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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, 2020, and our capital resources and liquidity as of December 31, 2020. 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 manage our business in three segments: Commercial Trailer Products, Diversified Products, and Final Mile Products. The Commercial Trailer Products segment manufactures standard and customized van and platform trailers and other transportation related equipment for customers who purchase directly from us or through independent dealers. The Diversified Products segment, comprised of three strategic business units, including Tank Trailers, Process Systems, and Composites, focuses on our

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commitment to expand our customer base and diversify our product offerings and revenues. The Final Mile Products segment manufactures specialized commercial vehicles that are attached to a truck chassis, including cutaway and dry-freight van bodies, refrigerated units, and stake bodies, for customers who purchase directly from us or through independent dealers. The acquisition of Supreme, a leading manufacturer of specialized commercial vehicles, has enabled our customers to succeed by helping them move everything from first to final mile.

For discussion of results of operations for the year ended December 31, 2019 to the results of operations for the year ended December 31, 2018, see Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2019 Annual Report on Form 10-K, filed with the SEC on February 25, 2020.

COVID-19 Update

In March 2020, a global pandemic was declared by the World Health Organization (the “WHO”) related to COVID-19. This pandemic continues to create significant uncertainties and disruption in the global economy. We are closely monitoring the most recent developments regarding the pandemic, and we continue to remain focused on the health and safety of our employees, as well as the health of our business, both in the short and long-term. We monitor, evaluate, and manage our operating plans in light of the most recent developments on an ongoing basis. Further, we continue to adhere to best-practice safe hygiene guidelines by recognized health experts, like the WHO, as well as any applicable government mandates related to the COVID-19 pandemic. We remain focused on business continuity and ensuring our facilities remain operational where safe and appropriate to do so.

The safety and well-being of our employees has been, and will remain, our highest priority. 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 regularly 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:

▪Within our factories, we are providing personal protective equipment for our employees, conducting daily health monitoring, cleaning more frequently, and have modified our operations to embrace social distancing where possible.

▪Within our office environments, a large number of our employees remain working remotely. This allows ample space for those coming in to the office to spread out and distance effectively.

▪We are utilizing daily health screenings and self-declaration for employees, contractors, and visitors, and we are encouraging employees with symptoms to stay home. In addition, senior leadership approval is required for all travel as we are making concerted efforts to avoid “hotspots” throughout the country.

▪We have suspended all Company-sponsored large events, community use of our facilities, and other forms of group gatherings involving external visitors.

▪We have implemented pandemic continuity plans.

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

We have also extended several actions implemented to address the COVID-19 impact to our business, including a temporary freeze on share repurchases in March 2020 (which we resumed during the fourth quarter), reductions to discretionary spending, business-related travel restrictions, elimination of non-essential investments, and re-prioritization of capital expenditures (including maintaining our assets to capitalize on any economic and/or industry upswings). In addition, on May 3, 2020, we completed a two-week idling of operations and Company-wide furlough that began on April 20, 2020. We completed an additional furlough during the second quarter of 2020, which included an idling of operations from June 29, 2020 through July 3, 2020. We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may take additional actions based on their requirements and recommendations.

We are also working with local food banks, schools, healthcare facilities, and other nonprofit organizations to support agencies and families in need, including the following:

▪We manufactured thousands of full splash protective face shields that were donated to hospitals, cancer centers, surgery centers, dentist offices and other healthcare facilities.

▪We manufactured partitions so a local gym could open safely.

▪We moved refrigerated trailers from our lots to assist hospitals. We also coordinated movement of refrigerated product from our dealer lots across the country to serve a similar need.

▪We donated refrigerated trailers to transport food for school lunch pickups.

▪We provided FEMA and local governments descriptions of capabilities as they amass their options and determine next steps for today, tomorrow, and into the future.

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▪We manufactured vessels which are used in rapid COVID-19 testing.

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, and overall business could have a material adverse effect on our results of operations, financial condition, and cash flows. In addition, see Part I, Item 1A, "Risk Factors" of this Annual Report on Form 10-K regarding risks associated with the COVID-19 pandemic.

Executive Summary

As reported in our Annual Report on Form 10-K for the year ended December 31, 2019, industry experts estimated decreased 2020 production of approximately 239,000 trailers due to softened demand. This softened demand for 2020 was worsened and magnified by the uncertainty and economic impact caused by the COVID-19 pandemic. According to ACT Research Company (“ACT”), the current estimate for 2020 production is approximately 202,000 trailers, a 15% decrease from the expected 2020 production levels at the end of 2019. As we enter 2021 with continued uncertainty from the COVID-19 pandemic, the outlook for the overall trailer market for 2021 indicates some recovery from suppressed 2020 levels. The most recent estimates from industry forecasters, ACT and FTR Associates (“FTR”), indicate demand levels expected to be in excess of the estimated replacement demand of approximately 220,000 trailers in each year through 2025. More specifically, ACT is currently estimating 2021 demand will be approximately 275,000 trailers, an increase of 36% as compared to 2020, with 2022 through 2025 industry demand levels ranging between 275,000 and 305,000 trailers. In addition, FTR anticipates trailer production for 2021 at approximately 270,000 trailers, an increase of 30% compared to 2020 levels. These production levels are more consistent with historically normalized levels. In addition, industry forecasters indicate that backlogs are at the highest levels since the first half of 2019, providing a good foundation for 2021 production.

Despite the uncertainty caused by the ongoing COVID-19 pandemic, we believe we have maintained a solid position from a liquidity perspective as we have prepared for an eventual downturn in our industry over the last two years. We also made efforts that contained certain costs and managed liquidity as a result of the pandemic. These actions included a temporary freeze on share repurchases beginning in March 2020 (which we resumed during the fourth quarter), reductions to discretionary spending, business-related travel restrictions, elimination of non-essential investments, and re-prioritization of capital expenditures (including maintaining our assets to capitalize on any economic and/or industry upswings). We believe that conditions strengthened throughout 2020 in many of our customers' end markets and demand for our products is poised to improve in 2021. While we are focused in the near-term on executing on this cyclical upturn, we also continue to work on strategic initiatives to profitably grow the Company in the long-term. Bringing new technologies to market combined with our focus on building out adjacent revenue opportunities will provide us with opportunities for growth beyond what the cycle gives us.

The Company’s operating performance throughout 2020 during the pandemic 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 helps 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 loss in 2020 totaled $(85.6) million and operating loss margin was (5.8)%, which were driven in part by goodwill impairment (as further described within this Annual Report on Form 10-K) and the COVID-19 pandemic.

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 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) continue the planned reduction of our debt obligations, (3) return capital to shareholders and (4) selectively pursue strategic acquisitions. As evidenced by our purchase of Supreme in September 2017, 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 2020 we demonstrated our commitment to be responsible stewards of the business by maintaining a balanced approach to capital allocation. Even with the impacts and uncertainty caused by 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 $17.6 million of common stock under the share repurchase program approved by our Board of Directors and paying dividends of $17.3 million. In addition, as further

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described below, during the third quarter of 2020 we used the proceeds from the closure of our $150.0 million New Term Loan Credit Agreement to pay off the $135.2 million outstanding balance on the Old Term Loan Credit Agreement. We used the remaining proceeds to pay related issuance costs and expenses as well as repay $10.0 million against our Senior Notes, which are now our nearest maturity of outstanding debt, due October 2025. We also made a voluntary prepayment of $11.2 million under our New Term Loan Credit Agreement during the fourth quarter of 2020. 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 2021 primarily relate to our ability to effectively manage our manufacturing operations as well as the cost and supply of raw materials, commodities and components. Significant increases in the cost of certain commodities, raw materials or components have had, and may continue to have, an adverse effect on our results of operations. As has been our practice, we will endeavor to pass raw material and component price increases to our customers in addition to continuing our cost management and hedging activities in an effort to minimize the risk 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 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.

Operating Performance

We 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 value and highest priority. 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. 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 Process Yield performance and reducing rework. In addition, we currently maintain ISO 9001 registrations at our Lafayette, Indiana, Cadiz, Kentucky, and Huddersfield, England facilities.

▪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 2.0, 2.4, and 2.5 units in 2020, 2019 and 2018, 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.

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 remain focused on the availability of labor and any potential challenges as we enter 2021 and look to increase our operational capacity. We successfully hired approximately 600 new employees across our business during the fourth quarter of 2020, which equated to increasing our workforce by approximately 15%. We expect to continue to add additional labor during the first half of 2021 to support our operations and production.

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▪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 in our Lafayette, Indiana, Goshen, Indiana, and Cadiz, Kentucky 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 couple 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. While we implemented cost containment measures during 2020 in response to the COVID-19 pandemic, we maintained focus on continuous improvement. We made adjustments throughout our processes to align variable and fixed costs with capacity. In addition, while our cost containment efforts re-prioritized capital expenditures for 2020, 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, Wabash National is 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. 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 2019, our recycling programs and use of recycled materials saved 141,000 cubic yards of landfill space, 152,000,000 kilowatt-hours of electricity, 73,000 metric tons of greenhouse gas emissions, and 23,000 mature trees.

In 2009, our land use efforts began with a partnership between Wabash National, the Indiana Wildlife Federation (IWF) and the U.S. Fish & Wildlife Service. Together, we worked to restore 40 acres attached to our facility in Lafayette, Indiana, back to its native state with prairie grasses and wildflowers to encourage a sustainable approach to industrial land use. Our project provided a natural wildlife habitat and measurably reduced our environmental impact. In 2012, the IWF recognized Wabash National with its Wildlife Friendly Certification. Today, we continue to build momentum to improve and expand Wabash National’s land use efforts at all of our locations.

Our 2019 Sustainability Report is available on our website (ir.wabashnational.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.

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Industry Trends

Trucking in the U.S., according to the American Trucking Association (“ATA”), was estimated to be a $791.7 billion industry in 2019, representing approximately 80% of the total U.S. transportation industry revenue. This represents a slight decrease of 0.6% from ATA’s 2018 estimate. Furthermore, ATA estimates that approximately 72.5% of all domestic freight tonnage in 2019 was carried by trucks, and 304.9 billion miles were traveled by registered trucks in 2018. 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 eight years is shown below.

As reported in our Annual Report on Form 10-K for the year ended December 31, 2019, ACT estimated decreased 2020 production of approximately 239,000 trailers due to softened demand. This softened demand for 2020 was worsened and magnified by the uncertainty and economic impact caused by the COVID-19 pandemic. ACT’s current estimate for 2020 production is approximately 202,000 trailers, a 15% decrease from the expected 2020 production levels at the end of 2019. As we enter 2021 with continued uncertainty from the COVID-19 pandemic, ACT is estimating recovery in 2021 to more historically consistent production levels within the trailer industry of approximately 275,000 trailers. This represents an increase of approximately 36% from 2020. In addition, ACT is forecasting annual new trailer production levels for the four year period ending 2025 of approximately 305,000, 277,000, 284,000, and 289,000, respectively. We believe that estimated production will remain above replacement demand for 2021.

New Trailer Orders. According to ACT, total orders in 2020 were approximately 289,000 trailers, a 41% increase from 206,000 trailers ordered in 2019. Total orders for the dry van segment, the largest within the trailer industry, were approximately 199,000, an increase of 74% from 2019. These increases are generally consistent with our expectations due to the softened order season in 2019 for 2020, along with some recovery expected in 2021 from 2020’s suppressed levels.

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:

▪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. 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. 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.

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On December 3, 2019, CARB issued an official advisory notifying trailer manufacturers that CARB will be suspending enforcement of GHG2 trailer requirements until January 1, 2022. Additionally, CARB continues to process and approve voluntary applications during the suspension period and will provide at least a 6-month written notice prior to commencement of enforcing GHG2. 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 National, 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 National and our customers are not required to take any action concerning any new specification-driven regulatory requirements in 2021.

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

▪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, even with the impact of the COVID-19 pandemic, freight volumes will grow around 36% over the next 11 years while total freight transportation revenue is expected to increase 45.7% by 2031.

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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:

Years Ended December 31,

General and administrative expenses 6.3 % 4.7 % 4.2 %

Selling expenses 1.7 % 1.5 % 1.5 %

Amortization of intangibles 1.5 % 0.9 % 0.8 %

Impairment and other, net 7.1 % — % 1.1 %

(Loss) income from operations (5.8) % 6.2 % 4.9 %

Interest expense (1.6) % (1.2) % (1.3) %

Other, net — % 0.1 % 0.6 %

(Loss) income before income taxes (7.4) % 5.1 % 4.2 %

Income tax (benefit) expense (0.8) % 1.2 % 1.1 %

Net (loss) income (6.6) % 3.9 % 3.1 %

2020 Compared to 2019

Net Sales

Net sales in 2020 decreased $837.2 million, or 36.1%, compared to 2019. By business segment, net sales prior to intersegment eliminations and related trailer units sold were as follows (dollars in thousands):

Year Ended December 31, Change

(prior to elimination of intersegment sales)

Sales by Segment

New Trailers (units)

Used Trailers (units)

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Commercial Trailer Products segment sales, prior to the elimination of intersegment sales, were $992.8 million in 2020, a decrease of $528.8 million, or 34.8%, compared to 2019. The decrease in sales was primarily due to a 36.7% decrease in new trailer shipments as 34,585 trailers were shipped in 2020 compared to 54,650 trailer shipments in 2019. This decrease in new trailer shipments compared to the prior year period resulted in a $522.7 million decrease in new trailer revenue. The overall decrease in sales and shipments is partially attributable to the ongoing impacts of COVID-19, which reduced demand for our products. Despite these headwinds, revenue per new trailer unit increased approximately 1.7% compared to prior year period. Used trailer sales increased $3.4 million compared to 2019 primarily due to a 400 unit increase in used trailer sales. Parts and service sales in 2020 decreased $3.4 million, or 8.5%, compared to 2019.

Diversified Products segment sales, prior to the elimination of intersegment sales, were $294.1 million in 2020, a decrease of $90.4 million, or 23.5%, compared to 2019. New trailer sales decreased $52.2 million, or 26.3%, due to a 28.1% decrease in new trailer shipments as approximately 2,050 trailers were shipped in 2020 compared to 2,850 trailers shipped in 2019. While revenue per new trailer unit increased approximately 2.9% comparatively, the decrease in new trailer shipments compared to the prior year period resulted in a $52.2 million decrease in new trailer revenue. Equipment and other sales decreased $15.7 million, or 22.0%, compared to the prior year period. Sales of our components, parts and service product offerings in 2020 decreased $25.0 million, or 22.1%, compared to 2019. The overall decreases in sales in this market segment are in part due to the ongoing impacts of COVID-19, which caused reduced demand for our products.

Final Mile Products segment sales, prior to the eliminations of intersegment sales, were $218.4 million in 2020 compared to $441.9 million in 2019, a 50.6% decrease. Decreased truck body unit shipments of 48.0% drove a $215.6 million decrease in new truck body sales compared to the prior year period. Sales of our parts and service product offerings in this segment decreased $7.9 million, 33.8%, compared to prior year. The overall decrease in net sales compared to the prior year period is attributable to softer demand in this market segment and decreased chassis availability from suppliers, both of which were worsened by the impacts of the ongoing COVID-19 pandemic.

Cost of Sales

Cost of sales was $1.3 billion in 2020, a decrease of $690.6 million, or 34.3%, compared to 2019. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, and overhead expenses.

Commercial Trailer Products segment cost of sales was $891.2 million in 2020, a decrease of $453.1 million, or 33.7%, compared to 2019. The decrease was primarily driven by an overall decrease in manufacturing costs as a result of lower sales volumes, including a $362.7 million decrease in materials costs and a $90.4 million decrease in other manufacturing costs. The lower sales volumes were due in part to the ongoing COVID-19 pandemic.

Diversified Products segment cost of sales, prior to the elimination of intersegment sales, was $241.2 million in 2020, a decrease of $68.7 million, or 22.2%, compared to 2019. Driven by lower sales volumes partially attributable to the ongoing impacts of the COVID-19 pandemic, the decrease in cost of sales from the prior year period was primarily due to a decrease in materials costs of $46.7 million and a decrease in other manufacturing costs totaling $22.0 million.

Final Mile Products segment cost of sales was $207.4 million in 2020 compared to $384.1 million in 2019, a decrease of $176.7 million or 46.0%. The decrease was driven by a $125.9 million decrease in materials costs and a $50.8 million decrease in other manufacturing costs related to decreased sales volumes; however, the decrease in cost of sales was not proportionate to the decrease in sales volumes. The lower sales volumes were due in part to the ongoing COVID-19 pandemic.

Gross Profit

Gross profit was $159.8 million in 2020, a decrease of $146.6 million, or 47.9% from 2019. Gross profit as a percentage of sales, or gross margin, was 10.8% in 2020 as compared to 13.2% in 2019. Gross profit by segment was as follows (in thousands):

Year Ended December 31, Change

Gross Profit by Segment

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Commercial Trailer Products segment gross profit was $101.6 million in 2020 compared to $177.2 million in 2019, a decrease of $75.6 million. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 10.2% in 2020 as compared to 11.6% in 2019, a decrease of 140 basis points. We made purposeful efforts to mitigate lower sales volumes due to the ongoing COVID-19 pandemic by decreasing our fixed costs, including Company-wide furloughs, headcount reductions, and other cost containment measures. These actions include both temporary and permanent measures. While we made these purposeful efforts to contain costs, the decreases in gross profit and gross profit as a percentage of net sales decreased mostly due to weaker volume leverage over fixed costs.

Diversified Products segment gross profit was $52.9 million in 2020 compared to $74.6 million in 2019. Gross profit, as a percentage of net sales prior to the elimination of intersegment sales, was 18.0% in 2020 compared to 19.4% in 2019, a decrease of 140 basis points. While fixed costs decreased between periods as a result of our cost containment initiatives in response to COVID-19 impacts (which include both temporary and permanent measures), the decreases in gross profit and gross profit as a percentage of net sales compared to the prior year period were primarily driven by weaker volume leverage over fixed costs.

Final Mile Products segment gross profit was $11.0 million in 2020 compared to $57.8 million in 2019. Gross profit, as a percentage of sales, was 5.0% in 2020, compared to 13.1% in 2019. While fixed costs decreased between periods as a result of our cost containment initiatives in response to COVID-19 impacts (which include both temporary and permanent measures), the decreases in gross profit and gross profit as a percentage of net sales were primarily attributable to weaker volume leverage over fixed costs as well as supply chain disruption related to chassis availability from our suppliers which was due in part to the COVID-19 pandemic.

General and Administrative Expenses

General and administrative expenses were $92.7 million in 2020, a decrease of $15.5 million, or 14.3%, compared to 2019. The decrease from the prior year period was largely due to a decrease of approximately $14.5 million in employee-related costs, including benefits and incentive programs, partially offset by an increase in severance-related expense. Additional decreases were attributable to lower professional service expenses, advertising and promotion, and travel-related costs totaling approximately $2.6 million. Partially offsetting these decreases were fees and expenses incurred in closing on the New Term Loan Credit Agreement during the third quarter of 2020 of approximately $1.2 million. The overall decrease in general and administrative expenses was due in part to the impacts of the ongoing COVID-19 pandemic and our implementation of cost containment measures. General and administrative expenses, as a percentage of net sales, were 6.3% in 2020 compared to 4.7% in 2019.

Selling Expenses

Selling expenses were $25.1 million in 2020, a decrease of $9.8 million, or 28.0%, compared to 2019. The decrease was due to a decrease of approximately $6.0 million in employee-related costs, including benefits and incentive programs, and a decrease in travel-related costs and advertising and promotion expense of approximately $3.3 million. Consistent with general and administrative expenses, these overall decreases in selling expenses were due in part to the impacts of the ongoing COVID-19 pandemic and our implementation of cost containment measures. As a percentage of net sales, selling expenses were 1.7% in 2020 compared to 1.5% in 2019.

Amortization of Intangibles

Amortization of intangibles was $22.0 million in 2020 compared to $20.5 million in 2019. Amortization of intangibles for both periods primarily includes amortization expense recognized for intangible assets recorded from the acquisition of Walker in May 2012, certain assets acquired from Beall® in February 2013, and Supreme in September 2017. The increase during 2020 compared to 2019 is primarily attributable to the graded amortization for the Supreme customer relationships intangibles, which was based off of an undiscounted cash flow analysis.

Impairment and Other, Net

Impairment and other, net of $105.6 million during 2020 was primarily the result of impairment charges related to goodwill within the Final Mile Products and Diversified Products 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. There were no impairment charges or significant sales during 2019.

Other Income (Expense)

Interest expense in 2020 totaled $24.2 million compared to $27.3 million in 2019. Interest expense relates to interest and non-cash accretion charges on the New Term Loan Credit Agreement, Old Term Loan Credit Agreement, Senior Notes, and Revolving Credit Agreement. The decrease from the previous year is primarily due to our voluntary prepayments totaling

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approximately $50.0 million against our Old Term Loan Credit Agreement throughout 2019 and the significant decrease in LIBOR between periods.

Other, net for 2020 represented income of $0.6 million as compared to income of $2.3 million for 2019. Income for the current year period is primarily related to interest income, partially offset by debt extinguishment charges totaling $0.4 million related to the payoff of the Old Term Loan Credit Agreement and $10.0 million repayment on our Senior Notes during the third quarter, as well as the $11.2 million prepayment on the New Term Loan Credit Agreement during the fourth quarter. Income for the prior year period is primarily related to interest income.

Income Taxes

We recognized an income tax benefit of $11.8 million in 2020 compared to income tax expense of $28.2 million in 2019. The effective tax rate for 2020 was 10.8% compared to 23.9% for 2019. Certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) had a significant impact on the effective tax rate, income tax payable, and deferred income tax positions of the Company for 2020. The effective tax rate for 2020 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 CARES Act, and discrete items incurred related to stock-based compensation. For 2019, the effective tax rate differs from the US Federal statutory rate of 21% primarily due to the impact of state and local taxes and research and development credits. Refunds received for income taxes in 2020 were $4.7 million compared to cash paid for taxes during 2019 of $20.4 million.

Liquidity and Capital Resources

Capital Structure

Our capital structure is comprised of a mix of debt and equity. As of December 31, 2020, our debt to equity ratio was approximately 1.1:1.0. 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.

Throughout 2020, and in keeping to this balanced approach, we repurchased $17.6 million of common stock under the share repurchase program approved by our Board of Directors and paid dividends of $17.3 million. In addition, as further described below, during the third quarter of 2020 we used the proceeds from the closure of our $150.0 million New Term Loan Credit Agreement to pay off the $135.2 million outstanding balance on the Old Term Loan Credit Agreement. We used the remaining proceeds to pay related issuance costs and expenses as well as repay $10.0 million against our Senior Notes, which are now our nearest maturity of outstanding debt, due October 2025. We also made a voluntary prepayment of $11.2 million under our New Term Loan Credit Agreement during the fourth quarter of 2020.

Despite the uncertainty caused by the ongoing COVID-19 pandemic, we believe we are well-positioned from a liquidity perspective as we have prepared for an eventual downturn in our industry over the last two years. Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $384.0 million as of December 31, 2020 and $308.1 million as of December 31, 2019, an increase of 25%. In addition, as noted above our nearest debt maturity is not until October 2025. While the severity and duration of the impacts of COVID-19 remain unknown, for 2021 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 contain cost and 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 September 26, 2017, we issued Senior Notes due 2025 (the “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 Senior Notes bear interest at the rate of 5.50% per annum from the date of issuance, and pay interest semi-annually in cash on April 1 and October 1 of each year. We used the net proceeds of $318.9 million from the sale of the Senior Notes to finance a portion of the acquisition of Supreme and to pay related fees and expenses.

The Senior Notes will mature on October 1, 2025. At any time prior to October 1, 2020, we could have redeemed 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 for the 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 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

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the aggregate principal amount of the Senior Notes remained outstanding. On and after October 1, 2020, we may redeem some or all of the 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 Senior Notes), unless we have exercised our optional redemption right in respect of the Senior Notes, the holders of the Senior Notes 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 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 Senior Notes are structurally subordinate to any existing and future debt of any of our subsidiaries that are not guarantors, to the extent of the assets of those subsidiaries.

The indenture for the Senior Notes 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 Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no event of default has occurred or is continuing, many of such covenants will be suspended and we and our subsidiaries will not be subject to such covenants during such period.

The indenture for the Senior Notes contains customary events of default, including payment defaults, breaches of covenants, failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. 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, 2020, 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.

Contractual coupon interest expense and accretion of discount and fees for the Senior Notes for the years ended December 31, 2020, 2019 and 2018, was $18.6 million, $18.5 million and $18.5 million, respectively and is 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 utilizing net proceeds from the closure of the new term loan credit agreement, which is described in more detail below.

Revolving Credit Agreement

On December 21, 2018, we entered into the Second Amended and Restated Credit Agreement (the “Revolving Credit Agreement”), among us, certain of our subsidiaries as borrowers (together with us, the “Borrowers”), the lenders from time to time party thereto, Wells Fargo Capital Finance, LLC, 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 (together with the Second Amended and Restated Credit Agreement, the “Revolving Credit Agreement” or “Revolving Facility”) among us, certain of our subsidiaries party thereto, the lenders party thereto, and the Revolver Agent. The Amendment primarily made conforming changes to the provisions in the Revolving Credit Agreement to reflect modifications made under the new term loan credit agreement, which is described in more detail below.

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 (subject only to the liens securing the Term Loan Credit Agreement (as defined below), 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

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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 Term Loan Credit Agreement are governed by an Intercreditor Agreement, dated as of May 8, 2012, 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 certain springing maturity events.

Under the Revolving Credit Agreement, the lenders agree to make available to us a $175 million revolving credit facility. We have the option to increase the total commitment under the facility to up to $275 million, subject to certain conditions, including obtaining commitments from any one or more lenders, whether or not currently party to the Revolving Credit Agreement, to provide such increased amounts. Availability under the Revolving Credit Agreement will be based upon quarterly (or more frequent under certain circumstances) borrowing base certifications of the Borrowers’ eligible inventory and eligible accounts receivable, and will be 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 an amount not in excess of $15 million, and allows for swingline loans in an amount not in excess of $17.5 million. Outstanding borrowings under the Revolving Credit Agreement will bear interest at an annual rate, at the Borrowers’ election, equal to (i) LIBOR plus a margin ranging from 1.25% to 1.75% or (ii) a base rate plus a margin ranging from 0.25% to 0.75%, in each case depending upon the monthly average excess availability under the revolving loan facility. The Borrowers are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of the Revolver Agent and the lenders.

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.

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.

Subject to the terms of the Intercreditor Agreement, 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.

In connection with the Second Amended and Restated Credit Agreement, we recognized a loss on debt extinguishment of $0.1 million during 2018, which is included in Other, net on our Consolidated Statements of Operations. Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $384.0 million as of December 31, 2020 and $308.1 million as of December 31, 2019, an increase of 25%.

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 and 2019 there were no amounts outstanding under the Revolving Facility. We are in compliance with all covenants as of December 31, 2020, 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.

Interest expense under the Revolving Credit Agreement for the year ended December 31, 2020, was approximately $0.2 million. There was no interest expense under the Revolving Credit Agreement for years ended December 31, 2019 and December 31, 2018.

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.

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The New Term Loan Credit Agreement is guaranteed by certain of our subsidiaries (the “Term Loan Guarantors”) and is 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 are 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 has a scheduled maturity date of September 28, 2027. The loans under the New Term Loan Credit Agreement amortize 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 bear 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 contains 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. As of December 31, 2020, 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.

Subject to the terms of the Intercreditor Agreement, if the covenants under the New Term Loan 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 New Term Loan 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 60 days.

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 its 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.

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. The required quarterly principal payments through maturity under the New Term Loan Credit Agreement were satisfied in full with this prepayment.

For the years ended December 31, 2020, 2019, and 2018, under the New and Old Term Loan Credit Agreements we paid interest of $4.8 million, $7.8 million, and $8.0 million, respectively. For the years ended December 31, 2019 and 2018 we paid principal of $50.5 million, and $1.9 million, respectively. During 2020, 2019, and 2018, we recognized losses on debt extinguishment totaling approximately $0.4 million, $0.2 million, and $0.3 million, respectively, in connection with the New Term Loan Credit Agreement activity described above and prepayment of principal. The losses on debt extinguishment are included in Other, net on our Consolidated Statements of Operations. As of December 31, 2020 and December 31, 2019, we had $138.8 million and $135.2 million outstanding under the New and Old Term Loan Credit Agreements, respectively, of which none was classified as current on our Consolidated Balance Sheets.

For the years ended December 31, 2020, 2019, and 2018, 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.

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Convertible Senior Notes

In April 2012, we issued Convertible Senior Notes due 2018 (the “Convertible Notes”) with an aggregate principal amount of $150 million in a public offering. The Convertible Notes bear interest at a rate of 3.375% per annum from the date of issuance, payable semi-annually on May 1 and November 1, and matured on May 1, 2018. The Convertible Notes were senior unsecured obligations ranked equally with our existing and future senior unsecured debt. We used the net proceeds of $145.1 million from the sale of the Convertible Notes to fund a portion of the purchase price of the acquisition of Walker Group Holdings (“Walker”) in May 2012. We accounted separately for the liability and equity components of the Convertible Notes in accordance with authoritative guidance for convertible debt instruments that may be settled in cash upon conversion.

During 2018, we used $80.2 million in cash, excluding interest, to settle $44.6 million in principal of the Convertible Notes of which none were converted to common shares. The excess of the cash settlement amount over the principal value of the Convertible Notes was accounted for as a reacquisition of equity, resulting in a $35.5 million reduction to additional paid-in capital during 2018. For the year ended December 31, 2018, we recognized a loss on debt extinguishment of $0.2 million related to settlements and the retirement of the Convertible Notes, which is included in Other, net on our Consolidated Statements of Operations.

Cash Flow

2020 compared to 2019

Cash provided by operating activities for 2020totaled $124.1 million, compared to $146.3 million in 2019. The cash provided by operations during the current year was the result of net loss adjusted for various non-cash activities, including depreciation, amortization, net gain on the sale of assets and a business divestiture, deferred taxes, loss on debt extinguishment, stock-based compensation, impairment, accretion of debt discount, and a $57.0 million decrease in our working capital. Changes in key working capital accounts for 2020 and 2019 are summarized below (in thousands):

Source (use) of cash:

Accounts receivable decreased by $71.4 million in 2020 and $8.3 million for 2019. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, was approximately 23 days and 27 days as of December 31, 2020 and 2019, respectively. The decrease in accounts receivable for 2020 was primarily due to lower shipment volume during the current year as well as the timing of customer payments. Inventories decreased in 2020 by $21.1 million compared to an increase in 2019 of $2.5 million. Our inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately 6 times in 2020 compared to 8 times in 2019. The decrease in inventory for 2020 was primarily attributable to lower finished goods, raw materials, and work in progress inventories due to softer demand during 2020 compared to 2019. Accounts payable and accrued liabilities decreased by $28.3 million in 2020 compared to a decrease of $0.8 million for 2019. Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 26 days in 2020 and 24 days in 2019. The decrease in 2020 compared to 2019 was primarily due to the overall timing of payments and our cost containment measures implemented during 2020.

Investing activities used $3.0 million during 2020 compared to $36.9 million used in 2019. Investing activities for 2020 included capital expenditures of $20.1 million to support maintenance, growth, and improvement initiatives at our facilities partially offset by proceeds from the sale of assets and a business divestiture totaling $17.1 million. Cash used in investing activities in 2019 was primarily related to capital expenditures to support growth and improvement initiatives at our facilities totaling $37.6 million, partially offset by proceeds from the sale of property, plant, and equipment assets of $0.8 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 $146.4 million, both of which utilized net proceeds from the closure of our New Term Loan Credit Agreement. In addition, during the fourth quarter of 2020 we made a prepayment under the New Term Loan Credit Agreement of $11.2 million. We also repurchased common stock of $18.9 million and paid cash dividends to our shareholders of $17.3 million. Financing activities used $101.6 million during 2019, primarily related to principal payments under the Old Term Loan Credit Agreement totaling $50.5 million, common stock repurchases totaling $33.7 million, and cash dividends paid to our shareholders of $17.8 million.

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Despite the uncertainty caused by the ongoing COVID-19 pandemic, we believe we are well-positioned from a liquidity perspective as we have prepared for an eventual downturn in our industry over the last two years. Our liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $384.0 million as of December 31, 2020 and $308.1 million as of December 31, 2019, an increase of 25%. In addition, our nearest debt maturity is not until October 2025. While the severity and duration of the impacts of COVID-19 remain unknown, for 2021 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 contain cost and 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, 2020 are as follows (in thousands):

Debt:

Revolving Facility (due 2023) $ — $ — $ — $ — $ — $ — $ —

Finance Leases (including principal and interest) 361 30 — — — — 391

Other:

Other Commercial Commitments:

Raw Material Purchase Commitments 86,923 — — — — — 86,923

Chassis Agreements and Programs 20,367 — — — — — 20,367

1 Future interest payments on variable rate long-term debt are estimated based on the rate in effect as of December 31, 2020.

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. As a result of uncertainty caused by the COVID-19 pandemic, we drew $45.0 million under the Revolving Facility during the first quarter of 2020. During the second quarter of 2020, we repaid the $45.0 million in outstanding borrowings, and as of December 31, 2020 we had no amounts outstanding under our Revolving Facility.

Borrowings under the New Term Loan Credit Agreement bear 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 Senior Notes bear interest at the rate of 5.5% per annum from the date of issuance, payable semi-annually on April 1 and October 1.

Finance leases represent future minimum lease payments including interest. Operating leases represent the total future minimum lease payments for leases that have commenced. As of December 31, 2020, obligations related to operating leases that we have executed but have not yet commenced totaled approximately $1.7 million on a non-discounted basis, which we generally expect to be recognized over the next 10 years.

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We have standby letters of credit totaling $6.8 million issued in connection with workers compensation claims and surety bonds.

We have $86.9 million in purchase commitments through December 2021 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, 2020 the Company’s outstanding chassis converter pool with the manufacturer totaled $17.8 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 $2.2 million at December 31, 2020. 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.

Warranties. We estimate warranty claims based on our historical information and the nature, frequency, and average cost of claims of our various product lines, combined with our current understanding of existing claims, recall campaigns, and discussions with our customers. Actual experience could differ from the amounts estimated requiring adjustments to these liabilities in future periods. Due to the uncertainty and potential volatility of the factors contributing to developing estimates, changes in our assumptions could materially affect our 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,

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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.

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 of 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.

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, the Company 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 FMP and Tank Trailers, respectively, EBITDA margins, and a terminal growth rate of 3.0%. The results of the quantitative analysis indicated the carrying value of the FMP and 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 Process Systems reporting unit 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 Process Systems reporting unit designs and manufactures 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 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.

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Annual goodwill impairment test

As of December 31, 2020, goodwill allocated to our CTP, DPG, and FMP segments was approximately $2.6 million, $125.0 million, and $71.9 million, respectively. In connection with our annual goodwill impairment test, we performed a quantitative assessment for each reporting unit as of October 1, 2020 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. While no impairment charges were required, the results of the quantitative analysis performed as of October 1, 2020 indicated the fair value of the Process Systems and FMP reporting units exceeded their respective carrying values by approximately 15% and 6%, respectively. Key assumptions used in the analysis of each reporting unit were a discount rate, EBITDA margin, and a terminal growth rate. We believe both of these reporting units will generate sufficient future earnings based on the markets in which they participate as well as growth potential in these markets.

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 Beall®

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.

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.

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 7A–QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to the risks inherent in our operations, we have exposure to financial and market risk resulting from volatility in commodity prices and interest rates. The following discussion provides additional detail regarding our exposure to these risks.

Commodity Price Risks

We are exposed to fluctuation in commodity prices through the purchase of various raw materials that are processed from commodities such as aluminum, steel, lumber, nickel, copper, and polyethylene. Given the historical volatility of certain commodity prices, this exposure can significantly impact product costs. We manage some of our commodity price changes by entering into fixed price contracts with our suppliers and through financial derivatives. To the extent that we are unable to offset the increased commodity costs in our product prices, our results would be materially and adversely affected. As of December 31, 2020, we had $86.9 million in raw material purchase commitments through December 2021 for materials that will be used in the production process, as compared to $83.9 million as of December 31, 2019. We typically do not set prices for our products more than 45-90 days in advance of our commodity purchases and can, subject to competitive market conditions, take into account the cost of the commodity in setting our prices for each order. As of December 31, 2020, a hypothetical ten percent change in commodity prices based on our raw material purchase commitments through December 2021 would result in a corresponding change in cost of goods sold over a one-year period of approximately $8.7 million. This sensitivity analysis does not account for the change in the competitive environment indirectly related to the change in commodity prices and the potential managerial action taken in response to these changes.

Interest Rates

As a result of uncertainty caused by the COVID-19 pandemic, we drew $45.0 million under the Revolving Facility during the first quarter of 2020. During the second quarter of 2020, we repaid the $45.0 million in outstanding borrowings, and as of December 31, 2020 we had no floating rate debt outstanding under our Revolving Facility. During the third quarter of 2020, we used the proceeds from the closure of our $150.0 million New Term Loan Credit Agreement to pay off the $135.2 million outstanding balance on the Old Term Loan Credit Agreement. As of December 31, 2020, we had outstanding borrowings under our New Term Loan Credit Agreement totaling $138.8 million that bears interest at a floating rate, subject to a minimum interest rate. Based on any current borrowings under our Revolving Facility and the outstanding indebtedness under our New Term Loan Credit Agreement, a hypothetical 100 basis-point change in the floating interest rate would result in a corresponding change in interest expense over a one-year period of approximately $1.4 million. This sensitivity analysis does not account for the change in the competitive environment indirectly related to the change in interest rates and the potential managerial action taken in response to these changes.

Foreign Exchange Rates

We are subject to fluctuations in the British pound sterling and Mexican peso exchange rates that impact transactions with our foreign subsidiaries, as well as U.S. denominated transactions between these foreign subsidiaries and unrelated parties. A ten percent change in the British pound sterling or Mexican peso exchange rates would have an immaterial impact on our results of operations. We do not hold or issue derivative financial instruments for speculative purposes.

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ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page

Report of Independent Registered Public Accounting Firm 49

Consolidated Balance Sheets as of December 31, 2020 and 2019 51

Notes to Consolidated Financial Statements 56

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Wabash National Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Wabash National Corporation (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with US generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Valuation of Goodwill

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/s/ ERNST & YOUNG LLP

We have served as the Company’s auditor since 2002.

Indianapolis, Indiana

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WABASH NATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

December 31,

Assets

Current assets:

Liabilities and Stockholders' Equity

Current liabilities:

Current portion of long-term debt $ — $ —

Current portion of finance lease obligations 348 327

Finance lease obligations 30 378

Commitments and contingencies

Stockholders' equity:

Accumulated other comprehensive income (loss) 7,633 (3,978)

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

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WABASH NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

Year Ended December 31,

Acquisition expenses — — 68

Other income (expense):

Net (loss) income per share:

Weighted average common shares outstanding (in thousands):

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

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WABASH NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Dollars in thousands)

Year Ended December 31,

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment and other (316) 712 (193)

Unrealized gain (loss) on derivative instruments 11,927 (1,347) (765)

Total other comprehensive income (loss) 11,611 (635) (958)

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

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WABASH NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

Shares Amount

Foreign currency translation and other (193) (193)

Equity component of convertible senior notes repurchase (35,519) (35,519)

Unrealized loss on derivative instruments, net of tax (765) (765)

Common stock issued in connection with:

Foreign currency translation 712 712

Unrealized loss on derivative instruments, net of tax (1,347) (1,347)

Common stock issued in connection with:

Foreign currency translation (316) (316)

Unrealized gain on derivative instruments, net of tax 11,927 11,927

Common stock issued in connection with:

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

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WABASH NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Year Ended December 31,

Cash flows from operating activities:

Cash flows from investing activities:

Proceeds from sale of assets and business divestiture 17,115 785 17,776

Cash flows from financing activities:

Proceeds from exercise of stock options 1,273 848 961

Borrowings under revolving credit facilities 45,794 619 937

Payments under revolving credit facilities (45,794) (619) (937)

Principal payments under finance lease obligations (327) (308) (290)

Principal payments against senior notes (10,000) — —

Principal payments under term loan credit facility (146,393) (50,470) (1,880)

Principal payments under industrial revenue bond — — (93)

Convertible senior notes repurchase — — (80,200)

Cash, cash equivalents, and restricted cash:

Supplemental disclosures of cash flow information:

(Refunds received) cash paid for income taxes $ (4,670) $ 20,379 $ 24,243

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

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WABASH NATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS

Wabash National Corporation (the “Company”, “Wabash”, or “Wabash National”) was founded in 1985 in Lafayette, Indiana as a dry van trailer manufacturer. The Company designs and manufactures a diverse range of products, including dry freight and refrigerated trailers, platform trailers, bulk tank trailers, dry and refrigerated truck bodies, structural composite panels and products, trailer aerodynamic solutions, and specialty food grade and pharmaceutical equipment. This diversification has been achieved through acquisitions, organic growth, and product innovation. The Company’s innovative products are sold under the following brand names: Wabash National®, Benson®, Brenner® Tank, Bulk Tank International, DuraPlate®, Extract Technology®, Supreme®, Transcraft®, Walker Engineered Products, and Walker Transport.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation.The consolidated financial statements reflect the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany profits, transactions, and balances have been eliminated in consolidation.

Reclassifications.Certain prior period amounts have been reclassified to conform to the current year presentation.

Use of Estimates.The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that directly affect the amounts reported in its consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Cash and Cash Equivalents. Cash and cash equivalents include all highly liquid investments with a maturity of three months or less at the time of purchase.

Accounts Receivable.Accounts receivable are shown net of expected losses and primarily include trade receivables. The Company records expected losses for customers based upon a variety of factors including the Company’s historical collection experience, the length of time the account has been outstanding and the financial condition of the customer. If the circumstances related to specific customers were to change, the Company’s estimates of expected losses with respect to the collectability of the related accounts could be further adjusted. The Company’s policy is to write-off receivables when they are determined to be uncollectible. Expected losses are charged to Selling and General and administrative expenses in the Consolidated Statements of Operations.The following table presents the changes in expected losses (in thousands):

Years ended December 31,

Balance at beginning of year $ 670 $ 665 $ 869

Write-offs, net of recoveries (496) (277) (267)

Inventories. Inventories are stated at the lower of cost, determined on either the first-in, first-out or average cost method, or net realizable value. The cost of manufactured inventory includes raw material, labor and overhead.

Prepaid Expenses and Other. Prepaid expenses and other as of December 31, 2020 and 2019 consists of the following (in thousands):

December 31,

Chassis converter pool agreements $ 17,767 $ 10,164

Insurance premiums & maintenance agreements 4,384 3,217

Chassis converter pool agreements represent chassis transferred to the Company on a restricted basis by the manufacturer, who retains the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales to the manufacturer’s dealers. Assets held for sale are related to unused land parcels. Insurance premiums and maintenance agreements are charged to expense over the contractual life, which is generally

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one year or less. Other items primarily consist of the Company’s commodity swap contracts that are in an asset position, contract assets related to contracts for which the Company recognizes revenue on an over time basis, and investments held by the Company’s captive insurance subsidiary. As of December 31, 2020 and 2019, there was no restricted cash included in prepaid expenses and other current assets.

Property, Plant and Equipment.Property, plant and equipment are recorded at cost, net of accumulated depreciation. Maintenance and repairs are charged to expense as incurred, while expenditures that extend the useful life of an asset are capitalized. Depreciation is recorded using the straight-line method over the estimated useful lives of the depreciable assets. The estimated useful lives are up to 33 years for buildings and building improvements and range from three to ten years for machinery and equipment.

Goodwill. Goodwill represents the excess purchase price over fair value of the net assets acquired. The Company determines its reporting units at the individual operating segment level, or one level below, when there is discrete financial information available that is regularly reviewed by segment management for evaluating operating results. The Company reviews goodwill for impairment, at the reporting unit level, annually on October 1 and whenever events or changes in circumstances indicate its carrying value may not be recoverable. In accordance with ASC 350, Intangibles - Goodwill and Other, goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative process.

The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity has an unconditional option to bypass the qualitative assessment in any period and proceed directly to performing the quantitative impairment test, which is the option the Company has historically chosen.

For reporting units in which the Company performs the quantitative analysis, the Company compares the carrying value, including goodwill, of each reporting unit with its estimated fair value. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is greater than the fair value, the difference is recognized as an impairment loss charged to the reporting unit. After an impairment loss is recognized, the adjusted carrying amount of goodwill shall be its new accounting basis.

The Company exercised its unconditional option to bypass the qualitative assessment of goodwill for all of its reporting units and instead prepared a quantitative assessment to estimate the fair value of each reporting unit at the annual testing date of October 1, 2020 utilizing a combination of the income approach and the market approach, weighted equally. Based on the quantitative assessment performed, all of the Company’s reporting units exceeded their carrying values; as such, there was no goodwill impairment as a result of the 2020 annual goodwill impairment test.

As of December 31, 2019, goodwill allocated to the Company’s CTP, DPG, and FMP segments was approximately $2.6 million, $140.7 million, and $167.7 million, respectively. Within the DPG segment, goodwill was allocated between the Tank Trailers and Process Systems reporting units in the amount of $98.4 million and $42.3 million, respectively.

The Company did not perform in-line with expectations during the first quarter of 2020, partially as a result of impacts to our business and operations due to the COVID-19 pandemic. In addition, subsequent to December 31, 2019, the Company’s share price and market capitalization declined. As a result, indicators of impairment were identified and the Company performed an interim quantitative assessment as of March 31, 2020, utilizing a combination of the income and market approaches, which were weighted evenly. The results of the quantitative analysis indicated the carrying value of the FMP and 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 the third quarter of 2018, the Aviation and Truck Equipment (“AVTE”) reporting unit within the Diversified Products reportable segment did not perform in-line with forecasted results driven by unfavorable market conditions that the Company believed would continue to impact the reporting unit for the foreseeable future. As a result, an indicator of impairment was identified, and the Company performed an interim quantitative assessment as of September 30, 2018, utilizing a combination of the income and market approaches. The results of the quantitative analysis indicated the carrying value of the reporting unit exceeded the fair value of the reporting unit and, accordingly, a goodwill impairment of $4.9 million was recorded.

As further described in Note 20, during the fourth quarter of 2020 the Company sold its 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 the Company 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, the Company 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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Long-Lived Assets.Long-lived assets, consisting primarily of intangible assets and property, plant and equipment, are reviewed for impairment whenever facts and circumstances indicate that the carrying amount may not be recoverable. Specifically, this process involves comparing an asset’s carrying value to the estimated undiscounted future cash flows the asset is expected to generate over its remaining life. If this process were to result in the conclusion that the carrying value of a long-lived asset would not be recoverable, a write-down of the asset to fair value would be recorded through a charge to operations. Fair value is determined based upon discounted cash flows or appraisals as appropriate.

Net intangible assets of approximately $1.1 million were written-off during the fourth quarter of 2020 in connection with the Beall® divestiture. In the third quarter of 2018, due to the impairment indicators noted above related to the AVTE reporting unit with the Diversified Products reportable segment, the Company performed an interim impairment assessment of the long-lived assets of the AVTE reporting unit, including intangible assets and property, plant and equipment. Based on the results of our analysis it was determined that the carrying values of the trade names and property, plant and equipment of the AVTE reporting unit exceeded their fair values and, accordingly, an asset impairment charge totaling $7.1 million was recorded.

AVTE Impairment. On January 22, 2019 the Company announced the divestiture of the AVTE business. In the fourth quarter of 2018, with the financial framework of the agreement to sell the AVTE business largely agreed to with the buyers, the Company evaluated the remaining assets of AVTE for impairment based on the economics of the, then proposed, transaction. As a result of the Company’s impairment analysis, an impairment of $13.0 million was recorded to fully impair all current assets of the AVTE business.

Other Assets.The Company capitalizes the cost of computer software developed or obtained for internal use. Capitalized software is amortized using the straight-line method over three to seven years. As of December 31, 2020 and 2019, the Company had software costs, net of amortization, of $6.1 million and $7.2 million, respectively. Amortization expense for 2020, 2019, and 2018 was $2.0 million, $1.7 million, and $1.5 million, respectively.

Warranties.The Company offers a limited warranty for its products with a coverage period that ranges between one and five years, except that the coverage period for DuraPlate® trailer panels is ten years. The Company passes through component manufacturers’ warranties to our customers. The Company’s policy is to accrue the estimated cost of warranty coverage at the time of the sale.

The following table presents the changes in the product warranty accrual included in Other accrued liabilities (in thousands):

Provision for warranties issued in current year 4,334 8,027

Net adjustment to warranty accrual (228) (2,320)

Self Insured Liabilities.The Company is self-insured up to specified limits for medical and workers’ compensation coverage. The self-insurance reserves have been recorded to reflect the undiscounted estimated liabilities, including claims incurred but not reported, as well as catastrophic claims as appropriate.

The following table presents the changes in the self-insurance accrual included in Other accrued liabilities (in thousands):

Income Taxes. The Company determines its provision or benefit for income taxes under the asset and liability method. The asset and liability method measures the expected tax impact at current enacted rates of future taxable income or deductions resulting from differences in the tax and financial reporting basis of assets and liabilities reflected in the Consolidated Balance Sheets. Future tax benefits of tax losses and credit carryforwards are recognized as deferred tax assets. Deferred tax assets are reduced by a valuation allowance to the extent management determines that it is more-likely-than-not the Company would not realize the value of these assets.

The Company accounts for income tax contingencies by prescribing a “more-likely-than-not” recognition threshold that a tax position is required to meet before being recognized in the financial statements.

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Used Trailer Trade Commitments.The Company may accept trade-in of used trailers when a customer enters into a contract to purchase a new trailer. However, in the contracts for the sale of the new trailers, there is no commitment to repurchase that trailer or a similar trailer in the future. As of December 31, 2020, the Company had no outstanding trade commitments and $3.5 million outstanding trade commitments as of December 31, 2019. On occasion, the amount of the trade allowance provided for in the used trailer commitments, or cost, may exceed the net realizable value of the underlying used trailer. In these instances, the Company’s policy is to recognize the loss related to these commitments at the time the new trailer revenue is recognized. Net realizable value of used trailers is measured considering market sales data for comparable types of trailers.

Concentration of Credit Risk. Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash, cash equivalents, and customer receivables. We place our cash and cash equivalents with high quality financial institutions. Generally, we do not require collateral or other security to support customer receivables.

Research and Development.Research and development expenses are charged to Cost of sales and General and administrative expenses in the Consolidated Statements of Operations as incurred and were $21.9 million, $19.5 million, and $8.8 million in 2020, 2019 and 2018, respectively.

3. NEW ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses,” which introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities, and net investments in leases as well as reinsurance and trade receivables. In November 2018, the FASB issued ASU 2018-19, which clarifies that operating lease receivables are outside the scope of the new standard. The Company adopted the standard using the modified retrospective approach as required on January 1, 2020. The adoption of the new credit losses model did not have a material impact on the Company’s consolidated financial statements.

4. REVENUE RECOGNITION

The Company recognizes revenue from the sale of its products when obligations under the terms of a contract with our customers are satisfied; this occurs with the transfer of control of our products and replacement parts or throughout the completion of service work. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring promised goods or services to a customer and excludes all taxes collected from the customer. Shipping and handling fees are included in Net sales and the associated costs included in Cost of sales in the Consolidated Statements of Operations. For shipping and handling costs that take place after the transfer of control, the Company is applying the practical expedient and treating it as a fulfillment cost. Incidental items that are immaterial in the context of the contract are recognized as expense. For performance obligations satisfied over time, which include certain equipment-related sales within our Diversified Products reportable segment that have no alternative use and contain an enforceable right to payment, as well as service work whereby the customer simultaneously receives and consumes the benefits provided, the Company recognizes revenue on the basis of the Company’s efforts or inputs to the satisfaction of these performance obligations, measured by actual total cost incurred to the total estimated costs for each project. Total revenue recognized over time was not material to the consolidated financial statements for all periods presented.

The Company has identified three separate and distinct performance obligations: (1) the sale of a trailer or equipment, (2) the sale of replacement parts, and (3) service work. For trailer, truck body, equipment, and replacement part sales, control is transferred and revenue is recognized from the sale upon shipment to or pick up by the customer in accordance with the contract terms. The Company does not have any material extended payment terms as payment is received shortly after the point of sale. Accounts receivable are recorded when the right to consideration becomes unconditional. The Company does have customers who pay for the product prior to the transfer of control which is recorded as customer deposits in Other accrued liabilities as shown in Note 8. Customer deposits are recognized as revenue when the Company performs its obligations under the contract and transfers control of the product.

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill.

During the fourth quarters of 2020, 2019, and 2018, the Company completed its goodwill impairment test using the quantitative assessment. Except for the impairment charges during the first quarter of 2020 and third quarter of 2018 discussed below, based on all assessments performed in each of the last three years 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.

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As of December 31, 2019, goodwill allocated to the Company’s CTP, DPG, and FMP segments was approximately $2.6 million, $140.7 million, and $167.7 million, respectively. Within the DPG segment, goodwill was allocated between the Tank Trailers and Process Systems reporting units in the amount of $98.4 million and $42.3 million, respectively.

The Company did not perform in-line with expectations during the first quarter of 2020, partially as a result of impacts to our business and operations due to the COVID-19 pandemic. In addition, subsequent to December 31, 2019, the Company’s share price and market capitalization declined. As a result, indicators of impairment were identified and the Company performed an interim quantitative assessment as of March 31, 2020, utilizing a combination of the income and market approaches, which were weighted evenly. The results of the quantitative analysis indicated the carrying value of the FMP and 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.

During the third quarter of 2018, the Company performed an interim impairment analysis after identifying indicators of impairment based on the results of the AVTE reporting unit. Based on this assessment, it was determined that all of the goodwill allocated to the AVTE reporting unit was impaired resulting in an impairment charge for the Diversified Products reporting segment of $4.9 million.

As further described in Note 20, during the fourth quarter of 2020 the Company sold its 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 the Company 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, the Company 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.

For the years ended December 31, 2020, 2019, and 2018, the changes in the carrying amounts of goodwill were as follows (in thousands):

Commercial Trailer Products Diversified Products Final Mile Products Total

Impact of divestiture on goodwill — (4,944) — (4,944)

Impact of divestiture on accumulated impairment losses — 4,944 — 4,944

Effects of foreign currency — (58) — (58)

Accumulated impairment losses (1,663) — — (1,663)

Impact of divestiture on goodwill — (4,685) — (4,685)

Effects of foreign currency — (44) — (44)

Balance as of December 31, 2020

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Intangible Assets.

As of December 31, 2020, the balances of intangible assets, other than goodwill, were as follows (in thousands):

As of December 31, 2019, the balances of intangible assets, other than goodwill, were as follows (in thousands):

Intangible asset amortization expense was $22.0 million, $20.5 million, and $19.5 million for 2020, 2019, and 2018, respectively. Annual intangible asset amortization expense for the next 5 fiscal years is estimated to be $23.0 million in 2021; $17.9 million in 2022; $15.3 million in 2023; $15.1 million in 2024; and $14.0 million in 2025. Net intangible assets of approximately $1.1 million were written-off during the fourth quarter of 2020 in connection with the Beall® divestiture.

6. INVENTORIES

Inventories, net of reserves, consist of the following (in thousands):

December 31,

7. PROPERTY, PLANT, AND EQUIPMENT

Depreciation expense, which is recorded in Cost of sales and General and administrative expenses in the Consolidated Statements of Operations, as appropriate, on property, plant and equipment was $24.0 million, $20.2 million, and $19.7 million in 2020, 2019, and 2018, respectively, and includes depreciation of assets recorded in connection with the Company’s finance lease agreements. As of December 31, 2020 and 2019, the assets related to the Company’s finance lease agreements are recorded within Property, plant and equipment, net in the Consolidated Balance Sheets in the amount of $2.8 million and $2.9 million, respectively, net of accumulated depreciation of $1.8 million and $1.7 million, respectively.

See Note 20 for information related to property, plant, and equipment sales during 2020.

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Property, plant and equipment, net consist of the following (in thousands):

December 31,

8. OTHER ACCRUED LIABILITIES

The following table presents the major components of Other accrued liabilities (in thousands):

December 31,

9. LONG-TERM DEBT

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

Less: unamortized discount and fees (5,856) (4,842)

Less: current portion — —

Senior Notes

On September 26, 2017, the Company issued Senior Notes due 2025 (the “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 Senior Notes bear interest at the rate of 5.50% per annum from the date of issuance, and pay interest semi-annually in cash on April 1 and October 1 of each year. The Company used the net proceeds of $318.9 million from the sale of the Senior Notes to finance a portion of the acquisition of Supreme and to pay related fees and expenses.

The Senior Notes will mature on October 1, 2025. At any time prior to October 1, 2020, the Company could have redeemed 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 for the Senior Notes and accrued and unpaid interest to, but not including, the redemption date. Prior to October 1, 2020, the Company could have redeemed up to

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40% of the 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 Senior Notes remained outstanding. On and after October 1, 2020, the Company may redeem some or all of the 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 Senior Notes), unless the Company has exercised its optional redemption right in respect of the Senior Notes, the holders of the Senior Notes have the right to require the Company 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 the Company and the guarantors’ general unsecured senior obligations and are subordinate to all of the Company and the guarantors’ existing and future secured debt to the extent of the assets securing that secured obligation. In addition, the Senior Notes are structurally subordinate to any existing and future debt of any of the Company’s subsidiaries that are not guarantors, to the extent of the assets of those subsidiaries.

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

The indenture for the Senior Notes contains customary events of default, including payment defaults, breaches of covenants, failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. 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, 2020, the Company was in compliance with all covenants.

Contractual coupon interest expense and accretion of discount and fees for the Senior Notes for the years ended December 31, 2020, 2019 and 2018, was $18.6 million, $18.5 million and $18.5 million, respectively and is included in Interest expense on the Company’s Consolidated Statements of Operations.

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

Revolving Credit Agreement

On December 21, 2018, the Company entered into the Second Amended and Restated Credit Agreement (the “Revolving Credit Agreement”), among the Company, certain of its subsidiaries as borrowers (together with the Company, the “Borrowers”), the lenders from time to time party thereto, Wells Fargo Capital Finance, LLC, as the administrative agent, joint lead arranger and joint bookrunner (the “Revolver Agent”), and Citizens Business Capital, a division of Citizens Asset Finance, Inc., as syndication agent, joint lead arranger and joint bookrunner, which amended and restated the Company’s existing amended and restated revolving credit agreement, dated as of May 8, 2012.

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

The Revolving Credit Agreement is guaranteed by certain subsidiaries of the Company (the “Revolver Guarantors”) and is secured by (i) first priority security interests (subject only to customary permitted liens and certain other permitted liens) in substantially all personal property of the Borrowers and the Revolver Guarantors, consisting of accounts receivable, inventory, cash, deposit and securities accounts and any cash or other assets in such accounts and, to the extent evidencing or otherwise related to such property, all general intangibles, licenses, intercompany debt, letter of credit rights, commercial tort claims, chattel paper, instruments, supporting obligations, documents and payment intangibles (collectively, the “Revolver Priority Collateral”), and (ii) second-priority liens on and security interests in (subject only to the liens securing the Term Loan Credit

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Agreement (as defined below), 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 Term Loan Credit Agreement are governed by an Intercreditor Agreement, dated as of May 8, 2012, 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 certain springing maturity events.

Under the Revolving Credit Agreement, the lenders agree to make available to the Company a $175 million revolving credit facility. The Company has the option to increase the total commitment under the facility to up to $275 million, subject to certain conditions, including obtaining commitments from any one or more lenders, whether or not currently party to the Revolving Credit Agreement, to provide such increased amounts. Availability under the Revolving Credit Agreement will be based upon quarterly (or more frequent under certain circumstances) borrowing base certifications of the Borrowers’ eligible inventory and eligible accounts receivable, and will be 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 an amount not in excess of $15 million, and allows for swingline loans in an amount not in excess of $17.5 million. Outstanding borrowings under the Revolving Credit agreement will bear interest at an annual rate, at the Borrowers’ election, equal to (i) LIBOR plus a margin ranging from 1.25% to 1.75% or (ii) a base rate plus a margin ranging from 0.25% to 0.75%, in each case depending upon the monthly average excess availability under the revolving loan facility. The Borrowers are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses of the Revolver Agent and the lenders.

The Revolving Credit Agreement contains customary covenants limiting the ability of the Company and certain of its affiliates to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. In addition, the Company will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 as of the end of any period of 12 fiscal months when excess availability under the Revolving Credit Agreement is less than 10% of the total revolving commitment.

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.

Subject to the terms of the Intercreditor Agreement, 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.

In connection with the Second Amended and Restated Credit Agreement, the Company recognized a loss on debt extinguishment of $0.1 million during 2018, which is included in Other, net on the Company’s Consolidated Statements of Operations. The Company’s liquidity position, defined as cash on hand and available borrowing capacity on the Revolving Credit Facility, amounted to $384.0 million as of December 31, 2020 and $308.1 million as of December 31, 2019.

During the three-month period ended March 31, 2020, the Company 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, the Company repaid the $45.0 million in outstanding borrowings, and for the remainder of 2020 and as of December 31, 2020 and 2019 there were no amounts outstanding under the Revolving Facility. The Company was in compliance with all covenants as of December 31, 2020.

Interest expense under the Revolving Credit Agreement for the year ended December 31, 2020, was approximately $0.2 million. There was no interest expense under the Revolving Credit Agreement for years ended December 31, 2019 and December 31, 2018.

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New and Old Term Loan Credit Agreements

On September 28, 2020, the Company entered into a Term Loan Credit Agreement (the “New Term Loan Credit Agreement”) among the Company, 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 the Company, the lenders party thereto and Morgan Stanley Senior Funding, Inc., as the administrative agent.

The New Term Loan Credit Agreement is guaranteed by certain subsidiaries of the Company (the “Term Loan Guarantors”) and is 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 personal property of the Company 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 the Company and each Term Loan Guarantor, and (B) substantially all other tangible and intangible assets of the Company 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 are 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 has a scheduled maturity date of September 28, 2027. The loans under the New Term Loan Credit Agreement amortize 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 bear interest at a rate, at the Company’s 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 contains customary covenants limiting the ability of the Company and its 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. As of December 31, 2020, the Company was in compliance with all covenants.

Subject to the terms of the Intercreditor Agreement, if the covenants under the New Term Loan 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 New Term Loan 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 60 days.

The Company 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 its 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, the Company recognized a loss on debt extinguishment totaling approximately $0.2 million, which is included in Other, net in the Consolidated Statements of Operations.

As further described in Note 20, during the fourth quarter of 2020 the Company sold its 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 the Company recognized a loss on debt extinguishment totaling approximately $0.2 million. The Company’s required quarterly principal payments through maturity under the New Term Load Credit Agreement were satisfied in full with this prepayment.

For the years ended December 31, 2020, 2019, and 2018, under the New and Old Term Loan Credit Agreements the Company paid interest of $4.8 million, $7.8 million, and $8.0 million, respectively. For the years ended December 31, 2019 and 2018 the Company paid principal of $50.5 million, and $1.9 million, respectively. During 2020, 2019, and 2018, the Company recognized losses on debt extinguishment totaling approximately $0.4 million, $0.2 million, and $0.3 million, respectively, in connection with the New Term Loan Credit Agreement activity described above and prepayment of principal. The losses on debt extinguishment are included in Other, net on the Company’s Consolidated Statements of Operations. As of December 31, 2020 and December 31, 2019, the Company had $138.8 million and $135.2 million outstanding under the New and Old Term Loan Credit Agreements, respectively, of which none was classified as current on the Company’s Consolidated Balance Sheets.

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For the years ended December 31, 2020, 2019, and 2018, the Company 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.

Convertible Senior Notes

In April 2012, the Company issued Convertible Senior Notes due 2018 (the “Convertible Notes”) with an aggregate principal amount of $150 million in a public offering. The Convertible Notes bear interest at a rate of 3.375% per annum from the date of issuance, payable semi-annually on May 1 and November 1, and matured on May 1, 2018. The Convertible Notes were senior unsecured obligations of the Company ranking equally with its existing and future senior unsecured debt. The Company used the net proceeds of $145.1 million from the sale of the Convertible Notes to fund a portion of the purchase price of the acquisition of Walker Group Holdings (“Walker”) in May 2012. The Company accounted separately for the liability and equity components of the Convertible Notes in accordance with authoritative guidance for convertible debt instruments that may be settled in cash upon conversion.

During 2018, the Company used $80.2 million in cash, excluding interest, to settle $44.6 million in principal of the Convertible Notes of which none were converted to common shares. The excess of the cash settlement amount over the principal value of the Convertible Notes was accounted for as a reacquisition of equity, resulting in a $35.5 million reduction to additional paid-in capital during 2018. For the year ended December 31, 2018, we recognized a loss on debt extinguishment of $0.2 million related to settlements and the retirement of the Convertible Notes, which is included in Other, net on the Company’s Consolidated Statements of Operations.

Contractual coupon interest expense and accretion of discount and fees on the liability component for the Convertible Notes for the years ended December 31, 2020, 2019, and 2018 included in Interest expense on the Company’s Consolidated Statements of Operations were as follows (in thousands):

Year Ended December 31,

Contractual coupon interest expense $ — $ — $ 470

Accretion of discount and fees on the liability component $ — $ — $ 461

10. FINANCIAL DERIVATIVE INSTRUMENTS

Commodity Pricing Risk

As of December 31, 2020, the Company was party to commodity swap contracts for specific commodities with notional amounts of approximately $86.9 million. The Company uses commodity swap contracts to mitigate the risks associated with fluctuations in commodity prices impacting its cash flows related to inventory purchases from suppliers. The Company does not hedge all commodity price risk.

At inception, the Company designated the commodity swap contracts as cash flow hedges. The contracts mature at specified monthly settlement dates through January 2022. The change in fair value effective portion of the hedging transaction is recognized in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and transferred to earnings when the forecasted hedged transaction takes place or when the forecasted hedged transaction is no longer probable to occur.

Financial Statement Presentation

As of December 31, 2020 and 2019, the fair value carrying amount of the Company’s derivative instruments were recorded as follows (in thousands):

Asset / (Liability) Derivatives

Derivatives designated as hedging instruments

Commodity swap contracts Prepaid expenses and other $ 13,750 $ 1,290

Total derivatives designated as hedging instruments $ 13,384 $ (1,926)

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The following table summarizes the gain or loss recognized in AOCI as of December 31, 2020 and 2019 and the amounts reclassified from AOCI into earnings for the years ended December 31, 2020, 2019, and 2018 (in thousands):

Year Ended December 31,

Derivatives instruments

Over the next 12 months, the Company expects to reclassify approximately $12.8 million of pretax deferred gains related to the commodity swap contracts from AOCI to cost of sales as inventory purchases are settled.

11. LEASES

The Company records a right-of-use ("ROU") asset and lease liability for substantially all leases for which it is a lessee, in accordance with ASC 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has no significant lease agreements in place for which the Company is a lessor. At inception of a contract, the Company considers all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not the contract conveys the right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration.