WABASH NATIONAL CORPORATION CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report ofWabash National Corporation (together with its subsidiaries, the "Company," "Wabash," "we," "our," or "us") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements may include the words "may," "will," "estimate," "intend," "continue," "believe," "expect," "plan" or "anticipate" and other similar words. Our "forward-looking statements" include, but are not limited to, statements regarding: ?our ability to effectively manage and operate our business given the ongoing uncertainty caused by the COVID-19 pandemic; ?the highly cyclical nature of our business; ?demand for our products; ?the relative strength or weakness of the overall economy; ?our expected revenues, income or loss; ?our ability to achieve sustained profitability; ?dependence on industry trends; ?our strategic plan and plans for future operations; ?availability and pricing of raw materials, including the impact of tariffs or other international trade developments; ?the level of competition that we face; ?reliance on certain customers, suppliers and corporate relationships; ?our ability to develop and commercialize new products; ?acceptance of new technologies and products; ?export sales and new markets; ?engineering and manufacturing capabilities and capacity, including our ability to attract and retain qualified personnel; ?government regulations; ?the outcome of any pending litigation or notice of environmental dispute; ?the risks associated with climate change and related government regulation; ?availability of capital and financing, including for working capital and capital expenditures; ?our ability to manage our indebtedness; ?our ability to effectively integrate Supreme and realize expected synergies and benefits from the Supreme acquisition; and ?assumptions relating to the foregoing. Although we believe that the expectations expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. Important risks and factors that could cause our actual results to be materially different from our expectations include the factors that are disclosed in "Item 1A-Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Each forward-looking statement contained in this Quarterly Report reflects our management's view only as of the date on which that forward-looking statement was made. We are not obligated to update forward-looking statements or publicly release the result of any revisions to them to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events, except as required by law. 25 -------------------------------------------------------------------------------- Table of Contents COVID-19 Update InMarch 2020 , a global pandemic was declared by theWorld Health Organization (the "WHO") related to COVID-19. This pandemic created significant uncertainties and disruptions in the global economy. We are closely monitoring the pandemic and remain focused on the health and safety of our employees, as well as the health of our business. In addition, we track, evaluate, and manage our operating plans in light of the most recent developments including the changes to best practice guidelines by health experts, the availability of vaccines, the drop in new cases inthe United States , and individual states ending their respective shut-down orders. Further, we remain focused on maintaining business continuity and ensuring our facilities remain operational where safe and appropriate to do so. The safety and well-being of our employees have been, and will remain, our highest priority. In earlyMarch 2020 , we assembled a pandemic response team to manage the changes necessary to adapt to the rapidly-changing environment. This response team continues to meet with our senior leadership team to provide updates and continuously monitor the most recent developments. Actions we have taken to protect our employees include, but are not limited to: ?We implemented pandemic continuity plans. ?We continue to evaluate best-practice safe guidelines by recognized health experts. ?We are informing our employees about the availability of vaccines and encouraging them to get vaccinated. ?We are encouraging employees with symptoms to stay home. As the pandemic evolves along with the guidance from federal, state and local public health authorities, we may take additional actions based on their requirements and recommendations. We also worked with local food banks, schools, healthcare facilities, and other nonprofit organizations to support agencies and families in need, 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 providedFEMA and local governments descriptions of capabilities as they amass their options and determine next steps for today, tomorrow, and into the future. ?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. 26 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table sets forth certain operating data as a percentage of net sales for the three and six months endedJune 30, 2021 and 2020: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 87.6 % 89.9 % 87.8 % 90.2 % Gross profit 12.4 % 10.1 % 12.2 % 9.8 % General and administrative expenses 5.1 % 5.8 % 5.4 % 6.3 % Selling expenses 1.3 % 1.4 % 1.5 % 1.8 % Amortization of intangibles 1.3 % 1.6 % 1.4 % 1.5 % Impairment and other, net (0.4 %) (0.5 %) (0.1 %) 14.5 % Income (loss) from operations 5.1 % 1.8 % 4.0 % (14.3 %) Interest expense (1.3 %) (1.7 %) (1.4 %) (1.7 %) Other, net (0.1 %) 0.1 % (0.1 %) 0.1 % Income (loss) before income tax expense (benefit) 3.7 % 0.2 % 2.5 % (15.9 %) Income tax expense (benefit) 0.9 % 0.2 % 0.7 % (1.2 %) Net income (loss) 2.8 % - % 1.8 % (14.7 %) For the three-month period endedJune 30, 2021 , we recorded net sales of$449.4 million compared to$339.2 million in the prior year period. Net sales for the three-month period endedJune 30, 2021 increased$110.3 million , or 32.5%, compared to the prior year period, due primarily to increases of 37.6% and 57.0% in new trailer and truck body unit shipments, respectively, on stronger demand in these markets. The higher shipment volumes drove increases of 27.6% and 59.4% in net sales within the Commercial Trailer Products and Final Mile Products reportable segments, respectively. In addition, net sales within the Diversified Products reportable segment increased 19.7% from the prior year period. Gross profit margin increased to 12.4% in the second quarter of 2021 compared to 10.1% in the prior year period primarily driven by higher volumes and continued realization of cost containment measures implemented during 2020, including headcount reductions. While we have observed an increase in overall industry demand thus far during 2021 compared to 2020's suppressed levels, we continue to experience some challenges as we ramp-up production, manage our supply chain, and hire additional labor. However, we are focused on positioning ourselves to profitably capitalize on the current increase in demand and industry upswings. For the three-month period endedJune 30, 2021 , selling, general and administrative expenses increased$4.5 million as compared to the same period in 2020. As a percentage of net sales, selling, general and administrative expenses decreased to 6.5% in the second quarter of 2021 as compared to 7.2% in the prior year period, partially due to the continued realization of cost containment measures implemented during 2020, including headcount reductions, as well as Company-wide furloughs during the second quarter of 2020. The overall increase in selling, general and administrative expenses in the current year period compared to the same period in the prior year was primarily attributable to higher employee-related costs, including employee incentive and benefit programs, which was largely due to Company-wide furloughs during the second quarter of 2020. Our management team continues to be focused on increasing overall stockholder value by optimizing our manufacturing operations to match the current demand environment, implementing cost savings initiatives and enterprise lean techniques, strengthening our capital structure and maintaining strong liquidity, developing innovative products that enable our customers to succeed, improving earnings, and continuing diversification of the business into higher margin opportunities that leverage our intellectual and process capabilities. 27 -------------------------------------------------------------------------------- Table of Contents Three Months EndedJune 30, 2021 Compared with the Three Months EndedJune 30, 2020 Net Sales Net sales in the second quarter of 2021 increased$110.3 million , or 32.5%, compared to the second quarter of 2020. By business segment, prior to the elimination of intercompany sales, sales and related units sold were as follows (dollars in thousands): Three Months Ended June 30, Change 2021 2020 Amount % (prior to elimination of intersegment sales) Sales by Segment Commercial Trailer Products$ 296,342 $ 232,254 $ 64,088 27.6 % Diversified Products 76,578 63,951 12,627 19.7 % Final Mile Products 81,023 50,832 30,191 59.4 % Eliminations (4,521) (7,884) 3,363 Total$ 449,422 $ 339,153 $ 110,269 32.5 % New Trailers (units) Commercial Trailer Products 11,090 8,000 3,090 38.6 % Diversified Products 500 400 100 25.0 % Total 11,590 8,400 3,190 38.0 % Used Trailers (units) Commercial Trailer Products - 185 (185) (100.0 %) Diversified Products 15 35 (20) (57.1 %) Total 15 220 (205) (93.2 %) Commercial Trailer Products segment sales, prior to the elimination of intersegment sales, were$296.3 million for the second quarter of 2021, an increase of$64.1 million , or 27.6%, compared to the second quarter of 2020. New trailers shipped during the second quarter of 2021 totaled 11,090 trailers compared to 8,000 trailers in the prior year period, an increase of 38.6%. The increase in new trailer shipments resulted in a 31.5% increase in new trailer revenue. Revenue per new trailer unit decreased 5.0% from the prior year period due in part to product mix (a higher mix of pup trailers in the current year). Sales of our parts and service product offerings totaled$5.5 million for the second quarter of 2021, a decrease of$4.0 million , or 42.2%, as compared to the prior year period, primarily due to the closure of several service locations. Diversified Products segment sales, prior to the elimination of intersegment sales, were$76.6 million for the second quarter of 2021, an increase of$12.6 million , or 19.7%, compared to the second quarter of 2020. New trailer shipments for the second quarter of 2021 totaled 500 units compared to 400 units in the prior year period, resulting in an increase in new trailer revenue of$5.9 million , or 21.0%. The increases in new trailer shipments and revenue are primarily attributable to stronger demand in this market segment compared to the prior year, partially offset by the sale of Beall® in Q4 2020, which accounted for approximately$5.1 million of revenue during the second quarter of 2020. Sales of our parts and service product offerings totaled$27.5 million for the second quarter of 2021, an increase of$5.4 million , or 24.3%, as compared to the prior year period due to strong demand in this market segment. Equipment and other revenue increased$2.3 million , or 18.7%, compared to the prior year period. Final Mile Products segment sales, prior to the elimination of intersegment sales, were$81.0 million in the second quarter of 2021, an increase of$30.2 million , or 59.4%, compared to the second quarter of 2020. New truck body sales increased$28.5 million , or 59.7%. The increase in truck body sales is primarily due to a 58.4% increase in truck body unit shipments in the second quarter of 2021 compared to the prior year period. Sales of our parts and service product offerings totaled$4.0 million for the second quarter of 2021, an increase of$1.5 million , or 61.7%, as compared to the prior year period. The overall increase in net sales compared to the prior year period is attributable to stronger demand in this market segment. Cost of Sales Cost of sales was$393.8 million in the second quarter of 2021, an increase of$89.0 million , or 29.2%, compared to the prior year period. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, overhead expenses, and depreciation. 28 -------------------------------------------------------------------------------- Table of Contents Commercial Trailer Products segment cost of sales was$257.7 million in the second quarter of 2021, an increase of$47.9 million , or 22.8%, compared to the prior year period. The increase in cost of sales, which was primarily driven by higher sales and production volumes on stronger demand, was due to an increase in materials costs of$37.5 million , or 24.7%, and higher labor costs of approximately$16.1 million . These increases were partially offset by lower fixed costs, due to higher volume leverage and in part to the continued realization of cost containment measures implemented during 2020. Diversified Products segment cost of sales was$64.4 million in the second quarter of 2021, an increase of$11.2 million , or 21.1%, compared to the prior period. The increase in cost of sales was primarily due to higher sales volumes, which resulted in higher materials costs of$12.7 million and an increase in labor costs of approximately$1.2 million . These increases were partially offset by the sale of Beall® in Q4 2020, as well as certain fixed manufacturing costs due in part to the continued realization of cost containment measures implemented during 2020. Final Mile Product segment cost of sales was$74.9 million in the second quarter of 2021, an increase of$26.0 million , or 53.2%, compared to the prior period. The increase, which was primarily driven by higher sales and production volumes on stronger demand, was due to an$18.8 million increase in materials costs and higher labor costs of approximately$8.3 million . These increases were partially offset by lower fixed costs, due to higher volume leverage and in part to the continued realization of cost containment measures implemented during 2020. Gross Profit Gross profit was$55.6 million in the second quarter of 2021, an increase of$21.3 million from the prior year period. Gross profit as a percentage of net sales was 12.4% for the second quarter of 2021, compared to 10.1% for the same period in 2020. Gross profit by segment was as follows (dollars in thousands): Three Months Ended June 30, Change 2021 2020 Amount % Gross Profit by Segment Commercial Trailer Products$ 38,623 $ 22,392 $ 16,231 72.5 % Diversified Products 12,151 10,761 1,390 12.9 % Final Mile Products 6,147 1,963 4,184 213.1 % Corporate and Eliminations (1,313) (795) (518) Total$ 55,608 $ 34,321 $ 21,287 62.0 % Commercial Trailer Products segment gross profit was$38.6 million for the second quarter of 2021 compared to$22.4 million for the second quarter of 2020. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 13.0% in the second quarter of 2021 compared to 9.6% in the comparative 2020 period. The overall increase in gross profit as a percentage of net sales was largely due to higher volume leverage and in part as a result of our cost containment measures implemented throughout 2020. Primarily because of these reasons, gross profit as a percentage of net sales for the second quarter of 2021 increased compared to the prior year period. Diversified Products segment gross profit was$12.2 million for the second quarter of 2021 compared to$10.8 million for the second quarter of 2020. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 15.9% in the second quarter of 2021 compared to 16.8% in the 2020 period. Despite the increase in new trailer shipments and revenue and the continued realization of cost containment efforts implemented throughout 2020 to reduce our operating costs, gross profit as a percentage of net sales decreased from the prior year. This was primarily attributable to higher materials and variable costs as a percentage of revenue. Final Mile Products segment gross profit was$6.1 million for the second quarter of 2021 compared to$2.0 million in the same quarter of 2020. Gross profit, prior to the elimination of intersegment sales, as a percentage of net sales, was 7.6% in the second quarter of 2021 compared to 3.9% in the 2020 period. The overall increase in gross profit as a percentage of net sales was largely attributable to the 59.4% increase in sales while cost of sales increased only 53.2% compared to the prior year period. Fixed costs as a percentage of sales decreased from the prior year period largely due to higher volume leverage and in part as a result of our cost containment measures implemented throughout 2020. General and Administrative Expenses General and administrative expenses for the second quarter of 2021 increased$3.3 million , or 16.7%, from the prior year period. The increase from the prior year period was largely due to an increase of approximately$2.7 million in employee-related costs, including benefits and incentive programs, which was primarily attributable to Company-wide furloughs during the second quarter of 2020. In addition, outside services costs increased by approximately$0.5 million . As a percentage of net sales, general and administrative expenses were 5.1% for the second quarter of 2021 compared to 5.8% for the second quarter of 2020. The 29 -------------------------------------------------------------------------------- Table of Contents decrease in general and administrative expenses as a percentage of net sales was due in part to our implementation of cost containment measures during 2020, including headcount reductions. Selling Expenses Selling expenses were$6.1 million in the second quarter of 2021, an increase of$1.2 million , or 24.1%, compared to the prior year period. The increase was primarily attributable to higher employee-related costs, including benefits and incentive programs, of approximately$0.7 million , which was largely attributable to Company-wide furloughs during the second quarter of 2020. In addition, outside services and travel-related costs increased$0.3 million and$0.1 million , respectively. As a percentage of net sales, selling expenses were 1.3% for the second quarter of 2021 compared to 1.4% for the second quarter of 2020. The slight decrease in selling expenses as a percentage of net sales was partially attributable to our implementation of cost containment measures during 2020, including headcount reductions. Amortization of Intangibles Amortization of intangibles was$5.8 million for the second quarter of 2021 compared to$5.5 million in the prior year period. Amortization of intangibles was the result of expenses recognized for intangible assets recorded from the acquisitions of Walker inMay 2012 , certain assets of Beall® inFebruary 2013 (which was sold during the fourth quarter of 2020 as further described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 ), and Supreme inSeptember 2017 . Impairment and Other, Net Impairment and other, net were gains of$1.8 million and$1.7 million for the three months endedJune 30, 2021 and 2020, respectively. During the three months endedJune 30, 2021 , we sold our Extract Technology® business and recognized a gain on sale of approximately$1.9 million . The gain on sale was partially offset by insignificant items. Activity during the second quarter of 2020 relates to the net gain on sale of property, plant, and equipment assets for proceeds totaling$2.7 million . Other Income (Expense) Interest expense for the second quarter of 2021 totaled$6.0 million compared to$5.9 million in the second quarter of 2020. Interest expense relates to interest and non-cash accretion charges on our New (during 2021) and Old (during 2020) Term Loan Credit Agreements, Senior Notes, and Revolving Credit Agreement. The increase from the prior year period is primarily due to a higher interest rate on our New Term Loan Credit Agreement, partially offset by our prepayments over the last 12 months. Other, net for the second quarter of 2021 represented expense of$0.4 million as compared to income of$0.3 million for the prior year period. Expense for the current year period is primarily attributable to debt extinguishment charges totaling$0.5 million in connection with the$30.0 million principal payments under our New Term Loan Credit Agreement during the second quarter, partially offset by interest income. Income for the prior year period is primarily related to interest income. Income Taxes We recognized income tax expense of$4.0 million in the second quarter of 2021 compared to$0.5 million for the same period in the prior year. The effective tax rate for this period was 24.5% compared to 136.3% for the same period in the prior year. For the second quarter of 2021, the effective tax rate differs from the US Federal statutory rate of 21% primarily due to the impact of state and local taxes and discrete items incurred related to stock-based compensation. For the second quarter of 2020, the effective tax rate differs from the US Federal statutory rate of 21% primarily due to the impact of state and local taxes, provisions related to the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), and discrete items incurred related to stock-based compensation. 30 -------------------------------------------------------------------------------- Table of Contents Six Months EndedJune 30, 2021 Compared with the Six Months EndedJune 30, 2020 Net Sales Net sales in the first six months of 2021 increased$115.2 million , or 15.9%, compared to the first six months of 2020. By business segment, prior to the elimination of intercompany sales, sales and related units sold were as follows (dollars in thousands): Six Months Ended June 30, Change 2021 2020 Amount % (prior to elimination of intersegment sales) Sales by Segment Commercial Trailer Products $ 544,051$ 483,229 $ 60,822 12.6 % Diversified Products 150,586 146,909 3,677 2.5 % Final Mile Products 158,088 111,102 46,986 42.3 % Eliminations (11,300) (15,013) 3,713 Total $ 841,425$ 726,227 $ 115,198 15.9 % New Trailer Shipments (units) Commercial Trailer Products 20,340 16,525 3,815 23.1 % Diversified Products 920 1,050 (130) (12.4) % Total 21,260 17,575 3,685 21.0 % Used Trailer Shipments (units) Commercial Trailer Products 15 220 (205) (93.2) % Diversified Products 40 70 (30) (42.9) % Total 55 290 (235) (81.0) % Commercial Trailer Products segment sales prior to the elimination of intersegment sales were$544.1 million for the first six months of 2021, an increase of$60.8 million , or 12.6%, compared to the first six months of 2020. Trailers shipped during the first six months of 2021 totaled 20,340 trailers compared to 16,525 trailers in the prior year period, a 23.1% increase on stronger demand in this segment. The increase in new trailer shipments compared to the prior year period resulted in a$69.8 million , or 15.3%, increase in new trailer revenue. Revenue per new trailer unit decreased 6.3% from the prior year period due to product mix (a higher mix of pup trailers in the current year) and customer mix for a portion of the current year period. Parts and service revenue for the six-month period of 2021 totaled$11.5 million , a decrease of$7.4 million , or 39.1%, from the prior year period primarily due to the closure of several service locations. Used trailer sales decreased$2.4 million compared to the prior year period due to a 205 unit decrease in used trailer shipments in the first six months of 2021 compared to the prior year period. Diversified Products segment sales prior to the elimination of intersegment sales were$150.6 million for the first six months of 2021, an increase of$3.7 million , or 2.5%, compared to the same period of 2020. Trailers shipped during the first six months of 2021 totaled 920 trailers compared to 1,050 trailers in the prior year period, a 12.4% decrease. The decrease in new trailer shipments compared to the prior year period resulted in a$7.1 million , or 10.0%, decrease in sales. This is largely attributable to the sale of Beall® in Q4 2020, which accounted for approximately$10.9 million of revenue during the first six months of 2020, as well as production ramp-up issues and certain raw material shortages that occurred primarily during the first quarter of 2021. Compared to the prior year period, equipment sales increased$2.9 million , or 11.7%, while parts and service sales increased$9.3 million , or 19.2%. These increases are attributable to stronger demand in these markets. Final Mile Products segment sales, prior to the elimination of intersegment sales, were$158.1 million for the first six months of 2021, an increase of$47.0 million , or 42.3% from the first six months of 2020. Increased truck body unit shipments of 46.3% drove a$45.5 million , or 44.1%, increase in new truck body sales compared to the prior year period. Sales of our parts and service product offerings totaled$7.7 million for the second quarter of 2021, an increase of$1.5 million , or 24.5%, as compared to the prior year period. The overall increase in net sales compared to the prior year period is attributable to stronger demand in this market segment. 31 -------------------------------------------------------------------------------- Table of Contents Cost of Sales Cost of sales was$738.7 million in the first six months of 2021, an increase of$83.5 million , or 12.7%, compared to the prior year period. Cost of sales is comprised of material costs, a variable expense, and other manufacturing costs, comprised of both fixed and variable expenses, including direct and indirect labor, outbound freight, overhead expenses, and depreciation. Commercial Trailer Products segment cost of sales was$478.2 million in the first six months of 2021, an increase of$41.3 million , or 9.4%, compared to the prior year period. The increase in cost of sales, which was primarily driven by higher sales and production volumes on stronger demand, was due to a$33.7 million increase in materials costs and a$20.3 million increase in labor costs. These increases were partially offset by lower fixed costs, due to higher volume leverage and in part to the continued realization of cost containment measures implemented during 2020. Diversified Products segment cost of sales was$123.3 million in the first six months of 2021, an increase of$2.3 million , or 1.9%, compared to the prior period. Despite lower shipment volumes compared to the prior year period, cost of sales increased primarily due to higher materials costs of$10.1 million . In addition, labor costs increased approximately$0.3 million compared to the prior year period. These increases were partially offset by the sale of Beall® in Q4 2020, as well as certain fixed manufacturing costs due in part to the continued realization of cost containment measures implemented during 2020. Final Mile Product segment cost of sales was$145.5 million in the first six months of 2021, an increase of$36.0 million , or 32.9%, compared to the prior year period. The increase was driven by a$26.4 million increase in materials costs and a$15.2 million increase in labor, both of which were primarily related to increased sales volumes. These increases were partially offset by lower fixed costs, due to higher volume leverage and in part to the continued realization of cost containment measures implemented during 2020. Gross Profit Gross profit was$102.8 million in the first six months of 2021, an increase of$31.7 million from the prior year period. Gross profit as a percentage of sales was 12.2% for the first six months, compared to 9.8% during the same period in 2020. Gross profit by segment was as follows (dollars in thousands): Six Months Ended June 30, Change 2021 2020 $ % Gross Profit by Segment Commercial Trailer Products$ 65,858 $ 46,235 $ 19,623 42.4 % Diversified Products 27,254 25,902 1,352 5.2 % Final Mile Products 12,603 1,719 10,884 633.2 % Corporate (2,941) (2,792) (149) Total$ 102,774 $ 71,064 $ 31,710 44.6 % Commercial Trailer Products segment gross profit was$65.9 million for the first six months of 2021 compared to$46.2 million for the prior year period. Gross profit prior to the elimination of intersegment sales, as a percentage of net sales, was 12.1% in 2021 compared to 9.6% in the prior period. The overall increase in gross profit as a percentage of net sales was largely due to higher volume leverage and in part as a result of our cost containment measures implemented throughout 2020. Because of these reasons, along with a favorable product mix for a portion of the current year period, gross profit as a percentage of net sales for the second quarter of 2021 increased compared to the prior year period. Diversified Products segment gross profit was$27.3 million for the first six months of 2021 compared to$25.9 million in the same period of 2020. Gross profit prior to the elimination of intersegment sales, as a percentage of net sales, was 18.1% in the 2021 period compared to 17.6% in the prior period. Despite lower shipment volumes compared to the prior year period, gross profit as a percentage of net sales increased 0.5% largely due to the continued realization of cost containment efforts implemented throughout 2020 to reduce our operating costs. Final Mile Products segment gross profit was$12.6 million for the first six months of 2021 compared to$1.7 million in the same period of 2020. Gross profit as a percentage of sales was 8.0% in the first six months of 2021 compared to 1.5% in the prior year period. The overall increase in gross profit as a percentage of net sales was largely attributable to the 42.3% increase in sales while cost of sales increased only 32.9% compared to the prior year period. Fixed costs as a percentage of sales decreased from the prior year period largely due to higher volume leverage and in part as a result of our cost containment measures implemented throughout 2020. 32 -------------------------------------------------------------------------------- Table of Contents General and Administrative Expenses General and administrative expenses for the first six months of 2021 decreased$0.1 million , or 0.1%, from the prior year period. The decrease from the prior year period was due to a decrease of approximately$0.7 million in professional and other service expenses, as well as a$0.2 million decrease in travel-related expenses. Additional decreases were individually insignificant. These decreases were partially offset by higher employee-related costs, including benefits and incentive programs, of approximately$0.7 million , which was largely attributable to Company-wide furloughs during the second quarter of 2020. As a percentage of sales, general and administrative expenses were 5.4% for the 2021 period as compared to 6.3% for the same period of 2020. The decrease in general and administrative expenses as a percentage of net sales was due in part to our implementation of cost containment measures during 2020, including headcount reductions. Selling Expenses Selling expenses were$12.7 million in the first six months of 2021, a decrease of$0.2 million , or 1.2%, compared to the prior year period. This decrease was due to lower advertising and promotional expenses of approximately$1.0 million , as well as a$0.3 million decrease in travel-related expenses. These decreases were partially offset by higher employee-related costs, including benefits and incentive programs, of approximately$0.5 million , which was largely attributable to Company-wide furloughs during the second quarter of 2020, and higher outside services costs of$0.6 million . As a percentage of net sales, selling expenses were 1.5% for the 2021 period as compared to 1.8% for the same period of 2020. The decrease in selling expenses as a percentage of net sales was partially attributable to our implementation of cost containment measures during 2020, including headcount reductions. Amortization of Intangibles Amortization of intangibles was$11.6 million for the first six months of 2021 compared to$11.0 million in the prior year period. Amortization of intangibles for both periods was the result of expenses recognized for intangible assets recorded from the acquisitions of Walker inMay 2012 , certain assets of Beall inFebruary 2013 (which was sold during the fourth quarter of 2020 as further described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 ), and Supreme inSeptember 2017 . Impairment and Other, Net Impairment and other, net was a gain of$1.2 million during the first six months of 2021 compared to a loss of$105.4 million during the first six months of 2020. During the second quarter of 2021, we sold our Extract Technology® business and recognized a gain on sale of approximately$1.9 million . This gain was partially offset by the impairment of unused and obsolete property, plant, and equipment assets during the first quarter of 2021 totaling approximately$0.8 million . In addition, during the three months endedMarch 31, 2021 , we sold property, plant, and equipment assets resulting in a gain on sale of approximately$0.2 million . Activity during the first six months of 2020 was primarily the result of impairment charges related to goodwill within the Final Mile Products and Diversified Products segments totaling$106.8 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 during the second quarter of 2020. Other Income (Expense) Interest expense for the first six months of 2021 totaled$12.2 million compared to$12.2 million in the prior year period. Interest expense relates to interest and non-cash accretion charges on our New Term Loan Credit Agreement, Old Term Loan Credit Agreement, Senior Notes, and Revolving Credit Agreement. Our prepayments over the last 12 months were offset by a higher interest rate on our New Term Loan Credit Agreement. Other, net for the first six months of 2021 represented expense of$0.4 million as compared to income of$0.4 million for the prior year period. Expense for the current year period is primarily attributable to debt extinguishment charges totaling$0.5 million in connection with the$30.0 million principal payments under our New Term Loan Credit Agreement during the second quarter, partially offset by interest income. Income for the prior year period is primarily related to interest income. Income Taxes The Company recognized income tax expense of$5.8 million in the first six months of 2021 compared to an income tax benefit of$9.0 million for the same period in the prior year. The effective tax rate for the first six months of 2021 and 2020 were 27.3% and 7.8%, respectively. For the first six months of 2021, the effective tax rate differs from the US Federal statutory rate of 21% primarily due to the impact of state and local taxes and discrete items incurred related to stock-based compensation. For the first six months of 2020, the effective tax rate differs from the US 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. 33 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Capital Structure Our capital structure is comprised of a mix of debt and equity. As ofJune 30, 2021 , our debt to equity ratio, including our finance lease obligations, was approximately 1.0:1.0. Our long-term objective is to generate operating cash flows sufficient to support the growth within our businesses and increase shareholder value. This objective will be achieved through a balanced capital allocation strategy of sustaining strong liquidity, maintaining healthy leverage ratios, investing in the business, both organically and strategically, and returning capital to our shareholders. As ofMay 11, 2021 , the Board of Directors has designated aFinance Committee for the primary purpose of assisting the Board in its oversight of the Company's capital structure, financing, investment, and other financial matters of importance to the Company. During the first six months of 2021, in keeping to this balanced approach, we paid dividends of approximately$8.4 million and repurchased shares under our share repurchase program totaling$40.0 million . Also, as further described in Note 7, during the second quarter of 2021 we made principal payments under our New Term Loan Credit Agreement totaling$30.0 million . In addition, as disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , during the third quarter of 2020 we used the proceeds from 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 dueOctober 2025 . Collectively, these actions demonstrate our confidence in the financial outlook of the Company and our ability to generate cash flow, both near and long term, and reinforce our overall commitment to deliver shareholder value while maintaining the flexibility to continue to execute our strategic plan for profitable growth and diversification. Our liquidity position, defined as cash and restricted cash on hand and available borrowing capacity on the Revolving Facility, amounted to$304.3 million as ofJune 30, 2021 , a slight increase compared to$303.6 million as ofJune 30, 2020 and a decrease of 21% from$384.0 million as ofDecember 31, 2020 . While we believe a certain degree of uncertainty remains in the industry due in part to the COVID-19 pandemic, we believe we are well-positioned to capitalize on the expected increase in industry demand and production throughout 2021 and beyond. 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 adjust to changes in the current environment, preserve the strength of our balance sheet, prioritize the safety of our employees, and ensure the liquidity and financial well-being of the Company. Debt Agreements and Related Amendments Senior Notes OnSeptember 26, 2017 , we issued Senior Notes due 2025 (the "Senior Notes") with an aggregate principal amount of$325 million . The Senior Notes bear interest at the rate of 5.50% per annum from the date of issuance, and will pay interest semi-annually in cash onApril 1 andOctober 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 are guaranteed on a senior unsecured basis by all of our direct and indirect existing and future domestic restricted subsidiaries, subject to certain restrictions. The Senior Notes and related guarantees are our and our guarantors' general unsecured senior obligations and are subordinate to all of our and our 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 of existing and future debt of any of our subsidiaries that are not guarantors, to the extent of the assets of those subsidiaries. The Senior Notes will mature onOctober 1, 2025 . The indenture for the Senior Notes restricts our ability and the ability of certain of our subsidiaries, subject to certain exceptions and qualifications, to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, 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. The indenture for the Senior Notes contains customary events of default, including payment defaults, breaches of covenants, failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. As ofJune 30, 2021 , we were in compliance with all covenants, and while the duration and severity of the ongoing COVID-19 pandemic are 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 three- and six-month periods endedJune 30, 2021 was$4.5 million and$9.0 million , respectively, compared to$4.6 million and$9.3 million for the three- and six-month periods endedJune 30, 2020 , respectively. Contractual coupon interest expense and accretion of discount and fees are included in Interest expense on our Condensed Consolidated Statements of Operations. 34 -------------------------------------------------------------------------------- Table of Contents Revolving Credit Agreement OnDecember 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 andCitizens Business Capital , which amended and restated our existing amended and restated revolving credit agreement, dated as ofMay 8, 2012 . OnSeptember 28, 2020 , we entered into the First Amendment to Second Amended and Restated Credit Agreement (the "Amendment," and 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 in substantially all personal property of the Borrowers and the Revolver Guarantors, consisting of accounts receivable, inventory, cash, deposit and securities accounts and any cash or other assets in such accounts and, to the extent evidencing or otherwise related to such property, all general intangibles, licenses, intercompany debt, letter of credit rights, commercial tort claims, chattel paper, instruments, supporting obligations, documents and payment intangibles (collectively, the "Revolver Priority Collateral"), and (ii) second-priority liens on and security interests in (A) equity interests of each direct subsidiary held by the Borrowers and each Revolver Guarantors, and (B) substantially all other tangible and intangible assets of the Borrowers and the Revolver Guarantors, excluding real property (the "Term Priority Collateral"). The Revolving Credit Agreement has a scheduled maturity date ofDecember 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. Subject to availability, the Revolving Credit Agreement provides for a letter of credit subfacility in an amount not in excess of$15 million , and allows for swingline loans in an amount not in excess of$17.5 million . Outstanding borrowings under the Revolving Credit Agreement bear interest at an annual rate, at the Borrowers' election, equal to (i) LIBOR plus a margin ranging from 1.25% to 1.75% or (ii) a base rate plus a margin ranging from 0.25% to 0.75%, in each case depending upon the monthly average excess availability under the revolving loan facility. The Borrowers are required to pay a monthly unused line fee equal to 0.20% times the average daily unused availability along with other customary fees and expenses thereunder. The Revolving Credit Agreement contains customary covenants limiting our ability and certain of our affiliates to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock, enter into transactions with affiliates, merge, dissolve, repay subordinated indebtedness, make investments and dispose of assets. In addition, we will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 as of the end of any period of 12 fiscal months (commencing with the month endingDecember 31, 2018 ) when excess availability under the Revolving Credit Agreement is less than 10% of the total revolving commitment. We were in compliance with all covenants as ofJune 30, 2021 , 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. During the three-month period endedJune 30, 2021 and as ofJune 30, 2021 , there were no amounts outstanding under the Revolving Facility. We paid no interest under the Revolving Credit Agreement during the three- and six-month periods endedJune 30, 2021 . During the three-month period endedMarch 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 as ofJune 30, 2020 there were no amounts outstanding under the Revolving Credit Facility. For the three- and six-month periods endedJune 30, 2020 , we paid approximately$0.2 million of interest under the Revolving Credit Agreement. Our liquidity position, defined as cash and restricted cash on hand and available borrowing capacity on the Revolving Facility, amounted to$304.3 million as ofJune 30, 2021 , a decrease of 21% from$384.0 million as ofDecember 31, 2020 and a slight increase fromJune 30, 2020 . 35 -------------------------------------------------------------------------------- Table of Contents New and Old Term Loan Credit Agreements OnSeptember 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, andWells Fargo Bank, National Association , as the administrative agent (the "Term Agent"), providing for a senior secured term loan facility of$150 million that was advanced at closing. The New Term Loan Credit Agreement refinanced and replaced that certain Term Loan Credit Agreement, dated as ofMay 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 andMorgan Stanley Senior Funding, Inc. , as the administrative agent. 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 ofSeptember 28, 2020 , between the Term Agent and the Revolver Agent (the "Intercreditor Agreement"). The New Term Loan Credit Agreement has a scheduled maturity date ofSeptember 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 ofJune 30, 2021 , we were in compliance with all covenants, and while the duration and severity of the ongoing COVID-19 pandemic remain unknown at this time, we do not anticipate that the pandemic will impact our ability to remain in compliance with these covenants. 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. As ofJune 30, 2021 , we had$108.8 million outstanding under the New Term Loan Credit Agreement, of which none was classified as current on our Condensed Consolidated Balance Sheets. For the three- and six-month periods endedJune 30, 2021 , we paid interest of$1.3 million and$2.7 million , respectively, under the New Term Loan Credit Agreement. In addition, during the three months endedJune 30, 2021 , we made principal payments totaling$30.0 million and recognized loss on debt extinguishment charges of approximately$0.5 million . The extinguishment charges are included in Other, net in the Condensed Consolidated Statements of Operations. For the three- and six-month periods endedJune 30, 2020 , under the Old Term Loan Credit Agreement we paid interest of$1.0 million and$2.4 million and made no principal payments during either period. For each three-month period endedJune 30, 2021 and 2020, we incurred charges of less than$0.1 million , and$0.1 million for each six-month period endedJune 30, 2021 and 2020, for amortization of fees and original issuance discount. Amortization of fees and original issuance discount are included in Interest expense in the Condensed Consolidated Statements of Operations. 36 -------------------------------------------------------------------------------- Table of Contents Cash Flows Cash used in operating activities for the first six months of 2021 totaled$13.1 million , compared to providing$22.7 million during the same period in 2020. Cash used in operations during the current year period was the result of net income adjusted for various non-cash activities including depreciation, amortization, net gain on the sale of assets and business divestiture, deferred taxes, stock-based compensation, impairment, accretion of debt fees and discount, loss on debt extinguishment, and a$56.9 million increase in working capital. Changes in key working capital accounts for 2021 and 2020 are summarized below (in thousands): Six Months Ended June 30, 2021 2020 Change Source (Use) of cash: Accounts receivable$ (25,758) $ 48,785 $ (74,543) Inventories (89,733) (14,154) (75,579) Accounts payable and accrued liabilities 56,074 (22,126) 78,200 Net use of cash$ (59,417) $
12,505
Accounts receivable increased$25.8 million in the first six months of 2021 as compared to a$48.8 million decrease in the prior year period. Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, was 26 days and 31 days in the 2021 and 2020 periods, respectively. The increase in accounts receivable during the first six months of 2021 was primarily due to the increase in shipments from the prior year period as well as the timing of shipments and receipt of customer payments. Inventory increased by$89.7 million during the first six months of 2021 as compared to an increase of$14.2 million in the 2020 period. Our inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately 6 times in the 2021 period and 8 times in the 2020 period. The increase in inventory for the 2021 period was primarily attributable to higher finished goods inventory due to the timing of customer pick-ups and higher raw materials inventory to adjust to anticipated production for the remainder of 2021. Accounts payable and accrued liabilities increased by$56.1 million in 2021 compared to a decrease of$22.1 million for the same period in 2020. Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 42 days in the 2021 period compared to 34 days during the same period in 2020. Investing activities provided$9.9 million during the first six months of 2021, as compared to using$8.2 million during the same period in 2020. Investing activities for the first six months of 2021 include capital expenditures of$11.1 million , which was an increase compared to$10.9 million during the same period in 2020. For the first six months of 2021, investing activities also include proceeds from the sale of assets and business divestiture of$21.0 million . Proceeds from the sale of assets during the first six months of 2020 were$2.7 million . Financing activities used$78.5 million during the first six months of 2021 as compared to using$19.0 million during the same period in 2020. Net cash used in financing activities during the current year period primarily relates to common stock repurchases and withholdings of$41.3 million , principal payments under our New Term Loan Credit Agreement of$30.0 million , and cash dividend payments to our shareholders of$8.4 million , partially offset by proceeds from the exercise of stock options of$1.5 million . Cash used in financing activities in the first six months of 2020 primarily relate to common stock repurchases and withholdings of$10.1 million and cash dividends paid to our shareholders of$8.7 million . As ofJune 30, 2021 , our liquidity position, defined as cash and restricted cash on hand and available borrowing capacity, amounted to$304.3 million , representing an increase of$0.7 million compared toJune 30, 2020 and a decrease of$79.7 million compared toDecember 31, 2020 . Total debt and finance lease obligations amounted to$424.0 million as ofJune 30, 2021 . In addition, our nearest debt maturity is not untilOctober 2025 . While we believe a certain degree of uncertainty remains in the industry due in part to the COVID-19 pandemic, we continue to believe we are well-positioned to capitalize on the expected increase in industry demand and production throughout 2021 and beyond. Capital Expenditures Capital spending amounted to approximately$11.1 million for the first six months of 2021. Because of actions to retool our existing capacity to support expanded dry van production, we are increasing our capital expenditures estimate for 2021 by$20 million to an anticipated range of$55 to$60 million . In addition to the capacity expansion, capital spending for 2021 has been and is expected to be utilized to support maintenance and productivity improvement initiatives within our facilities. 37 -------------------------------------------------------------------------------- Table of Contents Goodwill As further described in Note 17, during the second quarter of 2021 we sold our Extract Technology® ("Extract") business that manufactured stainless steel isolators and downflow booths, as well as custom-fabricated equipment, including workstations and drum booths for the pharmaceutical, fine chemical, biotech, and nuclear end markets. Prior to the divestiture Extract was an operating unit within the Diversified Products reporting unit. In accordance with the relevant accounting guidance, as part of the sale we allocated$11.1 million of goodwill based upon the relative fair value of the Extract operating unit compared to the Diversified Products reporting unit as a whole. This goodwill was included in the carrying value of the disposed assets and the resulting net gain recognized in connection with the sale. Prior to and subsequent to the divestiture, we performed an impairment assessment for the Diversified Products reporting unit and concluded the fair value of the reporting unit continued to exceed the carrying value. We assess goodwill for impairment at the reporting unit level on an annual basis as ofOctober 1 and whenever events or changes in circumstances indicate a possible impairment. Subsequent toDecember 31, 2019 , our share price and market capitalization declined. In addition, as a result of the 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 ofMarch 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 Final Mile Products ("FMP") and Tank Trailers (which was within the Diversified Products ("DPG") segment), respectively, EBITDA margins, and a terminal growth rate of 3.0%. The results of the quantitative analysis indicated the carrying value of the FMP and Tank Trailers reporting units exceeded their 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 were based on Level 3 fair value measurements, are included in Impairment and other, net in the Condensed Consolidated Statements of Operations. In addition, the results of the quantitative analysis performed as ofMarch 31, 2020 indicated the fair value of the Process Systems reporting unit, which was within the DPG segment, exceeded the carrying value by approximately 3%. Key assumptions used in the analysis were a discount rate of 14.5%, EBITDA margin, and a terminal growth rate of 3.0%. The 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 . Future events and changing market conditions may require a re-evaluation of the assumptions used in the determination of fair value for each of our reporting units, 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. We considered whether there were any indicators of impairment during the three and six months endedJune 30, 2021 and concluded there were none. 38 -------------------------------------------------------------------------------- Table of Contents Contractual Obligations and Commercial Commitments A summary of payments of our contractual obligations and commercial commitments, both on and off balance sheet, as ofJune 30, 2021 are as follows (in thousands): 2021 2022 2023 2024 2025 Thereafter Total Debt: New Term Loan Credit Agreement (due 2027) $ - $ - $
- $ - $ -
- - - - - - -
Senior Notes (due 2025) - - - - 315,000 - 315,000
Interest payments on Revolving
Facility, New Term Loan Credit 10,839 21,678 21,678 21,678 17,347 7,618 100,838
Agreement, and Senior Notes 1 Finance Leases (including principal and interest) 180 30 - - - - 210 Total debt 11,019 21,708 21,678 21,678 332,347 116,453 524,883 Other: Operating Leases 2,281 3,342 2,516 1,397 799 1,719 12,054 Total other 2,281 3,342 2,516 1,397 799 1,719 12,054 Other commercial commitments: Letters of Credit 6,740 - - - - - 6,740 Raw Material Purchase Commitments 110,780 - - - - - 110,780Chassis Converter Pool Agreements 17,261 - - - - - 17,261 Total other commercial commitments 134,781 - - - - - 134,781 Total obligations$ 148,081 $ 25,050 $ 24,194 $ 23,075 $ 333,146 $ 118,172 $ 671,718 1 Future interest payments on variable rate long-term debt are estimated based on the rate in effect as ofJune 30, 2021 . 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. 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. 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 ofJune 30, 2021 , we had no amounts outstanding under our Revolving Facility. The Senior Notes bear interest at the rate of 5.5% per annum from the date of issuance, payable semi-annually onApril 1 andOctober 1 . Finance leases represent future minimum lease payments including interest. Operating leases represent the total future minimum lease payments. Obligations related to operating leases that we have executed but have not yet commenced were insignificant as ofJune 30, 2021 . Subsequent toJune 30, 2021 , obligations related to operating leases that we have executed but have not yet commenced totaled approximately$2.5 million on a non-discounted basis, which we generally expect to be recognized over the next 5 years. We have standby letters of credit totaling$6.7 million issued in connection with workers compensation claims and surety bonds. We have$110.8 million in purchase commitments with our suppliers and through financial derivatives throughDecember 2021 for various raw material commodities, including aluminum, steel, nickel and polyethylene as well as other raw material components which are within normal production requirements. We, through our subsidiary Supreme, obtain most vehicle chassis for our specialized vehicle products directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and to a lesser extent, for unallocated orders. Although each manufacturer's agreement has different terms and conditions, the agreements generally state that the manufacturer will provide a supply of chassis to be maintained from time to time at our various facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. The manufacturer transfers the chassis to us on a "restricted basis," retaining the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer's dealers. The manufacturer also does not transfer the certificate of origin to us nor permit us to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer). Although we are party to related finance agreements with manufacturers, we have not historically settled, nor expect to in the 39 -------------------------------------------------------------------------------- Table of Contents 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 ofJune 30, 2021 our outstanding chassis converter pool with the manufacturer totaled$14.7 million and we have included this financing agreement on our Condensed Consolidated Balance Sheets within Prepaid expenses and other and Other accrued liabilities. All other chassis programs through our 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, we are required to pay a finance or storage charge on the chassis. Additionally, we receive finance support funds from the manufacturer when the chassis are assigned into our chassis pool. Typically, chassis are converted and delivered to customers within 90 days of our receipt of the chassis. Backlog Orders that have been confirmed by customers in writing, have defined delivery time frames, and can be produced during the next 18 months are included in our backlog. Orders that comprise our backlog may be subject to changes in quantities, delivery, specifications, terms or cancellation. Our backlog of orders was approximately$1,342 million atJune 30, 2021 , which is a 9% decrease from approximately$1,482 million atDecember 31, 2020 and a 77% increase from$757 million atJune 30, 2020 . Consistent with the disclosure in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , we continue to believe our backlog of orders is strong, especially considering the COVID-19 pandemic's impact on our industry, operations, and demand for our products. We expect to complete the majority of our backlog orders as ofJune 30, 2021 within 12 months of this date. Outlook The trailer industry generally follows the transportation industry's cycles. According toACT Research Company ("ACT"), totalUnited States trailer production in 2020 was approximately 206,000 trailers, a 38% decrease from 2019 production levels. As we enter the third quarter of 2021 with a certain degree of 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 forecastersACT and FTR Associates ("FTR") indicate totalUnited States trailer production levels for 2021 of approximately 291,000 and 295,000, respectively, which are more historically consistent production levels in the trailer industry. In addition, as noted above we believe our backlog of orders is strong, which is consistent with industry forecasterswho have indicated that backlogs are expected to remain at high levels thus continuing to provide a solid foundation for the remainder of 2021. ACT estimates production levels for 2022, 2023, 2024, 2025, and 2026 to be 333,000, 295,000, 272,000, 295,000, and 286,000, respectively. In addition, as ofJuly 2021 , FTR estimates 2022 and 2023 new trailer production to be approximately 320,000 and 330,000, respectively. These estimates from ACT and FTR for the next several years are generally expected to be above replacement demand. While we believe these estimates to generally be reasonable, the unknown duration and severity of the COVID-19 pandemic and related impacts creates some uncertainty in the industry and actual production and/or demand could vary significantly from these estimates. Other potential risks we face for the remainder of 2021 will primarily relate to our ability to effectively manage our manufacturing operations, supply chain, and overall business with the expected increase in production. In addition, the cost and supply of raw materials, commodities, and components is a potential risk. 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 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, axles, suspensions, aluminum extrusions, specialty steel coil, and chassis. At the current and expected demand levels, there may be shortages of supplies of raw materials or components or labor 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. 40 -------------------------------------------------------------------------------- Table of Contents For the remainder of 2021, we will continue to adjust to changes in the current environment, preserve the strength of our balance sheet, prioritize the safety of our employees, and ensure the liquidity and financial well-being of the Company. We believe we remain well-positioned for long-term success in the trailer industry because: (1) our core customers are among the major participants in the trucking industry; (2) our technology and innovation provides value-added solutions for our customers by reducing trailer operating costs, improving revenue opportunities, and solving unique transportation problems; (3) our Wabash Management System ("WMS") principles and processes and focus on enterprise lean drives focus on the interconnected processes that are critical for success across our business; and (4) our significant brand recognition and presence throughoutNorth America and the utilization of our extensive dealer network to market and sell our products. By continuing to be an innovation leader in the transportation, logistics, and distribution industries we expect to leverage our existing assets and capabilities into higher margin products and markets by delivering value-added customer solutions. Optimizing our product portfolio, operations, and processes to enhance manufacturing efficiency and agility is expected to well-position the Company to drive margin expansion, reinforce our customer relationships, and deliver greater value to our customers and stakeholders. Critical Accounting Policies and Estimates We have included a summary of our Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . There have been no material changes to the summary provided in that report. Item 3. 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, interest rates and foreign exchange rates. The following discussion provides additional detail regarding our exposure to these risks. Commodity Prices 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 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. As ofJune 30, 2021 , we had$110.8 million in raw material purchase commitments throughDecember 2021 for materials that will be used in the production process, as compared to$86.9 million as ofDecember 31, 2020 . 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. 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. Interest Rates During the three- and six- month periods endedJune 30, 2021 , and as ofJune 30, 2021 , there were no amounts outstanding under the Revolving Facility. As ofJune 30, 2021 , we had outstanding borrowings under our New Term Loan Credit Agreement totaling approximately$108.8 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$1.1 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 Mexican peso exchange rates that impact transactions with our foreign subsidiaries, as well asU.S. denominated transactions between these foreign subsidiaries and unrelated parties. A ten percent change in the Mexican peso exchange rates would have an immaterial impact on results of operations. We do not hold or issue derivative financial instruments for speculative purposes. Item 4. Controls and Procedures Disclosure Controls and Procedures Based on an evaluation under the supervision and with the participation of the Company's management, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) were effective as ofJune 30, 2021 . 41
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Table of Contents Changes in Internal Controls over Financial Reporting There were no changes in the Company's internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the second quarter of fiscal year 2021 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
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