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, 2019, and our capital resources and liquidity as of
December 31, 2019. Our discussion begins with our assessment of the condition of
the North American trailer industry along with a summary of the actions we have
taken to strengthen the Company. We then analyze the results of our operations
for the last two years, including 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.
As a result of the acquisition of Supreme in the third quarter of 2017, we now
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 Trailer, Process Systems, and
Composites, focuses on our commitment to expand our customer base and diversify
our product

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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, is the
continuation of our growth and diversification strategy into the rapidly growing
final mile space. The Final Mile Products segment was created in the fourth
quarter of 2017.
For discussion of results of operations for the year ended December 31, 2017,
see Item 7-Management's Discussion and Analysis of Financial Condition and
Results of Operations of our 2018 Annual Report on Form 10-K, filed with the SEC
on February 28, 2019.
Executive Summary
2019 was another strong year for the trailer industry. According to ACT
estimates, total new trailer industry production in the United States was
333,400 units in 2019, which represents a 3.2% increase from production volumes
in 2018. This represents the ninth consecutive year that total trailer demand
exceeded normal replacement demand levels, currently estimated to be
approximately 220,000 trailers per year.
The Company's operating performance highlights the success of our growth and
diversification initiatives driven by our long-term strategic plan to continue
to transform the Company into an innovation leader of engineered solutions for
the transportation, logistics, and distribution industries, while maintaining
our focus and expertise in lean and six sigma optimization initiatives to
support a higher growth and margin profile.
Operating income in 2019 totaled $142.8 million and operating income margin was
6.2%. The addition of Supreme in September 2017 was a key accomplishment as it
has not only added revenue and profit opportunity, but has also provided, and
will continue to provide, significant diversification into a high-growth segment
driven by the ever-increasing adoption of e-commerce.
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 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 2019 we demonstrated our commitment to be responsible stewards of the
business by maintaining a balanced approach to capital allocation. 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 completing $30.9 million in share repurchases as
authorized by our Board of Directors, voluntarily making prepayments on our Term
Loan Credit Agreement totaling $50.0 million, and paying dividends to our
shareholders of $17.8 million. 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 reinforces our overall commitment to
deliver shareholder value while maintaining the flexibility to continue to
execute our strategic plan for profitable growth and diversification.
The outlook for the overall trailer market for 2020 indicates a softer demand
environment compared to the last several years. However, the most recent
estimates from industry forecasters, ACT and FTR, indicate demand levels
expected to be in excess of the estimated replacement demand in every year
through 2024. More specifically, ACT is currently estimating 2020 demand will be
approximately 239,000 trailers, a decrease of 28.3% as compared to 2019, with
2021 through 2024 industry demand levels ranging between 241,900 and 283,600
trailers. In addition, FTR anticipates trailer production for 2020 at
approximately 270,000 trailers, a decrease of 17.9% as compared to 2019 levels.
In addition, industry forecasters indicate that further reductions in demand are
unlikely and that production has shifted to a more sustainable rate from the
high levels the last couple years.
In addition to the softening industry demand, 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 2020 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

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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. Our mantra of being better today
than yesterday and better tomorrow than we are today is simple, straightforward,
and easily understood by all our employees.
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. In
eleven of the last thirteen years at least one of our manufacturing sites has
been recognized for safety, including recent awards from the Truck Trailer
Manufacturer Association's Plant Safety Awards granted to our New Lisbon,
Wisconsin and San José Iturbide, Mexico facilities. In 2017, our Cadiz, Kentucky
facility received the Governor's Award for Safety and Health. Our focus on
safety also extends beyond our facilities. We are a founding member of the Cargo
Tank Risk Management Committee, a group dedicated to reducing the hazards faced
by workers on and around cargo tanks.
Quality. We monitor product quality on a continual basis through a number of
means for both internal and external performance as follows:
?   Internal performance.  Our primary internal quality measurement is Process

Yield. Process Yield 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. 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 an ISO

9001 registration of our Quality Management System at our Lafayette


    operations.


?   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 2.4, 2.5, and

3.3 units in 2019, 2018 and 2017, 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 cycle-time, labor-hours per trailer or truck
body 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 and control costs.
?   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
    throughput improvements in our Lafayette, Indiana, Goshen, Indiana, and
    Cadiz, Kentucky facilities.


?   Through deployment of the Wabash Management System, all of our business
    reporting segments have focused on increasing velocity at all our
    manufacturing locations. We have engaged in extensive lean training and
    deployed purposeful capital to accelerate our productivity initiatives.


Cost Reduction and our Operating System. The Wabash Management System allows us
to develop and scale high standards of excellence across the organization. We
believe in a "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 balanced
scorecard process, for example, has allowed us to improve all areas of
manufacturing including safety, quality, on-time delivery, cost reduction,
employee morale and environment. By focusing on continuous improvement and
utilizing our balanced scorecard process, we have realized total cost per unit
reductions as a result of increased capacity utilization of all facilities,
while maintaining a lower level of fixed overhead. We are investing capital in
our processes to reduce variable cost, lower inherent safety risk in our
processes, and improve overall consistency in our manufacturing processes. This
approach continues to drive value in both the products we offer our customers
and the processes our associates work within.
Environment. We strive to manufacture products that are both socially
responsible and environmentally sustainable.  We demonstrate our commitment to
sustainability by maintaining ISO 14001 registration of our Environmental
Management System

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at our Lafayette, Indiana; Cadiz, Kentucky; San José Iturbide, Mexico;
Frankfort, Indiana; Portland, Oregon; 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. At our facilities, we have pursued a wide-range of environmental
initiatives including employee-based recycling programs that reduce waste being
sent to the landfill, energy improvement projects to reduce carbon emissions,
restored a natural wildlife habitat to enhance the environment and protect
native animals. Our Portland, Oregon facility is using renewable energy and also
received the City of Portland's Sustainability at Work certification in
2017. 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.
Industry Trends
Trucking in the U.S., according to the American Trucking Association ("ATA"),
was estimated to be a $796.7 billion industry in 2018, representing
approximately 80% of the total U.S. transportation industry revenue. This
represents an increase of 13.8% from ATA's 2017 estimate. Furthermore, ATA
estimates that approximately 71% of all freight tonnage in 2018 was carried by
trucks. 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. After three consecutive years with total trailer
demand well below normal replacement demand levels estimated to be approximately
220,000 trailers, the five year period ending December 2015 demonstrated
consecutive years of significant improvement in which the total U.S. trailer
market increased year-over-year. In 2016, trailer shipments decreased but
rebounded in 2017 and 2018, with 2018 representing an all-time industry record.
This all-time industry record set in 2018 was surpassed in 2019 with trailer
shipments totaling approximately 328,000.
                     2011        2012        2013         2014       2015        2016          2017         2018        2019
New Trailer
Shipments          204,000      232,000       234,000    269,000    308,000       286,000       290,000    323,000       328,000
Year-Over-Year
Change (%)              64 %       14 %        1 %          15 %       14 %       (7 %)          1 %          11 %        2 %


As we enter the eleventh year of economic growth, ACT is estimating softened,
more historically consistent production levels within the trailer industry in
2020 at approximately 239,000 and forecasting annual new trailer production
levels for the four year period ending 2024 of approximately 241,900, 267,500,
275,300, and 283,600, respectively. Our view is generally consistent with ACT
that trailer demand will soften in 2020 to more historically normalized levels
and then begin growth in the years thereafter, and remain above replacement
demand for 2020.
New Trailer Orders. According to ACT, total orders in 2019 were approximately
205,000 trailers, a 51% decrease from 421,000 trailers ordered in 2018. Total
orders for the dry van segment, the largest within the trailer industry, were
approximately 115,000, a decrease of 56% from 2018. These decreases are
generally consistent with our expectations due to the high levels of orders and
production the last couple of years.
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 are 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.



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? 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. We believed the likely start

date was 2020. However, considering the uncertainty presented by the EPA GHG2

circumstances, including the stay of the federal standards, CARB has

suspended its enforcement of the California GHG trailer standards for a

period of at least two years (calendar years 2020 and 2021). We will continue

to monitor the CARB rulemaking.




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.


?   Fleet equipment utilization has been rising due to increasing freight

volumes, new government regulations and shortages of qualified truck drivers.

As a result, trucking companies are under increased pressure to look for

alternative ways to move freight, leading to more intermodal freight

movement. We believe that railroads are at or near capacity, which will limit

their ability to respond to freight demand pressures. Therefore, we expect

that the majority of freight in our industry will continue to be moved by

truck and, according to ATA, while trucking's share of total freight tonnage

will decrease slightly in 2030 from the current year, freight tonnage carried

by trucks is expected to increase to 14.2 billion tons in 2030 from the

current 11.7 billion tons.




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,
                                      2019        2018       2017
Net sales                            100.0  %   100.0  %   100.0  %
Cost of sales                         86.8  %    87.5  %    85.2  %
Gross profit                          13.2  %    12.5  %    14.8  %

General and administrative expenses    4.7  %     4.2  %     4.4  %
Selling expenses                       1.5  %     1.5  %     1.5  %
Amortization of intangibles            0.9  %     0.8  %     1.0  %
Other operating expenses                 -  %     1.1  %     0.5  %
Income from operations                 6.2  %     4.9  %     7.4  %

Interest expense                      (1.2 )%    (1.3 )%    (1.0 )%
Other, net                             0.1  %     0.6  %     0.5  %
Income before income taxes             5.1  %     4.2  %     6.9  %

Income tax expense                     1.2  %     1.1  %     0.6  %
Net income                             3.9  %     3.1  %     6.3  %



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2019 Compared to 2018
Net Sales
Net sales in 2019 increased $51.9 million, or 2.3%, compared to 2018. 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
                                  2019             2018          Amount         %
                                  (prior to elimination of intersegment sales)
Sales by Segment
Commercial Trailer Products $   1,521,541      $ 1,536,939     $ (15,398 )    (1.0 %)
Diversified Products              384,516          393,971        (9,455 )    (2.4 %)
Final Mile Products               441,910          358,249        83,661      23.4  %
Eliminations                      (28,831 )        (21,881 )
Total                       $   2,319,136      $ 2,267,278     $  51,858       2.3  %

New Trailers                            (units)
Commercial Trailer Products        54,650           59,500        (4,850 )    (8.2 %)
Diversified Products                2,850            2,650           200       7.5  %
Total                              57,500           62,150        (4,650 )    (7.5 %)

Used Trailers                           (units)
Commercial Trailer Products            75              950          (875 )   (92.1 %)
Diversified Products                   75              150           (75 )   (50.0 %)
Total                                 150            1,100          (950 )   (86.4 %)


Commercial Trailer Products segment sales, prior to the elimination of
intersegment sales, were $1.5 billion in 2019, a decrease of $15.4 million, or
1.0%, compared to 2018. The decrease in sales was primarily due to an 8.2%
decrease in new trailer shipments as 54,650 trailers were shipped in 2019
compared to 59,500 trailer shipments in 2018. Pricing efforts undertaken in
response to increases in commodity and labor costs experienced in 2018 partially
offset the decrease in volume of new trailer sales. Used trailer sales decreased
$9.2 million, or 95.5%, compared to 2018 primarily due to an 875 unit decrease
in used trailer sales. Parts and service sales in 2019 increased $5.4 million,
or 15.3%, compared to 2018, which is attributable to a stronger focus on
servicing this market.
Diversified Products segment sales, prior to the elimination of intersegment
sales, were $384.5 million in 2019, a decrease of $9.5 million, or 2.4%,
compared to 2018. New trailer sales increased $33.3 million, or 20.2%, due to a
7.5% increase in new trailer shipments, as approximately 2,850 trailers were
shipped in 2019 compared to 2,650 trailers shipped in 2018 on higher demand for
tank trailers. Also contributing to the sales increase of new trailer sales were
the pricing efforts undertaken in response to increases in commodity and labor
costs experienced in 2018. Equipment and other sales decreased $32.2 million, or
31.1%, primarily due to a $30.5 million decrease as a result of the divestiture
of the AVTE business in January 2019. Sales of our components, parts and service
product offerings in 2019 decreased $9.1 million, or 7.4%, compared to 2018,
primarily due to $2.1 million of lower sales as a result of the sale of the AVTE
business and lower demand for our decking systems and other trailer parts and
accessories.
Final Mile Products segment sales, prior to the eliminations of intersegment
sales, were $441.9 million in 2019 compared to $358.2 million in 2018, a 23.4%
increase. Truck body unit shipments increased 15.3%, which combined with pricing
efforts undertaken in response to increases in commodity and labor costs
experienced in 2018 drove a $77.3 million increase in new truck body sales
compared to 2018. The increase in truck body unit shipments is attributable to
improved chassis availability compared to prior year, our efforts to increase
the visibility of chassis supply resulting in improved production scheduling and
less production disruptions compared to prior year, and overall demand for our
products within the final mile market. The remaining increase in sales is
attributable to increased sales of parts and services as a result of an
increased focus of servicing this market, which included opening a new facility
in 2019.

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Cost of Sales
Cost of sales was $2.0 billion in 2019, an increase of $29.1 million, or 1.5%,
compared to 2018. 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 $1.3 billion in 2019, a
decrease of $24.2 million, or 1.8%, compared to 2018. The decrease was primarily
driven by a $27.8 million decrease in materials costs driven by lower new
trailer sales volumes, partially offset by an increase in the price of materials
due to cost inflation as compared to 2018. Other manufacturing costs increased
$3.6 million as compared to 2018, including direct and indirect labor, outbound
freight and overhead expenses.
Diversified Products segment cost of sales, prior to the elimination of
intersegment sales, was $309.9 million in 2019, a decrease of $15.6 million, or
4.8%, compared to 2018. This decrease was the result of the divestiture of the
AVTE business which resulted in a $32.8 million decrease in cost of sales which
was partially offset by a $17.2 million increase in material costs and other
manufacturing costs in 2019 compared to 2018, which is in line with the increase
in new trailer shipments.
Final Mile Products segment cost of sales was $384.1 million in 2019 compared to
$309.5 million in 2018, an increase of $74.6 million or 24.1%. The increase was
driven by a $48.7 million increase in materials costs and a $25.9 million
increase in other manufacturing costs related to increased sales volumes and
product mix.
Gross Profit
Gross profit was $306.4 million in 2019, an increase of $22.7 million, or 8.0%
from 2018. Gross profit as a percentage of sales, or gross margin, was 13.2% in
2019 as compared to 12.5% in 2018. Gross profit by segment was as follows (in
thousands):
                               Year Ended December 31,            Change
                                 2019            2018           $          %
Gross Profit by Segment
Commercial Trailer Products $    177,190      $ 168,343     $  8,847      5.3 %
Diversified Products              74,588         68,428        6,160      9.0 %
Final Mile Products               57,815         48,771        9,044     18.5 %
Corporate and Eliminations        (3,211 )       (1,891 )     (1,320 )
Total                       $    306,382      $ 283,651     $ 22,731      8.0 %


Commercial Trailer Products segment gross profit was $177.2 million in 2019
compared to $168.3 million in 2018, an increase of $8.8 million. Gross profit,
as a percentage of net sales prior to the elimination of intersegment sales, was
11.6% in 2019 as compared to 11.0% in 2018, an increase of 60 basis points. The
increases in gross profit and gross profit margin as compared to 2018 were
attributable to our pricing efforts to mitigate the impact of higher material
and operating costs.
Diversified Products segment gross profit was $74.6 million in 2019 compared to
$68.4 million in 2018. Gross profit, as a percentage of net sales prior to the
elimination of intersegment sales, was 19.4% in 2019 compared to 17.4% in 2018,
an increase of 200 basis points. The increase in gross margin is primarily due
to the divestiture of the AVTE business which had a gross margin of (0.5)% in
2018. The remaining gross margin improvement and the increase in gross profit is
attributable to operational efficiencies and higher sales volumes.
Final Mile Products segment gross profit was $57.8 million in 2019 compared to
$48.8 million in the fourth quarter of 2018. Gross profit, as a percentage of
sales, was 13.1% in 2019, compared to 13.6% in 2018. The increase in gross
profit compared to 2018 was primarily driven by higher sales volumes and our
pricing efforts. The 50 basis point decrease in gross margin is primarily due to
increased material costs as a result of a higher take rate on lower margin
options.
General and Administrative Expenses
General and administrative expenses were $108.3 million in 2019, an increase of
$13.2 million, or 13.8%, compared to 2018. The increase was largely due to an
approximate $8.0 million increase in employee-related costs, including benefits
and incentive programs, and increases in various other administrative expenses.
These increases were partially offset by lower general and administrative
expenses as a result of the sale of the AVTE business in January 2019. General
and administrative expenses, as a percentage of net sales, were 4.7% in 2019
compared to 4.2% in 2018.
Selling Expenses
Selling expenses were $34.9 million in 2019, an increase of $1.8 million, or
5.5%, compared to 2018. The increase was due to a $2.2 million increase in
employee-related costs, including benefits and incentive programs, and a $1.6
million increase in advertising

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and promotion efforts. These increases were partially offset by lower selling
expenses as a result of the sale of the AVTE business in January 2019. As a
percentage of net sales, selling expenses were 1.5% in both 2019 and 2018.
Amortization of Intangibles
Amortization of intangibles was $20.5 million in 2019 compared to $19.5 million
in 2018. 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.
Impairment
There was no impairment expense in 2019, however, during 2018 impairment expense
totaled $25.0 million, which was attributable to the AVTE business within the
Diversified Products reportable segment. In the third quarter of 2018, the
Company identified indicators of impairment and performed an impairment analysis
of the goodwill, intangible assets and long-lived assets, resulting in a $12.0
million impairment charge. In the fourth quarter of 2018, with the financial
framework of an agreement to sell the Aviation and Truck Equipment business
largely agreed to with the buyers, the Company evaluated the remaining assets
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 business.
Other Income (Expense)
Interest expense in 2019 totaled $27.3 million compared to $28.8 million in
2018. Interest expense in the current year is primarily related to interest and
non-cash accretion charges on our Term Loan Credit Agreement and Senior Notes.
The decrease from 2018 was due to our voluntary prepayments totaling
approximately $50.0 million against our Term Loan Credit Agreement during 2019
and the retirement of the Convertible Notes completed in 2018.
Other, net for 2019 represented income of $2.3 million as compared to income of
$13.8 million for 2018. Income for the current year is primarily related to
interest income and the sale of a building asset that resulted in an immaterial
gain. Income for the prior year was primarily related to the gains recognized on
the sale of former branch locations throughout 2018.
Income Taxes
We recognized income tax expense of $28.2 million in 2019 compared to $26.6
million in 2018. The effective tax rate for 2019 was 23.9%, which differs from
the U.S. Federal statutory rate of 21% primarily due to the impact of state and
local taxes and tax credits related to research and development expenses. Cash
paid for income taxes in 2019 and 2018 were $20.4 million and $24.2 million,
respectively.
Liquidity and Capital Resources
Capital Structure
Our capital structure is comprised of a mix of debt and equity. As of
December 31, 2019, our debt to equity ratio was approximately 0.9:1.0. 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 maintaining
strong liquidity, deleveraging our balance sheet, investing in the business,
both organically and strategically, and returning capital to our shareholders.
Throughout 2019, and in keeping to this balanced approach, we repurchased $30.9
million of common stock under the share repurchase program approved by our Board
of Directors, paid dividends of $17.8 million, and made voluntary prepayments
totaling approximately $50.0 million against our Term Loan Credit Agreement. For
2020, we expect to continue our commitment to fund our working capital
requirements and capital expenditures while also deleveraging our balance sheet
through cash flows from operations as well as available borrowings under our
existing Revolving Credit Agreement and returning capital to our shareholders.
Debt Agreements and Related Amendments
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

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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 years ended
December 31, 2018 and 2017, we recognized a loss on debt extinguishment of $0.2
million and $0.1 million, respectively related to settlements and the retirement
of the Convertible Notes, which is included in Other, net on our Consolidated
Statements of Operations.
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 may redeem some or all of the Senior Notes for cash at a redemption
price equal to 100% of the aggregate principal amount of the Senior Notes being
redeemed plus an applicable make-whole premium set forth in the indenture for
the Senior Notes and accrued and unpaid interest to, but not including, the
redemption date. Prior to October 1, 2020, we may redeem 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 the aggregate principal amount of the Senior Notes remains
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 of our direct
and indirect existing and future domestic restricted subsidiaries, subject to
certain exceptions. 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 debt. In addition, the Senior Notes are
structurally subordinate to any existing and future debt and other obligations
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 and 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, 2019, we were 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, 2019, 2018 and 2017 was $18.5
million and $18.5 million and $4.8 million, respectively, and is included in
Interest expense on our Consolidated Statements of Operations.
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.
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,

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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
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 the ability of 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 (commencing with the month ending
December 31, 2018) when excess availability under the Revolving Credit Agreement
is less than 10% of the total revolving commitment.
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.
As of December 31, 2019 and 2018, we had no outstanding borrowings under the
Revolving Credit Agreement and were in compliance with all covenants. Our
liquidity position, defined as cash on hand and available borrowing capacity on
the Revolving Credit Agreement, amounted to $308.1 million as of December 31,
2019. In connection with the execution of the Revolving Credit Agreement, we
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.
Term Loan Credit Agreement
In May 2012, we entered into a Term Loan Credit Agreement (as amended, the "Term
Loan Credit Agreement"), dated as of May 8, 2012, among us, the several lenders
from time to time party thereto, Morgan Stanley Senior Funding, Inc., as
administrative agent (the "Term Agent"), joint lead arranger and joint
bookrunner, and Wells Fargo Securities, LLC, as joint lead arranger and joint
bookrunner, which provides for, among other things, (x) a senior secured term
loan of $188.0 million that matures on March 19, 2022, subject to certain
springing maturity events (the "Term Loans"), and (y) an uncommitted accordion
feature to provide for additional senior secured term loans of up to $75 million
plus an unlimited amount provided that the senior secured leverage ratio would
not exceed 3.00 to 1.00, subject to certain conditions (the "Term Loan
Facility").
On February 24, 2017, we entered into Amendment No. 3 to the Term Loan Credit
Agreement ("Amendment No. 3"). As of February 24, 2017, $189.5 million of the
Tranche B-2 Loans were outstanding. Under Amendment No. 3, the lenders agreed to

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provide us term loans in the same aggregate principal amount of the outstanding
Tranche B-2 Loans (the "Tranche B-3 Loans"), which were used to refinance the
outstanding Tranche B-2 Loans.
In connection with, and in order to permit under the Term Loan Credit Agreement,
the Senior Notes offering and the acquisition of Supreme, on August 18, 2017, we
entered into Amendment No. 4 to the Term Loan Credit Agreement ("Amendment No.
4"). Amendment No. 4 also permitted us to incur certain other indebtedness in
connection with the Supreme acquisition and to acquire certain liens and
obligations of Supreme upon the consummation of the Supreme acquisition.
Furthermore, on November 17, 2017, we entered into Amendment No. 5 to the Term
Loan Credit Agreement ("Amendment No. 5"). As of the Amendment No. 5 date,
$188.0 million of the Term Loans were outstanding. Under Amendment No. 5, the
lenders agreed to provide us term loans in the same aggregate principal amount
of the outstanding Term Loans ("Tranche B-4 Loans"), which were used to
refinance the outstanding Term Loans.
The Tranche B-4 Loans bear interest at a rate, at the Company's election, equal
to (i) LIBOR (subject to a floor of 0%) plus a margin of 225 basis points or
(ii) a base rate (subject to a floor of 0%) plus a margin of 125 basis points.
We are not subject to any financial covenants under the Term Loan Facility.
The Term Loan Credit Agreement is guaranteed by certain of our subsidiaries, and
is secured by (i) first-priority liens on and security interests in the Term
Priority Collateral, and (ii) second-priority security interests in the Revolver
Priority Collateral.
The Term Loan Credit Agreement contains customary covenants limiting our ability
to, among other things, pay cash dividends, incur debt or liens, redeem or
repurchase stock, enter into transactions with affiliates, merge, dissolve, pay
off subordinated indebtedness, make investments and dispose of assets. Subject
to the terms of the Intercreditor Agreement, if the covenants under the 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 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. As of December 31, 2019, we were
in compliance with all covenants.
For the years ended December 31, 2019, 2018 and 2017, under the Term Loan Credit
Agreement the Company paid interest of $7.8 million, $8.0 million and $7.4
million, respectively, and paid principal of $50.5 million, $1.9 million, and
$1.9 million, respectively. During 2019, the Company recognized losses on debt
extinguishment totaling approximately $0.2 million in connection with the
prepayment of principal. In connection with Amendment No. 3 and Amendment No. 5,
the Company recognized a loss on debt extinguishment of approximately $0.7
million during 2017. The losses on debt extinguishment are included in Other,
net on the Company's Consolidated Statements of Operations. As of December 31,
2019 and December 31, 2018, the Company had $135.2 million and $185.7 million,
respectively, outstanding under the Term Loan Credit Agreement, of which none
and $1.9 million, respectively, was classified as current on the Company's
Consolidated Balance Sheets.
For the years ended December 31, 2019, 2018, and 2017, 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.
Cash Flow
2019 compared to 2018
Cash provided by operating activities for 2019 totaled $146.3 million, compared
to $112.5 million in 2018. The cash provided by operations during the current
year was the result of net income adjusted for various non-cash activities,
including depreciation, amortization, net gain on the sale of assets, deferred
taxes, loss on debt extinguishment, stock-based compensation, and accretion of
debt discount of $145.5 million, and a $0.8 million decrease in our working
capital. Changes in key working capital accounts for 2019 and 2018 are
summarized below (in thousands):
                                           2019         2018         Change
Source (use) of cash:
Accounts receivable                      $ 8,327     $ (39,539 )   $ 47,866
Inventories                               (2,510 )     (18,713 )     16,203

Accounts payable and accrued liabilities (817 ) 32,653 (33,470 ) Net source (use) of cash

$ 5,000     $ (25,599 )   $ 30,599


Accounts receivable decreased by $8.3 million in 2019 compared to an increase of
$39.5 million for 2018. Days sales outstanding, a measure of working capital
efficiency that measures the amount of time a receivable is outstanding, was
approximately 27 days as of both December 31, 2019 and 2018. The decrease in
accounts receivable for 2019 was primarily due to strong customer collections
during the current year. Increases in inventory in 2019 and 2018 resulted in a
use of cash of $2.5 million and $18.7

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million, respectively. Our inventory turns, a commonly used measure of working
capital efficiency that measures how quickly inventory turns per year was
approximately 8 times in 2019 compared to 10 times in 2018. The increase in
inventory for 2019 resulted from higher finished goods and work in progress
inventories partially offset by a decrease in raw materials inventory due to
softer demand as of December 31, 2019 compared to December 31, 2018. Accounts
payable and accrued liabilities decreased by $0.8 million in 2019 compared to an
increase of $32.7 million for 2018. Days payable outstanding, a measure of
working capital efficiency that measures the amount of time a payable is
outstanding, was 24 days in 2019 and 31 days in 2018. The decrease in 2019 was
primarily due to lower raw materials inventory and the overall timing of
payments compared to 2018, partially offset by an increase in accrued
liabilities attributed to employee-related costs, including benefits and
incentive programs.
Investing activities used $36.9 million during 2019 compared to $13.2 million
used in 2018. Investing activities for 2019 included capital expenditures $37.6
million to support growth and improvement initiatives at our facilities
partially offset by proceeds from the sale of assets totaling $0.8 million due
to the sale of a building asset that resulted in an immaterial gain. Cash used
in investing activities in 2018 was primarily related to capital expenditures to
support growth and improvement initiatives at our facilities totaling $34.0
million, partially offset by proceeds from the sale of certain branch location
assets totaling $17.8 million.
Financing activities used $101.6 million during 2019, primarily related to
principal payments on our Term Loan Credit Agreement of $50.5 million, common
stock repurchases of $33.7 million, and cash dividends paid to our shareholders
of $17.8 million. Financing activities used $158.1 million during 2018,
primarily related to the repurchase of Convertible Notes totaling $80.2 million,
repurchases of common stock through our share repurchase program totaling $58.4
million, and cash dividends paid to our shareholders and holders of our
Convertible Notes of $17.8 million.
As of December 31, 2019, our liquidity position, defined as cash on hand and
available borrowing capacity, amounted to $308.1 million, representing a
decrease of $8.6 million from December 31, 2018. Total debt and finance lease
obligations amounted to $456.1 million as of December 31, 2019. Based on the
financial position of the Company at December 31, 2019, the expected demand
environment within the trailer industry, and the current and anticipated
operational performance of all three of our reportable segments, we believe our
cash on hand, available borrowing capacity, and future cash flows from operating
activities will enable us to fund our planned operation levels, working capital
requirements, capital expenditures, and debt service requirements in 2020.
Contractual Obligations and Commercial Commitments
A summary of our contractual obligations and commercial commitments, both on and
off balance sheet, as of December 31, 2019 are as follows (in thousands):
                            2020         2021         2022         2023        2024        Thereafter        Total
Debt:
Revolving Facility (due
2023)                    $       -     $     -     $       -     $     -     $     -     $          -     $       -
Term Loan Credit
Facility (due 2022)              -           -       135,228           -           -                -       135,228
Senior Notes (due 2025)          -           -             -           -           -          325,000       325,000
Finance Leases
(including principal and
interest)                      361         361            30           -           -                -           752
Total debt                     361         361       135,258           -           -          325,000       460,980
Other:
Operating Leases             4,986       4,477         2,551       1,855         851            1,242        15,962
Total other                  4,986       4,477         2,551       1,855         851            1,242        15,962
Other commercial
commitments:
Letters of Credit            7,432           -             -           -           -                -         7,432
Raw Material Purchase
Commitments                 83,922           -             -           -           -                -        83,922
Chassis Agreements and
Programs                    13,473           -             -           -           -                -        13,473
Total other commercial
commitments                104,827           -             -           -           -                -       104,827
Total obligations        $ 110,174     $ 4,838     $ 137,809     $ 1,855

$ 851 $ 326,242 $ 581,769




Scheduled payments for our Revolving Credit Facility exclude interest payments
as rates are variable. Borrowings under the Revolving Credit Facility bear
interest at a variable rate based on the London Interbank Offer Rate (LIBOR) or
a base rate determined by the lender's prime rate plus an applicable margin, as
defined in the agreement. Outstanding borrowings under the Revolving Credit
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 Credit 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.

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Scheduled payments for our Term Loan Credit Agreement, as amended, exclude
interest payments as rates are variable. Borrowings under the Term Loan Credit
Agreement, as amended, bear interest at a variable rate, at our election, equal
to (i) LIBOR (subject to a floor of 0.00%) plus a margin of 2.25% or (ii) a base
rate (subject to a floor of 0.00%) plus a margin of 1.25%. The Term Loan Credit
Agreement matures in March 2022 subject to certain springing maturity events.
Scheduled payments for our Senior Notes exclude interest payments. 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.
We have standby letters of credit totaling $7.4 million issued in connection
with workers compensation claims and surety bonds.
We have $83.9 million in purchase commitments through December 2020 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, 2019 the Company's outstanding
chassis converter pool with the manufacturer totaled $10.2 million and has
included this financing agreement on the Company's Consolidated Balance Sheets
within Prepaid expenses and other and Other accrued liabilities. All other
chassis programs through its Supreme subsidiary are handled as consigned
inventory belonging to the manufacturer and totaled approximately $3.3 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 $2.1 million
at December 31, 2019. 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

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amount of loss. We regularly evaluate current information available to us to
determine whether an accrual should be established or adjusted. Estimating the
probability that a loss will occur and estimating the amount of a loss or a
range of loss involves significant judgment and such matters are unpredictable.
We could incur judgments or enter into settlements for current or future claims
that could materially impact our results of operations.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets. We review,
on at least a quarterly basis, the financial performance of each business unit
for indicators of impairment. In reviewing for impairment indicators, we also
consider events or changes in circumstances such as business prospects, customer
retention, market trends, potential product obsolescence, competitive activities
and other economic factors. An impairment loss is recognized when the carrying
value of an asset group exceeds the future net undiscounted cash flows expected
to be generated by that asset group. The impairment loss recognized is the
amount by which the carrying value of the asset group exceeds its fair value.
Goodwill. We assess goodwill for impairment at the reporting unit level on an
annual basis as of October 1, 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. Future
events and changing market conditions may, however, lead us to re-evaluate the
assumptions we have used to test for goodwill impairment, including key
assumptions used in our 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.
Goodwill impairment test
As of December 31, 2019, goodwill allocated to our CTP, DPG, and FMP segments
was approximately $2.6 million, $140.7 million, and $167.7 million,
respectively. In connection with our annual goodwill impairment test, we
performed a quantitative assessment for each reporting unit as of October 1,
2019, 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.
In the fourth quarter of 2019, the FMP reporting unit did not perform in-line
with internal expectations, driven by several operational inefficiencies, which
we identified as an indicator of impairment. As a result, we performed an
interim quantitative assessment as of December 31, 2019, utilizing a combination
of the income and market approaches, which we weighted evenly. No impairment was
indicated as the fair value of the reporting unit exceeded its carrying value.
The results of the quantitative analysis performed indicated the fair value of
the FMP reporting unit exceeded the carrying value by approximately 3%. Key
assumptions used in the analysis were a discount rate of 16.0%, EBITDA margin,
and a terminal growth rate of 3.0%. Since the acquisition of Supreme in 2017,
which is when we added the FMP reporting unit, we have invested, and intend to
continue to invest, in growth and productivity initiatives that will drive
strong future profitability. While the financial benefits from these initiatives
have not materialized as quickly as anticipated and thus have resulted in lower
than projected post-acquisition EBITDA for the reporting unit, we continue to
believe these projects will result in significant future earnings. Future events
and changing market conditions may, however, lead us to re-evaluate the
assumptions we have used to test for goodwill impairment, including key
assumptions used in our expected EBITDA margins and cash flows, as well as other
key assumptions with respect to matters out of our control,

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such as discount rates and market multiple comparables. Based on the results of
the interim quantitative test, we performed sensitivity analysis 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 $19.5 million, (b) a 50
basis point increase in the discount rate would have resulted in an impairment
of approximately $5.0 million, and (c) a 100 basis point decrease in the
terminal growth rate would have resulted in an impairment of approximately $5.4
million.
Subsequent impairment indicators
Subsequent to December 31, 2019, the Company's market capitalization has
declined, which may be an indicator of impairment. We believe this decline in
our market capitalization is primarily due to softer trailer production
estimates from ACT and FTR for 2020 and 2021 compared to 2019. The Company will
continue to assess the impact of its market capitalization and any other
indicators of potential impairment. It is possible that if the Company's market
capitalization decline is more than temporary, or if other indicators of
impairment are identified, an interim impairment analysis may be necessary,
which could result in an impairment of goodwill.
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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