impairment of goodwill was recognized.

In connection with the Company’s segment realignment beginning in September 2021 described in greater detail below, the Company performed a quantitative assessment for each reporting unit utilizing a combination of the income and market approaches, the results of which were weighted evenly. No impairment was indicated in either annual test as the fair value of each reporting unit exceeded its respective carrying value.

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2021 Segment Realignment

As further described in Note 5 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, beginning in September 2021 we realigned our operating and reportable segments. Based on these changes, we established two operating and reportable segments: Transportation Solutions (“TS”) and Parts & Services (“P&S”). These operating and reportable segments were also determined to be the applicable reporting units for purposes of goodwill assignment and evaluation. In accordance with the relevant accounting guidance, we performed a quantitative impairment assessment of goodwill immediately prior to and subsequently following the change in segments and reporting units. The quantitative analyses did not result in any impairment charges as the fair value of each reporting unit exceeded the carrying value. In addition, as part of the change in segment structure, we reassigned goodwill from the historical Commercial Trailer Products (“CTP”), Diversified Products (“DPG”), and Final Mile Products (“FMP”) reporting units to the TS and P&S reporting units using a relative fair value allocation approach as required by the relevant accounting guidance.

Goodwill Allocation for Extract Technology® (“Extract”)

As further described in Note 21 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, during the second quarter of 2021, we sold our 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 historical Process Systems reporting unit (which was within the historical DPG segment). In accordance with the relevant accounting guidance, as part of the sale we allocated $11.1 million of goodwill based upon the relative fair value of the Extract operating unit compared to the historical DPG 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, we performed an impairment assessment for the historical DPG reporting unit and concluded the fair value of the reporting unit continued to exceed the carrying value.

Other

Inflation

Inflation impacts prices paid for labor, materials and supplies. Significant increases in the costs of production or certain commodities, raw materials, and components could have an adverse impact on our results of operations. As has been our practice, we will endeavor to offset the impact of inflation through selective price increases, productivity improvements, and hedging activities. Our ability to mitigate the impact of inflation through selective price increases may be limited by our backlog in cases of orders without inflation-based price adjustment provisions.

New Accounting Pronouncements

For information related to new accounting standards, see Note 3 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

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ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes the matters that we consider to be important to understanding the results of our operations for each of the two years in the period ended December 31, 2022, and our capital resources and liquidity as of December 31, 2022. Our discussion begins with a COVID-19 update as well as our assessment of the condition of the North American trailer industry along with a summary of the actions we have taken to strengthen the Company. We then analyze the results of our operations for the last two years, including the trends in the overall business and our operating segments, followed by a discussion of our cash flows and liquidity, capital markets events and transactions, our debt obligations, and our contractual commitments. We also provide a review of the critical accounting judgments and estimates that we have made that we believe are most important to an understanding of our MD&A and our consolidated financial statements. We conclude our MD&A with information on recent accounting pronouncements that we adopted during the year, if any, as well as those not yet adopted that may have an impact on our financial accounting practices, if any.

For discussion of results of operations for the year ended December 31, 2021 compared to the results of operations for the year ended December 31, 2020, see Part II, Item 7,—”Management's Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Annual Report on Form 10-K, filed with the SEC on February 24, 2022.

COVID-19 Update

In March 2020, a global pandemic was declared by the World Health Organization related to COVID-19. This pandemic has created significant uncertainties and disruptions in the global economy. We continue to monitor the ongoing challenges of an endemic infection and remain focused on the health and safety of our employees, as well as the health of our business, as we manage our operating plans and consider the most recent developments, the best practice guidelines by health experts, the number of cases in the United States, and local, state, and federal requirements. While we have moved to an endemic phase, the COVID-19 pandemic has had lasting effects and continues to cause supply chain, labor, and raw material constraints that impact global markets.

Refer to Part I, Item 1A, “Risk Factors” for additional information regarding the potential impact of the COVID-19 pandemic on the Company.

Executive Summary

The most recent estimates from industry forecasters ACT Research Co. (“ACT”) and FTR Associates (“FTR”) indicate total United States trailer production levels for 2022 of approximately 304,000 and 305,000, respectively, which each represent an increase of approximately 14% from 2021 production levels. While there remains some uncertainty in the industry, particularly around supply chain disruptions and labor shortages that are partially due to COVID-19 impacts, the outlook for the overall trailer market remains strong, and we believe our backlog of orders provides a solid foundation for 2023.

Current estimates from ACT and FTR for 2023 United States trailer production are 303,000 and 318,000, respectively, representing a decrease and an increase from 2022 of approximately -0.4% and 4%, respectively. These estimates are generally in-line with our expectations as trailer manufacturers, consistent with prior year, prepare to ramp-up production for strong 2023 demand.

In addition, ACT is forecasting annual new trailer production levels for 2024, 2025, 2026, and 2027 of approximately 275,000, 309,000, 286,000, and 298,000, respectively. We believe these estimates for production will remain above replacement demand over the next several years. While these estimates are more historically consistent production levels in the trailer industry, industry forecasters continue to note that certain issues, such as supply chain constraints and tight labor markets, could impact these estimates and production. We believe we are well positioned to capitalize on strong demand in 2023, and we remain well-suited in case the environment diverges from our expectations with a strong balance sheet and liquidity profile.

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Despite a certain degree of continued uncertainty of the full impact of the COVID-19 pandemic, primarily centered around supply chain disruptions and labor shortages, we believe we have maintained a solid position from a liquidity perspective over the last several years. While we are focused in the near-term on executing on strong demand in 2023, we also continue to work on strategic initiatives to profitably grow the Company in the long-term. This includes adding 20% more dry van manufacturing capacity, with production scheduled to begin during the first half of 2023. We continue to believe this additional manufacturing capacity will allow us to go-to-market with a portfolio-based selling approach that leverages the breadth of our products. During 2022, we announced the launch of our AcuthermTM portfolio of solutions for intelligent thermal management. These solutions are positioned to provide enhanced thermal management performance over a wide range of use environments and applications. The overarching AcuthermTM brand umbrella encompasses our innovative EcoNexTM technology, which is being designed to offer lighter weight paired with thermal advantages that do not sacrifice structural integrity. In connection with this initiative, in August 2022 we announced a $20 million investment to be made in our manufacturing capacity to scale our EcoNexTM technology within refrigerated vans, truck bodies, and other transportation and logistics related products. We believe that continuing to bring new technologies to market combined with our focus on building out adjacent revenue opportunities, including parts and services, will provide us with opportunities for growth.

The Company’s operating performance throughout 2022 highlights the success of our adaptability, balanced growth, and diversification, all of which are driven by our long-term strategic plan to transform the Company into the visionary leader of connected solutions for the transportation, logistics, and distribution industries. We will also continue to maintain our focus and expertise in lean and six sigma optimization initiatives to support a higher growth and margin profile as One Wabash. Operating income in 2022 totaled $166.6 million and operating margin was 6.7%, both of which are significant increases from 2021 driven in part by higher sales and stronger demand for our products. Additional discussion related to financial results are included in the “Results of Operations” section below.

In addition to our commitment to sustain profitable growth within each of our existing reporting segments, our long-term strategic initiatives include a focus on diversification efforts, both organic and strategic, to continue to transform Wabash into a lean, visionary leader of connected solutions with a higher growth and margin profile to successfully deliver a greater value to our shareholders. Our strategy is centered around our ability to scale core competencies by growing in and around core markets with known customers—this strategy is evidenced by our multi-year order agreement with J.B. Hunt Transport Inc., which we announced in January 2023.

Key strategic initiatives include, but are not limited to, cold chain, e-commerce and logistics, and parts and services. Our ability to generate solid margins and cash flows and a healthy balance sheet should position the Company with ample resources to (1) fund our internal capital needs to support both organic growth and productivity improvements, (2) optimize our debt leverage and other financial ratios, (3) return capital to shareholders, and (4) selectively pursue strategic acquisitions. We will continue our internal effort to strategically identify potential acquisition or partnership targets that we believe can create shareholder value and accelerate our growth and diversification efforts, while leveraging our strong competencies in manufacturing execution, sourcing and innovative engineering leadership to assure strong value creation. Organically, our focus is on profitably growing and diversifying our operations through leveraging our existing assets, capabilities, and technology into higher margin products and markets and thereby providing value-added customer solutions.

Throughout 2022, we demonstrated our commitment to be responsible stewards of the business by maintaining a balanced approach to capital allocation. Even with a certain degree of continued uncertainty due in part to the COVID-19 pandemic, our operational performance, healthy backlog and industry outlook, and financial position provided us the opportunity to take specific actions as part of the ongoing commitment to prudently manage the overall financial risks of the Company, returning capital to our shareholders, and deleveraging our balance sheet. These actions included repurchasing $30.9 million of common stock under the share repurchase program approved by our Board of Directors and paying dividends of $16.0 million. In addition, as further described in the “Liquidity and Capital Resources” section below, in September 2022 we amended our Revolving Credit Agreement. The amendment increased the total credit facility to $350 million, extended the maturity to September 2027, which is the nearest maturity date of our long-term debt, and as of December 31, 2022, there were no amounts outstanding under the Revolving Credit Agreement. The amendment also supports our Trailers as a Service (TAAS)SM initiative, which provides access to trailers, supported by our national dealer network and the Wabash Parts LLC parts and distribution entity we created with our partner during the second quarter of 2022. Collectively, these actions demonstrate our confidence in the financial outlook of the Company and our ability to generate cash flow, both near and long term, and reinforce our overall commitment to deliver shareholder value while maintaining the flexibility to continue to execute our strategic plan for profitable growth and diversification.

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In addition to overall industry risks, there are downside risks relating to issues with both the domestic and global economies, including the housing, energy, and construction-related markets in the U.S. Other potential risks as we proceed into 2023 primarily relate to our ability to effectively manage our manufacturing operations, including ongoing labor shortages, disruption of our supply chain, and our overall business with the increase in production to meet demand. In addition, the cost of raw materials, commodities, and components are also potential risks. Significant increases in the cost of certain commodities, raw materials or components have had, and may continue to have, an adverse effect on our results of operations. As has been our practice, we will endeavor to pass raw material and component price increases to our customers in addition to continuing our cost management and hedging activities in an effort to minimize the risk that changes in material costs could have on our operating results. In addition, we rely on a limited number of suppliers for certain key components and raw materials in the manufacturing of our products, including tires, landing gear, axles, suspensions, aluminum extrusions, chassis and specialty steel coil. While we have taken actions to mitigate certain of these risks, which include our previously announced supply agreements with Hydro and Ryerson, at the current and expected demand levels, there may be additional or increased shortages of supplies of raw materials or components which would have an adverse impact on our ability to meet demand for our products. Despite these risks, we believe we are well positioned to capitalize on strong overall demand levels while maintaining or growing margins through improvements in product pricing as well as productivity and other operational excellence initiatives.

As we enter 2023, we will continue to adjust to changes in the current environment, preserve the strength of our balance sheet, prioritize the safety of our employees, and ensure the liquidity and financial well-being of the Company. We believe we remain well-positioned for both near-term and long-term success in the transportation, logistics, and distribution industries because: (1) our core customers are among the major participants in the transportation, logistics, and distribution industries; (2) our technology and innovation provides value-added and solutions for our customers by reducing operating costs, improving revenue opportunities, and solving unique transportation problems; (3) our Wabash Management System (“WMS”) principles and processes and enterprise-wide lean efforts drive focus on the interconnected processes that are critical for success across our business; (4) our significant brand recognition, including our January 2022 rebranding as Wabash®, presence throughout North America, and the utilization of our extensive dealer network to market and sell our products; and (5) our One Wabash approach to create a consistent, superior experience for all customers who seek our connected solutions in the transportation, logistics, and distribution markets. By continuing to be an innovation leader in the transportation, logistics, and distribution industries we expect to leverage our existing assets and capabilities into higher margin products and markets by delivering connected value-added customer solutions.

Operating Performance

We generally measure our operating performance in five key areas – Safety/Morale, Quality, Delivery, Cost Reduction, and Environment. We maintain a continuous improvement mindset in each of these key performance areas.

Safety/Morale. The safety of our employees is our number one priority. We demonstrate this core value by working on innovations to protect the people who operate our equipment and partnering with others to promote higher standards in transportation and manufacturing. We continually focus on reducing the severity and frequency of workplace injuries to create a safe environment for our employees and minimize workers compensation costs. We believe that our improved environmental, health, and safety management translates into higher labor productivity and lower costs as a result of less time away from work and improved system management. See the “Human Capital Resources and Management” section in Part I, Item 1, "Business" of this Annual Report on Form 10-K for additional detail on our commitment to safety and human capital.

Quality. Our commitment to quality and safety is backed by a robust concern reporting system and associated processes. Any Wabash National employee can report a potential safety-related concern that could cause unreasonable risk of harm to our customers. Potential or reported safety concerns are routed to a cross-functional Product Safety Team that includes members from Quality, Warranty, Engineering, Sales and Strategic Sourcing. The Product Safety Team investigates submissions and serves as an initial filter of potential safety issues. Issues that need to be escalated are sent to the Product Safety Council, which consists of executive team members who will coach and give final direction to the Product Safety Team. We monitor product quality on a continual basis through a number of means for both internal and external performance as follows:

▪Internal performance.  Key process indicators for our quality measurement include both First Time Quality (“FTQ”) and Defects Per Unit (“DPU”). FTQ is a performance metric that measures the impact of all aspects of the business on our ability to ship our products at the end of the production process and DPU is a measurement of defects found at the end of the production process. As with previous years, the expectations of the highest quality product continue to increase while maintaining FTQ performance and reducing rework. In addition, we currently maintain ISO 9001 registrations at our Lafayette, Indiana (since 2012) and Cadiz, Kentucky facilities (since 2014).

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▪External performance.  We actively track our warranty claims and costs to identify and drive improvement opportunities in quality and reliability. Early life cycle warranty claims for our van trailers are trended for performance monitoring. Using a unit-based warranty reporting process to track performance and document failure rates, early life cycle warranty units per 100 van trailers shipped averaged approximately 1.5, 1.9, and 2.0 units in 2022, 2021 and 2020, respectively. Continued low claim rates have been driven by our successful execution of continuous improvement programs centered on process variation reduction and responding to the input from our customers. We expect that these activities will continue to drive down our total warranty cost profile.

In addition to managing a robust quality management system for Wabash’s operations for internal and external performance, we expect suppliers to meet certain standards of quality, engineering, delivery, and management. Our supplier audit process is a comprehensive assessment performed at the supplier’s facility focusing on their system capabilities and how they measure to Wabash’s established requirements. Based on a supplier’s overall rating, action plans are developed to identify improvement opportunities, corrective actions, and timelines to ensure proper closure. Results of each audit are captured in our Supplier Development and Quality database. The process is applied to both direct and indirect suppliers based on a number of selection criteria, such as a new supplier to Wabash, a new supplier facility, a current supplier with significant growth opportunities, or a current supplier experiencing significant performance issues.

Delivery/Productivity. We measure productivity on many fronts. Some key indicators include production line throughput, labor hours per trailer or truck body, labor cost as a percentage of revenue, scrap rates, and inventory levels. Improvements over the last several years in these areas have translated into significant improvements in our ability to better manage inventory flow, control costs, and analyze material and contribution margins.

▪We continue to remain focused on the availability of labor and any potential challenges as we enter 2023 and look to increase our operational capacity to meet the demand in the transportation, logistics, and distribution markets. We expect to continue to add additional labor during 2023 to support our operations and production to meet expected demand.

▪During the past several years, we have focused on productivity enhancements within manufacturing assembly and sub-assembly areas through developing the capability for mixed model production. These efforts have resulted in improvements to the mixed model production in our Lafayette, Indiana, Goshen, Indiana, Cadiz, Kentucky, and San José Iturbide, Mexico facilities.

▪Through deployment of the Wabash Management System (“WMS”), all of our business reporting segments have focused on increasing velocity at all our manufacturing locations. We have engaged in extensive lean training and over the last two years have deployed purposeful capital to accelerate our productivity initiatives.

▪Our manufacturing leadership teams have developed competencies to isolate process constraints, and then address those constraints through multiple avenues that drive additional throughput and cost reductions.

Cost Reduction and our Operating System. The WMS allows us to develop and scale high standards of excellence across the organization. We believe in our One Wabash approach and standardized processes to drive and monitor performance inside our manufacturing facilities. Continuous improvement is a fundamental component of our operational excellence focus. Our focus on leveraging One Wabash and the WMS mindset across the Company, for example, has allowed us to make strides in all areas of manufacturing including safety, quality, on-time delivery, cost reduction, employee morale, and environment. We continue to maintain focus on continuous improvement. In the past several years, we made adjustments throughout our processes to align variable and fixed costs with capacity, and created leaner internal processes in multiple areas. In addition, we continued to invest capital in our processes to reduce variable cost, lowered inherent safety risk in our processes, improved overall consistency in our manufacturing processes, and maintained our assets to capitalize on any economic and/or industry upswings. Finally, we took actions to align our business portfolio with our broader strategic plan.

Environment. We have been on a sustainability journey since the Company’s inception. Uniquely incentivized to improve product designs by utilizing new composite materials to reduce the weight and improve the durability of our products, we are a leader in creating value for customers by facilitating improved fuel efficiency and ensuring the quality and longevity of our equipment. We commit to our employees, customers and shareholders to manage all of our business activities in a responsible manner with respect for the environment through pollution prevention and with our highest priority being the health and safety of our employees. Energy conservation efforts are another critical part of our commitment to continuous improvement and environmental stewardship, and we require energy conservation efforts across all of our facilities. This policy includes improving operational efficiency as well as upgrading to energy-conserving equipment where possible.

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We demonstrate our commitment to sustainability by maintaining ISO 14001 registration of our Environmental Management System at our Lafayette, Indiana; Cadiz, Kentucky; San José Iturbide, Mexico; and Harrison, Arkansas locations. In 2005, our Lafayette, Indiana facility was one of the first trailer manufacturing operations in the world to be ISO 14001 registered. Being ISO 14001 registered requires us to demonstrate quantifiable and third-party verified environmental improvements. In addition, our San José Iturbide, Mexico facility was recognized with Clean Industry certification from Mexico’s Federal Agency of Environmental Protection for adhering to environmental care in its manufacturing processes.

During 2021, our recycling programs and use of recycled materials saved 297,000 cubic yards of landfill space (an increase of 76,000, or 34%, from 2020), 64,300,000 kilowatt-hours of electricity (an increase of 15,300,000, or 31%, from 2020), 56,700 metric tons of greenhouse gas emissions (an increase of 11,700, or 26%, from 2020), and 31,200 mature trees (an increase of 5,200, or 20%, from 2020). In addition, in January 2022 we were recognized among Newsweek’s America’s Most Responsible Companies 2022.

Additionally, Wabash views remanufacturing as an opportunity to help customers extend the useful life of their equipment, which reduces the amount of raw materials needed to produce new machinery. In 2021, revenue from remanufacturing totaled approximately $8.4 million.

In addition, manufacturers across multiple industries choose our proprietary DuraPlate® composite technology for its versatility and strength. Each DuraPlate® panel and product contains between 15% and 30% post-consumer resin (“PCR”). By using PCR in the manufacture of DuraPlate®, Wabash has diverted more than 1 billion plastic bottles from landfills. Furthermore, at the end of the product lifespan, DuraPlate® is 100% recyclable.

Our 2021 Corporate Responsibility Report is available on our website (ir.onewabash.com) and references the ongoing environmental, social, and governance (“ESG”) initiatives that demonstrate our commitment to sustainability and social responsibility. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted.

Industry Trends

Trucking in the U.S., according to the American Trucking Association (“ATA”), was estimated to be a $875.5 billion industry in 2021, representing approximately 81% of the total U.S. transportation industry revenue. From a financial (e.g., value) industry perspective, this represents an increase of approximately 19.6% from ATA’s 2020 estimate and is materially consistent with the prior year as a percentage of the total U.S. transportation industry revenue (81% in 2021 vs. 80% in 2020). Furthermore, ATA estimates that approximately 72.2% of all domestic freight tonnage in 2021 was carried by trucks, and 302.1 billion miles were traveled by registered trucks in 2020. Trailer demand is a direct function of the amount of freight to be transported. To monitor the state of the industry, we evaluate a number of indicators related to trailer manufacturing and the transportation industry. Recent trends we have observed include the following:

Transportation / Trailer Cycle. The trailer industry generally follows the transportation industry cycles. Data related to new trailer shipments over the last nine years is shown below.

The most recent estimates from industry forecasters ACT Research Co. (“ACT”) and FTR Associates (“FTR”) indicate total United States trailer production levels for 2022 of approximately 304,000 and 305,000, respectively, which each represent an increase of approximately 14% from 2021 production levels. While there remains some uncertainty in the industry, particularly around supply chain disruptions and labor shortages that are partially due to COVID-19 impacts, the outlook for the overall trailer market remains strong, and we believe our backlog of orders provides a solid foundation for 2023.

Current estimates from ACT and FTR for 2023 United States trailer production are 303,000 and 318,000, respectively, representing a decrease and an increase from 2022 of approximately -0.4% and 4%, respectively. These estimates are generally in-line with our expectations as trailer manufacturers, consistent with prior year, prepare to ramp-up production for strong 2023 demand.

In addition, ACT is forecasting annual new trailer production levels for 2024, 2025, 2026, and 2027 of approximately 275,000, 309,000, 286,000, and 298,000, respectively. We believe these estimates for production will remain above replacement demand over the next several years. While these estimates are more historically consistent production levels in the trailer industry, industry forecasters continue to note that certain issues, such as supply chain constraints and tight labor markets, could impact these estimates and production. We believe we are well positioned to capitalize on strong demand in 2023, and we remain well-suited in case the environment diverges from our expectations with a strong balance sheet and liquidity profile.

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New Trailer Orders. According to ACT, net orders in 2022 were approximately 362,000 trailers, a 45% increase from 249,000 trailers ordered in 2021. Net orders for the dry vans segment, the largest within the trailer industry, were approximately 226,000, an increase of 68% from 2021. These increases are generally consistent with our expectations due to the increase in demand during 2022, despite certain supply chain issues and staffing shortfalls that remained in the industry throughout 2022.

Transportation Regulations and Legislation. There are several different areas within both federal and state government regulations and legislation that are expected to have an impact on trailer demand, including:

▪On July 15, 2022, the National Highway Traffic Safety Administration (“NHTSA”) issued the final rule to upgrade Federal Motor Vehicle Safety Standard (“FMVSS”) No. 223, ‘‘Rear impact guards,’’ and FMVSS No. 224, ‘‘Rear impact protection,’’ which together provide protection for occupants of passenger vehicles in crashes into the rear of trailers. This final rule adopts requirements of Canada Motor Vehicle Safety Standard (“CMVSS”) No. 223, ‘‘Rear impact guards’’ for energy absorption, loadings, and the definition for rear extremity. Additionally, it defines an acceptable elimination of load path during the energy absorption test. The final rule is effective on January 11, 2023, with a compliance date of July 15, 2024. The majority of our trailer products comply with the final rule, while certain tank trailer models will require modifications.

▪The U.S. Environmental Protection Agency (“EPA”) and NHTSA proposed new greenhouse gas regulations (“GHG2”) that were released in August 2016. The Truck Trailer Manufacturers Association filed a petition in the U.S. Court of Appeals seeking review of the rule as it relates to the authority of the agencies to regulate trailers under the Clean Air Act. In November 2021, the court ruled that trailers are not subject to federal emissions regulations, making the EPA GHG2 rule inapplicable to our van, platform, and tank trailers.

▪On May 14, 2022, the Canadian Department of the Environment announced an interim order delaying the trailer portions of Canada’s GHG2 until at least May 14, 2023. This rule mirrored the EPA GHG2 regulations, and would only apply to Wabash trailers registered in Canada.

▪In December 2017, the California Air Resource Board (“CARB”) unveiled its own proposal for new greenhouse gas standards for medium- and heavy-duty trucks and trailers that operate in California. On September 27, 2018, CARB approved for adoption the California Phase 2 GHG regulation. That regulation largely aligns California’s GHG emission standards and test procedures with the federal Phase 2 GHG emission standards and test procedures, however it would remain applicable to Wabash trailers registered in the state of California. The CARB requirements to be met for model years 2021, 2024, and 2027 become progressively more stringent and are driven by tire rolling resistance and pressure monitoring, aerodynamic drag, and weight—all of which effect CO2 emissions.

▪On December 3, 2019, CARB issued an official advisory notifying trailer manufacturers that CARB will be suspending enforcement of GHG2 trailer requirements, and will provide at least a six-month written notice prior to commencement of enforcing GHG2. CARB continues to process and approve voluntary applications during the suspension period. If we were to receive CARB’s 6-month advance notice of enforcement, more stringent van trailer standards would become effective in model year 2024 and model year 2027—requiring more advanced fuel efficiency technologies, such as rear boat tails and higher percentage improvement side skirts and tires. (While CARB’s 2021 requirements remain intact, they are not enforced—however, if we were to receive the 6-month advance notice of enforcement prior to 2024, the 2021 objectives would become the requirement.) CARB continues to suspend enforcement as a 6-month written notice has not been issued. We will continue preparations to become compliant if and when official notice has been received for commencement of the regulation.

Other Developments. Other developments and potential impacts on the industry include:

▪While EPA and NHTSA are unable to regulate trailers due to a previous ruling, which reduces the risk to trailer manufacturers in the near term, CARB continues to seek additional states to join their position in attempting to drive regulation at the state level.

▪While we believe the need for trailer equipment will be positively impacted by the legislative and regulatory changes addressed above, these demand drivers could be offset by factors that contribute to the increased concentration and density of loads.

▪Trucking company profitability, which can be influenced by factors such as fuel prices, freight tonnage volumes, and government regulations, is highly correlated with the overall economy of the U.S.; carrier profitability significantly impacts demand for, and the financial ability to, purchase new trailers.

▪We expect that the majority of freight in our industry will continue to be moved by truck and, according to ATA, total freight transportation revenue is expected to increase from an estimated $1,083 billion in 2021 to $1,627 billion in 2032.

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▪The expected transition from diesel tractors (and their coolant systems) to electric or fuel cell vehicles changes how heated or cooled trailers can regulate temperature. This creates a market need for alternate heating and cooling solutions.

Results of Operations

The following table sets forth certain operating data as a percentage of net sales for the periods indicated:

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2022 Compared to 2021

Net Sales

Net sales in 2022 increased $698.9 million, or 38.8%, compared to 2021. By business segment, net sales prior to intersegment eliminations and related trailer units sold were as follows (dollars in thousands):

TS segment sales, prior to the elimination of intersegment sales, were $2,320.9 million in 2022, an increase of $687.6 million, or 42.1%, compared to 2021. The increase in sales was primarily due to a 14.7% increase in new trailer shipments as 52,035 trailers were shipped in 2022 compared to 45,365 trailer shipments in 2021. New truck bodies shipped during 2022 totaled 14,800 compared to 16,560 truck bodies in prior year, a decrease of 10.6%, primarily due to continued supply chain challenges. The increase in new trailer shipments resulted in an approximate 49% increase in new trailer revenue, driven by stronger demand for our dry van offerings as well as our platform and tank trailers. Despite the decrease in truck body shipments from the prior year period, truck body revenue increased approximately $25.9 million year-over-year. Revenue per new trailer unit and truck body increased from prior year, due in part to pricing actions to partially offset the increase in commodity costs.

P&S segment sales, prior to the elimination of intersegment sales, were $193.5 million in 2022, an increase of $16.3 million, or 9.2%, compared to 2021. The overall increase in sales was primarily attributable to the Wabash Parts LLC parts and distribution entity that we created with our partner during the second quarter of 2022, which had approximately $12.4 million of sales during 2022. In addition, there was higher overall demand for our parts, services, and upfitting offerings in the current year. These increases in sales were partially offset by the sale of our Extract Technology® business during the second quarter of 2021, which had sales totaling approximately $11.7 million during 2021. We also completed the closure of 17 service locations during 2021 that attributed to approximately $7.3 million of sales.

Cost of Sales

Cost of sales was $2,179.4 million in 2022, an increase of $572.6 million, or 35.6%, compared to 2021. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, overhead expenses, and depreciation.

TS segment cost of sales was $2,043.1 million in 2022, an increase of $576.4 million, or 39.3%, compared to 2021. The increase in cost of sales, which was primarily driven by higher sales and production volumes on account of stronger demand, was due to an increase in materials costs of approximately $434.5 million, or 42.4%, and higher labor and employee-related costs of approximately $76.9 million. An additional increase related to outside services, operating supplies, repairs and maintenance, and depreciation, which totaled approximately $31.6 million.

P&S segment cost of sales, prior to the elimination of intersegment sales, was $148.6 million in 2022, an increase of $8.3 million, or 5.9%, compared to 2021. The overall increase in cost of sales was due to the Wabash Parts LLC parts and distribution entity of approximately $11.0 million, as well as higher materials costs related to our other parts, services, and upfitting offerings. These increases were partially offset by the sale of our Extract Technology® business during the second quarter of 2021 and the closure of 17 service locations during 2021, both of which aggregated to approximately $19.9 million of cost of sales.

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Gross Profit

Gross profit was $322.7 million in 2022, an increase of $126.2 million, or 64.2% from 2021. Gross profit as a percentage of sales, or gross margin, was 12.9% in 2022 as compared to 10.9% in 2021. Gross profit by segment was as follows (in thousands):

TS segment gross profit was $277.8 million in 2022 compared to $166.6 million in 2021, an increase of $111.2 million. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 12.0% in 2022 as compared to 10.2% in 2021, an increase of 1.8%. The overall increase in gross profit from the prior year period was primarily driven by an increase in our dry vans products of approximately $111.9 million and increases in gross profit for our truck bodies, platforms, and tank trailers products, all of which were generally attributable to higher demand for these products compared to the prior year period. Gross profit as a percentage of net sales increased from the prior year period primarily due to pricing actions to partially recover increases in materials costs.

P&S segment gross profit was $44.8 million in 2022 compared to $36.9 million in 2021. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 23.2% in 2022 compared to 20.8% in 2021, an increase of 2.4%. This increase was generally related to higher gross profit in our parts, services, and upfitting offerings in the current year period (due in part to product mix), as well as exit costs incurred during the third quarter of 2021 related to the closure of service locations. In addition, the Wabash Parts LLC parts and distribution entity had gross profit during 2022 of approximately $1.4 million.

General and Administrative Expenses

General and administrative expenses were $113.1 million in 2022, an increase of $24.3 million, or 27.3%, compared to 2021. The increase from the prior year period was due in part to an increase of approximately $9.0 million in general and administrative employee-related costs, including benefits and incentive programs. There was also an increase in professional fees and outside services costs of approximately $7.8 million. In addition, depreciation, rental, and maintenance expenses increased a total of approximately $3.0 million, and travel-related expenses increased approximately $0.9 million. General and administrative expenses, as a percentage of net sales, were 4.5% in 2022 compared to 4.9% in 2021. The overall decrease in general and administrative expenses as a percentage of net sales was primarily attributable to the increase in sales compared to the prior year period.

Selling Expenses

Selling expenses were $27.1 million in 2022, an increase of $3.4 million, or 14.3%, compared to 2021. The increase was primarily attributable to an increase in advertising and promotional costs of approximately $2.7 million, which is due in part to expenses related to our Ignite Conference during 2022, where senior leaders from more than 148 companies representing Wabash’s suppliers, customers, dealers, and partners came together to reshape and reimagine the future of transportation, logistics, and distribution. In addition, there were increases in professional and outside services costs of approximately $0.7 million and travel-related expenses of approximately $0.3 million. As a percentage of net sales, selling expenses were 1.1% in 2022 compared to 1.3% in 2021. The overall decrease in selling expenses as a percentage of net sales was primarily attributable to the increase in sales compared to the prior year period.

Amortization of Intangibles

Amortization of intangibles was $15.2 million in 2022 compared to $22.9 million in 2021. Amortization of intangibles was the result of expenses recognized for intangible assets recorded from the acquisitions of Walker in May 2012 and Supreme in September 2017. The decrease from the prior year period is primarily attributable to the write-off of approximately $28.3 million in trade name and trademark intangible assets during the fourth quarter of 2021 as part of our rebranding as Wabash®, which is further described throughout this Annual Report on Form 10-K for the year ended December 31, 2022. In addition, we sold our Extract Technology® business during the second quarter of 2021 and wrote-off the related intangible assets as part of the sale. Finally, certain of the intangible assets recorded upon the acquisition of Walker in May 2012 became fully amortized during the second quarter of 2022.

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Impairment and Other, Net

Impairment and other, net was a net loss of $0.7 million during 2022 and a net loss of $27.6 million during 2021. The net loss during 2022 is primarily related to the impairment of $1.0 million of construction-in-progress projects that were no longer expected to be completed and the write-off of certain property, plant, and equipment and IT-related assets. These items were partially offset by the sale of a building (and the related land) as further described in Note 21, which resulted in a gain of approximately $0.7 million.

The prior year activity was primarily attributable to non-cash impairment charges of approximately $28.3 million during the fourth quarter of 2021 related to trade name and trademark intangible assets due to the significant reduction in the related useful lives of these assets in connection with our rebranding initiative. We also impaired unused and obsolete property, plant, and equipment assets during the first quarter of 2021 totaling approximately $0.8 million. These items were partially offset by the sale of our Extract Technology® business during the second quarter of 2021, which resulted in a gain on sale of approximately $1.9 million. Additional activity during 2021 relates to sales of property, plant, and equipment assets.

Other Income (Expense)

Interest expense in 2022 totaled $20.5 million compared to $23.1 million in 2021. Interest expense relates to interest and non-cash accretion charges on our Senior Notes due 2028 (during 2022 and 2021), Revolving Credit Agreement (during 2022 and 2021), Senior Notes due 2025 (during 2021), and New Term Loan Credit Agreement (during 2021). The decrease from the prior year period is primarily attributable to the repayment of the New Term Loan Credit Agreement in full during the fourth quarter of 2021, partially offset by interest on borrowings under the Revolving Credit Agreement during 2022.

Other, net for 2022 represented income of $0.3 million as compared to expense of $9.1 million for 2021. Income for the current year period is primarily related to interest income. The expense in the prior year is primarily attributable to debt extinguishment charges totaling $9.5 million from the redemption in full of the Senior Notes due 2025 and to repay in full the outstanding borrowings under the New Term Loan Credit Agreement.

Income Taxes

We recognized income tax expense of $33.7 million in 2022 compared to income tax expense of $0.1 million in 2021. The effective tax rate for 2022 was 23.0% compared to 9.8% for 2021. The effective tax rate for both 2022 and 2021 differs from the U.S. Federal statutory rate of 21% primarily due to the impact of state and local taxes and discrete items, including stock-based compensation and tax credits. Net cash paid for income taxes in 2022 was $18.3 million compared to net refunds received during 2021 of $0.5 million.

Liquidity and Capital Resources

Capital Structure

Our capital structure is comprised of a mix of debt and equity. As of December 31, 2022, our debt to equity ratio was approximately 1.0:1.0. Our long-term objective is to generate operating cash flows sufficient to support the growth within our businesses and increase shareholder value. This objective will be achieved through a balanced capital allocation strategy of sustaining strong liquidity, maintaining healthy leverage ratios, investing in the business, both organically and strategically, and returning capital to our shareholders. As of May 11, 2021, our Board of Directors designated a Finance Committee for the primary purpose of assisting the Board in its oversight of the Company’s capital structure, financing, investment, and other financial matters of importance to the Company.

Throughout 2022, and in keeping to this balanced approach, we repurchased $30.9 million of common stock under the share repurchase program approved by our Board of Directors and paid dividends of $16.0 million. In addition, as further described below in the “Debt Agreements and Related Amendments” section below, in September 2022 we amended our Revolving Credit Agreement. The amendment increased the total credit facility to $350 million and extended the maturity to September 2027, which is the nearest maturity date of our long-term debt. As of December 31, 2022, there were no amounts outstanding under the Revolving Credit Agreement. Collectively, these actions demonstrate our confidence in the financial outlook of the Company and our ability to generate cash flow, both near and long term, and reinforce our overall commitment to deliver shareholder value while maintaining the flexibility to continue to execute our strategic plan for profitable growth and diversification.

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Despite continued uncertainty of the full impact of the COVID-19 pandemic, we believe we have maintained a solid position from a liquidity perspective over the last several years. Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $401.2 million as of December 31, 2022 and $258.0 million as of December 31, 2021, an increase of 56%. The increase from the prior year is primarily attributable to higher available capacity under the Revolving Credit Agreement (which as noted above was amended during the third quarter of 2022). For 2023, we expect to continue our commitment to fund our working capital requirements, capital expenditures, and our Trailers as a Service (TAAS)SM initiative from operations or available borrowing capacity under the Revolving Credit Agreement (as needed). This includes adding 20% more dry van manufacturing capacity, with production scheduled to begin during the first half of 2023. We continue to believe this additional manufacturing capacity will allow us to go-to-market with a portfolio-based selling approach that leverages the breadth of our products. In addition, in August 2022 we announced a $20 million investment to be made in our manufacturing capacity to scale our EcoNexTM technology within refrigerated vans, truck bodies, and other transportation and logistics related products. Along with these investments, we will also maintain our assets to capitalize on any economic and/or industry upswings, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

Debt Agreements and Related Amendments

Senior Notes due 2028

On October 6, 2021, we closed on an offering of $400 million in aggregate principal amount of our 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 us, 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. The New Senior Notes will mature on October 15, 2028. At any time prior to October 15, 2024, we 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, we 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, we 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 we have exercised our optional redemption right in respect of the New Senior Notes, the holders of the New Senior Notes will have the right to require us 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 our and the Guarantors’ general unsecured senior obligations and will be subordinated to all of our 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 our 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 our ability and the ability of certain of our subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock or with respect to any other interest or participation in, or measured by, our profits; (iii) make loans and certain investments; (iv) sell assets; (v) create or incur liens; (vi) enter into transactions with affiliates; and (vii) consolidate, merge or sell all or substantially all of our assets. 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 we and our 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 December 31, 2022, we were in compliance with all covenants.

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The sale of the New Senior Notes resulted in net proceeds of approximately $395 million, after deducting financing fees and other offering expenses. We used the net proceeds of the New Senior Notes and a portion of the $50 million draw from the increased capacity under the Revolving Credit Agreement 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 term loan credit agreement entered into on September 28, 2020 (the “New Term Loan Credit Agreement”) among us, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as the administrative agent, and to pay all related fees and expenses. (The New Term Loan Credit Agreement refinanced and replaced that certain Term Loan Credit Agreement, dated as of May 8, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, the “Old Term Loan Credit Agreement”), among us, the lenders party thereto and Morgan Stanley Senior Funding, Inc., as the administrative agent.) Debt extinguishment charges totaling $9.1 million were recorded during the fourth quarter of 2021 in connection with the redemption in full of the Senior Notes due 2025 and the repayment in full of the outstanding borrowings under the New Term Loan Credit Agreement. The loss on debt extinguishment charges are included in Other, net on our Consolidated Statements of Operations.

Contractual coupon interest expense and accretion of fees for the New Senior Notes for the years ended December 31, 2022 and 2021 were $18.0 million and $0.6 million, and $4.3 million and $0.1 million, respectively.

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 as described above, for the years ended December 31, 2021 and 2020, were $13.3 million and $0.5 million, and $17.9 million and $0.7 million, respectively.

Contractual coupon interest expense and accretion of fees are included in Interest expense on our Consolidated Statements of Operations.

During the third quarter of 2020, we repaid $10.0 million of the Senior Notes due 2025 utilizing net proceeds from the closure of the New Term Loan Credit Agreement.

Revolving Credit Agreement

On September 23, 2022, we entered into the Third Amendment to the Second Amended and Restated Credit Agreement among us, certain of our subsidiaries as borrowers (together with us, the “Borrowers”), certain of our subsidiaries as guarantors, the lenders party thereto, and Wells Fargo Capital Finance, LLC, as the administrative agent (the “Agent”), which amended our existing Second Amended and Restated Credit Agreement, dated as of December 21, 2018 (as amended from time to time, the “Revolving Credit Agreement”).

Under the Revolving Credit Agreement, the lenders agree to make available a $350 million revolving credit facility to the Borrowers with a scheduled maturity date of September 23, 2027. We have the option to increase the total commitments under the facility by up to an additional $175 million, subject to certain conditions, including obtaining agreements from one or more lenders, whether or not party to the Revolving Credit Agreement, to provide such additional commitments. Availability under the Revolving Credit Agreement is based upon quarterly (or more frequent under certain circumstances) borrowing base certifications of the Borrowers’ eligible inventory, eligible leasing inventory and eligible accounts receivable, and is reduced by certain reserves in effect from time to time.

Subject to availability, the Revolving Credit Agreement provides for a letter of credit subfacility in the amount of $25 million, and allows for swingline loans in the amount of $35 million. Outstanding borrowings under the Revolving Credit Agreement bear interest at an annual rate, at the Borrowers’ election, equal to (i) adjusted term Secured Overnight Financing Rate 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 Credit Agreement. The Borrowers are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of the Agent and the lenders.

The Revolving Credit Agreement is guaranteed by certain of our subsidiaries (the “Guarantors”) and is secured by substantially all personal property of the Borrowers and the Guarantors.

The Revolving Credit Agreement contains customary covenants limiting our ability and certain of our subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. In addition, we will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 as of the end of any period of 12 fiscal months when excess availability under the Revolving Credit Agreement is less than the greater of (a) 10% of the lesser of (i) the total revolving commitments and (ii) the borrowing base (such lesser amount, the “Line Cap”) and (b) $25 million. As of December 31, 2022, we were in compliance with all covenants.

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If availability under the Revolving Credit Agreement is less than the greater of (i) 10% of the Line Cap and (ii) $25 million for three consecutive business days, or if there exists an event of default, amounts in any of the Borrowers’ and the Guarantors’ deposit accounts (other than certain excluded accounts) will be transferred daily into a blocked account held by the Agent and applied to reduce the outstanding amounts under the facility.

The Revolving Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the lenders may, among other things, require the immediate payment of all amounts outstanding and foreclose on collateral. In addition, in the case of an event of default arising from certain events of bankruptcy or insolvency, the lenders’ obligations under the Revolving Credit Agreement would automatically terminate, and all amounts outstanding under the Revolving Credit Agreement would automatically become due and payable.

Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Agreement, amounted to $401.2 million as of December 31, 2022 and $258.0 million as of December 31, 2021, an increase of $143.2 million (or 56%). The increase from prior year is primarily attributable to higher available capacity on the Revolving Credit Agreement (which as noted above was amended during the third quarter of 2022).

During the year ended December 31, 2022, we had net payments of principal of $33.0 million under the Revolving Credit Agreement, and as of December 31, 2022, there were no amounts outstanding.

During the fourth quarter of 2021, we 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. We repaid $17.0 million under the Revolving Credit Agreement during the fourth quarter of 2021, and as of December 31, 2021, outstanding borrowings totaled $33.0 million.

Interest expense under the Revolving Credit Agreement for the years ended December 31, 2022, 2021, and 2020, was approximately $1.7 million, $0.6 million, and $0.2 million, respectively. Interest expense under the Revolving Credit Agreement is included in Interest expense on our Consolidated Statements of Operations.

New and Old Term Loan Credit Agreements

As described above, in October 2021, we used the net proceeds of the New Senior Notes and a portion of the $50 million draw from the increased capacity under the Revolving Credit Agreement to repay in full the $108.8 million of outstanding borrowings under the New Term Loan Credit Agreement. In addition to the full repayment during the fourth quarter, during the second quarter of 2021, we made principal payments totaling $30.0 million and recognized loss on debt extinguishment charges of approximately $0.5 million. The extinguishment charges are included in Other, net in the Consolidated Statements of Operations.

For the years ended December 31, 2021 and 2020, under the New and Old Term Loan Credit Agreements we paid interest of $3.9 million and $4.8 million, respectively. For the years ended December 31, 2021 and 2020, we incurred charges of $0.2 million in each period for amortization of fees and original issuance discount, which are included in Interest expense in the Consolidated Statements of Operations.

In September 2020, we used the net proceeds of $148.5 million from the New Term Loan Credit Agreement to pay off the outstanding principal under the Old Term Loan Credit Agreement of $135.2 million, repay a portion of our outstanding Senior Notes due 2025, and pay related fees and expenses. In connection with the pay off of the Old Term Loan Credit Agreement (specifically for those lenders that did not participate in the New Term Loan Credit Agreement) and partial repayment of the outstanding Senior Notes, we recognized a loss on debt extinguishment totaling approximately $0.2 million, which is included in Other, net in the Consolidated Statements of Operations. In addition, as further described in Note 21, during the fourth quarter of 2020 we sold our Beall® brand of tank trailers and associated assets. The net proceeds of approximately $11.2 million from the sale were used to pay down outstanding principal under the New Term Loan Credit Agreement. In connection with the pay down we recognized a loss on debt extinguishment totaling approximately $0.2 million.

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Cash Flow

2022 Compared to 2021

Cash provided by operating activities for 2022 totaled $124.1 million, compared to cash used in operating activities of $7.5 million in 2021. The cash provided by operations during the current year was the result of net income adjusted for various non-cash activities, including depreciation, amortization, net gain on the sale of assets, deferred taxes, stock-based compensation, impairment, accretion of debt discount, and a $39.4 million increase in our working capital. Changes in key working capital accounts for 2022 and 2021 are summarized below (in thousands):

Accounts receivable increased $79.1 million in 2022 and $80.9 million in 2021. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, was approximately 35 days and 33 days for the three months ended December 31, 2022 and 2021, respectively. The increase in accounts receivable in 2022 was primarily due to high shipment volume during the current year, especially late in the fourth quarter, as well as the timing of customer payments. Inventories increased in 2022 by $6.2 million compared to an increase in 2021 of $74.8 million. The overall increase in inventory for 2022 was primarily attributable to higher finished goods inventory compared to prior year. Our inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately 7 times in 2022 and 6 times 2021. Accounts payable and accrued liabilities increased $46.1 million in 2022 compared to an increase of $54.9 million for 2021. The increase in 2022 compared to 2021 was primarily due to an increase in customer deposits as well as higher accruals for income taxes and employee benefits and incentive programs. Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 30 days in 2022 and 36 days in 2021.

Investing activities used $55.3 million during 2022 compared to $27.1 million used in 2021. Investing activities for 2022 included cash payments for capital expenditures of $57.1 million to support maintenance, growth, and improvement initiatives at our facilities, including expenditures related to expanding our dry van manufacturing capacity, with production scheduled to begin during the first half of 2023. Cash payments for capital expenditures were partially offset by proceeds from the sale of assets totaling approximately $1.8 million. Cash used in investing activities in 2021 was primarily related to capital expenditures to support growth and improvement initiatives at our facilities totaling $49.1 million, partially offset by proceeds from the sale of assets and a business divestiture of $22.0 million.

Financing activities used $82.3 million during 2022, due in part to net payments on our Revolving Credit Facility of $33.0 million. We also repurchased common stock of $34.3 million and paid cash dividends to our shareholders of $16.0 million. Financing activities used $111.4 million during 2021, primarily related to the pay off of the New Term Loan Credit Agreement and the full repayment against our Senior Notes due 2025 totaling $453.8 million, both of which utilized net proceeds from our offering of Senior Notes due 2028. This activity was partially offset by net draws on our Revolving Credit Facility of $33.0 million. In 2021, we also repurchased common stock of $66.7 million and paid cash dividends to our shareholders of $16.4 million.

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Despite a certain degree of continued uncertainty of the full impact of the COVID-19 pandemic, we believe we have maintained a solid position from a liquidity perspective over the last two years. Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $401.2 million as of December 31, 2022 and $258.0 million as of December 31, 2021, an increase of 56%. The increase from prior year is primarily attributable to higher available capacity on the Revolving Credit Agreement (which as noted above was amended during the third quarter of 2022). For 2023 and forward, we expect to continue our commitment to fund our working capital requirements, capital expenditures and Trailers as a Service (TAAS)SM initiative from operations or available borrowing capacity under the Revolving Credit Agreement (as needed). This includes adding 20% more dry van manufacturing capacity, with production scheduled to begin during the first half of 2023. We continue to believe this additional manufacturing capacity will allow us to go-to-market with a portfolio-based selling approach that leverages the breadth of our products. In addition, in August 2022 we announced a $20 million investment to be made in our manufacturing capacity to scale our EcoNexTM technology within refrigerated vans, truck bodies, and other transportation and logistics related products. Along with these investments, we will also maintain our assets to capitalize on any economic and/or industry upswings, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

Contractual Obligations and Commercial Commitments

A summary of our contractual obligations and commercial commitments, both on and off balance sheet, as of December 31, 2022 are as follows (in thousands):

1 Future interest payments on variable rate long-term debt (if any) are estimated based on the rate in effect as of December 31, 2022, and only include interest payments (not unused line fees). However, as of December 31, 2022, there was no variable rate debt (Revolving Credit Agreement) outstanding.

Borrowings under the Revolving Credit Agreement bear interest at a variable rate based on the Secured Overnight Financing Rate (“SOFR”) or a base rate determined by the lender’s prime rate plus an applicable margin, as defined in the agreement. Any outstanding borrowings under the Revolving Credit Agreement bear interest at a rate, at our election, equal to (i) adjusted term SOFR 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 Credit Agreement. We are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of our agent and lenders. During the year ended December 31, 2022, we had net payments of principal of $33.0 million under the Revolving Credit Agreement, and as of December 31, 2022, there were no amounts outstanding.

The Senior Notes due 2028 bear interest at the rate of 4.5% per annum from the date of issuance, payable semi-annually on April 15 and October 15.

Operating leases represent the total future minimum lease payments for leases that have commenced. As of December 31, 2022, obligations related to operating leases that we have executed but have not yet commenced were insignificant.

We have standby letters of credit totaling $5.7 million issued in connection with workers compensation claims and surety bonds.

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We have $59.2 million in purchase commitments through December 2023 for various raw material commodities, including aluminum, steel, polyethylene, and nickel, as well as other raw material components which are within normal production requirements.

We obtain most vehicle chassis for our specialized vehicle products directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and 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 us nor permit us to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer). Although we are party to related finance agreements with manufacturers, we have not historically settled, nor do we expect to in the future settle, any related obligations in cash. Instead, the obligation is settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. Accordingly, as of December 31, 2022, our outstanding chassis converter pool with the manufacturer totaled $20.3 million and has included this financing agreement on our Consolidated Balance Sheets within Prepaid expenses and other and Other accrued liabilities. All other chassis programs are handled as consigned inventory belonging to the manufacturer and totaled approximately $0.4 million. Under these agreements, if the chassis is not delivered to a customer within a specified time frame, we are required to pay a finance or storage charge on the chassis. Additionally, we receive finance support funds from manufacturers when the chassis are assigned into our chassis pool. Typically, chassis are converted and delivered to customers within 90 days of our receipt of the chassis.

The total amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $2.4 million at December 31, 2022. Payment of these obligations would result from settlements with taxing authorities. Due to the difficulty in determining the timing of settlements, these obligations are not included in the table above. We do not expect to make a tax payment related to these obligations within the next year that would significantly impact liquidity.

Significant Accounting Policies and Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. Our significant accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, evaluation of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate.

We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time we were making the estimate or changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.

Legal and Other Contingencies. The outcomes of legal proceedings and claims brought against us and other loss contingencies are subject to significant uncertainty. We establish legal contingency reserves when we determine that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In determining the appropriate accounting for loss contingencies, we consider the likelihood of loss or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss. We regularly evaluate current information available to us to determine whether an accrual should be established or adjusted. Estimating the probability that a loss will occur and estimating the amount of a loss or a range of loss involves significant judgment and such matters are unpredictable. We could incur judgments or enter into settlements for current or future claims that could materially impact our results of operations.

Impairment of Long-Lived Assets and Definite-Lived Intangible Assets.  We review, on at least a quarterly basis, the financial performance of each business unit for indicators of impairment. In reviewing for impairment indicators, we also consider events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities, and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.

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Impairment of Trade Name and Trademark Intangible Assets (2021)

As further described in Note 5 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, on January 10, 2022, we completed our review and approval of our plan for rebranding as Wabash®. As part of the planning process, we assessed our usage of trade names and brand names in connection with the long-term growth strategy as One Wabash. Under the plan as approved, we no longer use certain trade names or brand names, and predominantly use Wabash (or variations thereof) to refer to the Company. The decision resulted in non-cash impairment charges of approximately $28.3 million during the fourth quarter of 2021 related to trade name and trademark intangible assets due to the significant reduction in the related useful lives of these assets.

Goodwill.  We assess goodwill for impairment at the reporting unit level on an annual basis as of October 1st, after the annual planning process is complete. More frequent evaluations may be required if we experience changes in our business climate or as a result of other triggering events that may take place. If the carrying value exceeds fair value, the asset is considered impaired and is reduced to its fair value.

In assessing goodwill for impairment, we may choose to initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, then an impairment analysis for goodwill is performed at the reporting unit level using a quantitative approach. The quantitative test is a comparison of the fair value of the reporting unit, determined using a combination of the income and market approaches, to its recorded amount. If the recorded amount exceeds the fair value, an impairment is recorded to reduce the carrying amount to fair value, but will not exceed the amount of goodwill that is recorded.

The process of evaluating goodwill for impairment is subjective and requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent fair value analysis for the reporting unit. When performing a quantitative goodwill impairment test, we generally determine fair value using a combination of an income-based approach and a market-based approach. The fair value determination consists primarily of using significant unobservable inputs (Level 3) under the fair value measurement standards. We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, the amounts and timing of expected future cash flows which is largely dependent on expected EBITDA margins, the discount rate applied to those cash flows, and terminal growth rates. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends and long-term operating strategies and initiatives. The discount rate used by each reporting unit is based on our assumption of a prudent investor’s required rate of return assuming the risk of investing in a particular company. The terminal growth rate reflects the sustainable operating income a reporting unit could generate in a perpetual state as a function of revenue growth, inflation, and future margin expectations.

Annual Goodwill Impairment Test

As of December 31, 2022, goodwill allocated to our TS and P&S segments was approximately $120.5 million and $67.9 million, respectively.

For the 2022 annual goodwill impairment test conducted as of October 1st, 2022, we chose to evaluate qualitative factors to determine if it was more likely than not that the fair value of the TS and P&S reporting units were less than their respective carrying amounts. In accordance with the relevant accounting guidance, in order to perform the qualitative assessment, we considered many factors including, but not limited to, general economic conditions, industry and market conditions, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent quantitative fair value analysis for each reporting unit (which was conducted in connection with our segment realignment beginning in September 2021 as further described below). Based on our analysis of the factors and considerations described above, we concluded that it was more likely than not that the fair value of each reporting unit continued to be greater than the respective carrying value. Therefore, no impairment charges were recorded and a quantitative analysis was not performed.

Because of the recency and lack of changes with respect to market conditions and data assumptions used in the quantitative assessment performed in connection with the segment realignment discussed below, during the fourth quarter of 2021 we completed our annual goodwill impairment test using a qualitative assessment. As part of the qualitative analysis, we considered many factors including, but not limited to, general economic conditions, industry and market conditions, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the fair value analysis for each reporting unit (performed in connection with the segment realignment).

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In connection with our segment realignment beginning in September 2021 described in greater detail below, as well as our annual goodwill impairment test conducted during the fourth quarter of 2020, we performed a quantitative assessment for each reporting unit utilizing a combination of the income and market approaches, the results of which we weighted evenly. No impairment was indicated as the fair value of each reporting unit exceeded its respective carrying value.

Future events and changing market conditions may require a re-evaluation of the assumptions used in the determination of fair value for each reporting unit, including key assumptions used in the expected EBITDA margins and cash flows, as well as other key assumptions with respect to matters out of our control, such as discount rates and market multiple comparables. These future events and changing market conditions could result in an impairment of goodwill.

2021 Segment Realignment

As further described in Note 5 and Note 20 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, beginning in September 2021 we realigned our operating and reportable segments. Based on these changes, we established two operating and reportable segments: Transportation Solutions (“TS”) and Parts & Services (“P&S”). These operating and reportable segments were also determined to be the applicable reporting units for purposes of goodwill assignment and evaluation. In accordance with the relevant accounting guidance, we performed a quantitative impairment assessment of goodwill immediately prior to and subsequently following the change in segments and reporting units. The quantitative analyses did not result in any impairment charges as the fair value of each reporting unit exceeded the carrying value. In addition, as part of the change in segment structure, we reassigned goodwill from the historical Commercial Trailer Products (“CTP”), Diversified Products (“DPG”), and Final Mile Products (“FMP”) reporting units to the TS and P&S reporting units using a relative fair value allocation approach as required by the relevant accounting guidance.

Goodwill Allocation for Extract Technology® (“Extract”)

As further described in Note 21 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, during the second quarter of 2021, we sold our 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 historical Process Systems reporting unit (which was within the historical DPG segment). In accordance with the relevant accounting guidance, as part of the sale we allocated $11.1 million of goodwill based upon the relative fair value of the Extract operating unit compared to the historical DPG 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, we performed an impairment assessment for the historical DPG reporting unit and concluded the fair value of the reporting unit continued to exceed the carrying value.

Goodwill Allocation for Beall®

As further described in Note 21 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, during the fourth quarter of 2020, we sold our Beall® brand of tank trailers and associated assets. Prior to the divestiture Beall®, was an operating unit within the historical Tank Trailers reporting unit (which was within the historical DPG segment). In accordance with the relevant accounting guidance, as part of the sale we allocated $4.7 million of goodwill based upon the relative fair value of the Beall® operating unit compared to the historical Tank Trailers reporting unit as a whole. This goodwill was included in the carrying value of the disposed assets and the resulting loss recognized in connection with the sale. Subsequent to the divestiture, we performed an impairment assessment for the historical Tank Trailers reporting unit and concluded the fair value of the reporting unit continued to exceed the carrying value.

2020 Interim Goodwill Impairment Test

Subsequent to December 31, 2019, our share price and market capitalization declined. In addition, as a result of the ongoing COVID-19 pandemic and related impact on our results of operations, we did not perform in-line with expectations. As a result, indicators of impairment were identified and we performed an interim quantitative assessment as of March 31, 2020, utilizing a combination of the income and market approaches, which were weighted evenly. Key assumptions used in the analysis were discount rates of 17.0% and 13.5% for the historical FMP reporting unit and historical Tank Trailers reporting unit (which was within the historical DPG segment), respectively, EBITDA margins, and a terminal growth rate of 3.0%. The results of the quantitative analysis indicated the carrying value of the historical FMP and historical Tank Trailers reporting units exceeded their respective fair values and, accordingly, goodwill impairment charges of $95.8 million and $11.0 million, respectively, were recorded during the first quarter of 2020. The goodwill impairment charges, which are based on Level 3 fair value measurements, are included in Impairment and other, net in the Consolidated Statements of Operations.

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In addition, the results of the quantitative analysis performed as of March 31, 2020 indicated the fair value of the historical Process Systems reporting unit, which was within the historical DPG segment, exceeded the carrying value by approximately 3%. Key assumptions used in the analysis were a discount rate of 14.5%, EBITDA margin, and a terminal growth rate of 3.0%. The historical Process Systems reporting unit designed and manufactured a broad range of products, such as isolators, stationary silos, and downflow booths used in a number of unique markets, including the chemical, dairy, food and beverage, pharmaceutical and nuclear markets. We believe this historical reporting unit’s broad range of innovative products in unique industries will result in sufficient future earnings. Based on the results of the interim quantitative test, we performed sensitivity analyses around the key assumptions used in the analysis, the results of which were: (a) a 100 basis point decrease in the EBITDA margin used to determine expected future cash flows would have resulted in an impairment of approximately $4.6 million, (b) a 100 basis point increase in the discount rate would have resulted in an impairment of approximately $4.5 million, and (c) a 100 basis point decrease in the terminal growth rate would have resulted in an impairment of approximately $1.2 million.

Other

Inflationary Cost Environment and Supply Chain Disruption

Inflation impacts prices paid for labor, materials and supplies. Significant increases in the costs of production or certain commodities, raw materials, and components could have an adverse impact on our results of operations. As has been our practice, we will endeavor to offset the impact of inflation through selective price increases, productivity improvements, and hedging activities. Our ability to mitigate the impact of inflation through selective price increases may be limited by our strong backlog in cases of orders without inflation-based price adjustment provisions.

As further described throughout this Annual Report on Form 10-K, during the twelve months ended December 31, 2022, we experienced inflation across our supply chain, increased freight and logistics costs, and volatility in connection with labor shortages. While the global market downturn and overall impacts on our operations are expected to be temporary, the duration and severity of the impacts cannot be estimated at this time. Continued or worsening disruptions to, and impacts on, our production, supply chain, demand for our products, and overall business could have a material adverse effect on our results of operations, financial condition, and cash flows.

New Accounting Pronouncements

For information related to new accounting standards, see Note 3 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

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ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes the matters that we consider to be important to understanding the results of our operations for each of the two years in the period ended December 31, 2021, and our capital resources and liquidity as of December 31, 2021. Our discussion begins with a COVID-19 update as well as our assessment of the condition of the North American trailer industry along with a summary of the actions we have taken to strengthen the Company. We then analyze the results of our operations for the last two years, including the trends in the overall business and our operating segments, followed by a discussion of our cash flows and liquidity, capital markets events and transactions, our debt obligations, and our contractual commitments. We also provide a review of the critical accounting judgments and estimates that we have made that we believe are most important to an understanding of our MD&A and our consolidated financial statements. We conclude our MD&A with information on recent accounting pronouncements that we adopted during the year, if any, as well as those not yet adopted that may have an impact on our financial accounting practices, if any.

We have historically managed our business in three segments: Commercial Trailer Products (“CTP”), Diversified Products (“DPG”), and Final Mile Products (“FMP”). We began our One Wabash organizational transformation during the first quarter of 2020 to better align our resources and processes on serving the customer and enable long-term growth. In connection with the substantial completion of the One Wabash strategic initiatives during the third quarter of 2021, including organizational and structural changes as well as portfolio rationalization, beginning in September 2021 we realigned our operating and reportable segments based on how the Chief Operating Decision Maker (“CODM”) manages the business, allocates resources, makes operating decisions, and evaluates operating performance. Based on this realignment, we established two operating and reportable segments: Transportation Solutions (“TS”) and Parts & Services (“P&S”), and eliminated the historical CTP, DPG, and FMP segments.

While we have historically generated a small portion of our revenue and profitability from streams like aftermarket parts, repair and maintenance services, and upfitting and equipment services, historically these businesses existed scattered throughout the Company’s siloed organization structure. During the One Wabash transformation that culminated with segment realignment, we brought these previously siloed businesses together to leverage our strengths and better reach the customer, which included shifting significant resources and talent to lead these parts and services businesses. We continue to formulate aggressive plans that now underpin growth initiatives under the One Wabash approach.

Additional information related to the composition of our segments is included below.

▪Transportation Solutions: The TS segment comprises the design and manufacturing operations for the Company’s transportation-related equipment and products. This includes dry and refrigerated van trailers, platform trailers, and the Company’s wood flooring production facility, all of which were previously reported in the CTP segment. The Company’s EcoNex™ products that were historically included in both the CTP and FMP segments are now reported in the TS segment. In addition, the TS segment includes tank trailers and truck-mounted tanks that were historically reported in the DPG segment. Finally, truck-mounted dry and refrigerated bodies and service and stake bodies that were previously reported in the FMP segment are also in the TS segment.

▪Parts & Services: The P&S segment is comprised of each of the Company’s historical segments’ parts and services businesses as well as the upfitting component of our truck bodies business. In addition, the Company’s Composites business, which focuses on the use of DuraPlate® composite panels beyond the semi-trailer market, is also part of the P&S segment (previously reported in the DPG segment). Finally, the P&S segment includes the Company’s Engineered Products business (previously reported in the DPG segment), including stainless-steel storage tanks and silos, mixers, and processors for a variety of end markets. Growing and expanding the parts and services businesses is a key strategic initiative for the Company moving forward.

Refer to Note 19 for additional discussion and information regarding segments and to Note 5 for the impact thereof to the evaluation of recorded goodwill balances. Also, see the “Products” section in Part I, Item 1, “Business”, of this Annual Report on 10-K for the year ended December 31, 2021 for details related to each segment’s product offerings.

For discussion of results of operations for the year ended December 31, 2020 to the results of operations for the year ended December 31, 2019, see Part II, Item 7,—”Management's Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Annual Report on Form 10-K, filed with the SEC on February 25, 2021.

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COVID-19 Update

In March 2020, a global pandemic was declared by the World Health Organization (the “WHO”) related to COVID-19. This pandemic created significant uncertainties and disruptions in the global economy. We are closely monitoring the pandemic and remain focused on the health and safety of our employees, as well as the health of our business. In addition, we track, evaluate, and manage our operating plans in light of the most recent developments including the changes to best practice guidelines by health experts, the availability of vaccines, the drop in new cases in the United States, and changing local, state, and federal requirements. Further, we remain focused on maintaining business continuity and ensuring our facilities remain operational where safe and appropriate to do so. We are also monitoring and preparing for potential vaccine and testing mandates that may be announced or implemented in jurisdictions in which our businesses operate.

The safety and well-being of our employees have been, and will remain, our highest priorities. In early March 2020, we assembled a pandemic response team to manage the changes necessary to adapt to the rapidly-changing environment. This response team continues to meet with our senior leadership team to provide updates and continuously monitor the most recent developments. Actions we have taken to protect our employees include, but are not limited to:

▪We implemented pandemic continuity plans.

▪We continue to evaluate best-practice safety guidelines by recognized health experts.

▪We are informing our employees about the availability of vaccines and encouraging them to get vaccinated.

▪We are encouraging employees with symptoms to stay home.

As the pandemic evolves along with the guidance from federal, state and local public health authorities, we may take additional actions based on their requirements and recommendations.

We also worked with local food banks, schools, healthcare facilities, and other nonprofit organizations to support agencies and families in need.

The COVID-19 pandemic has continued to cause supply chain, labor, and raw material constraints that impact global markets. As a result, we have experienced inflation across our supply chain, increased freight and logistic costs, and volatility in connection with labor shortages. While the global market downturn and overall impacts on our operations are expected to be temporary, the duration of the impacts cannot be estimated at this time. Should the disruptions continue for an extended period of time or worsen, the impact on our production, supply chain, demand for our products, and overall business could have a material adverse effect on our results of operations, financial condition, and cash flows.

Refer to Part I, Item 1A, “Risk Factors” for additional information regarding the potential impact of the COVID-19 pandemic on the Company.

Executive Summary

The most recent estimates from industry forecasters ACT Research Co. (“ACT”) and FTR Associates (“FTR”) indicate total United States trailer production levels for 2021 of approximately 266,000 and 265,000, respectively, which represent increases of approximately 29% and 26%, respectively, from 2020 production levels. We enter 2022 with continued uncertainty of the full impact of the COVID-19 pandemic, particularly around supply chain disruptions and labor shortages. However, the outlook for the overall trailer market is strong, and we believe our backlog of orders provides a solid foundation as we enter 2022. Current estimates from ACT and FTR for 2022 United States trailer production are 298,000 and 315,000, respectively, representing increases from 2021 of approximately 12% and 19%, respectively. These increases are generally in-line with our expectations as trailer manufacturers prepare to ramp-up production for strong 2022 demand, and we believe that these estimates for production will remain above replacement demand over the next several years.

In addition, ACT is forecasting annual new trailer production levels for 2023, 2024, 2025, and 2026 of approximately 332,000, 309,000, 295,000, and 286,000, respectively. While these estimates are more historically consistent production levels in the trailer industry, industry forecasters note that certain issues, such as supply chain disruptions and staffing challenges, could impact these estimates. We believe we are well positioned to capitalize on strong demand in 2022.

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Despite the continued uncertainty of the full impact of the COVID-19 pandemic, as well as supply chain disruptions and labor shortages, we believe we have maintained a solid position from a liquidity perspective over the last two years. While we are focused in the near-term on executing on increased demand in 2022, we also continue to work on strategic initiatives to profitably grow the Company in the long-term. This includes our plans to add 20% more dry van manufacturing capacity beginning in 2023, which will be achieved by ramping down traditional refrigerated trailer capacity and converting the floor space to create additional dry van production. These plans remain on track, and allow us to go-to-market with a portfolio-based selling approach that leverages the breadth of our products. In addition, our near-term plan to scale our EcoNexTM technology within refrigerated vans, truck bodies, and other transportation and logistics related products also remains on track. We believe that continuing to bring new technologies to market combined with our focus on building out adjacent revenue opportunities will provide us with opportunities for growth.

The Company’s operating performance throughout 2021 highlights the success of our adaptability, balanced growth, and diversification initiatives, which are driven by our long-term strategic plan to transform the Company into an innovation leader of engineered solutions for the transportation, logistics, and distribution industries that help customers move goods from the first to final mile. We will also continue to maintain our focus and expertise in lean and six sigma optimization initiatives to support a higher growth and margin profile as One Wabash. Operating income in 2021 totaled $33.5 million and operating margin was 1.9%, which are increases from 2020 driven in part by higher sales and stronger demand for our products. Additional discussion related to financial results are included in the “Results of Operations” section below.

In addition to our commitment to sustain profitable growth within each of our existing reporting segments, our long-term strategic initiatives include a focus on diversification efforts, both organic and strategic, to continue to transform Wabash into a lean, innovation leader of engineered solutions with a higher growth and margin profile and successfully deliver a greater value to our shareholders. Our strategy is centered around our ability to scale core competencies by growing in and around core markets with known customers. Key strategic initiatives include, but are not limited to, cold chain, e-commerce and logistics, and parts and services. Our ability to generate solid margins and cash flows and a healthy balance sheet should position the Company with ample resources to (1) fund our internal capital needs to support both organic growth and productivity improvements, (2) optimize our debt leverage ratios, (3) return capital to shareholders, and (4) selectively pursue strategic acquisitions. We continue our internal effort to strategically identify potential acquisition targets that we believe can create shareholder value and accelerate our growth and diversification efforts, while leveraging our strong competencies in manufacturing execution, sourcing and innovative engineering leadership to assure strong value creation. Organically, our focus is on profitably growing and diversifying our operations through leveraging our existing assets, capabilities, and technology into higher margin products and markets and thereby providing value-added customer solutions.

Throughout 2021, we demonstrated our commitment to be responsible stewards of the business by maintaining a balanced approach to capital allocation. Even with continued uncertainty of the full impact of the COVID-19 pandemic, our operational performance, healthy backlog and industry outlook, and financial position provided us the opportunity to take specific actions as part of the ongoing commitment to prudently manage the overall financial risks of the Company, returning capital to our shareholders, and deleveraging our balance sheet. These actions included repurchasing $65.4 million of common stock under the share repurchase program approved by our Board of Directors and paying dividends of $16.4 million. In addition, as further described in the “Liquidity and Capital Resources” section below, in October, 2021 we closed on an offering of $400 million in aggregate principal amount of unsecured Senior Notes due 2028 (the “New Senior Notes”). We used the net proceeds of the New Senior Notes and a portion of the $50 million draw from the increased capacity under our Revolving Credit Agreement to fund the redemption in full of the Senior Notes due 2025 and to repay in full the $108.8 million of outstanding borrowings under the New Term Loan Credit Agreement. Prior to the October, 2021 activity described above, during the second quarter of 2021, we made principal payments totaling $30.0 million under the New Term Loan Credit Agreement. Collectively, these actions demonstrate our confidence in the financial outlook of the Company and our ability to generate cash flow, both near and long term, and reinforce our overall commitment to deliver shareholder value while maintaining the flexibility to continue to execute our strategic plan for profitable growth and diversification.

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In addition to overall industry risks, there are downside risks relating to issues with both the domestic and global economies, including the housing, energy and construction-related markets in the U.S. Other potential risks as we proceed into 2022 primarily relate to our ability to effectively manage our manufacturing operations, including ongoing labor shortages, disruption of our supply chain, and our overall business with the expected increase in production to meet demand. In addition, the cost of raw materials, commodities, and components are also potential risks as we enter 2022 with increased demand. Significant increases in the cost of certain commodities, raw materials or components have had, and may continue to have, an adverse effect on our results of operations. As has been our practice, we will endeavor to pass raw material and component price increases to our customers in addition to continuing our cost management and hedging activities in an effort to minimize the risk that changes in material costs could have on our operating results. In addition, we rely on a limited number of suppliers for certain key components and raw materials in the manufacturing of our products, including tires, landing gear, axles, suspensions, aluminum extrusions, chassis and specialty steel coil. At the current and expected demand levels, there may be additional or increased shortages of supplies of raw materials or components which would have an adverse impact on our ability to meet demand for our products. Despite these risks, we believe we are well positioned to capitalize on the expected strong overall demand levels while maintaining or growing margins through improvements in product pricing as well as productivity and other operational excellence initiatives.

As we enter 2022, we will continue to adjust to changes in the current environment, preserve the strength of our balance sheet, prioritize the safety of our employees, and ensure the liquidity and financial well-being of the Company. We believe we remain well-positioned for both near-term and long-term success in the trailer industry because: (1) our core customers are among the major participants in the trucking industry; (2) our technology and innovation provides value-added solutions for our customers by reducing trailer operating costs, improving revenue opportunities, and solving unique transportation problems; (3) our Wabash Management System (“WMS”) principles and processes and enterprise-wide lean efforts drive focus on the interconnected processes that are critical for success across our business; (4) our significant brand recognition, including our January 2022 rebranding as Wabash®, presence throughout North America, and the utilization of our extensive dealer network to market and sell our products; and (5) our One Wabash approach to create a consistent, superior experience for all customers who seek our solutions in the transportation, logistics, and distribution markets. By continuing to be an innovation leader in the transportation, logistics, and distribution industries we expect to leverage our existing assets and capabilities into higher margin products and markets by delivering value-added customer solutions.

Operating Performance

We generally measure our operating performance in five key areas – Safety/Morale, Quality, Delivery, Cost Reduction, and Environment. We maintain a continuous improvement mindset in each of these key performance areas.

Safety/Morale. The safety of our employees is our number one priority. We demonstrate this core value by working on innovations to protect the people who operate our equipment and partnering with others to promote higher standards in transportation and manufacturing. We continually focus on reducing the severity and frequency of workplace injuries to create a safe environment for our employees and minimize workers compensation costs. We believe that our improved environmental, health and safety management translates into higher labor productivity and lower costs as a result of less time away from work and improved system management. See the “Human Capital Resources and Management” section in Part I, Item 1, "Business" of this Annual Report on Form 10-K for additional detail on our commitment to safety and human capital.

Quality. Our commitment to quality and safety is backed by a robust concern reporting system and associated processes. Any Wabash National employee can report a potential safety-related concern that could cause unreasonable risk of harm to our customers. Potential or reported safety concerns are routed to a cross-functional Product Safety Team that includes members from Quality, Warranty, Engineering, Sales and Strategic Sourcing. The Product Safety Team investigates submissions and serves as an initial filter of potential safety issues. Issues that need to be escalated are sent to the Product Safety Council, which consists of executive team members who will coach and give final direction to the Product Safety Team. We monitor product quality on a continual basis through a number of means for both internal and external performance as follows:

▪Internal performance.  Key process indicators for our quality measurement include both First Time Quality (“FTQ”) and Defects Per Unit (“DPU”). FTQ is a performance metric that measures the impact of all aspects of the business on our ability to ship our products at the end of the production process and DPU is a measurement of defects found at the end of the production process. As with previous years, the expectations of the highest quality product continue to increase while maintaining FTQ performance and reducing rework. In addition, we currently maintain ISO 9001 registrations at our Lafayette, Indiana (since 2012) and Cadiz, Kentucky facilities (since 2014).

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▪External performance.  We actively track our warranty claims and costs to identify and drive improvement opportunities in quality and reliability. Early life cycle warranty claims for our van trailers are trended for performance monitoring. Using a unit-based warranty reporting process to track performance and document failure rates, early life cycle warranty units per 100 trailers shipped averaged approximately 1.9, 2.0, and 2.4 units in 2021, 2020 and 2019, respectively. Continued low claim rates have been driven by our successful execution of continuous improvement programs centered on process variation reduction and responding to the input from our customers. We expect that these activities will continue to drive down our total warranty cost profile.

In addition to managing a robust quality management system for Wabash’s operations for internal and external performance, we expect suppliers to meet certain standards of quality, engineering, delivery, and management. Our supplier audit process is a comprehensive assessment performed at the supplier’s facility focusing on their system capabilities and how they measure to Wabash’s established requirements. Based on a supplier’s overall rating, action plans are developed to identify improvement opportunities, corrective actions, and timelines to ensure proper closure. Results of each audit are captured in our Supplier Development and Quality database. The process is applied to both direct and indirect suppliers based on a number of selection criteria, such as a new supplier to Wabash, a new supplier facility, a current supplier with significant growth opportunities, or a current supplier experiencing significant performance issues.

Delivery/Productivity. We measure productivity on many fronts. Some key indicators include production line throughput, labor hours per trailer or truck body, labor cost as a percentage of revenue, scrap rates, and inventory levels. Improvements over the last several years in these areas have translated into significant improvements in our ability to better manage inventory flow, control costs, and analyze material and contribution margins.

▪We continue to remain focused on the availability of labor and any potential challenges as we enter 2022 and look to increase our operational capacity to meet the demand in the transportation, logistics, and distribution markets. We expect to continue to add additional labor during 2022 to support our operations and production to meet expected demand.

▪During the past several years, we have focused on productivity enhancements within manufacturing assembly and sub-assembly areas through developing the capability for mixed model production. These efforts have resulted in improvements to the mixed model production in our Lafayette, Indiana, Goshen, Indiana, Cadiz, Kentucky, and San José Iturbide, Mexico facilities.

▪Through deployment of the Wabash Management System (“WMS”), all of our business reporting segments have focused on increasing velocity at all our manufacturing locations. We have engaged in extensive lean training and over the last two years have deployed purposeful capital to accelerate our productivity initiatives.

▪Our manufacturing leadership teams have developed competencies to isolate process constraints, and then address those constraints through multiple avenues that drive additional throughput and cost reductions.

Cost Reduction and our Operating System. The WMS allows us to develop and scale high standards of excellence across the organization. We believe in our One Wabash approach and standardized processes to drive and monitor performance inside our manufacturing facilities. Continuous improvement is a fundamental component of our operational excellence focus. Our focus on leveraging One Wabash and the WMS mindset across the Company, for example, has allowed us to make strides in all areas of manufacturing including safety, quality, on-time delivery, cost reduction, employee morale, and environment. We continue to maintain focus on continuous improvement. In the past two years, we made adjustments throughout our processes to align variable and fixed costs with capacity, and created leaner internal processes in multiple areas. In addition, we continued to invest capital in our processes to reduce variable cost, lowered inherent safety risk in our processes, improved overall consistency in our manufacturing processes, and maintained our assets to capitalize on any economic and/or industry upswings. Finally, we took actions to align our business portfolio with our broader strategic plan.

Environment. We have been on a sustainability journey since the Company’s inception. Uniquely incentivized to improve product designs by utilizing new composite materials to reduce the weight and improve the durability of our products, we are a leader in creating value for customers by facilitating improved fuel efficiency and ensuring the quality and longevity of our equipment. We commit to our employees, customers and shareholders to manage all of our business activities in a responsible manner with respect for the environment through pollution prevention and with our highest priority being the health and safety of our employees. Energy conservation efforts are another critical part of our commitment to continuous improvement and environmental stewardship, and we require energy conservation efforts across all of our facilities. This policy includes improving operational efficiency as well as upgrading to energy-conserving equipment where possible.

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We demonstrate our commitment to sustainability by maintaining ISO 14001 registration of our Environmental Management System at our Lafayette, Indiana; Cadiz, Kentucky; San José Iturbide, Mexico; and Harrison, Arkansas locations. In 2005, our Lafayette, Indiana facility was one of the first trailer manufacturing operations in the world to be ISO 14001 registered. Being ISO 14001 registered requires us to demonstrate quantifiable and third-party verified environmental improvements. In addition, our San José Iturbide, Mexico facility was recognized with Clean Industry certification from Mexico’s Federal Agency of Environmental Protection for adhering to environmental care in its manufacturing processes. During 2020, our recycling programs and use of recycled materials saved 221,000 cubic yards of landfill space (an increase of 80,000 cubic yards compared to 2019), 49,000,000 kilowatt-hours of electricity (a decrease of 103,000,000 kilowatt-hours compared to 2019), 45,000 metric tons of greenhouse gas emissions (a decrease of 28,000 metric tons compared to 2019), and 26,000 mature trees (an increase of 3,000 mature trees compared to 2019). In addition, in January 2022 we were recognized among Newsweek’s America’s Most Responsible Companies 2022.

In addition, manufacturers across multiple industries choose our proprietary DuraPlate® composite technology for its versatility and strength. Each DuraPlate® panel and product contains between 15% and 30% post-consumer resin (“PCR”). By using PCR in the manufacture of DuraPlate®, Wabash has diverted more than 1 billion plastic bottles from landfills. Furthermore, at the end of the product lifespan, DuraPlate® is 100% recyclable.

Our 2020 Corporate Responsibility Report is available on our website (ir.onewabash.com) and references the ongoing environmental, social, and governance (ESG) initiatives that demonstrate our commitment to sustainability and social responsibility. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted.

Industry Trends

Trucking in the U.S., according to the American Trucking Association (“ATA”), was estimated to be a $732.3 billion industry in 2020, representing approximately 80% of the total U.S. transportation industry revenue. From a financial (e.g., value) industry perspective, this represents a decrease of approximately 7.5% from ATA’s 2019 estimate but is consistent with the prior year as a percentage of the total U.S. transportation industry revenue (80%). Furthermore, ATA estimates that approximately 72.5% of all domestic freight tonnage in 2020 was carried by trucks, and 300.1 billion miles were traveled by registered trucks in 2019. Trailer demand is a direct function of the amount of freight to be transported. To monitor the state of the industry, we evaluate a number of indicators related to trailer manufacturing and the transportation industry. Recent trends we have observed include the following:

Transportation / Trailer Cycle. The trailer industry generally follows the transportation industry cycles. Data related to new trailer shipments over the last nine years is shown below.

The most recent estimates from industry forecasters ACT Research Co. (“ACT”) and FTR Associates (“FTR”) indicate total United States trailer production levels for 2021 of approximately 266,000 and 265,000, respectively, which represent increases of approximately 29% and 26%, respectively, from 2020 production levels. We enter 2022 with continued uncertainty of the full impact of the COVID-19 pandemic, particularly around supply chain disruptions and labor shortages. However, the outlook for the overall trailer market is strong, and we believe our backlog of orders provides a solid foundation as we enter 2022. Current estimates from ACT and FTR for 2022 United States trailer production are 298,000 and 315,000, respectively, representing increases from 2021 of approximately 12% and 19%, respectively. These increases are generally in-line with our expectations as trailer manufacturers prepare to ramp-up production for strong 2022 demand, and we believe that these estimates for production will remain above replacement demand over the next several years.

In addition, ACT is forecasting annual new trailer production levels for 2023, 2024, 2025, and 2026 of approximately 332,000, 309,000, 295,000, and 286,000, respectively. While these estimates are more historically consistent production levels in the trailer industry, industry forecasters note that certain issues, such as supply chain disruptions and staffing challenges, could impact these estimates. We believe we are well positioned to capitalize on strong demand in 2022.

New Trailer Orders. According to ACT, total orders in 2021 were approximately 248,000 trailers, a 16% decrease from 294,000 trailers ordered in 2020. Total orders for the dry van segment, the largest within the trailer industry, were approximately 135,000, a decrease of 32% from 2020. These decreases are generally consistent with our expectations due to the supply chain issues and staffing shortfalls in the industry throughout 2021.

Transportation Regulations and Legislation. There are several different areas within both federal and state government regulations and legislation that are expected to have an impact on trailer demand, including:

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▪The U.S. Environmental Protection Agency (“EPA”) and National Highway Traffic Safety Administration (“NHTSA”) proposed new greenhouse gas regulations in July 2015, in an effort to reduce fuel consumption and production of carbon dioxide of heavy duty commercial vehicles. Following a comment period, the final rule was released in August 2016. The regulations are presently under review processes in Congress, within the EPA, and NHTSA that will ultimately determine whether this rule actually goes into effect. The Phase 2 greenhouse gas trailer (“GHG2”) rules were initially set to require compliance starting in January 2018. The Truck Trailer Manufacturers Association (“TTMA”) filed a petition in the U.S. Court of Appeals seeking review of the rule as it relates to the authority of the agencies to regulate trailers under the Clean Air Act. In addition, TTMA also filed for a Stay to suspend enforcement of the rule, to allow time for the EPA and NHTSA to reconsider the trailer provisions in the rule. In October 2017, the Court of Appeals granted the motion for Stay of the GHG2 rule as it applies to trailers. Ultimately, while compliance is on hold, the final impact on the trailer industry will not be known until there is a final ruling on the TTMA lawsuit. The rule itself focuses mainly on van trailers, and is divided into four increasingly stringent greenhouse gas reduction standards. The rule requires fuel saving technologies on van trailers, such as trailer side skirts, low rolling resistance tires, and automatic tire inflation systems. For tank trailers and flatbed trailers, the rule will require low rolling resistant tires and automotive tire inflation systems. In addition to increasing the cost of a trailer, these regulations may also lead to a higher demand for various aerodynamic device products.

▪In December 2017, the California Air Resource Board (“CARB”) unveiled its own proposal for new greenhouse gas standards for medium- and heavy-duty trucks and trailers that operate in California. The CARB rules are similar to the EPA’s current GHG2 standards for vehicles, but CARB made additions to counter pending EPA challenges to repeal rules pertaining to trailers. On September 27, 2018, CARB approved for adoption the California Phase 2 GHG regulation. That regulation largely aligns California’s GHG emission standards and test procedures with the federal Phase 2 GHG emission standards and test procedures and provides nationwide consistency for engine and vehicle manufacturers, which will require trailers be equipped with the fuel savings technologies outlined in the EPA GHG2 rules.

▪On December 3, 2019, CARB issued an official advisory notifying trailer manufacturers that CARB will be suspending enforcement of GHG2 trailer requirements until at least January 1, 2022, and will provide at least a 6-month written notice prior to commencement of enforcing GHG2. Additionally, CARB continues to process and approve voluntary applications during the suspension period. If we were to receive CARB’s 6-month advance notice of enforcement, more stringent van trailer standards would come into play in model years 2021, 2024, and 2027—requiring more advanced fuel efficiency technologies, such as rear boat tails and higher percentage improvement side skirts and tires. (While CARB’s 2021 requirements remain intact, they are not enforced—however, if we were to receive the 6-month advance notice of enforcement during 2022, the 2021 objectives would become the requirement.) CARB continues to suspend enforcement as a 6-month written notice has not been issued. We will continue preparations to become compliant if/when official notice has been received for commencement of the regulation.

▪On September 2, 2020, the Truck Trailer Manufacturers Association (“TTMA”) notified its members, including Wabash, that it had filed a motion in the United States Court of Appeals for the District of Columbia Circuit (the “Court”) asking for a Stay to the NHTSA GHG2 rules, which reflect the federal Phase 2 greenhouse gas emission standards. The hearing occurred on September 15, 2020, as scheduled, and on September 29, 2020, the ruling to Stay was granted by the Court. The Stay relates specifically to fuel economy regulations for truck trailers pending further order of the court. Therefore, Wabash and our customers are not required to take any action concerning any new specification-driven regulatory requirements in 2021.

▪On November 12, 2021, the U.S. Court of Appeals for the District of Columbia Circuit released its decision on the GHG2 rule making concerning trailers by rejecting the EPA and NHTSA’s attempt to include and regulate trailers in the GHG rules.

Other Developments. Other developments and potential impacts on the industry include:

▪The result of the U.S. Court of Appeals’ rejection of the EPA and NHTSA’s attempt to regulate trailers enables carriers to decide for themselves what emission-reducing equipment and technologies to specify on their trailers. While this reduces pressure off of the trailer manufacturers in the short term, CARB continues to seek additional states to join their position in attempting to drive regulation at the state level.

▪While we believe the need for trailer equipment will be positively impacted by the legislative and regulatory changes addressed above, these demand drivers could be offset by factors that contribute to the increased concentration and density of loads.

▪Trucking company profitability, which can be influenced by factors such as fuel prices, freight tonnage volumes, and government regulations, is highly correlated with the overall economy of the U.S.; carrier profitability significantly impacts demand for, and the financial ability to, purchase new trailers.

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▪We expect that the majority of freight in our industry will continue to be moved by truck and, according to ATA, total freight transportation revenue is expected to increase from an estimated $1,083 billion in 2021 to $1,627 billion in 2032.

Results of Operations

The following table sets forth certain operating data as a percentage of net sales for the periods indicated:

2021 Compared to 2020

Net Sales

Net sales in 2021 increased $321.4 million, or 21.7%, compared to 2020. By business segment, net sales prior to intersegment eliminations and related trailer units sold were as follows (dollars in thousands):

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TS segment sales, prior to the elimination of intersegment sales, were $1,633.3 million in 2021, an increase of $317.9 million, or 24.2%, compared to 2020. The increase in sales was primarily due to a 23.9% increase in new trailer shipments as 45,365 trailers were shipped in 2021 compared to 36,615 trailer shipments in 2020. New truck bodies shipped during 2021 totaled 16,560 compared to 13,430 truck bodies in the prior year period, an increase of 23.3%. The increase in new trailer shipments resulted in a 24% increase in new trailer revenue, driven by stronger demand for our dry and refrigerated van offerings as well as our platform trailers. The increase in new truck body shipments drove a 27% increase in new truck body revenue, also driven by stronger demand. Tank trailer shipments and related new trailer revenue were materially consistent year-over-year. Revenue per new trailer unit was materially consistent with the prior year, which was in part due to pricing actions to partially mitigate the increase in material costs.

P&S segment sales, prior to the elimination of intersegment sales, were $177.2 million in 2021, a decrease of $2.3 million, or 1.3%, compared to 2020. The overall decrease in sales for this segment is primarily attributable to the completion of 17 service location closures during 2021 that attributed to the decrease by approximately $18.5 million. In addition, we sold our Extract Technology® business during the second quarter of 2021, which resulted in a decrease in sales year-over-year of approximately $10.6 million. Excluding these decreases, P&S segment sales increased from the prior year primarily due to higher demand for our parts, services, and upfitting offerings as well as pricing increases.

Cost of Sales

Cost of sales was $1.6 billion in 2021, an increase of $284.7 million, or 21.5%, compared to 2020. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, overhead expenses, and depreciation.

TS segment cost of sales was $1,466.7 million in 2021, an increase of $274.6 million, or 23.0%, compared to 2020. The increase in cost of sales, which was primarily driven by higher sales and production volumes on account of stronger demand as well as higher commodity costs, was due to an increase in materials costs of $218.0 million, or 27%, and higher labor costs of approximately $53.6 million. An additional increase related to other manufacturing costs, including operating supplies and employee costs. These increases were partially offset by an overall decrease in fixed costs, due in part to higher volume leverage and the continued realization of cost containment measures implemented during 2020.

P&S segment cost of sales, prior to the elimination of intersegment sales, was $140.3 million in 2021, an increase of $3.0 million, or 2.2%, compared to 2020. The increase in cost of sales was driven by an increase in materials costs of approximately $19.2 million, or 23%. In addition, partially offsetting the increase in materials costs was the sale of our Extract Technology® business during the second quarter of 2021 and completion of 17 service location closures during 2021, which contributed to a decrease in labor and employee-related costs of approximately $8.8 million. There was also an overall decrease in fixed costs, due in part to the continued realization of cost containment measures implemented during 2020.

Gross Profit

Gross profit was $196.5 million in 2021, an increase of $36.7 million, or 23.0% from 2020. Gross profit as a percentage of sales, or gross margin, was 10.9% in 2021 as compared to 10.8% in 2020. Gross profit by segment was as follows (in thousands):

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TS segment gross profit was $166.6 million in 2021 compared to $123.3 million in 2020, an increase of $43.3 million. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 10.2% in 2021 as compared to 9.4% in 2020, an increase of 80 basis points. The overall increase in gross profit from the prior year period was primarily driven by an increase of $75.2 million in our dry vans products and an increase of $3.1 million for platforms, both of which were generally attributable to higher demand for these products compared to the prior year period. Gross profit for our truck body products was materially consistent with the prior year. The overall increase in gross profit as a percentage of net sales was largely due to higher volume leverage and in part as a result of our continued realization of cost containment measures implemented throughout 2020. Because of these reasons, along with a favorable product mix for a portion of 2021, gross profit as a percentage of net sales for 2021 increased compared to the prior year. These increases were partially offset by net decreases in our other product lines, primarily due to higher manufacturing costs as well as labor inefficiencies driven by supply chain disruptions.

P&S segment gross profit was $36.9 million in 2021 compared to $42.1 million in 2020. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 20.8% in 2021 compared to 23.5% in 2020, a decrease of 270 basis points. The overall decrease in gross profit and gross profit as a percentage of net sales for this segment is primarily attributable to the sale of our Extract Technology® business during the second quarter of 2021, which caused a decrease in gross profit in 2021 of approximately $2.9 million compared to 2020. We also completed the closure of 17 service locations during 2021 that attributed to the decrease by approximately $7.3 million. These decreases were offset by higher gross profit in our other parts, services, and upfitting offerings.

General and Administrative Expenses

General and administrative expenses were $88.8 million in 2021, a decrease of $3.9 million, or 4.2%, compared to 2020. The decrease from the prior year period was largely due to a decrease of approximately $6.2 million in employee-related costs, including benefits and incentive programs and severance costs. In addition, professional service expenses were lower by approximately $0.9 million, which was partially due to the expenses incurred in closing on the New Term Loan Credit Agreement during the third quarter of 2020. These decreases were partially offset by increases in outside service and education and training expenses of approximately $1.5 million and $0.6 million, respectively. General and administrative expenses, as a percentage of net sales, were 4.9% in 2021 compared to 6.3% in 2020. The decrease in general and administrative expenses as a percentage of net sales was due in part to our continued realization of cost containment measures implemented during 2020.

Selling Expenses

Selling expenses were $23.7 million in 2021, a decrease of $1.4 million, or 5.5%, compared to 2020. This decrease was primarily due to lower advertising and promotional expenses of approximately $1.7 million. In addition, there was a decrease in employee-related costs, including benefits and incentive programs, of approximately $1.3 million. These decreases were partially offset by higher outside services costs of $1.1 million. As a percentage of net sales, selling expenses were 1.3% in 2021 compared to 1.7% in 2020. The decrease in selling expenses as a percentage of net sales was due in part to our continued realization of cost containment measures implemented during 2020.

Amortization of Intangibles

Amortization of intangibles was $22.9 million in 2021 compared to $22.0 million in 2020. Amortization of intangibles for both periods was the result of expenses recognized for intangible assets recorded from the acquisitions of Walker in May 2012 (of which Extract Technology® was a part of prior to its sale in the second quarter of 2021), certain assets of Beall in February 2013 (which was sold during the fourth quarter of 2020), and Supreme in September 2017. The increase from the prior year period is attributable to certain of the intangible assets recorded from the acquisition of Supreme, which utilize the undiscounted cash flow method for amortization rather than the straight line method. This increase was partially offset by the Beall® and Extract Technology® divestitures as the intangible assets for these businesses were written-off as part of the sales.

Impairment and Other, Net

Impairment and other, net was $27.6 million during 2021 and $105.6 million during 2020. The current year activity was primarily attributable to non-cash impairment charges of approximately $28.3 million during the fourth quarter of 2021 related to trade name and trademark intangible assets due to the significant reduction in the related useful lives of these assets in connection with our rebranding initiative. In addition, during the second quarter of 2021 we sold our Extract Technology® business and recognized a gain on sale of approximately $1.9 million. This gain was partially offset by the impairment of unused and obsolete property, plant, and equipment assets during the first quarter of 2021 totaling approximately $0.8 million. Additional activity during 2021 relates to sales of property, plant, and equipment assets.

The prior year activity was primarily the result of impairment charges related to goodwill within the historical FMP and DPG segments totaling $106.7 million during the first quarter of 2020. These impairment charges were partially offset by the net gain on sale of property, plant, and equipment assets. In addition, during the fourth quarter of 2020 we closed on the divestiture of the Beall® brand of tank trailers and recognized a loss on sale of approximately $2.1 million.

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Other Income (Expense)

Interest expense in 2021 totaled $23.1 million compared to $24.2 million in 2020. Interest expense during 2021 relates to interest and non-cash accretion charges on the New Term Loan Credit Agreement, Senior Notes due 2028, Senior Notes due 2025, and Revolving Credit Agreement. The decrease from the previous year is primarily due to repayment and refinancing activity during both 2021 and 2020, which is more fully described in Note 9 of the Notes to Consolidated Financial Statements.

Other, net for 2021 represented expense of $9.1 million as compared to income of $0.6 million for 2020. The expense in the current year is primarily attributable to debt extinguishment charges totaling $9.5 million from the redemption in full of the Senior Notes due 2025 and to repay in full the outstanding borrowings under the New Term Loan Credit Agreement (these financing transactions are described in more detail in Note 9 of the Notes to Consolidated Financial Statements). Income for the prior year period is primarily related to interest income, partially offset by debt extinguishment charges totaling $0.4 million related to repayment activity.

Income Taxes

We recognized income tax expense of $0.1 million in 2021 compared to an income tax benefit of $11.8 million in 2020. The effective tax rate for 2021 was 9.8% compared to 10.8% for 2020. The effective tax rate for 2021 differs from the U.S. Federal statutory rate of 21% primarily due to the impact of state and local taxes and discrete items, including stock-based compensation and tax credits. For 2020, the effective tax rate differs from the U.S. Federal statutory rate of 21% primarily due to the impact of state and local taxes, impairment of non-deductible goodwill, provisions related to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and discrete items related to stock-based compensation. Net refunds received for income taxes in 2021 were $0.5 million compared to net refunds received during 2020 of $4.7 million.

Liquidity and Capital Resources

Capital Structure

Our capital structure is comprised of a mix of debt and equity. As of December 31, 2021, our debt to equity ratio was approximately 1.3:1.0. Our long-term objective is to generate operating cash flows sufficient to support the growth within our businesses and increase shareholder value. This objective will be achieved through a balanced capital allocation strategy of sustaining strong liquidity, maintaining healthy leverage ratios, investing in the business, both organically and strategically, and returning capital to our shareholders. As of May 11, 2021, our Board of Directors designated a Finance Committee for the primary purpose of assisting the Board in its oversight of the Company’s capital structure, financing, investment, and other financial matters of importance to the Company.

Throughout 2021, and in keeping to this balanced approach, we repurchased $65.4 million of common stock under the share repurchase program approved by our Board of Directors and paid dividends of $16.4 million. In addition, as further described in the “Liquidity and Capital Resources” section below, in October, 2021 we closed on an offering of $400 million in aggregate principal amount of unsecured Senior Notes due 2028 (the “New Senior Notes”). We used the net proceeds of the New Senior Notes and a portion of the $50 million draw from the increased capacity under our Revolving Credit Agreement to fund the redemption in full of the Senior Notes due 2025 and to repay in full the $108.8 million of outstanding borrowings under the New Term Loan Credit Agreement. Prior to the October, 2021 activity described above, during the second quarter of 2021 we made principal payments totaling $30.0 million under the New Term Loan Credit Agreement. Collectively, these actions demonstrate our confidence in the financial outlook of the Company and our ability to generate cash flow, both near and long term, and reinforce our overall commitment to deliver shareholder value while maintaining the flexibility to continue to execute our strategic plan for profitable growth and diversification.

Despite continued uncertainty of the full impact of the COVID-19 pandemic, we believe we have maintained a solid position from a liquidity perspective over the last couple of years. Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $258.0 million as of December 31, 2021 and $384.0 million as of December 31, 2020, a decrease of 33%. This decrease is primarily attributable to a decrease in our cash balance as we ramp-up for 2022 production. For 2022, we expect to continue our commitment to fund our working capital requirements and capital expenditures, including our plans to add 20% more dry van manufacturing capacity beginning in 2023, which will be achieved by ramping down traditional refrigerated trailer capacity and converting the floor space to create additional dry van production. Along with the increased dry van manufacturing capacity, we will also maintain our assets to capitalize on any economic and/or industry upswings, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

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Debt Agreements and Related Amendments

Senior Notes due 2028

On October 6, 2021, we 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 Wabash, 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, we 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, we 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, we 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 we have 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 us 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 our and the Guarantors’ general unsecured senior obligations and will be subordinated to all of our 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 our 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 our ability and the ability of certain of our subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock or with respect to any other interest or participation in, or measured by, 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 our 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 we and our 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 December 31, 2021, we were in compliance with all covenants, and while the duration and severity of the ongoing COVID-19 pandemic remain unknown at this time, we do not anticipate that the pandemic will impact our ability to remain in compliance with these covenants.

The sale of the New Senior Notes resulted in net proceeds of approximately $395 million, after deducting financing fees and other offering expenses. We used the net proceeds of the New Senior Notes and a portion of the $50 million draw from the increased capacity under the Revolving Credit Agreement 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. Debt extinguishment charges totaling $9.1 million were recorded during the fourth quarter of 2021 in connection with the redemption in full of the Senior Notes due 2025 and the repayment in full of the outstanding borrowing under the New Term Loan Credit Agreement. The loss on debt extinguishment charges are included in Other, net in our Consolidated Statements of Operations.

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Contractual coupon interest expense and accretion of fees for the New Senior Notes for the year ended December 31, 2021 were $4.3 million and $0.1 million, respectively, and are included in Interest expense in our Consolidated Statements of Operations.

Senior Notes due 2025

On September 26, 2017, we issued Senior Notes due 2025 (the “Old Senior Notes”) in an offering pursuant to Rule 144A or Regulation S under the Securities Act of 1933, as amended, with an aggregate principal amount of $325 million. The Old Senior Notes bore interest at the rate of 5.50% per annum from the date of issuance, and required interest to be paid semi-annually in cash on April 1 and October 1 of each year. We used the net proceeds of $318.9 million from the sale of the Old Senior Notes to finance a portion of the acquisition of Supreme and to pay related fees and expenses.

The Old Senior Notes were scheduled to mature on October 1, 2025. At any time prior to October 1, 2020, we could have redeemed some or all of the Old Senior Notes for cash at a redemption price equal to 100% of the aggregate principal amount of the Old Senior Notes being redeemed plus an applicable make-whole premium set forth in the indenture for the Old Senior Notes and accrued and unpaid interest to, but not including, the redemption date. Prior to October 1, 2020, we could have redeemed up to 40% of the Old Senior Notes at a redemption price of 105.50% of the principal amount, plus accrued and unpaid interest to, but not including, the redemption date, with the proceeds of certain equity offerings so long as if, after any such redemption occurs, at least 60% of the aggregate principal amount of the Old Senior Notes remained outstanding. On and after October 1, 2020, we could have redeemed some or all of the Old Senior Notes at redemption prices (expressed as percentages of principal amount) equal to 102.750% for the twelve-month period beginning on October 1, 2020, 101.375% for the twelve-month period beginning October 1, 2021 and 100.000% beginning on October 1, 2022, plus accrued and unpaid interest to, but not including, the redemption date. Upon the occurrence of a Change of Control (as defined in the indenture for the Old Senior Notes), unless we had exercised its optional redemption right in respect of the Old Senior Notes, the holders of the Old Senior Notes would have had the right to require us to repurchase all or a portion of the Old Senior Notes at a price equal to 101% of the aggregate principal amount of the Old Senior Notes, plus any accrued and unpaid interest to, but not including, the date of repurchase.

The Old Senior Notes were guaranteed on a senior unsecured basis by all direct and indirect existing and future domestic restricted subsidiaries, subject to certain restrictions. The Old Senior Notes and related guarantees were ours and the guarantors’ general unsecured senior obligations and are subordinate to all of our and the guarantors’ existing and future secured debt to the extent of the assets securing that secured obligation. In addition, the Old Senior Notes were structurally subordinate to any existing and future debt of any of our subsidiaries that were not guarantors, to the extent of the assets of those subsidiaries.

The indenture for the Old Senior Notes restricted our ability and the ability of certain of our subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock or with respect to any other interest or participation in, or measured by, our profits; (iii) make loans and certain investments; (iv) sell assets; (v) create or incur liens; (vi) enter into transactions with affiliates; and (vii) consolidate, merge or sell all or substantially all of our assets. These covenants were subject to a number of important exceptions and qualifications. During any time when the Old Senior Notes were rated investment grade by Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no event of default had occurred or was continuing, many of such covenants would have been suspended and we and our subsidiaries would not have been subject to such covenants during such period.

The indenture for the Old Senior Notes contained 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 were to have occurred and continued, the principal amount of the Old Senior Notes, plus accrued and unpaid interest, if any, may have been declared immediately due and payable. These amounts would have automatically become due and payable if an event of default relating to certain events of bankruptcy, insolvency or reorganization occurred.

As described above, in October 2021 we used the net proceeds of the New Senior Notes and a portion of the $50 million draw from the increased capacity under the Revolving Credit Agreement to fund the redemption in full of the Old Senior Notes. Contractual coupon interest expense and accretion of discount and fees for the Old Senior Notes for the years ended December 31, 2021, 2020 and 2019, was $13.8 million, $18.6 million and $18.5 million, respectively and is included in Interest expense in our Consolidated Statements of Operations.

During the third quarter of 2020, we repaid $10.0 million of the Old Senior Notes utilizing net proceeds from the closure of the new term loan credit agreement, which is described in more detail below.

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Revolving Credit Agreement

On December 21, 2018, we entered into the Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”), among us, certain of our subsidiaries as borrowers (together with us, the “Borrowers”), the lenders from time to time party thereto, Wells Fargo Capital Finance, LLC, 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 our existing amended and restated revolving credit agreement, dated as of May 8, 2012.

On September 28, 2020, we entered into the First Amendment to Second Amended and Restated Credit Agreement (the “First Amendment”) among us, certain of our subsidiaries party thereto, the lenders party thereto, and the Revolver Agent. The First Amendment primarily made conforming changes to the provisions in the Second Amended and Restated Credit Agreement to reflect modifications made under the new term loan credit agreement, which is described in more detail below.

On September 28, 2021, we 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 us, 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 of our subsidiaries (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 respective priorities of the security interests securing the Revolving Credit Agreement and the New Term Loan Credit Agreement were governed by an Intercreditor Agreement, dated as of September 28, 2020, between the Revolver Agent and the Term Agent (as defined below), as amended (the “Intercreditor Agreement”). The Revolving Credit Agreement has a scheduled maturity date of December 21, 2023.

Subject to 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 our ability and certain of our affiliates to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. In addition, we will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 as of the end of any period of 12 fiscal months when excess availability under the Revolving Credit Agreement is less than 10% of the total revolving commitment. As of December 31, 2021, we were in compliance with all covenants, and while the duration and severity of the ongoing COVID-19 pandemic remain unknown at this time, we do not anticipate that the pandemic will impact our ability to remain in compliance with these covenants.

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.

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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.

Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $258.0 million as of December 31, 2021 and $384.0 million as of December 31, 2020, a decrease of 33%.

During the fourth quarter of 2021, we 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. We repaid $17.0 million under the Revolving Credit Agreement during the fourth quarter of 2021, and as of December 31, 2021 outstanding borrowings totaled $33.0 million.

During the three-month period ended March 31, 2020, we drew $45.0 million under the Revolving Credit Agreement as a precautionary measure in response to the uncertainty caused by the COVID-19 pandemic. During the second quarter of 2020, we repaid the $45.0 million in outstanding borrowings, and for the remainder of 2020 and as of December 31, 2020, there were no amounts outstanding under the Revolving Facility.

Interest expense under the Revolving Credit Agreement for the years ended December 31, 2021 and 2020 was approximately $0.6 million and $0.2 million, respectively. There was no interest expense under the Revolving Credit Agreement for the year ended December 31, 2019.

New and Old Term Loan Credit Agreements

On September 28, 2020, we entered into a Term Loan Credit Agreement (the “New Term Loan Credit Agreement”) among us, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as the administrative agent (the “Term Agent”), providing for a senior secured term loan facility of $150.0 million that was advanced at closing. The New Term Loan Credit Agreement refinanced and replaced that certain Term Loan Credit Agreement, dated as of May 8, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, the “Old Term Loan Credit Agreement”), among us, the lenders party thereto and Morgan Stanley Senior Funding, Inc., as the administrative agent.

The New Term Loan Credit Agreement was guaranteed by certain of our subsidiaries (the “Term Loan Guarantors”) and was secured by (i) second priority security interests (subject only to the liens securing the Revolving Credit Agreement, customary permitted liens, and certain other permitted liens) in substantially all of our personal property and the Term Loan 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, and (ii) first priority security interests (subject only to customary permitted liens and certain other permitted liens) in (A) subject to certain limitations, equity interests of each direct subsidiary held by us and each Term Loan Guarantor, and (B) substantially all of our other tangible and intangible assets and the Term Loan Guarantors, including equipment, general intangibles, intercompany notes, investment property and intellectual property, but excluding real property. The respective priorities of the security interests securing the New Term Loan Credit Agreement and the Revolving Credit Agreement were governed by an Intercreditor Agreement, dated as of September 28, 2020, between the Term Agent and the Revolver Agent (the “Intercreditor Agreement”). The New Term Loan Credit Agreement had a scheduled maturity date of September 28, 2027. The loans under the New Term Loan Credit Agreement amortized in quarterly installments equal to 0.25% of the original principal amount of the term loans issued thereunder, with the balance payable at maturity.

Outstanding borrowings under the New Term Loan Credit Agreement bore interest at a rate, at our election, equal to (i) LIBOR (subject to a floor of 0.75% per annum) plus a margin of 3.25% per annum or (ii) a base rate plus a margin of 2.25% per annum.

The New Term Loan Credit Agreement contained customary covenants limiting our ability and our subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, pay off subordinated indebtedness, make investments and dispose of assets.

Subject to the terms of the Intercreditor Agreement, if the covenants under the New Term Loan Credit Agreement were to be 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 New Term Loan Credit Agreement included, without limitation, failure to pay obligations when due, initiation of insolvency proceedings, defaults on certain other indebtedness, and the incurrence of certain judgments that are not stayed, satisfied, bonded or discharged within 60 days.

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As described above, in October 2021 we used the net proceeds of the New Senior Notes and a portion of the $50 million draw from the increased capacity under the Revolving Credit Agreement to repay in full the $108.8 million of outstanding borrowings under the New Term Loan Credit Agreement. In addition to the full repayment during the fourth quarter, during the second quarter of 2021 we made principal payments totaling $30.0 million and recognized loss on debt extinguishment charges of approximately $0.5 million. The extinguishment charges are included in Other, net in the Consolidated Statements of Operations.

For the years ended December 31, 2021, 2020, and 2019, under the New and Old Term Loan Credit Agreements we paid interest of $3.9 million, $4.8 million, and $7.8 million, respectively. For the years ended December 31, 2021, 2020, and 2019, we incurred charges of $0.2 million in each period for amortization of fees and original issuance discount which is included in Interest expense in the Consolidated Statements of Operations.

In September 2020, we used the net proceeds of $148.5 million from the New Term Loan Credit Agreement to pay off the outstanding principal under the Old Term Loan Credit Agreement of $135.2 million, repay a portion of our outstanding Senior Notes, and pay related fees and expenses. In connection with the pay off of the Old Term Loan Credit Agreement (specifically for those lenders that did not participate in the New Term Loan Credit Agreement) and partial repayment of the outstanding Senior Notes, we recognized a loss on debt extinguishment totaling approximately $0.2 million, which is included in Other, net in the Consolidated Statements of Operations. In addition, as further described in Note 20, during the fourth quarter of 2020 we sold our Beall® brand of tank trailers and associated assets. The net proceeds of approximately $11.2 million from the sale were used to pay down outstanding principal under the New Term Loan Credit Agreement. In connection with the pay down we recognized a loss on debt extinguishment totaling approximately $0.2 million. Our required quarterly principal payments through scheduled maturity under the New Term Loan Credit Agreement were satisfied in full with this prepayment. As of December 31, 2020, we had $138.8 million outstanding under the New Term Loan Credit Agreement, of which none was classified as current on our Consolidated Balance Sheets.

For the year ended December 31, 2019, we paid principal of $50.5 million and as a result recognized losses on debt extinguishment totaling approximately $0.2 million. The losses on debt extinguishment are included in Other, net on our Consolidated Statements of Operations.

Cash Flow

2021 compared to 2020

Cash used in operating activities for 2021 totaled $7.5 million, compared to cash provided by operating activities of $124.1 million in 2020. The cash used in operations during the current year was the result of net income adjusted for various non-cash activities, including depreciation, amortization, net gain on the sale of assets and business divestiture, deferred taxes, loss on debt extinguishment, stock-based compensation, impairment, accretion of debt discount, and a $94.5 million increase in our working capital. Changes in key working capital accounts for 2021 and 2020 are summarized below (in thousands):

Accounts receivable increased $80.9 million in 2021 and decreased $71.4 million for 2020. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, was approximately 33 days and 23 days for three months ended December 31, 2021 and 2020, respectively. The increase in accounts receivable for 2021 was primarily due to higher shipment volume during the current year, especially late in the fourth quarter, as well as the timing of customer payments. Inventories increased in 2021 by $74.8 million compared to a decrease in 2020 of $21.1 million. The overall increase in inventory for 2021 was primarily attributable to higher raw materials as we prepare to ramp-up production for strong 2022 demand. Our inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately 6 times in both 2021 and 2020. Accounts payable and accrued liabilities increased $54.9 million in 2021 compared to a decrease of $28.3 million for 2020. Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 36 days in 2021 and 26 days in 2020. The increase in 2021 compared to 2020 was primarily due to higher purchases for increased 2022 production and the overall timing of payments.

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Investing activities used $27.1 million during 2021 compared to $3.0 million used in 2020. Investing activities for 2021 included capital expenditures of $49.1 million to support maintenance, growth, and improvement initiatives at our facilities, including expenditures related to expanding our dry van manufacturing capacity beginning in 2023. Capital expenditures were partially offset by proceeds from the sale of assets and a business divestiture totaling $22.0 million. Cash used in investing activities in 2020 was primarily related to capital expenditures to support growth and improvement initiatives at our facilities totaling $20.1 million, partially offset by proceeds from the sale of assets and a business divestiture of $17.1 million.

Financing activities used $111.4 million during 2021, primarily related to the pay off of the New Term Loan Credit Agreement and the full repayment against our Senior Notes due 2025 totaling $453.8 million, both of which utilized net proceeds from our offering of Senior Notes due 2028. This activity was partially offset by net draws on our Revolving Credit Facility of $33.0 million. We also repurchased common stock of $66.7 million and paid cash dividends to our shareholders of $16.4 million. Financing activities used $44.0 million during 2020, primarily related to the pay off of the Old Term Loan Credit Agreement and repayments against our senior notes totaling $156.4 million, common stock repurchases totaling $18.9 million, and cash dividends paid to our shareholders of $17.3 million. In addition, during the fourth quarter of 2020 we made a prepayment under the New Term Loan Credit Agreement of $11.2 million.

Despite continued uncertainty of the full impact of the COVID-19 pandemic, we believe we have maintained a solid position from a liquidity perspective over the last two years. Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $258.0 million as of December 31, 2021 and $384.0 million as of December 31, 2020, a decrease of 33%. This decrease is primarily attributable to a decrease in our cash balance as we ramp-up for 2022 production. For 2022 we expect to continue our commitment to fund our working capital requirements and capital expenditures, including maintaining our assets to capitalize on any economic and/or industry upswings, while also responsibly returning capital to our shareholders. We will continue to move rapidly to adjust to the current environment to preserve the strength of our balance sheet, while prioritizing the safety of our employees and ensuring the liquidity and financial well-being of the Company.

Contractual Obligations and Commercial Commitments

A summary of our contractual obligations and commercial commitments, both on and off balance sheet, as of December 31, 2021 are as follows (in thousands):

1 Future interest payments on variable rate long-term debt (the Revolving Facility) are estimated based on the rate in effect as of December 31, 2021, and include only interest payments (not unused line fees).

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Borrowings under the Revolving Facility bear interest at a variable rate based on the LIBOR or a base rate determined by the lender’s prime rate plus an applicable margin, as defined in the agreement. Any outstanding borrowings under the Revolving Facility bear interest at a rate, at our 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 Facility. We are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of our agent and lenders. During the fourth quarter of 2021, we 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. We repaid $17.0 million under the Revolving Credit Agreement during the fourth quarter of 2021, and as of December 31, 2021 outstanding borrowings totaled $33.0 million.

The Senior Notes due 2028 bear interest at the rate of 4.5% per annum from the date of issuance, payable semi-annually on April 15 and October 15.

Finance leases represent future minimum lease payments including interest. Operating leases represent the total future minimum lease payments for leases that have commenced. As of December 31, 2021, obligations related to operating leases that we have executed but have not yet commenced were insignificant.

We have standby letters of credit totaling $5.7 million issued in connection with workers compensation claims and surety bonds.

We have $129.6 million in purchase commitments through December 2022 for various raw material commodities, including aluminum, steel, polyethylene and nickel as well as other raw material components which are within normal production requirements.

We, through our subsidiary Supreme, obtain most vehicle chassis for its specialized vehicle products directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and in some cases, for unallocated orders. The agreements generally state that the manufacturer will provide a supply of chassis to be maintained at the Company’s facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. In addition, the manufacturer typically retains the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to the Company nor permit the Company to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer). Although the Company is party to related finance agreements with manufacturers, the Company has not historically settled, nor expects to in the future settle, any related obligations in cash. Instead, the obligation is settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. Accordingly, as of December 31, 2021 the Company’s outstanding chassis converter pool with the manufacturer totaled $18.2 million and has included this financing agreement on the Company’s Consolidated Balance Sheets within Prepaid expenses and other and Other accrued liabilities. All other chassis programs through its Supreme subsidiary are handled as consigned inventory belonging to the manufacturer and totaled approximately $2.6 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.

The total amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $2.3 million at December 31, 2021. Payment of these obligations would result from settlements with taxing authorities. Due to the difficulty in determining the timing of settlements, these obligations are not included in the table above. We do not expect to make a tax payment related to these obligations within the next year that would significantly impact liquidity.

Significant Accounting Policies and Critical Accounting Estimates

Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, evaluation of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate.

We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time we were making the estimate or changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.

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Legal and Other Contingencies. The outcomes of legal proceedings and claims brought against us and other loss contingencies are subject to significant uncertainty. We establish legal contingency reserves when we determine that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In determining the appropriate accounting for loss contingencies, we consider the likelihood of loss or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss. We regularly evaluate current information available to us to determine whether an accrual should be established or adjusted. Estimating the probability that a loss will occur and estimating the amount of a loss or a range of loss involves significant judgment and such matters are unpredictable. We could incur judgments or enter into settlements for current or future claims that could materially impact our results of operations.

Impairment of Long-Lived Assets and Definite-Lived Intangible Assets.  We review, on at least a quarterly basis, the financial performance of each business unit for indicators of impairment. In reviewing for impairment indicators, we also consider events or changes in circumstances such as business prospects, customer retention, market trends, potential product obsolescence, competitive activities, and other economic factors. An impairment loss is recognized when the carrying value of an asset group exceeds the future net undiscounted cash flows expected to be generated by that asset group. The impairment loss recognized is the amount by which the carrying value of the asset group exceeds its fair value.

Impairment of Trade Name and Trademark Intangible Assets

As further described in Note 5 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, on January 10, 2022, we completed our review and approval of its plan for rebranding as Wabash®. As part of the planning process, we assessed our usage of trade names and brand names in connection with the long-term growth strategy as One Wabash. Under the plan as approved, we no longer plan to use certain trade names or brand names, and will predominantly use Wabash (or variations thereof) to refer to the Company. The decision resulted in non-cash impairment charges of approximately $28.3 million during the fourth quarter of 2021 related to trade name and trademark intangible assets due to the significant reduction in the related useful lives of these assets.

Goodwill.  We assess goodwill for impairment at the reporting unit level on an annual basis as of October 1st, after the annual planning process is complete. More frequent evaluations may be required if we experience changes in our business climate or as a result of other triggering events that may take place. If the carrying value exceeds fair value, the asset is considered impaired and is reduced to its fair value.

In assessing goodwill for impairment, we may choose to initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, then an impairment analysis for goodwill is performed at the reporting unit level using a quantitative approach. The quantitative test is a comparison of the fair value of the reporting unit, determined using a combination of the income and market approaches, to its recorded amount. If the recorded amount exceeds the fair value, an impairment is recorded to reduce the carrying amount to fair value, but will not exceed the amount of goodwill that is recorded.

The process of evaluating goodwill for impairment is subjective and requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the most recent fair value analysis for the reporting unit. When performing a quantitative goodwill impairment test, we generally determine fair value using a combination of an income-based approach and a market-based approach. The fair value determination consists primarily of using significant unobservable inputs (Level 3) under the fair value measurement standards. We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, the amounts and timing of expected future cash flows which is largely dependent on expected EBITDA margins, the discount rate applied to those cash flows, and terminal growth rates. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends and long-term operating strategies and initiatives. The discount rate used by each reporting unit is based on our assumption of a prudent investor’s required rate of return assuming the risk of investing in a particular company. The terminal growth rate reflects the sustainable operating income a reporting unit could generate in a perpetual state as a function of revenue growth, inflation, and future margin expectations.

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Segment Realignment

As further described in Note 5 and Note 19 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, beginning in September 2021 we realigned our operating and reportable segments. Based on these changes, we have 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. In accordance with the relevant accounting guidance, we performed a quantitative impairment assessment of goodwill immediately prior to and subsequently following the change in segments and reporting units. The quantitative analyses did not result in any impairment charges as the fair value of each reporting unit exceeded the carrying value. In addition, as part of the change in segment structure, we reassigned goodwill from the historical Commercial Trailer Products (“CTP”), Diversified Products (“DPG”), and Final Mile Products (“FMP”) reporting units to the TS and P&S reporting units using a relative fair value allocation approach as required by the relevant accounting guidance.

Annual Goodwill Impairment Test

As of December 31, 2021, goodwill allocated to our TS and P&S segments was approximately $120.5 million and $67.9 million, respectively. Because of the recency and lack of changes with respect to market conditions and data assumptions used in the quantitative assessment performed in connection with the segment realignment discussed above, during the fourth quarter of 2021 we completed our annual goodwill impairment test using a qualitative assessment. As part of the qualitative analysis, we considered many factors including, but not limited to, general economic conditions, industry and market conditions, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions used in the fair value analysis for each reporting unit (performed in connection with the segment realignment).

In connection with our segment realignment beginning in September 2021, as well as our annual goodwill impairment tests conducted during the fourth quarters of 2020 and 2019, we performed a quantitative assessment for each reporting unit utilizing a combination of the income and market approaches, the results of which we weighted evenly. No impairment was indicated as the fair value of each reporting unit exceeded its respective carrying value. We believe our TS and P&S segments and reporting units will generate sufficient future earnings based on the markets in which they participate as well as growth potential.

Future events and changing market conditions may require a re-evaluation of the assumptions used in the determination of fair value for each reporting unit, including key assumptions used in the expected EBITDA margins and cash flows, as well as other key assumptions with respect to matters out of our control, such as discount rates and market multiple comparables. These future events and changing market conditions could result in an impairment of goodwill.

Goodwill Allocation for Extract Technology® (“Extract”)

As further described in Note 20 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, during the second quarter of 2021, we sold our 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 historical DPG reporting unit. In accordance with the relevant accounting guidance, as part of the sale we allocated $11.1 million of goodwill based upon the relative fair value of the Extract operating unit compared to the historical DPG 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, we performed an impairment assessment for the historical DPG reporting unit and concluded the fair value of the reporting unit continued to exceed the carrying value.

Goodwill Allocation for Beall®

As further described in Note 20 of the Notes to Consolidated Financial Statements in Part II Item 8 of this Form 10-K, during the fourth quarter of 2020, we sold our Beall® brand of tank trailers and associated assets. Prior to the divestiture Beall® was an operating unit within the Tank Trailers reporting unit. In accordance with the relevant accounting guidance, as part of the sale we allocated $4.7 million of goodwill based upon the relative fair value of the Beall® operating unit compared to the Tank Trailers reporting unit as a whole. This goodwill was included in the carrying value of the disposed assets and the resulting loss recognized in connection with the sale. Subsequent to the divestiture, we performed an impairment assessment for the Tank Trailers reporting unit and concluded the fair value of the reporting unit continued to exceed the carrying value.

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2020 Interim Goodwill Impairment Test

Subsequent to December 31, 2019, our share price and market capitalization declined. In addition, as a result of the ongoing COVID-19 pandemic and related impact on our results of operations, we did not perform in-line with expectations. As a result, indicators of impairment were identified and we performed an interim quantitative assessment as of March 31, 2020, utilizing a combination of the income and market approaches, which were weighted evenly. Key assumptions used in the analysis were discount rates of 17.0% and 13.5% for the historical FMP reporting unit and historical Tank Trailers reporting unit (which was within the historical DPG segment), respectively, EBITDA margins, and a terminal growth rate of 3.0%. The results of the quantitative analysis indicated the carrying value of the historical FMP and historical Tank Trailers reporting units exceeded their respective fair values and, accordingly, goodwill impairment charges of $95.8 million and $11.0 million, respectively, were recorded during the first quarter of 2020. The goodwill impairment charges, which are based on Level 3 fair value measurements, are included in Impairment and other, net in the Consolidated Statements of Operations.

In addition, the results of the quantitative analysis performed as of March 31, 2020 indicated the fair value of the historical Process Systems reporting unit, which was within the historical DPG segment, exceeded the carrying value by approximately 3%. Key assumptions used in the analysis were a discount rate of 14.5%, EBITDA margin, and a terminal growth rate of 3.0%. The historical Process Systems reporting unit designed and manufactured a broad range of products, such as isolators, stationary silos, and downflow booths used in a number of unique markets, including the chemical, dairy, food and beverage, pharmaceutical and nuclear markets. We believe this historical reporting unit’s broad range of innovative products in unique industries will result in sufficient future earnings. Based on the results of the interim quantitative test, we performed sensitivity analyses around the key assumptions used in the analysis, the results of which were: (a) a 100 basis point decrease in the EBITDA margin used to determine expected future cash flows would have resulted in an impairment of approximately $4.6 million, (b) a 100 basis point increase in the discount rate would have resulted in an impairment of approximately $4.5 million, and (c) a 100 basis point decrease in the terminal growth rate would have resulted in an impairment of approximately $1.2 million.

Other

Inflation

Inflation impacts prices paid for labor, materials and supplies. Significant increases in the costs of production or certain commodities, raw materials, and components could have an adverse impact on our results of operations. As has been our practice, we will endeavor to offset the impact of inflation through selective price increases, productivity improvements, and hedging activities. Our ability to mitigate the impact of inflation through selective price increases may be limited by our strong backlog in cases of orders without inflation-based price adjustment provisions.

New Accounting Pronouncements

For information related to new accounting standards, see Note 3 of the Notes to Consolidated Financial Statements in Part II Item 8 of this Form 10-K.

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