10-K 1 v368994_10k.htm 10-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-K

 
(Mark One)
x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2013
OR
 
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 

Commission File Number:  1-10883

WABASH NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
52-1375208
(State or other jurisdiction of
 
 
(IRS Employer
incorporation or organization)
 
 
Identification Number)
 
 
 
 
1000 Sagamore Parkway South
 
 
47905
Lafayette, Indiana
 
 
(Zip Code)
 (Address of Principal Executive Offices)
 
 
 
Registrant’s telephone number, including area code: (765) 771-5300
 
Securities registered pursuant to Section 12(b) of the Act:
 
 Title of each class
 
 Name of each exchange on which registered
Common Stock, $.01 Par Value
 
New York Stock Exchange
Series D Preferred Share Purchase Rights
 
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   x    No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
 
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2013 was $697,018,940 based upon the closing price of the Company's common stock as quoted on the New York Stock Exchange composite tape on such date.
 
The number of shares outstanding of the registrant's common stock as of February 20, 2014 was 68,553,506.
 
Part III of this Form 10-K incorporates by reference certain portions of the registrant’s Proxy Statement for its Annual Meeting of Stockholders to be filed within 120 days after December 31, 2013.
 

 

 
 
 
 
TABLE OF CONTENTS
WABASH NATIONAL CORPORATION
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2013
 
 
 
 
Pages
 
 
 
 
PART I
 
 
 
 
 
 
 
Item 1
Business
 
4
 
 
 
 
Item 1A
Risk Factors
 
16
 
 
 
 
Item 1B
Unresolved Staff Comments
 
24
 
 
 
 
Item 2
Properties
 
24
 
 
 
 
Item 3
Legal Proceedings
 
26
 
 
 
 
Item 4
Mine Safety Disclosures
 
28
 
 
 
 
PART II
 
 
 
 
 
 
 
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
29
 
 
 
 
Item 6
Selected Financial Data
 
30
 
 
 
 
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
31
 
 
 
 
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
 
51
 
 
 
 
Item 8
Financial Statements and Supplementary Data
 
52
 
 
 
 
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
86
 
 
 
 
Item 9A
Controls and Procedures
 
86
 
 
 
 
Item 9B
Other Information
 
89
 
 
 
 
PART III
 
 
 
 
 
 
 
Item 10
Executive Officers of the Registrant
 
89
 
 
 
 
Item 11
Executive Compensation
 
89
 
 
 
 
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
89
 
 
 
 
Item 13
Certain Relationships and Related Transactions, and Director Independence
 
89
 
 
 
 
Item 14
Principal Accounting Fees and Services
 
89
 
 
 
 
PART IV
 
 
 
 
 
 
 
Item 15
Exhibits and Financial Statement Schedules
 
90
 
 
 
 
SIGNATURES
 
 
92
 
 
2

 
FORWARD LOOKING STATEMENTS
 
This Annual Report of Wabash National Corporation (the “Company”, “Wabash” or “we”) contains “forward-looking statements” within the meaning of Section 27A of 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 business plan;
 
· the benefits of, and our plans relating to, our recently completed acquisitions of Walker Group Holdings (“Walker”) and certain assets of Beall Corporation (“Beall”), the amount of transaction costs associated with the acquisitions, our ability to manage the cost of the financing of the acquisition of Walker and related indebtedness and our ability to effectively integrate Walker and the Beall assets and realize the expected synergies and benefits;
 
· our expected revenues, income or loss and capital expenditures;
 
· our strategic plan and plans for future operations;
 
· financing needs, plans and liquidity, including for working capital and capital expenditures;
 
· our ability to achieve sustained profitability;
 
· reliance on certain customers and corporate relationships;
 
· our ability to diversify the product offerings of non-trailer businesses and opportunities to leverage the acquired Walker businesses and Beall assets to grow sales in our existing products;
 
· availability and pricing of raw materials;
 
· availability of capital and financing;
 
· dependence on industry trends;
 
· the outcome of any pending litigation;
 
· export sales and new markets;
 
· engineering and manufacturing capabilities and capacity;
 
· acceptance of new technology and products;
 
· government regulation; 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 Annual Report. Each forward-looking statement contained in this Annual 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 Annual Report or to reflect the occurrence of unanticipated events, except as required by law.
 
 
3

 
Currently known risks and uncertainties that could cause actual results to differ materially from our expectations are described throughout this Annual Report, including in “Item 1A. Risk Factors.” We urge you to carefully review that section for a more complete discussion of the risks of an investment in our securities.

PART I
 
ITEM 1—BUSINESS
 
Overview
 
Wabash National Corporation (“Wabash,” “Company,” “us,” “we,” or “our”) was founded in 1985 as a start-up company in Lafayette, Indiana. We are now one of North America’s leaders in designing, manufacturing and marketing standard and customized truck and tank trailers and related transportation equipment. We believe our position as a leader in our industry has been the result of longstanding relationships with our core customers, our demonstrated ability to attract new customers, our broad and innovative product lines, our technological leadership and our extensive distribution and service network. Our management team is focused on continuing to optimize our manufacturing and retail operations to match the current demand environment, implementing cost savings initiatives and lean manufacturing techniques, strengthening our capital structure, 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.
 
Wabash was incorporated in Delaware in 1991 and is the successor by merger to a Maryland corporation organized in 1985. Our internet website is www.wabashnational.com. We make our electronic filings with the Securities Exchange Commission (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports available on our website free of charge as soon as practicable after we file or furnish them with the SEC. Information on the website is not part of this Form 10-K.
 
Operating Segments
 
We manage our business in three segments: Commercial Trailer Products, Diversified Products and Retail. In the second quarter of 2012, we completed the acquisition of Walker Group Holdings (“Walker”), a manufacturer of liquid-transportation systems and engineered products significantly enhancing our Diversified Products segment. In the fourth quarter of 2012, six tank trailer parts and service retail locations, which had been reported as part of the Diversified Products segment from the date of the Walker acquisition through the third quarter of 2012, began being reported as part of our Retail segment to match how these locations are managed internally and to be consistent with our focus to leverage operational and market synergies. In the first quarter of 2013, we completed the acquisition of certain assets of the tank and trailer business of Beall Corporation (“Beall”), a manufacturer of aluminum tank trailers and related equipment based in Portland, Oregon, further adding to our Diversified Products segment. We allocate certain corporate related administrative costs, interest and income taxes to our corporate and eliminations segment. Financial results by operating segment, including information about revenues from customers, measures of profit and loss and financial information regarding geographic areas and export sales are discussed in Note 13, Segments and Related Information, of the accompanying consolidated financial statements. By operating segment, net sales were as follows (dollars in millions):
 
 
 
Year Ended December 31,
 
 
 
2013
 
2012
 
2011
 
Sales by Segment
 
 
 
 
 
 
 
 
 
 
Commercial Trailer Products
 
$
1,081.2
 
$
1,063.3
 
$
1,071.3
 
Diversified Products
 
 
502.0
 
 
356.0
 
 
106.5
 
Retail
 
 
181.5
 
 
157.6
 
 
125.1
 
Corporate and Eliminations
 
 
(129.0)
 
 
(115.0)
 
 
(115.7)
 
Total
 
$
1,635.7
 
$
1,461.9
 
$
1,187.2
 
 
 
4

 
Commercial Trailer Products
 
Commercial Trailer Products segment sales as a percentage of our consolidated net sales and gross margin measured prior to intersegment eliminations were:
 
 
 
Years Ended December 31,
 
 
 
2013
 
 
2012
 
 
2011
 
Percentage of net sales
 
61.3
%
 
67.4
%
 
82.2
%
Percentage of gross margin
 
36.4
%
 
42.4
%
 
57.8
%
 
The Commercial Trailer Products segment manufactures standard and customized truck trailers. We seek to identify and produce proprietary custom products that offer exceptional value to customers with the potential to generate higher profit margin than standardized products. We believe that we have the engineering and manufacturing capability to produce these products efficiently. We introduced our proprietary composite product, DuraPlateâ, in 1996 and have experienced widespread truck trailer industry acceptance. Since 2002, sales of our DuraPlateâ trailers have represented approximately 93% of our total new dry van trailer sales. We are also a competitive producer of standardized sheet and post and refrigerated trailer products and we strive to become the low-cost producer of these products within our industry. Through our Transcraft subsidiary we also manufacture steel and aluminum flatbed and dropdeck trailers.
 
We market our transportation equipment under the Wabashâ, DuraPlateâ, DuraPlateHDâ, DuraPlateâ XD-35®, FreightProâ, ArcticLite®, RoadRailer®, Transcraft®, Eagle®, Eagle II®, D-Eagle® and Benson® trademarks directly to customers, through independent dealers and through our Company-owned retail branch network. Historically, we have focused on our longstanding core customers representing many of the largest companies in the trucking industry, but have expanded this focus over the past several years to include numerous additional key accounts. Our relationships with our core customers have been central to our growth since inception. We have also actively pursued the diversification of our customer base through our network of independent dealers. For our van business we utilize a total of 23 independent dealers with approximately 59 locations throughout North America to market and distribute our trailers. We distribute our flatbed and dropdeck trailers through a network of 76 independent dealers with approximately 118 locations throughout North America. In addition, we maintain a used fleet sales center to focus on selling both large and small fleet trade packages to the wholesale market.
 
Diversified Products
 
Diversified Products segment sales as a percentage of our consolidated net sales and gross margin measured prior to intersegment eliminations were:
 
 
 
Years Ended December 31,
 
 
 
2013
 
 
2012
 
 
2011
 
Percentage of net sales
 
28.4
%
 
22.6
%
 
8.2
%
Percentage of gross margin
 
54.1
%
 
47.4
%
 
27.3
%
 
The Diversified Products segment focuses on our commitment to expand our customer base, diversify our product offerings, end markets and revenues and extend our market leadership by leveraging our intellectual property and technology, including our proprietary DuraPlate® panel technology, drawing on our core manufacturing expertise and making available products that are complementary to the truck and tank trailers and transportation equipment we offer. This segment includes a wide array of products and customer-specific solutions. Leveraging our intellectual property and technology and core manufacturing expertise into new applications and market sectors enables us to deliver greater value to our customers and shareholders.
 
Our DuraPlate® composite panel technology contains unique properties of strength and durability that can be utilized in numerous applications in addition to truck trailers. The Diversified Products segment has leveraged our DuraPlate® panel technology to develop numerous proprietary products, including a foldable portable storage container and the AeroSkirt®, an aerodynamic solution for over-the-road trailers that provides approximately 6% improvement in fuel efficiency. In addition, we utilize our DuraPlate® technology in the production of truck bodies, overhead doors and other industrial applications. These DuraPlate® composite products are sold to original equipment manufacturers and aftermarket customers. Through our Diversified Products segment, we also operate a wood flooring production facility that manufactures laminated hard wood oak products for the van trailer industry.
 
 
5

 
On May 8, 2012, we added to our Diversified Products segment by completing the Walker acquisition. Walker is a leading manufacturer of liquid-transportation systems and engineered products based in New Lisbon, Wisconsin. The acquisition of Walker provided Wabash with diversification in products, end-markets, customers and geographies, while maintaining a focus on core manufacturing capabilities that the two companies share. Walker’s transportation products include brands such as Walker Transport, Garsite, Walker Defense Group, Progress Tank, Brenner® Tank, TST® and Bulk International. These brands represent leading positions in liquid transportation systems, including stainless steel liquid transportation systems and stainless steel liquid-tank trailers for the North American chemical, dairy, food and beverage, petroleum, aviation, energy services and waste hauling markets. Walker’s engineered products include brands such as Walker® Engineered Products, Walker® Barrier Systems and Extract Technology®. These brands represent what we estimate to be leading positions in isolators, stationary silos and downflow booths around the world for the chemical, dairy, food and beverage, pharmaceutical and nuclear markets. In addition, on February 4, 2013, we further added to our Diversified Products segment by completing, out of bankruptcy liquidation, the acquisition of certain assets of the tank and trailer business of Beall Corporation, a manufacturer of aluminum tank trailers and related equipment based in Portland, Oregon.
 
Through these brands and product offerings, our Diversified Products segment now serves a variety of end markets a number of which we believe are less cyclical than other markets historically served by Wabash. We believe Walker’s diversified products base, end-markets and customers also present opportunities to grow sales of existing Wabash products. We expect to continue to focus on diversifying our Diversified Products segment to enhance our business model, strengthen our revenues and become a stronger company that can deliver greater value to our shareholders.
 
Retail
 
Retail segment sales as a percentage of our consolidated net sales and gross margin measured prior to intersegment eliminations were:
 
 
 
Years Ended December 31,
 
 
 
2013
 
 
2012
 
 
2011
 
Percentage of net sales
 
10.3
%
 
10.0
%
 
9.6
%
Percentage of gross margin
 
9.5
%
 
10.2
%
 
14.9
%
 
The Retail segment includes our 18 Company-owned retail branch locations, which are strategically located near large metropolitan areas to provide additional opportunities to distribute our products, diversify our factory direct sales and also offer nationwide services and support capabilities for our customers. Six tank trailer parts and service retail locations were added to our previously owned 12 locations as a result of the Walker acquisition. Our retail branch network’s sale of new and used trailers, aftermarket parts and service generally provides enhanced margin opportunities to our retail customers.
 
Strategy
 
We are committed to a corporate strategy that seeks to maximize shareholder value by executing on the core elements of our strategic plan:
 
· Value Creation. We intend to continue our focus on improved earnings and cash flow.
 
· Operational Excellence. We are focused on maintaining a reduced cost structure by adhering to continuous improvement and lean manufacturing initiatives.
 
· People. We recognize that to achieve our strategic goals we must continue to develop the organization’s skills to advance our associates’ capabilities and to attract talented people.
 
· Customer Focus. We have been successful in developing longstanding relationships with core customers, and while we intend to maintain these relationships we seek to create new revenue opportunities by developing new customer relationships through the offering of tailored transportation solutions.
 
 
6

 
· Innovation. We intend to continue to be the technology leader by providing new and differentiated products and services that generate enhanced profit margins.
 
· Corporate Growth. We intend to expand our product offering and competitive advantage by increasing our focus on the diversification of products and leveraging our intellectual and physical assets for organic growth.
 
Industry and Competition
 
Trucking in the U.S., according to the American Trucking Association (ATA), was estimated to be a $642 billion industry in 2012, representing approximately 81% of the total transportation industry revenue. Furthermore, ATA estimates that approximately 69% of all freight tonnage in 2012 was carried by trucks at some point during its shipment. Trailer demand is a direct function of the amount of freight to be transported. As the economy improves, ATA estimates that the percentage of freight tonnage carried by trucks will grow to 71% by 2024. To meet this expected increased in freight demand, truck carriers will need to expand and replace their fleets, which typically results in increased trailer orders.
 
Transportation in the U.S., including trucking, is a cyclical industry that has experienced three cycles over the last 20 years. In each of the last three cycles the decline in freight tonnage preceded the general U.S. economic downturn by approximately two and one-half years and the recovery has generally preceded that of the economy as a whole. The trailer industry generally follows the transportation industry, experiencing cycles in the early and late 90’s lasting approximately 58 and 67 months, respectively. Truck freight tonnage, according to ATA statistics, started declining year-over-year in 2006 and remained at depressed levels through 2009. The most recent cycle concluded in 2009, lasting a total of 89 months. After three consecutive years with total trailer demand well below normal replacement demand levels estimated to be between 175,000 trailers and 200,000 trailers, the three year period ending December 2013 represent years of significant improvement in which the total trailer market increased year-over-year approximately 67%, 13% and 1%, for 2011, 2012 and 2013, respectively, with total shipments of approximately 210,000; 237,000 and 239,000, respectively. In our view, we expect to see continued strong demand for new trailer equipment as the economic and industry specific indicators we track, including but not limited to ATA’s truck tonnage index, total industrial production, employment growth, housing and auto sectors, as well as the overall gross domestic product, appear to be trending in a positive direction. In addition, new and pending legislation or regulatory reform efforts at the state and federal level could have a favorable impact on the demand for trailers in the near term, specifically comprehensive safety programs for carriers and drivers, as well as rule changes regarding hours of service restrictions.
 
Wabash, and its two largest competitors, Great Dane and Utility, are generally viewed as the top three trailer manufacturers in the U.S. and have accounted for greater than 50% of U.S. new trailer market share in recent years, including approximately 55% in 2013. Our market share of U.S. total trailer shipments in 2013 was approximately 20%. Trailer manufacturers compete primarily through the quality of their products, customer relationships, service availability and cost. Over the past several years, we have seen a number of our competitors follow our leadership in the development and use of composite sidewalls that compete directly with our DuraPlateâ products. Our product development is focused on maintaining our leading position with respect to these products and on development of new products and markets, leveraging our proprietary DuraPlate® product, as well as our expertise in the engineering and design of customized products.
 
The table below sets forth new trailer production for Wabash and, as provided by Trailer Body Builders Magazine, our largest competitors and the trailer industry as a whole within North America. The data represents all segments of the market, except containers and chassis. For the years included below, we have participated primarily in the van and platform trailer segments and added the tank trailer segment beginning in 2012 with the acquisitions of Walker in May 2012 and certain assets of Beall Corporation in February 2013. Van trailer demand, the largest segment within the trailer industry, has continued to show sequential improvements over each of the last three years from a low of approximately 52,000 trailers in 2009 recovering to an estimated 170,000 trailers in 2013. Our market share for van trailers in 2013 was approximately 23%, a decrease of approximately 2% from 2012 reflective of our efforts to recover material cost increases and recapture lost margins through improved pricing of van trailers.
 
 
7

 
 
 
 
2013
 
2012
 
2011
 
2010
 
2009
 
Wabash
 
46,000
 
45,000
(2)
49,000
 
27,000
 
12,000
 
Great Dane
 
44,000
 
44,000
 
39,000
 
21,000
 
15,000
 
Utility
 
39,000
 
38,000
 
33,000
 
23,000
 
17,000
 
Hyundai Translead
 
27,000
 
23,000
 
18,000
 
8,000
 
5,000
 
Stoughton
 
12,000
 
11,000
 
9,000
 
5,000
 
3,000
 
Other principal producers
 
31,000
 
33,000
 
25,000
 
19,000
 
12,000
 
Total Industry
 
233,000
 
227,000
 
201,000
(1)
122,000
(1)
79,000
(1)
(1)
Data revised by publisher in a subsequent year.
(2)
The 2012 production includes Walker volumes on a full-year pro forma basis.
 
Our diversified product initiatives are, in most cases, in markets that are more fragmented than our traditional trailer product offerings. The end markets that our diversified products serve are broader and more diverse than the trailer industry, including environmental, oil and gas, moving and storage and specialty vehicle. In addition, our diversification efforts pertain to new and emerging markets and many of the products are driven by regulatory requirements or, in most cases, customer-specific needs. However, many of our diversification efforts still remain in the early growth stages and future success is largely dependent on continued customer adoption of our product solutions and general expansion of our customer base and distribution channels.
 
Competitive Strengths
 
We believe our core competitive strengths include:
 
 
·
Long-Term Core Customer Relationships – We are the leading provider of trailers to a significant number of top tier trucking companies, generating a revenue base that has helped to sustain us as one of the market leaders.  According to Transport Topics, our van products are preferred by many of the industry’s leading carriers with our customers representing approximately one-half of the top 50 and more than one-third of the top 100 for-hire fleets.  As a result of the Walker acquisition, we are now also a leading provider of liquid-transportation systems and engineered products.  With an estimated one-third market share of the tank trailer industry, Walker has a strong customer base, consisting of mostly private fleets, and has earned leading market positions and a strong customer base across many of the markets it serves.
 
 
 
 
·
Innovative Product Offerings – Our DuraPlateâ proprietary technology offers what we believe to be a superior trailer, which customers value.  A DuraPlateâ trailer is a composite plate trailer using material that contains a high-density polyethylene core bonded between high-strength steel skins.  We believe that the competitive advantages of our DuraPlateâ trailers compared to standard trailers include the following:
 
 
-
Extended Service Life – operate three to five years longer;
 
 
 
 
-
Lower Total Cost of Ownership – less costly to maintain;
 
 
 
 
-
Less Downtime – higher utilization for fleets;
 
 
 
 
-
Extended Warranty – warranty period for DuraPlateâ panels is ten years; and
 
 
   
 
-
Improved Resale – higher trade-in and resale values.
 
We have been manufacturing DuraPlateâ trailers for over 18 years and through December 2013 have sold over 500,000 trailers. This proven experience, combined with ownership and knowledge of the DuraPlateâ panel technology, helps ensure continued industry leadership in the future. We continue to introduce new innovations in our DuraPlate® family, including DuraPlateHD® and DuraPlate XD-35®, along with new innovations in other product lines, including our ArcticLite® refrigerated trailers and the FreightPro® sheet and post trailer.
 
 
8

 
 
·
Significant Market Share and Brand Recognition – We have been one of the three largest manufacturers of trailers in North America since 1994, with one of the most widely recognized brands in the industry. We are currently the largest producer of van trailers in North America and, according to data published by Trailer Body Builders Magazine, our Transcraft subsidiary is one of the top three leading producers of platform trailers.  In addition, with our acquisitions of Walker and certain assets of Beall, we are now considered one of the largest manufacturers of stainless steel and aluminum tank trailers in North America. We participate broadly in the transportation industry through each of our three business segments. As a percentage of our consolidated net sales, new trailer sales for our dry and refrigerated vans, platforms and tanks represented approximately 76% in 2013.
 
 
 
 
·
Committed Focus on Operational Excellence – Safety, quality, on-time delivery, productivity and cost reduction are the core elements of our program of continuous improvement. We currently maintain an ISO 14001 registration of our Environmental Management System and an ISO 9001 registration of our Quality Management System.
 
 
 
 
·
Technology – We continue to be recognized by the trucking industry as a leader in developing technology to provide value-added solutions for our customers that reduce trailer operating costs, improve revenue opportunities, and solve unique transportation problems. Throughout our history, we have been and will continue to be a leading innovator in the design and production of trailers. In addition to the introduction of new trailer product innovations made through our DuraPlate® family over the past 18 years, we have also provided a customer-focused approach in developing product enhancements for the trailer and transportation industries. Some of the more recent innovations include DuraPlate® XD-35®, a revolutionary 35,000 pound concentrated floor load rated dry van for heavy haul applications; Trustlock®, a proprietary single-lock rear door mechanism; a combination ID/Stop light, a dual-function rear ID light that also actuates as a brake indicator; MaxClearenceTM Overhead Door System, a vertical door that provides an opening that would be comparable to that of swing door models; and the DuraPlate® Aeroskirt®, a durable aerodynamic solution that, based on certified laboratory and track testing, provides improved fuel efficiencies of approximately 6%.
 
 
 
 
·
Corporate Culture – We benefit from an experienced, value-driven management team and dedicated workforce focused on operational excellence.
 
 
 
 
·
Extensive Distribution Network – Our 18 Company-owned retail branches and a used trailer location extend our sales network throughout North America, diversify our factory direct sales, provide an outlet for used trailer sales and support our national service contracts. Additionally, we utilize a network of 23 independent dealers with approximately 59 locations throughout North America to distribute our van trailers, and our Transcraft distribution network consists of 76 independent dealers with approximately 118 locations throughout North America. Our tank trailers are distributed through a network of 68 independent dealers and locations throughout North America.
 
Regulation
 
Truck trailer length, height, width, maximum weight capacity and other specifications are regulated by individual states. The federal government also regulates certain safety features incorporated in the design and use of truck and tank trailers. These regulations include, but are not limited to, requirements on anti-lock braking systems (ABS) and rear-impact guard standards, as well as operator restrictions as to hours of service and minimum driver safety standards (see “Industry Trends”). In addition, most tank trailers we manufacture have specific federal regulations and restrictions that dictate tank design, material type and thickness. Manufacturing operations are subject to environmental laws enforced by federal, state and local agencies (see "Environmental Matters").
 
Products
 
Since our inception, we have expanded our product offerings from a single truck trailer dry van product to a broad range of transportation equipment.
 
Our Commercial Trailer Products segment specializes in the development of innovative proprietary products for our key markets. Commercial Trailer Products segment sales represented approximately 61%, 67% and 82% of our consolidated net sales as measured before elimination of intersegment sales in 2013, 2012 and 2011, respectively. While this segment continues to account for approximately two-thirds of our consolidated net sales for 2013, the decrease in the percentage of net sales attributable to this segment highlights our strategic focus to expand our customer base and diversify our product offerings and revenues. Our current Commercial Trailer Products primarily include the following:
 
 
9

 
 
·
Dry Vans. The dry van market represents our largest product line and includes trailers sold under DuraPlateâ, DuraPlateHDâ, DuraPlate® XD-35® and FreightPro® trademarks. Our DuraPlate® trailers utilize a proprietary technology that consists of a composite plate wall for increased durability and greater strength. Our FreightPro® trailers provide us a competitive product within the smooth aluminum, or “sheet and post,” trailer segment.
 
 
·
Platform Trailers. Platform trailers are sold under Transcraft®, Eagle® and Benson® trademarks. Platform trailers consist of a trailer chassis with a flat or “drop” loading deck without permanent sides or a roof. These trailers are primarily utilized to haul steel coils, construction materials and large equipment. In addition to our all steel and combination steel and aluminum platform trailers, we also offer a premium all-aluminum platform trailer.
 
 
 
 
·
Refrigerated Trailers. Refrigerated trailers have insulating foam in the walls, roof and floor, which improves both the insulation capabilities and durability of the trailers. Our refrigerated trailers are sold under the ArcticLite® trademark and use our proprietary SolarGuard® technology, coupled with our novel foaming process, which we believe enables customers to achieve lower costs through reduced operating hours of refrigeration equipment and therefore reduced fuel consumption.
 
 
 
 
·
Specialty Trailers, Parts and Other. This includes a wide array of specialty equipment and services generally focused on products that require a higher degree of customer specifications and requirements. These specialty products include converter dollies, Big Tire Hauler and RoadRailer® trailers, rail products and aftermarket component products.
 
 
 
 
·
Used Trailers. This includes the sale of used trailers through our used fleet sales center to facilitate new trailer sales with a focus on selling both large and small fleet trade packages to the wholesale market.
 
Our Diversified Products segment focuses on our commitment to expand our customer base, diversify our product offerings and revenues and extend our market leadership by leveraging our proprietary DuraPlate® panel technology, drawing on our core manufacturing expertise and making available products that are complementary to the truck trailers and transportation equipment we offer. During 2012, we expanded our Diversified Products segment by completing the acquisition of Walker. We further expanded this segment during 2013 by completing the acquisition of certain assets of Beall. Diversified Products segment sales represented approximately 28%, 23% and 8% of our consolidated net sales as measured before elimination of intersegment sales in 2013, 2012 and 2011, respectively. Our current Diversified Products primarily include the following:
 
 
·
Walker Group. In 2012, we completed the acquisition of all the equity interests of Walker. Walker currently has several principal brands divided among transportation and engineered products. Walker Transport, Walker Defense Group, Brenner® Tank, Bulk Tank International, Progress Tank, Garsite and TST® are brands that sell transportation products and include: stainless steel and aluminum liquid transport tank trailers and other liquid transport solutions for the dairy, food and beverage, chemical and environmental and petroleum industries; aircraft refuelers and hydrant dispensers for in-to-plane fueling companies, airlines, freight distribution companies and fuel marketers around the globe; military grade refueling and water tankers for applications and environments required by the military; truck mounted tanks for fuel delivery; and vacuum tankers. Walker Engineered Products, Walker Barrier Systems and Extract Technology® are brands that sell engineered products and include: a broad range of products for storage, mixing and blending, including process vessels, as well as round horizontal and vertical storage silo tanks; containment and isolation systems for the pharmaceutical, chemical, and nuclear industries, including custom designed turnkey systems and spare components for full service and maintenance contracts; containment systems for the pharmaceutical, chemical and biotech markets; and mobile water storage tanks used in the oil and gas industry to pump high-pressure water into underground wells. A listing of these widely recognized brands offered through the Walker Group are included below:
 
 
10

 
 
-
Walker Transport – Founded as the original Walker business in 1943, the Walker Transport brand includes stainless-steel tank trailers for the dairy, food and beverage end markets.
 
 
-
Brenner® Tank – Founded in 1900, Brenner® Tank manufactures stainless-steel and aluminum tank trailers as well as carbon steel frac tanks and vacuum tank trailers for the oil and gas, chemical, dairy, food and beverage, energy and environmental services end markets.
 
 
-
Bulk Tank International – Manufactures stainless-steel tank trailers for the oil and gas and chemical end markets.
 
 
-
Beall® Trailers – With tank trailer production dating to 1928, the Beall® brand includes aluminum tank trailers and related tank trailer equipment for the dry bulk and petroleum end markets (we acquired the Beall assets in the first quarter of 2013).
 
 
-
Progress Tank – Since 1920, the Progress Tank brand has included aluminum and stainless-steel truck-mounted tanks for the oil and gas and environmental end markets.
 
 
-
Garsite – Founded in 1952, Garsite is a value-added assembler of aircraft refuelers, hydrant dispensers, and above-ground fuel storage tanks for the aviation end market.
 
 
-
TST® – The TST® brand includes truck-mounted tanks for the oil and gas and environmental end markets.
 
 
-
Walker Engineered Products – Since the 1960s, Walker has marketed stainless-steel storage tanks and silos, mixers, and processors for the dairy, food and beverage, pharmaceutical, chemical and biotech end markets under the Walker Engineered Products brand.
 
 
-
Walker Barrier Systems – Since 1996, Walker Barrier Systems brand has included 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.
 
 
-
Extract Technology® – Since 1981, the Extract Technology® brand has included 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.
 
 
·
Wabash® Composites. Our composite products expand the use of DuraPlate® composite panels, already a proven product in the semi-trailer market for over 18 years, into new product and market applications. In 2009, we introduced our EPA Smartway® approved DuraPlate® AeroSkirt®. Other composite products include foldable portable storage containers, truck bodies, overhead doors and other industrial applications. We continue to actively explore new opportunities to leverage our proprietary technology into new industries and applications.
 
 
 
 
·
Wabash Wood Products. We manufacture laminated hardwood oak products used primarily in our dry van trailer segment at our manufacturing operations located in Harrison, Arkansas.
 
Our Retail segment offers products in three general categories, including new trailers, used trailers and parts and service. Retail segment sales represented approximately 10% of our consolidated net sales as measured before elimination of intersegment sales in each of 2013, 2012 and 2011. The following is a description of each product category:
 
 
·
We sell new trailers produced by the Commercial Trailer Products segment. Additionally, we sell specialty trailers produced by third parties that are purchased in smaller quantities for local or regional transportation needs. As a percentage of consolidated net sales, new trailer sales through our Retail segment represented approximately 5%, 5% and 6% of consolidated net sales in 2013, 2012 and 2011, respectively.
 

1 EPA Smartway® is a registered trademark of U.S. Environmental Protection Agency (EPA)
 
 
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·
We provide replacement parts and accessories, maintenance service and trailer repairs and conversions for trailers and other related equipment. As a percentage of consolidated net sales, parts and service sales within our Retail segment represented approximately 5% in 2013 and 2012 and 4% in 2011.
 
 
 
 
·
We sell used trailers through our retail branch network to enable us to remarket and promote new trailer sales in the local regions in which we operate. Used trailer sales represented less than 5% of consolidated net sales in each of 2013, 2012 and 2011.
 
Customers
 
Our customer base has historically included many of the nation’s largest truckload (TL) common carriers, leasing companies, private fleet carriers, less-than-truckload (LTL) common carriers and package carriers. According to Transport Topics, our customer base includes approximately one-half of the top fifty and more than one-third of the top one hundred for-hire fleet operators in North America. We continue to make improvements in expanding our customer base and diversifying into the broader trailer market through leveraging our independent dealer and company-owned retail networks as well as through the acquisitions of Walker and Transcraft and the asset purchases of Beall and Benson. Furthermore, we continue to diversify our products organically by expanding the use of DuraPlate® composite panel technology through products such as portable storage containers, DuraPlate® AeroSkirts®, truck bodies and overhead doors as well as strategically through acquisitions like Walker and certain assets of Beall. The acquisition of certain assets of Beall has also expanded our tank trailer market geographically by providing for a tank trailer manufacturing operations in the Western half of the U.S. All of these efforts have been accomplished while maintaining our relationships with our core customers. Our five largest customers together accounted for approximately 17%, 23% and 32% of our aggregate net sales in 2013, 2012 and 2011, respectively, with one customer representing approximately 13% of our net sales in 2011. This decrease in our concentration of net sales is primarily the result of our diversification efforts as well as our Walker acquisition. International sales, primarily to Canadian customers, accounted for less than 10% of net sales for each of the last three years.
 
We have established relationships as a supplier to many large customers in the transportation industry, including the following:
 
 
·
Truckload Carriers: Averitt Express, Inc.; Celadon Group, Inc.; Cowan Systems, LLC; Crete Carrier Corporation; Gordon Trucking, Inc.; Heartland Express, Inc.; J.B Hunt Transport, Inc.; Knight Transportation, Inc.; Schneider National, Inc.; Swift Transportation Corporation; and Werner Enterprises, Inc.
 
 
 
 
·
Less-Than-Truckload Carriers: FedEx Corporation; Old Dominion Freight Lines, Inc.; Vitran Express, Inc.; and YRC Worldwide, Inc.
 
 
 
 
·
Refrigerated Carriers: CR England, Inc. and Prime, Inc.
 
 
 
 
·
Leasing Companies: GE Trailer Fleet Services; Wells Fargo Equipment Finance, Inc.; and Xtra Lease, Inc.
 
 
 
 
·
Private Fleets: C&S Wholesale Grocers, Inc.; Dillard’s, Inc.; Dollar General Corporation; Safeway, Inc.; and Wal-Mart Transportation, Inc.
 
 
 
 
·
Liquid Carriers: Dana Liquid Transport Corporation; Evergreen Tank Solutions LLC; Martin Transport, Inc.; Oakley Transport, Inc.; Quality Carriers, Inc.; Sentinel Transportation LLC; Superior Tank, Inc.; and Trimac Transportation.
 
Through our Diversified Products segment we also sell our products to several other customers including, but not limited to: California Dairies, Inc.; Gilbane Inc.; GlaxoSmithKline Services Unlimited; Morgan Corporation; Poly-Coat Systems, Inc.; Semo Tank/Baker Equipment Company; Southwest Airlines Company; Superior Tank Inc.; Supreme Corporation; Tetra Pak; Utilimaster Corporation; and Wabash Manufacturing, Inc. (an unaffiliated company).
 
 
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Marketing and Distribution
 
We market and distribute our products through the following channels:
 
· factory direct accounts;
 
· Company-owned distribution network; and
 
· independent dealerships.
 
Factory direct accounts are generally large fleets, with over 7,500 trailers, that are high volume purchasers. Historically, we have focused on the factory direct market in which customers are highly knowledgeable of the life-cycle costs of trailer equipment and, therefore, are best equipped to appreciate the design and value-added features of our products.  We have also actively pursued, through our Company-owned and independent dealer network, the diversification of our customer base focusing on carriers that operate fleets of between 250 to 7,500 trailers, which we estimate account for approximately two million trailers in total.
 
Our Company-owned distribution network generates retail sales of trailers to smaller fleets and independent operators located in geographic regions where our branches are located.  This branch network enables us to provide maintenance and other services to customers.  The branch network and our used trailer centers provide an outlet to facilitate the resale of used trailers taken in trade upon the sale of new trailers, which is a common practice with fleet customers.
 
We also sell our van trailers through a network of 23 independent dealers with approximately 59 locations throughout North America.  Our platform trailers are sold through 76 independent dealers with approximately 118 locations throughout North America.  Our tank trailers are distributed through a network of 68 independent dealers and locations throughout North America.  The dealers primarily serve mid-market and smaller sized carriers and private fleets in the geographic region where the dealer is located and occasionally may sell to large fleets.  The dealers may also perform service work for our customers.
 
Raw Materials
 
We utilize a variety of raw materials and components including, specialty steel coil, stainless steel, plastic, aluminum, lumber, tires, landing gear, axles and suspensions, which we purchase from a limited number of suppliers.  Costs of raw materials and component parts represented approximately 66%, 69% and 77% of our consolidated net sales in 2013, 2012 and 2011, respectively.  Decreases in costs as a percentage of our consolidated net sales realized throughout 2013 are attributed to our concerted efforts to raise prices and recover lost margins, as well as an increased percentage of sales through our higher margin Diversified Products segment.  Significant price fluctuations or shortages in raw materials or finished components has had, and could have further, adverse effects on our results of operations.  In 2014 and for the foreseeable future, we expect that the raw materials used in the greatest quantity will be steel, aluminum, plastic and wood.  For 2014, we expect there to be continued price volatility for some of our primary raw materials and component parts, including, among others, aluminum, steel, plastic, wood and tires.  Our Harrison, Arkansas laminated hardwood floor facility provides the majority of our requirements for the flooring of our dry van trailers and has adequate capacity to meet our needs throughout 2014.
 
Backlog
 
Orders that have been confirmed by customers in writing, have defined delivery timeframes 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 at December 31, 2013 and 2012 was approximately $711 million and $666 million, respectively.  We expect to complete the majority of our existing backlog orders within the next 12 months.
 
Patents and Intellectual Property
 
We hold or have applied for 79 patents in the U.S. on various components and techniques utilized in our manufacture of transportation equipment and engineered products.  In addition, we hold or have applied for 107 patents in foreign countries.  Our patents include intellectual property related to the manufacture of trailers using our proprietary DuraPlate® product, which we believe offers us a significant competitive advantage, and our containment and isolation systems, as well as other engineered products.  Our DuraPlate® patent portfolio includes several patents and pending patent applications, which cover not only utilization of our DuraPlate® product in the manufacture of trailers, but also cover  a number of aerodynamic-related products aimed at increasing the fuel efficiency of trailers.  Patents in our DuraPlate® patent portfolio have expiration dates ranging from 2016 to 2030.   We also believe that our proprietary DuraPlate® production process, which has been developed and refined since 1995, offers us a significant competitive advantage in the industry.  While unpatented, the proprietary knowledge of this process and the significant intellectual and capital hurdles in creating a similar production process provide us with an advantage over others in the industry who utilize composite panel technology.
 
 
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In addition, our intellectual property portfolio includes patents and patent applications covering many of our engineered products and certain trailer industry components that are recognized for their innovation in the markets we serve.  These include patents and patent applications relating to our industry leading isolation systems, sold under the Walker Barrier Systems and Extract Technologies®, as well as trailer-industry componentry like our proprietary Trust Lock Plus® door locking mechanism and our proprietary Max Clearance™ Overhead Door System providing additional overhead clearance when the rear door is in the opened position.  We believe these proprietary products offer us a competitive market advantage in the industries in which we compete.  These patents have expiration dates ranging from 2015 to 2030.  In addition, we have applied for, or been granted, patents in the U.S. and foreign countries relating to these and many other innovative product designs or design improvements, which were first developed by Wabash or its subsidiaries and have become highly desirable in our industry.  In our view there are no meaningful patents having an expiration date prior to 2016.
 
We also hold or have applied for 42 trademarks in the U.S. as well as 49 trademarks in foreign countries.  These trademarks include the Wabash®, Wabash National®, Transcraft®, Benson®, TST®, Extract Technologies®, Beall® and Brenner® brand names as well as trademarks associated with our proprietary products such as DuraPlate®, RoadRailer®, Transcraft Eagle®, ArcticLite®, and Benson® trailers.  Additionally, we utilize several tradenames that are each well-recognized in their industries, including Walker Transport, Walker Stainless Equipment, Walker Engineered Products, Walker Barrier Systems, Garsite, Bulk Tank International and Progress Tank.  Our trademarks associated with additional proprietary products include Max Clearance™ Overhead Door System, Trust Lock Plus®, EZ-7®, DuraPlate Aeroskirt®, DuraPlate XD-35®, DuraPlate HD®, SolarGuard® and EZ-Adjust™. We believe these trademarks are important for the identification of our products and the associated customer goodwill; however, our business is not materially dependent on such trademarks.
 
Research and Development
 
Research and development expenses are charged to earnings as incurred and were $2.2 million, $1.7 million and $1.0 million in 2013, 2012 and 2011, respectively.
 
Environmental Matters
 
Our facilities are subject to various environmental laws and regulations, including those relating to air emissions, wastewater discharges, the handling and disposal of solid and hazardous wastes and occupational safety and health.  Our operations and facilities have been, and in the future may become, the subject of enforcement actions or proceedings for non-compliance with such laws or for remediation of company-related releases of substances into the environment.  Resolution of such matters with regulators can result in commitments to compliance abatement or remediation programs and in some cases the payment of penalties (see Item 3 “Legal Proceedings”).
 
We believe that our facilities are in substantial compliance with applicable environmental laws and regulations.  Our facilities have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with these laws and regulations.  However, we currently do not anticipate that the future costs of environmental compliance will have a material adverse effect on our business, financial condition or results of operations.
 
Employees
 
As of December 31, 2013 and 2012, we had approximately 4,400 full-time associates.  Throughout 2013, essentially all of our active associates were non-union.  Our temporary associates represented approximately 24% of our overall production workforce as of December 31, 2013 and 2012.  We place a strong emphasis on maintaining good employee relations by promoting educational programs and quality improvement teams.
 
 
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Executive Officers of Wabash National Corporation
 
The following are the executive officers of the Company:
 
Name
 
Age
 
Position
Richard J. Giromini
 
60
 
President and Chief Executive Officer, Director
Rodney P. Ehrlich
 
67
 
Senior Vice President – Chief Technology Officer
Bruce N. Ewald
 
62
 
Senior Vice President – Sales and Marketing
William D. Pitchford
 
59
 
Senior Vice President – Human Resources and Assistant Secretary
Erin J. Roth
 
38
 
Senior Vice President – General Counsel and Secretary
Jeffery L. Taylor
 
48
 
Senior Vice President – Chief Financial Officer
Mark J. Weber
 
42
 
Senior Vice President – Group President, Diversified Products Group
Brent L. Yeagy
  
43
  
Senior Vice President – Group President, Commercial Trailer Products
 
Richard J. Giromini.  Mr. Giromini was promoted to President and Chief Executive Officer in January 2007. He had been Executive Vice President and Chief Operating Officer from February 2005 until December 2005 when he was appointed President and a Director of the Company.  Prior to that, he had been Senior Vice President - Chief Operating Officer since joining the Company in July 2002.  Mr. Giromini was with Accuride Corporation from April 1998 to July 2002, where he served in capacities as Senior Vice President - Technology and Continuous Improvement; Senior Vice President and General Manager - Light Vehicle Operations; and President and CEO of AKW LP. Previously, Mr. Giromini was employed by ITT Automotive, Inc. from 1996 to 1998 serving as the Director of Manufacturing.  Mr. Giromini holds a Bachelor of Science degree in mechanical and industrial engineering and a Master of Science degree in industrial management, both from Clarkson University.  He is a graduate of the Advanced Management Program at the Duke University Fuqua School of Management.
 
Rodney P. Ehrlich.  Mr. Ehrlich has been Senior Vice President – Chief Technology Officer of the Company since January 2004.  From 2001 to 2003, Mr. Ehrlich was Senior Vice President of Product Development. Mr. Ehrlich has been in charge of the Company's engineering operations since the Company's founding.  Prior to Wabash National, Mr. Ehrlich started with Monon Trailer Corporation in 1963 working various positions until becoming Chief Engineer in 1973, Director of Engineering in 1978, and serving until joining the founders of Wabash National in 1985.  Mr. Ehrlich has obtained over 60 patents in trailer related design during his 50 year career in the trailer manufacturing business.  Mr. Ehrlich holds a Bachelor of Science degree in Mechanical Engineering from Purdue University.
 
Bruce N. Ewald.  Mr. Ewald’s original appointment was Vice President and General Manager of Wabash National Trailer Centers, Inc. when he joined the Company in March 2005.  In October 2005, he was promoted to Senior Vice President – Sales and Marketing.  Mr. Ewald has more than 30 years of experience in the transportation industry.  Most recently, Mr. Ewald was with PACCAR from 1991 to February 2005 where he served in a number of executive-level positions.  Prior to PACCAR, Mr. Ewald spent 10 years with Genuine Parts Co. where he served in several positions, including President and General Manager, Napa Auto Parts/Genuine Parts Co.  Mr. Ewald holds a Bachelor of Science degree in Business from the University of Minnesota.
 
William D. Pitchford.  Mr. Pitchford was promoted to Senior Vice President – Human Resources and Assistant Secretary in June 2013. He joined the Company in December 2011 as Vice President – Human Resources with an extensive Human Resource background including executive leadership and management, training and development, employee relations, compensation planning and organizational design.   Prior to joining the Company, Mr. Pitchford served as Vice President - Human Resources for Rio Tinto Alcan Corporation in Chicago, Illinois, from January 2009 to December 2010 and was with Ford Motor Company for more than 30 years where he held a variety of key leadership positions including Human Resources Director, Labor Relations Director and Senior Human Resources Manager.  Mr. Pitchford holds a Master of Arts degree in Personnel Management from Central Michigan and a Bachelors of Science degree from Indiana State University.
 
Erin J. Roth.  Effective January 2011, Ms. Roth was promoted to the position of Senior Vice President – General Counsel and Secretary, following her appointment in March 2010 to the position of Vice President – General Counsel and Secretary.  Ms. Roth joined the Company in March 2007 as Corporate Counsel and was promoted in July 2009 to Senior Corporate Counsel.  For the five years prior to joining the Company, Ms. Roth was engaged in the private practice of law with Barnes & Thornburg, LLP, representing a number of private and public companies throughout the U.S.  Ms. Roth earned her Bachelor of Science degree in Accounting from Butler University and her Juris Doctorate from the Georgetown University Law Center.
 
 
15

 
Jeffery L. Taylor.  Mr. Taylor was appointed Senior Vice President and Chief Financial Officer in January 2014.  Mr. Taylor joined the company in July 2012 as Vice President of Finance and Investor Relations and was promoted to Vice President – Acting Chief Financial Officer and Treasurer in June 2013.  Prior to joining the Company, Mr. Taylor was with King Pharmaceuticals, Inc. from May 2006 to July 2011 as Vice President, Finance – Technical Operations, and with Eastman Chemical Company from June 1997 to May 2006 where he served in several positions of increasing responsibility within finance, investor relations and business management, including its Global Business Controller – Coatings, Adhesives, Specialty Polymers & Inks.  Mr. Taylor earned his Bachelor of Science in Chemical Engineering from Arizona State University and his Masters of Business Administration from the University of Texas at Austin.
 
Mark J. Weber.  Mr. Weber was appointed to Senior Vice President - Group President of Diversified Products Group in June 2013. Mr. Weber joined the Company in August 2005 as Director of Internal Audit, was promoted in February 2007 to Director of Finance, and in November 2007 to Vice President and Corporate Controller. In August 2009 Mr. Weber was then appointed to the position of Senior Vice President – Chief Financial Officer. Prior to joining the Company, Mr. Weber was with Great Lakes Chemical Corporation from October 1995 through August 2005 where he served in several positions of increasing responsibility within accounting and finance, including Vice President of Finance.  Mr. Weber earned his Masters of Business Administration and Bachelor of Science in Accounting from Purdue University’s Krannert School of Management.
 
Brent L. Yeagy.  Mr. Yeagy was promoted to Senior Vice President for Wabash National and President of the Commercial Trailer Products Group in January 2013.  He had been Vice President and General Manager for the Commercial Trailer Products Group since January 2010.  Prior to that, he had been Vice President of Van Manufacturing since 2007.  Mr. Yeagy has held numerous operations related roles since joining Wabash National in February 2003.  Prior to joining the Company, Mr. Yeagy held various roles within Human Resources, Environmental Engineering and Safety Management for Delco Remy International from July 1999 through February 2003.  Mr. Yeagy served in various Plant Engineering roles at Rexnord Corporation from December 1995 through July 1997.  Mr. Yeagy is a veteran of the United States Navy, serving from 1991-1994.  He received his Master degree in Business (MBA) from Anderson University and his Master and Bachelor degrees in Science from Purdue University.  He is a graduate of the University of Michigan, Ross School of Business Program in Executive Management.
 
ITEM 1A—RISK FACTORS
 
You should carefully consider the risks described below in addition to other information contained or incorporated by reference in this Annual Report before investing in our securities.  Realization of any of the following risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.
 
Risks Related to Our Business, Strategy and Operations
 
Our business is highly cyclical, which has had, and could have further, adverse effects on our sales and results of operations.
 
The truck trailer manufacturing industry historically has been and is expected to continue to be cyclical, as well as affected by overall economic conditions.  Customers historically have replaced trailers in cycles that run from five to 12 years, depending on service and trailer type.  Poor economic conditions can adversely affect demand for new trailers and have historically, and has currently, led to an overall aging of trailer fleets beyond a typical replacement cycle.  Customers’ buying patterns can also reflect regulatory changes, such as federal hours-of-service rules as well as overall truck safety and federal emissions standards.
 
The steps we have taken to diversify our product offerings through the implementation of our strategic plan do not insulate us from this cyclicality.  During downturns, we operate with a lower level of backlog and have had to temporarily slow down or halt production at some or all of our facilities, including extending normal shut down periods and reducing salaried headcount levels.  An economic downturn may reduce, and in the past has reduced, demand for trailers, resulting in lower sales volumes, lower prices and decreased profits or losses.
 
 
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Demand for new trailers has been and will continue to be sensitive to economic conditions over which we have no control and that may adversely affect our revenues and profitability.
 
Demand for trailers is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, new housing starts, government regulations and the availability of financing and interest rates.  The status of these economic conditions periodically have an adverse effect on truck freight and the demand for and the pricing of our trailers, and have resulted in, and could continue to result in, the inability of customers to meet their contractual terms or payment obligations, which could cause our operating revenues and profits to decline.
 
We may not be able to execute on our long-term strategic plan and growth initiatives, or meet our long-term financial goals.
 
Our long-term strategic plan is to deliver greater value to our shareholders by transforming Wabash National into a diversified industrial manufacturer while delivering profitable growth through all our business segments.  The long-term financial goals that we expect to achieve as a result of our long-term strategic plan and organic growth initiatives are based on certain assumptions, which may prove to be incorrect. We cannot provide any assurance we will be able to fully execute on our strategic plan or growth initiatives, which are subject to a variety of risks, including, but not limited to, our ability to: diversify the product offerings of our non-trailer businesses; leverage the acquired businesses and assets of Walker and Beall to grow sales with our existing products; design and develop new products to meet the needs of our customers; increase the pricing of our products and services to offset cost increases and expand gross margins; and execute potential future acquisitions, mergers, and other business development opportunities. If we are unable to successfully execute on our strategic plan, we may experience increase competition, adverse financial consequences and a decrease in the value of our stock.  Additionally, our management’s attention to the implementation of the strategic plan may distract them from implementing our core business which may also have adverse financial consequences.
 
We have a limited number of suppliers of raw materials and components; increases in the price of raw materials or the inability to obtain raw materials could adversely affect our results of operations.
 
We currently rely on a limited number of suppliers for certain key components and raw materials  in the manufacturing of our products, such as tires, landing gear, axles, suspensions and specialty steel coil used in DuraPlate® panels.  From time to time, there have been and may in the future be shortages of supplies of raw materials or components, or our suppliers may place us on allocation, which would have an adverse impact on our ability to meet demand for our products.  Shortages and allocations may result in inefficient operations and a build-up of inventory, which can negatively affect our working capital position.  In addition, price volatility in commodities we purchase which impact the pricing of raw materials could have negative impacts on our operating margins.  The loss of any of our suppliers or their inability to meet our price, quality, quantity and delivery requirements could have a significant impact on our results of operations.
 
Global economic weakness could negatively impact our operations and financial performance.
 
The global economic downturn beginning in 2007 and continuing through 2010 caused demand for new trailers during this period to decline and led to, in some cases, the cyclical timeframe for trailer replacement to be delayed due to economic pressures.  While the trailer industry has recently experienced a period of economic recovery, we cannot make any assurances that we will be profitable in future periods or that we will be able to sustain or increase profitability in the future.  Increasing our profitability will depend on several factors, including, but not limited to, our ability to increase our overall trailer volumes, improve our gross margins, gain continued momentum on our product diversification efforts and manage our expenses.  If we are unable to generate profitability in the future, we may not be able to meet our payment and other obligations under our outstanding debt agreements.
 
We continue to be reliant on the credit markets, as well as housing and construction-related markets in the U.S.  The same general economic concerns faced by us are also faced by our customers.  We believe that some of our customers are highly leveraged, have limited access to capital, and may be reliant on liquidity from global credit markets and other sources of external financing.  Lack of liquidity by our customers could impact our ability to collect amounts owed to us.  While we have taken steps to address these concerns through the implementation of our strategic plan, we are not immune to the pressures being faced by our industry or the global economy, and our results of operations may decline.
 
 
17

 
A change in our customer relationships or in the financial condition of our customers has had, and could have further, adverse effects on our business.
 
We have longstanding relationships with a number of large customers to whom we supply our products.  We do not have long-term agreements with these customers.  Our success is dependent, to a significant extent, upon the continued strength of these relationships and the growth of our core customers.  We often are unable to predict the level of demand for our products from these customers, or the timing of their orders.  In addition, the same economic conditions that adversely affect us also often adversely affect our customers.  In recent years, the demand environment has caused us to experience reduced demand.  As some of our customers are highly leveraged and have limited access to capital, their continued existence may be uncertain.  Furthermore, we are subject to a concentration of risk as the five largest customers together accounted for approximately 17% of our aggregate net sales and in recent years there have been customers who accounted individually for greater than 10% of our aggregate net sales.  The loss of a significant customer or unexpected delays in product purchases could further adversely affect our business and results of operations.
 
Our backlog is not necessarily indicative of the level of our future revenues.
 
Our backlog represents future production for which we have written orders from our customers that can be produced or sold in the next 18 months.  Orders that comprise our backlog may be subject to changes in quantities, delivery, specifications and terms, or cancellation, and our reported backlog may not be converted to revenue in any particular period and actual revenue from such orders may not equal our backlog revenues.  Therefore, our backlog is not necessarily indicative of the level of our future revenues.
 
International operations are subject to increased risks, which could harm our business, operating results and financial condition.
 
The acquisition of Walker in May 2012 increased our exposure to international sales and operations.  Our ability to manage our business and conduct operations internationally will require considerable management attention and resources and is subject to a number of risks, including the following:
 
· challenges caused by distance, language and cultural differences and by doing business with foreign agencies and governments;
 
· longer payment cycles in some countries;
 
· uncertainty regarding liability for services and content;
 
· credit risk and higher levels of payment fraud;
 
· currency exchange rate fluctuations and our ability to manage these fluctuations;
 
· foreign exchange controls that might prevent us from repatriating cash earned outside the U.S.;
 
· import and export requirements that may prevent us from shipping products or providing services to a particular market and may increase our operating costs;
 
· potentially adverse tax consequences;
 
· higher costs associated with doing business internationally;
 
· different expectations regarding working hours, work culture and work-related benefits; and
 
· different employee/employer relationships and the existence of workers’ councils and labor unions.
 
Compliance with complex foreign and U.S. laws and regulations that apply to international operations may increase our cost of doing business and could expose us or our employees to fines, penalties and other liabilities.  These numerous and sometimes conflicting laws and regulations include import and export requirements, content requirements, trade restrictions, tax laws, environmental laws and regulations, sanctions, internal and disclosure control rules, data privacy requirements, labor relations laws, U.S. laws such as the Foreign Corrupt Practices Act and substantially equivalent local laws prohibiting corrupt payments to governmental officials and/or other foreign persons.  Although we have policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our officers, employees, contractors or agents will not violate our policies.  Any violation of the laws and regulations that apply to our operations and properties could result in, among other consequences, fines, environmental and other liabilities, criminal sanctions against us, our officers or our employees, prohibitions on our ability to offer our products and services to one or more countries and could also materially damage our reputation, our brand, our efforts to diversify our business, our ability to attract and retain employees, our business and our operating results.
 
 
18

 
Our technology and products may not achieve market acceptance or competing products could gain market share, which could adversely affect our competitive position.
 
We continue to optimize and expand our product offerings to meet our customer needs through our established brands, such as DuraPlate®, DuraPlateHD®, DuraPlate® XD-35®, DuraPlate Aeroskirt®, FreightPro®, ArcticLite®, Transcraft®, Eagle®, Benson®, Walker Stainless Equipment, Brenner® Tank, Garsite, Progress Tank, TST®, Bulk Tank International, and Extract Technology®.  While we target product development to meet customer needs, there is no assurance that our product development efforts will be embraced and that we will meet our sales projections.  Companies in the truck transportation industry, a very fluid industry in which our customers primarily operate, make frequent changes to maximize their operations and profits.
 
Over the past several years, we have seen a number of our competitors follow our leadership in the development and use of composite sidewalls that bring them into direct competition with our DuraPlate? products.  Our product development is focused on maintaining our leadership on these products but competitive pressures may erode our market share or margins.  We continue to take steps to protect our proprietary rights in our products.  However, the steps we have taken may not be sufficient or may not be enforced by a court of law.  If we are unable to protect our intellectual properties, other parties may attempt to copy or otherwise obtain or use our products or technology.  If competitors are able to use our technology, our ability to effectively compete could be harmed.  In addition, litigation related to intellectual property could result in substantial costs and efforts which may not result in a successful outcome.
 
Disruption of our manufacturing operations would have an adverse effect on our financial condition and results of operations.
 
We manufacture our products at two van trailer facilities in Lafayette, Indiana, a flatbed and dump-body trailer facility in Cadiz, Kentucky, a hardwood floor facility in Harrison, Arkansas, six liquid-transportation systems facilities in New Lisbon, Wisconsin; Fond du Lac, Wisconsin; Kansas City, Missouri; Kansas City, Kansas; Portland, Oregon; and Queretaro, Mexico and three engineered products facilities in New Lisbon, Wisconsin; Elroy, Wisconsin; and Huddersfield, United Kingdom.  An unexpected disruption in our production at any of these facilities for any length of time would have an adverse effect on our business, financial condition and results of operations.
 
The inability to attract and retain key personnel could adversely affect our results of operations.
 
Our ability to operate our business and implement our strategies depends, in part, on the efforts of our executive officers and other key employees.  Our future success depends, in large part, on our ability to attract and retain qualified personnel, including manufacturing personnel, sales professionals and engineers.  The unexpected loss of services of any of our key personnel or the failure to attract or retain other qualified personnel could have a material adverse effect on the operation of our business.
 
We rely significantly on information technology to support our operations and if we are unable to protect against service interruptions or security breaches, our business could be adversely impacted. 
 
We depend on a number of information technologies to integrate departments and functions, to enhance the ability to service customers, to improve our control environment and to manage our cost reduction initiatives.  We have put in place a number of systems, processes, and practices designed to protect against the failure of our systems, as well as the misappropriation, exposure or corruption of the information stored thereon.  Unintentional service disruptions or intentional actions such as intellectual property theft, cyber-attacks, unauthorized access or malicious software, may lead to such misappropriation, exposure or corruption if our protective measures prove to be inadequate.   Any issues involving these critical business applications and infrastructure may adversely impact our ability to manage operations and the customers we serve.  We could also encounter violations of applicable law or reputational damage from the disclosure of confidential information.  In addition, the disclosure of non-public information could lead to the loss of our intellectual property and diminished competitive advantages.  Should any of the foregoing events occur, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
 
 
19

 
Significant competition in the industry in which we operate may result in our competitors offering new or better products and services or lower prices, which could result in a loss of customers and a decrease in our revenues.
 
The truck and tank trailer manufacturing industry is highly competitive.  We compete with other manufacturers of varying sizes, some of which have substantial financial resources.  Trailer manufacturers compete primarily on the quality of their products, customer relationships, service availability and cost.  Barriers to entry in the standard truck trailer manufacturing industry are low.  As a result, it is possible that additional competitors could enter the market at any time.  In the recent past, manufacturing over-capacity and high leverage of some of our competitors, along with bankruptcies and financial stresses that affected the industry, contributed to significant pricing pressures.
 
If we are unable to successfully compete with other trailer manufacturers, we could lose customers and our revenues may decline.  In addition, competitive pressures in the industry may affect the market prices of our new and used equipment, which, in turn, may adversely affect our sales margins and results of operations.
 
We are subject to extensive governmental laws and regulations, and our costs related to compliance with, or our failure to comply with, existing or future laws and regulations could adversely affect our business and results of operations.
 
The length, height, width, maximum weight capacity and other specifications of truck and tank trailers are regulated by individual states.  The federal government also regulates certain trailer safety features, such as lamps, reflective devices, tires, air-brake systems and rear-impact guards.  In addition, most tank trailers we manufacture have specific federal regulations and restrictions that dictate tank design, material type and thickness.  Changes or anticipation of changes in these regulations can have a material impact on our financial results, as our customers may defer purchasing decisions and we may have to re-engineer products.  We are subject to various environmental laws and regulations dealing with the transportation, storage, presence, use, disposal and handling of hazardous materials, discharge of storm water and underground fuel storage tanks and may be subject to liability associated with operations of prior owners of acquired property.  In addition, we are subject to laws and regulations relating to the employment of our associates and labor-related practices.
 
If we are found to be in violation of applicable laws or regulations in the future, it could have an adverse effect on our business, financial condition and results of operations.  Our costs of complying with these or any other current or future regulations may be material. In addition, if we fail to comply with existing or future laws and regulations, we may be subject to governmental or judicial fines or sanctions.
 
New regulations related to conflict-free minerals may force us to incur additional expenses and otherwise adversely affect our business and results of operations.
 
In August 2012, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission adopted rules regarding disclosure of the use of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo or adjoining countries.  These new requirements will require ongoing due diligence efforts, with initial disclosure requirements beginning in May 2014.  We may incur significant costs to determine the source of any such minerals used in our products.  We may also incur costs with respect to potential changes to products, processes or sources of supply as a consequence of our diligence activities.  Further, the implementation of these rules and their effect on customer and/or supplier behavior could adversely affect the sourcing, supply and pricing of materials used in our products, as the number of suppliers offering conflict-free minerals could be limited.  We may incur additional costs or face regulatory scrutiny if we determine that some of our products contain materials not determined to be conflict-free or if we are unable to sufficiently verify the origins of all conflict minerals used in our products.  Accordingly, the implementation of these rules could have a material adverse effect on our business, results of operations and/or financial condition.
 
 
20

 
Product liability and other legal claims could have an adverse effect on our financial condition and results of operations.
 
As a manufacturer of products widely used in commerce, we are subject to product liability claims and litigation, as well as warranty claims.  From time to time claims may involve material amounts and novel legal theories, and any insurance we carry may not provide adequate coverage to insulate us from material liabilities for these claims.
 
In addition to product liability claims, we are subject to legal proceedings and claims that arise in the ordinary course of business, such as workers' compensation claims, OSHA investigations, employment disputes and customer and supplier disputes arising out of the conduct of our business.  Litigation may result in substantial costs and may divert management's attention and resources from the operation of our business, which could have a material adverse effect on our business, results of operations or financial condition.  As described in more detail in “Item 3-Legal Proceedings” below, we are currently appealing a judgment rendered by the Fourth Civil Court of Curitiba, Brazil, in a lawsuit that has been pending since 2001.  While we are appealing this judgment, which renders it unenforceable at this time, and the Brazilian Court of Appeals has the authority to render a new judgment in the case without any regard to the lower court’s findings, the ultimate outcome of the case is uncertain and the resolution of this litigation may result in us incurring substantial costs that are not covered by insurance.
 
An impairment in the carrying value of goodwill and other long-lived intangible assets could negatively affect our operating results.
 
We have a substantial amount of goodwill and purchased intangible assets on our balance sheet as a result of our recent acquisitions.  At December 31, 2013, approximately 90% of these long-lived intangible assets were concentrated in our Diversified Products segment and specifically related to the acquisitions of Walker and certain assets of Beall.  The carrying value of goodwill represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date.  The carrying value of other long-lived intangible assets represents the fair value of trademarks and trade names, customer relationships and technology as of the acquisition date.  Under generally accepted accounting principles, long-lived assets are required to be reviewed for impairment at least annually, or more frequently if potential interim indicators exist that could result in impairment.  If any business conditions or other factors cause profitability or cash flows to significantly decline, we may be required to record a non-cash impairment charge, which could adversely affect our operating results.  Events and conditions that could result in impairment include a prolonged period of global economic weakness, a further decline in economic conditions or a slow, weak economic recovery, sustained declines in the price of our common stock, adverse changes in the regulatory environment, adverse changes in the market share of our products, adverse changes in interest rates, or other factors leading to reductions in the long-term sales or profitability that we expect.  For example, during the fiscal year ended December 31, 2008, we recorded a $66 million non-cash goodwill impairment charge related to the 2006 acquisition of our platform trailer business and the 1998 acquisition of our wood product manufacturing operations.
 
The full utilization of our remaining U.S. federal income tax net operating loss carryforwards will significantly increase our cash tax payments and may adversely impact our ability to fund operations.
 
As of December 31, 2013, we had approximately $28 million of remaining U.S. Federal income tax net operating loss carryforwards, which will begin to expire in 2029 if unused, and which may be subject to other limitations under IRS rules.  We also have various multi-state income tax net operating loss carryforwards, which have been recorded as a deferred income tax asset, of approximately $8 million, before valuation allowances.  We also have various U.S. Federal income tax credit carryforwards which will expire beginning in 2023, if unused.  For 2014 we expect to fully utilize all of our remaining U.S. Federal income tax net operating loss carryforwards and credit carryforwards and, therefore, we do anticipate an increase in our cash tax payments in 2014 as compared to previous years which could limit the amount of liquidity available to fund working capital requirements and capital expenditure needs throughout 2014.
 
 
21

 
Our ability to fund operations is limited by our cash on hand and available borrowing capacity under our revolving credit facility.
 
We believe our liquidity, defined as cash on hand and available borrowing capacity, on December 31, 2013 of $254.3 million and our expected continued improvements in profitability will be more than adequate to fund working capital requirements and capital expenditures throughout 2014, which we expect to be a period of continued strong demand within the trailer manufacturing industry.  Furthermore, we continue to have the option, subject to certain conditions, to request an additional incremental increase to the total commitment of our revolving credit facility of $50 million.  Our liquidity position as of December 31, 2013 represented an increase of $30.0 million and $128.6 million from December 31, 2012 and 2011, respectively, which is reflective of the challenges we have had in recent years maintaining a strong liquidity position.  Our ability to fund our working capital needs and capital expenditures is limited by the net cash provided by operations, cash on hand and available borrowings under our revolving credit facility.  Declines in net cash provided by operations, increases in working capital requirements necessitated by an increased demand for our products and services, further decreases in the availability under the revolving credit facility or changes in the credit our suppliers provide to us, could rapidly exhaust our liquidity.
 
Risks Related to Our Indebtedness
 
Our levels of indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under our debt agreements.
 
Our debt and debt service obligations increased significantly in 2012 as a result of the offering of our 3.375% Convertible Senior Notes Due 2018 (“Notes”) in April 2012, entering into the Term Loan Credit Agreement in May 2012, which was subsequently amended in May 2013, and the amendment and restatement of our revolving credit agreement.  As of December 31, 2013, and as a result of these events, we had approximately $396 million of indebtedness, including: $235 million secured, $150 million unsecured, approximately $8 million in capital lease obligations and approximately $2 million in an industrial revenue bond.  This level of debt could have significant consequences on our future operations, including, among others:
 
· making it more difficult for us to meet our payment and other obligations under our outstanding debt agreements;
 
· resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in all of our debt becoming immediately due and payable;
 
· reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
 
· subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates;
 
· limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy; and
 
· placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.
 
Any of the factors listed above could have a material adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under our debt agreements.
 
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt obligations.
 
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to regulatory, economic, financial, competitive and other factors beyond our control.  Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures.  If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.  Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time.  We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
 
 
22

 
Despite our current debt levels, we may still incur substantially more debt or take other actions that would intensify the risks discussed above.
 
Despite our current consolidated debt levels, we and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt.  We are not restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indenture governing the Notes.  Our Amended and Restated Revolving Credit Agreement restricts our ability to incur additional indebtedness, including secured indebtedness, but if the facilities mature or are repaid, we may not be subject to such restrictions under the terms of any subsequent indebtedness.
 
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.
 
In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option.  If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than cash in lieu of any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.  In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our working capital.
 
Future sales of our common stock in the public market could lower the market price for our common stock.
 
In the future, we may sell additional shares of our common stock to raise capital.  In addition, a substantial number of shares of our common stock are reserved for issuance upon the exercise of stock options and upon conversion of the Notes.  We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock.  The issuance and sale of substantial amounts of common stock, or the perception that such issuances and sales may occur, could adversely affect the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.
 
Provisions of the Notes could discourage a potential future acquisition of us by a third party.
 
Certain provisions of the Notes could make it more difficult or more expensive for a third party to acquire us.  Upon the occurrence of certain transactions constituting a fundamental change, holders of the Notes will have the right, at their option, to require us to repurchase all of their Notes or any portion of the principal amount of such Notes in integral multiples of $1,000.  We also may be required to issue additional shares upon conversion in the event of certain corporate transactions.  In addition, the indenture for the Notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes.  These and other provisions of the Notes could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you.
 
Our Term Loan Credit Agreement, as amended, and revolving credit facility contain restrictive covenants that, if breached, could limit our financial and operating flexibility and subject us to other risks.
 
Our Term Loan Credit Agreement, as amended, and revolving credit facility include certain financial covenants.  Breaching those financial covenants would trigger an event of default and our lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding and foreclose on the collateral.
 
 
23

 
These debt facilities contain 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, repay subordinated indebtedness, make investments and dispose of assets.  As required under our Term Loan Credit Agreement, as amended, we must maintain a maximum senior secured leverage ratio tested as of the last day of each fiscal quarter for the four consecutive fiscal quarters then ending of not more than (A) 4.5 to 1.0 through September 30, 2013, (B) 4.0 to 1.0 thereafter through September 30, 2015, and (C) 3.5 to 1.0 thereafter. In addition, under our revolving credit facility, we are required to maintain a minimum fixed charge coverage ratio of not less than 1.1 to 1.0 as of the end of any period of 12 fiscal months when excess availability under the Amended and Restated Revolving Credit Agreement is less than 12.5% of the total revolving commitment.  As of December 31, 2013, our senior secured leverage ratio was 0.9:1.0, and in compliance with all covenants under the Term Loan Credit Agreement, as amended.
 
If availability under the Amended and Restated 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.
 
As of December 31, 2013, we were in compliance with all covenants under both our Term Loan Credit Agreement, as amended, and our revolving credit facility.  Our ability to comply with the various financial covenants in the future may be affected by events beyond our control, including prevailing economic, financial and industry conditions.
 
Risks Related to an Investment in Our Common Stock
 
Our common stock has experienced, and may continue to experience, price volatility and a low trading volume.
 
The trading price and volume of our common stock has been and may continue to be subject to large fluctuations.  The market price and volume of our common stock may increase or decrease in response to a number of events and factors, including:
 
· trends in our industry and the markets in which we operate;
 
· changes in the market price of the products we sell;
 
· the introduction of new technologies or products by us or by our competitors;
 
· changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
 
· operating results that vary from the expectations of securities analysts and investors;
 
· announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, financings or capital commitments;
 
· changes in laws and regulations;
 
· general economic and competitive conditions; and
 
· changes in key management personnel.
 
This volatility may adversely affect the prices of our common stock regardless of our operating performance.  To the extent that the price of our common stock declines, our ability to raise funds through the issuance of equity or otherwise use our common stock as consideration will be reduced.  These factors may limit our ability to implement our operating and growth plans.
 
ITEM 1B—UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM  2—PROPERTIES
 
Our main Lafayette, Indiana facility is a 1.2 million square foot facility that houses truck trailer and composite material production, tool and die operations, research laboratories and offices.  Our second Lafayette, Indiana facility is 0.8 million square feet and used primarily for the production of refrigerated van and liquid tank trailers.  In total, our main facilities have the capacity to produce approximately 80,000 van trailers annually on a three shift, five-day workweek schedule, depending on the mix of products.
 
 
24

 
We have 18 Retail facilities located throughout North America.  Each sales and service branch consists of an office, parts warehouse and service space, and ranges in size from 4,000 to 70,000 square feet per facility.  The 18 facilities are located in 13 states with eight of the facilities being leased.
 
Properties owned by Wabash are subject to security interests held by our lenders.  The following table provides information regarding our major facilities located in the United States, Mexico and United Kingdom:
 
Location
 
Owned or Leased
 
Description of Activities at Location
 
Segment
Ashland, Kentucky
 
Leased
 
Parts distribution
 
Retail
Baton Rouge, Louisiana
 
Leased
 
Service and parts distribution
 
Retail
Cadiz, Kentucky
 
Leased
 
Manufacturing, new trailers and parts distribution
 
Commercial Trailer Products and Retail
Chicago, Illinois
 
Leased
 
Service and parts distribution
 
Retail
Columbus, Ohio
 
Owned
 
New trailers, used trailers, service and parts distribution
 
Retail
Dallas, Texas
 
Owned
 
New trailers, used trailers, service and parts distribution
 
Retail
Denver, Colorado
 
Owned
 
New trailers, used trailers, service and parts distribution
 
Retail
Elroy, Wisconsin
 
Owned
 
Manufacturing
 
Diversified Products
Findlay, Ohio
 
Leased
 
Service and parts distribution
 
Diversified Products
Fond du Lac, Wisconsin
 
Owned
 
Manufacturing
 
Diversified Products
Fontana, California
 
Owned
 
New trailers, used trailers, service and parts distribution
 
Retail
Harrison, Arkansas
 
Owned
 
Manufacturing
 
Diversified Products
Houston, Texas
 
Leased
 
Service and parts distribution
 
Retail
Huddersfield, United Kingdom
 
Leased property/Owned building
 
Manufacturing
 
Diversified Products
Kansas City, Kansas
 
Leased
 
Manufacturing
 
Diversified Products
Kansas City, Missouri
 
Leased
 
Manufacturing
 
Diversified Products
Lafayette, Indiana
 
Owned
 
Corporate Headquarters, Manufacturing and used trailers
 
Commercial Trailer Products, Diversified Products and Retail
Mauston, Wisconsin
 
Leased
 
Service and parts distribution
 
Retail
Miami, Florida
 
Owned
 
New trailers, used trailers, service and parts distribution
 
Retail
New Lisbon, Wisconsin
 
Owned/Leased
 
Manufacturing
 
Diversified Products
Phoenix, Arizona
 
Owned
 
New trailers, used trailers, service and parts distribution
 
Retail
Smithton, Pennsylvania
 
Owned
 
New trailers, used trailers, service and parts distribution
 
Retail
Portland, Oregon
 
Owned/Leased
 
Manufacturing, new trailers, used trailers, service and parts distribution
 
Diversified Products and Retail
Queretaro, Mexico
 
Owned
 
Manufacturing
 
Diversified Products
Sacramento, California
 
Leased
 
New trailers, used trailers, service and parts distribution
 
Retail
San Antonio, Texas
 
Owned
 
New trailers, used trailers, service and parts distribution
 
Retail
Dunmore, Pennsylvania
 
Owned
 
New trailers, used trailers, service and parts distribution
 
Retail
Tavares, Florida
 
Leased
 
Manufacturing
 
Diversified Products
Waxahachie, Texas
 
Leased
 
Used trailers
 
Commercial Trailer Products
West Memphis, Arkansas
 
Leased
 
Service and parts distribution
 
Retail
 
 
25

 
ITEM  3—LEGAL PROCEEDINGS
 
We are involved in a number of legal proceedings concerning matters arising in connection with the conduct of our business activities, and are periodically subject to governmental examinations (including by regulatory and tax authorities), and information gathering requests (collectively, "governmental examinations"). As of December 31, 2013, we were named as a defendant or were otherwise involved in numerous legal proceedings and governmental examinations in various jurisdictions, both in the United States and internationally.
 
We have recorded liabilities for certain of our outstanding legal proceedings and governmental examinations.  A liability is accrued when it is both (a) probable that a loss with respect to the legal proceeding has occurred and (b) the amount of loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and governmental examinations that could cause an increase or decrease in the amount of the liability that has been previously accrued. These legal proceedings, as well as governmental examinations, involve various lines of business and a variety of claims (including, but not limited to, common law tort, contract, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against us specify the damages claimed by the plaintiff, many seek a not-yet-quantified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against Wabash is stated, the claimed amount may be exaggerated and/or unsupported.  As a result, it is not currently possible to estimate a range of possible loss beyond previously accrued liabilities relating to some matters including those described below. Such previously accrued liabilities may not represent our maximum loss exposure. The legal proceedings and governmental examinations underlying the estimated range will change from time to time and actual results may vary significantly from the currently accrued liabilities.
 
Based on our current knowledge, and taking into consideration litigation-related liabilities, we believe we are not a party to, nor is any of our properties the subject of, any pending legal proceeding or governmental examination other than the matters below, which are addressed individually, that could have a material adverse effect on our consolidated financial condition or liquidity if determined in a manner adverse to the Company. However, in light of the uncertainties involved in such matters, the ultimate outcome of a particular matter could be material to our operating results for a particular period depending on, among other factors, the size of the loss or liability imposed and the level of our income for that period. Costs associated with the litigation and settlements of legal matters are reported within General and Administrative Expenses in the Consolidated Statements of Operations.
 
Brazil Joint Venture
 
In March 2001, Bernard Krone Indústria e Comércio de Máquinas Agrícolas Ltda. (“BK”) filed suit against the Company in the Fourth Civil Court of Curitiba in the State of Paraná, Brazil.  Because of the bankruptcy of BK, this proceeding is now pending before the Second Civil Court of Bankruptcies and Creditors Reorganization of Curitiba, State of Paraná (No. 232/99).
 
The case grows out of a joint venture agreement between BK and the Company related to marketing of RoadRailer trailers in Brazil and other areas of South America.  When BK was placed into the Brazilian equivalent of bankruptcy late in 2000, the joint venture was dissolved.  BK subsequently filed its lawsuit against the Company alleging that it was forced to terminate business with other companies because of the exclusivity and non-compete clauses purportedly found in the joint venture agreement.  BK asserted damages, exclusive of any potentially court-imposed interest or inflation adjustments, of approximately R$20.8 million (Brazilian Reais).  BK did not change the amount of damages it asserted following its filing in the case in 2001.
 
 
26

 
A bench (non-jury) trial was held on March 30, 2010 in Curitiba, Paraná, Brazil.   On November 22, 2011, the Fourth Civil Court of Curitiba partially granted BK’s claims, and ordered Wabash to pay BK lost profits, compensatory, economic and moral damages in excess of the amount of compensatory damages asserted by BK.  The total ordered damages amount is approximately R$26.7 million (Brazilian Reais), which is approximately $11.4 million U.S. dollars using current exchange rates and exclusive of any potentially court-imposed interest, fees or inflation adjustments (which are currently estimated at a maximum of approximately $60 million, at current exchange rates, but may change with the passage of time and/or the discretion of the court at the time of final judgment in this matter).  Due, in part, to the amount and type of damages awarded by the Fourth Civil Court of Curitiba, Wabash immediately filed for clarification of the judgment.  The Fourth Civil Court has issued its clarification of judgment, leaving the underlying decision unchanged and referring the parties to the State of Paraná Court of Appeals for any further appeal of the decision.  As such, Wabash filed its notice of appeal with the Court of Appeals, as well as its initial appeal papers, on April 22, 2013.  The Court of Appeals has the authority to re-hear all facts presented to the lower court, as well as to reconsider the legal questions presented in the case, and to render a new judgment in the case without regard to the lower court’s findings.  As of this time, the appeal is pending, the full panel of appeal judges has not yet been assigned, and the parties have not made additional arguments before the Court of Appeals.  Pending outcome of this appeal process, the judgment is not enforceable by the plaintiff.  Any ruling from the Court of Appeals is not expected before the second quarter of 2014, and, accordingly, the judgment rendered by the lower court cannot be enforced prior to that time, and may be overturned or reduced as a result of this process.  The Company believes that the claims asserted by BK are without merit and it intends to continue to vigorously defend its position.  The Company has not recorded a charge with respect to this loss contingency as of December 31, 2013.  Furthermore, at this time, the Company does not have sufficient information to predict the ultimate outcome of the case and is unable to estimate the amount of any reasonable possible loss or range of loss that it may be required to pay at the conclusion of the case.  The Company will reassess the need for the recognition of a loss contingency upon official assignment of the case to a judging panel in the Court of Appeals, upon a decision to settle this case with the plaintiffs or an internal decision as to an amount that the Company would be willing to settle or upon the outcome of the appeals process.
 
Intellectual Property
 
In October 2006, we filed a patent infringement suit against Vanguard National Corporation (“Vanguard”) regarding our U.S. Patent Nos. 6,986,546 and 6,220,651 in the U.S. District Court for the Northern District of Indiana (Civil Action No. 4:06-cv-135).  We amended the Complaint in April 2007.  In May 2007, Vanguard filed its Answer to the Amended Complaint, along with Counterclaims seeking findings of non-infringement, invalidity, and unenforceability of the subject patents.  We filed a reply to Vanguard’s counterclaims in May 2007, denying any wrongdoing or merit to the allegations as set forth in the counterclaims.  The case has currently been stayed by agreement of the parties while the U.S. Patent and Trademark Office (“Patent Office”) undertakes a reexamination of U.S. Patent Nos. 6,986,546.  In June 2010, the Patent Office notified the Company that the reexamination is complete and the Patent Office has reissued U.S. Patent No. 6,986,546 without cancelling any claims of the patent.  The parties have not yet petitioned the Court to lift the stay, and it is unknown at this time when the parties’ petition to lift the stay may be filed or granted.
 
We believe that our claims against Vanguard have merit and that the claims asserted by Vanguard are without merit.  We intend to vigorously defend our position and intellectual property.  We believe that the resolution of this lawsuit will not have a material adverse effect on our financial position, liquidity or future results of operations.  However, at this stage of the proceeding, no assurance can be given as to the ultimate outcome of the case.
 
Walker Acquisition
 
On May 8, 2012, we completed the Walker acquisition pursuant to the Purchase and Sale Agreement for $377.0 million in cash.  In connection with the Acquisition there is an outstanding claim of approximately $2.9 million for unpaid benefits owed by the Seller that is currently in dispute and that is not expected to have a material adverse effect on our financial condition or results of operations.
 
Environmental Disputes
 
Bulk Tank International, S. de R.L. de C.V. (“Bulk”), one of the Walker companies we acquired on May 8, 2012, entered into agreements in 2011 with the Mexican federal environmental agency, PROFEPA, and the applicable state environmental agency, PROPAEG, pursuant to PROFEPA’s and PROPAEG’s respective environmental audit programs to resolve noncompliance with federal and state environmental laws at Bulk’s Guanajuato facility (“Compliance Agreements”).  Bulk completed all required corrective actions and received a Certification of Clean Industry from PROPAEG, and is seeking the same certification from PROFEPA, which the Company expects it will receive following an audit and review to be conducted by PROFEPA in February 2014.    As a result, we do not expect that this matter will have a material adverse effect on our financial condition or results of operations.
 
 
27

 
In January 2012, we were noticed as a potentially responsible party (“PRP”) by the U.S. Environmental Protection Agency (“EPA”) and the Louisiana Department of Environmental Quality (“LDEQ”) pertaining to the Marine Shale Processors Site located in Amelia, Louisiana (“MSP Site”) pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and corresponding Louisiana statutes.  PRPs include current and former owners and operators of facilities at which hazardous substances were allegedly disposed.  The EPA’s allegation that we are a PRP arises out of one alleged shipment of waste to the MSP Site in 1992 from our branch facility in Dallas, Texas.  As such, the MSP Site PRP Group notified us in January 2012 that, as a result of a March 18, 2009 Cooperative Agreement for Site Investigation and Remediation entered into between the MSP Site PRP Group and the LDEQ, we were being offered a “De Minimis Cash-Out Settlement” to contribute to the remediation costs, which would remain open until February 29, 2012.  We chose not to enter into the settlement and have denied any liability.  In addition, we have requested that the MSP Site PRP Group remove us from the list of PRPs for the MSP Site, based upon the following facts.  We acquired this branch facility in 1997 – five years after the alleged shipment - as part of the assets we acquired out of the Fruehauf Trailer Corporation (“Fruehauf”) bankruptcy (Case No. 96-1563, United States Bankruptcy Court, District of Delaware (“Bankruptcy Court”)).  As part of the Asset Purchase Agreement regarding our purchase of assets from Fruehauf, we did not assume liability for “Off-Site Environmental Liabilities,” which are defined to include any environmental claims arising out of the treatment, storage, disposal or other disposition of any Hazardous Substance at any location other than any of the acquired locations/assets.  The Bankruptcy Court, in an Order dated May 26, 1999, also provided that, except for those certain specified liabilities assumed by us under the terms of the Asset Purchase Agreement, we shall not be subject to claims asserting successor liability.  The “no successor liability” language of the Asset Purchase Agreement and the Bankruptcy Court Order form the basis for our request that we be removed from the list of PRPs for the MSP Site.  The MSP Site PSP Group is currently considering our request, but has provided no timeline for a response.  However, the MSP Site PSP Group has agreed to indefinitely extend the time period by which we must respond to the De Minimis Cash-Out Settlement offer.  We do not expect that this proceeding will have a material adverse effect on its financial condition or results of operations.
 
In September 2003, we were noticed as a PRP by the EPA pertaining to the Motorola 52nd Street, Phoenix, Arizona Superfund Site (the “Superfund Site”) pursuant to CERCLA.  The EPA’s allegation that we were a PRP arises out of our acquisition of a former branch facility located approximately five miles from the original Superfund Site.  We acquired this facility in 1997, operated the facility until 2000, and sold the facility to a third party in 2002.  In June 2010, we were contacted by the Roosevelt Irrigation District (“RID”) informing us that the Arizona Department of Environmental Quality (“ADEQ”) had approved a remediation plan in excess of $100 million for the RID portion of the Superfund Site, and demanded that we contribute to the cost of the plan or be named as a defendant in a CERCLA action to be filed in July 2010. We initiated settlement discussions with the RID and the ADEQ in July 2010 to provide a full release from the RID, and a covenant not-to-sue and contribution protection regarding the former branch property from the ADEQ, in exchange for payment from us.  If the settlement is approved by all parties, it will prevent any third party from successfully bringing claims against us for environmental contamination relating to this former branch property.  We have been awaiting approval from the ADEQ since the settlement was first proposed in July 2010.  Based on communications with the RID and ADEQ in December 2013, we do not expect to receive a response regarding the approval of the settlement from the ADEQ for, at least, several additional months.  Based upon our limited period of ownership of the former branch property, and the fact that we no longer own the former branch property, we do not anticipate that the ADEQ will reject the proposed settlement, but no assurance can be given at this time as to the ADEQ’s response to the settlement proposal.  The proposed settlement terms were accrued in 2010 and did not have a material adverse effect on our financial condition or results of operations, and we believe that any ongoing proceedings will not have a material adverse effect on our financial condition or results of operations.
 
In January 2006, we received a letter from the North Carolina Department of Environment and Natural Resources indicating that a site that we formerly owned near Charlotte, North Carolina has been included on the state's October 2005 Inactive Hazardous Waste Sites Priority List.  The letter states that we were being notified in fulfillment of the state's “statutory duty” to notify those who own and those who at present are known to be responsible for each Site on the Priority List.  No action is being requested from us at this time, and we have received no further notices or communications regarding this matter from the state of North Carolina.  We do not expect that this designation will have a material adverse effect on our financial condition or results of operations.
 
ITEM 4—MINE SAFETY DISCLOSURES
 
Not Applicable.
 
 
28

 
PART II
 
ITEM 5MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Information Regarding our Common Stock
 
Our common stock is traded on the New York Stock Exchange (ticker symbol: WNC).  The number of record holders of our common stock at February 20, 2014 was 858.
 
We declared quarterly dividends of $0.045 per share on our common stock from the first quarter of 2005 through the third quarter of 2008.  In December 2008, we suspended the payment of our quarterly dividend due to the continued weak economic environment and the uncertainty as to the timing of a recovery as well as our effort to enhance liquidity.  No dividends on our common stock were declared or paid in 2013.  The reinstatement of quarterly cash dividends on our common stock will depend on our future earnings, capital availability, financial condition and the discretion of our Board of Directors.
 
Our Certificate of Incorporation, as amended and approved by our stockholders, authorizes shares of common stock, par value $0.01 per share, of 200 million shares and all classes of capital stock of 225 million shares, including 25 million shares of preferred stock, par value $0.01 per share.
               
High and low stock prices as reported on the New York Stock Exchange for the last two years were:
 
 
 
High
 
Low
 
2012
 
 
 
 
 
 
 
First Quarter
 
$
11.55
 
$
7.82
 
Second Quarter
 
$
10.38
 
$
5.85
 
Third Quarter
 
$
8.00
 
$
5.65
 
Fourth Quarter
 
$
9.41
 
$
6.19
 
2013
 
 
 
 
 
 
 
First Quarter
 
$
11.00
 
$
9.02
 
Second Quarter
 
$
10.81
 
$
8.19
 
Third Quarter
 
$
11.95
 
$
9.42
 
Fourth Quarter
 
$
12.91
 
$
11.06
 
 
 
29

 
Performance Graph
 
The following graph shows a comparison of cumulative total returns for an investment in our common stock, the S&P 500 Composite Index and the Dow Jones Transportation Index.  It covers the period commencing December 31, 2008 and ending December 31, 2013.  The graph assumes that the value for the investment in our common stock and in each index was $100 on December 31, 2008.
 
Comparative of Cumulative Total Return
December 31, 2008 through December 31, 2013
among Wabash National Corporation, the S&P 500 Index
and the Dow Jones Transportation Index
 
 
 
ITEM 6—SELECTED FINANCIAL DATA
 
The following selected consolidated financial data with respect to Wabash National for each of the five years in the period ending December 31, 2013, have been derived from our consolidated financial statements.  The following information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included elsewhere in this Annual Report.
 
  
30

 
 
 
Years Ended December 31,
 
 
 
2013
 
2012
 
2011
 
2010
 
2009
 
 
 
(Dollars in thousands, except per share data)
 
Statement of Comprehensive Income Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,635,686
 
$
1,461,854
 
$
1,187,244
 
$
640,372
 
$
337,840
 
Cost of sales
 
 
1,420,563
 
 
1,298,031
 
 
1,120,524
 
 
612,289
 
 
360,750
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
$
215,123
 
$
163,823
 
$
66,720
 
$
28,083
 
$
(22,910)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
 
89,263
 
 
68,340
 
 
43,975
 
 
40,545
 
 
40,209
 
Amortization of intangibles
 
 
21,786
 
 
10,590
 
 
2,955
 
 
2,955
 
 
2,955
 
Acquisition expenses
 
 
883
 
 
14,409
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (Loss) from operations
 
$
103,191
 
$
70,484
 
$
19,790
 
$
(15,417)
 
$
(66,074)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
(26,308)
 
 
(21,724)
 
 
(4,136)
 
 
(4,140)
 
 
(4,379)
 
Increase in fair value of warrant
 
 
-
 
 
-
 
 
-
 
 
(121,587)
 
 
(33,447)
 
Loss on debt extinguishment
 
 
(1,889)
 
 
-
 
 
(668)
 
 
-
 
 
(303)
 
Other, net
 
 
2,629
 
 
(97)
 
 
227
 
 
(667)
 
 
(563)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (Loss) before income taxes
 
$
77,623
 
$
48,663
 
$
15,213
 
$
(141,811)
 
$
(104,766)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax (benefit) expense
 
 
31,094
 
 
(56,968)
 
 
171
 
 
(51)
 
 
(3,001)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
46,529
 
$
105,631
 
$
15,042
 
$
(141,760)
 
$
(101,765)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock dividends and early extinguishment
 
 
-
 
 
-
 
 
-
 
 
25,454
 
 
3,320
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) applicable to common stockholders
 
$
46,529
 
$
105,631
 
$
15,042
 
$
(167,214)
 
$
(105,085)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per common share
 
$
0.67
 
$
1.53
 
$
0.22
 
$
(3.36)
 
$
(3.48)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Working capital
 
$
241,775
 
$
221,402
 
$
95,529
 
$
61,427
 
$
(34,927)
 
Total assets
 
$
923,571
 
$
902,626
 
$
388,050
 
$
302,834
 
$
223,777
 
Total debt and capital leases
 
$
370,595
 
$
425,151
 
$
69,821
 
$
59,554
 
$
33,243
 
Stockholders' equity
 
$
322,379
 
$
268,727
 
$
146,346
 
$
129,025
 
$
53,485
 
 
ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) describes the matters that we consider to be important to understanding the results of our operations for each of the three years in the period ended December 31, 2013, and our capital resources and liquidity as of December 31, 2013.  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 three 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 credit facility and 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.  These are the critical accounting policies that affect the recognition and measurement of our transactions and the balances in 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.
 
We have three reportable operating segments: Commercial Trailer Products, Diversified Products and Retail.  The Commercial Trailer Products segment produces trailers that are sold to customers who purchase trailers directly or through independent dealers and to the Retail segment.  The Diversified Products segment focuses on our commitment to expand our customer base, diversify our product offerings and revenues and extend our market leadership by leveraging our proprietary DuraPlate® panel technology, drawing on our core manufacturing expertise and making available products that are complementary to the truck and tank trailers and transportation equipment we offer.  The Retail segment includes the sale of new and used trailers, as well as the sale of aftermarket parts and service through our retail branch network.
 
 
31

 
Executive Summary
 
We were successful in delivering results for 2013 that we consider transformational and are record-setting in several aspects.  With a stable and healthy demand environment for trailers throughout 2013, as evidenced by our 46,800 new trailer shipments during the current year period, our healthy backlog of $711 million as of December 31, 2013, as well as a demand forecast by industry forecasters that remains healthy, we were successfully able to deliver margin improvement through improved product pricing and to recapture lost margins experienced during the previous downturn as well as improve productivity.  More specifically, according to most recent ACT estimates, total new trailer shipments in 2013 totaled approximately 240,000 trailers representing an increase of 1% as compared to the prior year, and representing the third consecutive year that total trailer demand exceeded normal replacement demand levels estimated to be between 175,000 trailers and 200,000 trailers.
 
In addition to our commitment to profitably grow our Commercial Trailer Products segment, our strategic initiatives included a focus on diversification efforts, both organic and strategic, through our Diversified Products segment to enhance our business model, strengthen our revenues and become a stronger company delivering greater value to our shareholders.  Organically, our focus is on profitably growing and diversifying by leveraging our existing assets, capabilities and technology, with our key focus being to successfully apply our industry leading and revolutionary DuraPlate® composite panel technology into higher margin products and markets and thereby provide customer solutions.  Strategically, our focus continues to be to evolve as a diversified industrial manufacturer, profitably growing and diversifying the products we offer, the customers and end markets we serve and strengthening our geographic presence.  The Walker acquisition and the acquisition of certain assets of Beall provided us the opportunity to move forward on this strategic initiative and our long-term plan to become a diversified industrial manufacturer.  Calendar year 2013 includes the first full year impact of the Walker acquisition which provided top-line growth, improved profitability and margin expansion while the purchase of certain assets of Beall provided us the opportunity to have one of the broadest product portfolios in the tank trailer industry with access to additional markets while also expanding our manufacturing footprint.  Our Diversified Products segment has now grown to represent 28% of our consolidated revenues and 54% of our gross profits for the current year period, significantly increasing this segment’s impact to our bottom line. 
 
The outlook for the overall trailer market for 2014 continues to indicate a strong and stable demand environment.  In fact, the most recent estimates from industry forecasters, ACT and FTR Associates (“FTR”), indicate demand levels to be in excess of the estimated replacement demand levels in each of the years through 2018.  More specifically, ACT is currently estimating 2014 demand will increase to approximately 242,000, or 1% compared to the previous year period, with 2015 through 2018 industry demand levels ranging between 242,000 and 259,000 trailers, while FTR anticipates a 2% increase in trailer demand for 2014 to approximately 240,000 trailers.  This continued strong demand environment reinforces our belief that we are still in the early stages of a recovery in the trailer industry, and we believe we are well positioned to capitalize on the expected strong overall demand levels while also achieving continued margin growth through improvements in product pricing as well as operational excellence initiatives. 
 
However, we are not relying solely on volume and product pricing within the trailer industry to improve operations and enhance profitability.  As noted above, through our Diversified Products segment, we remain committed to enhancing and diversifying our business model through the organic and strategic initiatives discussed previously.  Through this operating segment we offer a wide array of products and customer-specific solutions beyond those offered in our Commercial Trailer Products segment that we believe provide a good foundation for achieving these goals.  Continuing to identify attractive opportunities to leverage our core competencies, proprietary technology and core manufacturing expertise into new applications and end markets enables us to deliver greater value to our customers and shareholders.
 
 
32

 
Operating Performance
 
We measure our operating performance in six key areas – Safety, Quality, Delivery, Cost Reduction, Morale and Environment.  We maintain a continuous improvement mindset in each of these key performance areas.  Our objective of being better today than yesterday and better tomorrow than we are today is simple, straightforward and easily understood by all our associates.
 
· Safety/Morale.  The safety of our associates is a core company value.  We continually focus on reducing the severity and frequency of workplace injuries to create a safe environment for our associates 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 2012 and 2013, our manufacturing facilities at Brenner and Walker Stainless, respectively, won the Truck Trailer Manufacturer Association’s Plant Safety Award which recognizes the best safety record amongst the largest tank trailer companies in North America.  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.  During the 2012 calendar year we modified our warranty reporting process to report warranty “units” per 100 trailers as opposed to warranty “claims.”  The new unit based reporting process is a more rigorous approach to documenting failures.  Early life cycle warranty units per 100 trailers shipped averaged approximately 3.6, 7.4 and 3.8 units per 100 trailers in 2013, 2012 and 2011, respectively.  The substantial improvement in 2013 was driven by continuous improvement programs centered on process variation reduction, and responding to the input from our customers.  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, man-hours per trailer 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 focused on productivity enhancements within manufacturing assembly and sub-assembly areas through developing the capability for mixed model production.  We also established a central warehousing and distribution center to improve material flow, inventory levels and inventory accuracy within our supply chain.  The successful implementation of these productivity enhancements supported our ability to effectively manage the recent increases in trailer volumes as well as efficiently produce a wide range of products on fewer assembly lines.
 
· Cost Reduction.  We believe continuous improvement is a fundamental component of our operational excellence focus.  Our continued focus on our balanced scorecard process has allowed us to improve all areas of manufacturing including safety, quality, on-time delivery, cost reduction, employee morale and environment.  Utilizing continuous improvement and our balance scorecard process we have realized total cost per unit reductions by increased capacity utilization of all facilities while maintaining a lower level of fixed overhead.  We also have a tank trailer manufacturing facility in Queretaro, Mexico that provides a low cost advantage for our tank trailer product line, and we recently expanded the paint capacity at our platform manufacturing facility in Cadiz, Kentucky, to allow for increased capacity and decreased per unit operating costs.
 
 
33

 
·
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 at our Lafayette, Indiana facilities.  As one of the first trailer manufacturing operations in the world to be ISO 14001 registered, these facilities have also been awarded membership into the Indiana Department of Environmental Management’s Environmental Stewardship Program (“ESP”).  Both ISO 14001 and ESP require us to demonstrate quantifiable and third-party verified environmental improvements.  Through our facilities we have initiated employee-based recycling programs that reduce waste being sent to the landfill, have installed a fifty-five foot wind turbine to produce electricity and reduce our carbon emissions, and have restored a natural wildlife habitat to enhance the environment and protect native animals.  Our commitment to sustainable operations has also been demonstrated internationally by our Bulk Tank International facility being awarded the Clean Industry Certificate in 2013.
 
Industry Trends
 
Truck transportation in the U.S., according to the ATA, was estimated to be a $642 billion industry in 2012.  ATA estimates that approximately 69% of all freight tonnage is carried by trucks at some point during its shipment.  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.  Transportation in the U.S., including trucking, is a cyclical industry that has experienced three cycles over the last 20 years.  The most recently completed cycle began in early 2001 when industry shipments totaled approximately 140,000, reached a peak in 2006 with shipments of approximately 280,000 and reached the bottom in 2009 with shipments of approximately 79,000 trailers.  In each of these three U.S. economic downturns, the decline in freight tonnage preceded the general economic decline by approximately two and one-half years and its recovery has generally preceded that of the economy as a whole.  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 between 175,000 trailers and 200,000 trailers, the three year period ending December 2013 represented years of significant improvement in which the total trailer market increased year-over-year approximately 67%, 13% and 1% for 2011, 2012 and 2013, respectively, with total shipments of approximately 210,000 and 237,000, and 239,000, respectively.  As we enter the fifth year of an economic recovery, ACT is estimating demand within the trailer industry to increase in 2014 and 2015 to approximately 242,000 trailers and with forecasted demand to remain above 250,000 trailers in 2016 through 2018.  Our view is generally consistent with that of ACT.
 
· Age of Trailer Fleets.  The average age of fleets has remained at historical highs over the past several years as fleets deferred on their capital investments during the most recent industry downturn.  According to ACT, the average age of dry and refrigerated vans in 2013 was approximately 8 years and 6 years, respectively, as compared to 7 years and 5.5 years, respectively, in 2007.  The increase in age of trailers suggests an increase in replacement demand over the next several years. 
 
· New Trailer Orders.  According to ACT, total orders in 2013 were approximately 232,000 trailers, a slight decrease from approximately 239,000 trailers ordered in 2012.  Total orders for the dry van segment, the largest within the trailer industry, were approximately 133,000, which were in line with dry vans ordered in 2012.
 
· 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:
 
 
34

 
- The Federal Motor Carrier Safety Administration (the “FMCSA”) has recently taken steps to improve the overall truck safety standards, particularly by implementing the Compliance, Safety, and Accountability (“CSA”) program.  CSA is considered a comprehensive driver and fleet rating system that measures both the freight carriers and drivers on several safety related criteria, including driver safety, equipment maintenance and overall condition of trailers.  This system drives increased awareness and action by carriers since enforcement actions were targeted and implemented beginning in June 2011.  CSA is generally believed to have contributed to the tightening of the supply of drivers and capacity in 2011 and 2012 as carriers took measures to improve their rating.
 
- The FMCSA issued a final rule in December 2011 on its revised proposal for rule changes in regard to truck driver hours-of-service rules.  The new rule changes include reductions in total driver hours from 82 hours per week to 70 hours and retains the per day limit of 11 hours.  The rule, which went into effect in July 2013, also requires alterations to the required rest period that drivers must follow.  Though this proposal has been met with strong opposition, particularly by the ATA, current estimates indicate these actions could lead to productivity losses ranging from approximately 3% to 5%.  We believe this ruling will increase the general need for equipment and increases the potential that a carrier’s drop-and-hook activities will increase and, therefore, will require a higher ratio of trailer to trucks across the industry.
 
- The FMCSA also issued in January 2011 a proposed rule change requiring the installation and use of Electronic On-Board Recorders for over-the-road trucks and buses that would be used to monitor and enforce the driver hours-of-service rules.  The proposed rule was rejected by the U.S. Circuit Court of Appeals in September 2011 and the FMCSA is working on a revised rule to meet the October 2013 deadline.  The agency indicated in October 2012 it will release a new proposal for the mandate by March 2013.
 
- The California Air Resource Board (CARB) regulations mandate that refrigeration units older than 7 years may no longer operate in California.  As refrigeration units become obsolete, capacity in the refrigerated segment will tighten and the increase in demand for new refrigerated trailers is likely.  CARB regulations also mandate fuel efficiency improvements on all fleets operating in California for which our DuraPlate® AeroSkirt® provides a durable, aerodynamic side panel solution that yields the improved fuel efficiencies required by these regulations.     
 
· 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, including the miniaturization of electronic products and packaging optimization of bulk goods.  Increases in load concentration or density could contribute to decreased need or demand for dry van trailers.
 
- 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.
 
- Although truck driver shortages have not been a significant problem in the past year, constraints are expected to exacerbate as fleet equipment utilization increases due to new government regulations.  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 will continue to be moved by truck and, according to ATA, overall truck activity as a percentage of the total freight industry is expected to increase throughout the next decade.
 
 
35

 
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,
 
 
 
2013
 
 
2012
 
 
2011
 
Net sales
 
100.0
%
 
100.0
%
 
100.0
%
Cost of sales
 
86.8
 
 
88.8
 
 
94.4
 
Gross profit
 
13.2
 
 
11.2
 
 
5.6
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
 
3.6
 
 
3.1
 
 
2.6
 
Selling expenses
 
1.9
 
 
1.6
 
 
1.1
 
Amortization of intangibles
 
1.3
 
 
0.7
 
 
0.2
 
Acquisition expenses
 
0.1
 
 
1.0
 
 
-
 
Income from operations
 
6.3
 
 
4.8
 
 
1.7
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(1.6)
 
 
(1.5)
 
 
(0.3)
 
Loss on debt extinguishment
 
(0.1)
 
 
-
 
 
(0.1)
 
Other, net
 
0.1
 
 
-
 
 
-
 
Income before income taxes
 
4.7
 
 
3.3
 
 
1.3
 
 
 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
 
1.9
 
 
(3.9)
 
 
-
 
Net income
 
2.8
%
 
7.2
%
 
1.3
%
 

2013 Compared to 2012

 
Net Sales
 
Net sales in 2013 increased $173.8 million, or 11.9%, compared to the 2012 period.  By business segment, net external sales and related units sold were as follows (dollars in millions):
 
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
Change
 
 
 
2013
 
2012
 
$
 
%
 
Sales by Segment
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Trailer Products
 
$
1,009.5
 
$
993.9
 
$
15.6
 
1.6
 
Diversified Products
 
 
446.0
 
 
311.0
 
 
135.0
 
43.4
 
Retail
 
 
180.2
 
 
157.0
 
 
23.2
 
14.8
 
Total
 
$
1,635.7
 
$
1,461.9
 
$
173.8
 
11.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Trailers
 
(units)
 
 
 
 
 
 
Commercial Trailer Products
 
 
40,800
 
 
40,800
 
 
-
 
-
 
Diversified Products
 
 
3,000
 
 
2,000
 
 
1,000
 
50.0
 
Retail
 
 
3,000
 
 
2,800
 
 
200
 
7.1
 
Total
 
 
46,800
 
 
45,600
 
 
1,200
 
2.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Used Trailers
 
(units)
 
 
 
 
 
 
Commercial Trailer Products
 
 
4,300
 
 
3,100
 
 
1,200
 
38.7
 
Diversified Products
 
 
100
 
 
100
 
 
-
 
-
 
Retail
 
 
1,300
 
 
1,600
 
 
(300)
 
(18.8)
 
Total
 
 
5,700
 
 
4,800
 
 
900
 
18.8
 
 
Commercial Trailer Products segment sales were $1.0 billion in 2013, up $15.6 million, or 1.6%, compared to 2012.  New trailer shipments in 2013 of $959.1 million and 40,800 trailers were consistent with the previous year period as the increase in segment sales was primarily the result of a $9.9 million, or 42.1%, increase in used trailer sales as compared to the prior year period as approximately 4,300 trailers shipped in 2013 compared to 3,100 trailers shipped in the prior year period.  Parts sales increased by approximately $5.1 million, or 218.0%, as compared to the prior year.  New trailer sales in 2013 were in line with 2012.
 
 
36

 
Diversified Products segment sales were $446.0 million in 2013, up $135.0 million, or 43.4%, compared to 2012.  The increase in sales is primarily due to the acquisitions of Walker and certain assets of Beall, which contributed $128.1 million more in sales during the current year compared to the prior year.  We continue to gain positive momentum in our efforts to diversify our business and increase our market penetration and overall acceptance of our product offerings.
 
Retail segment sales were $180.2 million in 2013, up $23.2 million, or 14.8%, compared to the prior year period.  This increase in sales was partly due to the addition of six tank trailer parts and service locations as a result of the Walker acquisition, generating $11.8 million more in sales during the current year as compared to the prior year.  Excluding the parts and service locations acquired from Walker, Retail segment sales were $149.0 million, an increase of 8.2%, as compared to the prior year.  New trailer sales increased $9.5 million, or 12.9%, as approximately 200 additional units were shipped during the current year as compared to the prior year period.  Parts and service sales were up $7.0 million, or 15.2%.  Used trailer sales decreased $1.9 million, or 13.2%, primarily due to an 18.8% decrease in shipments compared to the prior year period.
 
Cost of Sales
 
Cost of sales for 2013 was $1.4 billion, an increase of $122.5 million, or 9.4%, compared to 2012.  As a percentage of net sales, cost of sales was 86.8% for 2013 compared to 88.8% for 2012.
 
Commercial Trailer Products segment cost of sales, as detailed in the following table, was $932.2 million for 2013, an increase of $8.0 million, or 0.9%, compared to 2012.  As a percentage of net sales, cost of sales was 92.3% for 2013 compared to 93.0% in the prior year period.
 
 
 
Year Ended December 31,
 
Commercial Trailer Products Segment
 
2013
 
 
2012
 
 
 
(dollars in millions)
 
 
 
 
 
 
% of Net
Sales
 
 
 
 
 
% of Net
Sales
 
Material Costs
 
$
741.8
 
73.5
%
 
$
740.2
 
74.5
%
Other Manufacturing Costs
 
 
190.4
 
18.8
%
 
 
184.0
 
18.5
%
 
 
$
932.2
 
92.3
%
 
$
924.2
 
93.0
%
 
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.  Material costs were 73.5% of net sales in 2013 compared to 74.5% for the prior year.  The 1.0% decrease was primarily driven by increases in average selling prices for new trailers as raw material, commodity and component costs remained relatively consistent, and the increase was also partially driven by favorable customer and product mix.  Other manufacturing costs increased $6.4 million in the current year as compared to the prior year resulting from higher variable costs related to the increase in new trailer production volumes.  As a percentage of sales, other manufacturing costs increased slightly from 18.5% in the prior year to 18.8% in 2013.
 
Diversified Products segment cost of sales was $330.9 million in 2013, an increase of $97.9 million, or 42.0%, compared to 2012 primarily resulting from the acquisitions of Walker and certain assets of Beall.  As a percentage of net sales prior to the elimination of intersegment sales, cost of sales was 77.1% in 2013 compared to 78.1% in 2012.  The 1.0% decrease as a percentage of net sales was primarily the result of an increased percentage of net sales from our higher-margined product lines as compared to the previous year.
 
Retail segment cost of sales was $160.0 million in 2013, an increase of $19.8 million, or 14.1%, compared to 2012.  The increase in cost of sales was primarily due to the addition of six tank trailer parts and service locations from the Walker acquisition, which added $9.0 million more in cost of sales during the current year as compared to the prior year, as well as an increase in new trailer shipments.  As a percentage of net sales, cost of sales was 88.8% in 2013 compared to 89.3% in 2012.  This improvement as a percentage of net sales was primarily the result of product mix as an increased percentage of net sales were from the higher margin parts and service product line for the 2013 period as compared to the prior year.
 
 
37

 
Gross Profit
 
Gross profit was $215.1 million in 2013, an improvement of $51.3 million, or 31.3%, from the prior year period.  Gross profit as a percent of sales was 13.2% for 2013 compared to 11.2% for 2012.  Gross profit by segment was as follows (in millions):
 
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
Change
 
 
 
2013
 
2012
 
$
 
%
 
Gross Profit by Segment:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Trailer Products
 
$
77.3
 
$
69.6
 
$
7.7
 
11.1
 
Diversified Products
 
 
115.1
 
 
78.0
 
 
37.1
 
47.6
 
Retail
 
 
20.1
 
 
16.8
 
 
3.3
 
19.6
 
Corporate and Eliminations
 
 
2.6
 
 
(0.6)
 
 
3.2
 
 
 
Total
 
$
215.1
 
$
163.8
 
$
51.3
 
31.3
 
 
Commercial Trailer Products segment gross profit was $77.3 million for 2013 compared to $69.6 million in the prior year period.  Gross profit, prior to the elimination of intersegment sales, as a percentage of sales was 7.2% for 2013 as compared to 6.6% for the prior year period.  The increase in gross profit as a percentage of net sales was primarily driven by improved pricing necessary to recapture lost margins.
 
Diversified Products segment gross profit was $115.1 million for 2013 compared to $78.0 million for the prior year period.  The increase in gross profit was due primarily to the acquisition of Walker.  Gross profit, prior to the elimination of intersegment sales, as a percentage of sales was 22.9% in 2013 compared to 21.9% in 2012.  The 1.0% increase as a percentage of net sales was largely the result of the inclusion of Walker for the entire year of 2013, as well as improved customer and product mix for our composite product offerings as compared to the prior year.
 
Retail segment gross profit was $20.1 million for 2013, an increase of $3.3 million compared to 2012.  Gross profit, prior to the elimination of intersegment sales, as a percentage of sales for 2013 was 11.1% compared to 10.6% for the prior year period.  As compared to the prior year period, the 19.6% increase in gross profit is primarily due to a 22.7% increase in parts and service sales and a 12.9% increase in new trailer sales.  In addition, gross profit as a percentage of sales increased 0.5% due to increased sales from our higher-margined product lines as compared to the previous year.
 
General and Administrative Expenses
 
General and administrative expenses of $58.7 million for 2013 increased $13.9 million, or 31.1%, from the prior year.  The increase was largely due to the inclusion of a full year of expenses of Walker, which added expenses of approximately $13.7 million during the current year period as compared to approximately $9.9 million in the prior year, and the inclusion of expenses of Beall since February 4, 2013, the date of acquisition.  In addition, employee related costs, excluding Walker and Beall, increased $5.3 million in the current year period due to higher salaries and other employee related costs, including employee incentive programs.  The remainder of the increase is primarily attributable to higher outside professional fees and technology costs.  As a percentage of sales, general and administrative expenses increased to 3.6% for the current year as compared to 3.1% for the prior year period.
 
Selling Expenses
 
Selling expenses were $30.6 million for 2013, an increase of $7.0 million, or 29.7%, compared to the prior year, primarily due to the inclusion of a full year of selling expenses of Walker, which added expenses of approximately $14.1 million during the current year as compared to approximately $9.2 million in the prior year and the inclusion of selling expenses of Beall since February 4, 2013, the date of acquisition.  In addition, employee related costs, excluding Walker and Beall, increased $1.6 million in the current year due to employee incentive programs.  As a percentage of net sales, selling expenses were 1.9% for 2013 compared to 1.6% for the prior year.
 
 
38

 
Amortization of Intangibles
 
Amortization of intangibles was $21.8 million for 2013, an increase of $11.2 million, or 105.7%, as compared to the prior year due to amortization expense recognized for intangible assets recorded from the acquisitions of Walker and certain assets of Beall.
 
Acquisition Expenses
 
Acquisition expenses totaling $0.9 million for 2013 represent acquisition related costs incurred in connection with the acquisitions of Walker and certain assets of Beall.
 
Other Income (Expense)
 
Interest expense for 2013 totaled $26.3 million, an increase of $4.6 million from the prior year, primarily due to interest and non-cash accretion charges related to our Convertible Senior Notes and Term Loan Credit Agreement, as amended, entered into in connection with the Walker acquisition.
 
Loss on debt extinguishment represents the write-off of debt issuance costs recognized in connection with the amendment to our Term Loan Credit Agreement and $60 million of voluntary principal payments made on our Term Loan Credit Agreement during 2013.
 
Other, net for 2013 includes interest income of $2.1 million primarily due to the recovery of interest on past due accounts receivable.
 
Income Taxes
 
We recognized income tax expense of $31.1 million in 2013 compared to a benefit of $57.0 million in the prior year.  The effective tax rate for 2013 was 40.1%, which differs from the U.S. Federal statutory rate of 35% primarily due to the impact of state and local taxes.  During the fourth quarter of 2012, we released $59.9 million of valuation allowance against our net deferred tax assets.  Therefore, income tax expense for 2012 reflected the utilization of valuation allowance for federal, state and local income taxes resulting in an effective tax rate less than the U.S. Federal statutory rate of 35%.  As of December 31, 2013, we had an estimated $28 million of remaining U.S. Federal income tax net operating loss carryforwards, which will begin to expire in 2029 if unused, and which may be subject to other limitations under IRS rules.  We also have various multi-state income tax net operating loss carryforwards, which have been recorded as a deferred income tax asset, of approximately $8 million, before valuation allowances.  We also have various U.S. Federal income tax credit carryforwards which will expire beginning in 2023, if unused.  For 2014 we estimate our effective tax rate to be approximately forty percent and as our remaining income tax net operating loss carryforwards are fully utilized, we anticipate an increase in our cash tax payments in 2014 as compared to 2013.  Cash taxes paid in 2013 were approximately $0.9 million.

 

2012 Compared to 2011

 
Net Sales
 
Net sales in 2012 were $1.5 billion, an increase of $274.7 million, or 23.1%, compared to 2011.  By operating segment, net external sales and related trailers sold were as follows (dollars in millions):
 
 
39

 
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
Change
 
 
 
2012
 
2011
 
$
 
%
 
Sales by Segment
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Trailer Products
 
$
993.9
 
$
1,010.1
 
$
(16.2)
 
(1.6)
 
Diversified Products
 
 
311.0
 
 
52.0
 
 
259.0
 
498.1
 
Retail
 
 
157.0
 
 
125.1
 
 
31.9
 
25.5
 
Total
 
$
1,461.9
 
$
1,187.2
 
$
274.7
 
23.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Trailers
 
(units)
 
 
 
 
 
 
Commercial Trailer Products
 
 
40,800
 
 
44,800
 
 
(4,000)
 
(8.9)
 
Diversified Products
 
 
2,000
 
 
-
 
 
2,000
 
-
 
Retail
 
 
2,800
 
 
2,800
 
 
-
 
-
 
Total
 
 
45,600
 
 
47,600
 
 
(2,000)
 
(4.2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Used Trailers
 
(units)
 
 
 
 
 
 
Commercial Trailer Products
 
 
3,100
 
 
2,100
 
 
1,000
 
47.6
 
Diversified Products
 
 
100
 
 
-
 
 
100
 
-
 
Retail
 
 
1,600
 
 
1,600
 
 
-
 
-
 
Total
 
 
4,800
 
 
3,700